As in previous global public health crises, such as the HIV epidemic, patents have presented a major obstacle to the supply of medicines and vaccines amid the devastating COVID-19 pandemic. Compulsory licensing and an intellectual property (IP) waiver have been put forward as solutions. However, as other chapters of this volume reveal, neither proposal alone can address global vaccine inequality with sufficient urgency. Nor would these measures significantly improve the capacity of developing countries to produce medicines and vaccines. As the Director General of the WTO has already cautioned, the solution to the problem of vaccine inequality must be holistic, and the IP waiver, for example, should not preclude further action.Footnote 1
In this chapter, I propose the establishment of a Patent Philanthropy Initiative (PPI) as an alternative approach to equipping the global community with better preparedness for future public health crises. The United States Patent and Trademark Office (USPTO) would be called upon to administer the PPI. Pharmaceutical companies owning USPTO-granted medical patents would be required to contribute 1 percent of their annual post-tax profits accrued from their patented medicines to the PPI. Such financial contributions would then be deployed by pharmaceutical companies to promote public health in the United States and abroad through transferring knowledge, donating medical products, constructing facilities, training professionals, and facilitating public health education.
Section 1 of the chapter presents the PPI as an alternative, or complement, to the existing proposals on patent law and public health, detailing the structure of a potential USPTO-administered pilot program. Section 2 examines how the PPI could improve public health globally and also considers why the USPTO should take responsibility for overseeing the PPI. Section 3 responds to concerns that the PPI may violate the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and the US Constitution and disincentivize investment in medical innovation.
1 The Creation of the PPI
A Structure of the PPI
In essence, the PPI is intended to require pharmaceutical companies to devote resources to sharing the benefits of their patented medical inventions for charitable purposes. For each patent acquired from the USPTO, the PPI would require a pharmaceutical company to make a corresponding contribution to a domestic or global social welfare program. The USPTO can be the designated administrator of a pilot PPI program requiring each pharmaceutical company to contribute as PPI funds 1 percent of its annual post-tax profits from sales of patented medical products. Such financial contributions would apply to medical patents registered with the USPTO and already under patent protection, as well as any future medical patents the USPTO grants. Pharmaceutical companies would be able to take a range of actions to fulfill this responsibility, provided that they spend approximately 50 percent of PPI funds domestically and 50 percent internationally.
Actions
To enforce their PPI responsibilities, this chapter suggests that pharmaceutical companies carry out, in good faith, at least three categories of capacity-building actions as follows.
Technology Transfer
Despite longstanding arguments that local firms should be empowered to produce the medicines their residents need, most medicines and vaccines consumed in developing countries are imported.Footnote 2 Developing countries remain “systematically excluded from accessing the ability to produce highly complex drugs”Footnote 3 and thus lack self-sufficiency in addressing medical challenges. As of 1986, it was estimated that only 11 percent of global pharmaceutical production occurred in developing countries and over 80 percent in six industrialized countries.Footnote 4 The COVID-19 pandemic has demonstrated the urgency of capacity building in developing countries. Despite global calls for the waiver of COVID-19 vaccine patent rights to increase availability in developing countries, capitalizing on the direct transfer of vaccine production knowledge is more effective.Footnote 5
Therefore, pharmaceutical companies may fulfill their responsibilities under the PPI by engaging in efforts to transfer the following four kinds of technologies to a company located in a developing country.
First, pharmaceutical companies may transfer essential medicine production know-how. According to the WHO, essential medicines “satisfy the priority health care needs of the population.”Footnote 6 People should have access to these medicines at all times and in sufficient amounts, and their prices should be set at generally affordable levels. Transferring know-how to essential medicine producers in developing countries would greatly enhance efforts to promote public health.
Second is know-how about the production of essential vaccines. Vaccination is one of the best ways to protect people – infants, children, and teens in particular – from diseases that can cause serious or deadly harm to health.Footnote 7 It plays a critical role in preventing and containing outbreaks of diseases that “[are] difficult to control and have consumed public health resources in affected areas.”Footnote 8 Amid the COVID-19 pandemic, essential vaccines were recommended or required for people in different age groups.Footnote 9 The transfer of know-how to vaccine producers in developing countries would enable public health interventions that improve lives and prevent deaths.
Third, pharmaceutical companies may transfer know-how to produce medicines and vaccines for neglected diseases. Every year, neglected diseases such as Chagas disease, sleeping sickness, and visceral leishmaniasis cause hundreds of thousands of deaths among the poor and marginalized in developing countries.Footnote 10 There are few resources available in developing countries to address these diseases overlooked by policymakers.Footnote 11 Therefore, pharmaceutical companies could fulfill their responsibilities under the PPI by transferring neglected disease research know-how to a company located in a developing country.
Fourth, pharmaceutical companies may transfer to developing countries physical objects or equipment for production of pharmaceuticals at reduced prices compared to their prices in developed countries. Sufficient availability of such objects and equipment is vital if developing countries are to boost research and production capacities in protecting public health.Footnote 12
Donation
To meet their PPI obligations, pharmaceutical companies may donate medical products and equipment to a not-for-profit organization or developing country. Such products and equipment include essential medicines and vaccines (whether produced or purchased by the company), testing toolkits, disease diagnostic equipment, medical research equipment, and manufacturing facilities.
Donation of raw materials also falls within this category of action. Pharmaceutical manufacturers require a complex range of raw materials, including, “starting compounds, intermediates, solvents, cell lines, yeast, bacteria, cell-culture media and feeds, excipients, production materials such as tubing, single-use manufacturing equipment, and packaging materials.”Footnote 13 Raw material deficiencies can directly result in drug shortages. For instance, in 2012, the Food and Drug Administration (FDA) reported 117 drug shortages in the United States, of which 27 percent resulted from raw material issues.Footnote 14 Amid the COVID-19 crisis, raw material shortages have been frequently cited as a major obstacle to universal vaccine access.Footnote 15
Facility Building
As proved by the production of COVID-19 vaccines, manufacturing lines are of critical importance. The manufacture of mRNA vaccines, for instance, requires equipment to produce lipid nanoparticles.Footnote 16 Pfizer’s car garage-sized lipid production suite at its Michigan plant “is crisscrossed by pumps and pipes, and crowded with tanks, filtration units and half-dollar size jet mixers,” with about 100 of these mixers being used simultaneously for lipid formulation.Footnote 17 Although “several commercial kits are available to produce mRNA for preclinical studies at laboratory scale, their costs are high.”Footnote 18 Experts have pointed out that there are currently few existing factories capable of producing mRNA vaccines and that retrofitting of existing sites would potentially cost billions of dollars.Footnote 19 For mRNA vaccine production to occur across the globe, the need for sustainable and cost-effective manufacturing must first be addressed.Footnote 20 This could be achieved through donation by pharmaceutical companies of both basic and special equipment and facilities for the construction of medicine and vaccine manufacture lines.
Pharmaceutical companies may also assist in building and improving distribution channels for medicines and vaccines. Pfizer/BioNTech’s COVID-19 vaccines, for example, must be stored in ultra-cold temperatures and should be distributed using thermal shipping containers, freezers, temperature monitoring devices, and ancillary supply kits for diluting, mixing, and dispensing vaccines.Footnote 21 Donation of such facilities by pharmaceutical companies would represent an important contribution to the safe and sufficient distribution of medicines and vaccines in both the United States and developing countries.
Professional Training
Pharmaceutical companies may also deploy staff to train and boost the knowledge and skills of medical professionals and pharmaceutical researchers in low-income regions in the United States and developing countries. Local production of pharmaceuticals in developing countries offers general benefits, including the creation of high-paying skilled jobs, which would support sustainable long-term economic development and allow local firms to respond more quickly and flexibly to future crises.Footnote 22 Effective local production could be encouraged by collaboration between developing governments, local firms, and developed country pharmaceutical companies, international internship initiatives to facilitate the acquisition of technological know-how, and strengthening legal and administrative apparatuses to prevent dissemination of substandard or falsified drugs.Footnote 23
Under the PPI, major pharmaceutical companies could contribute to this process through schemes to increase the number of pharmaceutical scientists and researchers in developing countries. Such schemes could take the form of apprenticeship programs for scientists from existing or prospective local firms to “absorb crucial technical knowledge and then return to their own countries of residence to set up and run similar production facilities.”Footnote 24 For such a system to work, developing country governments would need to be responsible for selecting and supporting apprentices, while local firms would need to commit to not exporting the drugs they create to developed countries.Footnote 25
Public Knowledge Sharing
Pharmaceutical companies should develop educational programs to better disseminate health-care knowledge to the US public and in developing countries. They could deploy their own professionals, hire similar professionals, or commission a medical care organization for online and face-to-face activities such as open lectures and talks, distribution of health-care brochures, and meetings with doctors and nurses. Such programs would reflect the ethos of preventive medical care, whereby the spread of basic knowledge on topics ranging from blood pressure to cancer to mental health screening prompts people to take precautionary measures to maintain personal health and prevent infection.Footnote 26 The programs would also promote a communal sense of health care, where “nobody is fully protected until everyone is protected.”Footnote 27
The COVID-19 pandemic has proven the special importance of sharing public health knowledge. Despite sufficient availability of COVID-19 vaccines, vaccination rates are still relatively low in many parts of the United States, making the country very vulnerable to new coronavirus variant outbreaks.Footnote 28 Vaccine hesitancy has been identified as the leading cause of low vaccination rates,Footnote 29 with some declining vaccinations based on mis/disinformation obtained from social media.Footnote 30 Many young people are hesitant because they feel that COVID-19 is not something that will impact their health.Footnote 31 Vaccine producers are well positioned to share information about COVID-19 vaccines and reduce vaccine hesitancy. Also, vaccination rates have remained lower in black and Latino communities in the United States due to public health inequalities and the relative lack of health knowledge.Footnote 32 Pharmaceutical companies may fill such public health “blind spots” left by the government, delivering information about vaccine efficacy and vaccination locations to communities in need.
B 1 percent
With regard to the 1 percent of pharmaceutical companies’ annual post-tax profits from patented medical product sales that would fund PPI actions, a few questions arise. How should such annual profits be calculated? Some patented medical products contain one patent, while others consist of multiple patents. Should these patents be treated as equal? Further, a pharmaceutical company may manufacture many kinds of medical products, not all of which utilize medical patents. As of July 2021, Pfizer has 189 approved drugs and 29 medical patents registered in the United States.Footnote 33 Some of those drugs use Pfizer’s existing patents, some use Pfizer’s expired patents, and some do not use any patents at all. Should Pfizer’s annual profits be calculated on sales of all Pfizer drugs in the marketplace in a given year or only those that use its medical patents? Pfizer may also license its patents to another company to make and sell medical products. For PPI purposes, should Pfizer’s patent royalties be included in its profits?
This chapter suggests that annual profits for PPI purposes should be determined as follows. First, such annual profits should be calculated based on sales of medical products using a company’s patents. The number of patents used in a medical product should be considered, and medical products that do not use a company’s patents should be excluded from the calculation of annual profits. However, a company’s royalties from licensing its medical patents should be included. Second, such annual profits should deduct the relevant taxes pharmaceutical companies pay.
Pharmaceutical companies should bear the burden of calculating their annual profits derived from sales of their patented medical products, and each should then submit an end-of-financial-year profit report to the USPTO. It would be relatively easy for these companies to calculate such profits. Many are publicly listed companies that utilize accounting firms to prepare documents about quarterly and annual profits for public release, and they also need to make annual tax filings. Therefore, as long as they identify the medical products that use their patents, they can figure out the post-tax profits accrued from sales of these products and contribute 1 percent to the PPI.
Meanwhile, the USPTO should provide channels for the public to make financial donations to the PPI. If the donor designates a specific company that is willing to accept the donation, the USPTO may allocate the donation accordingly. If a donor does not designate a company, the USPTO may allocate the donation to a company willing to use it for PPI actions.
While 1 percent may sound like a small contribution, Johnson & Johnson earned post-tax profits of approximately $15 billion each year from 2018 to 2020,Footnote 34 and Pfizer earned around $11, $12, and $9 billion in 2018, 2019, and 2020, respectively.Footnote 35 Based on these earnings, their respective contributions to a PPI fund would be approximately $150 million and $110 million each year.Footnote 36 Adding other pharmaceutical companies and potential donations, the PPI could contribute enormous amounts of funds to the promotion of public health in the United States and developing countries.
C Review
The USPTO should require each participating pharmaceutical company to submit an annual report detailing the nature, scope, and effects of its actions taken in fulfillment of the responsibility attached to each of its medical inventions. In particular, the report should explain how a company’s expenditures on PPI actions have amounted to the requisite 1 percent of post-tax profits from sales of its medical products. The USPTO could review those reports every five years with a panel consisting of its own administrators, independent patent experts, auditing professionals, and public interest activists. The panel would decide whether a relevant pharmaceutical company has met its responsibility and, if not, make recommendations to the USPTO on mitigating actions the company should take.
Every ten years, the USPTO should conduct a comprehensive review of the PPI, studying its efficacy and how it should be improved with new measures to boost social welfare and safeguards to protect pharmaceutical companies’ interests. For example, the USPTO may review whether any of the five categories of PPI actions should be removed or any new category added. It may also review other issues such as whether 1 percent is a proper rate for financial contributions and how to improve the calculation of annual profits accrued from sales of patented medical products. Therefore, the PPI would continue to create dynamic schemes reflective of social and technological developments. To better implement the PPI, the USPTO should consider how it could collaborate with other governmental agencies, such as the Centers for Disease Control and Prevention, the FDA, and the United States Trade Representative, as well as international organizations such as the World Health Organization (WHO). The USPTO may invite them to share their expert opinions about how to improve the PPI and how to work together on specific programs to enhance the efficacy of pharmaceutical companies’ PPI actions.
Meanwhile, all USPTO decisions (including those by the panel it designates to review the PPI) could be announced subject to judicial review, allowing pharmaceutical companies to utilize judicial proceedings to settle their disputes with the USPTO should negotiations fail. The availability of this dispute resolution mechanism would prevent improper decisions that are unfair to pharmaceutical companies.
Nonprofit organizations may contribute to the PPI through actions such as creating a ranking of best-performing pharmaceutical companies entitled, for example, the World’s Most Responsible Pharma.Footnote 37 Every year, this program would access and rank the performance of pharmaceutical companies’ PPI actions, thereby encouraging companies to design and carry out PPI actions diligently. It would also create an additional oversight system to monitor any problems with PPI actions and generate public discussion about subsequent solutions. Figure 6.1 shows the holistic operation of the PPI:
Patent Philanthropy Initiative (PPI)
2 The Institutional Need of the PPI
A The PPI’s Potential Effects on Improving Public Health
How would the PPI promote public health in the United States and developing countries? COVID-19 provides a vantage point for a thought experiment about the PPI’s efficacy. If the PPI had been implemented five or ten years ago, the United States and the rest of the world would have been better prepared to cope with the COVID-19 pandemic.
First, the PPI would provide a feasible framework for large pharmaceutical companies’ sharing of technologies and know-how in developing countries. Deficiencies in the current global approach to technology transfer are evident in the current struggle to provide universal access to COVID-19 vaccines. Vaccine production has been largely limited to wealthy and highly industrialized countries and regions, including the United States, the United Kingdom, and the European Union.Footnote 38 Vaccine acquisition has similarly favored such countries, with nearly 85 percent of all COVID-19 vaccines administered by May 26, 2021 going to people in high-income and upper-middle-income countries.Footnote 39 Patent monopolies and the reluctance of firms to share technology through licenses have prevented pharmaceutical manufacturers in underrepresented regions from taking matters into their own hands, leaving only 43 percent of the estimated global vaccine manufacturing capacity being used as of February 2021.Footnote 40
Moreover, even if all COVID-19 vaccine patents were to be waived, a lot of essential information is still not included in the patents, preventing manufacturers from immediately beginning production.Footnote 41 As complex biological inventions, COVID-19 vaccines are “highly dependent on specific manufacturing processes and practices, many of which are not disclosed in a patent.”Footnote 42 The challenge of reverse engineering such processes is one reason behind the expense and delay historically associated with the entry of biosimilars into the market.Footnote 43
The PPI responds to the much-needed transfer of technologies and know-how. In public health crises, the PPI would encourage pharmaceutical companies to increase technology transfer and donate manufacturing ingredients and equipment to boost the production and distribution of vaccines, as well as medicines. After containment, the initiative would promote the medical capacities of low-income regions in the United States and developing countries in the long term. Efforts from developing countries alone have been insufficient to address deficiencies in local production of pharmaceuticals. For instance, through tax and import duty exemptions and import bans on forty-four locally made medicines, the government of Ghana sought to promote local pharmaceutical production and has reportedly established a 30 percent market share for local producers.Footnote 44 However, the success of these measures is tempered by “limited product choice amongst local companies, low capacity utilization, and a lack of ability to manufacture APIs or expand production into new therapeutic categories.”Footnote 45 Greater efforts by major pharmaceutical companies to transfer technology and know-how could be instrumental in overcoming such deficiencies.
By facilitating technology transfer measures toward developing regions, the PPI could promote greater global access to COVID-19 medicines and vaccines. Pharmaceutical companies would be more willing to transfer COVID-19 vaccine production know-how because their efforts could count toward fulfilling their PPI obligations. Such efforts are critical for enabling vaccine manufacturers in developing countries to ramp up production. As scholars have found, “[to] get off the ground, [firms in developing countries] typically need assistance from the enterprises already engaged in that process. The same is true for vaccines, where the production of bulk antigens remains the most daunting step to be mastered by developing country manufacturers.”Footnote 46 Pharmaceutical companies could also take the PPI action of entering into collaborative licenses with vaccine manufacturers in developing countries, which would also promote COVID-19 vaccine production in these countries.Footnote 47
Second, the PPI would promote greater self-sufficiency in developing countries, countering the nationalism that occurred at the expense of much of the world’s population during the COVID-19 pandemic. One means of pursuing this goal is through training health-care workers in developing countries. The WHO has declared the scaling up and strengthening of health workforce training and education a priority in both its 2019 Sustainable Development Goals global action plan and 13th General Programme of Work. This plan is intended “to address the global gap of 18 million health workers, and to support, strengthen and empower the existing health workforce.”Footnote 48 Similarly, Global Health Progress has operated the Healthworker Programme since 2009 to address “the estimated shortfall of at least 7.2 million health workers.”Footnote 49
Third, the PPI could help pursue the more general goal of ensuring universal access to affordable medicines. Drugs fall under two major categories: global drugs created for rich markets but also of benefit to developing countriesFootnote 50 (a prime example of which are drugs developed to treat cancerFootnote 51), and drugs specific to developing countries, such as those designed to treat malaria or tuberculosis.Footnote 52 Historically, pharmaceutical investment has overwhelmingly favored research into global drugs. For instance, in 2001, the Harvard School of Public Health surveyed twenty major firms. It found that only eight respondents had conducted research over the previous year into tuberculosis, malaria, African sleeping sickness, leishmaniasis, or Chagas disease, while seven others had spent less than 1 percent of their research and development budgets on any of these.Footnote 53 Currently, funds for research into developing country-specific drugs often come from public or philanthropic sources or public–private partnerships.Footnote 54
Pharmaceutical companies under the PPI could, therefore, commit to investing more in addressing developing country-specific diseases to produce more effective drugs and increase competition to drive down prices. This would be instrumental in addressing diseases which have been largely eradicated in rich countries but remain a problem in the developing world. For instance, whereas the WHO recently declared that China was now malaria-free after reporting 30 million annual cases of the disease in the 1940s, malaria continues to kill hundreds of thousands annually, especially in Sub-Saharan Africa.Footnote 55 In parts of Kenya specifically, cases are reported to be as high as 725 per 1,000 people.Footnote 56 Moreover, the challenge of COVID-19 has undermined existing efforts to combat malaria. For instance, malaria cases spiked in some parts of Zimbabwe after the beginning of the pandemic.Footnote 57 This problem could have continued to develop as the antimalaria drug chloroquine did show potential as a treatment for COVID-19, which could have made the drug less accessible for malaria patients in developing countries.Footnote 58
B Responsibilities of the USPTO
The Conventional Role of the USPTO
The COVID-19 pandemic has exposed deep-seated problems in the US public health-care systemFootnote 59 and reform is imperative. The COVID-19 pandemic was also a global public health crisis necessitating a global response.Footnote 60 When developing countries face severe lack of patented vaccines, this raises the question as to how to adjust the patent protection system that has been heavily influenced by developed countries with the greatest access to vaccines.Footnote 61 Moreover, given the comparative fragility of developing economies, such nations have been hit hardest by lockdowns and curtailment of trade, and are also predicted to recover much more slowly than richer countries.Footnote 62 A global recovery from the pandemic benefits the United States in terms of decreasing domestic transmission of infection from abroad. Global recovery will also drive quicker national economic recovery through normalization of global trade and investments.Footnote 63 As demonstrated in this section, the PPI would greatly promote public health in the United States and abroad, and would not disrupt pharmaceutical innovation in the United States. Therefore, the US government should take the lead in protecting public health globally and implement the PPI under the auspices of the USPTO.
The USPTO is the federal agency responsible for granting patents and registering trademarks in the United States, with the former aimed at fulfilling the mandate of the IP clause of the US Constitution.Footnote 64 The clause holds that, in order to “promote the progress of science and useful arts,” Congress should have the power to provide inventors limited periods of exclusive rights over their discoveries.Footnote 65 In pursuit of this goal, the USPTO is responsible for examining patent applications to determine whether an applicant is entitled to a patent under the law.Footnote 66 While the USPTO lacks substantive rulemaking authority,Footnote 67 it provides advice to the US president and government agencies to further “effective IP protection for U.S. innovators and entrepreneurs.”Footnote 68
Once a patent application is submitted to the USPTO, patent examiners review its conformance with formal requirements of patent law, investigate any relevant prior art and negotiate with the applicant as to the proper scope of the claims.Footnote 69 The work of patent examiners is divided among a number of technology centers, with each center having jurisdiction over certain areas of technology.Footnote 70 If patent grants are refused by examiners, appeals can be made to the Patent Trial and Appeal Board (PTAB).Footnote 71 The USPTO publishes granted patents, and most patent applications, eighteen months from the earliest effective application filing date, records assignments of granted patents, and maintains a search room for the public to examine granted patents and records.Footnote 72
Why should the USPTO expand its conventional role to administer the PPI? In the following two subsections, I argue that oversight of the PPI would enhance the USPTO’s capacities in fulfilling its responsibilities to promote innovation and protect patents as public franchises, both of which will ultimately promote public health.
Responsibility for Promoting Innovation
As outlined, the USPTO examines and grants patents for the purpose of promoting innovation. However, several USPTO practices arguably work against this purpose. By assuming responsibility for oversight of the PPI, the USPTO could counteract some of these practices.
The primary way in which the USPTO can be considered as failing to promote innovation is in the granting of poor-quality patents, which have a range of negative effects on entrepreneurship and innovation. For example, the grant of poor-quality patents facilitates holdup licensing and patent thickets, creates deal-killing transaction costs by forcing contracting parties to reexamine the validity of USPTO-granted patents, and encourages rent-seekers to form “speculative patent acquisition and enforcement ventures.”Footnote 73 There have been persistent accounts of diminished patent quality at the USPTO, and it has been cautioned that its patents risk becoming no more than “R&D Completion Certificates.”Footnote 74
As evidenced by the practice of evergreening, low-quality patents are certainly a problem in the pharmaceutical industry. Evergreening involves the artificial extension of patent terms through secondary patent applications for minor changes to drugs that are often not novel, nonobvious, or useful.Footnote 75 For instance, before GlaxoSmithKline’s patent for the heavily prescribed antibiotic Augmentin was due to expire in 2002, the company was able to secure a secondary patent and prevent generic competition from entering the market to reduce costs for patients.Footnote 76 Augmentin’s original patent was for a combination of amoxicillin and a salt of clavulanic acid, and the secondary was based on the same priority document used in 1975, for the single claim of a “solid pharmaceutically acceptable salt of clavulanic acid.”Footnote 77 Although the patent was invalidated by a US court in 2002,Footnote 78 the fact such a poor-quality patent was granted sounds alarm bells for the USPTO.
The practice of evergreening pervades the pharmaceutical industry. A study of every drug on the market between 2005 and 2015 found that 80 percent of best-selling drugs had extended their exclusivity at least once and 50 percent had done so more than once.Footnote 79 By granting such patents, the USPTO must assume some responsibility for the role evergreening plays in inhibiting the progress of science. Most significantly, in a “blithe disregard” for the exchange-of-secrets justification for patent law, instead of allowing a pharmaceutical invention to fall into the public domain after the expiry of a patent term, evergreening denies the public the benefit offered by the intended diffusion of inventive knowledge.Footnote 80
USPTO efforts to improve patent quality have encountered numerous practical and legislative challenges. For instance, Professor Mark Lemley has argued that investment in efforts to curb poor USPTO patents would be wasteful.Footnote 81 Primarily he claims that the costs of having examiners spend more time examining patents and searching prior art would not be justified as 95 percent of patents are either never used or are used in contexts which do not rely on the determination of validity.Footnote 82 Moreover, he contends that the assumption that more examination time would weed out more bad patents without weeding out good ones is unrealistic. Such false negatives risk reducing innovation incentives.Footnote 83 Placing too much emphasis on the denial of patents, therefore, counterintuitively risks further limiting the progress of science.
Similar problems can be found in efforts and proposals to curb the practice of evergreening. For instance, the USPTO attempted to introduce a limitation to the availability of continuation applications, with only two such applications being available per application family.Footnote 84 The limitation was controversial as it risked blocking legitimate patent extensions and, in any case, was ultimately invalidated in court for exceeding the USPTO’s authority to regulate.Footnote 85 Despite the grant of a rehearing, the USPTO ultimately decided to voluntarily withdraw its proposed limitation.Footnote 86 Other proposed legislation presents similar challenges. For instance, a 2019 bill called the “No Combination Drug Patents Act” would create a presumption that follow-on pharmaceutical patents were obvious.Footnote 87 Critics have also questioned the impact of this presumption on legitimate conduct. They pointed out that secondary patents could be essential in bringing certain necessary treatments to the market, as in the case of the failed cancer drug AZT being granted a secondary method patent for use to treat AIDS.Footnote 88
Oversight of the PPI provides the USPTO with a golden opportunity to drive innovation in public health through the patents it grants. Rather than turning away from incentivizing disclosure through the grant of patents and focusing on increasing examination scrutiny and the denial of patent grants, the USPTO could counteract the negative effects of poor-quality patents by ensuring pharmaceutical companies appropriately give back to the public as a means of promoting innovation.
Under the PPI, efforts to promote voluntary technology transfer could help overcome evergreening’s attempts to delay the introduction of inventions to the public domain. For instance, the ongoing COVID-19 crisis has highlighted the need for greater sharing of essential information not contained in patent documents. As complex biological inventions, COVID-19 vaccines are “highly dependent on specific manufacturing processes and practices, many of which are not disclosed in a patent.”Footnote 89 Collaborative licenses between patent-owning firms and individual manufacturers have, therefore, been proposed as the most efficient way to advance vaccine production.Footnote 90 By ensuring that companies engage in such measures to fulfill their duties under the PPI, the USPTO would be able to promote innovation more proactively than through focusing on the denial of patents.
Responsibility to Protect Patents as Public Franchises
A second reason that the USPTO should assume responsibility for oversight of the PPI is that patents granted by the USPTO are by nature public franchises. This should confer some responsibility on the USPTO to ensure that the patents are used in the public interest, and the PPI can provide a vehicle for ensuring this.
The designation of patents as public franchises came in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC.Footnote 91 The case concerned a patent for technology to protect wellhead equipment used in hydraulic fracturing, allegedly infringed by Greene’s Energy Group.Footnote 92 Greene’s initiated validity proceedings at the District Court and petitioned the USPTO to conduct inter partes review.Footnote 93 The PTAB of the USPTO issued a decision concluding that all of Oil States’ claims were unpatentable.Footnote 94 Oil States then appealed on the grounds that inter partes review was unconstitutional.Footnote 95
When considering Oil States’ arguments, the Supreme Court began by noting that the grant of a patent involves the USPTO taking from the public rights of substantial value and offering them to the patentee.Footnote 96 The court likened this to the granting of public franchises and noted that such franchises can be qualified by the authority of the grantor to reexamine and perhaps cancel the grant.Footnote 97 Oil States argued that patents conferred private property rights to a patentee, but this claim was held not to contradict the court’s decision as the specific property right granted by a patent was a public franchise.Footnote 98 As public franchises can only confer the rights that a statute provides, patent rights are limited by the provisions of the Patent Act, which include inter partes review.Footnote 99
The primary objective of all franchise grants is to benefit the public at large. The interests of grantors and grantees are secondary to such grants.Footnote 100 Generally, the public benefit sought is market regulation, for example by ensuring low prices or subsidizing costs.Footnote 101 Grantees’ agreement to pay certain fees, shoulder some responsibility, or perform a public duty is the quid pro quo to receive a franchise from the government. It is the responsibility of the state or a duly authorized body to oversee the agreement.Footnote 102 In the case of patents, it can be argued that, as the granting government agency, the USPTO should assume responsibility for ensuring patents are used as public franchises in the public interest.
In the pharmaceutical industry, there are notable examples of patents being used against the public interest and failing to serve their role as public franchises. For example, as outlined above, evergreening artificially extends patent monopolies and delays the entrance of medicines into the public domain.Footnote 103 The practice of price gouging is another example. Taking advantage of the substantial freedom to set prices that a patent monopoly offers,Footnote 104 patent owners frequently engage in abusive practices. In the first half of 2019, more than 3,400 drugs saw their prices raised by an average of 10.5 percent, with about 41 of these experiencing price increases greater than 100 percent and one increased by 879 percent.Footnote 105 Generally, the most dramatic price rises occur in the category of “specialty drugs,” which may be used to treat rare conditions, require special handling such as ongoing clinical assessment, or simply fall into the category for costing in excess of $10,000 a year.Footnote 106 From 2010 to 2015, specialty drugs accounted for more than two-thirds of growth in drug spending and in 2016 it was projected that specialty drug prices would mean that 1 percent of all drugs would account for 50 percent of all drug spending in the United States by 2018.Footnote 107
In cases of abusive price gouging that relies upon medical patents, it could be argued that the USPTO should be empowered to intervene. However, determining the nature of this intervention is a challenge. In cases of patents with questionable validity, it might be suggested that inter partes or post-grant review could be used as a means for the USPTO to revoke monopoly rights. Inter partes review can be initiated by petitioners either nine months after the grant of a patent or following the termination of post-grant review.Footnote 108 In contrast, post-grant review must be initiated within the nine months following the grant of a patent.Footnote 109 While inter partes review focuses only on nonobviousness and considers only patents and printed publications as prior art, the post-grant review covers all grounds for invalidity and considers a broader range of evidence.Footnote 110 Currently, inter partes review is more common as the window to institute it is wider.Footnote 111
The first problem with this approach is that it would only be available to the USPTO in the case of weak patents. However, the strategy of pursuing revocation of weak patents being used against the public interest is also not without its flaws. For instance, while it is cheaper for prospective generic manufacturers to pursue inter partes review than court litigation, “inter partes review filing fees of $23,000 and attorney costs of around $400,000 or more are still substantial.”Footnote 112 Furthermore, drugs are often covered by multiple patents and “30-month stays will remain available so long as at least one Orange Book-listed patent remains.”Footnote 113 Even if all relevant patents were invalidated, generic-free periods provided for new drugs (five years), drugs for rare diseases (seven years), and biologics (twelve years) are not affected by patent invalidation.Footnote 114
Commentators have argued that promoting post-grant opposition mechanisms such as inter partes review risks providing challengers with too many bites of the apple, “allowing them to inundate patentees with an endless set of challenges.”Footnote 115 Other statements cautioning against this approach have been made. For instance, it is claimed that the decision to label patents as public franchises is unfounded.Footnote 116 This is because as a category of legal rights, patents have historically been understood to impart private interests.Footnote 117 However, commentators also claim that allowing the revocation of patents to become too commonplace risks “effectively stating that a public franchise remains a public right, even after the public right has been conferred upon the individual.”Footnote 118
Rather than focusing on the invalidation of patents, the USPTO could ensure patents are being used in the public interest through oversight of the PPI. Practices like price gouging could be counteracted by ensuring that pharmaceutical firms commit a fraction of profits from patented products to efforts aimed at improving public health. Aside from engaging in voluntary technology transfer, as described earlier, pharmaceutical companies could be encouraged to participate in schemes aimed at promoting universal access to affordable medicines. Such efforts would ensure that the public franchises offered to pharmaceutical companies are not abused while also not undermining the private interests that a public franchise confers. It would also avoid some of the limitations of inter partes review, especially problems unique to the pharmaceutical industry, such as generic-free periods. Furthermore, as the PPI would require 1 percent of profits from pharmaceutical products with both strong and weak patents, it would allow the USPTO to ensure that even the former category is used in the public interest.
3 The Legitimacy of the PPI
In the preceding sections, I examined the case for establishing the PPI and its economic and social functions in promoting public health, both in the United States and abroad. In this section, I seek to respond to potential concerns that the PPI would run afoul of US obligations under the TRIPS Agreement as well as the Takings Clause of the US Constitution. I also consider whether the PPI would disincentivize pharmaceutical companies from investing in research and development and thereby severely disrupt innovation in the medical sector.
A International Law Obligations and Constitutional Protection
TRIPS Agreement
Would the PPI violate the TRIPS Agreement? This agreement sets out minimum standards for IP protection in WTO member states, including the United States.Footnote 119 In my opinion, the United States would remain in full compliance with the TRIPS Agreement notwithstanding USPTO implementation of the PPI.
First, the PPI does not alter patentability standards. Pursuant to the TRIPS Agreement, member states must make patent protection available for inventions that have novelty, inventiveness, and industrial applicability.Footnote 120 It is obvious that the PPI would leave those standards intact as it only imposes the relevant responsibilities after a medical patent is granted.
Second, the PPI does not affect the exercise of patent rights. The TRIPS Agreement confers upon a patent owner rights to make, use, offer for sale, sell, and import the patented product and process.Footnote 121 Under the PPI, pharmaceutical companies fully enjoy this bundle of exclusive rights with no effect on their ability to merchandize their products in the marketplace.
Third, the PPI stays within the scope of patent limitations that WTO member states can carve out in their domestic patent laws. The TRIPS Agreement allows member states to “provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.”Footnote 122 A “limited” exception to patent rights, according to the WTO dispute resolution panel, “makes only a small diminution of the rights in question.”Footnote 123 The PPI only requires pharmaceutical companies to contribute 1 percent of their annual post-tax profits; absolutely “a small diminution” compared with the 99 percent of total profits that would go into their pockets. In this sense, the PPI is a limited exception.
With respect to the second condition, the PPI would not unreasonably conflict with a normal exploitation of a patent. As shown earlier, the PPI does not disrupt the exercise of patent rights by a pharmaceutical company when it seeks to merchandize its products on the market. Only after the company’s annual exploitation of its patent rights is completed should it contribute 1 percent of post-tax profits to the PPI.
Nor would the PPI run counter to the third condition. As the following section shows, a pharmaceutical company’s charitable actions would not unreasonably prejudice its economic investment in medical patents.Footnote 124 As interpreted by the WTO panel, the second prong of the third condition, “taking account of the legitimate interests of third parties,” permits a member state to impose and enforce a legitimate patent limitation, provided that it is “supported by relevant public policies or other social norms.”Footnote 125 The PPI satisfies this second prong given its ostensible support from policies promoting public health.
US Constitution
Pharmaceutical companies may allege that the PPI violates the Takings Clause of the Fifth Amendment to the US Constitution, which stipulates that just compensation must be provided for any private property taken for public use.Footnote 126 The Supreme Court has ruled that deprivation of patent rights is subject to this clause.Footnote 127 The PPI triggers two kinds of allegations of taking of patent rights: the prospective application of the PPI to new patents to be granted by the USPTO, and the retroactive application of the PPI to existing patents that have already been granted by the USPTO and still remain within their protection terms.
With respect to the former, the prospective PPI application would not constitute a taking of a patent under the Fifth Amendment. This is because the PPI is an additional legal requirement for the grant of a new medical patent. It becomes a quid pro quo for the USPTO to approve a new patent application. Once a medical patent is granted, its owner has a responsibility to participate in the PPI.
However, the retroactive application of the PPI to existing patents may give rise to property-taking concerns, given that it requires pharmaceutical companies to financially contribute to the PPI for public use without just compensation. Both the direct taking away of 1 percent of their post-tax profitsFootnote 128 and the potential diminution in the value of their patent(s)Footnote 129 may constitute compensatable takings under the Fifth Amendment. However, the USPTO may maintain that the PPI requirements are by nature equivalent to the patent maintenance fees that it charges patentees.Footnote 130 As the USPTO has the power to increase patent maintenances fees,Footnote 131 it can duly include the PPI requirements as additional maintenance fees for pharmaceutical patents it grants. As judicial rulings have demonstrated,Footnote 132 courts will not invoke the Takings Clause to rule against such decisions as they are within the ambit of the USPTO’s legal powers.
Were all these constitutional concerns about the PPI not to be addressed, the USPTO may petition Congress. Since Congress has the power to “prescribe conditions” on which patents rights are granted and exercised,Footnote 133 it could pass an amendment to the Patent Act authorizing it to establish the PPI and apply it to all pharmaceutical patents, both prospectively and retroactively.
B Pharmaceutical Companies
The third concern about the PPI’s legitimacy relates to whether it would disincentivize pharmaceutical companies from investing in and developing new medicines and vaccines. There is virtually unanimous agreement that the patent system is designed to promote innovation, as well as the societal benefits innovation provides, by rewarding investment with the opportunity to charge monopoly prices in exchange for the benefits of the innovation.Footnote 134 It is therefore necessary to explore whether, in practice, the 1 percent of post-tax profits from patented inventions required by the PPI would harm medical innovation by discouraging investment in research.
Studies have frequently supported the notion that the pharmaceutical industry is especially reliant on the patent system. For instance, one study of US firms found that between 1981 and 1983, around 65 percent of pharmaceutical products would not have been introduced in the absence of patent protection.Footnote 135 The study also found that 60 percent of products would not have been developed in the first place, a much higher percentage than in other industries studied.Footnote 136 Similarly, a survey of UK research and development managers led economists to estimate that research and development expenditure would be reduced by 64 percent in the absence of patent protection, in contrast to an estimated 8 percent reduction across all other industries.Footnote 137 These findings accurately reflect the reality of modern-day research and development in medicine, which typically requires years of work by large teams of scientists and can cost hundreds of millions of dollars.Footnote 138 The development of new drugs often takes more than a decade to complete and only around one in eight will survive clinical testing and go on to reimburse firms for their efforts.Footnote 139 Once a formula is found, products can be reverse engineered or imitated at very low cost, making it easy for competitors with free access to the market to price out the creators and make it difficult for them to recoup their costs.Footnote 140 However, research in the 1980s found that the cost of imitating drugs was made 30 percent more expensive thanks to patent protection.Footnote 141
There are multiple reasons to suggest that the PPI is unlikely to have an impact sufficient to undermine patent law’s function in promoting medical innovation. First, pharmaceutical investment in innovation is also based upon demand, and so long as diseases continue to be a problem, pharmaceutical companies will continue to attempt to meet demand. To maximize profits, the pharmaceutical industry tends to focus on drugs to treat chronic conditions that affect a large number of people, and endeavors to stimulate this market demand by spending much more on marketing than on research and development.Footnote 142
Moreover, as described, pharmaceutical companies have traditionally focused their research on “global drugs,” which are in the widest demand and offer the largest market.Footnote 143 Studies have shown that the pull of market demand has been sufficient to encourage investment in innovation, even following the introduction of limitations on patent rights. For instance, one study of six antitrust consent decrees found that only one resulted in a reduction in investment.Footnote 144 The study concluded that only the highly predictable imposition of a compulsory license on a very significant market would be likely to discourage innovation.Footnote 145 As the PPI offers a choice of voluntary measures and will not force pharmaceutical companies to sacrifice their markets for global drugs in large wealthy nations such as the United States, the outcome is unlikely to be any different.
Throughout history, medical innovations have occurred regardless of the level of patent protection available. Commentators offer Switzerland as an example of an environment in which pharmaceutical innovation flourished even in the absence of patent protection.Footnote 146 In the early 1900s, Swiss pharmaceutical companies began to produce drugs protected in other countries and quickly developed one of the most innovative and successful pharmaceutical industries in the world, resisting international pressure to introduce patent protection for pharmaceutical inventions until 1977.Footnote 147
Second, an examination of how pharmaceutical companies currently use their funds suggests that the 1 percent of post-tax profits from patented products required by the PPI should not force firms to reduce research expenditure. Currently, the pharmaceutical industry only spends around 1–2 percent of gross revenues on basic research to discover new molecular entities, with most basic knowledge now coming from publicly funded laboratories and institutions.Footnote 148 Although private pharmaceutical companies continue to be the primary contributor to overall research investment,Footnote 149 their focus has been increasingly on late-stage clinical development and distribution of products, while academic researchers are increasingly responsible for the discovery and pre-clinical and early-stage evaluation of potential new pharmaceutical products.Footnote 150
In fact, more pharmaceutical industry funds are directed toward efforts to maximize shareholder value than research and development. For instance, one study of how the eighteen largest US pharmaceutical companies use their profits found that, from 2006 to 2015, 99 percent of profits were distributed to shareholders, with 50 percent as stock buybacks and 49 percent as dividends.Footnote 151 The total $261 billion spent on buybacks amounted to 56 percent of the combined total of research and development expenditure.Footnote 152 This data suggests that there would be profits available to redirect toward innovation after 1 percent of profits from patented products have been donated through the PPI.
Last, but not least, in addition to assuming more responsibility for early research, the public sector offers many incentives to innovate in the form of funding, subsidies, and other benefits. For instance, though the majority of the National Institutes of Health’s (NIH) 2020 budget went toward funding research in universities, private pharmaceuticals were beneficiaries as well, with the three top recipients receiving $31,493,555, $11,323,283, and $8,428,162, respectively.Footnote 153 The pharmaceutical industry also benefits from a research and development tax break, introduced in 1981, to encourage private sector investment in pioneering research.Footnote 154 Moreover, in cases of sufficient demand, advance purchase orders from national governments can reduce the risks traditionally associated with pharmaceutical research. For instance, while in the process of developing COVID-19 vaccines, Johnson & Johnson, Moderna, and Pfizer all sold millions of doses to the US government.Footnote 155 The combination of these ex ante and ex post rewards suggests that innovation would be encouraged “even in the absence of patent protection.”Footnote 156
4 Conclusion
When the TRIPS Agreement was passed to strengthen global protection of patents, Nobel Prize in Economics winner Joseph Stiglitz cautioned that the world had signed a “death warrant” for thousands of those in developing countries who would be deprived of life-saving drugs.Footnote 157 Some pharmaceutical companies have now executed this warrant through their insistence on the sanctity of their patents while COVID-19 has claimed millions of lives across the globe. The actions of these companies, however, have demonstrated that equitable access is not their top concern. It is the profits they can make from their patents, not the health of billions of people, that motivates them.
The PPI requires the United States to take leadership toward effective patent reform, driving pharmaceutical companies to develop a new sense of responsibility for the promotion of public health in the United States and developing countries. The PPI would position the USPTO to proactively tackle the public health problems that arise from the medical patents it grants. If the USPTO can lead by example, other patent offices throughout the global community will also be prompted to implement a PPI.
Crisis brings opportunity for change. We cannot afford to waste it.Footnote 158 The COVID-19 pandemic has revealed the asymmetry of patent owners’ rights and responsibilities and, along with this disturbing clarity, an opportunity for reform. The PPI has the potential to be an institutional “vaccine,” offering global immunity against the devastating effects of the prevailing patent system.
Open access