This series starts here:
Medicinal chemistry drives the whole of federal patent policy
The IPA program, revived in 1968 by the NIH following the Harbridge House report, which singled out medicinal chemistry as one of the few areas where there had been a disagreement by industry with government patenting policy, addressed both patent term and public access. But the IPA did so by pushing the limits toward private control. Where the Kennedy patent policy said three years from patent issuance, the IPA ignored that term and substituted the sooner of three years from the date of first commercial sale or eight years from the date of an exclusive license. One could then, with option terms and the like, run a patent monopoly for close to fourteen years rather than six. Extension of the monopoly also became a matter of agency approval, without any provision for public input. March-in rights were a matter of the government exercising its non-exclusive license. The government could break any private patent monopoly at any time for any government purpose. That is, the government could choose to expand the government-side approach to health care and break or shorten exclusive positions that the government had permitted patent owners to take up on the premise that the government was not operating in those areas (yet).
Bayh-Dole effectively obscures the public covenants on exclusive patent license term and invention use altogether, while retaining an apparatus that makes it appear that those public covenants still operate. The original version of Bayh-Dole contained a term limitation for exclusive licenses–five years now (rather than three under the Kennedy patent policy) from date of first commercial sale, or eight years overall. That limitation was removed from Bayh-Dole four years later, along with other changes that gutted the public covenant and public oversight (such as making all information in use reports exempt from public disclosure rather than only the privileged or confidential portions of those reports).
Because Bayh-Dole is structured as requirements to be placed into a federal funding contract as defaults rather than as a statute that expressly limits the patent rights available on inventions made in federal subvention funding, there’s nothing in Bayh-Dole that requires federal agencies to enforce any aspects of the patent rights clause in any funding agreement. Agencies appear to enforce consistently only the placement of a federal funding statement in patent applications and substantial U.S. manufacture for exclusive licenses to use or sell in the U.S.–and even U.S. manufacture Bayh-Dole allows to be waived.
Thus, Bayh-Dole, as public policy, uses an apparatus that appears to offer limitations on the behavior of patent owners on subvention inventions–and especially inventions made in biomedical areas–but in fact opens up the use of the patent system for any use a patent owner may choose–including non-use, trolling, and monopoly pricing. While these activities might be “legal” in the general case of patents, the particular area of public health supported by public funding has, for good reason, not been considered just any area for “whatever the market for suffering and dying people might bear.” In this mindset, suffering and dying people represents the absolutely best market profile for monopoly positions. If a corporation owes its shareholders a duty of maximizing income, then a corporation with a monopoly in an area of alleviating suffering and dying is the best possible investment opportunity. “High risk, high return” indeed. At some point, advantage becomes gouging and gouging becomes immoral and the immorality breeds popular hatred.
The question for public policy around research patents that have come about because the government funds the research and the government issues the patents and the government permits the patents to be used to gouge patients or to restrict supply is simply “why?” Why should the government conduct its affairs so that such a result comes about as a primary purpose? One might argue–this is the way of the world, let it be. But it’s not that at all, since it is a government-enabled situation all the way around. It ends up being “government in the service of creating hated monopolies that exploit our suffering for their profit.” Responses might include eliminating federal research funding from these areas, or redistributing federal research funding so that funding follows significant findings all the way from laboratory to practical application–and requires inventors making claims to make themselves available to follow those claims toward practical application. With a redistribution, there is no need for the government to use the patent system (or charity) to “call forth risk capital.” The government with a wink can provide more funding for research and development than all the “fun runs” for breast cancer combined, all time.
There is no need for companies to own patent monopolies on whole classes of therapeutic compound–other than that some company executives insist on monopolies. The federal government could outsource development to specialists as needed. Heck, that’s exactly what the nearly virtual company Medivation (now part of Pfizer) did with Xtandi. The company existed to find drug commercialization opportunities. It obtained a class of compounds from UCLA, made with federal support. It outsourced the development to contractors, spending (as best I can tell no more than $300 million across two drug candidates, one which failed and wasn’t part of the UCLA deal). The drug itself earns billions per year, is priced north of $80 a dose in the U.S. and can be made profitably for under $5 a dose. Why could not the government do what Medivation did, and outsource the development to contractors? Yes, doing so would turn a multi-billion dollar patent asset into nothing, but it would also shift the transfer of wealth from the government, from charitable organizations, from private insurance companies (and thus, from the insured) to the speculators that use public suffering as the premise for maximizing their investments.
The Bayh-Dole Act is premised on the idea that the government funds research and then ignores the results, and goes off to fund more research. To develop results to practical application must, in this idea, be “left to the private sector.” That is, there are no special environments–everything that can be turned into a market must be a market, and everywhere a market can be dominated by those with substantial wealth (enough to secure and enforce monopoly patent positions, for instance, plus pay to develop technology) must be allowed to be so dominated. Of course, Bayh-Dole does not forbid special environments–it even has a section devoted to “exceptional circumstances” and another to “march-in”–but it has set these up to be unusable, as if the government is “taking” private property from the institutional speculators by placing limitations on the scope of their patent rights or use of their patents on inventions made with public support. And we aren’t even talking about the principal investigators or the inventors themselves–Bayh-Dole enables them to take inventions with impunity, without any thought that they are “taking” personal property and ought to show due process and just compensation (for which sharing royalties is hardly just, given there’s no diligence obligation and no assessment regarding what the value of the future value of any given invention is at the time of the “taking.”
PHS’s response to WARF’s 5-FU exclusive license
We have gone a long way around to place some context on the response of the PHS to WARF’s 5-FU patenting behaviors. The PHS responds by requiring disclosure of everything and restricts patenting until approved by the PHS unless there’s a patent agreement in place with the PHS that provides otherwise. It’s the IPA, then, that Wisconsin and WARF lacked that got them into trouble. Here are the two provisions in new PHS policy that appear to go directly after WARF’s 5-FU patents:
The subcontractor cannot walk away with patent rights free and clear of PHS oversight. The terms and conditions of the prime funding agreement must flow down to the subcontractor, especially when the subcontractor is a for-profit. And second–and this is what Heidelberger did–if the investigator sends compounds out to be synthesized or screened, then that work, too, must come within the scope of PHS oversight. Otherwise, these are two easy work-arounds to any public covenant on inventions made with federal support. One might argue (as WARF did) that only a small amount of the funding for the research came from the federal government. In its reductio ad absurdum version, the amount of material federal funding becomes $1, no more than a Cheshire cat’s grin. The issue, however, is circumvention of public service by offering (or selling, or licensing) the opportunity for a monopoly position to others who may then operate outside public oversight.
One can see why the concern at most companies that had a concern (according to the Harbridge House report) was in “mixing” federal funding with any other effort. Federal funding had to be firewalled from any other company activity. Put that work in a separate division, a controlled lab space. The universities, however, had little interest in doing such things, other than for defense classified work, and there only grudgingly–and again isolating the work in controlled spaces.
We can then construe the debate a different way. Rather than worrying the proper range of patent rights (term of exclusivity, nonuse, trolling, monopoly prices) or whether there should be any special environments (scientific frontiers research, public health) in which commercial activity based on patent rights should be limited or regulated, or when in those markets full exclusionary patent positions should be made available by the government, we might ask whether public money should drive out personal opportunity or replace private opportunity with government controls.
As with most anything in this area, things are wrapped up in other things. Turtles on turtles, in a long stack of turtles. But let’s try to unwrap and unstack just a bit. The private opportunity lies with an inventor working in an investigation. The premise of the investigation is that it is in the “public interest” and so may be done with university resources and government or charitable money. Is this premise legitimate? Is it somehow binding? Should it follow through when a research finding takes the form of a patentable invention? If so, should the premise necessarily prevent the government from issuing a patent, or if it issues a patent, should it issue that patent to itself? Or if it allows the patent to issue otherwise, should it be to the inventor? to the principal investigator? to the university? to anyone who shows up with a proposal for managing the patent? or to the highest bidder? or to a government or university favorite, such as someone who starts a new company to exploit the patent right?
The public interest
Here, we might challenge the notion of “public interest.” Is there a res publica? Or is there just private interests, exerting power when they can, and laws are the collusion of the weak to bring down the natural right of those who are strong? We here have Callicles’s argument in Plato’s Gorgias. Or are there common things that no one should own, or should own only in trust, and should be used for all rather than in self interest only. And if so, how ought we decide what those things are, and with what trust, and with what limits? Is it a matter of personal integrity, of wisdom and judgment, of duty? Or are there rules, a system, so that such things are “objective” and reduced to formalities?
Do we form our community so that the business person’s responsibility is to alleviate suffering with market-based products, so that the “market” consists of those with injury or disease and the sellers with the best remedies have monopolies created by our government, because the business folks have got the capital to buy up every new thing in sight before its value might be spilt in providing ready access? What sort of “market” is this? Is it the market that would prevent public parks, and instead propose to sell access to parks to those that can afford to pay, and to those who can get someone else to pay for them? Yes, it might be a nicer park, but is a community composed this way even “public”?
It may be a big, unresolvable dichotomy–commons and capital fighting it out. On the one hand, freedom that can become enforced freedom, so that any advantage is prohibited, innovation is thwarted, and administrative authority to preserve a commons becomes more important than the commons itself. Stewards become kings, and the like. On the other, sufficient money may buy up what it wants, including the best opportunities to make more money, and so old money makes more money until making money in the abstract is more important than any activity one might undertake. Betting on baseball becomes more interesting and valuable than the game itself. Or, betting on the future value of biomedical patents is more important than the underlying inventions might be to treating disease and injury. The speculator’s goal is to preserve the value of the patents as long as possible–healing people is an ancillary outcome (good for PR) but entirely uninteresting in the great scheme of things.
Here is installment 11: