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Lilly Loses Patent Lawsuit to Ariad, MIT, Harvard Drug Company to Pay $65M for Infringing Patent Covering Protein Discovered in Part by MIT Researchers

By Andrew Pollack

A federal jury in a closely watched lawsuit ruled May 4 that Eli Lilly & Company had infringed a patent covering drugs that work through one of the body’s basic biological pathways, in a verdict that could send ripples through the pharmaceutical industry.

The jury, in Federal District Court in Boston, ordered Lilly to pay $65.2 million in back royalties to Ariad Pharmaceuticals, a biotechnology company that had licensed the patent from Harvard and two other academic institutions. Lilly will also have to pay a 2.3 percent royalty on future United States sales of its osteoporosis drug Evista and its drug Xigris, used to treat septic shock.

The case has attracted attention because Ariad claims the patent, issued in 2002, covers any drug that works by influencing the action of an important protein in the body. Some critics have said that patents covering an entire pathway in the body, as opposed to a particular drug, could hinder drug development.

Ariad executives have said that the patent could cover drugs with billions of dollars in annual sales and that the company had sent letters offering licenses to more than 50 companies. Last week, the biotechnology giant Amgen filed a pre-emptive lawsuit against Ariad, seeking to shield its lucrative arthritis drug Enbrel from infringement charges based on the same patent.

Lilly argued in the trial that Ariad’s patent covered a natural phenomenon and was therefore invalid. It also said its two drugs were under development before the protein at the heart of the Ariad patent was even discovered.

“The Ariad position is equivalent to discovering that gravity is the force that makes water run downhill and then demanding the owners of all the existing hydroelectric plants begin to pay patent royalties on their use of gravity,” Robert A. Armitage, Lilly’s general counsel, said in a statement May 4.

Lilly said it would ask the judge, Rya W. Zobel, to set aside the verdict and, if that failed, would appeal. The United States Patent and Trademark Office is re-examining the validity of the patent at the request of Lilly.

Harvey J. Berger, the chairman and chief executive of Ariad, disputed Lilly’s arguments. “The jury looked at the evidence, looked at this issue and concluded unanimously that the patent was valid and infringed,” he said.

No one has yet agreed to pay to license Ariad’s patent, according to Dr. Berger, who said companies had been waiting for the outcome of the Lilly litigation. He said Ariad did not want to stop other companies from developing drugs. “A reasonable royalty is what we’re looking for,” he said. Academic scientists doing noncommercial research do not need a license, he said.

Based on Lilly’s 2005 sales for the two drugs, Ariad, based in Cambridge, Mass., would receive $17.8 million in royalties each year until the patent expires in 2019. The company will keep at least 75 percent of its proceeds and share the rest with its academic partners.

Evista, one of Lilly’s biggest drugs, was approved by the Food and Drug Administration in 1997 and had United States sales last year of $652.9 million. Xigris, approved in 2001, had United States sales of $119 million in 2005. While royalty payments are not expected to be a big burden for Lilly, they could be a significant boon to Ariad, an unprofitable company that has not yet brought a drug to market.

The case was important enough to his company that Dr. Berger sat through the entire trial, which started April 10. Ariad’s shares jumped $1.45, or 26 percent, to $6.99 May 4, while Lilly rose 6 cents, to $52.02. Analysts had generally expected Lilly to win.

The patent covers drugs that work by modulating the action of nuclear factor kappa B, or NF-kB, a protein that was discovered in the 1980s by scientists at Harvard, MIT and the Whitehead Institute for Biomedical Research, in Cambridge, Mass. Among those scientists were Phillip A. Sharp of MIT. and David Baltimore, now the president of the California Institute of Technology, who are both Nobel laureates.

NF-kB serves as sort of a master biological switch that turns dozens of genes on or off. It is thought that many drugs, particularly those aimed at cancer, inflammation and immune diseases, might somehow influence NF-kB. Even aspirin and red wine affect the activity of NF-kB, according to a brief filed by Lilly.

The patent, granted in 2002, took 16 years to make it through the patent office. As soon as it was issued, Ariad, joined by the three academic institutions, sued Lilly. Spokesmen for Harvard and MIT had no comment on the verdict, other than Harvard saying it was pleased.

Ariad has not developed any drugs that work through NF-kB, according to Dr. Berger, though it intends to do so.

Edward R. Reines, a Silicon Valley patent attorney, said the case could make pharmaceutical companies more sympathetic to complaints by some computer and Internet companies about patent holders that do not develop products themselves but instead demand payments from companies that have.

“This may be the beginning of an era in which the pharmaceutical industry joins the electronics industry to complain about unfair or improper patent assertions,” Mr. Reines said.

Some experts said judges might not uphold a patent as broad as Ariad’s. They point to a case in which a federal judge in 2003 invalidated a patent that the University of Rochester claimed covered all pain drugs that worked through a particular mechanism. The judge ruled the patent invalid because Rochester had not actually developed such a drug or shown specifically enough how to do it.

“No compound, no patent,” said Gerald P. Dodson, the attorney who represented Rochester. He said that Ariad might “have the same hurdles that we had” but would be helped by having won a favorable jury verdict, which Rochester never did.

The Supreme Court is expected to rule on a separate case in the next few weeks, LabCorp v. Metabolite Laboratories, that could set new guidelines regarding patents related to processes in the body.