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When researchers at the San Diego-based Scripps Institute, one of the country's largest private, non-profit biomedical research facilities, began collaborating with German pharmaceutical giant Merck KGaA (unrelated to the U.S. pharmaceutical company Merck) in the 1990s, they knew they were headed toward something big. Unfortunately that something turned out to be a lawsuit when Integra LifeSciences, a small New Jersey-based medical technology company, sued them in 1996 for infringing on its patented peptide sequence in pre-clinical trials.

A federal court jury in southern California decided in favor of Integra and awarded the company $15 million in damages. Scripps and Merck appealed the decision to the Federal Circuit in Washington D.C. in 2000, where the lower court's verdict was affirmed, but the damages were lowered to $6.4 million. Finally, on April 20, the Supreme Court heard oral arguments for Merck KGaA v. Integra LifeSciences, et al.

Merck claims it didn't infringe on Integra's patents because its research fell under an FDA exemption in the Hatch-Waxman Act of 1984.

The case will have profound effects on how courts determine what is exempt from infringement claims and what isn't. It also is the first case testing the limitations of patent exemptions to come before the Supreme Court. Both sides agree that the court probably took the case because of some unclear language in the Federal Circuit decision.

Safe Harbor

Several large pharmaceutical companies, such as Pfizer and Wyeth, sent amicus briefs in support of Merck, advocating that drug developers be allowed to test potential medications without having to worry about infringing on someone's patent. Having to wait 10 years for a relevant patent to expire, they say, delays their ability to get drugs to market and in essence gives patent-holders an extension of their monopoly on a product. Even the Bush administration weighed in with its own brief saying that a ruling for Integra would "restrict significantly the development of new drugs."

Meanwhile, smaller biotech companies such as Integra that own the patents argue that basic research is subject to patent laws and the patents are licensed fairly broadly, so restricting the FDA exemption won't hamper innovation.

They argue that if larger companies can pick and choose from patented work at their whim--without paying any fees--their entire $26 billion dollar industry could go bankrupt.

The court is going to determine the scope of the FDA safe harbor in Hatch-Waxman. Broadly, the FDA exemption says that researchers can conduct the experiments necessary to secure FDA approval on a new drug without being concerned about claims of patent infringement. But the outcome is still not clear.

At issue here is whether Merck's use of Integra's IP was solely related to seeking FDA approval of a new drug.

"We believe there is no question these experiments were of interest to the FDA," says E. Joshua Rosenkranz, partner at Heller Ehrman who represented Merck before the Supreme Court. "In fact they did ultimately find their way into documents that were FDA bound."

The research in question that Scripps and Merck were conducting involved the use of RGD peptides to starve tumors. Integra owns the patent to the peptides. Scripps was researching ways to use the peptides to block blood vessels from growing in the direction of tumors. They carried out the research on animals and then Merck used the data to apply to the FDA for permission to conduct clinical trials to test the drug out in humans.

"Our view was the relationship between this data and the FDA was pretty damn direct," Rosenkranz says.

Integra argues Scripps was conducting research for a lot of commercial reasons unrelated to the FDA application. "We think that the evidence shows that what was going on at Scripps was not FDA related, that they were just trying to come up with some FDA justification after the fact," says Mauricio Flores, partner at McDermott Will & Emery who represented Integra before the court.

"They were doing it to generally strengthen the scientific premise of Merck's drug program," Flores says. "The premise is that if you inhibit a particular receptor with anything, whether it's an RGD peptide or something completely different, you can inhibit the growth of blood vessels. So that's a non-FDA related purpose."

But what is left for the court to decide is whether the Federal Circuit erred in concluding that Merck's animal testing falls outside the protections of the Hatch-Waxman Act, which would make Merck liable for infringement, or whether any use that has some FDA-related purpose is protected.

Death Of Research?

Merck argues that a decision against them would be a death sentence for companies conducting research and development to find cures for the world's ills.

"It would be devastating to the development of new therapies and to the advancement of science," Rosenkranz says. "What the Federal Circuit did in this case was bad law and bad for patients."

"That's nonsense," Flores says. "Whether we win or lose isn't going to change the fact that basic research is subject to the patent laws. And that's where it is, if there's any impact on the drug development process."

Some observers believe the court will agree with the lower court's decision and draw a clear line on what constitutes protected use of other companies' IP.

"This is the kind of exemption that could wind up taking a lot of the value out of a whole bunch of patents for a lot of people," says John Van Amsterdam, partner of Boston law firm Wolf, Greenfield & Sacks who specializes in IP matters and has followed the case closely.

"If the Supreme Court affirms I think that companies that engage in pharmaceutical research such as Merck would have to be more careful with tools they use to do their early stage research or they may have to pay license fees to use patented products," he says. "But I don't expect it to slow research down."

During the opening oral arguments before the court, there was a lively debate between Rosenkranz and Justice O'Connor on whether or not the jury was properly instructed during the original trial in southern California. The jury instruction stated that the statute only applies to generic drugs. Merck agreed to go along with that narrower interpretation of the statute in the original trial.

This could be an issue if the court decides to reverse earlier decisions for not addressing alternative legal grounds in the statute. The Federal Circuit Appeals court has expanded the scope of exemption over time to also apply to medical devices--not just drugs.

"Our position is that the instruction was correct so the jury was properly instructed but the jury reached the wrong conclusion because it heard so much evidence on issues that were irrelevant to the issue before them," Rosenkranz says.

Justice O'Connor stated, "maybe all we have to do is deal with whether that court should have addressed the evidence."

The Supreme Court is expected to rule by July.

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