Tag: incentives

Categories
Patent Law Patents Pharma

Professors Erika Lietzan and Kristina Acri on “Distorted Drug Patents”

The following post comes from Austin Shaffer, a 2L at Scalia Law and a Research Assistant at CPIP.

pharmaceuticalsBy Austin Shaffer

In their new paper, Distorted Drug Patents, CPIP Senior Scholar Erika Lietzan of Mizzou Law and Kristina Acri of Colorado College explore a paradox in our patent system: Innovators are less motivated to work on drugs that take more time to develop as drug research incentives are being skewed away from the harder problems (e.g., Alzheimer’s disease and interventions at the early stages of cancer). The paper, which was published in the Washington Law Review in late 2020, was supported in part by a CPIP Leonardo da Vinci Fellowship Research Grant.

Although many condemn later-issued drug patents as “insidious,” Profs. Lietzan and Acri argue that those conceptions should be recalibrated, since the use of such patents is fully consistent with the intent of Congress when the Patent Act was amended in 1984 to restore some of the patent term lost to premarket R&D and FDA review. While a few scholars have considered the implications of patent term restoration from an empirical perspective, none have done so to the same extent as Profs. Lietzan and Acri. By using an expansive dataset and including a temporal dimension in the analysis, the scholars offer a fresh assessment of patent restoration and its implications.

How Can Drug Patents be “Distorted”?

Drug research is notoriously risky—investors allocate massive amounts of time and money to a project without knowing whether the drug will succeed in trials or how long the trials could last. Even if trials are successful, the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act require premarket approval of new drugs before they can be commercialized. Starting in the 1960s, federal regulatory requirements grew more demanding, and the FDA’s expectations became more rigorous to obtain premarket approval. Given that the FDA approves only finished products, not mere active moieties, drug research is not only expensive but also uncertain. While this process drags out, the clock on the patent continues to run. By the time all is said and done, the effective life of the patent is distorted, an unfortunate reality that further disincentivizes complex drug research. By the 1980s, Congress had addressed this problem by amending the Patent Act to allow entities to apply for patent term restoration.

35 U.S.C. § 156 authorizes the PTO to restore the life of a patent lost to clinical trials and FDA review. However, the PTO has restricted the practicality of these restorations, making them subject to stringent limitations. It restores only half of the testing period after patent issuance and caps restoration at five years, and the effective patent life post-restoration cannot exceed fourteen years. Additionally, the PTO must deny restoration if the FDA has already approved the active ingredient. Only one patent can be extended per regulatory review period, and patents can only be extended under Section 156 once. After a certain point, premarket R&D simply and unavoidably equates to lost patent life. But despite the limitations and restraints on this process, it is widely agreed that the 1984 amendment was a step in the right direction.

The value of patent restoration was complicated, however, by the Uruguay Round Agreements Act (URAA), which revised Section 154 of the Patent Act and altered the length of patent terms. To say the least, the relationship between the URAA extension and patent term restoration was initially muddled, particularly in the context of parent/child applications. Ultimately, it played out that drugs approved since the enactment of Section 156 have been protected by patents subject to three different regimes: (1) the pre-URAA regime, in which patents lasted for seventeen years from issuance; (2) the post-URAA regime, in which patents lasted for twenty years from application or parent application; and (3) the transition regime, in which patents lasted for twenty years post-application or seventeen years post-issuance, whichever came first.

Profs. Lietzan and Acri were motivated to delve deeper into the data behind patent restorations, operating under the hypotheses that longer R&D programs should distort drug patents (even after term restoration), and that restoring a child patent should be associated with longer final effective life if the patent is subject to the seventeen-year term (pre-URAA regime).

Testing the Hypotheses

Profs. Lietzan and Acri generated an unprecedented dataset containing information on 642 approved drugs for which part of the patent life was restored—every instance between the enactment of Section 156 and April 1, 2017. Regulatory information—such as the start of clinical trials, FDA approval date, the length of testing, and the length of the FDA review period—was collected for each drug. On the patent side, the dataset included, among other data points, the following information: (1) the date on which the inventor filed the patent application that led to issuance of the patent; (2) the date that would control calculation of a twenty-year patent term under current law; (3) the date on which the patent issued (or the date on which the original patent issued, in the case of a reissued patent); (4) the type of term the patent enjoyed (seventeen-year, twenty-year, or transitional); (5) the number of days restored by the PTO; and (6) the final patent expiry date after restoration.

The data analysis produced some interesting findings. The average effective patent life without restoration—meaning the time from FDA approval to the original expiration date of the patent—was 8.71 years (median 9.49 years). And while the average clinical development program was 6.04 years, the average amount of patent life restored was only 2.87 years. Seeking to dig deeper into the findings, Profs. Lietzan and Acri performed various regression analyses to assess which variables explain effective patent life before the award of patent term restoration. Thought-provoking graphs and tables are included in the Appendix of the paper for those interested in the data science aspect of the research.

Policy Implications

As expected, Profs. Lietzan and Acri found that our legal system not only distorts drug patents but also provides less effective patent life for drugs that take longer to develop. The current scheme further disincentivizes investors and inventors from undertaking critical drug research because of the associated costs and risks of doing so. By the time our government allows the patent owner to commercialize, much of the patent term has already lapsed. And while the 1984 amendment made positive progress to combat this issue by authorizing patent restoration, that power has not been used to its fullest extent. This means that cures and treatments for a wide range of diseases and illnesses are largely under-researched and under-developed.

To add to the quandary, the changes made in 1994 by the URAA mean that a drug company may need to select a later-issued original patent to achieve fourteen full years of effective patent life. These patents are arguably less valuable to the drug’s inventor because it may be possible for generic and biosimilar applicants to develop versions that satisfy regulatory requirements and yet do not infringe the patent. Policymakers have essentially nullified the original purpose of the 1984 amendment to the Patent Act without meaningful discussion of the implications for drug innovation.

In a society begging for more involved research into complex diseases that affect millions of people, such as Alzheimer’s and various cancers, the current setup of our patent system operates as a hindrance and a deterrent against innovation. The argument can be made that drugs requiring more premarket research and investment should receive longer effective patent lives, but at the very least, they should not receive less because of a burdensome regulatory scheme.

Patent life is essential to innovation in the pharmaceutical industry, perhaps more so than any other industry, and Congress recognized that notion by adopting Section 156 to the Patent Act. The fact that the PTO uses its promulgated authority so selectively, combined with further complications stemming from Congress’s changes to the way patent terms are calculated in 1994, leaves drug companies in a predicament. While some policymakers and scholars complain when those companies secure later-expiring patents, the extensive research and analysis by Profs. Lietzan and Acri suggest that those patents may be necessary to accomplish the intentions of the Congress with the 1984 amendment.

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
Copyright Innovation International Law Uncategorized

The European Union Extends Copyright in Design—and Critics Balk (Yet Again)

dictionary entry for the word "innovate"The European Union recently decided to support the productive labors of designers by extending legal protections of their works in all areas of copyright, design, and patent law. Just as past legislation in the United States extending copyright terms was attacked with histrionic allegations that this was merely rent-seeking behavior by politically powerful corporations, the EU’s extension of protections for designs have come under similar attack. In the US, the specter of Disney trying to keep “the Mouse” alive has become a stale trope trotted out in opposition to any sensible copyright protections. Thus, it is not a surprise that the same trope is being used to attack the EU’s new law. In both cases, the attack misses its target because it is rooted in a false assumption about why property rights are secured to innovators and creators.

First, a word about the change in European Union law. This law is important both in making creators’ rights more effective throughout the EU and in bringing those rights closer in harmony with EU intellectual property (IP) law as a whole. As of July 28, 2016, the Copyright, Designs and Patents Act extends the copyright for a designer’s work from 25 years to 70 years. (A six-month grace period in the UK has been granted to allow retailers to clear their stock of works that might be in question under the new Act.)

According to David Woods, a British lawyer, the EU’s changes aligned its copyright laws with those governing literature and music, providing uniform legal protections for all products of creative labors. Further, as Mr. Woods properly points out, “[t]he intent of the change to the legislation is to stop ‘exact’ copies of existing industrially designed artistic works”—a measure that he predicts will result in the closure of websites producing bargain basement, mass-produced copies of furniture, “as after all, this was their business model.” In sum, the legislation is directly aimed at illegal internet operations whose deliberate “business model” is to steal the fruits of the labors of those working in the design industries.

This copyright legislation secures to creators their highly-valued furniture design and thwarts piracy. As in the protection of all property rights, this spurs creativity and sustains livelihoods of professional creators. This is an example of how securing property rights of all types is a key requirement in a growing innovation economy and flourishing society.

Who could object to this? Surprisingly, some ersatz advocates for property rights, such as some libertarian academics like Alex Tabarrok. Tabarrok recently attacked the new EU design law with the tread-worn criticism that one hears from ideologically committed IP skeptics: “The point” of the revamped EU regulations, he declares, is “not to spur creativity but to protect the rents of a handful of people whose past designs turned out to have lasting value.” (One can hear the echoes of the rhetorically appealing, but false, claim that Disney was solely responsible for capturing Congress in keeping Mickey Mouse under legal wraps.)

In the abstract and without regard to recognizing how property rights function in the free market, Tabarrok’s criticism might seem plausible. But there’s a key mistake in it. The fallacy over which Tabarrok stumbles is assuming that the sole purpose of copyright is only to spur the creation of new works—no more, no less. According to Tabarrok, copyright is merely a carrot dangled in front of creators, who like Pavlov’s dog are supposed to be sparked into creative activity. Certainly, this is a function of IP rights, as it is with all property rights—promising to secure the fruits of productive labors, whether in a farm, books, or inventions, spurs people to create more of these valued assets.

But, like all property rights, copyright is not merely an incentive to create. All property rights serve the central function of securing to their owners the free use and disposition of the property, which is what leads to contracts and other exchanges in the free market that enhance everyone’s lives. Thus, copyright is vital to sustaining creators’ rights in reaping the rewards of their creative and valuable labors—when the works are disseminated in the market and purchased by consumers for their enjoyment and use.

Ironically, Tabarrok hints at this when he says, in what is meant to derogate copyright extension, that “the actual argument for copyright runs—We have lots of popular designs and we need to keep selling them at a high price.” Indeed, the argument for copyright as such could be restated in the same way: “we have lots of popular designs and we should be allowed to sell them at the price they command in the market,” irrespective of whether that price seems “high.”

Tabarrok looks to support his argument with the example of mid-century design classics, such as Charles Eames chairs and Arco lamps. These works have become familiar to the public through the sale of replicas sold by furniture retailers, such as Design Within Reach in the US and Swivel in the UK. Another classic example is the Barcelona chair, an exquisite and iconic work designed by Ludwig Mies van der Rohe. While the officially licensed version of the Barcelona chair sells at the Conran Shop in the UK for around £5,755, a replica can be found on websites such as Swivel for around £455.

The stark difference in price illustrates vividly why high-level furniture and “lifestyle” designers such as Sir Terence Conran, and fashion designers such as Stella McCartney, support the new EU law: their professional livelihood—their ability to benefit from specialization and division of labor, which Adam Smith taught us is the key to a flourishing free market—rests on their ability to profit from the fruits of their creative labors in a commercial economy. Their right to sell their designs at the prices they seek in the marketplace does not preclude the design and dissemination of new, original articles of design that are inspired by the inimitable works of the mid-century moderns referenced by Tabarrok. But their property rights should preclude the sale of pirated knock-offs, which bring nothing to the table in terms of originality, inspiration, or hard work and are simply cheap copies.

It is not surprising that Tabarrok and others of his ilk continue to resort to ill-founded and unsubstantiated attacks upon IP rights on the dubious grounds that at some point these rights do not directly encourage innovation. This is highly misleading, because the same can be said about all property rights. This rhetorical move also makes it seem like Tabarrok is on the “pro” side of creation and innovation, which is dissembling rhetoric at its best.

Tabarrok’s critique, however, rests on a misconceived view of the function of property rights as solely incentivizing creation. Patents and copyrights are property rights, and like all property rights, they do not merely incentivize creation and innovation. They serve the important function of enabling creators to earn a livelihood from their productive labors by securing to them the same rights of all property owners to control the conditions in which their property is sold in the marketplace. This reflects the longstanding economic principle that a growing free market and flourishing society requires securing to property owners the fruits of their labors – surely a central tenet of libertarianism!