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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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« Sitting Through Some Chemistry | Main | Science Marches On »

July 20, 2005

Arr, Me Hearties!

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Posted by Derek

Reader SP sends along this speculation:

"Something that comes up every now and then when discussing IP issues and freedom to operate is to dream about having a ship or island that's in international waters and free from all international patent laws.  Obviously you can't sell things made on the ship in any country that are covered by composition of matter, but any patented processes could be performed there, and people who wanted to use patented matter could go there for treatment. . ."

He passes along a link to this blog, which is discussing this news item. There's an outfit called SeaCode that plans to anchor a ship just outside US waters off Los Angeles, stock it full of coders, and crank out software at outsourcing prices (while staying in the same time zone as Silicon Valley.)

And the thing is, something similar to SP's idea already goes on. Multinational US companies, for example, run assays in Europe if they're blocked by a US patent. And there's Panlabs, part of MDS Pharma Services. They run all sorts of assays for you, hundreds of the things, and some of them are clearly covered by other people's patents in some of their customer service zones. But they have that taken care of by being all over the place, including some spots that many assay patents don't necessarily reach (Taipei, to pick a big example, where their main assay lab is.)

The difference between this sort of thing and SeaCode is that the assay companies aren't primarily driven by labor costs. Larger companies use them because they don't keep all these screens running all the time, and it's a convenient one-stop way to profile interesting compounds. (Including, of course, some assays that you probably just can't run.) But they're not particularly cheap, although when you work out the cost of establishing a new assay of your own, they don't look as bad. . .

Comments (2) + TrackBacks (0) | Category: Patents and IP


1. SRC on July 21, 2005 12:59 AM writes...

"Something that comes up every now and then when discussing IP issues and freedom to operate is to dream about having a ship or island that's in international waters and free from all international patent laws. Obviously you can't sell things made on the ship in any country that are covered by composition of matter, but any patented processes could be performed there...

Nope - no need for composition of matter claims. Things made by a patented process can't be sold in the U.S., regardless of where the process was practiced.

35 USC 271(g):

Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent.

So one could only practice, e.g., assays and such, as Derek mentioned, that generate no product.

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2. Dennis Waters on July 21, 2005 10:06 AM writes...

This was the subject of an article in Genome Technology magazine early last year, with a twist involving the output of a patented process as data. A bit long, but I reproduce it in its entirety below:

Legal Probe
Outside the Law

by Meredith Salisbury

Is data a product? The court says no, leaving patent kings like Affy exposed to competitors who use their IP in countries where it’s not protected

The question some onlookers have is, why has Affymetrix never sued NimbleGen? It’s a fair question — but one that might now be moot in light of a court ruling handed down last August.

The Madison, Wis.-based NimbleGen, which produces custom microarrays, operates a service-only model, and does so from a facility in Iceland. While a number of economic factors went into choosing that location, according to newly minted CEO Stan Rose, a significant one related to IP. If NimbleGen performed its array studies in the US, or anywhere else that Affy’s patent portfolio on microarray technology extends to, the company might have to pay for a license — and pass that cost on to customers. “None of the intellectual property that’s relevant to our business that exists in places like the EU or in the US exists in Iceland,” Rose says. “There are no costs that we need to pass on to customers associated with royalties under patents that do exist in other parts of the world.”

Like many companies obtaining patents, Affy chose to apply for protection only in the usual places, making it perfectly legal in countries like Iceland for others to use Affy’s technology without obtaining a license.

In other industries, that could be a problem for the company setting up shop in Iceland. Say Meredith Industries established a business in Iceland — or any other patent-free hotspot — and began producing light bulbs that are actually patent-protected in the US. Meredith Industries could happily sell those light bulbs in Iceland, but US Congress has passed laws making it patent infringement if Meredith Industries tries to ship the light bulbs to the US and sell them there.

At face value, it appears that NimbleGen is doing precisely that — using certain methods protected by US and other patents, contracting with customers, and then shipping the resulting data back to those customers in protected areas. However, a recent case known as Bayer v. Housey decided by the Court of Appeals for the Federal Circuit says that if the result of a patented process is information rather than a physical product, it’s not patent infringement.

Naturally, Affy had a keen interest in the Housey case and filed an amicus brief on behalf of itself, Perlegen Sciences, and Symyx Technologies, arguing that patent law didn’t differentiate between physical products and information products. The ruling to exclude data from protection “threatens to substantially undermine [our] patent rights and the patent rights of many other owners of US process patents,” according to the brief. It goes on to argue that “the United States has shifted from a manufacturing-based to an information-based society, and that informational products are now a cornerstone of the US economy.”

To be sure, NimbleGen isn’t the only company pursuing creative alternatives to dealing with potential IP conflict. And with the Housey verdict standing, it appears likely that this will become an increasingly popular trend.

But IP attorney Kenneth Sonnenfeld, a partner at Morgan & Finnegan, contends that this hotly debated issue will continue to play out in the courts or in Congress. He points out that business method patents, which protect processes for doing business (such as Priceline’s auction system) rather than tangible products, were introduced just five years ago and represent the ever-changing patent landscape. “It’s not unreasonable to think that at some point someone might make an argument [or] that a court might say this is not so different, that if you have a patent that identifies very valuable data through a very valuable process [it should be fully protected].”

For now, it seems that NimbleGen’s model is a safe bet. But it will be up to each potential customer to evaluate whether the risk of a future lawsuit, however small, is worth the data. “It’s hard to know at any one time where things are going,” Sonnenfeld says. “I don’t think this is the last time someone may try and make this argument.”

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