We Need to Take On Drug Companies’ Abuse of the Patent System
If we want to curb the power of pharmaceutical companies and rising drug prices, we need to overhaul the patent system.
House Democrats have signaled strong action against big tech for abusing its power. Most recently, Democrats on the House Judiciary Subcommittee on Antitrust issued a scathing 450 page report condemning the monopoly power of tech’s big four: Apple, Amazon, Google and Facebook — and calling for antitrust laws to be updated. Federal and state antitrust lawsuits are now beginning to pile up against Google and Facebook.
We need similar action to reign in the power and tactics used by pharmaceutical companies to prolong their monopolies on life-saving medicines and keep lower-cost competition at bay. That means updating the patent system first.
For nearly two years, the House Committee on Oversight and Reform has been investigating pharmaceutical company pricing practices. After reviewing more than a million pages of documents from companies selling some of the costliest drugs on the market and holding hearings, Democrats on the committee recently released reports detailing the tactics pharmaceutical companies use to keep prices high, maximize profits, and suppress competition. At the core of all these strategies is patents.
While big tech generates much of its monopoly power through algorithms and big data, drugmakers do it by filing every type of patent possible for a drug. Many of these patents are not for true inventions. They can be granted for minor tweaks that don’t involve new science, such as changing the formulation from a tablet to a capsule, or defensive patents that will never be used to produce a drug but instead serve to stop others from doing so.
Pharmaceutical companies regularly file dozens, and increasingly hundreds, of patents on a single drug. And because each granted patent gets awarded twenty years of exclusivity, they can secure forty years or more of potential market exclusivity simply by strategically spacing out their patent filings.
These “patent thickets” are to drugmakers what data is to big tech: the source of the industry’s power. And they require a similarly aggressive regulatory response.
However, unlike the pharmaceutical industry, big tech is not as dependent on patents for its monopoly power. While updating antitrust laws and filing antitrust lawsuits may be the best course of action for breaking big tech’s monopoly power, that is not likely to be the case with the pharmaceutical industry.
Take the recent antitrust court decision on AbbVie’s drug Humira, which treats a number of conditions including rheumatoid arthritis, psoriatic arthritis, and Crohn’s disease. The drug has an annual list price of $44,000 and generated more than $19.2 billion for the company in 2019 alone. AbbVie had filed 247 patent applications and amassed 130 granted patents on Humira.
The company was cleared of any antitrust violations, despite strong evidence of patent abuse. More than 90 percent of AbbVie’s patent applications were filed just two years before the main patent was about to expire in 2016 and more than twelve years after the drug was first introduced on the market.
Tellingly, the judge presiding over the case commented that AbbVie had exploited advantages conferred on it through lawful practices permitted by the patent system. He added that, to the extent this had kept Humira prices high, existing antitrust doctrine does not prohibit it. In other words, abuse of the patent system is permitted by law. The case is currently under appeal.
Meanwhile, Americans will have to wait until 2023 before competitive products can enter the market and bring prices down. In Europe, where AbbVie’s monopoly on Humira ended in 2018, prices have already dropped by 70 percent.
Inaction on patent abuse is rooted in the fear that strong enforcement would harm “innovation.” To that end, antitrust law has become deferential to patent law and also needs a reboot. The consequence for pharmaceutical companies who behave anti-competitively, if there are any, is usually a fine. But the profits reaped through patent abuse typically far exceed the amount of the fine. As a result, the threat of a fine does little to deter patent shenanigans. Under our current system, it pays to get as many patents as possible and risk the possibility of a slap on the wrist.
Patents today have become less of an instrument of invention and more a defensive business strategy to extract as many additional years of monopoly on a product as possible. A review by I-MAK, the organization that I cofounded, found that the top twelve best-selling drugs in America in 2019 had on average 131 patent applications and a potential duration of protection of nearly thirty-eight years.
Currently, the only recourse to stem this over-patenting is through litigation. But in the United States, claims to inventiveness — whether warranted or not — are considered sacrosanct. That can make challenging patents an uphill climb. Often, commercial competitors would rather settle than challenge a system that begins with the presumption that all granted patents are valid unless proven otherwise.
The problem is likely to get worse as we move into the age of biologics and gene therapies, which are scientifically more complex and provide even more avenues for companies to play their patent games. Layer on constant lobbying pressure and the reputational boost drugmakers have received from the development of COVID-19 vaccines and treatments, and it’s hard to envision lawmakers mustering the will to crack down on the bad behavior of pharmaceutical companies. Yet this is exactly the kind of deep structural change that is needed if we want to address a prescription drug crisis that is careening out of control.
The Senate has attempted to pass a bill that would put some limits on companies using their patent thickets to delay competition and give the Federal Trade Commission the power to tackle patent abuse, but the effort has stalled. Even if it is revived, industry lobbying has stripped the bill of much of its bite. Indeed, most attempts by lawmakers to address the drug patent problem fail to get to the heart of the matter, instead dancing around the margins of real structural change.
There are a few things the new Biden administration could do to change course.
First, it could make the United States Patent and Trademark Office (USPTO) more accountable to the public. Currently, the USPTO engages almost exclusively with representatives from corporations. The USPTO does not acknowledge the impact of patents on drug prices and does not believe that public health impact should have any bearing on whether or not to grant a drug patent — despite ample evidence showing that patents are correlated with higher drug prices. Patients, advocates, and medical and public health officials are essentially shut out of the process. The system needs to be democratized.
Even more importantly, we need stricter standards for obtaining a patent. The cult of innovation has blinded us to the patent games that allow companies to claim huge rewards for minor tweaks. It is all too easy to get a patent for any slight modification to an existing invention in order to prevent outside research, block competition, and keep prices high. Nearly eight out of ten drugs associated with new patents are for existing drugs, not new ones.
And where pharmaceutical companies are given patents on medicines that originate from government-funded research but which are being priced out of reach, the ability to use march-in-rights to rescind the patent exclusivities and correct market failures needs to be less onerous than it currently is. Indeed, California attorney general Xavier Becerra, Biden’s pick to run the department of health and human services, has openly supported the use of march-in-rights to control prices of federally funded medicines.
Any attempt to strengthen oversight will be met with a predictable response: claims that it will kill investment and innovation, and deprive us of new medicines. Fear works, especially in politics, and even more so in the wake of a pandemic. In two-thirds of cases, pharmaceutical patents used to extend the protection on a drug past the initial twenty-year term are usually invalidated when fully litigated and not settled. Much of what is called innovation is not inventive for the purpose of a patent.
Besides, separate from any patent protection, drug companies are provided with guaranteed market exclusivities where no competitors can enter, ranging anywhere from five to twelve years depending on the drug type. These exclusivities themselves are like mini-monopolies. There is also no clear empirical evidence that more patents and longer exclusivities results in more investment in research and development and, by extension, more innovation.
Like big tech, the pharmaceutical industry has abused its power. The Constitution gave Congress the ability to give inventors the exclusive right to their discovery for a limited time in exchange for the benefit of their invention. Drugmakers have turned this bargain into an unlimited patent racket, weaponizing the system to maximize profits. Congress has the ability to reset the bargain. It must do so.