European Court Ruling on Embryonic Stem Cells: Ripple Effects

The recent Court of Justice of the European Union (2011)xSee all ReferencesCourt of Justice of the European Union (2011) opinion in Brustle v. Greenpeace caught the attention of the California Institute for Regenerative Medicine (CIRM) and many others as a result of its severe restriction on the patentability of inventions arising from embryonic-stem-cell-related research. Strong criticism of the decision immediately arose in some quarters, including dire predictions that the ruling marked the end of human embryonic stem cell (hESC) research in Europe and, ultimately, that Europe would not have access to resulting therapies (Naik, 2011xSee all ReferencesNaik, 2011). At CIRM we fund academic and commercial scientists conducting stem cell research ranging from basic science through to early clinical work, and a significant proportion of our funded projects involve hESCs. We appreciate that patent protection can be an important incentive for investment, and that it also often promotes innovation as it allows innovators time and a mechanism to recoup their outlay (Rai et al., 2010xSee all ReferencesRai et al., 2010). Our view is that the impact of the recent Court ruling on stem cell research and regenerative medicine will be significant but varied. In some instances, the ruling may deter European hESC research, in others such research may nonetheless continue or even increase; in still others, no impact may occur.In the area of basic or foundational hESC research, for example, we would not expect a significant impact from the Court ruling provided scientists expect that there will be continued funding of such research by government and not-for-profit entities. We would not expect that a diminished ability to obtain patent protection for basic research inventions would materially decrease research funding from these sources. Government funders tend to be less profit-driven than commercial funders. Moreover, hESCs presently remain the “gold standard” for regenerative medicine research (Smith et al., 2009xSmith, K.P., Luong, M.X., and Stein, G.S. J. Cell. Physiol. 2009; 220: 21–29Crossref | PubMed | Scopus (70)See all References, Fung and Kerridge, 2011xFung, R.K. and Kerridge, I.H. Bioethics. 2011; 2011: 4See all References). We believe scientists conducting basic research will be reluctant to focus exclusively on adult stem cells or even induced pluripotent stem cells (iPSCs) given the unique advantages offered by hESCs.With respect to translational hESC research, the situation is more complicated. At this stage of research and development, profit-driven biotechnology and pharmaceutical companies are more actively involved. To the extent that the lack of patent protection following the Court ruling decreases the profit available (e.g., because patented inventions cannot be licensed and injunctions cannot be obtained to protect hESC patented inventions), biotechnology and pharmaceutical companies may be less motivated to invest in European hESC research. That effect may be even more dramatic for startup companies. A strong patent portfolio traditionally has been a prerequisite for attracting venture capital in the life sciences field. As reported by a U.S Department of Commerce white paper, “In a large-scale survey conducted in 2008, 76% of startup managers reported that VC investors consider patents important to funding decisions.” (Rai et al., 2010xSee all ReferencesRai et al., 2010.)On the other hand, we would not predict a complete dearth of European commercial investment in the hESC sector in the EU for several reasons. First, companies can still protect some of their work as traditional trade secrets. Second, as is often said of biologics, “The product is the process.” EU regulators will likely require that any company wishing to compete would have to incur the large expense of preclinical and clinical trials using their particular stem-cell-based therapy (Tam, 2010xTam, J.W.Y. Georgetown Law J. 2010; 98: 535–536See all ReferencesTam, 2010). Third, to varying degrees throughout Europe, the “Bolar Exemption” (European Union, 2004xSee all ReferencesEuropean Union, 2004) limited patent protection for certain types of research at this phase even before the Court ruling. Finally, the effect of the Court ruling on EU companies will vary depending on their specific circumstances. Companies that would have faced a freedom to operate problem because of hESC patents held by others may now be more likely to start, or continue, hESC research programs because the Court's ruling renders such patents unenforceable. Companies working on the “improvement” of hESC related-technologies, for instance, which would have faced patent infringement litigation or would have had to pay royalties, may find themselves more incentivized to perform hESC research in the EU following the Court's ruling. By contrast, companies holding foundational hESC inventions might be incentivized to work in jurisdictions that offer patent protection for hESC inventions (e.g., the USA).Despite the Court ruling we believe that sponsors of hESC-based therapies will locate trials in Europe for a number of reasons. Companies developing hESC therapies will ultimately desire to sell their products on the European market. The EMA may require data from European clinical trials before it approves of any future hESC-derived therapy. Moreover, recent studies suggest that over 50% of products headed for FDA approval are in clinical trials that involve foreign study sites (Levinson, 2010xSee all ReferencesLevinson, 2010).Finally the possibility that some companies could be attracted to Europe because of this decision cannot be discounted. Although the Court ruling does not directly impact the patentability of hESC inventions in the U.S., it will have a ripple effect there. American companies facing a freedom to operate problem because of U.S. patents held by others may now reconsider their business plans. Moving their research operations to Europe becomes a more attractive option because the EU counterparts of those patents are no longer enforceable. These companies will balance the benefit afforded by the new EU patent landscape against the protection that the Hatch Waxman Act provides for certain research activities in the U.S. and the significant costs of moving an already established and ongoing research operation. A cost differential that disfavors the U.S. as an alternative to the EU may incentivize companies to consider moving their trials and preclinical efforts to places such as India or China.As Yogi Berra once said, “It's tough to make predictions, especially about the future.” Everyone will need to wait and see how various stakeholders in the research community actually respond to the Court's ruling. Nevertheless, we are confident that the reaction will be dependent on many individual variables. As a result, we expect that some of the currently critical hESC research and development in the EU will continue to flourish.