Bad Patents Keep Drug Prices High
Skyrocketing prescription drug prices remain a pressing political issue. Polls show that a large majority of voters in both parties support efforts to reduce drug prices, and President Joe Biden’s reelection campaign highlights his administration’s efforts to do so under the Inflation Reduction Act.
A major factor driving higher drug costs is the patent system, which grants pharmaceutical manufacturers a 20-year exclusive right to “make, use, sell, and import” their products. Although the government originally established the patent system to “promote the Progress of Science and useful Arts,” many patents are now deployed to protect and extend monopoly power. In the case of pharmaceuticals, complex patent strategies are regularly implemented to keep competitors and low-cost generics out of the market for as long as possible to maximize the profits of blockbuster drugs. Given this ongoing misuse of the patent system, any proposed changes to patent policy must be evaluated carefully to ensure that they deter, rather than reinforce, such practices.
With this need in mind, this analysis assesses recently proposed patent legislation. It explains the strategies pharmaceutical companies use to prolong their drug patents, outlines measures lawmakers and the judiciary have taken to limit such practices, and considers how proposed legislation could undermine these efforts.
“Gaming” the System
Pharmaceutical companies have become adept at “gaming” the patent system to extend exclusivity and monopoly power to maximize profits. Tactics like “evergreening” (making minor modifications to existing drugs to obtain additional patent protections), “patent thickets” (filing many different patents on different aspects of a single drug), and “product hopping” (introducing a new version of a drug as a patent is expiring and encouraging doctors, pharmacists, and patients to switch to the updated version) are commonly used to extend monopolies even after the key patent expires.
Celgene’s blockbuster cancer drug Revlimid is a prime example of this practice. Although a key patent expired in 2019, the drug will not see real competition in the marketplace until 2026. This is because Celgene, now a subsidiary of Bristol Myers Squibb, has been able to prolong the drug’s exclusivity by creating a patent thicket around it. The company filed for an additional 206 patents on the drug—117 of which were approved. The costs of such patent thickets can be substantial to consumers and the health care system: The price of Revlimid increased from $6,000 per month in 2002 to $24,000 per month in 2022, resulting in a total estimated cost of $45 billion for Americans.
Getting Patents Right
The strategic use of patent thickets in the pharmaceutical sector raises important questions about the role of patents and how to ensure that the patent system functions as a tool to support invention and innovation rather than to protect monopolies. The ideal patent system should include two key elements: (1) a process to ensure that the patents that are granted are truly warranted and (2) a mechanism to expeditiously challenge and remove invalid patents when they do make it into the system. This is more daunting than it may appear. In 2020 alone, the U.S. Patent Office received more than 600,000 patent applications, and a previous report estimated that patent examiners had, on average, only 18 hours to review a patent. Low-quality and overly broad patents may be erroneously granted under these constraints, so we must have a process in place to efficiently challenge them.
Both Congress and the courts have worked to improve the patent system and address such concerns. In 2011, Congress passed the America Invents Act, which, among other things, established a new Patent Trial and Appeal Board (PTAB) in the U.S. Patent and Trademark Office. The PTAB was designed to curb excessive patent litigation by providing a more expeditious administrative review process for weeding out low-quality patents. The Supreme Court has contributed to this effort by addressing the question of what is patentable in a series of key decisions issued over the last 17 years.
Problems with PREVAIL
Unfortunately, recent bills introduced in Congress have the potential to undo these efforts and revert to a more litigious patent system that is easier to exploit and less conducive to innovation. A previous R Street analysis explored issues with the Patent Eligibility Restoration Act, which was introduced by Sens. Chris Coons (D-Del.) and Thom Tillis (R-N.C.) and would expand the definition of what is patentable in ways that could deter invention and innovation.
This analysis looks at another bill introduced by Sens. Coons and Tillis, along with Sens. Dick Durbin (D-Il.) and Mazie Hirono (D-Hi.): the Promoting and Respecting Economically Vital American Innovation Leadership (PREVAIL) Act. The PREVAIL Act narrows the patent review process, making it more difficult to eliminate invalid patents that should not have been granted in the first place. More specifically, provisions in this act would restrict the use of inter partes review (IPR) proceedings at the PTAB—a process designed to facilitate challenges of weak secondary or continuation patents like those commonly used in patent thickets in the pharmaceutical sector.
Problematic IPR changes proposed in the PREVAIL Act include:
- Limiting the parties that can challenge a patent. Under current law, anyone has the right to challenge the validity of a patent with the PTAB. The act would restrict this ability to those who have been sued or directly threatened with a lawsuit over a patent. This would exclude third parties like generic manufacturers, patient advocacy groups, civil society organizations, and others from challenging poor-quality patents unless they are direct parties to a dispute (i.e., sued or threatened to be sued by the manufacturer). These third-party groups, however, typically lack standing to engage in litigation, so without the PTAB, their voice may not be heard.
- Limiting the number of potential challenges to any patent. Current law restricts a petition to the PTAB to 14,000 words. For a complex patent with many claims, this may not be sufficient. Yet the act proposes to go even further by limiting the number of petitions that may be filed, making it more difficult to effectively challenge a patent at the PTAB.
- Increasing the burden of proof for demonstrating that a patent is invalid. The act would raise the evidentiary standard for invalidating patent claims at the PTAB, shifting from the current “preponderance of the evidence” standard to a “clear and convincing standard” that favors the patent holder in any challenge.
- Reducing venues for challenging patents. The act includes requirements to choose a single forum for patent-validity challenges (either the PTAB or district court, but not both), which could complicate and potentially increase the cost of a patent challenge. Because PTAB trials are quicker and less expensive than adjudication in federal courts, limiting the PTAB’s role leaves litigation as the only option.
Not only would these proposed changes make attempts to invalidate patents more costly in terms of time and money, but they would also reduce the overall incentive to improve patent quality, as the risk of a patent challenge would be lower.
These changes would also embolden pharmaceutical companies to double down on the practice of creating patent thickets to wall off competition and generics. This is because the secondary patents that form patent thickets are typically of lower quality than a drug’s primary patent. (Primary patents cover the active ingredient, whereas secondary patents are typically related to elements like dosage, packaging, or delivery of a drug.) These secondary patents are currently more susceptible to challenge if they offer little therapeutic value above and beyond the original patent. The proposed act would make it more difficult to challenge these lower-quality, monopoly-extending patents, and the resulting broad patent protection of brand-name drugs would continue to block generic manufacturers from entering the market.
This would have a direct negative effect on consumers and the health care system as a whole. Without competition from generics, monopoly prices for the branded drugs would remain artificially high for a longer time, negatively affecting patients who rely on lifesaving or life-changing medication as well as the public and private health care insurers who share the costs of those medications. In fact, one study looking at just five drugs over 20 years found that eliminating generic competition of those drugs imposed $4.7 billion in annual costs on the U.S. health care system. Another study estimated that evergreened reformulations increased Medicaid spending by $9.35 billion from 2008 to 2016 alone.
Importantly, one empirical examination of drug pricing and patents found “a correlation between administrative patent challenge procedures, such as IPR, and lower drug prices due to generic entry.” This finding reinforces the importance of maintaining the current IPR process to deter lower-quality patents, enhance competition, and provide much-needed medication to patients and health care organizations at fairer costs.
Conclusion
The “gaming” tactics used by pharmaceutical companies to preserve drug monopolies and artificially inflate drug costs undermine the intent of the patent system, which is to promote innovation by allowing exclusivity for a reasonable period before enabling competition. Legal strategies that exploit loopholes to extend lucrative monopolies without providing true therapeutic advances impede market competition that could significantly reduce prices for consumers and health care payers.
The PTAB’s IPR process was introduced under the America Invents Act as a means to more effectively challenge questionable patents, such as the secondary patents often used to extend market exclusivity for blockbuster drugs. These patents tend to be weaker than the primary patents, making review a relevant concern. Proponents of PREVAIL assert that the courts can address these issues, but the IPR process was specifically created to handle these questions in a more timely and cost-effective manner than litigation. Research suggests that the IPR process is effective—more so than district courts, as “data suggests that the Federal Circuit affirms findings made by the PTAB reliably more often than findings made by district court judges.”