Myriad Gene case shakes up and shakes down Biotech Industry

First, I would like to thank Matthew Dillon with the Organic Seed Alliance @Seed_Alliance for pulling me from under my rock and informing me about this very important case.

Judge Sweet of the Southern District of New York invalidated seven patents linked to detecting genetic predisposition of breast and ovarian cancers of the Utah-based Myriad Genetics last week after granting plaintiff’s motion for summary judgment. The plaintiffs were many in number, and consisted of various non-profits and individuals who were unable to receive the test that was a result of all the patents. In a lengthy opinion, which can be found here courtesy of Genomics Law Report, the Court effectively reversed the policy of the USPTO that allowed the patenting of isolated DNA after it was purified from the body using common techniques and turned large segments of biotech patents on their collective ear.

The gist of the case was that the subject matter, the DNA sequences that were extracted, was not patentable as it was not different in character from what the DNA sequences do as its normal function, which would be coding or targeting and identifying nucleotide sequences. Although the DNA was purified (manipulated0 and created to be free-standing “isolated DNA” sequence, it was utilized to perform the same function that it would do without manipulation in order to allow researchers to detect potential mutations on the 13^th and 17^th chromosome that has been linked to predisposition to breast and ovarian cancers (as well as potentially prostate cancer as the opinion briefly states). Judge Sweet closely analogized the current case with Funk Brothers, where researchers patented their creation of a mixture of bacteria that acted together to perform a desired function that they did not do individually. The patent in that case was invalidated as the Court determined that the bacteria were performing the same actions individually that they would have done prior to being manipulated and grouped therefore it was a law of nature and unpatentable.

This is a major step in defining the line while making it somewhat murky to what is patentable subject matter. The Supreme Court has long recognized three subject areas that would not be entitled to patent protection: “the laws of nature, physical phenomena, and abstract ideas . . .”. The court quoting Chakrabarty (The case that allowed the patentability of living things, which in that case were naturally occurring bacteria that were manipulated to perform the new function of breaking down crude oil). It was a general assumption that through the Chakrabarty case that “anything under the sun that is made by man is patentable”, however the Court declared that these aforementioned exceptions were always meant to be taken into account despite that very lofty statement if you were to look at the full quote from the legislative history of the Patent Act of 1952.

The moral of this story, if this decision were to be affirmed at higher levels is that you have to have any DNA sequence you purify perform a different function than to simply code or target and identify other nucleotide sequences. At first supposition, this case does not seem to threaten genetically modified foods and agriculture that attempts to chemically alter the character of certain food and feedstuffs. I am referring to items such as glysophate resistance in various row crops and similar characteristics.

The second portion of the holding is that the act of “analyzing” and “comparing” was not patentable as well, as those were abstract mental process which is a long-held exception for patentable subject matters as well. This also deals with the transformative language concept and has quite a bit to do with how to write patent claims and their interpretation. Although, its an interesting aspect of the opinion and would be relevant for those drafting claims or learning patent law, it does not add much to our discussion here.

As this opinion is only at the district level, its reach is relatively limited as of this moment in time. The Court even states in its discussion of constitutional avoidance (Rule that a Court is rather to handle issues of statute and resolve those issues in an effort to rule on constitutional issues) that if the Federal Circuit would affirm the decision then it would have an effect on the USPTO policy regarding isolated DNA.

However, the more compelling part of this case for the lay observer is the policy driven dicta that arguably could have impacted this decision, despite the Court’s disclaimer that it was not considering it in this opinion. There was the more human side of the argument that this test was $3000, (1/3 less in Canada where the patent is not recognized) and was not covered by many insurers. Additionally, Myriad sent out cease and desist letters to other researchers and practitioners that were possibly infringing upon their patent, which were effective in chilling others from research similar tests or performing tests. Therefore, there was inadequate means in the market to receive a second opinion on the test, as the only options were a few labs that were licensed under Myriad. This line of rationale leads to a subsequent argument stifling of competition and innovation in such an important area as disease prevention.

On the other side of this argument, the companies and industry groups state that the patent protection is one of the only ways to secure capital investment in researching these areas further. This side goes to the argument that the patent protection is the only safeguard to allow an infusion of monies into this scientific field to allow for innovation. The opinion goes further to explain that Merck essentially put out a free audition to scientists to map the human genome and did not take patent protection over findings, as the human genome was seen to be owned by mankind.

Fascinating arguments on both sides, and I’m sure blogger would not appreciate taking up the bandwidth to hash out all the pros and cons of both sides to eventually lead to a decision of I sure as hell don’t know. However, it does bring this argument even further into the public discourse in the age where patentability of life is becoming ever more important as so many drugs are based on the human genome mapped in the early 2000’s and much of our food and fiber is genetically modified. The opinion briefly discussed a law review speaking of “the tragedy of the anticommons”, which postulates the great number of patent rights holders actually hinders innovation as everyone owns a piece that if researched may overlap someone else’s patent, thereby infringing and subjecting that person to litigation and hefty damage awards.

This concept is particularly apt in light of recent DOJ/USDA antitrust discussions, as much of the anti-competive allegations in row crops are directed at improper use of patents, or just the simple fact that the patent is there in the first place. Cases such as these could fuel fire for much of the fringe legislation that wants all plant patents to look similar to PVPA provisions, which may seem more palpable in the near future based on public perception. It becoming that point where the industry, years after the green revolution, will have to look at itself and see if it is doing right by everyone, or acknowledge if there are ways to tweak the system to encourage innovation and allow for increased competition. This blog post from the Chicago Tribune gives a brief rundown of the happenings going on with the USDA/DOJ discussions that have happened thus far and the Pioneer-Dupont/Monsanto legal squabble.

Race to the finish line for Monsanto's GE Alfalfa

This past Friday, the U.S. Supreme Court granted the petition of certiorari in order to hear the GE Alfalfa case, Monsanto Co. v. Geertson Seed Farms, No. 09-475, that has been causing quite a stir in the biotech world. This is fortuitous for many involved in biotech crops as a similar decision came out recently regarding Round-up Ready Sugar Beets. The Sugar Beet case had a similar result to alfalfa in that it required an Environmental Impact Statement (EIS) to look at possible consequences on the human environment instead of the less stringent Environmental Assessment (EA) that was performed by the Animal and Plant Health Inspection Service (APHIS). The petitioner's brief is due February 25, 2010 and the Respondent's Brief is due March 25, 2010, while the end of the October 2009 term for the U.S. Supreme Court is over in June 2010. This makes everything sound like it is on the fast track to hearing a decision relatively quickly, at least in terms of typical judicial time continuum.

However, there is a factor that could cause a concern with this case being heard if it is not rectified with an Order to Stay by the Supreme Court. The EIS that was ordered by the U.S. District Court in the N.D. of California has been completed by the USDA and the comment period is scheduled to close on February 16, 2010. The EIS came to a finding of no significant impact (FONSI) on the human environment, and more than likely, after review comments, APHIS will deregulate GE Alfalfa. This process could potentially take anywhere from 2-6 months depending on the amount of comments. I would expect there to be a lot of comments with the longevity and passion surrounding this issue, and the recent nod from the U.S. Supreme Court. This means the decision from USDA could be out sometime this summer. This could potentially cause a problem for Petitioner who wanted to create a precedent regarding deregulation of GE seeds, as the case may be moot by the time of oral argument or decision.

Article III of the U.S. Constitution has a case or controversy requirement that forms part of its standing analysis, (a.k.a. whether or not the person bring the suit is the proper party to bring the suit if one still exists). In order for a case to be heard there must have at least two litigants that have a controversy upon which the Court can issue a ruling. If the Alfalfa is deregulated prior to a ruling, than Monsanto no longer has a controversy as the alfalfa seed would be like it was prior to a suit ever being brought by a plaintiff, therefore creating a situation where the opinion would be an advisory opinion from the Supreme Court as the gravaman of the suit is moot.

This problem could be solved by Monsanto motioning for a stay of administrative procedures and the U.S. Supreme Court granting such a stay. This may have been done, but I have not seen anything evidencing it yet. The other way to have it solved is to have the Supreme Court move at the same speed of the famous Bush v. Gore case, but I would put my money on the former of my suggestions to occur first.

Canadian Inventor Sues State Research Universities

I like to toss "seed lawsuit" in the google search bar on occasion to see what's going on in the world-at-large beyond the comfortable confines of my office here in suburban Memphis, TN. I came across a story that I have posted on the reciprocal situation in the past. This time a Canadian inventor company sued three state universities from infringement. Duh-duh-duh-duuun, the plot has thickened on the agricultural patent landscape, and now no one is safe.

The full story can be found here, but I will give you a summary of the article. A Canadian inventor, Soheil Sharafabadi, claims that the University of Idaho in conjunction with Oregon State University and Washington State University infringed upon his patent to create new varieties of higher-yielding mustard seed. Obviously this is much further back in the litigation food-chain than a brownbagging case, as we have competing researchers claiming a "cheat" much like the ballyhoo of Irish in response to the Thierry Henry hand-ball situation.

Sharafabadi (more fun to spell than you think) claims that the research universities used his 1990 "Psuedoplastic Yellow Mustard Gum" patent in the development of U of I's new mustard seed varieties. Through his July 23, 2009 complaint, he claims that Idagold (developed by U of I) as well as more than two dozen other mustard seed varieties were developed by his patent. According to the article and Sharafabadi, the actual patented process consists of boiling the seeds to extract the "gum" or mucilage, which he claims is preferable and used by the Universities due to the alternative taking more time for extraction. The mucilage promotes water storage and germination that can lead to higher yields.

As a commenter noted on the article that at first blush the reporter makes this sound as if the Universities stole patented seeds and developed new lines, but rather this is purely a process patent infringement issue as noted in the previous paragraph. So, its not quite the "Escape from L.A." post-apocalyptic anarchy I foreshadowed in the beginning, but it is a slight twist of the stories that I have presented before.

This does not seem to be Sharafadi's first bout over his 1990 patent as can be seen on this website that seems to be set up by him himself, where it is claimed that there was some sort of plagiarism at the University of Manitoba by a Ph.D. candidate. The website is slightly disjointed and rather difficult to muddle through, but there is a letter by Sharafabadi explaining the educational deprivation that plagirism will bring upon the Canadian universities. Either way it seems a 1990 invention has brought Mr. Sharafabadi a 20 year plus fight.

Comment Period extended for High-oleic acid soybean

Animal and Plant Health Inspection Service (APHIS) has sent out notice that it is extending the comment period for Pioneer Hi-Bred International's high-oleic acid soybean petition for nonregulated status. The original petition that was posted to go with the initial period was found to be the incorrect petition, so the comment period has been extended to December 28, 2009. The comment period is also extended for the Environmental Assessment (EA) and the Plant Pest Risk Assessment. The Federal Register notice from October 26, 2009 is posted here.

Mexico Issues First GM Corn Permits

According to a Reuters article from last week, The Mexican Agriculture Ministry will issue two permits to grow experimental plots of GM corn in regions where there are no native corn varieties. This will put the "birthplace" of corn in the hotbed of controversy over GM foods, but many feel it will help with productivity. The article further states that some Northern Mexico farmers were getting in the game early by illegally growing GM corn prior to any government approval of permits. Supposedly, thirty-five businesses have applied for the permits, including Monsanto.

This battle has gone back over the years, as it was always acceptable to consume GM corn in Mexico, but not plant or grow it. It was said that many farmers ignored this and planted the seeds anyway therefore causing an unintended spread of GM corn within Mexican fields. The report that is the centerpiece of this 2004 Washington Post article states that the proliferation of GM corn in Mexico was also contributed to cross-pollination (a.k.a. genetic drift). That about scares the hell out of most, so its understandable way many fears begin to align in these debates. We'll see how this further develops as this process gives us very interesting insight into the development of biotech plan and attitude that swirled by many of us in the US.

Consumer Choice sends Monsanto's Roundup Ready Sugar Beets back to the Deregulation Drawing Board

The Northern District of California handed down a ruling in Center for Food Safety v. Vilsack, No. C 08-00484 JSW (N.D. Cal September 21, 2009) that would requires the USDA to perform an Environmental Impact Statement (EIS) as opposed to an Environmental Assessment (EA) in their determination of whether to deregulate Genetically Modified Sugar Beets (known as Event H7-1). The court procedurally granted plaintiffs' motion for summary judgment and denied Defendants' cross-motion for summary judgment in order to line up its decision with the Geertson Seeds decision out of the Ninth Circuit regarding Roundup Ready Alfalfa.

The actual technology would make the sugar beets glysophate tolerant, which is similar to roundup ready alfalfa technology in the Geertson case. APHIS created an EA in response to the application for deregulation and reached a Finding of No Significant Impact (FONSI). The Court reasoned that the decision not to use the hard look of the EIS was arbitrary and capricious as there was evidence acknowledged by the agency, but cursorily tossed aside, that proved to be "significantly effect" the human environment as stated in the the procedural statute the National Environmental Policy Act (NEPA) .

The determination of whether an impact is significant will be determined by the context and intensity or severity, as it is defined by factors in 40 CFR 1508.27. The analysis of these will be reviewed by the judiciary under the APA's arbitrary and capricious standard. As stated, the Court found the Agency's conclusory statements regarding severity to deifferent factors arbitrary and capricious and ruled against it.

The evidence the court pointed to was the difference in opinion regarding length of time sugar beet pollen that can be carried by wind or animals was viable and the distance it could travel. In the related point that the Court considered significant was the socioeconomic effect on organic farmers or simply non-GMO farmers if genetic drift were to occur and consumer choice, if there is a significant limit of non-GMO sugar beets used in the market. Defedants countered that there was no real organic sugar beet market and that they simply do not have to take socioeconomic factors into the analysis of whether to issue an EIS. Obviously, the counter-arguments did not win the day. The Court reasoned that the socioeconomic and consumer choice factors were interrelated, if not a diresult of, the environmental factors that must be considered, and therefore carry as much weight.

Simple to this analysis is that consumer choice will be taken into account in the Ninth Circuit (if not elsewhere based on the focus of natural and organic products), and the skepticim especially abroad of GMO seeds should send a message to just use the EIS and scrap the EA in assessing deregulation possibility as of right now.

Don't Gulp the Force Majeure De Jure - a cautionary tale

Recently I read an article on Farm.com by Stu Ellis that was sent out by a colleague regarding the effect of COOL and H1N1 on vertically integrated livestock agriculture. There has been large scale unprofitability in the pork market due to increased food inputs and a decrease in exports attached to the misperceptions of the H1N1 virus based on its more common nomenclature of "swine flu". According to the article, there has been reported losses by the

Iowa State Economists for 18 months in the pork market. Naturally, there is a push down the chain effect as these vertically integrated businesses are set up through production contracts with hog producers that are minimally negotiable. In these contracts there is a "ForceMajeure" Clause, a.k.a. "Acts of God." The secondary name is slightly misleading as a forcemajeure clause can typically cover many things that typically wouldn't be attributed to a diety, such as a changes in law, regulations, riots, and coups. The clause is anticipated to cover extraordinary situations that are beyond the control of the parties and would frustrate the purposes of the contract. These clauses are typically enforceable unless it can be shown that the the use of the clause was overreaching or unconsciousable (a legally defined term).

The panic around the H1N1 pandemic and the push of COOL are now being used as rationale to repudiate contracts through the force majeure clauses, which is a major concern in the livestock sector as there is a lack of insurance options that can be found in row cropping operations. The pork integrators have either repudiated the contracts or simply renegotiated a new contract based on there being a "frustration of purpose" (another legally defined term) in implementing the original contract based on the terms as they were drafted. Some scholars argue that the renegotiation aspects is not typical of use of the force majeure clauses. However, tobacco contracts that were considered void by one party through a force majeure clauses were renegotiated based on price terms in the past. Therefore that behavior has been accepted in general agribusiness dealings beforehand, whether a court would enforce that is still unclear as I can assume that many producers simply took the lower renegotiated price.

Now there are a few concerns I have regarding the whole situation of H1N1 and COOL being used under a Force Majeure clause triggering occurrence, even if there is language in the forcemajeure clause speaking to changes in regulations and legislation.

1.) These are market aberrations directly linked to the product, which can be broadly anticipated by the very participation in a fluid market. A Force Majeure typically covers things such as catastrophic crop damage, earthquakes, four horseman, and rain that forces you to grab two of every animal.

There is an obvious counter in that if the market shuts down where the goods were anticipated to go due to back-to-back contracting (Having a sales contract in place to hedge a production contract, where you as a merchant or integrator are the middle person) than there would be a frustration of purpose of the overall operation that the production contract is just merely one aspect. However, I would argue that unless there is explicit language created a escape hatch for the integrator based on the frustration of purpose in another contract or there is precondition that the "non-producer to integrator" back-to-back contract must be enforceable. More concisely, a force majeure clause should only pertain to events that frustrate the contract that is subject to the clause, not to the entire market unless that is explicitly stated in the contract.

2.) In line with the lack of insurance available to livestock producers, there also seems to be a lack of any traditional or spot market outside of the contracts where the pig producer could sell the pork. Therefore, the unconsciousability could be used in the new offer to renegotiate as there are no viable alternatives to the producer at the time. This argument would obviously depend on the other clauses of the contract and the state where it is brought as contract laws vary from state-to-state.

The market would only be a concern if the integrator repudiates the contract and abandons the hogs or signs over title to the hogs to the producer. However, the market is still virtually unavailable to go at it your own if you are a hog farmer which would still allow anunconsciousability argument for any renegotiation.

3.) The contractor's lien spoken of in the article should be expanded and enacted in all states that there are a multitude of vertically integrated agriculture. These producers are purely service providers, much like a mechanic, where they have a temporary possessory interest in the goods (hogs in this case) but do not have actual title to the animals. As long as the producers actually file these statutory liens it could be effective means, so long as there is some form a non-retaliation provision for enforcing statutory rights.

****I put this on the seed law blog since many seed companies are going into new areas through use of production contracts and crops that will not have subsidized crop insurance, therefore no crop insurance may be covering the product as many contractors will say "give me whatever you produce as we need to use it all so that we can ramp up production." This is where I implement this cautionary tale due to the increased used of GM seeds and the constant back-and-forth on the general acceptance of GM. So:

1.) Please read the contract and understand it. Have an attorney trained in these type of contracts to take a look to help with the understanding. I understand this can be pricey, but if you are undertaking a huge obligation in your business (you be the judge), please seek assistance in understand the legally defined terms.

2.) You may be able to negotiate the contract much more than a vertically integrated hog producer without having the other party walk away from the table.

3.) Make the expectations and clauses known in the contract to avoid future surprise - it will save money and hurt feelings, as well allow the parties to truly assess liabilities. In other words, Be a Straight Shooter.

4.) Get to know your rights if there is future communications where the other party tells you want the contract means, and you take it as a surprise.

Don't be afraid of taking advantage of opportunities for new markets or technologies, but please make informed choices or you may be eventually visiting another type of attorney - a bankruptcy one.