AOC on Pharma & Public Funding

Congresswoman Alexandria Ocasio-Cortez has already gotten Americans to start teaching each other about marginal taxation, and now she has started a dialog about the role of public funding in public sector research:

This week I conducted my first-ever line of questioning at an Oversight committee hearing, which focused on the skyrocketing costs of pharmaceuticals.

Here’s what happened ⬇️ https://t.co/M6XuL61zXN

— Alexandria Ocasio-Cortez (@AOC) February 1, 2019

Big Pharma companies often say that drugs “need” to be expensive to fund research. What they don’t tell you is that they use *publicly-funded research* for expensive, privatized drugs.

This week on Oversight, @RoKhanna and I exposed how this scheme works:pic.twitter.com/ELbllU3Fxy

— Alexandria Ocasio-Cortez (@AOC) February 1, 2019

In these short videos (which email subscribers to this blog need to click through to see), Ocasio-Cortez and Ro Khanna are seen asking questions during a Jan. 29 House Oversight and Reform Committee hearing, "Examining the Actions of Drug Companies in Raising Prescription Drug Prices." So far, @AOC's three tweets about this issue have generated over 7,000 comments, 58,000 retweets, and 190,000 likes.

Privatization of publicly funded research through patents is one of my main areas of research, so I love to see it in the spotlight. There are enough concerns with the current system that the government should be paying attention. But as I explain below, condensing Ocasio-Cortez and Khanna's questions into a headline like "The Public, Not Pharma, Funds Drug Research" is misleading. Highlighting the role of public R&D funding is important, but I hope this attention will spur more people to learn about how that public funding interacts with private funding, and why improving the drug development ecosystem involves a lot of difficult and uncertain policy questions. This post attempts to explain some key points that I hope will be part of this conversation.

More Classic Patent Scholarship

It has been a while since the last update to my Classic Patent Scholarship, so I thought I would add some works that I view as "classics" but that haven't made it onto the list yet.

First, while the body of "Beyond IP" scholarship is blossoming (see, e.g., the two Yale ISP conferences, where I got to present work with Daniel Hemel), there is a long history of work on innovation incentives beyond patents. For example, Machlup and Penrose (already on the list of classics) describe how the patents-vs-prizes debate dates back to at least the 19th century. Here are two works I would add to the classics list:

• Brian D. Wright, The Economics of Invention Incentives: Patents, Prizes, and Research Contracts, 73 Am. Econ. Rev. 691 (1983).
• Michael Kremer, Patent Buyouts: A Mechanism for Encouraging Innovation, 113 Q.J. Econ. 1137 (1998).

Other important works in this genre, which don't quite fit under my pre-2000 "classic" bar, include Frischmann 2000, Shavell & van Ypersele 2001, Gallini & Scotchmer 2002, and Abramowicz 2003.

As a former grant-funded university researcher (during my physics grad school days), I'm particularly interested in the role of grants and other direct funding as a non-patent incentive, and their overlap with patents through the Bayh–Dole Act. Here are some additional classics in this area:

• Rebecca S. Eisenberg, Proprietary Rights and the Norms of Science in Biotechnology Research, 97 Yale L.J. 177 (1987).
• Rebecca S. Eisenberg, Public Research and Private Development: Patents and Technology Transfer in Government-Sponsored Research, 82 Va. L. Rev. 1663 (1996).
• Arti Kaur Rai, Regulating Scientific Research: Intellectual Property Rights and the Norms of Science, 94 Nw. U. L. Rev. 77 (1999).
• David C. Mowery, Richard R. Nelson, Bhaven N. Sampat & Arvids A. Ziedonis, The Effects of the Bayh-Dole Act on U.S. University Research and Technology Transfer, in Industrializing Knowledge 269 (Lewis M. Branscomb et al. eds., 1999).

Finally, there is now a long strand of literature on the Federal Circuit as an institution and the value of specialized patent adjudication; anyone interested in this area should start with the work of Rochelle Dreyfuss:

• Rochelle Cooper Dreyfuss, The Federal Circuit: A Case Study in Specialized Courts, 64 N.Y.U. L. Rev. 1 (1989).

For other classics—including more extended commentary on them by prominent patent law professors—see the Classic Patent Scholarship page. And if you have suggestions of other pre-2000 works that should be on the list, please add them to the comments on send me an email!

Patenting Incentives in Universities

 Dirk Czarnitzki and four coauthors from a variety of institutions have posted Individual Versus Institutional Ownership of University-Discovered Inventions to SSRN. The abstract is short and to the point:

We examine how the ownership of intellectual property rights influences patenting of university-discovered inventions. In 2002, Germany transferred patent rights from faculty members to their universities. To identify the effect on the volume of patenting, we exploit the researcher-level exogeneity of the 2002 policy change using a novel researcher-level panel database that includes a control group not affected by the law change. For professors who had existing industry connections, the policy decreased patenting, but for those without prior industry connections, it increased patenting. Overall, fewer university inventions were patented following the shift from inventor to institutional ownership.

In other words, the authors have used a quasi-experimental event - a change in the law - to see what happens under different legal regimes. They have good data and use it to their benefit: actual patenting by individual researchers, a decent control group that did not experience a change in the law, and information about career and publications to correct for general productivity. I'll discuss the results a bit more after the jump.

McKenna on Sampat on Serendipity

A long running debate in the modeling of innovation is whether discoveries are sure to arise by targeted research investment or by unexpected moments of invention. Suzanne Scotchmer lays out the different models in her book Innovation and Incentives. (Side note: I think every patent scholar should read this book. I would put it on my list of classic patent scholarship, but it's not pre-2000.) I tend to fall in the middle, as I usually do - some advances can be targeted, and some must remain unexpected. I think it is hard to justify a fully path directed model or else, as Scotchmer noted, everything would have been invented one or two hundred years ago. Then again, sometimes things are invented and the world is just not ready for them.

This brings us to serendipity, or rather Serendipity. Serendipity, by Bhaven Sampat (Columbia School of Health) came across my SSRN feed this morning, and I was all ready to write about it when I saw that Mark McKenna (Notre Dame) beat me to it, at Jotwell.

Professor Sampat goes about testing the role of unexpected discovery in pharmaceutical advances. It's an impressive study with impressive results, finding that money spent targeting one disease may often lead to results for other diseases. It also shows that funding in basic science can lead to specific but unexpected results; that's good, because I'm a fan of funding basic science.

I'll say little else other than to point readers to Professor McKenna's summary and analysis, which is thorough and insightful. I only have one addition those remarks. The jotwell discussion focuses on government policy for grants - targeting, amount, gaming, and so forth. I would add that the findings, if we believe them truly to be about serendipity, hold up outside of grant funding and apply to general inventive efforts. So long as there is some incentive mechanism, patents, prizes, grants, etc. that gets people doing research then we might hope to see unexpected spillovers from those research efforts.

Kenney & Mowery: Public Universities and Regional Growth

I've received my new copy of Public Universities and Regional Growth: Insights from the University of California, edited by Martin Kenney and David Mowery. It is an excellent book, demonstrating the complex interactions between university, industry, and government that underlie the unmatched growth in certain sectors of the California region. The book contains numerous case studies of University of California campuses' involvement in major technological developments, including semiconductors and chip and software design at UC Berkeley, UCLA, and UC Santa Barbara, wireless at UC San Diego, and biotechnology at UCSD and UC San Francisco, and more. Each of these campuses became anchors for regional clusters that stimulated economic growth in their respective regions along with advancing science.

Love Surveys University Researchers on Patenting

While there have been extensive debates about patenting federally funded research under the Bayh-Dole Act, there is little evidence about what the researchers themselves think of this regime. Professor Brian Love (Santa Clara Law) has tackled this problem with a survey of electrical engineering and computer science professors, and he describes the results in Do University Patents Pay Off? Evidence from a Survey of University Inventors in Computer Science and Electrical Engineering (forthcoming Yale J.L. & Tech.). Love sent an email survey to all 2,387 tenure-track faculty in the top 20 ECE and CS departments (as ranked by U.S. News), and his 269 respondents were highly representative based on measurable characteristics. Here are some of his findings:

Lee: Patents and the University

How do universities treat patents, and how does patent law treat universities?

These are the main questions addressed by Peter Lee, Professor of Law at University of California, Davis, in his new article, "Patents and the University," forthcoming in the Duke Law Journal. Lee has written several articles on the effects of patents on university research and a more recent article examining the role of patents in university-industry technology transfer. Now Lee provides a comprehensive history of the relations between patents and universities, generally. In Lee's telling, this relationship is characterized by two parallel developments: increased use of patents by universities, on the one hand, and "internalization" of universities and university research into patent law, on the other.

Patent Experimentalism

I haven't had much time for blogging recently because I've been writing and revising a new article, Patent Experimentalism, which I'll be presenting at IPSC on August 8. This is still a work in progress, so please send me your feedback and suggestions! Here is the current abstract:

When should universities patent?

I spoke today about university patenting to the Yale Student Science Diplomats, a group of science graduate students who are interested in science policy issues. It was great to have a chance to engage with scientists about why we allow universities to file patents on federally funded research (which they are permitted to do under the Bayh-Dole Act), and what those justifications tell us about when public-minded universities should be filing patents. As I discuss in my YLJ Comment, patents are not needed to motivate university researchers to innovate or to disclose their inventions—university researchers were innovating and publishing their results long before Bayh-Dole, primarily out of a desire for prestige (and the resulting tenure and prizes). The most compelling justification for Bayh-Dole patents is commercialization theory, the idea that exclusive patent rights are necessary to bring inventions to market. This theory is more convincing for inventions like pharmaceuticals with high regulatory barriers and low imitation costs, but it does not make sense when the exclusive patent right is unnecessary for commercialization—something that is very difficult to determine.

Rai & Sampat on Bayh-Dole Underreporting

I’m very interested in university patenting and licensing under the Bayh-Dole Act, so I enjoyed the new Nature Biotechnology piece by Arti Rai (Duke Law) and Bhaven Sampat (Columbia Public Health), in which they report that universities don’t meet reporting requirements when they patent the results of federally funded research.

Jacob Rooksby on University Patent Litigation

Although one might expect universities to seldom initiate patent litigation, Jacob Rooksby reports that they filed over 50 patent cases in 2009 and 2010. In University Initiation of Patent Infringement Litigation, after reviewing the history and criticisms of the Bayh-Dole Act (which allows recipients of federal research funds to patent and license their inventions), Rooksby notes that "[o]ne largely overlooked cost of university involvement in technology transfer is university involvement in patent-related litigation." His article, which was recently published in the John Marshall Review of Intellectual Property Law, seeks to fill that empirical void. Rooksby was an IP litigator for 3 years, and is now pursing a Ph.D. in higher education at UVA.

Fighting Over Green Patents: How To Appease China & India Without Hurting U.S. Business

Tomorrow at the Yale Climate & Energy Congress Symposium, I will be presenting on a Comment I published in the Yale Law Journal last May: Addressing the Green Patent Global Deadlock Through Bayh-Dole Reform. (I also wrote a nontechnical version of this argument for Slate: License To Green: Can We Have Clean Energy and Patents, Too?) Rather than summarizing the whole argument here, I will just point out the three pieces that I think are novel contributions:

1. One way to address global concerns about green patents is by changing the way federally funded green technologies are patented and licensed. A number of articles had recognized that conflicts over IP are contributing to the deadlock in climate change negotiations, but none made the distinction between the patent incentives needed for public-sector and private-sector innovation. I examine the justifications for Bayh-Dole patents as applied to green technologies and conclude that in light of available evidence, patents will impede dissemination of most green technologies.
2. Market segmentation should be used for green technologies. The strategy of allowing strong patent protection in rich countries (to recoup development costs) while allowing broad access in poor countries has been made by scholars, advocates, and universities in the medical context (see, e.g., this policy statement from AUTM and many universities), but I'm not aware of anyone who had extended this argument to green engineering technologies. And market segmentation is even more compelling for green technologies because patent protection is less important for them than it is for pharmaceuticals.
3. Funding agencies should use their ex ante control over who receives federal grants to influence licensing policies. Several scholars, particularly Professor Arti Rai, have looked at the impact that funding agencies can have on Bayh-Dole reform, but their focus has been on the ex post influence of these agencies on technologies that have already been developed. I argue that agencies could influence university licensing more effectively through their ability to determine who receives federal grants in the first place. For example, the National Science Foundation's "broader impacts" criterion could be used to encompass access-promoting licensing policies.

I welcome feedback, either in the comments or by email. And for readers in New Haven, feel free to stop by the symposium!