Vice president and Chief Internet Evangelist for Google. He is responsible for identifying new enabling technologies and applications on the Internet and other platforms for the company.
That suggests someone whose main job is to look forward, rather than back, and with a certain optimism too. But an article in the Guardian reports on a speech he gave in which he is not only concerned with the past of online technologies, rather than their future, but is also issuing an important warning about their fatal flaws:
Humanity's first steps into the digital world could be lost to future historians, Vint Cerf told the American Association for the Advancement of Science's annual meeting in San Jose, California, warning that we faced a "forgotten generation, or even a forgotten century" through what he called "bit rot", where old computer files become useless junk.
Of course, he's not the first person to raise that issue -- Techdirt wrote about this recently -- but Cerf's important contributions to the creation of the Internet, and his current role at Google, lend particular weight to his warning. That said, the Guardian article seems to miss the central reason all this is happening. It's not that it's really hard to create emulators to run old programs or open old files. The real issue is tucked away right at the end of the article, which quotes Cerf as saying:
"the rights of preservation might need to be incorporated into our thinking about things like copyright and patents and licensing. We're talking about preserving them for hundreds to thousands of years," said Cerf.
The main obstacles to creating software that can run old programs, read old file formats, or preserve old webpages, are patents and copyright. Patents stop people creating emulators, because clean-room implementations that avoid legal problems are just too difficult and expensive to carry out for academic archives to contemplate. At least patents expire relatively quickly, freeing up obsolete technology for reimplementation. Copyright, by contrast, keeps getting extended around the world, which means that libraries would probably be unwilling to make backup copies of digital artefacts unless the law was quite clear that they could -- and in many countries, it isn't.
Once again, we see that far from promoting and preserving culture, intellectual monopolies like patents and copyright represent massive impediments that may, as Cerf warns, result in vast swathes of our digital culture simply being lost forever.
We've written a few times about Elon Musk and Tesla's decision to open up all of Tesla's patents, with a promise not to sue anyone for using them. We also found it funny when some reacted to it by complaining that it wasn't done for "altruistic" reasons, but to help Tesla, because of course: that's the whole point. Musk recognized that patents frequently hold back and limit innovation, especially around core infrastructure. Since then, Musk has said that, in fact, rivals are making use of his patents, even as GM insists it's not.
However, as some may recall, when Musk made the original announcement, the terms of freeing up the patents were at least a little vague. It said that Tesla "will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." That "in good faith" claim had a few scratching their heads, and pointing out that still gave Tesla an out. We were a little disappointed that the company didn't make the terms entirely clear, believing that the "in good faith" line would likely scare away some companies from actually using the patents. However, recently, at the Detroit Auto Show, when questioned about this, Musk clarified that he really meant to make them completely free for anyone to use, no questions asked, no licensing discussions needed:
Around the three-minute mark someone asks how many automakers have taken Tesla up on the offer to use its patents, and Musk notes:
Musk: We actually don't require any formal discussions. So they can just go ahead and use them.
Reporter: Is there a licensing process?
Musk: No. You just use them. Which I think is better because then we don't need to get into any kind of discussions or whatever. So we don't know. I think you'll see it in the cars that come out, should they choose to use them.
In other words, Musk is saying what most of us assumed all along was the point. Hoarding the patents and blocking others doesn't help him at all. Letting others expand the market does. And licensing discussions are unnecessary friction and a waste of time.
All good, right?
Well, no. It appears that clueless Wall Street types are absolutely flipping out over this (possible registration wall). Some outfit called "Technology Equity Strategies," which doesn't seem to understand the first thing about how innovation actually works, posted an insanely long and ridiculously misguided note on how this is horrifying for anyone invested in Tesla. The descriptions are hilarious, where you can almost hear these Wall Street types pulling out their hair over this idea of *gasp* actually letting others use Tesla's patents. First, it notes that Musk called them "open source" patents, and spends way too much time detailing the "official" definition of open source, and then says that the patents are now "public domain" (apparently not recognizing that public domain and open source are not the same thing -- though in this case it might not matter). Technology Equity Strategies is very upset about this.
The restrictions in the June 12 blog of "good faith" and "we will not initiate" are over with. They are finished. These patents are either in the public domain, or they have at minimum been rendered unenforceable against all users, "good faith" or not.
Why? Because in their non-innovation minds, all they care about is how do you best value the stock, and giving up patents is giving up an asset. The note first (mistakenly) argues that many areas of the tech industry rely on patents as barriers to entry and that's where their advantage comes in (rather than execution, which is the truth). And so, it thinks now some other company will just come in and eat Tesla's lunch:
Is it possible that the massive capital and labor needed to attain leadership might not be eroded in by imitators in Asia, by large companies with resources to buy market share, by companies whose strengths are manufacturing process, global footprint and scale?
If so, the embedded option on a leader in a new niche in the auto industry and on a shift in the competitive dynamics in the auto industry might indeed be a valuable option.
But Mr. Musk was not interested in that. He is happy to give away the advantages that actually provide great profitability in some sectors of technology. He wants to compete as an auto company, in the brutal and capital intensive way that auto companies compete. More fundamentally, he is willing to eliminate the possibility in the future of competing as a technology company, which depend on the IP protections of patents, copyright, and trade secrets.
Of course, the reality is that Musk recognizes what many in this sector recognize: that sharing the ideas helps speed along innovation, creating greater and greater opportunities, which you can realize by executing well. Musk is confident in Tesla's ability to execute and (as we noted earlier) recognizes that sharing the patents actually helps Tesla by getting more electric vehicles on the market, meaning more overall infrastructure that makes Tesla cars more valuable.
This is the ridiculousness of Wall Street: sometimes it simply can't understand the nature of a non-zero sum game. Giving up any "advantage" is seen as helping others, without recognizing that helping others can also help you out tremendously. Instead, these investor types believe in the myth of intellectual property, that it's patents that make a company valuable:
Intellectual property is an important foundation for valuation technology companies. Funds that own Tesla may not be the same institutions who own GM or Ford, but many will be familiar with Qualcomm and ARM.
IP goes a long way in explaining why Qualcomm has a market cap of $110 billion, and ARM has a valuation of 23 billion (18x trailing revenues) while Nokia and Dell were sold for less than two times revenues. Nokia and Dell did fine work for a while as manufacturers and product companies. There was a time when they too looked like winners based on product execution. But they didn't own core IP, and so when product cycles shifted, they were left with little value.
Yes, ARM and Qualcomm are both patent-focused companies (that dip their toes into trolling all too often). And, yes, companies that don't execute well can lose out in the end, but cherry picking a few companies that have flopped on execution, while pointing to a few trollish companies as success stories, doesn't make a very strong argument. It's basically saying "yes, invest in the companies that don't believe in their own ability to execute, who have a fallback as a patent troll." That's not exactly a strong endorsement. Tesla believes in its own ability to innovate -- and these Wall Street guys think that's a bad thing.
And then there's the rewriting of history:
Let's look at Apple. Apple and Steve Jobs learned the hard way. Some of us will recall that an early Apple (believing that IP wasn't important) opened up its IP to the basic Mac interface with a royalty free license to Microsoft.
This resulted in Microsoft Windows taking nearly the entire PC market from Apple, and nearly bankrupting Apple. In his second chance, Steve Jobs learned about the importance of IP. This is a lesson that Mr. Musk failed to absorb.
Except, that's totally incorrect. While Apple had licensed a few aspects of its UI, that licensing agreement became meaningless by the time of Windows 2.0. Then Apple sued Microsoft and lost, because it was trying to use copyright law to claim things that could not be covered by copyright law. And that's not why the PC took over the market. So this isn't a lesson that Musk failed to absorb, because it never happened.
The Grand Gesture shows the worrisome sincerity in Musk's repeated statements that he is primarily on a mission to get other companies to sell a lot of electric vehicles, not to make money.
A worrisome sincerity? No, it's showing that Musk recognizes that if the market for electric vehicles does not grow massively, then he won't make money. He very much wants to make money, and a good way to do that is to build out the overall market for EVs, allowing Tesla to thrive. And these Wall Street folks first mock the idea that Musk might first invest to grow the market, by then... claiming that Asian makers might do the same thing:
No doubt Mr. Musk believes that if the industry embraces EVs, then Tesla will succeed as part of it. But is this plausible, that everything will just work out for the best. Is it plausible that Musk can succeed as a manufacturer in the U.S. competing against manufacturers in Asia who may take zero margins to grow a business, using Musk's proven designs? U.S. companies have learned over and over that IP is necessary to get a sustained profitable return on their innovations.
Actually, no. Plenty of tech companies don't think that IP is "necessary" to get sustained returns -- they think the opposite. Patents get in the way of profitability. They require lots of lawyer time and threats of lawsuits.
Frankly, Tesla opening up its patents seems like a move that shows how confident it is in its execution abilities, and makes the company a lot less likely to rest on its laurels and become nothing but a "licensing" company down the road. The fact that people who don't understand what a mess patents are and how they slow down innovation are now jumping in making ridiculous claims like Tesla's decision is why Apple can now jump into the EV car market just shows how little some people understand patents. The "myth" of patents as a powerful tool of innovation is still out there, and that's a shame.
For many years, we've been covering the story of Myriad Genetics, the biotech company that has a test for the BRCA1 and BRCA2 genes (often an indicator of a higher risk for breast cancer). The company argued that because of its patent on those genes, no one else could test for those genes. Back in 2013, the Supreme Court did the right thing and finally rejected the concept of gene patents, despite years of the USPTO granting such patents. As the court noted, allowing gene patents created a perverse situation in which a single company could have the exclusive right to isolate a person's own genes -- and that's just not right.
But Myriad Genetics did not give up easily. Just a month after the Supreme Court ruling it sued a bunch of competitors over a different set of gene patents, insisting that the Supreme Court had really only struck down the two in question. Those lawsuits did not go well, as Myriad lost again and again. At this point, it's only choice was to go back to the Supreme Court, where it was obviously going to get a pretty big smackdown -- so Myriad has now admitted that it will not pursue an appeal effectively ending this latest round of cases (after costing those other testing centers tons of money to defend themselves).
As the ACLU notes, this news is great, but there's also some bad news. Just as Myriad is finally coming to terms with what the Supreme Court actually said a year and a half ago, the US Patent and Trademark is quietly opening the door back up to gene patents:
In response to severe criticism by industry groups, patentholders, and patent attorneys, the Patent Office issued new guidance in December that watered down the standard for determining whether something is an unpatentable product of nature. It said that differences in structure or function could allow companies to patent things based in nature. Under this test, if a surgeon removed a kidney from one's body in order to transplant it, the surgeon could argue that she should be able to patent it because it no longer has the same structure as in the body since its blood vessels were cut. The kidney, of course, would be intended to function just as it has prior to being removed in the body that receives it.
The Supreme Court has long rejected this view. For example, in 1931 the court said that a fruit treated with a preservative in its rind could not be patented, because while it has a different structure, its uses are still the same – to be eaten. The applicant could have sought a patent on a new preservative it developed, but not on the fruit itself.
In other words, the ugly head of gene patents may be about to come back alive, despite the Supreme Court killing it off a couple years ago. However, there's still a chance the USPTO will reconsider:
The public has an opportunity to weigh in on this latest guidance. The Patent Office is seeking comments until March 16. In its next revision of the guidance, the Patent Office must require differences in both structure and function when assessing patent applications. Otherwise, the public will bear the consequences when another company, like Myriad, wields its exclusive rights on nature to stall medical and scientific advancement.
sciamiko points us to an interesting study done by Stuart Graham, who was the first chief economist of the US Patent Office (we were initially excited about his hiring, though the only other time we reported on his work, it was to wonder why a paper hid his connection to the USPTO), looking at whether or not inventors choose to reveal the "secrets" of their invention prior to actually getting the patent. Graham and his co-author, Deepak Hegde, examined what happened after the American Inventors Protection Act (AIPA) went into effect in 2000. Part of the AIPA was that the USPTO would publish patent applications after 18 months (usually well before the patents were approved or rejected) -- rather than only making them public after they were approved. The usual suspects (patent hoarders and self-described "small inventors") screamed like crazy about how this would completely destroy American innovation, because they'd have to reveal their secrets too early. To try to appease these concerns, the bill included a loophole: patent applications could be kept secret if they didn't file for foreign patent protection -- which was the case for about half of all US patents.
That gave Graham and Hegde a nice dataset to look at, to see who chose to keep their patent applications secret until approval, and who let those applications be revealed. If those who freaked out about the publication requirement were right, it should be clear in the data that, when given the chance, businesses kept their patents secret, and the "secret" patent applications should be worth more than the non-secret ones. The reality? The exact opposite was true. Inventors chose to reveal their patent applications readily, even when they had the option of withholding them, and the more valuable patents tended to be the ones that were revealed:
They examined 1.8 million granted patents filed at the USPTO from 1995 to 2005 and analyzed the disclosure preferences of the inventors. Their analysis found that, among those not seeking foreign protection, about 85 percent of inventors filing a patent since 2000 chose to disclose information about their patents prior to their approval.
"Overwhelmingly, those inventors patenting only in the U.S. are choosing 18 month disclosure," co-author Hegde said.
And the study appears to show that the complaints and worries of those small inventors about this increased transparency was, in fact, complete bunk:
When the AIPA was passed, one of the biggest complaints was that the publication requirement would hurt U.S. small inventors, but the researchers found that individuals and small companies still opted for disclosure during the study period.
"Small U.S. inventors are not choosing the secrecy route," Graham said. "When they patent only in the U.S., they are choosing secrecy in only about 15 percent of the cases, not statistically different than the rate among all other types of inventors."
Another major complaint of the AIPA was that disclosing patent secrets would stop the engine of innovation in the United States and that society would get less meaningful inventions. Contrary to these arguments, the researchers found that patents born out of secrecy were overall less valuable than those that opted for disclosure.
"When we examine indicators of patent value, we find consistent evidence that the least-valuable and least-impactful patents are those that opted for pre-grant secrecy," Hegde said.
This isn't particularly surprising to us -- as, contrary to the way some think, we've pointed out for years that hoarding information tends to limit innovation, while sharing it is likely to lead to greater innovation. Of course, it's the same "small inventors" who insisted the sky was falling over the AIPA who are now protesting the latest attempt at patent reform, making similar claims about how it will drive down quality and drive inventors out of business. They were totally wrong last time, and it's likely they're totally wrong again.
This was widely expected, but Rep. Goodlatte has now officially re-introduced his patent reform bill, which largely mirrors the one that sailed through the House with ease a little over a year ago (in part because they took out some of the key parts). The Senate bill was a bit stronger and was on the verge of passing until the trial lawyers called up Senator Harry Reid, and had him flat out kill the bill, despite widespread bipartisan support. As we noted at the time, it seemed like the trial lawyers may have miscalculated, because it was already clear that the Republicans were likely to gain control over the Senate in the 2014 elections (as they did), and they were not interested in bowing down to the trial lawyers.
Hopefully that means that a decent patent reform bill will actually make it through Congress this time around, but it still seems likely that, while it may help around the edges, the final bill probably won't be strong enough to fully solve the problems. Still, it's a good step forward, and at the very least, in clearing out some of the problems with the current system (often highlighted via trollish behavior) it will shine the light on remaining problems in the system.
Under Chinese law, prisoners who have come up with useful new technologies can be eligible for sentence reductions.
This is no mere theoretical option: some prisoners have already benefited from the system.
Mr. Nan, who was given a 10-and-a-half-year sentence for corruption and match fixing in 2012, saw a court take one year off his sentence in December for good behavior, including writing science fiction and receiving four patents, China Daily reported. His inventions included a device for controlling desktop monitors, a mobile phone stand and two soccer-related items: a portable goal and a tool for measuring shot accuracy, China Daily said.
The Chinese newspaper that broke the story about prisoners using patents to reduce their sentences, Beijing Youth Daily, also found services that claimed they could provide patents to be used in this way:
One office in Shaanxi Province said it could provide a simple patent for 6,800 renminbi, or about $1,100, with prices rising to nearly $10,000 for more complex patents.
The good news is that if the people running these services are ever caught and sent to prison for trying to game the system, at least they know a good way of getting out early.
As Techdirt explained back in 2009, India has a long and complicated relationship with patents, but more recently, it has established itself as the leading "pharmacy of the developing world," thanks to its generic drug manufacturers which are able to supply key medicines at affordable prices. A recent patent decision, reported here by Intellectual Property Watch, continues that tradition:
Today's rejection by the Patent Office Controller of India of a patent application by Gilead company for a key drug against hepatitis C is being hailed by advocates as a path to dramatically lower costs of treatment for the disease. Hepatitis C has made news for the emergence of exorbitantly priced medicines over the past year.
A press release on the news from Médecins Sans Frontières explains just how exorbitant:
The oral drug, which first received regulatory approval in the US in November 2013, and has been priced by Gilead at US$84,000 for a treatment course, or $1,000 per pill in the US, has caused a worldwide debate on the pricing of patented medicines. A study from Liverpool University showed that sofosbuvir could be produced for as little as $101 for a three-month treatment course.
That gives an idea of the kind of profit margin involved -- rather excessive even allowing for generous research and development costs. But as well as being good news for those who will soon be able to afford this drug, the judgment is also significant for its underlying reasoning, as Intellectual Property Watch notes:
A look at the decision shows that a provision in India's law continues to stop patent applications if they fail to show sufficient novelty and inventive step -- and are subject to opposition.
That's important because it confirms that India is still taking a very strict approach to granting pharma patents, which must meet stringent conditions of novelty and inventiveness. Millions of people in the developing world who stand to benefit from India's low-cost generics will be grateful, while some in the West may be less happy.
Another Supreme Court ruling... and another smackdown of CAFC, the Appeals Court for the Federal Circuit that handles all patent appeals. This regular smackdown of CAFC by the Supreme Court has become such a recurring story that it would almost be surprising if the Supreme Court took a patent case to do anything but smackdown CAFC. The key issue here is that the Supreme Court basically has taken away CAFC's powers to review a patent directly to determine if the patent itself is valid or not. Instead, it can only review the district court's findings, to determine if there was an obvious error by those district courts in handling claim construction. While this takes away power from CAFC, it actually is seen as beneficial to patent trolls, since (especially lately), the now-chastened CAFC has suddenly been rejecting patents left and right. But that might stop now as the CAFC's ability to do that is now greatly limited.
The specific case is Teva Pharmaceuticals v. Sandoz, and the 7-2 ruling argues that appeals courts are only supposed to set aside "clearly erroneous" findings of fact by the district court, and that means that the CAFC should not do "de novo" review of a patent (i.e., from scratch):
Federal Rule of Civil Procedure 52(a)(6) states that a court of appeals “must not . . . set aside” a district court’s “[f]indings of fact” unless they are “clearly erroneous.” In our view, this rule and the standard it sets forth must apply when a court of appeals reviews a district court’s resolution of subsidiary factual matters made in the course of its construction of a patent claim....
Even if exceptions to the Rule were permissible, we cannot find any convincing ground for creating an exception to that Rule here. The Rules Advisory Committee pointed out that, in general, exceptions “would tend to undermine the legitimacy of the district courts . . . , multiply appeals . . . , and needlessly reallocate judicial authority.”
The ruling further notes that the CAFC can still do "de novo review" of the lower court's "ultimate interpretation of the patent claims," but just not the fact finding portion. Still, where this is concerning is that, for all the problems with CAFC judges generally loving patents, district court judges are unlikely to have much understanding of the underlying issues that go into a patent. And thus, the fact finding part of the process will just involve piling on experts, and the side willing to spend more on experts who will claim its interpretation of the claims is right will win, and the CAFC can no longer do much to challenge that.
Unlike recent CAFC smackdowns that were of the 9-0 variety, this one had two dissenting Justices: Thomas and Alito. Their dissent is a worthwhile read also. And it focuses on the somewhat fuzzy area in between what is a finding of fact and one of law. And it notes that patents are not that different from laws, and as such the claim construction aspect shouldn't be seen so much as a finding of fact as a finding of law. Specifically, a patent is effectively a law against others being able to use a certain invention. And thus, according to the dissent, it should be treated like a law, subject to specific interpretations that can be reviewed by the appeals court:
Because they are governmental dispositions and provide rules that bind the public at large, patent claims resemble statutes. The scope of a patent holder’s monopoly right is defined by claims legally actualized through the procedures established by Congress pursuant to its patent power. Thus, a patent holder’s actual intentions have effect only to the extent that they are expressed in the public record....
Moreover, because the ultimate meaning of a patent claim, like the ultimate meaning of a statute, binds thepublic at large, it should not depend on the specific evidence presented in a particular infringement case. Although the party presentations shape even statutory construction, de novo review on appeal helps to ensure that the construction is not skewed by the specific evidence presented in a given case.
Furthermore, the dissent reasonably worries that this will now open up a huge opportunity for patent trolls to argue where the line is between fact and law, creating quite a bit of new litigation:
Perhaps the majority is correct that “subsidiary factfinding is unlikely to loom large in the universe of litigated claim construction.” .... But I doubt it. If this case proves anything, it is that the line between fact and law is an uncertain one—made all the more uncertain by the majority’s failure to identify sound principles for the lines it draws. The majority’s rule provides litigants who prevail in district court a significant opportunity and incentive to take advantage of this uncertainty by arguing on appeal that the district court’s claim construction involved subsidiary findings of fact. At best, today’s holding will spawn costly—and, if the majority is correct about the frequency with which these evidentiary determinations make a difference, meritless—collateral litigation over the line between law and fact. We generally avoid any rule of judicial administration that “results in a substantial expenditure of scarce judicial resources on difficult questions that have no effect on the outcome of the case,” ..., and there is no reason to embrace one here.
So while it's not surprising that CAFC received another Supreme Court smackdown, it seems like perhaps this time, it may create more problems, rather than cleaning up a mess.
Last June, Elon Musk and Tesla made some news in freeing up Tesla's patents, hoping to jumpstart the market for electric cars. As we pointed out at the time, this highlighted how patents can, and often do, hold back innovation -- and we hoped that others might take notice. It's taken a while, but at CES this week, Toyota also announced plans to free patents, focusing on the 5,680 patents (including pending patents) it has on fuel cell drive systems. The details still matter, but Toyota says that the patents are all available, "royalty free." The patents seem to cover the whole stack of things necessary to develop hydrogen fuel cell cars -- including the patents for hydrogen stations.
Of course, the idea, as with Tesla, is that the market needs to be jumpstarted, and that means a lot of companies working together to help build the infrastructure and educate the market. That's done best by sharing the information and letting everyone compete on the actual execution. But, of course, that's what we've been arguing should be the case for lots of technology areas as well. The patents are only serving to hold back so many markets, not allowing companies to build the best possible products they can, and thus limiting overall innovation and adoption.
Hopefully more companies -- and not just automakers -- will start to recognize why this is such a good idea, not just for their own business, but for innovation in general.
The astoundingly wonderful radio program/podcast Radiolab just recently had an episode called "Worth" -- which included a few different stories trying to establish how much something is truly "worth." The first story in the collection talked about how much extra time in life is worth, as part of a discussion on whether or not it's reasonable for certain drugs to be priced insanely high. It was an interesting discussion, mostly revolving around the question of whether it's "worth" paying tends of thousands of dollars for a drug treatment that might only extend your life a few weeks. There is just a brief discussion about whether or not it's appropriate for pharmaceutical companies to charge the rates that they do -- with the Radiolab team unfortunately accepting the tired (and incredibly misleading) claim from a drug company that because drug research includes so many failures, it needs to charge these ridiculous high rates to make up for all the failures.
This is misleading in all sorts of ways, though that will need to be the subject of another post at another time. My biggest complaint, after the story was over, was that it failed in economics 101. It stuck with the premise that there was a quantifiable single amount that something was "worth" -- and that price is a reflection of that. This is something that many people tend to feel, instinctively, but it's not accurate. The value of something is different to different people and depends on many factors. The price of something may be quite different than the value -- again, something we've been highlighting for years.
Here's the key bit: the price of something is driven by supply and demand. When you -- as the program did -- look at price solely based on "value" you're only looking at the demand side of the equation, and not the supply. And that's where things get extra tricky in pharmaceutical pricing -- because the supply side is massively distorted through patents, which enable drug companies to artificially limit the supply, driving up prices to insane levels. In a normal, functioning society, we might recognize that this is a problem. Deriving pricing for healthcare solely based on demand is ludicrous, and shows a society with very short-term thinking. It prioritizes short-term narrow profits of drug companies over long-term contributions from a more healthy populace.
But this is the way of our pharmaceutical industry today. And these distortions have become something of, well, a drug to the pharma industry. They've become so fat and happy based on the monopoly rents of patents artificially limiting supply, that they can't fathom how to survive without such rents. That crutch has resulted in big pharma running into some serious problems lately -- because they haven't been discovering many really valuable new drugs lately. At the same time, many of their old drugs have seen their patents start to expire.
In response, pharmaceutical companies have been pulling out all sorts of tricks to try to extend the monopoly rents (rather than actually improving people's health or their own business model). For a while, we were discussing "pay for delay" schemes, in which big pharmaceutical companies would sue small generic drug makers... and then "settle" by paying those generic companies a bunch of cash not to compete with generic drugs for some time. That practice recently became harder after the Supreme Court said that the FTC can go after such practices as a form of antitrust enforcement.
But that's not the only game that big pharmaceutical firms have been playing. A recent lawsuit filed by New York against Forest Labs and its parent company Actavis revealed that the company was trying to force Alzheimer's patients onto a new drug, and away from one that they had been using. The only real difference in the two drugs: the length of the patent protection. Basically, the company was trying to force patients onto a drug that wasn't close to becoming available in generic forms, which would make it much, much cheaper. From the lawsuit:
This case is brought to prevent Defendants from illegally maintaining their
monopoly position and inflating their profits at the expense of patients suffering from
Alzheimer's disease. The manipulative tactic that the Defendants seek to employ here is what
some in the industry, including Defendants' own CEO, have called a "forced Switch." In a
forced switch, a pharmaceutical company that sells a drug facing imminent generic competition
withdraws its drug from the market, forcing patients to switch to a different form of the drug
with patents that expire later. The switch has the effect of impeding the entry of lower-cost
generic drugs. A physician recently complained to Defendants, aptly describing their
contemplated action as "immoral and unethical." It is also illegal.
Defendants sell a blockbuster drug to treat Alzheimer's disease, called Namenda.
Namenda is Forest's top selling drug, and is protected by patent and regulatory exclusivities that
prevent generic versions from entering the market until July 2015. But rather than allowing
patients with Alzheimer's to continue to take Namenda and switch to the less expensive generic
version when it becomes available, as contemplated by federal and state drug laws, Forest
instead hatched a scheme that interferes with patients' ability to make this switch.
Defendants' strategy is to discontinue or severely restrict patient access to its
original, immediate-release version of Namenda, known as Namenda IR, prior to generic entry in
order to force patients to switch to Forest's newer, virtually identical, extended-release version of
Namenda, called Namenda XR. Because Namenda XR is protected by patents for many years
longer than the original Namenda IR, Defendants' goal is to use the "forced switch" to reap
several more years of monopoly profits than they would have earned otherwise. Under generic
substitution laws, a pharmacist will not be able to substitute lower-priced generic Namenda IR
(known as memantine) for Namenda XR. As a result, once patients have switched to
Namenda XR, it will destroy the market for the generic form of Namenda IR because of the
dramatically increased burden, cost, and time needed to arrange for patients who have been
switched to Namenda XR to switch back to the original version.
Thankfully, a few weeks ago, an initial ruling in the case found that Actavis could not move forward with these "forced switch" plans and needed to continue making the original drug, Namenda IR, available. The full court ruling [pdf] is fairly detailed in how Actavis has a monopoly on the market for memantine and is abusing it in anti-competitive ways. The court notes that merely having a patent isn't necessarily proof of a monopoly -- but in this case, Actavis absolutely does have a monopoly. Further, it notes that just because you have a monopoly, it doesn't mean you're abusing it. But... Actavis does appear to be abusing its monopoly position. It didn't help that Forest Labs CEO, Brent Saunders (recently moved up to Actavis CEO as well), was pretty open about this:
Saunders stated, contemporaneously with the adoption
of the hard switch by Forest, that the purpose of the switch was
anticompetitive: to put barriers obstacles in the path of
producers of generic memantine and thereby protect Namenda’s
revenues from a precipitous decline following generic entry.... He further stated: “if we do the hard switch and
we’ve converted patients and caregivers to once-a-day therapy
versus twice a day, it’s very difficult for the generics then to
reverse-commute back, at least with the existing
[prescriptions]. They don’t have the sales force, they don’t
have the capabilities to go do that. It doesn’t mean that it can’t happen, it just becomes very difficult. It is an obstacle
that will allow us to, I think, again go into to a slow decline
versus a complete cliff.”).
Of course, this particular practice, of trying to force people to avoid generic competition is increasingly widespread. As I was finishing up this post, I came across a similar, if equally disturbing, story about Pfizer directly threatening doctors should they decide to prescribe generic versions of pregabalin, an anti-epilepsy drug, that will also go off patent in 2015. But here's the tricky part: Pfizer holds a different patent on the same drug if it's used to treat pain (rather than epilepsy). Pfizer is claiming that prescribing the generic version for pain use would lead to serious problems -- even though it's the same damn drug.
You will see that, whilst the basic patent for pregabalin has expired and regulatory data protection for Lyrica expired in July 2014, Pfizer has a second medical use patent protecting pregabalin's use in pain which extends to July 2017. Pfizer conducted further research and development on pregabalin leading to the invention of its use in pain and hence was granted a second medical use patent for this indication. This patent does not extend to pregabalin's other indications for generalized anxiety disorder (GAD) or epilepsy.
As a result of the pain patent, we expect that generic manufacturers will only seek authorisation of their pregabalin products for use in epilepsy and generalised anxiety disorder and not for pain, whilst Pfizer's pain patent is in place. Generic pregabalin products therefore are expected not to have the relevant information regarding the use of the product in pain in the PIL (Patient Information Leaflet) and SmPC (Summary of Product Characteristics). In other words, the generic pregabalin products are expected to carry so-called "skinny labels" and will not be licensed for use in pain. In the circumstances described above, Pfizer believes the supply of generic pregabalin for use in the treatment of pain whilst the pain patent remains in force in the UK would infringe Pfizer's patent rights. This would not be the case with supply or dispensing of generic pregabalin for the non-pain indications, but we believe it is incumbent on those involved to ensure that skinny labeled generic products are not dispensed and used for pain.
In this regard, we believe the patent may be infringed, even potentially unwittingly, by pharmacists and others in the supply chain, if they supply generic pregabalin for the pain indication. Without information, guidance and practical solutions from the authorities, Pfizer believes that multiple stakeholders, possibly without realizing, may contribute to patent infringement which would be an unlawful act. This runs contrary to the government's established policy of rewarding additional research by the granting of a second medical use patent.
As Cory Doctorow notes in the article above, Pfizer here seems to be trying to take its own "stupid problem" and make it everyone else's stupid problem:
Weirder still is that Pfizer wants to make their stupid problem into everyone else's stupid problem. The fact that it's hard to enforce this kind of secondary patent is Pfizer's business, not doctors'. Doctors' duty is to science and health, not Pfizer's profit-margins. Scientifically, there's no difference between the two compounds. Doctors who prescribe generics leave their patients (or possibly the NHS) with more money to pursue their other health goals.
If your dumb government monopoly is hard to enforce, maybe you shouldn't be banking on it. But in the world of corporatist sociopathy, where externalising your costs on others isn't just a good idea, it's your fiduciary duty to your shareholders, Pfizer's actions are practically inevitable.
And this brings us back to the problem discussed at the very top of this article. The entire pharmaceutical industry has built its business around the idea of artificially reducing supply -- rather than about providing more benefit (health). That's really screwed up. A good business focuses on expanding the benefit to users, not limiting it to charge more. Our patent policy has created incentives for exactly the opposite -- and that is having a massive impact on the health and well-being of people around the globe.
