Yesterday it was reported that the number of Americans submitting a claim for unemployment rose again this week. This morning news broke that the U.S. economy added only 142,000 jobs during the month of August, which was far less than the 225,000 jobs expected to be added during August. According to the Wall Street Journal, “around 60,000 people dropped out of the labor force in August, pulling the labor-force participation rate down to 62.8%.” Job creation at these levels are barely enough to keep up with the population growth, and a far cry from the 300,000+ jobs created that would signal a truly healthy and healing economy.
On the very same day that the U.S. jobs report shows unexpectedly weak growth, the Federal Court of Australia issued a ruling directly opposite to the ruling rendered by the United States Supreme Court relative to gene patents. In Yvonne D’Arcy v. Myriad Genetics, Inc., the Federal Court of Australia ruled that Myriad’s claims to isolated DNA are patentable under the laws of Australia. That is the correct ruling, and it is the ruling the U.S. Supreme Court should have reached in Association of Molecular Pathology v. Myriad Genetics. As the patent eligibility laws of the U.S. become increasingly inhospitable to high-tech innovative businesses we can expect more job losses and worse news for the U.S. economy on the horizon.
As I recently explained in Erosion of Patent Rights Will Harm the U.S. Economy, the United States became the dominant world power in the biotechnology industry because of an expansive view of patent eligibility. Thanks to the U.S. Supreme Court’s decision in Diamond v. Chakrabarty, which ruled that genetically modified bacteria could be patented, the biotechnology industry was born. In fact, Chakrabarty was critical to the very foundation of the U.S. biotechnology industry. “By finding that subject matter derived from nature is eligible for patenting if it is modified by man into something new, useful and unobvious, the Court provided assurance to biotech companies and their investors that emerging technologies are protected by the patent system even if they could not have been foreseen when the system was created 200 years earlier,” explained Jim Greenwood, President and CEO of the Biotechnology Industry Organization, in June 2010 on the 30th anniversary of the decision.
It is well documented throughout history that companies will locate in countries where the technology and innovations they are working on enjoy the most protection. Innovation just doesn’t happen, it requires hard work, real dedication and in the biotech sector a lot of funding over a prolonged period of time from investors. And let’s be perfectly honest — without the investments in these early stage companies the innovations that the public and media want open to society would never have happened. The testing and screening that the ACLU and others are arguing to be open wouldn’t have existed.
Innovation is not inevitable and anyone that tells you otherwise is simply lying to themselves or ignoring history and the human condition. Incentive is necessary to drive innovation; both from the inventor side and from the investor side. Paradigm shifting innovation occurs where solid technology can be meaningfully protected. This causes investors to be interested because of the potential competitive advantage, which means they provide the capital necessary to move forward. And let’s not kid ourselves, the innovations we want in the pharmaceutical and biotechnology sectors require investment of hundreds of millions of dollars, if not tens of billions of dollars in some cases. No one in their right mind would provide that kind of funding without some expectation of a suitable return on the investment — no one!
With the decision earlier today from the Federal Court in Australia it becomes inescapably clear that the United States is no longer a stable, welcoming business climate for a large portion of the biotechnology industry. Change won’t happen overnight, but in the wake of this decision biotechnology companies, particularly start-up companies, will increasingly move to or simply form in Australia and other countries that recognized the patentability of these important innovations. This is terrible news for an already lethargic U.S. economy. The biotechnology sector had been one of the brightest spots in a terribly under performing broader economy. The median salary for those employed in the biotechnology sector ranges from $70,000 to $99,000 depending on the size of the company. Those are high paying jobs that far exceed the low wages for the service jobs that are overwhelmingly those that are being created during the Obama recovery.
But the most interesting aspect of this story isn’t the fact that there will be a sucking sound of jobs leaving the U.S. as our laws become increasingly inhospitable to biotechnology companies. Instead, what is particularly interesting is that the Federal Court of Australia went out of their way to slam the United States Supreme Court. The last five substantive paragraphs of the ruling of the Federal Court of Australia are compelling:
214. The isolation of the nucleic acid also leads to an economically useful result – in this case, the treatment of breast and ovarian cancers. This is surely what was contemplated by a manner of new manufacture in the Statute of Monopolies. As Moore J explained in the Federal Circuit, ‘it is not the chemical change alone, but that change combined with the different and beneficial utility which leads me to conclude that small isolated DNA fragments are patentable subject matter’.
215. The US Supreme Court rejected the claim over isolated nucleic acids for much the same reasons as those pressed by the appellant in this case. It is difficult to reconcile that Court’s endorsement of the reasoning in Chakrabarty, with its rejection of isolated nucleic acid as eligible for patentability. With respect, the Supreme Court’s emphasis on the similarity of ‘the location and order of the nucleotides’ existing within the nucleic acid in nature before Myriad found them is misplaced. It is the chemical changes in the isolated nucleic acid which are of critical importance, as this is what distinguishes the product as artificial and economically useful.
216. The fact that, hypothetically, if the isolated DNA sequence were replaced into the cell it would express the same proteins is irrelevant. Following Chakrabarty and NRDC, the isolated nucleic acid has ‘markedly different characteristics from any found in nature’; Myriad did not merely ‘separate that gene from its surrounding genetic material’. It should make no difference that in Chakrabarty there was an “addition” (of the plasmids) to the natural product (the bacterium); this is not the appropriate test. Myriad’s claim, properly considered is not, as the US Supreme Court considered, concerned ‘primarily with the information contained in the genetic sequence [rather than] with the specific chemical composition of a particular molecule’.
217. The reasoning of Lourie and Moore JJ of the Federal Circuit is persuasive. It accords with the High Court’s reasoning in NRDC and Microcell. The US Supreme Court accepted that cDNA is patentable. It rejected the isolated nucleic acid of claim 1 because it accepted wrongly, with respect, that the isolated nucleic acid is a “product of nature”. In any event, that exclusion is not in accordance with the principles of patent law in Australia and has been specifically rejected as a reason for exclusion in NRDC.
218. The isolated nucleic acid, including cDNA, has resulted in an artificially created state of affairs for economic benefit. The claimed product is properly the subject of letters patent. The claim is to an invention within the meaning of s 18(1) of the Act.
Additionally, the Federal Court of Australia also directly took on the absurd notion that isolating DNA is akin to snapping a branch off a tree. The Federal Court of Australia explained:
In the decision of the US Court of Appeals for the Federal Circuit, Bryson J (dissenting) drew on a metaphor, likening an isolated nucleic acid and a branch being snapped off a tree. That is inapposite. The branch has not changed – it is simply divorced from the tree, whereas the chemical and physical makeup of the isolated nucleic acid renders it not only artificial but also different from its natural counterpart.