Category: Innovation

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Innovation Legislation Patent Law

CPIP Co-Founder Testifies at House Judiciary Committee Hearing on IP

U.S. Capitol buildingCPIP co-founder Adam Mossoff testified on June 13 before the House Judiciary Committee’s subcommittee on the Courts, Intellectual Property and the Internet.  He and other witnesses testified about the impact of the Supreme Courts recent decision in TC Heartland LLC v. Kraft Foods Group Brands LLC on innovators and the possibility of future changes to patent law.

For those not familiar with the decision, it held that patent lawsuits against corporations must be filed either where the corporation is incorporated or where it has infringed the patent and has a “regular and established placed of business.” This is different than the rule for most litigation which generally allows a lawsuit to be filed wherever a court may exercise jurisdiction over the corporation.  Thus, TC Heartland placed constraints on patent owners enforcing their rights that don’t exist for other litigants.

Although the hearing was nominally about TC Heartland and venue for patent suits, Members of Congress and witnesses took the opportunity to address broader issues of innovation policy.  In his opening statement, Professor Mossoff primarily described how patent owners—particularly individual inventors and small businesses—will now be required to file multiple lawsuits all across the country to enforce their rights.  This will drastically increase the costs of protecting their property from infringers, which for many innovators will be cost prohibitive.  Professor Mossoff mentioned one such inventor, Bunch-o-Balloons inventor Josh Malone, who is being seriously harmed by the inability to protect his invention from rampant infringement.  Together with the litany of other recent disastrous changes to our patent system, innovators are now in a precarious position when deciding to rely on patents to protect their inventions.

Much of the hearing was taken up by questions of what the impact of the TC Heartland decision will be.  There was general agreement that the concentration of patent cases in only a few districts will continue.  Under the old regime, many cases were filed in the Eastern District of Texas.  Under the new regime, these cases will now be filed in the Northern District of California or the District of Delaware.  There was also general agreement that this would benefit accused infringers, who will now be litigating in their preferred fora.

Adam MossoffUnfortunately, much of the discussion centered around a perceived problem with patent “trolls.”  This epithet based on myths is often used in the place of reasoned debate for patent policy.  As Professor Mossoff explained, as deployed in research and policy debates, this term would make even famous inventors like Thomas Edison a troll.  Furthermore, it is both wrong and irresponsible to assume that patent owners who license their inventions are practicing an illegitimate business model. Just as it is perfectly legitimate for a landlord to rent her property instead of selling it, it is likewise perfectly legitimate for a patent owner to license her patent rights instead of manufacturing and selling products to customers. And just as it is legitimate for a landlord to sue a squatter for trespass, it is equally legitimate for a patent owner who licenses her property rights to sue for infringement.

Several questions focused on broader patent issues in the context of whether or what Congress should do next for patent law. The Global Intellectual Property Center of the Chamber of Commerce recently reported that the United States had slipped from 1st to 10th in their annual ranking of patent systems.  Reasons for the degradation of our patent system are obvious: death squads killing patents at the PTAB, subject matter eligibility standards that make oil rigs outside the scope of patent laws, and the inability of patent owners to prevent others from infringing their rights through injunctions.

As Professor Mossoff emphasized, Congress’ first priority should be “do no harm.” Rather than make another attempt to pass legislation further restricting patent owners’ rights, it would be better for Congress to simply do nothing.  However, Congress could make the patent system better for innovators.  One step already being discussed that would be a positive improvement is the suggestion to amend section 101 to limit the scope of the judicial exceptions to subject matter eligibility.  At the hearing, Professor Mossoff astutely noted that the first patent ever issued in the United States—being held up at that moment by Chairman Darrell Issa—would likely be invalidated under current patent eligibility standards.

Many questions directed at the witnesses asked for them to propose specific solutions to either perceived venue abuses or broader patent law issues. Professor Mossoff stressed that systemic changes to the patent system will not just affect a few bad actors, but all of the individual inventors, small businesses, universities, licensing companies, and R&D-intensive high-tech and bio-pharma companies who rely on the patent system to protect their innovations.  These types of companies have been the fountainhead of the U.S. innovation economy for more than 200 years.  “Reform” that only addresses the concerns of accused infringers, but not the costs to patent owners, is doomed to do more harm than good.

Professor Mossoff’s written testimony can be found here.  Video of the hearing can be found here.

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Antitrust Innovation Patents

Foreign Antitrust Regulators Are Threatening American Innovation

By David Lund & Matthew Barblan

U.S. Capitol buildingAmerican businesses are suffering as foreign governments improperly use their antitrust laws to discriminate against American companies. Recently, the United States Chamber of Commerce assembled an International Competition Policy Expert Group to examine this problem. The Group released a report describing particular harmful and inappropriate uses of antitrust law and providing recommendations for U.S. policymakers to address these harms.

Although the report addresses foreign antitrust law abuses broadly, there has been a recent upsurge in the misapplication of these laws in the context of intellectual property. The report itself identifies several unique ways that innovative industries have been harmed by this unfortunate trend, noting that “legitimate IP rights are often not respected for their role in incentivizing investment in innovation that can have an enormously positive long term impact on competition.”

This is a critically important issue, and it is becoming increasingly relevant in DC policy circles. For example, later this week the House Judiciary Committee will be holding a hearing on Recent Trends in International Antitrust Enforcement, including testimony from Deborah Garza (Co-Chair of the Chamber’s International Competition Policy Expert Group) and Scalia Law’s Koren Wong-Ervin (Director of the Global Antitrust Institute), among others.

Over the next couple of months, CPIP will be writing a series of essays highlighting issues discussed in the report that are of particular relevance to the intellectual property policy community.

Industrial Policy Masquerading as Antitrust Law

By securing to innovators exclusive property rights to the fruits of their productive labors, intellectual property law incentivizes innovation and forms the foundation of the myriad partnerships and transactions that enable creators and innovators to commercialize their inventions. In theory, antitrust law is supposed to support the IP system by providing a fair marketplace where innovative companies thrive according to their own merit. The main thesis of the Chamber’s report, however, is that several countries are misusing their antitrust laws to pursue domestic industrial policy goals that allow the government to pick particular winners and losers. The report notes:

[Competition law enforcement] may reflect an effort to improperly discriminate against a U.S. competitor to further “industrial policy” goals, such as by favoring domestic commercial interests or state-owned enterprises over foreign competitors. Report, Page 24.

When antitrust law is used for industrial policy goals or simple political favoritism, it undermines the basic premise of the IP system. Often the selected winners are cherry-picked nationals of the countries at issue. This harms the ability of innovative American companies to compete in these markets based on the actual economic value of their products and IP. As the report states:

Commercial success may turn on political cronyism, rather than on the ability of a firm to efficiently provide the goods and services consumers desire at a competitive price (the result the consumer welfare approach to antitrust law is designed to foster). Report, Pages 20-21.

The misuse of antitrust law is particularly damaging in IP-intensive industries. IP incentivizes research and investment based on the property rights it secures to creators. These property rights are only valuable—and thus only function as an incentive—when IP owners deploy them in the marketplace without undue interference. When countries use antitrust laws to devalue the IP rights of foreign companies in order to favor their own local businesses, it undermines the purpose and function of the IP system as a whole.

Inconsistent Notions of “Fairness”

The Chamber’s report discusses several improper uses of antitrust law that undermine IP owners’ ability to freely deploy their property rights in the marketplace. One key problem is the inconsistent application of vague “fairness” considerations. As the report states:

Where competition rules include inherently subjective concepts such as substantive “fairness” (as is the case in many jurisdictions), for example, the legal treatment of business conduct may differ profoundly on a case-by-case basis, often driven by ad hoc political considerations. Report, Page 20.

“Fairness” may be an important value for children to learn, but when it is vaguely applied to a complex body of law it can result in inconsistent and even contradictory outcomes. The report highlights one particular dichotomy to show just how problematic vague conceptions of fairness can be: pricing. Jurisdictions have used antitrust law to scrutinize prices as being “unfair” both for being too high and too low. But high prices often simply reflect higher consumer demand for a better product. Conversely, low prices often reflect more efficient business practices, precisely the kind of improvements antitrust law is supposedly designed to promote.

Importantly, businesses have no way of knowing ahead of time whether a country’s antitrust regulators will find “fairness” violations for their prices. This prevents companies from taking affirmative steps to comply with the law, thereby increasing volatility, increasing costs to set up and maintain a business, and undermining sound business planning and investment.

Because subjective considerations such as “fairness” can easily be applied arbitrarily, the real-world application of these laws often brings in more nefarious purposes. When there is no objective guide or lodestar to the legal system, cronyism runs rampant. It no longer matters who is the most efficient producer or who invented the technology. What matters is who is friends with the antitrust law enforcement agency. As a result, subjective doctrines of “fairness” perversely create an unfair playing field, making it easy for foreign governments to discriminate against American businesses, even when it ultimately works to the detriment of consumers in their country.

IP-intensive industries are particularly subject to being victimized in the name of “fairness.” The business benefits that come from property rights in innovation can include the ability to set prices that far exceed marginal costs. This makes sense from both an economic and a moral standpoint—innovative companies routinely make millions (if not billions) of dollars worth of up-front R&D investments before commercializing their inventions. And the fruits of their labor are justly secured to them as their property in the form of IP. But from a antitrust law enforcement perspective, pricing far above marginal costs makes IP owners particularly vulnerable to claims that their prices are “unfair.”

Even though it makes perfect sense for an IP license fee to be high when the IP enables important functionality in a product, antitrust law authorities are adept at minimizing the economic value of the IP while criticizing the price of the license as unfair. This is particularly true in industries where American companies are leaders in researching and developing foundational innovations that foreign companies want to integrate into their products. As a result, IP-intensive American companies are particularly vulnerable to abusive and inconsistent antitrust law scrutiny under supposed considerations of “fairness.”

A Worrisome Lack of Due Process and Regulatory Humility

In another troubling trend for American IP owners, foreign antitrust authorities are increasingly pursuing investigations that go beyond the scope of any reasonable antitrust concerns. Despite being baseless, these investigations have serious negative consequences for the targeted firms, particularly in the case of innovative firms trying to license their IP or get their products to market while their patents are still in force and while their technology is still cutting-edge. As the Chamber’s report notes:

Enforcement activities may reflect local case law that allows an agency to exercise its powers of investigation and its decision-making authority in an expansive and highly discretionary way. Where this occurs, competition authorities can tend to discount the costs and disruption that their enforcement activities impose on legitimate business conduct, give too little weight the costs of wrongfully condemning conduct that is procompetitive, and exaggerate the likelihood and consequences of wrongfully exonerating conduct that might have anticompetitive impact. Report, Page 22.

In parallel with overly expansive investigations, many jurisdictions do not offer the basic procedural due process safeguards necessary for businesses to defend themselves. Once again, this effectively allows authorities to pick winners and losers based on political cronyism or domestic industrial policy goals rather than actually promoting competition. The report states:

[L]eading U.S. companies have complained that in certain jurisdictions they are subject to investigations and enforcement actions in which they are not given adequate notice or time for responses to questions; are not informed of the particular acts or practices which are a subject of concern; are not allowed to obtain from enforcers information about the theory of anticompetitive harm…. Report, Page 29.

The report further notes that IP-intensive industries suffer additional harms from poorly conducted enforcement activities because of their novel, complex, and dynamic nature. Unfortunately, the regulatory pendulum is swinging in the wrong direction. The report notes that some countries are considering creating liability simply for failing to license patents, including for failing to license outside of the country in question. This will create a whole new burden on IP owners that does not exist for any other industry.

How Should the US Respond?

The report provides several potential solutions to the harms it identifies, some of which will be familiar to the IP community. These solutions include actions that can be taken by the United States alone as well as actions that utilize international organizations. We will discuss these in more detail in a future essay, but two general points are worth mentioning here.

First, the report notes that Section 301 of the Trade Act of 1974 has expansive language that could be more widely used to “respond to unjustifiable, unreasonable or discriminatory practices of foreign governments that burden or restrict U.S. commerce.” The “Special 301 Report,” which names countries that are failing to live up to their IP law commitments, is the most widely known use of this section, but as the report notes, the Trade Act provides for much more.

Second, the report notes the possibility that existing mechanisms in the WTO or OECD may provide internationally-recognized means to examine the substantive and procedural aspects of antitrust law that may be in conflict with international agreements. Such recognition would be valuable to promote harmonization of antitrust law not just across jurisdictions, but also with the underlying principles of antitrust law itself.

The report provides an important examination of the harms caused by improper use of antitrust law across the globe. Over the coming weeks, we will provide more commentary on how this is playing out in particular places, for particular industries, and what the United States should do to fix it.

Categories
Innovation Patent Law

An Ever-Weakening Patent System is Threatening the Future of American Innovation

dictionary entry for the word "innovate"Over the past ten years, the United States patent system has been transformed by new legislation, regulatory actions, and numerous decisions by the Supreme Court addressing nearly every area of patent doctrine. The many disruptive legal changes have affected infringement remedies, licensing activities, and what types of inventions and discoveries are eligible for patent protection, resulting in a profound sense of uncertainty for most stakeholders. This current state of doubt about the American patent system is pushing investors to look outside of the US for less risky ventures. And because investors are shifting their focus overseas, foreign countries are for the first time poised to bypass the US as the forerunners of innovation.

Last month, the United States Patent & Trademark Office (USPTO), along with the University of Texas Law School and Antonin Scalia Law School, George Mason University, hosted the 12th annual Advanced Patent Law Institute in Alexandria, Virginia. The program featured a distinguished panel of patent experts discussing “current issues around patenting, licensing, enforcing, and monetizing patents in the U.S., and look[ing] at what the UK, EU, and China are experiencing and the impact on U.S. patent practice.” Titled The Current Patent Landscape in the US and Abroad and focusing on the economic factors that spur invention, the consensus was that dramatic changes to the US patent system are driving investment in research and development outside the country and threatening the future of American innovation.

US Patent System No Longer Adequately Incentivizes Investment

Serving as co-moderator with the Hon. Paul R. Michel, Robert Sterne—a leading patent attorney and founding partner of Sterne, Kessler, Goldstein & Fox—kicked off the panel with an overview of a patent system that is falling behind China and the European Union as a driver of innovation. Questioning the Supreme Court’s radical distortion of patent law over the last ten years and the institution of post-grant review, Sterne pointed out that the Patent Trial and Appeals Board (PTAB) has produced over 6,000 proceedings, with patent owner success rates hovering between a meager 30 to 40%. Because of these discouraging numbers, and because injunctive relief has become almost impossible to obtain for patent owners, Sterne warned that critical investment in small and medium-sized companies and universities is rapidly declining.

Judge Michel echoed many of the same sentiments, expressing concern with the “health and vitality and effectiveness of the patent system.” Michel stressed that the principle goal of the patent system is to incentivize investment, but that continued assaults on the system are driving investors to foreign jurisdictions and moving the US in the direction of “off-shore invention.” Citing studies by the Kauffman Foundation and US Census Bureau, Michel explained that most new jobs come from small start-up companies dependent on technology, and that without adequate incentives to invest in these job creators, the patent system and economy are in serious danger.

Expanding on the problem of investment incentivizes, Paul Stone—a partner at venture capital firm 5AM Ventures—discussed his backing over 60 life science startups in the last 15 years, all of which specialized in therapeutics aimed at developing life-saving drugs and drug delivery technologies. Stone offered the following three points to consider regarding the current innovative investment landscape: (1) 60% of the new drugs approved in 2016 came from venture capital-funded small biopharmaceutical companies, not pharma industry giants, (2) of these new approvals, the origin of half the molecules are outside the United States, a much higher percentage than ten years ago, and (3) personalized medicine and the influence of information technology on biotech is leading to smaller market sizes, and a weaker patent system is threatening the ability to realize a return on investments in this area.

Innovation is Moving Overseas

Damon Matteo of Fulcrum Strategy, an IP asset management firm, began his comments with an ominous warning: “Be afraid, be very afraid.” As a practicing IP attorney, Matteo noted that he has seen clients increasingly interested in securing their IP in Europe and China rather than the US, and that China specifically is embracing the software and business method patents that have been abandoned by the US system. Investment has been moving overseas because that’s where patents still have value. Matteo also pointed out that China has been much more favorable to patent owners in IP litigation, as plaintiffs in infringement suits prevail 60% of the time. And injunctive relief—which has become a completely improbable outcome in US litigation—is granted in upwards of 90% of infringement cases in China when there’s been a finding of infringement.

Peter Detkin, founder of the IP development and licensing company Intellectual Ventures, weighed in on some of the “alternative facts” and hysteria that have resulted in the current state of the US patent system. Despite claims over the last 15 years that extortionary demand letters were being sent by the thousands, patent ligation had gotten out of control, and patents were killing investment in R&D and startups, Detkin pointed to multiple analyses by government agencies such as the FTC and the Government Accountability Office that revealed no such exceptional activity. Unfortunately, policymakers took the bait, and entrepreneurs in Silicon Valley have suffered as a result of over-reactive legislative and judicial efforts.

As in-house Chief Intellectual Property Officer of Vivant, a fast-growing home security technology company, Paul Evans provided more insight into how absolutely vital patents are to investments and private equity–backed tech startups, emphasizing how “patents have historically created an important competitive advantage in the marketplace.” Sharing a recent professional anecdote, Evans recounted a conversation with the managing director of a private equity firm with $10 billion in assets in which they discussed the past successful sale of a company based largely on its strong patent portfolio. The two agreed that the transaction would never have happened today due to the immeasurable decline in the value of patents. Evans noted that about 85% of small businesses in the US are now technology based, and that if our patent system can’t protect the inventions they rely on, investments and jobs will be reallocated to jurisdictions that will.

Shifting the discussion to the effect innovation uncertainty is having on universities, patent law and tech transfer expert Chris Gallagher warned that university research funding is at risk, and that the system of grants can no longer be relied upon. Despite a recent case that found the 11th amendment shielded state-chartered schools from IPR exposure, Gallagher encouraged all stakeholders to reach out to Congress to push back on the persistent troll narrative that continues to affect university research.

Efficient Infringement is Devaluing Patents

The panel then moved into a discussion of the increasingly common practice of “efficient infringement,” where companies choose to infringe patents instead of licensing, understanding that the current system has made enforcing patents too expensive and risky. Damon Matteo likened the practice to robbing a bank, getting caught, and as a punishment, only having to return a fraction of the money. Peter Detkin then expanded on the analogy:

It’s a great analogy — the bank robbery — because you not only get to say whether you get caught, but if you get caught, you’ll then be able to argue to the Federal Reserve that the bank really shouldn’t have existed in the first place. Then if that fails, you get to argue to them again that their certificate never should have issued, because it’s a different ground than the first time you argued. Then you could argue that the money was improperly issued to the bank… you have all these administrative ways.

Commenting on efficient infringement, Paul Evans explained that bringing a suit for patent infringement now makes no sense, as the current ecosystem demands high costs to defend patents subject to inter partes review (IPR). According to Evans, the cost of each IPR is between $200,000 and $300,000. IPRs are instituted 70% of the time, and of those cases, 80% of the challenged claims are invalidated. Evans noted that investors are aware of these realities and are hesitant to back certain patent-reliant companies. As a result of the uncertain innovative economy in the US, Peter Detkin noted that patent application filings are down, as well as enforcement actions. Alternatively, countries in Asia and the European Union that have embraced software and biotech patents have seen an increase in filings, enforcement actions, licensing, and investment.

Judge Michel then identified software and health science technology as suffering the most under the current “huge cloud of uncertainty,” and pointed out that China and Europe have broadened patent eligibility in these two tech fields as the US Supreme Court has narrowed it. Michel questioned how anyone could make a eligibility determination given the vague standard set by the Mayo and Alice decisions, and expressed frustration in the Supreme Court’s denial of cert in Sequenom v. Ariosa—a case that would have given the Court an opportunity to correct or at least clarify the Section 101 eligibility analysis. With the Supreme Court unwilling to clean up its mess, Judge Michel expressed support for statutory amendments to 101 recently proposed by the Intellectual Property Owners Association (IPO).

Confidence Must Be Restored in the US Patent System

Wrapping up the panel, Robert Sterne made clear that the patent troll narrative that contributed to so many drastic changes in the US patent system is outdated and no longer relevant. While uncertainty about Section 101 eligibility is ubiquitous, Sterne asserted that “[w]hat is clear is that things are not getting better for innovators in the United States who are relying on the U.S. patent system and who are creating a large bulk of the innovation in our country.” And in addition to losing an edge to foreign jurisdictions in industrial competiveness and job creations, Sterne warned that missing out on innovations in the technology the US employs to protect itself could have dire consequences for national security.

In conclusion, Sterne asked each panelist—as practitioners working in the innovation economy—what they would suggest to bring a sense of confidence back to the bleak patent law landscape. Judge Michel encouraged writing to bring awareness to the situation, including articles, op-eds, and direct letters to members of Congress. Paul Stone urged all stakeholders to focus on quality—specifically on the quality of patents reviewed and the quality of advice given to clients. Damon Matteo suggested adopting a financial mindset that considers the dynamics of returns on investments, which would help stakeholders see patents for the commercial instruments they are and should be. Peter Detkin stressed the importance of relying on hard, verifiable data, not anecdotes and hysteria. Paul Evans discussed the need to create an ecosystem that can be viewed by the investment community with some sense of understanding and confidence. Finally, Chris Gallagher insisted that, no matter the excuses of not having enough time, or not wanting to offend the wrong people, everyone must get involved to insert integrity back into the innovative ecosystem.

The concerns expressed by this panel are being echoed by stakeholders in almost every section of the innovation economy, and without a concerted effort to bring sense and clarity back to the patent system, the US is in danger of losing its competitive and innovative edge.

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Innovate4Health Innovation

CPIP & ITIF Launch “Innovate4Health” Policy Research Initiative

Innovate4HealthIn celebration of World Intellectual Property Day on April 26, 2017, the Center for the Protection of Intellectual Property (CPIP) today joined with the Information Technology and Innovation Foundation (ITIF) to launch “Innovate4Health,” a joint project to promote the critical role that intellectual property rights play in spurring innovative solutions to pressing global health challenges.

People all over the world live better than ever before thanks to innovation. New medicines prevent or alleviate disease. New devices diagnose problems, repair bodies, and overcome physical challenges. Still other inventions keep vaccines and medicines fresh and effective or ensure their authenticity. New business models help innovation to happen and ensure that it reaches those who need it.

Many of these innovations are secured by intellectual property rights, which support the ability of innovators to invent and bring solutions to market. Property rights, particularly intellectual property rights, foster the freedom of many hands and many minds to work on challenging problems. They put decisions in the hands of those closest to problems — innovators with knowledge of potential solutions and caregivers and consumers who understand their own needs best. They fund individual careers and industries dedicated to fixing health problems, as well as the businesses that get these solutions to individuals.

Our Innovate4Health project is providing case studies that describe how IP-driven innovation is tackling some of the world’s toughest health issues, including:

• A cooler that ensures vaccines are safe in areas without power;
• A portable eye examination kit to move care out of the office and into the field;
• Retractable syringes to prevent needlestick injuries;
• A baby warmer that can adapt to volatile electricity conditions;
• Point-of-care testing for malaria that anyone can use;
• A smartphone app that instantly checks the authenticity of pharmaceutical drugs; and
• A new anti-inflammatory drug derived from Brazil’s diverse ecology.

Learn more about Innovate4Health here.

Categories
Innovation Pharma

The Drug Innovation Paradox: Matching Incentives to Market Realities

scientist looking through a microscopeThe hardest things are often the most important things. That’s one of the implicit justifications for the intellectual property system. If we want people to do the hard and important work of researching, developing, and commercializing game-changing innovations, then we need to secure the fruits of their labor with property rights.

In her forthcoming paper, The Drug Innovation Paradox,[1] Professor Erika Lietzan of the University of Missouri School of Law gives reason to question whether our IP and regulatory system is properly encouraging pharmaceutical innovators to work on the most important, and hardest, questions.

This paper, produced while Prof. Lietzan was a CPIP Edison Innovation Fellow, considers a paradox. Some of the biggest health challenges, the most important things, are indeed the hardest things. Therapies for diseases such as multiple sclerosis and Alzheimer’s demand research, development, and testing that takes longer. Unfortunately, the longer something takes to develop, the shorter the term of exclusivity under the IP system, and thus the less secure the investment.

The drug innovation paradox is that the hardest and most important cures are often the ones most poorly supported by our IP system.

Combining several different data sources for the first time, Prof. Lietzan presents comprehensive statistical findings that bring the extent of the drug innovation paradox into focus. The implications for innovation policy are profound, especially if we wish to see groundbreaking new therapies that are inherently more difficult to develop.

Incentives are particularly important in the pharmaceutical industry, where the average cost of developing an approved new medicine is over two billion dollars.[2] Drugmakers would hardly invest so much without the promise of exclusivity once the medicine goes to market. However, the period of exclusivity—the incentive—we give to drugmakers depends upon how long it takes them to bring a new medicine to the market. The more time they spend on developing a new medicine, the less reward they receive for their troubles by way of a shorter patent term.

In the United States, it takes 3.5 years on average for a patent to issue, and in many industries, patent owners thus might expect to enjoy around 16.5 years of clear market exclusivity.[3] However, things are very different in the pharmaceutical industry, where the safety and efficacy of a new drug has to be proven before it can be marketed. Years of preclinical testing and clinical trials run down the patent term clock while a drugmaker awaits approval. Congress has instituted measures to restore a portion of the time lost, but the fact remains that longer development programs result in shorter periods of exclusivity.

Pouring over the data going back to 1984, Prof. Lietzan examines the variables that play a role in perpetuating the drug innovation paradox. Critically, she notes that many of the factors that consistently lead to longer development programs—including the drug, disease, and endpoints to be met—are simply beyond a drugmaker’s control. Of course, it is impossible to say for certain what drugs were never invented because the incentives were not there. But the data does give us an accurate sense of how many years spent in development are lost when the patent expires.

For example, Prof. Lietzan breaks down the data with respect to the category of therapy being developed. As the following figure shows, the average length of the clinical testing period for some therapeutic categories ranges from about 3 to 9 years:

Figure 5. Average Clinical Testing Period by Therapeutic Category. Y-axis: therapeutic category (n). X-axis: Length of Clinical Testing Period in Years (0 through 10). Antimigraine agents (6) – 2.99. Ophthalmic (26) – 4.38. Sleep disorder (5) – 4.47. Antibacterials (51) – 4.59. Antivirals (27) – 4.68. Imaging agents (28) – 5.05. Antifungals (14) – 5.13. Genitourinary (12) – 5.29. Dermatological (13) – 5.38. Anesthetics (8) – 5.57. Metabolic bone disease (7) – 5.58. Respiratory/pulmonary (32) – 5.73. Blood glucose regulators (20) – 6.06. Antidementia agents (5) – 6.08. Cardiovascular drugs (65) – 6.12. Hormonal (31) – 6.33. Analgesics & anti-inflammatories (13) – 6.38). Antineoplastics (58) – 6.39. Antiemetics (7) – 6.58. Blood products (17) – 6.70. Gastrointestinal (19) – 6.72. Immunological (10) – 6.77. Antiparkinson’s agents (7) – 7.48. Anticonvulsants (13) – 8.13. Antidepressants (16) – 8.49. Antipsychotics (9) – 8.63. Central nervous system (13) – 9.30.

It is important to note that this lengthy testing period represents only one part of a development program, and the preclinical testing period has to be taken into account as well. Prof. Lietzan estimates that the average preclinical testing period for new drugs is 5.61 years. It is easy to see how the majority of the patent term for drugs that fall into certain therapeutic categories may be gone before the drug even enters the market.

The danger of the drug innovation paradox is that we may be under-incentivizing pharmaceutical research and development for drugs that are inherently more difficult to develop. The next great breakthrough treatment for difficult-to-treat diseases like cancer or multiple sclerosis may never be developed unless the incentives are there to reward drugmakers for taking the risk to develop the treatments in the first place. The data collected by Prof. Lietzan shows us just how time-consuming these endeavors can be, and they suggest that we should break the paradox if we hope to have even greater drug innovation.

CPIP is pleased to once again have Prof. Lietzan as a CPIP Edison Innovation Fellow for 2017 – 2018. We look forward to supporting more of her groundbreaking work on this difficult, but absolutely important, issue.

[1] Erika F. Lietzan, The Drug Innovation Paradox, 83 Mo. L. Rev. ___ (2018), available at https://papers.ssrn.com/abstract_id=2948604.

[2] See Joseph A. DiMasi et al., Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs, 47 J. Health Econ. 20 (2016) (estimating average total pre-approval cost of approved new compound at $2.558 billion in 2013 dollars), available at https://www.ncbi.nlm.nih.gov/pubmed/26928437.

[3] See Mark Schultz & Kevin Madigan, The Long Wait for Innovation: The Global Patent Pendency Problem (Ctr. for the Prot. of Intell. Prop. Oct. 2016), available at http://sls.gmu.edu/cpip/wp-content/uploads/sites/31/2016/10/Schultz-Madigan-The-Long-Wait-for-Innovation-The-Global-Patent-Pendency-Problem.pdf.

Categories
Innovate4Health Innovation

Innovate4Health: Meeting the Needs of Rural Africa with Fyodor’s Point-of-Care Testing for Malaria

This post is one of a series in the #Innovate4Health policy research initiative.

Innovate4HealthBy Jaci Arthur

Every year, more than 200 million cases of malaria are reported worldwide. It can often be mistaken for a less serious malady, as symptoms include “fever, chills, and flu-like illness.” If quickly identified, the disease is treatable. Yet more than 655,000 people, mostly children in sub-Saharan Africa, died from malaria in 2016.

Expeditious diagnosis of the disease can result in faster treatment and lower mortality rates. The patented Urine Malaria Test (UMT) developed by Dr. David Sullivan, a Johns Hopkins Bloomberg School of Public Health professor and microbiologist, addresses this global challenge by offering a rapid, accurate, more convenient, and less expensive alternative to traditional laboratory testing. The UMT is also the first point-of-care (POC) test for malaria that does not require the use of trained personnel or a blood sample.

90% of all malaria-related deaths in 2015 occurred on the African continent. Much of this can be attributed to a lack of access to health services and personnel due to poverty, remoteness, and a general lack of healthcare infrastructure. According to a 2011 report, about 31% of Ethiopians live on less than $1.25 a day. Even when health services are free of charge, trips to medical facilities are quite costly for the average, rural African because patients will often have to take an entire day off from work to travel.

In Niger, a patient may have to walk more than four hours to receive medical treatment at an overcrowded, ill-equipped facility. Many people turn to presumptive diagnosis or self-medication at the first sign of a fever, resulting in widespread drug resistance and more expensive treatments. Meanwhile, others gamble on the chance it is simply a virus that will pass, never seeking diagnosis or treatment.

On average, there are 1.15 health workers for every 1,000 people in sub-Saharan Africa, with numbers as low as 0.4 physicians for every 10,000 people in countries like Chad. The few laboratories in rural areas that can identify diseases such as malaria are underfunded, short-staffed, and ill-equipped. Although there are several POC tests for malaria, most of them require trained personnel taking a blood sample. Having a proper diagnosis within twenty-four hours of the onset of symptoms can reduce the mortality rate, but such diagnosis is difficult for most Africans. All these factors lead to a deadly combination, especially for those in rural Africa.

Maryland-based Fyodor Biotechnologies was founded in 2008 by Nigerian biotechnologist Eddy Agbo specifically to address these problems. In 2009, the company was granted an exclusive worldwide license from Johns Hopkins University to research, develop, and commercialize the UMT.

As its name suggests, the UMT tests a patient’s urine, rather than blood, for “novel Plasmodium proteins,” and it provides results in less than twenty-five minutes, thus abating fears, eliminating the need for presumptive diagnosis, and reducing costly, lengthy, and unnecessary trips. Unlike other tests for malaria, the UMT can be taken at home and is as easy to use as an at-home pregnancy test. The UMT is currently priced at about two dollars each; however, Dr. Agbo intends for the price to be reduced once production increases.

Preclinical studies were conducted by researchers at Johns Hopkins University, and the UMT is currently in clinical validation. Fyodor intends to seek concurrent regulatory clearance from both the Nigerian National Agency for Food and Drug Administration and Control (NAFDAC) and the US Food and Drug Administration (FDA).

Initial commercialization efforts will be focused in Dr. Agbo’s home country of Nigeria before expanding to other areas significantly affected by malaria. Nigeria accounts “for 25% of all malaria cases in the African region.” Testing is also currently underway at Fyodor Biotechnologies for a “second generation broad-based Urine Malaria Test (UMT-Broad),” which will be useful for detecting other types of infection.

Fyodor Biotechnologies stepped onto the global market specifically to meet the needs of people in malaria endemic regions and reduce the mortality rate associated with this treatable disease. The company relies heavily on its exclusive license to Johns Hopkins University’s patent, as research, development, and production of the UMT are currently its sole function.

Fyodor’s two-dollar, at-home test is the perfect counter to claims that intellectual property rights, specifically patents, result in expensive healthcare and a lack of access to necessary medical services. Intellectual property rights have made quick, efficient, low-cost, and convenient testing for malaria a reality.

The UMT provides an ideal example of how patented innovation can conquer global challenges. It is a reasonable, rapid, efficient, convenient, economical alternative to a system that cannot meet the needs of the rural poor. And it is a reminder that innovation and intellectual property rights can work together for the common good.

#Innovate4Health is a joint research project by the Center for the Protection of Intellectual Property (CPIP) and the Information Technology & Innovation Foundation (ITIF). This project highlights how intellectual property-driven innovation can address global health challenges. If you have questions, comments, or a suggestion for a story we should highlight, we’d love to hear from you. Please contact Devlin Hartline at jhartli2@gmu.edu.

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Innovate4Health Innovation

Innovate4Health: Protecting Patients with VanishPoint Retractable Syringes

This post is one of a series in the #Innovate4Health policy research initiative.

Innovate4HealthNeedlesticks are not just the fear of 4-year-olds receiving their vaccinations; they are also the source of blood-borne infections afflicting millions of healthcare practitioners. When a conventional needle is left exposed after use on a patient, it can accidentally stick another person, such as a healthcare worker. The accidental needlestick can infect that person if the patient had any blood-borne diseases. Recent estimates place the number of needlestick injuries in the United States at more than 300,000 per year, with infection by HIV or Hepatitis as possible consequences.

The spring-retractable syringe, VanishPoint, was created to prevent needlestick injuries and ameliorate other unsafe injection practices.

Worldwide, the problem from needle injuries is even greater. The risks from needlestick injuries can increase with other unsafe injection practices, such as needle reuse and improper medical waste collection. These practices are more likely to occur in developing countries. The consequences of these unsafe injection practices include 21 million hepatitis B infections per year and 41% of new cases of hepatitis C.

The conventional syringe leaves the needle exposed after the injection is complete. Until a healthcare worked places the syringe in a specially-designed plastic garbage container, it remains exposed and capable of harming anyone nearby. Unfortunately, over 1.8 billion conventional syringes are sold each year in the United States. These outdated syringes account for more than half of needlestick injuries.

syringesThomas J. Shaw, founder of Retractable Technologies, created a technological solution to the problem after seeing a television report of a doctor who contracted HIV from an accidental needlestick. He designed a single use spring-loaded syringe that immediately pulls the needle back inside the just-used syringe. Thus, the needle is automatically covered and incapable of harming anyone.

The basics of how the syringe works are simple enough to explain. The needle is engaged for use when the package is opened. A nurse or other practitioner fills the syringe normally. However, when the plunger is fully depressed to inject the patient, a spring pulls the needle back into the body of the syringe. Before the nurse has moved the syringe away from the patient, the needle is already covered and incapable of causing injury.

Despite the simple concept, designing a functional and usable product took ingenuity and persistence. Shaw purchased pigs feet from a local butcher to test his designs in his workshop. In the classic mode of biomedical innovators including Jonas Salk (inventor of the polio vaccine), he first tested his device on himself.

Retractable Technologies, Inc.From these initial tests, Shaw founded Retractable Technologies, and the value of his innovation was immediately recognized. He received awards from the National Institute for Drug Abuse at the National Institutes of Health to further develop his work and eventually commercialize it. Congressional representatives touted the important advances of this small business. The final product, the VanishPoint syringe, embodies his innovation.

The challenges faced by Shaw and Retractable Technologies in entering the medical device market have been extensively chronicled. The way hospitals purchase supplies such as syringes advantages large incumbent sellers and manufacturers over small startups such as Retractable Technologies. The story of Shaw’s disruption of the automatic safety syringe market was even turned into a feature-length movie.

Retractable Technologies confronted this challenge by relying on its patent portfolio. The patents covering the syringe included patents on the retractable needle design as well as tamperproof features that protect against intentional as well as accidental misuse. Large, established manufacturers could have easily copied Retractable Technologies’ designs from the published patents. However, these patents assured that Retractable Technologies could protect its innovation against invasion.

syringesThe value of the retractable syringe design has been important to advancing health care goals worldwide. The World Health Organization has recognized the value of the technology in Australia, China, Indonesia, and Gambia among others. According to the Global Alliance for Vaccines and Immunizations, African countries continued using auto-disable syringes after the completion of international aid programs because of the public health benefits. These benefits include not only the prevention of needlestick injuries, but preventing needle reuse, which had undermined other vaccine initiatives.

PATH, a non-profit organization devoted to health innovation, highlighted the introduction of VanishPoint syringes in Peru as an important step in advancing public health goals. In addition to preventing injuries in the clinic, PATH noted that the syringes increased safety in waste disposal, where some waste handlers had described needlestick injuries as “common.”

Prevention of needlestick injuries and infections has been a decades-long challenge for public health. From humble beginnings and the story of one infected doctor, Thomas Shaw’s invention shows how one innovator can revolutionize health care. Patents have given him protection in the U.S., but his innovation knows no borders.

*Images courtesy of Retractable Technologies

#Innovate4Health is a joint research project by the Center for the Protection of Intellectual Property (CPIP) and the Information Technology & Innovation Foundation (ITIF). This project highlights how intellectual property-driven innovation can address global health challenges. If you have questions, comments, or a suggestion for a story we should highlight, we’d love to hear from you. Please contact Devlin Hartline at jhartli2@gmu.edu.

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Conferences Innovation

Event Recap: Great Inventors and the Patent System

hand under a lightbulb drawn on a blackboardOn February 16, 2017, CPIP hosted a panel discussion, America as a Place of Innovation: Great Inventors and the Patent System, at the Smithsonian National Museum of American History in Washington, D.C. The event was co-hosted by the Lemelson Center for the Study of Invention and Innovation at the Smithsonian Institution and the U.S. Patent and Trademark Office (USPTO). The video of the event is available here, and the event program is available here.

The panel featured three professors who have written extensively on the role of innovation and patenting in American history. Professor Ernest Freeberg, University of Tennessee, discussed Thomas Edison’s invention of electric light and its effects on American life and culture. Professor Christopher Beauchamp, Brooklyn Law School, discussed Alexander Graham Bell and his fight to secure patent rights in the telephone. Professor Adam Mossoff, Antonin Scalia Law School, George Mason University, discussed the centrality of patents to early American innovations by Charles Goodyear, Samuel Morse, and Joseph Singer. Arthur Daemmrich, Director of the Lemelson Center, moderated the discussion. Alan Marco, Chief Economist at the USPTO, delivered the closing remarks.

The theme of the panel was twofold. First, the late-nineteenth to early-twentieth era was marked by extraordinary innovation and progress. Second, patent rights both spurred and supported American innovation at every critical juncture: from invention and discovery to commercialization, and then to the delivery of life-changing products and services to the American people.

The panel highlighted a broad and rapidly-paced array of contributions that innovators made throughout the late-nineteenth and early-twentieth centuries, enriching and transforming American lives in the process. Several panelists emphasized the enthusiasm that Americans evinced for the inventions of their day. Electric lights, telephones, labor-saving devices, and gadgets were all welcomed by the scientific press and the populace as exciting hallmarks of progress. As Professor Freeberg emphasized, everyone agreed at the turn-of-the-century that American innovation was a deeply democratic act.

Central to the growth of innovative progress was the consolidated strength and support of the American patent system. Professor Beauchamp emphasized the multiple roles that patents play in a strong innovative economy. First, they secure rights that motivate inventors to create and commercialize their work. Second, they are an asset around which companies are organized and in which investors are eager to invest. Third, they are a business tool that enables transactions, contracts, licensing, and the exchange of rights to occur. And fourth, they are a means for disseminating and furthering public knowledge.

Patents were the bedrock of American innovation, but they were frequently also controversial. Professor Mossoff observed that today’s “patent wars” are nothing new, but instead are part of a lineage of disputes over ownership of new inventions, technologies, and commercial products. Historically, however, there is a much more important constant than litigiousness: the unique approach that America took toward patents.

As Professor Mossoff underscored, the commitment to patents is an integral and enduring part of American exceptionalism. Patents were created and protected as property rights of the innovators who created them. This has many important dimensions. Patents were from the start protected through the rule of law. They were granted to inventors not just as an abstract concept, but as a concrete grant of secure and effective rights. And they were a way for people to structure their lives.

Professor Mossoff observed that patents as property ensured that patent owners could use and deploy their inventions however they wanted. Ownership and control over patents were features of the system from its inception. This institutionalization of the patent system was central to the democratization of American innovation. It allowed Americans to invent, commercialize, and in a larger sense to innovate: to take technology and turn it into a commercial, viable product that consumers could actually use and benefit from in the marketplace.

The conversation among the panelists was centered on innovation and its longstanding role in generating disruptive innovation that changes lives as dramatically then as it does now. But an equally powerful theme was that innovation needs patents to make progress commercially viable and to bring products and services to people. It was, and has always been, the exceptional nature of the American patent system that has indeed enabled America to be the place of innovation.

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Innovation Patent Litigation

CPIP Scholars Ask Supreme Court to Resist Call to Restrict Venue Choices for Patent Owners

U.S. Supreme Court buildingOn March 8, 2017, CPIP Scholars Adam Mossoff, Devlin Hartline, Chris Holman, Sean O’Connor, Kristen Osenga, & Mark Schultz joined an amicus brief in TC Heartland v. Kraft Foods. CPIP Scholars worked with USD Law’s Ted Sichelman to organize, write, and file the brief. The case focuses on whether patent owners may sue corporate defendants in any judicial district where the court has personal jurisdiction over the defendant, which is the default rule in federal cases.

Concerned about the allegedly abusive behavior of certain firms suing in the Eastern District of Texas, some would like to severely restrict where all patent owners may sue. The amici note that, even if the Supreme Court restricts venue choices as these people would like, patent lawsuits would not be equitably distributed as a result. A recent study showed that 60% of all patent cases would still be concentrated in 5 of the 94 judicial districts. Furthermore, instead of concentrating in one district—the Eastern District of Texas—cases would primarily concentrate in two districts—the Northern District of California and the District of Delaware.

As the amici argue: “No plausible argument can be made—and Petitioner and its amici have not offered an argument—that shifting cases from one district to two districts would result in a meaningful distribution of patent cases among the ninety-four federal district courts.” The amici note that concerns about “forum shopping” are overblown since patentees are just doing what all federal plaintiffs do—choosing “the forum that gives it the best opportunity for success.” Since “corporate defendants are generally subject in any civil complaint to venue in any district in which personal jurisdiction lies,” the amici suggest that the same rule should apply in patent cases.

The amici conclude: “Innovators and their investors have long been vital to a flourishing innovation economy in the United States. Startups, venture capitalists, individual inventors, universities, and established companies often rely heavily on patents to recoup their extensive investments in both research & development and commercialization. By restricting the districts in which a patent owner can bring suit, the value of the patent itself is lessened, diminishing the economic incentives the patent system provides to spur innovation.”

To read the amicus brief, please click here.

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Innovation

CPIP Scholars Join Open Letter Providing IP Guidance for New Administration and Congress

U.S. Capitol buildingThe Center for the Protection of Intellectual Property and several of its Senior Scholars are proud to support an open letter released today providing intellectual property guidelines for the Trump administration and the 115th Congress. CPIP Executive Director Matthew Barblan, Co-Founders Adam Mossoff and Mark Schultz, and Senior Scholars Christopher Holman, Kristen Osenga, and Sean O’Connor join a group of legal and policy experts advocating for an effective IP system that supports America’s world-leading innovation, creativity, and entrepreneurship.

The letter provides the following guidelines for the new administration and Congress:

  • Intellectual Property Rights Are Grounded in the Constitution
  • Intellectual Property Rights Are a Fundamental Property Right Deserving the Same Respect as Physical Property
  • Intellectual Property Rights Promote Free Speech and Expression
  • Intellectual Property Rights are Vital to Job Growth & Economic Competitiveness
  • Intellectual Property Rights Must Be Protected Internationally Through Effective IP Provisions in Trade Agreements
  • Intellectual Property Rights Are Integral to Consumer Protection and National Security
  • Intellectual Property Rights Must Be Respected and Protected on the Internet
  • Voluntary Initiatives to Address Intellectual Property Theft Are Positive

The signatories encourage the new administration and Congress to “consider these guidelines as you review and discuss existing laws and regulations governing IP. The Founding Father understood that by protecting the proprietary rights of artists, authors, entrepreneurs, innovators, and inventors, they were promoting the greater public welfare. The continued protection of these fundamental rights is essential to American innovation and competitiveness.”

To download the open letter, please click here.