What purpose patenting?

I am keen that there is greater public understanding of the patent system which I see as being generally beneficial for the commercialisation of innovation in developed economies – with some caveats of course!  No system is ever perfect and patent law is no exception.  Both at the international/European level and nationally, there are more or less constant debates over changes and improvements.

The purpose of the patent system is to drive innovation (through the publication of all patent applications – and the requirement for an enabling disclosure of the claimed invention to be present in an application).  The patent is supposed to be the result of a notional bargain between the state and an inventor where a limited monopoly is granted in exchange for a full disclosure of the invention so that others can explore the invention further.

The existence of a monopoly right in an economic system based on the principles of the free market might seem strange but it is supposed to be a balance between competing interests – the need to reward and protect innovation and the need to foster technical progress.  The principle has a long historical precedent back to the Statute of Monopolies of 1624 in England & Wales and Article 1, Section 8, Clause 8 of the US Constitution (amongst others):

“To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries”

Patents are limited in terms of scope (by the granted claims), in territory (national rights only at present) and in time (20 years from filing date of patent application, with exceptional extensions for certain authorised medical/agrochemical products in some countries of up to 5 years, with the potential for 6 months extension in Europe on top of the 5 year extension also under special circumstances).  The point is that the rights are defined and limited.

Patent rights are also “exclusive rights” in the sense that a patent can only “exclude” others from performing the invention defined in the claims without a licence.  A patent is not a right to do anything.  This is an important point as there is often confusion about having a patent permitting a patent proprietor to do all kinds of things – whereas the exploitation of the patent may itself require a licence from other patent owners.

Venture capital investors often require some form of security for the investments made in a start-up company where the only assets are the people and the ideas.  Although, the company can be years away from any product, the existence of a patent application can often make the difference between securing the investment or not (so potentially some social good also).  This may be more relevant in the area of healthcare where products can take 10 to 15 years to develop and market, compared to the IT/electronics sector where product life-spans are only a few years. 

In the area of high-tech electronic devices, patents may almost be irrelevant and it is more important to be the first entrant in the market (the “first-mover advantage”).  The controversies in the IT field are currently over the existence of patents which cover technical standards and the issue of licensing to parties on fair, reasonable and non-discriminatory terms (FRAND).  The solution in the IT sector to such patents has often been to create so-called “Patent Pools” in which standards relevant patents from different companies are pooled for cross-licensing purposes.

The life sciences sector is also now looking at such ideas of “patent pools”, see for example http://www.medicinespatentpool.org/, however such concepts of patent pools may not work in all situations.

There are now plenty of savings in patent law to avoid patent infringement merely by conducting experiments on the subject matter of an invention – and in reality the costs of litigation and requirements to explore settlement pre-trial mean that patent infringement actions in the UK are only brought where there is a significant commercial issue at stake. 

Most companies and institutions are only too aware of the negative publicity arising from even possibly threatening academic institutions with patent infringement and that it is not worth the potential reputational damage.  So most companies will agree royalty-free licenses with academics of technology for research purposes (but clearly such licenses do not extend to subsequent commercial development).

Patents are not immune from challenge.  There is an application process where the Patent Office will examine the application for conformity with the standards for patentability (mostly harmonised internationally but with some exceptions).  Patent Offices are also exploring ideas of a public “crowd-sourcing” referee process too.  However, even granted patents can be challenged and revoked.  It is also necessary for a patent applicant or patent proprietor to pay renewal fees to keep the patent application pending and granted patent alive.

In the medical field, patents are possibly a slight red-herring in that the ability to place a medicine on the market in a developed economy is also controlled by regulations, so it is necessary for a new medicine to pass the necessary clinical trials standards set for safety/efficacy.  Manufacturers or importers of generic competitor products based on new chemical entities (NCEs) usually will not undertake independent clinical trials (to keep costs down), so there is a brake on their ability to rely on the clinical trial data of the innovator company of up to 10 years in Europe – which can be a more significant barrier in some cases than any patent (so-called “data-exclusivity”).  For tissue/cell based therapies generic competition is not yet a factor and data exclusivity does not apply.  Official reimbursement policies of government health departments and insurance companies may be more relevant in determining which of the new cell/tissue based therapies are actually used in a clinical setting.

Clearly an issue has been recognised in less developed economies about access to medicines – which has resulted in initiatives from the World Intellectual Property Organisation (WIPO) and others: http://www.wipo.int/policy/en/global_health/trilateral_cooperation.html | http://www.accesstomedicineindex.org/ | http://www.gatesfoundation.org/what-we-do.

The other curious thing about the sale of medicines is that consumers are very loyal to strong brands – e.g. “Nurofen” and “Anadin” are still on the market and selling well at a premium when the generic versions of ibuprofen and aspirin are available everywhere.  There are no patents now on the basic ordinary tablet forms of ibuprofen and aspirin – so the ability to charge a premium for a product can sometimes also be affected by other factors such as a strong brand.

Of course, the recent saga of the Myriad patents in the USA has shown up other issues with respect to ethics and patent law – but I think that says more about the US legal system (and healthcare industry which is driven by diagnostic testing of patients).  Myriad are not in the same position in other countries where the patent systems are different to the US.

The final irony in all this is that often our pensions are heavily invested in pharmaceutical company shares because they are seen by investment managers as being good growth stocks given the ability of the companies to make a decent level of return on investment by the companies (in the past at least).  That model is, though, possibly coming unstuck in that large pharma seems to be less able to innovate nowadays.  If patents are taken out of the equation, would there still be such a rush to invest in large pharma shares by our pension funds?  I don’t know.

The ability of the Wellcome Foundation and the Bill & Melinda Gates Foundation to invest in charitable work and projects is driven by the invested wealth of the Foundations (principally from patent royalties in the case of Wellcome; I believe that the Gates Foundation is founded more on the basis of copyright licensing royalties) but hopefully you can see at least the possibility for some social good from patents and intellectual property in general.

Nick BassilNick Bassil is a partner at Kilburn & Strode patent and trade mark attorneys. He specialises in intellectual property in relation to pharmacology and biochemistry, particularly cell and molecular biology. His work ranges from drafting original patent applications and devising filing strategies, to advising on intellectual property aspects of company mergers and acquisitions, including due diligence on intellectual property rights. His European portfolio includes post-grant opposition proceedings at the EPO, contentious proceedings in other foreign jurisdictions, as well as obtaining Supplementary Protection Certificates for pharmaceuticals.