A century of reaping enormous profits at the expense of sickness and misfortune, 1

In June 1917, the United States had just entered the first world war against Germany, and a German chemical maker through its American subsidiary Farbwerke-Hoechst held U.S. patents on salvarsan, a medicine used to treat syphilis. Along letters written on behalf of the seven hundred members of the Connecticut Society of Social Hygiene and with the Center Congregational Church of South Manchester, doctors at the Mayo Clinic wrote a letter to Congress, asking that the patents be canceled.

Mayo doctors complained that

During the course of the European war the supply of salvarsan in this country has been insufficient and precarious. The drug has been manufactured in German, imported when circumstances permitted, and doled out to the medical profession at prices which have largely prevented its use to the extent or in the type of cases which the interest of the public health demands.

The Mayo doctors pointed out that an American lab was permitted to make salvarsan by the German company for a time when importation was not possible, but “at a price dictated by their conception of commercial expediency.” Once imports resumed, the American lab was ordered to cease production. The Mayo doctors then turn to the price:

The price of salvarsan as regulated by the Farbwerke-Hoeschst Co. is a glaring example of a commercial monopoly reaping enormous profits at the expense of sickness and misfortune.

The doctors point out that salvarsan could be profitably produced for $1 a dose–$3.50 less than the current patent-based price. They then make an argument that there are “surplus” profits–profits beyond those that reasonably reward an inventor:

The surplus profits go to enrich not the inventor of the drug nor his estate, which has long since been generously provided for, but the private fortunes of the gentlemen who control the rights for this country.

This argument with regard to profits and surplus profits goes back in Anglo-American tradition at least as early as Piers Plowman, a 14th-century work that distinguishes “measurable hire” from “meed [reward] measureless.”

The doctors from Mayo argue that the price will prevent a public campaign against syphilis:

The prices which they maintain are prohibitive for a large body of the sick and will effectually throttle a public campaign against syphilis as a disease until such time as the patents expire or are abrogated by Congress.

The doctors continue, making clear that even were there not a war, patents that support monopoly pricing are poor policy:

We respectfully submit that even in time of peace the propriety and wisdom of a public policy which permits private monopoly to control and seriously limit the use of remedial agents whose availability is vital to the public health may well be questioned.

There could be no better statement made a century later with regard to public policy that continues to permit such monopoly pricing. Later in the document, they are more direct (extracting their words from a conditional): “it is unwise to permit commercial control of the public health in a time of peace.” The doctors return to their argument–the price prevents improvement of public health and serves only to augment fortunes already plenty. The underlying logic is that while a patent may serve to financially reward an inventor, there comes a point when the price ceases to that reward and exceeds any meaningful claim, all the more so if the price also affects the alleviation of public suffering:

There is no doubt in the minds of the medical profession of this country that the control of syphilis as a scourge of the public health is seriously hampered by the price set upon the drug by gentlemen who seem to see in it only a means of increasing their already large private fortunes.

According to the doctors, abrogating the patents would “work no real injustice to the persons concerned with the distribution and control of salvarsan.” They have got sufficient reward already. The concept at work is one that places a limit on income that may be derived from a patent monopoly based on a price that far exceeds the cost of manufacture and distribution, at least when the public health is concerned. One might think that just such a concept should find a place in the Bayh-Dole public interest apparatus. It would be of some interest to see how the Mayo Clinic might address the matter today.

Oh, wait. Here’s a recent clue. Mayo’s research publication Discovery’s Edge, recently ran an article on “The Power of Patents.” In the article, Mayo Clinic wonders about patent royalties from a famous past invention:

When Mayo Clinic colleagues Edward Kendall, Ph.D., and Philip Hench, M.D., along with Swiss chemist Tadeau Reichstein, won the Nobel Prize for Physiology or Medicine in 1950 for demonstrating how cortisone was capable of reversing inflammation, Mayo Clinic did not patent this discovery nor participate in its commercialization. The invention was a breakthrough in treatment for patients with rheumatoid diseases, but Mayo Clinic did not receive a share of the revenue generated by pharmaceutical companies from this innovation. If Mayo had received such funds, they could have been used to further research to benefit patients.

Mayo Clinic did not patent the invention, but Kendall certainly did, and had a deal with Merck throughout the research, which took place as part of Vannevar Bush’s war effort to study adrenal gland extracts as a possible benefit for pilots flying at high altitudes. (See the story here). In this article, perhaps unintentionally, is a clue to the problem of introducing a cap on income earned with respect to a patented medicine made with federal support–the “mede measureless” of the royalty income could be used for further research “to benefit patients.” The tag is telling, because most research, while it may be proposed to benefit patients, largely and most immediately benefits the organizations involved in conducting the research. The larger argument, however, is that to achieve a maximal amount of income from a “share” of sales revenue, the sales revenue itself cannot be capped. For a Mayo Clinic to get its 1%, it is essential, so the implicit logic goes, for the manufacturers to get their unlimited 99%.

One wonders if there might be other ways–such as returning a much higher royalty to the organization early in the life of a new product–say, 50%, as in early 20th century arrangements of this sort–and then, when costs of development have been recovered and a fair profit earned by the manufacturer(s), the price of the drug is set as a cost plus a reasonable margin and no further royalty is paid. These sorts of proposals are typically rebuffed with the argument that any restriction on unlimited profit will cause drug manufacturers not to spend the money to develop the profit restricted drug, no matter how important the drug may be to public health. That is, a patent can attract private capital to public interest projects only if the patent can be used to maximize income, even if that income comes at the expense of public health, allowing, as one 19th-century doctor complained, a few to “grow fat on human misery” as a matter of public policy.

If support for public interest research was never connected with patent income, then the logic that the public will benefit (from research paid for by 1% of the patent income from sales of medicine to the public, which pays 100%) vanishes. Given the billions that the federal government pushes to health research in the United States, it is difficult to believe that any nonprofit organization actually needs patent royalties or that the public benefits from the construction and funding of sophisticated licensing offices that attempt to secure those funds, succeeding (perhaps mostly by luck) on the order of once every two or three decades at even the most productive organizations.

Perhaps the worst bit about Bayh-Dole, and before it, the IPA program, was connecting nonprofit financial self-interest to patent exploitation. Organizations then place the wrong value on discovery, and attempt to disrupt one another from obtaining research funding while a the same time attempting to gain the most income possible through licensing–income from the manufacturer, and income that otherwise might go to other nonprofits. Thus, fights such as the University of California and MIT have had over CRISPR, and long before that, the Scarlet Fever Committee with Presbyterian Hospital over a cure for scarlet fever.

The idea that patent royalties could be justified if they were dedicated to public purposes goes back at least to Cottrell and Research Corporation (1912), but the idea of connecting that income with the organization that hosted the discovery was made popular by Columbia’s University Patents (1924) and the Wisconsin Alumni Research Foundation (1925). WARF had the idea of investing royalties in the stock market, and returning as an annual gift the earnings of the invested funds rather than a percentage of each royalty stream. However the money happens, the fundamental theme–now so thoroughly normalized it is like drowning kittens because, well, doesn’t everyone?–remains the idea that patenting is necessary because there’s just not enough research money, and an organization that hosts a discovery deserves to get as much income from patenting as it can. Break that idea, at least with regard to matters of public health, and one breaks half of the nonprofit interest in exploiting the patent system.

The second half of the idea is the monopoly meme, that without patents, no one will every use or develop into a product at commercial scale any discovery made pertaining to public health. What is available to all will be used by none. Certainly, companies motivated by maximizing profits will ignore new products that they cannot sell at monopoly prices without competition. But other companies, and nonprofit foundations, have in the past been more than willing to develop and make medicines without a need for maximum profits as a basis for “investing.” Not every investor requires an unlimited speculative upside, as Kickstarter and other crowd-sourced investment makes clear.

One wonders why there isn’t a crowd-source funding engine focused entirely on charitable organizations. An angel fund in the Bay Area used this approach. An entrepreneur presents to one member of the angel fund. If the member thinks the business idea is worthy, he prepares a pitch that goes to the other members via a web site. Other members vote in how much they would invest. If the total exceeds the pitch request, then the angels call a meeting and hear a full presentation from the entrepreneur. If they are still interested, then they fund the project. Why not something of that sort for nonprofits? Be done with the idea that patents must generate research income, especially in areas of public health. Reward discoverers, but why reward them so well that we attract researchers motivated as much or more by the prospect of money than by the determination to alleviate suffering? Is it mere idealism? Or is money the root of all discovery, all technology change? Or is the world what we make it?

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