How Senate IP Subcommittee Witnesses on Patent Eligibility Responded to Questions from Senator Blumenthal

Through the first half of June, a series of hearings on the state of patent eligibility in America held by the Senate Intellectual Property Subcommittee rendered a variety of interesting exchanges regarding current U.S. subject matter eligibility under Section 101 relating to various important sectors of the U.S. economy. During the second hearing, Senator Richard Blumenthal (D-CT) talked to panelists regarding his concerns about patent abuses in the pharmaceutical industry. During his period of questioning, Blumenthal grilled witnesses on the subject of whether the expansion of subject matter eligibility that would result from the proposed Section 101 draft text would exacerbate issues related to “patent thicketing,” a process by which drug companies attain large patent portfolios covering various aspects of a single drug formulation.

In recent months, Senator Blumenthal has come out strongly against both patent thicketing and “product hopping,” referring to the drug company practice of earning Food and Drug Administration approval for reformulated drugs and preventing market entry to generic drug makers who would otherwise be able to market the old formulation. Both of these activities are targeted by the Affordable Prescriptions for Patients (APP) Act, introduced in early May by Blumenthal and Senator John Cornyn (R-TX). This bill considers both of those activities to be anticompetitive and would enable the Federal Trade Commission to take enforcement action against pharmaceutical companies engaging in them. The APP Act is simply one of a list of drug-related patent bills that have been introduced into either house of Congress so far during the 116th Congress.

Along with Senators Thom Tillis (R-NC) and Mazie Hirono (D-HI), Senator Blumenthal entered a series of questions for the record to be answered by panelists attending the recent patent eligibility hearings. Blumenthal’s sole question was:

“Striking the appropriate balance between encouraging innovation and protecting consumers is a key goal of our patent system.

a.What impact will broadening the subject matter that can be patented have on industry?
b. What impact will broadening the subject matter that can be patented have on consumers?
c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

Although the questions don’t overtly single out the pharmaceutical industry, panelist answers largely indicate that this sector was on most people’s mind while responding.

Tillis asked certain witnesses targeted questions, while Hirono and Blumenthal seem to have sent the same questions to all witnesses.

The following is a collection of excerpts from panelist responses to Senator Blumenthal.

Sherry Knowles, Principal, Knowles Intellectual Property Strategies

“The questions presented refer to the effect of ‘broadening’ the subject matter that can be patented. With kindness, the current issue faced by the Subcommittee on Intellectual Property is not whether to broaden the scope of Section 101. It is whether to restore the application of patent eligibility to what it always has been historically, as repeatedly codified by Congress starting with the Patent Act of 1790… With indulgence from the Senator, I would like to rephrase the questions to refer to ‘restoring’ instead of ‘broadening.’”

a. What impact will broadening the subject matter that can be patented have on industry?

“Restoring patent eligibility to its historic and statutory textual scope will motivate additional medical solutions to treat and diagnose cancer and other serious diseases, which translates to saving and extending lives. This may in turn translate to lower healthcare expenses due to a decrease in long hospital stays, repetitious procedures and extended end of life care…  I am a breast cancer survivor whose life was saved by two isolated natural products that would not have been be patent eligible under the Myriad law. If Myriad had been the law in the United States years ago, I would not be giving testimony because I would have already died.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“The impact of restoring the subject matter that can be patented on patients is that new medical solutions may be invented that save or extend their lives. The highest public interest is life itself.

“It is essential to disconnect motivation for creating new medical solutions from drug pricing and distribution. If the drug or diagnostic is not invented because there is no motivation to do so, the pricing and distribution problem goes away because the solution will not exist.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

“The proposed amendment to Section 101 addresses whether and how many new medical solutions will be created by inventors. It does not address pricing.”

Knowles also included additional comments on pending legislation around drug pricing. She wrote:

If Big Pharma has been making robber barons blush, one would think that their profits, and thus as a surrogate, their stock prices would be disproportionate among other industries. Based on publicly available data and research, this is not the case… [O]ver a three-year period, technology stocks have performed much better than pharmaceutical stocks.

“Instead of trying to use the patent system, which is designed solely to motivate innovation and protect investment, to reduce drug costs, I respectfully suggest that Congress look into the staggering cost of drug development and human clinical trials leading to drug licensing by the U.S. FDA.

Hans Sauer, Deputy General Counsel for IP, Biotechnology Innovation Organization

 a. What impact will broadening the subject matter that can be patented have on industry?

“[R]eform of Section 101 of the Patent Act will conform U.S. standards with internationally-prevailing best practices, meaning that inventions that are patentable in other industrialized countries will also be patentable in the United States. This will help with the orderly dissemination of innovation, provide legal certainty, and help maintain U.S. technological leadership for investment-intensive innovative businesses in technology areas ranging widely from artificial intelligence, telecommunications, business software, to antibiotics, industrial enzymes, and biomarker-assisted methods of medical therapy.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“The question, at bottom, is whether the U.S. patent system should incentivize businesses to compete with ever cheaper copies of the same basic products, or by out-innovating each other with new, improved, or disruptive innovative products that may be covered by patents… [I]n my opinion the encouragement of investment in innovation that is inherent in a well-balanced patent system leads to more consumer choice in the long run, and better promotes overall welfare for consumers.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

“[T]he kind of invention that is predominantly affected by the current unclear state of Section 101 jurisprudence in the biopharmaceutical space fall more on the side of original or disruptive innovation… For such treatments and tests, the patents that are affected by Section 101 problems are the very patents that make it possible to bring such a product to market in the first place, and absent the availability for patent protection there may not ever be a product to price.”

David Jones, Executive Director, High Tech Inventors Alliance

a. What impact will broadening the subject matter that can be patented have on industry?

“It will harm industry in the tech sector. As written, the proposed legislation will reduce R&D spending and decrease innovation. R&D investment, venture capital funding, and company market capitalization have soared in the wake of the Supreme Court’s eligibility decisions, hitting new records. The increased availability of business method patents will reverse this trend…

“[N]early two-thirds of U.S. patent applications are filed by foreign residents, resulting in the majority of U.S. patents being issued to foreign companies…  [B]ecause the rights conferred by U.S. patents are geographically limited to U.S. territory, virtually all enforcement of the patents granted as a result of the proposed changes would be against U.S. businesses.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“U.S. consumers will have fewer choices and higher prices… Additionally, there would be a net reduction in competition.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

“Patent laws are quite literally intended to increase prices. The exclusive rights granted by a patent are intentionally designed to reduce competition and allow patent owners to charge supracompetitive prices… [T]he problem with the proposed bill is that it would extend patenting to non-technological areas where patenting has been shown to decrease innovation. As a result, the proposed reforms would decrease both competition and innovation, leading to fewer choices and higher prices for consumers.”

Adam Mossoff, Professor of Law, Antonin Scalia Law School George Mason University

a. What impact will broadening the subject matter that can be patented have on industry?

“Reliable and effective patent rights are a key factor in economic growth, when combined with stable political and legal institutions and a legal system governed by the rule of law…

“[T]he economic impact of returning patent eligibility doctrine back to its historical role in the U.S. patent system—a mere threshold inquiry or coarse filter before the more searching and stringent patentability requirements of utility, novelty, nonobviousness, and full and enabling disclosure—will be positive…

“The negative economic impact of the Alice–Mayo framework is even more concerning given a global economy today in which R&D investments and venture capital financing that are the lifeblood of innovation can move easily from one country to another in search of more reliable legal security in the fruits of inventive labors.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“The famous insight in economics that ‘there is no such thing as a free lunch’ has only one exception: innovation. Innovation drives economic growth by increasing the supply of new products and services made available to consumers in the marketplace, which reduces prices and increases overall social welfare…

“In the healthcare market, this has meant an ever-increasing supply of cutting-edge medical treatments and increasing availability of older medical treatments that are now ‘off patent…’

“In the high-tech market, this has meant an explosion in new products and services at a rate never before seen before, as exemplified in the mobile revolution of the past two decades.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?

“My answers to the prior two questions establish that the answer to this question is no…

“[N]o empirical or economic study has proven that innovation has increased or prices have reduced as a result of the Alice–Mayo framework. There have been assertions that this has occurred by some commentators and policy organizations, but these have been merely conclusory assertions without any support from economic or statistical studies.”

Barbara Fiacco, President-Elect, American Intellectual Property Law Association

a. What impact will broadening the subject matter that can be patented have on industry?

“The impact on industry of legislation that restores patent eligible subject matter to the standard intended by Congress will be to encourage investment in life-altering innovations that have changed society and our economy. It will remove the categorical obstacles to the possibility of patent protection in every technology and return judgments on patentability to the merits and details of the invention… The patent system must assure that risky investments in costly development and commercialization of innovation will not be lost due to a lack of patent protection.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“Consumers are the ultimate beneficiaries of an objective, forward-looking patent system that adds the ‘fire of interest to the fuel of genius’ by providing an incentive to risk money and time to develop and make available new products and services… An effective patent system needs to be open to previously unimaginable innovations and not constrained by traditional notions of technology.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

“[I]ncreased investment incentives should result in more innovation and more products for consumers. While many factors may impact the pricing of a particular product, an overall increased rate of innovation will most likely result in more competition to develop products that improve the quality of life for consumers.”