In recent years, “parking spots” in the geosynchronous orbit have become an increasingly hot commodity.  According to the National Aeronautics and Space Administration (NASA), since the launch of the first television satellite into a geosynchronous orbit in 1964, the number of objects in Earth’s orbit has steadily increased to over 200 new additions per year.  This increase was initially fueled by the Cold War, during which space was a prime area of competition between the United States and the Soviet Union.  Yet over two decades after the end of the US-Soviet space race, even the global financial crisis that began in 2007 does not seem to have diminished the demand for telecommunications satellites positioned in GSO.  This ongoing scramble to place satellites in GSO prompted some developing equatorial countries to assert sovereignty over the outer space “above” their territorial borders, presumably with the hope of extracting rent from the developed countries that circulate their technologies overhead.  So far, the international community has rejected this notion, but the legal status of the GSO remains in limbo.

by Nima Nayebi*

There is no strife, no prejudice, no national conflict in outer space as yet.  Its hazards are hostile to us all.  Its conquest deserves the best of all mankind, and its opportunity for peaceful cooperation many never come again.

— President John F. Kennedy**

I. Introduction

With the advent of new technologies, places that previously seemed off limits to human exploration have at times become the subjects of international tension.  Just as maritime, and later, airspace sovereignty issues spurred the development of sui generis regimes of international law to govern their parameters, outer space is in need of a strong international legal regime in order to avoid looming conflict and disaster.[i]  The Outer Space Treaty of 1967 provides that outer space is the province of all humankind and is to be used for the benefit of all countries.[ii]  But as Professor Nina Tannewald points out, “the current legal regime in space is increasingly fragmented and inadequate to meet the challenges of the intensifying use of space.”[iii]  Indeed, the very positivist nature of international law weakens the little adequacy that does exist in the current body of space law.[iv]

One particular area of concern in the administration of outer space is the allocation of highly desirable “real-estate” in the geosynchronous orbit (GSO) among the various countries.  This is because the GSO is composed of a set of vantage points around the Earth’s equator from which satellites have the “best seat” to communicate with the planet below.[v]  Counting only satellites officially indexed by the United Nations Office for Outer Space Affairs (UNOOSA), there have been approximately 6,260 satellites launched into space, beginning with the launch of the first human-made satellite—Sputnik I—in 1957.[vi]  Approximately 854 of these satellites were positioned in geosynchronous orbit, and 516 are currently active.[vii]

In recent years, “parking spots” in the geosynchronous orbit have become an increasingly hot commodity.[viii]  According to the National Aeronautics and Space Administration (NASA),[ix] since the launch of the first television satellite into a geosynchronous orbit in 1964, the number of objects in Earth’s orbit has steadily increased to over 200 new additions per year.[x]  This increase was initially fueled by the Cold War, during which space was a prime area of competition between the United States and the Soviet Union.[xi]  Yet over two decades after the end of the US-Soviet space race, even the global financial crisis that began in 2007 does not seem to have diminished the demand for telecommunications satellites positioned in GSO.[xii]  This ongoing scramble to place satellites in GSO prompted some developing equatorial countries to assert sovereignty over the outer space “above” their territorial borders,[xiii]  presumably with the hope of extracting rent from the developed countries that circulate their technologies overhead.  So far, the international community has rejected this notion, but the legal status of the GSO remains in limbo.[xiv]

The inevitability of technological and scientific progress promises a future full of challenges for space lawyers, who will ultimately be responsible for the composition of (and adherence to) international law in this new frontier.  In this Note, I will explore a topic that may initially seem like a plot out of Star Trek, but is very much real, and will become even more relevant as humanity ventures farther from home.

The question confronting us today is: who owns the GSO? Arguably, our modern notions of sovereignty, as attributed to the signing of the Peace of Westphalia in 1648, have not been extended to outer space, including the Moon and other “celestial bodies.”[xv]  This is partly because the inception of space law took place under the auspices of the United Nations with the participation of new countries that were former colonies, and partly because the technology needed to “conquer” space was novel at the time of this inception.[xvi]  In this Note, I start in Part I analyzing some of the past and present controversies surrounding the notion of sovereignty and its application to the GSO.  In Part II, I briefly discuss the origins of our notion of sovereignty and its epidemic spread in the post-colonial era.  Part III explores our current space law regime, including the Outer Space and Moon treaties.  In Part IV, I address past and possible future attempts to declare sovereignty over the geosynchronous orbit.  Part V, considers other territorial dominions of international law—land, sea, air, and Antarctic law—since these are often cited as analogies from which to construct a body of outer space law.  Finally, this Note argues that rather than determining the future of outer space by analogy to our traditional notions of sovereignty, it is beneficial to acknowledge that outer space is inherently different and in need of its own sui generis legal regime.

There is no strife, no prejudice, no national conflict in outer space as yet.  Its hazards are hostile to us all.  Its conquest deserves the best of all mankind, and its opportunity for peaceful cooperation many never come again.

— President John F. Kennedy**

II. Sovereignty: 1648 in Outer Space?

The familiar notion of the sovereign nation-state is commonly attributed to the conclusion of the Peace of Westphalia in 1648.[xvii]  Since this notion was born in Europe, initially only the European powers enjoyed their self-endowed sovereign status.[xviii]  These powers declined to extend the privilege to their colonies and territories until a wave of independence swept the globe during the 1960s and 70s.[xix]  By then, the idea of sovereign nation-states with political independence and territorial integrity took on the characteristic of jus cogens, a peremptory norm of international law from which derogation is not permitted, and that is equally applicable to all countries.[xx]

International relations scholars often argue that these newly independent countries have embraced the import of sovereignty even more than their European originators.[xxi]  Indeed, during the wave of independence, S. Prakash Sinha observed: “Sovereignty is the most treasured possession of the newly independent States.  On the one hand, it makes them the master of their own house and, on the other hand, it provides them with a legal shield against foreign incursions [by] stronger States.”[xxii]  The newly independent states have a strong attachment to their sovereignty perhaps because it is all (or almost all) they have in the wake of their post-colonial experience.  Certainly, the newly independent countries have sought to establish a new international order—one in which their former silence is replaced by input into the future of humankind.[xxiii]

These countries have and continue to criticize the current body of international law as “a product of relations among imperialist States and of relations of an imperial character between imperialist States and colonial peoples.”[xxiv]  Thus, it is in this unique context of rapid technological development and the assumption of legal personality by the former colonies that international space law has developed, and it is in this environment that it continues to evolve.

During the early 1960s, before the existence of any international space treaties, some commentators argued that the space directly above a country’s earthly territory is that country’s sovereign space.  Professor Michael Milde of the Institute of Air and Space Law at McGill University argued that “the principle of national sovereignty over the space above national territory represents an ancient principle firmly based on customary international law.”[xxv]  However, the United Nations thought it otherwise when, through the Outer Space Treaty of 1967, it prohibited the national appropriation of outer space, including the Moon and other celestial bodies.[xxvi]  But even the Outer Space Treaty places objects and personnel launched by state-parties under the exclusive jurisdiction and control of the launching country, essentially creating small pockets of sovereignty in outer space.[xxvii]  In these “pockets” of sovereignty, countries can extend their laws to protect, for instance, their intellectual property.  For example, American patent law applies onboard space vehicles over which the United States has jurisdiction or control.[xxviii]  What is evident here is that the notion of state sovereignty is deeply rooted in the global psyche, and as space law demonstrates, any attempt to deviate from this norm will not be easy.

III. The Sputnik Regime

Although space law did not exist as such before the launch of Sputnik I, there was already debate and conjecture over the legal problems that could arise should humanity venture into outer space.  Vladimír Mandl, the father of space law, first published on the issue in 1932, and Welf Heinrich, Prince of Hanover, submitted the first doctor of laws thesis on space law in 1953.[xxix]  Countries such as Germany, the United States, and the Soviet Union made progress in the realm of space technology before World War II, but it was the War itself that truly catalyzed the field.[xxx]  The visionary scholarship of Mandl and Heinrich concerning outer space became a reality in 1957, when the Soviet Union launched Sputnik I.[xxxi]

The new global concern was reflected in the UN General Assembly’s establishment of the Committee on the Peaceful Uses of Outer Space (“UNCOPUOS”),[xxxii] whose goal is to “promote energetically the fullest exploration and exploitation of outer space for the benefit of mankind” in a peaceful manner and for peaceful purposes.[xxxiii]  UNCOPUOS’s role also includes investigating how “space-related programs could be undertaken under [UN] auspices and to study the legal problems that might arise from the exploration and use of outer space.”[xxxiv]  In 1961, a mere four years after the launch of Sputnik I, Yuri Gagarin became the first man to complete a space flight.[xxxv]  By 1969 Neil Armstrong had left the first human footprints on the lunar surface.[xxxvi]  It was in this climate of technological explosion in the shadows of WWII, and in the midst of the Cold War, that the international space regime came into being.  According to Professor John Hickman:

Fear gave birth to the international legal regime for outer space: the ever-present fear of a nuclear war between the United States and Soviet Union, the fear that either superpower would achieve a decisive military technological advantage over the other in outer space, the fear that competition for the best “real estate” on celestial bodies might itself result in war between the superpowers, and the fear that the superpowers might cooperate in a duopoly over all of outer space.[xxxvii]

The body of law that was born out of this mise-en-scène consists of a series international treaties and agreements[xxxviii] overseen by UNOOSA, which was formed in 1968 and had its origins in the 1958 UNCOPUOS Resolution.[xxxix]

From its seat in Vienna, UNOOSA’s role is to implement the decisions of the General Assembly and to discharge various administrative functions, including maintenance of the “Register of Objects Launched into Outer Space.”[xl]  The most successful of the space agreements (measured in terms of signatories) is the Outer Space Treaty,[xli] while the least accepted is the Moon Agreement of 1979.[xlii]  There has been much debate over whether space law is a separate branch of international law or whether it is an extension of air law, especially since the boundary between outer space and the air has yet to be defined.[xliii]  In other words, today it is legally uncertain where the sky ends and outer space begins.[xliv]  Nonetheless, as Professor I. H. Ph. Diederikus-Verschoor has argued, this debate is largely moot now because space law is “manifestly distinctive from air law which governs the airspace and the law of the sea which is concerned with the seas and the oceans.”[xlv]  As the newest branch of international law operating within the Westphalian regime of sovereign countries, the common threads in space law to date have been the “maintenance of international peace and security and the promotion of international co-operation and understanding,” and deviation from national sovereignty[xlvi] as evidenced by the Outer Space Treaty of 1967 and the Moon Agreement.  These agreements are most relevant to the topic of territorial sovereignty—or lack thereof — in outer space, so let us explore each in turn.

A.      The Outer Space Treaty of 1967

Proclaimed the “Magna Carta of international space law,”[xlvii] ninety-eight countries, including the U.S., Russia, and most of Europe have signed and ratified the Outer Space Treaty as of 2011.[xlviii] A chief accomplishment of the Treaty is the establishment of a regime for freedom of exploration, and free access to the celestial bodies, but this freedom is in fact limited by a number of the Treaty’s provisions.[xlix]  Before considering the Outer Space Treaty further, it is helpful to list some of its core principles:

(1) The exploration of outer space, including the Moon and other celestial bodies shall be carried out for the benefit and in the interest of all countries.

(2) Outer space shall be free for exploration and use by all states on a basis of equality.

(3) Outer space shall not be subject to appropriation by claim of sovereignty, by means of use or occupation, or by any other means.

(4) Activities in the exploration and use of outer space must be carried out in accordance with international law, including the Charter of the United Nations, in the interest of maintaining peace and security.

(5) No nuclear weapons or any other kinds of weapons of mass destruction shall be . . . placed in orbit around the Earth.

. . .

(10) State Parties on whose registries the space objects are carried keep jurisdiction and control over such objects and the personnel thereof recorded in their registries.[l]

Article I of the Treaty requires that exploration, while free, “shall be carried out for the benefit and in the interests of all countries, irrespective of their degree of economic or scientific development, and shall be the province of all mankind.”[li]  Article I also requires that space exploration be conducted on an equal footing without discriminating against countries.[lii]  In a significant break with the Westphalian regime, Article II prohibits the appropriation of the Moon and other celestial bodies by any one country, either through claims of sovereignty or through use or occupation.[liii]  Diederiks-Verschoor and Kopal characterize this ban as “an absolute legal barrier in the realization of every kind of space activity.”[liv]  This is in sharp contrast to air law and the law of the sea, which embrace the construct of national sovereignty.[lv]  The Treaty also bans the placement of nuclear weapons or weapons of mass destruction in Earth’s orbit, on the celestial bodies, or anywhere else in outer space.[lvi]  Article V declares that astronauts are “envoys of mankind” and must be aided by other countries when in distress.[lvii]  In other relevant articles, the Treaty holds launching countries liable for damage caused by their space objects[lviii] and imposes a duty to avoid “harmful contamination” of the Earth’s environment by the introduction of extraterrestrial substances.[lix]

It is important to note that the Outer Space Treaty applies only to countries and does not directly apply to non-state entities such as corporations.  This is because the assumption that only states or government-supported organizations are capable of mustering the resources needed to navigate space is one of the “salient” features of space law as it stands today.[lx]  Such an assumption has made space law largely “conventional;” that is, it has consisted of “rules laid down in international conventions, treaties, accords, or whatever other title international agreements may carry.”[lxi]  Article VI holds national governments directly responsible for supervising and approving the activities of their respective non-governmental entities.[lxii]  These general principles established in the Outer Space Treaty have been subject to elaboration and legal evolution in subsequent international agreements.  The last and least successful of these is the Moon Agreement.

B.     The Moon Agreement of 1979

The primary force behind the Moon Agreement was a well-intentioned desire to elaborate on the body of space law established by the Outer Space Treaty of 1967.[lxiii]  Perhaps the best-known and most successful contribution of space law to international law is the concept of the “common heritage of [hu]mankind,”[lxiv] which appears for the first time in the Moon Treaty.[lxv]  This notion, which was originally introduced to the international polity during the 1967 negotiations on outer space by the Argentine and Maltan ambassadors to the UN,[lxvi] is now enshrined in the Moon Treaty,[lxvii] and its use has increased exponentially in international agreements—especially in those having to do with the environment.[lxviii]

Traditionally, international law divided the world into national territory, or res nullius (areas which may be appropriated as national territory), and res extra commercium (areas which may not be appropriated as national territory).  The areas not subject to national appropriation—the high seas, the sea bed, Antarctica, and outer space—are commonly referred to as the global commons.[lxix]  The common heritage of humankind added a fourth dimension to the status quo by creating a category for areas which not only may not be appropriated as national territory, “but the fruits and resources of which are also deemed to be the property of [hu]mankind at large.”[lxx]  In addition to requiring the international management of resources through international cooperation, the most controversial aspect of this doctrine has been the mandate that benefits derived from the use and exploitation of natural resources in common heritage areas (such as the Moon) must be shared among all countries.[lxxi]  Realizing that “they do not command the technology to take advantage of resources in these hard-to-reach places,” developing countries place emphasis on this provision as a means for the equitable allocation of benefits derived from our common heritage.[lxxii]

The Moon Treaty declares: “The Moon and its natural resources are the common heritage of [hu]mankind, which finds its expression in the provisions of this Agreement, in particular in paragraph 5 of this article.”[lxxiii]  Paragraph 5 in turn calls for the establishment of an international management regime “to govern the exploitation of the natural resources of the Moon as such exploitation is about to become feasible.”[lxxiv] This paradigm, which does not extend to the GSO, was one of the principal reasons behind the Moon Agreement’s failure.[lxxv]

The Moon Agreement encountered a great deal of controversy at the UN, causing particular tension over the issue of lunar resources.[lxxvi]  The trouble with the common heritage doctrine is its quality as a resource sharing principle.  It goes far beyond the non-appropriation principle of the Outer Space Treaty, calling for the allocation of profits from space amongst all UN member countries in “what might be termed ‘dividing the pie.”[lxxvii]  While the impetus of the developing countries is to benefit from the common heritage concept, the conflicting concern of the developed countries might be termed “collecting the apples that go into the pie.”[lxxviii]  It was this conflict over the common heritage doctrine that caused the Moon Agreement to become a peripheral agreement of little importance.  This last attempt at refining the Outer Space Treaty was not ratified by a single space-faring country,[lxxix] and irrespective of this, it did nothing to clarify the status of open space or the GSO under international law.[lxxx]  Indeed, it is difficult to conceive that any space-capable country will ever subscribe to the common heritage doctrine and that this doctrine will ever apply to the GSO.  Countries that invest in research, development, and deployment of spacecraft will not realistically want to share the fruits of their labour with the rest of the world.  It is also probable that this doctrine—if accepted—would make space exploration less profitable, removing at least some of the motivation for venturing out beyond planet Earth.  Scott Shackelford has proposed that a viable alterative is to grant countries limited property rights in the common heritage realms so that they have an incentive for investment in the exploitation of these resources.[lxxxi]  This proposition echoes what is already a provision of the Outer Space Treaty: Article VIII’s grant of jurisdiction and control of spacecraft and objects constructed on a celestial body to the launching state.[lxxxii]  The problem with such a proposition is that countries that are not space-capable would likely be unable to partake in this grant of limited sovereignty (or property rights).  Had the UN drafted a different treaty, one that declared open space and the GSO common heritages of humankind, the concept may have had a better prospect of gaining international acceptance because, afterall, the issue of resource extraction from empty space is not likely to be controversial.  Such a treaty may have at least indirectly alleviated some of the concerns over ownership of the GSO by clarifying its status under international law as a common heritage of humankind.  This would have made no practical difference since there is (as yet) no resource extraction from empty space, and geosynchronous satellites and their benefits would remain with the launching states.  Such a provision may have, however, paved the way for later inclusion of the common heritage doctrine in documents such as the Moon Agreement.

We have arguably established that the GSO is not a common heritage of humankind, but that it is res extra commercium under the current international legal regime.[lxxxiii]  One might logically think that (with the exception of Article VIII jurisdiction and control rights) no country may appropriate any portion of the GSO; still, the lack of a definite boundary between air and space leaves open a large loophole that may yet provide an avenue for national appropriation of the GSO.

IV. Sovereignty over the GSO?

The GSO is the orbit around the Earth’s equator at an altitude of approximately 35,785 km (22,236 miles); the orbit takes twenty-four hours to complete.[lxxxiv]  From this position, an orbiting satellite can “see” about one third of the planet’s surface at a time.[lxxxv]  According to NASA, this altitude allows for a “broad view” that, when combined with “the ability to hover over a single equatorial location,” has made the GSO very popular for communications relay and weather monitoring spacecraft.[lxxxvi]  Satellites in the GSO that appear to remain stationary in the sky when viewed from the ground are called “geostationary.”[lxxxvii]  This is an especially desirable position for telecommunications satellites since they can maintain a constant link with their contact point on the Earth from these parking spots.[lxxxviii]  Satellite communications is an immensely profitable enterprise.[lxxxix]  There is a long queue for access to the GSO, comprised of “companies proposing new services (such as direct-to-home broadcast television and mobile communications for trucking or airline fleets) and representing newcomers, particularly developing countries, now entering the market for satellite services.”[xc]  This queue is administered by the Space Services Department of the International Telecommunication Union (ITU) under the auspices of the UN.[xci]

It is no surprise, then, that the “commodification” of these vantage points in space and their relative allocation among the various countries is a point of international dispute.[xcii]  Even the drawing of a boundary between the air and outer space has been controversial because the classification could potentially push the GSO into the province of air law rather than space law.  Imposition of an internationally recognized, definitive boundary between air and space could cause a shift in the treaties applicable to the GSO.[xciii]  You will recall that the basic premise of space law is to promote the exploration and exploitation of outer space for the benefit of humankind, free from the normative notion of sovereignty.[xciv]  This proposition is rather different from that of air law, which (like the law of the sea) is based on the Westphalian model of sovereign nation-states.  The Paris Convention of 1919 on international air law was premised on the idea that “[p]arties recognize that every Power has complete and exclusive sovereignty over the airspace above its territory.”[xcv]  Exclusive sovereignty over airspace is now the norm, and has been codified by many countries: in 1920, for example, the United Kingdom Parliament declared, “[t]he full and absolute sovereignty and rightful jurisdiction of His Majesty extends, and has always extended, over the air.”[xcvi]  Similarly, in 1957 the US Congress declared that “[t]he United States Government has exclusive sovereignty of the airspace of the United States.”[xcvii]  For our purposes, we will think of the GSO as part of space rather than the air,[xcviii] but some countries have already (and may again) challenge this definition and attempt to assert sovereignty over the GSO as their “territorial outerspace” under international air law.[xcix]

A.     The Bogotá 8

Controversy over ownership rights and sovereignty over this finite space resource has not been entirely lacking.  Up to now, the United States, Russia, and a few other developed countries have enjoyed the most “space” in the GSO.[c]  The U.S. has about 339 satellites in the GSO,[ci] six of which, for example, served DirecTV satellite television company as of 2004.[cii]  During the decolonization wave of the 1970s, developing countries became cognizant that their former colonizers’ use of the GSO for telecommunications could hinder their ability to access this resource in the future.[ciii]  Lawrence D. Roberts writes that, “[o]f even greater concern to the developing states were the uses to which communication technologies were being put. Distribution of news and other information to developing populations was perceived as former colonial powers foisting inappropriate and dangerous perceptions and values on the citizens of developing states.”[civ]  In other words, the former colonies were foreshadowing the threat to their sovereignty by Western cultural imperialism, which has now ironically become an established by-product of globalization.[cv]

By 1976, a group of eight equatorial countries led by Colombia (the “Bogotá 8”) sought to secure the rights to the geostationary positions directly over their territories[cvi] by extending their sovereignty to “outerspace.”[cvii]  The 1976 Bogotá Declaration encapsulated their aspirations, though it was difficult for the equatorial group to make their claim of sovereignty given the Outer Space Treaty’s express abrogation of national sovereignty over outer space.[cviii]  A further problem was that since none of the Bogotá 8 countries were space-capable at the time, a legal violation of the Outer Space Treaty on their part would have probably prompted the space-faring countries to take advantage of the opportunity and assert their own claims of sovereign rights over other parts of space.[cix]  To elude this possibility, the group of eight argued for a special exception for the GSO:

Reasoning that the orbital arcs above each declaring nation were fixed, the declarants argued that those arcs should not be considered a part of outer space at all, but rather should be considered a natural resource arising directly out of terrestrial gravitational phenomena.  Since each nation has a right of control over its own natural resources, they argued, the portions of geostationary arc should be controlled by those nations having territory directly underneath.[cx]

As discussed earlier, commentators have long pointed to a loophole in the Outer Space Treaty caused by the lack of a clear line of demarcation between airspace and outer space.  The Bogotá 8’s argument that the GSO arises directly from the Earth’s gravity implied that everything that lies in Earth’s gravitational field is airspace and hence should not be governed by space law but rather by air law.[cxi]  This reasoning allowed the Bogotá 8 to make claims of sovereignty without contravening international law, and without prompting space-capable countries to follow suit.  In the Bogotá Declaration of 1976, the equatorial countries asserted that the placement of satellites in their respective portions of the GSO required “express authorization on the part of the concerned State.”[cxii]  The Bogotá 8 restated their claims to geostationary sovereignty at the 1977 World Radio Conference held in Geneva, Switzerland, and later that same year at the UN Outer Space Legal Subcommittee.[cxiii]  In a statement by the Colombian delegate E. Gaviria, the group maintained that their proclamation of sovereignty over their respective segments of the GSO was not in conflict with the Outer Space Treaty and that this Treaty “did not take account of the interests of developing countries.”[cxiv]  During the meeting, Kenyan delegate J. Simani pointed to the need for a definition of the boundary between the air and space that was sensitive to “the special position of equatorial countries with respect to the GSO forming part of their natural resources.”[cxv]  Essentially, Mr. Simani argued that the GSO should be considered a part of airspace, and hence, immune from the Outer Space Treaty regime.

Not surprisingly, the equatorial countries’ arguments did not go over well at the Outer Space Legal Subcommittee.  The Soviet delegate, Mr. B.G. Maiorski, argued that the GSO was part of outer space and that the coincidental location of the equatorial countries did not create any rights in the orbit.[cxvi]  In the end, the overwhelming consensus at the Subcommittee was that claims of sovereignty over the GSO or any other part of outer space are incompatible with the express and implied spirit of the Outer Space Treaty and should be dismissed.[cxvii]  However, to deflate the situation and bring temporary resolution to the issue, the ITU agreed to set aside certain GSO “parking spaces” for future use by non-space-faring countries.[cxviii]

Nonetheless, the question of whether the GSO is part of outer space or the air remains unanswered.  Professor Andrej Gorbiel, who was the Polish delegate at the Outer Space Legal Subcommittee in 1977, has written that the main objective of the Outer Space Treaty was to promulgate rules to govern the activities of countries in their outer space adventures.[cxix]  He argues:

[t]his use encompasses objects launched into outer space and in particular artificial earth satellites placed in orbit around the earth.  Therefore, the implementation of the [Outer Space Treaty] is possible on the assumption that its provisions concern those regions of space in which the . . . satellites are placed.[cxx]

Gorbiel concludes that to argue otherwise would deprive the Outer Space Treaty of the reason for its existence.[cxxi]  In 2001, at its 44th session, UNCOPUOS agreed that “[t]he GSO, characterized by its special properties, is part of outer space.”[cxxii]  In line with our assumption that space law governs the GSO, it would seem that, thus far at least, the orbit is immunized from dissection by equatorial sovereigns.

B.      The Bogotá _ _ _?[cxxiii]

You may question the relevance of the events of 1976 in today’s rapidly changing world, but the issue of the ownership of the GSO is not likely to fade away anytime soon.  While from a Western perspective the failure of the Bogotá 8 to garner support for their Declaration may appear to be in the best interest of humanity, the current system lacks an element of fairness for the developing world.  In this sense, the Bogotá Declaration may be thought of as not only a demand for sovereignty over portions of the GSO, but as a symbolic disapproval of the current “first come, first served”[cxxiv]  arrangement in space, where wealthy countries disproportionately enjoy the benefits of new space technologies.[cxxv]

At present, developing countries are more reliant on telecommunications satellites than the developed world because they have limited telephone networks and less infrastructure.[cxxvi]  Wealthier countries, on the other hand, have an abundance of networks that serve their robust mobile telephone and broadband Internet markets.  These services are delivered mainly via less expensive low Earth orbit satellites and terrestrial networks rather than geostationary sources.[cxxvii]  As demand for information services increases in developing countries, the spirit of the Bogotá Declaration is likely to linger.

In 1991, Colombia, the principal actor of the Bogotá 8, promulgated its new constitution.  In defiance of international law, article 101 sets out the regions over which Colombia enjoys sovereignty.  Paragraph 4 of the article reads:

Also part of Colombia is the subsoil, the territorial sea, the contiguous zone, the continental shelf, the exclusive econ-omic zone, the airspace, the segment of the GSO, the electromagnetic spectrum and the space in which it operates, in accordance with international law or the laws of Colombia in the absence of international regulations.[cxxviii]

This constitutional declaration illustrates that Colombia still disputes the existence of international regulations applicable to the GSO or, that the GSO falls within the ambit of the Outer Space Treaty.  This assertion enables Colombia to claim that its declaration of sovereignty over the GSO is “in accordance with international law.”[cxxix]

Arguably, it is not just developing countries that wish to acquire territorial rights in the space above their land.  Despite having ratified the Outer Space Treaty in 1983,[cxxx] an “increasing number of publications by influential Chinese authors (are) advancing the principle that China’s sovereignty extends through outer space,” reasoning that there is still no legal line of demarcation that would prevent such an extension.[cxxxi]  With the continuing classification of the GSO as res extra commercium and the resulting advantage to wealthy space-faring countries, it is likely that the Bogotá 8 will grow and make a comeback as the Bogotá _ _ _.  Thomas Gangale argues that many “entities have contracted with [satellite] launching States to place their own satellites in the [GSO], and this number will only grow as more States develop the need for positions in the [orbit].”[cxxxii]  However, if countries must rely on a contractual relationship to benefit from satellite technology, this may exacerbate access and sovereignty issues in relation to the GSO, and may be viewed as a form of space neocolonialism.  To avoid this scenario, it is necessary to find an alternative classification for the GSO.

IV. Analogies to Other Territorial Norms

Freedom of the seas, or rather the ownership of the seas, has been a topic of discussion since antiquity.[cxxxiii]  In the pre-Christian era, freedom of the seas posed problems for interstate politics, but it was not yet “a matter of formal international law.”[cxxxiv]  Today, the Law of the Sea is a well-developed branch of international law.  To this, we have added Air Law, as well as an Antarctic regime.  These separate branches of international law are often used as the rationales for arguments for or against sovereignty in outer space.  According to Lieutenant Colonel Patrick W. Franzese, during the initial development of international sea and air law there were calls for establishing sovereignty-free regimes, but “state interests, such as trade and national security, combined with a state’s technological capabilities, ultimately prevailed over these arguments and determined the current legal status of these domains.”[cxxxv]  In the following sections, we shall look briefly at these bodies of law because they have each confronted the issue of national sovereignty and they provide insight into various possible “ownership” avenues for the GSO.[cxxxvi]

A.     The Land Analogy

Thomas Gangale asks: “[c]ould segments of the [GSO] above the territories of the equatorial states be considered as analogous to land, and therefore subject to territorial claim?”[cxxxvii]  He argues that the answer is “no,” because the equatorial countries neither “discovered” nor were the first to “possess,” “use,” or “occupy” the orbit, as required by traditional modes of acquisition of land.[cxxxviii]  What’s more, land is a physical phenomenon whereas outer space and the GSO lack physicality.  The land analogy therefore seems farfetched.

B.     The Sea Analogy

Much like space law, the Law of the Sea establishes the “high seas” as res communis[cxxxix] or res extra commericium with “equality of access for all nations.”[cxl]  While the high seas are often thought of in terms of their commercial value (mineral extraction, fishing, etc.), outer space is thought of as having mostly military value—and more recently—communications value.[cxli]  Despite these differences, many concepts from the Law of the Sea (“freedom of use, access, registration, etc.”)[cxlii] are now a part of the outer space regime.  Yet the Law of the Sea does grant sovereignty to states in the form of territorial waters and exclusive economic zones.[cxliii]  Can we draw an analogy between territorial waters or exclusive economic zones and the GSO?  Gangale rightly argues that sovereignty over territorial waters and exclusive economic zones assumes and requires contiguity to the territory of a country, and the 35,785 km (22,236 miles) between terrestrial land and the GSO can hardly satisfy this requirement.[cxliv]

C.     The Air Analogy

As discussed in Part IV, the question of the boundary between air and space is a controversial and unresolved issue.[cxlv]  This is significant because the two bodies of law have markedly different approaches to sovereignty.  You will recall that under air law, every country “has complete and exclusive sovereignty over the airspace above its territory”[cxlvi] but under outer space law there is no similar national sovereignty.[cxlvii]  The problem is that these two distinct bodies of law have no clear line of demarcation; neither air law nor outer space law demarcate a specific height at which the air ends and space begins.[cxlviii]  In practice, countries regard an area up to 30 kilometers (18.6 miles) above their territory as their sovereign airspace.[cxlix]  The Equatorial countries never claimed sovereignty over the space between that 30 km zone and the GSO, so there is a gap and a break in contiguity between their airspace and the GSO.  Gangale argues that because of this, “the analogy to airspace does not fly.”  Additionally, UNCOPUOS has agreed that the GSO is part of outer space,[cl] and its discussion of airspace has generally been restricted to a height of 90 to 110 km (56 to 68 miles) above Earth.[cli]

D.      The Antarctic Analogy

The 1959 Antarctic Treaty states “Antarctica shall be used for peaceful purposes only,”[clii] but does not recognize nor dispute any territorial claims over Antarctica.[cliii]  Article IV paragraph 4 of the Treaty provides that “[n]o new claim, or enlargement of an existing claim, to territorial sovereignty shall be asserted while the present Treaty is in force.”[cliv]  Attempts by countries to lay new claims to the GSO by analogy to the Antarctica Treaty are thus expressly prohibited—at least while the Treaty it is in force—and therefore fail.

E. A Summary

The table below sets forth the sovereignty stances of four different areas of international law.[clv]

Because the technological capabilities of states in relation to space remain in their infancy, it is probable that space law will evolve to accommodate change.  However, arguments for changing sovereignty over the GSO by analogy to current bodies of international law is both difficult and logically flawed.  Such arguments conflict with technological development in less developed countries because they restrict the orbit to the current space-faring countries.  Rather than attempting to determine the ownership of the GSO by analogizing to traditional notions of national sovereignty, we should acknowledge that outer space is a new human venture that needs its own sui generis legal regime.  An alternative system—a system in which national sovereignty is not the core norm—has the potential of promoting unity among human beings and may ultimately provide us with an alternative to our arguably outmoded Westphalian system of sovereign and separate nation-states.

I do not propose a specific system for the fair administration of the GSO, nor do I advocate a sovereignty-free GSO for the benefit of current space-faring countries.  I only suggest that the notion of a world divided in piecemeal fashion among various countries is not the only—nor the best—guideline for establishing an outer space regime.  I do not advocate a chimerical idealism—for we all face the many inescapable realities of the world—but outer space is an opportunity for humankind to establish new realities and new legal regimes.  Attempts by the Bogotá 8 to extend national sovereignty into outer space not only undermine the Outer Space Treaty’s prohibition of sovereignty, but also undermine the possibility of a gradual shift away from nationalism and toward supranational solutions.

V. Conclusion

Starting with Sputnik I in 1957, technology has progressed rapidly.  The first human beings landed on the Moon in 1971, and an unmanned spacecraft landed on Venus that same year.[clx]  Dennis Tito, the first space tourist, blasted off from Earth in a Russian Soyuz rocket in 2001.[clxi]  Today, a myriad of Earth objects circulate in space and the International Space Station is under construction in low Earth orbit.[clxii]  Despite these accomplishments, humanity has not yet achieved the level of space sophistication that would make the promulgation of a definitive body of  international outer space law an urgent necessity.  As the exploration of outer space intensifies, however, lawyers and politicians have the opportunity to create a relatively novel body of law with the benefit of historical hindsight.  In a more advanced future space age, it is feasible that our Westphalian model of sovereignty will eventually be outmoded, although such a development is difficult to fathom from our own early twenty-firstcentury perspective.[clxiii]

In 1795, Prussian philosopher Immanuel Kant wrote, “the right to the earth’s surface . . . belongs to the human race in common,” and envisioned that through increased contact between the peoples of the various countries, the Earth will eventually enjoy a “cosmopolitan constitution.”[clxiv]  With its fundamental principle of non-appropriation, space law may provide a model which may one day make Kant’s vision a reality.  Irrespective of the current political makeup of Earth, we have much to learn from space law and its aims of promoting global unity and peace.

An international response to the possibility of space travel during the post-war era produced the current regime governing outer space.  The Bogotá 8 challenged this regime’s prohibition on the appropriation of outer space, but space law has thus far stood the test of time.  The Moon Agreement’s precept of a common heritage of humankind may have gone too far to gain acceptance in a world composed of independent and self-interested sovereign countries, but the growing interdependence of all countries may pave the way for widespread international acceptance of such a forward-thinking precept in the future.  This emerging issue will take years to resolve, and will require a degree of openness to change.  As space historian Robert Zimmerman has written, “[j]ust as the colonial movement dominated much of 19th century politics and history, the growing desire by nations today to settle and control the solar system is also likely to dominate human history for centuries to come.”[clxv]

[clxvi]

[1]by Peter Touschner*

I. Introduction

The first decade of the 21^st century saw a shift in the media environment occupied by the average consumer as the mass media paradigm that dominated the 20^th century began to compete with new forms of “social media” for consumer attention.[i]  Social media can be broadly defined as “a category of sites that is based on user participation and user-generated content.”[ii]  Prominent social media sites include Facebook, YouTube, Delicious, Digg, Reddit, and Twitter.  By the end of 2008, two-thirds of the world Internet population visited social media sites.[iii]  In the U.S., interaction on such sites accounts for nearly a quarter of all time spent on the Internet, topping email and games as the most popular online activity.[iv]  Total advertising on social media sites in the U.S. is projected to increase from $1.68 billion in 2010 to an estimated $2.09 billion in 2011.[v]

In contrast with mass media, social media empowers users to become active participants in shaping both their own experience of the medium, and the experience of all other users.  Indeed, the Federal Trade Commission (“FTC” or “Commission”) has identified the phenomenon of “consumers creating and publishing their own content [and] not merely being passive recipients of professionally produced content” as one of the most important developments of the last decade.[vi]

The Commission similarly has recognized that social media participants often become trusted sources of consumer information for one another as they “write their opinions, review products and services, offer information, and in general, narrate their life experience” for one another online.[vii]  The result is a blurring of the boundaries between consumer, producer, and advertiser which has introduced new challenges for combating potentially unfair or deceptive trade practices.  For example, in the context of blogger endorsements of products and services, the FTC has opined:

 Consumers who endorse and recommend products on their blogs or other sites for consideration should do so within the boundaries set forth in the FTC Guides Concerning Use of Endorsements and Testimonials in Advertising [footnote omitted] and the FTC’s guidance on word of mouth marketing [footnote omitted].  Consumers reading endorsements and recommendations from other consumers reasonably expect that these represent the endorser’s actual experiences and that the experiences described are those typically obtained by use of the endorsed product or service.  Ensuring that consumer-producers who engage in activities to market and advertise products for consideration do so within the confines of laws prohibiting unfair or deceptive acts or practices in trade will require new strategies for education and enforcement.[viii]

Additionally, in response to the rise of social media, the FTC has recently revised and updated its Guides Concerning the Use of Endorsements and Testimonials in Advertising (“Guides”) to specifically address disclosure requirements for bloggers and other social media participants.[ix]

Given the rise of social media and its increasing influence over consumer market choices, a few firms have sought to game social media systems by setting up “black markets” for social media votes and actions.  These firms act as middlemen, charging advertiser partners for specified social media outcomes—such as a certain number of votes that may result in prominent placement on a social media site—and paying real, otherwise legitimate, social media participants directly to achieve those results.[x]

This Note will examine Section 5 of the FTC Act (“Section 5”), the FTC’s Policy Statement on Deception, and the newly revised FTC Guides as they relate to such undercover social media marketing techniques.  I will argue that Section 5 is broad enough and flexible enough to encompass such “black markets” in its definition of “unfair or deceptive acts or practices in or affecting commerce.”[xi] 

II. Background: Emerging “Black Markets” in Social Media Votes and Actions

While at least two other firms[xii] have attempted to introduce and administer “black markets” for social media votes and actions, the most sophisticated current incarnation is Subvert and Profit.com.[xiii]  Billing itself as “the easiest way to make money online and the cheapest form of advertising in the web 2.0 sphere,” Subvert and Profit has created a streamlined system whereby advertisers seeking to promote content, products, or services can purchase specified social media votes and actions at prices ranging from $0.40 to $1.00 per vote or action.  Subvert and Profit then pays social media participants approximately one-half this amount in exchange for the participant’s verified completion of the specified vote or action, keeping the remainder for itself.[xiv]

Subvert and Profit’s chief innovation—and perhaps the reason social media sites such as Digg.com perceive it as a threat[xv]—is the ease with which social media participants can quickly set up accounts and begin getting paid for their site activity.  With nothing more than an AlertPay[xvi] account, the Firefox web browser, and a valid account with one of the twenty-four (24) different social media platforms[xvii] in which Subvert and Profit operates, a social media user can begin getting paid for his or her site activity almost immediately.  Subvert and Profit employs a special add-on to the Firefox browser that notifies users when there are new votes or actions for which they can receive compensation.[xviii]  A user who installs Subvert and Profit’s browser toolbar can go about his or her daily online activities—perhaps participating in social media legitimately and without compensation—and await notification through the toolbar that there are social media votes or actions for which he or she can receive compensation.[xix]  Upon notification, the social media participant can perform the specified actions and then use the toolbar to verify with Subvert and Profit that he or she has completed those actions.  After verification, the user’s AlertPay account is automatically credited at the going rate for that particular vote or action.[xx]

Subvert and Profit claims over 25,000 unique, anonymous users actively engaged in paid social media activity.[xxi]  On a site like Digg, for example, it takes approximately 60-120 votes for content to reach the front page of the site.[xxii]  Content that reaches the front page of Digg can receive tens of thousands of unique viewers in a matter of hours.[xxiii]  An advertiser seeking to promote its content, product, or service can thus reach tens of thousands of viewers simply by purchasing the requisite number of Digg “votes” through Subvert and Profit.[xxiv]  Visitors to Digg have no way of distinguishing content that makes it to the front page, in whole or in part, through Subvert and Profit votes versus content that makes it the front page wholly through legitimate “diggs.”

Similarly, on Facebook an advertiser can use Subvert and Profit to purchase a “wall post” from a Facebook user that links to the advertiser’s content.[xxv]  An advertiser can also pay to have a Facebook user “fan” the advertiser’s Facebook page.[xxvi]  Depending on each user’s settings, these acts can result in the message being propagated to all of the Facebook user’s “friends” as a personalized endorsement of the advertiser’s content.

Subvert and Profit functions similarly on the other social media platforms in which it operates.  On the movie review site Flixster, for example, Subvert and Profit sells five-star movie ratings.[xxvii]  On the music site iLike, it sells user recommendations of specific songs which iLike participants can then purchase directly.[xxviii]  On video sites such as YouTube, Yahoo! Video, DailyMotion, MetaCafe, and LiveVideo, Subvert and Profit pays social users to “favorite” videos so that they are more likely to get placed on the front page or “popular” sections of each respective site.[xxix]  On Twitter, an advertiser can pay for the privilege of having a Twitter user “tweet” a specific link or phrase to all of his or her “followers.”  Alternatively, the advertiser can pay to have the user to subscribe to its Twitter feed.[xxx]  Finally, Subvert and Profit also caters to niche social media sites such as Dzone for web developers and Sphinn for Internet marketing professionals.[xxxi]  By leveraging the accounts of trusted users on these sites, Subvert and Profit’s advertisers are able to promote their content, product, or service to highly targeted professional audiences.

While reliable earnings reports for Subvert and Profit are unavailable, all indications are that the business has been growing since its inception in April 2007.  The site began as a “black market” solely for Digg votes and has steadily expanded, first to StumbleUpon.com, and eventually to a total of twenty-four (24) different social media platforms.[xxxii]  The company reports that its “ad vote volume” doubled from third quarter 2008 to third quarter 2009.[xxxiii]

Moreover, Subvert and Profit’s success has led to other firms offering similar undercover marketing services for social media platforms.  USocial.net, for example, offers to place advertiser content on the front page of social media sites such as Digg, Delicious, and Reddit for fees ranging from $250 to $600.[xxxiv]  It also offers to “buy” Facebook “friends” and Twitter “followers” for advertisers.[xxxv]  While uSocial is more secretive than Subvert and Profit with respect to how it goes about achieving these outcomes for advertisers, news reports indicate that, like Subvert and Profit, it employs a network of social media participants whom it pays directly to perform specified social media votes and actions.[xxxvi]

Social media “black markets” remain a largely under-the-radar phenomenon and have yet to garner the widespread user base that would seriously undermine the consumer value of social media systems.  However, the steady growth of businesses such as Subvert and Profit and uSocial, as well as the increased sophistication of the techniques they employ, indicates that large-scale interference with social media systems—both in terms of the systems as they exist today and in terms of imposing barriers to further innovation—is a real threat.

As one example, consider Google’s recent purchase of little-known “social search engine” Aardvark for $50 million.[xxxvii]  Aardvark uses an array of complex algorithms to analyze a user’s network of online friends in an attempt to match a user query to the specific individual within the user’s extended social network who is particularly suited to answering the query in real time.[xxxviii]  Aardvark then connects the two users in a live chat interface.[xxxix]  The Aardvark service remains in the early stages of its development and it is unclear how successful it will prove in the long run.  However, one thing is clear: a social media “black market” such as Subvert and Profit is capable of crippling Aardvark’s development before the service even gets off the ground.  That is, by paying Aardvark users to respond to questions posed through the system with messages and links chosen by advertisers, Subvert and Profit—or any other firm successfully administering a large scale “black market” in social media votes or action—can seriously undermine the foundation of user trust which is essential to the development of innovative social media systems.

III. The FTC’s Broad Statutory Mandate to Regulate Deceptive Trade Practices

Founded in 1915, the FTC is an independent federal agency with authority to investigate and prosecute unfair or deceptive acts or practices in or affecting commerce, including deceptive advertising.[xl]  When the FTC has reason to believe that any person, partnership, or corporation is engaged in deceptive advertising practices, it has authority under the FTC Act to issue a complaint, hold a hearing, and, if it determines that a violation of the Act has occurred, issue a cease and desist order.[xli]  Parties may appeal such orders in federal court.[xlii]  Violation of an FTC cease and desist order, as determined by either the FTC or a federal court of competent jurisdiction, may result in civil penalties and a permanent injunction.[xliii]

Upon its inception, the FTC was largely seen as an agency tasked with investigating and prosecuting antitrust violations.[xliv]  For many years after its inception, it was unclear whether the FTC had the power to regulate unfair or deceptive trade practices wholly unrelated to antitrust concerns.[xlv]  However, the Supreme Court dispelled this confusion in 1972 when it substantially broadened its interpretation of the FTC’s statutory mandate in Federal Trade Commission v. Sperry & Hutchinson Co.[xlvi]

In Sperry, the Fifth Circuit below had held that Section 5 of the FTC Act only permits the FTC to regulate those deceptive trade practices which violate “the letter or spirit of the antitrust laws.”[xlvii]  In reversing, the Court held that the FTC’s congressional mandate is much more broad and that Congress intended the FTC to protect not just firm competition, but also individual consumers, against unfair or deceptive trade practices.[xlviii]

Moreover, in making its ruling, the Court rejected the notion that the definition of “unfair or deceptive trade acts or practices” under the FTC Act can be reduced to a rigid list of specifically prohibited practices.[xlix]  The Court cited the 1914 congressional record as proof that Congress intended the FTC to exercise great flexibility in making determinations as to which trade practices will be deemed unfair or deceptive under Section 5.[l]  Congress had stated:

The committee gave careful consideration to the question as to whether it would attempt to define the many and variable unfair practices which prevail in commerce and to forbid their continuance or whether it would, by a general declaration condemning unfair practices, leave it to the commission to determine what practices were unfair.  It concluded that the latter course would be the better, for the reason, as stated by one of the representatives of the Illinois Manufacturers’ Association, that there were too many unfair practices to define, and after writing 20 of them into the law it would be quite possible to invent others.[li]

The Court went on to reject “judicial attempts to fence in the grounds upon which the FTC might rest a finding of unfairness.”[lii]  Instead, the Court acknowledged the FTC’s “broad powers to declare trade practices unfair” and advocated a flexible approach that allows the FTC to respond to changing circumstances in determining what constitutes a Section 5 violation.[liii]  As such, the FTC has a certain degree of leeway in determining whether “black markets” in social media votes and action are a deceptive trade practice.

IV. Social Media “Black Markets” Violate Section 5 Given the FTC’s Policy Statement on Deception

Without in any way limiting its broad and flexible statutory powers, in 1983 the FTC issued a General Policy Statement on Deception (“Policy Statement”).[liv]  The Policy Statement provides guidance to both FTC officials and the general public on the types of trade practices that will be deemed deceptive and therefore unlawful under Section 5.[lv]  While the Policy Statement does not have the force of binding law, it is intended to clarify the circumstances in which the FTC will seek corrective action under Section 5.[lvi]

The Policy Statement lays out three factors that must be analyzed to determine whether a particular trade practice is unfair or deceptive under Section 5.[lvii]  The factors are: (1) a representation or omission which is likely to mislead the consumer, (2) the reasonableness of the consumer’s reaction to the representation or omission, and (3) the materiality of the representation or omission in terms of whether it is “likely to affect the consumer’s conduct or decision with regard to a product or service.”[lviii]

With respect to the first factor, actual deception is not required.[lix]  The FTC need only show that the representation or omission is likely to mislead consumers.[lx]  In turn, the reasonableness of the consumer’s reaction to the representation or omission is to be determined from the total impression the advertisement creates in the mind of the consumer, not by isolating words or phrases within the advertisement.[lxi]

Before applying these factors to social media “black markets” such as Subvert and Profit, there is a preliminary question as to whether paid votes and actions on social media sites constitute “advertising” such that they are within the FTC’s statutory mandate.  Black’s Law Dictionary defines “advertising” as “[t]he action of drawing the public’s attention to something to promote its sale.”[lxii]  Obviously, firms that purchase social media votes through Subvert and Profit do so because they are attempting to draw attention, whether directly or indirectly, to particular content, products, or services.  Moreover, Subvert and Profit specifically refers to such firms as “advertisers.”[lxiii]  Subvert and Profit also markets itself by offering to “Place Ads in Social Media.”[lxiv]  It thus stands to reason that firms who take up Subvert and Profit’s offer to “place ads” in social media in order to promote their products or services are engaged in a form advertising, and thus subject to FTC regulation.

Applying the factors outlined above, then, it is clear that advertisers who purchase social media votes and actions through Subvert and Profit are engaged in a deceptive practice.  First, there is an omission which is likely to mislead consumers—namely, the omission of the fact that the social media votes or actions were paid for by an advertiser as opposed to motivated by social media participants’ legitimate interest in the particular content.  Any person who visits Digg has no way of distinguishing content that made it to the front page based on legitimate “diggs” from content that made it there, in whole or in part, as a result of “diggs” paid for by Subvert and Profit advertisers.  The average consumer is likely to be misled because he or she is operating under the assumption that all of the content on the site is there as a result of aggregate endorsement of a community of legitimate “diggers.”

Similarly, when a “wall post” from a friend shows up on a Facebook user’s “News Feed,” there is an omission of the fact that the post is not a friend’s honest opinion about something the friend independently chose to share, but is in fact an advertisement placed through Subvert and Profit.  The same holds true for sponsored “tweets” on Twitter, sponsored song recommendations on iLike, and “favorited” videos on YouTube.

With respect to the second factor, the consumer’s reaction to the omission is clearly reasonable in each case.  There is no disclosure by the advertiser, Subvert and Profit, or the social media participant that a particular “tweet,” Facebook message, or Digg vote has been bought and paid for by an advertiser.  The reasonable consumer has no way of knowing that he or she is even being engaged by an advertiser rather than communicating with a fellow social media participant or, in the case of Digg, the collective voice of many social media participants.  Indeed, the message is reasonably construed by the average consumer as the independent endorsement of a trusted friend or group of friends.  It is this ability to trade off on the goodwill and seeming independence of social media participants that makes undercover social media marketing so appealing to advertisers in the first place.

Finally, with respect to the Policy Statement’s third factor, the omission is plainly material.[lxv]  The omission leads the average consumer to believe that the advertising message is not an advertisement at all, but rather a personal message coming from a friend or from an aggregation of fellow social media participants motivated not by compensation, but by legitimate interest in the subject matter.  As such, consumers are more likely to pay attention to the advertising message and are more likely to be influenced by it.  Thus, all three factors outlined in the FTC’s Policy Statement militate in favor of a finding that social media “black markets” constitute a deceptive trade practice under Section 5.

V. Social Media “Black Markets” Violate Section 5 Given the FTC’s Guides Concerning Use of Endorsements and Testimonials in Advertising

Even if the FTC’s Policy Statement on Deception did not support a finding that social media “black markets” constitute a deceptive trade practice under Section 5, the FTC has provided further guidance in Section 255 of Title 16 of the Code of Federal Regulations which constitutes independent grounds for such a finding.[lxvi]  The Guides are a specification of those trade practices the FTC will deemdeceptive under Section 5 in the context of commercial endorsements.[lxvii]  They are designed to “provide the basis for voluntary compliance with the law by advertisers and endorsers,”[lxviii] though the FTC makes sure to note that the Guides neither expand nor limit the FTC’s statutory mandate under Section 5.[lxix]

The Guides define circumstances in which a particular message will be deemed to constitute a commercial endorsement and explains when the relationship between an endorser and an advertiser must be disclosed in order to avoid a Section 5 violation.[lxx]  Section 255.0 defines “endorsement” as:

any advertising message . . . that consumers are likely to believe reflects the opinions, beliefs, findings, or experiences of a party other than the sponsoring advertiser, even if the views expressed by that party are identical to those of the sponsoring advertiser.  The party whose opinions, beliefs, findings, or experience the message appears to reflect will be called the endorser and may be an individual, group, or institution.[lxxi]

Section 255.0 goes on to set forth eight hypothetical situations and explains whether each constitutes an endorsement under the Guides.[lxxii]  For example, a film critic’s review of a movie, when excerpted in an advertisement, constitutes an endorsement because it is “viewed by readers as a statement of the critic’s own opinions.”[lxxiii]  A television commercial in which two unidentified and unknown women discuss laundry detergent, on the other hand, does not constitute an endorsement because it is an “obvious fictional dramatization of a real life situation.”[lxxiv]  Similarly, an advertisement in which an otherwise unknown announcer extols the virtues of a pain remedy does not constitute an endorsement because he “purports to speak, not on the basis of his own opinions, but rather in the place of and on behalf of the drug company.”[lxxv]  A consumer who raves about a new, expensive brand of dog food on her blog who does not otherwise have an affiliation with the dog food company has not endorsed the product within the meaning of the Guides.[lxxvi]  However, if the same consumer joins a “network marketing program” and receives a free bag of the new dog food from the company as a result, her subsequent positive review of the dog food constitutes an endorsement.[lxxvii]

These examples show that the determining factor is whether, based on the total impression of the advertisement, a reasonable consumer is likely to believe that the opinions expressed are those of someone other than the sponsoring advertiser.  However, with respect to the consumer’s positive review of dog food on her blog, the review is presented as her own opinion and not that of the dog food company whether she participated in a network marketing program or not.  The review becomes an endorsement under the Guides only when there is a material connection between the consumer and the dog food company.  In the example, the material connection is the consumer’s participation in the network marketing program and the fact that she received a free bag of the dog food through the program.[lxxviii]  The FTC’s Notice of Adoption of the Revised Guides (“Notice”) clarifies this point by identifying “sponsorship” of a message as the fundamental issue in the context of social media endorsements.[lxxix]  The FTC explains:

[I]n analyzing statements made via these new media, the fundamental question is whether, viewed objectively, the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered “sponsored” by the advertiser and therefore an “advertising message.”  In other words, in disseminating positive statements about a product or service, is the speaker: (1) acting solely independently, in which case there is no endorsement, or (2) acting on behalf of the advertiser or its agent, such that the speaker’s statement is an “endorsement” that is part of an overall marketing campaign?[lxxx]

 The Guides go on to state in Section 255.5 that any connection between an endorser and the seller of an advertised product which “might materially affect the weight or credibility of the endorsement” must be fully disclosed.[lxxxi]  Thus, taking up the previous example, the blogger’s receipt of the free bag of dog food makes her subsequent blog post on the subject an “endorsement” under the Guides.  Because knowledge that the blogger had received free dog food would materially affect the credibility the average consumer would assign to the review, the fact of its receipt must be fully disclosed.  Failure to disclose such a material connection constitutes a deceptive trade practice under Section 5.[lxxxii]

On December 1, 2009, the FTC adopted a revised version of the Guides, adding Example 8 to Section 255.0 discussed above, as well as new example situations to Section 255.5.[lxxxiii]  The FTC intended each new example to clarify confusion regarding the FTC’s position on consumer-generated endorsements in the social media context.[lxxxiv]  For instance, the FTC revised Example 3 in Section 255.5 to include the hypothetical situation where a well-known professional tennis player who is being paid by a medical clinic to speak positively about the clinic during public appearances also touts the clinic on a social networking site.[lxxxv]  The Guides explain that given “the nature of the medium in which her endorsement is disseminated, consumers might not realize that she is a paid endorser” and so the relationship must be disclosed because “that information might affect the weight consumers give to her endorsement.”[lxxxvi]

Similarly, the revised Guides include a new example in which an employee of a company that manufactures MP3 players promotes the company’s MP3 players on an online message board.[lxxxvii]  Because knowledge of the poster’s affiliation with the MP3 company would affect the weight or credibility of the endorsement, the relationship should be “clearly and conspicuously” disclosed to readers of the message board.[lxxxviii]

Finally, the FTC added Example 7 describing a college student who has earned a reputation as an expert in video games.[lxxxix]  When a video game company provides a free video game system to the student and asks him to write about it on his blog, the student must “clearly and conspicuously” disclose this fact to his readers because the “review is disseminated via a form of consumer-generated media in which his relationship to the advertiser is not inherently obvious” and knowledge of the relationship would materially affect the credibility consumers attach to his endorsement.[xc]  Moreover, the video game company should advise the student at the time the gaming system is provided that he should disclose its receipt in his blog post and, furthermore, it is incumbent upon the company to set up procedures to monitor the student’s blog posts for compliance.[xci]

The FTC’s Notice further explains the responsibility of endorsers to disclose material connections as well as the responsibility of advertisers to take steps to ensure that the required disclosure takes place:

 The recent creation of consumer-generated media means that in many instances, endorsements are disseminated by an endorser, rather than by the sponsoring advertiser.  In these contexts, the Commission believes that the endorser is the party primarily responsible for disclosing material connections with the advertiser.  However, advertisers who sponsor these endorsers (either by providing free products – directly or through middlemen – or otherwise) in order to generate positive word of mouth and spur sales should establish procedures to advise endorsers that they should make the necessary disclosures and to monitor the conduct of those endorsers.[xcii]

Applying these standards to “black markets” in social media votes and actions, the initial question is whether paid social media votes or actions constitute an “endorsement” under the Guides.  Clearly, when an advertiser uses Subvert and Profit to pay a Twitter user to “tweet” about its product, or a Facebook user to post about the product on his or her “wall,” the message is an endorsement under the Guides.  In each case, there is a relationship between the social media user and the advertiser which is unknown and unknowable to the consumers who see the message, and consumers are likely to believe that the message reflects the opinion of the social media user as opposed to the sponsoring advertiser.[xciii]  Indeed, the very purpose of undercover marketing is to trick consumers into believing they are engaged in an authentic interaction with a fellow consumer when in fact they are hearing a sponsored advertisement.[xciv]  Moreover, paid social networking messages are analytically indistinguishable from some of the hypotheticals in the Guides where the FTC found an endorsement had occurred, such as the tennis player paid to advertise for the clinic on a social networking site,[xcv] an employee paid to write positive comments about his company’s MP3 players on Internet message boards,[xcvi] or bloggers paid to blog with free dog food[xcvii] or video game systems.[xcviii]  It is thus clear that the fundamental question for endorsements in the social media context— whether the speaker’s statement can be considered “sponsored” by the advertiser[xcix]—must be answered in the affirmative for “black markets” in “tweets” and Facebook messages.

A more difficult question is whether a paid vote on aggregator sites such Digg constitutes an endorsement under the Guides.  On one hand, the act of “digging” an article, video, or image, in and of itself, appears to be far removed from promoting a product or service via an advertising message.  Legitimate Digg users “digg” content on the web that they find interesting.  “Digging” content is the social media equivalent of a crowd of people standing in a public square where people are known to congregate, holding out pamphlets, and saying to each person who walks by, “Check this out. This is interesting.”  It may be an “endorsement” of the material in the pamphlet in the most general sense of the term, but it is not necessarily an endorsement of a specific product or service through an advertising message.  On the other hand, a paid “digg” on a social media “black market” like Subvert and Profit is attempting to promote a specific product or service—namely, whatever product or service the advertiser is seeking to promote through the promotion of the content to be “dugg.”  A paid “digg” is thus the equivalent of crowds of pamphleteers located in the same public square who are paid to hand out pamphlets that, directly or indirectly, promote the sale of products or services.[c]  When the advertiser is trading off on the reputation and seeming independence of the “pamphleteer,” as is the case when a seemingly independent-minded “digger” promotes advertiser content on Digg, a cognizable endorsement under the Guides has occurred.

Moreover, as discussed above, in the social media context the fundamental question is whether, viewed objectively, “the relationship between the advertiser and the speaker is such that the speaker’s statement can be considered ‘sponsored’ by the advertiser and therefore an ‘advertising message.’”[ci]  A social media vote on an aggregator site is the functional equivalent of making the statement “check out this interesting content” to all fellow social media participants.  When such a statement is paid for by an advertiser within the context of an overall marketing campaign, it is undoubtedly “sponsored” within the meaning of the Guides.[cii]

Assuming social media participants who are paid for specified votes and actions are “endorsers” within the meaning of the Guides, the next question is whether the connection between advertiser and endorser must be disclosed under Section 255.5.  Here, the answer is more straightforward.  It is incumbent on an endorser to disclose any connection he or she has with an advertiser that “might materially affect the weight or credibility of the endorsement.”[ciii]  Visitors go to aggregator sites like Digg because they trust the collective intelligence of the community to surface the most interesting, engaging, or important content.  The knowledge that some fellow diggers have a relationship with advertisers and that they promote content on Digg on the basis of that relationship would materially affect the weight and credibility visitors accord the illegitimate content.  As such, the test under Section 255.5 is met.  Paid social media endorsers should be required to disclose their relationship with advertisers.  Moreover, the Guides indicate that advertisers—and presumably by extension third party intermediaries such a Subvert and Profit—are required to advise endorsers of their duty to disclose material connections under Section 5, as well as take reasonable steps to monitor endorser conduct to ensure compliance with all disclosure requirements.[civ]

VI. Conclusion

“Black markets” in social media votes and actions have in no way reached critical mass.  The number of sponsored “tweets,” “diggs,” and “favorites” on any given day no doubt represents a miniscule portion of the vast, burgeoning sea of authentic social media messages that traverse the globe.  Nonetheless, enterprises like Subvert and Profit should give us pause.  While to date social media platform providers such as Digg have for the most part been successful in combating those who seek to game the system, there is no guarantee that this success will continue indefinitely into the future.  As the worldwide market in social media continues to expand, the financial incentive to subvert for profit will only increase, as will the sophistication of those who attempt to do so.

In this regard, the FTC is uniquely positioned to combat the problem.  As we have seen, there are strong arguments that underground markets in sponsored social media votes and actions violate Section 5 of the FTC Act, both as it is construed under the FTC’s Policy Statement on Deception and as it is construed under the FTC’s newly revised Guides Concerning the Use of Endorsements and Testimonials in Advertising.  Given the substantial public interest in user trust in the social media context as well as the growing role played by social media in shaping consumer market decisions, the FTC would do well to fulfill its broad statutory mandate to protect the public from deceptive trade practices by investigating and—if and when it is deemed necessary—regulating “black markets” in social media votes and actions.

VII. APPENDIX

Fig. 1: Subvert and Profit – Prices and Earnings

https://subvertandprofit.com/content/prices

https://subvertandprofit.com/content/earnings

Fig. 2: Social Media Sites Where Subvert and Profit Operates

http://subvertandprofit.com/

Fig. 3: Subvert and Profit’s Firefox Browser Toolbar

http://subvertandprofit.com/content/toolbar

Fig. 4: Instructions for Advertisers

https://subvertandprofit.com/user

Fig. 5: Instructions for Advertisers

https://subvertandprofit.com/user

Fig. 6: Instructions for Advertisers

https://subvertandprofit.com/user

Fig. 7: Instructions for Advertisers

https://subvertandprofit.com/user

Fig. 8: Instructions for Advertisers

https://subvertandprofit.com/user

Fig. 9: Instructions for Advertisers

https://subvertandprofit.com/user

Fig. 10: Subvert and Profit Web Page – Advertisers and “Social Users”

https://subvertandprofit.com/user

Fig. 11: Subvert and Profit Ad on Facebook

http://www.facebook.com/

by Peter C. Harman*

I.  Introduction

On December 28, 1995, Jean-Dominique Bauby woke up in a hospital unable to move, unable to speak.[i]  The doctors, nurses—even his loved ones—spoke to each other about him as if he was not there.[ii]  His caretakers and family tried to talk to him, but he could not respond.  Eventually, they noticed that he was able to blink one eyelid in response.[iii]  Elated, they brought in a specialist to facilitate communication.[iv]  “What do you want?” they asked.[v]  His first communication in weeks was a one-word answer: “Death.”[vi]

In recent years, much thought has been given to how to best implement the wishes of patients with traumatic brain injuries, like Terri Schiavo.[vii]  In some cases, like Schiavo’s, the debate is over which family member can make the decisions that best reflect what the patient would have wanted.[viii]  Since the late 1970s, most states have enacted laws that allow people to set out their preferences for health care decisions in advance directives, in case the person becomes incapacitated or loses the ability to communicate her preferences.[ix]  The advance directive statutes give people the opportunity to make those important choices in advance, while they still have the mental acuity to make well-informed decisions.  Importantly, these statutes also allow the declarant to change her mind in the future, either by revoking the advance directive or by modifying her previously expressed preferences.  That way, if circumstances change, or if unexpected situations arise, the advance directive documents are flexible.  The key to these documents is that when the person loses the ability to make those decisions, her choices are set so that no other person can make contrary decisions unless they are specifically authorized to do so.

There is, however, one class of people who still have one hundred percent of their mental faculties, but have lost the opportunity to change their minds about their advance directives.  People who have locked-in syndrome are catastrophically paralyzed; they often can only communicate by blinking.[x]  While each state treats the revocation and modification of advance directives differently, some states make it more difficult than others for locked-in patients to legally change their minds.  Some states even make it impossible.

If Mr. Bauby had executed an advance directive requiring the doctors to prolong his life by any means possible, would he have been able to change his directive?  More chillingly, if he had requested in his advance directive to have life support removed after several months, and now wanted to continue living by any means possible, could he change his mind then?  In the United States, those answers would depend upon the state in which state Mr. Bauby lived.[xi]

Advance directives often enshrine what are literally life-and-death decisions, including when to remove life support.  In several states, a locked-in patient would not be able to comport with the formalities required to modify or revoke an advance directive, even if the directive ordered the doctors to halt life-sustaining procedures.  The revocation statutes in those states discriminate against people with locked-in syndrome because people who are locked-in are not able to employ normal means of communication.  The statutes in those states violate the Americans with Disabilities Act of 1990 and must be changed.[xii]

A.       Locked-In Syndrome

Locked-in syndrome is a mental state in which a patient is awake and aware of his surroundings, but due to total or near-total paralysis is unable to move or speak.[xiii]  The condition is usually caused by trauma to the pons area of the brainstem, which acts as a relay for motor signals traveling between the brain and the body.[xiv]

Locked-in syndrome is distinguishable from other states of mental incapacity.  Clinicians often categorize severe traumatic brain injury into four subgroups: coma, vegetative state, minimally conscious state, and locked-in syndrome.[xv]  Comatose individuals are “neither awake nor aware.”[xvi]  Individuals in a vegetative state may exhibit some arousal and responsiveness, but “have no ability to interact with their environment.”[xvii]  A vegetative state is considered persistent if it lasts longer than two months and is considered permanent if it persists for longer than two years.[xviii]  An individual in a minimally conscious state exhibits more environmental interaction than a person in a vegetative state; a minimally conscious individual can “demonstrate[] inconsistent awareness of [himself] and [his] environment.”[xix]  In contrast to the first three subcategories, patients with locked-in syndrome retain consciousness and self-awareness but are completely paralyzed, sometimes able to move their eyes or digits.[xx]  Thus, a locked-in patient whose mental faculties are intact retains a level of sensory perception and thought of a completely different order of magnitude than a patient in one of the three other categories.  The most troubling aspect of locked-in syndrome, though, is the physical similarity of its symptoms to those of the vegetative state and the problems raised in trying to differentiate between vegetative and locked-in patients.[xxi]

Dr. Adrian Owen described a patient who was the victim of a traffic accident.[xxii]  Five months after the accident, the patient remained in a vegetative state according to standardized clinical assessment; the doctors considered her unable to interact with the environment, with severely limited cognitive ability.[xxiii]  In spite of the patient’s diagnosis, Dr. Owen attempted to detect awareness in her brain using sophisticated neuroimaging devices.[xxiv]  Dr. Owen’s team was able to document that the patient understood verbal commands and was able to respond to them, even though under standardized diagnostic procedures she was vegetative.[xxv]  Dr. Owen concluded that while the patient, to all outward appearances and in line with the standard diagnostic procedures, was in a vegetative state, she in fact exhibited awareness that would put her squarely in the realm of locked-in syndrome.  Her mental faculties were worlds beyond what would be expected of someone who actually was vegetative—her cognitive reactions were indistinguishable from a healthy person’s.[xxvi]

This difference in diagnosis changes the patient from a person who cannot make reasoned decisions about her health care to one who can and should, but is simply unable to communicate those decisions to anyone else.  Some locked-in patients are able to communicate by blinking or moving an extremity,[xxvii] but some, like Dr. Owen’s patient, are unable to communicate through any traditional means.

Locked-in syndrome has received significant media attention after the release of a study analyzing the misdiagnosis of patients with disorders of consciousness and recent advances in communication with such patients.[xxviii]  In the study, attention was brought to Rom Houben, a Belgian man who was diagnosed as vegetative after a car accident in 1983.[xxix]  Twenty-three years later, doctors, using neuroimaging devices, were astounded to find that he had been conscious and aware the entire time.[xxx]  Unable to communicate with his family or caregivers for over two decades, Houben is now able to “speak” using special computer operated by one finger.[xxxi]

B.       New Technology Aids Locked-In Patients

New technology is emerging that radically changes the way that doctors can diagnose and communicate with locked-in patients.  New methods are being developed that will allow for more accurate diagnosis of a patient’s mental condition.[xxxii]  The recent media attention given to locked-in syndrome, while focusing on the story of Rom Houben, was sparked by the publication of a study showing that up to four in ten patients diagnosed as vegetative show some signs of consciousness (though most in this group would be classified as minimally conscious).[xxxiii]  According to the author of the study, these misdiagnoses could lead to “grave consequences, especially in end-of-life decision-making.”[xxxiv]

In a 2006 Science article, Dr. Adrian Owen, et al., described a new technique using functional brain imaging devices to detect awareness in patients diagnosed as vegetative.[xxxv]  By looking directly at the brain’s energy use, Owen’s team was able to detect responses to verbal commands from patients originally diagnosed as vegetative.[xxxvi]  But even this test is not all-encompassing: Dr. Owen made clear that while this type of test can show that a patient is “aware,” it cannot prove that a patient is “unaware.”[xxxvii]  The groundwork is now in place to use this technology not only to more accurately diagnose disorders of consciousness like locked-in syndrome, but to communicate with patients who otherwise would have no means of communication.[xxxviii]

In a recent New England Journal of Medicine article, a team of European doctors successfully used this technology to communicate with a supposedly vegetative patient.[xxxix]  The patient correctly answered five of six yes or no questions; his answers were adduced by analyzing activity in discrete areas of the brain, as in Dr. Owens’ study above.[xl]  This new method represents a functional, if rudimentary, way of first double-checking whether a vegetative diagnosis is accurate and then providing an avenue of communication—one that did not exist even a few years ago.

Advances are also being made using “Brain-Computer Interface,” which allows a locked-in patient to use thoughts to type messages or even turn thoughts directly into computer-generated speech.[xli]  This new technology allows a locked-in patient, even one who cannot move a digit or his eyes, to make “verbal” statements and also to produce written documents a computer.

C.       Advance Directives

An advance directive, or living will, is a document that allows a person (the principal or declarant) to express, in a legally binding fashion, his preferences for medical care should he later become incompetent or unable to communicate; one may also name a surrogate decisionmaker or agent in an advance directive.[xlii]  State laws regulate advance directives.[xliii]  An important aspect of the advance directive document is that it must be able to be modified or revoked if the principal so chooses.  A principal may choose to change the named surrogate decisionmaker, he may choose to change his expressed treatment preferences, or he may choose to revoke the document altogether.

Considering that advance directives can be executed without the advice of an attorney or other specialist, the patient executing the advance directive may not take into consideration every possible contingency.[xliv]  Take, for instance, a person in Bauby’s situation, above.  Locked-in syndrome may bring with it a set of circumstances that the patient had not considered when drafting the advance directive.  If the subjective experience of the condition was such that the patient could no longer bear the suffering, that patient might wish to modify his advance directive so as to allow the removal of life-sustaining procedures.  On the other hand, a patient might, while he is healthy, think that he would not want life-prolonging procedures after a catastrophic accident.  The patient, like Bauby eventually did, might decide after the accident that he wants to continue living by any means possible.[xlv]  This would bring about a nightmarish situation in which the patient wishes to continue living, but has an effective legal document that instructs the physicians to allow him to die.  In that situation particularly, it is absolutely imperative that the patient be able to modify or revoke a previously executed advance directive—it is literally a life-or-death situation.[xlvi]

D.     The Function of Formalities in Executing Advance Directives

Formalities are necessary for an advance directive to be validly executed; they are what the declarant or others must do to make the document legally effective.[xlvii]  Required formalities can include witnesses, notarization, or other requirements such as a signed writing.[xlviii]  Formalities associated with revoking advance directives serve several purposes.[xlix]  The purposes of formalities fall into four general categories: (1) ritual/cautionary function, (2) evidentiary function, (3) protective function, and (4) channeling function.[l]

The ritual/cautionary function of formalities seeks to assure that the declarant is aware of the gravity of his action and “preclude[] the possibility that the testator was acting in a casual or haphazard fashion.”[li]  The evidentiary function of formalities increases the reliability of proof of the declarant’s intention in executing the document—a written document is a more stable embodiment of the declarant’s intent than an oral statement.[lii]  The protective function assures that there is no coercion or undue influence underpinning the document’s execution.[liii]  Finally, the channeling function of formalities serves to standardize the “organization, language, and content” of the documents.[liv]

Professor Gregory Gelfand argued that formalities applicable to the execution of advance directives are no less applicable in the revocation or modification of them.[lv]  Gelfand contended that in order to avoid the exact pitfalls that formalities of execution serve to prevent, they should be applied equally to revocation and execution.[lvi]

Formalities do indeed serve important functions in protecting the true intent of the declarant, but they can also serve to hinder that intent.  Gulliver and Tilson warn that formalities of execution “surely should not be revered as ends in themselves, enthroning formality over frustrated intent.”[lvii]  Dogmatic adherence to the strictures of formality can easily frustrate the intent of a declarant when his intention is clear and undisputed but some defect in execution injures the validity of the document.[lviii]  Therefore, while formalities in execution do serve important purposes, their utility decreases dramatically when they serve to frustrate the declarant’s intent.

E.       The Goal of this Note

A locked-in patient deserves all of the rights and protections available to every mentally competent American.[lix]  Misdiagnosis may rob the patient of the opportunity to assert those rights because a patient misdiagnosed as vegetative will be assumed to not have awareness or independent thought.  Technology is indeed emerging that would allow a totally paralyzed person to communicate using instruments that analyze brain function,[lx] but in some jurisdictions that sort of communication may not be sufficient for a patient to legally change his advance directive.[lxi]

This paper seeks to analyze how state laws currently dictate whether a locked-in patient may revoke or modify a medical advance directive.  Because a locked-in patient is at an extreme end of the spectrum of physical communicative ability, the locked-in state serves as a useful lens through which to analyze how the law treats differently individuals who have some difficulty in communicating with others, even though their mental faculties are fully intact.  By analyzing the laws through the viewpoint of one in a locked-in state, a clear light can be shed upon the law’s differential treatment of those with communicative disabilities.[lxii]

II.  Survey of the States

Forty-eight states approve of the use of advance directives by statute.[lxiii]  The statutes elucidate the procedures required to validly modify or revoke an advance directive.[lxiv]  These statutory procedures can be grouped into three main frameworks: the Majority Approach, the Third Party Approach (which has two subdivisions), and the Principal-Only Approach.  There are also two other characteristics of these revocation statutes that the states address differently, but their full analysis is beyond the scope of this paper.

A.     The Three Major Frameworks

The most common statutory scheme allows a patient to modify or revoke an advance directive “at any time and in any manner by the declarant”[lxv] or “at any time and in any manner that communicates an intent to revoke.”[lxvi]  This is the broadest type of language and allows a wide range of actions by a patient to validly revoke or modify an advance directive.  This language is used by a majority of states and is also the framework adopted by the Uniform Health-Care Decisions Act;[lxvii] it is followed by Alaska, Arizona, Arkansas, California, Connecticut, Delaware, Georgia, Hawaii, Illinois, Iowa, Louisiana,[lxviii] Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Vermont, and Wyoming.[lxix]  This framework is the “Majority Approach.”

The second and third types of governing statutes usually list several ways that an advance directive may be modified or revoked.[lxx]  The directives are generally revocable orally or in writing or by some physical act that manifests an intention to revoke the document, such as “being canceled, defaced, obliterated, burned, torn or otherwise destroyed.”[lxxi]  Seventeen jurisdictions fall under this broad category; there is a very important split within these jurisdictions, though.

Fourteen of these jurisdictions allow a third party, acting at the direction of the declarant, to effect the cancellation or modification of the document.  Most of these jurisdictions (Florida, Idaho, Indiana, Kentucky, New Hampshire, South Carolina, Texas, Virginia, Washington, and Wisconsin) require that the third party acting on behalf of the declarant do so “in the presence” of the declarant.[lxxii]  Four states (Alabama, Kansas, Utah, and West Virginia) do not require the third party to perform the revoking act in the principal’s presence, but only require that they act at his “direction.”[lxxiii]  Whether or not they require “presence,” these seventeen jurisdictions are the “Third Party” jurisdictions.

The remaining three states require the canceling act to be performed by the principal to the directive.[lxxiv]  Tennessee requires a written statement signed by the principal or an oral statement made by the principal.[lxxv]  Maryland[lxxvi] and Colorado[lxxvii] similarly require oral or written expression and also accept a physical act by the declarant to revoke an advance directive.  Colorado, for instance, allows revocation “by the declarant orally, in writing or by burning, tearing, canceling, obliterating, or destroying said declaration.”[lxxviii]  This most restrictive approach is the “Principal-Only” approach.

B.     Other Jurisdictional Differences

Another jurisdictional split, apart from the above three major frameworks, is that some jurisdictions only allow modification or revocation of a directive if the declarant is competent or not incapacitated, while others allow modification regardless of the principal’s mental state.[lxxix]  Many states do not address capacity in this context.[lxxx]  Of the forty-eight states with statutes governing advance directives, twenty-one[lxxxi] allow a declarant to modify or revoke a directive “regardless of the mental or physical condition of the principal.”[lxxxii]  Ten of the jurisdictions explicitly require that a declarant have capacity in order to validly modify or revoke an advance directive.[lxxxiii]  The remaining seventeen states do not specifically address mental capacity in this context.[lxxxiv]

A final feature of states’ statutes regarding advance directives is that in many cases there is a different procedure for revoking the designation of an agent or surrogate for health care decisions.[lxxxv]  In those cases, the procedure for revoking the designation of a proxy decisionmaker is more circumscribed than the procedure to revoke a directive.[lxxxvi]  For instance, in Alaska a declarant may revoke an advance directive “in any manner that communicates an intent to revoke,”[lxxxvii] but may only revoke the designation of an agent “by a signed writing or by personally informing the supervising health care provider.”[lxxxviii]  In other jurisdictions, the same procedure can serve to change an agent’s designation as can be used to modify or revoke the document.[lxxxix]

III.  Effects of the Three Existing Frameworks in Real-World Settings

Each of the three frameworks of law (the Majority Approach, the Third Party Approach, and the Principal-Only Approach) affects a locked-in patient’s ability to modify or revoke an advance directive differently.  The Majority Approach is the most forgiving scheme for a patient with a communicative disability—the language is broad enough so that any means of communication by the patient is sufficient to validly modify an advance directive, but this framework dispenses with the safeguards of the formalities of execution.  The Third Party Approach still allows locked-in patients to modify and revoke medical directives, but does not dispense with all of the formalities of execution, though their functions are abrogated.  The Principal-Only Approach, on the other hand, keeps in place the formalities to such an extent that a locked-in patient would not be able to change a previously executed advance directive.  Full exploration of the capacity and agency jurisdictional splits is beyond the scope of this paper.

A.     The Majority Approach

Thirty-one jurisdictions allow a declarant to revoke or modify an advance directive by any means of effectively communicating that intent (the Majority Approach).[xc]  By dispensing with most formalities, these jurisdictions allow the broadest range of actions to validly revoke or modify an advance directive.  The statute in effect in California is representative of the typical Majority Approach statute; it follows the Uniform Health-Care Decisions Act.[xci]

California allows revocation “at any time and in any manner that communicates an intent to revoke.”[xcii]  This exceptionally broad language eliminates any formalities associated with the revocation.  The “in any manner” language would allow a patient to revoke an advance directive using any of the methods named in the other statutes: oral or written notification or any of the physical methods because those methods clearly express the intent to revoke.  This language also encompasses certain other avenues of communication that are important to locked-in patients, including communication by blinking or communication which utilizes technology, including specialized computers, brain-computer interface, and neuroimaging devices.

The positive impact of this language is that people with communicative disabilities will be able to modify or revoke their advance directives so long as there is some possible method of communication.  The continuation or withholding of life-support measures will likely be an important issue for the patient given his precarious state of health and his difficulty in interacting with the world.[xciii]  As such, it is important for a locked-in patient to have the legal ability to modify or revoke a previously executed advance directive if that document no longer embodies the patient’s current desires regarding health care.

On the negative side, this type of statute dispenses with practically all of the formalities associated with revoking and modifying advance directives.  As discussed above, formalities of execution have important roles to play in assuring that the executed document expresses the declarant’s true intent, free from coercion and duress.  Most important in the case of revoking or modifying an advance directive are the ritual, evidentiary, and protective functions because a locked-in person is in a vulnerable position where being taken advantage of could be a life-or-death situation.[xciv]

To completely eliminate formalities is to remove important procedural safeguards.  Gelfand argues against the loosened formalities associated with this approach.[xcv]  Gelfand, however, argued this is based on the unfounded (or, looking to new developments in technology, no longer true) assumption that all conscious patients will be able to comply with every state’s formalities, given enough time.[xcvi]  While requiring strict formalities in modifying or revoking advance directives serves important interests, those interests are moot if it becomes impossible to comply with the formalities.  The Majority Approach, in putting the declarant’s intent ahead of adherence to formalities, gives locked-in patients such wide latitude in executing their intent that they lose the protective functions of the formalities.

B.     The Third Party Approach

Fourteen jurisdictions allow a declarant to modify or revoke an advance directive by directing a third party to make a written revocation or to physically destroy or cancel the document (the Third Party Approach).[xcvii]  All but four of these jurisdictions require that the third party do so “in the presence of” the principal.[xcviii]

There is long-developed case law that defines “presence” in regards to attestation of wills.[xcix]  Given the similarities between a witness attesting to a will and a third party acting on a declarant’s behalf to revoke an advance directive, case law defining “presence” in the context of will formalities should be illustrative in the context of using a third party to revoke or modify an advance directive.  The jurisprudence of the state of Virginia is instructive as a prototype for jurisdictions that require the “presence” of a principal in this situation.

Virginia allows for revocation by a “signed, dated writing” or “an oral expression of intent to revoke.”[c]  The statute also allows “physical cancellation or destruction” of the document by the declarant or by “another in his presence and at his direction.”[ci]  Allowing a third party to act out a locked-in patient’s will in changing or revoking a directive gives a severely paralyzed person the ability to abide by the required formalities through a proxy, thus effectuating his intent without dispensing with the formalities.  An interesting wrinkle is added, though, because in many states, including Virginia, the person acting at the principal’s direction must be “in his presence.”[cii]

Substantial case law has attempted to precisely define what is meant by “presence.”[ciii]  In Virginia, the Statute of Wills requires “conscious presence”; this is distinguished from mere temporal and physical proximity.[civ]  Conscious presence is not achieved if the person whose presence is required is asleep or unconscious.[cv]  The testator must be conscious that the act is occurring at the time that the act is in progress to be consciously present.[cvi]  Virginia law does raise a presumption of presence if the act occurs in the same room as the testator, barring evidence of fraud or incapacity.[cvii]

Thus, the conscious presence test established for attestation of wills might be applied in the context of a locked-in patient seeking to revoke an advance directive.  An important consideration arises here because it can be very difficult to determine whether a completely locked-in patient is conscious or unconscious without using devices to measure brainwaves.[cviii]  If a patient is absolutely paralyzed, the only way to adduce the mental state of the patient would be through analyzing brain activity[cix] or to ask the patient directly whether he was awake and aware of the proceedings using one of the methods that allows a locked-in patient to communicate.  While the conscious presence test poses an added hurdle to the process, it is an important safeguard to assure that the patient’s wishes are being accurately fulfilled.

The main strength of the Third Party Approach is that it allows a patient with a severe communicative disability to modify or revoke an advance directive.  As with the Majority Approach, so long as there is some method by which the patient can communicate with others, that patient may direct another person to revoke or modify the document on his behalf.  As discussed above, health care decisions are crucial to a patient with locked-in syndrome and that patient’s preferences might change over time.  If the patient’s wishes no longer comport with the wishes expressed in the document, it is imperative that the patient be able to change or revoke the directive.  The Third Party Approach, like the Majority Approach, effectively allows a locked-in patient to modify or revoke an advance directive.

Additionally, the Third Party Approach preserves more of the formalities associated with advance directives than does the Majority Approach, while still allowing patients with communicative disabilities to effect a modification or revocation.  On the other hand, the function of some of these formalities may be lost in having a third party, rather than the principal, execute the formalities.  The evidentiary function is still fulfilled, because, even if a third party does the action, there will be record of it—either by a signed writing or a physically cancelled document.  The ritual function is served somewhat, because an overt act is required of the third party, but the true purpose of the ritual is to impress upon the declarant the gravity of the action.[cx]  Filtering ritual formalities through a third party dilutes the effect they would have had upon a declarant had he performed the rituals himself.  Finally, the third purpose of formalities, the protective function, is almost completely lost in this situation.  Allowing a third party to modify or revoke a person’s advance directive opens wide the gates for undue influence and fraud.

The relevant statutes in the Third Party states allow a person to cancel an advance directive so long as he is in the declarant’s presence and acting at his direction; four states (Alabama, Kansas, Utah, and West Virginia) do not require that the cancellation occur in the declarant’s presence.[cxi]  These statutes do not even specify how the declarant should signal his “direction.”[cxii]  A patient with severe communicative disability, like a locked-in patient, would be at the mercy of third parties who could spuriously claim they were acting at the direction of the patient.  The protective function of the formalities is entirely lost in Third Party states.  Thus, the Third Party Approach allows a locked-in patient to revoke or modify his advance directive without dispensing with the formalities, but in allowing a third party to act at the behest of the principal, the safeguards afforded by some of the formalities are diminished or lost.

C.     The Principal-Only Approach

The statutory approach of three jurisdictions could make it impossible for a locked-in patient to modify or terminate a previously executed advance directive.[cxiii]  States that employ the Principal-Only approach require that the principal to the advance directive do some physical act, such as speaking or writing, to revoke the document.

Consider a patient whose directive requires that the doctors terminate life support after eighteen months.  The directive states that if, at the end of the eighteen months, the patient is still dependent on a respirator or similar devices, life support shall be removed.  If this patient was locked-in but was making advances in communicating via fMRI, brain-computer interface, or even by blinking in code, he may express his desire to keep on living—to revoke his advance directive.

Unfortunately, this patient lives in Tennessee.  The patient now wishes to revoke the directive so he can continue living and working toward recovery.  He is allowed one of two procedures for the revocation: he may submit to his physician a written, signed, and dated document revoking the directive or he may orally revoke the document to his physician.[cxiv]  The patient, completely locked-in, can neither hold a pen nor speak.  According to the letter of the law in Tennessee, the patient cannot change his advance directive—his doctors would be bound to remove life support at the end of the designated period.

The laws of the Principal-Only jurisdictions—Tennessee, Colorado, and Maryland—are too restrictive.  By requiring the declarant to speak, sign his name, or perform some overt action (such as “burning, tearing, . . . or destroying” the document[cxv]), these laws do not give completely paralyzed citizens the opportunity to change their minds about previously ratified health care decisions, even when their mental abilities are completely undiminished.[cxvi]  This most restrictive language takes the requirements of formalities so far as to make them impossible for some people to fulfill.

The only advantage to this approach is that the formalities are undiluted.  But such slavish dogmatism goes so far as to make it impossible to fulfill the requirements.  Even a highly functioning locked-in patient who can speak with an audible voice using brain-computer interface or who can blink to communicate would be legally unable to modify his advance directive.  Such a person could communicate with his physicians, make reasoned decisions—he could even write a book[cxvii]—but in these states he would not be allowed to change his previously expressed preferences relating to his own medical treatment.

D.  The Principal-Only Approach Violates the ADA

These states arbitrarily deprive a class of people of their right to make decisions about health care.  The three Principal-Only states’ laws do not allow locked-in patients to revoke or modify advance directives because of their particular difficulties in communication.  This violates the Americans with Disabilities Act of 1990 (“ADA”).[cxviii]  A prima facie case of discrimination under the ADA requires: (1) that the plaintiff has a qualifying disability; (2) “that he is being denied the benefits of services, programs, or activities for which the public entity is responsible, or is otherwise discriminated against by the public entity”; and (3) that the discrimination is founded in the disability.[cxix]

A locked-in patient qualifies as disabled under the ADA.  Locked-in syndrome qualifies under the “first prong” of ADA disability because the impairment substantially limits “one or more major life activities” and the impairment is a “physiological disorder or condition” that affects the neurological and musculoskeletal systems.[cxx]  “Major life activities” are defined as “functions such as caring for one’s self, performing manual tasks, walking, seeing, hearing, speaking, breathing, learning, and working.”[cxxi]  Locked-in patients are clearly disabled under the ADA.

ADA Title II protects disabled citizens from discrimination in “services, programs, and activities” by “public entit[ies].”[cxxii]  Public entities, for the purpose of the ADA, include state governments.[cxxiii]  Exactly what constitutes a “service, program, or activity” is broadly construed.[cxxiv]  That language is characterized as “a catch-all phrase that prohibits all discrimination by a public entity, regardless of context.”[cxxv]  Specifically, ADA Title II has been construed to cover many types of state and local governmental regulation.[cxxvi]  Various state and local laws have been scrutinized under the ADA and the Second Circuit advises against “hair-splitting arguments” over what falls within its reach; state statutes governing advance directives are within the reach of ADA Title II.[cxxvii]  Therefore, Title II of the ADA clearly prohibits the discriminatory effect of state laws, including those that govern advance directives.

Regulations for ADA Title II hold that “[n]o qualified individual with a disability shall, on the basis of disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any public entity.”[cxxviii]  Specifically:

 [a] public entity, in providing any aid, benefit, or service, may not . . . on the basis of disability (i) [d]eny a qualified individual with a disability the opportunity to participate in or benefit from the aid, benefit, or service; . . . [or] (vii) [o]therwise limit a qualified individual with a disability in the enjoyment of any right, privilege, advantage, or opportunity enjoyed by others receiving the aid, benefit, or service.[cxxix]

 Thus, because locked-in patients’ extreme paralysis can prevent oral communication as wells as make written communication by the patient impossible, these statutes deny locked-in individuals the opportunity to revoke or modify their advance directives.  The exclusion of locked-in patients from the benefits of modification and revocation of advance directives is an exclusion based on their disabilities—the communicative disability is what prevents them from validly executing a revocation.  As such, the third element of the prima facie ADA case is fulfilled.

The wording of the statutes in Tennessee, Colorado, and Maryland prohibit locked-in patients from modifying or revoking previously executed advance directives.  The state laws governing advance directives are subject to Title II of the ADA.  Locked-in patients are “qualified individual[s] with [] disabilit[ies].”[cxxx]  This discrimination stems from their communicative disabilities.  Therefore, the prima facie case is fulfilled: These statutes violate the ADA with respect to people with locked-in syndrome.

This unacceptable curtailment of locked-in patients’ rights regarding previously executed advance directives must be remedied.  The three states with discriminatory statutes should immediately adopt legislation that conforms to either the Majority or the Third Party Approach in order to halt this illegal discrimination.  Any argument that alternative approaches imprudently dispense with formalities should be dismissed as overly dogmatic and as not taking into account the particular needs of people with communicative disabilities.

IV.  Conclusion

The statutes governing revocation of advance directives in Colorado, Maryland, and Tennessee discriminate against locked-in patients and must be changed.  If those statutes are not changed, a person with locked-in syndrome in one of those states may not be able to legally revoke her advance directive, even if the directive ordered removal of life support.  The three Principal-Only states should adopt one of the other two approaches.  The Majority Approach dispenses with all of the formalities of execution, but makes it easiest for people with severe communicative disabilities to change or revoke their advance directives.  The Third Party Approach allows patients to direct another person to revoke or change the directive; this approach preserves some of the formalities, but the purposes those formalities serve are mostly lost.  Further complicating the Third Party Approach is the question of whether the person acting at the direction of the patient must be “in the presence of” the declarant and how to evaluate “presence” in the context of a locked-in patient.

Given that the value of the formalities is mostly lost when a third party executes them, the framework the discriminatory Principal-Only jurisdictions should adopt is the Majority Approach.  The Majority Approach allows a person with severe communicative disability to revoke her directive, without the added difficulty of directing a third party to act for her.  Given the rapid advances being made in alternative methods of communication for locked-in patients, allowing revocation by any means of expressing that intent gives the greatest flexibility to the law.

While locked-in syndrome is a rare condition, advances in medical science are promising to make its diagnosis somewhat less uncommon in the future.  Coupled with developments in technology that aid in communication with people who have lost the ability to speak, write, or communicate by any traditional method, the more accurate diagnostic procedures bring to light a class of people who can and should be making important health care decisions, but are now hindered only by the law.  Colorado, Maryland, and Tennessee should change their laws governing revocation of advance directives before the scenarios described in this paper become a real life-or-death situation for a real person.

by Jeanne Yang*

I. Introduction

Over the past several decades, advances in biotechnology and medicine have created an influx of biologics.  Biologics (e.g., insulin, human growth hormone) are complex, protein molecules that are used to treat a variety of ailments.  In contrast to chemical drugs (e.g., aspirin, ibuprofen), which are simple, small-molecule compounds easily created by chemists and produced in pill form, biologics are large, complex molecules produced by bioengineered bacteria and other organisms.  Biologic products have shown great promise as effective treatments for cancer, autoimmune diseases, and other serious afflictions.[i]  Many drug manufacturers, enticed by the promise of patent protection and strong market rates, have entered the field, developing innovative, therapeutic biologics.[ii]

Unfortunately, two major factors limit the reach of biologic development: cost and safety.  First, the cost of treatment with biologics is expensive and can reach hundreds of thousands of dollars per year,[iii] a result of the high cost of development and clinical testing.  This cost makes it difficult for many patients to obtain necessary treatment for specific ailments.  The benefits of biologics are lost if patients cannot afford to pay for them.  Second, safety issues arise from the fact that biologics are larger and more complex than small-molecule drugs, making production, quality control, and quality assurance more difficult.  Even small changes in a biologic’s manufacture could adversely change its chemical properties and the way it affects individuals.

Competition from generic versions of brand name biologics, known as “follow-on biologics,” would address the cost issue by supplying patients with cheaper alternatives as well as providing incentive for generic biologic manufacturers to continue research and development.[iv]  However, there is currently no legislative framework to address the approval of generic biologics.  Under the Public Health Safety Act (“PHSA”), generic biologics must endure the same approval process as the original, reference biologics.[v]  The current process for follow-on biologics requires an applicant to duplicate the same type of clinical test cycles that the original, brand name biologic had to go through prior to its approval.[vi]  Conducting clinical testing for generic biologics is an inefficient use of scarce resources and deters generic biologics competitors from entering the market.  An approval process that balances safety and efficacy concerns with the cost and resources of generic biologics is necessary.

Addressing the issues facing biologics becomes even more important when considering the high costs of biologics and a strained healthcare system.  Healthcare reform will ultimately demand cheaper, affordable biologics.  There are already several bills pending in Congress addressing this issue.  It is only a matter of time before an abbreviated approval pathway is approved.  The need for an approval process for follow-on biologics is heightened by the large number of biologics that will go off-patent in the next several years.[vii]  It is estimated that $10 billion worth of biologic drugs will go off-patent by 2010, with an additional $10 billion going off-patent by 2015.[viii]

The process for generic small-molecule drug approval is greatly aided by the fact that a generic drug manufacturer can easily establish that its product and the original are the same.[ix]  There is currently no comparable approval pathway for generic biologics.  The absence of an approval pathway means that generic biologic manufacturers have little incentive to enter a market in which there is a large barrier to entry.  Generic manufactures would have to spend a large amount of money recreating clinical research in order to demonstrate that their generic has the same safety and efficacy as the original.  Not only is this not cost-effective, but it also gives brand name manufacturers a de facto extension on their patents.  United States patent law protects inventors by giving a patent owner the right to prevent others from using the patent in any manner during its lifetime.[x]  A de facto extension of a patent occurs when competitors are unable to develop products until it has expired.  This gives the original patent an extra period of protection while competing products are researched, developed, and produced.  In the case of generic biologics, generic manufacturers are restricted from conducting comparative clinical trials during the patent life of a pioneer biologic, forcing them to wait for the patent expiration before starting testing.[xi]  To avoid this, legislation such as the Hatch-Waxman Act has proposed abbreviated approval pathways, permitting companies to use data in ways that would normally be considered patent infringement.  This use of data would allow generic drugs to enter the marketplace immediately after the expiration of the original product’s patent.

This paper discusses issues that the biologics industry faces today, analyzes bills for abbreviated approval pathways for follow-on biologics currently pending approval in Congress, and proposes several adjustments to those bills.  First, this Paper examines why follow-on biologics were not included within the Hatch-Waxman Act.  It then discusses the implications of the Hatch-Waxman framework on follow-on biologics and finds that it cannot apply to biosimilars without significant changes to ensure their safety, purity, and potency to match those of the original, reference biologic.  In light of the current economy and the high cost of development, manufacturing, and clinical testing, an abbreviated approval pathway for follow-on biologics is the most likely option.  Lastly, this paper proposes that a pathway for abbreviated approval should adopt a different standard so as to be more structured than the current proposals before Congress.  Any abbreviated approval pathway should require a one year statutory-mandated clinical trial period to ensure the safety of the product.  Follow-on biologics should also be required to be “substitutable,” requiring a “sameness” between proposed biologics and their respective brand name biologic, as opposed to merely being “similar.”  Furthermore, I suggest that, while the bills await approval before Congress, the FDA should develop guidelines for approving the generic versions of well-characterized biologics, such as insulin, for which safety is less of a concern because they already have a substantial history of safe use.

II. What are Biologics?

According to the PHSA, biologics are a class of biological products derived from living organisms that are used to diagnose, treat, or prevent various medical conditions.[xii]  Biologics, which are also known as biopharmaceuticals, biologic drugs, or protein drugs,[xiii] are mostly protein products.  They include vaccines, blood and blood components, gene therapy, tissues, and recombinant therapeutic proteins.[xiv]  Originally, biologics were created from purified extracts of animal blood and tissue, but advances in biotechnology have pushed their development toward recombinant DNA technology.  This technology consists, essentially, of reprogramming cell lines to mass produce specific biological products.[xv]  Today the majority of biologics is created by engineering bacterial and yeast cell lines to produce desired proteins.[xvi]  Conventional small-molecule drugs, on the other hand, are derived from chemical compounds and “can be completely characterized on the basis of their chemical structures.”[xvii]

A.     Biologics as Differentiated from Chemical Drugs

Biologics attain a level of complexity that far outreaches simple molecules and other chemical drugs both structurally and functionally.[xviii]  According to the FDA, most conventional chemical drugs, such as the ones people recognize in their local pharmacies (e.g., Advil®, Tylenol®, and Lipitor®), are created by combining a series of well-defined chemicals in a highly predictable manner to create a product that, despite being created by very different processes, results in an identical final product.[xix]  Small-molecule, chemical drugs are considered to be chemically, and not biologically, synthesized and usually involve a single, chemical entity.[xx]  In contrast, proteins comprise the majority of biologic drugs and illustrate the complexity of biologics.[xxi]  Protein products are often too large and complex to be created chemically, which is why scientists insert specific DNA sequences into cells, essentially “programming” bacteria and other living organisms to produce the target biologic.[xxii]

Structurally, proteins vary widely in size, with some proteins having as few as three amino acids while others have as many as 2,300.[xxiii]  Proteins are often much larger than chemical drugs.  For example, aspirin has a molecular weight of 180 Da, while the biologic interferon-β (used to treat and control multiple sclerosis) has a molecular weight of 19,000 Da.[xxiv]  Furthermore, two protein products with identical amino acid sequences can still lack comparable functionality due to differences in their folding patterns, post-translational modifications, and aggregations of subunits.[xxv]  The consequences of subtle differences between proteins with identical amino acid sequences can be significantly dangerous.  These dangers were demonstrated by the observed side-effects of Epogen and Eprex, two genetically engineered forms of the human hormone erythropoietin used to treat anemia in patients with chronic renal failure.[xxvi]  The specifics of the Epogen and Eprex example are discussed below.

Other differences between biologic drugs and chemical drugs include delivery method, mode of action, and manufacturing methods and costs.  While most chemical drugs are administered orally via pill form, biologics are often unstable and easily degrade in the digestive system before reaching the blood stream.  Therefore, many biologics must be injected or inhaled in order maximize efficacy within the human body.[xxvii]  Biologics can also be “heat sensitive and susceptible to microbial contamination” and must be cared for accordingly, by maintaining their stable storage environments and developing administration methods that preserve their efficacy in the human body.[xxviii]  Additionally, a biologic can affect up to 100 different physiological processes in the body (as opposed to a chemical drug’s mere handful of reactions within the body), making it very difficult for researchers to predict physiological responses to specific biologics.[xxix]  Lastly, biologics are much more expensive to develop and manufacture than chemical drugs.[xxx]  Due to the complex and unpredictable nature of biologics, it is crucial that the biologics endure stringent safety review and testing.  While chemical drugs only require 40–50 clinical tests, the average biologic requires 250 clinical tests or more.[xxxi]  The aforementioned differences between biologics and chemical drugs are why the costs of biologics have risen so sharply over the past couple of decades.

B.     What are Follow-On Biologics?

When conventional, small-molecule drugs expire, generic versions of the drugs jump onto the scene, ready to grab a share of the pharmaceutical market.  When patent protections and regulatory protections of pioneer biologics expire, companies create follow-on biologics.  These are attempts to copy the original biologics and are, in essence, generic versions of the original.[xxxii]  However, while generic chemical drugs can be identical to the original, brand name drug, it is virtually impossible to create identical follow-on biologics.  Chemical drugs are easy to reproduce because their structures are precisely defined.[xxxiii]  On the other hand, follow-on biologics are copies of existing biologics made with different cell lines or different manufacturing and purification processes.[xxxiv]  Using different cell lines and manufacturing techniques will result in a variety of differences between follow-on biologics and pioneer biologics.  These disparities are the source of many of the substitutability issues between generic and brand name versions of biologics.

C.     Problems Currently Facing Biologics

1.     Exorbitant Costs Hamper the Accessibility of Biologic Drugs and Reduce the Incentive for Follow-On Biologics Manufacturers

The high cost of the research and development necessary to create biologics has driven the cost of receiving these drug therapies to astronomical heights.  For example, treatment of breast cancer with Herceptin can cost $48,000 per year, and treatment of rheumatoid arthritis with Remicade can reach approximately $20,000 per year.[xxxv]  In contrast, the most expensive small-molecule, chemical drug treatment currently on the market costs approximately $300 per patient per year.[xxxvi]  Biologics are among the most expensive items in the U.S. healthcare budget.[xxxvii]  In 2007, Americans spent $40.3 billion on biologics alone.[xxxviii]

Part of the reason behind the rising costs of biologics is that advances in biotechnology have invariably been accompanied by price increases.  For example, Fred Banting and Charles Best, the discoverers of insulin, sold the patent for one dollar in an effort to keep it cheap and accessible.[xxxix]  The original form of insulin developed by Banting and Best was extracted from pig and cow pancreases and did not last long in the human body.  It required significant improvements to lengthen its effectiveness.[xl]  Yet even such improvements had low accompanying price increases, selling for only $2.99 a bottle in 1975.[xli]  However, in 1978, Genentech created the first biologic drug: insulin created by genetically engineered bacteria, which produced insulin biologically instead of chemically.[xlii]  By 1996, the FDA approved the first insulin analogs, which are similar to human insulin but have been genetically manipulated to be slower- or faster- acting.[xliii]  When these improvements hit the market, the price for insulin skyrocketed.[xliv]  The cost of insulin to state Medicaid programs in 2005 was $500 million.[xlv]  At the time of this writing, popular, fast acting versions of insulin like Humalog and Novolog cost upwards of $60 per bottle.[xlvi]  Insulin is only one example of a biologic drug that weighs heavily on the U.S. healthcare system due to high costs.

2.     Safety Issues Inherent Within Biologics

Biologics are much larger and more complex than conventional, chemically-produced, small-molecule drugs.  Even slight changes in manufacture can greatly affect the biological composition of the product and, subsequently, their safety and efficacy in patients.[xlvii]  Differences in protein configurations may occur because of the environmental conditions in which a biologic is manufactured and will have correspondingly different effects on individuals.

The major safety concern with biologics is immunogenicity.  Immunogenicity occurs when the body develops an allergic response to properties intrinsic to the biologic.[xlviii]  The allergic reaction occurs because biologics are created in cells of other organisms, and the human body will often view them as foreign substances resulting in an immune response and accompanying antibody production.[xlix]  In some instances, the immune response can be so severe that patients become allergic to even natural proteins formed by their own bodies, possibly worsening their conditions.[l]

Unlike processes used for creating generic chemical drugs, for which the products can be confirmed as identical to the brand name drug in terms of structure, safety, and efficacy despite differing manufacturing methods, it is nearly impossible to determine whether follow-on biologics and their pioneer biologic counterparts share the same effectiveness and quality.  Of particular concern is the fact that the complexity of proteins opens biologics up to a varying danger of immunogenicity.  For example, two proteins with the same structure but slightly different production methods resulted in the discovery of Epogen and Eprex.  The biologic drugs Epogen and Eprex are both agents used to treat patients suffering from anemia (low red blood cell counts) due to kidney failure or due to side effects from treatments such as chemotherapy.[li]  Epogen and Eprex use the same active ingredient: a man-made form of the protein erythropoietin, called epoetin alfa.  Epogen was prescribed to patients in the U.S. while Eprex was prescribed to patients elsewhere around the world, particularly in Europe.[lii]  They were both produced using the same recombinant DNA technology and had identical amino acid sequences, but because of slight differences in the way each biologic was manufactured the resultant drugs caused very different reactions in their respective patients.[liii]  Epogen was created in human serum albumin while Eprex was made in glycine and polysorbate 80.[liv]  It is still unknown what factors were exactly responsible, but the resulting changes in Eprex were sufficient to change its immunogenicity, causing patients to develop pure red cell aplasia (PRCA), a syndrome characterized by “anemia, low reticulocyte count, absence of erythroblasts on bone marrow, resistance to epoetin therapy, and antibodies for erythropoietin.”[lv]  Simply put, patients taking Eprex began producing antibodies at much higher rates than patients taking Epogen.[lvi]  The patients experienced an allergic reaction to epoetin so severe that they also became allergic to the epoetin their bodies produced naturally.  The biologic, originally taken to improve a patient’s medical condition, effectively made them more ill.  From 1988 to 1998, pure red-cell aplasia was reported in three patients who had undergone treatment with Epogen.[lvii]  After the release of Eprex in Europe and between January 1998 and April 2004, researchers discovered 175 cases of epoetin-associated pure red-cell aplasia related to Eprex, but only 5 cases related to Epogen.[lviii]  Opponents to abbreviated approval pathways for follow-on biologics often cite this case as proof of the dangers arising from biologics that, although seem the same, have clearly different pharmacological effects.

The soaring prices of biologics are forcing the U.S. to spend millions of additional dollars on healthcare.  As a result, there is a demand for generic biologics because of the exorbitant cost of buying branded biopharmaceuticals.  At the moment, generic biologic drug manufacturers have no economic incentive to enter the field of follow-on biologics.  The possibility for a reasonable return on investment is too low to risk investing in expensive clinical trials, safety tests, and waiting for FDA approval.  However, in light of the number of bills pending before Congress and the looming healthcare crisis in America, it is only a matter of time before Congress approves an abbreviated approval pathway for follow-on biologics.  The current bills, however, are insufficient and should be adjusted to properly accommodate for and balance the needs and concerns of all parties involved.

III. FDA Regulatory Scheme for Brand Name and Generic Drugs, and for Pioneer and Follow-On Biologics

The FDA regulates new drugs and biologics for approval and licensure.[lix]  Small-molecule drugs are regulated under the Food, Drug and Cosmetics Act (“FDCA”).[lx]  However, biologics are regulated under both the Public Health Service Act (“PHSA”) and the Food, Drug and Cosmetics Act (“FDCA”).  The FDCA applies to biologics because they fall within the FDCA definition of “drugs.”[lxi]

A.     The Approval Process for Small-Molecule Drugs

The pre-clinical phase of developing a drug usually begins with basic discovery and research in various academic, government, and industry laboratories.  After extensive testing on animal models, the applicant for a drug can file an Investigational New Drug (“IND”) application.[lxii]  After the FDA evaluates the IND and grants permission for the applicant to conduct clinical studies on humans, the clinical phase of testing begins.[lxiii]

There are three phases of clinical trials: Phase I clinical trials involve a small group (twenty to one hundred) of healthy volunteers to determine whether the drug is safe and effective; Phase II clinical trials then test the drug on a larger pool of patients (several hundred) with the specific intention of confirming that the compound has the intended effect, at which point the drug ultimately moves on to Phase III.  Phase III, which is “the most costly stage of drug development,” involves several thousand patients and evaluates the safety and effectiveness of the drug. [lxiv]  At this point, approximately 64% of the drugs in Phase III clinical testing are submitted as New Drug Applications (NDAs) and new Biologic License Applications (BLAs) to the FDA.[lxv]  Biologic License Applications will be discussed further below.  Until this point, the developmental and research costs of biologics and small-molecule chemical drugs are comparable.  The average cost of bringing a small-molecule drug to market varies from $800 million to $1.7 billion while the average cost for a biologic drug is $1.2 billion.[lxvi]  Once the FDA approves the new product, the drug name and related patent information is published in the Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”).[lxvii]

B.     The Hatch-Waxman Act:  An Accelerated Approval Pathway for Generic Small-Molecule Drugs

In 1984, Congress enacted the Drug Price Competition and Patent Term Restoration (“Hatch-Waxman Act”), which amended the Food, Drug, and Cosmetic Act in a successful bid to stimulate generic competition and balance the needs of competing interests in the pharmaceutical industry.[lxviii]  The Hatch-Waxman Act was Congress’s response to the outcome of Roche Products, Inc. v. Bolar Pharmaceutical Co.,[lxix] in which the Federal Circuit held that the generic firm infringed on a brand name sleeping pill when they began experimenting with the original, patented product in order to satisfy FDA testing requirements.  The court found that the generic’s use was for “business reasons and not for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry.”[lxx]  Congress enacted the Hatch-Waxman Act to reverse the holding in Roche Products by specifically exempting the manufacture, use, or sale of a patented invention from being liable for infringement when use was reasonably related to generating data for regulatory approval (also known as the “271(e)(1) exception”).[lxxi]

Under Hatch-Waxman, generic drug applicants are not required to conduct clinical testing of drugs that have already been proven to be safe and effective.[lxxii]  Instead, the applicant only needs to demonstrate that the generic drug product is the equivalent of the brand name drug, in effect, piggybacking off the brand name drug’s research and assurances of safety and effectiveness.[lxxiii]  This regulatory scheme has “reduced prescription drug prices, increased access for more Americans [to needed pharmaceuticals], and hastened the pace of innovation.”[lxxiv]

There are two “shortcuts” offered by the Hatch-Waxman Act: the abbreviated new drug application (“ANDA”, also known as the 505(j) application), and the 505(b)(2) pathway.[lxxv]  The ANDA pathway allows drugs that are “identical or almost identical” to rely on previously submitted NDA information of the brand name drug as their reference material without necessitating clinical studies or other proof of findings of safety and effectiveness.[lxxvi]  On the other hand, the 505(b)(2) pathway also allows reliance on the reference drug’s approved NDA data, but instead of requiring that the two molecules be identical, the 505(b)(2) pathway permits the application of drugs that are merely “similar” and not necessarily “identical” (e.g., a drug with the “same composition but different proposed use than the brand [name] drug”).[lxxvii]

This Act also gives the first generic drug applicant to file a “first-to-file” exclusivity for the first 180 days.  This means that for six months after the expiration of the brand name drug, the FDA will not look at or approve of any other ANDAs.[lxxviii]  This creates incentive for generic drug manufacturers to enter the market by being the first to file.  In this manner, the FDA effectively limits the market to two players by refusing to allow any other ANDAs for that period of six months.

C.     The Approval Pathway for Pioneer Biologics and Follow-On Biologics

As discussed earlier, a BLA is an application to obtain a license to market a biologic.  It must demonstrate that “the biological product . . . is safe, pure, and potent; and the facility in which the biological product is manufactured, packed, or held meets standards designed to assure that the biological product continues to be safe, pure, and potent . . . .”[lxxix]

Twenty-five years after the enactment of the Hatch-Waxman Act, there is still no equivalent approval process for biologics.  In fact, in order to obtain FDA approval, follow-on biologics must endure the same testing and clinical trials as the original biologics in order to determine their safety and efficacy.[lxxx]  Essentially, manufacturers of new biologic products must apply for approval as if their product was an entirely new drug rather than a generic equivalent of a preexisting, pioneer biologic.  The Hatch-Waxman Act specifically does not address biologics for several reasons.  When the Act was pending before Congress in 1984, technology was ill-equipped to handle the complexities of demonstrating equivalence and safety in follow-on biologics.  Legal analysis of the Act’s legislative history reveals that in order for the abbreviated pathway created by the Act to be applicable, both the pioneer drug and the generic must be chemically identical molecules.[lxxxi]  The Hatch-Waxman Act emphasizes the importance for determining that brand name and generic versions of small-molecule chemical drugs are bioequivalent to one another.  Since it is extremely difficult to demonstrate bioequivalency between two biologic products, the abbreviated approval process for chemical drugs is inapplicable to biologics.

IV. The European Union Has a Regulatory Scheme in Place for an Abbreviated Approval Process for Biosimilars

A regulatory pathway for biosimilars has been in place in the European Union (“E.U.”) since 2003.[lxxxii]  E.U. legislation has declared that the final decision to approve or reject a drug fell on the European Commission (the European version of the FDA) and has mandated comparative clinical trials, one year of testing, and risk-management plans.[lxxxiii]  European biosimilar manufacturers can claim that their drug is “similar” to existing biologics by “comparing the quality, safety, and efficacy of the new drug to the biologic,” and ensuring that the biosimilar and the original biologic have comparable immunogenicity.[lxxxiv]

The E.U. is acutely aware of the dangers and disastrous consequences of unpredictable immunogenicity after the tragic incidents associated with Eprex®.  With the dangers of immunogenicity fresh in mind, the E.U. passed legislation for an abbreviated regulatory pathway for biosimilars that compares the quality, safety, and efficacy of the biosimilar applicant.[lxxxv]  Most importantly, the applicant must show that the pioneer biologic and the proposed biosimilar share comparable immunogenicity, a requirement that often involves preclinical and clinical testing.[lxxxvi]  Since the E.U. passed this legislation, the European Commission has approved two different generic human growth hormones, Omnitrope and Valtropin.[lxxxvii]  Other countries have since followed suit, with Japan being the most recent country to implement a set of follow-on biologic guidelines to accompany its previously established accelerated drug approval system.[lxxxviii]

V. The U.S. Currently has Several Bills Proposing Abbreviated Approval Pathways for Follow-On Biologics

Generic biologics manufacturers and local governments are insisting upon legislation to create an abbreviated approval process as well as a regulatory pathway for follow-on biologics.[lxxxix]  Congress has responded by proposing several bills for abbreviated approval pathways that are currently pending.  Representative Henry Waxman (D-CA) of Hatch-Waxman fame remarked at the Biosimilars 2007 Conference on September 24, 2007, that “[b]iotech drugs are the future of medicine.”[xc]  He is standing behind his statement by drafting and supporting the bill entitled the “Promoting Innovation and Access to Life-Saving Medicine Act” (H.R. 1427) (hereinafter referred to as “Waxman’s Bill”).[xci]  Another bill standing before the House is the “Pathway for Biosimilars Act” (H.R. 1548), which was introduced by Representative Anna Eshoo (D-CA) (hereinafter referred to as “Eshoo’s Bill”).[xcii]  Both Bills are discussed below.

A.     Waxman’s “Promoting Innovation and Access to Life-Saving Medicine Act” (H.R. 1427)

After its success, the Hatch-Waxman Act of 1984 is a natural reference for creating a regulatory pathway for follow-on biologics.[xciii]  Rep. Waxman introduced the “Promoting Innovation and Access to Life-Saving Medicine Act” on March 11, 2009, and this bill bears many similarities to the Hatch-Waxman Act.[xciv]  For example, Waxman’s Bill follows the timeline of the Hatch-Waxman Act by proposing similar exclusivity periods, and not requiring clinical trials.[xcv]  Instead of conducting clinical trials, Waxman’s Bill would allow follow-on biologic applicants to rely upon the safety and efficacy data of the reference biologic, much like the Hatch-Waxman Act allows generic drugs to piggyback off brand name drugs’ test data.[xcvi]  Furthermore, Waxman’s Bill mandates that follow-on biologic applicants must demonstrate interchangeability with the brand name biologic.[xcvii]

Waxman’s Bill departs slightly from the Hatch-Waxman Act by giving a 180 day period of first-to-file exclusivity after the first sale or a full year after the approval of the first follow-on biologic found to be interchangeable with the original biologic (the Hatch-Waxman Act only gives a 180 exclusivity period.)[xcviii]  This exclusivity provision for first-to-file applicants prevents the FDA from approving a similar biologic product for sale to the public for a period of time after the introduction of the first follow-on biologic.

A separate exclusivity period is also provided for the reference biologic manufacturer.  Waxman’s Bill follows in the footsteps of the Hatch-Waxman Act and provides pioneer biologic manufacturers with a five year data exclusivity period.  The FDA cannot approve any generic versions of the biologic during this period.

B.     Eshoo’s “Pathway for Biosimilars Act” (H.R. 1548)

Although both Eshoo’s Bill and Waxman’s Bill purportedly share the same goal of finding a mechanism for the accelerated approval of follow-on biologics, the two bills are substantially different.  On March 17, 2009, Reps. Anna Eshoo, Jay Inslee, and Joe Barton introduced their version of a follow-on biologics bill, entitled the “Pathway for Biosimilars Act” (H.R. 1548).[xcix]  According to the press release, the bill “sets forth a straightforward, scientifically based process for expedited approval of new biologics based on innovative products already on the market.”[c]  Eshoo’s Bill leans heavily toward incentivizing brand name developers to continue developing innovative drugs by providing lengthy exclusivity periods.  While Waxman’s Bill gives original biologic manufacturers a five-year period exclusivity, Eshoo’s Bill mandates at least 12 years of data exclusivity (extendable up to 14.5 years) for pioneer biologics.[ci]  On the other hand, Eshoo’s Bill also allows for a longer period of exclusivity for generic biologics, awarding up to two years of market exclusivity to the first follow-on biologic found to be interchangeable with the original product.

Eshoo’s Bill further requires that a generic biologic applicant establish that the proposed product is “biosimilar” to the reference biologic.  Each follow-on biologic applicant must complete a period of clinical trials comparing the immunogenicity of the applicant’s product with the original biologic.  Analytical studies must show that the proposed biological product is highly similar in toxicity, safety, purity, and potency.

C.     Exclusivity Periods

The provisions in Waxman’s and Eshoo’s Bills that generate the most attention in interested parties are the exclusivity periods.  The bills provide for two exclusivity periods: (1) for the first-to-file follow applicants, preventing the FDA from approving similar follow-on biologic applicants for a specified period of time after the introduction of the first follow-on biologic applicant, and (2) for pioneer biologics, allowing for a period of data exclusivity that prevents the FDA from approving any follow-on versions of the biologic until the period has expired.  The exclusivity period for first-to-file applicants acts as an incentive for generic biologic developers by creating a two-entity market.  This reduces competition and allows for a higher profit margin.  The exclusivity period for pioneer biologics promotes continued innovation and acts as a mitigation factor, providing the original biologic with the time lost due to the wait for FDA approval.  The exact length of each exclusivity period has been analyzed and debated extensively.  Extensive research has been conducted to determine the optimal length of time for extensions and various other economic aspects of biotechnology.[cii]  Earlier this year, the White House has voiced an opinion on this matter by sending a letter to Rep. Waxman recommending a seven year data exclusivity period for pioneer biologics.[ciii]

VI. Proposal

The generic biologic approval framework that this paper proposes aims to balance the safety concerns of biologic drugs against the need for an accelerated approval process.  It is imperative that any regulatory pathway balance the needs of the pioneer biologic developers, follow-on biologic manufacturers, and the American public.  The current bills pending approval in Congress are heading in the right direction, but still need refinement.

A.     Inevitability:  It is Only a Matter of Time Before an Abbreviated Approval Pathway is Approved

The purpose of creating an abbreviated approval pathway for follow-on biologics is to stimulate generic competition while simultaneously providing incentives for innovation.  Brand name companies and other industry opponents of developing this pathway argue that the reason biologic drugs were not originally included in the Hatch-Waxman framework was because of the difficulty of characterizing biologics to ensure equivalency.[civ]  First, the opponents of creating an abbreviated approval pathway must recognize that the creation of such a regulatory pathway is just a matter of time.  The rising costs of biologics has already put a strain on the U.S. healthcare system, creating a pressing need for cheaper biologics, especially in light of the recent economic environment, and the best solution for the cost problem is promoting the availability of generic biologics.  In order to offset the costs that inherently make biologics expensive to develop and manufacture and in order to incentivize generic drug manufacturers to enter the follow-on biologics arena, an abbreviated approval system is the best approach.  Second, the inadequacy of scientific knowledge, which opponents often cite, may have been a legitimate concern in 1984 when the Hatch-Waxman Act was first approved by Congress, but scientific progress over the past twenty-five years has advanced technology sufficiently that current techniques permit follow-on biologic product manufacturers to accurately assess their products for comparability with brand name products.[cv]  While there is no single method that is capable of establishing the comparability of biologics on its own, there are now many analytical technologies that can be used to confirm protein configuration.[cvi]  Such technologies include orthogonal protein purification, hyphenated mass spectrometry, isoelectric focalization, and SDS-PAGE.[cvii]

B.     Immunogenicity Mitigated as a Concern by Imposing a Required One-Year Clinical Study Period

The biggest concern regarding a regulatory pathway for follow-on biologics is, of course, safety—specifically, immunogenicity.  The often cited example of the dangers of follow-on biologics is the immunogenicity caused by Eprex.  Recent research has found, however, that the increased incidence of pure red cell aplasia with Eprex may be due to its manufacture using uncoated rubber stopper syringes (i.e., immunogenicity caused by the packaging of the biologic rather than the biologic itself).[cviii]  According to a group’s research results, “[a] technical investigation identified organic compounds leached from uncoated rubber stoppers in prefilled syringes containing polysorbate 80 as the most probable cause of the increased immunogenicity.”[cix]  As such, this example illustrates that the purported dangers of biologics does not necessarily exist only in biologics, but may be a possibility in any manufactured drug.

Nevertheless, it is evident that some clinical testing should be required to ensure public safety.  Waxman’s Bill removes the clinical trial requirement completely from the table, allowing the follow-on biologic to completely rely on the pioneer biologic’s clinical research data.  Prudence requires that a period of clinical testing still be performed on follow-on biologics.  Although advances in technology have made it so that a “follow-on protein product is likely to meet the requisite standards for identity, potency, purity, quality, and safety,”[cx] biologics are, as mentioned above, still extremely complex molecules.

Therefore, I propose that the abbreviated approval pathway require a one year period of clinical trials.  Europe currently mandates a one year clinical trial period to demonstrate comparability between biosimilars and pioneer biologics.  The E.U. is wary of approval pathways for follow-on biologics because of issues identified with the introduction of Eprex, and yet they assert that a one year clinical trial period is sufficient.  I believe that the U.S. should follow suit and require a one year period of clinical trials in order to establish follow-on biologics’ safety.

Waxman’s Bill completely discards the requirement for clinical trials altogether.[cxi]  This is unwise in light of the complex nature of biologics and the fact that creating and guaranteeing follow-on biologics to be identical in every way to their reference biologic is nearly impossible.  Despite the fact that technology now allows for better characterization of biologics, the possibility of immunogenicity is still present.  Eshoo’s Bill requires clinical trials to determine the immunogenicity of proposed follow-on biologics, but the language of the bill does not give a minimum requirement for clinical trials.  This gives too much discretion to the FDA, and although the FDA has its own set of regulations to ensure safety, a minimum requirement for a period of clinical testing will only aid in ensuring the safety of follow-on biologics.

Thus, a one year clinical trial period would help protect consumers from safety concerns stemming from biological products, such as varying immunogenicity.  As discussed above, we should look comparatively at foreign systems when determining what period of time would be effective and efficient.  The E.U. is an ideal model for the United States because drug patents in Europe tend to expire earlier than those in the U.S., and European manufacturers have already begun to seek approval for biosimilars.[cxii]  Experience with creating an abbreviated approval pathway for biosimilars in Europe can therefore be a model from which the United States can develop its regulatory system.

C.     Language for Follow-On Biologics Must Ensure that They are “Substitutable” Rather Than Merely “Biosimilar”

Any approval pathway for follow-on biologics, regardless of whether it is abbreviated or not, must require that the applying biologic be held to a higher, “substitutable” standard.  This would require the applicant to demonstrate that the incoming drug demonstrates a “sameness” with respect to its reference biologic.  The interchangeability and therapeutic equivalence of biologics cannot be based on the same standards and criteria used for comparing small-molecule chemical drugs.  While it is widely accepted that two drugs consisting of the same chemical structure are sufficiently equal counterparts, the complexity of protein synthesis makes it improbable that two products made with differing processes can be  considered equal.  Therefore it is imperative that a new standard for comparability between biological products be established.  The FDA has found that large protein products with similar compositions may behave markedly different in different individuals and could result in cases of immunogenicity or adverse side effects.[cxiii]

The language of any proposed legislation is critical in ensuring that future follow-on biologics are as safe, effective, and reliable as the original biologic they are based upon.  Inadequate definitions in the language of the bill may also lead to confidence issues among physicians.  If follow-on biologics are merely labeled as “highly similar,” doctors may be more reluctant to prescribe generic versions of the biologic, which would defeat the cost-saving goals of follow-on biologics.  By specifically defining “substitutable” to mean a higher standard to which follow-on biologics must satisfy, both doctors and patients can be assured a safer product.  However, to have a “substitutable” standard would require a clear definition of what is “substitutable” versus what is merely “highly similar.”  This section examines the proposed bills’ definitions and requirements for comparability between follow-on and pioneer biologics and then introduces a different standard for comparability that emphasizes follow-on biologics’ substitutability with the original biological product.

Waxman’s Bill allows an applicant to rely on the data from the reference biologic in applying for approval as long as the applicant can show “that the biological product and the reference product contain highly similar molecular structural features.”[cxiv]  The proposed biologic must be “biosimilar” meaning that it is interchangeable with the reference biologic.[cxv]  According to the bill, a product is “biosimilar” if there are “no clinically meaningful differences between the biological product and the reference product . . . in terms of the safety, purity, and potency.”[cxvi]  If a patient’s treatment demands that a biologic be administered more than once, the proposed follow-on biologic must allow a patient to be able switch between the brand name and generic versions of the biologic “without an expected increase in the risk of adverse effects, including a clinically significant change in immunogenicity, or diminished effectiveness, compared to the expected risks from continuing to use the reference product without such switching.”[cxvii]  Once more, the wording of “clinically meaningful differences” is unclear as it currently stands in the Bill.  The ambiguity of the definition would allow too much room for variability between follow-on and original biologics.

On the other hand, Eshoo’s Bill is less lenient than Waxman’s Bill with regard to proof of similarity.  It requires that the follow-on biologic applicant must show that “the biological product . . . is biosimilar to the reference product and any biological product licensed . . . that has been determined to be interchangeable with the reference product; and can be expected to produce the same clinical result as the reference product . . .”[cxviii] and can be used interchangeably with the reference product in situations where the biologic product must be administered more than once to a patient.[cxix]  Interchangeability is therefore based on whether a proposed product is “biosimilar” to the original product at the Secretary of Health and Human Services’ discretion.

Both Waxman’s and Eshoo’s Bills focus on using the vaguely defined term “interchangeability” of biologics instead of looking toward determining their sameness.  The Bills would permit molecular differences between proposed follow-on biologics and pioneer biologics, allowing for increased safety risks to patients.  The definition of “substitutable” should be one that requires a proposed follow-on biologic and a pioneer biologic to be the same with regard to their immunogenicity, safety, quality, and efficacy.

Ultimately an abbreviated approval pathway should provide strict, statutory rules as to the length of the clinical trial period, the exclusivity periods, and the various specifics that ensure a safe but cost effective product.

D.     The FDA Should Set Up Guidelines for Well Characterized Follow-On Biologics

In addition to the statutory guidelines, the FDA should set up guidelines for approving follow-on versions of well-known biologics such as insulin.  Insulin, as well as improvements made on it, has been around for a long time, and its patent expired years ago.[cxx]  The number of diabetics is growing in this country, and healthcare providers and government officials are eager to find cheaper alternatives to insulin.[cxxi]  The same applies to human growth hormones.[cxxii]  Because insulin and growth hormones were approved originally as regular drugs, the FDA now “has the legal authority to approve generic versions.”[cxxiii]  Approval by the FDA would be faster and would be able to address health and cost concerns almost immediately, instead of waiting for the undeterminable for Congress to implement an abbreviated approval pathway.  In 2001, the FDA began developing regulatory advice for companies seeking to make follow-on biologic versions of insulin and human growth hormone, but has recently delayed final guidelines.[cxxiv]

In fact, the FDA has approved a generic biologic drug in the past: Omnitrope, a recombinant growth hormone used for treating “pediatric patients who suffer growth failure and adults with growth hormone deficiency.”[cxxv]  Omnitrope was originally filed as an NDA, and for a period of time the FDA kept trying to defer making a decision on Omnitrope  When it was ultimately forced to make a decision, the FDA approved Omnitrope under the 505(b)(2) pathway mentioned supra.[cxxvi]  It based its approval of Omnitrope on a finding that Omnitrope was “sufficiently similar” to Pfizer’s Genotropin.[cxxvii]  The FDA was able to do this because Omnitrope is not very complex, it has a “long and well documented history of clinical use,” and there was already existing information about its pharmacokinetic properties, and this information allowed the FDA to establish similarity to Genotropin without relying on “chemistry, manufacturing, and control . . . data.”[cxxviii]

The FDA cautioned against expecting that all follow-on versions of a biologic following this path would be approved, and it is true that not all generic versions of biologics necessarily should go through the 505(b)(2) pathway for approval.  But where a biologic such as insulin is well known and fully characterized, safety is no longer in contention and rising costs greatly outweigh the safety concerns.  The best course of action would be for the FDA to have guidelines for speeding up the approval of these follow-on biologics.

VII. Conclusion

Biologics are rapidly growing in importance in the medical world.  The ability of biopharmaceutical drugs to replace natural proteins produced by the body make them invaluable as therapy regimens to target major disease including cancer, infectious agents, and a variety of other health conditions  However, the immense cost of treatment with biologics can reach hundreds of thousands of dollars a year, an expense that puts treatment out of reach for many patients who could potentially benefit.  The costs of biologics are also impacting the current healthcare crisis, and therefore the arrival of an abbreviated approval process for follow-on biologics is inevitable and must be both examined and discussed.

Consideration of the current drug approval system (the Hatch-Waxman Act) and the available options for a regulatory pathway for generic biologics (Waxman’s and Eshoo’s Bills) reveals that the bills currently pending before Congress still need revision.  Specifically, the bills should include a statutory requirement for a one year clinical trial period to examine the immunogenicity and ensure the safety of follow-on biologics.  Also, follow-on biologics should be held to a higher, “substitutable” standard when being compared with the original brand biologics, requiring that the follow-on biologic be sufficiently the “same” as the original, pioneer biologic.  Additionally, while the bills before Congress await approval, the FDA should set up guidelines to allow for the approval of follow-on versions of well known biologics such as insulin and human growth hormone whose patents have already passed expiration.  Considering the importance of biologics as a growing field of medicine that treats many medical ailments, Congress should ensure an abbreviated approval process for follow-on biologics.  An abbreviated process with a mandatory one year clinical testing period that requires a follow-on biologic to be the same as its reference biologic would be the best option to address the issues currently facing biologics.

by Patrick Hagan*

I. Intoduction

In the high stakes worlds of pharmaceuticals and integrated circuits, an inventor of a new product that catches on stands to profit handsomely.  As with any endeavor that creates a large amount of revenue, there is usually no shortage of claimants to some of the credit for the invention, and thus some of the money.  This article discusses reach through royalties (“RTRs”), a method by which inventors of patented “research tools” can exercise some claim over the proceeds of these later inventions, and argues that this method should be enforceable under patent law.  Although research tools can be defined very broadly, my analysis is concerned with patented methods and products used in the process of inventing additional patented products, such as a pharmaceutical.

II. Reach Through Royalties

A.     Definition

“‘Reach-through licensing’ is licensing of technology/intellectual property, typically patent rights, with royalties based on a percentage of sales, where the licensed technology/intellectual property, such as basic research, is not incorporated into the end product.”[i]  Sometimes the definition is confused with other types of license terms; one reference to an agreement in which the licensee was required to grant the licensor “the first rights to negotiate a license for any new inventions or discoveries arising from [the] use of the Kit” was called a “‘reach-through” agreement[].’”[ii]  In fact, this type of agreement is called a “grantback.”[iii]  Later in the same article, however, the author refers to “royalties on commercial products that may not appear for a decade or more after the tool was actually used and then never be used again in the actual making of the product.”[iv]  This accurately describes an RTR.

Another similar but distinguishable licensing scheme was that adopted in 1982 for the “Cohen-Boyer” patent by patentees Stanford University and the University of California.[v]  The licensing provisions were similar to those of an RTR in that the royalty amounts depended on future sales; however, royalties were computed on the actual use of the patented method in the manufacturing of a new product, not just use during the discovery phase.[vi]  As such, the royalty computation did not “reach through” the patented product to another product.

Like the Cohen-Boyer license, most biotech RTRs involve only a license to the research tool itself.[vii]  The focus of this article is on a rarer breed: the sales of patented products, whose use is also subject to a license enforceable through an infringement suit.  In light of the doctrine of patent exhaustion, such a situation may seem impossible.  However, there is at least one accepted situation in which such a license term is effectively enforceable under patent law, and I argue that RTRs should be another.

B.     Legal Considerations

As a threshold matter, it should be noted that RTRs in general should not be prohibited as per se patent misuse or an antitrust violation,[viii] and that an RTR is not necessarily an impermissible expansion beyond the scope of the patent.[ix]  Licensors can, at the very least, enforce RTR provisions through breach of contract suits.[x]

The doctrine of patent exhaustion is the primary limit on “use restrictions” on a patented product that has been sold.  A brief examination of the current state of the doctrine in patent law will show exactly how much of a limit it is.  The Supreme Court’s recent decision in Quanta v. LG Electronics[xi] announced a renewed emphasis on the power of the doctrine, which holds that a patentee loses all of his patent enforcement rights over a particular copy of his patented product when he sells that copy.  Stated in positive terms, a patented product can be freely used by its buyer in any way he sees fit.

In Quanta, the patentee argued that the license restricted buyers who had acquired the patented product from a licensee from using the product without separately licensing for this right directly with the patentee.  The Court disagreed, holding that once the product was sold, the patentee lost all authority (at least under patent law) to restrict the use of the product.  The Court reiterated the rule from the 1942 case United States v. Univis Lens Co.: “Exhaustion is triggered only by a sale authorized by the patent holder.”[xii]  The two key words in the rule are “authorized” and “sale.”  The significance of “sale” will be discussed below.  For now, it is enough to know that an “authorized” sale is one that follows any restrictions the patent holder places on the sale.  Any sale that does not is “unauthorized,” and subjects the buyer of the product (and the licensee, if any, who sold the product) to patent infringement liability if he or she uses it.[xiii]  This restriction can be seen as an incomplete transfer to the licensee of the bundle of rights granted by the Patent Act, specifically, the right to sell.[xiv]  The Quanta Court implicitly upheld the validity of this type of restriction, as stated earlier in General Talking Pictures Corp. v. Western Elec. Co.[xv]  In General Talking Pictures, a patentee and a licensee had agreed to a restriction on which third party buyers the licensee could sell to.  A sale by the licensee to a prohibited third party would literally infringe the patent.  This provided one answer to the ultimate question of what types of restrictions could result in infringement liability for buyers and/or licensees.  Unfortunately, Quanta Court merely held that the facts involved were not similar to those in General Talking Pictures, and offered little, even in dicta, in the way of general affirmative guidance on other restrictions.

Perhaps more relevant to the RTR situation is that of “single use only” restriction on the buyer, which was dealt with in Mallinckrodt v. Medipart,[xvi] an earlier Federal Circuit decision.  The Federal Circuit concluded the restriction was valid, calling it “an express[] condition[]” of the sale.[xvii]  The Quanta Court did not offer any specific guidance on this restriction, either, which is unfortunate, as it appears that the patentee in Quanta “took full advantage” of the Mallinckrodt holding in crafting its license.[xviii]  Some have argued that, at the time it was decided, Mallinckrodt was already a departure from established Supreme Court precedent and that in light of Quanta, it can be considered dead law.[xix]  One thing is certain, however: the facts in Mallinckrodt approximate those in Quanta much more closely than those in General Talking Pictures.  However, even assuming Mallinckrodt is no longer good law,[xx] RTRs aren’t “use” restrictions on products that have been sold, and thus can’t be held to fail to prevent exhaustion on that ground, either.

The Quanta Court did cite, along with Univis, several examples of restrictions that have not allowed protection from patent exhaustion;[xxi] however, there are no examples in Justice Thomas’ four-paragraph history of the doctrine of patent exhaustion (two of which are devoted to Univis) of restrictions that were allowed.[xxii]  This author is not aware even of dicta in any Supreme Court case that hints at what sorts of restrictions may theoretically be allowed to insulate a patent from exhaustion.

One possibility is that the General Talking Pictures restriction could be manipulated to transform an authorized sale into an unauthorized sale the moment that the buyer violated the use restriction.  The idea is that a patentee could insert into the license a contractual “condition precedent” that the product would only be used by the buyer in the permitted fashion.  Although the Court has never directly addressed the question, at least one commentator does not think this is possible.[xxiii]

As may be gleaned from the above discussion, Quanta is notable for what it didn’t say.  In addition to shedding very little light on the issue of restrictions on sales of patented products, the Court did not offer any affirmative pronouncements on the mere contractual enforceability of use restrictions, stating that the patentee was not “necessarily” precluded from pursuing contractual remedies.[xxiv]  One concern is whether such a provision would amount to patent misuse.[xxv]

C.     RTRs as a Workaround to Patent Exhaustion

Recall the postponement of the discussion, above, of “sale” in the rule of Univis, as well as the wording of Mallinckrodt.  How else could “use” restrictions be characterized to comply with current law?  Hungar points out that “it seems reasonable to predict that some patent holders may attempt to avoid the impact of Quanta by restructuring sales transactions as licenses, leases, consignments or bailments in which title does not pass to the consumer.”[xxvi]  In such a case, a license may be structured to contemplate an eventual sale.  Such sales of real property can be subject to a condition precedent.[xxvii]  An RTR can be considered a condition precedent of a sale, with the licensee promising to pay money in the future in exchange for eventually acquiring title to the product.  The patentee promises to allow use of the product prior to the sale in exchange for the user’s promise to buy, which necessarily requires compliance with the condition precedent.  Without such a promise, the user could simply decide that he or she does not want title, thereby refusing to pay the RTR even though a sale is contemplated in the license.  If the user breaks this promise, even if he or she is no longer using the product, this constitutes infringement in addition to breach of a contract.

This arrangement is slightly different from a use restriction, dismissed above, which attempts to retroactively transform an authorized sale into an unauthorized one.  In the proposed arrangement, the sale does not take place until the future royalties, the true price for title to the product, are paid.  If the licensee refuses to pay the money, he or she never gets title to the product.  While this may be a moot issue by the time such a refusal is made, the user can be held liable for infringement as a mere licensee.  Although this could be seen as “retroactively” changing the nature of the use of the product, it is no different than any other contract in which duties of performance by one party are not due simultaneously with or prior to the other party’s performance.

An RTR effectively turns royalties into a delayed payment plan for use of a patented product, an idea that has some historical precedent.  In Brulotte v. Thys, a license that required royalty payments based on use of a product after the patent’s expiration was held to be patent misuse;[xxviii] the dissent characterized the license arrangement as a mere delayed payment plan, which the purchaser used to “amortize the machine’s fixed cost.”[xxix]  Judge Posner discussed this idea approvingly in a recent case as well.[xxx]  A later case, Zenith Radio Corp. v. Hazeltine Research, distinguished the collection of royalties from their accrual, “recognizing . . . that the payment of this royalty could be postponed beyond [the expiration of the patent].”[xxxi]  Coincidentally, the district court in Bayer v. Housey,[xxxii] as of early 2009 the only existing federal decision involving an RTR, suggested that the RTR at issue could be seen as such a delayed payment plan, although neither of the parties submitted evidence showing whether royalties actually accrued after patent expiration.[xxxiii]

Thus, RTRs on patented products are not really royalties at all: they are just a way to compute the final sales price of the product.  Parties have wide latitude to negotiate for royalties, as long as they are not “exorbitant or oppressive” or “discriminatory.”[xxxiv]  So why shouldn’t parties have that same freedom to negotiate a final sales price?  Of course, “the effectiveness of such schemes will likely depend on the extent to which the substance of the transaction is consistent with its form.  There is precedent for judicial reexamination of such transactions to determine whether they are, in substance, sales and should thus be treated accordingly.”[xxxv]  In fact, Justice Thomas performed this analysis in Quanta when he responded to LGE’s argument that the licensing agreement was a restriction on the “right to sell”: “LGE overlooks important aspects of the structure of the Intel-LGE transaction.  Nothing in the License Agreement restricts Intel’s right to sell its microprocessors and chipsets . . . .”[xxxvi]  Just because Intel gave notice to its customers of its inability to sublicense the method patents did not mean that the license agreement actually restricted Intel’s sales.

This author is not aware of any cases involving RTRs and exhaustion as of December 2009 (probably because most RTRs do not involve patented product sales[xxxvii]).  Indeed, as already stated, only one case involving the validity of RTRs in any context has made it into a federal courtroom.[xxxviii]  Only time will tell how these arguments will fare.

III. Why RTRs Should Not Be Allowed to Run Afoul of Exhaustion

Policy will be a key component of the arguments on both sides of an RTR validity dispute, either under patent or contract law.  Aside from legislation explicitly declaring RTRs unenforceable after a sale of a patented product, policy may be the only consideration at this point in time that could effectively put an end to RTRs.

Arguing for RTRs necessarily involves arguing for the value of tools in general.  As patentability is strong evidence that tools are valued, it is not possible to have a full discussion of the policies surrounding RTRs without mentioning the policy supporting the patentability of research tools in the first place.  Research tools are unquestionably patentable.[xxxix]  However, the policy underlying the caselaw is unclear, and tool patents are not explicitly favored or disfavored by governmental policy pronouncements.

As noted above, most RTR licenses are “use” licenses for method patents.[xl]  Unsurprisingly, many statements of current policy and law are implicitly written with method patents in mind.[xli]  One such method patent is an “assay” tool, which is a method of targeting a component of a living cell that acts as a switch in controlling a disease process.  More research will be directed to learn what other molecules can control that switch, and one of those molecules may eventually become a pharmaceutical.  These assays can be patented, but they are not “sold” as discrete physical products.  Instead, the patentee effectively licenses the ability to do additional research on the particular cell component identified, through the practice of the targeting method at issue.  For example, although the National Institutes of Health (“NIH”) guidelines name other research tools which can be sold as discrete physical products, thus triggering patent exhaustion (e.g.,  “cell lines, monoclonal antibodies, reagents, animal models, growth factors, combinatorial chemistry libraries, drugs . . ., clones and cloning tools (such as “PCR”), . . .  laboratory equipment and machines . . .”) the guidelines do not mention exhaustion as a doctrine that would moot any questions of licensing.[xlii]  RTRs on product sales are likely subject to the same policy restrictions from both the NIH and the Food and Drug Administration (FDA).

A.     Current Policy

Although the legal landscape tends to answer the question of what an actor must or can do, the policies of other significant players help determine what an actor will do.  One of the most influential players in research tool patent licensing is the NIH.  Current NIH policy guidelines for recipients of NIH research funds, largely a product of former NIH Director Harold Varmus’s stance on the issue with respect to DuPont’s Cre-lox genetic engineering system,[xliii] frown on RTRs.[xliv]  Although these guidelines have no legal authority, they are extremely influential on universities and biotech companies that depend on NIH grants.  A patentee using an RTR for a patent developed with NIH money may find him or herself unable to secure further NIH grants.  Consequently, a good deal of biotech research will most likely not be licensed through RTRs.[xlv]  Whether a government agency besides the United States Patent and Trademark Office should be able to influence patent issues directly is another question, but the fact of this influence is inescapable.

Overall, however, “the NIH has left considerable discretion to Recipients in determining how to achieve the principle of ensuring appropriate distribution of NIH-funded tools,” and suggests that “Recipients should engage in such interactions on an infrequent, case-by-case, and highly controlled and monitored basis.”[xlvi]

The FDA’s policy on RTRs is less clear: “The goal of critical path research [research moving a laboratory idea to a commercial drug] is to develop new, publicly available scientific and technical tools . . . that make the development process itself more efficient and effective . . . .  Such tools will make it easier to identify earlier in the process those products that do not hold promise, thus reducing time and resource investments, and facilitating the process for development of medical products that hold the most promise for patients.”[xlvii]  The key issue is whether an RTR is incompatible with “public availability.”

Some policy embedded in the Patent Act itself appears to favor “limit[ing] the reward that may be gained by early stage inventors:” “rules requiring a specific use for an invention and limiting the protection to that use, other rules relating to the scope of a patent, rules on blocking patents, and the reverse doctrine of equivalents.”[xlviii]

A comparison to the policy justifications underlying General Talking Pictures and Quanta is also informative.  If a restriction on the “right to sell” is accepted as a valid restriction on a sale, then why are restrictions on use unacceptable?  The answer to this question requires distinguishing the parties in a sale transaction.  The Supreme Court recognized long ago that “licensees ‘stand[]on different ground’ from purchasers in authorized sales.”[xlix]  The licensees never own the product, but merely pass it on to the ultimate purchaser.

However, as seen in General Talking Pictures, even a buyer can be liable for infringement if he or she uses a product purchased in knowing violation of the licensing agreement between the seller and the patentee.  Is this not effectively a “use” restriction?  It can be a complete use restriction, as well, if the buyer is not supposed to be able to obtain the product from the licensee at all.  In this light, an RTR, which allows a buyer to use the product at will, as long as he or she later remits a portion of the sales of his own product, is less of a use restriction on a buyer than the sales restriction could be.  This alternative interpretation of the effect of sales restriction highlights that the primary concern of the Court might not be a restriction on “use” per se.  So what exactly is the policy force at work in Quanta?

On the surface, Quanta is purely legal analysis, based on long-established principles.  However, it may also signify a very simple policy preference by the Court when managing commercial transactions that implicate patent law: certainty.  In this context, the certainty desired is the clear insulation of a buyer and a licensee/seller from post-sale infringement liability.  The Court discusses the knowledge of the licensee and the buyer at the time of sale:[l] if both parties subjectively understand the sale to be authorized when it takes place, the sale is forever considered authorized, even if it is subsequently determined to violate a licensing restriction.  Conversely, to be liable for infringement, the parties must be aware at the time of sale that they are violators.  This sale is forever unauthorized, and cannot be converted into an authorized sale later.

This policy preference for certainty should not affect RTRs.  Although they exist to exploit the uncertainty of the worth of research tools, RTRs do not leave the buyer uncertain as to future infringement liability.  Assuming RTRs are enforceable in patent law as conditions on sales, the buyer will be aware that his own future behavior is the only determinant of infringement liability.  A violation of the RTR provision will subject him or her to the same infringement liability he or she would have for violating any other type of royalty provision of a licensing agreement where no sale has taken place.  This contrasts with the potential liability if a Quanta-type license were enforceable at patent law.  Such a license “would effectively transform licensees into insurers of their customers’ good conduct,”[li] over which the licensees have no control.  The buyer could also unwittingly acquire products in violation of the licensing agreement and still be liable for infringement.

Reiterating the opinions of those who believe Mallinckrodt to be dead law,[lii] one scholar speculates that “the Quanta Court’s treatment of [patent exhaustion] case history suggests it may limit the ability of patentees to limit the transfer of rights” with a use restriction like that in Mallinckrodt.[liii]  Even assuming that RTRs are not Mallinckrodt-type use restrictions, a case invalidating RTRs on policy grounds would seemingly have to deal with facts involving an actual RTR.  RTRs are different enough to make policy analogies from other types of licensing strategies difficult.

Another recent case with possible policy implications for RTRs is the unanimous decision of Merck v. Integra.[liv]  The holding of this case appears to allow drug manufacturers free use of patented research tools in the process of researching new drug candidates, using the “reasonably related to the development and submission [of an application for a new drug]” language from 35 USC §271(e)(1) as a defense to infringement.  At least one commentator believes Merck did not destroy the enforceability of research tools in all situations, but that it definitely provides for broad protection of researchers relatively early in the development pipeline.[lv]  This suggests the Court might look askance at tool manufacturers trying to extract royalties from these researchers under circumstances other than the most basic research, even if those researchers are commercial, in-house employees of a for-profit pharmaceutical company.[lvi]  This may be read as the Court’s pursuit of a policy supporting early stage researchers; on the other hand, research tools can be considered the very earliest stage of research, so perhaps a more precise definition of the policy would be support of researchers whose goal is a marketable drug.  If this is indeed the policy, RTRs may be in trouble, as they are aimed squarely at those researchers.

B.     Normative Policy

We now turn to more fundamental policy considerations, many of which suggest that RTRs have positive effects.  RTRs can be used to fill in the gaps between protection of intellectual property and the economics of the biotech industry.  Most importantly, RTRs solve the problem of valuation of basic research:[lvii] “It is the market-place–not the cost of patenting and developing the [research tool] that determines [its] value.”[lviii]  As a negative example, a research tool that no one wants to use has no value at all, no matter how much money was spent developing it; thus, a research tool that costs virtually nothing to create, but has a high value for research, should be worth a lot.  Seen in an absolute sense, “but for the research tool, there would not have been the end product drug”[lix]  The head of SIBIA Neurosciences in 1998, Dr. William Comer, said the company “gives away” its research tools in exchange for later royalties if the recipient goes on to develop a commercially successful product.[lx]

A tool inventor “solve[s] problems the drug developer either could not afford or did not find profitable to solve, or did not timely solve first,”[lxi] or didn’t solve as efficiently.  Profitability is always a factor in a “go/no go” drug development decision.[lxii]  The efficiency of the tool could have a huge impact on this profitability factor.  The tool can thus provide a “considerable competitive advantage” to its user.[lxiii]

RTRs probably increase the likelihood of a tool being used, as well, which benefits the licensee, the licensor, and the public.  The small up front cost for licensees significantly reduces their risk exposure to the use of a particular tool, versus the risk the licensee would be taking if it initially paid “full price.”[lxiv]  Furthermore, even if a tool lowers the financial hurdle to create a new product, there is always the business risk that the licensee will be unable to convert a seemingly useful final product into a profitable final product.  Unlike other products without licensing arrangements, RTRs effectively allow licensees to push some of this business risk onto the tool patentee.[lxv]  Nothing encourages risk-taking like a reduction of risk, so allowing such risk sharing should encourage innovation by licensees.  In fact, one analyst claims that biotech pharma has always insisted on anti-stacking language (see below) in licenses to “patent pending” research tools in order to shift the risk of patent blocking to the tool patentee.  This risk is significant due to the U.S. Patent and Trademark Office’s long prosecution timeline for biotech products.[lxvi]

Additionally, the tool inventor benefits, at minimum, from the small income stream generated by the licensee’s initial use of the tool under an RTR arrangement.  Ultimately, the public will receive the benefit of a drug that would not have existed otherwise (see above on tools being a large part of a decision to go ahead with drug development).

One real-world application of the ability of RTRs to measure the value of research is that courts have used them to calculate “reasonable royalty” damages in infringement cases,[lxvii] although this author is not aware of any cases involving RTRs in the context of product sales.  In explaining current court practice, one commentator cited cases involving the use of a patented product in the actual production of the infringer’s product, but not the development stage.[lxviii]  Thus, it is still unknown whether a court might consider an RTR in an infringement involving a sale of a patented product.

Comparing RTRs to another type of final value determination, the use of sales of one product to determine the value of another happens routinely for patented products used in subcomponents of larger products, such as automobiles.  The only difference between auto parts contracts and RTRs is that in RTRs the “sales” do not involve products that actually practice or embody the patent, or were even manufactured using a patented product or method.  The licensed product is used solely to develop the new product, after which it is never used again.

Of course, there are arguments that cut against RTRs.  One of the most memorable analogies is to a typewriter manufacturer demanding royalties on an author’s book.[lxix]  Perhaps such an arrangement would be unfair in the case of the typewriter, but in many biotech examples, the distance between the patented product and the “author’s” new product is much closer than a typewriter is to a bestselling novel.  For example, a researcher using a DNA microarray to look for a bacterium possessing a certain gene really isn’t doing anything more than using the patented tool: anyone who read the instruction manual could do it.  However, not everyone who sits down at a typewriter is Shakespeare.  Thus, it should be up to the parties to a private contract to speculate on how much more “inventiveness” would hypothetically be embodied in whatever “new” product is developed, and to determine how much financial value should be attached to this difference.

Opponents of RTRs give little weight to the argument that the potential financial reward of an invention is the main incentive for its development, a notion that is one of the basic tenets of the patent system.  Research tools are a fantastic illustration of “why patents are within the term ‘intellectual property.’”[lxx]  They are ways of identifying and using (and thus valuing) the ideas of the mind in the same way a farmer demarcates and uses his fields.

What happens when there are no RTRs?  In the initial stages of research, where the risk is high, big pharma chooses the “cheap route” of secretly infringing a tool patent.[lxxi]  If nothing ever comes of the research, the patentee will probably never know about the violation of its patent.  If a new drug is eventually developed, and the tool patentee wins an infringement suit, a judge might not consider the final sales of the drug in determining a “reasonable royalty,” but instead may base the royalty on the market for the research tool at the time of the initial research,[lxxii] which might be a very low number in light of the product’s eventual sales.  Instead of a licensed patent with an RTR provision that keeps licensee costs low in the research stage, we are left with situations like the Hatch-Waxman dispute in Merck.  As one commentator points out, currently “it is the courts deciding which biotech tools are exempt, which infringers will be the benefactors of de facto compulsory licensing, and which biotech companies will stay in business.  A better solution is needed.”[lxxiii]  RTRs are that solution.

The most vocal proponents of RTRs seem to be those who stand to recover a windfall profit (tool patentees), while those who oppose RTRs are parties who may have to pay that profit out (pharmaceutical producers).  However, as shown above, end-product producers do benefit from RTR schemes.  This illustrates a broader problem: many parties on both sides view RTRs as a zero-sum game.  This view entirely discounts the value of simply doing research at all, versus doing no research because the necessary tools are unavailable.  When a final product is created, so is new value.  Twenty percent of something is better than 100% of nothing.

C.     Opposition

The massive reward garnered by RTRs is only possible through a government-enforced monopoly.  The tradeoff is the exclusion of those who don’t agree to the conditions of practicing the patent (e.g., an RTR).  Other costs are also borne by society.[lxxiv]  Because RTRs make so much sense from the parties’ perspectives, the theorized danger is that they will be agreed to very frequently, thus forcing costs onto those not party to the transaction.[lxxv]  The licensor’s choice is likely between zero licensing revenue and a huge payoff, and the licensee’s choice is between no product (which also represents zero revenue) and a huge payoff, minus a (probably) small percentage.[lxxvi]  Neither party is likely to take the “assured zero revenue” route, no matter how risky the other option is, making the law the only obstacle to the transaction.  With this in mind, depending on the types of costs society must pay for RTRs, perhaps some limits should be placed on their use.

The main policy opposition to RTRs seems to center around their alleged “anticommons” effect.[lxxvii]  Opposition to these arguments has also been laid out along doctrinal grounds.[lxxviii]  The main point is that RTRs make it too hard (i.e., costly and slow, with high transaction costs) for downstream inventors to license upstream tool patents.  The ultimate effect is that “the accrual of too many royalty slices diminishes potential profit to the point that the company shouldering the early research and development costs may decide the drug is not worth the cost of development.”[lxxix]  This concept is commonly referred to as “royalty stacking.”  As an illustration, Ware lays out 15 different research tools that a hypothetical researcher (here, in the proteomics field) would need to use to develop a product; this means the researcher could potentially be required to license 15 separate tools before beginning work.[lxxx]

The backstop on too much stacking is that licensors are “keenly aware that some royalty on an end product is better than no royalty where there is no end product.”[lxxxi]  Thus, a stacking problem will tend to be self-resolving; a licensor that initially insists on a large percentage of final sales will have to lower its rates if it wants any license revenue at all.  As one biotech executive opined in the late 1990s, “there will have to be equilibrium.  It may get to the point where everyone starts saying ‘we won’t sign these darn things.’”[lxxxii]

An examination of evidence of the lack of stacking problems observed in real life RTRs, as well as “anti-stacking” compensatory measures, also suggests the anticommons effect is not as pronounced as some fear.  A good initial example is the Cohen-Boyer patent.  Though not a true RTR, its license shared the “percentage of the pie” method of computation that theoretically creates a stacking problem.  The license did not seem to slow down use and the ensuing development of the biotech industry, which it is credited with creating, when compared to what could have happened if it was exclusively licensed, or licensed only for huge upfront fees.  This is the practical licensing choice that companies have: potential for no money now vs. some money later.  At the time the patent expired, there were 380 licensees.[lxxxiii]

A back-of-the-envelope calculation from an attorney in the field might be instructive for those concerned about “overrewarding” a tool inventor.  Payback won’t typically commence until approximately the tenth year of the patent term of the research tool at the earliest, entitling the toolmaker to at most ten years of royalty payments before encountering the Brulotte limit.  The developer of the ultimate product will therefore have ten or more years of royalty free yet still patented sales, which could be extended even further through “evergreening.”  For example, “the drug developer might realise a US$1bn per year market for 15 years or US$15bn . . . and have an outlay of reach-through royalties of only [at most] US$100-300m (at 1-3 per cent [reach-through] royalty),” amounting to at most a two percent royalty over the lifetime of the drug patent.[lxxxiv]

Of course, the numbers might not work out so favorably in specific instances.  One example is Millenium Pharmaceuticals, which served as the “identifier” of drug candidates.  After this identification, Millenium passed the compound on for development by another company; in the event the compound ever became a commercial product, Millenium would receive an RTR of 5-15%.[lxxxv]  During the identification phase, Millenium routinely assembled approximately five research tools.  Many of the tools were offered by universities, and an executive of the company claimed the tool RTRs were usually 1/2% to 3% of total sales of an end product.  Apparently, Millenium had to reimburse the tool patentee for the full percentage, even though it only received 5-15% of total sales.  Thus, Millennium could have ended up with an effective royalty stack of 25-50% on its revenue.[lxxxvi]

The example of the Cre-lox patent shows the realistic choice that patentees have to make when determining the amount of its licensing fee: namely, between charging a large up-front fee or collecting royalties later (bearing the risk that later royalties will never materialize).[lxxxvii]  The Cre-lox patentee originally planned to charge $10,000 per institution for use of the technology.  In the words of a company executive, “that went over like a lead balloon . . . Universities were not willing – or perhaps unable – to make that kind of commitment to a still basic-stage research tool.  They wanted the chance to play with it in the lab for a while and learn more about its possibilities.”[lxxxviii]  According to the executive, the patentee then offered an RTR, and in response, “plenty” of organizations agreed to the license.[lxxxix]  Reportedly, at least 150 organizations have agreed to DuPont’s terms, “most of them universities and other non-profit research centers,” including Stanford, Harvard, and the Howard Hughes Medical Institute; in 1998 DuPont said it executed five new academic licenses per month.[xc]  Reflecting self-interest, the limiting factor on runaway RTRs, as well as the basic motivation of inventors, he further stated, “We’re not out there to strangle [licensees] . . . .  We just want compensation.”

An example from the semiconductor industry shows that patentees still have to make a choice about the size of their RTRs if they decide to use this method instead of an up-front fee When the standard setting organization for 3G wireless technology in Europe polled its members for royalty rate proposals on “essential” patents involved in the technology, the cumulative royalty rate was initially estimated to be 30% of the total price of a 3G phone,[xci] which would have drastically reduced the profitability (and with it the widespread use) of cell phones.  However, tool patentees eventually realized that the lower they price their tools (in terms of percentage of ultimate sales), the more money they stand to gain later on.  In order to determine an appropriate percentage, a tool owner may require an end-product developer to provide a basic plan for how they plan to use each tool, but many businesses do this when asking suppliers for better deals.  The leverage for a lower rate can take many different forms, from future business deals directed to the supplier, to an opportunity to test the supplier’s product in the real world, to free promotion for the supplier.

How much can a patentee charge through an RTR before the licensing scheme becomes unviable economically for potential licensees?  An experienced attorney in the field offered hypothetical rates of 0.5 to 3% for a workable licensing regime.[xcii]  These were also the rates in the Cohen-Boyer licensing terms.[xciii]  An analysis of SmithKline-Beecham’s RTR exposure in the late 1990s showed that the company was probably paying around 21% of its sales to tool licensors.[xciv]  The Cre-lox RTR was capped at 25% of royalties,[xcv] and the patentee managed to extensively license the tool.  Are any of these examples unreasonable?  It is difficult to say for sure, but all three real-life cases were certainly not examples of failures to license.

Whether it is really a problem or not, there are contractual solutions to stacking.  Kowalski offers the option of variability: the percentage of the royalty could change over the course of the licensing period, based on the total RTRs paid to all licensors, or “a sliding scale royalty rate, i.e. a royalty rate that increases over the life of the patent or the license such that the royalty rate is lower when the product is initially introduced and higher . . . after the product has attained a market.”[xcvi]  Variations in the percentage to be paid could be a 50% reduction in the event the licensee must pay more than a certain total RTR amount to all licensors, for example, a figure such as 3%.[xcvii]  Real-life evidence for this exists, as well: “In an analysis done by ReCap of university/biotech license agreements, about 80% have anti-stacking language for the benefit of the biotech company, and most of this language is of the ‘fully creditable to floor’ variety.  That means the university’s take goes from, for example, 5% of net sales down to a floor rate of 2.5% if the biotech player has to pay third parties in excess of 2.5% in royalties as well.”[xcviii]

A variation on the sliding scale is a modified “milestone” payment RTR.  Royalties would be paid in lump sums based on a percentage of sales at certain sales points (e.g., at $1 million and $5 million in total sales).  The percentage could rise from an initially nominal amount, thus allowing a healthy market for the product to develop before toolmakers start taking their cut.  This doesn’t always work, however.  “There is anti-stacking language in most of [a major pharmaceutical company’s] agreements, yet in [some] disease areas . . . it’s conceivable the potential royalty exposure to net sales of a given product could exceed 20%.”[xcix]

This example, along with Ware’s hypothetical above,[c] pale in comparison to the potential stacking problem in the semiconductor industry: an Intel lawyer told one commentator that Intel CPUs are covered by 5,000 patents.[ci]  The broad cross-licensing agreement is a solution to this problem.  Although mainly used to lower the risk of unintentional infringement, a broad portfolio license could also have the effect of eliminating the stacking problem.  The broad license itself could, of course, contain an RTR provision, but it would be impossible to calculate.  The primary utility of the cross-license is to save companies from spending immense amounts of time investigating other inventors’ patents.  Figuring the actual royalty amount for a portfolio RTR would involve establishing whether or not a patent was actually used, which would require the very research the broad license was used to avoid.  Perhaps in the future, biotech companies will execute broad cross-licensing agreements similar to those found in the integrated circuit industry.

Defensive patenting is another possible anticommons danger of allowing exponential rewards for early-stage patentees.[cii]  Another comparison to the semiconductor industry illustrates this problem and how RTRs could be a solution instead of a cause.  In semiconductors, the business strategy of “defensive patenting” is the norm;[ciii] companies file as many patents as possible in a given area in order to lower the future risk of infringement by their products.[civ]  In order to keep transaction costs low, companies agree to broad, royalty-free cross-licenses of their entire patent portfolios.

What if those cross-licenses came with RTRs?  Instead of an RTR on a single research tool, by which a tool inventor could be “over-rewarded” if a downstream researcher uses that tool to invent a blockbuster product, the downstream researcher would have access to every tool the inventor owns in exchange for his RTR obligation on any products the researcher creates.  Surely a percentage of profits in exchange for the entire productive output of a licensor is a fair trade.  Defensive patenting does seem to be occurring in biotech.  As one law professor stated, “Everybody is filing as many patents as possible so they have a bargaining chip against being held up by someone else.”[cv]  Perhaps RTRs would be an acceptable solution.

Adherents to the anticommons effect could take solace in the fact that there is a natural termination of any problem when a patent expires.  This is ensured by Brulotte v. Thys and should assuage any fears of RTRs persisting indefinitely.[cvi]  At the same time, this limit should not deter licensors; it is unlikely that a licensee would intentionally wait to sell its product until the patent expired (except perhaps towards the end of the patent life).

Some of the loudest complaints about stacking come from proponents of public service.  As noted above, the NIH adopted a policy disfavoring RTRs in 1998.  The main policy argument seemed to be that the difficulty and expense of obtaining research tools burdened by an RTR made RTRs a poor choice for research tools developed with public money.  In the case of low-cost public-interest work, one government scientist pointed out their “trouble getting companies interested in developing TB or malaria drugs . . . .  You add stacking royalties onto that and who gets hurt is the public.”[cvii]

Interestingly, the NIH guidelines state that when transferring “an NIH-funded research tool to a for-profit entity that intends to use the tool for its own internal purposes, recipients [of NIH grant money] are entitled to capture the value of their invention.”[cviii]  Perhaps NIH only meant to protect purely academic research from the supposed anticommons effect of RTRs; Dr. Varmus’ initial motivation for convening the panel, after all, was his refusal to agree, on behalf of the NIH, to license a DuPont patent on DuPont’s reach-through terms (which over 150 other entities, many of them academic labs, had already agreed to).[cix]

There is some inherent contradiction in the NIH guidelines that lends support to this theory.  At one point, the guidelines state that “[r]oyalties on the sale of a final product that does not embody the tool, or other reach-through rights directed to a final product that does not embody the tool discourage use of tools and are not appropriate in these circumstances.”[cx]  However, the guidelines later state that “[r]oyalties on the sale of final products are more appropriate to situations where a for-profit entity seeks to commercialize the tool, e.g., by developing a marketable product or service, or incorporating the tool into a marketable product or service.”  There seems to be an outright prohibition of RTRs that is later partially withdrawn if the licensee is a “for-profit entity.”

Whatever the ultimate policy thrust of the licensing guidelines, the Cre-lox licensing agreement between NIH and DuPont can be used for “public interest” research on tuberculosis or vaccines that are not profitable enough for a for-profit pharma to pursue.[cxi]  The RTR provision was essentially dropped in exchange for NIH’s agreement to transfer the technology only to non-profit entities.  This is precisely the situation in General Talking Pictures.

Some who protest RTRs are motivated not by a concern for the public (as seems to be the case with the NIH and the FDA), but by their own desire for financial reward.  Large pharmaceutical companies don’t like RTRs, for the obvious reason that they stand to lose significant amounts of revenue to licensing fees.[cxii]  One attorney’s personal experience is that “larger, for-profit companies have [initially] offered miniscule lump sum execution fees that would barely cover the patent prosecution costs for patent protection for basic research, only to agree eventually to proper annual payments and royalties based on a percentage of sales of end product – reach-through licensing – illustrating that reach-through licensing is indeed a necessary reality to ‘capture the value of . . . invention.’”[cxiii]  Ironically, however, biotech pharma has always insisted on anti-stacking language in licenses to “patent pending” research tools for a different reason: to shift the risk of patent blocking to the patentee, a justification already mentioned above.[cxiv]

Bridging academia and private industry, one university professor, who would seemingly represent the “academic community” regarding RTRs, but is also the founder of a company that commercialized a biotech invention, said “I’d rather pay (a company) up front, and then that’s it, rather than take this and if anything comes of it, then have to pay 20% later.”[cxv]  This statement represents a contradiction: on one hand, he’d presumably agree to an RTR on his own product.  On the other, as evidenced by his words, he doesn’t want to pay another patentee an RTR.  Many formerly purely academic researchers are now in the same position thanks to the Bayh-Dole Act, which has effectively condensed the policy dispute in many cases.

Despite academic opposition to RTRs, universities themselves use them.  One biotech executive said that “we often find ourselves walking away from licensing in tissue samples or other tools because the university . . . is insisting that if we ever develop a drug using the tool we have to pay a royalty,”[cxvi] which he claims usually runs from 1/2% to 3%.

IV. Conclusion

On balance, RTRs incentivize early-stage biotech inventors by providing them with the tools they need at a reasonable up-front cost.  As with any general strategy, RTRs might not always fulfill their promise in specific situations.  Overall, however, they fit well with current legal concepts, the US patent system, and our capitalist economy.  They also support the national interest in encouraging further development of biotech.

It seems likely that RTRs will eventually be tested in court and perhaps some of the arguments discussed here will be used.  As human knowledge expands and the production pipeline for biotech medicines grows longer and more complex, increased numbers of inventors will have their hands in the pie.  The amount of money available at the end of the pipeline depends on many factors, but assuming the power of these medicines grows ever greater (“cure for cancer in 5 easy pills!”), there will be money, and claimants to it will soon follow.

by Candice Roman-Santos*

I. Introduction

Deoxyribonucleic Acid (DNA) is the source of each individual’s genetic makeup.  The fact that each person’s DNA is unique (with the exception of identical twins) and does not change over time (with the exception of mutations[i]) makes it a useful identification tool.  Scientific advances have led to the creation of DNA databases that serve various purposes, including clinical research on personalized medicine, genetic testing to determine if a person has or is likely to get or be a carrier of a genetic condition, providing certainty in paternity disputes, and ancestry tests to identify ancestors who lived over 200,000 years ago.  This paper will focus on the use of DNA databases by law enforcement to identify victims, missing persons, and perpetrators of crimes.

The molecular structure of DNA was discovered in 1950, and DNA typing was first applied in criminal cases in the 1980s.  By the turn of the century, all fifty states had established DNA databases for individuals convicted of certain offenses.

The establishment of DNA databases has been and continues to be a source of controversy.  Proponents of DNA databases argue that DNA profiles can be obtained from very small amounts of genetic data, the database supports a discipline that does not rely on subjective judgments and interpretations, and expanding the database will help to solve more crimes, exonerate innocent people who have been wrongly convicted, and reduce the need to reverse previous miscarriages of justice.  Opponents of DNA databases argue that DNA analysis is not infallible, that providing personal information is governed by individual consent and should not be based on a mandatory provision, and that there is a risk that DNA will be used to the exclusion of material that might prove the innocence of the suspect.  The enactment of DNA database statutes has stirred public debate about the relevant policy issues, such as: 1) who should be included, 2) what information should be included, 3) whether DNA samples should remain stored or be destroyed, and 4) whether DNA samples and records should be used for other purposes.  All of these issues revolve around the single ethical concern of privacy.  DNA identifies not only the person in question but also thousands of genetic conditions and predispositions to disease.  Even if the DNA profiles that comprise a DNA database only include numbers that are irrelevant for other purposes, the fact that DNA samples can be stored indefinitely raises concerns regarding the temptation to use those samples for new and unidentified purposes.  This risk is too great to ignore.

First, I will discuss DNA’s use in modern forensics and why it is a valuable resource in criminal investigations.  Second, I will discuss the three largest DNA databases in the world:  1) The Federal Bureau of Investigation’s (FBI) Combined DNA Index System (CODIS), 2) The United Kingdom’s (UK) National DNA Database (NDNAD), and 3) The California DNA Database.  Third, I will discuss the process of obtaining a “cold hit” within CODIS and the problems surrounding related probabilities and statistics that can mislead juries and courts.  Fourth, I will discuss DNA database statutes in the United States (U.S.), how legal challenges to such statutes have been resolved, the unique issues related to requiring DNA samples from mere arrestees, and the significant problems that may arise due to poor implementation of such statutes.  Fifth, I will discuss the main arguments for and against expanding DNA databases.  Lastly, I will focus on the issues of privacy surrounding DNA, the implications of reusing information obtained for one purpose for new and unidentified purposes, and the concerns about function creep and misuse of personal information.

II. DNA Basics

James Watson and Francis Crick revealed a breakthrough discovery when they suggested that the structure of DNA has two helical chains each coiled around the same axis.[ii]  Moreover, their research suggested a possible copying mechanism for the genetic material.[iii]  The progression of science further revealed that human beings are 99.99% genetically similar and each individual is differentiated by 0.01% of DNA.[iv]  An individual’s DNA can be decoded to reveal a pattern that is shared only by a genetically identical twin.[v]  In addition, DNA does not change over time, except in the case of mutations.[vi]

Each human being starts out as a fertilized egg with 46 chromosomes (23 chromosomes from each parent).[vii]  The DNA in these chromosomes is composed of pairs of molecules called “bases,” and a particular order of bases that code for an observable characteristic is called a “gene.”[viii]  A gene’s position on a chromosome is called its “locus.”[ix]  Several different arrangements of bases can form the same gene, and these variations are called “alleles.”[x]  DNA identification is based on how alleles of genes differ from one individual to another.[xi]

III.  DNA Forensics

Using DNA for identifying victims, perpetrators, missing persons, and others relies on DNA regions with short repeat units, called Short Tandem Repeats (STRs).[xii]  In 1996, the FBI established 13 STR loci as the standard for human identification, which is recognized both domestically and internationally.[xiii]  Forensic scientists use data from the 13 loci to create a DNA profile, and the prevailing statistical probability that any two unrelated persons have identical DNA profiles at 13 loci is one in several billion.[xiv]

Forensic applications of DNA technology include identifying potential suspects based on an individual’s DNA matching crime scene evidence, exonerating those who have been wrongly convicted of a crime, identifying crime and catastrophe victims, and establishing paternity and other familial relationships.[xv]

A.     How DNA is Obtained

Crime scene investigators can obtain blood, semen, urine, hairs, saliva, and other evidence, known as an evidence sample, that can yield a DNA profile.[xvi]  A reference sample, such as blood from a suspect, is then obtained and analyzed to create another DNA profile, which is ultimately compared against crime scene evidence DNA profiles to determine whether there is a genetic match – the DNA profile obtained from the evidence sample and the reference sample are indistinguishable.[xvii]  Genetic matches can convince the trier-of-fact in a courtroom that the two samples share a common source.

The preferred method of obtaining a reference sample is a buccal swab – using a small brush or cotton swab to collect a sample of cells from the inside surface of the cheek – because it reduces the possibility of contamination.[xviii]  The buccal swab is an easy and rapid single-step process as opposed to other methods that often require multiple steps.[xix]  Each additional procedural step creates another opportunity for human error.  Contamination can be easily avoided by collecting the sample in a low traffic area and requiring the collector to wear a mask and refrain from talking while taking the swab.[xx]  If a buccal swab is not an available option, other methods may be used to collect a sample of blood, saliva, semen, or other appropriate fluid or tissue from personal items (e.g., hair brush) or from stored samples (e.g., banked sperm).

B.     DNA Typing

The goal of the forensic scientist is to establish the genetic profile, or “genotype,” of an individual by discovering which alleles exist at strategically selected loci.[xxi]

In 2003, President George W. Bush created the Advancing Justice Through DNA Technology Initiative, which was a mandate on the Attorney General to improve the use of DNA in the criminal justice system.[xxii]  The website dedicated to this initiative explains how samples obtained from crime scenes are subjected to defined processes involving biology, technology, and genetics:

“Following collection of biological material from a crime scene or paternity investigation, the DNA is first extracted from its biological source material and then measured to evaluate the quantity of DNA recovered.  After isolating the DNA from its cells, specific regions are copied with a technique known as the polymerase chain reaction, or PCR.  PCR produces millions of copies for each DNA segment of interest and thus permits very minute amounts of DNA to be examined.  Multiple STR regions can be examined simultaneously to increase the informativeness of the DNA test . . .

The resulting PCR products are then separated and detected in order to characterize the STR region being examined.  The separation methods used today include slab gel and capillary electrophoresis (CE).  Fluorescence detection methods have greatly aided the sensitivity and ease of measuring PCR-amplified STR alleles.  After detecting the STR alleles, the number of repeats in a DNA sequence is determined . . .

The resulting DNA profile for a sample, which is a combination of individual STR genotypes, is compared to other samples.  In the case of a forensic investigation, these other samples would include known reference samples such as the victim or suspects that are compared to the crime scene evidence.. . .If there is not a match between the questioned sample and the known sample, then the samples may be considered to have originated from different sources.  If a match or ‘inclusion’ results, then a comparison of the DNA profile is made to a population database, which is a collection of DNA profiles obtained from unrelated individuals of a particular ethnic group.”[xxiii]

Once a genetic match is declared, a statistic is generated to convey how common or rare the matched genetic profile is in the general population (also known as the random match probability (RMP)).[xxiv]  This statistic is typically a very small number, which can help the prosecutor secure a conviction, but it may also mislead the jury in the process.  This will be further explored in a later section.

IV. DNA Databases

The three largest DNA databases in the world, in decreasing order, are: 1) CODIS; 2) NDNAD; and 3) the California DNA Database.[xxv]

A.     United States

In 1994, the Director of the FBI was authorized to establish an index of:  1) DNA identification records; 2) analyses of DNA samples recovered from crime scenes; 3) analyses of DNA samples recovered from unidentified human remains; and 4) analyses of DNA samples voluntarily contributed from relatives of missing persons.[xxvi]  The national DNA database relies on the FBI’s CODIS software, which provides a central database of the DNA profiles from all public forensic DNA laboratories throughout the country.[xxvii]  The FBI provides CODIS software for free to all public forensic laboratories, but each laboratory is responsible for their own computer hardware and all support software.[xxviii]  CODIS is comprised of two indexes: 1) convicted offender index of DNA profiles from convicted criminals or arrestees pursuant to individual state statutes, and 2) forensic index of DNA profiles from crime scene evidence.[xxix]  DNA samples from victims are not permitted in CODIS.[xxx]  An individual’s DNA profile must be promptly expunged from the national DNA database if his or her conviction was overturned or if the charge has been dismissed, resulted in an acquittal, or if no charge was filed.[xxxi]

Local laboratories can maintain their own local DNA index system (LDIS) and then upload approved profiles to the state database.[xxxii]  The state DNA index system (SDIS) contains profiles from local laboratories in that state, profiles analyzed by the state laboratory itself, and profiles from convicted offenders and mere arrestees (depending on specific state statutes).[xxxiii]  In addition, the FBI is responsible for obtaining samples in the federal prison system and entering those profiles into CODIS.[xxxiv]  In this sense the FBI is functioning as a state laboratory.[xxxv]  Profiles from the states and the FBI are then uploaded into the national DNA index system (NDIS).[xxxvi]

The following is a graphical representation of the levels of the database.[xxxvii]

A weekly search is conducted of all DNA profiles in the NDIS, and resulting profile matches are automatically returned to laboratories that submitted them.[xxxviii]  As of April 2010, the NDIS contained over 7,940,321 offender profiles and 306,028 forensic profiles, and CODIS had produced over 107,600 hits assisting in more than 109,900 investigations.[xxxix]  The NDIS is comprised of 3 federal databases, 50 state databases, and over 70 local databases.[xl]

B.     United Kingdom

The NDNAD, created in 1995 in England and Wales, was the world’s first DNA database.[xli]  Although no specific legislation established the NDNAD, legislation has since specified allowable sources of DNA samples.  The NDNAD contains the largest number of DNA profiles in terms of the proportion of the population – 5.2% of the UK population as opposed to 0.5% of the U.S. population in the NDIS.[xlii]  As of April 10, 2010, the NDNAD contained 4,856,902 DNA profiles of individuals and 354,132 DNA profiles from crime scene evidence.[xliii]

The Criminal Justice and Public Order Act was passed in 1994 and authorized the creation of the NDNAD.[xliv]  Initially, the Act allowed the police to obtain DNA samples without consent only from those charged with a recordable offense.[xlv]  However, legislation has continually expanded police powers to take and retain DNA samples, with the goal of including “virtually the entire active criminal population” in the NDNAD.[xlvi]  For example, a 2001 law in England and Wales provided authorization to permanently retain DNA profiles and DNA samples from people who are merely arrested but subsequently acquitted or not prosecuted.[xlvii]  The scope and usage of the NDNAD has raised serious concerns and, not surprisingly, has led to legal challenges.  In November 2004 the Court of Appeal ruled that the police can retain DNA samples and profiles from people who were never convicted of a crime because the relatively minor invasion of privacy is justified by the legitimate aim of preventing crime.[xlviii]  However, the European Court of Human Rights unanimously ruled in 2008 that keeping DNA samples and profiles of innocent people is unlawful and violates Article 8 of the European Convention on Human Rights (the right to respect for private and family life).[xlix]  Despite the call to destroy the DNA records of people who are currently in the NDNAD and have been found innocent of any crime, police officers are being advised to ignore the ruling of the European Court of Human Rights.[l]

C.     California

In November 2004, California voters passed Proposition 69, the DNA Fingerprint, Unsolved Crime and Innocence Protection Act.[li]  Prior to the passage of Proposition 69, California law required the permanent retention of DNA samples from only convicted felons involving serious, violent crimes.[lii]  Proposition 69 amended California law to significantly expand the California DNA Database by also including people convicted of non-violent felonies (including juveniles) and individuals arrested on any felony charge, which was estimated to increase state costs by nearly $20 million annually.[liii]  A critique of Proposition 69 recognizes several areas where it is highly problematic.  First, the law’s inappropriate treatment of arrestees and suspects undermines the presumption of innocence principle.[liv]  Second, the law is likely to exacerbate racial bias due to pretextual behavior by law enforcement.[lv]  Third, the law is likely to increase human errors in DNA testing because laboratories will be overwhelmed with trying to implement the new law.[lvi]  Fourth, the law creates the potential for misuse due to the lack of privacy protections.[lvii]  Fifth, the substantial costs will ultimately be paid by California taxpayers.[lviii]

As of April 2010, the California DNA Database contained 1,251,307 offender profiles and 25,323 forensic samples, and has aided in 12,412 investigations.[lix]

V. Cold Hits, Probabilities, and Access to CODIS

A cold hit is defined as a match between a forensic DNA profile and a known person or offender profile.[lx]  This means that an individual is identified solely by DNA and not through any other suspicion.[lxi]  Matches across all 13 standard loci are known as full matches and matches across fewer than 13 loci are known as partial matches.[lxii]  The FBI accepts partial DNA profiles of at least ten loci for inclusion in the NDIS, and partial matches are being used more frequently as incriminating evidence.[lxiii]  If the amount of DNA recovered from a crime scene is very small or if the DNA sample recovered from a crime scene is either degraded or a mixture of DNA from many individuals, then there is often much less than 13 loci available for comparison.[lxiv]  Therefore, the statistical weight attached to a match is lower and the probability of a coincidental match is higher.[lxv]

Bicka Barlow, a California attorney with both a law degree and a Masters in genetics, learned that Arizona’s DNA database contained two people whose genetic profiles matched at 9 loci, and filed a subpoena to learn more.[lxvi]  The resulting report revealed that, out of 65,493 offenders in Arizona’s DNA database in 2005, 122 pairs of people had genetic profiles matching at 9 loci, 20 pairs matched at 10 loci, 1 pair of siblings matched at 11 loci, and 1 pair of siblings matched at 12 loci.[lxvii]  Similar assessments of DNA databases have been conducted in Illinois and Maryland.[lxviii]  Out of 220,000 profiles in the Illinois state database, 903 pairs matched at 9 or more loci, and out of 30,000 profiles in the Maryland state database, 32 pairs matched at nine loci and 3 pairs matched on all 13 loci.[lxix]  How is this possible if the prevailing statistical probability that any two unrelated persons have identical DNA profiles at 13 loci is one in several billion?[lxx]

The RMP for the 122 profiles that matched at 9 loci in Arizona’s DNA database was reported to be “1 in 754 million in Caucasians, 1 in 561 billion in African Americans, and 1 in 113 trillion in Southwest Hispanics.[lxxi]  Therefore, the discovery of even one match at 9 loci in a database of only 65,493 profiles is alarming.  However, this only becomes a cause for concern if the size of the database is conflated with the number of comparisons being made to find a match.[lxxii]  Charles Brenner, a forensic mathematics consultant, explains:

“There are two separate multiplicative factors that the naïve tend to overlook when considering the number of possible 9-locus matches from a collection of profiles such as the Arizona data: 1) the factor, equal to one-half the size of the sample, by which the number of pairs exceeds the size of the sample, and 2) the combinatorial factor – 715 above- representing the number of different 9-locus selections from 13, each of which is an opportunity for two selected individuals to have a 9-locus match.”[lxxiii]

These two factors can be better understood by analyzing “the birthday problem,” which asks how many people you need to have at a party so that there is more than a 50 percent chance that two of them will share the same birthday?[lxxiv]  Most people believe the answer to be 183 – the smallest whole number larger than 365/2 – when the correct answer is actually 23.[lxxv]  Having 23 people in a room yields 253 different ways of pairing two people together, which provides many possibilities of finding a pair with the same birthday.[lxxvi]

The 65,493 profiles in Arizona’s DNA database creates 2,144,633,778 distinct pairs, and though there is only one way to match all 13 loci, there are 715 distinct combinations of nine items out of thirteen.[lxxvii]  Assuming that the RMP of a 9 loci match is “1 in 754 million,” then the expected number of 9 loci matches would be 2,034, which reveals that RMPs are even smaller than the theoretical estimates.[lxxviii]  In reality, however, each genetic profile has its own RMP within each population group, and more research is required to determine whether RMPs are accurate or either too high or too low.[lxxix]

The RMP is only relevant in assisting the jury measuring the probative value of a given case’s circumstantial evidence.[lxxx]  It answers the question: How rare is the identified genetic profile in the general population?[lxxxi]  However, because cold hits represent a query for matches among thousands of DNA profiles rather than for a specific suspect, many statisticians argue that the relevant question is: What is the likelihood that the database will spit out an innocent person’s name?[lxxxii]  Sir Alec Jeffreys, the original inventor of DNA typing, has warned that when extremely large databases (such as CODIS and the NDNAD) undergo large numbers of exploratory searches, even exceptionally rare matches will occur.[lxxxiii]  In a 1996 report titled “The Evaluation of Forensic DNA Evidence,” the National Research Council concluded that the database match probability should be used to explain the significance of a cold hit DNA match.[lxxxiv]  However, the FBI has ignored this recommendation.[lxxxv]

There are a few possible reasons why the DNA database studies conducted in Arizona, Illinois, and Maryland yielded such high numbers of matching pairs given the relatively low number of profiles that comprised each database.  One possible reason is duplicate entries of the same profile, for example if an individual’s DNA profile was entered once under his or her real name and again under his or her alias.[lxxxvi]  A second possible reason is that the assumptions about the frequency of alleles in populations, such as by race, ethnicity, or geography, are incorrect.[lxxxvii]  A third possibility is that there are large numbers of relatives in the database, who are more likely than non-relatives to have similar DNA profiles.[lxxxviii]  The real issue stems from the fact that while studies similar to the Arizona DNA database study raise serious concerns about the effectiveness of DNA databases and the accuracy of RMPs, state and federal governments are resisting calls to fully investigate the existence of numerous database matches across 9 or more loci.[lxxxix]

An Arizona judge barred Barlow from circulating the report on Arizona’s multiple database matches, and the FBI has threatened to bar crime labs from participating in the national DNA database if they share database information with anyone outside of law enforcement.[xc]  Also, a California judge has denied Barlow access to data about California’s DNA database.[xci]  The problem is that “cold hit matches that occur within databases do not reflect the same odds as finding a match within entire populations.”[xcii]More recently, the California Supreme Court heard a case in which the prosecution presented evidence that the odds that a random person unrelated to the defendant could have left the evidence at the crime scene are one in 1,000,000,000,000,000,000,000 (sextillion).[xciii]  Because the world’s total population is only about seven billion, this was tantamount to saying that the defendant was guilty.  The court held that the evidence was proper, reasoning that the calculation was a rarity statistic rather than a calculation reflecting the number of potential suspects excluded through the database search.[xciv]

Access to DNA databases is critical to testing the accuracy of claims that 13 loci DNA profiles are so rare that they are effectively unique in the population.[xcv]  Assessing the rarity of a trait requires knowledge about the frequency of that trait in a given population.  In 2009, 41 scientists and defense lawyers signed a letter to the FBI demanding access to CODIS so that they can test the underlying assumptions behind the DNA database statistics that are often used to justify convictions.[xcvi]  The FBI has denied this and earlier requests for access to CODIS on privacy grounds.[xcvii]  However, the signatories to the letter specifically requested the database “as an electronic file consisting of the complete genetic profiles . . . of every individual in the database with identifying information removed.”[xcviii]  The privacy issues deal primarily with retention and potential misuse of DNA samples and not the genetic profiles that make up CODIS.  If personal identifiers are removed and only anonymous genetic profiles are released, the potential threat to individuals becomes non-existent.

Those opposed to granting researchers access to CODIS also argue that doing so constitutes a breach of informed consent – the right to consent or refuse to take part in research.[xcix]  However, informed consent regarding receipt of medical treatments or participation in research involving human subjects involves “the rights to be free from intentional bodily harm, from offensive touching or intrusion, from unnecessary confinement and physical restraint, and from serious and reasonable emotional distress.”[c]  These rights are not implicated when DNA samples are legally compelled, and especially when releasing this information will be “used solely to ensure that the very system that justifies this compulsion is working as it should.”[ci]  Therefore, lack of individual consent to release anonymous genetic profiles to researchers is an insufficient reason to block access to CODIS.

The DNA Identification Act of 1994, which is the legislation that established the NDIS, explicitly allows database records to be made available “for a population statistics database, for identification research and protocol development purpose, or for quality control purposes” as long as all personally identifiable information is first removed.[cii]  President Obama is also concerned with scientific integrity, stating in a March 9, 2009, memorandum to the heads of executive departments and agencies that “if scientific and technological information is developed and used by the Federal Government, it should ordinarily be made available to the public.[ciii]  In addition, a National Research Council report openly criticized how insular forensic science is, detached from the conventional norms of the scientific process.[civ]  The fact that providing researchers with access to CODIS is authorized by Congress and supported by the President and the National Research Council, combined with the failed arguments of privacy and consent to block access, makes the FBI’s reluctance to do so seem like they have something to hide.  The use of DNA evidence in the criminal justice system is a science.  One of the fundamental maxims in science is that hypotheses must be tested, and open access to data will allow for the independent scientific scrutiny that normally occurs during the peer review and publication process.

Allowing researchers to access CODIS will facilitate future studies to determine whether the number of matches arising from the evaluation of individual state DNA databases can be reconciled with the fundamental assumptions that scientists rely upon when calculating the frequency of genetic profiles.  More transparency is essential to keeping the system fair and honest, and to preventing innocent people from being sent to prison.[cv]  Proponents of DNA databases argue that DNA typing is accurate and provides conclusive evidence of guilt, as supported by the DNA statistics presented to a jury in a criminal trial.  The problem is that DNA statistics can be misleading due to such things like failing to consider the potential for error, failing to consider relatives, improperly analyzing a mixed sample containing DNA from more than one individual, and statistical fallacies.  The impact of such misunderstanding can be quite grave, considering that a defendant’s life and liberty are on the line.  The call to expand the DNA database – given the problems associated with how the database is used in our criminal justice system – makes the serious privacy implications associated with such expansion more controversial because it is unclear whether the interest of justice is actually being served.

VI.   DNA Database Statutes in the United States

Though common themes exist, all 50 states and the federal government have enacted separate statutes creating DNA databases.[cvi]  As of January 2009, all 50 states have statutes requiring DNA samples to be collected from convicted felons, but they differ based on state-qualifying offenses.[cvii]  For example, while 47 states require DNA samples from all convicted felons, the statutes of 40 states apply retroactively to those already incarcerated prior to the statutes’ effective dates and 32 states require DNA samples from adults and juveniles alike.[cviii]  Additionally, 37 states have statutes requiring DNA samples from those convicted of sex-crime misdemeanors, 5 of which also require DNA samples from those convicted of numerous other misdemeanors as well.[cix]

In efforts to expand DNA databases, 21 states have statutes requiring DNA samples from those arrested for murder or sex crimes, 19 of which additionally require DNA samples from those arrested for burglary.[cx]  The federal government and California, along with 10 other states, require DNA samples from those arrested for any felony.[cxi]  If charges are dropped, dismissed, or if the arrestee is found not guilty, 12 states provide expungement of the DNA profile upon request and 8 states expunge the DNA profile automatically.[cxii]  Minnesota is an exception because state legislation provides for automatic expungement of a DNA profile upon a finding of not guilty and expungement upon request of a DNA profile if the charges were dismissed or dropped.[cxiii]

In early 2009, pursuant to the 2005 DNA Fingerprint Act, the federal government approved a plan to collect DNA samples from undocumented immigrants, but the Immigration and Customs Enforcement (a division of Homeland Security) was not collecting DNA from detained immigrants as of August 2009.[cxiv]  Those who oppose this law argue that most undocumented immigrants are held for suspected violations of civil law and therefore should not be entered into a criminal database, and collecting DNA from immigrants does not serve a legitimate law enforcement purpose because most are hard-working people.[cxv]

A.     Legal Challenges

Several courts have held that enforcing a state DNA database statute does not violate the Eighth Amendment prohibition of cruel and unusual punishment, nor does it violate the Fifth Amendment right against self incrimination because DNA samples are not considered to be testimonial in nature.[cxvi]  Courts have also upheld DNA database statutes that are intended or permitted to apply to persons convicted prior to the enactment of the relevant database statute.[cxvii]

Regarding the Fourth Amendment, several courts have expressed the view that a state’s DNA database statute does not violate the Fourth Amendment rights of those persons subject to the statute, reasoning that such an intrusion is reasonable in light of the need to ensure public safety and prisoners’ diminished expectation of privacy.[cxviii]  The U.S. Supreme Court has denied certiorari in an Eleventh Circuit case holding that Georgia’s DNA database statute does not violate the Fourth Amendment of the Constitution because the public safety outweighed the minor intrusion involved in taking prisoners’ saliva samples, given the prisoners’ reduced expectation of privacy in their identities.[cxix]  Similarly, the Court has also denied certiorari in a Second Circuit case holding that New York’s DNA database statute does not violate the Fourth Amendment of the Constitution because it falls within the “special needs” exception – the notion that collecting DNA samples from prisoners is beyond the normal need for criminal law enforcement, making the warrant and or probable cause requirements of the Fourth Amendment impracticable or irrelevant.[cxx]  By denying certiorari, the U.S. Supreme Court is implicitly affirming the rulings of the Second and Eleventh Circuits.  This will make it more challenging for those opposing DNA database statutes on Fourth Amendment grounds.

Even when a relatively clear Fourth Amendment violation results in an individual’s DNA profile being placed in the DNA database, courts may nonetheless choose not to apply the exclusionary rule.  Nine years ago, Earl Whittley Davis was a shooting victim whose DNA profile was subsequently uploaded into CODIS even though he had done nothing wrong.[cxxi]  This victim then became the subject of a cold case hit for a murder that occurred in 2004.[cxxii]  Although the Maryland District Court found that crime control was a generalized interest that did not outweigh Davis’ privacy when placement of his DNA profile in CODIS was not in response to a warrant or to an applicable statute, the Court held that the DNA evidence was nonetheless admissible.[cxxiii]  The Court reasoned that placement of Davis’ profile in CODIS was not reckless, flagrant or systematic, that exclusion would result in only marginal deterrence, if any, and that any deterrent effect would be greatly outweighed by the cost of suppressing “powerfully inculpatory and reliable DNA evidence.”[cxxiv]  This case should lead people to fear that utilizing such practices to expand the DNA database would open a backdoor to population-wide data banking.[cxxv]

B.     The Issue of Including Arrestees in a DNA Database

The U.S. Constitution has not been held to necessarily preclude the inclusion of arrestees in a DNA database.[cxxvi]  However, reasons for upholding the requirement of collecting DNA samples from convicts cannot necessarily be used to justify requiring the collection of DNA samples from arrestees.  For example, the consequences of an arrest are not as severe as those of a conviction, and an arrest is not the equivalent of guilt.  Therefore, arrestees should not have a reduced privacy interest.  Some arrestees have not been convicted of any crime, nor may they ever be, and if the police reasonably suspect an individual arrestee then they can and should seek a warrant for a DNA sample.[cxxvii]

Another issue regarding taking DNA samples from arrestees is expungement.  Critics argue that the databank should bear the responsibility of ensuring that DNA samples that do not belong in the database are removed, however most states that require collection of DNA samples from arrestees make the individuals responsible for ensuring the expungement of their DNA profiles and the destruction of their DNA samples.[cxxviii]  For example, an individual who is eligible for expungement in California would have to send a formal request to the trial court where he or she was arrested, the California Department of Justice’s DNA Laboratory, and the prosecuting attorney, and no appeal process is available if the court denies the request.[cxxix]

The Orange County District Attorney’s Office has begun offering to drop charges for mere arrestees of nonviolent misdemeanors in exchange for a DNA sample.[cxxx]  Critics argue that this practice is tantamount to pressuring people who have not been convicted of any crime to give the government a DNA sample, and that people will do so to avoid a potentially prolonged and challenging relationship with the legal system even if they are truly innocent.[cxxxi]

The UK NDNAD contains almost five million samples, and almost one million of them are known to be of innocent people.[cxxxii]  The UK has implemented an official policy of arresting people for the sole purpose of obtaining their DNA, which reflects a system that presumes guilt even before an actual crime has been committed.[cxxxiii]  Though such a practice violates the American principle of an individual being presumed innocent until proven guilty, the U.S. Supreme Court and state Supreme Courts may consider pretextual police behavior acceptable, effectively giving law enforcement carte blanche authority to expand DNA databases.[cxxxiv]

C.     Consequences of Poor Implementation

Poor implementation of a state DNA database statute can lead to significant problems.  One example is Maryland’s backup system for its DNA database involving downloading the database onto a tape each evening, which an employee takes home and returns the next morning.[cxxxv]  Not only does this system make sensitive information vulnerable to unauthorized access, but if anything should happen to the main computer system or hard drive, critical data would be lost and not easily recovered.[cxxxvi]  A second example is the fact that approximately 50,000 felons have been released from Illinois prisons or county probation without submitting DNA samples as required by law due to delays in the law’s implementation.[cxxxvii]  A third example is the recent disclosure that an audit of Wisconsin’s statewide DNA database revealed that the profiles of at least 12,000 felons were missing, 70 percent of which are believed to still be in custody or under state supervision.[cxxxviii]  A suspect in a string of murders that occurred from 1986 to 2007 was a convicted felon whose DNA profile should have been in the state’s database, and the police might have focused on him sooner if it had been.  These examples demonstrate how effective implementation is critical to realizing the public safety goals that a DNA database statute is meant to achieve.

VII.   Pros and Cons of DNA Databases

DNA may be more objective and accurate than other forensic disciplines that rely heavily on subjective judgments and interpretations, but DNA is not infallible and can be corrupted by environmental factors (e.g., heat, sunlight, bacteria) and is subject to human error or fraud in comparing samples taken from suspects with samples removed from a crime scene.[cxxxix]  Proponents claim that a DNA database is not intended to replace conventional criminal investigations but to complement them by identifying potential suspects sooner who can then be further investigated using more conventional means.[cxl]  However, there is a serious risk that evidence tending to prove the innocence of a suspect may be overlooked in light of DNA evidence because people will be blinded by the science.[cxli]  Even though forensic DNA has been used to exonerate people who have been wrongly convicted, it would be ironic if the same evidence is used to create injustices of its own.[cxlii]

Advocates of DNA databases claim that obtaining a DNA sample for a government database does not raise privacy concerns because the procedure for taking a DNA sample is less invasive than that required for taking blood.[cxliii]  A number of complications may arise during the blood collection process, including fainting, incorrect needle insertion, bruising, and excessive bleeding.[cxliv]  Another argument to counter privacy concerns is that personal information is already held by groups in the private sector, and if people can trust the private sector then they should be able to trust the government.[cxlv]  However, the invasiveness of the database and source of privacy concerns is the fact that DNA samples are retained.[cxlvi]  Individuals who provide their own personal information to the private sector do so voluntarily, and usually in exchange for a service (e.g., insurance brokers require an extensive medical history of their clients before approving insurance coverage, mortgage lenders demand a full credit record of each applicant before approving loans).[cxlvii]  DNA database statutes make providing a DNA sample mandatory while offering nothing in return.[cxlviii]  In addition, American discontent with political leaders, lack of faith in the political system, poor government performance, and the overall condition of the nation are key factors behind public distrust of the government.[cxlix]  Thus, arguments that the government should be entrusted with private and personal information may fall on deaf ears.

Supporters of expanding the DNA database argue that to suppress DNA usages because they might become abuses is akin to arguing that we should not allow rapid trains to be built because they might be used to transport victims to concentration camps.[cl]  There are many uses of DNA that do not raise significant concerns, such as creating a DNA profile of a suspect after he or she has been identified, but obtaining and retaining DNA profiles and samples from innocent people is not one of them.  With government efforts to expand the national DNA database, critics worry that the U.S. is becoming a genetic surveillance society.[cli]  Benjamin Keehn, a public defender in Boston, argued on PBS NewsHour that “if we are going to take DNA from prisoners because they are at-risk [of committing crimes in the future], why shouldn’t we take DNA from teenagers, from homeless people, from Catholic priests, from any subgroup of society that someone is able to make a statistical argument of being at-risk?”[clii]  As time passes, science advances, and the scope and usage of DNA databases grow, the line being drawn between what is and is not acceptable will encroach more and more on individual privacy.

VIII.  Privacy Implications of DNA

Privacy is not threatened by the means of obtaining DNA samples, but rather the information inherent in DNA and the individual’s lack of control over such information.[cliii]  There are few subject areas more personal and more likely to implicate privacy interests than that of an individual’s health or genetic make-up.[cliv]  The concern is that as the uses for and access to the DNA database increases, the threat to privacy also increases.[clv]

DNA samples have been analogized to medical information stored on a computer disk because both can be “read” by the application of technology.[clvi]  Though medical information may be strongly correlated with particular diseases, DNA is inherently linked to one person (except in the case of identical twins).[clvii]  An individual’s medical information may change over the course of his or her lifetime (e.g., people being diagnosed with diabetes, asthma, high cholesterol, or heart disease well into adulthood), but with the exception of mutations, DNA does not change over time.[clviii]  An individual’s medical information may have implications for others (e.g., a virus infection has implications for others as the infected person may get others sick), just as DNA has implications for individuals other than the person from whom the information was derived.[clix]  However, the implications of medical information are not as serious as those of DNA, which involve invading the privacy of a person’s family when no family member is guilty of any wrongdoing.  Close relatives such as parents, siblings and children share about fifty percent of each other’s genetic variants and STR lengths, and more distant relatives such as uncles, aunts, nephews, nieces, grandparents, grandchildren, and half-siblings share about twenty-five percent of each other’s DNA variants.[clx]  Thus, using partial matches to identify potential suspects radically expands the power and purpose of DNA databases, implicating a number of people who may have nothing to do with the original crime.

There are substantial differences between DNA profiles and ordinary fingerprints and it trivializes DNA to call a DNA profile a genetic fingerprint.[clxi]  Fingerprints are two-dimensional representa-tions of the physical attributes of fingertips and provide no information about a person other than identity.[clxii]  In addition to providing an individual’s identity, DNA can also provide medical characteristics, physical attributes, who the individual may be related to, and other personal information that, in the wrong hands, can perpetuate discriminatory practices.[clxiii]  Whereas a latent fingerprint provides a fixed amount of information, all of which is used by the forensic scientist, a DNA sample provides a wealth of information and the forensic scientist has substantial control over the amount of information to be obtained from the sample.[clxiv]  DNA is more probative than fingerprints because unlike fingerprints which establish that a suspect was present at a location and does not automatically imply guilt, it is more difficult to advance innocent reasons for the presence of DNA in the form of bodily fluids.[clxv]  These differences are relevant to how DNA databases should be used and maintained, especially considering the privacy concerns unique to DNA.

Proponents of DNA databases claim that DNA profiles consist merely of “junk DNA” that is incapable of revealing information about an individual’s genetic make-up or health.[clxvi]  However, a British team has discovered that the standard DNA profile contains a subtle signature which can be linked to a person’s susceptibility to type 1 diabetes.[clxvii]  This research was buried in an academic paper, did not comment on the implications for forensic science, and has been overlooked by the forensic and legal communities.[clxviii]  DNA forensic testing relies on the principle that DNA profiles are only useful for identification, which is how people justify storing DNA profiles on law enforcement computers because they do not infringe anyone’s medical privacy.[clxix]  Sir Alec Jeffreys was a member of the research team that made this discovery, and he predicted that “further troubling links between DNA fingerprints and disease will emerge as scientists probe the completed draft of the human genome.”[clxx]

The U.S. has failed to employ comprehensive privacy regulations that would prevent the government from sharing DNA profiles in a DNA database with other groups, such as insurance companies, employers, or academia.[clxxi]  DNA database statutes can be grouped into broad categories based on authorized uses of both DNA profiles and raw DNA samples: 1) statutes that allow access to DNA for non-law enforcement purposes, 2) statutes that allow access to DNA information to public officials other than law enforcement, 3) statutes that allow law enforcement to use DNA evidence for purposes other than identification, and 4) statutes that do not require expungement of DNA records upon reversal.[clxxii]  Some state laws, such as Massachusetts, Louisiana and North Carolina, include a vague, open-ended authorization that allows the database to be used for “other humanitarian purposes.” [clxxiii]  Alabama’s statute explicitly authorizes the creation and use of a DNA population statistical database “to provide data relative to the causation, detection and prevention of disease or disability,” as well as to assist in educational or medical research.[clxxiv]  Mississippi’s law authorizes the Mississippi Crime Laboratory to determine any restrictions, and Utah’s law provides insurance companies, psychologists, and other third parties with access to information in the state DNA database.[clxxv]

Some argue that creating a whole-population database is logical because a larger database is more useful than a smaller one, and it has the added effect of purging racial bias from the system, thereby avoiding criticisms of discrimination that result from selective sampling of the population.[clxxvi]  However, this alone is insufficient to justify a whole-population database, and for many the critical factor is not merely the creation of a whole-population database of genetic profiles, but the retention of all of the DNA samples used to generate the genetic profiles.  The potential for the government to use the DNA samples for a purpose not originally conceived of at the time that the DNA sample was obtained is frightening.  The problem of function creep will be explored in the next section.

The United States, Germany, and other countries have been guilty of implementing national programs in the name of eugenics that clearly violated human rights.[clxxvii]  The eugenics movement lost credibility after the rise of Nazism in the 1930s, but re-emerged as a scientific endeavor and social issue following the advent of biotechnology in the 1970s.[clxxviii]  Science fiction literature and movies have dealt with the issue of “new eugenics” – the use of technology to make directed changes to human evolution.[clxxix]  These works convey the danger that the ability to manipulate an individual’s genetic makeup will result in removing physical and behavioral traits not desired by society as a whole.[clxxx]  The movie GATTACA is an example projecting, from current knowledge and technology, a world where the new eugenics is a reality.[clxxxi]  If researchers are able to access the DNA profiles or DNA samples accumulated pursuant to a DNA database statute, they will inevitably try to identify the genes responsible for particular traits.  Thousands of citizens would essentially be contributing to this future reality without their knowledge or consent.  This reality is not as far off as some may think.  President George W. Bush enacted the Newborn Screening Lives Act in April 2008, which mandates the screening of the DNA of all newborn babies in the U.S., and sections of the bill make it clear that the DNA may be retained and later used in genetic experiments and tests.[clxxxii]  In addition, all 50 states now routinely provide the results of such tests to the Department of Homeland Security.[clxxxiii]  The National Conference of State Legislatures has created a list of the various statutes or regulatory provisions by state under which newborns’ DNA is being collected.[clxxxiv]

IX.  Function Creep

State and federal DNA database statutes include no provisions for destroying DNA samples once a DNA profile for inclusion in CODIS has been generated.[clxxxv]  Proponents of forensic DNA testing claim that retaining DNA samples is necessary because science and technology is constantly improving and these samples may yield more information in the future.[clxxxvi]  Paul Ferrara, Director of Virginia’s DNA program, additionally claims that retaining DNA samples is necessary so that agencies can rerun DNA profiles to verify cold hits before notifying law enforcement agencies to further investigate, and that agencies encounter many different situations requiring consultation with original database samples.[clxxxvii]

The term function creep refers to the “operationally driven use of the existing resource for new purposes not envisaged when the resource was established,” which is “made possible by technological innovation and lack of inhibiting measures” like public opposition or legislation.[clxxxviii]  Historically, databases that were created in the U.S. for a discrete purpose were eventually assigned new functions and purposes.[clxxxix]

The government began issuing drivers licenses in the name of public safety, and yet the average adult American citizen now has more direct dealings with government through licensing and regulation of the automobile than through any other single public activity.[cxc]  Eventually, states began earning millions of dollars per year from selling drivers’ personal information to direct marketers, charities, political campaigns and various commercial interests.[cxci]  An unintended consequence of this practice was the real threat to public safety.  In some instances, abuse of drivers’ personal information lead to murders.[cxcii]  Congress reacted by passing the Drivers Privacy Protection Act, which effectively prohibits the disclosure of personal information obtained in connection with a motor vehicle record for unauthorized uses unless the individual waives his or her right to privacy.[cxciii]  The U.S. Supreme Court upheld the constitutionality of the Drivers Privacy Protection Act, reasoning that it is a proper exercise of Congress’ authority to regulate interstate commerce under the Commerce Clause and does not violate principles of federalism contained in the Tenth Amendment.[cxciv]

The government introduced social security numbers (SSNs) to track individuals’ accounts within the Social Security Program in 1935.[cxcv]  Executive Order 9397, issued in 1943, expanded its use by requiring federal agencies to use SSNs exclusively whenever a new identification system for individuals needed to be created.[cxcvi]  Eventually, the Internal Revenue Service adopted the SSN as its official taxpayer identification number and the Department of Defense began using SSNs to identify Armed Forces personnel. [cxcvii]  Then during the 1970s, the Bank Records and Foreign Transactions Act required all financial institutions to obtain the SSNs of all of their customers, the Privacy Act authorized local governments to use SSNs, and the Tax Reform Act authorized registration authorities of a state or local tax, welfare, driver’s license, or motor vehicle registration to use SSNs to establish identities.[cxcviii]  Finally, in 1987, the Social Security Administration began automatically issuing SSNs to newborns when the birth was registered by the State, and currently all 50 states, plus Washington D.C. and Puerto Rico, participate in this program.[cxcix]  Once intended to track individuals’ accounts within the Social Security Program, SSNs have become a universal identifier for individuals within the U.S.

The U.S. Constitution expressly states that “an enumeration shall be made within three Years after the first Meeting of the Congress of the United States, and within every subsequent Term of ten Years in such Manner as they shall by Law direct.”[cc]  Census records are a constitutional requirement used to allocate congressional seats, electoral votes and government program funding.  Though the Constitution only requires a head count, a substantial amount of data is collected during a census.[cci]  More and more detailed information has been gathered over the years, including data on race/ancestry, health, housing, and transportation.[ccii]  After the Japanese Attack on Pearl Harbor, census records were used to facilitate the internment of Japanese-Americans.[cciii]  Presently, however, census data cannot be used for any purpose other than its intended statistical purposes, and no federal agency is allowed to access census reports.[cciv]

The Texas Tribune recently published a story about how the Department of State Health Services in Texas turned over newborn DNA samples to an Armed Forces lab “to build a national and, someday, international mitochondrial DNA registry.”[ccv]  However, the newborn blood samples were stored without parental consent and records uncovered government efforts to limit the public’s knowledge of the state newborn blood program.[ccvi]  Parents sued officials over these actions, but the state settled the case quickly before anything could be revealed in the discovery phase.[ccvii]

As of 2004, the Department of Defense (“DOD”) had collected three million biological samples from service personnel “for the stated purpose of identifying remains or body parts of a soldier killed on duty.”[ccviii]  However, samples are retained for fifty years, which greatly exceeds the subjects’ time with the military.  Further compounding the issue, the DOD has refused to establish regulations to guard against third parties accessing the accumulated biological samples.[ccix]  It is not hard to foresee pressures mounting to use these biological samples for purposes other than identifying soldiers killed on duty, such as identifying criminal suspects and medical research.[ccx]

Although there is a Fourth Amendment concern associated with obtaining DNA samples, the Fourth Amendment applies only to government action and is inapplicable to private parties who do not act as agents of the government.[ccxi]  This doctrine, however, does not preclude the possibility that law enforcement may be able to access existing repositories of DNA from cooperative private hospitals or laboratories, provided that the government had no involvement in how the DNA was originally obtained and that the state is not engaging in any search or seizure in acquiring DNA in this way.[ccxii]  The National Bioethics Advisory Commission estimated that as of 1998, more than 282 million human biological specimens were collected and stored in the U.S. for research studies, newborn screening tests, organ banks, blood banks, forensic DNA databases, and for other purposes, which increases at a rate of 20 million samples per year.[ccxiii]  The issue lies in the fact that an individual undergoing diagnostic tests or donating samples for clinical or research purposes has a reasonable expectation of privacy that their test results and DNA will not be shared with a non-medical third party without his or her consent.[ccxiv]

Function creep has already begun with DNA databases as law enforcement has expanded DNA collection to include new categories of people.[ccxv]  Examples of future uses of DNA databases include research to increase understanding of patterns of criminal behavior, research to correlate genetic variation with disposition to certain behaviors, and creation of a universal database by combining all existing databases to facilitate data sharing.[ccxvi]

X.  Conclusion

DNA database statutes provide inadequate privacy protections.  There is a lack of national oversight, no uniform quality control process of obtaining DNA samples and maintaining DNA databases, and there is no consistency regarding who may access DNA databases and for what reasons.  DNA is a useful crime-fighting tool, but its potential makes it likely to be abused.  Because DNA databases already exist, it is hard to imagine that their viability will diminish in the future.  Therefore, leaders must work to ensure that all DNA profiles and DNA samples are used for the limited purpose for which they were collected, and advocates should push for the eventual destruction of all DNA samples once DNA profiles have been generated so that no one will be tempted to use them for purposes that go beyond forensic identification.

The way cold hit statistics are used to determine guilt or innocence in litigation is another area of potential abuse.  Increasingly, convictions are relying on DNA evidence alone.  Moreover, when the DNA evidence is a partial match on less than 13 loci, the risk of injustice is greater, as evidenced by the report of Arizona’s DNA database in 2005.  It is frightening that most people are blinded by a belief that DNA is the panacea of crime detection and do not recognize the potential threat to privacy and other civil liberties.  Researchers should be provided with access to the genetic profiles within CODIS after all of the personal identifiers have been removed so that they can conduct independent scientific scrutiny to ensure the scientific integrity of DNA forensic science.

The NDNAD in the UK is even more controversial than the DNA databases in the U.S.  Despite negative media coverage and successful legal challenges to DNA collection and retention practices, British leaders are forging ahead with the hope of one day expanding the database to cover the entire UK population.

Given the history of eugenics and discrimination in the U.S. and abroad and the atrocities that have befallen millions of innocent human beings, everyone should be aware of and fear the dangers associated with becoming a genetic surveillance society.  If people are not vocal in opposing current DNA database practices, the only people who will be shaping the future of how DNA is used are those with a political agenda who are not as concerned with individual privacy and the ethics of their actions.  As science and technology continue to advance, visions of a brave new world that are the substance of science fiction movies like GATTACA may no longer be a distant reality.

***

by Matthew D. Show, Ph.D.*

“If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea . . . .”  —Thomas Jefferson[i]

I. Introduction

The Constitution grants Congress sweeping authority to define patentable subject matter.  However, the section of the modern Patent Act describing precisely what qualifies as a patentable invention is essentially identical to the language penned by Thomas Jefferson when he wrote the first Patent Act at the end of the 18^th Century.  Given the incredible advances in science, medicine, and engineering over the last two and a quarter centuries, the fact that most inventions still fall into what Jefferson considered “patentable subject matter” is a testament to his vision and foresight.  However, over the past few decades, patent applicants in certain technological fields are discovering a conflict inherent between the nature of their claimed inventions and judicial interpretation of Jefferson’s Patent Act language throughout the 19^th and 20^th Centuries.

This conflict is particularly apparent in the fields of diagnostic and personalized medicine.  Diagnostics is an ancient branch of medicine focusing on the identification of a disease or other abnormal condition from the symptoms a patient presents to a diagnostician.  By recognizing the basic biochemical and physiological signs of a pathological state, a physician is able to determine what course of treatment is required to return the patient to health.  Personalized medicine, on the other hand, is a much newer concept.  Essentially, it is the application of information gleaned from the Human Genome Project and other large-scale genetic studies of inherited disease to individuals susceptible to these conditions due to inheritance or mutations in their DNA.  The goal of personalized medicine is to use an individual’s unique genetic “code” to predict what medical conditions that person may be susceptible to during their life and to determine what form of treatment will best alleviate or even prevent manifestation of that medical condition.

This Note will review the development and the interpretation of the patentable subject matter section of the Patent Act, 35 U.S.C. § 101, as applied to diagnostic and personalized medicine method patents from the time of Jefferson to the present day.  Modern Supreme Court precedent concerning what exactly qualifies as a patentable method claim will be discussed as well as how a business method case, Bilski v. Kappos, threatens to make these types of methods unpatentable.  Additionally, the results of an analysis demonstrating how patent agents and attorneys currently draft these types of claims will be presented along with information as to how to alter these claims to conform to the en banc Federal Circuit’s decision in Bilski.  Finally, this Note will argue these types of method claims are not only deserving of patentability, they are a vital part of the American economy and are critical for the maintenance and improvement of public health.

II. Background: The Contentious History of Medical and Diagnostic Method Patents

A.     A Brief Overview of United States Patent Law.

The Constitution delegates to Congress the authority “[t]o promote the progress of science and useful arts, by securing for limited times to . . . inventors the exclusive right to their . . . discoveries.[ii]  Congress implements this authority in Title 35 of the United States Code, which details the broad requirements for obtaining a United States patent.[iii]  At the heart of the patent system is a fundamental quid pro quo between the inventor and society: the inventor agrees to disclose the details of her invention to the public in exchange for a temporally-limited “right to exclude others from making, using, offering for sale or selling the invention throughout the United States or importing the invention into the United States . . . .”[iv]  The means of this disclosure is through the filing and successful prosecution of a patent application with the U.S. Patent and Trademark Office (PTO).[v]

In order to be patentable, an invention must pass several hurdles during the application and prosecution process.  A patent applicant must satisfy a PTO Examiner that the subject matter of the invention described in the application is both novel[vi] and nonobvious.[vii]  These requirements ensure the monopoly granted to the inventor is not already available to the public nor is obvious to one of ordinary skill in the relevant art given what is known in that art at the time of the alleged discovery.  As a result, the novelty and obviousness requirements prevent ideas already in the public domain from becoming inaccessible by the granting of a patent.

Additionally, an applicant must fully describe his invention such that one having ordinary skill in the art to which the invention pertains can make and use the invention.[viii]  This includes revealing to the public the best mode of utilizing the invention so that once the patent expires, the public may fully employ it for their benefit.[ix]  The patent application concludes with a number of claims, which must distinctly point out and describe exactly what the inventor is claiming as her invention.[x]  This serves the duel function of informing the PTO of the metes and bounds of the patent applicant’s claimed property right as well as putting the public on notice as to the existence of the claimed invention.

Not all discoveries are patentable.  Usually, the first consider-ation during prosecution is whether the invention described in the application falls within one of four classifications Congress deems appropriate subject matter for a patent.[xi]  The Supreme Court has interpreted this section of the patent code very broadly, going as far as declaring that patentable subject matter extends to “anything under the sun made by man.”[xii]  As detailed, infra, this section of the patent code has remained extraordinarily stable for more than two centuries despite the rapid changes occurring in the fields of science and engineering during the Industrial Revolution and the later advances of the Computer and Space Ages.

B.     The Genesis of “Patentable Subject Matter” in 35 U.S.C. §101.

At first glance, it may seem odd that Thomas Jefferson would come to author the first United States Patent Act.[xiii]  To Jefferson, a leading intellectual of the Enlightenment and a prominent inventor himself, the proposition that the fruit of man’s inventive genius could somehow be “owned” suggested a heresy to a natural order “peculiarly and benevolently designed by nature.”[xiv]  Nevertheless, taking his lead from the English Statute of Monopolies,[xv] Jefferson wrote the Patent Act of 1790 sanctioning patents for “any useful art, manufacture, engine, machine, or device, or any improvement therein”[xvi] to encourage “men to pursue ideas which may produce utility.”[xvii]  Congress amended the Act in 1793 to permit the patenting of “any art, machine, manufacture, or composition of matter, or any new and useful improvement [thereof]”[xviii] and again in 1952 when the word “art” was changed to “process.”[xix]  Remarkably, aside from these minor changes, the patentable subject matter section of the modern Patent Act, Title 35, § 101 of the United States Code, remains identical to the words Jefferson penned over two centuries ago.  The subject matter of all patents issued in the United States must be capable of classification as a “process, machine, manufacture, or composition of matter.” [xx]

Medical and biological knowledge in the late 18^th Century was still medieval by today’s standards.  Diagnoses of maladies based on the ancient beliefs of “humors” and other superstitions were common.[xxi]  The practice of “bleeding” those suffering from diseases with leeches to restore “balance” to the humors was particularly in vogue during Jefferson’s time.[xxii]  Surgery was primitive, with the concepts of sterilization, anesthetic, and even basic knowledge of human anatomy decades to a century away.  Jefferson was well acquainted with the limitations of medical science, having mourned the deaths of four infant children and his young wife following years of illness, in spite of the availability of the best doctors in colonial America at the time.[xxiii]  With this backdrop in mind and English precedent to guide him, Jefferson chose the subject matter that would qualify as patentable under the United States’ new system.  Therefore, it is of little wonder that this regime was initially hesitant to permit patent grants claiming medical, surgical, and diagnostic methods.

C.     Early case law held scientific principles as well as medical and surgical methods were not patentable subject matter.

From the beginning, both the Patent Office as well as the courts refused to extend patentable subject matter to include discoveries of scientific principles.[xxiv]  Specifically, the Supreme Court has held:

“[L]aws of nature, physical phenomena, and abstract ideas [are] not patentable.  Thus, a new mineral discovered in the earth or a new plant found in the wild is not patentable subject matter.  Likewise, Einstein could not patent his celebrated law that E = mc²; nor could Newton have patented the law of gravity.  Such discoveries are “manifestations of . . . nature, free to all men and reserved exclusively to none.”[xxv]

Perhaps the most famous instance of an inventor attempting to capture a scientific principle occurred in the so-called “Telegraph Case,” where the Supreme Court invalidated a claim in Samuel Morse’s patent for the telegraph.[xxvi]  Morse’s eighth claim incorporated all uses of the principle of electromagnetism for the communication of written characters over distances.[xxvii]  The Court noted that “some future inventor, in the onward march of science, may discover a mode of writing or printing at a distance by means of the electric or galvanic current, without using any part of the process or combination set forth in the plaintiff’s specification” and therefore require Morse’s permission for its use.[xxviii]  Thus, the Court found the claim would preempt any and all use of the natural phenomenon of electromagnetism for the conveyance of messages and was therefore invalid for claiming unpatentable subject matter.[xxix]

Similarly, in one of the first cases to examine the patentability of a medical procedure, the New York Circuit Court ruled doctors who discovered that inhalation of ether would render a patient unconscious prior to surgery could not patent a method employing that innovation.[xxx]  While the opinion in Morton v. New York Eye Infirmary characterized the inventors as having made one of the “great discoveries of modern times,”[xxxi]  the Court nevertheless cast doubt on the patentability of medical procedures in general.  The court noted that a “discovery may be brilliant and useful, and not patentable.  No matter through what long, solitary vigils . . . the secret may have been wrung from the bosom of Nature . . . Something more is necessary.”[xxxii]  The Court went on to remark that “[n]either the natural functions of an animal upon which or through which [a combination] may be designed to operate, nor any of the useful purposes to which it may be applied” could form parts of the patented combination.[xxxiii]  The natural process of inhaling a gas, even if the result of that process brought about a revolution in surgery and medicine, did not qualify for the protection of a patent grant.

Following Morton, courts and the Patent Office used the language of its holding to prevent the patenting of medical methods for treating the human body in general.[xxxiv]  In Ex parte Brinkerhoff,[xxxv] the Patent Office relied on Morton to conclude the applicant’s method of using medical instruments to treat hemorrhoids was not patentable subject matter.  In formulating an almost per se rule, the Commissioner of Patents declared “methods or modes of treatment of physicians of certain diseases are not patentable.”[xxxvi]  However, as medical science and technology slowly advanced, later decisions by U.S. District Courts and the Patent Office Board of Appeals began to back away from this ostensibly automatic rule.[xxxvii]  For example, in Dick v. Lederle Antitoxin Laboratories, a district court determined a skin test for revealing the vulnerability of a person to Scarlatina was patentable subject matter.[xxxviii]

Eventually, seventy-one years after the fact, the Patent Office Board of Appeals overruled Ex parte Brinkerhoff’s prohibition against the patenting of all medical method patents.[xxxix]  This decision opened the door for the relatively recent phenomenon of patents directed to methods of practicing surgical, diagnostic, and personalized medicine.  The reason why the law developed in this manner is unclear.  It is certainly plausible that by the middle of the 20^th Century, medical science had advanced so far from the time of Jefferson that methods directed to the treatment of disease were reliable and consistently reproducible.  Advances in basic science, the development of vaccines for common diseases, the discoveries of antibiotics and the principles of the genetic basis of inheritance certainly supports this notion.  Alternatively, seeing the incredible progress of medical science, the PTO and the courts may have determined it was in the public interest to have the patent system incentivize the development of even greater medical advances.  Whatever the reason, as science advanced, patent applicants, the PTO, and the courts again faced the ghosts of Morse, Morton, and Brinkerhoff as they attempted to fit claims to the seemingly natural principles of diagnostic and personalized medicine into the language of 35 U.S.C. §101.  The problem of how diagnostic methods fit into the traditional categories of patentable subject matter would come to a head in 2006.  The results would be satisfying to very few.

D.     Laboratory Corp. v. Metabolite: The Supreme Court Decides It Would Be A Good Idea To Not Decide.

Lab. Corp. concerned the validity of a patent claiming a method for the diagnosis of certain diseases caused by dietary deficiencies of vitamin B12 and folate.[xl]  Humans need these vitamins to ensure the proper synthesis of amino acids, which are the building blocks of proteins, as well as for the production of the nucleic acids DNA and RNA.[xli]  Vitamin B12 and folate deficiencies are associated with improper DNA methylation and subsequent impaired DNA biosynthesis, pernicious anemia, increased risks for cardiovascular disease and adverse pregnancy outcomes, as well as neural tube defects such as spina bifida.[xlii]  The inventors, who assigned the patent to a company that eventually granted a license to Metabolite, discovered that people suffering from medical conditions associated with B12 and folate deficiencies have high levels of a certain amino acid, homocysteine, present within their blood serum.[xliii]  Careful measurement of the relative concentration of this factor when compared to normal serum homocyteine levels could diagnosis the presence of a B12 or folate deficiency in patients suffering from diseases associated with this condition.[xliv]

Metabolite sued LabCorp., a former licensee, for inducing others to infringe its patent when LabCorp. began using another company’s test for determining serum levels of homocysteine.[xlv]  Rather than assert LabCorp.’s use of the rival company’s test infringed the patent’s claims for measuring homocysteine in serum, Metabolite chose to assert the much broader claim 13,[xlvi] arguing it “created a protected monopoly over the process of ‘correlating’ test results and potential vitamin deficiencies.”[xlvii]  At trial, a jury agreed with Metabolite and found LabCorp. induced others to infringe this very broadly construed claim.[xlviii]  Essentially, by providing test results of serum homocysteine levels to doctors, LabCorp. induced the doctors who ordered those tests to infringe claim 13 simply through the act of examining the test results and correlating those results with the presence or absence of a B12 or folate deficiency.[xlix]  On appeal, the Court of Appeals for the Federal Circuit affirmed the jury decision,[l] rejecting LabCorp.’s contention that if Metabolite’s claim 13 was as broad as construed by the district court, then it was invalid for “indefiniteness, lack of written description, non-enablement, anticipation, and obviousness.”[li]

The Supreme Court granted LabCorp.’s petition for certiorari on October 31, 2005.[lii]  Of the three questions LabCorp. submitted for review, the only one the Court chose to address was:

“[w]hether a method patent setting forth an indefinite, undescribed, and non-enabling step directing a party simply to “correlate” test results can validly claim a monopoly over a basic scientific relationship used in medical treatment such that any doctor necessarily infringes the patent merely by thinking about the relationship after looking at a test result?”[liii]

This was a poorly written question from the perspective of patent law since it not only fails specifically to mention 35 U.S.C. §101, it also assumes its own answer.  An “indefinite,” “undescribed,” and “non-enabling” method is, by definition, invalid under 35 U.S.C. § 112.[liv]  The case drew a large amount of attention from interested parties and industry groups who subsequently filed a considerable number of amicus briefs with the court. [lv]  Additionally, the Solicitor General of the United States submitted two briefs and participated in the oral arguments held on March 21, 2006. [lvi]

On June 26, 2006, without further comment and without the then newly-installed Chief Justice Roberts participating, the Court dismissed the writ of certiorari in the Lab. Corp. case as improvidently granted.[lvii]  Justice Breyer, joined by Justices Souter and Stevens dissented from the decision to dismiss.[lviii]  Ostensibly, the reason for the dismissal lay in the fact that LabCorp. had not referred to patentable subject matter and 35 U.S.C. § 101 in either the district court proceedings nor in their arguments before the Federal Circuit regarding the invalidity of Metabolite’s patent.[lix]  However, Justice Breyer, in his dissent, as well as many commentators regarded this rationale as tenuous, especially in light of the fully developed record on the matter before the Court provided by the multitude of amicus briefs.[lx]  In fact, the Court initially granted certiorari in spite of the fact that in his initial brief on the matter, the Solicitor General recommended against deciding the question.  Due to the numerous similar diagnostic patents already in existence, according to the Solicitor General, deciding to “overturn [the] PTO’s approach could call into question a substantial number of patent claims and undermine the settled expectations of numerous participants in technology-based industries.”[lxi]

On the merits, Justice Breyer strongly believed Metabolite’s claim 13 was invalid for lack of patentable subject matter under 35 U.S.C. § 101.[lxii]  Seeing “little doubt that the correlation between homocysteine and vitamin deficiency set forth in claim 13 is a ‘natural phenomenon,’”[lxiii] he drew a strong comparison between Metabolite’s claim 13 and Morse’s claim 8 which had been invalidated by the Court a century and a half earlier.[lxiv]  Breyer greatly doubted whether the claim language even fit the traditional definition of a patentable “process,” as claim 13 merely “instructs the user to (1) obtain test results [by any means available] and (2) think about them.”[lxv]  By Justice Breyer’s reckoning, a natural phenomenon does not suddenly become patentable under 35 U.S.C. § 101 if it is simply put in “process” form.  That is, Einstein still could not patent the natural relationship between E = mc² by instructing the user to (1) measure the mass of something by any means available then multiply it by the speed of light squared and (2) think about the product of those numbers.  Additionally, even assuming the claim language was, in fact, a patentable process, the claim amounted to nothing more than a simple correlation between serum homocysteine levels and the presence or absence of a disease.[lxvi]  Justice Breyer concluded that:

 “[R]espondents have simply described the natural law at issue in the abstract patent language of a “process.” But they cannot avoid the fact that the process is no more than an instruction to read some numbers in light of medical knowledge . . . . [A]side from the unpatented test, they embody only the correlation between homocysteine and vitamin deficiency that the researchers uncovered.  In my view, that correlation is an unpatentable “natural phenomenon,” and I can find nothing in claim 13 that adds anything more of significance.”[lxvii]

Thus, the Supreme Court decided not to decide whether medical diagnostic methods were patentable.  Rather, the Court let those types of patents remain valid, due to the lower Federal Circuit decision that did not even address the matter of patentable subject matter.  Simultaneously, the Court cast great doubt on the validity of these types of patents due to Breyer’s dissent that was joined by one third of the Court.  The next challenge to the patentability of medical diagnostics would not come from a case where the controversy was on point, but, rather, from the world of business method patents.

III. Judicial Interpretation of 35 U.S.C. §101 and the Uneasy Relationship between the Patentability of Business Methods and Diagnostic Medicine.

A.     The Mental Steps Doctrine and the Machine or Transformation Test.

While becoming increasingly muddled by vague Federal Circuit and Supreme Court decisions throughout the years, the Mental Steps Doctrine generally states that “no patent can be obtained [under 35 U.S.C. § 101] for a method an essential component of which consists of human mental participation.”[lxviii]  The modern version of the Mental Steps Doctrine had its genesis in the Supreme Court’s 1972 decision in Gottschalk v. Benson.[lxix]  In Gottschalk, the Court determined a method for converting numbers into binary numerals, which was useful in the programming of computers, was not patentable subject matter.[lxx]  The reasoning Justice Douglas used to arrive at that conclusion, which Professor Chisum variously refers to as “illogical,” “uncertain,” “equivocal[],” and unable “to stand up under analysis,” seems to make two points relevant to the patentability of medical diagnostic and personalized medicine methods.[lxxi]  First, “[a] method which can be performed mentally or which is the equivalent of human mental work is not patentable.  Such methods are “basic tools”—open to all.”[lxxii]  Second, “[a] method which does not directly and physically alter or transform an article and which is not tied to the operation of a particular machine is not patentable.”[lxxiii]  In Lab. Corp., Breyer cited Gottschalk, to strengthen his argument that claim 13 was not patentable subject matter because it was (1) simply the mental process of measuring serum homocysteine and thinking about the results[lxxiv] and (2) not a method directed at the transformation of blood or anything else.[lxxv]

Six years later, the Supreme Court extended the doctrine set forth in Gottschalk when it decided, in a 6-3 decision, Parker v. Flook.[lxxvi]  The patent at issue in Flook was for a method to update an “alarm limit” by taking variables such as temperature and pressure into consideration during catalytic conversion of hydrocarbons.[lxxvii]  If one of the variables exceeded the mathematically calculated alarm limit, the system produced a signal indicating this fact.[lxxviii]  The method consisted of three steps: (1) A measurement of a given variable followed by (2) a mathematical calculation to arrive at a new alarm limit value ending with (3) adjustment of the limit to correspond to that new value.[lxxix]  In ruling the method unpatentable subject matter, Justice Stevens held the fact that the mathematical algorithm of step (2) is followed by the “post solution activity” of step (3) is not enough to transform an unpatentable principle (the algorithm) into a patentable method.[lxxx]  Once stripped of the post-calculation adjustment in step (3), the claimed method consists of nothing but the measurement of a variable followed by plugging that variable into an unpatentable mathematical formula.  In Lab. Corp, Stevens joined Breyer’s dissent in comparing the diagnostic correlation at issue in that case with the rejected algorithm in Flook, determining that the subject matter at issue in both cases involved an unpatentable “simple natural correlation, i.e. a ‘natural phenomenon.’”[lxxxi]

In Part III of the “Patent Eligibility Trilogy”, the Court reversed course a bit in Diamond v. Diehr when, in a 5-4 decision authored by Justice Rehnquist, they determined a method for curing rubber incorporating an algorithm and a computer was patentable under 35 U.S.C. § 101.[lxxxii]  The method at issue in Diehr comprised (1) measuring the temperature in the rubber mold (2) calculation of the time required to cure the rubber via a specific mathematical equation, and (3) opening the rubber press when the calculated curing time passed.[lxxxiii]  The majority opinion carefully distinguished Gottschalk and Flook, which Rehnquist characterized as an attempt to patent a mathematical formula that produced binary code in the case of the former and a numerical alarm limit in the latter.[lxxxiv]  Rather than attempting to preempt the use of algorithms as in Gottschalk and Flook, Diehr’s claimed method

“[d]escribe[s] in detail a step-by-step method for [transforming raw, uncured synthetic rubber into a different state or thing] with the loading of a mold with . . . uncured rubber and ending with the eventual opening of the press at the conclusion of the cure.  Industrial processes such as this are the type which have historically been eligible to receive the protection of our patent laws.”[lxxxv]

Consequently, under the reasoning of Diehr, the fact that a method claim incorporates a mathematical algorithm is not fatal to patentability as long as it is applied to a process that transforms a thing to a different state of being or requires some kind of a machine to carry out.  This principle became the “Machine or Transformation Test.”  Justice Stevens vigorously dissented, arguing that the majority misinterpreted his earlier opinion in Flook[lxxxvi] and contended Diehr’s third step was the same type of “post solution activity” that failed to make Flook’s method patentable subject matter.[lxxxvii]

The Federal Circuit struggled for years to apply the principles of Gottschalk, Flook, and Diehr in cases involving claims to software and business methods.  State Street Bank & Trust Co. v. Signature Financial Group involved “a data processing system . . . for implementing an investment structure which was developed for use in . . .  business as an administrator and accounting agent for mutual funds.”[lxxxviii]  The patent claimed a business method for pooling the assets of mutual funds into an investment portfolio organized as a partnership.[lxxxix]  In an opinion by Judge Rich, a Federal Circuit panel reversed a district court ruling finding the patent did not fall into a class of patentable subject matter under 35 U.S.C. § 101.[xc]  While recalling the prohibition against patenting disembodied abstract mathematical algorithms as stated by the Supreme Court in Gottschalk, Flook, and Diehr,[xci] the panel held prior Federal Circuit precedent permitted the patenting of algorithms applied in useful ways to method claims.[xcii]  The court determined the data processing system was patentable because “the transformation of data . . . by a machine through a series of mathematical calculations . . . constitutes a practical application of a mathematical algorithm . . . because it produces ‘a useful, concrete and tangible result.’”[xciii]  This revelation, that an abstract or scientific principle only need be applied usefully under 35 U.S.C. § 101, was used by Metabolite in Lab. Corp. to argue that the diagnostic was patentable subject matter as it produced a useful, concrete, and tangible result: detection of B12 or folate deficiency.[xciv]  However, Justice Breyer dismissed this argument in his dissent, remarking that while State Street “does say that a process is patentable if it produces a ‘useful, concrete and tangible result’. . . this Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary.”[xcv]  Therefore, Breyer’s dissent in Lab. Corp. left patentees uncertain about not only the validity of correlative diagnostic patents, but also unsure of the continuing validity of the Federal Circuit’s holding in State Street.  The stage for the next battle was set in motion when a gas utility employee from Pittsburgh, Pennsylvania named Bernard Bilski filed an application with the PTO in April of 1997.[xcvi]

B.     In re Bilski: the Federal Circuit Decides to “Put Up or Shut Up.”

Bilski’s patent application claimed a method for hedging risks in the trading of various commodities.[xcvii]  Essentially, the method consisted of (1) initiating a series of sales between a broker and a purchaser where the purchaser buys the commodity at a fixed rate based on historical prices, (2) identifying the sellers or producers of the commodity, and (3) initiating a series of sales between the broker and the sellers/producers of the commodity at another fixed rate, so that the seller’s and purchaser’s respective risk balance one another.[xcviii]  In Bilski, the applicant was appealing a previous Board of Patent Appeals and Interferences decision rejecting the application as outside the scope of patentable subject matter under 35 U.S.C. § 101.[xcix]  Following initial oral arguments but before final disposition of the case, the Federal Circuit, sua sponte, ordered en banc review and new oral arguments were heard on May 8, 2008.[c]

The court began by characterizing Bilski’s claims as to a “process” and then defining a patentable “process” to exclude all “laws of nature, natural phenomena, [or] abstract ideas.”[ci]  Next, the majority portrayed the “true issue[s]” in the case as whether or not Bilski sought “to claim a fundamental principle (such as an abstract idea) or a mental process” and to identify what test courts should use to differentiate between fundamental principles and patentable processes under 35 U.S.C. § 101.[cii]  In defining the nature of the test, the court looked back to the principles elucidated by the Supreme Court in Gottschalk, Flook, and Diehr, and concluded the Machine or Transformation Test had always been the threshold inquiry for the determination of patentable subject matter: “A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”[ciii]  In doing so, the Federal Circuit proclaimed the Machine or Transformation Test to be the sole test for patentability of processes under § 101 and disavowed any other measuring stick for these types of claims.[civ]  The court determined the claimed process at issue in Gottschalk was not, in fact, limited to computers (a machine) because the claimed algorithm was only useful in the context of computers and thus the applicant sought to preempt all uses of that algorithm (a fundamental principle).[cv]  Similarly, in Flook, the majority characterized the alarm limit calculation claim as unpatentable because it was neither tied to an apparatus or machine nor did it transform any matter from one state to another.[cvi]  Finally, the court differentiated Diehr as passing both requirements of the Machine or Transformation Test as the claimed process at issue in that case was (1) tied to the rubber curing machine and (2) resulted in the transformation of rubber from an uncured to a cured state.[cvii]

In affirming the primacy of the Machine or Transformation Test, the court had to deal with its earlier opinions in State Street and Alappat.  The en banc panel noted that while “a process tied to a particular machine, or transforming or reducing a particular article into a different state or thing, will generally produce a ‘concrete’ and ‘tangible’ result . . . that inquiry is insufficient to determine whether a claim is patent-eligible under § 101.”[cviii]  However, while certainly gutting the underlying rationale of the State Street decision, the Bilski court refused to completely overrule it and intimated that a business method may still be patentable subject matter if it conforms to the Machine or Transformation Test.  This decision drew a vehement dissent from Judge Mayer who characterized State Street as having “led us down the wrong path” in approving the patentability of any business method at all.[cix]  Turning to the merits, the court determined in a 9-3 ruling that, while arguably useful, Bilski’s claimed method was neither tied to a machine nor resulted in the transformation of matter from one state to another and hence was unpatentable subject matter under the Machine or Transformation Test.[cx]  Specifically, the majority noted:

“[T]he process as claimed encompasses the exchange of only options, which are simply legal rights to purchase some commodity at a given price in a given time period.  The claim only refers to “transactions” involving the exchange of these legal rights at a “fixed rate corresponding to a risk position.” Thus, claim 1 does not involve the transformation of any physical object or substance, or an electronic signal representative of any physical object or substance.  Given its admitted failure to meet the machine implementation part of the test as well, the claim entirely fails the machine-or-transformation test and is not drawn to patent-eligible subject matter.”[cxi]

Following the en banc court’s rejection of his application, Bilski petitioned the Supreme Court, which granted certiorari on June 1, 2009.[cxii]

It is important to put the Federal Circuit’s decision in Bilski into context.  Over the past few years, in several high profile cases, the Supreme Court made a habit of repudiating the Federal Circuit’s patent jurisprudence as straying too far from Supreme Court precedent.  This was vividly demonstrated in decisions such as eBay Inc. v. MercExchange, L.L.C., where a unanimous Supreme Court determined the Federal Circuit’s practice of automatically issuing an injunction following a finding of patent infringement was not in conformity with the Court’s traditional four-factor test.[cxiii]  Additionally, in KSR Int’l Co. v. Teleflex, Inc., the Court unanimously ruled the Federal Circuit was applying its Teaching, Suggestion, and Motivation Test for the determination of obviousness under 35 U.S.C. §103 too rigidly based on the Court’s prior decisions.[cxiv]  An appreciation of this context places the majority’s close reliance on the rationale of Gottschalk, Flook, and Diehr in declaring the Machine or Transformation Test to be the sole threshold inquiry under §101 into perspective.  Additionally, Justice Breyer’s thinly veiled criticism of State Street’s “useful, concrete, or tangible result” language in Lab. Corp. may have helped push the majority to disavowal adherence to that principle in determining patentable subject matter for processes.[cxv]  In fact, the Bilski majority opinion specifically mentions Lab. Corp. and characterizes the claim in that case as “similar” to Bilski’s in that both “claim a non-transformative process that encompasses a purely mental process of performing requisite mathematical calculations without the aid of a computer or any other device.”[cxvi]  If the Supreme Court affirms the Federal Circuit’s decision in Bilski, it will signal a seismic shift in the types of patents the PTO will grant while simultaneously calling into question the validity of hundreds of business method, medical diagnostic, and personalized medicine patents.

C.     How Are Medical Diagnostic Method Patent Claims Currently Written?

As discussed, supra, restriction of patentable processes to subject matter conforming to the Bilski Court’s Machine or Transformation Test may particularly impact diagnostic and personalized medicine method patents.  While it is possible the Supreme Court will limit the reach of Bilski and restrict it to business methods, it seems just as likely that processes neither tied to a machine nor able to change matter from one physical state to another will survive a broad general affirmation.  The likelihood that these types of method patents will be declared invalid is particularly probable given that both the majority en banc Federal Circuit and Justice Breyer in his Lab. Corp. dissent seem to have serious reservations about the continued validity of methods like Metabolite’s claim 13 for detecting B12 and folate deficiencies.[cxvii]  Given this prospect, an analysis of issued diagnostic and personalized medicine method patents was conducted in order to get a general idea of the scope and nature of the effect that an affirmation of Bilski might have as well as to give patent agents and attorneys a better understanding as to how these types of claims are currently written.[cxviii]

Clear patterns emerge in the construction of claims written for diagnostic and personalized medicine.  All issued patents fell into one of four categories.  The first category (I), was termed “Lab. Corp. claims” due to similarity to claim 13 at issue in Lab. Corp v. Metabolite, Inc..  Essentially, these claims (1) test or assay a biomarker in a fluid or a tissue via a method that is well known in the art and then (2) correlate the results of that test/assay with a known standard to diagnose the pathology in question.  Among the claims examined, 53% fell into this classification.[cxix]  The second category (II) of diagnostic and personalized medicine claims, called “biomarker identification,” included methods where an assay identifies a particular biomarker in a sample.  The mere presence of the biomarker is indicative of disease.  Among the claims examined, 23% fell into this classification.[cxx]  The third category (III) had two independent claims in each instance. (1) The first claimed a computer-based system that a user trained to diagnose a disease state by inputting reference values for one or more biomarkers from a test population having subpopulations known to suffer from the diseases(s) in question.  (2) A second independent claim was directed towards the method of using the system from the first independent claim to diagnose the disease.  Of the claims examined, 15% fell into this category.[cxxi]  Finally, the remaining 7% of these patent claims (IV) did not cleanly fall into any of the above three categories.

D.     Summary of the Current Patentability of Diagnostic and Personalized Medicine Method Claims.

Evident from the analysis, supra, is the high percentage of claims (75%) appearing to fail the Machine or Transformation Test elucidated in Bilski.  They all claim the measurement of biological samples via generalized and non-patented assays and biological techniques.  Additionally, all of the claims in categories I and II appear to simply correlate the results of the measurement step with either a diagnostic standard (I) or the presence or absence of the biomarker itself (II) to determine the presence or absence of disease.  None of the generalized claims of categories I or II appear to require the presence or operation of a machine or apparatus or result in the transformation of matter from one state to another.  Rather, all of the claims in these two categories appear to claim a natural principle: the fact that certain biomarkers in human physiology either tend to modulate relative to known standards (I) or tend to disappear or appear in response to certain pathologies (II).  These facts of nature have always existed independent of their later discoveries by scientists.  These relationships are not “anything under the sun made by man” and it is difficult to see how they would fall into a classification of patentable subject matter under 35 U.S.C. § 101 if Bilski is affirmed.[cxxii]

On the other hand, those diagnostic claims utilizing the form of category III seem to require a machine for their function.  Teaching a computer to recognize diagnostic markers in populations and then using that computer to recognize the probability of disease in individuals because of that teaching arguably conforms to the Machine or Transformation Test.  Such diagnostic method claims may well survive a broad Supreme Court affirmation of Bilski.  Given this probability, it may be in the interest of patent agents and attorneys to try to incorporate such computer-based methods into at least one of their patent claims for diagnostic and personalized medicine methods so as to meet the requirements of §101 as interpreted by the Machine or Transformation Test.

Some argue, in spite of the historical development of 35 U.S.C. § 101 and the reluctance to grant patents covering natural principles, judicial interpretation can successfully bend § 101’s language to accommodate medical diagnostic and personalized medicine methods.  A proponent of this is Judge Rader of the Federal Circuit, who in his Bilski dissent criticized both Breyer’s “oft-discussed” dissent in Lab. Corp. and the Bilski majority’s reliance upon it by noting:

“[t]he fundamental error in that Lab Corp. dissent is its failure to recognize the difference between a patent ineligible relationship—i.e., that between high homocysteine levels and folate and cobalamin [vitamin B12] deficiencies—and a patent eligible process for applying that relationship to achieve a useful, tangible, and concrete result—i.e., diagnosis of potentially fatal conditions in patients.  Nothing abstract here.  Moreover, testing blood for a dangerous condition is not a natural phenomenon, but a human invention.  The distinction is simple but critical: A patient may suffer from the unpatentable phenomenon of nature, namely high homocysteine levels and low folate.  But the invention does not attempt to claim that natural phenomenon.  Instead the patent claims a process for assaying a patient’s blood and then analyzing the results with a new process that detects the life-threatening condition.  Moreover, the sick patient does not practice the patented invention.  Instead the patent covers a process for testing blood that produces a useful, concrete, and tangible result: incontrovertible diagnostic evidence to save lives.”[cxxiii]

With all due respect to Judge Rader, it is he who commits a “fundamental error,” not for the incorrect recognition of “the difference between a patent ineligible relationship . . . and a patent eligible process for applying that relationship” but for failing to recognize that, in the method at issue in Lab. Corp., the patent ineligible relationship was one in the same with the process for applying that relationship.[cxxiv]  The previously utilized example of Einstein’s Theory of Relativity is instructive.  The fact that energy (E) is equal to the mass of an object (m) times the speed of light (c) squared is a natural principle of physics, a fundamental law of nature that has always existed.  The fact that serum homocysteine levels increase with Vitamin B12 and folate deficiencies is a natural principle of physiology, a fundamental law of human metabolism that has existed probably from the time humans evolved into omnivores.  While it is true that “testing blood for a dangerous condition is not a natural phenomenon, but a human invention,” so too is it true that weighing an object to determine its mass (as in the “m” in E = mc²) is not a natural phenomenon, but a human invention.[cxxv]  The problem with Rader’s logic is that, in performing the “process for assaying a patient’s blood and then analyzing the results with a new process that detects the life-threatening condition” a user simply applies the law of nature to a specific circumstance (i.e. that of the individual being tested).[cxxvi]  Einstein’s theory does not become a patentable method simply because I claim use of the relationship by measuring the mass of a chair any more than if I perform it measuring the mass of an atom of hydrogen.  In both cases I am simply restating the general natural principle but have substituted the mass of a real-world “thing” in the place of the variable “m.”  So too in Lab. Corp., analyzing a patient’s blood by a non-patentable technique (like weighing the mass of something in the Einstein example) and then plugging that variable into the equation (high serum homocysteine = vitamin deficiency) is merely use of the natural principle to illustrate the natural principle.  They are one in the same.

This fact illustrates why the majority abandoned the “useful, concrete, and tangible result” language of State Street.[cxxvii]  It was far too broad to keep natural principles out of patentable subject matter.  As discussed infra, while there may be compelling public policy reasons to permit patents on these types of method claims, the static and relatively unchanging nature of the language of § 101 and interpretation of it by the courts, for better or for worse, simply will not permit this subject matter to pass the first hurdle for patentability.

IV. Should Diagnostic and Personalized Medicine Methods be Patentable Subject Matter?

As discussed, it is difficult to argue the statutory language and historical judicial interpretation of 35 U.S.C. § 101 permit the patenting of personalized medicine and general medical diagnostic method claims.  Nevertheless, it is the purpose of this Note to argue granting these types of patents is not only in the public interest but critical for the advancement of medical science.  Judge Rader, while not convincing in his argument that the language of § 101 permits patenting of medical diagnostics like the one in Lab. Corp., supra, nevertheless fully grasps the public policy implications of that lack of protection in his Bilski dissent.  Rader accuses both the Bilski majority and Justice Breyer’s Lab. Corp. dissent of “avoid[ing] the same fundamental question . . . : Is this entire field of subject matter undeserving of incentives for invention? If so, why?”[cxxviii]  Judge Radar concisely notes that without the incentive of patent protection, the diagnostic test at issue in Lab. Corp. might still be unknown and people who develop vitamin B12 and folate deficiencies might still be subject to potentially life threatening medical conditions.[cxxix]  From a policy perspective, therefore, the problem with the Bilski majority and the dissent in Lab. Corp. is that if interpreted broadly they leave such critical medical advances unprotected and disincentivized “precisely because of [their] elegance and simplicity (the chief aims of all good science).” [cxxx]  This development threatens to inadvertently direct investor money away from the discovery of basic scientific relationships, like that of homocysteine relative to B12 deficiencies, that have a tangible and real impact on the lives of the public for earlier, cheaper, and more efficient diagnosis of “breast cancer or Lou Gehrig’s disease or Parkinson’s or whatever.”[cxxxi]  It is the antithesis of the Constitutional mandate “[t]o promote the progress of science and useful arts.”[cxxxii]

Similarly, in her dissent from the majority decision in Bilski, Judge Newman notes “the full reach of today’s change of law is not clear . . . Uncertainty is the enemy of innovation. These new uncertainties not only diminish the incentives available to new enterprise, but disrupt the settled expectations of those who relied on the law as it existed.”[cxxxiii]  Newman further characterized the majority’s ruling as “backward-looking” and a threat to the development of the economically critical, “rapidly moving[,] and commercially vibrant fields of the Information Age.”[cxxxiv]  It is this threat to innovation, not just for the computer/software sector but also for the development of new diagnostic and personalized medicine, which should be making policy experts and lawmakers nervous, not just for economic impact but for public health as well.  The medical story of the early twentieth century was the essential eradication and prevention of communicable and, for the most part, early childhood diseases like polio, smallpox, measles, mumps, rubella, and tuberculosis.  This had a huge effect on both human life expectancy and infant mortality in the United States and throughout the industrialized world.[cxxxv]  Since more Americans are living longer relative to a century ago, it is now even more critical to develop quick, inexpensive, and basic diagnostic tools to catch conditions like cancer, heart disease, and diabetes early and at a stage where mortality rates are low with rapid and effective treatment.  This absolutely vital need will be stymied and delayed without the full weight of the patent system behind it.  Unfortunately, Bilski threatens to serve as an obstacle to this public health necessity, and either the Court or the Congress should prevent this from happening.

Some argue granting patents to these types of natural relationships will impede rather than encourage the development of new medical diagnostics and require patients to pay more to get the newest cutting edge diagnoses.  For these individuals, no one should be forced to pay a licensing fee to find out whether or not they have a disease.  The ACLU recently adopted this view and is currently participating in a lawsuit in the Southern District of New York to invalidate Myriad Genetic’s patented test for genetic susceptibility to breast cancer via inherited mutations in the human BRCA1 and BRCA2 genes.[cxxxvi]  Additionally, these critics argue that granting patents on diagnostics such as the one in Lab. Corp. or Myriad’s breast cancer test inhibits the developments of new technologies that will improve on the original tests.

Aside from the ACLU’s unsubstantiated accusation that companies like Myriad are “patent[ing] DNA,” these arguments do not stand up under legal or public policy analysis.[cxxxvii]  First, while it is true those wishing to use Metabolite or Myriad’s test must pay a license fee for the right to do so, critics tend to overlook the fact that this is the point of the patent system.  The Constitution clearly says the goal is to encourage progress in the sciences by securing for inventors “for limited times” the exclusive rights to their inventions.[cxxxviii]  The operative word here is “limited.”  Metabolite and Myriad’s patents are not going to last forever.  When they expire, anyone will be able to use the method as cheaply as possible.  What critics like the ACLU and the Association for Molecular Pathology miss is the fact that without the incentive of a patent, we might not currently have any way to easily diagnosis vitamin B12 and folate deficiencies or predict the likelihood of developing breast and ovarian cancer.  Critics should keep in mind that Myriad and the inventors of the test at issue in Lab. Corp. spent millions developing their diagnostic tools.  It is unreasonable to suggest that they should be deprived of their ability to recoup that investment through a temporally-limited and constitutionally-mandated mechanism simply because the subject matter of the patent is a relationship between biological factors and a disease state.  Certainly, no one would suggest that a method to diagnose cancer utilizing a new type of ultrasound machine is unpatentable subject matter because it involves identifying a biological factor (a tumor) and comparing its presence to the existence or absence of a disease state (cancer).  Why is one patentable and the other not merely because the ultrasound example conforms to some arbitrary “Machine or Transformation Test?”  Second, the notion that granting patents on these types of relationships impedes the improvement of these methods naively assumes that the diagnostic relationships at issue are the only way to achieve the diagnosis.  Perhaps some other blood factor, besides homocysteine, indicates the presence of vitamin B12 or folate deficiency.  Perhaps another DNA sequence or other biomarker, other than inherited mutations in BRCA 1 or 2, indicate a higher probability of developing breast cancer.  Patents on these relationships will not impede but rather encourage the development of new and better diagnostic and personalized medical tests as inventors attempt to design around already patented methods.  It is similar to assuming that the only way to improve transportation at the end of the nineteenth century was to make improvements on the steam engine while completely discounting the possibility that something like the internal combustion engine might be “out there.”  Therefore, what follows are a couple of suggestions to ensure these types of medical methods remain patentable subject matter.

A.     The Supreme Court Should Limit the Reach of the Bilski “Machine or          Transformation Test” to Restrict Only Business Method Patentability.

In the Patent and Copyright Clause of the Constitution, the Framers resolved that the goal of the U.S. patent system should be towards the “promot[ion of] the progress of science and the useful arts.”[cxxxix]  From the time of the late 18^th Century and the writing of the Constitution, the term “useful arts” has evolved into what we now commonly refer to as “technology.”[cxl]  In his dissenting opinion in Bilski, Judge Mayer notes that “by mandating that patents advance the useful arts, “[t]he Constitution explicitly limited patentability to . . . ‘the process today called technological innovation.’”[cxli]  Further, “the Supreme Court has repeatedly emphasized what renders subject matter patentable is ‘the application of the law of nature to a new and useful end.’”[cxlii]  Mayer further argues “[m]ethods of doing business do not apply ‘the law of nature to a new and useful end.’ Because the innovative aspect of such methods is an entrepreneurial rather than a technological one, they should be deemed ineligible for patent protection.”[cxliii]  Consequently, Judge Mayer believes methods directed to social sciences such as economics, business, sociology, and psychology should be barred from patentability while at the same time new ways to apply natural principles should be granted patent protection.

The Supreme Court should follow the reasoning of Judge Mayer and affirm the Machine or Transformation Test in Bilski only to the extent that it renders business methods and other patents directed to the social sciences ineligible subject matter under 35 U.S.C § 101.  A broad affirmation of the test with applicability to all method claims will not only throw the medical diagnostic and personalized medicine industries into chaos, but will reach into other areas vital to the economy as well, such as software and other computer-related technologies.  Investors have relied on the patentability of these technologies and many small biotechnology companies could be wiped out overnight with an opinion that puts their main assets, i.e. their intellectual property, at risk for invalidity.  Unlike Justice Breyer’s dissent in Lab. Corp. and the majority en banc opinion in Bilski, the Supreme Court should carefully consider just how an affirmation of Bilski will effect what is essentially the last vibrant sector of the already troubled American economy and limit its reach accordingly.

A recent case decided by the Federal Circuit, Prometheus Laboratories, Inc. v. Mayo Collaborative Services, seems to show the Federal Circuit wrestling with the Machine or Transformation Test in the context of medical diagnostic and personalized medicine patents.[cxliv]  In Prometheus, one of the claims at issue was for a method of determining drug metabolite concentrations in a patient following drug administration and using that data to adjust drug dosage to optimize efficacy and evade toxic side effects.[cxlv]  One thing readily apparent about claim 1 in Prometheus is its similarity to Metabolite’s claim 13 in Lab. Corp.  Both claims involve (1) determining the quantity of a single chemical in a bodily fluid and (2) using information about that chemical to deduce information about a different chemical in the bodily fluid.[cxlvi]  In a decision no doubt bringing joy to nervous diagnostic biotechnology companies in the wake of Bilski, the Federal Circuit found that both the “administering the drug” and “determining the level” steps of the claimed method passed Machine or Transformation Test muster.[cxlvii]  The result of Prometheus, therefore, seems to indicate the Federal Circuit’s willingness to separate out business method claims from personalized medicine/diagnostic claims and give the latter their figurative stamp of approval in line with Judge Mayer’s dissent in Bilski.[cxlviii]  However, in spite of this apparent good news for the biotech industry, several important questions remain.  Will the Supreme Court recognize the distinction between business methods and medical diagnostic patents that the Federal Circuit seems to see in the claims at issue in Bilski and Prometheus?  Alternatively, will the Court broadly affirm the Machine or Transformation Test, subsequently leaving little room for diagnostic and personalized medicine claims?  How will the full Court address Justice Breyer’s dissent in Lab. Corp.?  Given Justice Souter’s recent retirement and the question mark that new Justice Sotomayor represents when it comes to patent issues, will Breyer’s reasoning hold sway or will the conservatives on the Court rule differently?  Finally, even if Bilski is affirmed, will the Supreme Court nevertheless grant certiorari in Prometheus so that it can decide the issue of diagnostic/personalized medicine patents directly and once and for all?

B.     Congress Should Consider Creating a New Statutory Classification for the     Protection of Diagnostic and Personalized Medicine Patents.

The Supreme Court emphasizes lower courts “must proceed cautiously when . . . asked to extend patent rights into areas wholly unforeseen by Congress.”[cxlix]  As detailed, supra, the words of the Patent Act, with regard to patentable subject matter, are essentially identical to the words approved by Congress in 1790.[cl]  Therefore, it is safe to assume that the first Congress did not “foresee” the importance of medical diagnostic and personalized medicine methods given the primitive state of medical knowledge at the time.[cli]  Given this fact, Congress should amend the Patent Act to protect these important types of methods and to encourage individuals to pursue discovery of diagnostic relationships.  Alternatively, Congress could create a separate classification of patent for diagnostic and personalized medicine.  Such a move would not be unprecedented.  Prior to 1930, it was generally believed that plants were patent-ineligible subject matter because they were living things.[clii]  When Congress passed the Townsend-Purnell Plant Patent Act in 1930, the United States became the first country to provide patent protection for plants.[cliii]  The Constitution gives Congress sweeping authority to define patentable subject matter.  It is in the public interest to encourage these types of patents to improve the health and lives of the citizenry.

A new patent regime for diagnostic and personalized medicine could also help relieve some of the fears of those opposed to granting property rights in these types of discoveries.  The new system could limit the time-period of the patent grant, making it shorter than the 20 years given utility patents as is the case with the 14-year period granted for design patents.[cliv]  Additionally, rather than starting the patent grant clock ticking on the date of application, this new regime could defer this until after a regulatory agency, such as the FDA, approves the diagnostic or personalized medical procedure for human use.  Therefore, investors in these types of technologies will know exactly how long they have to recoup their investments, even if this is a shorter period than a regular utility grant.  A system such as this would maintain innovation and investment into these types of life-saving technologies as well as facilitate faster movement into the public domain.

V. Conclusion

Medical diagnostic and personalized medicine patents have a long and contentious history in the PTO and with the courts.  Thomas Jefferson’s original Patent Act language survives today essentially unchanged from the time he penned it almost two and a quarter centuries ago.  This text and the manner courts have interpreted it throughout the centuries seem to leave little room for the patentability of these technologies under 35 U.S.C. § 101.  This is especially true in the wake of the Federal Circuit’s en banc decision in In re Bilski and Justice Breyer’s dissent in Lab. Corp.  How the Supreme Court will rule in Bilski is anybody’s guess.  However, if the Court decides to affirm, it should carefully distinguish the patentability of diagnostic and personalized medicine patents of the type at issue in Lab. Corp. and Prometheus from the business methods at issue in Bilski and State Street Bank.  Alternatively, Congress should entertain extending special protection to these types of patents, as their continued existence is critical for the economy, public health, and quality of life in the United States.

Case notes concerning Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co. 560 F.3d 1366 (Fed. Cir. 2009) and Wyeth v. Diana Levine 129 S.Ct 1187 (2009)

—- F.3d ——, 2009 WL 877642, C.A.Fed. (Mass.), April 03, 2009 (NO. 2008-1248)

I. STATEMENT OF THE FACTS

Defendant-Appellant Eli Lilly and Company (“Lilly”) appeals the district court’s ruling that the patent at issue was both valid and infringed by two of Lilly’s pharmaceuticals.  Plaintiff-Appellee Ariad Pharmaceuticals, Inc. (“Ariad”) held a patent which claimed a method of artificially reducing the activity of NF-KB, a DNA transcription factor (the patent did not claim any molecules which achieved the claimed reduction).  Lilly argued that the patent was invalid for anticipation, lack of enablement, or lack of written description.  Lilly also argued that the patent was unenforceable due to Ariad’s inequitable conduct.  The jury determined that the patent was valid and infringed by Lilly’s drugs, and that Ariad had not been guilty of inequitable conduct.

II. HOLDING

The Federal Circuit reversed, holding that the jury lacked substantial evidence to support a determination of adequate written description.  Thus, the patent was invalid.  The court upheld the district court’s finding of no inequitable conduct.

III. REASONING

Ariad argued that because it did not claim any molecules that could reduce NF-KB activity, its written description could not be held invalid for failure to designate specific molecules which would effectuate the method (the description mentioned three vague classes of molecules as possibilities).  The court disagreed, holding that Ariad must describe some way of performing the claimed method to establish possession.  Ariad argued that one of ordinary skill in the art could have performed the method given the suggested categories of molecules.  However, at trial, the jury had determined an early effective filing date for the patent, rendering much of the evidence Ariad cited to establish the level of skill of an ordinary practitioner unavailable, having been published after the effective filing date.  Because the inventors of the patent had discovered NF-KB, the court found, one of ordinary skill in the art at that time was, at best, ‘ignorant’.  Therefore, the scope of the asserted claims went far beyond the disclosure provided in the specification.

In a concurring opinion, Judge Linn reasserted his disagreement with the Federal Circuit’s current doctrine which requires a separate written description above and beyond the claims.  The separate requirement, he argues, has generally caused confusion over what actually defines the scope of the claim.  Judge Linn criticized the court for deciding the case on the written description element, as it foreclosed analysis of the important issue of enablement of broad claims.

IV. RECENT COMMENTARY

Judge Linn’s concurring opinion questions the value of a separate written description requirement in analyzing patent validity.  Kevin Noonan believes that the requirement aligns patent law with its constitutional mandate, which requires that patents be granted only if they “promote the progress” of the useful arts.  He argues that requiring a separate written description prevents patentees from over-claiming, and prevents patent claims from becoming invitations to research, rather than fully enabling the invention. (Kevin Noonan, Ariad Decision Voids Attempts to Use Broad Claiming to Avoid the Written Description Requirement, Patent Docs, Apr. 14, 2009, http://www.patentdocs.org/2009/04/ariad-decision-voids-attempt-to-use -broad-claiming-to-avoid-the-written-description-requirement.html).  On the other hand, as Andrew Williams points out, the requirement of a separate written description left unresolved the question of whether a claim encompassing any method to achieve a particular result could ever be valid.  (Andrew Williams, Ariad Pharmaceuticals, Inc. v. Eli Lilly and Co., Patent Docs, Apr. 6, 2009, http:// www.patentdocs.org/2009/04/ariad-pharmaceuticals-inc-v-eli-lilly-and-co-fed-cir-2009.html).

Wyeth v. Diana Levine

129 S.Ct. 1187  (March 4, 2009)

I. STATEMENT OF THE FACTS

Plaintiff-respondent Levine sued defendant-appellant Wyeth in Vermont state court under strict liability and negligence standards.  Levine had received treatment for symptoms of nausea, including Wyeth’s drug Phenergan, an antihistamine.  The drug was known to cause gangrene when injected into a patient’s arteries.  Gangrene caused by the drug necessitated the amputation of Levine’s arm.  Levine alleged that the drug’s labeling had failed to adequately warn of the risks of ’’administering the drug via IV-Push.  Wyeth argued that Levine’s claims were preempted by Food and Drug Administration (FDA) regulations governing labeling requirements.  At trial, the jury found Wyeth negligent and Phenergan defective as a result of inadequate warnings and instructions, and awarded damages.  The trial judge rejected Wyeth’s preemption defenses, a ruling later upheld by the Vermont Supreme Court.

II. HOLDING

A majority of the Supreme Court affirmed, holding that FDA’s drug labeling regulatory regime did not preempt state law tort claims involving questions of inadequate labeling, in an opinion by Justice Stevens, joined by Justices Kennedy, Souter, Ginsburg and Breyer.  Justice Breyer filed a concurring opinion.  Justice Thomas concurred in the judgment.  Justice Alito dissented, joined by Chief Justice Roberts and Justice Scalia.

III. REASONING

The majority declined to debate the merits of the state ’tort claim, and addressed only Wyeth’s preemption claims.  It noted generally that preemption of state law does not lie unless Congress clearly intended such preemption.  It first dismissed Wyeth’s argument that it was impossible to comply with both federal labeling duties and the state law duties imposed here.  Wyeth argued that it was barred from proposing labeling changes by FDA regulations unless it possessed ‘new information’ about the drug’s safety.  However, the majority found that Wyeth was permitted to change it’s labeling without prior FDA approval. Furthermore, under FDA regulations, the manufacturer retains primary responsibility over labeling, not the FDA.  Regarding Wyeth’s argument that requiring it to comply with state tort law duties would obstruct the purposes and objectives of federal drug labeling regulation, the majority found that Congress had never explicitly preempted state law claims, and had implicitly preserved state court remedies over a long period of time and several statutory amendments.  Wyeth’s strongest argument hinged on a recent (2006) preamble to a FDA regulation governing prescription drug labels, which opined that state law judgments threaten the FDA’s role as the expert agency responsible for regulating drugs.  However, the majority held that no deference was owed to this statement, because it was only contained in a preamble, because the rule’s validity was in question given procedural failures in its promulgation, and because it was contrary to the intent of Congress.

Justice Breyer concurred, emphasizing that pre-emption might apply in some circumstances, given that the FDA had some authority consistent with its statutory mandate to comment on or define the preemptive scope of its regulations.

Justice Thomas concurred in the judgment, arguing that the Supreme Court’s jurisprudence on “‘purposes and objectives”‘ preemption was not consistent with the Constitution.  He would severely restrict the power of the courts to find implied preemption, because it often results in the unconstitutional invalidation of state laws, and is premised on dubious guessing as to Congress’ intent.

Justice Alito would have held the state tort law claims preempted, because no state should be able to countermand the FDA’s determination of drug safety.  Such action upsets the careful regulatory balance already determined by Congress and the federal agency.  Because the FDA had considered Phenergan’s labeling in light of the known risks, and because the labeling had provided adequate warning of those risks, state court adjudication of labeling requirements should be barred.  Finally, juries were ill-equipped to adequately replicate the FDA’s cost-benefit analysis.

IV. RECENT COMMENTARY

The Levine decision will exact sweeping changes in pharmaceutical company drug applications and regulation.  Jim Beck and Mark Herrmann point out that Levine makes preemption much more unlikely, though not impossible.  They note that the Court declined to require formal rulemaking as a prerequisite to preemption, and that an express rejection of a proposed warning label would probably suffice. (Jim Beck and Mark Herrmann, Wyeth v. Levine – First Real Thoughts, Drug and Device Law, Mar. 4, 2009, http://druganddevicelaw.blogspot.com/2009/03/wyeth-v-levine-first-real-thoughts.html).  However, this begs the question as to how precise the rejection must be.  Anthony Sebok sees two possible rules: either the court requires that the FDA expressly rejects the exact warning whose absence created liability, or the court requires only that the FDA rejects the reasoning behind a proposed warning.  (Anthony Sebok, The Day after Levine: Analyzing the Supreme Court’s Recent Ruling that FDA Approval of Label Warnings Does Not Preempt State Tort Law, FindLaw, Mar. 17, 2009, http://writ.news. findlaw.com/sebok/20090317.html).  The former rule would multiply FDA workload and require companies to try to predict sources of litigation, while the latter would require that these companies establish a clear record upon which a court could find that their reasons for a warning had been rejected.  Either way, as Craig Wylie points out, these firms will face increased risks of litigation, and they ought to ensure strict oversight of regulatory compliance at every step of production.  (Craig Wylie, Wyeth v. Levine: Disrupting the labeling process, PharmExecBlog, Apr. 1, 2009, http://blog.pharmexec.com/ 2009/04/01/wyeth-v-levine-disrupting-the-labeling-process/).

545 F.3d 943, 88 U.S.P.Q.2D (BNA) 1385 (Fed. Cir. 2008)

I.     STATEMENT OF THE FACTS

Petitioner Bernard L. Bilski (“Bilski”) filed for a patent on 10 April 1997 for a method of hedging risks in commodity trading.  Essentially, the application claimed a method comprised of: (1) initiating a series of options transactions with commodity purchasers at a fixed rate based on historical price levels; (2) identifying sellers of the commodity; (3) initiating a series of options transactions with commodity sellers at a second fixed rate, such that the risk positions of the purchasers and sellers balances out.  The PTO rejected all 11 claims because “the invention is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts.”  Ex parte Bernard L. Bilski and Rand A. Warsaw, Appeal No. 2002-2257, Before the Board of Patent Appeals and Interferences (Mar. 8th 2006).  Bilski appealed to the Board of Patent Appeals and Interferences (“BPAI”), which affirmed the finding of the examiner on different grounds.  The BPAI concluded that Bilski’s claims did not involve any patent-eligible transformation, and did not produce a “useful, concrete and tangible result.”  Id.  Bilski appealed to the Federal Circuit, which then reheard the matter en banc.

II.   HOLDING

The court upheld the rejection, 9-3.  It found that Bilski’s method was patent-ineligible because it did not “transform any article to a different state or thing.”  It rejected all other tests for patent-eligibility, relying solely on the machine-or-transformation test.

III.  REASONING

Specifically, the court found (1) Bilski did not argue that the method was tied to a particular machine, so it did not reach the machine-implementation branch of the test, and (2) legal obligations and business risks “cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.”  545 F.3d 943, 963 (Fed. Cir. 2008).

The court examined Supreme Court and Federal Circuit precedent leading up to Bilski that bore on patent-eligibility.  It stated that the trilogy of cases (Benson, Flook, Diehr) supported a legal test that requires that “A claimed process is surely patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” Id. at 954.

The court then decided whether or not the preceding test is the only test for patent-eligibility, answering that question in the affirmative.  It did point out two caveats to the machine-or-transformation test: “(1) mere field-of-use limitations are generally insufficient to render an otherwise ineligible process claim patent-eligible; (2) insignificant postsolution activity will not transform an unpatentable principle into a patentable process.”  Id. at 957

The court then said that the “useful, concrete, and tangible result” test espoused in State Street Bank v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998) is inadequate, relying on Justice Breyer’s dissent from the dismissal of certiorari in Laboratory Corp. of Am. Holdings v. Metabolite Labs., Inc., 548 U.S. 124, 136-37 (2006).  However, the court did not expressly hold that State Street should be overruled.  It only dropped a footnote stating that ”those portions of our opinions in State Street and AT&T relying solely on a ‘useful, concrete and tangible result’ analysis should no longer be relied on.”  545 F.3d 943 at 959 n.17.

IV.  OBSERVATIONS

At first glance, the Federal Circuit’s categorical rejection of the “useful, concrete, and tangible result” test announced in State Street in favor of the machine-or-transformation test for patent-eligible subject matter could be seen as the death knell for business method and software patents.  If the Court upholds Bilski, software patents issued in the past 20 years, as well as many business method patents, might be invalidated.  However, this might not be the case.  Gene Quinn, a patent attorney and the founder of IPWatchdog.com observes that, “[i]n fact, based on what is going on at the USPTO one could make a convincing argument that it is actually getting easier to obtain patents that relate to software and computer related processes.  What my firm has been seeing is that claims can be made allowable by inserting “computer implemented” into claims, sometimes even in the preamble.” (Gene Quinn, US Supreme Court Grants Cert. in Bilski, IPWatchdog.com, June 1, 2009, http://www.ipwatchdog.com/2009/06/
01/us-supreme-court-grants-cert-in-bilski/id=3865/).

The worst outcome for the case would be one that decreases incentives for settlement.  If the court reverses Bilski, and reinstates the State Street test, then the machine-or-transformation test will be just one test of several from which a district court may pick.  This would give the district court’s flexibility in determining the patentability of business methods and software patents, as patentees would always argue for State Street’s lax standard of “useful, concrete, and tangible result,” while infringers would demand that the claimed method or process be tied to a machine (or otherwise transform an article into another form).  The uncertainty created by such a situation would deter settlement and increase litigation.

Mr. Quinn’s observation may be based on the USPTO taking a wait-and-see approach to the issue.  From a public choice perspective, the USPTO might be attempting to avoid rejecting applications based on Bilski so that it doesn’t find itself re-reviewing the same application once the Supreme Court issues its opinion.  Going forward, the most sensible approach to acquiring patents is to include disclosures that would be appropriate under State Street, Bilski, and Diamond v. Diehr (recognizing as patentable software that is tied to a particular machine).

***

563 F.3d 1301, 90 U.S.P.Q.2D (BNA) 1673 (Fed. Cir. 2009)

I.     STATEMENT OF THE FACTS

In the late 1980s and the early 1990s, Phillips, Sony, and a few other large technology companies began collaborative research into rewriteable CD technology (CD-R, CD-RW).  Both companies came to the realization that in order for the laser to accurately read and write to the disc, the laser’s position relative to the disc must be known precisely.  The two companies, in exchanges between engineers, settled on using a spiral with wobbles at regular intervals to serve as a track and a clock for the laser.  Phillips proposed an analog implementation, encoding the position data by modulating the frequency of the wobble, while Sony utilized a digital modulation method.  The two solutions solved the same problem, but are inherently incompatible—CD players using the Phillips approach would not be able to read CDs made using the Sony approach, and vice versa.  The industry now uses the analog method.

Writeable and rewriteable CDs are manufactured using a set of patents held by several companies, among them being Sony, Phillips, Taiyo Yuden, and Ricoh.  In the early 1990s, the companies agreed to pool the patents and have the pool administered by Phillips.  Included in this pool were both the analog method and the digital (Lagadec) method.  Licenses are issued from this pool to manufacturers of CD­Rs and CD-RWs, and no license for an individual patent may be issued.

Princo manufactures CD-Rs.  They took a license from the pool, but then stopped paying the royalty, and Phillips sued in the ITC.  At the ITC, Princo admitted infringement, but asserted the affirmative defense of patent misuse.  Princo alleged that the inclusion of the alternative digital technology in the patent pool constituted tying and price-fixing, as it required payment of royalties on unused and unnecessary patents.  They also argued that the inclusion of the Lagadec method patent also sequestered a viable work-around technology, preventing competitive development.  Their basic allegation is that Phillips bribed Sony not to compete by offering them licenses to their unused Lagadec patent.  The ITC rejected both of these arguments, and Princo appealed to the Federal Circuit.

II.   HOLDING

The court affirmed the ITC’s holding as to Princo’s first tying claim, but vacated and remanded the ITC rejection of Princo’s second claim of patent misuse.

III.  REASONING

In affirming the ITC’s holding as to Princo’s first tying claim, the court found that a reasonably broad reading of the Lagadec patent (Sony’s digital method) would support a finding of infringement where anyone practiced the Phillips analog method, currently used as the industry standard.  Under the broad construction, since neither patent could be practiced without infringing the other, the court found the Lagadec patent to be essential to the patent pool.  However, the Federal Circuit vacated and remanded Princo’s claim of patent misuse.  The court found persuasive Princo’s argument that Phillips and Sony violated anti-trust law by agreeing not to compete, and remanded the issue to the ITC to determine whether  there was in fact such an agreement and whether the Lagadec method could realistically compete with the Orange Book standard.

IV.  OBSERVATIONS

The court here, with respect to Princo’s second claim, is pointing out the difference between pooling essential patents together to reach a precompetitive effect, and not allowing licenses to be taken to any of those patents for other uses.  Patent pooling and some forms of such tying are a double-edged sword—on one hand, the tying of patents to other patents or products can cause blocking of progress and other anti-competitive effects, while on the other hand the pooling of patents may lead an industry forward towards standardization and convergence.  Princo’s last best hope is to convince the court that by refusing to license the Lagadec patent for uses other than those consistent with the Orange Book standard, Sony and Phillips have engaged in violations of classic antitrust prohibitions against agreements not to compete.  See, e.g., Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49 (1990); Otter Tail Power Co. v. United States, 410 U.S. 366, 377 (1973).