Once Again, The New Yorker Gets It Wrong on Patents

    By Kevin E. Noonan --

James Surowiecki is exercising his antipatent animus once again in the August 11th edition of The New Yorker.  Mr. Surowiecki (at right) writes a weekly column called "The Financial Page" in the magazine, and he has shown that he doesn't like patents several times in his work.  These instances include complaining about business method patents in the July 14, 2003 issue of the magazine (see "Patent Bending"), the Blackberry litigation in the December 26, 2005 issue (see "Blackberry Picking"), and the intellectual property provisions of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) as it applies to patent protection for drugs (see "Exporting I.P.") in the May 10, 2007 issue.  This week, in a piece entitled "The Permission Problem," he addresses (a bit belatedly) the "anticommons" problem as discussed in Michael Heller's book, "The Gridlock Economy."

Mr. Heller (at left), a Professor at Columbia University Law School (he is the Lawrence A. Wein professor of Real Estate Law) argues in his book that patents (and other property rights) can create a "tragedy of the anti-commons."  It is a catchy phrase, first popularized when Professor Heller collaborated with Professor Rebecca Eisenberg (Heller and Eisenberg, 1998, "Can Patents Deter Innovations? The Anticommons in Biomedical Research," Science 280: 698-701) to describe the risk that gene patents purportedly raise for scientific research.  This idea has been thoroughly debunked (see "The 'Anti-Commons' Aren't So Tragic, After All" and "BIO Issues White Paper Examining If The 'Tragedy of The Anticommons' Is Relevant to Biotechnology").  Mr. Suriwiecke extends the assertions in Professor Heller's book, stating as an example of the "tragedy" situations where "[i]n biotechnology, the explosion of patenting over the past twenty five years – particularly efforts to patent things like gene fragments – may be retarding drug development, by making it hard to create a new drug without licensing myriad previous patents."  The wording is comfortably conditional - "may be retarding" – and for good reason:  Mr. Surowiecki would be hard pressed to identify any actual example of this hypothetical situation.  Indeed, the evidence is to the contrary:  the U.S. pharmaceutical industry has flourished during the past 25 years, coming to predominate over European and other foreign drug companies, precisely because the U.S. adapted its patent system to accommodate patenting "things like gene fragments" (see "The Continuing Value of Biotech Patenting").

To be fair, Mr. Surowiecki recognizes that "[p]roperty rights (including patents) are essential to economic growth, providing incentives to innovate and invest."  But in blindly accepting Heller's arguments, and defining "science" as a "common resource" (when it is technology, not science, that is the subject of patent protection), he misses (and misstates) the benefits of protecting innovation using private property rights.

One of the most inapposite comparisons he makes, and one without any factual basis, is the hypothetical drug company that has to "strike bargains with thirty or forty other companies" in order to develop a new drug.  This, to Mr. Surowiecki is analogous to the situation with airplane manufacturers at the beginning of the 20th Century.  The difference, of course, is that the latter is historical fact, while the former is contemporary fiction.  The historical fact:  it was almost impossible to build an airplane in the U.S. just prior to World War I, due to patents on the various components needed to make an airplane, because "dozens" of companies held patents.  With the onset of the war, Congress provided the solution:  a patent pool that put the separately-held patents under control of a new entity that obtained licenses from the patentees.  But then Mr. Surowiecki shows the limitations of his analysis (or his understanding):  "Had Congress not stepped in," he states, "we might still be flying around in blimps."  Evocative, but wrong.

What Mr. Surowiecki misses is the effects of patent term on the value of patent rights.  Patents are limited in time:  the right to exclude expires within 20 years of the earliest filing date of a patent application under current law.  Like everything with an expiration date, the value of patent rights decreases during the course of its term.  This happens for at least two reasons.  First, the closer it comes to the end of patent term, the less disadvantageous it becomes for a competitor to merely wait until the patent expires, and the more likely it becomes that the competitor frustrated by the patentee's rights will do just that.  From the patentee's perspective, the effect of patent term is that the value of any licenses a patentee can grant diminishes as the patent approaches its expiration date.  These realities in fact promote licensing under circumstances (such as university inventors) where the patent owner does not have the ability to bring a drug to market.  The only time patent rights will "frustrate" a competitor, at least in the biotechnology and pharmaceutical arts, is when not innovation but copying is prevented (which is precisely what patents are intended to do).  This is the reality of how patent rights impact innovation, and Mr. Surowiecki is entitled to not agree with it.  But it would be better if he presented more accurately the facts behind the influences, good and bad, of patents on innovation and new drug development.

Comments

[Richard Martin]

This is a lucid response to Surowiecki's apparently uncritical, and thus irresponsible, endoresement of Heller's argument. Unforunately, you may be preaching to the choir in this forum?

[Prior Art]

I haven't read the article, but what if he made the hypothetical about a chip manufacturer needing to strike a bargain with 30 or 40 companies in order to market a chip? Maybe it would have been more appropriate to discuss reverse payments.

[Kevin E. Noonan]

Well, Richard, you may be right, but it's the only forum I have.

Seriously, though, despite the fact that Heller, Eisenberg, Lemley, Ravitcher, Quillen and others have flooded the public discourse with their Chicken Little pronouncements that patents are BAD for us and must be stopped, I think (I hope) that those who recognize the need for patent protection to promote disclosure and innovation in the biotech and pharma space are now fully aware of what is at stake in this debate. Our blog is just one attempt to get the message out that when it comes to the currently advocated patent crisis (as Richard Lewin and George Gershwin have said), it ain't necessarily so.

Thanks for the comment.

[Kevin E. Noonan]

Dear Prior Art:

The chip situation is the one area of biotech patent law that resembles the "patent thicket" that has motivated the IT community to mount its anti-patent campaign. Which is why Affymetrix has had their lawyers siding with IT on some patent reform issues.

My point is that Mr. Surowiecke has not presented any actual evidence - and I don't know of any - that the hypothetical actually exists. IF you want to sell a diagnostic comprising fragments from genes owned by several patent holders, there may be a problem - but I say "may" because most of these types of chips comprise SNPs and other variations that are not expressly covered by claims to the wild-type sequence, and in any event this kind of activity is not directed to drug discovery, the (emotional) basis for the argument.

The ironic thing is that the Supreme Court's Merck v. Integra decision probably immunizes a drug company from using such chips for drug research, since the unanimous decision (written by Justice Scalia) indicates that the scope of the 271(e)(1) exemption should encompass this type of activity. So I am skeptical about whether there is any factual or legal basis for Mr. Surowiecke's argument. I'm not saying there aren't other arguments, just that his is not based on the existence of any real problem.

Thanks for the comment.

[EG]

"My point is that Mr. Surowiecke has not presented any actual evidence - and I don't know of any - that the hypothetical actually exists"

Kevin,

Amen. The anticommons thesis is all theory with no factual substance to support it. When the Madey v Duke University decision came out, there was a hew and cry that biotech research would be stifled. I pointed out the empirical fact that large numbers of biotech applications were being filed, which belied such an impediment; if that many biotech applications are being filed, there must obviously be research to support them.

Similarly, when the Patent Reform Legislation was proposed as needed to prevent rempant abuse of the patent system, BIO shot it down by showing there was no evidence to support that such rampant abuse was occurring. Without any evidence to support the thesis, this anti-patent system crowd can only resort to hysteria, opinion and similar rhetorical nonsense to try to advance its cause which, if accepted, will doom this country's remaining competitive advantage, namely innovation. Unfortunately, the folks they're pleading to are Congress who feed on the same hysteria, opinion and rhetorical nonsense to advance the ill-considered Patent Reform Legislation.

[Donald Zuhn]

EG:

To the Senate's credit (or at least a sufficient number of Senators' credit), the Patent Reform Bill never made it to the floor for a vote. Of course, that does not mean our work here is done.

Don

[Richard Martin]

And a commendable forum it is, Kevin.

My thought was more toward the need to counter Surowiecki's promulgation of a contentious and far from resolved academic debate. Is Heller's book directed to the general public, or is it an academic work? As you imply in your post, it's one thing to have this debate among a skeptical and informed group, but quite another to air it with such authority in the lay press.

[Kevin E. Noonan]

Richard:

Heller's book is meant to be popular and read by decision-makers (at least the ones that shop at Border's). It is just more of the same attempt to influence the zeitgeist regarding the ills of the patent system. The danger is that it can resonate with those short-sighted enough to think fewer patents = cheaper drugs, phones, computers, etc., but who are unsophisticated enough to miss how shortsighted this view really is.

Thanks for the comment.

[Kevin E. Noonan]

Dear EG:

I'm not as sanguine as Dr. Zuhn on how much credit the Senate should be getting. The Senate bill was laden with some pretty strong poison pills (Senator Sessions gift to the banking industry, and the "Dog ate my homework" provisions regarding PTEs), and pharma finally stepped in and exercised some pretty strong lobbying to stall the bill from reaching the floor for a vote.

But we can expect to see more of the same in the next Congress, which means we need to be sure the voices of reason are heard over the clamor of special interests trying to harm US innovation for its own selfish, short-term gain.

Thanks for the comment.

[James Surowiecki]

"Mr. Surowiecki would be hard pressed to identify any actual example of this hypothetical situation."

Actually, Heller opens his book with precisely this kind of example: a drug company that has decided not to develop a promising Alzheimer's drug because of the patent thicket that surrounds it.

On the broader point, I'm not "blindly accepting" Heller's argument. I'm familiar with the anti-anticommons literature. I just find it unconvincing, particularly the work based on surveys.

I'm also mystified by the idea that the U.S. drug industry is "flourish[ing]." On the contrary, as you well know, despite the massive amounts of money put into R&D, the number of NMEs approved annually has been dramatically lower in the 2000s (with the exception of a spike in 2004) than it was in the 1990s. And this decline follows, of course, the biggest explosion in patenting in the industry's history. Now, it may be that a few years from now we'll all be reaping the benefits of the patent explosion in the form of powerful and efficacious new drugs. But to say the empirical record of the past decade demonstrates that more patenting leads to more innovation is absurd.

What I find most curious is the idea that it's those who are skeptical about the value of expanding the reach (and length) of patents who are accused of "hysteria." On the contrary, what's hysterical is the insistence that any limitations on intellectual-property rights will lead to disaster (thus EG in this thread saying that the anticommons folks are going to "doom this country's remaining competitive advantage, namely innovation.") There is no theoretical or historical evidence that would suggest this is true -- as Lerner's work shows, the connection between stronger patent protection and innovation is tenuous at best. And there's no good reason to believe that with the expansion of patent rights in recent decades we've struck the right balance between giving incentives to innovators (the only justifiable reason for patents or copyright) on the one hand and allowing the free movement of ideas on the other.

[Kevin E. Noonan]

Dear Mr. Surowiecke:

Thanks for getting back to me. I am aware of Professor Heller's anecdote to begin his book, and I am skeptical - as someone who performs freedom to operate searches for drug companies, I can think of many ways to avoid the kind of problem he maintains exists. As I mentioned elsewhere in the thread, with the exception of gene chips the kind of patent thicket that occurs in IT does not occur in biotech/pharma, and with the Merck v. Integra decision the liability for using such chips to develop new drugs is tenuous at best.

The anti-commons idea, especially as Professor Heller developed it with Professor Eisenberg, has been debunked by empirical studies showing that patenting has had neglible effects on research. It was a plausible idea for anyone who had no experience with high level science; believe me, before patenting became common place in the biological sciences, research results and materials were jealously guarded between lab groups. And the ultimate benefit to society of the research, disclosure, is a goal also served by the patent system.

As for the state of the pharma industry, my point was about the changes in the robustness from about 1980, when European drug companies and products predominated, until recent times, when it has been US companies that have dominated. This was discussed in the earlier post referenced in the piece, based on a Washington Post article last year. I agree that things don't look so rosy for pharma worldwide at the moment, but every industry has ups and downs, and the Post authors looked over a sufficiently long time frame that the trend became clear.

It is also untrue that there has been any "expansion" of patent rights in recent times. Indeed, these rights have been diminished, first by changes in the way patent term is calculated, and second by the expansion of what amounts to inequitable conduct and Supreme Court decisions such as eBay that have reduced the certainty that patent holders have in the patent right. The "hysteria" I reference is that kind of hyperbole - as if patents were some new government boondoggle that is threatening our economic well being. The exact opposite is the case. Your reference to Lerner's work is telling, since it has also been refuted by others who are not academic economists with a careerist ax to grind.

Finally, you didn't address the point - patents are by definition extremely limited in time, and have definite expiration dates which have consequences for the patentee, their competitors and society. One of the reasons that those who understand this feature of patents strongly react to the anti-patent crowd is that they generally propose long-term changes in patent law, which I believe are not in our best economic interests, to solve short term problems. Patents are not the problem - being unwilling to license them is the problem. If the license is too expensive, all a competitor need do it wait a short time (a time getting shorter every minute) and the patents will simply expire.

So, no, Mr. Surowiecke, if Congress hadn't stepped in to solve the airplane patent problem in the second decade of the 20th Century we wouldn't still be flying blimps. And if you understood the ephemeral nature of patents you wouldn't have written that we would.

Thanks for the comment

[James Surowiecki]

Kevin, I wrote a long response to your comment, but then I clicked on a link in your post to check something and when I returned to the page, my comment was erased. (You should really fix that -- just have the link go outside the page.) So to rewrite a little more quickly: as the recent history of copyright shows, IP rights aren't "by definition" limited, at least not by any reasonable definition of "limited." If Congress decided patents should last well over a century, it could. And by your logic, it seems like that would create an innovator's paradise. Part of the point of the anticommons argument is to ensure that we don't see the kind of creep in patent length that we've seen in copyright.

Your contention that we haven't seen an expansion in patent rights in "recent decades" (which is what I wrote) is simply mystifying. Strictures against universities (particularly public universities) patenting have been abolished. Living-organism, business-method and software patents have all become generally accepted by the court and ubiquitous. Things have gotten a little better in the last couple of years -- thanks to a widespread sense that our veneration of IP rights has gone way too far -- but the arc of the last 25 years is clear, and it bends firmly in the direction of more patents, not fewer.

Finally, on the supposed impact of Josh Lerner's "careerism" on his research findings. Let's be serious. The people producing much of the research and the studies you cite so favorably -- like BIO --have a huge financial stake in keeping their own IP rights as strong as possible. Other researchers receive funding from the drug industry. You yourself, meanwhile, are apparently a patent attorney, which I assume means that in a world with many fewer patents you would have less work. The financial incentives that are influencing your side of the argument, in other words, are huge, and I think most people would say that they might very well have a material impact on your arguments and your findings. Lerner, by contrast, is an academic who can look at whatever he wants to look at, who reaps no obvious financial (or career, for that matter) benefit from reaching one conclusion or another. (You can bet that if he'd found that patents had a massively positive impact on innovation that he'd have been feted by industries across America.) The notion that his research is somehow less valid than the work you cite because of some supposed ax he has to grind (when all the obvious grinding axes are on your side) is preposterous.

[Kevin E. Noonan]

Dear James:

Sorry for the glitch in the comment posting software.s. We'll look into it.

As to the "expansion" of patent rights, it isn't the rights that have expanded it is the scope of what can be patented. Part of that has to do with new technologies that didn't exist decades ago, like biotech. If you want to write an article about copyright, you won't hear from me - as important as culture may be it doesn't hold a candle to policy decisions that will influence development of life-saving drugs. And while I question the wisdom of business method patents (and software patents for that matter, since copyright protection on top of patenting seems like a "double dip"), my objections to the statements in your article were focused on biotech and pharma patenting, where the stakes are, in my opinion, too high for the kind of sloppy arguments the anti-commons folks like to trot out.

As for university patenting, would prefer that U.S. taxpayer funded technology be freely exported abroad as it was prior to Bayh-Dole, or that the producers of the research supporting the technology have the opportunity to license that technology and become more self-supporting (look at the data on licensing revenues for universities if you think it is insignificant).

And remember, the whole "anti-commons" argument was based on how patenting would purportedly inhibit academic research, not commercial drug development. The "creep" I see is in the arguments that anti-commons is somehow necessary to analyze commercial competition; trust me, these competitors don't need anti-commons crusaders protecting them from each other. The negative effects on academic biotech research anticipated by Heller and Eisenberg just didn't happen.

You are correct that Congress could, within constitutional boundaries, expand the length of patent term, but I wouldn't be in favor of it and it wouldn't be good for innovation. It would, in fact, create the fictional patent hell of your article, since then blimps might be our only option. I think limited patent term is fine, because it satisfies the balance between the public benefit of disclosure and the fire of interest patenting brings to innovation.

Finally, I am a patent attorney. I find it funny when people immediately point to my "vested interest" in the patent system, which is always presumed to be purely financial. Don't fret: unless Congress totally abolishes patent law, there will always be work for me to do, and the more Congress and the Patent Office and the Supreme Court monkeys with the rules, the more work there will be and the more valuable my services will become. So if money were the object, I would welcome the kinds of misinformed arguments made by Lemley and Lerner and Mauer and you, because it mean more work for me.

But enough about me. Your defense of Josh Lerner is surprisingly naive, in view of the competition academics rightly feel to publish work deemed to be important and significant. Frankly, had Mr. Lerner "found" that patents were a good thing he would have started to work on something else, because that has been the prevailing belief. Academics don't get invited to testify before Congress and get interviewed on NPR because they verify beliefs; the point is to challenge them. So while my interests appear clear to you, don't be too sure that you understand Mr. Lerner's. Maybe you should look into who is funding his research, and how many of the anti-patent people are funded by think tanks and interest groups funded by Cisco, Microsoft, Intel and the other members of the IT community who want restricted patent rights to improve their corporate bottom lines and support the latest "gee-whiz" gadget. That might be a quite a story.

Thanks for the comment