2004 UCLA J.L. & Tech. Notes 12

Current Intellectual Property Issues in Nanotechnology
by Terry K. Tullis

On December 3, 2003, President Bush signed the 21st Century Nanotechnology Research and Development Act (the “Nanotechnology Act”), which authorized $3.7 billion in funding for federal nanotechnology research and development over four years beginning in fiscal year 2005.1 This newly enacted legislation makes nanotechnology the highest priority science and technology effort since the space race.2 So what is basis for all the excitement and increased spending in a period of budgetary contraction? Some suggest that nanotechnology could trigger the next industrial revolution.3 According to California House Representative Mike Honda, who co-drafted the Nanotechnology Act, "the worldwide market for nanotechnology products and services could reach $1 trillion by 2015."4 However, for the first time in recent memory, the U.S. does not have a clear advantage in the technological field. The governments of Europe, Japan, China, Canada and Singapore have already invested billions of dollars in advancing their own nanotechnology programs.5 The nanotechnology race is thus well underway and the first to secure the relevant intellectual property rights will be in the best position to reap the greatest rewards.

i. What is Nanotechnology?

While virtually all new technologies are difficult to define, nanotechnology has generated additional confusion because it defines more of a scale of measurement than a breakthrough in a particular field of science. Nanotechnology is a term used in describing technologies pertaining to the visualization and manipulation of materials at the nanometer scale. A nanometer is one billionth of a meter. To put that in perspective, a human hair is roughly 100,000 nanometers in diameter. A human blood cell is 1,000 nanometers in diameter, and a virus is on the order of 100 nanometers. The diameter of single atoms ranges from about 0.1 to 0.5 nanometers.6 Nanotechnology essentially refers to the application of science at the nanoscale, from 1 to 100 nanometers. However, nanotechnology is more than the study of small things; it is the research and development of materials, devices and systems that exhibit physical, chemical and biological properties that are different from those found at larger scales.7 Thus nanotechnology can be best understood as a broad collection of technologies -- from diverse fields such as physics, materials science, engineering, chemistry, biochemistry, medicine and optics -- each of which may have different characteristics and applications.

The basic science at the nanoscale is not new. Scientists have known that matter is made of atoms for over a century, and for decades scientists have known how to calculate many of the properties of matter. However only recently have developments in instrumentation and computing power made atomic level measurements possible. The ability to measure, manipulate, simulate and visualize matter at the atomic scale has the potential of redefining our interaction with the world around us. This is why nanotechnology is considered revolutionary, like the Industrial Revolution, rather than just another step in technological progress.8

Today, nanotechnology is a young field that focuses in two categories: basic research and materials science products. To date, the U.S. has approximately 104 nanotechnology research institutions.9 Basic nanotechnology research undertaken in U.S. research institutions, including universities, public laboratories and private laboratories, primarily focuses in areas such as chemistry, physics, computer science and biology. Much of the funding from the Nanotechnology Act will be used to further develop this basic research for commercial applications.

Of the more than 1,500 nanotech startups around the world, 1,100 are in the U.S., with 430 already producing commercial products.10 The first successful wave of commercial nanotechnology products has been in materials science. Materials science companies are producing innovative products in areas such as coatings, powders and particulates, nanoengineered chemicals, carbon nanotubes, clays and biomedical devices.11 The commercial viability of more complex technologies like ultra-efficient batteries or molecular computer chips has historically been limited by the materials used to make them. However, with “building block” materials being built at smaller and more stable levels, near term developments in nanotechnology should enable remarkable advances in virtually all manufacturing areas.12

The more incredible applications of nanotechnology will not be realized until the extremely complex task of manipulating individual atoms can be automated. Futurists predict this type of molecular assembly can be accomplished by using individual atoms and molecules to build gears, motors and molecule-sized machinery.13 This manipulation of matter on an atom-by-atom basis to create specific configurations for molecules, or “molecular manufacturing”, is probably at least a decade away from being used at commercial levels. But when it is ready for commercial application, it will likely prove to be revolutionary in reversing a fundamental basis of human-based manufacturing. To date, human manufacturing has been a top-down process taking larger materials and cutting and shaping them down into parts of products. Molecular manufacturing, on the other hand, starts with the building blocks of atoms and molecules and combines them to form objects from the bottom up. This is how nature has worked for billions of years.14 Eventually this approach may replace many of today’s production processes and find applications throughout society.

Someday, nanotechnology is expected to spawn such varied technologies as stronger and lighter building materials, more durable coatings, efficient batteries and fuel cells, improved television display technology, microscopic computer chips environmental cleaning mechanisms for air and water and injectable biosensors to detect the presence of infectious agents.15 Presently, medical researchers are actively exploring nanotechnology potential in drugs, drug delivery, diagnostics, devices, gene therapy and tissue engineering.16 Today, gene therapy and biotechnology attempt to manipulate living mechanisms to reconfigure molecules at the nanoscale. However, these processes are limited by what is possible through natural mechanisms; bacteria can be used to produce certain proteins, but not to produce inorganic diamonds, for example.17 Nanotechnology presents the opportunity to go beyond what natural mechanisms currently allow by creating assembly systems that can build virtually any molecule from elemental atoms.

II. The New Funding of Nanotechnology Research at Universities and Government Labs and the Impact on Business

The Nanotechnology Act effectively institutionalizes nanotechnology research at the federal level by requiring on-going funding for research and development leading to potential breakthroughs in areas such as materials, manufacturing, electronics, medicine, biotechnology, environmental management, energy, chemicals, agriculture and information technology.18 The Nanotechnology Act authorizes the President to create a permanent National Nanotechnology Program to replace the expiring National Nanotechnology Initiative.19 In particular, the Nanotechnology Act calls for funds for the National Science Foundation (“NSF”), Department of Energy (“DOE”), National Aeronautics and Space Administration (“NASA”), National Institute of Standards and Technology (“NIST”) and the Environmental Protection Agency (“EPA”).20 The legislation also requires the creation of research centers, education and training efforts, studies into the societal and ethical consequences of nanotechnology and activities directed toward transferring technology into the marketplace.

With nearly 47% of the annual funding, the NSF21 receives the most money from the Nanotechnology Act, totaling over $1.7 billion over the next four years.22 NSF funding is already earmarked for university research centers.23 Over the past few years, several universities have leveraged groundbreaking discoveries and obtained government funding and private contributions to set up centers to promote multidisciplinary research in nanotechnology. These university-based nanotechnology research centers are in a prime position to secure bids for significant shares of the new funding from the Nanotechnology Act.

However, new funding is not limited to universities and government laboratories. The Nanotechnology Act also provides for the granting of multiple awards to many small research groups with less than $1 million in funding.24 The Nanotechnology Act encourages the use of funds for the Small Business Innovation Research and Small Business Technology Transfer Research Program.25

III. Nanotechnology Intellectual Property Challenges

The large influx of investment in nanotechnology research should accelerate the availability of commercial nanotechnology applications. Therefore, it is critical to develop intellectual property strategies that allow for fluid transfer of government-funded science to the private sector for commercialization of nanotechnology.26 As with the emergence of any pioneering technology, nanotechnology creates issues and opportunities in perfecting intellectual property rights.

Laws covering products and technology since the Industrial Revolution may not apply to nanotechnology. Can you patent an atomic or molecular structure? How do you protect an atom or molecule-sized device from being illegally copied? How will patent policies evolve and affect the scope of nanotechnology patents? These and other intellectual property questions require resolution in order to make effective and efficient use of nanotechnology innovation.

Today, nanotechnology intellectual property issues focus primarily on patents, with additional issues relating to trade secrets. Some of the current issues and challenges encountered in nanotechnology intellectual property are briefly described below:

Patent Applicability: It is generally accepted that the properties of matter and other fundamental scientific discoveries are not patentable. An initial challenge for patent strategists is to determine how to obtain patent coverage that is based on the discovery of inherent properties of materials. Simply submitting a smaller version of a known structure would not be considered patentable without additional utility or novelty. In order to secure a patent, the invention must be "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof."27 The traditional bases for patentability—novelty, non-obviousness and utility—can be secured by focusing on previously unattainable size, structure, compositions, organization, methods of measurement and methods of changing the property of materials, as well as applications of the new properties.28

Balancing Innovative Freedom and Restrictive Intellectual Property: The increasing rate of patent applications by universities and private research organizations highlights another potential challenge for the nanotechnology industry: striking a balance between maintaining freedom of operation for a large number of innovators, while rewarding innovations with patent rights.29 A large number of patent owners exercising the right to exclude others from practicing various aspects of nanotechnology can seriously restrict future research and development. Before commercializing nanotechnology products, companies may have to obtain licenses from a large number of patent owners. In order to attain the proper balance between innovation and exclusion, patent strategists will need to consider ethical questions about the division and aggregation of legal rights and reassess the scope of licensing practices.30

Academic Publication as Premature Disclosure: The nature of academic research tends to make securing intellectual property rights more challenging. Publication and early disclosure is the traditional measure of academic performance. The ultimate reward for a researcher relies on the rapid and wide distribution of research results so that research can be cited by others. Premature disclosure can defeat trade secrets and weaken the ability to secure patents.

In order to strike a compromise between sharing information and securing U.S. patent rights, researchers can use provisional patent applications, which delay the impact of publicly available information from being used against patentees as prior art for one year prior to the patent application in the U.S. only.31 However, taking shortcuts in drafting a provisional application increases the likelihood of falling short of minimum disclosure requirements, resulting in limiting the scope of claims that can be supported by the final specification.32

Procedures for Technology Transfer: With the increasing importance of securing nanotechnology patent rights in early stages of research, universities and laboratories need to refine mechanisms to ensure that researchers are aware of the diligence required to establish and transfer intellectual property rights. Organizations need to reassess intellectual property procedures governing invention disclosures, notebook keeping, publication approval, patent filing approval and confidentiality agreements, as well as implement reasonable precautions against the theft of trade secrets.33 In the interest of avoiding ownership disputes and litigation over the huge market potential for nanotechnology products, special attention should be focused on securing intellectual property rights at each relevant step in the research process.

For example, the California NanoSystems Institute at UCLA and UC Santa Barbara coordinates all its intellectual property administration with the already established campus Office of Intellectual Property Administration (“OIPA”).34 The OIPA has attorneys specializing in assessing innovative research and securing intellectual property rights on behalf of the Office of Technology Transfer (“OTT”) for the University of California Regents.35 The OIPA works with researchers and performs all the necessary steps in filing provisional, utility and international patents for all nanotechnology research for each campus. The OIPA also coordinates licensing contracts with entities outside the university for technology transfer. As of February 2004, the OIPA offered 12 UCLA nanotechnology license listings,36 and the University of California Regents offered 113 nanotechnology related licenses.37

Government IP Rights in Funded Research: Funding derived from the Nanotechnology Act will impact the nature of the patent rights derived from the funded research. Under the Bayh-Dole amendments to the Patent Act, universities and small business entities retain intellectual property ownership rights in federal government sponsored research.38 The government retains a royalty-free license to any patented technology funded by the government. Transfer and acquisition of these rights require compliance with certain formalities, such as when a licensing deal is made with a corporation or when a company is spun out by a professor. The university also must consider the potential for premature disclosure in government reporting requirements associated with the funding of sponsored research.

Business IP Rights in Funded Research: Global companies including IBM, Hewlett-Packard (“HP”), 3M, General Electric, Lockheed Martin, ChevronTexaco, Samsung, Mitsubishi and DaimlerChrysler are making significant investments in nanotechnology research efforts. 39 IBM, HP and 3M are allocating approximately one-third of their respective research budgets to nanotechnology.40 Venture capital investment is growing rapidly, with more than $1 billion in funding over the last three years and as much as $700 million in investments for 2004.41 A vast amount of funding from corporate and private sources has made its way into sponsorships of university research. For example, companies have made alliances with the California NanoSystems Institute at UCLA and UC Santa Barbara by investing millions of dollars in sponsorship of nanotechnology research. In exchange for funding, companies generally share intellectual property rights for specifically sponsored research projects.42

U.S. Patent and Trademark Office Challenges: In February 2004, the number of issued U.S. patents incorporating the term “nano” reached 1,348 patent titles and 82,740 patent descriptions.43 At the same time, the term “nano” has been incorporated into an additional 911 published patent application titles and 28,779 published patent application descriptions.44 Considering the fact that the U.S. Patent and Trademark Office (“USPTO”) receives roughly 300,000 patent applications a year, nanotechnology now impacts almost 10% of applications under consideration.45 It is unclear if the USPTO can handle the anticipated exponential increases in nanotechnology patent applications, especially in national and regional patent offices where examiners are generally assigned to examine a single class or related classes of technology.

While the U.S. Patent Classification System organizes issued patents, published applications and prior art references based upon their common subject matter, there is no specific classification for nanotechnology-related inventions.46 Today the USPTO designates ten classes as potentially containing prior art for nanoproducts.47 A potential problem with the lack of a unique classification for nanotechnology-specific prior art is that the examiner may have a difficult time locating the best available prior art to a nanotechnology patent application. Given the multidisciplinary nature of nanotechnology developments, specialized examiners may not be familiar with advances in other areas necessary for the complete examination of a new technology.48 The convergence of several fields with different terminologies for the same phenomena increases the chance that patents will be issued without proper narrowing of the scope of claims in view of prior work and publications, or in view of the practical difficulties in applying the technology.49

Although it has undertaken a nanotechnology customer partnership which attempts to address issues related to patent prosecution for interdisciplinary inventions in nanotechnology, the USPTO has no plans to create a nanotechnology classification or to form any new group to evaluate nanotechnology applications.50 The lack of cross-functional nanotechnology expertise at the USPTO and delays in establishing nanotechnology-specific guidelines may lead to the issuance of overly broad patents by examiners despite relevant prior publications, which is likely to lead to litigation.51

Foreign Patents: Patent protection is typically only effective within the issuing country. In light of the considerable worldwide efforts in nanotechnology research, early foreign patent protection will be essential. Securing international patents will increase the administrative effort and expense of nanotechnology patent protection.

Many foreign patent offices follow the USPTO’s lead in dealing with novel subject matter. Although they may lag behind the USPTO in granting novel nanotechnology patents, certain foreign patent offices have taken steps beyond the USPTO in establishing unique classifications for inventions in nanotechnology. The World Intellectual Property Organization’s International Patent Classification system includes a specific nanotechnology classification (IPC Class B82B) and the Japanese Patent Office has likewise created an internal patent classification ("Micro-Structural Technology; Nanotechnology”).52

Trade Secret Challenges: Trade secret protection offers the advantage of avoiding the effort and expense of patent applications and has a potentially indefinite duration, subject, of course, to reverse engineering. With lengthy commercialization timelines for some nanotechnologies and the 20-year limit on the patent term, it may be advisable to opt for trade secret protection as long as the product is not easy to reverse engineer in the near future.53 However, trade secret protection requires continuous diligence, and once a trade secret is revealed, it has no further protective value.54 Pressure to publish in academic circles makes trade secrets difficult to maintain. It also is very difficult to obtain government funding and maintain trade secrets given the governmental funding reporting requirements. The increase in funding and companies pursuing nanotechnology applications further will increase employee mobility and necessitate stringent safeguards against the theft of trade secrets by departed employees.55 Finally, as a general matter, investors tend to avoid technologies that lack patent protection making trade secret protection a non-viable option for many innovative technology companies. 56

Intellectual Property Litigation: Nanotechnology intellectual property litigation has already emerged around trade secret issues. For example, in July 2000, Caliper Technologies Corporation ("Caliper") sued Aclara BioSciences ("Alcara") for misappropriation and conversion of Caliper's proprietary technical, strategic and intellectual property information relating to microfluidics.57 In response, Aclara sued Caliper for patent infringement. After Caliper obtained a jury verdict against Aclara in its trade secret suit the parties settled.58 Later in October 2002, Nanogen announced the settlement of a lawsuit with former employee Donald Montgomery for taking its trade secrets to Acacia Research Corporation's ("Acacia") CombiMatrix unit and filing patent applications related to the disputed technology under his name.59 Under terms of the settlement, Acacia agreed to pay Nanogen $1 million to cover litigation costs and issue 4 million shares, or 17.5 percent, of its unit's stock. Acacia also will pay Nanogen royalty payments on sales of products developed by either CombiMatrix or affiliates that use the disputed technology.60 Finally, Zyvex Corporation, a company developing NanoElectroMechanical Systems (“NEMS”) for prototype nanoscale assemblers, obtained a permanent injunction against a former employee for misappropriation of trade secrets.61

Given the breadth of the field and opportunity for broad patent coverage, intellectual property litigation over patents is likely to emerge in the near future. Long lead times for the commercialization of some nanotechnologies will delay challenges to patents, creating business uncertainty and concerns over patents which may become invalidated years in the future. Considering the expense of litigation, innovators lacking the resources to litigate patent validity may be forced to license these patents rather than contest them.62 Given the novelty of the technologies involved, the patentability of some nanotechnology inventions may ultimately be addressed by the courts rather than by the USPTO.63 To date, litigation over nanotechnology scale patent infringement has been primarily focused on biotechnology products such as nanogold particle labels used in diagnostics, microfluidic devices and microarrays.64 For example, Affymetrix and Oxford Gene Technology have each brought a series of patent infringement lawsuits against competitors in the field of DNA microarrays.65

A recent decision in the Federal Circuit highlights two particular defenses to general patent infringement that merit attention based on their applicability to nanotechnology. In Madey v. Duke University66 the Federal Circuit narrowed the application of the “experimental use defense” while leaving a newer “government license defense” open to further exploration.67 In remanding on this issue, the Federal Circuit held that the experimental use cannot further the alleged infringer's legitimate business and must focus on whether the use was "solely for amusement, to satisfy idle curiosity, or for strict philosophical inquiry."68 Under this standard, virtually all professional labs are excluded from this defense, thereby limiting the experimental use defense as a practical matter. On the other hand, the government license defense may allow potential infringers to assert third-party beneficiary rights to practice the patents at issue on the government's behalf because of the government's rights in the patents and the use of the allegedly infringing devices in the performance of government sponsored research.69 The government license defense may be particularly helpful to nanotechnology researchers due to the substantial amount of government sponsorship of nanotechnology.

IV. CONCLUSION

In the long term, nanotechnology is likely to increase the relative importance of intellectual property for society. Some day, when nanotechnology assemblers can manufacture nearly any object on-site using inexpensive materials, intellectual property may become the only valuable property right. The blueprints for constructing such objects will also likely be of considerable value. Although to date intellectual property rights in nanotechnology has focused on patents and trade secrets, in the future intellectual property in software and designs are likely to become far more valuable.70 Additional copyright issues may arise around the creation of exact molecular replicants of works of art or artifacts. What are the implications of exact atomic copies of the Mona Lisa in every home? How would people recognize original art?71 Eventually, copyright law may supplant patent law in regards to nanotechnology products.72

Nanotechnology is an emerging technology with exciting prospects for intellectual property, in both the near term and for many years to come. The importance of securing and maintaining intellectual property should be recognized by all the players. In light of the massive influx of funding from the Nanotechnology Act, strategists must consider the impact of government sponsorship in conjunction with the ever present time and cost constraints that will shape strategies for protecting nanotechnology intellectual property.

Footnotes