To Reduce Drug Prices, Issue Fewer Weak Patents

When we think of patents, we think of genius inventors with brilliant new ideas to make our lives better: Alexander Graham Bell’s 1876 patent for the telephone, say, or Thomas Edison’s 1880 patent for the light bulb. Article I, Section 8 of the U.S. Constitution explicitly enumerates as one of Congress’ powers “to promote the Progress of Science and useful Arts, by security for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”

But today’s U.S. patent system does not always live up to its idealistic portrayal. This is especially true when it comes to the trillion-dollar-a-year pharmaceutical industry, and its relationship to the high cost of prescription drugs.

The two big problems with the patent system

There are two unusual things about patent law that we don’t talk about nearly enough.

The first is that the patent system is subjective. Even the most sincere and dedicated patent examiners at the U.S. Patent and Trademark Office are capable of making misjudgments about whether or not a patent application should be approved. In no other sector of the economy is the possession of property so dependent upon the subjective judgment of unelected officials. Because prescription drugs are so expensive, the decision to issue patents for trivial modifications of a major prescription drug can lead to $114 billion in revenue for the manufacturer of that drug, directly at the expense of patients and taxpayers.

The second problem is that the patent system is one size fits all. Every issued patent, irrespective of its importance or innovativeness, gets the same 20-year monopoly rights from USPTO, and from other countries through trade agreements.

It’s the combination of these two problems that impairs the patent system. It might be more tolerable to issue patents of marginal quality if the length of the exclusivity was just a year or two. And the one-size-fits-all aspect of the system would be more workable if there was a much stricter standard for what patents are issued.

In the context of prescription drugs, the strongest and least controversial patents are called composition of matter patents. These describe the specific molecular structure of a drug, and are among the first patents sought by pharmaceutical innovators. But other patents, such as those that make minor tweaks to a manufacturing process, or attempt to patent the use of a drug for a disease closely related to the original one, are relatively weaker.

Improving coordination between the USPTO and the FDA

One issue recently highlighted by Senators Bill Cassidy (R., La.) and Maggie Hassan (D., N.H.) is the lack of coordination between the Patent Office and the Food & Drug Administration. Even though the USPTO isn’t supposed to issue patents for manufacturing processes that have been used for more than a year prior to a patent submission, they are doing so, as demonstrated by the fact that the manufacturing process was disclosed to the FDA prior to the one-year deadline. “In other instances,” the senators write, “statements made by manufacturers to the FDA (e.g., a product is the same as another one already on the market) contradict statements they made to the PTO. This suggests the PTO examiners were unaware of the applicants’ disclosures to the FDA, and puts into question the validity of these patents.”

In July of 2021, President Biden issued an executive order that, among other things, required improved coordination between the FDA and the USPTO “to help ensure that the patent system, while incentivizing innovation, does not also unjustifiably delay generic drug and biosimilar competition.”

Since then, the USPTO and the FDA have touted their improved coordination on some of these topics, which is encouraging.

In a joint blog post published in 2022, USPTO Director Kathi Vidal and FDA Commissioner Robert Califf promised that as a result of their conversations, “the USPTO will protect against the patenting of incremental, obvious changes to existing drugs that do not qualify for patents. This effort can lead to lower drug prices because drug companies will not be able to unjustifiably delay generic competition based on trivial changes to a drug product.”

The FDA bears significant responsibility for creating artificial monopolies

That’s great, and hopefully it produces results. But the USPTO isn’t solely to blame for creating artificial monopolies. The FDA has a long history of aiding and abetting monopoly power in the pharmaceutical industry. I describe numerous examples in a 2017 paper I wrote for the Foundation for Research on Equal Opportunity called The Competition Prescription.

For instance, when the FDA required Celgene to create a “risk evaluation and mitigation strategy” to ensure that its myeloma drug Thalomid wasn’t used in pregnant women (because it can cause birth defects), Celgene patented the FDA-mandated strategy, rendering it impossible for anyone to launch a generic product, because generic manufacturers would have to violate Celgene’s patents to comply with the FDA’s mandate.

Patents are not sacred cows

All too often, people who believe in the free market have a blind spot when it comes to patents. Because patents are often described as “intellectual property,” and the free market philosophy righty prioritizes property rights, free-marketeers have a knee-jerk reaction when anyone questions the sanctity of issued patents.

But as we’ve discussed, patents are government-granted monopolies issued using subjective judgments and arbitrary lengths of time. Not all patents are equally valid, and not all patents should be considered equally sacred. If we truly want to reward innovation, it’s equally important to not reward patent trolls who seek to gain monopoly power over obvious or incremental improvements.

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Published at Forbes.