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Patents Kill: Compulsory Licenses and Genzyme’s Life Saving Drug

[note: see update here.]
As noted by Mike Masnick on Techdirt (post reprinted below), due to the monopoly granted by patent (yes, it is a monopoly), people are literally dying because Fabrazyme is in short supply and the sole, monopolistic manufacturer, Genzyme, can’t make enough quickly enough–and no one else is permitted to make it due to the patent. I’m sure the intellectual propergandists will callously, arrogantly, and smugly retort that without patents, Genzyme would never have invented the drug in the first place, and instead of, oh, 5,000 people dying, 20,000 would die. So saving 15,000 (I’m guessing at the numbers) is better than none, right? So the ones who die have no complaint about the patent system, since without it they’d die anyway. What a chilling mentality; and of course there is no reason to think drugs would not be invented absent patents.

If the concern here is that pharmaceutical companies need the be able to charge monopoly prices to be able to increase revenues enough to provide enough return on investment to make the original research worthwhile, wouldn’t a simpler and more direct solution be to remove the costs already imposed on them by the state–taxes, regulations, FDA process–instead of trusting that same destructive state to “help” them? The history of innovation and patenting is rife with example after example of near-simultaneous invention occurring, but the first to file (or invent, depending on the jurisdiction) gets the monopoly. Absent patents, they would all be able to take products to market. They all benefit already from the accumulated body of human knowledge that they had no role in producing. They build on the insights and discoveries of others from the past; and in the future, people will build on their discoveries being made now. What is wrong with this? Emulation and learning are good things. The market thrives on competition; competition is not possible without the freedom to emulate. When current innovation incrementally builds on knowledge from the past, when future innovation will build on knowledge from the present–it is bizarre and obscene to impose artificial limits on contemporaneous learning and sharing and emulating and competing.

Absent patents, there would be even more innovation. As Robert Weissman from Public Citizen, quoted by Masnick, notes: “ Of course there are no competing suppliers — why would any firm try to enter a market it believed closed by a patent monopoly?” Companies avoid engaging in R&D in patented markets. Of course, this is one reason patents distort the market and R&D, as explained by Rothbard and others.1

And yet, in Orwellian fashion, the intellectual properteers justify IP in the name of promoting innovation. War is peace. Sickness is health. Murder is collateral damage. And stultifying innovation is somehow promoting it!

The victims of this murderous policy in this case tried to lobby the NIH to authorize other companies to produce some more of the life-saving drug–and pay royalties to Genzyme. How is Genzyme harmed by this? They would be receiving the proceeds of a private tax levied in their favor courtesy of the USPTO. But, predictably, disgustingly, the NIH rejected the petition. There is no justification for this outrage. What the petitioners basically want is a compulsory license. The feds have the authority to grant this. There is no good reason not to. As I argue in Reducing the Cost of IP Law:

Paying royalties is one thing. This is similar to a tax. It impedes and puts a drag on efficiency. Worse still is the prospect of an injunction, which can simply shut a company down. Quite often this is what a competitor will seek. They do not want damages or money: they want to dominate the market and eliminate competition. Or the threat of injunction is used to basically wring money from an alleged infringer (e.g., the $600 million RIM (BlackBerry) had to pay, even though the patents were under appeal at the PTO, due to the threat of an injunction).

If the purpose of the patent system is to provide some incentive to innovators, then receiving a monetary payment should be sufficient. Patent injunctions should be abolished entirely. The only remedy should be an award of damages (for past infringement) or a compulsory license (ongoing royalties based on future “infringement”).

This would prevent patentees from shutting down competitors. At most, they could impose a small “tax.” Litigation costs, insurance premiums, and the ability of patentees to extract unreasonable royalties from alleged infringers would be radically curtailed. On the other hand, because patentees would still be able to seek reasonable royalties, there would still remain a substantial incentive to file for patents.

The compulsory licensing approach is not new. Some countries impose compulsory licensing on patentees who do not adequately “work” the patent.[33] The United States already provides for compulsory licensing in certain cases, as the US government threatened to do in the Cipro anthrax drug case.[34] Also, in the wake of the recent eBay case, some courts are awarding some form of ongoing royalty of compulsory license instead of an injunction.[35]

Here’s Masnick’s post:

NIH Won’t Let Others Supply Life Saving Drug Even Though Genzyme Can’t Make Enough

from the patents-costing-lives dept

Earlier this year, we wrote about the situation with a petition to the National Institute of Health (NIH) to let other companies produce Fabrazyme, a drug that treats Fabry disease. Fabry disease is an enzyme deficiency that can create very serious problems in those who have it — including kidney failure and heart attacks. Genzyme holds the patent on Fabrazyme, but has a problem: it can’t produce enough of the drug. That means people die. A group of Fabry patients petitioned the NIH to see if other companies could be allowed to produce just a little more Fabrazyme. They didn’t ask to break the patent. All they wanted was to let others make the drug, and pay Genzyme a royalty. On top of this, it’s worth noting that the key research for the development for Fabrazyme wasn’t actually done by Genzyme, but was done by the Mount Sinai School of Medicine and was financed with taxpayer money from the NIH.

At the time, we doubted the petition would be approved — and indeed, the NIH has rejected the petition. An opening was left for an appeal, if another petition is filed by a company that wants to make Fabrazyme, rather than the patients (you know, the folks actually suffering). As the statement of Robert Weissman from Public Citizen makes clear, this is a ridiculous situation:

Why is NIH resorting to legal gymnastics to avoid exercising its legal authority to ensure an adequate supply of an important medicine? NIH agrees Genzyme is failing to produce an adequate supply of the important medicine Fabrazyme. It is plain that removing the patent monopoly on the drug is a necessary condition to enabling other potential manufacturers to enter the market. Yet NIH chooses to deny a request to issue open licenses for the Fabrazyme patents — a request for which it has undisputed legal authority — on the Alice-in-Wonderland, self-justifying grounds that there are as yet no competing suppliers. Of course there are no competing suppliers — why would any firm try to enter a market it believed closed by a patent monopoly?

[Mises cross-post]

  1. See Rothbard, Man, Economy, and State and Power and Market:

    “It is by no means self-evident that patents encourage an in­creased absolute quantity of research expenditures. But certainly patents distort the type of research expenditure being conducted. For while it is true that the first discoverer benefits from the privilege, it is also true that his competitors are excluded from production in the area of the patent for many years. And since one patent can build upon a related one in the same field, com­petitors can often be indefinitely discouraged from further re­search expenditures in the general area covered by the patent. Moreover, the patentee is himself discouraged from engaging in further research in this field, for the privilege permits him to rest on his laurels for the entire period of the patent, with the assur­ance that no competitor can trespass on his domain. The com­petitive spur for further research is eliminated. Research expen­ditures are therefore overstimulated in the early stages before anyone has a patent, and they are unduly restricted in the period after the patent is received. In addition, some inventions are con­sidered patentable, while others are not. The patent system then has the further effect of artificially stimulating research expen­ditures in the patentable areas, while artificially restricting re­search in the nonpatentable areas.”

    See also Arnold Plant, “The Economic Theory Concerning Patents for Inventions,” Economica, New Series, 1, no. 1 (Feb., 1934), p. 43. []

{ 3 comments… add one }
  • CS December 9, 2010, 10:54 am

    Have you contemplated the level of complexity that the setting up of a facility that would be qualified to produce Fabrazyme? What it takes to even begin the process of being able to produce a specialty drug like Fabrazyme? In the time that it would take to replicate conditions, equipment and skill level of the workers needed to produce this drug, Genzyme will have rectified the cause of the issue. It is not practical to grant a patent exception. If you do the research easily available to the public on their plan to correct their issue and catch up, you will see that Genzyme will easily be back on track before another facility could even have approvals to move ahead on a first run of the drug. The required levels of testing to get a drug approved for market make it prohibitive. One of the keys here, in my opinion, is the knowledge of the process by the manufacturing teams actually making the drug. It’s not a cookie recipe that can be sent off to another manufacturer easily.
    Before making a charge against a ‘drug giant’ or using the patients that are in need to get a crowd pop from followers by guessing at numbers, I would encourage a deeper read into the findings from the Health Institutes in the EU and US that delve into real numbers and real adverse events that patients are experiencing. And don’t think for a minute that it doesn’t weigh on the minds of those who have a hand in production, each patient means something.
    (Disclaimer – I do not work at Genzyme or have inside information but the topic is important to me.)

  • James Love December 12, 2010, 5:41 pm

    The petitioners appreciate that it is difficult to obtain an alternative supply, but they want the opportunity to try. Allen Black, the lawyer for the patients, works in the field. This is his faculty web page: http://www.law.pitt.edu/faculty/c-allen-black-jr. I would add that there is the current shortage, which has been going on for some time, and there is the possibility of this happening again. Even if the NIH believes the march-in license won’t help, they don’t have to deny the petitioners a chance to make their case in a hearing, or at least invite them to respond to their questions, for the record.

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