The state of California has been working its way through a list of thorny issues surrounding its groundbreaking Proposition 71 – $3 billion in funding for embryonic stem cell research that voters approved in 2004.
Now, as the state prepares to distribute its first round of Prop 71 funding, it is facing a troubling prospect: a set of broad patents covering embryonic stem cells could substantially inhibit industry from investing and partnering in the research. The patents could also make it more difficult for the state to recoup its investment in stem cells if the research eventually leads to profitable technologies.
In 1998 and 2001, James Thomson, a scientist at the University of Wisconsin in Madison, who first isolated human embryonic stem cells, was granted two U.S. patents that cover both the cells themselves and a method for deriving them. These patents, which are now owned by the Wisconsin Alumni Research Foundation (WARF), apply to all current lines of embryonic stem cells – scientists who wish to do research on such cells, even if they derive their own lines, must acquire a license from the Wisconsin foundation.
Concern over these patents has popped up repeatedly as the field of embryonic stem cell research has grown. But the issue came to life again recently when a lawyer for WARF said at an industry meeting in March that the foundation could ask the state of California for a percentage of profits from Proposition 71 funded research.
“WARF could take a lot of money away from California companies,” says Bill Warren, a lawyer and expert in biotech patents at the Atlanta law firm Sutherland Asbill & Brennan. “Almost all companies need to rely on patent protection for commercialization. But the broad scope of WARF patents…has created this problem.”
It’s unclear how the California situation will unfold. Nicole Pagano, a spokeswoman for the California Institute for Regenerative Medicine, the agency overseeing Prop 71 funds, said talks are underway. Yet Andy Cohn, a spokesman for WARF, says it is not formally negotiating with California and does not have plans to in the near future.
Whatever the outcome, the controversy has drawn greater focus on how these patents could affect the development of this burgeoning field. “This is not unlike in the heyday of DNA, when Stanford had seminal foundational patents [on recombinant DNA] that interested parties needed to access to further the science,” says Todd Lorenz, chair of Life Sciences and Health Care, at the law firm Dorsey & Whitney LLP. Stanford allowed other universities to use the technology without special permission, but charged private companies a licensing fee. “That policy was effective but not prohibitive…I think the challenge for WARF is setting up a similar structure that does not inhibit research or product development.”
Experts say it’s too soon to tell how the WARF patents will affect the commercialization of stem cell technologies. The patents have not yet been tested in courts – that is unlikely to happen until someone develops a commercial product based on embryonic stem cells, an achievement probably years away in this nascent field. “How will [WARF] handle product development issues? That’s still a wild card,” says Lorenz.
The more immediate concern is how the patents will affect basic academic research, which, in turn, could affect the development of stem cell-based tools and therapies. “We’re trying to foster an open research atmosphere,” says Ed Penhoet, vice chairman of the California institute’s oversight committee, which recently announced that any researchers who develop patented discoveries using state funds must share their patents with other state researchers. “We hope WARF will reciprocate,” he says.
Universities generally allow other institutions to use patented technologies without special permission. WARF, however, requires universities to get a license to do embryonic stem cell research. “None of us understand why we need a license…Why is this technology any different?” says one technology-transfer official.
WARF officials emphasize that they have made licenses broadly available. “We have given 54 different research groups in California royalty-free licenses,” says WARF’s Cohn. “Those academic researchers can patent anything they find and publish anything they find without any oversight from us.” WARF does not disclose specific details of licenses.
But license requirements could still impact early research and development. “A number of institutions have not been able to reach terms with WARF for licenses,” says Kenneth Taymor, an attorney with the Stanford Program on Stem Cells in Society. “That suggests that in this research area, it’s making impediments.”
The license for the University of California, for example, permits scientists to use only a small number of embryonic stem cell lines. And the license granted to the Howard Hughes Medical Institute, a nonprofit medical research organization that funds scientists across the nation, prohibits scientists from accepting funding from or collaborating with commercial companies unless the company has a commercial license from WARF. (Some companies have chosen not to take a license because of the cost.) That could make it difficult for academics to partner with companies to develop their discoveries into products or therapies.
This inability to gain industry investments is of particular concern in the embryonic stem cell field. Since federal funding is limited (due to restrictions mandated by President Bush in 2001), experts predict that much early-stage stem cell research that usually would take place at universities will need to be done by biotech companies.
Licensing costs could also hinder scientists who want to start their own biotech companies. “I think there has been a lot of concern from investors about funding startup companies because of uncertainty over WARF patent coverage,” says Warren.
Jeanne Loring, a scientist at the Burnham Institute for Medical Research in La Jolla, CA, started a short-lived embryonic stem cell company several years ago. “I learned from venture capital investors that these patents existed and that it would be impossible to obtain funding from them,” she says.
So far, WARF has not been aggressive in enforcing its patents, says Taymor. (In principle, it could take legal action against those studying embryonic stem cells without a license.) “But as there are more dollars on the table, there is more incentive for WARF to become more aggressive,” Taymor says. “The more that WARF presses its rights, the more research will be impinged and the more likely it will move offshore.”