In Association for Molecular Pathology v. Myriad Genetics, the Supreme Court offered a Solomonic decision regarding whether human genes constitute patent-eligible subject matter. Specifically, the case dealt with the patentability of claims covering the BRCA-1 and BRCA-2 genes that contain a mutation that significantly increase the risk for a person to develop breast and ovarian cancer. Angelina Jolie’s recent preemptive double mastectomy brought greater attention to this issue. Indeed, the actress specifically mentioned the high cost of screening for these mutations in her op-ed to The New York Times.

The Supreme Court confronted two different claims within the relevant patent. Some claims covered isolated DNA sequences. Isolated DNA segments have the same sequence as would be found within the human body. They contain the “exons” (parts of DNA that will code for proteins) and “introns” (parts that do not directly code for a protein). Other claims in the patent were specific to complementary DNA (cDNA), which is a segment of DNA that includes only the portion that codes for a protein. The intron, “junk” DNA has been removed.

The Supreme Court held that isolated DNA sequences are not eligible for patent protection because they are merely products of nature. These DNA strands were not created by any person but instead were merely uncovered them. As the Court noted, “[g]roundbreaking, innovative, or even brilliant discovery does not by itself” qualify for patent protection. The Court determined, however, that cDNA is patent eligible. These segments do not occur naturally and require human intervention to remove the introns from the sequence.

The decision strikes a balance between the needs of medical clinicians to perform genetic screening and biotechnology companies. Screening for these mutations involves the isolated DNA, not cDNA, which will allow others to perform genetic testing. The competition will reduce the costs of such screening. Indeed, within days of the decision, other laboratories were offering BRCA-1 and BRCA-2 screening at a greatly reduced cost. The exclusion of isolated DNA will also remove obstacles from researchers performing whole genomic sequencing. The use of cDNA, however, is important in the development of other biotechnology products.

Importantly the decision will have an impact on non-human gene patents as well. The reality is, however, that many of these gene patents represent relatively old technology. The Myriad patents, for example, are set to expire in the near future anyway. The impact of the decision on personalized medicine and patents on various protein structures remains to be seen, but the sky certainly has not fallen on the biotechnology industry.

FTC v. Actavis

In Federal Trade Commission v. Actavis, Inc., the Supreme Court concluded that settlements between patent holders and generic pharmaceutical companies are not immune from antitrust scrutiny. In the settlement of a typical patent infringement case, an accused infringer pays the patent owner some level of damages and either takes a license or stops the activity accused of infringement. In these so-called “reverse payment” cases, however, the patent owner pays the accused infringer (the generic company). Such payment is accompanied by an agreement on the part of the generic company to remain off the market for a period of time. This dynamic has led commentators to pejoratively refer to these cases as “pay for delay” settlements. As with any settlement, the patent at issue is then no longer subject to a validity challenge. Thus these settlements can act to protect a patent from being invalidated. Such a settlement therefore can be a mechanism to shield a weak patent from challenge. Once a patent is invalidated, it is no longer enforceable against anyone. In the pharmaceutical context, this means that generic companies can enter the market far more readily once they have obtained regulatory approval.

The Supreme Court, rejecting the view of a number of lower appellate courts, concluded that these settlements are not presumptively legal. The Supreme Court also rejected the approach of the U.S. Court of Appeals for the Third Circuit, which had found such agreements presumptively illegal. Instead, the Supreme Court held that the “rule of reason” approach should be used to assess the anticompetitive consequences of these agreements and whether these consequences violate antitrust law.

Although the “rule of reason” is well-known in antitrust law, the Court’s language in the opinion suggests that this “rule of reason” test will in fact differ significantly from that rules application in other contexts. In particular, the Court suggested that the extent of the reverse payment may suggest the likelihood that the patent is invalid: the more the patentee is willing to pay to settle, the more likely it is seeking to immunize a patent likely to be validated. The veracity of this correlation seems suspect, but nevertheless the language suggests the Court would permit somewhat truncated analyses in this context.

The case thus pitted pits two important policies against each other: the interest in prompt resolution of disputes through settlement and the interest in encouraging generic companies to challenge patents so that generic products can enter the market more readily. The court favored the latter. The consequences at present are unclear, but the decision could result in fewer settlements of these cases. Both patent owners and generic companies may fear exposure to antitrust liability for settling the case. Of course, fewer settlements may result in more challenges to patents that should be invalidated, clearing out bad patents from the market. An additional consequence likely will be greater complexity in these settlements. If the parties can suggest that the reverse payments is not for delay but instead for some other benefit received by the patent holder, then the settlement is less likely to be found anticompetitive.