Deep Dive Episode 143 – Pandemics & Patents: Do Patents Help or Hinder Medical Innovation?

On October 28, 2020 the Federalist Society’s Akron Student Chapter hosted George Horvath and Adam Mossoff for a discussion of how patents can affect medical innovation. Specifically, the two discussed how patents have already come into play in the response to COVID-19, and how they will continue to do so as the fight against the pandemic evolves.

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TRANSCRIPT

Matt Modderman:  Thank you everybody for coming. Welcome to The Federalist Society, IPCLA, and HLS joint event on “Pandemics & Patents: Do Patents Help or Hinder Medical Innovation?” We’re really glad to have you all here.

 

My name is Matt Modderman, and I am The Federalist Society and IPCLA President this year. The Federalist Society is a nonpartisan conservative and libertarian organization dedicated to freedom, federalism, and judicial restraint. The IPCLA is a student organization dedicated to advancing Akron Law Students’ education and careers in intellectual property law.

 

Before we begin, I would just like to encourage anyone who is curious about The Federalist Society or the IPCLA to consider reaching out to us at the emails on screen and joining through RootConnect which can be found this link or QR code. Membership for both is free and comes with a lot of benefits that we’d love for you to take advantage of.

 

Moving on. Today, we have an excellent event planned. We’re joined by two exceptional lawyers for a discussion on pandemics, patents, and medical innovation.

 

The first speaker is Professor Adam Mossoff. Professor Mossoff is a Professor of Law at Atonin Scalia Law School at George Mason University. His research primarily focuses on the theoretical justification for and historical protection of patents and other intellectual property rights as private property rights secured to inventors and creators and thus function as commercial assets in driving a growing innovation society and flourishing society. His research has been relied on by the Supreme Court of the United States, the federal circuit, and other federal agencies. Professor Mossoff graduated with honors from the University of Chicago Law School and clerked on the Fifth Circuit.

 

Now I will pass to the Help Law Society. I believe Annette Rodriguez is going to introduce our next speaker. Annette, please go ahead.

 

Annette Rodriguez:  Good afternoon, all. It’s great to see you. I know Matt has worked very hard, so I’m glad that we can see the fruits of our labor. Hopefully we’ll enjoy a nice debate.

 

Our debater against Professor Mossoff, I should say fairly friendly competition, is Dr. George Horvath. He just joined the faculty at Akron Law, and I asked him to highlight some of his accomplishments for me.

 

He spent 15 years practicing as a physician, and he changed careers because of his interest on how laws and regulations of federalism function as determinants of healthcare quality and accessibility. We agree on that.

 

He got his juris doctorate at Berkeley Law in 2014, clerked in the Ninth Circuit for Judge Noonan, and was a post-doctoral scholar and lecturer from 2016 until he joined the Akron Law faculty this August. Welcome and thank you.

 

Matt Modderman:  Finally, the moderator of today’s event is Professor Camilla Hrdy. Professor Hrdy is an Associate Professor of Law and Director of Faculty Research and Development at the University of Akron School of Law. Professor Hrdy’s research is focused on the role of federal, state, and local government in promoting innovation and economic development, the history of United States patent law, the law and policy of trade secrets and unfair competition, and the relationship between intellectual property law, innovation, and human wellbeing.

 

Professor Hrdy, we are ready to get started, so please take it away.

 

Prof. Camilla Hrdy:  Thank you, Matt. Thank you, Annette, and all student organizers of this event and all student attendees.

 

I just want to say the briefest of words by way of introduction to this debate. This is a crucial time for the world. The patent system is, for once, in the spotlight. There is a heated debate right now going on over the role of patents during the coronavirus pandemic.

 

For those of you who have not been following this, which is probably very few of you, I will just say this debate has two sides.

 

On one side, some say that patents are in the way of progress. As you know, patents give an inventor a 20-year exclusive right—sometimes less, sometimes more—to their invention. If the inventor of a vaccine, a treatment, or a cure to COVID-19 obtains a patent, this would give them the right to prevent others from using that invention and, just as importantly, the right to charge whatever price the market will bear.

 

This is why we see articles with titles like “The Patent Problem” in Bloomberg, “How to Break a Big Pharma Monopoly” in The New Republic, “The COVID Big Pharma Profiteer” in the Atlantic. The idea is that just at the time the world needs it most, somebody’s going to slap a patent on the vaccine or cure and that will stand in the way of public health.

 

In contrast, on the other side, and Professor Mossoff is one of the most important voices in this side, have argued that patents are part of the solution. In fact, the role of patents after all is to promote innovation. The government doesn’t give patents for no reason. The government gives patents to true inventors precisely so that they will spend the billions of dollars needed to invent, develop, and test the vaccine and cures the world [inaudible 00:05:40].

 

These are incredibly different viewpoints. I’m absolutely thrilled to have here my own friend and colleague, Professor Mossoff, to represent viewpoint one. Rather, viewpoint two. I’m equally thrilled to have my new friend and colleague, Professor Horvath, here to discuss viewpoint one. As a patent expert and health law expert respectively, they really could not better poised to discuss these issues.

 

Now I’m going to turn it over to Professor Mossoff. He’s going to have 15 minutes to represent his viewpoint. Then we’ll move to Dr. Horvath, and he’ll take 15 minutes. Then we’ll have five minutes each for them to respond to each other’s points. Lastly, I’ll reserve about 15 minutes, going up to 1:20, for a couple questions myself and open it to the audience for Q&A.

 

Professor Mossoff, take it away.

 

Prof. Adam Mossoff:  Thank you, Professor Hrdy. It’s a real pleasure to be here. Longtime colleague of Professor Hrdy and huge admirer of her incredible scholarship and work. I’m very jealous of the students at Akron who get to interact with her every day and all of the other great faculty members at Akron. I’m really delighted to be invited to have this fun — I’m going to think of it as a discussion as opposed to a debate. 

 

We’re both coming to this, I think, with important points to be made and the airing of these issues, I think, is something that The Federalist Society really does a really great job at doing and providing a platform for showing this kind of vibrant marketplace of ideas that develops both in law schools and continues throughout everyone’s professional careers as you go out into law and take various positions in our society as lawyers and policymakers, decision makers, and government officials.

 

I want to kick off a little bit by talking more generally about the role or nature of patents and then drill down more specifically into the pharma industry and then talk about the current COVID-19 pandemic as the structure of my remarks today.

 

Picking up very nicely from the excellent introductory remarks by Professor Hrdy that a lot of people think of patents in terms of, at least the conventional wisdom, is this tradeoff or we’re incentivizing people to invent by dangling this little carrot of a 20-year exclusive right and we balance that against, of course, the restricted access that comes from that exclusive right after they invent because then it falls into the public domain and get more inventions and innovations overall. On net, we benefit. That’s the classic framing of the tradeoff of intellectual property more generally and specifically within the patent system longstanding.

 

I’m going to push back on that framing a little bit because one of the reasons why I’m an advocate for patents—and I think patents are very important for not just growing the innovation economy generally but producing a flourishing society where we have incredible medical treatments, including the types of treatments that are going to eventually address COVID-19 as there currently are being developed and are now currently being deployed—is that patents don’t just serve that function. Of course patents serve an incentive to invent.

 

Like all property rights, you dangle a set of exclusive rights in front of someone; that creates incentives for them to try to create the assets that will be protected by those exclusive rights. Well, of course, farmers will farm as a result of a promise of a property right in the fruits of their labors.

 

But you could do that with inventions with other things as well. We could offer prizes. We could offer federal subsidies. This is a lot of what Professor Hrdy explores in her incredible historical and contemporary research on these topics.

 

But why do we secure patents as property rights? Well, because we’re doing something more than just incentivizing to invent in the same way that a prize system would or a federal subsidy system would or a tax break would or even direct tax benefits or direct subsidies. 

 

Property rights serve a commercial [inaudible 00:09:40] function. They provide an incentive to deploy assets in the marketplace. They are the subject matter of contracts. This is what people learn in both property law and — in their search of property law and [inaudible 00:09:51] contracts. Property is the subject matter of exchanges and that they, therefore, are a platform for people to engage in interactions with other people, and moreover, to engage in new innovative developments themselves.

 

Patents aren’t just an incentive to invent as a property right. They also incentivize people to come up with new commercial arrangements and mechanisms—things that historically have been things like patent pools, licensing deals. There’s [inaudible 00:10:21] complex value chain that we now have in the 21st century that produces the incredible goods we all live with today, and it makes life in the 21st century a bearable miracle by historical standards, especially in the medical context.

 

This is very important to understand because patents from the conventional wisdom perspective of just being the incentive to invent or the restriction on access, they become an easy go-to, for lack of a better phrase, whipping boy. In fact, the moment that COVID-19 was breaking onto the scene, even in January and February, before there were any treatments for it whatsoever, people were immediately calling for restrictions on whatever patents that may issue from it.

 

Starting in February, public officials were releasing letters and statements saying we should confiscate patents, we should place price controls, we should do this. There weren’t even any patents yet on any treatments and they were saying that we should do this.

 

It’s just really important to step back and realize that the reason why we have the type of medical system we have today, and particularly the biotech innovations that we have today, is because of the patent system. These things have been driven by the patent system. It’s been a platform for innovation, not just in terms of the treatments, but in terms of how these products and services have been deployed to people in the marketplace in the healthcare market.

 

This is very much why COVID-19 is not going to be a repeat of the Spanish Flu in 1917 which killed an estimated—they don’t know exactly how many around world because we didn’t have the types of recordkeeping we have now—but estimates sometimes range as high as 50 million people worldwide died from the Spanish Flu pandemic in 1917. Tens of millions of people died. We’re not going to have a repeat of that. A lot of people will, obviously, hurt. A lot of people have already passed away from this pandemic, but it’s not going to be a repeat of that because we’ve had a biotech and medical industry and biopharmaceutical industry that has immediately leaped into action.

 

The reason why they’re able to leap into action is because for decades they have had reliable and effective property rights securing their innovations. Now, of course, they have needed this because, as Professor Hrdy has mentioned, it’s very expensive and difficult to do biomedical research.

 

Current studies show that, typically, most treatments result from an average of 10 to 15 years of research and development across a long change of initial exploration of compounds. Usually, the estimates are, they start with a range of around 10,000 compounds that they test. From that, you get approximately 250 compounds that result in pre-clinical testing. From that, you then get five compounds, molecules or therapeutic treatments, that are tested in clinical testing. The FDA’s phase testing, particularly phase three testing, or human trials, which is the most expensive. From that, one compound is ultimately approved by the FDA for use in the healthcare market by patients.

 

This funnel of 10,000 initial compounds over the span of 10 to 15 years to one actually being made available to customers has led to estimates that the average product that is sold in the marketplace, the drug, has an average R&D expenditure, sunk cost, of around $2.6 billion. That’s before pharmaceutical companies made one cent in selling.

 

That explains a little bit of the expenses, but that’s not just about the initial upfront investments and expenditures because they have to then develop the commercialization mechanisms to go deploy these in the marketplace. They have to enter into licensing deals and information sharing deals between other companies in the industry, between biopharmaceutical companies and biotech startups and other industry participants.

 

This is why, when the COVID-19 broke on the scene, in May, they were able to, because of this existing infrastructure that they had of various licensing deals and information sharing mechanisms, that they immediately had, in May, 430 compounds, diagnostic tests, and vaccines under research and development at various stages in May. As of October, there are now 762, almost doubling of the total number of therapeutic treatments in terms of drugs, vaccines, and diagnostic tests that are currently being developed at various stages.

 

We’ve heard some of these have actually already — in fact, Remdesivir has already been approved for use officially, and this is really significant. In fact, Remdesivir represents exactly what I described. It arose from well over a decade of testing by Gilead. In fact, more than a decade. It was originally developed, actually, for other medical conditions and they only discovered that it also has the secondary ability to treat a severe respiratory problems caused by COVID-19 infections. It ultimately came from well over a billion dollars in R&D expenditures.

 

This is typical of R&D expenditures, and it’s typical of the type of commercialization functions that patents serve when they are able to quickly then deploy this in the marketplace, as they have, and made it available to customers.

 

Unfortunately, the mentioned patents are the easy go-to whipping boy because there are actually lots of bottlenecks in the industry. One should not deny that there are restrictions on access, but patents are the all-to-easy one to go to because a lot of the things that people complain about are not restrictions caused by patents; they’re restrictions caused by other regulatory barriers. Regulatory barriers caused by the FDA. The lack of access to PPE was caused by the FDAs refusal to approve new types of PPE and new types of manufacturer PPE.

 

People discovered, all of a sudden, [inaudible 00:16:08] working for many years on these certificates of need. You can’t just build a new hospital. You actually have to get approval through a regulatory mechanism called a certificate of need in order to build a hospital to serve patients.

 

These are serious barriers that are imposed that prevent easy access and quick deployment of new products and services in the healthcare market. Moreover, there are just general problems in infrastructure more generally. This is often complained about in the developing world. You often hear that patents are a barrier to access in developing world, for instance, for medical treatments. But this is actually untrue. Well over 90 percent of the top essential medicines identified by the World Health Organization are off patent.

 

So why aren’t these drugs making it to patients in the developing world? Because, well, there’s no infrastructure in developing countries to deploy these drugs. In fact, it’s very common to hear stories of drugs sitting in warehouses rotting away because they lack the ability to distribute these drugs to the actual patients in those countries either through actual delivery services. They don’t have the roads that they can go on. They don’t actually have refrigeration services to maintain vaccines, and those types of capabilities.

 

That’s exactly what patents secure for the innovators who have made possible a world that, as I mentioned, is a real miracle by any historical world standards. I always love to tell this story to emphasize this because we’ve lost this perspective given the incredible biotech and biopharmaceutical revolutions that were spurred on by the patent industry.

 

A lot of people aren’t aware of this. In 1924, President Calvin Coolidge’s 16-year-old son died—died in 1924—after injuring his little toe playing tennis on the front lawn of the White House. He died a week later because he got a blood infection. Antibiotics had not been invented yet in 1924, so there was no way to treat him. So this 16-year-old boy died after playing tennis. The son of the President of the United States died. It’s just almost inconceivable to us.

 

By the way, notice this is 1924. This was less than 100 years ago. This really emphasizes the significance of how far we have come, not just in 100 years, but only in just a mere 30 or 40 years, and that this was made possible not just by the ability of pharmaceutical companies to recoup their R&D investments but to take their property rights and go into the market and create very complex distributed value chains, licensing deals, information-sharing mechanisms, and other types of things that are quite common.

 

In fact, a lot of people didn’t know about these issues in other areas, like the high-tech industry. There are lots of different companies that contribute to a smartphone, the various components. It’s just as true in the biopharmaceutical industry. This is why we will not have the same — that the COVID-19 pandemic will certainly not be a repeat of the 1917 Spanish Flu pandemic and future pandemics will not be a repeat of those earlier pandemics either.

 

We have the biopharmaceutical industry to thank for this. A really key part of it—not the only part, but a very key part of that—was the patent system that has secured effective and reliable property rights in their innovations and creations that they have done.

 

I want to end there because I really want to engage in much more of a great conversation with George, so I’m actually going to end a little early and pass it over to him to hear his remarks now.

 

Prof. Camilla Hrdy:  Take it away, Professor Horvath.

 

Dr. George Horvath:  Great. Thank you. Thank you for those remarks, and thank you Camilla. And my thanks to the student organizers to this. This has been a lot of fun preparing for.

 

I’m not going to dispute the utility of patents either as an incentive or as a means of facilitating commercial arrangements in the context of therapeutic develop under normal, that is non-pandemic, circumstances. Many other people have made those arguments in the pharmaceutical contexts. Arguments have been made by many folks that there are costs and distributional consequences to patent rights that are normatively undesirable.

 

Roughly the arguments go that vaccines and treatments are a public good not a purely private commodity and that the monopolies that patents confer allow excessive rent extraction, result in high prices, normatively undesirable distributional consequences, affordable vaccines not available to people in the global south or even the historically disadvantaged folks in the U.S. These arguments have been made much better than I would make them.

 

I actually want to explore two other arguments that are premised on recognizing the differences between the conditions that exist when we talk about the development of a treatment for a chronic disease, the more typical drug development or biologic development context, in comparison with the conditions that attain in a pandemic.

 

Based on these different conditions that I’m going to set out in a second, I really want to explore two arguments. One is that, in this context, patents actually inhibit the develop of a vaccine within the timeframe and at the scale needed to respond to a pandemic. The second argument, which is the one I find more fun, is that patents aren’t even the best tool. They’re not a necessary tool and they may not even be the best tool to incentivize and facilitate the development of new vaccines.

 

Again, I’m cutting at this from both the perspective of a former clinician and now a health law—not a patent law—scholar.

 

What I want to begin with is to set out four differences that distinguish the pandemic response context to the context in which a drug or a biologic is being developed to treat diabetes or cancer or high blood pressure.

 

I think that the four relevant differences that I would want to highlight are, first, the need for speed. If you are developing a treatment for a chronic disease and you run into a delay, assuming that that treatment would be a cure in the best case, there’s an accumulation of harm to the people who don’t have access to your new treatment. That accumulation is linear, assuming that the occurrence of the disease is at a steady state. But in a pandemic, the occurrence of disease is anything but a steady state.

 

We’re now in our third period of essentially exponential growth in terms of the number of cases of COVID-19. Anything that delays the development and then the ultimate distribution of—and I’m going to focus on vaccines—of the vaccine is going to have far more than a linear effect. The accumulation of harm will really be exponential.

 

The second is the need for rapid scalability. Unlike other treatments, in a pandemic, we really need to be able to produce hundreds of millions of doses to meet our needs. That’s hundreds of millions of doses just if we’re talking about satisfying the U.S. need. If we’re talking about satisfying global need, we’re on the order of need to produce ten billion doses. Anything that leads to underproduction of a vaccine, whether it’s just the exercise of a monopoly right or anything that’s capacity based, again, you’re going to see the same exponential accumulation of harm.

 

Third is what I’m going to refer to, rather unartfully, as the distribution system. What I mean by that is that when a company develops a drug or a biological to treat a typical disease, that drug is going to be sold through wholesalers, Medicare Part D, prescription drug plans, and a host of other market mechanisms, and there are going to be market uncertainties.

 

The manufacturer really doesn’t know how well the uptake is going to be for its new product. But what we’ve seen in pandemic responses in the last decade or two is governments that are negotiating pre-production contracts that are attempting really to buy up all of the available doses for distribution within their own borders.

 

The United States did this for the H1N1 virus. It did this for the Zika vaccine. Unlike the market uncertainties that exist in the more general drug development context, in some senses, the market for a pandemic vaccine is already established and locked in. The U.S. government’s already contracted to buy hundreds of millions of doses.

 

The third distinction is that I think that there is a degree of uncertainty about the long-term need for a vaccine that’s different than the long-term need for, let’s say, a treatment for diabetes or cancer. Those are always going to be needed. Some infectious agents may well be eradicated once you get a vaccine program in place. Think about smallpox. We no longer have to be vaccinated against smallpox because it’s been eradicated.

 

Other infection agents may become less dangerous over time. They may spontaneously mutate in the wild to a less virulent form. We, as a population, may develop a level of immunity, either through vaccination or just through contact and infection, and we may alter our social practices in such a way that these agents become less dangerous. I think the example of the Spanish Flu is relevant here. We didn’t have an effective vaccine for Spanish Flu but the pandemic eventually abated as we developed immunity.

 

Based on these four distinguishing characteristics, I want to look at two arguments. The first argument is that in the pandemic context in particular, patents can and indeed already have, to some extent, impeded the timely development of a commercially scalable vaccine.

 

I think it’s necessary to explore what’s involved in producing a vaccine in a little more detail, and really to raise the concept of a patent thicket. The patent thicket is, as I’m sure everyone is familiar with, has been described as this dense web of overlapping intellectual property rights patents that a developer is going to have to hack its way through in order to be able to commercialize some new technology.

 

The effect of having a patent thicket are that there are going to be increased cost of development if each company trying to develop a vaccine has to license the necessary components, methods, technologies, and so on. There are transaction costs that also include just delays—the time necessary to make those negotiations.

 

In an ordinary drug development scheme, this may not be so important. If it takes a company an extra few months to negotiate licenses that are necessary, yes, there’ll be some linear accumulation of harm, but in the exponential growth in a pandemic, that really has much different, a much larger magnitude of an effect.

 

Then the question is is there really a patent thicket in the vaccine space? I think the answer is maybe. It’s necessary to understand that a vaccine is really complicated, and no company develops a vaccine on its own. There are many, many precursors, many, many components, and many processes that are needed.

 

If you’re going the route that Moderna is going with creating a genetic material-based vaccine, you need the genetic sequence, and you need a process for converting that sequence of RNA or DNA into the proteins that are going to be the target for antibodies. So, you need these so-called reverse genetic platforms.

 

If you’re going the more traditional route that the other companies are taking using the whole virus and either attenuating it or killing it or just stripping off individual proteins to serve as the basis for your vaccine, you need those materials. You need a process to render those materials to make them useable, and then you need a process to generate either the DNA-based, RNA-based, or the viral-based vaccine to scale.

 

This may mean massive investments in cell culture or even chicken eggs. Surprisingly, we’re still growing vaccine materials, viruses, in chicken eggs in the 21st century. You need components that can reduce the amount of these materials that are needed, so-called antigens, that trigger your immune response. You need sometimes delivery vehicles called excipients and you need delivery systems.

 

All of these basic inputs into vaccine development contain many subcomponents that are covered by many patents filed by many players. Obviously, any roadblock with any one of those may delay development. Again, I can’t express enough that a delay of even a few weeks can have dramatic effects early in a pandemic. Even in the absence of a hold out, just the need to negotiate these issues is going to impose delays.

 

As Adam has pointed out, I think there’s been wonderful voluntary cooperation amongst the many players in the biotech field, but that doesn’t necessarily mean that will continue in the future. The idea that patent rights need to be invaluable I think is a potential problem—not for the COVID pandemic—for the real pandemic that’s coming. I hate to say this, but I think this is one of our training wheel pandemics; that a much more serious pandemic will eventually arise.

 

We’ve seen this issue come up in the Moderna attempts to develop a new technology-based vaccine. Moderna’s been having trouble, really since 2011, licensing a delivery system for its novel RNA-based vaccines. It’s been locked in this patent dispute with a company called Arbutus that for a while threatened to derail Moderna’s efforts. Again, I’m raising this to suggest that the rosy picture of patents as facilitating a commercial marketplace and as providing incentives is a little more complex. 

 

The more interesting argument that I want to explore is whether patents are really a necessary, or even the best, tool to [inaudible 00:31:40] facilitate the development of a vaccine. To make this argument, I really need to put vaccine development into the broader context of regulation capacity in biology.

 

Professor Mossoff has touched on some of the regulatory barriers that are faced, and I would argue that some of these regulatory barriers actually reduce the utility of patents. A company that develops a vaccine is not going to have a generic or a biosimilar competitor for either five or 12 years. If the patent’s approved as a new drug, completely apart from patents-based exclusivity, there is a regulatory exclusive period of five years.

 

So even if the patent is expired by the time the new drug is approved, there’s a five-year period during which FDA could not approve a competitor, a knockoff drug. Most vaccines are going to be approved as a biologic agent and, there, my understanding is that it’s actually a 12-year regulatory exclusivity period.

 

There is going to be a period during which you won’t face competition as a manufacturer. Even without regulatory barriers, it’s not that easy for a would-be competitor to enter this market. It’s easy to make a generic drug. All you have to do is get the same active chemical, show the FDA that that’s all you’re having is the same active chemical as brand name drug, show that labeling is the same, and show the FDA a study of 20 to 30 normal volunteers that show viable equivalence. This was set up deliberately set up as a non-burdensome process to get competition through generic drugs.

 

But for biosimilars, for biologic products like a vaccine that is supposed to be similar to a biologic drug that’s been approved, each biologic product is going to be different. You can’t rely on chemical identity. The kind of submissions that are required require much more detail. They require more advanced evidence of pharmacokinetic and pharmacodynamic equivalents, and they require studies that show that switching back and forth between the reference drug and the biosimilar is safe and effective.

 

I think that there is a much higher barrier, both by exclusivity periods and by regulatory approval requirements, to the entry of would-be competitors. That’s going to cover, as I suggest, about the first 12 years of the life of a new vaccine.

 

The second limitation is capacity. If you want to think about developing a new vaccine in the real-world context — as I said, for the United States market, we need hundreds of millions of doses. It turns out there are a very small number of entities that have the capacity to produce vaccines at that scale. Vaccines that use the virus—attenuated virus, killed virus—to manufacture those, you have to be at a very high level certification for biosafety. Very few companies have invested the resources into those kind of facilities.

 

If you’re talking about the kind of DNA or RNA-based vaccine like Moderna is developing, those have never been manufactured to scale. So there are a very limited number of entities. Even if you want to say, “Look, we’re going to let other entities enter the market,” there just aren’t a lot of companies that are capable of scaling up to compete.

 

Finally, biology. What happens after the regulatory exclusivity period elapses? What I want to point out here is that there is a real possibility that any vaccine patent that’s obtained today is going to be worthless in 12 years. I want to contrast the COVID virus to the kind of viruses that we have a continuing need for vaccinations against for decades—measles, mumps, polio—and a couple of things that characterize those viruses. They’re high so-called R naught value, R0. R naught is a measure of if one person is infected, how many people do they pass the infection on to? If that person infects four others, the R naught is four.

 

These older, these other diseases, polio has an R naught of 5 to 7, mumps 10 to 12, measles 10 to 18. Every individual infected passes these infections on to many other people. It’s much harder to get a population-level immunity—what is being referred to as herd immunity—when disease is spread that easy.

 

For COVID-19, the causative virus was initially estimated to have an R naught of two to four. More recent estimates may be as low as 1.1 to 1.4. What this suggests is that once we achieve a sufficient level of population or herd immunity, either spontaneously or through vaccination, subsequent spread is going to be very unlikely. If one person gets this, the facility with which they can spread this and engage in the kind of cascade that we’re seeing right now is going to be much less likely.

 

The second difference is that these other viruses tend to be very stable.

 

Prof. Camila Hrdy:  I just wanted to let you know you have about two minutes.

 

Dr. George Horvath:  Good. I’ll wrap up within that time.

 

These other viruses have been very stable. The polio virus, apparently, hasn’t mutated at all in over 60 years. What that means is that a vaccine that was created 60 years ago is still effective against the virus now.

 

What we know about coronaviruses is that they mutate like crazy. They’re much larger viruses. They tend to mutate. What that means is that whatever urea of this current virus that you’re targeting with a vaccine today may not be an effective target in 5 years or 12 years.

 

The argument that I’m suggesting here is that patents may not be necessary to spur innovation for a pandemic disease like this because a 20-year guarantee of market exclusivity isn’t needed. In fact, the 12 years is probably enough, and even a shorter period of time might be sufficient because all of the utility of the vaccine is going to come very early on.

 

I think what’s really needed is a serious set of short-term incentives focused on the first few years after a vaccine is developed, and many of these already exist. I’ve talked about exclusivity periods, regulatory barriers, government pre-production contracts. I would just suggest, in this case, that looking at patents as the tool to get the vaccines that we need right now, we just may not be looking at the right tool.

 

Thank you.

 

Prof. Camilla Hrdy:  Now, each discussant has about five minutes to respond.

 

Prof. Adam Mossoff:  Yeah. Awesome. I’m going to start my timer. You heard my timer go off before. I’m still on mute, am I? Am I still on mute?

 

Prof. Camilla Hrdy:  You’re good.

 

Prof. Adam Mossoff:  Okay, good. [Inaudible 00:38:59] too much, so I have to impose external restrictions on myself.

 

I really appreciated George’s comments. They were fantastic. Really, I think, well stated and much more nuanced and appreciative of the institutional issues and the broader policy concerns than I think than we sometimes hear in the broader discussions about these issues where people are just like, “Ah, patents. Blah.” So, I really appreciate those. That’s why I said I prefer to think of this as a discussion, and I think this is. There is so much that we agree on, so I am really delighted to focus on those issues that we maybe don’t agree on, or maybe we’ll find some area where we overlap with some agreement.

 

I was actually a little excited when you started talked about patent thickets. For those who may know me and know my scholarship, I’m actually very famous for doing a lot of work on patent thickets. As you can see behind me, there’s an old sewing machine. I became famous by talking about one of the very first patent thickets that was developed, which was over patents on sewing machine technology in the 1850s and how they came up with a patent pool as a solution to this.

 

It was an incentive to overcome patent thickets, and in fact, this is exactly what happened. Because patents are property rights, they incentivize people not just to create but to develop and deploy the commercial mechanisms like patent pools, licensing technologies, standard development organizations, information-sharing mechanisms, and other types of commercial arrangements in the marketplace. You get the deployment of products and services, and actually very cheap products and services, very quickly and oftentimes with less cost than you may see.

 

A smartphone is a classic example of this. People were predicting a patent thicket would prevent the development of smartphones, that there would be holdouts and that these things would cost — in fact, the theoretical models that were framed in very general language about patents will hold out and they’ll impose cost predicted that smartphones would cost tens of thousands of dollars. But they don’t. They cost $1,000 at most, if not a couple hundred dollars if you buy a cheaper model. These are incredible products even though there’s thousands of patents that cover them. This really has exemplified exactly the same type of things that occur in the biopharmaceutical industry.

 

Although George focused on vaccines, I’d like to emphasize that it’s not just vaccines. We’re talking also about therapeutic treatments and diagnostic tests. That’s part and parcel of the 762 current projects that are under research and development right now directed at COVID-19. I’d highly recommend people going to the website, the COVID-19 Therapeutic Development Tracker, that’s run by the organization BIO. It’s a trade association for the biotech industry, which is where I got this information from.

 

It’s fascinating because it provides all this wonderful information, like the fact that in May 2020, there are only 100 vaccines currently under research and development at that time. As of October 2020, just six months later, there’s 193 vaccines. Double the number of vaccines in just a mere six months.

 

As I mentioned, there was almost a doubling of the total number of treatments being investigated more generally, so it’s really hard to understand. Where’s the holdup occurring here? Where’s the denial of services? In fact, this is lightning-fast speed. This is being done at a level of speed of development that we’ve never seen before in human history in terms of the biopharmaceutical industry.

 

They’re very explicit about this. This is made possible by the existing commercial arrangements that they had. The existing licensing deals and information-sharing deals that they had. In fact, it was great the George mentioned Moderna. Moderna delivered to the FDA at the end of January its vaccine. The end of January. And, the processes and mechanisms that it had created to create that vaccine it actually had not created to create a vaccine for COVID-19. They had been developed for other drugs and treatments.

 

This gets to the very important point, again, what patents do, which is that they protect the ongoing development, commercialization, and otherwise of the products and services that are being deployed in the marketplace.

 

As I mentioned, Remdesivir was not developed for COVID-19, but it’s being deployed as a secondary use. This is one of its secondary uses. The Moderna vaccine is another example of that where they took technology originally developed for other things and are now deploying it toward this. Again, this is what’s made possible. It’s why we talk about the patents being a platform of innovation and development. This is exactly what you see.

 

It’s very hard to see almost 200 vaccines being currently under development, almost 800 unique compounds in development. If anything’s really being held up here at this point in time even though theoretical models might suggest that that actually may occur.

 

Turn it back to George.

 

Prof. Camilla Hrdy:  Great. George?

 

Dr. George Horvath:  Great. Thanks. I know that I ran over, so I’m going to keep this quite brief.

 

Again, I think there are large areas of agreement. I appreciate that you brought up testing and therapeutics in addition to vaccines. I do think that, particularly in therapeutics, [inaudible 00:44:21] different valence from what I described because any treatment, drug, or biologic—not vaccine, but a treatment that’s developed—certainly may have ongoing commercial application.

 

We’ve seen this with Remdesivir, as you point out. I think it was originally developed as an Ebola treatment and is now being repurposed. Albeit, it’s unclear how effective it is, but that it is being repurposed as a treatment for COVID.

 

There, I think the utility of patents over the long term, there’s just a difference valence there if there’s going to be continued commercial applicability. The testing, I think, may fall somewhere in between.

 

Again, I would just point out that, yes, the response by the industry in terms of patent pooling has been really amazing. I think it’s been amazing to see. But there are potential problems. I’m not taking the position that oh, look, we just need to abdicate patent rights, but I think that having a credible threat of that happening may be a useful tool in the future if you do end up in a situation where, look, we really need to get something developed quickly and there is a particular holdout. 

 

Other than that, I would propose that we open it to questions and see what comes up.

 

Prof. Camilla Hrdy:  Great. All right, as moderator, I’ve prepared just a couple of general purpose questions here. Thank you both so much, both for being so polite, but also for clearly preparing so well for this discussion. I just learned so much in the last 30 minutes.

 

My first question is as has been stated, the sort of strong anti-patent view here is that patents might serve as roadblocks at some point in the near future. With Remdesivir, we see that Gilead owned the patent on it, and it’s been charging above cost for sure. Imagine, just to make this interesting, let’s just imagine that a firm develops a surefire treatment or vaccine for COVID and charges, say, $5,000 per dose, significantly above cost.

 

Let’s just go there. Let’s imagine that governments around the world decide that this is something they really cannot afford to pay for and that their people cannot afford to pay for. Should the government intervene by either one of two ways: either using a taking power/Section 1498 to simply ignore patent rights and allow creation of generics possibly paying down competition? Or, number two, assuming some of that research has been funded by the federal U.S. government, should government use its march-in right to literally ignore the patent and just use the invention? That’s what my question is. Should, and legally could, government step in on this hypothetical exclusionary path?

 

Again, we’ll go first to Professor Mossoff since I know he’s written so much about this [inaudible 00:47:24] issue.

 

Prof. Adam Mossoff:  It’s a great question, and it’s the classic thing that we’re all concerned about, so I appreciate the question very much.

 

The first thing I’d note about it is what you’ve described is not a patent problem because the tools, all right, — in part, this is why the condemnation power exists. This is why eminent domain power exists. That’s not a patent issue. That applies generally to all kinds of property assets that exist in the United States.

 

As long as the government has the power, it’s going to step in and take over and run the production and distribute the good and service. That’s the classic example of a government taking over anything, taking a property and paying for it, through just compensation.

 

1498, now, I would say it’s not permitted under the Hatch-Waxman march-in power because that provision limits the ability of the government to step in only when, it uses the language when the patented drug is not being made available on “reasonable terms.” That phrase has been consistently interpreted by bipartisan administrations for over 20 or 30 years as referring to the capacity concerns of the type that George described, so it’s not like people are charging too much.

 

In fact, that’s been explicitly rejected, as I mentioned, by bipartisan administrations starting from the ’90s all the way up to now, that charging too much is a justification for the march-in power.

 

Prof. Camilla Hrdy:  I just want to say for students who aren’t as familiar with this issue. Just know that this is a controversial issue. For example, Professor Jorge Contreras has said there’s no rational way to say that this should be outside of the VITAL Act. He argues that the VITAL Act was passed specifically to allow government to step in on research the government paid for. So just FYI, it’s controversial and Professor Mossoff is giving one side of the issue.

 

Prof. Adam Mossoff:  Of course. That’s what my side of the debate it. I’ll turn it over to George now because I’m sure he will explore more of the other side. Give it to George, and also point out all the ways I’m wrong, which I hope he does.

 

Dr. George Horvath:  Again, this is an area with which I am much less familiar. I would say that my understanding of the specific language of at least the implementing regulations, which I think does parrot what the statute says for the Bayh-Dole march-in rights allows the government to intervene where health and safety needs are not reasonably satisfied by the contractor. At least I think there would be some statutory and regulatory basis for that sort of intervention. The question is the just compensation.

 

I would also, as an aside, add that in terms of the — going back to the vaccines. The prices that are being quoted for the vaccines — I think Moderna has talked about something as high as $60 for a two-injection course. But if you think about $60 to vaccinate 330 million people, that works out to just under $20 billion. In a year in which we’ve seen multi-trillion-dollar bailout plans, that actually sounds like a bargain to me.

 

Camilla, you can shut off the much more challenging — the Hepatitis B treatment scenario where there are these treatments that go for $84,000. Again, there, I think that at least the credible threat of an intervention is of some value.

 

Prof. Camilla Hrdy:  Really good. Thank you. I have so many more questions, so I’m going to have to select among so many of my questions. I want to hear the students’ views as well.

 

One question is obviously about, and George got to this a bit, is this really the time for patents? Patents, in Professor Mossoff telling, are really more of a part of the systemic dynamic innovation ecosystem. But in George’s telling, this is more of sort of a black swan event where, hey, we’ve got a global pandemic right here.

 

Some have argued that the government should — rather than allowing patent rights for these cures, vaccines, what have you, government should instead enter contracts and simply pay for vaccine development.

 

I guess, Professor Mossoff, I’m a little curious to hear more of your response on why — just given the black swan hopefully once-in-a-century event that isn’t the more appropriate solution rather than giving exclusive rights.

 

Prof. Adam Mossoff:  Well, I don’t think of it as mutually exclusive positions. Just like when you had the anthrax scares at the turn of the century — I love referring to the turn of the century being just 20 years ago because for Professor Hrdy, me, and George, and others, the turn of the century used to be 1900 and not 2000.

 

This was the issue with the anthrax scares and the antibiotics to treat that. There were patents on them, Cipro, and the government ended up just negotiating to buy doses of Cipro to distribute in case anthrax actually became a problem and paid out.

 

A patent doesn’t exclude the government from negotiating. In fact, this is exactly what happens in existing Medicare Part D and through national healthcare services generally, in other countries and in our country, where the government currently purchases more than 50 percent of all healthcare treatments. They’re buying from the owner of the patent. How is that different from paying than taking it or setting up some type of other payment system where they’re agreeing to pay them for their development of their research and development of it and the type of [inaudible 00:53:29] situation.

 

In fact, I would say that — now, stepping back and taking a more institutional perspective, I would say that it’s probably better, from my perspective and I think generally, to maintain the existing structures and for the government to work within it because that retains the viability and ongoing consistency of the law so that patent owners and innovators aren’t worried that “Well, when an emergency comes around, everything, all the rules change.”

 

Because, if that’s the case, you’re going to significantly undermine the incentives for people to develop these new products and treatments, which sometimes, as I mentioned, takes over 10 or 15 years. They don’t know what might be the response next time to the sui generis, new, novel approach of how they work out this arrangement for this new treatment in this emergency.

 

So, I think that there are very strong institutional reasons for why you should remain consistent and work within the existing structures. Like I said, this is why there is the Takings Clause and the imminent domain power. This is why you have Section 1498 to deal with capacity issues.

 

I will say the language says reasonable, as George quoted from, but during the AIDS crisis, the exact issue was the AIDS treatments at that time were thousands of dollars, and this was the exact initial argument, that this is not available to people. The NIH, under bipartisan administrations, as I mentioned, responded by saying, “This is not the appropriate meaning of this term.” Although this term has this meaning in other areas in the law, this term means something different; it means just capacity, not pricing.

 

Prof. Camilla Hrdy:  Dr. Horvath, did you did you have a — 

 

Dr. George Horvath:  I think one of the distinctions that comes up is whether we’re thinking about this issue in a U.S. context or in a global context. I think that the question of intervention and how intervention might occur differs whether we’re talking about a vaccine or a treatment.

 

If we really believe that vaccinating the U.S. population will ensure that, regardless of what happens in the rest of the world, the pandemic here is under control, then focusing just on the U.S.—again, just from a U.S.-centric position—focusing on the U.S. makes some sense.

 

I’m not arguing that a global perspective is not something that we should be adopting, but I would distinguish that from treatments. If we’re talking about Remdesivir or we’re talking about other treatments, it doesn’t matter if we make sure that we have available an adequate supply of Remdesivir if we’re still not immune. If the pandemic is still raging around the world, it’s going to create an ongoing need. There, I think that a more global approach is absolutely necessary.

 

Prof. Camilla Hrdy:  So I, like I said, have a whole list of questions, but I think it’s time to open it to our patient students and see what questions they may have. If you have a question, go ahead and raise your hand.

 

Matt Modderman:  [inaudible 00:56:46] Judge Holte right now, if you’d like to unmute and go ahead.

 

Judge Holte:  Hey, Matt. Thanks so much, and thank you very much for a wonderful talk. It’s moving day here in Holte chambers, so I had to step out for a couple minutes. Professor Mossoff, great to see you. Dr. Horvath, it’s great to see you. Thank you for an excellent question and answer here.

 

My question focuses on equitable remedies and injunctions. I guess, maybe for Professor Mossoff, are you satisfied with the position of where injunctions are when it comes to pharmaceuticals, and does that create a bit of a middle ground?

 

Then, Dr. Horvath, what do you think about injunctions, and does that provide a middle ground for allowing for full patent protection but then not allowing for equitable remedies and negotiated costs for the purposes of purchasing?

 

Prof. Adam Mossoff:  Yep. Judge Holte, awesome to see you, as always. Thank you for joining us.

 

It’s a great question about injunctions. It’s something I’ve been writing on. You’ve written on it a lot as well before you became a judge, and it’s a real concern or problem right now in the innovation industries more generally. What used to be a presumptive remedy in equity is no longer available, really, for owners of patents and is, since the Supreme Court’s decision in eBay, as Judge Holte well knows, as many others, in 2006, has been construed in a way that actually has led to a significant reduction in the issuances of injunctions for owners of patents.

 

This is really something because this devalues patents as an asset class and makes it much more difficult to make the investment, not just in the initial R&D in the R&D funnel that I described, but also in the commercial mechanisms to deploy these in the marketplace. 

 

If you don’t have the injunction as a backstop and someone knows that they can always just get compulsory licensing or other types of price controls imposed upon you, then that’s not a pre-market negotiation anymore, and that leads to serious concerns about undermining the proper incentives that the patent system is supposed to ensure as well as undermining the ability for people to make the types of long-term investments that they need to do.

 

It’s a real concern. It’s unclear to what extent it’s impacting the biopharmaceutical industry in the same way that it’s impacting the high-tech industry and universities and individual inventors, which has been demonstrated to be very marked, but there has been some impact, and it does need to be addressed. Hopefully, they will restore the injunctive right back to patent owners in the coming years.

 

Dr. George Horvath:  I, unfortunately, have very little to add in this area. I haven’t looked at this at all. The one thing I would ask is whether the option of infringing and then with a backend remedy in a situation where speed is of the essence might not be a reasonable approach.

 

Prof. Camilla Hrdy:  So that’s a mild-mannered way of saying you think damages would be appropriate [inaudible 01:00:08] injunction?

 

Dr. George Horvath:  Again, it’s not an area that I’ve looked closely at. I would say that — that’s off of the top of my head. It is a soft yes.

 

Prof. Camilla Hrdy:  Yeah. I mean, we know that Justice Breyer would think that and some on the Court. Judge Holte, thank you for raising the injunction-first damages question.

 

Judge Holte:  Thank you for your thoughts. Appreciate it.

 

Prof. Camilla Hrdy:  It’s really important to think about. Students, we are actually verging on time. Matt, should we give the students the ability to chime in or are we — how are we doing?

 

Matt Modderman:  We’re out of time. I know classes, including my own, begin just in eight minutes now, so we’re going to need to log out here.

 

Prof. Camilla Hrdy:  All right.

 

Matt Modderman:  It is rather important. I would just like to thank Professor Mossoff for joining us from GMU today and Dr. Horvath for joining us as well. And Professor Hrdy for moderating for us. It was a great event and really interesting and especially timely given where we are with vaccines right now.

 

Thank you very much. Thank you to HLS for co-hosting. With that, we will depart.

Transcript

[Music and Narration]

 

Introduction:  Welcome to the Regulatory Transparency Project’s Fourth Branch podcast series. All expressions of opinion are those of the speaker.

 

Matt Modderman:  Thank you everybody for coming. Welcome to The Federalist Society, IPCLA, and HLS joint event on “Pandemics & Patents: Do Patents Help or Hinder Medical Innovation?” We’re really glad to have you all here.

 

My name is Matt Modderman, and I am The Federalist Society and IPCLA President this year. The Federalist Society is a nonpartisan conservative and libertarian organization dedicated to freedom, federalism, and judicial restraint. The IPCLA is a student organization dedicated to advancing Akron Law Students’ education and careers in intellectual property law.

 

Before we begin, I would just like to encourage anyone who is curious about The Federalist Society or the IPCLA to consider reaching out to us at the emails on screen and joining through RootConnect which can be found this link or QR code. Membership for both is free and comes with a lot of benefits that we’d love for you to take advantage of.

 

Moving on. Today, we have an excellent event planned. We’re joined by two exceptional lawyers for a discussion on pandemics, patents, and medical innovation.

 

The first speaker is Professor Adam Mossoff. Professor Mossoff is a Professor of Law at Atonin Scalia Law School at George Mason University. His research primarily focuses on the theoretical justification for and historical protection of patents and other intellectual property rights as private property rights secured to inventors and creators and thus function as commercial assets in driving a growing innovation society and flourishing society. His research has been relied on by the Supreme Court of the United States, the federal circuit, and other federal agencies. Professor Mossoff graduated with honors from the University of Chicago Law School and clerked on the Fifth Circuit.

 

Now I will pass to the Help Law Society. I believe Annette Rodriguez is going to introduce our next speaker. Annette, please go ahead.

 

Annette Rodriguez:  Good afternoon, all. It’s great to see you. I know Matt has worked very hard, so I’m glad that we can see the fruits of our labor. Hopefully we’ll enjoy a nice debate.

 

Our debater against Professor Mossoff, I should say fairly friendly competition, is Dr. George Horvath. He just joined the faculty at Akron Law, and I asked him to highlight some of his accomplishments for me.

 

He spent 15 years practicing as a physician, and he changed careers because of his interest on how laws and regulations of federalism function as determinants of healthcare quality and accessibility. We agree on that.

 

He got his juris doctorate at Berkeley Law in 2014, clerked in the Ninth Circuit for Judge Noonan, and was a post-doctoral scholar and lecturer from 2016 until he joined the Akron Law faculty this August. Welcome and thank you.

 

Matt Modderman:  Finally, the moderator of today’s event is Professor Camilla Hrdy. Professor Hrdy is an Associate Professor of Law and Director of Faculty Research and Development at the University of Akron School of Law. Professor Hrdy’s research is focused on the role of federal, state, and local government in promoting innovation and economic development, the history of United States patent law, the law and policy of trade secrets and unfair competition, and the relationship between intellectual property law, innovation, and human wellbeing.

 

Professor Hrdy, we are ready to get started, so please take it away.

 

Prof. Camilla Hrdy:  Thank you, Matt. Thank you, Annette, and all student organizers of this event and all student attendees.

 

I just want to say the briefest of words by way of introduction to this debate. This is a crucial time for the world. The patent system is, for once, in the spotlight. There is a heated debate right now going on over the role of patents during the coronavirus pandemic.

 

For those of you who have not been following this, which is probably very few of you, I will just say this debate has two sides.

 

On one side, some say that patents are in the way of progress. As you know, patents give an inventor a 20-year exclusive right—sometimes less, sometimes more—to their invention. If the inventor of a vaccine, a treatment, or a cure to COVID-19 obtains a patent, this would give them the right to prevent others from using that invention and, just as importantly, the right to charge whatever price the market will bear.

 

This is why we see articles with titles like “The Patent Problem” in Bloomberg, “How to Break a Big Pharma Monopoly” in The New Republic, “The COVID Big Pharma Profiteer” in the Atlantic. The idea is that just at the time the world needs it most, somebody’s going to slap a patent on the vaccine or cure and that will stand in the way of public health.

 

In contrast, on the other side, and Professor Mossoff is one of the most important voices in this side, have argued that patents are part of the solution. In fact, the role of patents after all is to promote innovation. The government doesn’t give patents for no reason. The government gives patents to true inventors precisely so that they will spend the billions of dollars needed to invent, develop, and test the vaccine and cures the world [inaudible 00:05:40].

 

These are incredibly different viewpoints. I’m absolutely thrilled to have here my own friend and colleague, Professor Mossoff, to represent viewpoint one. Rather, viewpoint two. I’m equally thrilled to have my new friend and colleague, Professor Horvath, here to discuss viewpoint one. As a patent expert and health law expert respectively, they really could not better poised to discuss these issues.

 

Now I’m going to turn it over to Professor Mossoff. He’s going to have 15 minutes to represent his viewpoint. Then we’ll move to Dr. Horvath, and he’ll take 15 minutes. Then we’ll have five minutes each for them to respond to each other’s points. Lastly, I’ll reserve about 15 minutes, going up to 1:20, for a couple questions myself and open it to the audience for Q&A.

 

Professor Mossoff, take it away.

 

Prof. Adam Mossoff:  Thank you, Professor Hrdy. It’s a real pleasure to be here. Longtime colleague of Professor Hrdy and huge admirer of her incredible scholarship and work. I’m very jealous of the students at Akron who get to interact with her every day and all of the other great faculty members at Akron. I’m really delighted to be invited to have this fun — I’m going to think of it as a discussion as opposed to a debate. 

 

We’re both coming to this, I think, with important points to be made and the airing of these issues, I think, is something that The Federalist Society really does a really great job at doing and providing a platform for showing this kind of vibrant marketplace of ideas that develops both in law schools and continues throughout everyone’s professional careers as you go out into law and take various positions in our society as lawyers and policymakers, decision makers, and government officials.

 

I want to kick off a little bit by talking more generally about the role or nature of patents and then drill down more specifically into the pharma industry and then talk about the current COVID-19 pandemic as the structure of my remarks today.

 

Picking up very nicely from the excellent introductory remarks by Professor Hrdy that a lot of people think of patents in terms of, at least the conventional wisdom, is this tradeoff or we’re incentivizing people to invent by dangling this little carrot of a 20-year exclusive right and we balance that against, of course, the restricted access that comes from that exclusive right after they invent because then it falls into the public domain and get more inventions and innovations overall. On net, we benefit. That’s the classic framing of the tradeoff of intellectual property more generally and specifically within the patent system longstanding.

 

I’m going to push back on that framing a little bit because one of the reasons why I’m an advocate for patents—and I think patents are very important for not just growing the innovation economy generally but producing a flourishing society where we have incredible medical treatments, including the types of treatments that are going to eventually address COVID-19 as there currently are being developed and are now currently being deployed—is that patents don’t just serve that function. Of course patents serve an incentive to invent.

 

Like all property rights, you dangle a set of exclusive rights in front of someone; that creates incentives for them to try to create the assets that will be protected by those exclusive rights. Well, of course, farmers will farm as a result of a promise of a property right in the fruits of their labors.

 

But you could do that with inventions with other things as well. We could offer prizes. We could offer federal subsidies. This is a lot of what Professor Hrdy explores in her incredible historical and contemporary research on these topics.

 

But why do we secure patents as property rights? Well, because we’re doing something more than just incentivizing to invent in the same way that a prize system would or a federal subsidy system would or a tax break would or even direct tax benefits or direct subsidies. 

 

Property rights serve a commercial [inaudible 00:09:40] function. They provide an incentive to deploy assets in the marketplace. They are the subject matter of contracts. This is what people learn in both property law and — in their search of property law and [inaudible 00:09:51] contracts. Property is the subject matter of exchanges and that they, therefore, are a platform for people to engage in interactions with other people, and moreover, to engage in new innovative developments themselves.

 

Patents aren’t just an incentive to invent as a property right. They also incentivize people to come up with new commercial arrangements and mechanisms—things that historically have been things like patent pools, licensing deals. There’s [inaudible 00:10:21] complex value chain that we now have in the 21st century that produces the incredible goods we all live with today, and it makes life in the 21st century a bearable miracle by historical standards, especially in the medical context.

 

This is very important to understand because patents from the conventional wisdom perspective of just being the incentive to invent or the restriction on access, they become an easy go-to, for lack of a better phrase, whipping boy. In fact, the moment that COVID-19 was breaking onto the scene, even in January and February, before there were any treatments for it whatsoever, people were immediately calling for restrictions on whatever patents that may issue from it.

 

Starting in February, public officials were releasing letters and statements saying we should confiscate patents, we should place price controls, we should do this. There weren’t even any patents yet on any treatments and they were saying that we should do this.

 

It’s just really important to step back and realize that the reason why we have the type of medical system we have today, and particularly the biotech innovations that we have today, is because of the patent system. These things have been driven by the patent system. It’s been a platform for innovation, not just in terms of the treatments, but in terms of how these products and services have been deployed to people in the marketplace in the healthcare market.

 

This is very much why COVID-19 is not going to be a repeat of the Spanish Flu in 1917 which killed an estimated—they don’t know exactly how many around world because we didn’t have the types of recordkeeping we have now—but estimates sometimes range as high as 50 million people worldwide died from the Spanish Flu pandemic in 1917. Tens of millions of people died. We’re not going to have a repeat of that. A lot of people will, obviously, hurt. A lot of people have already passed away from this pandemic, but it’s not going to be a repeat of that because we’ve had a biotech and medical industry and biopharmaceutical industry that has immediately leaped into action.

 

The reason why they’re able to leap into action is because for decades they have had reliable and effective property rights securing their innovations. Now, of course, they have needed this because, as Professor Hrdy has mentioned, it’s very expensive and difficult to do biomedical research.

 

Current studies show that, typically, most treatments result from an average of 10 to 15 years of research and development across a long change of initial exploration of compounds. Usually, the estimates are, they start with a range of around 10,000 compounds that they test. From that, you get approximately 250 compounds that result in pre-clinical testing. From that, you then get five compounds, molecules or therapeutic treatments, that are tested in clinical testing. The FDA’s phase testing, particularly phase three testing, or human trials, which is the most expensive. From that, one compound is ultimately approved by the FDA for use in the healthcare market by patients.

 

This funnel of 10,000 initial compounds over the span of 10 to 15 years to one actually being made available to customers has led to estimates that the average product that is sold in the marketplace, the drug, has an average R&D expenditure, sunk cost, of around $2.6 billion. That’s before pharmaceutical companies made one cent in selling.

 

That explains a little bit of the expenses, but that’s not just about the initial upfront investments and expenditures because they have to then develop the commercialization mechanisms to go deploy these in the marketplace. They have to enter into licensing deals and information sharing deals between other companies in the industry, between biopharmaceutical companies and biotech startups and other industry participants.

 

This is why, when the COVID-19 broke on the scene, in May, they were able to, because of this existing infrastructure that they had of various licensing deals and information sharing mechanisms, that they immediately had, in May, 430 compounds, diagnostic tests, and vaccines under research and development at various stages in May. As of October, there are now 762, almost doubling of the total number of therapeutic treatments in terms of drugs, vaccines, and diagnostic tests that are currently being developed at various stages.

 

We’ve heard some of these have actually already — in fact, Remdesivir has already been approved for use officially, and this is really significant. In fact, Remdesivir represents exactly what I described. It arose from well over a decade of testing by Gilead. In fact, more than a decade. It was originally developed, actually, for other medical conditions and they only discovered that it also has the secondary ability to treat a severe respiratory problems caused by COVID-19 infections. It ultimately came from well over a billion dollars in R&D expenditures.

 

This is typical of R&D expenditures, and it’s typical of the type of commercialization functions that patents serve when they are able to quickly then deploy this in the marketplace, as they have, and made it available to customers.

 

Unfortunately, the mentioned patents are the easy go-to whipping boy because there are actually lots of bottlenecks in the industry. One should not deny that there are restrictions on access, but patents are the all-to-easy one to go to because a lot of the things that people complain about are not restrictions caused by patents; they’re restrictions caused by other regulatory barriers. Regulatory barriers caused by the FDA. The lack of access to PPE was caused by the FDAs refusal to approve new types of PPE and new types of manufacturer PPE.

 

People discovered, all of a sudden, [inaudible 00:16:08] working for many years on these certificates of need. You can’t just build a new hospital. You actually have to get approval through a regulatory mechanism called a certificate of need in order to build a hospital to serve patients.

 

These are serious barriers that are imposed that prevent easy access and quick deployment of new products and services in the healthcare market. Moreover, there are just general problems in infrastructure more generally. This is often complained about in the developing world. You often hear that patents are a barrier to access in developing world, for instance, for medical treatments. But this is actually untrue. Well over 90 percent of the top essential medicines identified by the World Health Organization are off patent.

 

So why aren’t these drugs making it to patients in the developing world? Because, well, there’s no infrastructure in developing countries to deploy these drugs. In fact, it’s very common to hear stories of drugs sitting in warehouses rotting away because they lack the ability to distribute these drugs to the actual patients in those countries either through actual delivery services. They don’t have the roads that they can go on. They don’t actually have refrigeration services to maintain vaccines, and those types of capabilities.

 

That’s exactly what patents secure for the innovators who have made possible a world that, as I mentioned, is a real miracle by any historical world standards. I always love to tell this story to emphasize this because we’ve lost this perspective given the incredible biotech and biopharmaceutical revolutions that were spurred on by the patent industry.

 

A lot of people aren’t aware of this. In 1924, President Calvin Coolidge’s 16-year-old son died—died in 1924—after injuring his little toe playing tennis on the front lawn of the White House. He died a week later because he got a blood infection. Antibiotics had not been invented yet in 1924, so there was no way to treat him. So this 16-year-old boy died after playing tennis. The son of the President of the United States died. It’s just almost inconceivable to us.

 

By the way, notice this is 1924. This was less than 100 years ago. This really emphasizes the significance of how far we have come, not just in 100 years, but only in just a mere 30 or 40 years, and that this was made possible not just by the ability of pharmaceutical companies to recoup their R&D investments but to take their property rights and go into the market and create very complex distributed value chains, licensing deals, information-sharing mechanisms, and other types of things that are quite common.

 

In fact, a lot of people didn’t know about these issues in other areas, like the high-tech industry. There are lots of different companies that contribute to a smartphone, the various components. It’s just as true in the biopharmaceutical industry. This is why we will not have the same — that the COVID-19 pandemic will certainly not be a repeat of the 1917 Spanish Flu pandemic and future pandemics will not be a repeat of those earlier pandemics either.

 

We have the biopharmaceutical industry to thank for this. A really key part of it—not the only part, but a very key part of that—was the patent system that has secured effective and reliable property rights in their innovations and creations that they have done.

 

I want to end there because I really want to engage in much more of a great conversation with George, so I’m actually going to end a little early and pass it over to him to hear his remarks now.

 

Prof. Camilla Hrdy:  Take it away, Professor Horvath.

 

Dr. George Horvath:  Great. Thank you. Thank you for those remarks, and thank you Camilla. And my thanks to the student organizers to this. This has been a lot of fun preparing for.

 

I’m not going to dispute the utility of patents either as an incentive or as a means of facilitating commercial arrangements in the context of therapeutic develop under normal, that is non-pandemic, circumstances. Many other people have made those arguments in the pharmaceutical contexts. Arguments have been made by many folks that there are costs and distributional consequences to patent rights that are normatively undesirable.

 

Roughly the arguments go that vaccines and treatments are a public good not a purely private commodity and that the monopolies that patents confer allow excessive rent extraction, result in high prices, normatively undesirable distributional consequences, affordable vaccines not available to people in the global south or even the historically disadvantaged folks in the U.S. These arguments have been made much better than I would make them.

 

I actually want to explore two other arguments that are premised on recognizing the differences between the conditions that exist when we talk about the development of a treatment for a chronic disease, the more typical drug development or biologic development context, in comparison with the conditions that attain in a pandemic.

 

Based on these different conditions that I’m going to set out in a second, I really want to explore two arguments. One is that, in this context, patents actually inhibit the develop of a vaccine within the timeframe and at the scale needed to respond to a pandemic. The second argument, which is the one I find more fun, is that patents aren’t even the best tool. They’re not a necessary tool and they may not even be the best tool to incentivize and facilitate the development of new vaccines.

 

Again, I’m cutting at this from both the perspective of a former clinician and now a health law—not a patent law—scholar.

 

What I want to begin with is to set out four differences that distinguish the pandemic response context to the context in which a drug or a biologic is being developed to treat diabetes or cancer or high blood pressure.

 

I think that the four relevant differences that I would want to highlight are, first, the need for speed. If you are developing a treatment for a chronic disease and you run into a delay, assuming that that treatment would be a cure in the best case, there’s an accumulation of harm to the people who don’t have access to your new treatment. That accumulation is linear, assuming that the occurrence of the disease is at a steady state. But in a pandemic, the occurrence of disease is anything but a steady state.

 

We’re now in our third period of essentially exponential growth in terms of the number of cases of COVID-19. Anything that delays the development and then the ultimate distribution of—and I’m going to focus on vaccines—of the vaccine is going to have far more than a linear effect. The accumulation of harm will really be exponential.

 

The second is the need for rapid scalability. Unlike other treatments, in a pandemic, we really need to be able to produce hundreds of millions of doses to meet our needs. That’s hundreds of millions of doses just if we’re talking about satisfying the U.S. need. If we’re talking about satisfying global need, we’re on the order of need to produce ten billion doses. Anything that leads to underproduction of a vaccine, whether it’s just the exercise of a monopoly right or anything that’s capacity based, again, you’re going to see the same exponential accumulation of harm.

 

Third is what I’m going to refer to, rather unartfully, as the distribution system. What I mean by that is that when a company develops a drug or a biological to treat a typical disease, that drug is going to be sold through wholesalers, Medicare Part D, prescription drug plans, and a host of other market mechanisms, and there are going to be market uncertainties.

 

The manufacturer really doesn’t know how well the uptake is going to be for its new product. But what we’ve seen in pandemic responses in the last decade or two is governments that are negotiating pre-production contracts that are attempting really to buy up all of the available doses for distribution within their own borders.

 

The United States did this for the H1N1 virus. It did this for the Zika vaccine. Unlike the market uncertainties that exist in the more general drug development context, in some senses, the market for a pandemic vaccine is already established and locked in. The U.S. government’s already contracted to buy hundreds of millions of doses.

 

The third distinction is that I think that there is a degree of uncertainty about the long-term need for a vaccine that’s different than the long-term need for, let’s say, a treatment for diabetes or cancer. Those are always going to be needed. Some infectious agents may well be eradicated once you get a vaccine program in place. Think about smallpox. We no longer have to be vaccinated against smallpox because it’s been eradicated.

 

Other infection agents may become less dangerous over time. They may spontaneously mutate in the wild to a less virulent form. We, as a population, may develop a level of immunity, either through vaccination or just through contact and infection, and we may alter our social practices in such a way that these agents become less dangerous. I think the example of the Spanish Flu is relevant here. We didn’t have an effective vaccine for Spanish Flu but the pandemic eventually abated as we developed immunity.

 

Based on these four distinguishing characteristics, I want to look at two arguments. The first argument is that in the pandemic context in particular, patents can and indeed already have, to some extent, impeded the timely development of a commercially scalable vaccine.

 

I think it’s necessary to explore what’s involved in producing a vaccine in a little more detail, and really to raise the concept of a patent thicket. The patent thicket is, as I’m sure everyone is familiar with, has been described as this dense web of overlapping intellectual property rights patents that a developer is going to have to hack its way through in order to be able to commercialize some new technology.

 

The effect of having a patent thicket are that there are going to be increased cost of development if each company trying to develop a vaccine has to license the necessary components, methods, technologies, and so on. There are transaction costs that also include just delays—the time necessary to make those negotiations.

 

In an ordinary drug development scheme, this may not be so important. If it takes a company an extra few months to negotiate licenses that are necessary, yes, there’ll be some linear accumulation of harm, but in the exponential growth in a pandemic, that really has much different, a much larger magnitude of an effect.

 

Then the question is is there really a patent thicket in the vaccine space? I think the answer is maybe. It’s necessary to understand that a vaccine is really complicated, and no company develops a vaccine on its own. There are many, many precursors, many, many components, and many processes that are needed.

 

If you’re going the route that Moderna is going with creating a genetic material-based vaccine, you need the genetic sequence, and you need a process for converting that sequence of RNA or DNA into the proteins that are going to be the target for antibodies. So, you need these so-called reverse genetic platforms.

 

If you’re going the more traditional route that the other companies are taking using the whole virus and either attenuating it or killing it or just stripping off individual proteins to serve as the basis for your vaccine, you need those materials. You need a process to render those materials to make them useable, and then you need a process to generate either the DNA-based, RNA-based, or the viral-based vaccine to scale.

 

This may mean massive investments in cell culture or even chicken eggs. Surprisingly, we’re still growing vaccine materials, viruses, in chicken eggs in the 21st century. You need components that can reduce the amount of these materials that are needed, so-called antigens, that trigger your immune response. You need sometimes delivery vehicles called excipients and you need delivery systems.

 

All of these basic inputs into vaccine development contain many subcomponents that are covered by many patents filed by many players. Obviously, any roadblock with any one of those may delay development. Again, I can’t express enough that a delay of even a few weeks can have dramatic effects early in a pandemic. Even in the absence of a hold out, just the need to negotiate these issues is going to impose delays.

 

As Adam has pointed out, I think there’s been wonderful voluntary cooperation amongst the many players in the biotech field, but that doesn’t necessarily mean that will continue in the future. The idea that patent rights need to be invaluable I think is a potential problem—not for the COVID pandemic—for the real pandemic that’s coming. I hate to say this, but I think this is one of our training wheel pandemics; that a much more serious pandemic will eventually arise.

 

We’ve seen this issue come up in the Moderna attempts to develop a new technology-based vaccine. Moderna’s been having trouble, really since 2011, licensing a delivery system for its novel RNA-based vaccines. It’s been locked in this patent dispute with a company called Arbutus that for a while threatened to derail Moderna’s efforts. Again, I’m raising this to suggest that the rosy picture of patents as facilitating a commercial marketplace and as providing incentives is a little more complex. 

 

The more interesting argument that I want to explore is whether patents are really a necessary, or even the best, tool to [inaudible 00:31:40] facilitate the development of a vaccine. To make this argument, I really need to put vaccine development into the broader context of regulation capacity in biology.

 

Professor Mossoff has touched on some of the regulatory barriers that are faced, and I would argue that some of these regulatory barriers actually reduce the utility of patents. A company that develops a vaccine is not going to have a generic or a biosimilar competitor for either five or 12 years. If the patent’s approved as a new drug, completely apart from patents-based exclusivity, there is a regulatory exclusive period of five years.

 

So even if the patent is expired by the time the new drug is approved, there’s a five-year period during which FDA could not approve a competitor, a knockoff drug. Most vaccines are going to be approved as a biologic agent and, there, my understanding is that it’s actually a 12-year regulatory exclusivity period.

 

There is going to be a period during which you won’t face competition as a manufacturer. Even without regulatory barriers, it’s not that easy for a would-be competitor to enter this market. It’s easy to make a generic drug. All you have to do is get the same active chemical, show the FDA that that’s all you’re having is the same active chemical as brand name drug, show that labeling is the same, and show the FDA a study of 20 to 30 normal volunteers that show viable equivalence. This was set up deliberately set up as a non-burdensome process to get competition through generic drugs.

 

But for biosimilars, for biologic products like a vaccine that is supposed to be similar to a biologic drug that’s been approved, each biologic product is going to be different. You can’t rely on chemical identity. The kind of submissions that are required require much more detail. They require more advanced evidence of pharmacokinetic and pharmacodynamic equivalents, and they require studies that show that switching back and forth between the reference drug and the biosimilar is safe and effective.

 

I think that there is a much higher barrier, both by exclusivity periods and by regulatory approval requirements, to the entry of would-be competitors. That’s going to cover, as I suggest, about the first 12 years of the life of a new vaccine.

 

The second limitation is capacity. If you want to think about developing a new vaccine in the real-world context — as I said, for the United States market, we need hundreds of millions of doses. It turns out there are a very small number of entities that have the capacity to produce vaccines at that scale. Vaccines that use the virus—attenuated virus, killed virus—to manufacture those, you have to be at a very high level certification for biosafety. Very few companies have invested the resources into those kind of facilities.

 

If you’re talking about the kind of DNA or RNA-based vaccine like Moderna is developing, those have never been manufactured to scale. So there are a very limited number of entities. Even if you want to say, “Look, we’re going to let other entities enter the market,” there just aren’t a lot of companies that are capable of scaling up to compete.

 

Finally, biology. What happens after the regulatory exclusivity period elapses? What I want to point out here is that there is a real possibility that any vaccine patent that’s obtained today is going to be worthless in 12 years. I want to contrast the COVID virus to the kind of viruses that we have a continuing need for vaccinations against for decades—measles, mumps, polio—and a couple of things that characterize those viruses. They’re high so-called R naught value, R0. R naught is a measure of if one person is infected, how many people do they pass the infection on to? If that person infects four others, the R naught is four.

 

These older, these other diseases, polio has an R naught of 5 to 7, mumps 10 to 12, measles 10 to 18. Every individual infected passes these infections on to many other people. It’s much harder to get a population-level immunity—what is being referred to as herd immunity—when disease is spread that easy.

 

For COVID-19, the causative virus was initially estimated to have an R naught of two to four. More recent estimates may be as low as 1.1 to 1.4. What this suggests is that once we achieve a sufficient level of population or herd immunity, either spontaneously or through vaccination, subsequent spread is going to be very unlikely. If one person gets this, the facility with which they can spread this and engage in the kind of cascade that we’re seeing right now is going to be much less likely.

 

The second difference is that these other viruses tend to be very stable.

 

Prof. Camila Hrdy:  I just wanted to let you know you have about two minutes.

 

Dr. George Horvath:  Good. I’ll wrap up within that time.

 

These other viruses have been very stable. The polio virus, apparently, hasn’t mutated at all in over 60 years. What that means is that a vaccine that was created 60 years ago is still effective against the virus now.

 

What we know about coronaviruses is that they mutate like crazy. They’re much larger viruses. They tend to mutate. What that means is that whatever urea of this current virus that you’re targeting with a vaccine today may not be an effective target in 5 years or 12 years.

 

The argument that I’m suggesting here is that patents may not be necessary to spur innovation for a pandemic disease like this because a 20-year guarantee of market exclusivity isn’t needed. In fact, the 12 years is probably enough, and even a shorter period of time might be sufficient because all of the utility of the vaccine is going to come very early on.

 

I think what’s really needed is a serious set of short-term incentives focused on the first few years after a vaccine is developed, and many of these already exist. I’ve talked about exclusivity periods, regulatory barriers, government pre-production contracts. I would just suggest, in this case, that looking at patents as the tool to get the vaccines that we need right now, we just may not be looking at the right tool.

 

Thank you.

 

Prof. Camilla Hrdy:  Now, each discussant has about five minutes to respond.

 

Prof. Adam Mossoff:  Yeah. Awesome. I’m going to start my timer. You heard my timer go off before. I’m still on mute, am I? Am I still on mute?

 

Prof. Camilla Hrdy:  You’re good.

 

Prof. Adam Mossoff:  Okay, good. [Inaudible 00:38:59] too much, so I have to impose external restrictions on myself.

 

I really appreciated George’s comments. They were fantastic. Really, I think, well stated and much more nuanced and appreciative of the institutional issues and the broader policy concerns than I think than we sometimes hear in the broader discussions about these issues where people are just like, “Ah, patents. Blah.” So, I really appreciate those. That’s why I said I prefer to think of this as a discussion, and I think this is. There is so much that we agree on, so I am really delighted to focus on those issues that we maybe don’t agree on, or maybe we’ll find some area where we overlap with some agreement.

 

I was actually a little excited when you started talked about patent thickets. For those who may know me and know my scholarship, I’m actually very famous for doing a lot of work on patent thickets. As you can see behind me, there’s an old sewing machine. I became famous by talking about one of the very first patent thickets that was developed, which was over patents on sewing machine technology in the 1850s and how they came up with a patent pool as a solution to this.

 

It was an incentive to overcome patent thickets, and in fact, this is exactly what happened. Because patents are property rights, they incentivize people not just to create but to develop and deploy the commercial mechanisms like patent pools, licensing technologies, standard development organizations, information-sharing mechanisms, and other types of commercial arrangements in the marketplace. You get the deployment of products and services, and actually very cheap products and services, very quickly and oftentimes with less cost than you may see.

 

A smartphone is a classic example of this. People were predicting a patent thicket would prevent the development of smartphones, that there would be holdouts and that these things would cost — in fact, the theoretical models that were framed in very general language about patents will hold out and they’ll impose cost predicted that smartphones would cost tens of thousands of dollars. But they don’t. They cost $1,000 at most, if not a couple hundred dollars if you buy a cheaper model. These are incredible products even though there’s thousands of patents that cover them. This really has exemplified exactly the same type of things that occur in the biopharmaceutical industry.

 

Although George focused on vaccines, I’d like to emphasize that it’s not just vaccines. We’re talking also about therapeutic treatments and diagnostic tests. That’s part and parcel of the 762 current projects that are under research and development right now directed at COVID-19. I’d highly recommend people going to the website, the COVID-19 Therapeutic Development Tracker, that’s run by the organization BIO. It’s a trade association for the biotech industry, which is where I got this information from.

 

It’s fascinating because it provides all this wonderful information, like the fact that in May 2020, there are only 100 vaccines currently under research and development at that time. As of October 2020, just six months later, there’s 193 vaccines. Double the number of vaccines in just a mere six months.

 

As I mentioned, there was almost a doubling of the total number of treatments being investigated more generally, so it’s really hard to understand. Where’s the holdup occurring here? Where’s the denial of services? In fact, this is lightning-fast speed. This is being done at a level of speed of development that we’ve never seen before in human history in terms of the biopharmaceutical industry.

 

They’re very explicit about this. This is made possible by the existing commercial arrangements that they had. The existing licensing deals and information-sharing deals that they had. In fact, it was great the George mentioned Moderna. Moderna delivered to the FDA at the end of January its vaccine. The end of January. And, the processes and mechanisms that it had created to create that vaccine it actually had not created to create a vaccine for COVID-19. They had been developed for other drugs and treatments.

 

This gets to the very important point, again, what patents do, which is that they protect the ongoing development, commercialization, and otherwise of the products and services that are being deployed in the marketplace.

 

As I mentioned, Remdesivir was not developed for COVID-19, but it’s being deployed as a secondary use. This is one of its secondary uses. The Moderna vaccine is another example of that where they took technology originally developed for other things and are now deploying it toward this. Again, this is what’s made possible. It’s why we talk about the patents being a platform of innovation and development. This is exactly what you see.

 

It’s very hard to see almost 200 vaccines being currently under development, almost 800 unique compounds in development. If anything’s really being held up here at this point in time even though theoretical models might suggest that that actually may occur.

 

Turn it back to George.

 

Prof. Camilla Hrdy:  Great. George?

 

Dr. George Horvath:  Great. Thanks. I know that I ran over, so I’m going to keep this quite brief.

 

Again, I think there are large areas of agreement. I appreciate that you brought up testing and therapeutics in addition to vaccines. I do think that, particularly in therapeutics, [inaudible 00:44:21] different valence from what I described because any treatment, drug, or biologic—not vaccine, but a treatment that’s developed—certainly may have ongoing commercial application.

 

We’ve seen this with Remdesivir, as you point out. I think it was originally developed as an Ebola treatment and is now being repurposed. Albeit, it’s unclear how effective it is, but that it is being repurposed as a treatment for COVID.

 

There, I think the utility of patents over the long term, there’s just a difference valence there if there’s going to be continued commercial applicability. The testing, I think, may fall somewhere in between.

 

Again, I would just point out that, yes, the response by the industry in terms of patent pooling has been really amazing. I think it’s been amazing to see. But there are potential problems. I’m not taking the position that oh, look, we just need to abdicate patent rights, but I think that having a credible threat of that happening may be a useful tool in the future if you do end up in a situation where, look, we really need to get something developed quickly and there is a particular holdout. 

 

Other than that, I would propose that we open it to questions and see what comes up.

 

Prof. Camilla Hrdy:  Great. All right, as moderator, I’ve prepared just a couple of general purpose questions here. Thank you both so much, both for being so polite, but also for clearly preparing so well for this discussion. I just learned so much in the last 30 minutes.

 

My first question is as has been stated, the sort of strong anti-patent view here is that patents might serve as roadblocks at some point in the near future. With Remdesivir, we see that Gilead owned the patent on it, and it’s been charging above cost for sure. Imagine, just to make this interesting, let’s just imagine that a firm develops a surefire treatment or vaccine for COVID and charges, say, $5,000 per dose, significantly above cost.

 

Let’s just go there. Let’s imagine that governments around the world decide that this is something they really cannot afford to pay for and that their people cannot afford to pay for. Should the government intervene by either one of two ways: either using a taking power/Section 1498 to simply ignore patent rights and allow creation of generics possibly paying down competition? Or, number two, assuming some of that research has been funded by the federal U.S. government, should government use its march-in right to literally ignore the patent and just use the invention? That’s what my question is. Should, and legally could, government step in on this hypothetical exclusionary path?

 

Again, we’ll go first to Professor Mossoff since I know he’s written so much about this [inaudible 00:47:24] issue.

 

Prof. Adam Mossoff:  It’s a great question, and it’s the classic thing that we’re all concerned about, so I appreciate the question very much.

 

The first thing I’d note about it is what you’ve described is not a patent problem because the tools, all right, — in part, this is why the condemnation power exists. This is why eminent domain power exists. That’s not a patent issue. That applies generally to all kinds of property assets that exist in the United States.

 

As long as the government has the power, it’s going to step in and take over and run the production and distribute the good and service. That’s the classic example of a government taking over anything, taking a property and paying for it, through just compensation.

 

1498, now, I would say it’s not permitted under the Hatch-Waxman march-in power because that provision limits the ability of the government to step in only when, it uses the language when the patented drug is not being made available on “reasonable terms.” That phrase has been consistently interpreted by bipartisan administrations for over 20 or 30 years as referring to the capacity concerns of the type that George described, so it’s not like people are charging too much.

 

In fact, that’s been explicitly rejected, as I mentioned, by bipartisan administrations starting from the ’90s all the way up to now, that charging too much is a justification for the march-in power.

 

Prof. Camilla Hrdy:  I just want to say for students who aren’t as familiar with this issue. Just know that this is a controversial issue. For example, Professor Jorge Contreras has said there’s no rational way to say that this should be outside of the VITAL Act. He argues that the VITAL Act was passed specifically to allow government to step in on research the government paid for. So just FYI, it’s controversial and Professor Mossoff is giving one side of the issue.

 

Prof. Adam Mossoff:  Of course. That’s what my side of the debate it. I’ll turn it over to George now because I’m sure he will explore more of the other side. Give it to George, and also point out all the ways I’m wrong, which I hope he does.

 

Dr. George Horvath:  Again, this is an area with which I am much less familiar. I would say that my understanding of the specific language of at least the implementing regulations, which I think does parrot what the statute says for the Bayh-Dole march-in rights allows the government to intervene where health and safety needs are not reasonably satisfied by the contractor. At least I think there would be some statutory and regulatory basis for that sort of intervention. The question is the just compensation.

 

I would also, as an aside, add that in terms of the — going back to the vaccines. The prices that are being quoted for the vaccines — I think Moderna has talked about something as high as $60 for a two-injection course. But if you think about $60 to vaccinate 330 million people, that works out to just under $20 billion. In a year in which we’ve seen multi-trillion-dollar bailout plans, that actually sounds like a bargain to me.

 

Camilla, you can shut off the much more challenging — the Hepatitis B treatment scenario where there are these treatments that go for $84,000. Again, there, I think that at least the credible threat of an intervention is of some value.

 

Prof. Camilla Hrdy:  Really good. Thank you. I have so many more questions, so I’m going to have to select among so many of my questions. I want to hear the students’ views as well.

 

One question is obviously about, and George got to this a bit, is this really the time for patents? Patents, in Professor Mossoff telling, are really more of a part of the systemic dynamic innovation ecosystem. But in George’s telling, this is more of sort of a black swan event where, hey, we’ve got a global pandemic right here.

 

Some have argued that the government should — rather than allowing patent rights for these cures, vaccines, what have you, government should instead enter contracts and simply pay for vaccine development.

 

I guess, Professor Mossoff, I’m a little curious to hear more of your response on why — just given the black swan hopefully once-in-a-century event that isn’t the more appropriate solution rather than giving exclusive rights.

 

Prof. Adam Mossoff:  Well, I don’t think of it as mutually exclusive positions. Just like when you had the anthrax scares at the turn of the century — I love referring to the turn of the century being just 20 years ago because for Professor Hrdy, me, and George, and others, the turn of the century used to be 1900 and not 2000.

 

This was the issue with the anthrax scares and the antibiotics to treat that. There were patents on them, Cipro, and the government ended up just negotiating to buy doses of Cipro to distribute in case anthrax actually became a problem and paid out.

 

A patent doesn’t exclude the government from negotiating. In fact, this is exactly what happens in existing Medicare Part D and through national healthcare services generally, in other countries and in our country, where the government currently purchases more than 50 percent of all healthcare treatments. They’re buying from the owner of the patent. How is that different from paying than taking it or setting up some type of other payment system where they’re agreeing to pay them for their development of their research and development of it and the type of [inaudible 00:53:29] situation.

 

In fact, I would say that — now, stepping back and taking a more institutional perspective, I would say that it’s probably better, from my perspective and I think generally, to maintain the existing structures and for the government to work within it because that retains the viability and ongoing consistency of the law so that patent owners and innovators aren’t worried that “Well, when an emergency comes around, everything, all the rules change.”

 

Because, if that’s the case, you’re going to significantly undermine the incentives for people to develop these new products and treatments, which sometimes, as I mentioned, takes over 10 or 15 years. They don’t know what might be the response next time to the sui generis, new, novel approach of how they work out this arrangement for this new treatment in this emergency.

 

So, I think that there are very strong institutional reasons for why you should remain consistent and work within the existing structures. Like I said, this is why there is the Takings Clause and the imminent domain power. This is why you have Section 1498 to deal with capacity issues.

 

I will say the language says reasonable, as George quoted from, but during the AIDS crisis, the exact issue was the AIDS treatments at that time were thousands of dollars, and this was the exact initial argument, that this is not available to people. The NIH, under bipartisan administrations, as I mentioned, responded by saying, “This is not the appropriate meaning of this term.” Although this term has this meaning in other areas in the law, this term means something different; it means just capacity, not pricing.

 

Prof. Camilla Hrdy:  Dr. Horvath, did you did you have a — 

 

Dr. George Horvath:  I think one of the distinctions that comes up is whether we’re thinking about this issue in a U.S. context or in a global context. I think that the question of intervention and how intervention might occur differs whether we’re talking about a vaccine or a treatment.

 

If we really believe that vaccinating the U.S. population will ensure that, regardless of what happens in the rest of the world, the pandemic here is under control, then focusing just on the U.S.—again, just from a U.S.-centric position—focusing on the U.S. makes some sense.

 

I’m not arguing that a global perspective is not something that we should be adopting, but I would distinguish that from treatments. If we’re talking about Remdesivir or we’re talking about other treatments, it doesn’t matter if we make sure that we have available an adequate supply of Remdesivir if we’re still not immune. If the pandemic is still raging around the world, it’s going to create an ongoing need. There, I think that a more global approach is absolutely necessary.

 

Prof. Camilla Hrdy:  So I, like I said, have a whole list of questions, but I think it’s time to open it to our patient students and see what questions they may have. If you have a question, go ahead and raise your hand.

 

Matt Modderman:  [inaudible 00:56:46] Judge Holte right now, if you’d like to unmute and go ahead.

 

Judge Holte:  Hey, Matt. Thanks so much, and thank you very much for a wonderful talk. It’s moving day here in Holte chambers, so I had to step out for a couple minutes. Professor Mossoff, great to see you. Dr. Horvath, it’s great to see you. Thank you for an excellent question and answer here.

 

My question focuses on equitable remedies and injunctions. I guess, maybe for Professor Mossoff, are you satisfied with the position of where injunctions are when it comes to pharmaceuticals, and does that create a bit of a middle ground?

 

Then, Dr. Horvath, what do you think about injunctions, and does that provide a middle ground for allowing for full patent protection but then not allowing for equitable remedies and negotiated costs for the purposes of purchasing?

 

Prof. Adam Mossoff:  Yep. Judge Holte, awesome to see you, as always. Thank you for joining us.

 

It’s a great question about injunctions. It’s something I’ve been writing on. You’ve written on it a lot as well before you became a judge, and it’s a real concern or problem right now in the innovation industries more generally. What used to be a presumptive remedy in equity is no longer available, really, for owners of patents and is, since the Supreme Court’s decision in eBay, as Judge Holte well knows, as many others, in 2006, has been construed in a way that actually has led to a significant reduction in the issuances of injunctions for owners of patents.

 

This is really something because this devalues patents as an asset class and makes it much more difficult to make the investment, not just in the initial R&D in the R&D funnel that I described, but also in the commercial mechanisms to deploy these in the marketplace. 

 

If you don’t have the injunction as a backstop and someone knows that they can always just get compulsory licensing or other types of price controls imposed upon you, then that’s not a pre-market negotiation anymore, and that leads to serious concerns about undermining the proper incentives that the patent system is supposed to ensure as well as undermining the ability for people to make the types of long-term investments that they need to do.

 

It’s a real concern. It’s unclear to what extent it’s impacting the biopharmaceutical industry in the same way that it’s impacting the high-tech industry and universities and individual inventors, which has been demonstrated to be very marked, but there has been some impact, and it does need to be addressed. Hopefully, they will restore the injunctive right back to patent owners in the coming years.

 

Dr. George Horvath:  I, unfortunately, have very little to add in this area. I haven’t looked at this at all. The one thing I would ask is whether the option of infringing and then with a backend remedy in a situation where speed is of the essence might not be a reasonable approach.

 

Prof. Camilla Hrdy:  So that’s a mild-mannered way of saying you think damages would be appropriate [inaudible 01:00:08] injunction?

 

Dr. George Horvath:  Again, it’s not an area that I’ve looked closely at. I would say that — that’s off of the top of my head. It is a soft yes.

 

Prof. Camilla Hrdy:  Yeah. I mean, we know that Justice Breyer would think that and some on the Court. Judge Holte, thank you for raising the injunction-first damages question.

 

Judge Holte:  Thank you for your thoughts. Appreciate it.

 

Prof. Camilla Hrdy:  It’s really important to think about. Students, we are actually verging on time. Matt, should we give the students the ability to chime in or are we — how are we doing?

 

Matt Modderman:  We’re out of time. I know classes, including my own, begin just in eight minutes now, so we’re going to need to log out here.

 

Prof. Camilla Hrdy:  All right.

 

Matt Modderman:  It is rather important. I would just like to thank Professor Mossoff for joining us from GMU today and Dr. Horvath for joining us as well. And Professor Hrdy for moderating for us. It was a great event and really interesting and especially timely given where we are with vaccines right now.

 

Thank you very much. Thank you to HLS for co-hosting. With that, we will depart.

 

[Music]

 

Conclusion:  On behalf of The Federalist Society’s Regulatory Transparency Project, thanks for tuning in to the Fourth Branch podcast. To catch every new episode when it’s released, you can subscribe on Apple Podcasts, Google Play, and Spreaker. For the latest from RTP, please visit our website at www.regproject.org.

 

[Music]

 

This has been a FedSoc audio production.

 

George Horvath

Assistant Professor of Law

University of Akron School of Law


Adam Mossoff

Professor of Law

Antonin Scalia Law School, George Mason University


Camilla Hrdy

Associate Professor of Law

University of Akron School of Law


Federalist Society’s Akron Student Chapter

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