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The Bayh-Dole Act of 1980, which gave federal grantees and contractors the right to patent and license inventions stemming from federally funded research, was intended to encourage commercial dissemination of research that would otherwise languish for want of a patent incentive (Eisenberg 1996; Berman 2008). The case of Columbia University’s Axel patents, which claimed a scientific method to introduce foreign proteins into nucleated cells, illustrates a secondary outcome of the Bayh-Dole Act: the incentive for federal grantees and contractors to pursue royalty revenues from patented research, even in inventions for which commercial use did not require patents.
The authors conducted oral interviews with two of the three inventors, as well as a former high-ranking administrator at Columbia; corresponded with several faculty members at Columbia to obtain key royalty figures and information about Columbia’s licensing strategy; performed patent searches; examined legal records of court proceedings; and analyzed citation trends for the seminal papers disclosing the invention of co-transformation.
Columbia University and the inventors profited handsomely from the Axel patents, earning $790 in revenues through licensing arrangements that tapped profits from end-products made by biotechnology and pharmaceutical companies. Columbia’s aggressive effort to extend the patent duration also led to considerable legal expenditures and fierce controversy. Obtaining and enforcing a 2002 patent, in particular, proved costly, politically difficult, financially fruitless, and attracted intense criticism for behavior unbecoming a nonprofit academic institution.
This case study raises several important questions about the logic of Bayh-Dole and future revisions of the Act: are revenue generation and financial rewards for inventing valuable technologies legitimate goals for the Bayh-Dole Act? If so, does the federal government need credible mechanisms for oversight, or checks and balances on the rights conferred?
The Bayh-Dole Act of 1980 gave federally funded grantees and contractors, including universities, a clear and uniform mandate to patent and license inventions stemming from federally funded research. The principal objective of the Bayh-Dole Act was to “use the patent system to promote the utilization of inventions stemming from federally supported research or development… to promote the commercialization and public availability of inventions made in the United States by United States industry and labor…”1 (35 USC 200–212). The prospect of patent revenues is not mentioned in the original Policy and Objective preamble to the Bayh-Dole Act, but patent revenues are a foreseeable consequence of owning patents.
The Axel patents claimed cotransformation, a scientific method for introducing foreign DNA into eukaryotic cells. The cotransformation method was discovered by scientists while conducting federally-funded research at Columbia University. Five key US patents stemmed from that research, granted in 1983, 1987, 1993, and 2002, and assigned to (that is, owned and controlled by) Columbia University. At the same time that the U.S. Patent and Trademark Office (USPTO) was examining the Axel patents, Congress was debating the Bayh-Dole Act of 1980. Though Columbia applied for the first Axel patent a few months before the Bayh-Dole Act took effect, the story of the patenting and licensing of the Axel patents exemplify features of university technology transfer in the Bayh-Dole era.
In the case of the Axel patents, the primary objectives of Bayh-Dole (utilization, commercialization, and public availability) were already beginning to be realized by the time the patents were granted, and would have continued without patents. The main consequence of patenting and licensing the cotransformation method was that Columbia University established a revenue stream from the commercial products that used the technology, which would have otherwise gone entirely to the companies that marketed the commercial products. Without patent rights, then, Columbia University and the inventors would have forgone $790 million in royalty revenues. The Axel patents also generated litigation and controversy when Columbia tried to extend the duration of patent rights. The Axel patents thus illustrate the revenue potential of patents rights arising from federally funded research, but also the incentives to extend such rights leading to litigation and controversy.
On February 25, 1980, three scientists from Columbia University (Drs. Michael Wigler, Saul Silverstein, and Richard Axel) filed a patent application claiming a biological discovery that was to significantly change biotechnology. Cotransformation, as they named their discovery, harnessed mammalian cells’ power to produce proteins made from inserted genes.
At the time of the discovery, Dr. Axel was an Assistant Professor in the Institute for Cancer Research and the Department of Pathology, and Dr. Silverstein was an Assistant Professor in Columbia’s Microbiology department (Silverstein, 2005). Michael Wigler transferred into Columbia’s Ph.D. program in Microbiology after his third year at medical school, and was doing a rotation in Silverstein’s lab (Silverstein, 2005). The initial idea for cotransformation is credited to Wigler, who “…had come to the conclusion that we weren’t going to make progress in animal cells unless we could manipulate the genetic content of the animal cell” (Wigler, 2005). The cotransformation method is sometimes called the Wigler Method.
Adding DNA to an organism is called transformation; similarly, adding two or more genes to an organism simultaneously is called cotransformation. Wigler, Silverstein, and Axel devised a way to manipulate the genetic content of a eukaryotic cell (a cell with a defined nucleus) by adding two genes: one, a marker gene, is used to detect whether foreign DNA was successfully taken up and expressed. The marker gene served as a screening tool. The other gene could encode any protein to be studied or produced.
The Wigler Method provided a way to introduce genes into eukaryotic cells. A bacterial analog of cotransformation, recombinant DNA, was developed and patented in the early 1970s by Herbert Boyer (UCSF) and Stanley Cohen (Stanford). Cohen and Boyer’s invention allowed scientists to “cut and splice” bacterial DNA. It is a powerful biotechnological tool used with great success in molecular biology labs, biotechnology firms, and pharmaceutical companies, and widely used in research and production of biologics to this day. For researchers attempting to produce functional eukaryotic proteins, however, bacterial recombinant DNA posed problems. Some proteins required cellular “processing,” which bacterial cells cannot perform. When genes encoding those proteins are inserted into nucleated cells instead of bacteria, however, they may produce a fully functional protein.
The Wigler Method also allowed production of proteins modified by eukaryotic cells, extending the power of recombinant DNA and significantly increasing the number and type of recombinant pharmaceuticals that could be made using the technology (Fox 1983). Proteins produced by bacterial cells are not usually exported from their place of translation within the cell into the cell’s external growth medium, because bacteria are single-celled organisms that retain and use proteins within their own membranes. Eukaryotic cells, by contrast, always have a nucleus and cytoplasm separated by a membrane, creating at least two cellular compartments, and eukaryotic cells are often constituents of more complex organisms that require cell-to-cell communication. Thus, some proteins, such as hormones, receptors, transporters, and channels for water and charged ions use cellular machinery to facilitate transfer to the cell surface, and some of those proteins (e.g., peptide hormones) are secreted from the cell in which they are produced, for transport to other locations within the organism. Growth factors and hormones, for example, are excreted from cells, and some of those same proteins are candidates to become either drugs themselves (e.g., insulin or erythropoietin) or targets for drugs and thus relevant for pharmaceutical R&D.
Wigler approached Silverstein with the idea of inserting a purified copy of the tk gene (which codes for thymidine kinase, a metabolic protein necessary for cell survival) from the Herpes Simplex Virus genome into mammalian cells that lacked their own copy of the gene. The cells would then be grown on a medium that inhibits the de novo synthesis of thymidine so that the only cells to survive would be those that had taken up the viral tk gene. Cell, one of the most prestigious journals in molecular biology, published the original paper in May 1977 (Wigler et al. 1977).
By 1979, the Axel group realized they could pair a selective marker (as they had done in 1977 with thymidine kinase) with a gene that could not be directly selected, using a process they called cotransformation. They cultured cells with a large amount of the non-selective gene and a small amount of the thymidine kinase gene. Cells that took up the thymidine kinase gene were very likely to have also incorporated the other, much more plentiful non-selectable gene (see Figure 1). The cells were then grown on a selective medium as they were in the 1977 experiments, and probes were used to confirm that the non-selectable gene had in fact been incorporated into the host cell’s chromosomes. The 1979 abstract in Cell showed the breathtaking power of the new technology: “This cotransformation system should allow the introduction and stable integration of virtually any defined gene into cultured cells” (Wigler et al. 1979). In other words, cotransformation would allow scientists to make any protein they wanted in nucleated cells.
Earlier attempts to transform eukaryotic cells had been thwarted by low transformation efficiency—few cells took up the foreign DNA (Szybalska and Szybalski 1962). Wigler’s method reduced this problem: by using a high concentration of the protein-producing DNA of interest and a low concentration of the marker DNA, if cells took up and produced the marker gene (transformation), they were likely also to have taken up the gene for the other protein of interest (cotransformation). When the DNA was incorporated into the host’s chromosomal DNA, it created a stable, self-replicating line of cells producing both the marker protein and the protein of interest. The Wigler Method allowed the incorporation of any known gene, prokaryotic or eukaryotic, into any mammalian cell that could be grown in tissue culture. The Wigler technology turned mammalian cells into protein-producing machines, a much more efficient way to produce a target protein than slow, expensive, and laborious synthesis reactions that yielded paltry results.
Citation trends of these two seminal cotransformation papers show how quickly the process was taken up by peers in the scientific community, and how widespread the Wigler Method became. Figure 2A shows citations of the 1977 paper “Transfer of Purified Herpes Virus Thymidine Kinase Gene to Cultured Mouse Cells.” Figure 2B shows the citation trends for the 1979 Cell paper, “Transformation of Mammalian Cells with Genes from Procaryotes and Eucaryotes.”
The Wigler Method was immensely useful, both in university laboratories and in pharmaceutical labs. The process made possible numerous pharmaceutical advances, in turn enabling treatments for diseases from multiple sclerosis to cystic fibrosis. Table 1 provides a sample of drugs developed using the Wigler Method, along with the disease they treat.
According to Dr. Wigler, the idea to patent the discovery initially came from Dr. Richard Axel, and it struck Wigler “as a rather odd thing to do… it seemed like a long shot, but it wasn’t any effort on our part, since the patents were based on manuscripts that we had prepared” (Wigler, 2005). Furthermore, aside from the trouble of applying for and being granted a patent, the scientists had no guarantee that the effort would pay off:
“We all agreed on the scientific importance of what we had done. Whether this thing would become useful or not—we’re all very objective people, and I think we all would have said ‘Yeah, there’s some probability of being useful, but there’s no certainty.’ It was not clear at the time whether bacteria would be useful for producing all proteins, all medicinal proteins. And it was clearly a possibility that they were not, in which case this would be a better method… but there wasn’t a guarantee that it would be valuable” (Wigler, 2005).
Even after the first patent issued, Silverstein wasn’t sure that it would be valuable: “When it was issued, everybody said ‘Gee that’s terrific,’ and I pointed out to them, ‘Yeah, it’s terrific if we get somebody to actually license it’” (Silverstein, 2005). If the viewpoint of the scientists here seems somewhat naive, one reason may be that patenting at universities had not yet become commonplace: it was a “nice to have” rather than a “need to have.” Concerns about university patenting had not reached the intensity they would in coming years; the technologically related Cohen-Boyer patent had only recently been granted to Stanford and the University of California, and biotechnology was a nascent field. While university patenting was not novel in organic chemistry, engineering, and solid state physics, it was relatively new to molecular biology, and the economic, social, legal, and ethical questions about patenting were just becoming the subject of a debate.
The inventors informed Paul A. Marks, then the Vice President of the Health Sciences at Columbia University, of their decision to patent. Their decision to go to Marks was most likely made because Columbia did not have a technology transfer office at the time. As Marks recalled in an interview, “I don’t think the Columbia University industrial licensing group was very sophisticated, and they were not encouraging or enthusiastic about going forward to try to get a patent on this work” (Marks, 2005). Marks then went to the provost, Michael I. Sovern, who referred the inventors to the law firm Cooper-Dunham, where attorney John White (who had received his BS in chemical engineering, MA in chemical biology, and MPh in biophysical chemistry from Columbia) handled the patent prosecution. The scientists were involved in the initial drafting process, but most of the writing and framing of claims was done by the legal expert; both Wigler and Silverstein confirmed that their role was negligible once the initial draft was completed. Silverstein recalled, “I do remember the hours spent with John White, who was the lead attorney at that time on this series of patents… he asked us lots of good questions, and we had to figure out answers” (Silverstein, 2005).
The patent application was filed on February 25, 1980. The claims in the application, which included any cell transformed via the method of cotransformation, anticipated the landmark Supreme Court decision in Diamond v. Chakrabarty by about four months. Diamond v. Chakrabarty was a watershed for biotechnology patenting, because in that decision the Supreme Court made clear that living organisms were patentable subject matter.2 While some of the claims in the Axel patents were about general methods and not organisms per se, the Axel patents also included claims covering cell lines that produced proteins of interest, and so the Supreme Court decision made it likely such claims would be upheld in court, strengthening Columbia’s hand in licensing its patents.
The Bayh-Dole Act was also being debated in Congress that year and passed in a lame duck session on December 12, 1980 (see Stevens, 2004). Its stated purpose was to encourage dissemination and commercialization of federally funded research. Although the Cohen-Boyer and Axel patents are sometimes cited as exemplars of Bayh-Dole, the first of the Cohen-Boyer patents had been granted ten days before the Bayh-Dole Act passed in Congress, on December 2, and Columbia had applied for the first Axel patent ten months before Bayh-Dole was enacted. Because Bayh-Dole had not yet been implemented, the NIH, which had funded the research, could have asserted ownership of the patents, imposed requirements on them (e.g. required the institution to send annual reports, allowed nonprofit institutions to license them free of charge, etc.), or decided not to apply for patents at all. At that time, if an institution wanted to patent an invention stemming from research funded by NIH, it had to request the right to do so, often under terms of an Institutional Patent Agreement, and sometimes as an ad hoc request.
Columbia sent a letter to NIH on April 4, 1980, seeking permission from the NIH to apply for and control patents stemming from the Axel group’s work, six weeks after it filed the patent application (Mowery et al. 2004). Columbia specifically sought permission to patent and then license the technology exclusively (e.g. to license the patent to just one company or institution, thereby denying all other companies or institutions the right to use the patent’s protected technology except through the exclusive licensee). On February 24, 1981, NIH wrote back to Columbia giving permission to patent and to assign the patent to Columbia, but denying the request for Columbia to offer an exclusive license unless Columbia could demonstrate that nonexclusive licensing was not viable (Miller 1981). The NIH also required that Columbia give the Department of Health and Human Services copies of any licensing agreements and provide a detailed annual report:
“…regarding the development and commercial use that is being made and is intended to be made of the invention, including the amounts and source of money expended in such development and such other data and information as the HHS may specify. After the first commercial sale of any product embodying the invention, such report shall specify the date of the first commercial sale and shall include information relating to gross sales by licensees, and gross royalties received by the University” (Miller, 1981).
NIH also specified the royalty share for the university and the inventors, and stipulated that any potential licenses must “include adequate safeguards against unreasonable royalties and repressive practices,” a point to which we will return later (Miller 1981).
While Columbia did request the right to exclusively license the Axel patents, this was by no means the only option, or even the one Columbia preferred. Paul Marks said that Columbia’s attitude was that it would not hurt to ask. In retrospect, Marks commented, “I think it’s very fortunate for a number of reasons that we didn’t succeed because I don’t think we fully anticipated the sort of impact that this discovery would have on drug development” (Marks, 2005).
In 1982, Columbia formed the Office of Science and Technology Development (OSTD), which took over the administration of the patent application (Mowery et al. 2004). The office has since gone through two name changes, and is now called the Science and Technology Ventures Office. The first of five patents was granted on August 16, 1983 (U.S. Patent 4,399,216, hereafter ‘216).
Five days before the first patent was granted, Columbia’s OSTD filed a divisional application, which covered the cotransformation process using a phage or plasmid vehicle. A divisional application shares the priority date (initial filing date) from a previously filed patent application in which more than one invention was disclosed, and claims a separate invention that was a part of the original patent application. Divisional applications are generally a response to the patent office’s objection that the application claims more than one invention. The applicant then chooses to pursue a subset of claims as one invention from the original application, and can opt to file a divisional application containing claims for another invention.3 Divisional applications are distinct from continuation applications. Continuation applications also retain the priority date from an earlier application, but they are filed when the applicant wants to revise the claims.4 The application filed on December 7, 1980, was the first of nine divisional or continuation applications that Columbia was to file stemming from the original February 1980 application.
The divisional application became the second Axel patent on January 6, 1987 (patent 4,634,665, hereafter the ‘665 patent). Because this patent was very similar in claims to the original ‘216 patent, Columbia agreed that the ‘665 patent would expire on the same date. This kind of agreement is known as a “terminal disclaimer.” When an inventor obtains more than one patent on a closely related invention, the inventor agrees to “disclaim” extra duration that would normally come with the later-issued patent, so that rights end with expiration of the original patent on the related inventions from the original patent application. On the basis of the ‘665 patent, Columbia filed divisional and continuation patent applications in 1986, 1989, and 1991. The applications in 1986 and 1989 were abandoned, while the 1991 application turned into Columbia’s third Axel Patent on January 12, 1993 (patent 5,179,017, or the ‘017 patent). The ‘017 patent was also subject to a terminal disclaimer, expiring with the first and second patents. In this way, the ‘216, ‘665, and ‘017 patents were considered by both Columbia and the patent office to be in the same invention family. Together, the three patents cover the Wigler Method in any eucaryotic cell, specific markers, any proteins produced with the process, and cell lines producing the desired proteins, called transformants (Dudzinski 2004). On the basis of the 1993 application, Columbia filed more divisional and continuation applications in 1992 (1 application), 1994 (1 application), and 1995 (3 applications, one on February 27, and two on June 7).
The timing of the two June 7, 1995 applications was significant: the next day, amendments to U.S. patent law took effect, bringing US patent law into harmony with most other jurisdictions around the world. For applications filed on or after June 8, 1995, Congress changed the length of a patent term from 17 years from date of patent issue (and publication) to 20 years from the date the application was filed. This moved the starting point of patent term from the finish line of patent examination (getting a patent) to the starting line (date of filing a patent application), which in turn changed the underlying incentives in the patent examination process.
This change made the practice of filing numerous continuation and divisional applications to keep the application open less attractive as a strategy to extend patent rights, since the patent term would no longer be extended by protracted examination proceedings. After June 1994, patent examination proceedings instead ate into valuable patent duration. However, because Columbia’s last two continuation applications were filed a day before that change took effect, any resulting patents would still last for 17 years from the date they were granted.
On September 22, 1992, Columbia was granted US 5,149,636 (the ‘636 patent). This patent resulted from a different set of original applications (in other words, it was not a divisional or a continuation of the original 1980 application). It was the third continuation application stemming from an original application filed March 15, 1982. The ‘636 patent claimed a method for cotransforming eucaryotic cells with multiple copies of foreign DNA fragments. This patent will expire in September 2009, as it was a separate invention not subject to the terminal disclaimer that Columbia agreed to with the previous three patents. The inventors named on the ‘636 patent are Richard Axel and James M. Roberts (who was a graduate student in Axel’s lab at the time), and it was licensed as part of a package with the other three Axel patents (Kestler, 2008).5
In August 2000, the three original Axel patents expired. For companies with licensing agreements, this ended their obligation to pay royalties. On September 24, 2002, however, the USPTO granted a fourth patent stemming from the original application (patent number 6,455,275 expiration date September 24, 2019). The continuation application that resulted in this patent was filed just before the June 1995 deadline. If Columbia University had waited until June 8, 1995 under the new rules, the ‘275 patent would have expired in February 2000, twenty years after the original filing date (that is, it would have expired before it was granted in 2002). But under the old rules, the patent term for the 2002 patent extended for 17 years from its date of issue in 2002. Figure 3 shows a chronology of the US patents.6 Another June 7, 1995 continuation application is still pending.
By the time the first Axel patent issued in 1983, many research laboratories were already using cotransformation: the citation graphs in Figure 2 show that the ‘77 and ’79 papers were cited over 80 and over 60 times that year, respectively, and a September 2, 1983, Science article noted that “the procedures developed by Axel and his colleagues are being used extensively in basic research” (Fox 1983). As Harvard University molecular biologist James Barbosa put it,
“The patent’s process has been in use all over the academic world since ’77… it’s been such a boon in getting mammalian cell gene transfer off the ground that it has almost become a laboratory reagent.” (Mowery et al. 2004).
To some in the scientific community, a patent on a widely used research process was frightening and offensive with the potential to deter laboratory work through high costs and strict protection of patented materials. Some of these fears were unrealistic and were based on misunderstanding patents, or failing to see how patent owners could manage their patents to avoid impeding research. Columbia never required fellow researchers at nonprofit institutions to license the patent, for example, and it did not collect licensing fees from nonprofit research (unlike the Wisconsin Alumni Research Foundation, which initially charged research institutions a licensing fee on stem cell patents) (see Rabin, 2005; Editorial, 2007; and Cohn, 2007). The scientific community was nonetheless concerned. Barbosa went on to say that, “…the fact that the process has been patented just doesn’t seem right” (Mowery et al, 2004).
From the perspective of Columbia’s licensing office, the fact that the process was in wide use posed a potential problem: if academic laboratories were already using the process, pharmaceutical and biotech firm R&D laboratories were using it too. Furthermore, because the patents primarily covered a process rather than a final product, infringement would be difficult to prove. A final product would not necessarily “embody” the invention or reveal how it was made. In the beginning, Columbia’s licensing strategy was to identify firms that were using the technology, and advise them to take a license. To do this,
“… Columbia licensing personnel examined the patents, end products, and scientific publications of industrial firms… and informed these firms that if they were using the cotransformation process to produce proteins, they must pay royalties to Columbia” (Mowery et al. 2004).
Columbia’s OSTD made it clear that if infringing companies did not comply, they would face legal action. That fact that this step was necessary is an indication that industry had adopted the method without a patent incentive. Columbia also recognized, as Stanford University did with the Cohen-Boyer patents, that if they charged too much for licenses, they invited challenges to the patents, requiring unwelcome and expensive litigation to enforce patent rights. Instead, Columbia charged an annual fee of $30,000 and relatively modest royalty streams of a few percent of final product revenues in the hopes that companies would choose to take out a license rather than challenge the patents in court (Sampat, 2000).
To encourage companies to sign up early, Columbia took another lesson from Stanford’s handling of the Cohen-Boyer patents, and offered reduced licensing fees to firms that took a license before June 1, 1984 (Sampat, 2000). The “early bird” terms were $20,000 annually, with royalty rates of 1.5% of sales for finished products, 3% of sales for bulk products, 12% of sales for basic genetic research products, and 15% of cost savings from process improvements. The standard terms after the “early bird” incentive were $30,000 annually and royalties of 3%, 6%, 15%, and 18% for the categories listed above (Sampat 2000). According to Jeffrey Kestler, Associate General Counsel of the Patent and Licensing Group at Columbia University, the original standard licensing terms for the Axel patents also included a provision allowing the licensee “to take advantage of more favorable rates that might be granted to other licensees in certain circumstances, which prevented concerns that a licensee would be prejudiced by early adoption of the technology,” and a royalty stacking provision lessening the amount owed to Columbia if the licensee paid royalties to other patent owners on the same product (Kestler, 2008). Also according to Kestler, “the intent of the licensing program was to license the patents as widely as possible and to provide licensees with as much flexibility as possible” (Kestler, 2008).
Ten firms signed up under the “early bird” agreement, and Columbia continued until at least the 1990s to identify potential users and advise more companies to take a license. As co-inventor Dr. Saul Silverstein put it in an interview, “They [Columbia] were fairly aggressive at pursuing some of the companies who we knew were making pharmacologically active drugs that would require using this technology” (Silverstein, 2005). All in all, thirty-four firms licensed the cotransformation technology, ten as early birds, and twenty-four under the regular license agreement (Sampat, 2000).
Columbia’s threats of litigation were not idle in 2000, Columbia brought action against Roche Diagnostics (formerly Boehringer Mannheim) for patent infringement in a complicated case also involving the therapeutic protein erythropoietin (EPO). Columbia alleged that EPO made in co-transformant cells at the Genetics Institute (which was acquired by Roche) was shipped to Roche in 1985, infringing the Axel patents.7 Judge Nancy Gertner ultimately awarded Columbia $1.2 million in damages from Roche.
Over the Axel patents’ 17-year term, the Axel patents earned $790 million in royalties, which was divided between the university and the inventors as outlined below.8 Year-by-year data were not available from Columbia’s office of Science and Technology Ventures, but based on the similar history of the Cohen-Boyer patents (see Feldman, Colaianni, and Liu 2007) most of the royalty revenues were earned in the last few years of the patent’s life, when derivative products were generating royalty-relevant revenue for the licensees.
Because the Axel patent application was filed before Bayh-Dole Act took effect, Columbia was obligated to follow the royalty-sharing scheme specified by the government in the letter that denied the request to offer an exclusive license (Miller 1981). The inventors would share 50% of the first $3,000; 25% of the income between $3,000 and $13,000; and 15% of the income exceeding $13,000. The remaining royalty income, after deducting expenses of obtaining and defending the patents, would “be utilized for the support of educational and research pursuits” (Miller 1981). Following this formula, the three inventors (and a fourth, unnamed person) would have divided over $110 million (Silverstein, 2005).9 After Columbia University deducted 20% of the remainder for the expenses of obtaining and defending the patent, over $530 million would remain for use in the inventors’ laboratories and general university funds.
The revenues from the Axel patents contributed a significant fraction of Columbia’s patent revenues shown in Table 3, which compares royalty revenues to R&D expenditures. Not all royalty income goes to R&D, but this figure is an indicator of revenues from technology licensing compared to R&D expenditures, a rough proxy for how much an institution relies on licensing revenues compared to other R&D funding streams.10 Columbia ranked second and third among US institutions on this indicator in FY 1999 and 2000. Columbia’s royalty revenues were equivalent to 32% (1999) and 44% (2000) of R&D expenditures in those final two years of the Axel patents’ term.11
Beyond the general terms in the government letter, we do not have detailed data about how Axel patent royalty revenues were divided among the inventors’ laboratories and the university. We do know, however, how Columbia used some of the funds; according to Jeffrey Kestler, the university’s share was used to support the Columbia University Medical Center, as well as a fund for general university purposes, such as establishing a new Department of Biomedical Engineering at the Fu School of Engineering, the interdisciplinary Judith P. Suzlberger, MD, Genome Center, and the Columbia University Earth Institute (Kestler, 2008).
As the first three Axel patents (‘216, ‘665, and ‘017) were set to expire on August 16, 2000, Columbia’s administrators spoke of the impact. “‘In the near future, our revenues are likely to drop sharply,’ warned Jonathan Cole, then Columbia’s provost, in an October 2000 internal document” (Wysocki 2004).
Columbia took measures to extend the patents’ term. In March of 2000, Columbia turned to Senator Judd Gregg, R-N.Y., a Columbia alumnus, who began a nearly five-month effort to pass legislation that would enable Columbia to get a 15-month term extension on the three patents set to expire in August 2000 (Rosenberg 2000). Gregg attempted to amend the Hatch-Waxman Act of 1984, (also called the Drug Price Competition and Patent Term Restoration Act) to allow Columbia to apply for a patent extension. One of the provisions of the Hatch-Waxman Act allows pharmaceutical companies to apply for patent term extensions to compensate for patent term consumed by FDA approval procedures. Gregg argued that because the cotransformation process was used to make pharmaceuticals, which were subject to FDA approval, Columbia should be able to extend patent terms.12
If Gregg’s bill became law and had been applied to the Axel patents, Columbia would have been able to extend its patents for 15 months, earning the university another $70-$100 million (Wysocki 2004). In May 2000, Senator Gregg tried unsuccessfully to insert a 350-word amendment13 in an agricultural spending bill to allow nonprofit institutions whose inventions led to five or more new drugs to apply for patent term extensions (Rosenberg 2000). Gregg tried again in June via a military spending bill (Rosenberg 2000). After both of these attempts failed, Gregg gave up. In retrospect, legal scholars and others reflected that if the extension had become law, it would have established a precedent: pharmaceutical companies might be emboldened to try to extend patents on other methods or processes, leading to higher development costs and more complicated licensing arrangements (Fram, 2000).
The effort caused significant backlash when it became public. Gregg and Columbia received “a storm of criticism from drug manufacturers, consumer groups, and Members of Congress, including Senator Edward M. Kennedy” (Rosenberg 2000). Representative Henry A. Waxman, coauthor of the Hatch-Waxman Act, felt that the Gregg proposal “ha[d] nothing to do with the original intent of the act… On the contrary, it [ran] counter to what we accomplished” (Rosenberg 2000).
Despite opposition and press controversy, Columbia officials stood by their decision to try to extend the life of the patent. Michael Crow, then Columbia’s executive vice-provost (and a professor of science and technology policy in Columbia’s School of International and Public Affairs) defended the measures that the University was taking by pointing to the fact that much of the money went back into research:
“…The three inventors split 20 percent of the royalties, he said, so each reaps millions annually. The rest--minus some administrative costs goes to research. ‘It’s not like we’re taking the money and buying hotels’” (Fram 2000).
After the failure of the extension measure, a Columbia spokesperson said that there was not a “next step in this patent extension story… there’s just no way to go back after it expires” (Dudzinski 2004).
The university, however, was still pursuing the divisional applications it had filed on June 7, 1995. As described above, on September 24, 2002, two years after the original Axel patents expired, US Patent 6,455,275was issued, claiming specific Chinese Hamster Ovary (CHO) cells into which a DNA construct was inserted. After the patent issued, Columbia sent letters to its former licensees alerting them to the fact that they would once again owe royalties for another seventeen years.
The licensees pushed back: in 2003, Genentech, Immunex, Amgen, Biogen, Genzyme, Abbot, Wyeth, Genetics Institute LLC, Johnson and Johnson, Serono, Baxter, and Ares all filed suit against Columbia, asking the judge to find the ‘275 patent invalid and unenforceable, arguing that the ‘275 patent was not distinct from the earlier Axel patents (Dudzinski 2004).14 Thomas Bucknum, then-executive vice president of Biogen, said, “It’s the same invention, and that’s why we decided we just wouldn’t pay” (Wysocki 2004).
In court, Columbia was represented by eight lawyers, prompting Judge Mark L. Wolf to say, “I thought Columbia was a nonprofit organization who couldn’t afford this litigation” (Wysocki, 2004). Judge Wolf’s conclusion was that:
“The timing of its [the ‘275 patent] issuance strongly suggests that Columbia deliberately delayed obtaining a patent that it always intended to secure in order to make it effective just as the other Axel patents expired and thus increase its commercial value by maximizing the period in which the public would have to pay Columbia royalties for the use of the Axel patents.”15
Dan Ravicher, a patent attorney and founder of the Public Patent Foundation (PubPat, a nonprofit organization that seeks to “protect the public from the harms caused by wrongly issued patents and unsound patent policy”) also took aim at Columbia’s new patent (Ravicher 2004). In February 2004, PubPat filed a request for re-examination ex parte of the ‘275 patent, asserting that “none of Axel et al.’s four patents are [sic] patentably distinct from one another,” and that the ‘275 patent had been issued only after numerous rejections for double patenting and seven years of “unreasonable and unexplainable delay on the part of Axel et al. and changes in the personnel examining the application” (Ravicher 2004). Ravicher charged that the ‘275 patent was invalidated by the three prior Axel patents’ claims.16
Faced with these lawsuits, the judge’s opinion, and re-examination requests, Columbia signed a covenant not to sue, effectively relinquishing its right to enforce claims in the ‘275 patent against the plaintiffs. On October 12, 2004, Columbia further agreed to refrain from suing not only the plaintiffs, but also any future litigants. Columbia maintained that the ‘275 patent was valid, however: “In granting this covenant to plaintiffs, Columbia in no way concedes plaintiffs’ allegations that the ‘275 patent is invalid, unenforceable, or not infringed. To the contrary, Columbia categorically rejects all such claims by plaintiffs” (Attorneys for the Trustees of Columbia University in the City of New York, 2004). This assertion was undermined on March 15, 2007, when the patent examiner responsible for the case at the US Patent and Trademark Office rejected the patent’s claims.17 Columbia submitted a brief in June 2008 appealing that decision to the Board of Patent Appeals and Interferences (BPAI), and could appeal to the courts if the BPAI concurs with the examiner.18
Columbia’s final continuation application (application 477,159) of the original Axel patent application, filed on June 7, 1995, is still being prosecuted and may therefore result in the issuance of a patent. Dan Ravicher, founder of PubPat, wrote, “To my knowledge, they are still pursuing [the second application] vigorously, as they are a reissue of the ‘275 patent.” If the reissue does occur, many of the plaintiffs from the earlier double patenting case have indicated that they will challenge its validity.19
One final point about government oversight is relevant to the actions that Columbia took after the original Axel patents expired in 2000. Recall that the government letter stipulating terms to Columbia called for licensing “safeguards against unreasonable royalties and repressive practices” (Miller 1981). NIH still had rights stemming from that letter. Our FOIA request to NIH elicited confusion about whether the inventions were covered by Bayh-Dole, and cast doubt on whether anyone in government was monitoring the case or was even aware that the government had rights to exercise. The Miller letter apparently came to light after patent litigation was already underway. If the government letter had been more publicly available, lawyers concerned about the 2002 patent might have been able to avoid litigation to challenge the patents, and could instead have petitioned NIH to act administratively, at considerably lower cost and perhaps with the same outcome. While the government stipulated conditions on licensing the patents, it apparently did not take action when Columbia engaged in highly public and controversial actions to extend its patent rights, first through Congress and then by obtaining the patent in 2002. NIH apparently never invoked this clause, suggesting NIH had limited ability to monitor compliance with the “safeguards” it required of Columbia in its licensing via the letter agreement, and may even have been unaware of government rights even in this case, where such rights were explicitly agreed by both Columbia and the federal government.
The Axel patents also have implications for the purposes of the Bayh-Dole Act. This case highlights the need to decide explicitly as a matter of policy whether generating revenues for research and education is a valid goal of the technology transfer framework, in addition to the original rationale of inducing commercial use that would not occur without patent incentives. The Axel patents were not crucial in facilitating technology transfer, in the sense of being necessary for commercial use. Skilled researchers at universities and biotechnology companies alike could replicate cotransformation based on scientific papers alone (Mowery et al. 2004, Fox 1983). The main effect of the patents was that Columbia earned royalty revenues when commercial use of the Wigler Method met with success. If Columbia had not patented cotransformation, the revenues would have gone to private industry with little or no return to Columbia.
Many scholarly articles characterize such royalties as a “tax” on innovation. The royalties do act like a tax in one respect: they tap revenue. They differ from a “tax,” however, in that they are specific to a licensed invention, they do not involve the direct hand of government in collecting the revenue, and they confine expenditure of the revenue only for uses (research and education) that are generally considered public goods. The revenues go to inventors and institutions responsible for producing valuable inventions, rewarding them for their discoveries, and thus resonating with John Locke’s ideas about incentives from property ownership that are deeply rooted in law (Mosoff 2001). So it is somewhat loose to call this a “tax on innovation,” but the wisdom of such revenue diversion is certainly a legitimate policy question.
The Axel patents raise the question whether the revenue-generating potential of federally funded research for grantee and contractor institutions is a separate reason to encourage Bayh-Dole patent rights for grantees and contractors as a matter of public policy, in addition to the rationale of creating incentives for private firms to license federally funded inventions from nonprofits and small businesses in order to invest in commercialization. The strongest arguments in favor of an explicit revenue-generation policy are that such revenue: (1) rewards institutions that successfully discover commercially valuable inventions, creating incentives for other institutions to emulate this socially laudable success; (2) channels revenues into research and education, both of which are largely public goods; and (3) would otherwise mainly be retained by the for-profit users of the technology.
If securing a share of revenues from valuable uses of university technology is accepted as a policy rationale, this case illustrates a need for oversight. Columbia’s attempt to extend the patent term and enforcement of the 2002 patent after the original three patents expired in 2000 suggests that patent revenue was a potent incentive. The policy questions posed by this case include: How much is enough? And how long is long enough? What is the right balance of incentives for grantee and contractor institutions, such as universities, in reaping revenues from federally funded research inventions? What does government need to do to ensure the revenue incentive does not expand without boundaries? Michael Crow’s argument that university revenues are put to public purposes for research and education is valid, but it is also open-ended.
These questions usually get buried with other considerations of incentives for commercialization, and the wish to avoid inventions languishing in government and nonprofit laboratories for want of commercial incentives—the main justification for the Bayh-Dole Act that was invoked 1978–1980 during its legislative history (Eisenberg 1996, Berman 2008). Technologies exemplified by recombinant DNA (the Cohen-Boyer patents) and cotransformation technology (Axel patents) raise an alternative “fair rewards” rationale for university patenting. In these cases, there is little risk of technologies languishing without the patent incentive. Indeed, such inventions are not rare in academic research; Cohen-Boyer and Axel patents are not the only highly lucrative platform technologies licensed by universities. Others include fluorescent tagging of cells and large molecules used in fluorescent-activated cell sorting (Stanford), several City of Hope patents related to production of proteins from recombinant DNA, methods for making monoclonal antibodies (Stanford and Columbia), and small interfering RNA methods and constructs (Carnegie Institute and others). These are technologies that were rapidly adopted in both academic and for-profit biotechnology R&D, and fairly clear-cut cases where a patent incentive was not needed to invest in further development of the technology itself to bring it to fruition, although in many cases, specific applications do require substantial investment (as did the products developed from the Axel patents). Cohen-Boyer and Axel patents are also clear cases where universities gained financially from their technological success, and captured a fraction of the resulting social benefit they would otherwise have foregone. This “fair rewards” rationale for the Bayh-Dole Act patent ownership rights warrants explicit attention as a consequence of the default ownership rules.
The Bayh-Dole Act does not list channeling money to universities and small businesses to support research and education as an explicit goal; perhaps it should—or perhaps it should not. The Axel patents suggest that policy should be discussed on its own merits, because the prospect of substantial revenues appears to drive some decisions about disposition of patents arising from federal grants and contracts. The Axel patents are a case in point, and a good case to focus such a debate because it is quite clear that the science was of very high quality (Richard Axel went on to win the Nobel Prize, and Wigler and Silverstein have had distinguished careers in science). At the same time, real public accountability would require substantially more information about what Columbia did with the revenues. That should in theory be possible to ascertain with the Axel patents, because terms of the letter agreement with the government required annual reporting. Our FOIA request failed to produce such reports, suggesting public accountability has been limited. The Bayh-Dole Act stipulates that revenues be spent on research and education, similar to the letter agreement governing the Axel patents, but it is not clear government is any more capable of monitoring expenditures of technology licensing revenues under Bayh-Dole than it appears to have been with the Axel patents. Public accountability for expenditures of technology licensing revenues is a matter that the General Accountability Office might fruitfully address in one of its periodic assessments of Bayh-Dole activities.
As other countries adopt laws emulating the Bayh-Dole rules, revenue for universities may be a goal (So et al. 2008). This may prove to be a compelling argument. In developing nations, for example, universities whose researchers discover patentable inventions may wish to license those inventions to corporations based in the developed world. The alternative is for discoveries arising in a developing country university to be exploited in the developed world with little financial return to the originating research institution or its home country. As developing countries increasingly focus on building their R&D capacity, Bayh-Dole rules are apt to be attractive as ways to get foreign corporations to fund developing country universities. Expectations are likely to exceed actual revenues (So et al. 2008), at least for many decades until the research institutions have attained substantial capacity to turn out lucrative technologies, or in particularly fortunate research institutions, but in the long run this argument has merit.
The Axel patents also raise questions for academic institutions about how aggressively to go after patent licensing revenues. Columbia University’s pursuit of patent extension after expiration of the original Axel patents in 2000 had considerable costs. First, litigation expenses were undoubtedly substantial, as Columbia spent a significant amount of time and money on legal fees after being sued by eight licensees. In addition, though it is difficult to estimate the cost of pursuing a patent application for almost twenty-two years, it would certainly be considerable. Those costs pale compared to the revenue stream, but the ratio of legal expenditure to revenue return probably turned negative after the original patents expired. What was the balance of further revenue compared to cost of litigation for a patent that currently does not generate revenues and will not do so unless Columbia’s long fight ends in reissue of a patent (in which case potential licensees have vowed to sue)? The initial Axel patents were clearly lucrative; but the efforts to extend the patents and to license and defend the patent issued in 2002 may well have cost more than any revenues they brought in; indeed legal and procedural costs continue for Columbia to this day, three decades after the story began. Only Columbia can know the money balance, but the case for Columbia’s actions after the initial patents expired in 2000 is weak; certainly on policy grounds, and probably on financial grounds as well.
Why would an institution like Columbia fight so hard for a patent extension and new patents beyond the term of the original patents? One obvious answer is patent royalties. Columbia’s reliance on royalty-based revenue may have made it work hard to keep the revenue stream flowing. This illustrates two problematic aspects of the “fair reward” rationale for Bayh-Dole patent rights: first, if universities depend on royalties from patent licenses, they may also take extreme measures to maintain them. Second, it suggests a need for stronger government oversight of the benefits it confers through Bayh-Dole patent rights, and checks on abuses of the strong incentives to generate revenues arising in federally funded research when patents achieve blockbuster status. One further problem with this “winner’s curse” is its skewness, because only a lucky few institutions will reap the rewards. Most patent royalties come from “blockbuster” patents like the Cohen-Boyer and Axel patents, which are few and far between (Thursby & Thursby 2007). The harder universities push industry to pay patent royalties, the more likely it is that they will incur ill will, provoke litigation, and invite Congress to revise the Bayh-Dole Act.
The lead author (CAC) conducted three interviews in the summer and fall of 2005 during the preparation of this paper. The coauthor (RC-D) joined the Wigler interview. Interviews with Drs. Saul Silverstein, Michael Wigler, and Paul A. Marks were on the record and were recorded using a standard tape recorder. Interviewees gave oral informed consent, as per Duke’s IRB (Duke University IRB Protocol 1277). Some other interviews were not “on the record.” Those interviews are protected by a Certificate of Confidentiality issued by the National Human Genome Research Institute (also in association with Duke IRB Protocol 1277). All three interviewees were given the opportunity to respond to their statements and points attributed to them; two made minor suggestions that were adopted by the authors, and one did not respond. Drs. Silverstein and Wigler were chosen as interviewees because they are listed as inventors on the co-transformation patents; Dr. Richard Axel, also an inventor, did not respond to repeated requests for interviews or comment. Dr. Paul A. Marks was chosen because during the interview with Dr. Silverstein, it became apparent that Dr. Marks had played a significant administrative role.
This work was supported in part by the Center for Public Genomics, under grant P50-HG003391 from the National Human Genome Research Institute and the US Department of Energy. This work was also supported by the Institute for Genome Sciences & Policy Summer Fellowship and The Duke Endowment. We thank Bhaven Sampat for his support, data, and critical comments, Dick Nelson and Michael Cleare for their input and openness; Dan Ravicher for his advice and documents; Lee Bollinger and Jeffrey L. Kestler for providing otherwise unobtainable information; and Drs. Michael Wigler, Saul Silverstein, and Paul Marks for their courtesy and the wealth of information they shared during interviews.
1See 35 USC 200.
2Diamond v. Chakrabarty, 447 U.S. 303 (1980).
335 U.S.C. 121 “Divisional Applications.” Appendix L. Patent Laws. Available at http://www.uspto.gov/web/offices/pac/mpep/documents/appxl_35_U_S_C_121.htm (accessed September 25, 2007).
435 U.S.C. 120 “Benefit of earlier filing date in the United States.” Appendix L. Patent Laws. Available at http://www.uspto.gov/web/offices/pac/mpep/documents/appxl_35_U_S_C_120.htm (accessed September 25, 2007).
5Biogen Idec MA Inc., et al., Plaintiffs, v. The Trustees of Columbia University in the City of New York, Defendant. 332 F. Supp. 2d 286; 2004. U.S. Dist. LEXIS 16315.
6Columbia University was also granted thirteen international or world patents: WO8102426A1 (World); JP57500410T2; JP07095880A2; JP06030588B4; JP02736502B2 (Japan); HK0059992A (Hong Kong); EP0045809B1; EP0045809A1 (European Patent Office); DE3176369C0 (Germany); CA1179953A1 (Canada); AU7037881A1; AU0558061B2 (Australia); and AT0029042E (Austria).
7Trustees of Columbia University in the City of New York, Plaintiff, v. Roche Diagnostics GmbH, formerly known as Boehringer Mannheim GmbH, Defendant. 150 F. Supp. 2d 191; 2001 U.S. Dist LEXIS 6383.
8Personal Communication, Michael Cleare, former executive director of Columbia’s Science and Technology Ventures Office, to Richard R. Nelson, Henry R. Luce Professor of International Political Economy at Columbia University, and Bhaven Sampat, Assistant Professor of Health Policy and Management, Mailman School of Public Health, Columbia University; August 29, 2006. Forwarded to the authors with permission.
9Details about the fourth person and the share he or she received were not shared.
10The revenues earned from technology licensing are not entirely attributable to patents (some technologies are licensed without a patent); nor are technology licensing revenues entirely devoted to research. Licensing revenues are often used to support the technology licensing operations, for example, or fellowships, education, and indirect costs of research. Technology licensing revenues are, however, an upper limit on what fraction of the institution’s research could be funded from technology licensing compared to other R&D funding sources. The ratio of technology licensing revenues to R&D expenditures is therefore only an indicator of how much an institution relies on technology licensing to fund research, but it is a defensible proxy measure of “royalty dependency” in a university’s R&D funding stream.
11This does not imply that technology licensing revenues accounted for this fraction of R&D. Rather, as noted in the note above, it indicates the maximum fraction of R&D that could be covered by technology licensing income, depending on how that particular institution allocates the funds generated by such licensing.
12See Bureau of National Affairs, Columbia Cotransformation Patent Extension, 5. HEALTH CARE DAILY (BNA) 7 (May 17, 2000), http://www.cptech.org/ip/health/biotech/bna.html, accessed December 1, 2008. It is worth noting that the mechanism might have faced challenge even if passed, since the Hatch-Waxman provisions do not apply to biologics and drugs equally; most or all products covered by the Axel patents are approved by FDA as biologics, not drugs.
13See Sen. Res. 2536, 106th Congress, Sec. 2801.
14A complete comparison of the ‘275 patent’s claims to the earlier Axel patents’ claims is beyond the scope of this paper. Interested readers are encouraged to see Dudzinski 2004 and Ravicher 2004 for side-by-side legal analyses of the differences between the ‘275 patent and the prior Axel patents.
15Biogen Idec MA Inc., et al., Plaintiffs, v. The Trustees of Columbia University in the City of New York, Defendant. 332 F. Supp. 2d 286; 2004 U.S. Dist. LEXIS 16315.
16Ravicher argued that the claims from the prior Axel patents were different from the claims in the ‘275 patent in name only; that though the wording of the claims was slightly different, the essential technology claimed was the same. Interested readers are encouraged to see Ravicher 2004 for the full analysis.
17United States Patent and Trademark Office, Patent Application Information Retrieval, Application 90/006,953, “DNA Construct for Producing Proteinaceous Materials in Eucaryotic Cells.” Available at http://portal.uspto.gov/external/portal/!ut/p/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLN4gPMATJgFieAfqRqCLGpugijnABX4_83FT9IKBEpDlQxNDCRz8qJzU9MblSP1jfWz9AvyA3NDSi3NsRAHxEBJg!/delta/base64xml/L0lJSk03dWlDU1lKSi9vQXd3QUFNWWdBQ0VJUWhDRUVJaEZLQSEvNEZHZ2RZbktKMEZSb1hmckNIZGgvN18wXzE4TC8yMC9zYS5nZXRCaWI!#7_0_18L (accessed July 22, 2008).
18United States Patent and Trademark Office, Patent Application Information Retrieval, Application 90/006,953, “DNA Construct for Producing Proteinaceous Materials in Eucaryotic Cells.” Available at http://portal.uspto.gov/external/portal/!ut/p/kcxml/04_Sj9SPykssy0xPLMnMz0vM0Y_QjzKLN4gPMATJgFieAfqRqCLGpugijnABX4_83FT9IKBEpDlQxNDCRz8qJzU9MblSP1jfWz9AvyA3NDSi3NsRAHxEBJg!/delta/base64xml/L0lJSk03dWlDU1lKSi9vQXd3QUFNWWdBQ0VJUWhDRUVJaEZLQSEvNEZHZ2RZbktKMEZSb1hmckNIZGgvN18wXzE4TC8yMC9zYS5nZXRCaWI!#7_0_18L (accessed July 22, 2008; appeal of the rejected claims from re-examination reconfirmed as pending on June 14, 2009).
19Biogen Idec MA Inc., et al., Plaintiffs, v. The Trustees of Columbia University in the City of New York, Defendant. 332 F. Supp. 2d 286; 2004 U.S. Dist. LEXIS 16315.