study was significantly influenced by several situations where clinical investigations were not commenced for many years after the composition and its end use were known, and jumps to 11.6 years when these situations are eliminated. PMA claims that this observation is irrelevant since the patent extension legislation would restore only such time as is lost after the patent issues. Šignificantly, in disputing the relevance of this finding, PMA is in the embarrassing position of disputing one of the key findings in the Eisman and Wardell study on which it has so heavily relied until this point. That study concluded that the starting date of clinical testing is an important factor which influences effective patent life. Wardell also found that for the twelve-year period from 1968 to 1979, for unknown reasons, declining effective patent life can be explained, in part, by a later starting date for clinical testing in relation to the patent application filing date. Rep. Albert Gore, Jr. (D-Tenn.) has correctly observed that these facts demolish PMA's argument that the decline in effective patent life is due solely to delay caused by regulatory review.

Clearly, the search for the definition of "effective patent life," or the belief that meaningful statistics may be developed to establish that it is shrinking as a result of government regulation, is an exercise in futility. Each product has its own unique development, commercialization, and patent history, which makes any generalization in this area highly suspect. An average effective patent life figure which is derived solely by subtracting the NDA approval date from the patent expiration date without considering that history has no validity.

The Proposed Legislation Is Seriously Defective

Senate Bill S. 255 provides that "... the term of a patent which encompasses within its scope a product, or a method for using a product, subject to a regulatory review, shall be extended by the amount of time equal to the regulatory review...." The term "regulatory review" is defined as the date of initiation of a "major health or environmental effects test," a term defined as an experiment which requires at least six months to conduct. Accordingly, with respect to therapeutic compositions, the extension period would usually commence with the long-term animal toxicity test which precedes the human clinical investigation phase of drug development.

The legislation also provides that the regulatory review period will not be deemed to have started until the patent is actually granted, even though tests which would qualify as regulatory review tests were started prior to that date. Finally, the legislation would go into effect immediately for all therapeutic compositions currently under "regulatory reveiw," although the starting date for measuring the length of the extension

would be the effective date of the legislation.

The interaction between the proposed legislation and some of the basic patent and commercial practices discussed in earlier sections of this paper will clearly result in benefits which go far beyond curing any real or imagined inequity caused by current regulatory practice. The legislation will actually create broad, new, and unwarranted monopoly power. The following are some of the most obvious flaws in the legislation:

• The starting point for measuring the length of an extension precedes, by a wide margin, the date on which any reasonable and prudent businessman would place a product on the market in the total absence of any regulatory review. Surely, the entire period of long-term animal toxicity testing and clinical investigation cannot be characterized as a "delay" caused by government regulation.

• The legislation actually rewards delay. As previously noted, effective patent life is shortened when there is a long lapse between the patent application filing date and the commencement of clinical investigations. The legislation provides an incentive for lengthening rather than shortening the gap between these two dates since the regulatory review period is not considered to have started until a patent is actually granted. Accordingly, an innovator who is diligent in commencing a clinical investigation while a patent application is still pending would receive a shorter extension, whereas a party who delays "regulatory review" activities until a patent is granted would actually receive a longer patent

extension.

The regulatory review process normally relates to a single specific compound and is designed to seek approval to market that compound for a specifically defined end use or indication. As previously noted, patent claims are normally far broader in scope. Thus, a patent which claims a broad hypothetical formula encompassing thousands of compounds would be entitled to an extension, even though the specific compound or end use which is the subject of subsequent regulatory review was not disclosed in the patent. 10 Obviously, the availability of extensions under these circumstances will encourage the filing of even broader and more speculative patent applications and will eventually serve to convert patents from disclosure documents into research proposals. The research "preserve" carved out by such broad and speculative patents, coupled with a patent having a twenty-four year life, will surely serve to discourage third party investigation into the area defined by the patent.

• The extension legislation may induce the owner of a patent covering a commercially significant product to invest the time and money needed to obtain regulatory approval of some commercially insignificant new therapeutic use because the patent extension would apply to the

product, and not merely the specific new use which is subject to regulatory review. S. 255 contains the following limitation with respect to the scope of any patent extension:

The rights derived from any claim or claims of any patent so extended shall be limited in scope during the period of any extension to the product or method subject to the regulatory review period and to the statutory use for which regulatory review was required.

Since the extended rights are limited to "the product or method" and not "the product and method" which is subject to regulatory review, a product patent claim would be enforceable against all methods of using that product for therapeutic purposes, both old and new, during the period of any extension. The prospect of seven additional years of monopoly prices on an important drug such as Valium can certainly justify a large expenditure of research dollars on an unimportant new use for that composition as a means of extending patent life for the commercially significant old uses.

Moreover, as a result of experience gained by the medical community in using an approved drug for an approved indication, it is not uncommon for significant new therapeutic uses to be discovered, and these discoveries need not necessarily result from the efforts of the original patent owner. The discovery that Inderal (propranolol) is useful in limiting the size of a heart attack among high risk patients is a recent example of such a discovery which was funded by the government. Is the owner of the Inderal patent now properly entitled to up to seven years of additional patent protection on the product simply because it now files an NDA for the independently discovered new end use? Is there any justification for granting an extension of a scope that would provide monopoly power and monopoly prices over the original end uses of Inderal as to which the innovator has already obtained the full benefits of a patent monopoly? Will companies other than the original patentees invest time and money in developing new uses for previously patented drugs, if the discovery of those new uses will lead to extensions of the original patents, thereby blocking them from commercially exploiting the new uses? The legislation does not even recognize that these problems exist, let alone deal with them in any effective manner.

To the extent that government regulation causes delay in bringing products to market, that problem should be addressed and solved. The solution to the problem does not, however, reside in tampering with the patent system in a manner which will create broad new monopoly rights that extend well beyond any real or imagined problem caused by premarketing regulation of drug products.

NOTES

1. Motion Picture Patents Company v. Universal Film Manufacturing Co., 243 U.S. 871, 876 (1917).

2. In most other industrialized countries, the one year grace period does not exist, and any disclosure or use prior to filing a patent application bars the patent grant. Since most pharmaceutical patent applications are filed internationally, it is normally the international rules which control the decision as to when applications are filed.

3. The "first to file" rule is essentially absolute in most other patent systems.

4. Application of Anthony, 414 F2d 1383 (C.C.P.A. 1969).

5. Anderson, "Patent Term Restoration," APLA Journal 8, no. 4, p. 198.

6. The patent extension legislation would clearly encourage the early filing of broad, speculative patent applications on products of unknown commercial value, since it would permit the patent owner to recapture up to seven years of the time lost as a result of the fact that the commercial embodiment of the alleged invention was unknown when the initial patent application was filed.

7. See U.S. Patent No. 3,507,861 issued April 21, 1970, and U.S. Patent No. 3,655,656 issued April 11, 1972.

8. U.S., Congress, House, Hearings before the Committee on Science and Technology, Subcommittee on Investigations and Oversight, February 4, 1982.

9. Martin M. Eisman and William Wardell, "The Decline in Effective Patent Life of New Drugs," Research Management, January 1981, p. 18.

10. The extension would be limited in scope to the specific product which was subject to regulatory review, but this limitation in the legislation would, nevertheless, permit an extension for an undisclosed product which happens to fall within the scope of a broad patent claim.

THE IMPORTANCE OF PATENT TERM RESTORATION TO SMALL, HIGH TECHNOLOGY COMPANIES

Thomas D. Kiley

T

he importance of patents and of a strengthened patent incentive to the small, high technology company is difficult to overstate. When under the umbrella of patent protection, a small company can compete on the strength of its innovative capability with larger, older, and more entrenched concerns, the patent system operates to best purpose as an essentially procompetitive mechanism.

Nothing in my experience has been more instructive with regard to the vital role patents play in our free enterprise system than the opportunity I have had to look at the world from the vantage point of the small start-up company. Although surrounded by trees that cast great shade, we at Genentech are seeking our own place in the sun, and we expect that the availability of meaningful patent protection will help us do it. Thus, we strongly support patent term restoration legislation as should every small company whose competitive edge lies in its innovative capabilities and whose activities must undergo regulatory review before the onset of commercialization.

My thesis is straightforward. Innovation is important. It arises most frequently in the small, entrepreneurial company context.' Patent term restoration will make patent protection more meaningful. More meaningful patent protection will permit small companies to flourish and grow, where otherwise they might not. Conditions that encourage the growth of start-up companies also encourage investment in them, and therefore investment in innovation. The formation of small, innovative companies that can grow up under the shelter of patent protection only enhances competition, by increasing the number of market entrants and by the downward pressure the new products of innovation exert on the prices of older products. The genius of the patent term restoration legislation

Mr. Kiley is vice-president and general counsel of Genentech, Inc. in South San Francisco, California. On 30 April 1981, Mr. Kiley testified before the Senate Judiciary Committee in support of patent term restoration legislation.