The California Institute of Regenerative Medicine ("CIRM"), the now famous institute devoted to promoting embryonic stem cell ("ESC") research, proposed regulations earlier this year that seek to govern how patents, and the revenues they protect, are to be shared between CIRM and the organizations that receive its grants. These regulations have gathered considerable controversy from both potential grantees and the public, some regulations for being unclear, and others for being too restrictive.
In addition to detailed reporting requirements covering all patents and patent applications relating to CIRM-funded inventions, 17 Cal. Code of Regs. §100402 ("Invention Reporting Requirements") obliges grantees to track related revenue:
In the event of revenue streams created as a consequence of CIRM-funded patented inventions (whether from license agreements or self-commercialization activities), awardee organizations shall keep accurate records and accounts, and submit to CIRM a statement describing financial information relating to the CIRM-funded invention-related revenue stream for the preceding 12 month period.
What "CIRM-funded invention-related revenue stream" lacks in poetic elegance, it more than compensates for in interpretive ambiguity. Some worry that this regulation, as currently crafted, creates perverse incentives for grantees to redefine their inventions to minimize any relationship to CIRM grants.
In addition, §100406 ("Licensing CIRM-Funded Patented Inventions") creates strong incentives for grantees to avoid negotiating exclusive licenses:
(c) In exclusive license agreements, awardee organizations shall include terms for commercial development plans to bring the invention to practical application. Such provisions shall include commercial development milestones and benchmarks so that development can be assessed and monitored.
(d) Awardee organizations shall grant exclusive licenses involving CIRM-funded patented inventions relevant to therapies only to organizations with plans to provide access at the time of commercialization to resultant therapies for uninsured California patients. In addition, such licensees will agree to provide to patients whose therapies will be purchased in California by public funds the therapies at a discount price. The CIRM may make access plans available for review by the ICOC.
(e) Awardee organizations shall monitor the performance of exclusive licensees of CIRM-funded patented inventions to ensure that the licensed invention is developed in a timely fashion. Remedies for failure to develop may include modification or termination of a license in the event that a licensee is unable to fully develop the rights granted.
(f) Awardee organizations shall negotiate relevant and specific grounds for modification or termination of the license. Examples would include failure to meet agreed-upon commercialization benchmarks, and failure to reasonably meet the agreed-upon plan for access to resultant therapies as described above in subdivision (d).
(g) Awardee organizations shall monitor the commercial development activities of the licensees to determine compliance with the terms of the license agreement and include reports of monitoring activities annually.
(h) Awardee organizations shall take administrative action to modify or terminate license rights where necessary and report such action to the CIRM Scientific Program Officer.
Given the importance licensees in the biotechnology realm often place on exclusivity of patent rights, these rules may prove prohibitive. This may be especially so for smaller start-ups, which happen to constitute a large share of those companies engaged in ESC science.
In the meantime, other states, such as biotechnology powerhouse, Massachusetts, are actively considering establishing their own large pools of ESC funding. If these states choose less burdensome regulations on patents, California may find itself a victim in a race to the bottom of the petri dish.