Undermining Innovation in Health Care is Bad for Patients

When the Administration invoked its authority to over-rule the International Trade Commission’s (ITC) order against the importation of certain Apple products, there were discussions about whether that was the right move.  But while those discussions were going on, another very different scheme was brewing.  Some saw an opportunity to twist the story in furtherance of their agenda of undermining patent protection.  To that end, they claim that this decision concerning a particular tool for patent enforcement in the IT sector is the same as denying basic elements of patents in the pharmaceutical and biotech sectors.  It is not and undermining innovation in health care is bad for patients.

An order from the ITC is one of the tools in a patent owner’s toolbox.  The ITC is a U.S. Government agency.  It conducts investigations and if it concludes a product is infringing, it can issue an order that prevents that product from being imported.  However, the President can veto that order, and in August he did just that, through his designee U.S. Trade Representative Michael Froman.

Patents are issued to protect the investment in new inventions.  Innovators can spend years and billions of dollars in research before they come up with a breakthrough that can help solve some of the world’s most challenging problems.  Patent protection gives those innovators a chance to recoup that investment before copycat versions flood the market.

Patents can be very valuable, and sometimes people break the rules and infringe a patent.  In that case, the law provides a variety of tools to patent owners, including an ITC order and a lawsuit in federal court.  So, notwithstanding the President’s decision to over-rule the ITC, a court could still rule that Apple is infringing a patent.  When a product is found by a court to infringe a patent, it will order the infringer to pay the patent owner compensation and, if the court believes it is appropriate, it will issue an injunction that permanently bars the infringer from making or selling the infringing product in the future.

These are some of the primary tools in the toolbox of a patent owner.  In various circumstances, they may choose some but not others.  And, of course, they may not always win and even when they win, they may not always get all the remedies they hoped for.  That is simply part of the risk of any dispute.

In stark contrast to the fair operation of our judicial and administrative government bodies, some activists have sough to compare this to the denial of full patent rights occurring abroad through the issuance of “compulsory licenses” against pharmaceutical and biotech patents.

A compulsory license is a government order allowing others to use the invention without the innovator’s permission, usually in exchange for a below-market payment.  Superficially, both a compulsory license and the denial of an ITC order or of an injunction can result in continued use of the infringing product and a payment to the patent holder.  So, the activists argue, the Administration overruling the ITC is tantamount to a compulsory license.  This comparison is poor, as neither the aim nor the effect of the two actions is the same.

Fundamentally, the tools against infringers at a patent owner’s disposal are meant to take away from the infringer the benefits of their illegal activities.  In contrast, compulsory licenses punish the innovator and allow others to profit from the use of the invention at the patent owner’s expense.  While both may still involve a payment by the user to the owner of the patent, the size of that payment is dramatically different.  In the U.S., damage awards for patent infringement can be up to three times the actual harm, adding an element of deterrence against future infringements.  Under foreign compulsory licenses, payments are infamous for being significantly below the market value of the use.

In some cases, foreign governments have taken away the patent rights entirely, resulting in no payment to the inventor at all.  Many of these patents involve medicines, which means that our health innovators lose opportunities to recoup their investments in research, costing them money and jobs here, and potentially driving up health care costs in this country to offset the lost opportunities abroad.

Even if one disregards the categorical distinctions between over-ruling the ITC order and foreign compulsory licenses, there are differences in the specifics as well.  For example, the Administration’s decision rested heavily on the fact that the patent being violated was part of an industry standard.  A patent that is critical to an industry standard can convey market power (and possibly monopoly power) on that patent holder.  The Administration focused on and justified its decision based on avoiding abuse of that market power.

Patents on medicine are completely different.  There is rigorous competition, new medicines can be invented to treat the same malady, and there is no need for the types of industry standards that are more common in electronics.  But it is those health care patents that foreign governments are undermining.

Many of our officials in Washington are already starting to talk tough about foreign erosion of patent protection for American innovators.  They should not be distracted by specious claims and comparisons that simply do not hold up.  When considered in more depth, it is clear that foreign governments stripping American innovators of their rights has nothing in common with the impartial administration of the law in the U.S.  This should not be acceptable to us, especially when it comes to the breakthroughs that hold so much promise for solving global problems and improving human health.