Biotechnological innovation and partnerships.

• Author: Gold, E. Richard

Cite as 10 J. HIGH TECH. L. 1 (2009)

1. Introduction

   The biopharmaceutical industries are undergoing a significant, perhaps radical, restructuring. Due to a variety of factors ranging from the current economic slowdown, to the increasing recognition that the biotech business model has failed, to pressures on the pharmaceutical industry to find new ways of identifying promising medicines, companies, universities and policy-makers are seeking new ways to carry out research and bring products to market. Pharmaceutical companies are dramatically cutting back staff, engaging in more collaborative efforts, and becoming more flexible in the way they sell their products on the market. (1) For its part, the biotechnology industry has, thirty years into its existence, failed to make a profit. (2) As Harvard Business School Professor Gary Pisano states, "[w]hile there have been a few very successful biotechnology firms (e.g., Amgen, Genentech, Genzyme), the economic performance of the sector overall has been disappointing by any objective standard." (3)

   Beyond these economic considerations, pressure from government to provide greater access to their products, particularly, but not exclusively, in low and middle-income countries, has increased the need to restructure. (4) Efforts to increase patent protection through traditional fora-such as the World Intellectual Property Organization and the World Trade Organization-have met steep resistance. (5) The industries have had to reformulate their arguments away from the incentive-access paradigm to one based on health protection in eliminating counterfeit medications. (6)

   In this essay, I describe the biopharmaceutical industries' restructuring in terms of intellectual property ("IP"): why and when patents are acquired, how they are licensed and shared, and how they are enforced. The essay draws on the work of the International Expert Group on Biotechnology, Innovation and Intellectual Property (the "IEG"), which released a report and case studies that examine the changing ways in which private and public sector actors create, use, and share knowledge within innovation systems. (7) The essential argument of the IEG is that the biotechnology and pharmaceutical industries are undergoing a change: from the old era of IP ("Old IP"), in which innovation was heavily patented and shared only on a limited basis, to "New IP," in which patents are obtained in order to build relationships and increase sharing of innovation. (8)

   I will begin then, by describing the IEG's conclusions and illustrate them through a discussion of two of the case studies conducted by the IEG. The first describes the failure of the classic biotechnology business strategy in high-income countries, while the second illustrates pressures on the model from low and middle-income countries in relation to traditional knowledge.

2. A Change of Intellectual Property Era

   After a seven-year study involving seven academic disciplines and engagement with industry, government and civil society representatives, the IEG released its report on the role that IP actually plays in biotechnology innovation in the health, agricultural and industrial fields, in September 2008. (9) The IEG was funded by the Canadian government through a rigorous peer-review process. (10) While the primary researchers in the IEG were located in Canada and the United States, an international expert advisory group and researchers from literally around the world supported their work. The IEG further relied on the knowledge and expertise of its private and public sector partners from high, middle and low-income countries. (11)

   The IEG consciously established itself to overcome disciplinary-based barriers to analyzing how the IP system practically functioned to facilitate or hamper innovation in the biotechnology sector. (12) As the IEG found, legal scholarship tends to place priority on legal rules rather than other factors that modulate the effect of those rules in practice:

   An analysis of IP laws alone gives a distorted understanding of how IP facilitates innovation and dissemination. Such an analysis must be complemented by an understanding of business and governmental practice as well as the public and private institutions and entities that create, grant and govern IP. (13) According to the IEG, "Old IP understood patents, copyrights and trademarks to be simply mechanisms that permitted a company, having invested in research and development, to recoup its costs and make a profit before others are allowed to copy its idea." (14) Old IP resulted from the recognition that intellectual assets had become more valuable than tangible assets. (15) Unlike tangible assets that could effectively be controlled through physical barriers, those wanting to similarly control intangibles needed to construct legal barriers. (16) That is, in order to deploy intangible assets as a substitute for tangible assets, actors sought control through the construction of higher and more expansive intellectual property laws. (17)

   The problems with this approach became increasingly obvious toward the end of the 1990s and beginning of the 2000s, as new product development was decreasing and companies faced pressure to make their products accessible to middle and low-income countries. (18) The essential difficulty is that intellectual assets are not substitutes for tangible assets and business models based on tangible assets did not transfer well to the world of intangibles. (19) Intellectual assets do not combine in the same way as physical assets and acquire value through use rather than hoarding. (20) Beyond this, intellectual assets involve global, rather than local, deployment and thus the effects of intellectual property are felt around the world rather than in the immediate environment. (21) Because of these characteristics, Old IP encountered severe and increasing resistance not only by civil society, but by government and industry in the early 2000s. (22) The abandonment of a lawsuit launched by thirty-nine pharmaceutical companies against the government of South Africa over the importation of medicines to combat the HIV/AIDS epidemic began the descent of Old IP. (23) As the IEG pointed out:

   The logic of expansion inherent in Old IP became its downfall. The beginning of the end of Old IP was the lawsuit over South African laws brought in to respond to the HIV/AIDS crisis. The assumption that IP increases biomedical innovation came face to face with the reality that the expansion of IP rights could prevent countries from meeting their critical health needs. (24) Other examples of the decline in Old IP include a series of decisions from the Supreme Court of the United States that curtailed patent rights and decisions by the World Trade Organization, World Intellectual Property Organization and World Health Organization to prioritize health and development over intellectual property rights. (25) By 2007, the logic had permeated the head offices of the major pharmaceutical companies, with senior officers from companies such as GlaxoSmithKline, Sanofi-Aventis, and Pfizer admitting that their business model, which was built around the exclusive protection of blockbuster intellectual assets, was no longer functioning. (26)

   The failure of Old IP is not a failure of intellectual property laws themselves, but the interaction of those laws with practices (e.g., business and university practices with respect to the protection, licensing and enforcement of patents) and institutions (e.g., the inability of patent offices to vigorously apply legal standards in an efficient and timely manner). In fact, a change of patent or other intellectual property right alone would likely be ineffective in addressing the problems with Old IP. (27) Rather, industry, government, universities and non-governmental organizations need to pay equal or greater attention to the ways they use, share and institutionalize patent and other intellectual property rights. (28) That is, any call to reform that focuses solely on patent statutes will necessarily miss the mark unless they are accompanied by a modification in the way universities think about and manage technology transfer and the way that industry licenses its ideas. (29)

   As Old IP falls into decline, new visions of IP are taking root. (30) The IEG found that these visions have a common form and, according to the IEG, constituted 'New IP': "[i]n the era of New IP, the focus turns away from amassing IP and toward managing it in such a way as to enhance the functioning of innovation systems." (31)

   For example, there is already significant questioning among governments, industry, and leading universities over the purposes and most effective mechanisms through which university research should be transferred to external actors. (32) For years, universities measured the success of technology transfer in terms of the number of patents filed and granted, the number of licenses issued, the number of start-ups created and the royalties obtained. (33) On these measures, almost every university fails. (34) As the IEG pointed out:

   Universities find that the riches they were promised from protecting IP have not materialized. Instead, universities have, overall, lost money after over 20 years of commercialisation activities. Governments hoping to spur economic growth and productivity increases, by relying significantly on increasing IP, wonder why they are not yet seeing the benefits. (35) We are only now discovering that much of the problem with university technology transfer has been the mistaken understanding of how IP contributes to innovation. As Gary Pisano writes:

   Any strategies or policies at the university level (such as exclusive licensing) that discourage or inhibit the broad flow of basic scientific information are...