Patents in the Knowledge-Based Economy (2003) / Chapter Skim
Currently Skimming:
Effects of Research Tool Patents and Licensing on Biomedical Innovation
Effects of Research Tool Patents and Licensing on Biomedical Innovation
Pages 285-340
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 285... ...
We find that there has in fact been an increase in patents on the inputs to drug discovery ("research toolshed. However, we find that drug discovery has not been substantially impeded by these changes.
|
From page 286... ...
Patent and Trademark Office (USPTOJ guidelines, active intervention by the National Institutes of Health (NILE, 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.
|
From page 287... ...
have suggested, however, that recent policies and practices associated with the granting, assertion, and licensing of patents on research tools may now be undercutting the stimulative effect of patents on drugs and related biomedical discoveries. In this chapter, we report the results of 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.4 We conceive of research tools broadly to include any tangible or informational input into the process of discovering a drug or any other medical therapy or method of diagnosing diseased Heller and Eisenberg (1998)
|
From page 288... ...
. An example of such an upstream innovation in biomedicine is the discovery that a particular receptor is important for a disease, which may make that receptor a "target" for a drug development program.7 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 limit the pace of innovation (Merges and Nelson, 1990~.8 The revolution in molecular biology and related fields over the past two decades and coincident shifts in the policy environment have now increased the salience of this concern for biomedical research and drug innovation in particular (National Research Council, 1997~.
|
From page 289... ...
To prefigure the key result, we find little evidence of routine breakdowns in negotiations over rights, although research tool patents are observed to impose a range of social costs and there is some restriction of access. In the fifth section of the chapter, we describe the mechanisms and strategies employed by firms and other institutions that have limited the negative effects of research tool patents on innovation.
|
From page 290... ...
, and universities. Third, uncertainty over the value of rights, which is acute for upstream discoveries and research tools, can spawn asymmetric valuations that contribute to bargaining breakdowns and provide opportunities for other biases in judgment.
|
From page 291... ...
Therefore, we are concerned with more extreme forms of restricted access that may come in the form of exclusive licensing of broadly useful research tools, high license fees that may block classes of potential users, or decisions on the part of a patentholder to itself exploit some upstream tool or research finding that it developed. Historical The possibility that access to a key pioneering patent may be blocked, or that negotiations over patent rights might break down even when a successful resolution would be in the collective interests of the parties concerned is not a matter of conjecture.
|
From page 292... ...
DATA AND METHOD To address these issues, we conducted 70 interviews with IF attorneys, business managers, and scientists from 10 pharmaceutical firms and 15 biotech firms, as well as university researchers and technology transfer officers from 6 universities, patent lawyers, and government and trade association personnel. Table 1 gives the breakdown of the interview respondents by organization and occupation.
|
From page 293... ...
There has, however, been a rapid growth in biotechnology patents over the past fifteen years, from 2,000 issued in 1985 to over 13,000 in 2000.~2 Such rapid growth is consistent with a sizable number of patents granted for research tools and other patents related to drug development. Our interview respondents also suggest that there are indeed now more patents related to a given drug development project.
|
From page 294... ...
Here, 500 patent applications were initially reviewed, of which 100 were potentially of interest. In the end, 13 relevant patents were identified, including research tools, specific DNA for expression, and the technology for transforming the plant.
|
From page 295... ...
There is a little of that going on in genomics. That way, if an IF issue ever arose, we have some cards in our hand." A respondent from a large pharmaceutical firm made a similar comment about their motives for patenting research tools: "I supposed because we see everyone else doing it in part.
|
From page 296... ...
Preconditions for Restricted Access to Upstream Discoveries Our second concern is that restrictive assertion or licensing of patents on research tools especially foundational upstream discoveries upon which subsequent research must build (such as transgenic mice, embryonic stem cells, or knowledge of a potential drug target) may undermine the advance of biomedical research.
|
From page 297... ...
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 (as distinct from license agreements that include royalties on the product discovered using a research tool)
|
From page 298... ...
But that is quite different from other firms having IP for the research tools the inputs into the discovery process.
|
From page 299... ...
Royalty Stacking Another way in which multiple claimants on research tool IP may block drug discovery and development is the stacking of license fees and royalties to the point of overwhelming the commercial value of a prospective product. Most of our respondents reported that royalty stacking did not represent a significant or pervasive threat to ongoing R&D projects.
|
From page 300... ...
One respondent stated, "All are sensitive and aware of the stacking phenomenon so there is a basis for negotiation, so that you don't have excessive royalties." Finally, in the few cases in which such a problem might emerge, it also tends to be anticipated.22 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 for Research Tools Although obtaining systematic data on the cost of patented research tools is difficult, half of our respondents provided enough information to allow us to approximate the range of such costs.
|
From page 301... ...
it is that big of a technology revolution.23 Thus, although the development and patenting of research tools and upstream discoveries are imposing costs on downstream users, some of those users believe that their research is substantially more productive as a consequence. Our interviews suggested, however, that although these costs were seen as manageable by large pharmaceuticals firms, and even by established biotech 23Randall Scott of Incyte offered several revealing examples of the productivity benefits of genomics that accord with the comments of our other respondents: "An Incyte customer stated that it had reduced the time associated with target discovery and validation from 36 months to 18 months, through use of Incyte's genomic information database.
|
From page 302... ...
Several have suggested that the ability to get others to license your patented technology depends on embedding it in a form that is more convenient, reliable, or inexpensive than do-it-yourself versions would be. 25We could not obtain systematic data on the license terms for research tool technologies.
|
From page 303... ...
In brief, although redirecting projects to invent around research tool patents was common, it was relatively rare for firms to move to a new research area (perhaps a new disease, or even a very different way of approaching a disease) because of concerns over one or more research tool patents.
|
From page 304... ...
One industrial respondent affirmed that, although other considerations were key, royalty stacking could affect decisions at the margin: "I don't want to say a worthwhile therapeutic was not developed because of stacking problems. But if we have two equally viable candidates, then we choose based on royalties." One biotechnology respondent was explicit, however, about the greater importance of expected demand and technological opportunity: "At the preclinical stage, you find you have 10 candidates, and you can afford to continue work on 3.
|
From page 305... ...
On the other hand, one can also argue that even in the presence of rich opportunities, shifting may be costly to the extent that diminishing the number of firms trying to achieve some technical objective makes success less likely. Evidence of Restricted Access to Upstream Discoveries and Tools Although biomedical research does not appear to be especially vulnerable to breakdowns over IP negotiations, restricted access to important research toolsespecially foundational upstream discoveries can potentially impede innovation in a field.
|
From page 306... ...
Also, small firms complained about Roche's fees for applications of the technology outside of diagnostics, which ranged between $100,000 and $500,000 initially with a royalty rate of 15 percent. The high price likely restricted access for some, especially small biotech firms.30 The CellPro case, described in detail by Bar-Shalom and Cook-Deegan (2002)
|
From page 307... ...
also suggest that royalty stacking may have made the technology economically unfeasible. Hopkins had licensed to B-D, which in turn licensed to Baxter, which in turn licensed to others, with each taking a share of the rents.
|
From page 308... ...
The most visible recent controversy over access to IF covering a foundational biomedical discovery is the case of embryonic stem cell technology.36 In brief, Geron funded the research of a University of Wisconsin developmental biologist, James Thompson, who in 1998 first isolated human embryonic stem cells and was issued a very broad patent. The Wisconsin Alumni Research Foundation (WARF)
|
From page 309... ...
It is not clear who really owns what." See below for a discussion of infringement of research tools patents in general.
|
From page 310... ...
Restrictions on the Use of Targets In our interviews, we heard widespread complaints from universities, biotechnology firms and pharmaceutical firms over patentholders' assertion of exclusivity over an important class of research tools, namely "targets," which refers to any cell receptor, enzyme, or other protein implicated in a disease, thus representing a promising locus for drug intervention. Our respondents repeatedly complained about a firm excluding all others from exploiting its target (in the anticipation of doing so itself)
|
From page 311... ...
You put an army of 50 molecular biologists and one-third of the medicinal chemists at [the firm] on this single problem." In addition to the constraints imposed by firms' particular capabilities on the approaches taken to exploiting targets, there are also differences in firm strategies or approaches to drug development.40 The following quotation from a scientist at a small start-up highlights this problem: Part of the problem that comes in here is that many of these firms are very specialized and many times somebody holds patents but they don't do all the 40An executive from a large pharmaceutical firm stated: "We all have access to the same body of literature, same collection of issued patents.
|
From page 312... ...
, and some have claimed that these suits are deterring others from developing HCV drugs (Cohen, 1999~. Chiron responded to this claim by pointing out that it had licensed its patent to five pharmaceutical companies for drug development work (as well as at least five firms for diagnostic testing)
|
From page 313... ...
Furthermore, Geron has formed a number of nonexclusive licensing agreements for the exploitation of telomerase, typically with small biotech firms possessing complementary technology. Thus, although 3000 2500 2000 1 500— 1 000— 500 O ~ 1 985 1987 1 989 1 991 / 1993 1995 1997 1999 2001 FIGURE l Cumulative citations for "Telomerase" in MEDLINE.
|
From page 314... ...
noted that dealing with research tool patents did cause delays and add to the cost of research.43 42Here we are only concerned with social costs, not the transfers of rents reflected in licensing fees. 43A respondent from a pharmaceutical firm expressed the firm's frustration: We do have frustration internally because we can't do what we consider basic research with a cloned gene, not selling the gene, just using it to make another discovery.
|
From page 315... ...
About a third of our respondents addressed the question of negotiation delays or litigation, and nearly all of them felt that the process of sifting through a large number of potentially relevant patents and subsequent negotiations was very time consuming. One characterized the process as "complex, ongoing, and labor intensive," but a cost of doing business.
|
From page 316... ...
One attorney responsible for evaluating research tool IP from a large pharmaceuticals firm provided estimates for the time attorneys were occupied with evaluating the IP of third parties and the time associated with actual negotiations that implied a total of $2 million in annual expenses. Another respondent from a large pharmaceuticals firm suggested that the transactions costs associated with biotech IP were especially high.
|
From page 317... ...
Therefore, attorney activity per R&D dollar is unlikely to have increased significantly in the recent past. Even allowing for some increase in attorneys' hourly fees,44 these data suggest that the patenting of research tools has not itself dramatically increased demand for legal resources and, by extension, that the transaction costs have not increased disproportionately.
|
From page 318... ...
On the other hand, Merz argues that "There is no clear line to be drawn between clinical testing and research testing, because the state of the art of genetic tests is such that much more clinical study is necessary to validate and extend the early discovery of a disease gene. Thus, the restriction of physicians from performing clinical 46One controversial case was the diagnostic test for the Canavan disease gene mutation.
|
From page 319... ...
So long as the university is not generating revenue based on the patented technology, universities appear to be largely left alone, although some firms will send letters. Materials Transfers Eisenberg suggests that another significant cost of the patenting of research tools is that associated with the costs and delays in negotiating access to research materials, that is, those associated with materials transfer agreements (MTAs)
|
From page 320... ...
Also, although commercial value or industry sponsorship are important predictors of failing to share, the major reason given for not sharing was the effort required to actually produce the material or information, with concerns about scientific competition also being important, and with commercial concerns ranking at the bottom of the list. Blumenthal et al.
|
From page 321... ...
suggested that trust that comes from long-term relationships reduces the friction of these kinds of transactions, for example, the willingness to edit the standard agreement to take out offending clauses such as publication review clauses or reach-through rights (Bolton et al., 1994; Uzzi,1996~.51 In fact, two of the scientists we interviewed said they routinely send materials without bothering with MTAs, although this would probably upset their technology transfer offices. In addition, the availability of supply houses to provide licensed copies of patented research materials did facilitate access and distribution according to some 49Although Campbell et al.
|
From page 322... ...
In this section, we review the private strategies adopted by firms and universities and responses from government that allow research and commercialization to go forward despite the proliferation of biomedical intellectual property and claimants over the past decade or so. One important reason why research tool patents tend not to interfere with research is that it is typically not that difficult to contract.
|
From page 323... ...
research tools, such as genomics databases, DNA chips, recombinant DNA technology, PCR, etc., are made widely available through nonexclusive licenses. Incyte, for example, licensed its genomics database to over 20 pharmaceutical firms (who together account for about 75 percent of total private pharmaceutical R&D)
|
From page 324... ...
Infringement and the "Research Exemption" One solution to restrictive patents on upstream inventions is simply to ignore some or all of them. Several respondents noted that infringement of research tool patents is often hard to detect, facilitating such behavior.
|
From page 325... ...
This vulnerability to such sanctions is based on the need to buy as well as sell technology, or, perhaps especially, to informally trade information. Indeed, there is a strong interest in developing trusting relationships with university researchers to encourage information sharing (for the general issue of trust and information sharing see Uzzi, 1996; for a discussion of the importance for industrial R&D of informal informa55Building on Roche Products, Inc.
|
From page 326... ...
We give out our research tools for free, frequently. All we ask is, if you invent anything that is directly related to the tool, you allow us the freedom to practice.
|
From page 327... ...
When I have a patented technology, academic colleagues would not even think of paying to use it. Infringement of research tool patents by firms also appears to be pervasive.
|
From page 328... ...
Thus another means of avoiding research tool patents is to use the patented technology offshore. Although similar to the solution of ignoring the patent, in that it involves using patented technologies without securing the rights, this case differs in that firms are not violating the legal rights of the patent owner, at least not until there a product developed and the firm tries to import the product.
|
From page 329... ...
These initiatives represent a partial return to the time before the genom~cs revolution, when publicly funded university researchers produced a body of publicly available knowledge that was then used by pharmaceutical firms to help guide their search for drug candidates. NIH has also taken the lead in pressing for greater access to research tools.
|
From page 330... ...
Some of our respondents have suggested that recent court decisions have also mitigated potential problems due to research tool patents by limiting the scope of tool patents or, in some cases, invalidating them. Thus, although patentholders have the right to sue for infringement, the perception is that they are increasingly likely to lose such a suit.
|
From page 331... ...
First, we considered whether the existence of multiple research tool patents associated with a new product or process poses particular challenges for either research on or commercialization of biomedical innovations. Second, we examined whether restricted access to some upstream discovery perhaps protected by only one patent has significantly impeded subsequent innovation in the field.
|
From page 332... ...
The development of standard contracts and templates may be helpful in diminishing these adjustment costs, and funding agencies such as NIH can play an important role in developing and encouraging the use of such standards. The second issue that we examined is the impact on biomedical innovation of restricted access to research tools.
|
From page 333... ...
.65 The concern with regard to IP access tends to be the greatest when a research tool is rival-in-use and is potentially key to progress in one or more broad therapeutic areas. When a foundational research tool is rival-in-use, the IP holders often either attempt to develop the technology themselves or grant exclusive licenses.
|
From page 334... ...
Many of the same kinds of "working solutions" that mitigate the prospect of an anticommons also apply to the issue of access for research. Our interviews suggest that a key "working solution," however, is likely infringement under the guise of a "research exemption." Firms and universities frequently ignore existing research tool patents, invoking a "research exemption" that is broader than the existing legal exemption and that is supported by norms of trust and exchange in the research community.
|
From page 335... ...
, and that the research tools developed have increased the productivity of biomedical research (e.g., Henderson et al., 1999~. Thus, our conclusion is that the biomedical enterprise seems to be succeeding, albeit with some difficulties, in developing an accommodation that incorpo
|
From page 336... ...
Duke emerge, these issues may need to be periodically revisited. REFERENCES American Intellectual Property Law Association (AIPLA)
|
From page 337... ...
. "Research Tool Patents and the Experimental Use Exemption." Nature Biotechnology (17 October)
|
From page 338... ...
. "Taking License with Your Genes: Biotech Firms Say They Need Protection." Chicago Tribune (12 September)
|
From page 339... ...
. Intellectual Property Rights and Research Tools in Molecular Biology.
|
From page 340... ...
. "Intellectual Property and Development of Products in Biotechnology." Paper presented at OECD Workshop on Genetic Inventions, Intellectual Property Rights and Licensing Practices, January 24, 2002, Berlin.
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.