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Is big pharma in trouble as patents expire?

The New York Times published an article earlier this month on the financial problems some drug companies are facing due to the expiration of the patents on blockbuster drugs. Once a patent expires, competitors can begin selling generic drugs at a fraction of the cost. These generics eat into the profits of the name-brand, patented drug.

Should we feel sorry for the drug companies? Consider three things: first, the article reports that “Americans fueled the research engine, spending much more per capita on prescriptions than in any other nation, and paying the highest prices for prescribed medicines.” Second, the pharmaceutical companies have billions in cash reserves, much of that borne on the back of regular Americans. And third, U.S. law gives pharmaceutical companies up to 5 additional years of exclusive use beyond the term all other patent owners get. Ordinary Americans have struggled through the latest recession, and few of us have $20 billion in cash lying around to get us through the rough times. I see families every day who have to choose between paying a light bill or buying much-needed prescription medications. So, pardon me if I don’t feel too sorry for the drug companies that gouge American families for hundreds or thousands of dollars a month for medication yet virtually give that same medication away to Canadian and European citizens.

With all the billions the drug companies have lying around, they have plenty to spend lobbying Congress to pay for expensive drugs. Problem is, Congress helped fund the development of many of these drugs. It seems like to me that federal deficits could be substantially reduced if we did two things. First, we could invoke the Bayh-Dole Act so the government pays less for prescription drugs for which it sponsored research. And two, we could reduce the patent terms for prescription drugs so they don’t get preferential treatment. These things will be tough given big pharma’s lobbying power, but they would help get our government out of debt and help the wallets of ordinary Americans.

How the patent system could better solve our government's problems

Many citizens view the patent system as a way to protect ideas. This is true in a broad sense, so long as an inventor reduces her ideas to an actual product or process. What many people don’t know is that our patent system in America is designed to discourage inventors from sitting on their patents rather than using them.

This is particularly relevant to today’s public discussions on energy policy. As a country, we’re facing a crisis in the Gulf of Mexico due to BP’s oil spill, our dependence on foreign oil, and our general lack of viable energy alternatives for creating a substantial portion of our energy needs from renewable or carbon-neutral sources.

The Bayh-Dole Act of 1980 gives the government certain rights to patented technology maturing out of federally-funded research.  I mentioned this act in the context of a law review article published in 2008 on the viability of Americans growing their own ethanol-based fuel. Two rights reserved to the government are key:  first, if the government funds research at an institution, the government need not pay to use the intellectual property arising from such research. That is, the Bayh-Dole Act allows the government to sidestep the artificial markup for patented products that end consumers have to pay. Second, if the owner of the patented technology is not fully exploiting the technology to the benefit of society, the government may license the technology out to firms who will.

Over 7.5 million patents have been granted by our federal government. To point out a few examples, over 15,000 of these patents deal with transmission of electricity. Over 26,000 relate to wells and drilling for oil. 33,000 represent technological advancement in power plants. Nearly 64,000 address radiant (solar) energy.

The 7.5 million patents represent the collective knowledge of the best and brightest from around the world, and many of those patents were the product of federally-funded research. It seems to me that the federal government could mine some of the technology it has already paid for as a start towards creating new energy policies for our future.