As scientists get closer to using embryonic stem cells in new treatments for blindness, spinal cord injuries and heart disease, a U.S. legal debate could determine who profits from that research.

Consumer Watchdog, a nonprofit advocacy group, wants an appeals court to invalidate a University of Wisconsin-Madison’s patent for stem cells derived from human embryos, saying it’s too similar to earlier research. The Santa Monica, California, group also says the U.S. Supreme Court’s June ruling limiting ownership rights of human genes should apply to stem cells, a potentially lucrative field for medical breakthroughs.

The challenge to Wisconsin Alumni Research Foundation, the university’s licensing arm, is about whether patents help or hinder U.S. stem-cell research, which has been stymied by political debate. The consumer group says it drives up the cost of research by requiring companies and some academics to pay a licensing fee to the university.

“What we’re asking the government to do is say WARF has no right” to the patent, said Dan Ravicher, executive director Public Patent Foundation in New York, which is handling the challenge for Consumer Watchdog. “It’s like the government sent a check to WARF they didn’t deserve.”

Consumer Watchdog lost a challenge at the U.S. Patent and Trademark Office in January 2013. It wants the Court of Appeals for the Federal Circuit in Washington to review that decision and consider new arguments based on the Supreme Court’s finding that genes — like stem cells — are a natural material that can’t be patented. Beyond the science question, the case has become a flashpoint over how far members of the public can go to invalidate patents on policy grounds.

Therapeutic Uses

While the patent expires in April 2015 and the university has other stem-cell-related patents, Consumer Watchdog is continuing a six-year battle to invalidate it because stem-cell research “is starting to get some traction” into therapeutic uses, Ravicher said.

The promise of embryonic stem cells is to create or repair tissues and organs using material taken from eggs fertilized in the laboratory. The cells created can be replicated indefinitely, and with the right biological cues, may aid in treating damaged heart tissue and spinal cords, or generate therapies for diabetes and cancer. Companies like StemCells Inc. (STEM) and Advanced Cell Technology Inc. are testing therapies to treat macular degeneration, a cause of blindness.

“The next paradigm shift in medicine will be advances in cell therapy — it’s under way,” said Jason Kolbert, senior biotechnology analyst with Maxim Group LLC in New York. He said pharmaceutical makers such as Teva Pharmaceutical Industries Ltd. (TEVA) of Petach Tikva, Israel, and Pfizer (PFE) Inc. of New York are working with stem-cell researchers on new therapies.

Funding Increases

Stem-cell science in the U.S. was curbed in 2001 when then-President George W. Bush issued an executive order limiting research to existing cell lines amid controversy over human embryo destruction, even though they were never in a woman’s uterus. President Barack Obama reversed that order in 2009.

Some scientists have avoided the public debate by using adult cells to find the unlimited potential they have in embryonic cells.

Meanwhile, corporate interest in treatment breakthroughs is helping fuel financing of research in using embryonic cells. The National Institutes of Health increased funding of human embryonic stem cell research to $146.5 million in 2012 from $10.1 million in 2002. California, one of several states funding stem-cell research, opted in 2004 to provide $3 billion through the California Institute for Regenerative Medicine.

Isolating Blastocyts

It was the use of California tax dollars, some of it going to pay royalties to WARF, that prompted Consumer Watchdog’s efforts to invalidate the patent.

In the mid-1990s, scientist James Thomson at the University of Wisconsin was the first to isolate stem cells from days-old embryos, known as blastocyts. The research was funded by Menlo Park, California-based Geron Corp. (GERN), which gave up on testing a spinal-cord therapy in 2011 because of costs and regulatory complexities.

Consumer Watchdog says Thomson’s discovery wasn’t a scientific leap over well-known research that had already isolated the stem cells of mice and other mammals.

The University of Wisconsin’s foundation says the group’s complaints are misguided. The school has a nonprofit WiCell Research Institute, which hosts the National Stem Cell Bank and issued more than 900 free licenses to academics. Money from commercial licenses with companies like lab-equipment maker Life Technologies Corp. (LIFE) and pharmaceutical manufacturer Pfizer supports research, according to the foundation’s website.

Millions in Royalties

WARF collected $152.4 million in royalties on intellectual property like stem cells, computer processing, medical imaging and influenza vaccines from 2010 to 2012, according to the Association of University of Technology Managers. It doesn’t comment on pending litigation, said Janet Kelly, a spokeswoman for WARF.

In court papers, it defended the doctor’s research.

“Thomson succeeded where others had failed,” WARF said in a filing with the U.S. Court of Appeals for the Federal Circuit in Washington. “This landmark discovery, hailed by another ES cell scientist as an ‘astounding breakthrough,’ continues to earn Dr. Thomson awards to this day.”

Consumer Watchdog may face an uphill battle in court, said Dennis Crouch, a University of Missouri law professor who’s been following the case. In November, Crouch questioned whether a third party has a right to ask the court to invalidate a patent. The Federal Circuit, after hearing both sides in December, ordered the patent office and Obama administration to present their positions in writing by Jan. 17.

DNA Case

The consumer group says Congress granted third parties the right to pursue such cases, and created even more procedures to allow challenges to issued patents in a 2011 law.

“There’s a broader public policy concern when you’re dealing with patents,” said Matthew Dowd, a patent and appellate lawyer with Wiley Rein in Washington. “Invalid patents harm the public in general.”

In the DNA case, a civil suit against Myriad Genetics Inc. (MYGN)’s claims was almost tossed out because most of the people who filed the suit were found to not be under threat of litigation. A doctor who did his own testing kept the case alive.

HIV, Video

The Public Patent Foundation, which helped invalidate some Myriad claims, focuses on challenging patents its members believe are harmful to public interests, including HIV drugs or a common video-coding technique. The group, run out of the Benjamin N. Cardozo School of Law in New York, unsuccessfully challenged patents on genetically modified seeds after Monsanto Co. promised not to sue organic farmers who fought the company.

The Federal Circuit has said it planned to hear Consumer Watchdog’s arguments late this month. No date has yet been set. Lawyers are split on whether it will take the case, since it’s considered other third-party appeals in the past, said Scott Daniels, a patent lawyer with Westerman Hattori in Washington, who runs a blog about the agency reviews.

“It would be a little embarrassing to say, oops, we never had jurisdiction,” he said

The case is Consumer Watchdog v. Wisconsin Alumni Research Foundation, 13-1377, U.S. Court of Appeals for the Federal Circuit (Washington).

To contact the reporter on this story: Susan Decker in Washington at [email protected]

To contact the editor responsible for this story: Bernard Kohn at [email protected]