Ariad loses $65M patent appeal against Eli Lilly

Ariad Pharmaceuticals Inc. lost an appeal of a case against Indianapolis-based Eli Lilly and Co. as a federal court again
ruled that the company’s patent claims were invalid.

Monday’s decision throws out a $65.2 million verdict won by Ariad for royalties on Lilly’s osteoporosis drug
Evista and sepsis medicine Xigris. The patent comes from research at Harvard University, the Massachusetts Institute of Technology
and the Whitehead Institute and licensed to Cambridge, Massachusetts-based Ariad.

This is the second time the court has invalidated the aspects of the patent that were asserted against Lilly, ruling it failed
to adequately describe the invention. The decision, posted on the U.S. Court of Appeals for the Federal Circuit Web site,
came after the court reviewed the earlier finding.

The case was heard by 11 members of the court, rather than the three-judge panel that considered it the first time. The court
wanted to address the broad legal question of whether federal patent law has a specific requirement that an inventor describe
the invention that is separate from the mandate that it explain how others could replicate the work. The majority said the
law requires both.

“Every patent must describe an invention,” Circuit Judge Alan D. Lourie wrote for the majority. “It is
part of the quid pro quo of a patent: one describes an invention and, if the law’s other requirements are met, one obtains
a patent.”

Describing how to make and use the invention “is a different task,” the court ruled.

Mark Taylor, a spokesman for Lilly, said the company was pleased with the decision and “we believe the court fairly
applied long-standing patent law principles.”

Maria Cantor, a spokeswoman for Ariad, didn’t immediately return calls seeking comment.

In addition to awarding the $65.2 million for sales prior to May 2006, the jury said Lilly should pay royalties of 2.3 percent
of sales of the two drugs. Evista generated $1.03 billion in global sales last year for Lilly.

The patent covers gene regulation, specifically of a protein called NF-KappaB, Ariad said. Reducing the protein alters the
way cells respond to a stimulus, such as an infection. Identifying the protein helps researchers develop drugs for certain
types of diseases.

Mponday’s decision covers four aspects, or claims, of the patent and relate to methods of reducing NF-KappaB activity
in response to external influences.

The ruling is a blow to universities, which argued in court papers that the requirement hurts their ability to obtain patents
on basic research.

“The closer you are to core research, the harder it is to describe your invention,” said John Dragseth, a patent
lawyer with Fish & Richardson in Minneapolis, who wasn’t involved in the case. He said the decision maintains the
status quo, and universities have dealt with the requirement for more than a decade.

Drugmakers including GlaxoSmithKline Plc and technology companies such as Microsoft Corp., Google Inc. and Samsung Electronics
Co. supported Lilly. In its filing, Google said the separate requirement eliminates “overreaching” by inventors
claiming to have discovered more than they did.

“Patents are not awarded for academic theories, no matter how groundbreaking or necessary to the later patentable inventions
of others,” the majority ruled. “Requiring a written description of the invention limits patent protection to
those who actually perform the difficult work of ‘invention.’”

Ariad shares rose 11 cents, to $3.30 each, in afternoon trading. Lilly stock gained 53 cents, to $36.70.

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