Pharmaceutical innovation and incremental patenting

There is now an increasingly widespread view that the role of the patent system in promoting innovation is less substantial than usually claimed. As the pharmaceutical industry today is almost wholly concerned with securing patents by effecting minor improvements on existing patented products, the patent system has moved far away from its objective of stimulating genuine inventions.

Carlos M Correa

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THE patent system was devised in order to reward inventiveness, encourage technical progress and foster the dissemination of innovations. The restriction to the free movement of ideas that the granting of a patent entails has been justified under different theories, namely natural rights, moral reward, incentive to invention and encouragement to innovation. The idea that patents are necessary to allow the investor to recoup its investment in research and development (R&D) dominates in current debates and jurisprudence of many countries (Gutterman, 1997).

Although the development and exploitation of numerous contributions to technology have been closely linked to, although not necessarily determined by, the possibility of obtaining exclusive rights to exploit inventions (Archibugi and Malaman, 1991), the patenting system is today far from fulfilling its intended objectives. The expansion of the subject matter of patentability from inanimate to living forms, the admission of broad claims encompassing vast fields of technology, the dilution of the patentability requirements, and shortcomings in the examination process have led to a profound distortion of the system (Jaffe and Lerner, 2004). There is a proliferation of patent applications and grants, in great part motivated by a variety of defensive and offensive patenting strategies (Granstrand, 1999).

One increasingly widespread view is that the role of the patent system in promoting innovation is less substantial than usually claimed (Landes and Posner, 2003; Levin et al., 1987). Patents may even stifle the very innovation they are supposed to foster (Jaffe and Lerner, 2004). There is compelling evidence indicating that 'collective invention' based on sharing innovations is more efficient than patenting them (Bessen and Meurer, 2008); some studies suggest that innovation not only thrives in a competitive environment, but that more profit can be generated by inventors in a system based on the broad diffusion and common use and improvement on innovations (Torrance and Tomlinson, 2009).

The large number of patents applied for and granted is not a reliable indicator of innovation. While the number of patent applications and grants has increased dramatically, notably in the United States but in other countries as well,1 this growth is not caused mainly by a surge in R&D spending (Bessen and Meurer, 2008, p. 69).

One of the probable causes of such a surge in some jurisdictions is the relaxation of patent requirements by patent offices and courts. The National Academies of the United States, for instance, have taken up the criticism levelled by many academics and sectors of industry and have expressed their concern about the lax application of the patentability standards (National Academies of Science, 2003), especially as regards non-obviousness and usefulness, in the examination and granting of patents. The application of such standards results in many over-broad (Mazzoleni and Nelson, 1998) or 'low quality' patents (FTC, 2003). In the case of the US, it has been found that an inadequate search of previous patents and publications leads patent examiners to overlook novelty and inventive-step problems; in addition, courts have shown a proclivity to weaken the obviousness test (Bessen and Meurer, 2008). Even the users and main beneficiaries of the patent system have become growingly critical about the functioning of the patent system.2

Patents are not granted only when a significant technical development has been achieved. Inventions marked by considerable originality (Merges and Nelson, 1996, p. 128) do not occur frequently, even in highly intensive R&D industries. In fact, the largest part of R&D undertaken (by large and small firms) is devoted to the improvement and further refinement of existing technologies. Although not all types of incremental innovations may be eligible for patent protection, many actually do. According to a Guide of the Canadian Intellectual Property Office, for instance, 90% of all patented inventions were minor improvements on existing patented devices (Canadian Intellectual Property Office, 1994).

As incremental innovations prevail in most sectors, the patent system has increasingly moved away from its objective of stimulating genuine invention towards a system for the protection of investment in developing incremental innovations, whether truly inventive or not. As a result, for some analysts, 'the time has come not for marginal changes but for wide-open thinking about designing a new system from the ground up' (Thurow, 1997). In fact, an optimal level of patent protection beyond which negative effects would start to dominate positive effects is likely to exist (Guellec, 2007, p. 73). Patents produce a dead-weight burden insofar as the benefits of innovations to society would have been greater in their absence, while they reduce the ability of other firms to exploit innovations on a competitive basis (Maskus, 1997, p. 3). The latter is a critical problem in the case of cumulative systems of technology, where patents may deter rather than promote follow-on innovations.

Pharmaceutical patents

The problems associated with the patenting of minor incremental developments have special implications in the case of pharmaceuticals necessary to protect public health. Patents on pharmaceutical products and processes may be used to block generic competition that lowers prices and enhances access to medicines, particularly by the poor. This may be the case even when the original patent on a medicine has expired and the drug is in the public domain. Patents relating to a known compound (e.g. new formulations, dosages, crystal forms, etc.) are often strategically used to exclude competitors from the market.3

While the number of newly developed chemical entities has dramatically fallen during the last 15 years (see Figure 1), the number of patents over simple changes in chemistry/formulation of existing pharmaceutical products (e.g. polymorphs, combinations, dosage forms, isomers) has continuously increased. Thousands of patents are granted per year on these incremental innovations, often trivial for a person skilled in pharmaceutical research and production.

As suggested by Figure 1, the development of new chemical entities for pharmaceutical use presents a worrisome picture. The number of such entities delivered per year has fallen substantially since the 1990s, thereby increasing the average cost of developing new drugs. Furthermore, most new chemical entities do not represent a genuine therapeutic innovation, but present therapeutic effects similar to those of one or more already-marketed drugs (Center for Drug Evaluation and Research, 2005; Spector, 2005).

This decline seems paradoxical for three main reasons. First, since the 1980s and particularly since the implementation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was completed in developed and developing countries,4 patent protection has allowed companies to increase income generation worldwide through the exercise of stronger and, in some cases, longer patent rights5 and data exclusivity.6 Second, there is a new set of scientific and technological tools - such as genomics, proteomics, combinatorial chemistry - that offer the potential of speeding up drug discovery. Mass screening of potential drug candidates has been substituted by more efficient methods enabling the rational design of drugs. Third, the pharmaceutical industry has been one of the most profitable sectors of the economy, fourth only after mining, crude oil production and commercial banking (Commission on Intellectual Property Rights, Innovation and Public Health, 2006). Moreover, funds allocated to R&D have increased since the last decade.

The fall in innovative productivity may indicate a crisis in the model of drug development carried out by large pharmaceutical companies, as 'the number of new products has not increased whilst the overall level of resources being invested has risen dramatically' (Charles River Associates, 2004). Increasingly, large firms find it more difficult to maintain a continuous pipeline of new and commercially viable products. They heavily depend for new drugs on advances made by small biotechnology companies, while many of the clinical studies are done by specialised contractors and certain segments of biomedical research are undertaken in cooperative ways following an 'open access' model, insofar as computational models utilising genetic information become more important as part of the product development process (Maurer, Rai and Sali, 2004).

Patents over minor incremental developments (often termed as 'evergreening' patents7) may be used to exclude generic competition and thereby block access to affordable drugs. They may constitute an important obstacle to the realisation of the right to health recognised in the International Covenant on Economic, Social and Cultural Rights and, growingly, in the national constitutions of many countries. The reason for this is that patents obtained (including in relation to drugs already in the public domain) are often strategically used to block generic competition, thereby delaying the entry into the market of medicines at a lower cost. This problem affects developed and developing countries alike.

An inquiry by the European Commission, for instance, found that 'originator companies have designed and implemented strategies (a "tool-box" of instruments) aimed at ensuring continued revenue streams for their medicines. Although there may be other reasons for delays to generic entry, the successful implementation of these strategies may have the effect of delaying or blocking such entry. The strategies observed include filing for up to 1,300 patents EU-wide in relation to a single medicine (so-called "patent clusters"), engaging in disputes with generic companies leading to nearly 700 cases of reported patent litigation, concluding settlement agreements with generic companies which may delay generic entry and intervening in national procedures for the approval of generic medicines. The additional costs caused by delays to generic entry can be very significant for the public health budgets and ultimately the consumer'. The European Commission estimated a loss of around three billion euros due to delays in the entry of generic products caused by misuse of the patent system (European Commission, 2009). The European Commission further found in relation to 219 drugs that:

'.nearly 40,000 patents had been granted or patent applications (as defined above) were still pending.Of the nearly 40,000 cases, some 87% were classified by the companies as involving secondary patents, giving a primary:secondary ratio of approximately 1:7. Of the applications still pending, 93% were classified as secondary (a primary:secondary ratio of approximately 1:13), whilst 84% of the patents granted were classified as secondary (a primary: secondary ratio of approximately 1:5)' (European Commission, 2009).8

A critical conclusion from this analysis is that current patent strategies in the pharmaceutical industry may have a direct negative impact on access to drugs, as patents on minor variants/improvements of existing products can be used to block legitimate generic competition, which normally lowers prices and makes medicines more affordable. In particular, the grant of such patents may, in some cases, force governments that need to ensure access to medicines for their population to grant compulsory licences, whenever patent owners charge high prices and/or refuse to grant voluntary licenses on reasonable commercial terms.

Although compulsory licences and government use are legitimate under international law, their application has faced considerable resistance from developed countries' governments and retaliations from the pharmaceutical industry. A basic question that arises out of these cases is whether the grant of the patent was justified in the first place and whether governments can avoid the various costs (including of a political nature) associated with the grant of compulsory licences if they applied more rigorous standards in examining the respective patent applications.       

Dr Carlos Maria Correa is Special Adviser on Intellectual Property and Trade of the South Centre and Director of the Center for Interdisciplinary Studies on Industrial Property at the Law Faculty, University of Buenos Aires. The above is extracted from a chapter in a forthcoming book he edited, Pharmaceutical Innovation, Incremental Patenting and Compulsory Licensing (published by the South Centre). The book presents the outcomes of research conducted with the support of the International Development Research Centre (IDRC).

Endnotes

1.         China's State Intellectual Property Office (SIPO) received a record 1.2 million patent applications during calendar year 2010, a 25% jump on the 2009 figure. See 'Quality is China's biggest patent challenge' - available from http://www.iam-magazine.com/blog/Detail.aspx?g=e81c5421-bccc-4eb5-9895-f347443cf73e.

2.         A survey conducted among large companies (with annual revenues exceeding $10 billion) by the Intellectual Property Owners Association (IPO) in August  2005 showed that its corporate members perceive the quality of patents granted by the US Patent and Trademark Office to be less than satisfactory. Over half of the respondents, 51.3%, rated the quality of patents issued in the US today as less than satisfactory or poor (47.5% less than satisfactory and 3.8% poor). Those rating the quality as more than satisfactory or outstanding were 8.8% of all respondents (8.8% more than satisfactory and 0% outstanding). The respondents' prognosis for the future was not encouraging. Over two-thirds of respondents said they would be spending more, not less, on patent litigation over the coming years (PR Newswire, 2005). 

3.         In Argentina, Uruguay and other countries, for instance, a patent on a process to produce a tri-hydrate form of docetaxel, an anti-cancer drug, was used to exclude off-patent forms of the drug. A patent on a didanosine tablet for slow release of the active ingredient was used in Argentina to block the commercialisation of another, off-patent formulation of the same drug (Levis, 2010). 

4.         Transitional periods for implementing the TRIPS Agreement were provided for developing countries, economies in transition and least developed countries. Developing countries that previously did not recognise pharmaceutical product patent protection could delay its introduction until 1 January 2005 but only a few countries made full use of this term.

5.         The TRIPS Agreement set out a minimum term of 20 years, obliging many countries (including the US and Canada) to change their legislation.

6.         In the context of free trade agreements (FTAs), as a result of demands made in the process of accession to the WTO, or by the US government or the European Union, several countries have implemented sui generis regimes granting exclusivity over the test data necessary to obtain marketing approval for pharmaceutical products containing new chemical entities. Such exclusivity is not required, however, by the TRIPS Agreement, which only mandates protection of test data under the discipline of unfair competition. 

7.         'Evergreening' is generally based on the patenting of minor changes to or derivatives of existing products (e.g. formulations, dosage forms, polymorphs, salts, etc.) in order to indirectly extend the life of the original patent over an active ingredient. 

8.         Fifty-seven per cent of the 'secondary' patent applications are related to pharmaceutical formulations. 

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*Third World Resurgence No. 273, May 2013, pp 22-25