Free Drugs: Bernie Sanders and the end of drug patent exclusivity

By Gene Quinn
February 11, 2016

Bernie Sanders

Senator Bernie Sanders (D-VT)

On September 19, 2007, Senator Bernie Sanders (D-VT)* submitted a bill in the Senate that would prohibit any person or entity from owning the right to exclusively manufacture, distribute, sell, or use a drug, a biological product, or a drug or biological product manufacturing process. The Sanders bill, known as the Medical Innovation Prize Act of 2007, did not go anywhere. Nevertheless, it is still informative on his thinking relative to patent rights for pharmaceutical and biotechnology companies.

Sanders emphatically states on his campaign website: “Access to health care is a human right, and that includes access to safe and affordable prescription drugs. It is time to enact prescription drug policies that work for everyone, not just the CEOs of the pharmaceutical industry.” He then goes on to state: “Americans pay, by far, the highest prices for prescription drugs in the entire world.” The solution he offers on his campaign website includes negotiating a better deal on behalf of Medicare, as well as allowing individuals, pharmacists and wholesalers to import prescription drugs from licensed Canadian Pharmacies.

While Sanders’ prescription drug plan on his website does not mention the word “patent,” allowing the importation of patented drugs, which are the expensive drugs that people cannot afford, would require significant changes to the U.S. patent laws. Clues as to how a Sanders Administration may seek to accomplish his prescription drug plan can likely be gleaned from the Medical Innovation Prize Act of 2007.

The Medical Innovation Prize Act of 2007 would have effectively done away with patent rights for pharmaceutical drugs approved by the Food and Drug Administration (FDA). The bill would have allowed anyone in compliance with FDA requirements “to manufacture, distribute, or sell an approved medicine.” The bill says it would have continued to spur innovation by establishing a fund for medical innovation prizes. It would have required the Board of Trustees for the newly created Fund to award prize payments of unspecified amounts for medical innovations relating to a drug, biological product, or manufacturing process. In order to be an eligible award recipient one would have to be the first person to receive market clearance or be the holder of an issued patent.

The Medical Innovation Prize Act would have directed the Trustees to consider: (1) the number of patients who benefited from the drug, including non-U.S. patients; (2) the incremental therapeutic benefit of the drug to treat the same disease or condition, except that the Board shall provide for cases where drugs, biological products, or manufacturing processes are developed at roughly the same time so that the comparison is to products that were not recently developed; (3) the degree to which the drug addresses priority health care needs, such as global infectious diseases and neglected diseases that primarily afflict the poor in developing countries; and (4) the improved efficiency of manufacturing processes for drugs or biological processes.

In the findings section the Medical Innovation Prize Act explains that the total cost for pharmaceutical drugs in the United States was more than $274,000,000,000 in 2006, which was more than 2.2 percent of Gross Domestic Product. The bill explains that if funding for the medical prize fund were capped at 0.6 percent of Gross Domestic Product, the United States would have provided an incentive for innovation that would be more than $80,000,000,000 in 2007. That would have represented $194,000,000,000 less to the pharmaceutical industry under the Sanders plan.

Sanders plan, which effectively amounts to price controls under the guise of a cash award, proposed to cut payments to pharmaceutical industry by 71%. Nevertheless, the bill would have included a Congressional finding that “substitution of prize fund awards to companies for successful product research and development in place of marketing exclusivity for new medicines will lead to more competition, greater utilization of generic products, lower prices, and savings to Federal, State and local governments, private employers and individual consumers…”Further, the Trustees can only award prize payments for a maximum of ten years.

Certainly prizes would have been drastically cut; there is no doubt about that. But the claim that competition would be fostered is specious at best and intentionally misleading at worst. With such a dramatic cut in payments to pharmaceutical companies there would be virtually no incentive to engage in the highly speculative research, development and regulatory process required to take new drugs to market. With the Sanders Medical Innovation Prize Act competition would be increased immediately for existing patented drugs that would have their property rights taken by the federal government, but competition would cease for new drugs. Simply put, we would not get any new drugs, period.

The Medical Innovation Prize Act does not explain what level of prize an innovator could expect to receive, so any attempt to create a new drug would be purely altruistic and not motivated by any financial gain. Companies simply could not afford to engage in the byzantine Food & Drug Administration (FDA) regulatory process that tests efficacy and safety because they would have absolutely no way to recoup the vast sums invested. Sanders plan would guarantee an end to drug development and would be a huge step backward in the race to cure and treat a plethora of diseases, including cancer. You could say goodbye to President Obama’s cancer moonshot initiative if Sanders’ plan were to be enacted.

Under the Sanders plan the best one could hope for is that research and development companies would continue to work in laboratories to achieve breakthroughs. They could file for and obtain a patent, which they couldn’t enforce because generics would be allowed to enter the market immediately. The patent would, however, entitle the R&D company to apply for prize money. Of course no company would ever invest in the FDA processes, or even the preclinical R&D necessary between the breakthrough and Phase 1 clinical trials.  See Phases of clinical research. But maybe there would be enough incentive to continue to create a backlog of useless and unused scientific knowledge that will go untapped until such time as some catastrophic event happens and Congress would come to their senses.

Nothing in life is free. The thought that price controls can be forced on an industry without consequence is not a form of innocent, wide-eyed optimism. It is nothing short of the type of dangerous indifference to history that allows generation after generation to make the same mistakes.

As Sanders continues to remain a viable candidate and his policy positions continue to become more detailed it will be interesting to see whether the pharmaceutical and biotechnology industries eschew their own self interest and back Sanders or whether they dramatically and enthusiastically embrace Hillary Clinton, or perhaps one of the remaining Republican candidates.

__________

* Up to now IPWatchdog.com has always referred to Senator Sanders as an Independent. Given that he has elected to seek the Democrat party nomination for President calling him an Independent no longer seems an appropriate designation. Moving forward he will be referred to as a Democrat.

The Author

Gene Quinn

Gene Quinn is a patent attorney and the founder and Editor of IPWatchdog.com. He is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene has worked with independent inventors and start-up businesses in a variety of different technology fields, but specializes in software, systems and electronics. is admitted to practice law in New Hampshire, is a Registered Patent Attorney licensed to practice before the United States Patent Office and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 41 Comments comments. Join the discussion.

  1. Anon February 11, 2016 4:49 pm

    “Americans pay, by far, the highest prices for prescription drugs in the entire world.”

    That has less to do with patents and more to do with geographical pricing models.

    You can end the the one (geo-pricing) without ending the other (patents).

  2. Gene Quinn February 11, 2016 5:34 pm

    Anon-

    Would love to hear you elaborate on this issue. Not sure how you can say that high drug prices doesn’t have to do with exclusive rights.

    -Gene

  3. Anon February 11, 2016 7:23 pm

    Gene,

    Country to country arbitrage has more to do with the higher prices in the US than the exclusivity factor (I am not saying that it is not a factor – just a lessor one).

    The inability of other markets to support a given cost is made up by the US. Eliminate that arbitrage and you eliminate the US de facto carrying the undue burden (read that as $ profit).

    There is a downside here, and not an easy ethical one (from a global perspective). This means that countries that cannot afford to pay some type of universal price will NOT be able to obtain the drugs. However, as it is, the “choice” of charity to the less fortunate is not a voluntary one for the US public.

    Yes, the exclusive factor does have a role in not allowing others to compete, but the “villain” here is the plainly artificial differences caused by country to country arbitrage and the NET profit goals that can only be met by higher US prices carrying the load of lower prices in other markets.

    Disallow such pricing (as in demand a world low price here in the states), and the US citizen will not be forced to carry profit from those who cannot afford to do this carrying in those other markets.

  4. step back February 12, 2016 2:14 am

    Gene,

    Before you start whittling away at Bernie, you should mention that 9 member star chamber already enthroned in Washington DC and their little ole’ inconsequential decisions known as Myriad and Prometheus. It turns out that everything is natural phenomenon and abstract ideas followed by incantation of ‘apply it’. So nothing is patentable to begin with.

  5. American Cowboy February 12, 2016 10:13 am

    “Americans pay, by far, the highest prices for prescription drugs in the entire world.” That does seem to be true, but let’s look at the reasons:

    Other countries impose price controls or other non-market mechanisms to limit how much the drug companies can charge in their countries. Those countries also routinely deny patents for drugs, or for their use, setting up a system of “generic free for all” like Bernie espouses.

    The result is that virtually all pharma R&D is done in the United States, where strong drug patents are permitted and the companies can recoup the costs of the R&D. If we adopt Bernie’s plan we won’t have R&D in the US, either. The world will be denied new drug development. Relying on the good graces of a Medical Innovation Prize Czar to pay out enough to encourage R&D is a prescription of no new drugs. Socialists are fine with that; in their minds the technological status quo is as good as things can get, so the important thing to them is to make sure everybody gets equal access to those benefits. The notion that by doing so they are killing off any new technological progress just does not seem to occur to them.

    The Soviets handed out Inventors Certificates. How much invention did that generate?

  6. A Rational Person February 12, 2016 10:27 am

    Anon@3

    Further to your point, consider the following situation

    Say Canada’s negotiations with the drug companies allows their average worker to spend $500 per year less on patented drugs than the average worker in the US. Ignoring tax implications for simplicity, a company can pay the Canadian worker $500 less than an American worker for the same job (ignoring taxes for the sake of simplicity of illustration), and the Canadian worker would still be just as well off as the American worker. This means that labor will be relatively cheaper in Canada than in the US, and may be a key factor in whether a company chooses to locate a factory in Canada or the US.

  7. A Rational Person February 12, 2016 10:42 am

    American Cowboy@5

    “The result is that virtually all pharma R&D is done in the United States, where strong drug patents are permitted and the companies can recoup the costs of the R&D.”

    For example, the two highest R&D spenders among pharmaceutical companies are the Swiss companies Roche and Novartis.

    http://fortune.com/2014/11/17/top-10-research-development/

    I seriously doubt these companies do all or even most of their R&D spending in the US.

    And, although as this article points out, there are some possible issues with Roche and Novartis due to the Swiss government’s action with respect to drug prices, the Swiss pay much less than Americans pay for prescription drugs:

    http://www.fool.com/investing/general/2014/09/27/americans-should-be-envious-of-switzerlands-prescr.aspx

  8. Anon February 12, 2016 10:44 am

    The presence of country to country arbitrage simply cannot be “conveniently” ignored.

    American Cowboy at 5 explores a possible scenario, and without taking exception to what he posits, I would add that the results can vary based on the mechanisms of control used.

    Keep in mind that part of the problem here is the direct nature of those (juristic) entities that owe NO true allegiance to any one sovereign.

    When you have such an entity whose own “best” self interests dictate that a non-alignment of the purpose of patent law (at its heart, to advance an individual sovereign’s standing) occurs with the purpose of the multi- national trans-national entity (maximum profits and lowest cost factors), the goals of innovation will always take a back seat to the goals of profits (and do so alarmingly at the short term picture).

    I often remained sadly surprised at the lack of ability of people to recognize that “Big Corp” will only play the patent game on a selective basis, and will remain quite content to run that self same patent game into the ground, since such large and established entities have a natural self-interest to BOTH compete on non-innovation factors as well as to try to obliterate any type of disruptive innovation.

    This is just not rocket science.

  9. A Rational Person February 12, 2016 10:58 am

    Anon@8

    Further to you post and my post about Roche and Novartis. Where a drug is patented may have little to do with where the R&D is done or where the drug is manufactured. For example, I’m sure that Novartis is happy to do most of its R&D in Switzerland where it can find qualified scientists who may even be available at relatively bargain prices compared to their US counterparts due to the cheaper healthcare costs for workers in Switzerland compared to the US. The fact that Novartis may patent drugs in the US has little influence on this decision.

    Similarly, Novartis may choose to manufacture its patented in a country other than the US or Switzerland, such as Turkey, if it is cheaper to manufacture those drugs in Turkey.

    I should also mention that nothing I have posted in this thread means that I am a fan of Sanders’ healthcare “plan”.

  10. T2 February 12, 2016 1:15 pm

    That Medicare cannot negotiate drug prices is downright un-American and provides a basis for artificial (non-market) prices across the whole payer system.

    Beyond just drugs, we pay more for all kinds of healthcare costs, from routine care, to physicians, to hospital stays, etc. Meanwhile, Uncle Sam’s living standard/quality of life has fallen to #8.

    Sanders’ plan is comically naïve and the healthcare problems are systemic, requiring a host of legislative changes. Congress has been asleep at the wheel. As a skeptic, I see this as because anything that would actually help the system could be interpreted as a win for ObamaCare. No wonder everyone is [still] fed up.

  11. American Cowboy February 12, 2016 1:55 pm

    ARP at 7 may have a point.

    The key is that unless strong patents are available to justify the company’s R&D expenses, those expenses are not incurred, whether it is in the USA, Switzerland or elsewhere. The fact that only the US really permits strong pharma patents means that all of those R&D costs must be recouped in the USA, and the rest of the world becomes a free-rider on American consumers, who pay full freight. If the rest of the world provided strong patent protection for pharma, then the cost could be spread over a wider population of customers, so the per-customer cost in the US can come down.

  12. Anon February 12, 2016 2:50 pm

    AC at 11 (and ARP at 7) – bingo.

  13. Anon2 February 12, 2016 3:31 pm

    Needless to say, such a collectivist, Statist, anti-capitalist, anti-individualist, “anti-rights” type of scheme is not just “bad” because it wont “work”.

    It is patently immoral… and another example of how far America has fallen from its pinnacle.

  14. Alex in Chicago February 12, 2016 3:53 pm

    Yes, America subsidizes the entire world’s pharmaceuticals. Without a trade agreement where we get them to agree to stop bullying those companies, this is the price we have to pay if we want new drugs to be developed at all. Even those “Swiss” companies cited by A Rational Person only do their R&D because the American market exists. It doesn’t matter where R&D is done, it matters why. And the answer is, overwhelmingly, “the American Market”.

  15. A Rational Person February 12, 2016 3:55 pm

    AC@11

    To echo Anon@12: Bingo.

    Also, the many problems with Sanders’ fantasy world healthcare plan go beyond patented drug issues. However, the ham-handed way he deals with the patented drug issues are emblematic of his apparent willful ignorance of how the real world of healthcare or capitalism works and what is realistically achievable with respect to improving the American healthcare system.

  16. Night Writer February 13, 2016 8:45 am

    I just watched Shark Tank again. Mark Cuban invests in companies that rely on patents like the app controlled light company. What Mark Cuban said that was most interesting is that he thinks it should be possible to assess the patent risk or license fees prior to investing in a product. This is a reasonable statement.

  17. Night Writer February 13, 2016 8:54 am

    What is going on — I think–is this is like a giant fire sale. The government is corrupt. The corporations are all corrupt. And everyone has the sense that the US won’t be here in 20 years. Everyone is trying to get their $50-$100 million (minimum) in anyway they can and say anything they need to say to get it. There is no thinking beyond the final sale of America. That is what it feels like to me.

  18. step back February 13, 2016 9:50 am

    Night Writer,

    You should not be exposing your doomstead persona at a real “reality” based web site such as this one.

    Remember, cognitive dissonance is a bitch.
    Stop worrying.
    Be happy … like all the rest of the lemmings grazing by cliff’s edge.

  19. Snyder February 13, 2016 10:17 am

    Nihilistic ideation is the stock in trade of one of our two major political parties. Elites turning the purposes of the institutions that they control toward their own ends is the symptom; seen everywhere.

    A little self-discipline at all levels would help, but that’s been washed out of the culture because we only live once, better get mine Jack!

  20. Anon February 13, 2016 12:12 pm

    Alex in Chicago:

    I could not disagree more with your view of “this is the price we have to pay if we want new drugs to be developed at all.

    To merely accept the status quo and throw up your hands is the one thing that I will refuse to accept. It does not have to be that way – and there are multiple paths with multiple outcomes that can change the final destination.

    The problem is NOT that we “have to” accept shouldering an undue proportion of the burden in order to have any innovation at all. The problem is that we buy that line of B$ and continue to allow multi-national corporations to engage in country to country arbitrage that maintains those companies profit levels at the expense of my forced altruism.

    The problem is the (if I may be a tad over the top) soul-less merely juristic person of the corporation having a divorced set of guiding principles than those principles of a sovereign and the set up of the sovereign and that sovereign’s patent system. The (perfectly understandable) goal of such an entity that has NO true allegiance to any one sovereign transcends ALL sovereigns, and thus, ALL sovereigns must take extra care in how they deal with such entities.

    In the pharma realm, what is happening is that in order to be in certain foreign markets, and still meet a desired level of profit, other markets – and in particular, the US market – must have a higher level of profit.

    This type of country to country arbitrage can be controlled by different legislation that will NOT lesson the strength of a patent within a sovereign.

    As I mention though, this may have the very real impact that pharma companies abandon entire countries wherein a level (and consistent) profit margin is not obtainable. Such would not change one iota the profit margin of big pharma, but would change BOTH the (over charged) prices in the US, and where the product would be available.

    There is a very real human (thus ethical) dimension to a Big Pharma pulling out of markets that cannot afford a true and leveled price of those drugs. But right now, it is NOT Big Pharma that is being generous with their profits – it is each and every individual in the United States that is paying the premium through artificially (and unleveled) high prices here.

  21. Anon February 13, 2016 12:17 pm

    step back @ 18,

    That grazing at the precipice (cliff’s edge) of Lemming Hill, that would not be grazing on fields of rye, would it?

    I know of certain self-anointed “catchers” that have that self-same cognitive dissonance problem… 😉

  22. American Cowboy February 13, 2016 2:11 pm

    Anon at 19.

    As I read your post, I kept looking for some proposal to fix things. Alas, I found none, just a rant that corporations seek profit maximization, to the exclusion of all else.

  23. Anon February 13, 2016 2:51 pm

    AC,

    First, being aware is the first step to fixing things.

    Sadly, far too many people are apparently unaware.

    Secondly, you are overlooking the answer that I have provided: eliminate the country to country arbitrage. Whatever the profit margin is any portion of the globe, set that as a maximum for ALL locations of the globe. Allowing a lower margin in a section of the world in order to capture that market is the cause of turning around and charging more in other markets. Eliminate that ability (like the original Quid Pro Quo, this can be accomplished through both carrot and stick mechanisms).

  24. Anon February 14, 2016 12:22 pm

    I will note that the court (perhaps correctly) has refused to take this very step of eliminating the country to country arbitrage in the very recent Lexmark decision.

    This would more properly be an action (deliberate) made by Congress. As such, one possible path is the very distinction that the court highlights: copyright law has an express statutory clause.

  25. Alex in Chicago February 14, 2016 4:44 pm

    Anon, that sort of thing would have to be done with legislation, or (better) a trade agreement.

    As I stated, us simply following that rule you suggested would not stop India from not (or being unable to in most cases) from paying under a dollar a pill. It wouldn’t stop Europe from negotiating down the cost of pills under threat of non-approval. It would simply lower American drug prices, which is a great fix for the next 3-5 years. Then what do we do when the pipeline is empty?

  26. Anon February 14, 2016 4:57 pm

    Alex,

    The “rule that I stated” would need to be implemented by Congress.

    That changes nothing about my position.There is no “rule in a vacuum.”

    The choice of “pipeline” remains what it is – and what it would be except that the US would not be picking up the difference in profit margin from those parts of the world that cannot support a “unified” margin. There is no “must not develop” outcome with my change.

  27. Alex in Chicago February 14, 2016 5:33 pm

    No, there is only a “highly unlikely to develop” outcome.

    Which is why we should use a trade agreement to stop other countries from doing what they do. Not simple adopt their insane, anti-patent, anti-capitalism approach.

  28. Anon February 14, 2016 7:35 pm

    Alex,

    I do not see the same result that you think that you see. There would still be protection (within a sovereign), so there would not be any of your scenario. All that would happen would be those areas that cannot sustain an adequate margin (within that area) would be bypassed by the innovators.

  29. Alex in Chicago February 14, 2016 8:42 pm

    Anon, that is just a fundamental misunderstanding of how the pharma industry works. They can make money prospectively selling a pill at virtually any cost, probably even for our most expensive pills 50 cents per is enough to make a hefty sum. That is going toward recoupment of past R&D. Not selling in those areas is often foolish, as often the worst offenders will simply strip patent rights (India) anyways if you don’t submit to their demands. In other areas, like the EU you sell because you are still recouping your costs of a drug, but if that level of compensation also existed in the US you never would have bothered getting it through the system.

    In other words, the “adequate margin” you are talking about only exists in the US, and if the US adopts your strategy unilaterally it won’t somehow enable companies to drive a harder bargain in the EU (they are already trying to do that) it will simply eliminate the only market that incentivizes innovation in the market.

    This essentially turns most pharma companies into an tapering off annuity whos payout ends once their patent rights on the last set of drugs in development expires.

  30. Anon February 14, 2016 9:28 pm

    I hold no misunderstanding of the business dynamics Alex.

    In my past life (prior to law) I was involved in international business and understood well the arbitrage of which I speak.

    The bottom line is that forcing a uniform profit margin would only obliterate the unjust disproportion that exists today. Protection – at the sovereign level – would still exist. India would too be forced to respond and change its ways when no pharma corp wold deal and pull out in their entirety (and yes, we would need Congress to be able to stand up and defend/demand a true “equal treatment” on a treaty basis and not capitulate).

    I could not disagree with you more and your characterization of the US margin as the “adequate margin.” You are choosing to simply ignore the very disparity that is at the heart of the issue – such is worse than not being informed.

    Your end game view is simply not correct and does not include the pullout from those markets that are artificially subsidized. I do not see how you fail to see that issue, but you seem intent on not seeing it. Perhaps you only see the current status quo as the only way it could work. If that is your view, then our conversation is at an end, and there is NO change – no improvement possible under your view. I for one, will stand for something else, thank you.

  31. American Cowboy February 15, 2016 10:26 am

    Anon, your “remove the arbitrage” theory may sound attractive, but I still don’t see how it would be implemented, and I am not talking about treaty vs legislation vs whatever.

    What would the rule say and how would it be enforced? Would it say “Thou shalt not charge less or more to yield a lower or higher margin in any country than the mean margin you recoup in all countries.” ?

    Who measures the margins (accountants are creative when it comes to stuff like that)?

    Does the rule apply only to drugs requiring FDA approval?

    How about medical devices? How about mobile phones? How about hammers?

    Does it only apply to patented goods?

    What are the penalties for a commercial outfit not complying? What are the penalties for a sovereign not complying? Who imposes the penalties?

  32. Anon February 15, 2016 10:51 am

    American Cowboy,

    All good questions – and answers would need to be forthcoming in the actual implementation of any controlling legislation.

    My point though is to NOT have the answer fully worked out.
    My point is that such an answer could be worked out.
    My point is that the “status quo” of the U.S. citizen acting as the de facto artificial support mechanism for large corporations to subsidize their market entry (and presence) in domains where the price structure is not supporting the products (or services) equally is something that can be both separated from patent protection, and be alleviated so as to not force the US citizen to foot a disproportionate share of the profit.

  33. Bruce Johnson February 15, 2016 12:32 pm

    This isn’t a new idea, and has been proposed by economists as a way to fix the problem of undersupply of patented goods. For most products, the undersupply effect is small because the IP cost of the product is small compared to manufacturing and other costs. But where the marginal cost of production is very low, and R&D is high (such as with computer software or drugs), patents can cause severe market distortions that result in underproduction of the product. In effect it is better to price a drug high, and sell it to only a few people that need it, even if the cost to produce the drug is very low. This is a very inefficient allocation of resources. There are two proposals to fix such markets that I am aware of. First, is the “Innovation Prize” model that Sanders proposed. The government offers prizes for needed innovations which are sufficient to incentivize the research. The researcher collects the prize, and in exchange, the innovation is owned by the public. The resulting product, drug, software, music, or whatever is freely available at very low cost because the research cost has already been covered, and the cost or production is very low. The other solution is eminent domain. The government identifies products where the cost is way out of line because of efforts to recoup R&D costs, and simply reimburses the R&D costs in exchange for the rights to the innovation. Either way, the public funds certain innovations directly, in exchange for a lower marginal cost of the product. It can be hard to implement, but if done correctly, it does result in a more market-based efficient distribution of resources.

  34. American Cowboy February 15, 2016 4:24 pm

    Bruce sez: ” patents can cause severe market distortions that result in underproduction of the product”

    “distortions” and “underproduction” are judgment calls. Whose judgment? Applied how?

    If government awards prizes, who decides who gets them and who decides how much they get?
    Do they get the money just for trying, even if they fail?
    Do they get the money before they incur the expense, or do they have to have access to capital to fund the expenses and hope the Gubmint comes through with enough moola for the endeavor to make sense and payback the investors and/or lenders?

  35. Gene Quinn February 15, 2016 5:23 pm

    AC-

    I may agree with some of Bruce says, although I’d come to a vastly different conclusion.

    I’ve seen situations where an inventor has come to me to do a patent search and was ready to take a product to market. I do the search and find virtually exactly what the inventor had come up with so there would be no viable way to obtain a patent of any value. Obviously, the inventor cannot spend money it takes to tool up and take the product to market, which even for a simple kitchen gadget could easily cost into the hundreds of thousands of dollars. If he had success he could instantly be supplanted from the market by a larger entity since he had no patent rights. So he decides not to move forward and a product continues to remain off the market.

    Of course, the product remains off the market not because a patent exists, but in this case because a patent had previously existed and now the party who has the ability to take the product to market cannot justify the expense given the absence of exclusive rights. If we wanted to maximize benefit to society there would be some kind of limited exclusive right granted to the second inventor to take the product to market to protect his/her investment. Otherwise the now defunct patent will forever prevent that product from the marketplace.

    So unexploited patents can provide a market distortion. Of course, the patents that Bruce was talking about are not unexploited patents. Bruce seems to just want to have the government use eminent domain to take patent rights.

    Interestingly, the thought of using eminent domain to take patent rights could ironically be a step in a pro patent direction. At least that would mean that patents are property rights subject to the protection of the Constitution. I think it is clear that patents are property rights, both from SCOTUS precedent, the Patent Act (35 USC 261) and the Constitution, but recognizing that patents could be taken upon just compensation would be a strange step in the right direction and away from the PTAB, CAFC and SCOTUS merely holding that every valuable patent is unworthy.

    -Gene

  36. Nick Landau February 17, 2016 10:31 am

    I read the bill, and from what I can tell the numbers do not add up. The preamble states that abolishing drug patents and establishing a prize fund will save the federal government $200 billion per year. I assume any prize fund will need to cover the entire cost of R&D up through FDA approval. The round figure for fully developing a drug through FDA approval is $2 billion. In 2015, the FDA approved 115 new drugs. Those 115 approvals then must have cost a total of $230 billion. If the patent premium on drugs is $200 billion annually, but the final R&D costs for approved drugs is $230 billion (and that is not counting all of the R&D that is spent for drugs that do not finally receive approval), then the bill will not realize the savings it claims.

  37. Gene Quinn February 17, 2016 1:40 pm

    Nick-

    I think the numbers don’t add up because it is not the intention of the bill to cover the entire cost of R&D, let alone an acceptable risk premium for investing the money in the first place. I believe the numbers don’t add up because Sanders and his supporters believe they can simply institute price restrictions under the guise of a monetary award without any decrease in the amount of innovation.

    -Gene

  38. American Cowboy February 17, 2016 4:13 pm

    Don’t forget, too, that the prize has to be high enough to compensate for all of the failures that never get to market… just like the present system hopes to do.

  39. Gene Quinn February 17, 2016 4:54 pm

    AC-

    The interesting thing about the Sanders prize concept is that it might not have to compensate for market failures. The way I read the bill was that you could apply for the prize either by getting a patent issued (which you could not of course enforce) or by getting an FDA market approval. So you could win a prize for market failures.

    Interestingly, the Sanders prize proposal would likely lead to a whole bunch of rather useless patent activity. The patents would read like the breakthroughs are enormous. Get a patent, apply for a prize, repeat. Why would you ever go through with taking a drug to market? So the Sanders prize plan would seem calculated to do the exact opposite of what one might expect it was aimed at doing.

    -Gene

  40. Russ Fling February 17, 2016 5:16 pm

    As others have stated, this will end innovation in the medical/pharma fields. But have no doubt that:
    A. While Sanders is talking about it, many other Democrats including Hillary are planning it secretly.
    B. If enacted, ALL patents will be targeted for elimination and all innovation will end.

  41. American Cowboy February 18, 2016 9:27 am

    Gene, thanks for doing the lawyer’s work of actually reading the bill.

    Isn’t that the way most liberal programs work: pay the person even if they fail, so society winds up rewarding failure and getting more of it, since you get what you pay for. Creating incentives for failure… what a plan.

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