Trashing patents

Peter Pitts, a former FDA commissioner, has an article attacking a Congressional proposal to basically strip medical companies of their patent protections.

Ah, the glorious patent -- such a simple concept, and yet so utterly essential to a properly functioning society. In basements and R&D departments across the country, innovators are hatching newfangled gadgets, widgets, and services -- products that will fuel economic growth and improve lives -- because they are reasonably confident that a patent will prevent competitors and criminals from stealing their inventions.

The folks at pharmaceutical companies are no different. Yes, that's right, drug companies, like most innovators, are in business to make money. They invest huge sums in research that leads to life-saving medical advances, and they hope to be rewarded for their efforts. Without strong patents protecting new drugs and processes, much of the research simply cannot continue.

How distressing, then, that the U.S. Senate has taken up a bill that would pretty much decimate patents as we know them. The Patent Reform Act of 2007, a version of which has already passed the House, would require every patent application to be published on the Internet only 18 months after filing.

Considering the years of research underlying most medical innovations, it is madness to require pharmaceutical companies to reveal their secrets so early. It seems even more unfair when you consider that it often takes in excess of 36 months after filing a patent to actually have it approved. This means that competitors and criminals will have a window of at least 18 months to replicate new drugs and medical research.

Proponents of the bill claim that medical patents are being applied to inventions that are so small that they routinely overlap. They add that since many patented chemicals and processes are discovered through incremental advances, competing claims on them have stifled progress in the medical field.

But as any medical scientist will tell you, there are few "Eureka!" moments in health research. Progress comes step-by-step, one incremental innovation at a time. Companies more often profit by improving existing chemicals and making processes more efficient than by revolutionizing the whole field with new products. And even the smallest innovations are made only after large amounts of very expensive research.

Why do politicians continually attack the pharmaceutical industry and propose policies that will lead drug companies to either move to some other country that would protect their intellectual property or just stop doing the research for new medical cures that we all hope will be there when we're sitting in a doctor's office hearing devastating news. Don't these politicians have any idea about the consequences of their actions?

As Sally Pipes argues in the Investors Business Daily, this proposal would benefit the large tech companies at the expense of smaller companies plus the pharmaceutical researchers.

The Patent Reform Act of 2007, while purporting to bring efficiency and flexibility to the patent system, would actually water down existing patent protections.

This may be good for a few large technology firms, whose products incorporate hundreds or even thousands of patented components. But it will inflict serious harm on small entrepreneurs and research-based health science firms, whose livelihoods depend on marketing just a handful of lifesaving inventions.

The tech industry's support for patent reform makes sense, as these companies are increasingly targeted by unscrupulous patent traders who file suit in plaintiff-friendly districts to extort large settlements.

By claiming rights — sometimes dubiously — to just a small portion of a finished product, the manufacture of a larger creation can come to a screeching halt. The proposed legislation would streamline the legal process when these cases are challenged.

But the costs to biotech and pharmaceutical companies are far greater than any efficiencies created by leaner patent litigation.

Patent protection provides the security that chemists and other scientists need to undertake the labor- and time-intensive research at the core of drug production.

Patents last between 17-20 years, but the average drug takes about 13 years and $800 million to bring to market.

So once a drug hits the shelves, there's only four to seven years to recoup hundreds of millions of dollars in development costs. That's why firms and investors demand the sales exclusivity that a patent guarantees.

Moreover, only about one out of every three drugs are ever profitable. The rest are financial misfires whose losses must be recovered via the success of a handful of blockbuster drugs.

It's curious that Congress would favor faster software development over new medicines.

Further, it's not just the pharmaceutical and biotech industries that are threatened by this legislation. For small firms and individual inventors, patents provide the protection to create, develop and profit from their inventions.

In fact, small tech companies are the drivers of much innovation, and currently hold about a third of all patents registered.

The proposed changes to the current legal protections would make it much harder for smaller firms to defend a patent claim. Large tech companies — with their big budgets and seasoned legal teams — would therefore enjoy an enormous advantage.

This is the type of change that I hope our systems of checks and balances will serve to rein in and stop legislators from passing such a bill that could have such enormous unintended consequences. At least I hope that these consequences are unintended.