Patent Reform

Problems with Current Patent System

• Many patents are approved because examiners don’t have time or resources to search all the relevant references
• “The past three decades of wanton patent-granting have created a disastrous environment for innovation. Today it’s practically impossible to build anything without violating a patent of some kind—and risking a multimillion-dollar lawsuit for your troubles.” (Wired)
• Technology industry has too many overly broad patents, leading to incredibly silly patent litigation cases
  • Amazon “owns” the process that allows people to buy things with a single click.
  • Apple now claims the exclusive right to sell rounded-edged, rectangular-shaped communication devices on which icons are arranged in a grid with a row of persistent icons at the bottom
  • A small company in Tyler, Texas, once demanded more than $600 million from Google because of the design of the borders around its display ads.
• ‘’’Patent Trolls’’’ are nonpracticing entities that don’t make products but exist solely on the revenue of its patents
  • Costs a few thousand dollars to secure a patent, which can bring in millions through litigation
  • It is usually more expensive to win a case against a troll than to just settle
• Last year, for the first time, spending by Apple and Google on patent lawsuits and unusually big-dollar patent purchases exceeded spending on research and development of new products, according to public filings. (NYT-PW)
• Me-too drugs: a drug that is approved after a pioneering drug and is the 'same'; it is not clinically superior to the original drug (WHO)

Current Reform

Legislation

• Innovation Act
• PATENT Act
• TROL Act
• STRONG Patents Act
• Demand Letter Transparency Act

Legislation Considered in Previous Congressional Sessions

• Leahy Smith America Invents Act
• Prize Fund for HIV/AIDS Act

Failed Legislation

• The Shield Act

Drafts of Future Legislation

• Innovation Promotion Act

Prize System for Inventions

The current patent system allows companies to file for the right to exclude if they have a novel, non-obvious invention. The right to exclude creates a temporary monopoly for a certain product, which leads to higher product costs for the consumer. One example of a patent leading to exorbitantly high prices would be Daraprim, a drug produced by Turing Pharmaceuticals. Martin Shkreli, the CEO of Turing Pharmaceuticals, led the charge to increase the price of Daraprim from $13.50 to $750 per pill. [1]

Because of such abuses of patent protections, economists and legislators have advocated for a prize system instead of a patent system for pharmaceutical drugs.[2] Under this system, companies that invent a new drug will receive a lump sum prize. The rights to the drug will then be placed in the public domain, creating generic drugs. The biggest benefit of a prize system is the ability to target research towards a specific problem. With prize money as the incentive, research companies are more likely to devote time and resources towards the identified issue. In addition, the prize system lowers barriers to entry; nontraditional parties are encouraged to participate.

Although the prize system idea sounds promising for individuals requiring medication without high reservation price, the issue of sustained government funding for such endeavors hurts this proposal. Private investors, such as the Bill and Melinda Gates Foundation, offer similar prize systems for pharmaceuticals discoveries. However, if private investment has proven to be effective, why does the government need to intervene?

Legislators have proposed bills that provide for prize systems for a small class of drugs (see Prize Fund for HIV/AIDS Act).

Prize systems could take many different forms: 1) Opt-in systems where the government pays at least the monopoly profits that the patent holder would expect to receive 2) System where patents are exchanged for compensation through an auction 3) Offer cash subsidy to consumers who value the patented product more than the marginal cost but cannot afford the patented product at a monopoly price

The Medical Innovation Prize Fund Act

The Medical Innovation Prize Fund Act, introduced in 2013 and sponsored by Bernie Sanders was designed to transform the patent system into a prize system. It died in a previous session of Congress. The Act would enact a prize system for all ‘medical innovations relating to a drug, a biological product, or a new manufacturing process for a drug or biological product’ [3]. The plan establishes an annual fee for health insurers to fund this Act, which would go into a Medical Innovation Prize Fund (MIPF). Prize payments would be distributed from MIPF, and the payments would total 0.5% of GDP from the preceding fiscal year [4].

Besides providing incentives to invest in R&D in new medicines, and allowing the government to target research in a specified area, this act also encourages parties to invest in major breakthrough drugs versus only improving drugs in existing classes. The MIPF would reward innovations based on incremental benefit, so the largest prizes would be given to first-in-class drugs. The value of the prizes will be determined based on the number of patients, incremental therapeutic benefits of the innovation, the pertinence of the innovation, and the improved efficiency of the manufacturing process for the drug.