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Patents and IP

The Problem With Patents

Fair warning: this is a post about patents and IP. I say that because in the past, I’ve practically been able to see the readers fleeing in real time when such things come up. Two or three of them in a row, and there would probably be nobody left around at all. But it’s a big part of drug discovery, like it or not, and some people don’t.

Perhaps the editors of The Economist fall into that category? I say that because of a big article (the cover story, with lead editorial) in this week’s issue. The subhead is “Patents are protected by governments because they are held to promote innovation. But there is plenty of evidence that they do not”. And it’s worth seeing the passage from an 1851 issue of the magazine, which held that the patent system “excites fraud, stimulates men to run after schemes that may enable them to levy a tax on the public, begets disputes and quarrels betwixt inventors, provokes endless lawsuits [and] bestows rewards on the wrong persons”. It’s certainly still capable of doing all of those, for sure.

Here’s their summary of the idea behind granting patents, and it’s exactly as I would have put it myself. The second paragraph is where it gets into the territory of this site (and my job, and the jobs of many of the readers here):

The public-good position on patents is simple enough: in return for registering and publishing your idea, which must be new, useful and non-obvious, you get a temporary monopoly—nowadays usually 20 years—on using it. This provides an incentive to innovate because it assures the innovator of some material gain if the innovation finds favour. It also provides the tools whereby others can innovate, because the publication of good ideas increases the speed of technological advance as one innovation builds upon another.

This sounds plausible. But is it true? There is much room for doubt. The evidence that the current system encourages companies to invest in research in a way that leads to innovation, increased productivity and general prosperity is surprisingly weak. A growing amount of research in recent years, including a 2004 study by America’s National Academy of Sciences, suggests that, with a few exceptions such as medicines, society as a whole might even be better off with no patents than with the mess that is today’s system.

There we go: even people who think the current patent system is broken (and business method and software/algorithm patents make a strong case for that), and some who are philosophically opposed to the entire idea, tend to regard the pharmaceutical part of it as the one that actually comes closest to working the way it’s supposed to. I’ve had several attorneys over the years tell me that patent quality is noticeably higher in the drug field – prior art gets more of a look, inventions tend to actually be enabled, and tend to actually be inventions. None of these hold as often as they should, of course, but they are even worse in other areas.

Here’s a case against the whole idea of patents, from some economists at the Federal Reserve. The ties between patent regimes and innovation in general are not as strong as you might think, as they show with a good deal of evidence. And there’s no doubt that patents, as a proxy for innovation itself, aren’t much use. That’s partly an observer effect – some companies, universities, and whole countries have decided that since patents are correlated with invention (dubious assumption though that may be), that if they can just file more patent applications, then they must be innovating more. It’s so convenient, too, because you can get an exact count of just how innovative you’re being! This is an ancient mistake, applicable to more than patents, and any medicinal chemist who’s worked in a department where people were rewarded for sheer number of compounds synthesized will know it well.

The Economist does get around to the drug-patenting system, of course:

Even if many industries do not really need patents—and a fair few might be better off without them—there is still a strong belief that in some businesses they are vital. The example always touted is pharmaceuticals. Drugs have to undergo exceptionally expensive and long-drawn-out testing procedures to demonstrate that they are safe and effective. And once a company has laboriously demonstrated that a molecule does its job with few or manageable ill effects, its rivals could make far cheaper copies were it not for patent protection. . .

However, the history of the industry raises doubts about such arguments. Until 1967 German drug companies could only patent the way they made drugs, not the formulae of the drugs themselves. Anyone could sell copies of the medicines if they found another method of making them. Yet Mr Boldrin and Mr Levine [the Federal Reserve link above – DBL] say German drugmakers produced more innovations than British ones (remember where aspirin was invented). Another interesting case is Italy, which had no patent protection for drugs until 1978. One study showed it invented a larger proportion of the world’s new medicines before that date than afterwards. Before the “reform” it had lots of copycat firms, but the biggest of these also did research on drugs of their own. They were largely wiped out once they had to pay royalties on their copycat drugs.

I’d be interested in knowing, under that previous German system, just how many times a rival actually did usurp an existing drug. It might have been possible in theory, but very hard to realize in practice, and in that case there would be little real-world difference compared to a system with outright chemical matter patents. That’s a subject for further research (and if anyone has any insights, please send them along!) And I also would like to track down that Italian study, and see what historical period we’re talking about. Inventing a new drug and getting it onto the market used to be a lot easier than it is today, and since the sheer complexity of the regulatory process can be an argument in itself for something like patent protection, that argument may well have gotten stronger over the years just through those means.

And now here’s where we get down to talking dollars:

In 2005 Dean Baker, an economist at the Centre for Economic and Policy Research, a think-tank in Washington, DC, took a much simpler, but still rather striking, approach: he just compared the costs imposed by the patent system with the innovation that system bought.

America’s health systems, he noted, spent $210 billion on prescription drugs that year. Based on how much cheaper generic drugs were than patented ones, Mr Baker calculated that a competitive patent-free market might have provided the same drugs for no more than $50 billion. That represented a saving of $160 billion.

The drug companies reckoned at the time that they were spending $25 billion on R&D; the government was spending $30 billion on basic medical research. The money it would have been able to save buying drugs for Medicare and Medicaid in a patent-free world have allowed the government to double that research spending, more than replacing industry’s R&D, while still leaving $130 billion in public benefit.

 

It’s that second paragraph where I wonder if this train of thought might not have gone off the rails. I don’t quite see how you can go from generic drug prices, under the current regime, to what a patent-free market might have been able to deliver. Generic drugs have already had most of their costs borne by the original inventors, who undertook those projects under the current patent system, with full intent to use it in their pricing decisions. Generic drug prices, as far as I can make out, are useful for the thought experiment of “what if a bunch of useful drugs dropped from the sky, with instructions on what they’re good for and how to make them”, but they’re not so useful, I think, for the further problem of how you figure those things out in the first place.

So if I have a problem with the way the numbers in the second paragraph were generated, I have to leave the third one alone. I will note, though, that the $30 billion on basic medical research mentioned does not necessarily go into the same basket as industrial R&D, as it assumes. I’ve gone on about this issue many times (here are three posts from 2004, for example!) Academic work, of the kind traditionally funded by the NIH, is vital, but it addresses basic research problems rather than applied ones. (I’ll leave aside the recent translational research push there for now). Let’s take “By what mechanisms does muscle tissue respond to insulin, and how do these malfunction in Type II diabetes?” as an example. That’s an excellent set of questions, important parts of which are still in dispute. But they are different questions than “What chemical compound would be a useful drug for Type II diabetes?”. The research efforts spent on the first topic will most certainly affect work on the second one, but it’s also possible to work on the second one without a clear understanding of what’s going on at a molecular level at all. That, for example, is how the glitazones (PPAR-gamma ligands) were discovered, and metformin, too: by screening in cell and animal models. Rosiglitazone was deep in Phase III before its target was even discovered, and metformin’s may not even be known now, years after it’s gone generic. Those two compound illustrate something else – that drug industry research can, in turn, stimulate basic biological research through providing tools that are known to produce well-defined effects.

And even when the two are coupled, the story isn’t simple. I’ll take a diabetes project that I worked on years ago as an example. Hormone-sensitive lipase is known to be a key enzyme in lipolysis, the liberation of free fatty acids (FFAs) from fat stores in tissue. And FFAs are key players in type II diabetes – their blood levels are too high, because a type II diabetic’s tissues, some of them, act as if they’re fasting, even though there’s plenty of glucose and insulin washing around (there’s that insulin resistance thing – the signaling is broken). They start mobilizing stored fat, inappropriately, and the resulting FFAs go on to stimulate the liver (most inappropriately indeed) to actually start making more glucose and dumping it into the blood, the last thing you need, because it interprets the situation as a fasting state, too. So interrupting lipolysis was not such a bad idea, therapeutically.

Now, all that background I just flew through was established by basic research, the great majority of it, I’m sure, in academia, and no small part of it probably funded over the years by the NIH. But none of it was news when we started our project, and in fact, hormone-sensitive lipase (HSL) had been known enzymatically for decades. But no one had tried it out as a drug target, or not to any effect that we could see. In the late 1990s and early 2000s, though, more than one drug company with an interest in diabetes gave it a whack, and we (among others) eventually developed potent and selective HSL inhibitors. And what we found, unfortunately, was that they were not going to be drugs: there’s a mechanism-based toxic effect that I won’t go into, but is not without interest, that would seem to keep this particular drug target off the list. We demonstrated that in animals with our new compounds, and then went on to other things. Academic labs, in turn, wrote to us requesting samples of our best compound, because it was the best HSL inhibitor known, and a valuable tool for in vitro systems.

So just who, in this case, was ripping off whom? Because that’s what a lot of these arguments come down to, that the drug industry is just piggybacking on NIH money. This particular patent argument isn’t making this point in so many words, but by treating the money spent in both camps as part of the same ledger item, it’s making it implicitly, and at the very least confusing two different things. And my point is, they really are different things, with different purposes, that help advance each other’s goals. Basing money-saving arguments on this foundation calls their conclusions into doubt.

The Economist’s possible prescriptions for drug research (even though they admit that these are too radical, for now, to be put into effect) hinge on awarding prizes, and that’s not a crazy idea. The current system provides a monetary reward for discovery, a prize system would (presumably) do the same. There are various arguments about how the prize money will come out of “all the money that’ll be saved”, and (as indicated above) I don’t know how much that is, because I don’t think that current calculations are realistic. (Note that the prizes are going to have to be pretty substantial in order to have a real effect). But in the end, the whole patent system is an incentive, and if there are different ways to provide that incentive – especially different ways that avoid some of the problems we have now – then they’re worth considering. Politically, it would be an uphill fight, but uphill fights have been won before, with time. One has to keep Ambrose Bierce in mind, though, when he said that a conservative was someone enamored of the existing evils, while a liberal wished to replace them with fresh ones.

 

52 comments on “The Problem With Patents”

  1. Barry says:

    The prize system the author proposes has been tried. the Longitude Act of 1714 offered a prize of £20,000 to the inventor of a method for determining longitude at sea (celestial navigation for latitude was long-solved by then). In 1761, after decades of work, John Harrison demonstrated a chronometer that satisfied the test as specified. He spent the rest of his life trying to get the promised payment.
    The patent system is a clever Enlightenment Era invention that lets the market (in the form of a limited-time monopoly) automatically reward inventors/disclosers without the vagueries of Parliament posting and honoring such challenges

    1. dlib says:

      I was thinking the same thing. The prize would be a nightmare.

  2. David Christopher Rogers says:

    That’s partly an observer effect – some companies, universities, and whole countries have decided that since patents are correlated with invention (dubious assumption though that may be), that if they can just file more patent applications, then they must be innovating more.

    For another example, consider the attempt to use “Shots on Goal” as a metric for innovation – how did that turn out?

  3. Sam Adams The Dog says:

    Your last remarks, on the synergy between basic research and drug development, are reminiscent of the quote that ‘Science owes more to the steam engine than the steam engine owes to Science.’ (attributed to L. J. Henderson (1917), http://physicalworld.org/restless_universe/html/ru_3_11.html)

    It’s interesting that with an investment of millions and even billions of dollars in drugs that are going to save lives, the useful life of the patent is so short. In contrast to the Economist’s view, I believe that lengthening the life of drug patents would lower the cost of pharmaceuticals. I don’t find this at all unintuitive; pharma would get to amortize their investment over a longer period. This would lower the risk of taking on more challenging projects.

    It’s especially galling to contrast this situation with that of copyright protection, enabled by the same constitutional clause. Copyrighted works are now protected for 100 years after the death of the author. I find this absurd in itself. It used to be something like 18 years from filing, renewable once. But I find it especially absurd when considering the much shorter protected time for patent protection.

  4. Vader says:

    Sam,

    You’re spot-on. Drug patents are probably too short, and copyright is absurdley long. For example, historical photographs from the Second World War, such as the iconic photograph of the flag raising on Iwo Jima, are *still under copyright.* That’s really totally absurd.

  5. Kelvin says:

    Just try raising any venture financing without a robust patent. The fact is that even with an enforceable monopoly, the technical and market (competitive) risks themselves are already too great for many investors. Add to that the risk of being directly copied if and when you are successful, then virtually no capital at all would flow into innovation, except perhaps only within companies. Patents democratize innovation by allowing individuals to raise funding and develop and commercialize their ideas. Without them you have a huge waste of creative talent and 99.99% of great ideas would never see the light of day. And even big companies that could afford it once started out as small start-ups, funded with venture financing only because they had patent protection.

    BTW, I agree that the lifetime of patents may be too short, at least in drug development, while copyright protection is unreasonably long. Makes me think I should have gone into the music industry, rather than try to save lives! Absurd, isn’t i?

  6. matt says:

    Not sure several other numbers Dean Baker used were valid, either: I wonder if you looked, whether his “the industry spent X dollars in research” was just taken from the large pharma companies in some particular industry group, and whether it included all the clinical trials, etc. But yes, certainly he’s garbled applied research and basic research, and he’s fundamentally mistaken about the government’s ability to pursue applied research as effectively as businesses whose livelihood depends on the results.

    @SamAdams the Dog, I’m not sure extending the patent time would make drugs cheaper: that’s sort of a faith-based assumption. However, a fixed amount of time AFTER regulatory approval might reduce some of the overpayment to organize and conduct clinical trials at a frantic pace to maximize patent profits. But this would also extend the time it takes to get cures on the market.

  7. anon says:

    I am philosophically opposed to any kind of patent.

  8. Anon II says:

    @anon:

    Fine, are you also philosophically opposed to investing your own money to develop a risky idea, if anyone is allowed to take it from you if and when you’re successful?

  9. b says:

    Patenting methods of synthesis was probably much more effective 50+ years ago when there weren’t as many effective ways to make molecules. Now, I think not so much. It’s much easier to find a different way with today’s toolbox, not to mention cheap CROs all over the place.

    And why do we think doubling government R&D spending would provide more innovation? That’s assuming the government system is more efficient than industry. That’s a stretch to say the least.

  10. VTJ says:

    I want to suggest that the examples from Germany and Italy are irrelevant in the current debate due to the time-period from which they come. I believe (perhaps incorrectly) that the rate-of-transfer of information pre-internet made patent protection less important (you honestly might not even find out if someone across the world were infringing on your patent for a long time until they started competing in your market.) Also, the lack of industrialization in many parts of the world (I’m thinking of India and China mostly) made generic competition less of a factor than it is today.

  11. SP says:

    I think you missed the point of Baker’s argument- he’s saying that someone will bear the costs of the R&D to develop those drugs, either through payment of drug costs funneled through corporations back to R&D, or by some more direct mechanism, Leave aside the $30B basic research, assume that will be funded under a patent regime or not. You have $160B less spent overall if all patented drugs were instead generic; I don’t know how much of the $210B drug cost is government spending, but it seems likely that through the government part of the $160B saved that you could pay for the $25B to keep the existing pipeline going instead of paying for monopoly-priced drugs, and still get savings paying for R&D + the newly generic drugs vs. existing expenditures.
    The issue is the transition period- you have to compensate the money spent on developing currently patented drugs, suddenly declaring them all generic represents a huge taking from the patent holders. But if you have some transition where some alternate funding takes over the responsibility for that R&D spend, while running down the remaining patent clock paying existing prices, eventually you end up ahead of where you are as far as “public good” delivered by incentives of a patent system. There’s also the question of how you allocate this funding- prizes, grants, etc. But the overall number isn’t totally illogical.

  12. Anon says:

    @SP: And how can you be sure to recover R&D costs if anyone can just sell the product once successful? That would mean products effectively get generic prices right from the start, so where does the money come from to pay back and incentivize the original investor/developer?

  13. Lyle Langley says:

    I agree with Matt (somewhere above) that extending patent life will all of sudden reduce drug prices. Unless forced to do so, Pharma would simply price the same and have a longer time period to sell. It’s somewhat folly to think otherwise.

  14. On China Blast says:

    Unrelated question: exactly how much butanone does it take to explode with the force of 21 tonnes of TNT?

    http://www.bbc.com/news/world-asia-china-33844084

  15. mousy mouse says:

    @vader, @sam – Disney has Sonny Bono to thank for Steamboat Willy (and all characters, notably Mickey) being retained under copyright. That’s the real beneficiary of the copyright extension(s).

  16. Mark Thorson says:

    I’m working on an invention which, if successful, will result in a cheap and reproducible instrument for measuring endothelial function. If it works, endothelial function testing will become as widespread as blood pressure testing and a vast new literature will arise relating endothelial function to predicting health outcomes (atherosclerosis, type 2 diabetes, and possibly dementia). It could be among the most important medical devices ever developed.

    If it wasn’t for the prospect of being able to obtain patents on this invention, I wouldn’t spend another minute working on it. I don’t consider the patent system to be broken, but I am afraid it might get broken by people who think they need to fix it.

    In particular, there are calls to relate patent rights to the amount of expense or development effort put into the invention by the patent holder. I’m totally opposed to that. Patents should live or die by their contents, without regard to anything outside of the invention. I literally built my first instruments on my kitchen table for less than $100. I’m working with one other person (my godson). If Agilent throws 100 PhD scientists and a billion dollars into developing the same thing, that should make no difference at all. If my patents are the first to describe a workable instrument, I should get all of the IP rights and they should get nothing.

    I’m also opposed to any discrimination against non-practicing entities, beyond that which already exists (they don’t get the treble damages that practicing entities do). If I were to get in a patent fight with Agilent, I should be able to sell my patents to a patent litigation law firm, and they should be able to enforce the patents against Agilent with the same status as any other litigant. The parties who want to reduce the rights of NPEs are the big companies like Apple and Google, who don’t want to pay off small inventors or the lawyers that help them obtain the fair value of their inventions.

  17. Kevin says:

    I would like to see enablement on this one

    Process of reincarnation
    US 20040005535 A1

    Abstract
    The invention consists of the process of reincarnation or rebirth resulting in immortality.

    SUMMARY OF THE INVENTION

    [0001] This invention resulted from my combining Einstein’s Theory of Relativity and Newton’s Second Law of Physics.

    [0002] Reincarnation is defined in Webster’s Third New Inernational Dictionary as “rebith”. Thus my invention is a process of rebirth or in other words immortality.

  18. SP says:

    @anon- I don’t understand your question- the R&D costs (e.g. grants) plus incentives (e.g. prizes) would be publicly funded for those compounds that go generic immediately, so what additional claim does the developer have to further profit?
    Also, does anyway have an estimate of the amount of money going to lawyers under the current patent regime? What is it to file and prosecute domestically these days- $10-20k just to get a patent, a couple times that for WPO, then if it winds up in court orders of magnitude above that?

  19. NoDrugsNoJobs says:

    Simply extending the regulatory exclusivity period and offering the drug innovator to choose between a meaningful exclusivity period (much more than the current 5 years in the US) or taking their chances on their patents would be a very attractive option.

    Currently, many older compounds with excellent potential are not developed because too much of their patent life has already been burnt up or for whatever reason they cannot patent the drug. I don’t think society gives a care about whether a drug has a good patent or not, they care about whether it is FDA approved and whether it will work. While patents are a great system in general to encourage innovation and risk taking, they are not always up to task for an industry that spends so long in development, at such costs with such risks. The EU offers 10 years of exclusivity to new drugs with a chance to get 11 years and it makes a big difference. I’ve seen many diligences where the patent validity in Europe was not seriously examined because the 10+1 years provided sufficient backstop to insure a recoup on the costs. Biologicals in the US get 12 years of exclusivity – why not small molecules? Biologicals are not more risky to develop nor more expensive, if anything, they are less expensive because they have a higher chance of clinical success than small molecules (this has been shown).

    Every patent attorney that I have ever spoke to about the desirability of longer exclusivity periods instead of patents has agreed that it makes a lot more sense – and these are patent attorneys who depend on the patent system for their employment. They more than anybody know how complex and unpredictable and how inefficient the patent system is for drugs.

  20. juan says:

    Federal gov subsidizes pharma r&d in the form of basic research dollars. Then the federal gov buys highly priced drug developed as a result. Some conflict must exist in that.

  21. Loweeel says:

    Kevin @1:15 : That’s not a patent; that’s a published patent application. You can tell by the numbering (starting with the year). Merely doing a bit of checking (like plugging it into Google), indicates that it never issued into a patent — likely for reasons including, but not limited to, enablement.

    Other points:
    The problem with prizes, of course, is just the socialist calculation problem (identified by Hayek) writ large — you don’t know what size of price is necessary to spur the desired outcome, particularly in the pharmaceutical arena or “unpredictable arts” as we patent folks like to call them. (Not to mention the lag time between the prize announcement and difficulties in ramping up immediately). You also have potential issues with determining who gets the prize, whether it’s split, etc. that lead to uncertainty both on the front end and in subsequent iterations down the road. In contrast, the open-ended patent system for drug development is directly responsive to market demand (notwithstanding the distortions of government healthcare along the way), and the expected value that the companies rationally think they’ll get for bringing something to market, rather than some Olympian 3rd party determining what is or isn’t appropriate.

    Regarding “monopolies”, it’s fundamentally incorrect to call a patent a monopoly, because a monopoly is an affirmative right to practice (e.g., the only one permitted to do X). By contrast, a patent is a right to exclude others from doing what you’ve invented — you have no affirmative right to do it yourself necessarily included. To illustrate, if Derek invents a compound X and gets a patent on it, and I come up with a continuous release formulation or mechanism that only works with compound X, and I get a patent on it, neither of us has a monopoly in any sense other than the trivial one in which everybody has a monopoly on his own labor. Derek can’t do anything compound X that has this time release mechanism (because of my patent), so he doesn’t have a monopoly, but he can exclude me from practicing my patent. And I can’t practice my patent without at least a license from him, so it’s not a monopoly.

    The economist article also makes some fundamental historical errors in equating the old English Letters Patent (which were crown-granted government monopolies) with the modern patent system.

  22. patentgeek says:

    Here we go again. If all the hot air expended over “the patent problem” and the “broken patent system” the past few years could be harnessed productively, we might nearly be free of fossil fuel dependency.

    Mr. Thorson has it right: much of the current anti-patent hysteria is fueled by Silicon Valley companies. There have been egregious misuses of the system by some NPEs, but most of the proposed legislation to “fix the broken system” amounts to a loss of rights for inventors and property owners, as Mr. Thorson accurately describes. The Economist and too many others have bought into this “broken system” business. As Derek notes, in some respects they are making a variant of the spurious arguments of Marcia Angell and her ilk re pharma research costs not justifying drug prices.

    Re; the older German patent system extolled by the Fed. Reserve:Those who want a view of how that system was used to suppress competition might want to read Richard Sasuly’s excellent “I.G. Farben” (1947) and the tale of their control of the dye industry and the pharmaceutical industry that developed from it.

    Finally, the focus on the patentee side of the promotion of innovation is misleading: the patent system promotes innovation by giving inventors the incentive to disclose the inventions in an enabled form rather than keeping them secret. The disclosure to the public is important in advancing innovation, as is the economic incentive to the inventor to invent in the first place. Even if the patented invention can’t be practiced by others for some time, the disclosure in the patent becomes information that can be used by others to derive new, non-obvious inventions therefrom.

  23. b says:

    Riiiiight… the Federal government should fund all pharma research based on these “savings”. Want to see what government-sponsored productivity looks like when there is no incentive? Go to the DMV.

  24. bad wolf says:

    Geez, if a 17-year patent is holding back innovation, what’s a life+70+ year copyright doing?

  25. ExPdJunky says:

    I’m somewhat amused that people with such little (none?) experience in research have the gall to call the patent system useless. Are there issues? For sure! Would getting rid of patents spur innovation? Absolutely not. Fundamentally, patents teach a certain technology to the general public in exchange for an absolute ban on anyone else practicing said technology. Patents do NOT grant you any right to practice your own invention. Patents only BLOCK others from making/doing/whatever it is that you patented. This gets interesting in some cases. What would happen in a patent free system? Absolute trade-secret. Everything will be a trade-secret and that would actually stop any kind of cross-pollination of ideas. The only thing you would be able to access would be from academia. Companies sure as hell would never publish/disclose anything. So while you may still have access to a broad fundamental technology base there would be no way for you to get any kind of idea on how to apply very much of it because that is what companies tend to do/disclose.

  26. SP says:

    When all else fails, argue that the ability of the entire government can be judged by the performance of the DMV (which incidentally are all state-run, not federal.)

  27. Bernard Munos says:

    There is a paradox here. IP is valuable because there is so little of it that’s any good. It’s a supply/demand issue. Scarcity drives up prices. If we were awash in innovation, it would be worth much less, because for every Sovaldi, there would be half-a-dozen Viekera. So in a way, the success of the current pharma model hinges on all of us remaining lousy at R&D. Hyperinnovation — which is what we are admittedly pursuing — would destroy the industry as we know it, although it would create enormous wealth for society.

  28. patentgeek says:

    @ Bernard Munos:
    ” IP is valuable because there is so little of it that’s any good.”

    IP, like everything else, follows Sturgeon’s Law.

  29. anon says:

    @ ExPdJunky
    “Companies sure as hell would never publish/disclose anything.”
    How often do you think they publish/disclose anything useful? Come on.

  30. simpl says:

    The patent systems don’t work really particularly well today in many other areas except pharmaceuticals; they are most useful for high-value goods with a large international market. I’ve read that they were also helpful for 19thC. British industrial engineers to pull together funding.
    But there has been political meddling – Not to dwell on today’s bad boy, India, Italy in pre-European days used to require patents to cover chemical processes rather than molecules. This encouraged their chemical engineers to develop alternative syntheses, protecting them in Italy, and readied them to go world-wide once off-patent.

  31. Proteus says:

    The patent system fails in its attempts to be a one size-fits-all system across industries- the same regulations cannot make sense for encouraging innovation in both high tech and pharma anymore than a single business plan for a social networking company could work to get a Alzheimer’s drug development company off the ground. Totally different scales in timing, risks, funding requirements etc.

    That said I’m with nodrugsnojobs regarding improving regulatory exclusivity. That is an incentive that is more closely tied to success. Cannot eliminate patents, but de-emphasizing them makes sense to me (thinking at least in biologics realm).

  32. Hap says:

    Tech (computer/software) industries seems to be best at arguing that everyone else’s contributions to the products they make should be free or low-cost (other people’s patents, their labor, feedstocks for their innovation – actual music as opposed to the apparatus for making it available and distributable and salable) while their prices should be set by the market can bear. While the products they’ve brought us are cool and useful (my music is far more useful to me on iTunes than it was using a MiniDisc), they depend on a lot of people’s inventions, and if you don’t think they’re worth anything, they won’t be there. So I’m not sure that their position even with respect to their own products and industry passes a sniff test. “Biggest wallet wins” seems like a bad policy.

    In addition, tech benefits from forced obsolescence – Microsoft will only support operating systems for so long, Apple changes and obsoletes products, for example. Their worries about the long-term are much less than those of pharma – where fifty year-old drugs are still useful and still make money, and attempts to force their obsolescence are fortunate if they’re met with only derision (and of course, where failure means people die). Making policy with their benefit in mind is likely to hose everyone else.

    On the other hand, I would worry about overly broad patents in general – if a narrow patent is held by a non-practicing entity, then the object of their claims is likely to have utility and thus the patent is useful, for both the patent holder and everyone else, while claims to own entire swaths of technology sans proportionate implementation impedes the ability of lots of people to do useful things without any return to anyone else. So, while patent trolls are fun to attack, perhaps hindering broad patents without proportionate implementation would be a better aim.

  33. steve says:

    Maybe we should all emulate CocaCola and just keep the formulas for our drugs as trade secrets. Of course, some employee could just steal it and form the Pepsi drug company.

  34. Philip says:

    Things to ponder about patents and the pharmaceutical industry:

    I understand getting a patent and market exclusivity on a new compound (example: lorcaserin) of 12 years* or so. I also understand granting market exclusivity, but not a patent to a company that takes generic drugs and runs phase 3 studies to prove safety and efficacy. If the indication is novel (example: ???), I could see 10 years of market exclusivity. If the indication is known, but not common (example: combining phentermine and topiramate for weight loss), maybe 5 years. If the indication is known and common (examples: progesterone and colchicine), maybe just 2 years. Off topic a bit, I have no idea what to do about people like Martin Shkreli, who add no value, but can increase the price of a drug because of lack of competition.

    Things to ponder about patents and the software industry:

    Is software just math? If so, there should be no software patents. I do not think the founding fathers or even current members of congress would consider “if” statements to be math. So my personal belief is that software that is novel, nonobvious and useful should be patentable. The problem for software is that a lot of it is obvious. Part of U.S. Patent 4,197,590 covers using an exclusive or (XOR) to display a cursor. That is incredibly obvious to anybody skilled in the art of computer graphics software. Even going back to the 70’s.

    There are also big problems with copyright in software. The big Oracle v. Google Java lawsuit is a prime example of judges not knowing a thing about software. Judge William Alsup of the Northern District of California got it right. He ruled that function names and definitions (Application Programming Interface, API) are not copryightable. Too bad his decision was not upheld on appeal. See https://www.eff.org/cases/oracle-v-google for more information.

    In summary, the patent system is badly broken in software and could use some small changes in pharmaceuticals.

    * The time should start when the drug is allowed to be sold, not when it is approved. The time the DEA takes to determine the drugs schedule should not count. In fact at this point in time the DEA should be out of the scheduling business for FDA approve drugs. Can somebody point to a drug where the DEA did not go along with the FDA’s recommended schedule?

  35. Jon says:

    A better idea: Have NIH funding grants go all the way, from basic research through clinical trials to a useful drug.

    And then loose it upon the people for the cost of manufacture.

    Skips all the middlemen, that. The boffins in academia get theirs, and we the people get the benefits thereof.

    What’s not to like? (those of you who have stock in pharmaceutical companies may apply here).

    J.

  36. David Cockburn says:

    Whatever applicability the Economists’ ideas might have in IT, it is quite clear they won’t work for Pharma/Biotech for the reasons Derek makes clear. It might be worth mentioning however that they think a drug is ‘safe’ once it has gone through Phase II. Wish that were true.
    There is one idea in the Economist article which needs further discussion: “alternatively the trials could be smaller … collecting and publishing data on how the drug compared to other treatments once it was in use’.

  37. tangent says:

    Question from an outsider: working in pharma, do you routinely read patents, and get use out of what competitors disclose there? (or get information via someone else who reads them.) In software I’ve never heard of anybody doing this.

  38. Steve says:

    Most scientists in companies read patents, most academics (in my experience) don’t. The problem with NIH funding all drug discovery is that academics have no clue how to develop a drug yet they rule the roost when it comes to grants (even SBIRs). I work with startup companies and have gotten the most ridiculous reviews you can imagine from NIH reviewers who just have no idea or interest in developing drugs. They are only interested in what they think is innovative from an academic point of view, not the grind that’s needed to produce something that is medically useful.

  39. Design Monkey says:

    >Question from an outsider: working in pharma, do you routinely read patents, and get use out of what competitors disclose there?

    Yes, of course. Any sensible drug discovery project starts with meticulous analysis of prior art. That includes academic publications and patents. In a really really new field there might be few or none patents. In old and established fields (lets say, opiate analgesics) there would be hundreds and thousands of patents.

    In software it doesn’t matter if you write the same thing as your competitor earlier, it all boils down to who has more marketing muscle to push their product. In drugs – if you “discover” the same thing, but after competitor already patented it – you get absolutely nothing.

  40. SP says:

    @tangent- certainly, if only for benchmarking your project against what others have found, but in some cases to fill in the landscape and possibly land on something they missed. Of course some people still play games to try to obfuscate the information in patents under a flood of data.
    @Steve- I think that’s changing as patents become more routinely integrated into search tools, both public (e.g. Pubchem) and proprietary (e.g. TR databases). You search a compound and they return the info whether it’s a publication or patent. Anyway, we’ve had the argument here a million times before, you should qualify your statement with “_some_ academics have no clue…”

  41. Lyle Langley says:

    @Steve, above, somewhere….
    “have gotten the most ridiculous reviews you can imagine from NIH reviewers who just have no idea or interest in developing drugs.”

    Funny, I get some ridiculous reviews from NIH reviewers as well, yet the review panel is full of industry people. Not all NIH reviewers are academics, many, especially when it comes to drug discovery-type grants are from industry and they are just as clueless in their reviews. With the downturn in the Pharma industry, there are many academics now with extensive industry experience – the knowledge of discovering drugs is not exclusive to industry now. The resources are a different story.

  42. Sulphonamide says:

    I’m still confused as to how the old German and Italian (and in fact many countries) patent systems worked.
    I accept that it isn’t always that easy to find a new way to make something – but when there is the possibility
    of getting a piece of a blockbuster (not that many existed back in those times), surely many must have at least
    tried – and I would have expected that some companies would have succeeded (if the great total synthesis chemists
    could copy nature, they could certainly copy pharma). Does anyone know of such events ever occurring?
    Was it that if one company did it and created a copy, then the price would collapse and it would cease
    to be worth the effort? Was there a gentleperson’s (if there is now such a term) agreement between pharma
    companies? Was it necessary to re-run the clinical trials with the copy? Was there simple less money to be
    made (lower drug pricing) and it just wasn’t a business model worth following?

  43. emc says:

    Patents and intellectual property law, in general, have been criticized for some very valid reasons, such as patent trolls, using them to prevent the discovery of flaws (DMCA, especially), and the idiotically poor examination of common knowledge, which was (and probably still is) a very serious problem with software patents: badly trained patent examiners gave patents for algorithms that had been published in well-read journals, commonly used textbooks, standard references, and even in well-distributed source code. (as an aside, one notorious case had somebody literally copy a large block of public domain code, copyright it, and then file suit on the people from whom he stole it for copyright violation). The comp.risks newsgroup has reported many of the most egregious cases (http://catless.ncl.ac.uk/Risks).

    Can IP and patent law be fixed? Probably not. I think it is arguable that drug patents be given longer terms, but I think it’s equally arguable that patents should have an early expiration if they’re not exploited.

  44. Mark Thorson says:

    Why should exploitation have anything to do with keeping a patent in force? We already have something like that in terms of patent maintenance fees — don’t pay the fee and you lose the patent.

    Let’s say I do a lot of hard work to come up with a brilliant invention that gets 90% of the way to completely solving a problem, but maybe my version is a little too expensive, or its shelf-life is too short, or some other problem that prevents me from commercializing it. Then somebody else comes along with a straightforward application of existing technology which applied to my invention takes it the final 10% of the way.

    You would take away all of my rights to the invention and give them to that jerk who hardly contributed anything! Where’s the justice in that? Why not say that since I did most of the work, you should not issue any patent to that guy and you should allow me to use his paltry 10% for free?

    Under the existing system, I’d have to license his 10% to go to market, or he’d have to license my 90%. That seems fair to me.

    This is a perfect example of why the patent system is not broken, but it’s in danger of being broken by parties trying to “fix” it.

  45. Steve says:

    Lyle, just because there are a few academics with industry experience doesn’t change what I said. The vast majority of academics think that the only important part about developing a drug is the initial innovation; they have no clue about GMP process development, regulatory requirements, QA/QC (one reason why industry can’t reproduce the majority of academic papers they review), financing drug development, etc., etc. I say this as someone who has spent a great deal of time with company spinoffs from universities. The problem comes when you get these academics on peer review panels for industry-sponsored grants like SBIRs. They change the whole ethos of the review process, eschewing grants that are geared to actually developing drugs and only approving grants that they think involve “innovation”. Try to get money for GMP process development, manufacturing, toxicology, etc from an SBIR grant. Unless you include lots of experiments on mechanism of action or toss some other bone to the academic reviewers you’ll never get funded. There is simply no way in the current environment that you get ever get away from our patent-driven mechanism for raising funds and have NIH fund drug development instead. It’s just not something that more than a small minority of academics are any good at or have any interest in.

  46. Brett says:

    I wonder why we don’t under-write the costs of the expensive Phase II and Phase III trials, considering that’s a major source of the expense of getting drugs to market. There’d obviously be a risk of that being gamed by companies, but I’m sure you could limit what it would cover to ensure that companies aren’t just running pointless trials on worthless drugs to get the money rebated back.

  47. Jameson says:

    Obviously no one will invest 500 million to develop a new drug if patents vanished. Hey let’s get rid of clinical trials too, that should lower prices!

    Not to get too dramatic, but this is part of the neoliberal, ‘everything has a monetary price’, phenonmena that most scientists seem to be unaware has swallowed the US mindset and government.

    Morals, aspirations and ideals now worship at the feet of John Galt.

    No, there are higher ideals than just looking to the low cost solution. On a strategic level, this ‘get rid of patents’ nonsense you hear now is actively pushed by the likes of Apple, Microsoft and large tech companies whose technology is perishable (i.e a new graphics card goes out of date within months) and hence they rely on economies of scale, rather than holding a patent territory for profits. It shows you just how weak pharma in the USA has become that they allowed the American Invents Act pass.( Someone should compare the market cap of Apple to the entire pharma industry)

    It is true that the USPTO’s standards for computer programs has been so broad and lax that is has encouraged abuse in that area.

    1. Neoliberal says:

      Because Jameson felt the need to channel Rush Limbaugh and blame everything on “liberals” that have “swallowed up government” (odd since Republicans are in the majority), I’d like to point out that there is not a unified conservative opinion on the subject. See, for example, http://dailycaller.com/2014/05/20/patent-reform-splitting-republicans-business-community/ or http://dailycaller.com/2015/02/10/patent-troll-reform-splits-republicans/. The world is not as easily divided as Jameson would believe nor is this issue simply divisible into good vs evil.

  48. Jack Scannell says:

    The patent system has had some heavyweight fans over the years.

    Abraham Lincoln (1851): “I have already intimated my opinion that in the world’s history, certain inventions and discoveries occurred, of peculiar value, on account of their great efficiency in facilitating all other inventions and discoveries. Of these were the arts of writing and of printing, the discovery of America, and the introduction of Patent Laws

    Mark Twain (1889, in A Connecticut Yankee in King Arthur’s Court): “That reminds me to remark, in passing, that the very first official thing I did, in my administration—and it was on the first day of it, too—was to start a patent office; for I knew that a country without a patent office and good patent laws was just a crab, and couldn’t travel any way but sideways or backways.”

  49. Taco says:

    I disagree with the assessment that extended patent life will lower prices. Having been involved in a few pricing discussions my feeling is that the price is dictated by what the market will bear and what doctors will pay, not some formula for making your investment back. I also disagree that the NIH would be a better agency for drug discovery than the industry, because the desire to make money is a human instinct, not an industrial one. Shifting the agency of discovery will just shift the agency trying to maximize profits.

    One idea I haven’t seen here yet is to do away with drug patents and instead replace them with a low, long-term royalty on every dose sold by every seller that goes back to the inventor. Instead of 12-15 years of patent life, you might propose 30-50 years of a 5% royalty. Thus the price control of competition is immediately established and the inventor can still profit from the invention without a monopoly.

  50. Kaleberg says:

    I have no problem with patents, but they work better in some fields than others. In pharmaceuticals, they work moderately well, but in computer software they work poorly. There are a huge number of “do it on a computer” patents with no actual implementations.

    Not having patents can lead to a great deal of innovation. For example, Mauchly and Eckert wanted to patent digital computers, but von Neumann prevented this. Watt had a long patent on the steam engine and managed to hold back the development of high pressure steam engines for decades. The Wright Brothers had a broad flying machine patent, so aviation was advanced more in Europe where the patents were narrower. All of these patents are much more general than the typical pharma patent which usually involves specifying one or more particular compounds, not a whole family of them.

    There is an end of patent effect that often unleashes a lot of innovation. The market for telephones took off when Bell’s telephone patent ended and others started innovating. It took the end of the Gortex patent to get us Glide dental floss.

    I think we’d be better off tailoring the existing patent system to work better for individual fields. We already have a sort of prize system with organizations like DARPA and NASA setting up competitions for very specific goals and then awarding prizes and development contracts. Dean Baker often challenges conventional wisdom because he is trying to get people to think.

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