The current article seeks to elaborate on the Patent Pool System. It is a mechanism that can play a vital role in combating the Novel Coronavirus. Readers are advised to first read the article titled ‘Coronavirus Vaccine and the Problems of Patent Rights’. The same is available here.
Introduction
A patent pool is an association of at least two patent holders. These patent holders agree to cross-licensing their patents on a specific technology. This is how many organizations pool in their patents on a particular technology.
A specific drug consists of a plethora of patents. It is a herculean task for a pharmaceutical company to source all the licenses necessary to produce a potential vaccine. Further, there are problems like ‘Holdout’ and ‘Royalty Stacking’. Patent pools can improve innovation and cost efficiency while addressing these concerns.
Patent Pools are not a new concept. They have existed since the 1800s. The first recorded formation of a patent pool is in the sewing industry. Grover, Baker, Singer, and Wheeler & Wilson formed the same. It was to ensure that they do not sue each other out of profits for patent infringements. There has also been an instance of the formation of an involuntary patent pool. Such an action was undertaken by the US Government. It was against the aircraft industry to expedite the manufacturing process during the First World War.
Holdouts
Imagine the coronavirus vaccine as the construction of a mall. The builder requires all the patches of the property where he wished to construct the mall. These individual pieces of land are like individual patents needed to make a vaccine. Let’s say that ten plots are necessary to construct the mall. The nine plots are intrinsically worthless without the tenth. If the tenth plot owner gets a whiff that construction is underway, he may increase the price of the plot. This is a situation of a holdout.
Such a situation is often faced by pharmaceutical companies. In a legal sense, a patent holdout is when a Standard Essential Patent (SEP) holder exploits a licensee’s costs to switch away from the associated standard as a method of gaining royalties above the fair, reasonable, and non-discriminatory (FRAND) level.
A patent pool does away with this problem as all the necessary patents are already pooled in. The issue of the final patent holder holding out does not even arise. Even if the voluntary patent pool is unable to get all the patents necessary for the vaccine, it will be able to get a majority of them. The same will reflect in a significant reduction in the cost of manufacturing. The same will also aid generic manufacturers to produce the vaccine. As a rule, the price of drugs falls when there exists competition. Making the vaccine well within the reaches of LDCs too.
Royalty Stacking
Royalty Stacking occurs when a single invention potentially infringes on many patents. Thus, the same may endure multiple royalty payments.
The multiple royalty payments increase the cost of the potential vaccine. Firms transfer the same to the customer along with the profit margin. The issue of multiple royalty payments makes the vaccine out of reach for LDCs and many developing nations. The only viable option in this scenario would be the heavy subsidization of the vaccine by the concerned government. This would deplete the coffers and slow down the process. It also introduces new risks of under-the-table transactions, vaccine hoarding, and vaccine black-markets.
A patent pool addresses this problem. The producers of this vaccine will only be liable to pay a FRAND fee. The producer pays this fee to the administrator. It licenses all the patents necessary instead of making multiple royalty payments.
Subsequent Innovation
A common argument against patent pools is that they are anti-competitive. It is also argued that they stifle future innovation. The US National Bureau of Economics conducted a research on the same. It concluded that after the formation of a patent pool, companies experience a drop in innovation. The research measures this drop by means of subsequent patents filed. There seems to be a visible decrease in new patents filed.
Keyvan Vakili, a doctoral candidate at the University of Toronto scrutinized the MPEG-2 technology pool. He arrived at a different conclusion. Dr. Keyvan realized that patents are only one indicator of innovativeness. The companies that joined the MPEG-2 pool were not filing new patents since they focused their R&D efforts towards the application of the MPEG-2 know-how in new end-products. Such end products did not amount to new patents but still were noteworthy inventions. The creation of the MPEG-2 patent pool enabled a surge in similar products and not a dip in innovation.
What patent pools do is that it acts as a uni-directional catalyst. If the pool were not formed there would have definitely been more wraparound patents. But the formation of the pool eliminated the need for the same. Instead, the pool members were free to focus on creating better end-products. This helps them earn a good profit.
The same process will happen in the case of a vaccine. The primary vaccine would be costly and the delivery mode would be rather unrefined. A patent pool will help access to the necessary patents. Hence, manufacturers can now focus on improving the delivery mechanism and reducing costs.
Pandemic Patent Pool
The creation of a pandemic patent pool will ease the creation of a coronavirus vaccine. Organizations such as the Oxford University Innovation have announced new procedures for fast-tracked non-exclusive licenses. It offers these to potential partners interested in using Oxford’s coronavirus associated intellectual property.
A trusted international body should administer the pandemic pool. The same must be formed on the lines of Medicines Patent Pool (MPP), except much broader. Officials from organizations such as the World Health Organisation (WHO), Unitaid, and the United Nations (UN) should form the core body of the new patent administer.
Many world leaders including the President of the United States (POTUS) have declared their anti-corona measures as “a war on the Coronavirus”. The same brings forth the notion that the Pandemic Patent Pool (PPP) should be an involuntary one. This will be like the forced pool created during the First World War. But, such a drastic measure could have very negative repercussions on the pharma industry. It might kill any private corona R&D.
But, the Pandemic Patent Pool must be formed with utmost caution. One cannot deny that the pharma industry has found a golden goose with corona. Such a pool shouldn’t bottleneck potential profits that recoup R&D efforts.
Author’s Suggestions
The personal suggestions by the author to put forth a potential patent pool are:-
- The patent pool administration must be unbiased. The administrators should not be from any pharmaceutical company. They shouldn’t be allowed to join one subsequently.
- The Pandemic Patent Pool must not be a standing pool. The same must only come into existence when a pandemic/epidemic is present. The patents in the pool will be transferred to the medicine patent pool upon the termination of the pool at higher royalty rates. Such a move will persuade more pharmaceutical companies to offer their patents.
- The voluntary patent offerings to the Pandemic Patent Pool should constitute the Corporate Social Responsibility (CSR) of the offering firms. Such offerings must also qualify for tax breaks akin to those for charity.
- The Pandemic Patent Pool must be more to partners than the Medicine Patent Pool. The vaccine pre-qualification measures by WHO are lengthy and cumbersome. The process averages at around a year to complete. A fast-tracked process may provide the much-needed opportunity to small drug manufacturers.
- The Pandemic Patent Pool must not be limited to various drug and process patents that are required to produce the vaccine. It should also license patents that are essential for the vaccine delivery mechanism.
Conclusion
The decision of pharmaceutical companies in the present situation is critical to their survival. A move for reaping maximum profits through the IP regime will attract public hatred. Non-enforcement of a vaccine patent will cause the losses in R&D to be in billions of dollars. This makes the idea of patent pools that much alluring. But, creating and administering a Patent pool is no trivial takes. The same entails months of negations and planning. The administrator must fix royalty rates, draft license agreements, and lay down territorial specifications. Such a huge initial investment throws the possibility of a patent pool into the side-lines.
However, in view of the scale of the pandemic and the pressing international need for speedy treatment of the novel coronavirus, it is in the general public interest that the likelihood of a Pandemic Patent Pool is not buried in the files.
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