Medical diagnostics manufacturers, struggling against vague US patent eligibility rules, are increasingly turning to trade secrets to protect their intellectual property, a move which could bring unintended consequences for industry oversight, experts warned.
Medical diagnostics developers, stuck for now with vague patent eligibility rules inconsistently applied by US courts, are increasingly relying on trade secret law to protect their intellectual property. The maneuver brings some much-needed certainty to innovators but could also bring unintended consequences for industry oversight.The pursuit of trade secret protection in favor of patent prosecution has slowly grown in popularity in some industries since the early 2010s, when a trio of key Supreme Court patent cases limited subject-matter eligibility.
The most impactful for medical diagnostics manufacturers was arguably the 2013 decision in Association for Molecular Pathology v. Myriad, which declared naturally occurring gene sequences patent-ineligible while carving out protection for synthetically refined sequences, or cDNA.
Two years earlier, in another unanimous decision, the justices in Mayo v. Prometheus said laws of nature run afoul of Section 101; one year post-Myriad, they unanimously ruled in Alice v. CLS Bank that abstract ideas are not patentable without sufficient, transformative inventiveness.
The cases, considered in tandem, made diagnostics patents more difficult to obtain and keep. At around the same time, Congress in 2016 passed the Defend Trade Secrets Act, or DTSA, which established a federal cause of action for trade secret owners, including the potential for injunctive relief and trebled damages.
— Plummeting patent value —
King’s College London senior IP lecturer John Liddicoat told MLex that most diagnostic firms participating in his 2023 study on the interplay of trade secrets and patents in medical technologies engaged in internal discussions on the role of trade secrets as a suitable alternative to patenting in the wake of those developments, based on 2020 interviews.
Some went so far as to make the switch, Liddicoat said, with four of six US respondents citing plummeting patent values as a primary motivator.
Smaller profit margins from weaker patent protections could stifle innovation, as some firms choose to forego the expense of the research and development of certain products entirely due to eligibility concerns. Liddicoat said that one firm interviewed for his research did just that, choosing not to complete an in-development diagnostic amid concerns the company couldn’t make enough money back on its investment due to weakened patent protections.
“The point of the patent system isn't to make a profit — the point of the patent system is to incentivize innovation,” Liddicoat explained. “And of course, we exist within a market economy so the fact you're still making those innovations means you are making money, it's just you're not making what you would have 15 years ago, before those decisions started coming out.”
— In-house testing —
As an alternative to patenting, a number of firms have increasingly turned to lab-developed test (LDT) diagnostics. Instead of producing and shipping a kit to test a certain medical diagnosis, companies carry out the testing in-house, allowing them to keep their methods secret.
Joshua Kresh, interim executive director at the Center for Intellectual Property and Innovation Policy at George Mason University, warned that the LDT trend could be dangerous to consumers. He noted that the strategy could lead to a number of “new Elizabeth Holmeses,” referring to the infamous Theranos diagnostics fraudster.
LDTs don’t have to go through the same regulatory hoops, Kresh explained. Because those processes are considered proprietary, their efficacy cannot be ensured by federal regulators to the same extent as diagnostics which are patented.
Liddicoat noted that LDTs generally have a lower profit margin than patented kits, again potentially leading to less innovation, but he said the trade-off is worth it for firms seeking more airtight intellectual property protections. He also warned, however, that LDTs can bring with them risk of direct-to-consumer misinformation.
I’ve heard diagnostics "described as a Wild West, people just selling LDTs to a gullible community,” Liddicoat warned. “Gullibility in medicine is very real, because if no one is offering a test, but then some weird ad comes up on Facebook or Instagram or wherever, you go, ‘Oh, that's actually my disease,’ then, yeah, you're going to be more interested in getting it because nobody else is offering you a solution.”
— European counterparts —
The European Medicines Agency has already acted to mitigate some of these risks, passing legislation which expands the types of diagnostic tests which are required to receive authorization for sale.
Despite the global nature of intellectual property and the role of the United States as a market leader, Europe has been less inclined to embrace trade secret protection as a viable alternative to patenting. Of the firms and practitioners Liddicoat interviewed for his research, he says few were even fully aware of the Supreme Court eligibility cases or their impact.
“We found those decisions didn't affect people in Europe. In fact, even some very sophisticated diagnostic developers were vaguely aware of them, which actually stunned me,” Liddicoat said. “I'm speaking to legal counsel at some diagnostic firm in Germany or something, and they're like, ‘Oh yeah, I vaguely remember that decision.’”
Due to the iterative nature of diagnostics development, Liddicoat explained that tests made domestically in Europe just don’t have the same intellectual property needs as those in the US.
After years of development, there are entire business models built around these diagnostics instead of patents at risk of being declared ineligible under Section 101.
— Exceptions eliminated —
Another risk to the diagnostics industry, even beyond the lack of regulatory oversight of purported trade secrets, is a potential loss of university tech transfer development.
After the US Supreme Court decisions, Liddicoat described universities choosing to forego research entirely because patent protection in the US was perceived as too weak and trade secret protection was too unfamiliar.
“They said, no, no, we're universities. We're not into trade secrets... if we can't get a patent on it at all, then what's the point? They've got nothing else. They've got no brands, they've got no expertise, they've got no manufacturing. And that actually stopped innovation,” he said.
Congress has agreed, with a bipartisan group of Senators backing a bill that would completely reform Section 101 by removing all judge made exceptions to subject-matter eligibility (see here).
That bill, the Patent Eligibility Reform Act (PERA), was introduced in the Senate this year but has not made it out of the Judiciary Committee after numerous delays (see here). Delaware Democratic Senator Chris Coons, its sponsor, told MLex last month he believes the bill will pass through the committee before the end of the year.
It’s unclear whether the bill would get a floor vote even if it did pass committee, however, as the Senate has few working days before the end of the term.
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