International News, Volume 4, No. 1-2, Summer 2002
Summer 2002
Patenting Bioinformatics Software in Europe
By Duncan Curley
The recent proliferation of genetic data arising from studies such as the Human Genome Project has given rise to a rapid expansion in computer technology for the management and analysis of biological information. Bioinformatics is the name given to this new application of computer technology. The bioinformatic platform software market is currently worth more than $50 million a year. Not surprisingly, a number of companies in this sector are paying more attention to the legal protection of their bioinformatic software tools by means of intellectual property rights.
Unfortunately, the legal protection afforded to bioinformatic software varies depending on where in the world intellectual property protection is sought. In Europe, copyright has been the principal form of protection available for computer programs, while in the United States, patent protection for software has been available since the 1980s.
In the United States, an invention that uses a computer or software may qualify for patent protection simply if it provides a "useful, concrete and tangible result." The patentability of software-based inventions in Europe is governed by the European Patent Convention. Computer programs "as such" are not considered inventions and are excluded from patentability. However, there have been a number of decisions in the national courts of the European member countries (and also from the European Patent Office) in which it has been decided that a technical invention that uses a computer program is, in principle, patentable. The key requirement is that an invention should have technical character.
The technical character requirement is interpreted by the European Patent Office as requiring first, that an invention must belong to a field of technology and, second, that the invention must also make a technical contribution to the state of the art.
The ambiguity in the European position has troubled the European Commission for some time. The commission recently published a draft European Directive, with a view to harmonize the laws in the European member states concerning the enforcement of patents for software-based inventions.
The new proposals have received a mixed reception from lawyers acting for bioinformatic software developers. Supporters claim that inventions relating to the processing of biological information will meet the European requirement for technical character. Detractors have said that the proposals will make no real change to the substantive law. Whatever the position, there are an increasing number of patent applications for bioinformatic software applications now being processed at the European Patent Office. If implemented, the directive is bound to impact upon the value of any portfolio of European patents for innovative bioinformatic software.
Hurdles for Medical Products Manufacturers
By Paul Radensky
In the not-too-distant past, medical product manufacturers (pharmaceutical companies, medical device companies, in vitro diagnostics manufacturers and biotechnology companies) could successfully commercialize a new product by identifying a medical need, creating a product to fit the need, passing a regulatory hurdle to show the product was effective at meeting the need and that its benefits outweighed the risks (i.e., that the product was safe) and then promoting the product to physicians by describing the efficacy and safety of the product. The medical need that the product filled could have been a relatively small advancement over established therapies— a clearer image on an X-ray, a once-a-day drug regimen, a better tasting oral dosage form or a disposable product that did not require re-sterilization. When health care budgets were not under scrutiny, neither cost nor comparative assessments among options were critical. If physicians believed a new product was worthwhile, the product was adopted. These issues certainly pertain to U.S. manufactures that market abroad and to international companies entering the U.S. market.
The old rules have changed dramatically over the past few years. With health care budgets continuing to expand and encroaching on resources available for other uses (e.g., education and other domestic programs), those who pay for care, such as governmental and private payers, are no longer willing to let physicians alone drive decisions about what products will be adopted. Now we have new regulatory bodies controlling whether or not products are covered, what price they can charge and at what rate payers will pay for the item or service. The payers’ focus goes beyond proof of efficacy and safety to questions of effectiveness outside of investigational settings, comparative benefits versus established options and value.
While the health authorities who license new medical products require proof of efficacy in tightly controlled trial settings, the payers want to know more. For example, it is important to determine how well the product works when it is used in clinical practice with patients who have comorbid conditions and with physicians who are not the top experts in the field. So-called "real-world" studies to show effectiveness can be difficult to design and add cost and time to the pre-commercialization phase of product development.
For many products, the health authorities recommend or will accept controlled clinical trials versus a placebo or no-therapy control. The number of subjects required to show a benefit versus placebo is generally much smaller than the number required to show a benefit versus an established therapy. This allows manufacturers to complete studies for registration with fewer patients and in a shorter time frame than if comparative studies versus established therapies were required. However, payers want to know how a new product performs compared to other therapies that are already covered. Payers do not cover placebos, so this is not a relevant comparator for the payer. Even when a product is approved based upon a controlled trial versus an established therapy, however, the study is typically designed to only show that the new product is as efficacious and as safe as the established therapy, not superior, because this is all that is usually required to obtain licensure from health authorities. Therefore, studies relevant for payer decision making may need to be conducted following the round of studies required for registration.
The real hurdle that must be crossed to obtain coverage and premium pricing in today’s environment is proof of value. Assuming the product is effective and safe, performs well under conditions of usual practice and performs better than an established therapy, the incremental cost for the added clinical benefit must be assessed. Answering this question involves the relatively new discipline of health- or pharmaco-economics. Although methods for conducting and reporting pharmaco-economic analyses have become standardized worldwide, the scientific methods are still in an embryonic state and the value judgments based upon these methods are not firmly established in public policy. Some policy experts have offered benchmarks for determining how much we should pay for incremental advances in medical therapy, but these have never been established through the political process to reflect how society truly wishes to allocate its limited resources.
A number of public and private bodies have emerged for conducting technology assessments and health economic analyses. Australia and Ontario were among the first governmental payers to require the submission of pharmaco-economic data to support reimbursement for new drugs. The Canadian Coordinating Office for Health Technology Assessment in Canada, the National Institute for Clinical Excellence in the United Kingdom and the Agency for Healthcare Research and Quality in the United States are public entities conducting technology assessments to answer the questions described above. The Cochrane Collaboration worldwide and the national Blue Cross and Blue Shield Association in the United States are among private entities conducting similar assessments. These are the "new hurdle" regulators who are the gatekeepers to successful commercialization of new medical products beyond the health authority gatekeepers who handle registration.
Anyone planning to market medical products today must plan to address not only the health authority’s demands for proof of efficacy and safety but must also meet payers’ demands for proof of effectiveness in real-world settings and the value of the new product in light of established alternatives.
Caveats of Using U.S. Patented Technology Abroad: A Case Study
By Willem Gadiano
The Process Patent Amendments Act of 1988 was originally enacted to close a perceived loophole in the statutory scheme for protecting owners of U.S. patents. Prior to the enactment, an owner of a U.S. process patent could sue for infringement if others used the process in the United States. But, it had no cause of action if such persons used the patented process abroad to manufacture products and then imported, used or sold the products in the United States. By enacting the Process Patent Amendments Act, the principal portion of which is codified as 35 U.S.C. § 271(g), the U.S. Congress made it an act of infringement to import into the United States, or to sell or use within the United States, "a product which is made by a process patented in the United States . . . if the importation, sale or use of the product occurs during the term of such process patent." Until recently, however, the legal question of just how much a drug screening assay claim in a research method patent may cover had not been addressed by a U.S. court.
Research tool patents typically cover basic techniques (e.g., drug screening assays) that may lead to the discovery of useful products. Some believe that such patents can provide a competitive advantage in drug discovery and in other fields by identifying new drug targets and by accelerating the development of new drugs. Without access to such inventions, drug manufacturers, at their own expense and time, have to develop new assays or seek a license from the owners of such drug screening patents. Because of this perceived value, some drug screening assay patent owners have been successful in obtaining royalties under so-called reach-through licensing schemes. These define the payment of a royalty for the sale of a product discovered, developed or manufactured through the use of the licensed drug screening assay, even if the assay is performed outside of the United States.
In Bayer AG v. Housey Pharmaceuticals, Inc., 2001 WL 1346496 (D. Del. Oct. 17, 2001) the U.S. District Court of Delaware sharply limited infringement liability for offshore use of patented research methods, where the products introduced as the fruits of this research are ultimately manufactured without use of the patented research methods. Housey owns four U.S. patents that cover drug screening assay methods that Bayer allegedly used outside of the United States to discover useful drugs that were then manufactured without further use of Housey’s patented screening method. Although Housey offered Bayer a license under its patents, Bayer declined to take one. Instead, Bayer AG sued Housey for a declaratory judgment that its patents are invalid, unenforceable and not infringed. Housey counter-claimed for infringement under 35 U.S.C. § 271(g) arguing that Bayer infringed its patent by importing and selling a drug that was discovered using the patented screening assay methods. Housey argued that Bayer had infringement liability under 35 USC § 271(g) by selling a drug in the United States that was determined to be an inhibitor or activator of a target protein using the patented methods. Housey also argued Bayer had infringement liability under 35 USC § 271(g) by "import[ing] into or us[ing] in the United States knowledge and information reflecting the identification or characterization of a drug acquired from using the patented methods."
On a motion to dismiss, the court granted judgment in favor of Bayer. An important factor for the court was that Bayer was not alleged to have used the patented method in the United States but only to have imported products that it was able to identify through use of that method. Chief Judge Robinson held that "[u]pon a plain reading of the statute, the court finds that § 271(g) addresses only products derived from patented manufacturing processes, i.e., methods of actually making or creating a product as opposed to methods of gathering information about, or identifying, a substance worthy of further development." Chief Judge Robinson pointed out that the asserted method claims of the Housey patents describe processes for recognizing substances with the potential for development into pharmaceuticals, highlighting that these processes of identification and generation of data are not steps in the manufacture of final drug products. As a result, the court ruled that § 271(g) is not applicable to the process claims in the Housey Patents, and thus Housey’s infringement counterclaim against Bayer AG under § 271(g) was dismissed.
Although it remains to be seen what treatment the U.S. Court of Appeals for the Federal Circuit will give to the district court’s decision in this case, for now, at least, the enforcement of research method patents against offshore infringers has been significantly limited.
Focus On…
Germany
German Patent Enforcement
By Larry Cohen
With the opening of a McDermott, Will & Emery office in Munich, our Firm has been placed at the heart of the European patent system. For the last 50 years, Munich has been the center of the German patent world since the European Patent Office opened its doors in 1978. Yet to a person accustomed to the rigors of common law as practiced in the United States, Canada and the United Kingdom, dealing with patents in Germany is often "an out of body experience."
Germany was not united as a country until 1866, and a legacy of the Bismarkian reunification was a fragmentation of its legal structure into small geographic areas where the local bar had a monopoly and practitioners, in practice, could not be admitted to more than one local bar. In addition, cross-jurisdictional partnerships were prohibited. Until the late 1980s, practicing law in Germany meant belonging to a highly regulated cottage industry. This was reflected in the patent system and its enforcement.
In Germany, an unusual system of dealing with infringement was conceived: that infringement and validity are tried separately and in different courts. It is the whole question of infringement, including construction, which is tried at a separate hearing, and in a separate court, from validity. While it is inappropriate to argue different constructions in the infringement and validity courts, it does make it more difficult to apply some of the classic infringement and validity squeezes that are features of common law patent litigation. For example, if either a patent is not infringed or, if it is construed widely to catch an infringer, it is invalid. Germany has given this system of trying patents to Japan, so it cannot be said to be entirely a minority taste. Dusseldorf is the infringement action "capital" of Germany, while Munich is important for validity issues.
When the new Community Patent comes into force, and the European Court of First Instance to deal with intellectual property (CFI-IP) matters also comes into force, infringement and validity will be tried together.
A second problem in Germany in dealing with infringement is that German courts will rarely, if at all, allow a patent infringement action to proceed while a patent is under opposition in the European Patent Office. As a result of the delays caused by this system (oppositions can take up to 10 years to be fully concluded), many important patents may never be commercially available for suit in Germany. This problem will also be addressed in the rules of the CFI-IP, which will allow enforcement suits while the validity of a patent is being challenged.
The third major downside is that there is no discovery in Germany. Further, there is no presumption of infringement and no ready means of judicial seizure, unlike France, Belgium and Italy, to enable an allegedly infringing process to be ascertained. Process patents are of much less value in Germany than elsewhere, because of the difficulty of finding out whether the defendant is an infringer. This problem will also be rectified in the CFI-IP by reversing the burden of proof.
A further downside is that the German courts are not particularly generous with damages. They are assessed on a reasonable royalty basis and parasitic, consequential or indirect damages are not allowed. As a result, relative to the common law countries, damage awards are low.
There are some positives. The system is inexpensive. Patent actions are not costly, because procedurally, they are a battle between experts with a largely written procedure. There is no cross-examination of witnesses, and as noted above, no discovery. This has the advantage of brevity and simplicity but may sometimes not get to the truth. The system is based on the examining magistrate principle, in which the judge is the inquisitor and not the referee in an adversarial contest between opposing counsel. There are, of course, no juries.
Thus, what the German system lacks in its ultimate ability to discover the true state of the facts, it possesses in the cheapness and relative simplicity of its approach. If parties want to know where they stand in relation to a patent, and particularly one whose validity will be decided in a battle between the experts, then Germany has a lot to offer as a forum for patent litigation.
If all goes wrong, there is always the appeal. Unlike the common law systems where admitting further evidence on appeal is rare and difficult, this is more common under the German system. So to a common law practitioner, patent litigation in Germany is like looking in the mirror— everything is inverted.
German Securities Purchase and Takeover Act
By Christian von Sydow and Thomas Laskos
Anyone who wants to participate in German-listed companies by making a public offer or wants to take over the company must, as of January 1, 2002, comply with the new German Securities Purchase and Takeover Act (Wertpapiererwerbs-und Übernahmegesetz). The act defines the acquisition of only 30 percent of the voting rights in another company as already being a takeover. A shareholder who holds 30 percent of the voting rights in another company is defined as having control. This act brings a significant change to the conditions for company takeovers and the acquisition of material holdings.
Until now, the acquisition of holdings has not been subject to statutory regulations in Germany. Although a number of companies listed on German stock exchanges have voluntarily accepted a Takeover Code, the signing of which was sometimes a condition for being admitted to the stock exchange, few foreign companies not listed on a German stock exchange had signed it. In comparison, the new act applies to every offer regarding a German target company. Moreover, the provisions of the Takeover Code were less drastic.
The provisions of the new act are intended to ensure that public offers for shares and company takeovers are conducted in a fair and orderly manner. The shareholders and the employees of the target company are to be kept fully informed. The focus is on transparency. The act is also intended to ensure that the purchaser pays reasonable consideration. The entire process is supervised by the Federal Supervisory Office for Securities Trading (Bundesaufsichtsamt für den Wertpapierhandel).
In addition, the act limits the options that the executive board of the target company may employ to avert a takeover. As a rule, a takeover bid may not be impeded. The executive board may only take actions that fall within its ordinary management authority. Any other action requires the consent of the supervisory board. The general shareholders’ meeting can, however, authorize the executive board to take particular action over a particular period of time in order to avoid a takeover in general.
Care must be taken when a holding of 30 percent or more is acquired. If this is done without complying with the regulated bid procedures, the shareholder must make a compulsory offer to all of the other shareholders to acquire their shares. In some cases every shareholder’s shares must then be acquired. The minority shareholders are thus supposed to have an opportunity to sell their holdings if they do not wish to own shares in a company controlled by the new majority shareholder.
The procedure for making a public bid involves several steps. An offeror’s decision to make an offer must be made public without delay. The offeror must then, within a period of four weeks (that can be extended upon application by an additional four weeks in case of cross-border offers) prepare a bid document that must contain all of the information necessary so the shareholders can decide on the bid, fully informed of the facts. It should be noted that this new deadline is ambitious particularly in situations where the capital market regulations of several jurisdictions have to be observed as, for example, in the Vodafone/Mannesmann takeover. Before making the offer, the offeror must secure the financing of the offer and the offer must then include confirmation from a company providing securities trading services (Wertpapierdienstleistungsunternehmen) that the necessary funds are available. If the offer is not prohibited by the Federal Supervisory Office for Securities Trading, it can be made public. A window of between four and 10 weeks has to be available to the shareholders to accept the offer. The offeror must also disclose the size of its holding in the target company, including shares held by any affiliated companies. In the case of non-European offerors, the Federal Supervisory Office for Securities Trading can grant certain exemptions from the need to make the offer to certain owners of securities.
The executive and the supervisory board of the target company must give and make public their opinion once the offer has been made. If the offer is to acquire control over the target company (a "takeover bid"), which is assumed with 30 percent of the shares, the offer must provide for "reasonable" consideration. The Takeover Act considers a company as having "control" over another company if it has acquired only 30 percent of the shares, so if a company makes a public offer having the intention to acquire at least 30 percent of the voting rights the offer is considered to be a takeover bid. No partial (meaning for less than 100 percent) offers may be made and the window for acceptance is extended for those shareholders who did not accept the offer within the first window, by two weeks after expiration of the initial window. In certain circumstances, the executive board of the target company is entitled to take defensive action.
If a buyer has not followed the above described procedure, but nevertheless has acquired 30 percent of the shares, he or she has to make a public offer to buy the rest of the shares. If a buyer has obtained 30 percent of the shares in a company without making a public takeover bid, he or she must make this public within seven calendar days as well as provide the Federal Supervisory Office for Securities Trading with a bid document within four weeks and must subsequently announce an offer. This means that the acquirer of 30 percent or more of a company, may, in certain circumstances, have to acquire the remaining shares. This provision can become problematic for shareholders who already had a 30 percent shareholding on January 1, 2002.
The introduction of this act poses questions that remain unanswered. For instance, it is not clear whether this act also applies to mergers if, after the merger, the shareholders of one of the companies involved are first controlled by the former majority shareholder of the other company.
The new act is a great challenge in practice, especially since the legislature has deliberately left several details open, as they were of the opinion that practical experiences should shape the new provisions. Together with the new German Securities Purchase and Takeover Act, new provisions covering a so-called "squeeze out" have been incorporated into the German Stock Corporation Act. A majority stockholder holding 95 percent of a German Stock Corporation can now force the remaining free float of 5 percent to transfer their shares against cash compensation.
Finally, the Securities Trade Act has been changed. The notification obligations regarding shareholding thresholds of 5, 10, 25, 50 and 75 percent were hitherto only relevant for companies whose shares were traded on the official market (amtlicher Handel). They now also apply for companies listed on the New Market (Neuer Markt) and on the regulated market (Geregelter Markt). As a transitional regulation, every shareholder holding 5 percent or more of the voting rights in a listed company must have notified the Federal Supervisory Office for Securities Trading about the amount of shares by April 7, 2002.
Focus On…
London
U.K. Competition Law Radically Reformed
By Scott Megregian
On March 26, 2002, the U.K. government introduced the Enterprise Bill that, when it is due to become law early next year, is expected to radically reform U.K. competition law. The bill is the next step in the transformation of U.K. competition law that began in 2000 when the 1998 Competition Act came into force. Aspects of the bill are subject to opposition by various business groups, however, and may well face amendment when considered at the committee stage of the parliamentary procedure.
In its current form, the bill creates a new law that criminalizes an individual’s participation in a cartel. Individuals who dishonestly participate in a cartel could be imprisoned for up to five years. The bill also provides for the disqualification of company directors for up to 15 years from serving on corporate boards for serious breaches of competition law. The U.K. antitrust enforcement authority, the Office of Fair Trading (OFT), will be jointly responsible for prosecutions and disqualifications and given additional powers of investigation.
The Enterprise Bill also contains measures designed to encourage private damages claims. In particular, it gives the Competition Appeal Tribunal the power to hear actions brought by consumer groups and other private parties harmed by anti-competitive activity. Furthermore, the bill codifies the "super-complaint" procedure informally introduced by the OFT last year. The new procedure requires the OFT to respond to complaints made by consumer groups on a fast-track basis.
Numbering among the other provisions in the Enterprise Bill are measures to ensure that the OFT focuses on mergers that affect U.K. markets. The assets-based jurisdictional test will be replaced by a new turnover threshold so the OFT will have jurisdiction in cases where the target’s U.K. turnover exceeds £45m. The bill also contains provisions designed to remove political considerations from the decision-making process as much as possible. Final decisions on merger cases will, therefore, be taken by the OFT/Competition Commission, and not by the Secretary of State, in all but exceptional cases.
The Enterprise Bill confers on the OFT new powers to investigate markets that do not appear to be functioning competitively. In addition to allowing the OFT to tackle a much larger range of "market failures" than the European Union and existing U.K. law, this new power will be flexible, complementing the emerging concept of collective dominance.
In light of the radical proposals described above, it is more important than ever for companies to ensure that they comply with U.K. competition law. The most effective way for companies to do so is to undertake a careful evaluation of their existing U.K. business activities and practices with a view to implementing an antitrust compliance program.
U.K. Enterprise Bill Attacks Cartel Behavior
By Juliet Mash
Beginning in early 2002, the U.K. Office of Fair Trading (OFT) has drastically increased its focus on prohibiting and punishing cartels. In January 2002, the OFT made its first cartel infringement decision, imposing fines on two bus companies engaged in anti-competitive route sharing. In March of this year, the government introduced the Enterprise Bill, which proposes far-reaching reforms in the area of cartel enforcement. The most controversial of these is to criminalize cartel behavior.
Proposals Under the Enterprise Bill
The Enterprise Bill proposes a series of measures as part of a concerted attack on cartel behavior. In particular, it creates a new criminal offense for individuals who participate with dishonest intent in cartels. Individuals who have dishonestly agreed to operate a hardcore cartel (those that fix prices, share markets, limit production or rig bids) will be liable to imprisonment for up to five years and/or civil liability to an unlimited fine. It also empowers the OFT or the courts to disqualify company directors for up to 15 years from serving on corporate boards for serious breaches of competition law. In addition, it facilitates the extradition of directors who have infringed U.S. antitrust laws.
It also establishes that the OFT will have joint responsibility with the Serious Fraud Office (SFO) for cartel prosecutions and director disqualifications. In practice, prosecutions will be the responsibility of the SFO. The OFT and SFO will share responsibility for initiating and carrying out cartel investigations. In addition, it grants additional powers to the OFT to investigate cartels, including the use of undercover surveillance and private intelligence sources.
The civil liability regime will run side by side with the criminal liability regime for individuals, and it is likely that the SFO will carry out investigations of the more serious cartel cases where criminal conspiracy is alleged and where victims have come forward who have suffered quantifiable loss. It facilitates the ability for injured third parties and consumers (represented by a consumer group) to obtain damages for breach of competition law through recourse to the new Competition Appeal Tribunal (CAT). A claim may be brought if the infringement has been established by a decision of the OFT, the CAT or the European Commission and is not subject to appeal.
The U.S. and European Example
The Enterprise Bill, that is currently subject to debate in the House of Commons, is expected to become law in early 2003. Its proposals go beyond those of the Competition Act 1998 that introduced fines of up to 10 percent of a company’s annual turnover from March 2002. The new regime will be modeled closely on the proactive U.S. approach to cartel enforcement, as well as the recent example set by the European Commission. In 2001 alone, the European Commission investigated and prosecuted 10 cartels, imposing a total of £1.8 billion in fines on the companies involved.
The OFT has 25 alleged cartels under investigation at present. The enforcement agency is confident that a five-year prison sentence for dishonest involvement in hardcore cartels will act as an effective deterrent. In line with this legislative clamp down on cartels, on April 10, 2002, the SFO raided the business premises of six drugs companies and the homes of several directors suspected of price-fixing. This is the first time that the SFO has used its powers of criminal investigation to target cartel activity, and the investigation has been seen by many as a bold statement by the government of its new cartel enforcement strategy.
Implications for U.K. and U.S. Cooperation
Harmonization of the two regimes will facilitate greater cooperation in the investigation of international cartels, as well as the extradition of directors who have infringed U.S. antitrust laws. The OFT, assisted by the exchange of information provisions under the U.K. and U.S. Mutual Legal Assistance Treaty (MLAT), will also use its new powers to prosecute U.K. residents who have been involved in international cartels investigated by the U.S. Department of Justice and the European Commission.
