Both Sides of the Aisle Have Misguided Views on Intellectual-Property Rights

Both the Left and the Right need a better understanding of how product improvements through novel innovation work.

F or decades, progressives have fought to weaken America’s world-leading protections for property rights. Conservatives have resisted this and mostly succeeded — including on the ideas, designs, and other “intellectual property” that are protected by patents.

Progressives, frustrated that previous efforts haven’t worked, are now turning to subterfuge. They’re hoping to trick conservatives into joining these attacks by recasting efforts to undermine intellectual-property protections as efforts to merely prevent anticompetitive abuses of patent law.

Unfortunately, the new strategy appears to have gained some traction. In recent months, some conservatives have started to urge the federal government to address the “patent abuses” that are supposedly blocking competition in the drug industry and that they allege have led to higher prices.

Intellectual-property protections such as patents, trademarks, and copyrights are particularly important in the innovation driving the knowledge economy of the 21st century. In 2019, IP-intensive industries generated $7.8 trillion in U.S. GDP and supported over one in three U.S. jobs. It is therefore important to get appropriate patent policy correctly implemented.

Designing a smaller, faster computer chip can take billions of dollars and millions of hours of intensive, taxing mental labor from talented engineers. But once that semiconductor is designed, and the manufacturing line is set up, the marginal cost of creating one additional chip is negligible.

No company would ever invest the billions of dollars needed to create new and better chips if rival firms could simply copy the designs at will and sell discounted knockoff versions.

Similarly, it takes more than a decade and costs $2.6 billion, on average, to research and develop a single successful new drug. Of the medicines entering clinical trials, only 12 percent are ultimately successful in obtaining FDA approval. But once a drug has reached the milestone of being proven safe and effective, the costs of copying the product and setting up production to manufacture it are comparatively nominal.

Patents and market-exclusivity periods work together to prevent rival companies from immediately copying a novel drug — thereby giving biopharmaceutical companies that invent new medicines a chance to recoup their enormous R&D expenses.

Without those protections, companies would never invest in drug development in the first place. Even if scientists and biotech entrepreneurs had a great idea, they’d never be able to raise the capital to make it a reality. When venture capitalists evaluate biotech startups and their prospective drug candidates, they’re invariably looking for proof-of-concept ideas that are protected by patents.

The new tactic stems from left-wing groups such as Public Citizen and the Center for American Progress that have little drug-development expertise but have long argued that drug manufacturers abuse the intellectual-property system by patenting trivial changes to their products or by finding ways to arbitrarily extend the life of expiring patents. The problem now is that, increasingly, some conservative organizations have bought into those misguided claims.

The basic myth pushed by critics of patent protections is the notion that one can “extend” a patent term. This is impossible; when the U.S. Patent and Trademark Office (USPTO) grants a patent, it is in effect only for 20 years from the filing date of the application.

Yes, like every company in every industry, drug companies regularly work to improve their products. Such changes only result in new patents if the changes meet the statutory requirements of the USPTO, namely, that the invention is useful, novel, and nonobvious. The USPTO does not hand out patent rights willy-nilly.

As my former Trump-administration colleague Andrei Iancu, who served as USPTO director, has explained, “a manufacturer cannot ram through a patent application for an unoriginal idea.” To obtain a new patent, an updated drug must have some novel feature, such as “a time-release function that reduces the chance of an adverse reaction. Or new tablets [that] could allow for greater dosing flexibility.”

Consider Lumigan, a glaucoma drug developed by Allergan. Many patients abandoned use of the company’s original formulation because it sometimes caused “hyperemia,” or eye redness. To reduce the frequency of this side effect — and thus boost adherence — Allergan’s scientists developed a new composition of the medicine, which was approved in 2010.

When Allergan’s new patents were challenged, the Court of Appeals for the Federal Circuit Court affirmed USPTO’s decisions, noting that Allergan’s work made “the difference between an effective and safe drug and one with significant side effects that caused many patients to discontinue treatment.”

Most importantly, new patents for updated, improved versions of existing drugs don’t extend the life of the original patents. As Iancu notes, when a drug’s original patent expires, any manufacturer can copy the original formula and sell generic versions. Prices fall dramatically when generics — which account for more than nine in ten prescriptions filled — enter the market.

When generic companies decide against copying an old medicine, it’s typically because the innovative company has created a new product that has made their older product obsolete. It is for these same reasons that branded, therapeutic competition sometimes makes first-in-class medicines obsolete.

The same is true in other industries, of course. If Intel patents its latest semiconductor design, that doesn’t prevent a competitor from copying Intel’s 1990s-era chips that have gone off-patent.

Although the allegations of abuse and gaming of patent laws is misguided, the claim that millions of Americans struggle to afford their prescriptions is all too real. Fortunately, there’s plenty that conservative policy-makers can do to help. Increasing innovation is on the other side of the coin of increasing competition, so pro-innovation policies should replace anti-innovation policies. Trade agreements with other countries should be pushed to adopt value-based pricing for medicines, which reflects the large value of health generated, rather than freeload off the research funded chiefly by U.S. consumers.

Both the Left and the Right need a better understanding of how product improvements through novel innovation work and of how USPTO grants the right to such improvements. If the misguided rhetoric results in poor policies, they will end up damaging the foundation that benefits consumers by bringing innovative product improvements to the marketplace.