In a decision that could have far-reaching consequences for biotech companies, a federal court in New York ruled that individual genes isolated from the body were not subject to patent.

On Monday, the New York Southern District Court overturned several patents on breast cancer genes, rattling the industry and putting thousands of gene patents in doubt, although some experts say the immediate aftershocks of the ruling will be mild.

In his ruling, presiding judge Robert W. Sweet struck down intellectual property protections held by the company Myriad Genetics on two genes that they discovered. The judge also struck down patents related to the company's diagnostic method, though he declined to look into the broader question of whether the U.S. Patent and Trademark Office violated the Constitution in issuing the patents.

The genes in dispute, the BRCA1 and BRCA2 genes, are linked with elevated risk for deadly breast and ovarian cancers. Myriad owns the patents to both the genes and expensive tests associated with them, and requires all testing to go through its Salt Lake City, Utah facility.

"The identification of the BRCA1 and BRCA1 gene sequences is unquestionably a valuable scientific achievement for which Myriad deserves recognition, but that is not the same as concluding that it is something for which they are entitled to a patent," Sweet concluded in his judgment.

The American Civil Liberties Union, which was one of the plaintiffs that brought the suit against Myriad, applauded the decision. "The human genome, like the structure of blood, air or water, was discovered, not created. There is an endless amount of information on genes that begs for further discovery, and gene patents put up unacceptable barriers to the free exchange of ideas," ACLU lawyer Chris Hansen said in a statement. The ACLU, which hopes to abolish all patents on genes, says the ruling could jeopardize around 2,000 patents.

The ACLU filed the suit against Myriad last May, and was joined by the Public Patent Foundation as well as women who said they couldn't afford the pricey genetic tests.

The suit also named a University of Utah research foundation affiliated with Myriad and the U.S. patent office as defendants.

Medical groups and charities worried about the effect such patents have in limiting access to potentially life-saving medical treatment, such as the American Medical Association, March of Dimes, and American Society for Human Genetics, filed friend-of-the-court briefs in support of the lawsuit. The suit also attracted activists like the Indigenous Peoples Council on Biocolonialism, which opposes many biological patents.

Myriad announced they intended to appeal the verdict shortly after it was delivered.

"While we are disappointed that Judge Sweet did not follow prior judicial precedent or Congress's intent that the Patent Act be broadly construed and applied, we are very confident that the Court of Appeals for the Federal Circuit will reverse this decision and uphold the patent claims being challenged in this litigation," the company's president Peter Meldrum said in a statement on Tuesday.

DNA exceptionalism

Patents cannot be filed for products "found in nature." Thus, courts have held that genes found naturally in the body are not subject to patent. However, the U.S. patent office does protect genes tinkered with by scientists or discovered and then isolated from the body and used for testing, as these generally undergo some sort of modification.

Myriad, in its suit, claims that by isolating and purifying the gene they alter it substantially, as for example, they cut out the junk DNA filler that makes up the bulk of most genes.

"Preparations of isolated and purified DNA molecules, which alone can be put to use in these ways, are patentable because they are fundamentally different from anything that occurs in nature," Jim Greenwood, the president and CEO of the Biotechnology Industry Organization (BIO), an industry trade group that filed an amicus brief for Myriad, said in a statement.

But while Judge Sweet granted that there might be some differences between a gene found in the body and the same one "purified" and extracted in a test tube, what is important about genes is not so much the structure of the individual genes, but rather the information encoded inside, making DNA "distinct in its essential characteristics from any other chemical found in nature," he wrote in his decision.

And by isolating the DNA, Myriad was not changing the "information" in a significant enough way to merit a patent.

The Court also determined the method for diagnosis using the so-called breast cancer genes was not patentable, as it was based on an "abstract mental process."

This ruling is based on the In re: Bilski decision reached by a federal court last year. In it, the court ruled that business method patents based on abstract processes were invalid unless embodied in a specific machine or unless they materially transformed a substance, as with a chemical formula, according to legal experts DOTmed news spoke with.

But the Bilski decision itself is up for review by the Supreme Court, which heard the case last year. A decision from the Court is expected any day now, but legal experts don't think, however this case is decided, it will greatly affect the current ruling.

And though the ACLU's stated goal is to abolish all gene patents, legal experts consulted by DOTmed News don't think it's likely to affect patents on genetically-engineered organisms, where information contained in the modified genes is, by definition, different from what is found in nature.

"Tragedy of the anticommons"

The lobbying group BIO, which filed an amicus brief with Myriad, said they were pleased the ruling did not touch the explosive issue of whether the patent office stepped on the public's First Amendment rights in issuing the gene patents, as the plaintiffs had argued; and the court chose not to discuss deeper questions about the social effects of gene patents.

"Disputed allegations that patents supposedly stifle research or impede patient access were explicitly excluded from consideration," CEO Greenwood said.

Nonetheless, for many, at issue is not merely the question of whether isolated genes are products of nature, but the larger one of whether by patenting them, the biotech industry creates non-competitive monopolies that restrict access to needed health care. Another issue: that strong intellectual property protections may thwart innovation by making advanced genetic research, which frequently involves using many genes, next to impossible without hacking through what some call the "patent thicket," a disorder of competing legal claims. For instance, co-plaintiffs to the case included women who said they couldn't afford the tests, which run upward of $3,000 per test. But in Canada, which doesn't recognize Myriad's patents, the tests are one-third the price, according to the judgment.

The Public Patent Foundation, which jointly filed the suit, says about 20 percent of human genes are patented, many of which are related to illness.

But the pro-patent groups say that patent rights are necessary to spur innovation in genetic research that could one day usher in an age of personalized medicine: where patients get individualized treatment based on their genetic makeup. Without the financial incentives of the patent, research would dry up, they argue.

Discovery and recovery

"One thing that's easy to forget: when you're in medical technology, especially anything related to pharma, the big cost is not discovery, it's post-discovery; it's research to find out whether something is of any value," John Calfee, a scholar at the American Enterprise Institute, a free market think tank, tells DOTmed News.

He says that without the promise of royalties provided by patent protection for genetic research many companies might not undertake the staggering cost of clinical trials to see whether a gene is diagnostically useful.

However, not all are convinced. Many patent opponents believe patents actually stifle innovation through the "tragedy of the anticommons," that is the abundance of intellectual property rights makes research too legally complex or expensive.

But evidence of this has not been overwhelming. A National Academy of Sciences review of the effect of patent laws concluded that "IP restrictions rarely impose significant burdens on biomedical research." And an American Association for the Advancement of Science survey from 2006 and 2007 of about 5,000 scientists in the U.S., U.K., Germany and Japan found IP rights had "little negative impact" on scientific work, in the words of project manager Stephen Hansen.

Nonetheless, in the survey, a significant number of scientists, though mainly in industry and not the academy, said they were delayed by several months because of IP licensing headaches. But despite the hassles, few dropped their studies: according to a 2006 Nature Biotechnology article, only about one out of 100 scientists actually abandoned research because of the "patent thicket."

Investment impact

Although many expect widespread impact in the biotech industry as jittery investors pull out of biotech companies, so far reactions have been muted.

Isaac Ro, an analyst at Leerink Swann, a health care investment bank, tells DOTmed News that investors have known for months that this was a likely outcome, and are actually somewhat relieved.

"Classically, when you get a resolution to legal stuff, it resolves uncertainty, and that's usually a good thing," Ro says.

After taking a small tumble after the ruling was announced Monday, Myriad's stock rose a slight 1.48 percent on Wednesday, closing at $24.05.

Myriad itself claims it will do fine because of its other properties. "We do not believe that the final outcome of this litigation will have a material impact on Myriad's operations due to the patent protection afforded Myriad by its remaining patents," they said in a statement.

When contacted by DOTmed news, Myriad declined to comment.

For now, most biotech companies are not affected, as the District Court's ruling only applies to New York City and some counties north of the city, until and unless it gets affirmed on appeal when the case likely hits a federal appeals court sometime next year.