Pharmaceutical Patent
Policy Options For Brazil

       Kevin Outterson
              mko@bu.edu
        Associate Profess...
Topics

      • Patent Failure
     • Pharmaceuticals
          • ACTA

                         2
Topics

     • Patent Failure
     • Pharmaceuticals
         • ACTA

                         3
Why don’t patents work like
property?
Land                                 Patents
• Registry, third party              • ...
The Notice Function of Property Law




                ?
      An expensive mistake!
                              5
Notice Function of Patent Law
Kodak v. Polaroid
 • Failed attempt to invent around
 • Patent review started seven years be...
Evidence Suggests Much
Infringement Is Inadvertent
• Defendants are large, spend a lot on R&D, and
  obtain a lot of paten...
E-Data Lawsuits
• Freeny invented retail kiosk that would produce music
  recorded on cassette tapes
• Patent claim langua...
Search Cost

• Patent flood
  – E-commerce firm faces b/w 4000 – 11,000 patents
  – Semiconductor firm faces hundreds of p...
Parties to Lawsuit




       Same primary industry                              No industry overlap
               29%   ...
Evidence on search
• Cockburn & Henderson survey:
  – 65% of firms do not conduct a patent search before
    initiating pr...
Patent Lawsuits Filed in U.S. District
Courts

 3,500


 3,000


 2,500


 2,000


 1,500


 1,000


  500


    0
       ...
Litigation Growth


                 Suits/R&D ($b):
                     1987: 1.7
                     1999: 2.9

Patent...
Pharma Offers Clearer Notice

   • Lipitor: Trans-6-[2-(3- or 4-carboxamido-
     substituted pyrrol-1-yl)alkyl]-4-hydroxy...
Technology Differences Suggest
Notice Problems

           Probability   Claim Con- Value
           suit/patent   structi...
Patent Reform to Improve Notice
 • Make patents more transparent
   – continuation reform
   – better disclosure
 • Better...
Helpful Steps by Courts
• eBay -- increases bargaining power of
  defendants and reduces “patent tax”
• Seagate -- decreas...
Implications for Brazil
• Don’t accept US IP law as the gold
  standard
• Don’t accept standards tougher
  than US law
• L...
Pharmaceuticals

       • Patent Failure
     • Pharmaceuticals
           • ACTA

                          19
Static v. Dynamic Effects
• Static losses from higher prices
• Dynamic gains from sales incentivizing
  R&D
• US deploys m...
Static v. Dynamic: Global
• Static losses are higher and dynamic
  losses are lower in poorer countries (FM
  Scherer & ot...
Bottom Line:
 Countries should exercise
  significant flexibilities
  in Rx patents based on
    wealth & inequality

    ...
US Rx Policy Debates
 • Hatch-Waxman generic entry &
   regulatory linkage in FTAs
 • Biosimilar legislative debate in US
...
Bottom Line:

• Don’t accept anything
stronger than current US law
• Evaluate US IP flexibilities


                      ...
Post-TRIPS Rx Options 1
• Pipeline patents (Cendrowski, 2009)
• Article 31 CL (scope) (Outterson, 2009)
• Parallel importa...
Post-TRIPS Rx Options 2
• Promote generics
  –Reduce evergreening
  –Improve generic quality
  –Automatic substitution
  –...
Post-TRIPS Rx Options 3
•   Reverse linkage
•   Global Orange Book
•   Regional drug registration
•   Liability rules (Eba...
Post-TRIPS Rx Options 4
• Reimbursement      (Outterson & Kesselheim 2009;
 Frank & Newhouse 2008)
• Conditions on clinica...
Regime Shifting II

       • Patent Failure
      • Pharmaceuticals
           • ACTA

                          29
ACTA

• Supplements WTO judicial model
  with private enforcement
• Drive for substantive
  harmonization
• Secret negotia...
ACTA
• Improperly conflates trademark,
  pharmaceutical safety, patent
  disputes (Outterson & Smith 2006; Outterson
 2009...
Bottom Line:
• No assurance that global public
health is a priority in ACTA
• Transparency
• Carve out pharmaceuticals &
p...
Papers at ssrn.com


       Kevin Outterson
        mko@bu.edu
       Associate Professor of Law
     Boston University Sc...
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Panel 2 kevin outterson

  1. 1. Pharmaceutical Patent Policy Options For Brazil Kevin Outterson mko@bu.edu Associate Professor of Law Boston University School of Law 1
  2. 2. Topics • Patent Failure • Pharmaceuticals • ACTA 2
  3. 3. Topics • Patent Failure • Pharmaceuticals • ACTA 3
  4. 4. Why don’t patents work like property? Land Patents • Registry, third party • Hidden claims, low quality verification, deference to opinion letters, little fact-finders deference • Physical possession • Scope broader than • Low risk of invalidity, title embodiments; patents and insurance claims are cheap • No insurance, relatively high risk of invalidity Bessen & Meurer, BU Law: Patent Failure
  5. 5. The Notice Function of Property Law ? An expensive mistake! 5
  6. 6. Notice Function of Patent Law Kodak v. Polaroid • Failed attempt to invent around • Patent review started seven years before product launched • 250 patents reviewed, “67 written and countless oral opinions” • 50 potential imaging chemistries reviewed • $900 million damages and interest (1980s) 6
  7. 7. Evidence Suggests Much Infringement Is Inadvertent • Defendants are large, spend a lot on R&D, and obtain a lot of patents (not classic pirates or free riders) – only 4% are found to be copyists • Increasing R&D increases hazard of lawsuit 7
  8. 8. E-Data Lawsuits • Freeny invented retail kiosk that would produce music recorded on cassette tapes • Patent claim language was abstract, possibly covered all sales over the internet • E-Data got the Freeny patent and asserted it against 75,000 e-commerce sites, licensed 139 companies, and filed 43 lawsuits • Poor notice because meaning of claim language was unstable • “Material object” (1980: cassette tape, 2000: hard drive?) • “Point-of-sale location” (1980: store, 2000: home?) 8
  9. 9. Search Cost • Patent flood – E-commerce firm faces b/w 4000 – 11,000 patents – Semiconductor firm faces hundreds of patents – 3G standard 7600 patents • Perverse willfulness doctrine • “Distant” plaintiffs 9
  10. 10. Parties to Lawsuit Same primary industry No industry overlap 29% 28% Weakly overlapping industries 43% Patent Failure 10
  11. 11. Evidence on search • Cockburn & Henderson survey: – 65% of firms do not conduct a patent search before initiating product development • 39% of applicants disclose zero prior art patents (research personnel told not to read patents) 11
  12. 12. Patent Lawsuits Filed in U.S. District Courts 3,500 3,000 2,500 2,000 1,500 1,000 500 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 1970 1972 1974 1976 1978 2004 2006 12
  13. 13. Litigation Growth Suits/R&D ($b): 1987: 1.7 1999: 2.9 Patent Failure 13
  14. 14. Pharma Offers Clearer Notice • Lipitor: Trans-6-[2-(3- or 4-carboxamido- substituted pyrrol-1-yl)alkyl]-4-hydroxypyran-2- ones • Olanzapine: Patent Failure 14
  15. 15. Technology Differences Suggest Notice Problems Probability Claim Con- Value suit/patent struction ($1,000) All 2.0% 1.00 78 Chemical 1.1% 0.84 333 Biotech 3.2% 2.37 NA SW 4.6% 2.18 55 BM 13.7% 6.67 NA
  16. 16. Patent Reform to Improve Notice • Make patents more transparent – continuation reform – better disclosure • Better claim interpretation – Specialized trial courts – Expand PTO claim construction activity – More deference to PTO and trial courts • Robust definiteness requirement • Limit remedies against innocent infringers
  17. 17. Helpful Steps by Courts • eBay -- increases bargaining power of defendants and reduces “patent tax” • Seagate -- decreases deterrent to patent clearance • Festo -- improves scope clarity • KSR, In re Fisher -- stem patent flood • In re Bilski -- decreases abstract claiming 17
  18. 18. Implications for Brazil • Don’t accept US IP law as the gold standard • Don’t accept standards tougher than US law • Look for local allies – industries that might not be IP maximalists
  19. 19. Pharmaceuticals • Patent Failure • Pharmaceuticals • ACTA 19
  20. 20. Static v. Dynamic Effects • Static losses from higher prices • Dynamic gains from sales incentivizing R&D • US deploys many balancing features 20
  21. 21. Static v. Dynamic: Global • Static losses are higher and dynamic losses are lower in poorer countries (FM Scherer & others) • Welfare losses from differential pricing failures are greater in countries with higher Gini coefficients (Flynn, Hollis, Palmedo, JLME 2009) 21
  22. 22. Bottom Line: Countries should exercise significant flexibilities in Rx patents based on wealth & inequality 22
  23. 23. US Rx Policy Debates • Hatch-Waxman generic entry & regulatory linkage in FTAs • Biosimilar legislative debate in US Congress: 5 v. 12 years of DE • Ebay = liability rule = CL • KSR & progeny = nonobviousness • Reimbursement 23
  24. 24. Bottom Line: • Don’t accept anything stronger than current US law • Evaluate US IP flexibilities 24
  25. 25. Post-TRIPS Rx Options 1 • Pipeline patents (Cendrowski, 2009) • Article 31 CL (scope) (Outterson, 2009) • Parallel importation/global exhaustion rule (Outterson, 2005) • Functional Article 31bis (Abbott & Reichman JEL 2007; Goodwin AJLM 2008) • Prizes (Love & Hubbard; Hollis & Pogge) 25
  26. 26. Post-TRIPS Rx Options 2 • Promote generics –Reduce evergreening –Improve generic quality –Automatic substitution –Insurance reimbursement rules –Collusive settlements 26
  27. 27. Post-TRIPS Rx Options 3 • Reverse linkage • Global Orange Book • Regional drug registration • Liability rules (Ebay) • Scope & obviousness 27
  28. 28. Post-TRIPS Rx Options 4 • Reimbursement (Outterson & Kesselheim 2009; Frank & Newhouse 2008) • Conditions on clinical trials (HPV) • Conflicts of interest in medicine & research • Conditions on university licenses (UAEM)
  29. 29. Regime Shifting II • Patent Failure • Pharmaceuticals • ACTA 29
  30. 30. ACTA • Supplements WTO judicial model with private enforcement • Drive for substantive harmonization • Secret negotiations – 18th Century diplomatic model 30
  31. 31. ACTA • Improperly conflates trademark, pharmaceutical safety, patent disputes (Outterson & Smith 2006; Outterson 2009) • Dutch seizures of losartan & AIDS medicines • Goal is to hinder legal parallel trade & CL in pharmaceuticals
  32. 32. Bottom Line: • No assurance that global public health is a priority in ACTA • Transparency • Carve out pharmaceuticals & patents • Sean Flynn @ American University - Law
  33. 33. Papers at ssrn.com Kevin Outterson mko@bu.edu Associate Professor of Law Boston University School of Law 33

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