Incentivize! http://www.personal.psu.edu/drc13/blogs/Incentivize!/ A blog on the design and use of legal mechanisms to create incentives for desirable behavior en-us Copyright 2010 Mon, 01 Nov 2010 10:51:58 -0500 http://www.sixapart.com/movabletype/ http://www.rssboard.org/rss-specification Government Follows Public Sentiment on Myriad Case: Should Firms Be Surprised? amicus brief in the so-called ACLU v. Myriad case (more commonly captioned AMP v. USPTO due to the listing order of the parties at interest) (see report from NYT).  This is the case relating to the patentability of genes used in breast cancer detection that I've written about here and here.  The brief has caused a stir among commentators that adds to the already voluminous writing on this case because the government has advocated for the unpatentability of DNA.  This is contrary to its previous stance (the government is even a co-owner of four of the patents-in-suit).  Actually, the government's position is somewhat constrained, suggesting only that unmodified, purified DNA sequences are in the public domain.  DNA with modified sequences should be eligible for patents, according to the government (assuming they meet the other criteria of for patenting).  This middle ground would preserve a many of the patents relied upon by the biotechnology community.  Still, commentators like Patent Docs' Kevin Noonan argue that such a rule, if adopted, could have an impact on many firms:

However, there is real danger that the bases for the government's arguments with regard to "merely isolated" human genomic DNA apply to all "natural products"; the same rationale that the government improperly applies to come to its conclusion that merely "isolated" DNA is not patent-eligible can be (and will be) applied to any other naturally-occurring substance, including antibodies, antibiotics, antisense and small interfering RNAs (siRNAs), hormones, metabolites, and proteins, precluding them from patentability . . .

Many commentators have expressed surprise at the nature of the government's brief.  The government has previously taken the position that isolated DNA, even if identical in sequence to strands existing in nature, should be as patentable as other extracted chemical products.  In fact, it has been noted that PTO attorneys appear to have been left off the brief, suggesting that there may have been some internal disagreement.  The idea that politics may be playing a role in framing the legal analysis has been asserted. 

But, in the end, how much of a shock was this brief?  While I certainly did not predict the government's position, on reflection, I can't say that I'm all that surprised.  I have been teaching patent law to non-law students for years, and the patentability of DNA is one topic I feature in my classes.  As each semester brings new news about the ease in sequencing DNA and a general understanding how central it is to our individuality, I find that students (and non-law faculty colleagues) have become progressively more skeptical of its ownership through patents.  Even those interested in working in the biotech industry -- traditionally the most dependent on DNA patents -- have voiced concerns in recent years.  While I have long thought of this as relatively settled law (though it has never been directly litigated), and I appreciate the logic in the granting patents for isolated DNA, I can see that the tides may be shifting.  This issue may be far more viable than many in the pharmaceutical and biotechnology industries realized.   

In many ways, one might see the progress of this case as yet another warning against relying on complex legal doctrine that may be at odds with public sentiment.   Similar to the issues that arise when one presumes that everyone understands online privacy rights, when a company is liable for product defects, what constitutes fair use in copyright law, how much BP should pay for the Gulf oil spill, and what all those terms mean in a mortgage document, there is a danger when the development of the law diverges from public expectations.  How we address this -- whether with more education or revision of the law --  depends on the purpose and benefits of the legal doctrine itself.  While legal rules are not subject to constant reassessment by popular vote, one must acknowledge that the legal structure is impacted by current public opinion.  And it's risky for corporate America to invest on the premise that complicated and unintuitive legal rules will necessarily survive and provide protection. 
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/11/government-follows-public-sent.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/11/government-follows-public-sent.html Patent Mon, 01 Nov 2010 10:51:58 -0500 New Article on "Breaking Patents" Michigan Journal of International Law and the temporary article download link is here.  Below is the abstract:

Patent breaking to eliminate market exclusivity has occurred in a surprisingly large number of contexts. There are examples in a variety of technologies, ranging from medicine to military, and the countries that break patents include least-developed nations like Rwanda as well as developed, intellectual-property-centric nations like the United States. It is a useful legal mechanism that can provide an essential relief valve to intellectual property control. Unfortunately, evidence suggests that current international rules regarding patent breaking are ad hoc, rife with exploitation opportunities, and generally incapable of responding when the public good is truly in danger. In part, the sorry state of the law is due to the narrow political and academic focus on a single context, namely access to medicines. While extraordinarily important, this is only part of the picture and has led to an effort to shoehorn a useful tool into a setting where it does not fully fit, while ignoring its optimization in contexts where it could be more important. Three recent stories highlight the incoherence: the current failure of "access to medicines" legislation to deliver on its promise; the political and opportunistic patent breaking of developed and middle-developed countries; and the inability to secure licensed goods in emergency contexts. This paper uses the threads of these lessons to weave a coherent fabric of future compulsory license policy. It looks to the essence of compulsory license policy and proposes a revised analytical framework centered on human rights norms that would constitute an improvement over the current rules.


]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/09/new-article-on-breaking-patent.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/09/new-article-on-breaking-patent.html Fulbright Patent Tue, 14 Sep 2010 22:08:23 -0500 Human Rights Day Panel
The audio of the entire interaction can be found here, divided up by individual questions.

It turned out well, and may provide a basis for additional discussion.
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/04/human-rights-day-panel.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/04/human-rights-day-panel.html Fulbright Patent Mon, 19 Apr 2010 13:48:38 -0500 Unmodified, Purified DNA Not Patentable According to the SDNY Association for Molecular Pathology v. USPTO (popularly known as the ACLU v. Myriad case) issued a decision today declaring Myriad Genetic's patents-in-suit invalid.  The case addresses the much discussed patents covering the BRCA1/2 genes that are used to detect gene mutations associated with breast cancer, and it has stirred much emotion and public debate.  For that reason alone, the decision is likely gain much attention (NYT, WSJ, Patent Docs).  But from a legal perspective, what is dramatic about this decision (a copy of which can be downloaded from the ACLU website) is that U.S. District Court Judge Robert Sweet based his determination on a finding that claims drawn to purified DNA are mere products of nature that are not patentable.  If it were to stand on appeal, the decision would have a significant impact on the biotechnology industry, which has invested much in DNA patents.

Judge Sweet's opinion is quite thorough, extending 152 pages and containing a very detailed discussion of DNA technology.  It addresses cases from the 1800s as well as more recent ones and finds that no court has squarely held that purified molecules that are fundamentally the same as those that exist in nature are patentable.  The judge framed the issue succinctly:

The appropriate 101 inquiry is whether, considering the claimed invention as a whole, it is sufficiently distinct in its fundamental characteristics form natural phenomena to possess the required "distinctive name, character and use."
And later:

[T]he purified product must possess "markedly different characteristics" in order to satisfy the requirements of 101.

In addition to the DNA compound claims, the court found Myriad's method claims related to the BRCA-1/2 genes unpatentable as well.  In this case, Judge Sweet invoked In re Bilski to find that the claimed methods were mental steps that do not meet the criteria for patentable subject matter.

Interestingly, the court dismissed the constitutional aspects of the case on the basis that it was not necessary to tackle them given the invalidity determination.  These were the more creative arguments advanced by the ACLU and PubPat, so it is unfortunate that they were not discussed in detail.

One assumes that the decision will be appealed.  Thus, it is too early to say what effect it will have.  But it is a fascinating statement in the DNA patent debate. 
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/03/unmodified-purified-dna-not-pa.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/03/unmodified-purified-dna-not-pa.html FDA Regulation Patent Mon, 29 Mar 2010 23:19:05 -0500 Smeal Business Casual Post on Pay-for-Delay link.

Speaking of the health care bill, one intellectual property part that did make it in is the new pathway for approving generic biologic drugs, or "biosimilars" (see report from Patent Docs).  That's a pretty significant move, as there is currently no abbreviated mechanism for approving generic biologic treatments similar to the Hatch-Waxman Act for drugs.  Notably, the term for relating the generic biologic compound to the innovator application is "biosimilar," which is different than the "bioequivalence" standard for drugs.
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/03/smeal-business-casual-post-on.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/03/smeal-business-casual-post-on.html FDA Regulation Patent Wed, 24 Mar 2010 14:03:38 -0500 Is the Threat of Apple's Patent Lawsuit Overrated? NYT, WSJ) reported on Apple's patent infringement lawsuit launched against cellphone manufacturer HTC.  Many of my students forwarded copies of the story to me, which is evidence of the wide publicity the case has received (in addition to the high intellect of my students!). HTC is a particularly interesting adversary for Apple, because its phones run Google's Android system.  Thus, many have viewed this case as a strike against Google.  Others note that Apple's 20 patents-in-suit are old and broad enough to cover a wide swath of smart phones, suggesting that the suit may be the first of many Apple files against its various competitors.

I think that some of the media commentary may be an over-reaction, as Apple does not have the freedom to sue its competitors that some believe.  The reason is that computer-related technologies have a very complicated patent environment that generally restrains unilateral patent litigation.  This industry is often dominated by dense, overlapping areas of patent rights (some might refer to pieces of the landscape as "thickets") owned by several companies.  There's a detailed explanation of this phenomenon in an article on biofuels I published in the Florida State University Law Review with my co-author, Leland Glenna. In computer-related industries, companies are often reluctant to sue competitors because they know that they will be hit with an avalanche of counterclaims for infringement of their competitor's patents.  The Apple-Nokia litigation -- wherein Nokia has asserted 10 patents against Apple, and Apple has counterclaimed for infringement of 13 patents against Nokia -- is a perfect example of what happens when someone pulls the trigger.  So rather than sue at every opportunity, Silicon Valley companies generally choose to accumulate an arsenal of patents as a defensive strategy.  It's a little like mutually-assured destruction (MAD) during the cold war.  This, by the way, is why Silicon Valley companies fear "patent trolls" so much: they have nothing to lose by suing.

In the context of Apple and HTC, it has been noted that HTC is more of a contract manufacturer and does not have the patent arsenal that Samsung, Palm, Motorola or Nokia might posses.   So it is a fairly safe lawsuit, and perhaps merely a mechanism for Apple to announce that it has rights in the area and would like to begin negotiations (or encourage competitors to move away from directly challenging the iPhone).  On the other hand, companies with patents in the field might find the threat somewhat limited.
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/03/is-the-threat-of-apples-patent.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/03/is-the-threat-of-apples-patent.html Patent Wed, 03 Mar 2010 09:19:44 -0500 Does Information Always Want to be Free? New Yorker review.  The second is a more recent New York Times review by John Tierney that considers Jaron Lanier's book, "You are Not a Gadget."  The book Gladwell reviews argues against constraints on information (like copyrights) while Tierney is reviewing a book that suggests free information has damaged creativity.  But I think the reviews themselves are more interesting than the books due to their succinct articulation and pointed analysis of some important counterarguments to the free information mindset. 

Gladwell confronts the position that the march to free information is inevitable.  He notes that free is a market price like any other, and suggests that, although open access can work in some cases, it is a failure in others.  He cites YouTube, which despite its popularity and cultural significance has to date failed to make a profit (it actually loses a significant amount of money).  Gladwell also notes that many kinds of information have actually run in the opposite direction of free (the Wall Street Journal's paid premium content, cable television subscriptions, iTunes, etc.).  Some information may want to be free, but other information -- that which benefits from a substantial investment or relies on significant infrastructure -- may be optimally available at a cost.

Tierney's discussion is equally intriguing.  He provides a skeptical assessment of Lanier's argument that culture began to die when the web's "gift culture" began to take over.  Lanier blames software design and network economics, but Tierney is more accepting of the idea that a sharing mentality permeates certain information fields and has undermined the marketplace.  Regardless, he highlights Lanier's belief that creative people have now been relegated to scavenging from the past because future efforts cannot be supported in the free-open-culture environment.

There is much that can be reasonably disputed in both writings.  But they do articulate a rationale for opposing free information ideology that goes beyond preserving outdated business models or simply equating sharing with theft.
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/01/does-information-always-want-t.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2010/01/does-information-always-want-t.html Copyright Wed, 13 Jan 2010 15:13:52 -0500 Can a Court "Take" Your Property Away? see NPR. WAPO)  It involves Florida landowners who are upset because they believe that the state is taking away their property without compensation.  The landowners posses beachfront property which has been extended by state funded sand filling to combat erosion.  This creates new beach at the edge of the ocean, and the State of Florida now claims that this new beach is publicly owned.  Landowners now fear that their previously private beachfront property could be opened to the public as a result (and they no longer technically own beachfront property -- it's now land with a beach view).

Why am I interested in a Florida property law case?  The issue before the Supreme Court is whether an earlier Florida state court decision that the new beach is publicly owned has resulted in an unconstitutional taking of property (eminent domain).  Interestingly, the question of whether a court decision -- as opposed to a legislative or executive act -- can result in a property taking is somewhat unclear, and the issue is very important for all types of property, including intellectual property. 

I wrote about this issue in the context of intellectual property in an article published a few years ago and noted the dichotomy in the treatment of legislative/executive versus judicial "takings."  Essentially, I concluded that judicial takings should have more restraints unless compensation is to be awarded to property owners.  I argued that there should be a greater similarity between the limits on courts and other government entities because the impact is so similar.

My argument in the context of intellectual property was somewhat undercut by a Federal Circuit Court of Appeals decision (US v. Zoltek) that determined that US government infringement of patents could not be pursued as a straight eminent domain case.  While I believe this decision is based on some poorly reasoned and very old Supreme Court precedent, it is the law, and it may mean that my notion of judicial IP "takings" is never addressed.  Some would argue that this is a good thing, as it would otherwise limit the judiciary's ability to make retroactive decisions that rewrite IP rules.  But I continue to wonder if complete judicial freedom in this regard is good policy.  And I suspect I am joined by the owners of patents that may be eliminated by a narrow decision in the pending In re Bilski case.  
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/12/can-a-court-take-your-property.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/12/can-a-court-take-your-property.html Copyright Fulbright Patent Wed, 02 Dec 2009 09:31:53 -0500 Privacy at Work: A New Direction? reported on an interesting group of cases that may signal a shift in how workplace privacy is viewed.  Employee communication (e.g., e-mail, texting) is the context, and the discussion in the article provides some indication that employees may be gaining more privacy rights.

One case discussed in the article involved an employee of a New Jersey home health care company who sent out e-mail messages to her attorney on her own web-based account.  Because the employee accessed the account using a company computer, the company claimed the right to read the messages.  Although a lower court agreed, a New Jersey appellate court overturned the verdict, finding that an employee has an expectation of privacy in his or her own private email account. The decision was supported in part by a lack of clarity in the employer's e-mail policies.  But it also rested on the social negatives of adopting a rule that unilaterally granted broad search powers to employers for any act carried out on a workplace computer.

Many of my former students will note that this ruling seems directly contrary to the famous Smyth v. Pillsbury case, in which a Pennsylvania employee was fired for writing inappropriate remarks on a company e-mail account.  In this case, the court shockingly found that, despite the employer's promise that employee e-mail was private, the employer retained the right to break that promise and access the e-mail at any time.  Because it was a work account, any expectation of privacy was misplaced.  This case had a great impact nationwide and remains one of the most prominent examples used to advise employees that anything done at work should be presumed to be visible to one's employer.

You could reconcile Pillsbury with this new trend -- if it is one -- by noting that the recent cases involve the use of web-based or third-party accounts.  Two other cases cited in the WSJ article (one related to e-mail, one related to text messages) involve outside accounts.  Perhaps there is a more reasonable basis for applying privacy principles when one purposely avoids workplace e-mail accounts to send private messages.  Still, even this distinction would represent a shift from the common belief that employers have an almost unlimited amount of power to peer into the actions of their employees at work and act on their findings (absent discriminatory intent).

How does this impact the employer-employee relationship going forward?  Maybe not that much.  Regardless of any shift in privacy law, I believe that courts will continue to place a great deal of weight on the content of workplace policies.  When an employer defines what aspects of the job will be monitored, it is very hard to argue later that a reasonable expectation of privacy nonetheless existed.  In view of these recent cases, employers are smart to assume that their powers to monitor employees are not limitless, and they should work harder to draft and communicate clear, reasonable policies.
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/12/privacy-at-work-a-new-directio.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/12/privacy-at-work-a-new-directio.html Privacy Tue, 01 Dec 2009 10:39:41 -0500 Accessing Patented Climate Change Technology commitment to sustainability, it seems appropriate to expand on a recent story that I cited in a post yesterday, but did not discuss.  The story, reported in EurActiv, is that China and India are leading a group of 77 developing nations in a push for compulsory licensing on green technology (see also Patent Baristas post).  This means that they are exploring the possibility of "breaking" the patents that are likely to issue on important technology solutions to climate change.  By breaking the patents, such countries are hoping to avoid paying high prices that can be charged by a patentee due to market exclusivity provided by the right.

Obviously, this event is interesting because it involves something other than pharmaceuticals, which are usually the focus of developing country licensing.  In fact, licenses on green technology are an outcome that I have previously suggested might happen, so the report doesn't really surprise me.  It may represent an expansion of the concept of essential technology and the more active use of compulsory licensing.  The EurActiv story goes a bit far in suggesting that prior compulsory licenses have only concerned pharmaceuticals -- in fact, many countries have utilized their rights to break patent monopolies for a variety of reasons, such as accessing military technology in the US (see history in a prior paper).  But this kind of multinational coordination outside of drugs is pretty usual. 

When technology that may improve health or welfare can be accessed for a lower price by limiting patent rights, it is natural for countries to consider this option.  The right to enact such licenses is currently well protected under article 31 of the international agreement known as TRIPS.  Although some countries may face retribution for compulsory licenses in the form of reduced foreign direct investment (FDI), my frequent co-author, Robert Bird, and I have shown that others are relatively immune from this punishment.  They can take advantage of this protection and fully utilize compulsory licensing as a cost-saving measure or negotiation tool.

According to the EurActiv article, the licensing proposal was to be discussed in upcoming climate talks, but has been tabled for now.  Still it is worth considering whether there is a hazard associated with patent breaking of this type.  For example, it's hard to say that compulsory licensing has had any discernible innovation impacts so far, so maybe concerns are exaggerated.  But I do believe that, if the notion of avoiding patent rights becomes an established, widespread strategy to be used in non-emergency situations, there could be innovation effects.  Namely, companies that invest in green technologies may have to consider the fact that the developing world market may be substantially less profitable.  In turn, that may impact the kind or amount of innovation that occurs in this field.  We may see a preference for R&D that primarily benefits industrialized nations where costs can be recouped.  And just as important, we may be witnessing the beginnings of a future trade dispute between developed and developing world on this issue.
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/11/accessing-climate-change-techn.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/11/accessing-climate-change-techn.html Fulbright Patent Wed, 25 Nov 2009 10:39:41 -0500 Another Compulsory License in the News decree on compulsory licenses issued by the President of Ecuador, Rafael Correa, has generated some interest in a few IP-related fora (e.g., Patently-O).  Since this is related to my research area, and I've already incorporated it into a paper I'm writing on the topic, I thought it would be useful to write a short post.

The gist of the story is that, in October 2009, Ecuador stated in broad terms that it intended to issue compulsory licenses on pharmaceutical patents to obtain low-cost generic versions of certain drugs (summary here).  According to a press release from the government, licenses will issue for pharmaceuticals first, and them move on to agrochemicals because "knowledge is a public good that cannot be privatized" (that's a rough, and possibly not entirely accurate, Internet translation).

Ecuador's move is reminiscent of the compulsory licenses issued by Thailand and Brazil a few years ago (detailed in an article I wrote at the time).  Notably, those countries are somewhere in the middle in terms of economic development.  Similarly, Ecuador is considered a developing country by the UN, but not a "Least Developed Country" (LDC).  And it is classified as a "lower middle income" country by the World Bank, as opposed to low income.  Given its middle-development status, one could argue that Ecuador does not fall into the category of countries that were the true focus of a 2003 international agreement to facilitate the export of generic pharmaceuticals by relaxing patent rules (see the special provisions accorded to LDC in the agreement).  That said, Ecuador is clearly still eligible to import generic pharmaceuticals under the 2003 agreement, as well as domestically manufacture under the broader provisions of TRIPS -- its decree is in no way illegal or contrary to international law.

In addition to the proposed breadth of Ecuador's licenses, there are a few interesting points that are worth mentioning. Reportedly, the branded pharmaceutical industry, speaking through its local association, has conceded Ecuador's right to issue the licenses.  This is in contrast to Thailand's and Brazil's experiences, in which some expressed doubt that the licenses were TRIPS-compliant (I happen to believe they were).  In addition, this appears to be an overt negotiation tactic.  Ecuador is willing to discuss the royalties due on the licenses with the respective patent owners.  No such requirement exists in international law.  Ecuadorian government officials have even pointed to past cases of brinkmanship in compulsory licensing that have resulted in voluntarily lower prices by the pharmaceutical industry.

What will be the result of Ecuador's decree?  Will it result in more licenses by similarly-situated countries?  Will pharmaceutical companies respond by trying to recoup losses through higher prices in countries that don't possess the political strength of Ecuador?  Will it expand to other technology areas, like climate change?   It is hard to say for sure.  But it is a question that must be considered in designing an coherent compulsory licensing regime, which is the subject of my current research. 
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/11/another-compulsory-license-in.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/11/another-compulsory-license-in.html Fulbright Patent Tue, 24 Nov 2009 14:36:08 -0500 A Defense of DRM?
Throughout much of his talk, Cory assailed digital rights management (DRM) technology as creating unnecessary barriers to accessing information.  In addition to being generally ineffective against all but the honest, circumventing DRM can lead to serious liability in the U.S. under the Digital Millennium Copyright Act (analogous provisions are, interestingly, still under consideration in Canada).  Cory's examples made a lot of sense, and he was able to communicate a very effective case for the over-extension of copyright power through DRM.  It's easy to conclude that a DRM-free world would the optimum state, and any legal regime that seeks to preserve DRM it is merely a means of holding onto outdated business models.  But this may be taking Doctorow's point too far.   I wondered:  can one make a positive case for DRM that can be reconciled with the recent, negative experiences?

I believe that the key to making a positive case for DRM (as for copyright power in general) is to imagine cases where more information is shared or accessible than in its absence.  But how can a means for locking up information lead to greater access?  When that information would not be shared in a particular format without content protection. For example, if you wanted a particular textbook in electronic format for increased ease in transport and searching, and a publisher was only willing to make it available if it included DRM, wouldn't having the textbook with DRM be better than only having a paper copy?  In that scenario, the use of DRM increases the availability of information.

That said, it's important to note that articulating a case for DRM is not necessarily an argument that current policies and rules, such as the DMCA, are necessary.  While some DRM may arguably be a net positive, a separate legal regime to protect the measures might leave us worse off. 

At any rate, what about the point that DRM often protects industries that are relying on outdated business models?  Even if you agree that DRM can enable more information dissemination from otherwise reluctant industries, perhaps such industries would be better left to disappear.  I think it depends on the industry.   One can make a case that moving music away from large labels may be a positive, given the fact that the investment necessary to create music is now so low given technologies like Apple's Garage Band.  On the other hand, one could argue that there is no substitute for the large investment that global newspaper reporting entails, and there is not likely to be an equivalent alternative that will arise from a dispersed, blog-like environment.  It seems that the benefit of DRM is a question without a single, obvious conclusion.
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/09/a-defense-of-drm.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/09/a-defense-of-drm.html Copyright Thu, 17 Sep 2009 14:18:58 -0500 Compulsory Licensing of Medicines Can be Purely Economic WSJ, FT) involving the U.S. and Brazil highlights the fact that the desire to access patented drug information can be purely economic. 

The dispute involved improper U.S. subsidies to domestic cotton growers that inhibited free trade.  Brazil brought a complaint before the WTO, and the dispute settlement procedure was utilized to determine the outcome.  In its complaint, Brazil argued for countermeasures in the amount of $2.5 Billion.  Significantly, one of the measures it requested was the ability to suspend its intellectual property obligations under TRIPS.  Although specific products are not identified in the WTO filings, reports indicate that Brazil intended to take compensation by suspending the enforcement of patents held by U.S. companies -- essentially, a compulsory license outside of the TRIPS regime:

According to a report in a Brazilian newspaper the government has prepared a "provisional measure" - a presidential decree that takes immediate effect, although it must later be ratified by Congress - to allow Brazilian pharmaceuticals companies to copy medicines protected by US patents.  (FT).

The WTO ultimately denied Brazil's request regarding TRIPS, stating that the amount of compensation due at this time ($295 million) was insufficient to justify such a countermeasure.  But the case stands as an example that all patent compulsory licenses are not necessarily related to human rights goals.  They can be based on a purely economic motive. ]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/09/compulsory-licensing-of-medici.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/09/compulsory-licensing-of-medici.html Fulbright Patent Fri, 04 Sep 2009 11:29:25 -0500 Health Care Markets (a Follow Up) article by David Goldhill in the Atlantic.  It's a discussion of the wildly misaligned incentives in the U.S. health care system.  Essentially, the article asserts that a lack of transparency in costs and reimbursement have allowed costs to skyrocket while providing generally poor care.  In view of my previous post on the huge market for cancer treatments, one should question whether that market size is due to actual need or a dysfunctional funding system.  In other words, the existence of a market may not always indicate great medical need, particularly if the market is artificially inflated.  This means that the massive investment in research may not necessarily provide a great benefit to the public, as I suggested in the post.

On the topic of health care markets, the underlying conclusion of the article is that many health care costs (at the very least, routine costs) should be paid directly by consumers who can exercise choice and encourage competition.  According the the author, this would solve existing incentive misalignment through a traditional market approach.  The market for LASIK surgery, which is generally not reimbursed by insurance, is used as an example, where costs have significantly decreased since the procedure was introduced.

Total consumer control may not be as attractive as it sounds, as basic health care is not like other markets.  The most important difference is that in many cases we do not want people to choose to forgo treatment, and this may happen if they had to completely internalize the costs.  LASIK is clearly an optional procedure, and people who could benefit from it (like me) lead perfectly happy and healthy lives without it (like me). But prenatal care, hypertension treatments, cancer screening and the like can be demonstrated to positively impact the quality of life and should not be promoted as optional.  Many consumers may not be sophisticated enough to make decisions on heath care spending in every case (like me). In truth, we want a system that encourages people to attain some preventative care and treatments that they might not pay for themselves.  A pure market approach in this context may lead to some undesirable outcomes. 
]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/09/health-care-markets-a-follow-u.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/09/health-care-markets-a-follow-u.html Fulbright Patent Thu, 03 Sep 2009 20:36:19 -0500 Pharmaceutical Patent Incentives story in today's New York Times.  The article discusses the efforts of pharmaceutical companies to develop new treatments for cancer.  According to the article, there is a huge market for cancer treatments that provide even a small increase in life expectancy.  As a result (and also due to the declining market in other treatment areas), pharmaceutical companies are engaging in a massive research effort to discover new drugs.  All are hoping to find a blockbuster treatment, which may command $50,000 a year or more from patients in need. The ability to maintain these prices will be provided by patents. 

But the effort is very hard because cancer is such a tricky disease. There is a huge risk involved, and truthfully only a small chance of reward.  One quoted oncologist describes this effort negatively as a bubble -- a massive dedication of cash that will likely produce few winners and result in great losses for the others.  This may be true from the company's perspective.  But from the public's perspective, it's a good thing. In the end, we will benefit from whatever drugs are discovered, and we don't have to entirely fund the effort.  Conversely, if this effort were entirely funded by the public, we would suffer all of the research loses, and likely would be much more conservative in what paths are investigated.

Doesn't such a massive investment result in higher drug prices?  Not if the market is working efficiently.  Price should be dictated by the treatment's benefits.  If it doesn't do much (and that information is understood by physicians, patients and insurers, which is another issue entirely), people will not pay for it. The amount of sunk research costs are irrelevant.  

And that's the point of the patent system.  You encourage private actors to invest and take risks when there is a market interest in the information.  If they are successful, they win and get to take advantage of the right to exclude others from the invention for a limited time.  After that, the public shares in the invention. 

I should add that some would argue that a massive private investment toward the same inventive goal is inefficient from a public perspective as well as private (it's often termed a patent race in the economic literature). But I think it's easier to make that conclusion in hindsight.  In the context of the effort to find new cancer drugs, it's hard to identify a more efficient research path that doesn't risk missing a hard-to-find treatment that ends up being very important.  ]]> http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/09/pharmaceutical-patent-incentiv.html http://www.personal.psu.edu/drc13/blogs/Incentivize!/2009/09/pharmaceutical-patent-incentiv.html Fulbright Patent Wed, 02 Sep 2009 09:33:31 -0500