Reach-Through Rights in Biomedical Patent Licensing: A Comparative Analysis of their Anticompetitive Reach

AuthorJane Nielsen
Published date01 June 2004
Date01 June 2004
Subject MatterArticle
Jane Nielsen
Medical biotechnology offers vast opportunity for the treatment of human genetic
conditions, including the development and improvement of drugs, diagnostic
capabilities and therapeutic techniques. Australian health and medical research has a
rich and proud history. This has been recognised in numerous federal government
reports, which examine the sustainability of research momentum and the ability of the
Australian industry to capitalise on this research base.1 Australia's increasing $1 billion
trade deficit in pharmaceuticals, medical equipment and other health and medical
industries has been a major impetus for the push to develop Australia's medical
research base.2
Many domestic and export market opportunities for the Australian biotechnology
industry exist. These opportunities have been taken up for the most part by the
existing research sector, and by small companies, whether spin-off companies from
research institutions, or companies independently conducting research. The industry is
highly competitive and motivated to participate in the biotechnology revolution on an
international level. To enable them to do this, intellectual property protection is crucial
as a tool to enable trade, collaboration, and competitive advantage.
The international biotechnology industry is heavily dependent on intellectual
property protection. The performance of the Australian medical biotechnology
industry in terms of protection of research output is undergoing constant
B Com LLB (Comb) (Hons), PhD Candidate, Faculty of Law, University of Tasmania. Many
thanks to Dr Dianne Nicol, Lynden Griggs, Rhys Edwards, Professor Don Chalmers and
two anonymous referees for their helpful comments on drafts of this article.
1 See Health and Medical Research Strategic Review Committee, Parliament of Australia, The
Virtuous Cycle — Working Together for Health and Medical Research — Health and Medical
Research Strategic Review (1999) (the 'Wills Review'); Biotechnology Australia, Australian
Biotechnology: A National Strategy (2000) ('National Strategy'); Biotechnology Australia,
Developing Australia's Biotechnology Future: Discussion Paper (1999); Ralph Committee,
Parliament of Australia, Review of Business Taxation — A Tax System Redesigned: Final Report
(1999). See also Commonwealth of Australia, Backing Australia's Ability: An Innovation
Action Plan for the Future (2001).
2 Health and Medical Research Strategic Review Committee, above n 1, 125–6.
170 Federal Law Review Volume 32
improvement. Increased awareness of the need to improve intellectual property
management practices is evident within the industry, and has been expressly
promoted by the Federal Government.3 Commercialisation, where appropriate, has
been actively encouraged in relation to all sectors of the industry.4 Patent protection is
the lifeblood of most biomedical companies.
The grant of a patent allows a number of commercialisation options. Section 13 of
the Patents Act 1990 (Cth) (the 'Patents Act'), gives a patent holder the exclusive right to
exploit an invention and to authorise another person to exploit the invention.5 Thus, a
patent holder may choose to exclusively exploit an invention themselves and further
develop, or, where appropriate, manufacture, technology. Alternatively, they may
choose to transfer ownership, or assign a patent, or allow another party to exploit the
invention through a licensing agreement. A number of licensing options are available
and the patent holder will generally issue either an exclusive licence which gives the
exclusive right to exploit the invention to one licensee, or a non-exclusive licence which
gives licensees the right to exploit the invention on a non-exclusive basis.
Transactional dealings in patents such as licensing are a crucial strategy for the
biomedical industry. The industry has recently been described as a '… matrix of supply
chain relationships along the drug discovery process, with increasing reliance on
technology alliances and partnerships.'6 Research institutions and companies at all
stages of the drug discovery continuum are engaged in research activities, with many
'upstream' patent holders holding patents over inventions that are far removed from
'end' products such as drugs.7 Licensing arrangements allow patent holders with
3 See, eg, Biotechnology Australia, National Strategy, above n 1, 11, 19–20; Biotechnology
Australia and Spruson and Ferguson, Biotechnology IP Management Manual (2001);
Australian Research Council et al, National Principles of Intellectual Property Management for
Publicly Funded Research (2001) National Health and Medical Research Council
<> at 11 March 2004.
4 For example, the Biotechnology Innovation Fund assists companies by providing grants for
early-stage commercialisation. See AusIndustry, Fact Sheet: Biotechnology Innovation Fund
(2003) <
=FD34329B-F6F6-4C98-B963D0A59C20A603> at 11 March 2004.
5 'Exploit' includes making, hiring, selling and otherwise disposing of the invention: Patents
Act sch 1.
6 Statement by Alex To, Head of Biotechnology Research Group, Credit Suisse First Boston
contained in Ernst & Young, Convergence: Ernst & Young's Biotechnology Industry Report,
Millenium Edition (2000) 17.
7 The terms 'upstream' and 'downstream' are used here to describe the position of
institutions and companies in the research and development continuum. Researchers and
companies at the furthest upstream end of the continuum produce broadly enabling
technologies, while companies at the furthest downstream end produce drugs, diagnostic
products and other therapeutics. Many researchers and companies fall somewhere between
these two extremes, and are classified broadly as 'intermediate'. Note, however, that this
distinction is not static: see Arti Rai, 'Fostering Cumulative Innovation in the
Biopharmaceutical Industry: The Role of Patents and Antitrust', (2001) 16 Berkeley
Technology Law Journal 813 n 9 ('… these classifications are quite fluid. Thus, for example,
research identifying a gene linked to a disease might be quite "upstream" if the commercial
goal is a drug therapy. By contrast, if the commercial goal is a diagnostic test, research
identifying the gene might be relatively "downstream."').
2004 Reach-Through Rights in Biomedical Patent Licensing 171
particular expertise to grant permission to more downstream industry participants to
further develop or manufacture technology. Importantly, these arrangements may
allow the establishment of collaborative relationships or provide an ongoing income
stream to the patent holder. Payment for the licence may be in the form of a single
lump sum payment, periodic payments, milestone payments upon the occurrence of
particular events, or royalty payments. Royalty payments may be contingent upon the
sale or use of the licensed product or technology.
This article reports the findings of a number of empirical studies into access to
patents in the biomedical industry, including a recent Australian study jointly
conducted by the author (the 'Australian study').8 In particular, it details the findings
of these studies in relation to particular terms commonly found in licence agreements,
in the form of reach-through rights. Reach-through rights give patent holders rights to
downstream uses of the patented invention. They may take a number of forms,
including rights to royalties over future inventions, rights to intellectual property over
future inventions, and exclusive licences over future inventions.9
Patents are perceived to be an important impetus for innovation. Indeed, the main
aim of the patent system is to promote innovation and thereby benefit consumers.10
Licensing of patents is also perceived to be important in the dissemination of
innovation. Reach-through rights allow patent holders to license and realise value on
their inventions even when that value is speculative. In this respect, they encourage the
dissemination of patented inventions and are likely to have a positive effect on
innovation. Reach-through rights may, however, have an inhibitive effect on
innovation in that they may restrict in some way, the ability of licensees to exploit the
products of their research. The impact of gene patents on healthcare issues may be
particularly acute, as the Australian Law Reform Commission recently noted in its
8 Dianne Nicol and Jane Nielsen, 'Patents and Medical Biotechnology: An Empirical Analysis
of Issues Facing the Australian Industry' (Occasional Paper No 6, Centre for Law and
Genetics, 2003). The focus of the report was on medical applications.
9 See Michael Heller and Rebecca Eisenberg, 'Can Patents Deter Innovation? The
Anticommons in Biomedical Research (1998) 280 Science 698, 699; Rebecca Eisenberg,
'Bargaining Over the Transfer of Proprietary Research Tools: Is This Market Failing or
Emerging?' in Rochelle Dreyfuss, Diane Zimmerman and Harry First (eds), Expanding the
Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society (2001) 223;
National Institutes of Health, Report of the National Institutes of Health Working Group on
Research Tools (1998) <> at 3 October
2002 ('NIH Report'). Reach-through rights in licence agreements are distinct from reach-
through claims in patents. In the latter case, the issue is whether the patent claims are
interpreted so broadly as to enable patent holders to claim royalties over any product
developed that utilises the patented technology: See OECD, Genetic Inventions, Intellectual
Property Rights and Licensing Practices: Evidence and Policies (2002) 15–16. The Australian
Patent Office released new guidelines for the examination of reach-through claims in
patent applications in November 2003: see IP Australia, Australian Patent Office Manual of
Practice and Procedure (1996) vol 2, [3.12.10], [10.10].
10 See generally the discussion on the economic rationales for the patent system in Richard
Nelson and Roberto Mazzoleni, 'Economic Theories About the Costs and Benefits of
Patents' in National Research Council, Intellectual Property Rights and Research Tools in
Molecular Biology (1997); and the discussion in Intellectual Property and Competition
Review Committee, Review of Intellectual Property Legislation Under the Competition Principles
Agreement: Final Report (2000) (the 'IPCRC Report') 22–3.

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