The Looming Crisis Over the Research Use Exception To Patent Infringement: What Madey Taught Duke University

Madey v. Duke, F.3d, 2002 WL 31190842 (Fed. Cir. October 3, 2002) (Gajarsa, J.), promises to set off a lively debate about the direction of research at federally funded universities and in particular the role of patents both to protect the intellectual property wealth of such institutions but also the very right to continue to function as research institutions, free from third party patent problems. The confirmation by the court that a nonprofit or other university enjoys no special privilege or experimental use exemption to conduct testing or research guarantees that in the 108th Congress there will be a reconsideration of earlier attempts to provide a statutory research exemption. In the world of research tool patents, from patents covering gene sequences to patents in other areas of basic research such as nanotechnology, patent owners are now armed with a decision that is sure to embolden their enforcement efforts and licensing programs.

Left unanswered in the Madey case is how damages can be measured where a one-time infringing use of a research tool is made on the way to developing a valuable non-infringing end product. If someone uses a patented gene once to screen for and identify a new drug molecule which is not covered by the original patent, what damages are owed to the patent owner of the gene patent? This area will no doubt be hotly litigated in the wake of Madey.

Before Madey and earlier dictum from the Federal Circuit dating back to two years from its creation, it had been unquestioned that an experimental use exemption exists for purely scientific research to study and understand a patented invention, including is limited use to make new innovations that may or may not be outside the scope of the original patent. This had been unquestioned under the convincing case law line that came from no less an authority than perhaps the leading scholar on the early Supreme Court, Joseph Story, in his landmark opinion in 1813 in Whittemore v. Cutter, 29 F. Cas. 1120, 1121 (No. 17,600) (C.C.D. Mass. 1813)(Story, J.) which used the now anachronistic term "philosophical" instead of "scientific" to describe the experimental use exemption from patent infringement. This "scientific-philosophical" exemption from patent infringement resides at the very core of the Constitutional mandate for Congress to create a patent system "to Promote the Progress of *** the Useful Arts" – an essential component being that those skilled in such Useful Arts are free to use the knowledge imparted by a patent disclosure to create better and newer technologies.

The unique nature of university research requires a research exemption. Yet, Madey holds that "the profit or non-profit status of the [experimental] user is not determinative" of whether there is an exemption from infringement. The problem with Madey is not principally with its holding as to nonprofit research but rather with its fundamental misunderstanding of the nature of the research exemption. With the obvious strengthening of research method patents against universities and the need for licenses to practice the fundamental research that is at the wheelhouse of an advanced research program, the need for licenses will increase. The ancillary problem of the "reach-through" agreement (where royalties are charged on end products not covered by the licensed patents that were discovered through use of a patented research tool) pops up its head once again.

Complicating matters for universities who have operated under the premise of a shield from any patent liability under sovereign immunity is the as yet undecided question – at least at the level of the Federal Circuit – whether sponsored research at a state institution is free from infringement liability. In other words, may a corporate research sponsor piggyback off the sovereign immunity of the direct infringer – the university or other public institution that conducts its research? While still subject to review by the Federal Circuit, this point of law has recently been decided against a blanket sovereign immunity shield: The corporate sponsor may be nabbed for infringement liability under a theory of active inducement.

A further discrimination against the domestic university research organization – profit or nonprofit – is the fact that American corporate research efforts are now being shunted to offshore sites, where there is no problem of infringement of any United States patent involved in research.

With a history of nearly twenty full years of unfortunate and unclarified dictum, it is past time for the Federal Circuit to reach a resolution on the scope of the research exemption – one way or the other. A holding that would repudiate this dictum would open the door toward a retention of domestic research, stemming the flow of research offshore, and permitting a more open university-industry collaboration amongst the major U.S. universities and corporations. A holding that would enshrine Roche Products v. Bolar Pharmaceutical Co., 733 F.2d 858, 862-63 (Fed. Cir. 1984) dictum would help signal action – either on review from the Supreme Court or from Congress.

The unfortunate situation where research is encouraged by a liberal research exemption in both Europe and Asia while discouraged domestically by the current interpretation of Roche Products needs to be remedied. Careful attention should be paid to the public policy considerations that have led both Europe and Japan to take an approach diametrically opposite from what the court has stated in Madey. Without a harmonized patent regime including a common definition of a research exemption, it is clear that the trend toward exporting research to foreign institutions will accelerate, to the great expense of the educational infrastructure of the United States.

University research uniquely needs a research exemption from patent infringement to carry out its functions. Yet, Madey confirms that a university or other nonprofit institution has no special freedom from patent infringement vis a vis a commercial enterprise.

Madey is not the first time that a university exemption from patent infringement had been urged. Suzanne Michel correctly foretold the result in Madey a decade earlier: "Whether all research conducted in universities and federal laboratories today can be categorized as 'philosophical experiments' is extremely problematic given the Federal Circuit's narrow interpretation of that term." (Suzanne T. Michel, The Experimental Use Exception to Infringement Applied to Federally Funded Inventions, 7 High Tech. L.J. 369, 376-77 (1992).

Recently, a trial court had denied the existence of a university research exemption in the Infigen, Inc. v. Advanced Cell Technology, Inc., 65 F.Supp.2d 967, 981 (W.D. Wis. 1999) (Crabb, J.) case. There, an experimental use exemption was denied on the basis that "it is up to Congress to decide whether there should be an infringement exemption for university-based research laboratories. So far, Congress has not seen fit to grant one."

A principal object of high technology research at the major universities is to push the needle on the state of the art, to pinch, touch, poke and feel the latest innovations, to measure its worth, to compare it against other, parallel state of the art improvements and – above all – to understand and tinker with the very latest and now often patent-protected technology to develop yet further new developments. In other words, pushing the needle on raising the level of the state of the art is the epitome of what the would-be Nobel Laureate is all about.

It is axiomatic that the pure researcher seeking nothing more than to create new technologies, to extend the envelope on the state of the art, will as a matter of course use all the technology described in the latest literature, all for the purpose of the poking and feeling exercise, to kick the tires of what scientists around the world have proclaimed as their new and better mousetraps. There is no better way to see just how good the new developments may be, whether what is proclaimed as the new state of the art delivers the goods. Then, this new technology often must be used, tinkered with, to see if a slight tweak here or there will make a better innovation, extending the level of knowledge and further broadening the body of useful knowledge.

Blended into the mix within the laboratory of each senior professor is a group of brilliant post-graduate researchers who may very well carry out the bulk of the research – a mix of twenty- and thirty-something Chinese, Indian, Russian and a few American women and men of brilliance, often with no knowledge of the world of commerce and certainly not the world of patent law.

No university has ever had a "patent department" in the sense of corporate America to help guide this research, either by identifying potential research that should be emulated or by evaluating the body of thousands of patents existing in each area of technology to advise whether the use of any patent creates a patent infringement problem. It has been axiomatic since the early days of the country from the mouth of the leading early jurist on patent law – Joseph Story – that any scientific-philosophical research is immunized from patent infringement.

There are at least two distinct differences between the life of the Ph.D. in the commercial laboratory in New Jersey versus his or her academic cousin in California:

First, unlike their California cousins who are prone to immediately publish their scientific results and to orally disclose them to their peers at frequent academic conferences to share their knowledge with experts outside their own organizations, the commercial laboratory of a Merck or Pfizer will have a widespread internal knowledge pool under a veil of secrecy until well after the scientific-philosophical exploration stage has been finished. As a byproduct of this secrecy, outside patent police who would enforce their intellectual property against scientific research have no knowledge of that research while it is being conducted. After the fact – when the research is published – there is little for a patentee to do in the way of enforcement of his patents against any further research use of the invention, because the research has been completed.

Second, the major New Jersey biotechnology corporate research organization includes an internal patent department that has numerous, highly skilled patent attorneys holding both law degrees and often Ph.D. diplomas in the very field of the scientists themselves. Any threats against the scientific-philosophical use of technology is readily handled by this in-house capacity unique to the corporate world vis a vis any major research based university.

A common view amongst the university research community is that a research exemption exists for nonprofit organizations, particularly research universities. One writer echoes the view of this community that an experimental use exception should exist "but only for individuals and universities that derive no monetary benefit from the use and for individuals." But, "[b]usiness entities should not be allowed to argue that their use or manufacture is experimental, and therefore, an excused infringement." She then states that "if the purpose of the experiments is solely for business reasons or to develop a non-infringing device that can compete with the patented device, the infringement is not excused." (Michelle Walters, De Minimis Use and Experimental Use Exceptions to Patent Infringement: A Comment on the Embrex Concurrence, 29 AIPLA Q.J. 509, 523 (2001) (footnote omitted).

This view to draw a line on the research exemption is expressly rejected by the court in Madey. Responding to Duke's plea for special treatment as a nonprofit research organization, the Madey court denied any difference in treatment from a regular commercial enterprise:

[O]ur precedent does not immunize any conduct that is in keeping with the alleged infringer's legitimate business, regardless of commercial implications. For example, major research universities, such as Duke, often sanction and fund research projects with arguably no commercial application whatsoever. However, these projects unmistakably further the institution's legitimate business objectives, including educating and enlightening students and faculty participating in these projects. These projects also serve, for example, to increase the status of the institution and lure lucrative research grants, students and faculty.

[S]o long as the [accused infringing] act is in furtherance of the alleged infringer's legitimate business and is not solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry, the act does not qualify for the very narrow and strictly limited experimental use defense. Moreover, the profit or non-profit status of the user is not determinative.

*** The correct focus should not be on the non-profit status of Duke but on the legitimate business Duke is involved in and whether or not the use was solely for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry. (Madey, emphasis added, footnote omitted. This is part of a longer quotation from the case in an appendix, infra.)

If the United States is to maintain its high level of biotechnology and nanotechnology research, it is essential that the judicial repudiation of the Story line of the research exemption be either exported globally to the major research centers of the world, or that the United States rethink its globally aberrant posture. To the extent that there is an excellent laboratory facility available to conduct research in a Kyoto, Bangalore or Shanghai, more and more domestic research concerns will locate their biotechnology, nanotechnology and other impacted research to these offshore centers – either in parallel corporate research laboratories of with the fine academic institutions that are all over the world. Whether it is the in terrorem threat of patent enforcement or the stacking of reach through royalties, the United States finds itself in a patent quandary of its own making.

Certain to come out of the Madey muck will be attempts at Supreme Court and legislative review by thoughtful members of the research community who value a continuation of the American leadership role in biotechnology and other cutting edge areas of high technology.




Stephen B. Maebius and Harold C. Wegner are partners in the Intellectual Property Department of Foley & Lardner. Maebius is a former visiting associate professor at Tokyo University's Research Center for Advanced Science and Technology. Wegner is a former director of the Intellectual Property Law Program and Professor of Law at George Washington University Law School.