When Gregor Mendel first identified the two gene alleles that account for inherited characteristics in living organisms, he radicalized our understanding of the myriad combinations possible in a single DNA strand. Today, pioneering companies are applying advanced genetic research to develop new medicines that treat inherited diseases and detect diseases earlier and more safely, but it also exposes companies to a host of legal issues, particularly on the IP front.

In this Q&A, Kaye Scholer partner Michael Malecek answers crucial questions about emerging legal issues and the potential ramifications for companies operating in this rapidly evolving industry.

“When it comes to DNA analysis technology, accept the fact that you are going to be sued. But if your primary strategy is to protect your commercial position through litigation, as opposed to innovation, you are going to face a rough road. ”

Q. How has the human genome industry changed in the last ten, five, one year(s)?

The technology innovation cycles have sped up. The volume of IP litigation continues to increase. Many of the ideas genomic companies are working on now were not even viable five years ago, let alone a decade ago. Considering that the first draft of the human genome – delivered in 2001 by an extensive public-private partnership after about a decade of work – cost an estimated $3 billion, and that today the price for a whole human genome sequencing is under $5,000 (and plunging rapidly), not to mention the potential medical uses to which such information can be put, something truly profound is going on.

Even more amazing is that these huge, profound developments represent—objectively, relatively speaking—only a small shift in what’s possible. Knowing whether a baby might have Down Syndrome or other genetic issues is not new. What is new is simply the scope, the cost and the ability for more people to get that information, more quickly and more cheaply. Whereas only some women over 35 were able to take the Down Syndrome test, soon all women of all ages will be able to easily and safely do so. In perhaps just a few years time, all fetuses will have their entire genome sequenced. We have been living in an age where the ability to access information has become enormously easier and cheaper. Biology/genomics is now joining that party.

Q. What are some of the biggest challenges and/or uncertainties facing these types of companies today?

For starters, as the ability to acquire genetic information increases, it has become almost routine for vested parties to have access to that information. However, some controversy over how that information is to be used still exists. Privacy, certainly, is another issue that always arises and that will continue to challenge companies and legislatures over time.

Another challenge is the uncertainty of the regulatory environment, which can make it difficult to raise money, fund new business and have confidence in your business plan. The current state of patent law as relates to Section 101 patentability, in the context of the recent Prometheus Supreme Court decision, creates another significant uncertainty in the field. The unfortunate reality for everyone is that we are going to be litigating these issues without certainty for at least three years, probably longer. Any decision you get on either side of a Prometheus issue, whether it be a loss or a victory, is just going to be a step in the road. It will be a while until there is some stability on the issue of the 101 lines.

The dramatic reduction in cost and time to access a very high volume of information creates other challenges as well. On the tech front, there is as much of an interpretation challenge as there is an access challenge. We’re speeding toward Big Data, but so what? The issue is no longer about being able to get the data as it is about being about to understand what the data means, and then to figure out what to do with that understanding. You may have genetic information, and that’s great, but the next step – the interaction between genetics and disease – is still very complex, uncharted territory. In this way, the technical problem marries up with the regulatory problem. You want to sell directly to your customers, so they know they have a slightly higher risk of X, but then what? There is also the problem of perception. People don’t really know how to measure statistical risk. Many people still fear flying more than driving, in spite of statistical evidence that the former is exponentially safer than the latter. The regulatory agencies are struggling with specific issues, but also the broader spectrum of: What does it mean to tell someone you have a slightly higher risk? What’s next? And how should we be regulating this?

Perhaps the final challenge lies in getting past the pure science and out into the real world. For example, what is the reimbursement scheme ultimately going to be for genomic testing? A company can develop this knock-out new test, but will insurance pay for that test? Maybe not, or at least maybe not right away. It takes a couple of years to reach equilibrium as to price and reimbursement. It makes for an environment where there is interest on the part of larger companies to add new tests – or possibly new smaller companies who have created these tests – to their portfolios, but there is also a lot of wait and see.

Q. What would be your top few pieces of advice for a fledgling—or even established—genomics company, or perhaps its in-house counsel, for negotiating the complex legal landscape? What does it take to succeed and maintain a strong position?

First, stake out your initial position. You need to think about the big picture and craft a long-term five or ten year plan. During this step, a lot of executives are thinking only about attracting initial investment and just getting their company off the ground. But you need to do more, think ahead. You only get to do this once, so you need to be very thoughtful about those early patent applications. Doing (and spending) too little is the wrong answer. However, doing (and spending) too much is the wrong answer, too. It’s a delicate balance.

Second, work with an attorney who has a real depth of experience in the DNA analysis field, so that when you have a growing portfolio of your own, or when you are faced with someone else’s, you will have the ability to anticipate the litigation strategies that are likely to apply, whether offensively or defensively. You will also be able to understand from a litigation point of view, including from a judge/jury point of view, the strengths and weaknesses of a patent prosecution. Fundamentally, you need to make your IP position a tool to succeed in cross-licensing and cross-litigation scenarios. That kind of pressure testing of portfolios, up front, provides critical insights.

Third, accept the fact that you are going to be sued. If you are developing any DNA analysis technology of interest that has real market potential, litigation is almost impossible to avoid. There are just too many companies that have demonstrated that they are willing to assert their IP to protect their market position to realistically expect that you won’t at some point be sued.

One key to getting through it, however, is by considering costs. A good advocate routinely sits down with his clients and discusses this very practical issue with them at every step. You need to understand where the moving parts of the litigation are, as well as the risk profile associated with those choices, and then make decisions that match your risk profile with expense. For example, do we absolutely need to take ten depositions, or will we limit to five? Do we need to file three dispositive motions, or stick to our best one?

Finally, any companies that have been through the litigation mill more than once are probably starting to adopt the use of internal resources and their own vendor relationships to control litigation costs around the commodity aspects of litigation, e.g., document collection, production and review. I’m a big fan of this trend and would encourage companies to consider these options as well.

Q. So as an executive at a young and growing company in this space I can and should basically expect my company to get sued. Do we have to sue other companies to stay competitive?

A. Maybe. But if your primary strategy is to protect your commercial position through litigation, as opposed to innovation, you are going to face a rough road. You need to succeed in the lab and in the marketplace. Success in the courtroom can only be a secondary tool.