On Friday, I will be speaking at the Seton Hall Law Review’s Health Law Symposium. This year’s topic is focused: Preparing for a Pharmaceutical Response to Pandemic Influenza. [LINK] A portion of my talk will focus on how patent law may react during a public health crisis.
The reality is that in a pandemic situation, the patent rights covering important treatments will be ignored. Under TRIPS, during a national emergency would-be patent infringement becomes a legitimate unauthorized use. At some later point, the patent holder should receive payment based on “the economic value of the authorization.” In all likelihood, however, that ex-post payment will be a small fraction of the potential monopoly profits that could have been earned.
There are several legal avenues to allow “unauthorized use” in the US. One avenue is by denying injunctive relief. Even before eBay, no court would order an injunction in the face of a public health crisis that could be mitigated by allowing infringement. The test for injunctive relief specifically looks to the public interest. And here, easy access to treatments would weigh heavily in the public interest. Further, a patentee has no right to injunctive relief if the infringer is the US Government. 28 U.S.C. §1498. Thus, another avenue for unauthorized use is through direct government intervention. In 2001, Congress and the Administration were reported to have seriously considered “breaking” Bayer’s patent on Cipro in order to stockpile the drug against a potential anthrax attack. In the Cipro case, the Government apparently used the threat of breaking the patent to negotiate a long-term contract with Bayer at an unusually low price. This approach might be termed ‘bending’ the patent. Individual states within the US may also apply pressure and threat of unauthorized use while retaining immunity from suit under the 11th Amendment of the Constitution.
What Incentive?: We all understand that governments will not be able to avoid the temptation of breaking (or bending) patents covering important treatments that may be useful in some future crisis. Unfortunately, this prediction of the likely future greatly diminishes today’s incentives to innovate crisis-specific treatments. Many empirical questions remain: Will the ex post compensation be a sufficient incentive to innovate? Will the most valuable treatments have non-crisis uses where patent rights will operate more normally? Are the potential crises so well defined that a grant or prize system could work better?
Notes:
- The tables below show patenting and patent application data for patents relating to influenza (search influenz$). For applications filed in 2001, almost 2,500 have been published. Less than 50% of those published applications have issued as patents in the seven year interim. Although we will never be sure, it looks like a little under 20% of the “influenza” applications filed in 2001 kept secret rather than publishing.
- The next chart shows the average number of non-patent references cited in the influenza patents as compared to patents in general.
Dear Skeptical, did you get your business acumen from a little red book?
“any business model that requires a large additional patent royalty on a massively-distributed product in order to make a profit is a doomed business model.”
First of all, we will have a hard time establishing what “large” means, ideally the patent royalty should be structured to capture as much of the NRE associated with product development as quickly as possible plus some good old fashion monopoly rents. Since the patent monopoly is “doomed” by design, due to its character as being limited in time, the large royalties are a necessity for recovering these costs and rents.
“…nor does the patent’s right to exclude eliminate the basic economic fact that when you increase production by orders of magnitude, you can reduce costs.”
And please don’t confuse NRE costs with unit cost of production, which as you correctly note should be reduced with time and increase in production scale.
“…second, in your comment to Greenie you commit the cardinal sin of confusing the right to exclude others and innovation itself. while patents are a tool inventors can use to assist in disseminating new inventions, patents by themselves do not distribute new products, and can retard tech development and product availability when misused.”
I think I read that in one of Lessig’s or Lemley’s cute little socialist leaflets. You must be reading too many techie tabloid blogs by Canadian patent attorney wannabes that get paychecks from Research in Motion to attempt to undermine public discourse.
“patents dont distribute new products” Of course not, but if you can’t understand the role of patents in rapid wide distribution of new technology because of your red colored glasses, then I can’t help you. Imagine trying to affect rapid global distribution on an unpatented product. We call that anarchy.
“…third, you say that “When rights are trampled, even by the government (many would say especially by the government) it does not bode well for incentives to disclose.” however, a government can do this to a company even when the product or process is NOT patented – and regardless of whether the company has disclosed its details of production. the patent creates an additional barrier to wholesale government takeover of a product market by requiring compensation beyond what would otherwise be available. thus, in areas where there is a risk of government market interference in production, the patent is additional insurance. if it has any impact at all, it continues to support the incentive to disclose.”
The gobbledygook factor is extremely high here. Not sure what you are trying to say, but if its that a government can just take over a manufacturing business, I might have to take issue with that on a number of levels. Also, in your little vignette, how could the government appropriate an invention that I have not publicly or otherwise disclosed lets call it a secret proprietary technology? Are they going to break into my offices and labs?
You’ve been watching too many movies my little friend.
Tyu, you are indeed correct re the “public non-commercial use” exception in TRIPS. There is also an exception in “circumstances of extreme urgency.”
The case that metoo had in mind is the 1934 decision of the 7th Circuit in Activated Sludge v. City of Milwaukee. The CA7 judges looked out the window and decided that they would not be happy if Lake Michigan turned into an open sewer.
Dennis, I did not understand how you arrived at the conclusion that: “Although we will never be sure, it looks like a little under 20% of the “influenza” applications filed in 2001 kept secret rather than publishing.” ??
Since 18 month publication of any U.S. application filed since 11/99 can only be avoided by swearing that the application will never be filed in any foriegn country [and it is fatal if you do] non-publication has become quite uncommon [except for individual inventors trying to save a few dollars] NOT by major pharmecutical companies.
Non-publication also deprives one of the benefits of getting the clock running much sooner on one’s 102(e), 102(a), 102(b) and 135(b) inhibitions of later applications of others on the invention and any attempted interferences.
It’s a common misconception that TRIPS only allows compulsory licensing without prior efforts to attain authorization in an emergency. In reality, Article 31(b) of TRIPS also allows such action “in cases of public non-commercial use.” This could allow developing countries to produce any developed prophylactic in advance, potentially mitigating a public health disaster.
metoo, it’s optimistic to believe that a “company would likely seek out others willing and able to satisfy need.” I suppose it’s possible that Roche et al learned from the public outcry that occurred when they could neither produce enough Tamiflu to meet demand nor would they license to other producers, but I’m not convinced. After all, this is the industry that couldn’t see past the technicalities of patent law to view the larger public relations picture when 42 pharma companies sued the South African government for trying to increase access to antiretrovirals for its pandemic AIDS problem.
And one piece of context might be helpful. There has been a lot of anger in the developing world over the development of a bird flu vaccine. The samples these vaccines are being developed from were taken from citizens of developing South East Asian countries without any remuneration or guarantee of affordable access to any resultant vaccine. While there is no legal requirement that the people who surrendered samples be given either of those things, the situation leaves a bad taste in many people’s mouths and the issue could certainly re-emerge during a pandemic situation.
AllSeeingEye – any business model that requires a large additional patent royalty on a massively-distributed product in order to make a profit is a doomed business model. nor does the patent’s right to exclude eliminate the basic economic fact that when you increase production by orders of magnitude, you can reduce costs.
second, in your comment to Greenie you commit the cardinal sin of confusing the right to exclude others and innovation itself. while patents are a tool inventors can use to assist in disseminating new inventions, patents by themselves do not distribute new products, and can retard tech development and product availability when misused.
third, you say that “When rights are trampled, even by the government (many would say especially by the government) it does not bode well for incentives to disclose.” however, a government can do this to a company even when the product or process is NOT patented – and regardless of whether the company has disclosed its details of production. the patent creates an additional barrier to wholesale government takeover of a product market by requiring compensation beyond what would otherwise be available. thus, in areas where there is a risk of government market interference in production, the patent is additional insurance. if it has any impact at all, it continues to support the incentive to disclose.
does the all seeing eye need an optometrist?
Dear Greenie,
You are only part right. The patent system is a quid pro quo of technical disclosure in exchange for a limited right to exclude. If not for the patent system, inventors of revolutionary products, particularly if small, would not be in a position to rapidly and widely distribute their products. With the protection of the patent system, at least theoretically, the new technology can come on-line very fast based on liberalized disclosure, with the expectation that royalties will be paid to the inventor/discloser of the technology.
When rights are trampled, even by the government (many would say especially by the government) it does not bode well for incentives to disclose.
In one scenario, if inventors do not disclosre, and hold developments closely, then it may take far more time for new technology to come on line, and further, it could result in more “real” monopolies in the subject technology.
“lower mandatory royalty would be more than made up for by the massive scale of production,…” ~ the skeptical patent lawyer
“I sell all my products below cost, I make up for it in volume.” ~ the out of business business man.
I’m a bit green, so kindly bear with me.
Doesn’t the US patent system essentially exist for the benefit of the United States (specifically the Dept. of Commerce)? It doesn’t surprise me that the government would “bend” the rules for the sake of its citizens (i.e. the public interest).
That said, the public interest test seems a little vague. Where do you draw the line between profits and public interest?
In my mind, TRIPS sounds a lot like Bayh-Dole. Of course, B-D is ment for small entities and Universities, but both situations essentially grant rights to exclude until the government needs the technology.
Before eBay, this scenario was the precise type of situation in which an injunction would not be issued by a court even after proof of infringement. I don’t recall if it was an actual case of merely a hypothetical, but the example I remember is a community water treatment plant found to infringe. The court would not shut down the water treatment plant.
Of course the debate is largely academic (no offense, D). In an actual influenza pandemic, no pharmaceutical company in their right mind would go to court seeking an injunction. It just wouldn’t happen. In fact, if a company had a treatment which they thought was effective yet they could not produce sufficient quantities, that company would likely seek out others willing and able to satisfy need.
Perhaps a more important issue might be looking at ways to get ahead of the game now. Things like cooperative agreements among pharma companies which establish the rules ahead of time might be worthwhile. You may also need to deal with trade secret issues, as it would be important to ensure that a needed drug is being manufactured in the quickest, safest and most effective manner possible. Statutory and regulatory frameworks for dealing with such a crisis should also be examined ahead of time (although it’s likely that any such attempts would devolve into bickering over tangential issues related to big pharma, prescription drug costs in general, etc.).
This may be nitpicky, but TRIPS does not dictate that patent infringement becomes a “legitimate unauthorized use” in the case of a national emergency. TRIPS does not mandate that member countries allow patent infringement in the case of a national emergency such as a pandemic. Rather, TRIPS merely says that if a country allows for the use of a patent without authorization of the patent owner, the laws of the member country must require that the user (i.e., infringer) first attempt to get a license on reasonable commercial terms. In the case of a national emergency, however, TRIPS says that the member country MAY waive this requirement (first trying to get a license).
Two points. First, in the event of a pandemic the lower mandatory royalty would be more than made up for by the massive scale of production, especially if the drug treatment were made mandatory. Full royalties at normal distribution rates would result in a huge (and improper) windfall profit to the patentee. No pharma worth its salt would forgo a blockbuster drug because it might be important in a crisis. And if it did, its shareholders would scream.
Second, you say that an injunction wouldn’t issue if there were major public health concerns. Obviously you haven’t argued before Judge Newman.
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