How the Medical Industry Profits From a Broken Patent System - The American Spectator | USA News and Politics
How the Medical Industry Profits From a Broken Patent System

As negotiations over patent reform continue to crawl along, sometimes at a pace that would make a snail jealous, one of the big sticking points across both sides is the issue of how to handle pharmaceutical patents. To hear both sides tell it, the issue varies wildly in terms of importance, with the industry claiming the future of medicine hinges on how it’s handled, and their opponents dismissing this as simple fear-mongering by rent-gobbling crooks.

To be fair, there is at least a grain of truth to both sides. It’s certainly true that the medical industry has to invest a lot of time and money in research and development in order to get a drug that passes muster with the FDA — time and money that a different class of patent holder doesn’t have to worry about. Conservatives are right to sympathize with businesses having their profits held down by an inefficient and ponderous government bureaucracy with its fat thumb on the scale.

Moreover, it’s also true that counterfeit drugs being manufactured in foreign countries can be a big problem, not just for the pharmaceutical industry, but for the desperate people who buy them, often not realizing that little to no quality control at all is involved. Competition, as any conservative will tell you, is one thing, but thieves aren’t competitors.

However, as is often the case with the patent reform debate, there’s a sore sticking point with these entirely accurate and high-minded general principles: namely, that they are absolutely irrelevant to what is actually being argued about.

Let’s talk about what it is in the patent reform debate that pharmaceutical companies find so concerning. The actual issue is an arcane little bit of patent legal procedure known as an inter partes review, or IPR. To put it simply, an IPR allows someone who’s been threatened with a patent lawsuit (or outright sued) to challenge the validity of the patent in question after it has already been issued, with the Patent Trial and Appeal Board (PTAB) judging the challenge instead of a regular court.

In other words, the issue of large amounts of money being spent on research and development for new drug patents is completely irrelevant because any drug developed with that much expense would obviously survive an IPR challenge. The failure of hedge fund director Kyle Bass to influence pharmaceutical company stock prices with frivolous IPR challenges speaks volumes on this point. And Bass’s case is no outlier: no drug company patent has ever been challenged, let alone invalidated, during its initial 20 year period.

The counterfeit drugs argument is even more irrelevant. Obviously, the question of foreign intellectual property theft doesn’t enter into this equation, since foreign patent thieves don’t tend to worry about the jurisdiction of any court, let alone the PTAB. This is a domestic issue.

It should be noted at this point, if it wasn’t clear already, that IPRs are not a new procedure. They’ve been part of patent litigation since 2012. What’s at issue now is that pharmaceutical companies want their patents to be exempt from these challenges altogether, usually citing the research and development point to support its case. However, since that point is largely irrelevant, let’s deal with what the pharmaceutical industry leaves out of its allegedly selfless pitch: namely, a controversial process often engaged in by those companies known as “evergreening.”

You see, while a patent technically expires after 20 years, it’s quite possible to get it renewed if you claim it’s been changed in some way. Since pharmaceutical companies get a legal monopoly on certain drugs the longer the patents are valid, you might imagine that they are masters of making this claim, even going so far as to test drugs on children in order to squeeze out a few more months of profits. This process of keeping patents alive as long as possible is what “evergreening” is, because it attempts to keep the patents evergreen.

This is why I made sure to specify that no pharmaceutical patent has ever been challenged during its initial 20 year run, i.e. when the research and development costs to actually develop new drugs, rather than modify them in some comparatively minor way, are highest. Still, even after the initial 20 years, IPR challenges are rare, and usually fail.

But not always. Sometimes the company asserting its patent rights is just making things up to keep its monopoly, as was the case with a successful IPR challenge against the company Novartis. These rare cases of patents being invalidated save consumers billions of dollars, but they also cost the pharmaceutical companies, even though in such cases, they were never entitled to those profits to begin with. So what’s a company wanting to keep its monopoly to do? Simple. Get Congress to make sure those monopolies face no scrutiny from actual experts in the field.

Put this way, you can see how disingenuous the pharmaceutical industry’s high minded claims are. And indeed, while those claims are sympathetic in the abstract, one can easily make the case that this is the last industry to be able to make them with a straight face. For now, however, let us simply admit a simple fact: to exempt pharmaceutical patents from IPRs would not only be blatant rent-mongering. It would be a poison pill for consumers and taxpayers alike.

And it’s one proposed “reform” to the patent system that conservatives are absolutely right to object to.

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