Walsh Arora Cohen (2003) - Effects Of Research Tool Patents And Licensing On Biomedical Innovation

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• This page is referenced in the Patent Thicket Literature Review
• This page is listed on the PTLR Core Papers page

Reference

• Walsh, John P, Arora, Ashish and Cohen, Wesley M (2003), "Effects of research tool patents and licensing on biomedical innovation", Patents in the Knowledge-based Economy, Vol.285, pp.286

@article{walsh2003effects,
  title={Effects of research tool patents and licensing on biomedical innovation},
  author={Walsh, John P and Arora, Ashish and Cohen, Wesley M},
  journal={Patents in the Knowledge-based Economy},
  volume={285},
  pages={286},
  year={2003},
  abstract={Over the last two decades changes in technology and policy have altered the landscape of drug discovery. These changes have led to concerns that the patent system may be creating difficulties for those trying to do research in biomedical fields. Using interviews and archival data, we examine the changes in patenting in recent years and how these have affected innovation in pharmaceuticals and related biotech industries. We find that there has in fact been an increase in patents on the inputs to drug discovery (?research tools?). However, we find that drug discovery has not been substantially impeded by these changes. We also find little evidence that university research has been impeded by concerns about patents on research tools. Restrictions on the use of patented genetic diagnostics, where we see some evidence of patents interfering with university research, are an important exception. There is, also, some evidence of delays associated with negotiating access to patented research tools, and there are areas in which patents over targets limit access and where access to foundational discoveries can be restricted. There are also cases in which research is redirected to areas with more intellectual property (IP) freedom. Still, the vast majority of respondents say that there are no cases in which valuable research projects were stopped because of IP problems relating to research inputs. We do not observe as much breakdown or even restricted access to research tools as one might expect because firms and universities have been able to develop ?working solutions? that allow their research to proceed. These working solutions combine taking licenses, inventing around patents, infringement (often informally invoking a research exemption), developing and using public tools, and challenging patents in court. In addition, changes in the institutional environment, particularly new U.S. Patent and Trademark Office (USPTO) guidelines, active intervention by the National Institutes of Health (NIH), and some shift in the courts? views toward research tool patents, appear to have further reduced the threat of breakdown and access restrictions although the environment remains uncertain. We conclude with a discussion of the potential social welfare effects of these changes in the industry and the adoption of these working solutions for dealing with a complex patent landscape. There are social costs associated with these changes, but there are also important benefits. Although we cannot rule out the possibility of new problems in the future, our results highlight some of the mechanisms that exist for overcoming these difficulties.},
  discipline={Law},
  research_type={Discussion},
  industry={Academia, Biomedical},
  thicket_stance={},
  thicket_stance_extract={},
  thicket_def={},
  thicket_def_extract={},  
  tags={Research Tools, Licensing},
  filename={Walsh Arora Cohen (2003) - Effects Of Research Tool Patents And Licensing On Biomedical Innovation.pdf}
}

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Abstract

Over the last two decades changes in technology and policy have altered the landscape of drug discovery. These changes have led to concerns that the patent system may be creating difficulties for those trying to do research in biomedical fields. Using interviews and archival data, we examine the changes in patenting in recent years and how these have affected innovation in pharmaceuticals and related biotech industries. We find that there has in fact been an increase in patents on the inputs to drug discovery (?research tools?). However, we find that drug discovery has not been substantially impeded by these changes. We also find little evidence that university research has been impeded by concerns about patents on research tools. Restrictions on the use of patented genetic diagnostics, where we see some evidence of patents interfering with university research, are an important exception. There is, also, some evidence of delays associated with negotiating access to patented research tools, and there are areas in which patents over targets limit access and where access to foundational discoveries can be restricted. There are also cases in which research is redirected to areas with more intellectual property (IP) freedom. Still, the vast majority of respondents say that there are no cases in which valuable research projects were stopped because of IP problems relating to research inputs. We do not observe as much breakdown or even restricted access to research tools as one might expect because firms and universities have been able to develop 'working solutions' that allow their research to proceed. These working solutions combine taking licenses, inventing around patents, infringement (often informally invoking a research exemption), developing and using public tools, and challenging patents in court. In addition, changes in the institutional environment, particularly new U.S. Patent and Trademark Office (USPTO) guidelines, active intervention by the National Institutes of Health (NIH), and some shift in the courts? views toward research tool patents, appear to have further reduced the threat of breakdown and access restrictions although the environment remains uncertain. We conclude with a discussion of the potential social welfare effects of these changes in the industry and the adoption of these working solutions for dealing with a complex patent landscape. There are social costs associated with these changes, but there are also important benefits. Although we cannot rule out the possibility of new problems in the future, our results highlight some of the mechanisms that exist for overcoming these difficulties.

Review

The paper concerns: "70 interviews with personnel at biotechnology and pharmaceutical firms and universities in considering the effects of research tool patents on industrial or academic biomedical research. This review is not exhaustive.

Definition of Patent Thicket

Definition is from Heller and Eisenberg (1998), and is essentially:

• Diversely-held complementary inputs

"Heller and Eisenberg (1998) argue that biomedical innovation has become susceptible to what they call a “tragedy of the anticommons,” which can emerge when there are numerous property right claims to separate building blocks for some product or line of research. When these property rights are held by numerous claimants (especially if they are from different kinds of institutions), the negotiations necessary to their combination may fail, quashing the pursuit of otherwise promising lines of research or product development."

"The essential precondition for an anticommons is the existence of multiple patents covering different components of some product, its method of manufacture, or inputs into the process through which it is discovered."

However, they also include the single firm/single patent definition of a:

• Broad blocking patent underlying cummulative innovation

"Merges and Nelson (1990) and Scotchmer (1991) have argued, however, that the self-interested use of even just one patent—although lacking the encumbrances of multiple claimants characterizing an “anticommons”—may also impede innovation where a technology is cumulative... A key concern regarding the impact of patents in such cumulative technologies is that “unless licensed easily and widely,” patents—especially broad patents—on early, foundational discoveries may limit the use of these discoveries in subsequent discovery and consequently"

For conceptual foundations see Heller and Eisenberg (1998). Three points:

• Transaction/licensing costs might be greater than the ultimate value of the deal
• Heterogeniety in goals/practices/etc. among licensors can increase the difficulty and cost of reaching an agreement
• Uncertainty over the value of rights can spawn asymmetric valuations and contribute to bargaining breakdowns. Uncertainty is heightened because "courts have yet to interpret the validity and scope of particular patent claims."

The paper notes that there ia an adverse social welfare consequence if the patent-holder is not at least as able as downstream users to fully exploit the potential contribution of the input or subsequent innovation.

Single firm/patent examples

The paper draws attention to historical examples of patents that retarded innovation:

• De Forest (Marconi)'s Radio patent (solved by the creation of RCA)
• The Wright's brothers (with multi-firm patent improvements)

Statements from respondents

"We asked about 10 of our industry respondents to tell us how many pieces of IP had to be in-licensed for a typical project. They said that there may be a large number of patents to consider initially—sometimes in the hundreds, and that this number is surely larger than in the past. However, respondents then went on to say that in practice there may be, in a complicated case, about 6-12 that they have to seriously address, but that more typically the number was zero."

"Thus we observe many patents (especially on research tools) owned by different parties with different agendas. In short, the patent landscape has indeed become more complex— although not as complex as suggested by some."

Defensive patenting:

"An executive with a biotechnology firm... “We have a defensive patent program in genomics. It is the same as in the Japanese electronics industry. There they patent every nut and screw on a copier, camera, and build a huge portfolio, so Sony never sues Panasonic and Panasonic never sues Sony. There is a little of that going on in genomics. That way, if an IP issue ever arose, we have some cards in our hand.”"

Broad/Reach-through patents:

"Another way in which the absence of a clear written description may allow upstream patents to directly affect subsequent research is via “reach-through” patent claims... Here, the patent claims the target and any compound that acts on the target to produce the desired effect, without describing what those compounds are. A commonly cited case is the University of Rochester’s patent on the COX-2 enzyme, which includes claims on drugs that inhibit the enzyme.14 This claim is the basis of the lawsuit against Searle for patent infringement... Although the USPTO has permitted broad claims to issue, there remains the question of how the courts will evaluate those claims."

Results

Cessation of project due to failure to secure IP rights not found:

"Perhaps the most extreme expression of an anticommons tragedy is the existence of multiple rights holders spawning a breakdown in negotiations over rights that lead to an R&D project’s cessation. We find almost no evidence of such breakdowns... Of the 55 respondents who addressed this issue (representing all three sectors), 54 could not point to a specific project stopped because of difficulties in getting agreement from multiple IP owners (the anticommons problem)."

"Although the number of ongoing R&D projects stopped because of an anticommons problem is small, it is possible that firms avoid stacking and other difficulties in accessing IP rights by simply not undertaking a project to begin with. As a practical matter, it is difficult to measure the extent to which projects were not started or redirected because of patent-related concerns... Although we have no systematic data on projects never pursued, our findings on the absence of breakdowns is consistent with the notion that there are relatively few cases where otherwise commercially promising projects are not undertaken because of IP on research tools."

Royalty stacking is not prohibitive:

"Most of our respondents reported that royalty stacking did not represent a significant or pervasive threat to ongoing R&D projects... Royalty stacking does not represent a significant threat to ongoing R&D projects for several reasons. First, and principally, the total of fees paid, as discussed below, typically does not push projects into a loss. Second, in the minority of cases in which the stacking of fees threatens a loss, compromises tend to be struck, often in the form of royalty offsets across the various IP holders... Finally, in the few cases in which such a problem might emerge, it also tends to be anticipated. One firm executive we interviewed said they had a corporate-level committee that reviewed all such requests to make sure such problems do not occur."

Licensing fees are reasonable:

Overall, our respondents noted that, although these costs were higher than before the surge in research tool patents, they believed them to be within reason largely because the productivity gains conferred by the licensed research tools were thought to be worth the price.