Gene Silencing?

The Supreme Court of the United States decided that discovery and isolation of genes is not sufficient to make naturally occurring genes patentable. Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. ____ (2013). However, DNA may be patentable if it is changed in a way that makes it new, useful and nonobvious, potentially saving issued patents claiming synthetic DNA sequences including, without limitation, sequences of complementary DNA (cDNA). What will be the impact of this historic decision? Will the decision extend patents in the chemical arts? The specific holding is that a "naturally occurring DNA sequence is a product of nature and not patent eligible merely because it is isolated, but cDNA is patent eligible because it is not naturally occurring." The decision does not have a direct impact on patent eligibility of methods or applications stemming from knowledge relating to DNA. However, the decision does imply, at least, patent eligibility of any DNA sequence in which the order of the naturally occurring sequence is altered, as a new composition of matter that is not naturally occurring. The decision upholds its earlier decision in Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980). Therefore, a bacterium modified by adding a genetic sequence is patent eligible, because it never existed in nature. Presumably, this logic extends patent eligibility to any alternations in genetic sequences that do not exist in nature. In contrast, merely combining complementary products of nature in a mixture, such as different naturally existing bacteria, is not patent eligible. Citing Funk Brothers v. Kalo Inoculant, 333 U.S. 127 (1948). The bottom line is that DNA sequences that are not naturally occurring are patent eligible, if new, useful and nonobvious. This decision has wider implications for composition of matter claims for naturally occurring chemical compositions isolated from plants and other organisms. While the decision focuses on naturally occurring DNA sequences, the decision is likely to influence future decisions on other products or chemicals that are isolated from nature. Unless purification alters the properties or structure of a substance, mere isolation from nature might be insufficient to render it patent eligible. Side Bar: Interestingly, the decision suggests that the practices of the patent office, absent any endorsement by Congressional enactment of legislation, is entitled to little or no deference.

The SEC has released its final rule for public solicitation under the 506 safe harbor of Reg D. This new rule paves the way for companies to raise unlimited capital from accredited investors without the constraints formerly imposed against public solicitation. The rules against public solicitation could be a trap for the unwary and less than cautious. Now, companies can generally solicit funds from the public. Extra precautions must be taken to verify that investors are all accredited investors.

According to the SEC, verification methods acceptable for meeting the safe harbor requirements include the following: Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year. Receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status.

This final rule paves the way for general solicitation under the 506 safe harbor of Reg D, making it easier to find investors and providing an important mechanism for raising capital for small businesses and entrepreneurs. Care still needs to be taken to meet all of the other requirements of the safe harbor including restricting stock transfers, timely filing of Form D and the like.

The ability to publicly solicit investors could provide angel investors with more and better opportunities. As always, buyer beware! Insist on financials being prepared by an independent accountant, check the Form D, check with state regulators about the promoters, independently verify the value of intellectual property if it is an important part of the investment and look for a comprehensive private placement memorandum that puts the investors on notice of the risks and other facts relevant to the solicitation. Remember, restrictions on sales of shares and lack of liquidity makes angel investing a long term investment with associated higher risks. Use due diligence to weed out.

If you are an accredited investor wary of making direct investments in startups, consider joining an angel investor group or invest  your money in a professionally managed seed fund.