Focus On Medicines Patents & Prices Alone May Do More Harm Than Good

By Steven Tepp

Populism is in vogue these days and critics of pharmaceutical patents are trying to ride the wave, claiming that undermining patents will dramatically decrease prices but not reduce innovation. Both sides of that claim are flawed.

In one recent opinion piece, the authors propose replacing the free market with government taking of private property and price controls in the health care field. The piece awkwardly attempts to compare cutting-edge innovators’ patent rights to the use of “eminent domain” against a homeowner whose property is needed for a railroad. Billions of dollars are commonly spent on research and development of new medical treatments. When those efforts are successful, they can save lives. Punishing inventors by stripping their patent rights precisely because they succeeded in creating a needed breakthrough has nothing in common with a homeowner trying to extract a windfall from a public works project.

The Fifth Amendment to the US Constitution protects against government abuse by requiring just compensation for the taking of private property. This proposal would turn that on its head, using the power of the federal government to seize private property as a tool of social policy. Alternatively, they propose the government knowingly violate private patent rights, and hide behind “sovereign immunity” to suit (a holdover from European feudalism), to avoid the remedies that would be available against a private party engaging in the same behavior. Going backwards in history, whether to the managed economies of the 20^th Century or the feudalism of the Dark Ages is no way to promote modern health care or innovation.

In another piece that was timed to coincide with Indian Prime Minister Modi’s visit to the United States, Doctors Without Borders lauded India for a series of controversial and legally questionable moves to undermine patents that continue to be respected in countries around the world, and reiterated India’s self-proclaimed role as the “pharmacy of the developing world.” Conspicuously, those Doctors fail to note that the World Health Organization has found as much as 20% of the drugs in India are fake, and drugs imported to the US from India have come under scrutiny from the US Food & Drug Administration and the US Department of Justice for issues of safety and falsified reporting.

Meanwhile, the UN High Level Panel on Access to Medicine appears to have been structured and staffed to reach a similarly anti-patent result, regardless of the facts.

A balanced and thoughtful approach to addressing health care prices requires considering a variety of factors, of which patent protection is only one. The health care field is highly regulated; even beyond the costs of research and development, clinical trials take years and hundreds of millions of dollars more. And patented drugs represent a small volume of prescriptions – about 80 percent of prescriptions are for off-patent generics. Further, drug prices are only one element of health care, along with doctors and hospitals. And insurance companies’ coverage is at least as crucial a factor for patients’ out of pocket costs. No one wants to short-change the other parts of the system, but targeting innovators and the patent rights they have earned is myopic and misguided.

Today, the US is by far the world’s leader in health care innovation. 80 percent of global research and development dollars in the biopharmaceutical industry are invested in the United States. That investment pays off: since 2000 more new drugs have been developed in the United States than the next five countries, combined. In 2010, 42 percent of new therapeutic substances released worldwide launched in the US first.[1] That success is the product of numerous factors, and it is noteworthy that the UK, Switzerland, Ireland, and Singapore have also worked hard to create an environment to promote health care innovation.

Government abrogation or seizure of patents and price controls will undo that success. One study predicted that government price controls could reduce the number of new innovative medicines by almost 40%. Patent critics acknowledge the concern about reduced investment, research, and innovation and shrug it off. But no matter what magic words or misdirection they try, the logic is clear and undeniable – if you siphon off money from the innovators, you get less innovation. Trying to replace that entirely with government-funded research is at best a recipe for massive tax increases or ballooning debt.

They also overlook that a patent is already a tradeoff; the inventor discloses the invention to the world in exchange for a limited set of rights. This disclosure speeds the pace of further research on even more life-saving treatments. If patents are stripped away, whatever research still happens will be more likely to be held as a trade secret and not readily available to other researchers; a doubling down on the harm to innovation.

We all want the right mix of innovation and price. Focusing only on price at the expense of innovation may be a simple way to look at it, but it certainly isn’t the right way.

Steven Tepp is a Professorial Lecturer in law at George Washington University Law School and founder of Sentinel Worldwide, where he works on behalf of clients with vested interests in effective intellectual property protection. His full bio is available here.

[1] IMS World Review Analyst (2011).