Want to Revive the Economy? Restore the Patent System!

Ever notice how unrelated articles sometimes drive home a point beyond their focus? Let’s look at several which unintentionally underscore the importance of patents, as well as the danger weakening our system presents to the nation.

The first story is “Trump wants to cut billions from the NIH. This is what we’ll miss if he does,” a response to President Trump’s proposal to cut funding for the National Institutes of Health. The rebuttal highlights the impressive return on investment taxpayers receive as NIH supported discoveries turn into therapies protecting public health:

• Over 27 years, 8.4% of NIH grants generate “patents for new drugs, medical devices, or other medicine-related technologies.”
• A $10 million boost in NIH funding leads to a 2.3 increase in patents, each worth $11.2 M in 2010 dollars.  The funding increase would yield $34.7 M in firm market value.
• NIH funded patents are cited by other patents at double the rate of private sector inventions. “Between 2003 and 2013, every patent generated by an NIH grant was cited, on average, by five future patents…”
• NIH funded institutions spur the creation of new biotech firms. “A $1 million increase in the average amount of federal R&D funding associated with an increase of 5–58 percent in the number of local biotechnology firm births a few years later
• Public sector research institutions (PSRI) generated ““virtually all the important, innovative vaccines that have been introduced during the past 25 years…”
• “46.2 percent of new-drug applications from PSRIs received priority reviews (at the FDA), as compared with 20.0 percent of applications that were based purely on private-sector research, an increase by a factor of 2.3.”
• “And the public sector is particularly good at creating drugs to cure deadly diseases. Of the 153 approvals of drugs that began at public research institutions, 40 were for the treatment of cancer and 36 tackled infectious diseases, the report found.”

However, this ignores a vital point: these inventions are only commercialized because private sector companies invest years of hard work and many times what the government spent on research turning early stage inventions into products.  When these projects fail no one at NIH or the universities loses their jobs, but the company may go under or be forced to lay off its researchers.  We lead the world in the commercialization of government supported research because entrepreneurs believe the patent system can be relied upon to protect them if their gamble succeeds.  If that trust is lost, the system falls apart.  And we’re being urged down that road, as the next story shows.

[Joe-Allen]

Many in Congress defending NIH’s budget just signed a letter to the President urging him to misuse the Bayh-Dole Act (which injected the incentives of patent ownership into the federal R&D system) for the compulsory licensing of drugs deemed to be too expensive. Ironically, that would destroy the commercialization of NIH supported patents being used to defend agency funding. It is also one more blow to our beleaguered patent system, which leads to the next article.

In “Our Patent System Needs More Than An IPR Fix“,  Chris Gallagher argues:

… PTAB’s parlous impact on investment in our patent system is undeniable. Throwing patents       out that window after costs are sunk developing their subject matter is counterproductive. And that is why the front end of PTO’s patent examination assembly line also needs fixing even more. If post-grant PTAB is where patents “go to die,” patents’ statutory presumption of validity is useless. Patent reformers say they should die, but if as the congressional patent reform narrative asserts PTAB is where so-called “bad patents” finally receive their well-deserved nullification, our patent system has lost its primary purpose. Yes, patents incentivize invention. But more important they protect investments in their subject matter’s development and public availability.

Accordingly, job one of Lee’s successor is returning “validity” to patents’ fading statutory presumption of validity.  This must happen early enough to incentivize support for upstream innovation investment now fleeing to China and the EU where ironically, patents are becoming more respected than in the USA.

Even worse, unscrupulous parties around the world know they can initiate post grant reviews based on fraudulent or deliberately misleading information forcing hard pressed companies to accept infringement or divert scarce resources into fighting off endless reviews. When fraud or misconduct is detected, there’s nothing the patent owner can do to hold abusers accountable for the damage they inflict.

Add to all this a string of court rulings against patent owners and it’s no surprise why their confidence is waning. So how important is confidence in the patent system to our economy?  A graphic in “Jamie Dimon: It’s clear something is wrong with the U.S. economy” may provide a clue:

Look at the spike after 1980 with the enactment of the Bayh-Dole Act  and Diamond v. Chakrabarty opened the door to the U.S. domination of the new field of biotechnology. Then in 1982 the creation of the Court of Appeals for the Federal Circuit restored confidence that patents could be effectively enforced. Then look at the plunge after confidence began eroding around 2005. While there are many factors beyond patents affecting something as complex as the U.S. economy, the coincidence is striking.

Some believe they can introduce even more uncertainty into the system with impunity. Last year’s patent “reform” bill would have tilted the field even more against patent owners. Others think the biopharma industry is now so dependent on NIH/university partnerships that if we undermine Bayh-Dole these alliances  will continue unabated because companies have nowhere else to go. “Your Cancer Drugs May Soon Be Discovered in China” should shake that belief:

China, long the world’s supplier of cheap pharmaceutical ingredients and copycat pills is emerging as a major producer of new medicines: biotech drugs. After the U.S., China   now boasts the second-largest number of clinical trials including biologic treatments-produced using biological matter… according to data from the National Institutes of   Health.

The world’s biggest drug companies have taken notice.

It then chronicles how our companies are licensing technologies and establishing major R&D centers in China.  These charts explain why:

China is strengthening its patent system while adopting a Bayh-Dole policy for its research universities.  If we stand idly by as our system deteriorates, innovative companies will seek greener pastures abroad.

While it’s easy to despair, the good news is that we’ve been in this swamp before and found our way out. When I joined that staff of the Senate Judiciary Committee in the 1970’s patents were viewed with suspicion, falling under the jurisdiction of the Subcommittee on Antitrust and Monopolies (you can imagine how that went). The U.S. had an entrenched policy that inventions made with federal funding would be made available to any and all.  These beliefs were deeply ingrained with vested interests fiercely defending them.

Yet a few Congressional leaders realized these policies were failing and concluded that restoring the incentives of the patent system, coupled with the decentralized management of technology away from Washington, was the better path.  They passed Bayh-Dole, which President Reagan immediately embraced. Combined with renewed support for the patent system, the U.S. enjoyed an economic renaissance, again dominating every field of technology.

The old arguments that patents inhibit innovation, and non-exclusivity with compulsory licensing leads to a brave new world are now in vogue.  We’ve stood at this fork in the road before. It requires courage to reject the easy path downward and restore the system which created our prosperity.  If we lack the will, we have no one else to blame as we plunge deeper into the mire. That’s the last place anyone wanting to drain the swamp while growing the economy should go.