Should We Start Worrying About Pharmaceutical Patent Trolls?

An expert told us there "a gold rush for profit" in patent-centric areas such as the drug biz.
September 22, 2015, 5:00am

Composite via Flickr user Paul Traf and Wikimedia Commons user Pentachlorophenol

It came to America's attention earlier this week that a company called Turing Pharmaceuticals had gotten its hands on a drug used to treat serious infections, and increased the price from $13.50 to $750 all at once. Turing's CEO, a 32-year-old unrepentant capitalist named Martin Shkreli became the internet's new Boogie Man of the Week, attracting more intense hatred than Kim Davis, Rachel Dolezal, and the lion-slaying dentist combined.

Then Shkreli announced on Tuesday that since everyone got so worked up about it, he's going to go ahead and slash the price to some mysterious lower amount in the hopes that everyone will shut up.

But the incident had already drawn the ire of possible future president Hillary Clinton, who unveiled specific steps she would take to bring drug costs down through regulation. Her plan includes the expected price ceilings, as well as measures aimed at bringing more generic drugs to the market—conventional wisdom says the presence of cheaper generics brings down the cost of name brand drugs.

But to a layperson, there was one seemingly out-of-left field regulation: under the plan, research and development have to make up a certain percentage of a pharmaceutical company's revenue. That's odd. Why would more research eventually lower retail prices? Also, what kind of pharmaceutical company would need the government to force it to do R&D anyway?

Robin Feldman is a Professor of Law at University of California Hastings, and a frequent commentator on biotechnology and intellectual property. Feldman co-wrote a paper last year on the pharmaceutical industry's vulnerability to patent trolls—companies that do nothing but buy up patents, and then wait for someone to violate them, so they can sue. We got ahold of Feldman to find out what's going on in this weird industry, and why forcing companies to do more research and development might help lower drugs costs.

VICE: What's going on in the pharmaceutical world lately?
Robin Feldman: There's a gold rush for profit in areas dominated by patents. That includes tech, and it also includes pharma—drug companies. The gold rush is encouraging business behaviors that may not be in the public interest.

Is something changing in the companies' strategies?
I think it really is the popularization of—or emergence of—the patent-trolling model. That is: invention used primarily for licensing revenue rather than making products. We want tech companies and drug companies to be innovating, creating new products for the benefits of society. We don't want the most creative work at a company to be happening in the legal department.

Where could companies get patents for this purpose?
Universities get large amounts of federal funds to do life science research. Until recently, Universities had a policy that they would not transfer—or sell—patents to patent trolls, [companies that] don't make products; they make demands on companies that do make products. Universities have been shifting that policy.

Can you give me an example of a university?
Penn State did an auction of patents last year or two years ago, and they were careful to say that the patents were available to anybody.

What happens when pharmaceutical companies behave this way?
Pharma has brought wonderful advances to modern medicine, but it's important to remember, the question is whether the costs are appropriate, and the behaviors are appropriate. I believe at the end of the day that the way to keep drug prices in line is to get generics out early and often. With generics on the market, the price of a drug drops precipitously. If a drug company can block generic entry, the price of a drug stays high. Tactics that companies use to prevent generic competition are big problems.

Tactics other than being a patent troll?
I don't know that Daraprim is doing this, but in order for a generic company to get FDA approval, the generic has to demonstrate that its drug is equivalent. It can't do that if it can't get a sample of the drug. One tactic companies are using is saying "Ours is a very dangerous controlled substance. We can't give you a sample." The FDA says, "Of course they can give you a sample." The company says "No no no, we can't give out any samples." And while they fight back and forth, the generic is sidelined.

Does this bickering last a long time? Years?

So to be clear, the tactics of a patent troll don't stop generics from being released. They just force companies to pay up before they release a drug?
It's a tax. It raises the price [for consumers].

Is the government already trying to combat this?
Patent reform is being seriously considered in Congress right now. There are reforms that would affect patent trolling behavior. Those reforms might also have a disciplining effect to some extent on the anti-generics behavior, the game pharmaceutical companies play under the Hatch-Waxman act. However, pharmaceutical companies appear to have been successful at getting themselves largely exempted from all of the patent reforms under consideration.

Who in Congress is pushing for this?
Congressman Goodlatte, who is the chair of the House Judiciary Committee, it's his proposal. It's moving through the House side, which is likely to act before the Senate side.

So a bill like this, if it included pharma companies, might prevent trolls from trolling?
I don't think you would look at pharma companies being the patent trolls. What you see is pharma companies using behavior to try to block generic competition. The pharma companies are worried that if patent reform passes, not only will it block the trolls, but it blocks the games that they play against generic companies.

Follow Mike Pearl on Twitter.