A century of reaping enormous profits at the expense of sickness and misfortune, 2

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, working through Research Corporation, which made a deal with Merck, all under the auspices 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 the Mayo Clinic 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 not 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, who pay 100%) vanishes. Of course, there’s a more obvious problem: income from patent licensing for nonprofits is rare and mostly paltry, hardly enough to show a meaningful increase in the scale of research activity and certainly not used to broaden the volatility of research choices–nonprofit research does not become more “out there” when switched from corporate and institutional sources of funding to funding from patent licensing. For the most part, patent-based funding for research comes back to nonprofits to be allocated by administrators. How do administrators come to be the favored decision-makers on what research ought to be funded? While that’s a question tucked into the end of paragraph in the middle of a series of nondescript articles, it is a question that drives deep into the heart of the entire bureaucratic rigging of how federal research money is allocated for research. So much money. Such a narrow set of people embedded in institutions to control it. “Oh, lack of innovation must be because, um, regulations need twerking. That will unleash all that pent up innovation.”

As Col. Boyd put it, by the time you are acceptable enough to other administrators to be chosen by them as an administrator, you likely will have become changed to be enough like them that you will act to preserve your new standing. Not all administrators, but most.

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–administrators–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.

Here’s Peter Drucker (Managing the Nonprofit Organization):

Non-profits are prone to become inward-looking. People are so convinced that they are doing the right thing, and are so committed to their cause, that they see the institution as an end in itself. But that’s a bureaucracy. Soon people in the organization no longer ask: Does it service our mission? They ask: Does it fit our rules? And that not only inhibits performance, it destroys vision and dedication.

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 pioneered by Columbia’s University Patents (1924) and the Wisconsin Alumni Research Foundation (1925). And those organizations apparently saw how Kendall at Mayo had worked things, setting up his own foundation to receive funds to support his entrepreneurial research projects. WARF had the further innovative idea of investing its 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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