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Originally Published November 2000

Grassroots Web group challenging lateral-flow patents

In an era when the Internet is making big news in commerce, communications, and even politics, it probably shouldn't be surprising that IVD manufacturers are seizing on the tool for yet another innovative application.

In September, a group calling itself Lateral Flow Inc. (Lakeside, AZ) went on-line with a Web site expressly devoted to promoting the use of lateral-flow technologies. The site's bulletin board enables users to list products that they are seeking and to share information about lateral-flow technologies available for purchase or licensing. Of greater interest, however, is the site's secondary purpose, which is to recruit supporters for an eventual challenge against existing patents for membrane-based immunochromatographic tests.

"The major patents related to lateral-flow tests are held by three large companies, Abbott Laboratories [Abbott Park, IL], Becton Dickinson [Franklin Lakes, NJ] and Unilever [London]," explains Robert Bohannon, organizer of the on-line association. "To enforce their rights, these companies frequently send letters to small manufacturers of lateral-flow tests, threatening to sue them if they don't pay to license those rights."

The problem with such patent-enforcement activities is twofold, says Bohannon. "First, each of these companies claims to have the key exclusive patent for lateral-flow tests, but they don't. It is widely recognized that the existing patents are at least overlapping, if not conflicting, making it difficult for manufacturers to know what rights they should be licensing, or from whom. Equally important, the large companies will not indemnify their licensees against the possibility of infringing another firm's patent."

"Second," says Bohannon, "the amount of money that these large companies want to license their patents is ridiculous. Anecdotally, for instance, I've heard of one licensing arrangement for an HIV-O test that cost $800,000 plus another 8% of sales. Demands that high are simply out of line with what small lateral-flow test manufacturers can afford to pay."

According to Bohannon, such patent-enforcement activities have had a widespread chilling effect on the development of the lateral-flow test industry. "Since the large patent holders rarely act until a manufacturer's sales approach $1 million, many companies deliberately stay small in order to do business under the radar of the patent holders. At the same time, many lateral-flow tests are being made overseas by companies that are difficult to locate and even harder to constrain with legal action. If they receive a letter demanding payment for a license, they simply close down operations and spring up somewhere else under another name. It happens every day."

Bohannon hopes that his new Web-based organization will bring together enough small dues-paying companies so that a top-notch attorney can be hired to do battle with the large-company patent holders. "Small companies can't stand up against the demands of such large companies," he notes. "They can't outspend a company with deep pockets that is willing and able to drop $50,000 to $100,000 in attorneys' fees. But perhaps by banding together, they'll have a chance."

Although Bohannon believes that the validity of some of the existing patents might be susceptible to legal challenge, he suggests that attempting to invalidate any particular patent might not be the best strategy. "It would take a lot of muscle to challenge the validity of one patent. If the challenge were successful, then other patent holders might be willing to negotiate, but that could take years and require more funding than is likely to be available." Other courses of action might include asking the patent courts to render a decision regarding conflicting terms in the patents, negotiating with the patent holders for a more reasonable scale of fees, or even establishing an umbrella licensing arrangement that would permit licensees to simultaneously satisfy the claims of all patent holders.

"An umbrella agreement with reasonable fees, similar to what exists in the semiconductor industry, could be a winning solution for all parties," says Bohannon. "It would absolutely light the lateral-flow test industry on fire, finally enabling manufacturers to take advantage of markets that have been significantly underdeveloped and underserved. More test development for those areas would also mean more revenues for the patent holders."

Bohannon names veterinary, environmental, and agricultural applications as key areas for the potential growth of lateral-flow testing. "But the really big area for growth is in clinical applications among the emerging economies of the Third World. I know of one customer in China that has control of 2500 hospitals, each performing 30 tests for H. pylori every day. No matter how you cut it, that's a lot of testing.

"The true value of the market for lateral-flow testing is in the many billions of dollars," he adds, "but you'd never know it because high licensing fees have so far prevented manufacturers from developing their full potential. Where most small companies are now posting revenues in the range of $100,000 to $200,000, in a more favorable environment there could easily be hundreds of million-dollar-plus companies."

Bohannon says that there are at least that many small producers of lateral-flow tests in the United States, and he expects that many of them will join the nonprofit organization in coming months. During its first month of operation the site registered 100 users, about half of whom are from companies outside the United States. "We've received registrations from nearly everywhere," says Bohannon, "including Russia, Jordan, Taiwan, South Korea, South Africa, and Israel." Companies that won't be joining include the big three patent holders, whose employees are specifically excluded from registering on the Web site.

Although the organization does not yet have a board of directors or formal structure, Bohannon expects that these will emerge in time, as member companies are brought into the fold. Also yet to be announced is a schedule of membership fees. "A lot will depend on how many companies are willing to contribute to this effort. I expect that in three or four months we should have enough members to elect a board and begin talking seriously with an attorney."—Steve Halasey