How Patents Have Contributed To The Opioid Crisis

from the monopolies-make-people-do-fucked-up-things dept

Over at Quartz, there's a very interesting article about how patents may have contributed to the opioid crisis in the US. It's based on a recent paper, May Your Drug Price Be Ever Green, by law professor Robin Feldman (who has done lots of great work about problems in our patent system) and law student Connie Wang.

For many years, we've written about how the pharmaceutical industry has become so overly reliant on patents for their business model, that's it's become destructive. We've argued that the misaligned incentives of the patent system, especially in pharmaceuticals has so distorted incentives that the big drug companies basically have become focused solely on keeping exclusivity that it has lead to a lot of tragic game playing, where the cost has literally been people's lives. This went into overdrive a decade or so ago when big pharma realized that many of their biggest sellers had patents expiring, and their pipeline had failed to come up with new drugs to replace the monopoly rents of the old. This resulted in all sorts of gamesmanship designed to allow big pharma to retain monopoly rights even after a drug should have gone off patent. This included pay for delay schemes, whereby big pharma effectively paid off generic makers to keep them out of the market for longer.

And then there's the trick of making basically the same drug, but with just a slight, non-essential change, and getting a patent on the new drug. Of course, you might wonder why that would stop people from moving to generics. There are all sorts of games played over this, including misrepresenting the "new" drug as somehow better, or even tarnishing the reputation of the old drug for no other reason than to drive people to the new one. Or, a really nefarious trick: stop selling the older drug a little while before it's gone off patent, to effectively force patients who need it onto the new drug, making it much less likely they'll go to the generic copy of the old drug, since there's a big gap in when it was available.

Another trick is Big Pharma threatening doctors for prescribing generics.

Basically, if there's been some sort of sleazy underhanded way to make people pay more for drugs than they really should, Big Pharma companies have probably done it. And that takes us back to Feldman and Wang's study. Basically it puts some numbers to the anecdotes and examples we've talked about over the past few years:

This study examines all drugs on the market between 2005 and 2015, identifying and analyzing every instance in which the company added new patents or exclusivities. The results show a startling departure from the classic conceptualization of intellectual property protection for pharmaceuticals. Key results include: 1) Rather than creating new medicines, pharmaceutical companies are recycling and repurposing old ones. Every year, at least 74% of the drugs associated with new patents in the FDA’s records were not new drugs coming on the market, but existing drugs; 2) Adding new patents and exclusivities to extend the protection cliff is particularly pronounced among blockbuster drugs. Of the roughly 100 best-selling drugs, almost 80% extended their protection at least once, with almost 50% extending the protection cliff more than once; 3) Once a company starts down this road, there is a tendency to keep returning to the well. Looking at the full group, 80% of those who added protections added more than one, with some becoming serial offenders; 4) The problem is growing across time.

And what does that have to do with the opioid crisis? Well, Purdue Pharmaceutical, the makers of OxyContin -- the key drug that's at the heart of the crisis -- has messed with the formulation of OxyContin 13 times to effectively "extend" the patent. Some of these may have good intentions behind the modifications, such as the changing of OxyContin to "abuse proof" pills that are much harder to crush and snort. But, as the Quartz article notes, the constant revamps of the formula and the extending of the patent cliff allowed Purdue to continue promoting the drug. And, famously, Purdue got tons of people hooked on OxyContin by falsely claiming that it was non-addictive. The story of the rise of OxyContin and the false marketing involved in its success is legendary and has been written about in academic papers and the press over and over again. Indeed, the New Yorker just did a giant article on the rise of OxyContin and the dark legacy of Purdue Pharmaceutical's aggressive and misleading marketing. The short summary from that article:

Purdue launched OxyContin with a marketing campaign that attempted to counter this attitude and change the prescribing habits of doctors. The company funded research and paid doctors to make the case that concerns about opioid addiction were overblown, and that OxyContin could safely treat an ever-wider range of maladies. Sales representatives marketed OxyContin as a product “to start with and to stay with.” Millions of patients found the drug to be a vital salve for excruciating pain. But many others grew so hooked on it that, between doses, they experienced debilitating withdrawal.

Since 1999, two hundred thousand Americans have died from overdoses related to OxyContin and other prescription opioids. Many addicts, finding prescription painkillers too expensive or too difficult to obtain, have turned to heroin. According to the American Society of Addiction Medicine, four out of five people who try heroin today started with prescription painkillers. The most recent figures from the Centers for Disease Control and Prevention suggest that a hundred and forty-five Americans now die every day from opioid overdoses.

That part about how it led many to switch to heroin, because OxyContin is too expensive? Well, that all goes back to patents. Obviously Purdue held the key patent on OxyContin for a while, but that expired in 2013. And yet, four years later, there still aren't generics to take its place. As the Quartz article explains:

The company is still profiting off “abuse-deterrent” OxyContin. Though there are currently “authorized generics” of OxyContin available, these are made by manufacturers with licenses to use Purdue’s formula. In other words, Purdue makes money off them. And there are currently no approved abuse-deterrent generics in the US. In September of this year, FDA commissioner Scott Gottlieb said that soon the agency plans to issue guidelines to assist companies who are trying to file applications for these types of generics. No word on when that document will be published, however.

Obviously, this is not the sole reason -- or perhaps even a major reason -- behind the opioid crisis. But it has clearly contributed to it. Purdue Pharma certainly deserves much of the blame for everything its done. And it took doctors way too long to realize the problems and risks of these drugs. But the artificially inflated prices of OxyContin, driven not just by patents, but by the games played by Purdue and other pharma companies, certainly helped keep the prices ridiculously high, often driving people to heroin or other, even more dangerous opioids.

Filed Under: connie wang, drug prices, monopolies, opioids, patents, pharmaceutical companies. oxycontin, robin feldman
Companies: purdue pharmaceutical

For World 'Intellectual Property' Day, A Reading From Thomas Macaulay

from the check-it-out dept

As we mentioned recently, today is "World Intellectual Property Day," an event put together by the World Intellectual Property Organization (WIPO) to promote ever greater protectionism and mercantilism in favor of copyright holders and patent holders, while ignoring any impact on the public of those things. It's a fairly disgusting distortion of the claimed intent of intellectual property, which is often promoted for the claimed benefits it brings to the public, but extreme supporters, such as WIPO, are never willing to actually weigh out the pros and cons of copyrights and patents, and how over-protection and over-enforcement can cause serious problems for the public, innovators and creators.

I wasn't sure if I was going to write anything specifically about World IP Day, but Brandon Butler, the Director of Information Policy at the UVA Library put up an excellent suggestion on Twitter, that we should use "World IP Day" to re-read what Lord Thomas Macauley said in the UK Parliament back in 1841 when they were discussing copyright term expansion. We've pointed to it and quoted from it at length many times over the years, but even now, 176 years later, it still remains one of the best statements on how over-monopolizing ideas creates real harms. It's a part of the lesson that supporters of copyright and patents either ignore or wish to hide. So we will post it here in its entirety (after all, it's in the public domain):

Thomas Babington Macaulay
First Speech to the House of Commons on Copyright

February 5, 1841

It is painful to me to take a course which may possibly be misunderstood or misrepresented as unfriendly to the interests of literature and literary men. It is painful to me, I will add, to oppose my honorable and learned friend on a question which he has taken up from the purest motives, and which he regards with a parental interest. These feelings have hitherto kept me silent when the law of copyright has been under discussion. But as I am, on full consideration, satisfied that the measure before us will, if adopted, inflict grievous injury on the public, without conferring any compensating advantage on men of letters, I think it my duty to avow that opinion and to defend it.

The first thing to be done. Sir, is to settle on what principles the question is to be argued. Are we free to legislate for the public good, or are we not? Is this a question of expediency, or is it a question of right? Many of those who have written and petitioned against the existing state of things treat the question as one of right. The law of nature, according to them, gives to every man a sacred and indefeasible property in his own ideas, in the fruits of his own reason and imagination. The legislature has indeed the power to take away this property, just as it has the power to pass an act of attainder for cutting off an innocent man’s head without a trial. But, as such an act of attainder would be legal murder, so would an act invading the right of an author to his copy be, according to these gentlemen, legal robbery.

Now, Sir, if this be so, let justice be done, cost what it may. I am not prepared, like my honorable and learned friend, to agree to a compromise between right and expediency, and to commit an injustice for the public convenience. But I must say, that his theory soars far beyond the reach of my faculties. It is not necessary to go, on the present occasion, into a metaphysical inquiry about the origin of the right of property; and certainly nothing but the strongest necessity would lead me to discuss a subject so likely to be distasteful to the House. I agree, I own, with Paley in thinking that property is the creature of the law, and that the law which creates property can be defended only on this ground, that it is a law beneficial to mankind. But it is unnecessary to debate that point. For, even if I believed in a natural right of property, independent of utility and anterior to legislation, I should still deny that this right could survive the original proprietor. . . . Surely, Sir, even those who hold that there is a natural right of property must admit that rules prescribing the manner in which the effects of deceased persons shall be distributed are purely arbitrary, and originate altogether in the will of the legislature. If so. Sir, there is no controversy between my honorable and learned friend and myself as to the principles on which this question is to be argued. For the existing law gives an author copyright during his natural life; nor do I propose to invade that privilege, which I should, on the contrary, be prepared to defend strenuously against any assailant. The only point in issue between us is, how long after an author’s death the state shall recognize a copyright in his representatives and assigns; and it can, I think, hardly be disputed by any rational man that this is a point which the legislature is free to determine in the way which may appear to be most conducive to the general good.

We may now, therefore, I think, descend from these high regions, where we are in danger of being lost in the clouds, to firm ground and clear light. Let us look at this question like legislators, and after fairly balancing conveniences and inconveniences, pronounce between the existing law of copyright, and the law now proposed to us. The question of copyright. Sir, like most questions of civil prudence, is neither black nor white, but gray. The system of copyright has great advantages and great disadvantages; and it is our business to ascertain what these are, and then to make an arrangement under which the advantages may be as far as possible secured, and the disadvantages as far as possible excluded. The charge which I bring against my honorable and learned friend’s bill is this, that it leaves the advantages nearly what they are at present, and increases the disadvantages at least fourfold.

The advantages arising from a system of copyright are obvious. It is desirable that we should have a supply of good books; we cannot have such a supply unless men of letters are liberally remunerated: and the least objectionable way of remunerating them is by means of copyright. You cannot depend for literary instruction and amusement on the leisure of men occupied in the pursuits of active life. Such men may occasionally produce compositions of great merit. But you must not look to such men for works which require deep meditation and long research. Works of that kind you can expect only from persons who make literature the business of their lives. Of these persons few will be found among the rich and the noble. The rich and the noble are not impelled to intellectual exertion by necessity. They may be impelled to intellectual exertion by the desire of distinguishing themselves, or by the desire of benefiting the community. But it is generally within these walls that they seek to signalize themselves and to serve their fellow-creatures. Both their ambition and their public spirit, in a country like this, naturally take a political turn. It is then on men whose profession is literature, and whose private means are not ample, that you must rely for a supply of valuable books. Such men must be remunerated for their literary labor. And there are only two ways in which they can be remunerated. One of those ways is patronage; the other is copyright.

There have been times in which men of letters looked, not to the public, but to the government, or to a few great men, for the reward of their exertions. It was thus in the time of Maecenas and Pollio at Rome, of the Medici at Florence, of Louis the Fourteenth in France, of Lord Halifax and Lord Oxford in this country. Now, Sir, I well know that there are cases in which it is fit and graceful, nay, in which it is a sacred duty to reward the merits or to relieve the distresses of men of genius by the exercise of this species of liberality. But these cases are exceptions. I can conceive no system more fatal to the integrity and independence of literary men than one under which they should be taught to look for their daily bread to the favor of ministers and nobles. I can conceive no system more certain to turn those minds which are formed by nature to be the blessings and ornaments of our species into public scandals and pests.

We have, then, only one resource left. We must betake ourselves to copyright, be the inconveniences of copyright what they may. Those in­con­ve­ni­ences, in truth, are neither few nor small. Copyright is monopoly, and produces all the effects which the general voice of mankind attributes to monopoly. My honorable and learned friend talks very contemptuously of those who are led away by the theory that monopoly makes things dear. That monopoly makes things dear is certainly a theory, as all the great truths which have been established by the experience of all ages and nations, and which are taken for granted in all reasonings, may be said to be theories. It is a theory in the same sense in which it is a theory that day and night follow each other, that lead is heavier than water, that bread nourishes, that arsenic poisons, that alcohol intoxicates.

If, as my honorable and learned friend seems to think, the whole world is in the wrong on this point, if the real effect of monopoly is to make articles good and cheap, why does he stop short in his career of change? Why does he limit the operation of so salutary a principle to sixty years? Why does he consent to anything short of a perpetuity? He told us that in consenting to anything short of a perpetuity he was making a compromise between extreme right and expediency. But if his opinion about monopoly be correct, extreme right and expediency would coincide. Or rather, why should we not restore the monopoly of the East India trade to the East India Company? Why should we not revive all those old monopolies which, in Elizabeth’s reign, galled our fathers so severely that, maddened by intolerable wrong, they opposed to their sovereign a resistance before which her haughty spirit quailed for the first and for the last time? Was it the cheapness and excellence of commodities that then so violently stirred the indignation of the English people? I believe. Sir, that I may safely take it for granted that the effect of monopoly generally is to make articles scarce, to make them dear, and to make them bad. And I may with equal safety challenge my honorable friend to find out any distinction between copyright and other privileges of the same kind; any reason why a monopoly of books should produce an effect directly the reverse of that which was produced by the East India Company’s monopoly of tea, or by Lord Essex’s monopoly of sweet wines. Thus, then, stands the case. It is good that authors should be remunerated; and the least exceptionable way of remunerating them is by a monopoly. Yet monopoly is an evil. For the sake of the good we must submit to the evil; but the evil ought not to last a day longer than is necessary for the purpose of securing the good.

Now, I will not affirm that the existing law is perfect, that it exactly hits the point at which the monopoly ought to cease; but this I confidently say, that the existing law is very much nearer that point than the law proposed by my honorable and learned friend. For consider this; the evil effects of the monopoly are proportioned to the length of its duration. But the good effects for the sake of which we bear with the evil effects are by no means proportioned to the length of its duration. A monopoly of sixty years produces twice as much evil as a monopoly of thirty years, and thrice as much evil as a monopoly of twenty years. But it is by no means the fact that a posthumous monopoly of sixty years gives to an author thrice as much pleasure and thrice as strong a motive as a posthumous monopoly of twenty years. On the contrary, the difference is so small as to be hardly perceptible. We all know how faintly we are affected by the prospect of very distant advantages, even when they are advantages which we may reasonably hope that we shall ourselves enjoy. But an advantage that is to be enjoyed more than half a century after we are dead, by somebody, we know not by whom, perhaps by somebody unborn, by somebody utterly unconnected with us, is really no motive at all to action. It is very probable that in the course of some generations land in the unexplored and unmapped heart of the Australasian continent will be very valuable. But there is none of us who would lay down five pounds for a whole province in the heart of the Australasian continent. We know, that neither we, nor anybody for whom we care, will ever receive a farthing of rent from such a province. And a man is very little moved by the thought that in the year 2000 or 2100, somebody who claims through him will employ more shepherds than Prince Esterhazy, and will have the finest house and gallery of pictures at Victoria or Sydney. Now, this is the sort of boon which my honorable and learned friend holds out to authors. Considered as a boon to them, it is a mere nullity; but considered as an impost on the public, it is no nullity, but a very serious and pernicious reality.

The principle of copyright is this. It is a tax on readers for the purpose of giving a bounty to writers. The tax is an exceedingly bad one; it is a tax on one of the most innocent and most salutary of human pleasures; and never let us forget, that a tax on innocent pleasures is a premium on vicious pleasures. I admit, however, the necessity of giving a bounty to genius and learning. In order to give such a bounty, I willingly submit even to this severe and burdensome tax. Nay, I am ready to increase the tax, if it can be shown that by so doing I should proportionally increase the bounty. My complaint is, that my honorable and learned friend doubles, triples, quadruples, the tax, and makes scarcely any perceptible addition to the bounty. Why, Sir, what is the additional amount of taxation which would have been levied on the public for Dr. Johnson’s works alone, if my honorable and learned friend’s bill had been the law of the land? I have not data sufficient to form an opinion. But I am confident that the taxation on his dictionary alone would have amounted to many thousands of pounds. In reckoning the whole additional sum which the holders of his copyrights would have taken out of the pockets of the public during the last half century at twenty thousand pounds, I feel satisfied that I very greatly underrate it. Now, I again say that I think it but fair that we should pay twenty thousand pounds in consideration of twenty thousand pounds’ worth of pleasure and encouragement received by Dr. Johnson. But I think it very hard that we should pay twenty thousand pounds for what he would not have valued at five shillings.

But this is not all. I think it right, Sir, to call the attention of the House to an evil, which is perhaps more to be apprehended when an author’s copyright remains in the hands of his family, than when it is transferred to booksellers. I seriously fear that, if such a measure as this should be adopted, many valuable works will be either totally suppressed or grievously mutilated. I can prove that this danger is not chimerical; and I am quite certain that, if the danger be real, the safeguards which my honorable and learned friend has devised are altogether nugatory. That the danger is not chimerical may easily be shown. Most of us, I am sure, have known persons who, very erroneously as I think, but from the best motives, would not choose to reprint Fielding’s novels or Gibbon’s “History of the Decline and Fall of the Roman Empire.” Some gentlemen may perhaps be of opinion that it would be as well if “Tom Jones” and Gibbon’s “History” were never reprinted. I will not, then, dwell on these or similar cases. I will take cases respecting which it is not likely that there will be any difference of opinion here; cases, too, in which the danger of which I now speak is not matter of supposition, but matter of fact.

Take Richardson’s novels. Whatever I may, on the present occasion, think of my honorable and learned friend’s judgment as a legislator, I must always respect his judgment as a critic. He will, I am sure, say that Richardson’s novels are among the most valuable, among the most original, works in our language. No writings have done more to raise the fame of English genius in foreign countries. No writings are more deeply pathetic. No writings, those of Shakespeare excepted, show more profound knowledge of the human heart. . . . Sir, it is my firm belief, that if the law had been what my honorable and learned friend proposes to make it, they would have been suppressed.

I remember Richardson’s grandson well; he was a clergyman in the city of London; he was a most upright and excellent man; but he had conceived a strong prejudice against works of fiction. He thought all novel-reading not only frivolous but sinful. He said,—this I state on the authority of one of his clerical brethren who is now a bishop,—he said that he had never thought it right to read one of his grandfather’s books. Suppose, Sir, that the law had been what my honorable and learned friend would make it. Suppose that the copyright of Richardson’s novels had descended, as might well have been the case, to this gentleman. I firmly believe that he would have thought it sinful to give them a wide circulation. I firmly believe that he would not for a hundred thousand pounds have deliberately done what he thought sinful. He would not have reprinted them.

And what protection does my honorable and learned friend give to the public in such a case? Why, Sir, what he proposes is this: if a book is not reprinted during five years, any person who wishes to reprint it may give notice in the London Gazette: the advertisement must be repeated three times: a year must elapse; and then, if the proprietor of the copyright does not put forth a new edition, he loses his exclusive privilege. Now, what protection is this to the public? What is a new edition? Does the law define the number of copies that make an edition? Does it limit the price of a copy? Are twelve copies on large paper, charged at thirty guineas each, an edition? It has been usual, when monopolies have been granted, to prescribe numbers and to limit prices. But I do not find that my honorable and learned friend proposes to do so in the present case. And, without some such provision, the security which he offers is manifestly illusory. It is my conviction that, under such a system as that which he recommends to us, a copy of “Clarissa” would have been as rare as an Aldus or a Caxton.

I will give another instance. One of the most instructive, interesting, and delightful books in our language is Boswell’s “Life of Johnson.’’ Now it is well known that Boswell’s eldest son considered this book, considered the whole relation of Boswell to Johnson, as a blot in the escutcheon of the family. He thought, not perhaps altogether without reason, that his father had exhibited himself in a ludicrous and degrading light. And thus he became so sore and irritable that at last he could not bear to hear the “Life of Johnson’’ mentioned. Suppose that the law had been what my honorable and learned friend wishes to make it. Suppose that the copyright of Boswells “Life of Johnson” had belonged, as it well might, during sixty years, to Boswell’s eldest son. What would have been the consequence? An unadulterated copy of the finest biographical work in the world would have been as scarce as the first edition of Camden’s “Britannia.”

... Sir, of the kindness with which the House has listened to me, that I will not detain you longer. I will only say this, that if the measure before us should pass, and should produce one tenth part of the evil which it is calculated to produce, and which I fully expect it to produce, there will soon be a remedy, though of a very objectionable kind. Just as the absurd Acts which prohibited the sale of game were virtually repealed by the poacher, just as many absurd revenue Acts have been virtually repealed by the smuggler, so will this law be virtually repealed by piratical booksellers.

At present the holder of copyright has the public feeling on his side. Those who invade copyright are regarded as knaves who take the bread out of the mouths of deserving men. Everybody is well pleased to see them restrained by the law, and compelled to refund their ill-gotten gains. No tradesman of good repute will have anything to do with such disgraceful transactions. Pass this law: and that feeling is at an end. Men very different from the present race of piratical booksellers will soon infringe this intolerable monopoly. Great masses of capital will be constantly employed in the violation of the law. Every art will be employed to evade legal pursuit; and the whole nation will be in the plot. On which side indeed should the public sympathy be when the question is whether some book as popular as “Robinson Crusoe” or the “Pilgrim’s Progress” shall be in every cottage, or whether it shall be confined to the libraries of the rich for the advantage of the great-grandson of a bookseller who, a hundred years before, drove a hard bargain for the copyright with the author when in great distress? Remember too that, when once it ceases to be considered as wrong and discreditable to invade literary property, no person can say where the invasion will stop. The public seldom makes nice distinctions. The wholesome copyright which now exists will share in the disgrace and danger of the new copyright which you are about to create. And you will find that, in attempting to impose unreasonable restraints on the reprinting of the works of the dead, you have, to a great extent, annulled those restraints which now prevent men from pillaging and defrauding the living.

Filed Under: copyright, monopolies, patents, thomas macaulay, world ip day
Companies: wipo

FCC Moves To Make Life Easier For Business Broadband Monopolies

from the do-not-pass-go,-do-not-collect-$200 dept

By now, most people understand that the residential broadband market simply isn't very competitive. They also understand that's in large part due to the lobbying and financial stranglehold many providers have over both state and federal lawmakers and regulators. But however uncompetitive the residential broadband market is, the business "special access market" (often called Business Data Services (BDS)) is notably worse. This important but overlooked segment of the telecom market connects schools, cell towers, ATMs, retailers, and countless others to the internet at large.

But consumer groups and smaller companies for years have complained that this segment suffers under an absurd amount of monopoly control, resulting in many companies and organizations paying sky-high rates for basic connectivity. According to the FCC's own data (pdf), in the lion's share of markets, 73% of the special access market is controlled by one provider (usually AT&T, CenturyLink or Verizon), 24% usually "enjoys" duopoly control, and only a tiny fraction of markets have more than two choices of BDS providers providing this key connectivity.

After ten years of industry bickering and lobbying, Tom Wheeler last year began seriously exploring changes to special access rules, including price caps on how much these monopolies and duopolies can charge smaller companies (and in wireless, smaller competitors). By and large the FCC avoids broadband price caps like the plague, and the effort to impose limits on the BDS market reflected just how incredibly uncompetitive the special access market had become. But the rules were never finalized, and new FCC boss Ajit Pai was quick to throw away the decade-long reform effort.

Instead, Pai has proposed deregulating this captive market even further, a massive win to the incumbent monopolies and duopolies that control it. In a blog post, the FCC boss was quick to insist that competition in this sector is actually growing, and his (read: AT&T and Verizon's) proposal will be sure to keep regulations in place in areas where it isn't:

"The extensive record compiled by the Commission’s excellent staff shows substantial and growing competition in many areas of the country, thanks to new market entrants like cable companies. Where this competition exists, we will relax unnecessary regulation, thereby creating greater incentives for the private sector to invest in next-generation networks. But where competition is still lacking, we’ll preserve regulations necessary to prevent anti-competitive price increases."

But, as with much of Pai's particular brand of FCC leadership, what the FCC boss says -- and what he does -- are often very different things. Ars Technica is quick to highlight that Pai's proposal has a rather unique definition of "competition." Namely, the proposal declares a market "competitive" if there's just one additional broadband provider anywhere in a half mile radius:

"Pai's definition of "sufficient competition" has drawn fire. The plan would treat an entire county as competitive "if 50 percent of the locations with BDS demand in that county are within a half mile of a location served by a competitive provider." A county would also be considered competitive if 75 percent of Census blocks in the county have a cable provider."

Pai is part of a segment of revolving door regulators and other industry allies that often comically deny any competition issues in the broadband space -- whatsoever. Their solution is consistently blind and blanket deregulation, laboring under the belief that less regulatory oversight -- combined with no real competition -- somehow magically forges telecom Utopia. And while deregulation certainly does aid competitive, innovative markets, blind deregulation of the telecom market time and time again only serves to make competition issues worse. Just ask a Comcast customer.

The FCC is poised to vote on the deregulation of the uncompetitive BDS market on April 20 (and likely already voted to approve this effort by the time you read this). Lawmakers like Senator Ed Markey and Rep. Ed Doyle had urged the FCC to delay the vote:

"In the BDS market, we need more protections for competitors and small businesses, not great market control by incumbents,” they wrote. “We are concerned that the proposed BDS Report and Order does not adequately promote competition or apply appropriate pricing protections where competition does not exist."

BDS being an important but wonky and under the radar market for consumers and the press -- Pai should be able to ram this vote through without much public scrutiny. As such, Pai's moves to gut rules governing the BDS market are set to join a growing chorus of other "accomplishments" we've seen so far under Pai, such as making it easier for prison monopolies to rip off inmates, the dismantling of efforts to improve cable box competition, the erosion of efforts to bring broadband to the poor, and his looming attempt to kill net neutrality. You'll notice one, consistent beneficiary to Pai's agenda -- and it sure as hell isn't you.

Filed Under: ajit pai, bds, broadband, competition, fcc, monopolies

Defense Contractor Shkrelis The US Government By Jacking Up Prices On Sole-Source Components

from the forget-the-$400-hammers dept

Monopolies are everywhere, even in the Defending America™ business. Huffington Post's Zach Carter writes about a defense company that's being termed the "Martin Shkreli" of government contracting. In case you need reminding, Martin Shkreli is the hedge fund bro turned pharma kingpin who purchased a drug used by cancer and AIDS patients and raised its price from $14/pill to $750/pill. After an immense amount of backlash, Shkreli promised to lower the price, reneged on that promise, acquired the Wu Tang Clan's one-copy-only $1 million album, and otherwise engaged in personal and professional roguery, including smirking his way through a Congressional hearing on drug prices.

The Shkreli process is being used by a defense contractor to inflate prices on what appear to be common manufacturing components, but ones with very few suppliers. When this company steps in, the number of suppliers decreases to one and the component prices skyrocket. This company was spotted by a member of Congress, who made it public with a letter to his colleagues.

On Tuesday, Rep. Ro Khanna (D-Calif.) sent a letter to Secretary of Defense James Mattis and the Pentagon’s acting inspector general accusing defense contractor TransDigm Group of illegally overcharging the Department of Defense by acting as a “hidden monopolist.”

[...]

Khanna’s letter cited five specific aerospace parts the company had jacked the price on, including a “cable assembly” that went from $1,737.03 to $7,863.00 after being acquired by TransDigm. The price of a TransDigm “motor rotor” soared from $654.46 to $5,474.00.

According to the company's SEC filings, it's particularly good at monopolizing component parts. It estimates 80% of its sales come from parts where it's the sole supplier. But raising prices may be one of the only things it's good at. Carter's story quotes from a Washington Post story where TransDigm parts were the cause of a "record number" of Air Force drone crashes. Not only did taxpayers overpay for the components, but they're on the hook for the resulting damage.

Ten Reapers were badly damaged or destroyed in 2015, at least twice as many as in any previous year, according to Air Force safety data.

The Reaper’s mishap rate — the number of major crashes per 100,000 hours flown — more than doubled compared with 2014. The aircraft, when fully equipped, cost about $14 million each to replace.

The Air Force’s other primary drone model, the Predator, also suffered heavy casualties.

An older and less capable version of the Reaper, the Predator was involved in 10 major accidents last year. That’s the most since 2011, when the U.S. military was simultaneously surging troops into Afghanistan and withdrawing ground forces from Iraq.

Behind the expensive crashes is a TransDigm part: a starter-generator that's failing with alarming frequency. Once that dies, the battery goes with it, causing the drone to "go stupid," according to the head of Air Force's drone operations. However, the Air Force seems less than concerned about the problematic part and the ensuing expensive crashes. Loooooooots of military funding makes this a non-issue, apparently. After all, we (the taxpayers) can always buy more drones!

Although the drone pilot shortage has compelled the Air Force to reduce the number of combat missions, Otto said the aircraft mishaps have not forced additional cuts. The Air Force has enough replacement drones on hand, he said, and already had orders in place to buy dozens more Reapers over the next few years.

“Any impact to operations has been negligible to barely noticeable,” he said.

We're supposed to be insulated from this sort of pricing by Pentagon rules and policies. Sole suppliers are supposed to disclose costs to the government in order to prevent excessive markups. TransDigm's not interested in playing by these rules. Matthew Stoller of the New America Foundation calls its evasive maneuvers and exploitative pricing "monopoly power performance art." TransDigm has apparently built a network of shell corporations to hide the components' origination, allowing it to bypass the Pentagon's form of consumer protection.

Khanna’s letter argued that TransDigm evaded these rules by setting up “a network of captive distributors” ― middlemen who sold to the government, creating the illusion of an actual competitive market. [...] No less than 12 TransDigm subsidiaries failed to disclose to the Defense Department in their procurement filings that they were owned by TransDigm, according to Khanna.

This is nothing new to companies who feel held back by government regulation. As we've seen before, sellers of weaponized code (malware, spyware, exploits) have routed around sales bans by using middlemen and shell corps to put their tools in the hands of governments with long histories of human rights abuses. In this case, it's the good ol' US of A doing the purchasing, but paying far more than it should, and being unable to do much about it, thanks to the obscuring of part sources.

Filed Under: defense contracting, monopolies, ro khanna
Companies: transdigm group

Wall Street Is Dreaming Of Megamergers Under Trump -- Including A Verizon-Comcast Super Union

from the ill-communication dept

We've been discussing how despite all of the "populist" rhetoric on the Trump campaign trail, the President Elect has nominated several cozy telecom industry insiders to guide his telecom policy and select a new FCC boss. Both Jeffrey Eisenach and Mark Jamison have lobbied and worked for large ISPs, spending most of the last decade vehemently fighting against any and every consumer reform in telecom. Both have made it abundantly clear they not only want to roll back net neutrality and new broadband privacy rules passed under current boss Tom Wheeler, but they want to dismantle the FCC entirely.

With every indication that the government will be significantly more friendly to telecom giants in the new year, Wall Street has quickly gotten to work giddily daydreaming about mergers that were previously unthinkable in the space. Most commonly that involves predictions that Sprint will finally merge with T-Mobile (blocked under the current FCC because it would have reduced overall wireless competitors), or that Comcast and Charter will try to buy either Sprint or T-Mobile as part of a broader cable industry attempt to push into wireless.

But in a research note to investors this week, UBS analyst John Hodulik dreamed notably larger, arguing that the incoming Trump administration could possibly even allow a merger between telecom giants Comcast and Verizon:

"Densification of wireless networks required to meet the needs of video-centric subscribers increases synergies of cable-wireless combinations and provides the springboard for 5G-based services," he proclaims. "A roll-back of Title II re-classification could further increase incentives for cable," he adds, casually citing the likely dismantling of net neutrality and the FCC under Trump.

He put forth a number of models that include Dish fusing with T-Mobile or other variations. But he noted that a Comcast or Charter merger with Verizon would create "significant synergies" and "integrated products" while being "accretive to revenue and EBITDA growth."

While a Comcast Verizon merger may create "significant synergies" in the eyes of Wall Street, it could be downright fatal for broadband consumers. Verizon FiOS is among the only real competition Comcast sees along the east coast; so much so that the region is the only part of the country Comcast is afraid to expand its unnecessary usage caps into for fear of competitive repercussions. Eliminating that competition not only would result in caps and higher prices, but less motivation than ever for Comcast to improve its abysmal customer service.

Now it's entirely possible that Verizon and Comcast don't want to merge, but it's clear that Wall Street sees a huge new wave of consolidation looming for the already uncompetitive broadband industry all the same. Since Trump's telecom advisors don't believe telecom monopolies exist, believe that regulatory oversight of said nonexistent monopolies should be virtually nonexistent, and can't even acknowledge that the sector's competitive shortcomings are real -- what could possibly go wrong?

Trump, of course raged, against megamergers on the campaign trail to drum up populist support, not only claiming he'd block AT&T's $100 billion acquisition of Time Warner, but claiming he'd somehow dismantle the already merged Comcast NBC Universal. Based on his telecom advisors' own words and policy positions, there's virtually no chance of either actually happening. In fact, Wall Street, Trump's own advisors, and most of the telecom sector clearly expect the exact opposite.

Between the Trump "populists" realizing they've been taken for a ride, and the net neutrality activists annoyed at the demolition of broadly-popular net neutrality rules and other broadband consumer protections, we're looking at quite a storm of megamerger dysfunction in the new year.

Filed Under: antitrust, broadband, competition, doj, megamergers, monopolies, wall street
Companies: comcast, ubs, verizon

Trump Telecom Advisor Doesn't Think Broadband Monopolies Are Real, Wants To Dismantle The FCC

from the Comcastic dept

We just got done noting how despite all the hype surrounding Google Fiber and similar initiatives, the cable industry's monopoly over broadband service is growing larger than ever. Incumbent telcos don't want to upgrade their DSL customers across huge portions of their networks, effectively giving cable broadband less competition than ever. At the same time, we've noted how Trump's telecom transition team is thus far comprised of telecom sector cronies that not only can't admit the broadband market isn't competitive, but are eager to demolish all regulatory oversight of these anti-competitive carriers.

It doesn't take a whole lot of insight to see the problem with that scenario, yet here we are -- once again -- having this conversation anyway. Apparently, it's somehow hard to understand that giving incumbent ISPs control of the very agency tasked with regulating them doesn't end well for consumers, small businesses, or innovative new startups.

Jeffrey Eisenach, Trump's FCC transition team leader, ISP-funded "think tanker" and a candidate for the top FCC spot, thinks net neutrality and the FCC need dismantling. Former Sprint lobbyist Mark Jamison, also tasked with leading Trump's telecom team, also thinks net neutrality rules should be walked back and the FCC defanged. Jamison apparently doesn't believe telecom monopolies are real and thinks the FCC serves no purpose. In an October blog post, Jamison makes his thoughts clear:

"Most of the original motivations for having an FCC have gone away. Telecommunications network providers and ISPs are rarely, if ever, monopolies. If there are instances where there are monopolies, it would seem overkill to have an entire federal agency dedicated to ex ante regulation of their services. A well-functioning Federal Trade Commission (FTC), in conjunction with state authorities, can handle consumer protection and anticompetitive conduct issues."

Again, so we're clear, that's a lobbyist tasked with deciding the future of the FCC declaring that telecom monopolies not only aren't real, but also that the FCC technically shouldn't exist. Most of our readers are well aware of the fact that most broadband markets suffer from a duopoly logjam, where their choices are overpriced cable broadband service, or DSL services that offer circa 2003 speeds and 2016 prices. And again, as we noted recently, cable's monopoly is only growing as companies like AT&T and Verizon give up on fixed line broadband and shift their attention to higher-growth advertising and content markets.

To deny these realities borders on outright delusion. But time and time again, we've seen how incumbent ISPs (and the loyal sycophants they use to bend government to their will) are utterly incapable of even admitting the U.S. broadband market isn't competitive. If you can't admit this lack of competition, you're certainly not going to be able to understand the steps necessary to fixing it. Gutting most regulatory oversight, demolishing net neutrality, and dismantling the FCC's new privacy rules won't somehow magically result in telecom utopia.

This is a line of fantasy the incumbent ISPs (and their various, well-funded policy tendrils) have been mainlining into the public discourse for the better part of the last twenty years despite a parade of evidence to the contrary. A major reason Comcast and AT&T are abysmal companies isn't because the FCC tries to protect consumers. It's because gentlemen just like Eisenach and Jamison spent the lion's share of the last twenty years denying there's a problem while actively trying to prevent the agency from doing its job. They then clap and dance like school children when the dysfunction they built by hand suddenly manifests.

None of this is to say the FCC doesn't do stupid things, shouldn't and couldn't be reformed, or in many instances pared back. And Jamison's certainly correct that partisan patty cake is a problem at the agency that can and does result in inconsistent progress (even though partisan infighting is often intentionally used by companies to sow division on non-partisan issues like net neutrality). But reform is a far cry from what Jamison is proposing. What Jamison wants is to dismantle the FCC completely and shovel any outstanding responsibilities to the states:

"What would we do without an FCC? Any legitimate universal service concerns could be handled by others: States can subsidize network access as they see fit, the Department of Health and Human Services can incorporate telecommunications and internet into its assistance to low-income households, and the FTC and states can handle consumer protection and ex post regulation."

Right, but if you know anything about the telecom market at all, you know that state legislatures are beholden to incumbent broadband providers to an even more comic degree. Incumbent ISPs, with the help of groups like ALEC and lobbyists like Jamison, quite literally write state telecom law. That's why twenty states have passed laws, written by ISP lawyers, hamstringing their citizens' ability to build their own networks or strike public/private partnerships in case of market failure. This corruption is why AT&T is able to try and sneak competition-killing measures into unrelated traffic laws. That's why states like West Virginia are an absolute telecom shit show dominated by broken monopolies Jamison pretends don't exist.

Many Trump supporters will try to point out that current FCC boss Tom Wheeler was a former wireless and cable lobbyist we all expected nothing from, but were pleasantly surprised by. But Wheeler was an enigma, and he isn't like Jamison or Eisenach. His lobbying for the wireless and cable sectors occurred when both industries were pesky upstarts. His documented positions were also vastly less extreme. He wasn't stumbling about proclaiming that the agency he was about to be employed by shouldn't exist, or denying fundamental realities like the existence of telecom monopolies. And Jamison and Eisenach are on record criticizing nearly all of Wheeler's policies, especially net neutrality.

Consumers tired of awful broadband should be bored to tears by the parade of ISP lobbyists, think tankers, lobbyists, consultants and other mouthpieces who endlessly insist government telecom oversight never works -- then set about spending millions of dollars and decades to ensure it can't. The FCC, under both parties, certainly has a long history of dysfunction that needs fixing. But anybody that actually thinks that dismantling regulatory oversight of the nation's broken broadband duopoly is a panacea has been fed a line of stale bullshit. When you put the foxes in charge of the hen house you don't get better eggs -- you get a bloodbath and a call to Comcast customer service. Why exactly is this such a difficult lesson for us to learn?

Filed Under: competition, donald trump, fcc, jeffrey eisenach, mark jamison, monopolies, telcos

Antitrust Suit Alleges Pharma Company Rubbished Its Own Product In Order To Stave Off Competition From Generics

from the commercial-motives-played-no-part dept

Techdirt has written a number of stories about how Big Pharma is never content with the patent bargain -- that, in return for a time-limited, government-enforced intellectual monopoly, products will afterwards enter the public domain. Instead, companies have come up with various schemes to extend the life of that monopoly -- and thus to cheat the public of the low-cost generic versions of the drug in question that should have appeared. The Daily Beast points to an antitrust lawsuit brought by 35 states and the District of Columbia against the makers of Suboxone, a prescription drug used to treat opioid addiction, over the alleged use of one such scheme, known as "product hopping". That's where:

a company makes modest changes to a product to extend its patent protections so that other companies cannot enter the market and offer less-expensive generic alternatives.

In this particular example:

Reckitt Benckiser Pharmaceuticals, Inc. -- now known as Indivior PLC -- and MonoSol Rx are accused of conspiring to switch Suboxone from a tablet version to a film, which dissolves in the mouth, in order to prevent or delay generic alternatives and maintain artificially inflated profits.

...

Over time, the states allege that Reckitt converted the market away from the tablet to the film through marketing, price adjustments and other methods. Ultimately, after the majority of Suboxone prescriptions were written for the film, Reckitt removed the tablet from the U.S. market.

The "other methods" are particularly interesting. In September 2012, Reckitt announced that it was going to "voluntarily discontinue the supply of Suboxone tablets", because it was worried they might be dangerous for children:

The company received an analysis of data from U.S. Poison Control Centers on September 15, 2012 that found consistently and significantly higher rates of accidental unsupervised pediatric exposure with Suboxone Tablets ... than seen with Suboxone Film ... The rates for Suboxone Tablets were 7.8-8.5 times greater depending on the study period.

Curiously, though, Reckitt didn't mention that the study had been commissioned by itself, as the Guardian noted in an article at the time. Quite why Reckitt would want to pay for and then publicize a study that showed one of its own products was dangerous became clearer just a few hours later, when it submitted a "citizen petition" to the Food and Drug Administration:

urging the US regulator to ban any future competitor pills to its suboxone tablets that were insufficiently "child resistant".

In other words, Reckitt effectively wanted the FDA to ban any generic versions of its own tablets, now out of patent, while leaving its patented film formulation on the market to enjoy a new monopoly. As the Guardian reported:

A company spokesman has insisted commercial motives played no part in Reckitt's decision to withdraw suboxone tablets from the market. However, Martin Deboo, an analyst at Investec Securites said: "We view these moves as consistent with Reckitt's strategy of protecting the suboxone franchise by hastening migration to [strip] and raising barriers to entry to generics."

The new antitrust lawsuit will doubtless explore these moves in detail, and the harm they might have caused, both financial and in terms of patient suffering. The plaintiffs allege:

that federal and state healthcare programs, including Medicaid, as well as consumers and other purchasers have paid artificially high monopoly prices since late 2009, when generic alternatives of Suboxone might otherwise have become available. During that time, annual sales of Suboxone topped $1 billion and, since then, rates of opioid abuse in Connecticut and across the country have increased significantly.

That's a useful reminder that pharma patents are not just about monopolies and money, but also about people and pain.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Filed Under: disparagement, fda, monopolies, patents, pharmaceuticals, suboxone
Companies: indivior, monosol, reckitt benckiser

Under Cable Lobbying Assault, FCC Commissioners Waffling On Cable Box Competition Plan

from the $21-billion-reasons-to-fold dept

The cable industry's relentless lobbying assault on the FCC's plan to bring competition to the cable box appears to be working. As we've been covering, cable lobbyists have been filling editorial sections nationwide with all manner of misleading dreck, claiming the FCC's plan (which you can read here (pdf)) will increase piracy, hinder innovation, hurt minorities, and rip giant holes in the time-space continuum. They've also engaged in the time-honored tradition of paying lawmakers that have no idea how technology works to make all manner of false claims about what the FCC's plan actually does.

Unfortunately for those of you tired of paying the cable industry $21 billion annually to rent a shitty cable box, it looks like the efforts are working.

Two of the Democratic Commissioners that originally voted yes on the plan say they're starting to get cold feet, surely only coincidentally after the cable industry decided to ramp up lobbying to levels not seen since 2009 to try and kill the plan. FCC Commissioner Jessica Rosenworcel, for example, is now claiming that the FCC plan she voted for is "too complicated" and that the FCC should compromise with the cable industry on some kind of new arrangement:

"Kudos to the chairman for kicking off this conversation [Rosenworcel voted along with Wheeler and Democrat Mignon Clyburn to kick off that conversation], but it has become clear the original proposal has real flaws and, as I have suggested before, is too complicated. We need to find another way forward." She was not endorsing the cable effort, but instead appeared to be supporting the effort to find a compromise proposal that addresses the flaws. "I am glad that efforts are underway to hash out alternatives that provide consumers with more choice and more competition at lower cost."

Except there's nothing really that complicated or "flawed" about what the FCC is proposing. Under the plan, cable operators simply have to provide access to their programming -- using systems and copy protection of their choice -- to third-party hardware vendors without the need for a cable card. While there's certainly some engineering challenges with the idea, the "complicated" part only really comes from the cable industry's decision to fight cable box competition tooth and nail.

Meanwhile, the "compromise" referenced by the article that appears to have swayed Rosenworcel isn't much of one. Instead of real cable box competition, the cable industry has proposed a plan whereby they simply have to deliver their programming via app -- but consumers would still have to pay for a cable box if they want to do things like record via DVR. Consumer advocates and groups like INCOMPAS are warning that the cable industry will go out of is way in any voluntary proposal to find creative ways to continue forcing consumers to use their hardware and services.

And Rosenworcel doesn't appear to be alone in waffling. Commissioner Mignon Clyburn also appears to be buckling under the weight of false narratives suggesting the FCC's plan somehow needs to be rolled back, lest it damage "copyright, security and privacy":

"We also asked Democratic Commissioner Mignon Clyburn's office if she still supports the original proposal and got this response: "Commissioner Clyburn appreciates and welcomes the constructive ‎efforts by industry to put forward an alternative apps-based proposal. She continues to study the proposal with an eye towards a solution that adheres to Section 629 of the Communications Act; ensures truly competitive choice; enhances access to diverse programming; and provides the protections for copyright, security and privacy that consumers have come to expect."

Note again that the two waffling commissioners don't really provide any solid reasons why the FCC's original proposal couldn't work, but it's pretty clear that they've been influenced -- to one degree or another -- by the paid sound wall cable lobbyists have constructed in trying to scuttle real cable box competition. With their fellow Commissioners Pai and O'Rielly voting no on the proposal (because voting no on consumer friendly policies is their entire purpose in life) and foundering support among Democratic commissioners, Wheeler won't have the political firepower to get the plan approved.

Again that's not the end of the world. The legacy cable TV industry's empire is slowly crumbling with or without the FCC's help, it will just take a little longer if the FCC doesn't give the entire process a swift kick in the ass. If the FCC's cable box proposal sinks, the agency has more time and calories to focus on what's truly going to be important in the new streaming TV age: bringing real, sustained competition to bear on the broken U.S. broadband market.

Filed Under: cable, cable tv, competition, fcc, jessica rosenworcel, mignon clyburn, monopolies, set top box, tom wheeler, unlock the box
Companies: comcast, time warner cable

Turing Pharma Boss Martin Shkreli Defends Massive Price Increase As A Good Thing For Patients

from the just-another-symptom-of-a-diseased-system dept

Martin Shkreli -- founder of Turing Pharmaceuticals and overnight poster boy for everything that is wrong with the pharmaceutical industry -- spent a lot of yesterday defending his 5000% price hike on Daraprim, a drug that treats victims of toxoplasmosis. That the drug has a nexus with cancer and AIDS sufferers (basically anyone with a diminished immune system) made the price increase seem even more unconscionable.

Shkreli's self-serving interviews were loaded with ridiculous statements.

He claimed raising the price from $13.50/pill to $750/pill was done in the interest of the same people who would likely find it suddenly prohibitively expensive to take the drug.

“With these new profits, we can spend all of that upside on these patients who sorely need a new drug in my opinion.”

First off, there's no consensus that the medical community is searching for a new toxoplasmosis drug.

Dr. Wendy Armstrong, professor of infectious diseases at Emory University, questions Turing’s claim that, after more than 60 years of physicians using Daraprim, there is a need for a better version of the drug.

“I certainly don’t think this is one of those diseases where we have been clamoring for better therapies,” says Armstrong.

Next, there's the inherent ridiculousness of this assertion, which portrays Turing's plans for Daraprim as a reverse pyramid scheme, in which future "investors" will benefit from the gouging of those who got in on the ground floor.

On top of that, Shkreli claims the drug is still underpriced, despite having been sold for $1/pill before its acquisition by the company Turing acquired it from.

While it's true that drug research and development can be expensive, it is nowhere near as costly as this price hike would indicate. Shkreli tossed out the easily-debunked claim that it costs $1 billion to bring a new drug to market. The actual cost is considerably lower (~$55 million), according to research using the same data drug companies provided to backup their claims of $1.3 billion in R&D costs per new drug.

Data also shows pharmaceutical companies spend far more on marketing than research and development. They have to. Most "new" products on the market aren't actually new. They're just variants on what's already available. It's tough to sell a "new" drug that doesn't outperform a competing product, hence the increased marketing expenditures.

Shkreli also used a variant of "everyone else is doing it" to defend the price jump. He pointed to the existence of other cancer drugs costing "over $100,000" per treatment as justifying Turing's price increase. But being slightly less exortionate than competitors isn't the same thing as being "good."

Shkreli has little interest in being good, no matter what altruistic assertions he makes. His former company -- from which he was ousted over accusations of stock price manipulation -- also jacked up the price on an essential drug just because it could.

When Retrophin acquired rights to Thiola, the drug cost about $1.50 per pill. [Patients take multiple pills per day.] Now, Retrophin has decided to charge more than $30 for the same Thiola pill. Retrophin says it has plans to change the Thiola dose and develop an extended release version of the drug, but I have seen none of those changes yet. To my knowledge, Retrophin hasn't yet done any of this work -- except to drastically increase Thiola's price.

And indeed, Retrophin never did. From a 2015 presentation, it's generating sales for Retrophin, but nowhere in it is any indication the company is actually working towards an extended-release version of the drug.


I asked Shkreli about this and he claimed the company ditched the R&D plans after it ousted him. Maybe this is true, but it doesn't exactly instill any confidence in Shkreli's latest claims that price hikes are being done with an eye on increased R&D spending. Instead, they look like nothing more than the normal deflection performed by drug companies after controversial price increases.

Other circumstantial evidence does little for consumer confidence. Not only is Shkreli being sued by his former company for fraudulent behavior, he's previously been taken to court (by Lehman Brothers) for a $2.3 million loss he incurred (but never repaid) when his bet on a market decline went south. The complaint accuses him not only of failing to pay Lehman what was owed, but of pushing through the transaction without actually possessing the funds to cover the original purchase.


Shkreli also has a history of thriving on market failure. He has made money shorting pharmaceutical stocks while simultaneously engaging in questionable behavior. Here's a "treatise" he wrote detailing the negative aspects of one company's research efforts, which clearly states at the top of each page (for legal reasons) that he stands to personally gain if the company's stock price drops.

DISCLAIMER: The authors of this article have a conflict of interest and will benefit financially if the stock price of VTL falls. The authors reserve the right to change their investment if the price of VTL changes dramatically. Please read the Disclosure at the end of this paper for more information.

(This was tracked down from a deleted tweet by Martin Shkreli. Other Twitter users had commented on it, so it was recoverable from Google cache. Here's a screenshot, because the cache won't stay live for long.)


But he's also been accused of actions that are more than simply treading the edge of legality. A heated Twitter exchange implies Shkreli talked the FDA out of a drug approval -- something that hurt the company producing the drug, but paid off for Shkreli's stock short.


Shkreli's history does little to back up his assertions of altruistic goals and a future full of well-funded research and development. Instead, it shows someone who's willing to exploit every last dollar out of something and leave its dessicated corpse behind.

What he has done is anger the "community" he's a part of. Drug prices were already being subjected to the scrutiny of crusading legislators. Now, drug prices are no longer under the Congressional microscope. They're also being projected onto the Jumbotron that is social media. No less than presidential candidate Hillary Clinton offered up her view on the price hike, promising a plan to address the problem.

On top of that, share prices for several drug companies fell the day the Daraprim price hike went viral. That this may have worked out well for Shkreli can't be ignored, considering his prior experience with shorting pharmaceutical companies. Maybe this was part of the plan: Short pharma stocks. Jack price up on newly-acquired drugs. Play the villain while cashing in on the market decline.

That's all speculation, of course. What is certain is that Martin Shkreli is not THE problem. (He's not even "Big Pharma," even though several editorials have placed him in this group.) He's part of the problem, but his specific actions are more about exploiting obscure drugs that competitors aren't interested in. His actions shed little light on the genesis of high drug prices.

The original issue is patents. That has been mostly ignored by legislators and opinion pieces during the most recent push for some sort of drug pricing controls. And it will continue to be ignored because Daraprim's price hike is completely unrelated to patent monopolies. Turing's exclusive license for Daraprim includes only the use of the trademarked name. The patents have expired. Anyone can make it, but no one's been particularly interested in offering an alternative. (Maybe this will change now that a company has a chance to take on the villain du jour…)

But it's patents that make drugs unaffordable in the first place. New drugs are given, at minimum, 20 years of competition-free sales. That's two decades (at least) where drug companies can charge whatever they want because no one else can offer a competing product. Companies -- like Shkreli -- will claim they need this exclusivity to recoup "massive" research and development costs. But this simply isn't true. Pharmaceutical companies enjoy massive profit margins, much more than would be expected if they were faced with meaningful competition. The lie is exposed when patents expire. Prices fall dramatically once the market is opened, including that of the original manufacturer's.

So, if the government really wants to tackle the problem of overpriced drugs, it needs to start with the protections it grants that allow this to happen. But this seems unlikely to happen because drug companies have significant "buying power" when it comes to legislation, no matter how many people come forward to testify about being priced out of essential treatments.

Shkreli, however, is specializing in finding "orphan drugs" -- drugs for rare conditions that are no longer under patent protection (which would raise the acquisition price significantly) but which have seen little to no competitive movement over the years. His decision to implement a 5000% price increase, despite minimal costs (and benefiting from R&D performed 60 years ago), is one he can make because there's no market force in place to stop him. So, he may be the poster boy for everything that's wrong with the pharmaceutical industry, but he's not really indicative of the ongoing problem.

What he is, however, is an opportunist with a hedge fund background and a history of market exploitation. Any claims of altruism or searches for better treatments should be met with intense skepticism.

Filed Under: daraprim, drug prices, drugs, martin shkreli, monopolies, pharmaceuticals, price gouging, toxoplasmosis
Companies: turing, turing pharmaceuticals

Google To EU: You Know, No One Really Uses Our Vertical Search Products

from the fine-lines dept

As was widely expected yesterday, the EU has officially come out with its "Statement of Objections" to Google practices that are at the heart of its antitrust complaint. They are almost entirely focused on the fact that Google promotes its own shopping search product at the expense of competitors. From the announcement:

• Google systematically positions and prominently displays its comparison shopping service in its general search results pages, irrespective of its merits. This conduct started in 2008.
• Google does not apply to its own comparison shopping service the system of penalties, which it applies to other comparison shopping services on the basis of defined parameters, and which can lead to the lowering of the rank in which they appear in Google's general search results pages.

• Froogle, Google's first comparison shopping service, did not benefit from any favourable treatment, and performed poorly.
• As a result of Google's systematic favouring of its subsequent comparison shopping services "Google Product Search" and "Google Shopping", both experienced higher rates of growth, to the detriment of rival comparison shopping services.
• Google's conduct has a negative impact on consumers and innovation. It means that users do not necessarily see the most relevant comparison shopping results in response to their queries, and that incentives to innovate from rivals are lowered as they know that however good their product, they will not benefit from the same prominence as Google's product.

This somewhat echoes the FTC's analysis of Google's playing with shopping search -- but the FTC also noted that the end results actually seemed to be good for consumers (something the EU appears to be less concerned with). Here was the FTC's conclusion on the same issue:

Indeed, the evidence paints a complex portrait of a company working toward an overall goal of maintaining its market share by providing the best user experience, while simultaneously engaging in tactics that resulted in harm to many vertical competitors, and likely helped to entrench Google's monopoly power over search and search advertising. The determination that Google's conduct is anticompetitive, and deserving of condemnation, would require an extensive balancing of these factors, a task that courts have been unwilling- in similar circumstances - to perform under Section 2. Thus, although it is a close question, Staff does not recommend that the Commission move forward on this cause of action.

In short, it is clear that Google experimented with ways to improve its own shopping search performance, but it's hard to see how some of the EU's complaints make that much sense. What business is required to promote it competitors?

Either way, Google is now in the somewhat awkward position of pointing out that its own vertical search products both are good enough to deserve the treatment Google gave them, yet bad enough that no one actually uses them. Thus it has put out a somewhat hilarious blog post that talks about how little people actually use Google's vertical search products while also highlighting how many competitors there are. Here, for example, is the chart it shows for shopping sites in Germany: It's pretty clear what point Google is trying to make there, though it seems likely that the EU Commission will quickly argue that this chart is actually unrelated to the point that it is making -- that Google may be somehow "unfairly" leveraging its dominant position in general search, to push its vertical shopping search on users. The real question, is whether or not that's harming end users in any way. That's the part that seems tough to support. There do appear to be many other options for searching. And, personally, as someone who regularly uses Google (and other search engines) for a variety of searching needs, I can say that I never use it for product/shopping search, whether or not it promotes it in its search results, because I automatically default to other specialized sites for those kinds of searches. I'm at a loss as to how Google promoting its own shopping search does any harm to me in those situations. It's just another competitor (and to me, not a very good one).

As we noted a few months ago, based on a tool that Yelp and TripAdvisor put together, there are arguments to be made that Google could do a better job with how it handles vertical search results, using its search algorithm to pull in results from others -- but it's difficult to see why anyone should want government bureaucrats determining how to build search engine results.

Filed Under: abuse, antitrust, consumers, eu, europe, monopolies, shopping search, vertical search
Companies: google