Monday, August 31, 2015

The debate about the proposed IPR carve-out for pharma patents

Chris Versace (with a position at New Jersey City University (NJCU)) criticizes pharma industry proposals on IPRs, without mentioning the forays of Kyle Bass:

According to a Politico report, “The drug industry is circulating a sign-on letter to build support for exempting drugs from a streamlined patent challenge process, a key issue stalling the House’s Innovation Act.” Given the growing target market that is domestic aging population and the critical nature of drug patent life, it is hardly surprising to learn the pharmaceutical industry has deployed lobbyists to add a last minute provision that would scale back the Inter Partes Review (IPR), a process that allows an efficient way to challenge illegitimate patents.

Link from

IAM covered the issue in July 2015, noting:

During mark-up of the PATENT Act last month, Senator Schumer admitted that work still needed to be done on the legislation to win the support of the life sciences community, as he insisted that “the IPR package will get further refinement”. But the AARP letter demonstrates the complex web of competing interests that has been woven around the subject. In its concluding remarks against the exemption the letter added: “We ask the Committee to fully consider the implications of any such exemption in terms of increased spending for payers, including Medicare and Medicaid, and higher prices for consumers. It would be unfortunate if this issue was to impede progress of the larger patent reform effort.”

As if to underline the point being made, earlier this month the Center for Economic and Policy Research produced a paper entitled The Impact of Exempting the Pharmaceutical Industry from Patent Reviews. It concluded:

… the failure to remove improperly awarded patents at an early date could lead to substantially higher drug costs. These costs will translate into higher payments from government run health insurance programs like Medicare and Medicaid.

The improper award of patents is also likely to lead to misdirected research, potentially wasting billions of dollars in spending in pursuit of patent rents based on the improperly awarded patents. In addition, these patents will provide incentives to mismarket drugs, a process that has led to substantial costs in the form of increased morbidity and increased mortality in the past. This analysis suggests that there could be substantial costs associated with exempting the pharmaceutical industry from the IPR process.

Undermining pharma’s ability to raise drug prices and bringing down the cost of medications overall is one of the motivations that Bass has claimed is behind his IPR strategy. Those arguments carry a lot more weight when they come from an organisation like AARP and take on tangible form for legislators when converted into dollar estimates of how much more consumers and government agencies might have to pay should a pharma IPR exemption be created. A vote on the Innovation Act in the House of Representatives might happen as early as this week. But it still looks like we’re some way from a reform package reaching the President’s desk.


link to the paper The Impact of Exempting the
Pharmaceutical Industry
from Patent Reviews by Dean Baker:

Yes the Baker paper mentions the Smucker patent: The ease of getting
a patent was famously demonstrated in 1997 when two inventors were able to get a patent on a
peanut butter and jelly sandwich

As to the impact on research:

The above discussion only dealt with the potential impact of improperly granted patents, due to the
pharmaceutical industry’s exemption from the IPR process, on higher drug prices. However, if a
pharmaceutical company is wrongly granted a patent which turns out to be central in the production
of a major selling drug, then it can be expected that it will also lead to a major distortion in research
spending. Other pharmaceutical companies will try to gain a share of the patent rents by attempting
to innovate around the wrongly issued patent. This can lead to large amounts of money being
To be clear, in the case where a pharmaceutical company has a valid patent, this sort of innovation is
beneficial since it can bring down the price of the drug before the patent expires and generics can
enter the market. This appears to be happening in the case of Sovaldi, the Hepatitis C drug. There
are several pharmaceutical companies developing comparable products which either have already
gained FDA approval or are likely to do so in the near future.


However, if the initial patent was wrongly granted, then this research will have been largely wasted.
The drug should have already have been available as a generic, and therefore there would be no
patent rents to be shared.19 This misdirection of research is an important cost associated with
improperly granted patents. If the pharmaceutical industry’s exemption from IPR increases the
probability of improperly awarded patents, then we should expect more misdirected research as a

One notes that the bulk of money to bring a drug to market is in running the trials, not in getting a patent on the drug.

Baker received his B.A. from Swarthmore College and his Ph.D. in Economics from the University of Michigan.


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