Debra Robertson
 

Debra Robertson is a freelance writer working in San Diego, CA.

An English Court of Appeals decision in November held that Affymetrix (Santa Clara, CA) has a valid license to critical DNA microarray technology developed by Oxford Gene Technology (OGT; Oxford, UK). If upheld in the house of Lords, the UK's highest court, the decision effectively prohibits OGT from blocking Affymetrix from manufacturing and commercializing high-density GeneChips it develops using OGT technology. The news, which pushed share price of Affymetrix up 24.4% to $79.4, forces OGT to compete in the high-density microarray business with Affymetrix, which already holds 90% of a market estimated to be $527 million. However, although the decision could cost OGT millions in lost royalties, analysts say the decision will have no real impact on the chip industry as a whole, as newcomers move to alternative microarray systems.

The focal point of this transatlantic battle is a family of key US and European patents referred to as the "Southern patents" after their inventor, Edwin Southern, founder and majority owner of OGT, an Oxford University spinoff. Southern's patents, including US patents 5,700,637 ('637) and the newly issued 6,054,270 ('270)—not involved in this litigation—and their European counterparts, claim basic methods for creating and using arrays of oligonucleotides that are attached to solid supports such as a glass slide. The two patents cover methods of creating two types of microarrays: those formed by in situ synthesis of the probe oligonucleotides on the chip itself ('636)—a technology focused on in the Affymetrix litigation—and those created by deposition of oligonucleotides previously synthesized offline ('270). The two types of microarrays are widely used in the $2 billion genomics market to produce customized tools used in genotyping and diagnostic applications.

With OGT patents covering the general method of in situ hybridization of nucleic acids on a solid surface, and Affymetrix's patent estate including basic patents to the photolithographic method of synthesizing high-density array, it is clear companies wanting to enter this field need licenses for freedom to operate under these patents. "Affymetrix did not invent the array, yet they appear to be attempting to patent all arrays and achieve a monopoly over all arrays," says Southern. "This conduct may hinder the emergence of competitive array technologies, such as the computer-controlled printing techniques disclosed in our original filing. If not checked this could ultimately drive people away from arrays altogether."

Although Southern may be right about the microarray technology covered by his own patents and those held by Affymetrix, Robertson Stephens (New York) biotechnology analyst Ellen Lubman says that these legal challenges are more important for Affymetrix and OGT than for the chip industry as a whole. "Most companies entering the market are [now] developing IP to get around or avoid the Affymetrix [and OGT] patents," she points out. "The new technologies are focusing on different length oligonucleotides, novel solid supports and new technologies for delivery the oligonucleotides," says Lubman, citing heavyweights such as Hewlett Packard/Agilent technologies(Palo Alto, CA) and Motorola (Schaumburg, IL). In addition, industry newcomers such as Hitachi hope to move into Affymetrix market share with new products by circumventing the intellectual property minefield and by teaming up with smaller companies such as Nanogen (San Diego, CA), and Caliper (Mountain View, CA) which already own microarray patents.

Meanwhile, how much Affymetrix owes OGT in back royalties remains to be settled. In a separate patent infringement case brought by OGT, in which the US District Court in Delaware in November upheld the English Appeals court decision giving Affymetrix a valid license to OGT technology, a jury found that Affymetrix infringes six of the eight claims in OGT's US patent 5,700,637. However, the verdict held that Affymetrix's manufacturing and use of its GeneChip microarray did not "literally" infringe OGT's '637 patent but infringed under the "doctrine of equivalents," a set of principles used to determine whether two claimed inventions are fundamentally similar resulting in the same product. The court also ruled that Affymetrix infringement of OGT was not "willful"—saving the company from paying triple damages and all the attorney fees. OGT is now asking for $40 million in damages but, because of the ruling that Affymetrix has a valid license, may only be eligible for royalties for GeneChip products sold prior to Affymetrix's June 1999 purchase of the patent license through Beckman (see timeline)—an amount that will be determined in a later court proceeding.

The second stage of the trial is Affymetrix's countersuit charging that the OGT patents are invalid. Despite the UK court decision affirming Affymetrix's license, OGT still retains ownership of its patents. "The most significant news is the position taken by the Court on the validity of our license," says Vern Norviel, senior vice president and General counsel of Affymetrix. "We can now proceed to challenge the validity of the patent as well as other issues including patent misuse, fraud, and anti-trust violations arising from OGT's relationship with certain Affymetrix competitors. If the patent is found invalid or unenforceable, Affymetrix will be relieved of obligations to all royalties to OGT."