Do Not Collect $200: The Power of Patent Monopolies and the Ramifications on Pharmaceutical Startups and Innovation.

• Author: Bertino, Lauren

"Most scholars would likely agree that considering how to optimize or at least not distort innovation is an important part of legal scholarship. However, to date, there has been little recognition, let alone robust discussion, of how patent and related laws promote problematic innovation of drugs...." (1)

1. INTRODUCTION

   America loves innovation--so much, in fact, that the Founding Fathers enshrined it into the Constitution of the United States. (2) For centuries, the United States built and maintained a complex patent system that promotes innovation while protecting the progeny of the country's brightest minds. (3) As it stands today, however, the patent system allows large pharmaceutical companies, often collectively referred to as "big pharma," to eclipse smaller competitors through practices inconsistent with the founding principles of patent law. (4) Although the patent system intends to let society prosper as citizens invent, in practice, the strongest modern innovators--startups--suffer under the system. (5)

   The pharmaceutical industry, otherwise known as pharma, in particular utilizes the patent system as intended for economic benefit. (6) Many scholars consider pharma to epitomize patent success. (7) Pharmaceutical companies may invest billions of dollars to bring a drug to market that generic rivals can easily copy for a reduced price once patent protections expire. (8) Pharmaceutical companies rely on the patent system to protect their investments in research and development, which then incentivizes companies to make their life-saving treatments available to the public. (9)

   Although the patent system seems to benefit pharma as a whole, popular practices within the world of pharmaceuticals systemically disadvantage the small inventors seeking to enter the market and maintain a presence. (10) Patent monopolies, created by the exclusivity provisions in patents, generate a hostile environment for startups to navigate. (11) Meanwhile, defensive patenting procedures create a different kind of patent monopoly that similarly limits the workable space for innovation. (12) Unlike big pharma, smaller companies struggle to secure the funding necessary to capitalize on the benefits of the system. (13)

   In actuality, patent system success in the pharmaceutical world relies on factors far more extraneous than the ability to innovate. (14) This Note exposes the pitfalls of the patent system as they apply to the pharmaceutical industry, and suggests potential remedies that allow smaller, innovative startups to thrive. (15) Specifically, this Note begins by discussing the historical relationship between patents and pharmaceuticals and distinguishes important features of innovators big and small within the system. (16) Next, this Note identifies the results of common patent practices, limitations on the presence of small innovators in pharma, and subsequent ramifications on innovation. (17) Finally, this Note highlights opportunities for the patent system to be equitably improved and the potential impact on small companies, startups, and independent innovators seeking to provide society with life-saving medicinal inventions. (18)

2. HISTORY

   1. The Patent Procedure

      1. A Historical Prelude

         Patent law is an American tradition older than baseball. (19) Originally based on the English system, U.S. patent law received official constitutional recognition in 1787 with the intent to foster innovation and idea sharing through economic incentives for inventors. (20) Since that initial constitutional recognition, however, legislators have made many changes to the laws and procedures for patenting an invention. (21) From the first Patent Act of 1790 to the Leahy-Smith America Invents Act (AIA), patent law has evolved right alongside the inventions it serves to protect. (22)

         In 1984, Congress passed one of the more modern and impactful laws, the Hatch-Waxman Act. (23) This Act attempted to balance the interests of innovators and generic competitors by extending greater protections to innovators while easing regulations on bringing generic drugs to market. (24) Twenty-six years later, Congress--as part of the Affordable Care Act--passed the Biologies Price Competition and Innovation Act (BPCIA), which shares similarities with the Hatch--Waxman Act. (25) The BPCIA imposed regulations for the biologies market by creating similar boundaries around the production of biosimilars--the generic counterpart of complex biologic drugs. (26)

         In2011, through the AIA, Congress overhauled the system for identifying an invention's owner. (27) Previously, patent law recognized and protected the first inventor to create the technology; the AIA altered this framework by granting patent ownership instead to the first applicant. (28) Now, the law grants patent protections to the first inventor to file with the U.S. Patent and Trademark Office (USPTO), regardless of whether they were the first to have the idea. (29) Congress altered this structure to provide greater certainty to patenting entities, as the new system need only look at the date of filing to determine patent rights. (30)

      2. Modern Patent Procedures and Innovation

         Today's patent offers twenty years of exclusivity to the first inventor to file. (31) Although twenty years may sound like a generous time period, an invention's exclusivity term on the market is often far shorter due to the time-consuming processes of gaining USPTO approval and actually bringing the invention to market. (32) The twenty-year exclusivity period begins tolling from the date of filing, and USPTO approval takes about two-and-a-half years to finalize. (33)

         To receive patent protection for an invention, the inventor must first determine that their product is indeed patentable. (34) If so, the inventor must prepare and submit the initial application along with relevant fees. (35) After some back and forth with the patent examiner, an application that meets USPTO requirements will receive official approval. (36) Upon the patent's eventual expiration, protections for the invention end and competitors are able to join the market, eventually influencing the cost of the product. (37)

         Requiring inventors to adhere to these patenting procedures helps to foster innovation in two ways. (38) First, the patent system creates a bargaining process between the inventor and the government on behalf of society. (39) This bargain creates an economic incentive for the inventor to recoup their costs from research and development by receiving governmental protections. (40) Second, the patent application puts the invention into the public domain, where other inventors can use previously patented technology as a stepping-stone to newer and potentially better developments. (41) The cumulative innovation process allows inventors to use patented technologies as both tools and inspiration for their own innovation. (42) Thus, the patent system creates an incentive to invent for both original and follow-on inventors. (43)

   2. Patents in the World of Pharma

      1. Bringing a Drug to Market

         To best utilize the patent system, pharmaceutical companies must face a long and expensive drug discovery process to invent a drug worth patenting. (44) A typical drug development timeline encompasses twelve to twenty years and multiple stages of development. (45) Potential therapies generally face a high risk of failure at virtually every step of the process and require large sums of money to advance to the market. (46)

         Pharmaceutical companies must also seek approval from the Food and Drug Administration (FDA) when bringing a drug to market. (47) As yet another factor minimizing the patent exclusivity term, the FDA requires potential drugs to complete three-phase clinical trials to ensure consumer safety. (48) The clinical trials alone take years to complete and cost millions of dollars. (49) Since the inventor usually files a patent fairly early in the drug discovery process, the patent loses a large chunk of its original exclusivity term just by satisfying drug-development regulations before reaching the market. (50)

         Meanwhile, pharmaceutical companies' biggest competition--the generic drug companies--face far fewer barriers to enter the market. (51) The generic counterparts to name-brand pharmaceuticals can follow a substantially similar manufacturing procedure to the original drug, but need not go through the same clinical trial process required of branded drugs. (52) Although generics have their own hurdles to cross, the relaxed FDA requirements allow generic drugs to enter the market at a significantly lower cost, as the manufacturers have lower recuperating costs than the original drug manufacturers. (53)

      2. The Patent "Poster Child"

         With the stakes so high and generic competition looming, pharmaceutical companies look to patent law to protect their investments in new drugs. (54) For this reason, scholars believe that the pharmaceutical industry is the perfect illustration of how the patent system should work. (55) Pharmaceuticals are extremely expensive and complicated to create--but less complex to copy--and thus depend entirely on a well-functioning patent system to maintain incentives. (56)

         Creating a drug is no ordinary expense: A 2020 study found that the average cost to bring a drug to market was $985 million, though other studies suggest a sum upwards of $2.6 billion. (57) Despite these exorbitant price tags, only 12% of the tens of thousands of potential compounds reach clinical trials, and only 0.01% will actually make it to market. (58) Thus, the pharmaceutical world's booming success in spite of massive scientific and economic barriers can be attributed in large part to the industry's masterful use of the patent system. (59)

   3. Where Pharma Falls Short

      1. Small Companies and Innovators Are Left in the Dust

         Although the features above are attributed to pharma as a whole, there are startling differences between the large and small companies...