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PublishedApril 18, 2024

Congress Wants to Revive Patents but May Strangle Innovation and Damage Health Care Access Instead

This post, written by Wayne Brough, initially appeared in the R Street’s Real Solutions Blog.

Patent eligibility, or the fundamental question of what is patentable, is currently under congressional review. Sens. Thom Tillis (R-N.C.) and Chris Coons (D-Del.) have introduced the Patent Eligibility Reform Act (PERA) to reform Section 101 of the U.S. Patent Act, which defines what can be patented. But some of the proposed changes do much more than clarify patent eligibility, aiming instead to reverse a series of Supreme Court decisions issued in response to growing concerns over patent abuse and its chilling effects on innovation. More importantly, while the Supreme Court has consistently held that “laws of nature, natural phenomena, and abstract ideas” are not patentable, these legislative proposals attempt to upend that position and expand the scope of patent eligibility directly contra to court rulings.

Enhancing Innovation or Creating Monopolies?

In many ways, recently proposed changes would return the patent system to policies of the late 1990s and early 2000s, when the courts were beset with patent litigation originating from excessive claims of patentability. Allowing companies to patent abstract business methods or practices prompted a surge in lawsuits targeting other companies using similar business processes—even obvious or commonsense practices. While broader patent eligibility strengthens the hand of patent owners, the impact on innovation is less clear. Research has found that such overly broad patents generate excessive litigation while creating significant barriers to entry that limit competition. This ultimately sparked the Supreme Court rulings that established new limits on the possibility of patenting abstract concepts or inventions.  

The Patent Eligibility Reform Act

Given the longstanding tension between innovation and monopolization, any legislative changes to patent policy must be evaluated carefully. The bill currently under consideration in the U.S. Senate proposes three key changes:

  1. Overriding recent court decisions: The bill seeks to revisit important Supreme Court decisions including Alice Corp. v. CLS Bank International (2014), Association for Medical Pathology v. Myriad Genetics (2013),and Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012). These decisions narrowed the scope of patent-eligible subject matter by declaring naturally occurring gene sequences ineligible. The PERA would make it easier for patents to be issued for inventions that may be ineligible under existing law for being too abstract or for incorporating natural phenomena.
  1. Providing new guidelines: The PERA would also expand patent eligibility by eliminating existing judicial exceptions to patentability and replacing them with a narrow list of inventions that cannot be patented. These new exceptions include:
    • A mathematical formula that is not part of a claimed invention;
    • A process that is substantially economic, financial, business, social, cultural, or artistic, unless it cannot be performed without a machine or manufacture;
    • A process that occurs in the mind or in nature, wholly independent of human activity;
    • An unmodified gene, as it exists in the human body; and
    • An unmodified natural material, as it exists in nature.

While one of the PERA’s goals is to provide greater certainty with respect to patent eligibility, these exceptions are sure to pose legal questions. What, for example, is a process that is substantially economic, or business, or cultural that cannot be performed without a machine?

  1. Expanding patent eligibility: Importantly, the legislation states that claimed patents in areas like biotechnology, diagnostic testing, and artificial intelligence (AI) are eligible if they are incorporated into a “useful process, machine, manufacture, or composition of matter, or any useful improvement thereof.” Supporters seek to clarify that inventions involving natural phenomena, laws of nature, and abstract ideas are only eligible for patent protection if they are practically applied or integrated into a practical application.

Expanding Patent Eligibility Limits Innovation and Competition

Supporters claim that patent eligibility practices in the wake of the aforementioned Supreme Court decisions hinder innovation and investment in critical technologies like AI, personalized medicine, and diagnostic testing. On the other hand, critics assert that the PERA would restore an earlier patent regime that granted patent protections too broadly, making it difficult for true innovators to navigate complex and far-reaching patents that limit entry into the market.

“Patent thickets” became prevalent in the late 1990s and early 2000s, particularly among pharmaceutical companies seeking to extend their exclusivity over blockbuster drugs in order to keep generic competitors at bay. This term refers to the practice of creating impenetrable walls of patents on different aspects of the same drug—from the primary patent covering the compound itself to secondary patents on characteristics like method of use, formulation, and other aspects of drug delivery—thereby creating a dense web, or “thicket,” of patents surrounding a single product. For example, I-MAK found that America’s top 10 best-selling drugs possess an average of 74 granted patents. These patent thickets extend the monopoly protection enjoyed by drug manufacturers well beyond the original patent while keeping low-cost generics out of the market.

Another tactic for extending monopoly protection of brand-name drugs is “evergreening,” or adding new patents to a drug as existing ones expire. By pursuing patents on different aspects of a drug, such as packaging, dosage, or other properties, it is possible to extend its dominance in the marketplace. While some changes may be warranted, others may simply protect exclusivity. This makes it important to evaluate a patent’s validity—something proposed changes within the PERA would make more difficult.

“Product hopping” is yet another way to game the patent system. Here, a company produces a reformulated version of a drug—by changing the dosage or introducing an extended-release version, for instance—and markets the new product heavily while urging prescribers to switch. They may even take the old product off the market. In one example, as the patent on its popular anti-ulcer drug Prilosec expired, AstraZeneca switched to Nexium, a drug with minimal modifications and an additional 13-year patent life. This product hop was estimated to cost the U.S. health care system over $2 billion annually.

Expanding patent eligibility to allow companies to obtain patents on abstract ideas, natural phenomena, or even basic computing functions would significantly extend the monopolies of patent owners, stifling innovation and competition by giving patent holders greater authority to challenge new entrants for infringement as they try to access the market. It would abuse the tools of government to slow down competition and stifle innovation.

Innovation, Not Litigation

While the goal of the patent system is to “promote the Progress of Science and useful Arts,” a return to overly broad patents increases the threat of litigation while making innovation more difficult. Indeed, many non-practicing entities focus exclusively on litigation rather than practicing patents. These entities do not innovate or produce new products; rather, they acquire large portfolios of patents solely to assert them in infringement cases against true inventors attempting to bring new products to market.

Consider, for example, the impact of the Supreme Court’s Myriad decision, which the PERA would overturn. Prior to this decision, gene patents were held on 20 percent of the human genome. The Court held that “genes and the information they encode are not patent eligible under §101 simply because they have been isolated from the surrounding genetic material.” Since that decision, genetic testing prices have dropped substantially: “Other labs began offering the tests for as little as a few hundred dollars, a small fraction of Myriad’s $4,000.” Creating monopolies over fundamental building blocks of life threatens to raise prices and limit access to vital medical treatments and diagnostic tools.

Expanded Patents, Rising Health Care Costs

In addition to economic and competitive issues, questions of eligibility can also raise important ethical concerns. Ultimately, overly broad patents may reduce access to affordable treatments. Patents on natural products or biological processes essential for drug development create government-protected monopolies that limit the development of alternative or generic versions of drugs, which could hinder patient access to affordable medicines.

Consider some of the potential adverse effects of expanding patent eligibility:

  1. More costly cancer treatments. If patents are granted on isolated natural compounds or proteins involved in cancer pathways, it could limit the development of alternative or generic cancer drugs targeting those same pathways. This could prolong the exclusivity period for expensive branded cancer therapies, making them unaffordable for many patients—especially those without insurance coverage or financial assistance.
  1. Deterred innovation in antibiotics and antimicrobial resistance. Broad patents on naturally occurring antimicrobial compounds or mechanisms of antibiotic resistance could hinder research into new antibiotics or alternative treatments. This could exacerbate the growing public health crisis of antimicrobial resistance by limiting the availability of affordable and effective antibiotic options.
  1. More costly diagnostic tests and personalized medicine. Patents on isolated genes or biomarkers would create monopolies over diagnostic tests and personalized medicine approaches, driving up costs for patients and health care providers. These exciting new avenues for therapies may be delayed by a return to the problematic eligibility standards previously addressed by the courts. This could limit access to affordable and tailored diagnostic tools, hinder the adoption of precision medicine, and lead to suboptimal treatment choices.

These examples illustrate the potential far-reaching consequences of overly broad patent eligibility criteria on drug affordability across various therapeutic areas and with distinct disease populations. Striking the right balance between incentivizing innovation and ensuring reasonable access to essential medical treatments remains a critical challenge in the ongoing debate over patent eligibility reform in the life sciences and biotechnology sectors. Unfortunately, proposed legislative changes opt not to strike that balance—reverting instead to a world characterized by higher costs, increased litigation, and less innovation.

Conclusion

A proliferation of patents in the life sciences and biotechnology fields could lead to more patent infringement lawsuits and costly legal battles over the boundaries of intellectual property rights. This situation was directly addressed by the Supreme Court in the wake of the litigation explosion in the late 1990s and early 2000s. Should the PERA’s new patent eligibility standards restore those circumstances, increased litigation costs may be passed on to consumers in the form of higher drug prices and reduced choices, further exacerbating affordability issues.

Any proposed expansion of patent eligibility for inventions involving natural products or biological molecules and processes could have significant implications for drug prices and affordability. By allowing broader patenting of naturally occurring compounds, genes, proteins, and biological processes, pharmaceutical companies would gain stronger exclusive rights over these fundamental building blocks of drug development. This may be particularly problematic in rapidly evolving fields like AI, precision medicine, and genetic testing, where the closer a patent is to an abstract idea or natural phenomenon, the more stifling its impact will be on the development of new inventions and applications.

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Wayne Brough

Policy Director, Technology and Innovation, R Street Institute

Wayne Brough is policy director for R Street’s Technology and Innovation team. He manages product flow on technology policy issues while also continuing his own research in competition policy and intellectual property.

Prior to R Street, Wayne was the president of the Innovation Defense Foundation, a free-market think tank focusing on technology policy that he co-founded. Additionally, Wayne was the chief economist and vice president for research for FreedomWorks, where he oversaw research on a broad portfolio of issues, promoting market-based solutions to public policy questions.

Wayne received his PhD in economics from George Mason University, with a focus in industrial organization and public choice.

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