Volume 3, January 2003
A Biotechnology Patent Pool: An Idea
Whose Time Has Come?
David B.
Resnik, J.D.*
* Professor of
Medical Humanities, Brody School of Medicine, East Carolina University
Abstract: This paper discusses the idea of forming a
patent pool in order to address some of the licensing problems in the
biotechnology industry. The pool would
be an independent, non-profit corporation that would manage patents and have
the authority to grant licenses. The
patent pool would not be a purely altruistic venture, since it would charge
licensing fees. The pool would charge
the market price for licensing services and reimburse patent holders for
licensing activities. The pool would
also provide patent holders with a minimum income based on a percentage of
royalties generated from the pool. The
pool would include patents on a variety of materials and methods that play an
important role in biotechnology. It
would also be international in scope, with the power to grant licenses in
different countries.
1. Introduction
The main rationale
for the patent system is that it promotes scientific progress and technological
development by providing incentives for inventors, investors, and
entrepreneurs. Under the “patent
bargain” the government grants inventors a private right, i.e. ownership of the
invention for 20 years, in exchange for a public good, i.e. their disclosure of
information about their invention in the patent application. In theory, granting inventors a limited
monopoly on their inventions provides them with an attractive alternative to
trade secrecy and encourages the dissemination of scientific and technical
information.[1]
The patent system,
like any human invention, has various shortcomings and flaws. In some circumstances, patenting may hinder
progress and development by allowing patent holders to obstruct the flow of
scientific and technical information. One
of the most persuasive arguments against patents on materials and methods used
in biotechnology is that problems related to the licensing of patented
inventions could impede discovery and innovation in biomedicine, which would
result in an “anti-commons.”[2] Various writers and agencies have proposed a
variety of solutions to these potential problems,[3]
while others have argued that there should be no patents at all on some types
of biological materials, such as human DNA sequences.[4]
On December 5, 2000,
the U.S. Patent and Trademark Office (USPTO) distributed a white paper that
developed the idea of a patent pool for biotechnology.[5] The paper outlined some of the benefits and
risks associated with patent pooling, as well as some legal (i.e. antitrust)
restrictions on pooling. The USPTO
paper concluded that pooling is a “win-win” situation that could “serve the
interests of both the public and private industry.”[6] While a patent pool for biotechnology sounds
good in theory, one might wonder whether it would work in practice. Assuming that the main obstacles to patent
pools in biotechnology are economic rather than legal, would enough
biotechnology patent holders have sufficient economic incentives to join and
sustain a patent pool?
This essay will
defend the idea of patent pool for biotechnology and propose some ways to design
a pool that would provide sufficient economic incentives for patent holders
while promoting public interests. The
paper will proceed as follows. Section
2 will clarify some terminological issues related to patents in
biotechnology. Sections 3 and 4 will
discuss several potential licensing problems in biotechnology that could lead
to an “anti-commons.” Section 5 will
outline various policy options for taking precautionary measures to prevent
these potential problems from hindering research and development in
biotechnology and biomedicine. Section
6 will develop and propose a patent pool for biotechnology. Sections 7 and 8 will evaluate the strengths
and weaknesses of the pool and respond to the objection that a patent pool will
not succeed because it will not provide sufficient incentives for patent
holders.
2.
Terminology Issues
Since lawyers,
ethicists, and scientists use various terms to refer to the patenting of human
genes, DNA, genetic information, and biotechnology, it will be useful to define
these terms for the purposes of this essay.
Although this essay cannot correct the ambiguities in the literature, it
can shed some light how one should use these terms when discussing patenting
issues.
DNA is a
double-stranded helix composed of complementary nucleic acid base-pairs:
adenine (A) pairs with thymine (T), and cytosine (C) pairs with guanine
(G). DNA consists of sequences of
nucleic acids, such as ACTTAGGAC.
Proteins are composed of amino acids, which can fold to make complex
structures. During DNA transcription,
the DNA strand unwinds and a type of RNA, known as messenger RNA (mRNA), pairs
with one half of the DNA strand. The
mRNA is then released into the cell and the DNA strands rewind. During DNA translation, the mRNA is translated
into a sequence of amino acids. It
takes three nucleic acid bases (or codon) to code for a single amino acid. Some DNA base-pairs regulate DNA
transcription: promoters tell the mRNA to start transcribing DNA and
terminators tell the mRNA to stop transcribing DNA. When the amino acid sequence is complete, ribosomes package and
modify the sequence before releasing it into the cell as a protein.[7]
A “gene” can be
defined as the basic unit of heredity; it carries the information required to
make one or more proteins. In human
beings, genes include the base-pairs required to make a protein but not the
regulatory sequences.[8] Only a small percentage of human DNA,
perhaps less than 5%, consists of genes.
The human genome includes about 35,000 genes, which code for about
100,000 proteins.[9] The rest of the genome consists of
regulatory sequences as well as other DNA base-pairs that have no apparent
function, which are also known as “junk DNA.”
A gene consists of a large number of DNA base-pairs: genes range in size
from about 1,000 DNA base-pairs to several thousand base-pairs. There are about 4 billion base-pairs in the
genome. There are also smaller strands
of DNA that have biomedical significance.
These include expressed sequence tags (ESTs) and single nucleotide
polymorphisms (SNPs). An EST is a piece
of a gene that serves as a useful marker for the whole gene. A SNP is a place on the genome where human
beings exhibit genetic variation, and SNPs are very useful in studying genetic
variation.[10]
The USPTO regards DNA
sequences as chemicals similar to other isolated and purified compounds, such
as digitalis (a heart medication found in the foxglove plant), salicylic acid
(an anti-inflammatory medication found in the white willow plant).[11]
The USPTO has issued patents on isolated and purified genes or isolated and
purified DNA sequences, but it has not issued patents on natural occurring
genes or DNA sequences. A gene patent
is a type of DNA patent: it is a patent on an isolated and purified DNA
sequence that codes for a protein. One
of the key tenets of U.S. patent law is that one can patent products of human
ingenuity but not products of nature.
An isolated and purified gene (or DNA sequence) is a product of human
ingenuity because it is something that does not exist in nature. Any patent that would give the patent holder
control over products of nature would be unlawful.
Another important
tenet of patent law is that patents pertain to applications, not ideas or
information. For example, one cannot
patent a computer algorithm, since this is an abstract idea. However, one might be able to patent a
practical application of the algorithm, such as a method for controlling a
robot. Thus, patents on genetic
information are illegal, although patents on isolated are purified genes or DNA
sequences are legal.[12]
It will also be
useful to define the term “biotechnology” for the purposes of this essay. One could define this term very broadly so
that it included all of the technologies related to biology, which would
include agriculture, medicine, cosmetics, and food preparation and processing,
and so on. Biotechnology in this broad
since has existed for thousands of years.
A more narrow definition of “biotechnology” focuses on the materials and
methods related to genetic engineering that have been developed since the
discovery of recombinant DNA techniques in the 1970s. These technologies include DNA cloning, RNA cloning, gene
transfer, genetic manipulation, the polymerase chain reaction (PCR), gel
electrophoresis, and other methods and materials used to create genetically
modified organisms, develop genetic therapies, or bioengineer pharmaceutical
products, such as synthetic proteins or hormones.
There are two basic
types of patents that play an important role in the development of any
technology, patents on compositions of matter, articles of manufacture, and
machines (or materials), also known as product patents; and patents on methods,
procedures and techniques (or methods), also known as process patents. In biotechnology, product patents include
patents on biological materials, such as DNA, RNA, proteins, hormones, cell
lines, organisms, engineered tissues, and artificial body parts. For example, Chakrabarty’s ground-breaking
patent on bioengineered bacteria was a product patent.[13] Patents on processes in biotechnology would
include patents on methods for cloning, isolating, sequencing, and manipulating
DNA, RNA, or proteins. For instance,
one of the first and most important patents in biotechnology was the
Cohen-Boyer patent on techniques for recombining DNA in bacteria.[14] Companies frequently try to obtain product
patents as well as process patents in order to maximize their intellectual
property protection: while the patent would help protect the product, the
process patent could protect various methods for making the product.
As one can see,
patents on DNA and genes, though important, do not cover the entire spectrum of
intellectual property related to biotechnology, since a researcher or company
might also be interested in patenting RNA, proteins, or genetically engineered
cell-lines, organisms, as well as methods and techniques. Although much of the moral, legal, and
economic debate about patenting in biotechnology has focused on patenting DNA
and genes, other types of patents also have a great deal of economic, if not
moral or legal, significance. Since the
progress of biomedical research and the growth of the biotechnology industry will
depend on access to DNA, RNA, proteins, cell-lines, and other materials and
methods in these emerging fields, it would be short-sighted to focus only on
DNA patents. Thus, this paper will
discuss a biotechnology patent pool, not a DNA patent pool.
One other
terminological point requires some clarification. Many of the objections to patents on DNA suggest that it is
immoral to patent human DNA or human genes,[15]
yet human beings share as much as 98.5% of their DNA with chimpanzees.[16] All organisms on this planet use that same
basic nucleic acids, ribonucleic acids, and amino acids to form DNA, RNA, and
proteins, respectively. Basically, all
living things are made out of the same molecular building blocks. So what does one mean by human
DNA? (Or human RNA or proteins
for that matter?)
There are two main
approaches one could take to this question.
One could say that human DNA consists of the DNA found only in the
species Homo sapiens. One this view, 1.5% or less of the human
genome would actually be “human”: the rest would consist of DNA found in other
primates, mammals, and eukaryotes. But
this is a very odd way of thinking about the relationship between the human
body and its parts. We do not think of
ourselves as animals with a few human parts that make us human: we are thoroughly
human. All the bits of DNA in the human
genome are human DNA, even if we share those parts with other species. To use an analogy: if a Ford Truck and a
Dodge Truck both share many common parts, we would not say that a particular
part is not a Ford Truck part if that part also occurs in the Dodge Truck.
These reflections
suggest a better view of the matter: human DNA is DNA that resides in a member
of the human species. Likewise, human
RNA is RNA that occurs in a member of the human species, human proteins are
proteins found in human beings, etc. A
human and a chimpanzee can have many genes in common, but those genes are human
genes when they are in a human body. Likewise,
a Ford and a Dodge Truck may use the same type of spark plugs, but those sparks
plugs are Ford Truck parts when they are in a Ford Truck and Dodge Truck parts
when they are in a Dodge Truck. A part
is typically defined in terms of some larger whole. There are many genes that are found only in humans, and we could
call those genes “uniquely human,” but even genes that are not uniquely human
would still be human.[17]
3. The Anti-commons in Biotechnology
Having
discussed these key terms, we can now address how an “anti-commons” might arise
in biotechnology. Several different
phenomena related to the licensing of materials and methods in biotechnology
could prevent researchers and companies from making new discoveries or
developing new products.
The
first problem involves difficulties with negotiating and obtaining licenses for
various patents in biotechnology. If
someone owns a patent on an invention, then another person cannot make, use or
commercialize that invention without permission from the patent holder. A patent holder could allow another person
or organization to use, make, or commercialize his invention by granting that
person or organization a license in exchange for a fee or percentage of
royalties.[18] In any particular industry, a person
developing a new product or service may need to obtain licenses from many
different patent holders. For example,
if a company is developing a new personal computing device that contains
patented parts, such as chips, viewing screens, or keyboards, that company will
need to obtain licenses in order to avoid potential patent infringement
lawsuits. As we have already seen,
there are many different DNA sequences, RNA sequences, proteins, and even
cell-lines that might play an important role in the development of a new
product or service in biotechnology.
Researchers
and companies might find it very difficult to negotiate the dozens or even
hundreds of licenses that they might require to develop a new product. For example, consider the potential
licensing problems one might face in developing a genetic test for hereditary
colon cancer. Perhaps as many as a
dozen different genes are thought to play a role in hereditary colon cancer,
and each of these genes could be associated many variations of mutated alleles.[19] Each of these different alleles could code
for types of RNA and proteins. If the
test is designed to test for genes or gene products that are associated with
colon cancer, it might need to test for literally thousands of different
variations of DNA, RNA, and proteins.
Now suppose that over two-dozen companies own patents on various parts
(DNA, RNA, or proteins) that would be used in performing this test. Someone developing this test might then need
to negotiate over two-dozen different licenses to avoid patent infringement. Similar problems could arise when a company
or individual attempts to develop a genetically-engineered cell-line, since
different companies might own patents on DNA, RNA, proteins, cell-lines, and
other technologies (such as biotechnology techniques and methods) used in
creating that cell line.
In
many high technology industries, such as the computer and software industry,
companies routinely negotiate and obtain many different licenses to develop
goods and services. However, some
writers have argued that it will be especially difficult to obtain licenses in
biotechnology. Even if many companies
are able to negotiate licenses successfully, the legal and administrative costs
(or transaction costs) related to this “patent thicket” could be exceedingly high
and could deter or even prevent research and innovation.[20]
The second problem
has to do with the refusal of some patent holders to grant licenses. Companies might refuse to grant licenses in
order to gain an edge over their competitors.
The U.S., unlike some European countries, does not have laws that
require licensing. In the U.S.,
licensing is optional, not compulsory.[21]
Thus, under U.S. law a company may refuse to grant licenses in order to gain a
competitive advantage over other companies.
The company could also refuse to make, use, commercialize the invention
if it so desires. If the company owns a
piece of “upstream” technology, it can therefore effectively block many
“downstream” inventions,[22]
if it refuses to license that technology.[23]
For example, if one
company owned a patent on an important gene in biotechnology and biomedicine,
such as the p53 tumor suppressor gene, and the company did not license other
individuals or companies to use or commercialize that gene, then it could
effectively block many downstream inventions from that would depend on that key
gene. The p53 gene is an important gene
in biotechnology because many different cancers are associated with this
gene. To develop products that treat
cancer, it may be useful to develop products that stimulate the normal expression
of p53, which might counteract abnormal expression of p53. This type of “blocking” might occur with
techniques or methods as well. For
instance, if Cohen and Boyer had not licensed their recombinant DNA methods to
other researchers and companies, they could have blocked or hindered the growth
of the biotechnology industry for the length of their patent. As it so happened, Cohen and Boyer licensed
freely and generously, which encouraged the growth of the biotechnology
industry.[24]
Third, licensing fees
could impose a heavy toll that could deter or prevent research and
innovation. Companies that hold patents
on upstream patents might issue licenses only if they would be granted a
percentage of profits from downstream products. Although downstream inventors have no legal obligation to share
their profits with upstream patent holders, upstream patent holders may try to
grab some of these profits by granting “reach through” or “stacking” licenses.[25] A reach through license is simply a license
that attempts to control not only the use of the invention but also commercial
developments from it. For example, the
owner of the miniaturized transistor in the example mentioned previously might
attempt to demand royalties from the development of the computer chip or even
the cellular phone.
Even companies that
do not issue “stacking” licenses might still set very high licensing fees that
could undermine access to materials and methods in biotechnology.[26] For example, many commentators have
complained that Myriad Genetics has set an exorbitant fee for licensing its
test for BRCA1 and BRCA2 mutations, which are associated with high rates of
breast and ovarian cancer. Myriad
charges $2300 to perform the test and has licensed only a few laboratories to
conduct the test for about $1200.[27] Some commentators have argued that Myriad’s
licensing practices have had a negative impact on women’s health, as well as
the development of predictive and diagnostic testing for breast cancer.[28] Myriad’s licensing practices have also
created an international controversy as some European countries have challenged
its monopoly.[29]
In theory, a patent
pool could help overcome some of these potential problems related to licensing
in biotechnology, since it would make it easier to negotiate licenses, would
eliminate blocking patents, and would exert some market pressure to lower
licensing prices.[30]
4. Lessons from History
Do we have any good
evidence that these potential problems related to licensing in biotechnology
are likely to produce an “anti-commons?”
Are these dire predictions little more than speculation or do they have
some factual basis? History provides a
relevant source of evidence for the effects of patent practices and
policies. Two well-known examples from
20th century science and technology illustrate how problems with the
licensing of patents can deter discovery and innovation in biomedicine. During the early history of aviation,
licensing problems made it difficult to develop airplanes. The Wright Brothers, who held a variety of
patents on key inventions in the industry, refused to grant licenses to
competitors. They were able to stunt
the growth of the industry until the Secretary of the U.S. Navy urged airplane
manufacturers to form a patent pool prior to World War I. During the war, the U.S. government co-opted
the patents and the aviation industry took off. Another technology that played a key role in World War I, radio,
had also stalled for ten years as a result of a failure to negotiate
licenses. This problem was not solved
until, in 1919, the U.S. Navy again stepped in and urged private companies to
form the Radio Corporation of American (RCA).
During the war, the government also took over the radio industry for national
defense purposes.[31] [32]
Those who are not
concerned about the emergence of an “anti-commons” in biotechnology respond to
these historical examples of licensing failures with their own examples of
licensing success, such as the semiconductor industry. Since the 1970s, the semiconductor industry
has been one of the most productive and innovative sectors of the economy.[33] To design and manufacture a new computer
chip or electronic device, a company may need to obtain licenses on thousands
of parts, techniques, and methods. All
of the occurrences that could lead to an emergence of an “anti-commons” in
biotechnology—the patent thicket, blocking patents, and high licensing
costs—have also posed a threat to the semiconductor industry, yet this industry
has thrived because companies have been able to overcome these problems to
reach licensing agreements. Moreover,
the semiconductor industry is similar to the biotechnology industry because 1)
one often needs access to thousands of different technologies to develop a new
invention; 2) some of the technologies, such as transistors, are upstream
technologies, and 3) many different companies hold patents in the
industry.
Those who are not
concerned about the emergence of an “anti-commons” in biotechnology also argue
that we should maintain the patent system as it currently stands because the
free market, patent agencies, and the courts can overcome potential licensing
problems. First, companies will
negotiate licensing agreements and they will be able to afford the transaction
costs; second, “blocking” patents will be rare because most patent holders will
find that it is more profitable to license inventions than hoard them; and
third, high licensing fees will fall in response to weaker consumer demands at
that price, especially if competitors are able to develop “work-around”
inventions.[34] [35]
[36]
It is still too soon
to tell whether patents on materials and methods in biotechnology, such as
patents on DNA, RNA, proteins, and biotechnology techniques, are having or will
have a detrimental impact on biomedical discovery and innovation. Some studies suggest that DNA patents have
had beneficial impacts, since increases in DNA patenting have also been
accompanied by increases in publications in the genetic sciences,[37]
and other studies suggest that companies and universities are developing ways
of working around problems related to restrictive patents.[38] On the other hand, some studies suggest that
problems related to licensing and potential patent infringement lawsuits may be
having a chilling effect on research because scientists are concerned about
licensing problems.[39] Some researchers are having difficulty
gaining access to data as a result of intellectual property interests.[40]
5. Taking Precautionary Measures to Prevent an Anti-commons
Although policy
makers do not yet have enough data to determine whether (or to what extent)
patents in biotechnology are having a detrimental impact on progress in
biomedicine, it would still be wise to take precautionary measures to prevent
or minimize the potential negative effects of patents on discovery and
innovation. We often lack sufficient
evidence in many areas of public policy, ranging from the introduction of
genetically engineered crops to global climate change. Many commentators have argued that we should
not let this lack of knowledge stop us from taking precautionary measures to
avoid undesirable consequences. The
commonsense idea that an ounce of prevention is worth a pound of cure finds its
expression in a controversial doctrine known as the Precautionary
Principle. There are many different
versions of this principle, some of which have been criticized as excessively
risk-aversive and anti-scientific.[41] According to a defensible version of the
Precautionary Principle, society should take precautionary measures to address
threats that are plausible and preventable.
Precautionary measures should be reasonable, i.e. they should be
proportional to the level of danger, non-discriminatory in application,
consistent with similar actions already taken, and based on a careful balancing
of benefits and risks.[42]
One can apply this
decision-making framework to the controversy over patents on DNA
sequences. The “anti-commons” –or
something like it—would be the undesirable consequence. What would the precautionary measures be
that society could take to prevent or minimize this threat? There are three basic precautionary
responses society can make to the threat to discovery and innovation posed by
patents in biotechnology: (a) ban some types of patents, such as patents on
DNA; (b) maintain the status quo; or (c) develop policies to minimize the
threats posed by biotechnology patents.
While
option (a) sounds like a reasonable response, one might argue that it would not
be proportional to the level of danger posed by biotechnology patents, it would
not be consistent with similar actions, and it would not be based on a careful
balancing of benefits and risks. Option
(a) would not be proportional to the level of danger because it would be an
overreaction to the threats posed by patents.
Indeed, if society always took steps to ban patents that could pose a
threat to the progress of science and technology, very soon there would be no
more patents left, since every patent has potential risks as well as potential
benefits. Option (a) would not be
consistent with similar actions because society allows patents in other areas
of science, technology, and industry, such as electronics. It would be inconsistent to treat the
biotechnology industry differently from the electronics industry. Finally, option (a) would not represent a
careful balancing of benefits and risks because it would sacrifice important
benefits of patenting, i.e. incentives from for inventors and entrepreneurs, in
order to avoid potential harms.
Option (b) is also an
unreasonable response because it would not be proportional to the level of
danger pose by biotechnology patents and it would not reflect a careful
balancing of benefits and risks. Unlike
option (a), option (b) would be an under-reaction to the threat posed by
patents. Intellectual property laws and
policies need to consider the potential benefits of intellectual property for
science, technology, and society as well the potential risks. Indeed, the history of intellectual property
law in the U.S. since the 1800s reflects this careful balancing of public and
private interests. Option (b) would not
reflect a careful examination of the benefits and risks biotechnology patents
because many of these patents do pose some threats to biotechnology and
biomedicine that need to be addressed.
Option (c),
developing policies to minimize the threats posed by biotechnology patents,
would appear to be the most reasonable course of action to take. It would be proportional to the level of the
threat posed by biotechnology patents because it would take some response to
this threat beyond simply maintaining the status quo. It would also reflect a careful balancing of benefits and risks
because the policies that are developed would be designed to maximize the
scientific, technological, and social benefits of patenting and minimize the
risk. So what are some policies that
could be developed to minimize threats to discovery and innovation in
biomedicine posed by biotechnology patents?
Many different writers have suggested a wide variety of policies (some
of which have been mentioned earlier) for minimizing the harmful effects of
such patents. Some of these are as
follows:
1. Raise the bar on
the various conditions for awarding patents in biotechnology, such as novelty,
non-obviousness, utility, or the enabling description.[43]
[44] For example, in 1999, the USPTO raised the
bar for proving the utility for a patent on DNA.[45] Raising the bar on patents in biotechnology
may help prevent some of the problems related to licensing, since it may
decrease the number of patents awarded.
It may also increase the amount of work required to defend a patent
application, which will increase the legal costs associated with patenting. However, raising the bar too high could have
a negative effect in research and development in biotechnology by reducing the
incentives for researchers and companies.
Thus, while this solution could help alleviate some of the potential
licensing problems in biotechnology, it is no panacea.
2. Restrict the scope
of patents on materials and methods in biotechnology in order to allow
competitors to develop “work-around” inventions, i.e. new inventions or
improvements on existing inventions.[46] Patent attorneys usually attempt to state
very broad claims in patent applications in order to give the patent holder
maximum control over the invention. A
patent examiner or a court may reduce the scope of patent claims that are
excessively broad in order comply with legal requirements and protect public
interests. However, if the scope of a
patent is too narrow, the patent holder may not be able to obtain an adequate
return for his investment. Thus, overly
restrictive limits on the scope of patents can also reduce incentives and
therefore deter discovery and innovation.
In establishing the scope of a patent, patent agencies and the courts
must strike the correct balance between private interests and public access.[47] Since there are some legal and practical
limits to restricting the scope of patents, this proposed solution also does
not adequately address potential licensing problems.
3. Reinforce,
clarify, and legislate the research exemption for researchers in biotechnology
and biomedicine.[48] In the U.S., the research exemption is a
rarely used defense to patent infringement that allows academic researchers to
use or make patented inventions without the permission of the patent holder.[49] The exemption is not part of the U.S. patent
statute but is based on judicial interpretations of the statute. As it currently stands, the research
exemption applies only to research undertaken for “philosophical” or “academic”
purposes with no prospect of commercialization.[50] Since the line between commercial and
non-commercial research is often very difficult to draw in biomedicine, any
research exemption would need to be carefully worded and implemented, and
researchers who want to take advantage of the exemption would have to adhere to
stringent conditions. The research
exemption, like the other proposed solutions, is probably not an adequate
solution to address licensing problems because most research in biomedicine
today has commercial implications.
Unless the exemption is interpreted very narrowly, it could
significantly erode patent protection in biotechnology and also deter
investment in research and development.
4. Use antitrust laws
to respond to anti-competitive practices in biotechnology and biomedicine. Since a patent explicitly grants a patent
holder a monopoly on an invention for a limited time period, one does not
normally think that antitrust laws would have any bearing on patents. However, U.S. antitrust laws can apply to
situations where patent holders refuse to deal with competitors and collude to
fix prices.[51] For example, if a company attempted to corner
the market on genetic tests and refused to license its tests to other companies
or organizations, this might be a situation where antitrust laws might
apply. Patent pools can also raise
antitrust issues when members of the pool fix prices. Indeed, the courts have applied antitrust to several cases
involving patent pools, and the justice department has issued guidelines for
forming patent pools so that they do not raise antitrust issues.[52] However, most of the licensing problems in
biotechnology, with the possible exception of “blocking” patents, raise no
significant antitrust concerns. Thus,
antitrust laws would also not be very effective at addressing the wide range of
licensing problems in biotechnology.
5. Use compulsory
licensing laws to prevent patent holders from engaging in problematic licensing
practices. The U.S., unlike some
European countries, has no compulsory licensing provision in its patent laws.[53] Under U.S. law, it is perfectly legal to
patent an invention and then keep it on the shelf for the entire duration of
the patent. In countries that have
compulsory licensing, the inventor must make, use, or commercialize his
invention or license others to do so.[54] Although compulsory licensing might be
useful to deal with some situations, such as patents on upstream technologies
that block downstream inventions, it is probably not a very effective solution
to potential licensing problems. First,
many corporations operating within the U.S. economy would oppose any changes in
the current patent statute, including a change that would implement compulsory
licensing. Second, even if the U.S.
passed a compulsory licensing law, patent holders could still stifle downstream
research by issuing “reach through” licenses.
To
summarize, these five precautionary measures represent viable options for
preventing licensing problems from undermining access to materials and methods
in biotechnology. Any policy framework
for regulating and controlling biotechnology patents should incorporate parts
of these proposed solutions to potential licensing problems. However, it is unlikely that any of these
solutions by themselves, or even all of these solutions taken together, will
suffice to preventing licensing problems from occurring. Even if these five policy options are
applied rigorously, it is still likely that many different companies and
individuals will own useful patents in biotechnology. Therefore, those who develop new inventions could face a “patent
thicket,” blocking patents, or steep prices for licensing. Thus, we have good reasons for considering
the patent pool proposal.
6. A Biotechnology Patent Pool
The
idea of a patent pool is not new. As
mentioned above, the U.S. government prodded the aviation industry and the
radio industry into forming patent pools during World War I. More recent examples of successful patent
pools include a patent pool formed in 1997 for patents related to the MPEG_2
compression technology, and patents pools formed in 1998 and 1999 related to
DVD-Rom and DVD-Video formats.[55]
A patent pool can take many different forms.
Some patent pools may even do more harm than good for science and
society. However, a patent pool in
biotechnology might be defensible if the following guidelines were embraced.
First,
the patent pool should be designed to minimize transaction costs: it should
enable patent holders to reach licensing agreements with other members of the
pool and with individuals or corporations outside the pool.[56]
The pool would negotiate licenses on behalf of its members and reimburse
members for licensing activities. All
members of the pool would retain their exclusive rights to use, make, or
commercialize their own inventions, but they would also grant the pool the
authority to license their inventions, which would help reduce transaction
costs by enabling licensees to negotiate directly with the pool instead of with
dozens of patent holders.
Second, the patent
pool should have policies and rules that are explicitly designed to avoid
antitrust problems and to encourage licensing; the pool should avoid
price-fixing, collusion, and other anti-competitive practices.[57] Thus, the pool should have a mechanism for
determining the market value of a patent and it should license patents
according to their market value. All
members of the pool should agree to license their inventions according to the
market value; the pool should not permit blocking patents. Furthermore, in order to avoid the emergence
of patent cartel, the pool should be open to all patent holders in biotechnology
and should not exclude particular patent holders in order to keep them from
competing.
Third, the patent
pool should be designed to prevent fraud and abuse.[58] All patents in the pool should be
valid. The pool should not afford an
unscrupulous company the opportunity to profit from invalid and fraudulent
patents. When patents expire, they
should be removed from the pool.
Furthermore, the pool should develop procedures for preventing
“double-patenting” and other abuses of the patent systems.[59]
Fourth, in order to
ensure that all patent holders have some guaranteed income, the pool should pay
all members a percentage of royalties from licensing activities.[60] Pool members would also benefit from
discounted fees for licensing the inventions of other members of the pool. These policies would encourage patent
holders to enter their patents into the pool when they are unsure of their
market value.
Fifth, to maximize
convenience and access and minimize transaction costs, the patent pool should be
comprehensive in scope. It should
include patents on a variety of essential products and processes used in
biotechnology and biomedicine, such as DNA, RNA, proteins, receptors, the
polymerase chain reaction (PCR), recombinant DNA techniques, gene therapy
techniques, cell lines, and laboratory animals. It should not be a DNA patent pool, a protein patent pool or a
cell-line patent pool: it should be a biotechnology patent pool. For example, a company developing a new drug
to affect a receptor target might need to be able to obtain a license on the
receptor, as well as licenses on proteins, RNA, and DNA. The company might also need to obtain
licenses on important processes, such as PCR or recombinant DNA techniques. The company would find it far more convenient
to negotiate licenses with a single pool, instead of with many different patent
holders or patent pools.
Sixth, in order to
avoid bias or the appearance of bias, the patent pool should be an independent,
non-profit corporation. Although
influential companies and government agencies could play a key role in
launching the patent pool, the patent pool should have its own charter, bylaws,
trustees, and management. The pool
would be supported by contributions from members of the pool, which could include
an annual fee or a percentage of royalties from licensing. An independent board established by the pool
would arbitrate and review disputes put forward by patent holders.
Seventh, since public
and private sectors hold patents on materials and methods in biotechnology, the
patent pool should include private corporations and private universities as
well as public universities and government agencies. It should promote public-private collaboration.
Eighth, the pool
should be entirely voluntary and contractual; the government should not use
force to induce patent holders to join the pool.
Ninth, while
inventions in the pool would be open to the public for a fee, they would not be
in the public domain. The corporation
that manages the patent pool is organization would be analogous to agencies
that manage copyrights, such as the Copyright Clearinghouse Center, King
Features Syndicate, or Broadcast Music Incorporated (BMI), or the American
Society of Composers, Authors, and Publishers (ASCAP).
7. Strengths: Overcoming Licensing Problems
A biotechnology
patent pool would go a long way toward preventing the licensing problems
discussed earlier. First, the pool
would directly attack the problem of the failure to reach licensing agreements
by providing a medium for quick and easy licensing. While it would be relatively easy to obtain licenses on products
within jurisdiction of the pool, some difficulties might remain for licensing
products outside the pool. If most
patent holders join the pool, this should not be a significant problem. If there are a large number of patent
holders who find not value in joining the pool, the pool may not greatly
increase the efficiency of licensing.
Second, the pool
would also directly attack the problem of blocking patents, since members
within the pool would agree to allow the pool to license their products. Once again, some difficulties could arise as
a result of potential holdouts. If a
large number of patent holders do not join the pool, there could still be
significant problems with blocking patents.
Third, the pool would
greatly reduce transaction costs because licensees could negotiate with a
single organization instead dozens of companies or universities. The pool would also reduce transaction costs
by eliminating “reach through” license agreements. Although many larger biotechnology firms have sufficient funding
to cover transactions costs, smaller biotechnology companies and universities
often cannot afford transaction costs.[61] Thus, the reduction in transaction costs
would be an important advantage for these organizations. However, the pool would not reduce
transaction costs significantly if few patent holders do join the pool, since
licensees might still need to negotiate licenses with the pool and with patent
holders outside the pool.
Fourth, the pool
would give patent holders a steady and predictable source of income.[62] Frequently companies that patent new
products do not know whether their patents will generate income from licensing
fees: patenting often amounts to a research and development gamble. Companies can reduce their risk and
uncertainty by contributing their patents to the pool, which will give them a
guaranteed percentage of royalties generated from the pool. Companies will also be able to earn income
beyond the guaranteed minimum income in proportion to the licensing activity of
the patents they contribute to the pool.
Fifth, a patent pool
could also address the criticism that biotechnology companies are benefiting
unfairly from the Bayh-Dole Act, since members of the pool would have
discounted licensing fees for access to other inventions in the pool.[63] If U.S. government agencies, such as the
National Institutes of Health (NIH) and the Department of Energy (DOE),
contribute patents to the pool, they would only have to pay discounted
fees. Public universities that place
their patents in the pool would also receive discounted fees. Currently, government agencies and public
universities must pay the market rate for licenses on inventions that have been
partly funded by public money. Although
granting discounted fees to public institutions would not negate the charge
that the Bayh-Dole Act is a form of corporate welfare, it would weaken the
impact of this claim.
Sixth, a biotechnology
patent pool could encourage the type of public-private cooperation that is
necessary to research and innovation in biotechnology and biomedicine.[64] Corporations that hold biotechnology
patents, such as SmithKline Beecham, Incyte Pharmaceuticals, Genentech, Eli
Lilly, and Monsanto, as well prominent universities that hold biotechnology
patents, such as the University of California, the Massachusetts Institute of
Technology, North Carolina State University, the University of Texas, could
cooperate to form a patent pool and encourage others to join. Other influential parties, such as the
Biotechnology Industry Organization, the Pharmaceutical Research and
Manufacturing Association (PhRMA), the NIH and the DOE could lend their support
to a pool.
8. Weaknesses: Insufficient Benefits to Patent Holders?
A patent pool for
biotechnology sounds like a good idea in theory, but would it work in practice?
Many companies, universities, and government agencies may decide that they
currently have no significant problems with licensing materials and methods in
biotechnology and that they do not anticipate any future problems. Thus, they might decide that they would not
benefit from joining a biotechnology patent pool. Indeed, many private companies with valuable patents on key
technologies may decide that joining a patent pool would be a financial
blunder. Why would any company allow an
outside organization to control its golden egg laying goose?
Thus, an important
obstacle to starting, developing, and sustaining a patent pool is convincing
the various parties that the benefits of joining the pool outweigh the risks,
which is no small feat. This aim of
this essay is to defend and develop the idea of a patent pool in biotechnology,
not to sell the idea to government and industry leaders. However, I propose that an effective way of
convincing various parties to join a biotechnology patent pool would be to
appeal to their long-term economic interests.
It may be the case that a company or university will realize no
short-term benefits from joining a biotechnology patent pool. The benefits of the pool are likely to
occur several years after the pool is formed.
As noted above, the pool will offer the parties many benefits, including
efficient licensing and reduced transaction costs for the whole industry, a
steady source of income, reduced licensing fees, and public-private
cooperation. Moreover, parties that
join the pool will still be able to profit from their licensing activities,
since the pool will grant licenses at their market value. The risks of the pool are that some
companies might derive fewer economic benefits from their valuable patents by
placing those patents in the pool.
Companies would also need to forego their ability to use their patents to
block competitors or to impose “reach through” licenses on licensees. They would also need to give some of their
profits to the pool in order to support its operation.
Although one often
thinks of biotechnology companies as fiercely competitive, there is precedent
in biotechnology for the cooperative spirit necessary to form a patent
pool. In 1999, ten pharmaceutical
companies and a British charity formed a non-profit corporation, the SNP
Consortium, which they established to disseminate and archive the estimated
300,000 human single nucleotide polymorphisms (SNPs).[65] The companies understood that they would all
need access to SNPs, since they are valuable research tools. In order to avoid licensing problems related
to acquiring rights to thousands of SNPs, the companies decided to work
together to form the consortium. The
companies decided to forego patents on human SNPs and placed all of their data
in a public database, thereby undercutting future patenting efforts.[66] The SNP consortium is not a patent pool;
indeed, it might be best characterized as an “anti-patent” pool. However, the fact that the consortium exists
and that it is very well established indicates that private companies can work
together to overcome licensing problems in biotechnology.
The SNP consortium is
a classic example of a response to a multi-person, cooperative game. In this type of game, the players may choose
among various strategies, such as “cooperate” and “don’t cooperate,” and they are
free to coordinate their strategies to achieve common goals.[67] The companies who formed and joined the SNP
consortium could choose between “joining the consortium” and “not joining the
consortium,” as well as variations on these strategies. Yet the companies choose to cooperate because
they understood the economic benefits and risks of various strategies and as
well as the choices facing other companies.
The companies decided to join the SNP consortium because they determined
that there would be clear and substantial economic benefits from
cooperating.
Although the SNP
consortium is a stellar example of the triumph of cooperation over selfishness
in biotechnology, it is not the appropriate model for all biotechnology
patents. SNP patents, unlike patents on
genes that code for useful proteins or genes that can be used in diagnosis,
have very little practical value on their own.
SNPs derive most of their value and usefulness from their ability to
serve as research tools. Researchers
can use a large group of SNPs to compare genomes in order to understand the
relationship between genotypic variation and phenotypic variation. To make meaningful comparisons between
genomes, researchers require access to hundreds or even thousands of SNPs. The companies that formed the SNP consortium
understood that they would benefit very little from exclusive control over a
few SNPs but that they might benefit a great deal from having non-exclusive
access to thousands of SNPs.[68]
If one thinks of the
decision to join the biotechnology patent pool as a business decision made in
the context of a cooperative game, it follows that patent holders would join
the pool if they determined that the benefits of belonging to the pool outweigh
the risks (in the long run). One might
argue, as above, that patent holders would have much to gain and very little to
lose by joining a biotechnology patent pool.
Many companies probably would determine that the benefits of joining a
biotechnology patent pool outweigh the risks.
However, there would probably be some holdouts. For example, a company with patents related
to a valuable protein, such as erythropoietin, would probably not place this
patent in the pool because it would find it more profitable to cash in on its
patent than to cooperate with other patent holders. Thus, it is possible that companies and universities might place
some of their less valuable patents in the pool but retain control over their
highly valuable patents. While this
development would be less than ideal as far as the pool would be concerned, it
would not automatically make the pool obsolete. The pool could serve a useful purpose as long as companies and
universities contribute enough patents to the pool to provide sufficient
benefits for sustaining the pool, such as reduced transaction costs, access to
technology, and so forth.
9. Conclusion
This paper described
some potential problems related to the licensing of materials and methods in
biotechnology that could undermine scientific research and technical
innovation.[69] The paper has argued that companies,
universities, and other interested parties should form a biotechnology patent
pool to prevent these problems from occurring or to at least reduce their
impact. The paper also outlined the
basic structure and organization of a patent pool in biotechnology as well as
its rules and procedures. Although any
patent pool must avoid legal problems related to antitrust laws and possible
abuse of the patent system, the biggest obstacle to forming and sustaining a
biotechnology patent pool would be economic rather than legal. The parties who would consider joining the
pool must decide that membership in the pool is in their long-term financial
interests. Some members of the pool may
decide to place some of their less valuable patents in the pool but retain
control over their highly valuable patents.
While critics of the biotechnology industry view companies and
researchers as profit-driven capitalists, industry leaders and scientists could
choose the path of enlightened self-interest by forming a biotechnology patent
pool. The SNP consortium has already
shown the world how cooperation and self-interest can coexist under mutually
advantageous schemes. Hopefully,
leaders in the biotechnology industry will continue to follow this example.
Acknowledgements
The author is
grateful for useful comments and suggestions from anonymous reviewers.
Key words:
patents, biotechnology, patent pools, DNA, anti-commons, licensing, SNP
consortium, Precautionary principle, game theory
