Pharma patent protections leads to anti competitive practices that disrupt innovation in biotech

PhD; LLM; Lecturer in Intellectual Property Law at Brunel Law School, Brunel University London, Uxbridge, UK; Strategic Patenting by Pharmaceutical Companies – Should Competition Law Intervene?; IIC Int Rev Ind Prop Copyr Law. 2020; 51(9): 1062–1085.

Published online 2020 Oct 28. doi: 10.1007/s40319-020-00985-0; https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7592140/

While originator companies typically argue that the competition law intervention into their patenting practices will reduce their incentives to innovate,81 this article asserts that strategic patenting itself reduces originators’ incentives. Thus, in a properly functioning system, when a patent protecting a product is close to expiration the originator would be encouraged to innovate further in order to introduce a new product on the market and maintain its competitive position. However, by engaging in strategic patenting, the originator’s incentive to innovate diminishes as it enjoys its monopoly position by merely procuring numerous secondary patents that shield its current product from generic competition. Therefore, when companies engage in such strategic patenting, they are merely protecting themselves from the competitive pressures that competition law aims to establish. Maintaining that this practice is lawful, originators argue that strong patent protection is essential for recouping their investments, as well as for incentivising them to engage in further innovation.82 Such a position may find some support in the arguments put forward by Joseph Schumpeter and his followers, who claimed that since monopoly increases the reward of the innovator, monopolists are more prone to innovation.83 However, as Lowe noted:84 the empirical evidence of the past few decades has worked against Schumpeter and in favor of Kenneth Arrow, who contends that in favoring monopolies Schumpeter underestimated the incentives for innovation that competition can offer. Monopolists tend to want to keep their monopolies by resorting to any measures that can keep new entrants out. Firms under competitive pressure from actual or potential competition, on the other hand, are less complacent and know that inventing a new product is their best strategy for maintaining and increasing their market share. In the same vein, the Commission emphasises the importance of competition for the incentives to innovate, stating that: “[r]ivalry between undertakings is an essential driver of economic efficiency, including dynamic efficiencies in the form of innovation. In its absence the dominant undertaking will lack adequate incentives to continue to create and pass on efficiency gains.”85 Evidence from the pharmaceutical industry confirms that strategic patenting reduces incentives to engage in genuine and meritorious innovation. In many cases, strategically accumulated secondary patents are of marginal quality and are typically the result of routine research activities.86 For example, in Perindopril the European Commission revealed that most of the secondary patents, procured as part of the originator company’s anti-generic strategy, were seen by the company as “blocking” or “paper”, some of which it considered involved “zero inventive step”87 and a purely editorial task.88 Moreover, these follow-on pharmaceutical inventions are specifically timed around the expiration of the basic patent and can be developed on demand.89 In AstraZeneca the Commission noted that the company designed to “[f]ile a patent-cloud of mixtures, uses, formulations, new indications, and chemistry” in relation to its blockbuster product omeprazole to slow down generic entry at a specifically defined time, close to the expiration of the basic patent.90 The main aim of these patents is to increase uncertainty for generic companies as to the possibility of their market entry.91 Therefore, while many of these secondary patents may be trivial and potentially invalid, the originator pursues them to protect its current successful product from generic competition.92 Even if a company continues to engage in innovation in parallel to pursuing strategic patenting, it still protects itself from the pressures of competition, which would have forced the company to innovate faster and would thus provide consumers with better products and/or access to cheaper generic versions earlier. As Ullrich argues:93 A slowdown in the transition of the new medicines from the protected status of a proprietary medicine to the status of generic products manufactured and distributed in open competition does not simply mean a loss of static efficiency, namely a loss of consumer well-being due to a slowdown in the reduction of process. Rather, such a slowdown also involves the risk of a loss of dynamic efficiency in that it extends the duration of a monopoly rent situation, thus reducing the pressure to innovate more quickly. Following the rationale of the General Court’s statement in AstraZeneca, the practice of the originator that extends its market monopoly by relying on the patent system “potentially reduces the incentive to engage in innovation, since it enables the company in a dominant position to maintain its exclusivity beyond the period envisaged by the legislator”.94 Such practices, according to the Court, act “contrary to the public interest”.95 Therefore, the practice of strategic patenting that protects originators’ monopolies from competitive pressures and significantly reduces their incentives to engage in genuine innovation is contrary to the rationale of the patent system, has a significant negative effect on competition and should raise competition law concerns.