By Kevin E. Noonan —
James Surowiecki is exercising his antipatent animus once again in the August 11th edition of The New Yorker. Mr. Surowiecki (at right) writes a weekly column called "The Financial Page" in the magazine, and he has shown that he doesn’t like patents several times in his work. These instances include complaining about business method patents in the July 14, 2003 issue of the magazine (see "Patent Bending"), the Blackberry litigation in the December 26, 2005 issue (see "Blackberry Picking"), and the intellectual property provisions of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) as it applies to patent protection for drugs (see "Exporting I.P.") in the May 10, 2007 issue. This week, in a piece entitled "The Permission Problem," he addresses (a bit belatedly) the "anticommons" problem as discussed in Michael Heller’s book, "The Gridlock Economy."
Mr. Heller (at left), a Professor at Columbia University Law School (he is the Lawrence A. Wein professor of Real Estate Law) argues in his book that patents (and other property rights) can create a "tragedy of the anti-commons." It is a catchy phrase, first popularized when Professor Heller collaborated with Professor Rebecca Eisenberg (Heller and Eisenberg, 1998, "Can Patents Deter Innovations? The Anticommons in Biomedical Research," Science 280: 698-701) to describe the risk that gene patents purportedly raise for scientific research. This idea has been thoroughly debunked (see "The ‘Anti-Commons’ Aren’t So Tragic, After All" and "BIO Issues White Paper Examining If The ‘Tragedy of The Anticommons’ Is Relevant to Biotechnology"). Mr. Suriwiecke extends the assertions in Professor Heller’s book, stating as an example of the "tragedy" situations where "[i]n biotechnology, the explosion of patenting over the past twenty five years – particularly efforts to patent things like gene fragments – may be retarding drug development, by making it hard to create a new drug without licensing myriad previous patents." The wording is comfortably conditional – "may be retarding" – and for good reason: Mr. Surowiecki would be hard pressed to identify any actual example of this hypothetical situation. Indeed, the evidence is to the contrary: the U.S. pharmaceutical industry has flourished during the past 25 years, coming to predominate over European and other foreign drug companies, precisely because the U.S. adapted its patent system to accommodate patenting "things like gene fragments" (see "The Continuing Value of Biotech Patenting").
To be fair, Mr. Surowiecki recognizes that "[p]roperty rights (including patents) are essential to economic growth, providing incentives to innovate and invest." But in blindly accepting Heller’s arguments, and defining "science" as a "common resource" (when it is technology, not science, that is the subject of patent protection), he misses (and misstates) the benefits of protecting innovation using private property rights.
One of the most inapposite comparisons he makes, and one without any factual basis, is the hypothetical drug company that has to "strike bargains with thirty or forty other companies" in order to develop a new drug. This, to Mr. Surowiecki is analogous to the situation with airplane manufacturers at the beginning of the 20th Century. The difference, of course, is that the latter is historical fact, while the former is contemporary fiction. The historical fact: it was almost impossible to build an airplane in the U.S. just prior to World War I, due to patents on the various components needed to make an airplane, because "dozens" of companies held patents. With the onset of the war, Congress provided the solution: a patent pool that put the separately-held patents under control of a new entity that obtained licenses from the patentees. But then Mr. Surowiecki shows the limitations of his analysis (or his understanding): "Had Congress not stepped in," he states, "we might still be flying around in blimps." Evocative, but wrong.
What Mr. Surowiecki misses is the effects of patent term on the value of patent rights. Patents are limited in time: the right to exclude expires within 20 years of the earliest filing date of a patent application under current law. Like everything with an expiration date, the value of patent rights decreases during the course of its term. This happens for at least two reasons. First, the closer it comes to the end of patent term, the less disadvantageous it becomes for a competitor to merely wait until the patent expires, and the more likely it becomes that the competitor frustrated by the patentee’s rights will do just that. From the patentee’s perspective, the effect of patent term is that the value of any licenses a patentee can grant diminishes as the patent approaches its expiration date. These realities in fact promote licensing under circumstances (such as university inventors) where the patent owner does not have the ability to bring a drug to market. The only time patent rights will "frustrate" a competitor, at least in the biotechnology and pharmaceutical arts, is when not innovation but copying is prevented (which is precisely what patents are intended to do). This is the reality of how patent rights impact innovation, and Mr. Surowiecki is entitled to not agree with it. But it would be better if he presented more accurately the facts behind the influences, good and bad, of patents on innovation and new drug development.
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