How Misaligned Incentives Are Now Killing Us

Today, like so much of the rest of the world, the United States is faced with many shortages due to the coronavirus pandemic, including personal protective equipment, basic medical supplies, and qualified medical staff. Of course, the lack of treatments or vaccine is a huge problem. Another secular problem is the lack of a quick, inexpensive, reliable test for the virus.

The Big Problem

But a test for the virus is a diagnostic method, and that is a big problem for U.S. patent laws because diagnostic methods are simply not patent eligible in the United States. This is also a big problem for the world because ever since the veil of patent eligibility was lifted for the life sciences sector in 1981 by the U.S. Supreme Court in Diamond v. Chakrabarty, the U.S. has dominated the biotechnology sector, specifically, and life science sectors more generally speaking. In 1981, the Supreme Court opened the floodgates saying that what was created by man could be patented, and if it could be owned it could be invested in, and investors rushed in and the biotechnology industry that we know today was born. But what the Supreme Court gave they can, and ultimately did, take away.

Thanks to the propensity of the federal courts to chase rabbits down holes, today the overbroad and over-inclusive definitions of what constitutes a law of nature, a natural phenomenon, or qualifies as an abstract ideas has captured innovative technologies in the death spiral trap of unpatentable subject matter—like light trying to escape from a black hole, paradigm shifting innovations that wind up characterized as a law of nature, natural phenomenon or abstract idea cannot break out. Witness: Assn, Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107 (2013) (isolating naturally occurring DNA used for the detection of a breast cancer gene is insufficient for patent eligibility); Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371 (Fed. Cir. 2015) (rehearing en banc denied, 809 F.3d 1282 (Fed. Cir., 2015)) (cell-free fetal DNA (“cffDNA”) in maternal plasma and serum useful for prenatal diagnosis of fetal DNA that avoids the risks of prior art techniques; claims are directed to a natural phenomenon and the methods are conventional, routine and well understood, so unpatentable); In re Roslin Institute, 750 F.3d 1333 (Fed. Cir. 2014) (mammalian clones found to be a natural phenomenon that did not possess “markedly different characteristics than any found in nature.”).

True Mischief

The true mischief, however, is found in Mayo, where the Supreme Court found that the steps in the claimed processes (apart from the natural laws themselves) involve well-understood, routine, conventional activity previously engaged in by researchers in the field. Mayo Collaborative v. Prometheus Labs., 132 S. Ct. 1289, 1294 (2012). Prometheus’ patents were said to set forth laws of nature—namely, relationships between concentrations of certain metabolites in the blood and the likelihood that a dosage of a thiopurine drug will prove ineffective or cause harm. Id. at 1296-1297. The court notes that the relation between a therapeutically effective dose and a toxic dose itself exists in principle apart from any human action. The relation is a consequence of the ways in which thiopurine compounds are metabolized by the body—entirely natural processes. So, a patent that simply describes that relation allegedly sets forth a natural law. Id. at 1297. “[We] conclude that the patent claims at issue here effectively claim the underlying laws of nature themselves. The claims are consequently invalid.” Id. at 1305.

It has been widely recognized, even in the Mayo decision itself, that this outcome “will interfere significantly with the ability of medical researchers to make valuable discoveries, particularly in the area of diagnostic research.” Mayo at 1304. See also, e.g., Sanjeev Mahanta, Patent Eligibility of Medical Diagnostic Inventions: Where Are We Now, and Where Are We Headed? IPWatchdog, 4/14/2019.   Perhaps recognizing the havoc this decision would cause, the Supreme Court in the Mayo opinion invited the intervention of Congress to rectify this situation (id.), an invitation which Congress has so far declined to accept, although recent attempts by Senator Thom Tillis (R-NC), Senator Chris Coons (D-DE), Representative Steve Stivers (R-OH) and Representative Hank Johnson (D-GA) seem all the more urgent, although they sadly ended in futility.

Misaligned Incentives

So where does that leave us in the coronavirus pandemic? Diagnostic tests are urgently needed, particularly quick yet reliable tests. But inventors of such tests have little incentive under the Mayo precedent, which even the Federal Circuit has now correctly admits a virtual per se rule that prohibits the patenting of medical diagnostics.

This is a big problem. Call me a fan of Ayn Rand, but without the profit motive, a quick fix here is a lot less likely. The incentives are now misaligned, and with an uncontrolled pandemic causing a virtual stop to the world economy and overwhelming hospitals and supply chains, this is not an abstract problem. It’s a concrete issue that needs solutions fast. People are dying as a result of the misplaced incentives in current case law.

Patents exist to incentivize inventors, the fire to fuel genius to paraphrase Abraham Lincoln—the only President who was a patented inventor. Patents were a cutting-edge social policy in the 17^th and 18^th century designed to incentivize the development of technology, and were foundationally important during the Industrial Revolution precisely because of the incentive effect they had, with leading economists pointing out that few if any major innovations came from the Industrial Revolution without going through the patent system. And, of course, the American Founding Fathers thought the policy was important enough to add it to the U.S. Constitution (Art I §8 cl. 8). And many of the great advances in technology in the 19^th century, the industrial era of railroads, steel, coal, and electric power were a direct result of a strong US patent system, and a review of those inventors who reside in the National Inventors Hall of Fame for their revolutionary, patented innovations show the scope and magnitude of what the patent system has yielded for society.

Clearly, the U.S. patent system has weakened considerably in the past ten years. It is mostly the fault of the federal courts, that began to swallow the arguments of anti-innovation activists starting with Myriad and Mayo. Because of stare decisis, it’s difficult for the courts to walk back these foolish decisions over the short-term at least. Moreover, the courts are really not in a position to determine overarching policy, although they have certainly tried in this area—and failed. Courts are designed to look at the facts in front of them and make decisions based on the arguments, the law, and precedent. Policy arguments frequently fail to persuade courts. That is why the Constitution gives Congress the power to enact legislation where the courts go astray. So, Congress shares a considerable portion of the blame here for failing to act to turn around misguided decisions like Myriad and Mayo legislatively.

Act Now

Congress has not always been so toothless. In 1984, Congress acted very quickly to enact the Hatch-Waxman Act. Roche Products v. Bolar Pharmaceutical Co., 733 F. 2d 858 (Fed. Cir. 1984) was decided on April 23, 1984. The Hatch-Waxman Act, which effectively overruled Roche v. Bolar, was enacted Sept. 24, 1984 – five months later.

It’s time for Congress to act now.

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Copyright: AlexNazaruk