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From Great Ideas to Global Impact – A Talk with Andrew Byrnes

The following post comes from Tuan Tran, a rising 3L at Scalia Law and a Research Assistant at C-IP2.

2022 Andrew Byrnes event flyer
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Small ideas can lead to big changes, which in turn can make a significant impact on the world, but—as technology executive, attorney, and investor Andrew Byrnes knows well—this is no easy task.

On May 4, 2022, Mr. Byrnes gave a talk co-hosted by the Center for Intellectual Property x Innovation Policy (C-IP2) at George Mason University, Antonin Scalia Law School, and Business for a Better World Center, School of Business, George Mason University. With his background and experiences in both the legal and technology industries, Mr. Byrnes shared his knowledge about how just a single idea can be transformed to make a great impact on society. His talk focused on two main points: how ideas are developed, and the framework he has used to implement and transform those ideas into something impactful.

According to Mr. Byrnes, the first step is “finding the idea.” There are three principles involved in the process: be curious, look at intersections, and be passionate. The first principle is to be open to the possibility of having a great idea that can either address a challenge or take advantage of an opportunity. It is important to listen and be observant, because the more one talks with new people about new topics in different contexts, the more one will be likely to come up with interesting and powerful new ideas. One of the key things to keep in mind is to not waste time looking for a perfect idea, because a big idea is usually not presented initially in its complete form. Instead, it is usually presented as smaller ideas that are eventually brought together. Second, “looking at intersections between disciplines and industries” means to be curious and examine known things and combine them “in ways that they haven’t been combined before.” For example, with patents, “most inventions are combinations of known elements.” The third principle stands out as the most important one: being passionate about the pursuit of the idea. Without passion, it is extremely difficult to go from that great idea to real-world impact.

Mr. Byrnes has laid out a framework that involves the most crucial aspects of how to accomplish the goal of transforming ideas into impactful innovation. The framework has “five pillars” in a “hub-and-spoke” formation: legal clearance, intellectual property (IP) protection, market validation, operationalization, and user adoption. As Mr. Byrnes explained, “The reason why I have this hub-and-spoke model is it’s not remotely linear. You . . .  have to do all of these things in sequence and at once, and once you’ve gone through all of them, you have to go back and do them all again, because the world is dynamic, your idea is dynamic, and the operationalization of the idea will require you to . . .  adjust over time.” Following is the discussion of the five pillars.

Legal Clearance

This pillar begins by “evaluating the existing law.” It is essential to understand the related law and how it could impact what will be done with the ideas, including any legal barriers that prevent the implementation of an idea. When as is common the law is unclear, there are two choices, both with costs and opportunities. Putting a hold on the idea can help avoid potential legal problems, but that might result in being left behind when the competitors decide to engage in similar markets or to produce similar products. It may be difficult to enter the market later. On the other hand, proceeding with the idea when the law is unclear might be costly later after the regulators or courts say that the implementer cannot do what they have been doing. Therefore, a company needs legal advice to understand all aspects of the related law before implementing any ideas so that the company can come up with the most suitable strategy. Lawyers are a helpful source, and—for any startups in the Northern Virginia area—so is the Innovation Law Clinic at George Mason University Antonin Scalia Law School.

IP

Mr. Byrnes pointed out that there are “many facets” involved in IP, the second pillar. Important forms of IP for protecting one’s inventions and businesses are patents and trademarks. In short, a patent is “the grant of a property right to an inventor by the government” that can “exclude anyone [else] from making, selling, or using the invention for a [specific] period of time.” Not every idea or invention can be patented, because there are some legal requirements for patent protection; trade secrets may be able to provide protection where patents cannot. However, where applicable, patent protection can be valuable for limiting competition during the life of the patent, raising the valuation of a company, and potentially for licensing purposes. When it comes to patent protection, filing as soon as possible is important because the first inventor to file a patent application will have priority. Also, it is advisable to keep documentation and to have written agreements with employees and collaborators, if any, to ensure the ownership of our idea. Trademarks are also important. A great idea may not succeed if the consumers or clients cannot find the product or service or associate it with your company. Ideally, select a trademark “that is as strong as possible” at an early stage to ensure maximum brand protection.

Market Validation

After legal clearance and protecting IP, the third pillar is market validation. Even “a legal and protected idea” is not impactful when people do not need it. As mentioned earlier, the world changes at a fast pace, so what people needed in the past might not be what they find important in the present. Thus, to build a sustainable business from great ideas, it is vital to “(re)visit demand,” “assess the model,” and “engage prospects directly.” When revisiting demand, implementers should ask themselves whether their ideas are solving any problems or providing solutions to “pain point[s]” they envisioned at the beginning or some other problems they have developed over time. In terms of economics, business models should be assessed for their sustainability. Obtain feedback from clients and consumers using a variety of methods, both traditional, e.g., customer surveys, and creative. For example, Arctop utilizes neuroscience technology to develop an app that can evaluate a user’s experience with a product based on the user’s brain activity. This method can be a better representation of customer satisfaction than what is available through a rating system or survey.

Operationalization

As Mr. Byrnes says, it is exciting to confirm that people still love and want our ideas, “but we actually have to get it done.” The operationalization area or fourth pillar is the “get-stuff-done” (the “GSD”) stage. There are three main tasks involved in this stage: “building the right GSD team, . . . focusing on execution, and then prioritizing efficiency and viability.” Building the GSD team is the most important task. Mr. Byrnes lists being emotionally intelligent, curious, diverse in perspective, synergy-seeking, resilient, and confident as important characteristics for team members. The more people in the team who have these characteristics, the more effectively and efficiently the team members can collaborate to accomplish mutual goals. Second, “ideas alone are not good enough”; the focus needs to be on execution. Avoid “mak[ing] the perfect enemy of the good.” For example, a team may wait to act if their vision of the ways things will occur is not realized, but the result may be that, “if you wait that long, … the world’s going to pass you by.” Therefore, implementers need to be confident in the team they have built and the accomplishments they have achieved in earlier stages. As Mr. Byrnes states, “be biased to action, and that’s most likely the best risk-minimizing approach.” In addition, “prioritizing efficiency and viability” is crucial. By “spend[ing] no more money than you’re making,” the team does not “hav[e] to seek as much outside investment and engagement over time.”

User Adoption

The last pillar of the framework is about conveying to the world what you are doing. To be successful at this stage, Mr. Byrnes states, it is important to have “widespread visibility,” “a compelling narrative,” and “third-party validation.” There are several tools to help in achieving widespread visibility: “earned media,” paid advertisements, or “owned” media, such as social media. Although all of these tools helping reach as many customers as possible, the most suitable tool should be chosen carefully depending on the situation. The tools are most useful only when there is a compelling narrative to deliver to the target audience. It takes effort to come up with a unique narrative, but in general, a compelling narrative should convey a key benefit of the products directly and concisely. Finally, products and services will garner more trust and credibility when potential customers see others whom they know and trust approving or using those products or services. Thus, start-up companies are highly encouraged to seek third-party validation, whether from other companies, non-profit organizations, governments, or others.

A small idea can make significant impact on society, but the path from forming an idea to making the impact is challenging. Many companies have struggled to make impactful innovations because of the lack of relevant knowledge and experiences. During the talk, Mr. Byrnes pointed out several unique problems and a sophisticated framework of five pillars to overcome those problems. Although following the five-pillars model might not guarantee success, it significantly improves any company’s chances of creating impactful innovations quickly and effectively.

Categories
Biotech C-IP2 News International Law Patents

Panel Discussion: Vaccines, Intellectual Property, and Global Equity

scientist looking through a microscopeThe following post comes from Colin Kreutzer, a 2E at Scalia Law and a Research Assistant at C-IP2. 

The COVID-19 pandemic has shined a spotlight on the role of intellectual property in modern medicine and on the complex social questions surrounding a system that grants exclusive rights over life-or-death products. On the one hand, there is clearly a difference between public access to lifesaving medicines and other patented goods, such as consumer electronics. However, creating these drugs required billion-dollar investments and enormous risk, made feasible only by that promise of IP rights. Wouldn’t taking that promise away harm future development of new medicines? As the world considers a waiver of IP rights over COVID-19 vaccines and other technologies, experts are analyzing not only what’s right and what’s wrong, but also what works and what doesn’t.

On June 10, 2021, C-IP2 and the Smithsonian’s Lemelson Center for the Study of Invention and Innovation held a panel discussion on vaccines, intellectual property, and global equity. With opening remarks by Lemelson Director Arthur Daemmrich, and moderated by C-IP2 Faculty Director Professor Sean O’Connor, the panel featured Dan Laster, Director of the Washington State COVID-19 Vaccine Action Command and Coordination System (VACCS) Center; Professor Arti K. Rai, Elvin R. Latty Professor of Law and Co-Director of the Duke Law Center for Innovation Policy; and Eric Aaronson, Senior Vice President and Chief Counsel, Corporate Affairs, Intellectual Property and Intellectual Property Enforcement, Pfizer Inc.

Opening Remarks

Mr. Daemmrich began with a historical perspective of medical developments in this country, as well as the social, economic, and regulatory issues that would invariably be tangled up within them. His tale foretold many of the conflicts we see today—going from a time when most modern medicines didn’t exist, and high mortality was a fact of life, to a time when vaccines and other treatments existed, but access depended partly on wealth. In between those two periods, we saw rapid growth in IP protection that helped move society from one to the other. But whether in the form of religious opposition to smallpox inoculation, regulatory reforms after tragedies from bad medicine, or protests from a marginalized community during the AIDS crisis, legal and social issues have always played a prominent role in the story of medical science.

Building on this historical base, Mr. Daemmrich posed the problem now facing us: compared to other medicines, there are relatively few vaccines. On a grand scale, the entire field of vaccination is still in a stage of early development, and there exists great potential for growth in the future. The question is how to best stimulate that growth, or rather, how to ensure the greatest access to already-developed vaccines without stifling the creation of new ones?

Prof. O’Connor then led the panel with a series of questions. He began by asking about the difference between two classes of medicine. Vaccines are generally thought of as biologics—treatments that are derived from live cells­—whereas pharmaceuticals belong to the class of “small-molecule” drugs. They are primarily chemical compounds rather than a biological product.

Q: From an IP perspective, are vaccines different from small molecule pharmaceuticals? What role does IP play in making vaccines available?

 Prof. Rai responded that vaccines are indeed very different from small molecule drugs. From an IP perspective, the two classes derive their greatest protection from different sources.

Small molecule drugs can be produced without the need for company trade secrets. All the most critical information can be found within the text of the patent. So, the greatest protection comes from the patent itself, which grants its owner the right to exclude others from making or using the drug, and from data exclusivity, which prevents other companies from using the original developer’s clinical data to obtain regulatory approval of its own product.

Vaccines, on the other hand, cannot be quickly copied solely by reading the patent. There is a great deal of “know-how” involved in the manufacturing process. Because of this, trade secrets can be just as important to vaccine protection as the patent.

The role of IP in vaccine access, she said, is an interesting question. While public funding exists in the world of small molecule drugs, it has a “heavier footprint” in vaccine development, which then has some impact on the incentive model as it applies to vaccines.

Mr. Laster said the role of public funding was critical to his prior work at PATH, an organization devoted advancing global healthcare equity through public-private partnerships and other initiatives. Public funding has a “de-risking” effect in that the high costs and uncertainty of clinical trials are not borne entirely by the private sector. And because vaccine development typically requires cooperation among many parties, it is valuable to have different types of incentives in play (i.e., “pull”-type incentives, such as patent grants, as well as “push”-types, such as public funding). But from an IP perspective, exclusivity can pose a challenge to those cooperative efforts.

Additionally, he said that the detailed know-how involved with vaccines makes technology transfer incredibly difficult. If the intended receiver in a developing nation lacks the capacity to utilize the technology, how can effective tech transfer work in real-world practice? The question is less about whether we should be transferring vaccine technology to developing nations than it is about whether we can.

Mr. Aaronson said that a key piece of our IP system is that it does allow for greater cooperation by providing a means of transferring technology among partners while preventing that technology from being used for unauthorized purposes. He credits that cooperative system for enabling Pfizer to partner with BioNTech, producing a vaccine in record time. He added that this vaccine is currently supplied in 116 countries and counting, that they have committed to supplying at least 2.5 billion doses, and that they have just struck a purchase agreement with the United States for 500 million doses to supply lower-middle income nations. The required research, discovery, and development would not have been possible without a strong IP system that provides the right incentives and enables secure technology sharing among a large host of players.

Q: While we don’t know what final form the waiver might take, do you see it playing a necessary role in actually increasing vaccine supply and access in the coming year or two? Are there potential downsides to an IP waiver that should be considered?

Prof. Rai said that the biggest effect of a waiver would likely be its “symbolic” value, as other factors will have a much greater impact on vaccine access. But even if there were no substantive effect, it would be good for high-income nations to demonstrate an interest in global health issues. However, she considered the waiver issue “a little bit of a sideshow,” saying it likely would be “neither as bad as opponents fear nor as good as proponents hope.”

Prof. O’Connor noted that this is a particularly difficult question to answer when nobody knows what form any potential waiver would eventually take.

Mr. Laster based his perspective on his ten years of negotiating vaccine development and distribution efforts with PATH, saying he is “not sure [the waiver] aligns well” with what’s needed. Recognizing the importance of trade secrets and the complexity of the partnerships involved, he says a successful system must encourage willing cooperation. Simply waiving IP rights won’t necessarily do that. He also cautioned against taking a “static view” of the problem by taking for granted that the vaccine already exists rather than considering the IP system that helped create it, and failing to ensure that the same system is incentivizing new vaccines in the future. That said, the threat of a waiver might provide enough encouragement to bring about voluntary participation before an actual waiver becomes a reality. He credits this threat with already having a noticeable effect on pricing and other strategies.

Mr. Aaronson added that we are dealing with multiple vaccines based on very different technologies. Concentrating “a little more on the practical versus the theoretical,” he noted that the impacts of an IP waiver can vary greatly from one technology to another. The mRNA vaccine is the first drug of its type to ever receive approval. Much of the necessary tech transfer would not be limited to COVID-19, but could apply to the entire mRNA technology platform, drastically impacting its value. Waiving the rights to a groundbreaking technology could reduce the incentive to explore uncharted technological fields.

He also said it’s not certain that waiving IP rights would yield a net increase in the number of doses produced. The existing developers are producing large amounts of the vaccine. Opening the supply chain up to new entrants who may not be able to effectively utilize those supplies could yield a net decrease in production.

Prof. O’Connor also took audience questions for the panel. Some are listed below, starting with a “great foundational question.”

Q: How would it be ethical to allow lifesaving medicines and vaccines to be patented?

Prof. O’Connor began by addressing the purely legal perspective—that such patents are allowed under U.S. law, although there have been exceptions in some other countries at certain times because of this complex ethical question.

Mr. Aaronson said it’s important to think about patents as a part of a broader incentive structure. Are we putting the incentives in place to get someone to get up every morning and put in the work, money, and risk to create a product? We need an incentive structure, or there won’t be anyone making those lifesaving medicines. A patent system is one way to achieve this.

Q: If patent disclosures cannot teach producers how to make a vaccine without also getting corresponding know-how, how can they satisfy the disclosure requirement for patentability?

Prof. Rai has written multiple articles about this question (see one here) and offered several reasons. Some of the know-how is not easily written down. The need for shared know-how could possibly be satisfied by depositing biological materials with the Patent Office, but this is unlikely to happen. Another reason is that the final product that emerges from a years-long regulatory approval process is not always identical to the product described in the patent. There is also a mistaken view that patents and trade secrets cannot protect the same product. It is true that a singular feature cannot be both patented and kept as a trade secret, but a single product may have different features that are protected under one regime or the other.

Mr. Aaronson also pointed out that a single drug may be protected by many patents. Some of the know-how simply involves knowing how to properly combine the patented technologies.

Q: If most of the medical innovations occur in wealthy nations, IP laws will lock developing nations out, at least initially. Is there a way to include developing nations earlier in the innovation process?

All panelists agreed on the importance of this issue, as well as on the fact that it’s much easier said than done. Prof. Rai said that every nation must begin to create its own manufacturing capacity to avoid reliance on others, but this requires large amounts of human capital and infrastructure. The problem really goes beyond medicine to the balance of rich and poor nations generally. Mr. Laster said this is the sort of thing he was working on with PATH, which has created some networks, but there is a long way to go. Building the required skillsets and infrastructure locally takes time, but public-private partnerships can help. Mr. Aaronson said that it’s essentially like asking a nation to stop being a low-income country. It’s a somewhat circular issue, in which money is required to build infrastructure, but infrastructure is required to make money. However, this is where IP is not the problem; it is the solution. A strong IP system can create the necessary investment incentives to begin building a better future in any nation.

Closing Remarks

In closing, Prof. Rai said that “regrettably, the public debate on the . . . waiver has been very simplistic.” She hoped that the panel had “shed some light” on the issue and thanked her fellow panelists for a respectful and productive dialogue. Mr. Last er agreed that “it is a complex topic” but said that “it’s not about the waiver;  I do think there are mechanisms that can lead more likely to the outcomes we want.” Mr. Aaronson finished by saying that “we all have the same goal, to figure out ways to bring medicines and vaccines to patients, no matter where they are in the world. We’re fortunate and thrilled that our vaccine has had that potential to change lives, and our goal is to continue . . . to ensure access” to both this and to future vaccines.

A recording of the panel is available here.

Categories
Healthcare International Law

A View from Both Sides: COVID-19, the TRIPS Waiver, IP Rights, and How to Increase the Supply of Vaccines

scientist looking through a microscopeIssue

The United States and other wealthy nations have access to plenty of COVID-19 vaccine doses and thus are beginning to get the pandemic under control, while less affluent countries do not have access to adequate doses and are still struggling with rising cases. In October 2020, India and South Africa proposed addressing this problem by waiving certain portions of the TRIPS Agreement, the most comprehensive agreement on intellectual property (IP) aspects of international trade among the WTO’s 164 member states. The waiver cites “an urgent call for global solidarity, and the unhindered global sharing of technology and know-how in order that rapid responses for the handling of COVID-19 can be put in place on a real time basis.” While this proposal broadly applies to any COVID-19-related technology, much of the conversation is currently focused on vaccines.

The proposal would temporarily suspend patent rights covering COVID-19 vaccines and possibly also be used to compel the transfer of trade secret “know-how” and “show-how.” Proponents say this would allow any manufacturer to begin production—boosting vaccine supply while slashing prices—to end the surge of cases in less developed nations. Critics argue that the reality is more complicated: the waiver will be ineffective, even harmful, and it would have a devastating impact on our readiness for future health crises.

In Support of the Waiver

For supporters of the waiver, the answer is clear: cases are rising in many nations because they still don’t have the vaccines they need. It’s only reasonable to make exceptions to our ordinary system of business incentives during times of global crisis.

The Biden Administration

That is essentially what U.S. Trade Representative Katherine Tai stated when the Biden Administration announced its support for the waiver: “This is a global health crisis, and the extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures. The Administration believes strongly in intellectual property protections, but in service of ending this pandemic, supports the waiver of those protections for COVID-19 vaccines.”

It affects all of us

WHO Director-General Dr. Tedros Adhanom Ghebreyesus says that the “me-first approach” among powerful nations “is self-defeating and will lead to a protracted recovery with trade and travel continuing to suffer.” Under this rationale, even purely self-interested parties should support the waiver, if only because modern commerce is so globally connected.

Dropping IP barriers will facilitate greater collaboration

Many say the threat of IP litigation prevents the kind of collaboration needed to quickly ramp up production and development, and that a waiver can remove that threat. The president of Médecins Sans Frontières, Dr. Christos Christou, says that “[t]he waiver proposal offers all governments opportunities to take action for better collaboration in development, production and supply of COVID medical tools without being restricted by private industry’s interests and actions, and crucially would give governments all available tools to ensure global access.”

Patents were not meant to impede emergency action

A recent editorial in the journal Nature argues that patents are designed to protect ordinary commercial interests, not to hinder global cooperation against a common threat: “A pandemic is not a competition between companies, but a race between humanity and a virus. Instead of competing, countries and companies need to do all they can to cooperate to bring the pandemic to an end.”

It solves an immediate need without setting a troubling precedent

While opponents of the waiver argue that it will weaken future drug patent protection, Imron Aly and Ahmed M.T. Riaz of Schiff Hardin LLP call those concerns “unfounded” in their post at IPWatchdog. Not only is the current proposal limited specifically to COVID-19, but it was also not created carelessly. Instead, it “has taken substantial international efforts and official international law amendments.” Aly and Riaz say this exceptional action is appropriate if it can succeed where our IP system has yet to do so: “The TRIPS waiver simply allows countries the option to suspend patent enforcement to encourage COVID-19 vaccine production, which makes sense for those countries where current investment has not resulted in vaccine access.”

Even if the waiver doesn’t work, it might work

University of Houston Law Center Professor Sapna Kumar acknowledges a number of functional issues with the waiver approach but notes that it may still have a positive effect on the pandemic: “Overall, the greatest benefit of the Biden Administration’s support for the waiver is that it signals a departure from the prior approach of punishing countries facing health crises and that it might spur pharmaceutical companies to voluntarily increase out-licensing and donations of vaccines.” Her prediction was borne out by a recent pledge to donate 2.3 billion doses by Pfizer/BioNTech, Johnson & Johnson, and Moderna.

Opposed to the Waiver

Opponents of the waiver argue that it will not be effective because it fails to address the real problems. Further, it could actually be detrimental to quality control and supply chains in the present crisis, while quite possibly affecting how pharmaceutical companies choose to allocate investment dollars in the future.

It’s a long process that requires much more than a temporary waiver of licenses

Vaccines are not like other drugs. Writing for Foreign Affairs, Peter J. Hotez, Maria Elena Bottazzi, and Prashant Yadav say that we can’t compare the current situation to similar actions on HIV treatments, and that most nations are not prepared to make use of the patented technology: “Producing vaccines—particularly those as technologically complex as the messenger RNA (mRNA) inoculations against COVID-19—requires not only patents but an entire infrastructure that cannot be transferred overnight.” The authors state that “[t]he effective transfer of such complex technology requires a receiving ecosystem that can take years, sometimes decades, to build.”

We need another way

Professor Yogesh Pai of the National Law University Delhi says that simply waiving trade secret protection won’t automatically disclose everything a manufacturer needs to know. Accessing “hard tacit knowledge of manufacturing/quality control measures for production and clinical data required for regulatory clearances” could require forced technology transfer (FTT) by national governments. He recalls how detrimental such efforts were to India’s economy when it tried FTT with Coca-Cola in the 1970s, prompting the company to leave the country altogether.

Prof. Pai instead recommends efforts to encourage voluntary cooperation: “Where blunt legal instruments don’t work, using track-1 and track-2 diplomacy to place moral coercion on western governments to nudge firms to actively engage in technology licensing may still work wonders.”

“China First” policy?

Sixteen U.S. senators issued a sharply worded letter to the executive branch, questioning the true motives of “China and other countries which regularly steal American intellectual property—like India and South Africa,” and expressing shock that an American president would go along with it: “These nations are falsely claiming that granting such a waiver would speed the development of new vaccine capacity. Nothing could be further from the truth.” Instead, the senators are suggesting that the waiver is being used as a means to unfairly to acquire trade secrets that took massive resources and time to develop.

Reuters reports that “some U.S. officials fear the move would allow China to leapfrog years of research and erode the U.S. advantage in biopharmaceuticals” and quotes a senior U.S. official as saying that the country “‘would want to examine the effect of a waiver on China and Russia before it went into effect to ensure that it’s fit for purpose.’”

IP is not the Issue

A waiver on patent rights, even with the corresponding trade secrets, can only give permission to manufacture. But Eva Bishwal of Fidus Law Chambers writes that the real problems in India “are state inaction, dearth of raw materials and low production capacity.”

According to Patrick Kilbride of the U.S. Chamber of Commerce’s Global Innovation Policy Center, and as cited in Pharmaceutical Technology, “[p]roposals to waive intellectual property rights are misguided and a distraction from the real work of reinforcing supply chains and assisting countries to procure, distribute and administer vaccines to billions of the world’s citizens.”

Low-quality vaccines could do more harm than good

Former USPTO Director Andrei Iancu voiced concern recently at a World IP Day event, asking, “if we waive IP rights, and exclude the original manufacturers, how are we going to control the quality of the vaccines that go into people’s arms? How are we going to control for the fake vaccines? Just last week we saw fake Pfizer vaccines.” And as Philip Thompson points out for IPWatchdog, when investigators are forced to “determine if adverse events or sub-par effectiveness originate from ‘real’ vaccines or fake doses, we should expect global production starts and stops to become much more frequent.”

It will discourage investment in the most critical areas

Pharmaceutical developers invest unfathomable amounts of money into bringing drugs to market. The path to success is long, expensive, and highly uncertain. But what is certain is that successful drugs can yield a profit that covers the loss from failures. Now critics are deeply worried that this waiver will skew future cost-benefit analyses against important classes of medicine. All other things being equal, a developer has a better chance at a positive return by investing in drugs that pose no risk of seizure during a global emergency. As Amanda Glassman of the Center for Global Development writes, the waiver sends the wrong message to innovators and investors: “don’t bother attacking the most important global problems; instead, throw your investment dollars at the next treatment for erectile disfunction, which will surely earn you a steady return with far less agita.” The scramble amongst pharmaceutical giants to develop a vaccine was an all-out race, with good reason, and that’s exactly how it should be. If those companies believe that forfeiture is waiting at the finish line next time around, we might see fewer contestants.

Even “no-profit” vaccine makers appear to oppose the waiver

Pfizer CEO Albert Bourla laid out everything the company has done to combat the vaccine in an equitable manner and argued that “waiver of IP rights could only derail this progress.” And while Pfizer and Moderna are selling their vaccines at a profit, Johnson & Johnson and AstraZeneca have pledged not to do so during the pandemic.

However, it appears that even those companies oppose the waiver. As reported in The Wall Street Journal, the trade group PhRMA, which represents Johnson & Johnson and AstraZeneca among many others, is “lobbying members of Congress to oppose the Biden administration’s support for the waiver.” Johnson & Johnson’s Chief IP counsel Robert DeBerardine says that patent rights are responsible for the breakneck pace of development and that the drug’s makers are the best-equipped people to continue the fight: “What we’re able to do, because we have control of the IP, is to pick the best companies to help us supply the world. If you were to give everything to everybody, you may see a flood of vaccines, but you would have no idea if they’re safe and effective.”

Conclusion

While we share the concerns of other organizations that effective, affordable, and accessible vaccines be made available to all persons regardless of location or wealth, we do not believe that upending longstanding U.S. patent policy for a solution that will do little if anything to increase the vaccine supply is advisable. Strong IP rights remain the best way to incentivize innovation and ultimately increase the supply of life-saving medicines. The Biden administration’s unprecedented support of the proposed WTO IP waiver, while well intended, is likely to create long-term harm and unlikely to have much of an impact on global vaccine supplies. Ultimately, encouraging companies to license IP and engage in voluntary knowledge transfer, along with the sharing of excess doses that are being produced, are methods far more likely to alleviate the vaccine supply issues than waiving IP rights and would be a better path forward out of the current crisis.

Categories
Economic Study Innovation

Creative Upstarts and Startups: How IP Creates Opportunities and Opens Doors

the word "inspiration" typed on a typewriterThis is the first in a series of posts summarizing CPIP’s 2016 Fall Conference, “Intellectual Property & Global Prosperity.“ The conference was held at Antonin Scalia Law School, George Mason University on October 6-7, 2016. Videos of the conference panels and keynote address, as well as other materials, are available on the conference website.

The opening panel of CPIP’s 2016 Fall Conference examined how intellectual property (IP) creates opportunities for startups and creative upstarts. Unfortunately, IP policy debates often refer to a misguided notion that intellectual property hinders innovation and creativity, especially among smaller businesses. The panelists, Prof. Deepak Hegde (NYU Stern School of Business), Brian Detwiler (Cobro Ventures, Inc.), Prof. Jerry Liu (University of San Francisco School of Law), and Antigone Peyton (Cloudigy Law, PLLC), illustrated how this notion ignores the fact that intellectual property provides incentives and security for startups and small businesses entering the market and enables returns on investments.

Prof. Deepak Hegde discussed a study he undertook to measure the extent that patents benefit startups. Patents provide incentives for innovation by affording the right to exclude others from making, selling, or otherwise using the patented invention. This incentive is ensured by increasing the cost of imitations, while facilitating licensing and access to venture capital by innovators. At the same time, there is a concern that patents are not as effective for smaller entrepreneurs because patents take too long to issue (three years on average), they are costly to obtain ($20,000 in patent application costs on average), and are expensive to enforce once infringed. The study, however, shows that timely patents do substantially benefit startups.

Hegde noted that measuring the causal effect of patent rights on startups is often an empirically challenging task due to the lack of complete data on issues like rejected patent applications, firm outcomes, and correlations between patenting and startup success. However, Hegde was able to show a positive causal relationship between approval of the first patent application and various measures of startup success such as persistent employment growth and higher sales.

For instance, Hegde found that approval of the first patent application by a medium-sized firm with eight employees leads to three more employees (on average) hired within the five years following approval. Likewise, a medium-sized firm with $4.3M in revenue has $2.3M higher sales over the five years following approval of its first patent. Moreover, approval of the first patent application leads to a 66.4% increase in the number of subsequent applications, a 48.4% growth in the number of approved patents, and a 68.5% increase in the number of total citations.

On the other hand, Hegde discovered that delays in the patent approval process reduce sales growth, with each year of delay reducing growth by 28.4% over the five years following approval. Delays also reduce the quality and quantity of subsequent innovations, with a 14% decrease in number of subsequent applications and a 8% reduction in number of total citations. Even more so, a five-year approval delay is comparable in effect to not granting a patent at all. Finally, Hegde showed that patent approvals causally increase the probability of venture capital funding by 57%, and thus, help to set startups on a growth path.

Brian Detwiler discussed the challenges startups face from a more practical point of view. Specifically, Detwiler focused on two startups that Cobro Ventures is currently managing. Measures of success differ among the two. For a health & fitness center, the issue is profitability, and for a tech startup, the concern is typically acquisition or an initial public offering. Because Cobro Ventures is a self-funded company, it does not encounter some of the funding challenges as other startups. It does, however, face the same intellectual property issues as others in the industry.

The critical issue for a startup in the fitness industry, Detwiler noted, is building a strong brand identity to distinguish itself from other companies in the crowded marketplace. CrossFit is one good example of how a strong brand makes a business successful: CrossFit generates its revenues solely from licensing its brand out to gyms and fitness centers, without operating any of its own.

Tech startups, continued Detwiler, are more invested in the value of their patents because patent due diligence is a major component of any tech acquisition. Bundles of patents and open continuations are what acquirers value the most. The former allows acquisition of all patents associated with a particular technology; the latter provides opportunities to expand claims to pending patents down the road. A patent by itself does not necessarily guarantee the merit of a particular technology, but it certainly shows that at least the Patent Office believes that the particular technology was unique in the marketplace at the time of issuance. Patents can also be used as weapons in protecting a company’s interests and as a bargaining chip in negotiations.

Detwiler stated that trademark registration is equally accessible to startups and big corporations because it is inexpensive (the filing fee is about $300 per class of goods/services), easy to file (only 10 minutes), and fast (around 3-4 months). With patents, the biggest challenge is getting a notice of allowance. There is a common misconception that all patent applications have the same value. This may be true for big corporations that file thousands of patent applications each year. But for startups, which usually have only two or three applications that they depend on, each such application is incredibly important, and if rejected, causes a lot of frustration.

Even though startups have more executive involvement in the patent approval process and are more willing to accept reasonably narrow claims at the outset, Detwiler said the patent examination process is still too lengthy. To get the best of it, he suggested that applicants explain in plain terms what they want to protect, examiners explain in plain terms what they found in their prior art searches, and both sides explore how to capture the claimed invention.

Prof. Jerry Liu talked about the study he undertook on market incentives and intrinsic motivations in the creative industries, particularly in the Chinese music industry. He focused his study on how online piracy affects the music industry and how real-world artists respond to copyright incentives. According to Liu, the Chinese music industry is significantly underdeveloped as compared to the United States. While the overall Chinese economy is fast approaching the size of the U.S. economy, the Chinese music industry represents only 1.5 % of the U.S. music industry.

Liu found that this outcome has little to do with the overall economic environment in China. Even though the music industry experienced a substantial decline since 2005, the economy as a whole enjoyed about 10% of annual growth. Nor is this a consequence of the infamous censorship system in China. Unlike the music industry, the book industry in China has demonstrated growth by 129% for the last decade. The likely reason for this difference is that the piracy rate in the music market is much higher than it is in the book market.

Empirical data collected by Liu establishes the correlation between online piracy and the Chinese music industry downturn. Online piracy surged in 2005, the very same year when music production started to decline significantly. As a result of such widespread piracy, music products have become undervalued among consumers. Only 25.4% of Chinese consumers are willing to pay for music, and only 5.9% actually pay for music. Online piracy has also caused a significant imbalance in the development of the digital music market. Notably, the Chinese government itself recently recognized that uncontrolled piracy has devastated the digital music marketplace.

In China, Liu said that online music services, including downloads and streaming, account only for 1% of the total digital market, while mobile sales (e.g., ringtones) hold 99% market share. But only 32.6% of music consumers are accessing music on their mobile devices, while 96.8% of users access music online. This shows that Chinese consumers pay the least for the most popular channel of music consumption. Additionally, online piracy affects business models in the music industry. For instance, record labels have moved away from their traditional role as investors. They are now working with new artists either on a self-funded basis (labels only provide services and artists bear all the risks of investment) or under so-called “360-degree deals” (labels sign artists for long-term contracts and retain more control over their careers and even their personal lives).

Finally, Liu highlighted the paradox of intrinsic motivations: 92% of the surveyed artists named emotional benefits as their incentive to create, and 97% of those artists also recognized the importance of economic benefits for creation. Importantly, many artists started their career in music not because of the money, but many of them also gave it up because of the money. In this way, copyright protection may provide a powerful incentive for artists to create in that it preserves their artistic freedom while ensuring a decent level of living and a fair return of production costs.

Antigone Peyton talked about strategies for tech companies to protect their assets. In this regard, she noted the importance of contracts at the early stages of the product development cycle. From the copyright prospective, contracts help to establish whether hired developers are employees or independent contractors and to ensure that their rights are assigned to the company. Without a written, explicit assignment of a copyright, a company may get in trouble down the road. For instance, when registering its work with the Copyright Office, enforcing its rights, or selling its assets to a third party.

Peyton stressed that companies working with the government need to understand what intellectual property rights they are giving away and to avoid assigning away all of their rights. Government contracts often include IP provisions that provide the government with a fully-paid license and allow it to bring in another contractor to continue the job. Another important aspect involves privacy policies, especially in the cyber security area. Companies that innovate in this sector usually bring people and know-how to the table, but not necessarily anything that is patentable. To protect its know-how, such a company should consider signing non-compete agreements with the people working with the company.

The barriers to entry for starting up a company in the software industry are small, said Peyton. But that means there are a lot of such companies out there trying to compete with each other for market space. To this end, companies need to think carefully about brand development and brand recognition, as well as how to protect their markets from competitors.

Peyton noted that if a company believes it has patentable subject matter, it should consider filing a patent application early on. However, patenting is the most expensive IP regime and usually requires the help of a patent professional (even with provisional applications). Patents are particularly critical in the biotech, chemical, and pharma industries that are money-intensive endeavors, which largely depend on attracting venture capital investment as early as possible. Generally, tech companies do not need to choose between copyrights and patents, and they may pursue both options to protect their software. But investing in copyrights and brand development is a relatively inexpensive way to start out and build an IP portfolio. Depending on the technology used, trade secret protection may also be an option for tech startups.

Together, the four panelists highlighted how intellectual property has a critical value for startups and small companies in the creative and innovative industries. Not only does IP ignite their businesses, but it also brings opportunities for future growth through sales, licensing, or acquisition. A strong IP portfolio is an invaluable asset, and building it early allows companies to open more doors.

Categories
Biotech Gene Patents Innovation Inventors Uncategorized

How IP-Fueled Innovations in Biotechnology Have Led to the Gene Revolution

scientist looking through a microscopeWe’ve released a new issue paper, The Gene Revolution, by Amanda Maxham, a research associate and writer at the Ayn Rand Institute.

Dr. Maxham explores how innovations in biotechnology, enabled by the intellectual property rights that protect them, have led to the “Gene Revolution,” where scientists use genetic engineering to dramatically improve human life. In order to combat widespread misinformation about genetically modified organisms (GMOs), she traces mankind’s long history of improving plants, animals, and microorganisms to better serve our needs.

We’ve included the Executive Summary below. To read the full issue paper, please click here.

The Gene Revolution

By Amanda Maxham

Executive Summary

Mankind has been improving plants and animals for millennia. Simply by selecting and breeding those they liked best, our ancestors radically improved upon wild species. Today’s biological inventors, with a deeper understanding of genetics, breeding, and heredity, and with the protection of intellectual property rights, are using the technology of genetic engineering to start a “Gene Revolution.”

In the field of medicine, custom-built genetically engineered microorganisms are brewing up rivers of otherwise rare human hormones, life-saving medicines, and much-needed vaccines. In agriculture, scientists are combining their understanding of plant genetics with laboratory techniques of modern molecular biology to “unlock” the DNA of crop plants. By inserting genes from other plants or even common microorganisms, they are able to give plants desirable traits, solving problems that farmers have faced for millennia—faster and more precisely than ever before.

But despite its successes and a bright future, biotechnology is under attack by activists who spread misinformation and foster consumer mistrust. They have been directly responsible for onerous regulations and other hurdles to innovation that are threatening to stifle what could and should be the “third industrial revolution.”

In an effort to combat this misinformation, this paper situates genetic engineering within mankind’s long history of food improvement and then highlights how genetic engineering has dramatically improved human life. In it, you’ll find 29 plants, animals, and microorganisms, from insulin-secreting E. coli to engineered cotton, from cheese-making fungus to chestnut trees, that represent the promise and possibilities that the Gene Revolution holds–if we hold precious and continue to protect the freedom to invent and the power of scientific innovation.

Categories
Copyright Copyright Theory History of Intellectual Property Innovation Intellectual Property Theory Law and Economics Patent Law Patent Litigation Patent Theory Statistics Uncategorized

Intellectual Property, Innovation and Economic Growth: Mercatus Gets it Wrong

By Mark Schultz & Adam Mossoff

A handful of increasingly noisy critics of intellectual property (IP) have emerged within free market organizations. Both the emergence and vehemence of this group has surprised most observers, since free market advocates generally support property rights. It’s true that there has long been a strain of IP skepticism among some libertarian intellectuals. However, the surprised observer would be correct to think that the latest critique is something new. In our experience, most free market advocates see the benefit and importance of protecting the property rights of all who perform productive labor – whether the results are tangible or intangible.

How do the claims of this emerging critique stand up? We have had occasion to examine the arguments of free market IP skeptics before. (For example, see here, here, here.) So far, we have largely found their claims wanting.

We have yet another occasion to examine their arguments, and once again we are underwhelmed and disappointed. We recently posted an essay at AEI’s Tech Policy Daily prompted by an odd report recently released by the Mercatus Center, a free-market think tank. The Mercatus report attacks recent research that supposedly asserts, in the words of the authors of the Mercatus report, that “the existence of intellectual property in an industry creates the jobs in that industry.” They contend that this research “provide[s] no theoretical or empirical evidence to support” its claims of the importance of intellectual property to the U.S. economy.

Our AEI essay responds to these claims by explaining how these IP skeptics both mischaracterize the studies that they are attacking and fail to acknowledge the actual historical and economic evidence on the connections between IP, innovation, and economic prosperity. We recommend that anyone who may be confused by the assertions of any IP skeptics waving the banner of property rights and the free market read our essay at AEI, as well as our previous essays in which we have called out similarly odd statements from Mercatus about IP rights.

The Mercatus report, though, exemplifies many of the concerns we raise about these IP skeptics, and so it deserves to be considered at greater length.

For instance, something we touched on briefly in our AEI essay is the fact that the authors of this Mercatus report offer no empirical evidence of their own within their lengthy critique of several empirical studies, and at best they invoke thin theoretical support for their contentions.

This is odd if only because they are critiquing several empirical studies that develop careful, balanced and rigorous models for testing one of the biggest economic questions in innovation policy: What is the relationship between intellectual property and jobs and economic growth?

Apparently, the authors of the Mercatus report presume that the burden of proof is entirely on the proponents of IP, and that a bit of hand waving using abstract economic concepts and generalized theory is enough to defeat arguments supported by empirical data and plausible methodology.

This move raises a foundational question that frames all debates about IP rights today: On whom should the burden rest? On those who claim that IP has beneficial economic effects? Or on those who claim otherwise, such as the authors of the Mercatus report?

The burden of proof here is an important issue. Too often, recent debates about IP rights have started from an assumption that the entire burden of proof rests on those investigating or defending IP rights. Quite often, IP skeptics appear to believe that their criticism of IP rights needs little empirical or theoretical validation, beyond talismanic invocations of “monopoly” and anachronistic assertions that the Framers of the US Constitution were utilitarians.

As we detail in our AEI essay, though, the problem with arguments like those made in the Mercatus report is that they contradict history and empirics. For the evidence that supports this claim, including citations to the many studies that are ignored by the IP skeptics at Mercatus and elsewhere, check out the essay.

Despite these historical and economic facts, one may still believe that the US would enjoy even greater prosperity without IP. But IP skeptics who believe in this counterfactual world face a challenge. As a preliminary matter, they ought to acknowledge that they are the ones swimming against the tide of history and prevailing belief. More important, the burden of proof is on them – the IP skeptics – to explain why the U.S. has long prospered under an IP system they find so odious and destructive of property rights and economic progress, while countries that largely eschew IP have languished. This obligation is especially heavy for one who seeks to undermine empirical work such as the USPTO Report and other studies.

In sum, you can’t beat something with nothing. For IP skeptics to contest this evidence, they should offer more than polemical and theoretical broadsides. They ought to stop making faux originalist arguments that misstate basic legal facts about property and IP, and instead offer their own empirical evidence. The Mercatus report, however, is content to confine its empirics to critiques of others’ methodology – including claims their targets did not make.

For example, in addition to the several strawman attacks identified in our AEI essay, the Mercatus report constructs another strawman in its discussion of studies of copyright piracy done by Stephen Siwek for the Institute for Policy Innovation (IPI). Mercatus inaccurately and unfairly implies that Siwek’s studies on the impact of piracy in film and music assumed that every copy pirated was a sale lost – this is known as “the substitution rate problem.” In fact, Siwek’s methodology tackled that exact problem.

IPI and Siwek never seem to get credit for this, but Siwek was careful to avoid the one-to-one substitution rate estimate that Mercatus and others foist on him and then critique as empirically unsound. If one actually reads his report, it is clear that Siwek assumes that bootleg physical copies resulted in a 65.7% substitution rate, while illegal downloads resulted in a 20% substitution rate. Siwek’s methodology anticipates and renders moot the critique that Mercatus makes anyway.

After mischaracterizing these studies and their claims, the Mercatus report goes further in attacking them as supporting advocacy on behalf of IP rights. Yes, the empirical results have been used by think tanks, trade associations and others to support advocacy on behalf of IP rights. But does that advocacy make the questions asked and resulting research invalid? IP skeptics would have trumpeted results showing that IP-intensive industries had a minimal economic impact, just as Mercatus policy analysts have done with alleged empirical claims about IP in other contexts. In fact, IP skeptics at free-market institutions repeatedly invoke studies in policy advocacy that allegedly show harm from patent litigation, despite these studies suffering from far worse problems than anything alleged in their critiques of the USPTO and other studies.

Finally, we noted in our AEI essay how it was odd to hear a well-known libertarian think tank like Mercatus advocate for more government-funded programs, such as direct grants or prizes, as viable alternatives to individual property rights secured to inventors and creators. There is even more economic work being done beyond the empirical studies we cited in our AEI essay on the critical role that property rights in innovation serve in a flourishing free market, as well as work on the economic benefits of IP rights over other governmental programs like prizes.

Today, we are in the midst of a full-blown moral panic about the alleged evils of IP. It’s alarming that libertarians – the very people who should be defending all property rights – have jumped on this populist bandwagon. Imagine if free market advocates at the turn of the Twentieth Century had asserted that there was no evidence that property rights had contributed to the Industrial Revolution. Imagine them joining in common cause with the populist Progressives to suppress the enforcement of private rights and the enjoyment of economic liberty. It’s a bizarre image, but we are seeing its modern-day equivalent, as these libertarians join the chorus of voices arguing against property and private ordering in markets for innovation and creativity.

It’s also disconcerting that Mercatus appears to abandon its exceptionally high standards for scholarly work-product when it comes to IP rights. Its economic analyses and policy briefs on such subjects as telecommunications regulation, financial and healthcare markets, and the regulatory state have rightly made Mercatus a respected free-market institution. It’s unfortunate that it has lent this justly earned prestige and legitimacy to stale and derivative arguments against property and private ordering in the innovation and creative industries. It’s time to embrace the sound evidence and back off the rhetoric.