A petition has been filed with the U.S. Supreme Court, which challenges the constitutionality of the appointments of more than two-thirds of the USPTO’s board of patent appeals and interferences ("BPAI") judges, reported The National Law Journal.

The National Law Journal reported on the filing of the petition as follows:

The company’s petition, drafted by veteran high court litigator Robert Long of Washington’s Covington & Burling, contends that one of the three panel judges in its case was named to the board in violation of the Constitution’s appointments clause. Translogic Technology v. Dudas, No. 07-1303. . . .

Such a constitutional flaw, if legitimate, could call into question the hundreds of decisions worth billions of dollars in the past eight years. The flaw, discovered by highly regarded intellectual property scholar John Duffy of George Washington University Law School, could also afflict the appointment of nearly half of the agency’s trademark appeals judges.

According to The National Law Journal, forty of the sixty-one of the BPAI judges were appointed after March 29, 2000, which was the date when a law changing the appointment process came into effect.

The National Law Journal reported:

The Intellectual Property and Communications Reform Act of 1999, according to Duffy, was intended to give more authority and status to the director of the PTO, but also to keep the agency firmly within the Department of Commerce. A provision of the act transferred the power to appoint BPAI judges from the secretary of Commerce to the PTO director.

BPAI judges exercise "significant authority," argue Duffy, Long and others, and qualify as "inferior officers" under the appointments clause. The clause requires that inferior officers be appointed either by the president, the courts of law or heads of departments. The PTO director is not a head of a department.

Given the large number of judges appointed after March 2000, Duffy said, the odds are that the vast bulk of appeals since then had at least one invalidly appointed judge sitting on the panel.

With respect to the current petition, Long has is arguing that the Supreme Court should vacate the BPAI decision in the Translogic case; however, he denies that such an action by the Supreme Court would call into question all of the decisions by the BPAI since 2000. 

The National Law Journal states as follows:

[Long] contends that the de facto officer doctrine does not apply, and that the PTO’s claim — that failure to apply it would cast a cloud over "many thousands of Board decisions" — is inaccurate.

"Our position is this affects only decisions that are still subject to a direct appeal — those pending in the Federal Circuit or in the Supreme Court — a much smaller group. . . . "

We will continue to follow this matter as it develops, and keep you posted here at the California Biotech Law Blog.

The Senate has unanimously passed the Genetic Information Non-Discrimination Act, which would prohibit genetic discrimination in employment and health insurance coverage decisions, reported the Associated Press.

The Associated Press reported:

The bill, described by Sen. Edward Kennedy as "the first major new civil rights bill of the new century," would bar health insurance companies from using genetic information to set premiums or determine enrollment eligibility. Similarly, employers could not use genetic information in hiring, firing or promotion decisions.

This is not the first time that the Senate has passed genetic non-discrimination legislation: bills were passed unanimously by the Senate in 2003 and 2005, but the House did not act to pass the bills at that time.  The House, however, passed a version of the bill last year. 

The Associated Press reported:

Senate action on [the] legislation has been slowed by Sen. Tom Coburn, R-Okla., who joined some business groups in warning that the bill could encourage a flood of lawsuits.

A compromise worked out earlier this week tightens language to ensure there is a "firewall" between the part dealing with health plans and the section regarding employment, so as to discourage inappropriate claims.

It also makes clear that, while individuals are protected from discrimination based on genetic predisposition, insurance companies still have the right to base coverage and pricing on the actual presence of a disease.

The California Biotech Law Blog will continue to follow this legislation as it is considered by the House.   

The SBIR/STTR Reauthorization Act, H.R. 5819, has passed in the House and is now headed to the Senate; the biotech industry will be pleased to hear that the House has given them exactly what they asked for in this bill, according to Rick Shindell of the SBIR Gateway.

The SBIR Gateway reported on the House’s action as follows:

The voting on the amendments was a virtual "lovefest" with the results known ahead of time. There was absolutely no opposition on any amendments that were allowed to be offered. BIO’s VCs got everything they wanted and more with Sam Graves’ amendment to strike Title II (Venture Capital Investment Standards). Two important amendments were withdrawn (because they stood no chance of passage) and a few simply weren’t allowed to be accepted by the rules committee. . . .

Many SBIR advocates believe this is a bad bill that will be severely leveraged by the BIO/VC community. However, some other credible sources who deal in the DoD world think I may be presenting too severe of a worst case scenario.

SBIR Gateway reports that the highlights of the new bill include as follows:

• The set aside remains at 2.5% SBIR and .3% STTR
• 3% of the 2.5% will come off the top for agency administrative funds
• Phase I Awards $300k Phase II Awards $2.2m
• Agencies have the flexibility to award more $$ and consecutive phase IIs as they see fit
• Ability to apply for a phase II award without having received a phase I award
• Shortening of the time to receive the award
• More frequent solicitations and topics (at agency discretion)
• Notification of the right of a debrief
• Establishment of an SBIR advisory board
• Ability to crossover between SBIR and STTR
• Increase in commercialization assistance funding
• New FAST program funded at $10m

In addition, SBIR Gateway reports that the bill will include the following preferences and priorities:

• Areas that have lost major source of employment
• Preference to organizations making significant contributions towards energy efficiency
• Priority to veteran companies
• Special consideration to pressing transportation and infrastructure research activities
• Special consideration for energy related research topics
• Special consideration for rare-disease-related research topics
• Priority to rural areas
• Preference in FAST awards for SBDC applicants that are accredited for technology services  

Thus, it appears that the first round in this reauthorization battle goes to the biotech community.   We will keep you posted as to how the reauthorization battle unfolds in the Senate.

The California Supreme Court has overturned a $200 million punitive damage award against Genentech in the City of Hope National Medical Center case.  A copy of the opinion is attached.

The San Francisco Business Times reported on the ruling as follows:

Because of the court’s decision, Genentech (NYSE: DNA) will still pay out about $475 million in the second quarter of 2008, which includes $300 million in compensatory damages and interest since the original jury decision in 2002. . . . the removal of punitive damages will save Genentech about $315 million when interest is factored in.

The suit, filed in 1999, was over a 1976 research agreement in which Genentech paid royalties to the hospital. A first trial ended in a hung jury in October 2001. In a retrial verdict in 2002, South San Francisco-based Genentech was ordered to pay $300 million in royalties and $200 million in punitive damages.

The California court’s decision will likely be viewed with a sense of relief by the California business community, which was stunned by the 2005 damage award against Genentech for breach of contract..  It is highly unusual for punitive damages to be awarded in a breach of contract case, and of course, the concern was that this decision would set a new precedent.

Bloomberg.com reported on the history of the dispute between the parties:

The dispute between Genentech and City of Hope involves a research relationship more than 30 years ago. Doctors Arthur Riggs and Keiichi Itakura, who began working under contract with Genentech in 1976, produced human insulin two years later. The contract gave Genentech, then a fledgling company, the patents on the techniques used by Riggs and Itakura. In exchange, City of Hope was to receive a 2 percent royalty on sales of products that resulted from the patents. A dispute arose over the products covered by the contract.

City of Hope said it deserved royalties from 35 patent license agreements between Genentech and 22 other companies including Shering-Plough Corp. and American Home Products Corp. The center sued Genentech for breach of contract and fiduciary duty in 1999.

Genentech said in 2002 that it owed royalty payments to City of Hope only for sales of products made using DNA produced by the center and containing the patented technology from the sponsored research. The company said it paid City of Hope more than $300 million over 20 years.

A jury ruled against Genentech and awarded City of Hope compensatory damages and punitive damages. A state appeals court in Los Angeles upheld the jury’s verdict in 2004 and the California Supreme Court agreed to review the case in 2005.

What was the basis for today’s California Supreme Court ruling?  An excerpt from the opinion explains the Court’s decision as follows:

[W]e conclude that the trial court erred here in instructing the jury that a fiduciary relationship is necessarily created when a party, in return for royalties, entrusts a secret idea to another to develop, patent, and commercially develop.  Because fidicuary duties do not necessarily arise from this type of relationship, City of Hope’s only theory at trial for claiming a fiduciary relationship with Genentech was legally invalid, and therefore the judgment against Genentech is defective insofar as it is based on the jury’s finding that Genentech breached fiduciary duties owed to City of Hope. . . . .The only other ground for the jury’s imposition of liability against Genentech was the jury’s finding that Genentech had breached its contract with City of Hope.  Because punitive damages may not be awarded for breach of contract. . . .the award of punitive damages must be set aside.

The Recorder noted in an article that it ran last fall that the case between Genentech and City of Hope had been plagued by delays:

 Both parties [in the case] had fully briefed the case by December 2005, and 21 amicus curiae briefs had been filed and responded to by April 2006. Still, the court hasn’t set an oral argument date for City of Hope National Medical Center v. Genentech Inc., S129463.

Some court watchers are baffled by how long the case has languished. . . .Other than death penalty cases, which take years to process, only two out of 135 pending California Supreme Court cases — both criminal — have been awaiting oral argument longer than City of Hope.

Why were there so many delays in this case?  The Recorder offered some possible explanations:

Paul Utrecht, a partner in San Francisco’s Zacks Utrecht & Leadbetter who filed an amicus brief supporting Genentech for the Washington Legal Foundation, said the court’s justices could be proceeding cautiously because of the money involved. . . .Utrecht also said the legal issue — whether a breach of contract rises to despicable conduct that merits punitive damages — is so important that the court might be examining the case from all angles. . . . .It’s also possible the justices haven’t decided what to do with the case, and are still trading memos in the hopes that a tentative majority will emerge.

While Genentech cannot possibly be happy with the 2005 verdict and damage award, today’s ruling will at least take the some of the sting out of the verdict.  A $200 million reduction in damages is certainly not "chump change" and will surely help with the company’s bottom line. 

For the rest of us in California, today’s decision is similarly significant because it reaffirms that punitive damages cannot be awarded in contract cases–there must be a fiduciary relationship.  More importantly, for the biotech community (and even the high tech and medical device communities in California), we now have clarification from the California Supreme Court  that licensing relationships do not establish fiduciary relationships and therefore will not  incur punitive damages if they are breached.    

The San Diego Consortium for Regenerative Medicine has announced its plans to build a $115 million stem cell research facility in San Diego, according to the Associated Press. 

The Associated Press reported as follows:

The facility would be located on more than 7 acres owned by the University of California at San Diego in the Torrey Pines area biotechnology cluster. . . . The state is expected to provide a large portion of the facility’s funding. Californians in 2004 approved a measure creating a $3 billion stem cell research agency.

A panel for the state agency has determined the San Diego consortium is eligible for $43 million. A condition to receive the state funds is that the building be completed by 2010.

Consortium officials estimate they would need to raise at least an additional $72 million to complete the center’s funding. They said an out-of-state donor whom they decline to name has agreed to contribute $30 million.

It will be interesting to see how the plans for this new center compare to the California Institute of Regenerative Medicine ("CIRM") facility.  We will keep you posted. 

Biotech companies are running into roadblocks when they enter into deals with the UC System, according to a report this week by the San Francisco Business Journal. 

According to the San Francisco Business Journal, the key problem is that it simply takes too long to get the deal done.  The San Francisco Business Journal reported:

"Most of us would prefer not to work with" the UC System, [Don] Francis [chairman and executive director of the South San Francisco nonprofit Global Solutions for Infectious Diseases and co-founder of Vaxgen, Inc. of South San Francisco] said at a recent UCSF forum on product development partnerships

Francis recalled VaxGen’s late-stage AIDS vaccine trials that included UC sites. Because UC lawyers pushed for intellectual property rights for the system — though VaxGen had done the research and was only conducting paid-for trials at UC — agreements took months rather than weeks to complete, Francis said. In fact, UC was the last series of clinical sites to sign on. 

It’s fixable. . . . but unless changes are made, he said, UC will drive away companies.

The other significant problem, according to the San Francisco Business Journal, is that the UC leadership is just too risk-adverse.  The San Francisco Business Journal reported:

Deals must pass "the Chronicle test," said Jack Newman, a UC Berkeley graduate and now senior vice president of research at Amyris Biotechnologies Inc. in Emeryville. In other words, UC system lawyers want to be sure no one — those pesky media types, in particular — can accuse them of giving away too much value.

As an IP attorney who regularly handles deals with universities and companies in the private sector, my personal experience has been that deals with universities in general do tend to take an excrutiatingly long time to get finalized and signed.  Typically, the time period far exceeds the normal negotiating period in the private sector. 

Why is this? 

Well, in all likelihood, it is because the universities operate on a different timeclock.  Businesses are often anxious to get deals signed, so that they can move on to a different set of problems and concerns.  However, universities frequently operate on a different schedule and set of priorities–there just is not the same level of pressure to get the deal closed in a specific period of time that you have in the private sector.  I suspect that if you took a survey of all of the tech transfer offices around the country, you would find that the UC System’s turnaround time is fairly representative of what you find at other university tech transfer offices.

I would be interested in hearing from others of you in the blogosphere who have experience with doing deals with universities: what has your experience been with the turnaround time?  Has your experience been similar to mine or have you found that any particular universities are operating at a much faster timetable?  I will, of course, share any feedback I receive on this topic. 

The U.S. Supreme Court has postponed making a decision on whether or not to grant review on a case challenging the right of universities to enforce their own patent rights whileremaining immune from patent infringement lawsuits by private companies, reported Bernadette Tansey for SFGate.  The Court is requesting input from the Bush Administration legal representative before making a decision.

SFGate reported on the case as follows:

The plaintiff in the case, Biomedical Patent Management Corp., is asking the high court for a sweeping decision that would strip California’s immunity to patent infringement suits on grounds that the University of California routinely submits to federal court jurisdiction when it pursues damages and settlements from the private sector for alleged violations of its own patent rights. UC’s use of the patent system amounts to a waiver of the state’s immunity, the company maintains.

That argument was rejected by a San Francisco trial court judge and a federal appellate court, which cited prior Supreme Court rulings upholding the immunity of states from federal suit. That "sovereign immunity" of the states is based on the 11th Amendment of the U.S. Constitution, which limits the authority of the federal government over the states.

Each side to this case interpreted the action by the Court to seek Bush Administration input on the issue differently.  SF Gate reported:

[Andrew Dhuey, an attorney for the plaintiff] said the Supreme Court’s request for advice from the U.S. solicitor general on the case is "a very positive development."

"To be in the situation we’re in has drastically shortened the odds" that the high court will take up the case, Dhuey said.

Supervising Deputy Attorney General Karin Schwartz, who represents the state in the case, said the high court’s action may only mean that a few justices wanted additional information. The Supreme Court could deny review even if the solicitor general recommends it, she said.

This case, of course, raises an interesting public policy question: should universities be able to sue when they can’t themselves be sued by the same party they are suing?  While of course there is an argument that a state university is for the public good and is funded with taxpayer dollars, and therefore should be immune, but at the same time it seems fundamentally unfair and to permit the same immune institution to enforce its own intellectual property rights against third party private companies.  Aren’t technology transfer offices essentially acting as commercial institutions  engaging in commercial activities when they enter into licensing and other related transactions with private companies? Shouldn’t they be governed by the same rules as private companies?

I would be interested in hearing blog reader thoughts on this issue.  If you have an opinion that you would like to share, please write me and I’ll make your remarks available to all blog readers.

Members of the biotech industry can now breathe a sigh of relief: the patent reform bill has been stalled in the Senate. 

According to Biotech Transfer Week, the Senate reached the current impasse over a section of the bill dealing with the assessment of damages in patent infringement cases.  The concerns were raised by Senator Arlen Specter (R-Pa.).  Biotech Transfer Week reported Senator Specter’s remarks as follows:

“The Chairman and I differ on a number of aspects of the proposed patent reform legislation. .. . The principal sticking point is the issue of how to assess damages in patent infringement lawsuits. We thought we had reached an agreement on this matter, but the language continued to shift, so we do not yet have a deal on the package. . . .  I am hopeful that we can reach an agreement, but more work has to be done to get it right."

“Our view is that [we disagree with] those who are saying this is dead, or there is no time to do it now and that they missed that window,” Tom DiLenge, vice president and general counsel for BIO, told BTW this week. “There has always been time to do a consensus patent reform bill – but does the other side want to stick to its guns and get 100 percent of everything they wanted? In that case, I think it could be dead. . . .Or, are they willing to compromise and get a bill that has about 98 percent of what they wanted, and is acceptable to the rest of the patent-holding community. . . .”

"The idea that Senator Specter, or BIO, or anyone would accept really harmful damages language just because some other part of the bill is the way that they want it, is just not accurate,” DiLenge said. “The other side in this debate needs to recognize that they’re not going to be able to get the kind of harmful damages language that they were seeking. Once they recognize that and admit it, we can come to the table and get this bill done fairly quickly.”

Takeda has agreed to acquire Cambridge, Massachusetts-based Millennium Pharmaceuticals for $8.8. billion dollars. 

The Wall Street Journal reported on the terms of the deal as follows:

Takeda, Japan’s biggest drug maker by revenue, will buy Millennium. . . . for $25 a share. The price represents a 53% premium to Wednesday’s $16.35 closing price for Millennium shares. The deal, the largest acquisition by Takeda, is structured as a tender offer and is conditional upon a majority of shareholders accepting the terms.

Obviously Millennium came out of this deal quite well: $8.8. billion is certainly not an insignificant amount of money.  In Vivo Blog certainly characterized this as an excellent deal from Millennium’s perspective, explaining as follows:

Millennium hit its billion dollar jack-pot a bit sooner than expected. . . . Not bad for a company with just one marketed product and less than a dozen promising, but still risky, clinical assets. . . .In addition to Velcade, Millennium has 10 drugs currently in clinical trials, primarily focused around oncology and inflammatory bowel disease. But the company’s next most advanced product, MLN-0002, an antibody against the gut-specific alpha-4 beta-7 integrin for ulcerative colitis and Crohn’s disease, has yet to enter Phase III clinical trials and isn’t likely to be approved before 2011 or 2012.

Thus, until the Takeda acquisition announcement, Millennium’s fate–barring some kind of external business transaction–was entirely dependent on expanding the use of its first-in-class proteasome inhibitor beyond its approved uses in relapsed multiple myeloma and mantle cell lymphoma. . . .

Simply put, Takeda’s rich was offer was too good to ignore. Yes, Velcade growth was strong and growing stronger. But unable to in-license or acquire a late stage product on favorable economic terms, the company was forced to rely heavily on the growth of this product to feed its clinical pipeline until MLN-0002 was ready for prime time. A risky situation and one that already seemed as if it were necessitating tough development choices.

So, why was this a good deal from Takeda’s perspective?  Well, as in the case of many pharmaceutical companies, it was all about rebuilding the pipeline.

The Wall Street Journal explained as follows:

By acquiring Millennium, Takeda will help address a revenue problem it will likely face soon. The patents on two of Takeda’s biggest-selling products — ulcer drug Prevacid and diabetes treatment Actos — expire in 2009 and 2011, respectively. Revenue from Millennium’s best-selling product, blood-cancer treatment Velcade, is growing quickly and is expected to reach as much as $345 million this year.

Sales of Velcade could get another big boost this summer when the U.S. Food and Drug Administration rules on an application from Millennium to sell the drug as a first-line treatment for multiple myeloma. Currently, the drug’s labeling indicates it should be used only with patients who have already tried another medicine first. A label allowing for broader usage of the drug would likely result in more patients using Velcade for longer periods of time.

Also, according to The Wall Street Journal, the acquisition is part of a larger strategy by Takeda to expand into overseas markets.  The Wall Street Journal reported as follows:

The acquisition. . . .is part of an aggressive campaign by Takeda President Yasuchika Hasegawa to spend a good chunk of the roughly $20 billion the company has in cash on acquisitions or licensing agreements.Last year, the company set aside $10 billion as part of a strategic fund to help it expand into overseas markets. In February, Takeda struck a deal to buy biotech giant Amgen Inc.’s Japan unit, as well as gain marketing rights to 13 Amgen drugs for Japan and elsewhere in Asia. Last month, it bought out partner Abbott Laboratories’ share of a U.S. joint venture. 

Thus, in the end, the deal was a win-win for both Takeda and Millenium.  

It seems likely that we will be seeing more such acquistions from Takeda in the near future.  Perhaps biotech companies should take note and put Takeda on their short list for potential strategic partners: Takeda may just be in the market for more such relationships. 

Palo Alto-based CV Therapeutics signed a lucrative deal earlier this week with New York-based TPG-Axon Capital in which TPG-Axon Capital, a New York hedge fund, agreed to pay up to $185 million in exchange for the payment of a royalty in the amount of fifty percent of its North American sales of Lexiscan, reported the San Jose Business Journal. 

According to the San Jose Business Journal, the U.S. Food and Drug Administration("FDA") recently approved CV Therapeutics’s Lexiscan injection, an A2A adenosine receptor agonist, for use as a pharmacologic stress agent for patients unable to undergo adequate exercise for stress tests.

The San Jose Business Journal reported on the terms of the deal as follows:

[T]he deal with. . . .TPG-Axon Capital includes $175 million on closing of the transaction and a potential future milestone payment of $10 million. . . .CV Therapeutics retains rights to the other 50 percent of royalty revenue from North American sales of the product [by its partner Astellas Pharma US, Inc., and also may receive a royalty on another Astellas product under the terms of the company’s collaboration agreement with Astellas Pharma US Inc.

The San Jose Mercury News further reported:

[I]nvestment bank Leerink Swann described the $175 million payment as "a surprisingly positive transaction," because other heart stressing agents already are on the market.

"The magnitude of this deal is much bigger than we would expect since physicians we have queried seem relatively uninterested in a novel cardiac stress agent," the report said.

It goes with out staying that a deal of this magnitude dramatically improves CV Therapeutics’ cash flow situation.  According the the San Jose Business Journal, CV Therapeutics plans to use the financing to meet a 2010 debt obligation and to also support its commercialization plans for Ranexa.