Patently unclear – 23andme’s position on DNA patenting

Today I have been preparing a talk about personal genomics for a workshop in Edinburgh next month where I plan to discuss the tension between democratisation and commodification in the nascent consumer genomics sector. In a rather haphazard  bit of Google searching I was rather surprised to come across a patent application filed in November 2010 by the US consumer genomics firm 23andme. The patent relates to genes associated with Parkinson’s Disease, or to be more precise, and to quote from the patent application:

“The present invention is related to polymorphisms associated with Parkinson’s disease. More specifically, the invention is related to compositions, methods and for use in therapeutic and preventative treatment, study, diagnosis and prognosis of Parkinson’s disease.”

The diagnostic portion of the patent would appear to be fairly broad, covering risk prediction, diagnosis and prognosis using SNP analysis or gene expression data. (I am neither a scientist nor a patent lawyer and would welcome comment from those more qualified on the precise scope of the application). The current application supercedes earlier applications filed by the company in November 2009 and June 2010. Followers of the company will recall that 23andme had announced the discovery of new genes associated with Parkinson’s Disease having undertaken their first clinical research study in 2009-10, and the patent application would appear to be concerned with these novel discoveries.

The patent again raises two questions which I have long pondered: can you make money out of consumer genomics, and if so how, do you do it? Not long after launching their company in 2007, 23andme CEO and co-founder Anne Wojcicki was
quoted on the VentureBeat blog
expressing uncertainty about their business model:

“It’s really too early to specify how we might monetize and derive value from the information we’re aggregating. We’ve thought about a lot of different ways to monetize it, but we’re not ready to talk about them”

One division within the nascent consumer genomics industry has been on the issue of intellectual property derived from original research. Some companies, like deCODE, have spent years (and much money) on research uncovering new gene-disease associations which they have then patented. Others, like Navigenics, have trawled the scientific literature sifting through other people’s discoveries for genes which it might be useful to test for. 23andme seemed to be more in this camp – they talked a lot about the research value of their embryonic customer biobank when they launched, but it was unclear what they were going to do with the data, and the vast majority of the gene-disease associations they report to their customers have come from the scientific literature. The company’s decision to begin testing for the BRCA 1/2 genes in 2009, in apparent contravention of Myriad Genetics fiercely defended patents on the genes, suggested that their philosophy was provocatively open source in its attitude to the human genome.

A hostility to gene patents was certainly expressed by Linda Avey, one of the company’s founders, when we talked after a meeting at the European Parliament in Brussels in March 2009. Avey subsequently commented publicly on the topic in her blog a couple of times the following year (after her departure from 23andme). After attending an industry meeting in March 2010 she expressed her distaste for Myriad Genetics in no uncertain terms, saying their business model “made my skin crawl … the thought that a company is profiting so handsomely from intellectual property that corners the market on information simply residing in the human genome is unfathomable “ Unsurprisingly, Avey saw a fundamental conflict between Myriad’s approach and the business model of the company she had co-founded: “As individuals are able to access their entire genetic profile, and all the increasingly pertinent health information therein, the math just won’t work if gene variants, along with the inherent knowledge regarding disease or pharmacogenetic associations, are patented.”

A few months later on Dan Macarthur’s Genetic Futures blog, Avey commented on the 2010 ruling against Myriad’s patents:

“My hope is that this ruling stands and companies will need to actually innovate and create new advances BASED on genetic findings, not dependent on sole access to them. Rather than relying on obscure patent language and legal strategies, companies will need to develop products that are competitively positioned, something that will be good for consumers i.e. patients. With all due respect to the legal profession, we need to have more scientists and innovators in the lab, not lawyers.”

Given the apparent hostility to gene patents expressed by one of the company’s founders, 23andme’s Parkinson’s Disease patent application raises a number of questions, not least did Linda Avey resign in protest because of plans to file the first application in 2009? Had the company always intended to patent its gene-disease discoveries, and if so why was it not explicit about its plans? Given the company’s avowed mission to ‘democratise’ genomics, what were the participants in the Parkinson’s Disease study told about the intended commercial exploitation of discoveries arising from the study, and did anyone ask them what their preferences were?

Of course it may well be that 23andme is in fact committed to open source genomics and their patent application is simply designed to prevent other less well-intentioned actors from patenting their discoveries and then blocking their free use. But in the absence of public discussion of this topic by the company we are left with uncertainty as to their intent. 23andme proudly proclaim that their mission is “to be the world’s trusted source of personal genetic information.” That ambition sits uneasily with the lack of transparency in the company’s approach to intellectual property rights. In 2007 the company was not ready to talk publicly about the ways in which they might derive commercial value from their customer database, five years later that discussion is long overdue.


10 Comments on “Patently unclear – 23andme’s position on DNA patenting”

  1. Luigi Palombi says:

    I’ve had a look at the patent application and it doesn’t contain claims to the PD polymorphisms or genetic mutations in PD related genes but does contain claims to the use of genetic materials that “hybridize” with certain of these (defined in claims 1 and 2) for the purposes of achieving a diagnostic result (various method claims and, interestingly to claims to a “system”). So at the end of the day this is much narrower in scope than the patents granted to Myriad over BRCA because of the fact that there is no claim to the relevant genetic variants in the PD related genes. Nonetheless, there should be concern about the method claims as well as the ‘system’ claims because these claims presuppose that a positive result using one of these patent-pending PD genetic tests is all that a patient or “customer” needs to know. And this, of course, is not so (which is why the method claims in the Myriad patents are also being challenged by the ACLU-backed plaintiffs in the U.S.). For a start trained pathologists are needed to interpret genetic test results. Next, the patient or customer will need a trained doctor to explain what the results mean in terms of their future quality of life and treatment options. Finally, the patient or customer will need counselling.

    With respect to 23andMe the plain simple truth is that these kinds of genetic tests can easily be made in-house as a matter of routine once the relevant genetic variants are known. There is no inventive step. Now if the patent offices and their examiners are doing their job this is precisely the ground upon which the patent application should be refused. Let’s hope so.

    I don’t buy the defensive patenting theory. This is little more than another cheap attempt to abuse the patent system, something which has been happening for many decades. The time has come for this kind of abuse to stop or be stopped by legislation if needs be. Unfortunately, the patent system has become discredited by the proliferation of nonsense patents of poor quality and the patent attorneys, patent bureaucrats and courts must accept their share of the responsibility for what has happened. The problem is that patent offices, once the gatekeeper for society, are now institutions that grant patents like they were currency. The fact that the U.S.patent office can now retain some of the money it earns through patent filing and renewal fees means that it has every reason to turn a blind eye to these kinds nonsense patent applications. And if you’re all expecting the courts to put a stop to it, think again. The recent decision of the U.K. Supreme Court in Eli Lilly v Human Genome Sciences is concerning for the simple reason that it defers to the European Patent Office on policy grounds i.e., harmonisation of patent law. This is a remarkably poor decision particularly as the subject of the patent is a naturally occurring protein (i.e., Neutrokine-alpha). How is it possible that the highest court in the UK could allow this to happen? Well for a start you need to look at who wrote the unanimous decision: Lord Neuberger. This judge has made a career of championing the patent system and his pro-patent bias has blinded him, and unfortunately since Lord Hoffmann’s retirement, the Lordships that sat on the appeal with him. In the United States the pro-patent bias of the U.S. Court of Appeals for the Federal Circuit was is still apparent. In one of its latest decisions supporting Myriad’s BRCA patents the same judge who 20 years earlier upheld the patents granted to Amgen over human erythropoietin wrote one of the two majority decisions. The other majority decision merely deferred to the USPTO.

    Let me say this in closing. We, as a society, have a serious problem in terms of the patent system. The patent system is being seriously abused. And this abuse must be stopped.

  2. Dear Luigi
    Thanks for your comment. Sorry for delay in replying – my first post as a blogger and I am still getting the hang of the technical end of things!

    Firstly, thanks for confirming that the patent application is narrower than the Myriad BRCA patents. I guess that is what is to be expected given the gradual narrowing of the scope of DNA patent which has been widely reported. Nevertheless, this patent is indicative of the general trend for diagnostics companies to patent biomarkers, which represents a break with the traditional industry practice of only patenting platform technologies. Although I posed the question of whether it is possible to make money from selling genomic data direct to consumers, one can equally well ask whether this new business model of trying to create diagnostic monopolies through biomarker patents has yet proven its viability.

    But let me address the main argument in your comment, which is that patent offices should not be granting patents on DNA or other naturally occurring substances (you cite the example of a protein in the Eli Lilly case). Aside from the question of whether such patents meet the legal criteria for patentability, there are two common concerns raised in relation to such patents – they block research and they limit patient access to tests or may have a negative impact on the quality of tests available. However, the fact is that we have very limited evidence of such harms. What evidence we do have is primarily focused on the clinical genetics specialty, and in particular on the BRCA case. I would argue that since the biomarker patenting debate is largely about the utilitarian calculus of harms and benefits, then we need much better evidence about how biomarker patents affect the development and use of molecular diagnostics.

    I am particularly interested in whether biomarker patents can act as an incentive for diagnostics companies to make greater investment in clinical studies that demonstrate the clinical validity and clinical utility of their tests. Our research in this area has indicated that in the absence of biomarker IP, companies lack the incentive to make such investments because of the free-rider effect (see this paper). However, our preliminary work on the use of HPV testing for cervical cancer screening also suggests that even when companies with biomarker IP do make major investments in such research, then they often benefit from public investment as well – the pivotal study for HPV testing was the ALTS trial which was funded by the National Cancer Institute (see this paper).

    Whatever we decide about the legality of biomarker patents, the issue of how to incentivise the development of a robust evidence base to support the use of new diagnostic tests will remain, particularly if the regulatory demands for such evidence begin to increase.

    • Luigi Palombi says:

      You assume the patent system provides an incentive for investment in this kind of R&D. May I ask rhetorically where is the empirical evidence to support this assumption? Let me make it easy for you. There just isn’t any. Sure, there are thousands of patents out there but whether those patents actually create an incentive for whatever it is that the patent monopoly supposedly protects from competition for a period of 20 years (max) is the question. And there just isn’t any reliable empirical data to answer the question conclusively.

      Nothing has really changed in this regard since 1961 when Fritz Machlup (Science, 133, 1463-1466 (May 12, 1961)) posed this question:

      “In 1959 private industry paid for less than 38 percent of total research and development in the United States. How important, then, can patent protection be in inducing inventive activities?”

      And nothing has changed in terms of his answer:

      “The absence of any empirical evidence for either the claim or its denial that the patent system is an effective promoter of inventive research – and thus of the production of socially new technological knowledge – is most frustrating. The doubting Thomases are usually timid and reserved lest they invite the wrath of the faithful. Advocates of patent protection have for centuries propounded the faith in this institution, and their statements admit of not an iota of doubt. They may well have the truth – but faith alone, not evidence, supports it.”

      So here we are some 50 years later and we are none the wiser.

      There is much said about the virtues of the patent system. Many say its to reward the inventor for sharing his/her creative genius. Some say it’s to encourage the dissemination of technological information. Some, like you, say that it’s to create incentives for R&D. And yet some, like U.S. Senators Leahy and Smith, say it’s about job creation. You can take your pick. Senators Leahy and Smith argue that the America Invents Act, 2011 “brings [the U.S.] patent system into the 21st century, reducing frivolous litigation”. The problem is that frivolous litigation has been a feature, not only of the U.S. patent system but, of all patent systems around the world since day one. In fact, back in the 1860s when a Royal Commission looked into the workings of the British patent system it was found to be a problem then. An American patent attorney who observed the Commission’s deliberations even wrote a book about the many problems of the British patent system and how inadequate it was in comparison to the then U.S. patent system. Yet here 150 years later Senators Leahy and Smith believe that the legislation named after them solves the problem of “frivolous litigation”. I doubt it will.

      Frankly, before we all get too excited about how the patent system creates supposedly creates incentives let’s make sure we know what we’re talking about.

      • Dear Luigi
        thanks for your generosity of time in this dialogue, it is greatly appreciated.
        I think you may have misunderstood my position a little. I am agnostic and questioning about whether the patent system is the answer to all our problems in diagnostic innovation.

        Let me first try and identify some common ground: like you I have doubts about whether, in general, the patent system is the best way to incentivise innovation, and I agree that we lack hard evidence to support that basic assertion which underpins the patent system. I also believe that the current system has profound problems, in particular in striking a balance between rewarding the initial invention and stimulating incremental innovation, and that its extension to developing countries through TRIPS raises serious concerns.

        But on the other hand, I am unconvinced that there is a way of incentivising innovation that is problem-free. Furthermore, to return to the question of evidence, I think we also lack hard evidence that the harms of the patent system outweigh its benefits.

        That is my point about biomarker IP and innovation in molecular diagnostics: there is a great deal of talk about the harms of gene patents (and other forms of biomarker IP) but very little evidence. In 2008 the European Society of Human Genetics noted that “thus far, only anecdotal or partial data are available” and called for more evidence on whether patents are affecting access to genetic tests. We have the BRCA case – described in wonderful and compelling detail by scholars like Parthasarathy, Gold and Cooke-Deegan – but some suggest that the BRCA case may be atypical, cautioning against generalisation from this single case. The 2009 report from the US Secretary’s Advisory Committee on Genetics, Health and Society provided a series of new case studies, but these were all within the clinical genetics domain. Despite the increasing molecularisation of cancer diagnosis (in particular the use of companion diagnostics and gene expression profiles for prognosis and treatment selection) and the public health impact of infectious disease testing (the fastest growth area for molecular diagnostics and one where viral DNA patents have affected the development of tests for HCV, HIV and HPV), the impact of DNA patents in these areas remains largely unexplored. Furthermore, we have very little discussion of the potential benefits of biomarker IP.

        I have been conducting research on policy issues relating to diagnostic innovation for over seven years and I would stand by the following four statements, confirmed through focus groups, workshops and interviews with over 150 stakeholders across academia, industry and government:

        1) in the past, many genetic tests have entered clinical practice without sufficient evidence of their clinical validity and utility, posing a risk to patient safety;
        2) this problems arises in large part because of inadequacies in the regulatory frameworks for diagnostic tests (much of my work seeks to address this issue), but there are also problems relating to incentives for R&D investment;
        3) the diagnostics industry has traditionally not invested in research to demonstrate the clinical validity and clinical utility of new biomarkers, leaving it instead to the public sector;
        4) this is because their traditional business model does not involve biomarker IP, so any such research investment would benefit all companies, not just the one investing in the R&D;

        I think it remains uncertain whether the new business model where companies acquire biomarker IP is sufficient incentive on its own to make a major investment in the type of clinical research which is needed – many other factors like market size, level of regulatory oversight and availability of venture capital also come into play – and our research suggests that industry is doubtful about the value of biomarker IP and the viability of a business model which is entirely dependent on it.

        Furthermore, there remain doubts about whether the quality and quantity of clinical data which companies produce under the new biomarker IP business model/innovation pathway is sufficient to satisfy those critics who say too many new diagnostic tests enter clinical practice with insufficient evidence to demonstrate their safety and effectiveness. Added to which is the continuing reliance on public sector investment to supplement private investment, which raises its own serious questions about who is creating value and who is capturing it.

        So I don’t profess to know whether the new industry business model is the best solution to the problem of ensuring a robust evidence base for new biomarkers. What is clear is that the traditional innovation model in the diagnostics industry was (and is) a fairly open one; anyone in the public or private sector can invest in clinical research on new biomarkers, but that system has not produced timely, robust evidence to support the safe and effective introduction of new biomarkers into clinical practice. Hence the longstanding debate about the oversight of genetic testing. My hunch is that different business models and different innovation pathways may be appropriate to different clinical applications and markets. But that is just a hunch; we need much more research to understand what is happening in this rapidly changing sector, and I believe that research needs to be conducted with an open mind regarding the harms and benefits of biomarker IP.

      • Luigi Palombi says:

        Stuart asserts he’s a patent “agnostic” and yet at the same time he tells us he’s about to embark upon a three year programme of research accepting the premise that there is “very little evidence” of the “harms of gene patents (and other forms of biomarker IP).”

        May I ask this: what does it matter if there is or there isn’t? Why do we need “evidence” of “harm” before we, as a society, eradicate gene patents?

        In my opinion, we don’t. The simple fact is that genes and proteins which are identical or substantially identical to those that exist in nature are not ‘inventions’. That is what the plaintiffs in the ACLU-backed patent challenge to Myriad’s BRCA gene patents are seeking to do; to enforce a 150 year U.S. Supreme line of authority which says you can’t patent “natural phenomena”.

        Now the EU Parliament legislated in 1998 to ensure that the EPO could grant European patents on genes. This is a distinctly European approach and it is a matter for the EU and its citizens that this law has turned patent law on its head, but, the passage of the Biotechnology Directive does not address the truth, which is that a human gene even when isolated is not the product of human invention. This is why the Danish Council of Ethics says the law is “unreasonable” and why Prof Sir John Sulston is so critical of gene patents.

        Whether ‘biomarkers’ are patentable depends on what the ‘invention’ is. If the invention is the gene etc then there is a problem. If, however, the invention is about the use of a gene (or part thereof) in a diagnostic method, process or product, it’s another thing entirely.

        I agree, we need “much more research to understand what is happening” but that is beside the point when it comes to gene patents for the simple reason that they are an abuse of the patent system by making claims to things the inventor has not invented.

      • Dear Luigi
        first on my use of the term agnostic. I am using it in the sense of “a person unpersuaded or uncomitted to a particular point of view; a sceptic” (OED)

        Secondly, on your question – does it matter whether or not biomarker IP causes harm? Well, as you will know from your own reading of the existing literature on gene patenting, it is very unusual for people who oppose such patents to limit themselves to arguments about legality. Instead, their opposition is generally supported with consequentialist arguments about the actual or potential harms of such patents (and defenders of such patents point to their potential benefits). Given that the utilitarian calculus of harms and benefits has played such a dominant role in the debate then it seems entirely appropriate that public policy on biomarker IP be guided by a robust and broad evidence base.

        Furthermore, as I pointed out in my reply to your first comment:

        “Whatever we decide about the legality of biomarker patents, the issue of how to incentivise the development of a robust evidence base to support the use of new diagnostic tests will remain, particularly if the regulatory demands for such evidence begin to increase.”

        Policy options may include some alternative mechanism for giving a diagnostic test developer a period of market exclusivity. So understanding what happens now when such monopolies are granted through the patent system could be useful even if biomarker patents are ruled illegal.

      • Luigi Palombi says:

        Stuart, I agree with you that “some alternative mechanisms” must be explored. I also think it is right and proper for you to question the patent system and I congratulate you for doing so.

        My concern, however, is two fold. First your use of the term ‘biomarker IP’ as if there is a body of law out there focused on ‘biomarkers’ and (b) your acceptance of the popular approach, which is, as you say, involves “consequentialist arguments”. I take issue with both. Why?

        Firstly, patent law is about ‘inventions’ and that has been the law since 1623 (at least in the UK until 2000). The debate over the consequences of not so limiting patent monopolies to ‘inventions’ is therefore nearly 400 years old and the decision then was that it would be contrary to the public good to allow patents over things that were not inventions. The requirement that patent monopolies be granted only in respect of an ‘invention’ is now enshrined in art. 27.1 of TRIPS. So we can assume that unless the subject of a patent is an ‘invention’ then it falls outside of the accepted scope of patent protection. In this regard, we can agree, I hope, that a gene (or fragment thereof) which is identical or substantially identical to what exists in nature is not an ‘invention’ (except under the European Patent Convention, which, as I said yesterday, turns patent law on its head in this respect). That the popular thing to do is to go over old ground in the modern context of genes is, in my opinion, unnecessary if one accepts the premise on which patent law is founded.

        Secondly, the term ‘biomarker’ is little more than a disguise. Why use it? You are talking about genes, gene fragments and other naturally occurring biological materials that can be used as markers of illness, disease or a propensity for both. Let’s call it what it is.

        Good luck with your research.

  3. Michael Hopkins says:

    Luigi Palombi says:

    “You assume the patent system provides an incentive for investment in this kind of R&D. May I ask rhetorically where is the empirical evidence to support this assumption? Let me make it easy for you. There just isn’t any. Sure, there are thousands of patents out there but whether those patents actually create an incentive for whatever it is that the patent monopoly supposedly protects from competition for a period of 20 years (max) is the question. And there just isn’t any reliable empirical data to answer the question conclusively.”

    I beg to differ. There is an enoromous and sophisticated literature on the economic impact of patent systems, particularly in Economics as well as in Innovation Studies. The problem is investing the time to read it and to leave one’s preconceptions aside long enough to absorb it. Patents are not a magic solution to encourage R&D investment, but part of a system of national policies and industrial conditions that are necessary to stimulate investment in highly uncertain and high risk activities. The role of patents in stimulating innovation can be expected to differ by industrial sector, national context and over time. Furthermore there can be expected to be an ‘optimal’ level of patenting, beyond which anti-commons effects creep in (although this may be difficult to prove empirically).

    Returning to the specific area of biotech – can we find ANY evidence that patents encourage investment in R&D. Yes is the short answer. Here are some straight forward examples from my own research:

    1. In the 1990s the US genomics industry was born, with dozens of companies raising billions of dollars from the stockmarket to invest in R&D. They had no products, just unproven business models and patents. The most successful at rasing funds like HGS and Celera raised over a billion dollars each. HGS now has at least one new drug (for Lupus – the first for this condition for 50 years) due to its ability to raise money from capital markets with no products.

    2. The UK biotech sector has generated over 240 biotech spin-out firms since 1980, and the vast majority of these firms have had no products yet they have been able to collectively raise in excess of 5.5 billion pounds (in 2010 prices – that is over $7Bn) for medical research, based on patents – ask the investors if they would invest in a company with no patents. The answer is no.

    3. Read the UK Human Genetics Commission 2011 report on patents and biomarkers (that I co-authored with Stuart) http://www.hgc.gov.uk/Client/document.asp?DocId=318&CAtegoryId=10 and you will see that in some cases where biomarkers have been patented there has been substantial investment to develop a product (tests and therapies for HCV and HPV) and in cases where there is no biomarker IP, such as Roche’s amplichip, there has been insufficient R&D undertaken to prove clinical utility of the test.

    So patents do provide an incentive for firms to invest in R&D and encourage their investors to support them to do so, although there is much more limited evidence for the arguement that stronger patents lead to increased investment.

    However patents may not provide the ONLY way to incentivise R&D. Is there a better way to run the healthcare industry? Maybe.

    But asserting that there should be no patents or other similar temporary period of monopoly provided by another form of IP, to provide a return on investment and reward to investors, sounds hollow without some sort of vision of how the whole international ecology of R&D-dependent industry would adjust to the consequences. There are a lot of medical advances at stake either way.

    I offer an example of a health innovation that occured without patenting as a cautionary example. The link between smoking and cancer was proven 50 years before we had a smoking ban in public places in the UK to prevent people from being subjected to harm from passive smoking. Without a well resourced counter-balance to the heavily entrenched and well resourced tobacco lobbies, the medical establishment and plenty of rational-evidence was very slow to force social change. Whether you think firms abuse patent monopolies or not (and I would say sometimes they certainly do), financial incentives do work to ensure many innovations are diffused very rapidly indeed, for better or for worse.

    Michael Hopkins – University of Sussex (SPRU – Science and Technology Policy Research)

    • Luigi Palombi says:

      Michael says: “There is an enoromous and sophisticated literature on the economic impact of patent systems, particularly in Economics as well as in Innovation Studies. The problem is investing the time to read it and to leave one’s preconceptions aside long enough to absorb it.”

      With respect, in his hurry to defend the patent system he’s missed the point. Let me explain using an analogy.

      Charlton Heston, as president of the U.S. National Rifle Association once said: “Guns don’t kill people. People kill people”. That was his brief way of saying that the implements of war, violence and terror are not the cause of war, violence and terror. He said this in his defence of the right of the NRA’s members to bear arms. Now whether you agree with Heston or not on the issue to which he addressed, is not the point of me raising it in this context. I’m raising it because it is illustrative of this: the fact that guns are available does not prove anything about the cause of gun related violence. The existence of weapons does not prove that they are the cause of war.

      And the same applies to patents. The fact that patents exist and that they have been used prolifically by those that have invented many good things (and bad, it depends) does not prove that they are the cause or even a contributor to the act of invention. Nor, does it prove that they enable inventors to finance the necessary R&D to take their crude invention into the market place. Sure, bankers always want some form of collateral and may be a patent is such a thing, but is it really? A patent may be valuable or it may be worthless. Most of the time it’s the latter. In fact, most patentees lose more money patenting things than they gain. There are some famous and stellar examples of riches flowing to patentees, but can it be truly said that the patent is the cause of their nearly found wealth? Does the fact that many products, processes and methods are patented, mean that without patents they would not exist but for the patent system?

      These are the real questions which have not been answered by Michael’s so-called “enormous and sophisticated literature”. Sure, there are many papers out there about how patents have been used in the commercialisation process but those papers and the events which they discuss do not prove that the patent system is the trigger of innovation, nor that without patents those products, process and methods would not exist. They are little more than a commentary of historical fact than an in-depth economic analysis of the patent system.

      This is why I refer to what Fritz Maclup said in 1961 and why I assert that we still do not know, based upon the absence of relevant empirical research, whether patents make any significant difference to the innovation of products, processes and methods.

      Incidentally, I do not assert, as Michael says I do, that “there should be no patents or other similar temporary period of monopoly provided by another form of IP, to provide a return on investment and reward to investors”. That statement and his incorrect attribution to me is, with respect, a telling reaction to my daring to challenge the thinking which supports the status quo.

      What I do assert is that there is a complete lack of credible empirical data that proves that patents are the driver of innovation. And Michael’s reaction is an example of what Maclup meant by his reference to the “doubting Thomases” who “invite the wrath of the faithful” when they question the validity of the patent system.

  4. Michael Hopkins says:

    I also agree that there are many specific questions remaining to be addressed through research, but on the subject of eliminating patenting (whether on biological molecules or more generally) my suggestion is it is best not to do this without seeing what else is a viable incentive and what systemic changes are needed to compensate for the loss of an incentive.

    So are patents an incentive or not? In response to Luigi’s questions in the last post, I do think that it is worthwhile looking at the existing social science literature to address these questions (and bold assertions), although in some cases you can see for yourself from looking at the sectors in question and contemporary events.

    [L. Palombi Q1] “The fact that patents exist and that they have been used prolifically by those that have invented many good things (and bad, it depends) does not prove that they are the cause or even a contributor to the act of invention.”

    To address this assertion we need to distinguish between invention and innovation, as Joseph Schumpeter did. We thus see that the invention is only the first step towards exploiting the new development, and that the innovator needs to provide resources to bring the invention to the market, which takes time and money, particularly for drugs and increasingly for diagnostics. In a static analysis, the patent incentivizes the dissemination of the invention into regions where the owner can exploit a monopoly position (e.g. countries with a patent system that grant the patent and not those without), but does not as Luigi suggests necessarily motivate the initial invention. In a dynamic analysis, individuals and organisations profiting from innovation and owning patent rights will plough resources into further inventions that improve their initial invention, thus extending their monopoly and further exploiting the capabilities they have established in a path dependant manner – hence for example the pharmaceutical industry has grown its R&D activities massively following from profits gained from exploiting patent monopolies over recent decades. This has led to a massive increase in the industry’s patenting activity over recent decades (not the same as saying an increase in their ‘innovativeness’ – somewhat paradoxically, but for reasons that are unrelated to the availability of patent incentives).

    When important patents run out, pharma lose revenue and sack their R&D staff – the industry is currently facing a patent cliff and is laying off tens of thousands of staff at present – as can be seen in the press. There seems to be a fairly clear relationship therefore, in dynamic terms that patents and R&D investment are linked in pharmaceutical R&D. This is not the case in all industrial sectors of course, but certainly it is also the case for the newly emerging biotech firms that have been very active in gene patenting (see my previous post).

    [L. Palombi Q2] “Nor, does it prove that they enable inventors to finance the necessary R&D to take their crude invention into the market place. Sure, bankers always want some form of collateral and may be a patent is such a thing, but is it really? A patent may be valuable or it may be worthless. Most of the time it’s the latter. In fact, most patentees lose more money patenting things than they gain.”

    My response to this relies on a synthesis that you can find in Appendix IV of this document here: http://www.ipo.gov.uk/ipresearch-economicpolicy-200911.pdf

    This is literature review by Hall, and specifically Section 2.5 of her paper discussing the role of patents in secure financing. This is based on empirical studies tracking VC investment in small firms over 30 years. Again we see a dynamic process (patents and investment feeding each other) as VC funds invest in firms that have patents, and in turn push these firms to focus on taking out more patents. VC reward firms with patents with higher valuations, and are more likely to invest in these businesses. Do most patents make or lose money? See Josh Lerner’s paper in the same volume, and you find an argument for why we pay high prices for drugs (or genetic tests for that matter): because the prices firms demand from the successful products must justify investing in high risk R&D under conditions in which most projects will fail and most patents are proved valueless, but no-one knows which ones until they undertake the R&D.

    [L. Palombi Q3] “There are some famous and stellar examples of riches flowing to patentees, but can it be truly said that the patent is the cause of their nearly found wealth? Does the fact that many products, processes and methods are patented, mean that without patents they would not exist but for the patent system? ”

    Let’s be clear that patents are an incentive, but they are only part of the innovation system – there are other key factors that determine the success of innovations and it is possible to have different modes of innovation that do not focus on patents. However, patents clearly do attract investment for some modes of innovation, particularly in biotech (see above and in my previous post for the impact and extent of this in the US and UK biotech sectors). Would the inventions made by these organisations be made anyway? We can’t do the natural experiment here. However we can reason that if we changed the incentive system it is likely that we would see different inventions, not necessarily the same ones (e.g. patents may motivate pharmaceutical firms to invent diet pills, while copyright may motivate people to write diet books, and high fees for surgeons may encourage gastric bands or liposuction– all different ways to profit from the same market).

    It is possible that some inventions might be arrived at by different systems of incentives. Returning to gene patents again, and diagnostics specifically, there are often suggestions from clinical scientists that genetic tests for a specific condition would be developed without gene patents as an incentive (this has been a key argument against gene patents on diagnostics in the US debate and in Europe too). Certainly it is possible that co-ordinated public sector efforts find genes and comprehensively validate tests just as some industry tests are developed. However often resources are not available to undertake such studies and only some of the necessary research is done to show the test is useful or how effective it is. Also the work may not be done in as rapid a manner as if it had been undertaken by a profit seeking organisation. Finally, in times of austerity with public sector research funding likely to be reduced in real terms, relying on public sector funding for innovation is less realistic than it has been in the past. So although it may be desirable to have innovation without the temporary monopoly commercial investment often demands, it is becoming more difficult.

    Michael Hopkins – University of Sussex (SPRU – Science and Technology Policy Research)


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