The tragedy of the thicket of proprietary rights

http://www.researchoninnovation.org/WordPress/?p=96
You’ve heard of the tragedy of the commons and if not you can look it up here. But as the public commons burgeons on the internet and in the headlong rush of at least a substantial portion of the corporate sector towards open innovation (or more open innovation) there’s another phenomenon which goes by the inelegant title of the tragedy of the anti-commons.

Indeed, this epithet is sufficiently inelegant that I’ve proposed my own version as the heading to this post. It’s not too elegant itself, but it is at least a bit more descriptive. The issue arises when there are complex and often unpredictable relations between things in which people have clear property rights. In real property we have managed these conflicts quite well. Thus land can be resumed for the common good, and various kinds of restrictions on the owner can be imposed based on various considerations such as past usage or current utility. Thus land is subject to leases that have previously been agreed, to easements, to adverse possession, to mining rights of various kinds and to native title. All of these rights can simultaneously cohere in a single piece of land.

Consider how much more complex it might be to have efficient arrangements where property rights have been granted in ideas or in their expression where there are all sorts of complexities and unexpected connections in a long and unpredictable supply chain from basic science through to a commercialised product travelling via basic reagents, genes, molecules, analytical, measurement and manipulative scientific tools all of which can be patented.

In the 1980s the list of a drugs properties eligible for patenting was relatively limited. They included:

  • Primary uses
  • Processes and intermediates
  • Bulk forms
  • Simple formulations
  • Composition of matter

During the 1990s the catalogue grew to 18, nearly four times the amount of a decade earlier, to include patents on such additional aspects as:

  • Expansive numbers of uses
  • Methods of treatment
  • Mechanism of action
  • Packaging
  • Delivery profiles
  • Dosing regimen
  • Dosing range
  • Dosing route
  • Combinations
  • Screening Methods
  • Chemistry Methods
  • Biological Target
  • Field of use

A ‘patent thicket’ has developed in software for instance. Patents in software are relatively easy to get, and how easy they are to infringe – and indeed whether they’re valid at all – is often quite unclear. As a result as the large companies have acquired huge patent portfolios – often driven by defensive motives. They might be wondering ‘what if my competition beats me to this patent and tries to stop me doing what I was planning to do?’ Even more defensively, as they survey the scene and pay more and more to lawyers to try to figure out what’s patented and what’s not, they may just want patents to retaliate with devastating and paralysing force against any competitor who threatens to paralyse them. Problem is this doesn’t cover them from the actions of lone and well funded patent holders with nothing to lose from trying to enforce them.

Meanwhile there’s good evidence that patents are driving down the rate of innovation in software. And some open source software developers just say that they’re keeping on doing what they’re doing hoping for the best, as they can’t possibly scan the horizon for the patents they might conceivably be violating because if they did they’d never have time to do anything else.

What I hadn’t realised was the extent of the patent thicket developing around those for whom patenting is their economic lifeblood. The diagram above at least shows them appearing to be winners from patents. The diagram below the fold at the end of this post shows how much negative value is added by patents in sectors outside chemicals and pharmaceuticals. But even in the case of chemicals and pharmaceuticals, demonstrating substantial ‘value added’ by private firms from patents, does not demonstrate that this value added is greater than it would be in the counterfactual case where IP was more limited.

Anyway, boning up for a panel I’m doing this week on evergreening in a big conference of generic drug manufacturers (they don’t pay as well as the patent drug manufacturers, but they’ve got a better case in public policy!) I came across the testimony of one Eric Larson, Senior Director, of Pfizer Global Research and Development.

It’s pretty eye opening about the mounting costs of the patent thicket in pharmaceuticals and for the big pharmaceutical manufacturers. The text can be downloaded here (pdf) and is on pages 119-127. (Larson is also the source for the lists above – ppt). Because it’s a transcript there is some jargon and some possibly incorrect transcription, but the content is pretty revealing. Some extracts below the fold.

[T]he odds are not great. Roughly 100 targets start at the biochemical level at the beginning of the process will yield one product at the end of the day. And for a variety of reasons, mostly due to the fact that we’re testing a hypothesis. We’re testing the questions of whether an intervention against a biochemical target will moderate a disease state, and will be tolerated. And we are answering that question as we go.

As a result though, that means if we are in a situation, as we are where we have to assess intellectual property issues around those targets, that dozen or 20 patents that were mentioned are multiplied by hundreds on an ongoing basis by our research groups. . . . Everything we do is directed towards commercial products, so we are concerned about making sure that we don’t infringe on valid patents, and we pay a lot of attention to that.

That raises enormous costs, and I see it in terms of managing the bill back from our legal division for search and opinion work around reagents and tools. A lot of it is outsourced. Firms here probably have done work for us. But also it is not just the legal costs.

It’s also the informatics costs, and it’s the technical resources needed to interpret the patents that are found. [And I suspect uncertainty is worth more than all this put together – NG] And I can tell you that it’s grown exponentially in the past few years. And as the curve shows I think at the end of the paper, with respect to the rates of patenting in recent history, it’s going to increase. . . .

We do have situations where we have been refused licenses, because we refused to fund a very large research program at the facility that generated the patent. We also have issues around inventing around. That can be done. It does slow down programs. We have had programs slow down, where we have been unable to achieve reasonable terms for a license, and we had to find other ways to carrying out assay methodologies. It has slowed programs, there is no doubt about that. . . .

We have been able to deal mostly with folks and reach reasonable terms, again, avoiding the reach through issue. We have, just as a factoid, we carry out some 700 discrete steps from discovery of a clinical candidate that is actually a compound that will go into a clinical study, some 750 discrete steps to get it to an NDA filing. And a lot of those are technical steps, and if we did have to pay royalties on each of those steps, that would mound dramatically.

The steps preceding that in the discovery phase and the research phase are equally complex and numerous. So something has to be done to sort of get that symmetry straightened out. There is a perception on the part of a number of patent holders that their value for their reagent is well beyond anything else that we could possibly add in terms of value to the product as it is developed. And I think that’s really kind of a question of the validity of the market and the reality of the market in terms of what fair value is ascribed to some of these.

I have a serious concern with the comment[s] that were made in the paper around the target issue. Targets are targets. They are discrete molecular entities. There isn’t a work around. There is no encouragement to get a better gene product to discover a drug against. If somebody patents the alpha-1 B receptor, that is the receptor that is patented. We can’t find another that serves the same function. So if we are precluded from reaching reasonable terms of license that tool, and we don’t operate a discovery program against it, I think, and there is pretty good data that can be generated to make the case, that the likelihood of products being developed that will enter the market and be useful for patients will diminish.

The simple fact is looking at our own data, if there is a biomolecular approach, a molecular mechanism that somebody successfully develops a product out of, our odds are only about 30 percent as a company, of getting a product out. . . .

Resistance develops sometimes to the mechanism, but often to the compound itself through metabolism, through extrusion, through a number of the means of the cells developing ways to combat the compound. It you stopped with the first agent, you said there is only one beta lactan antibiotic that acts as the transferase allowed, you wouldn’t have the cadre of antibiotics we have today.

So the list goes on — serotonin reuptake inhibitors, the same thing. Depression is a multifaceted disease. It comes with anxiety. It comes with sleep disorders. The SSRIs that are on the market today treat those comorbidities differently. And psychiatrists, primary care physicians will prescribe different SSRIs. Although their primary mode of action is the same, the compounds have different effects.

So I just want to make it very clear that the argument that exclusive access to a target, as long as somebody has got the capacity to do drug discovery programs, means that you are going to reduce the likelihood of good therapeutics found. So that’s where I’ll leave it.

And this is in pharmaceuticals which the diagram above suggests is one of the more prospective areas for the privately cost beneficial application of IP even if the issues we’ve explored above might have things coming out as a net negative from a social point of view. Now have a look at the relative private costs and benefits of patents in other industries. Doesn’t look like such a great deal does it?

Other industries

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John Quiggin
John Quiggin
13 years ago

Your second curve is stunning, but the link you’ve provided only goes to a typed transcript. Can you provide a source?

As you say, the second graph gives a pretty strong case for negative social value of the patent system (outside pharma and chemicals). There are some benefits that aren’t included (firms’ own sales of patented items) but there are also many costs omitted (inventing around and so on).

Sinclair Davidson
Sinclair Davidson
13 years ago

Patent thickets are very interesting and open up a huge area of debate.

For some Australian evidence see Nicol, D. and Nielsen, J. (2003), Patents and Medical Biotechnology: An Empirical Analysis of Issues Facing the Australian Industry, Centre for Law and Genetics Occasional Paper No. 6 (pdf). There may be more recent stuff, but I haven’t followed the issue in the last couple of years. Their conclusion

To date, it appears that the Australian industry has not been exposed to the same level of aggressive enforcement of key research tool patents as in the United States. However, there is no guarantee that this situation will continue.

Sinclair Davidson
Sinclair Davidson
13 years ago

I agree there is a problem – although not as big here (yet) as the US. This ties in with your discussion of public goods last week (or so) and especially Harry’s comment about when you can price and when you want to price. The quadrant often labeled ‘club goods’ can also be labeled ‘spite’ goods. That is the space where patent thickets form.

Jonathan Boymal and I discussed this (tangentially) in an Agenda article on the USFTA (Volume 11, Number 3, 2004, pages 235-246).

Nabakov
Nabakov
13 years ago

There’s been a few baby steps taken here in exploring a path through the patents thicket for mutual benefit.

Duncan Bucknell
13 years ago

Nicholas, thanks for your patience, things have been hectic.

OK – what I mentioned at the conference in response to your remarks was that after the 2005 US Supreme Court Case in Merck v Integra, the types of activity that Larson is describing will not be patent infringement – at least in the US. Now that I have read the excerpts you reproduced, I can see that he is also thinking about potential infringement by the products that he produces – and of course, he has to. However, the very point of Merck v Integra was that you can go ahead and work a patent for experimental reasons or reasons designed to get a new drug registered – but to actually get it to market, you will have to make sure that the end product doesn’t infringe any patents.

So to take Larson’s comments about a patent for a receptor don’t apply any more. (The transcript you’re referring to is from 2001).

Cheers

Duncan