Though President Trump spent the past four years railing against drug manufacturers, his administration had little success in curbing pharmaceutical prices. In 2019 alone, Americans spent an astonishing $82 billion out-of-pocket on prescription drugs. That’s an 11-percent increase since 2015. This has real human costs: A recent Washington Post investigation found Americans risking their lives because they cannot afford modern insulin treatments.
A divided Senate may struggle to address rising drug prices, but the Biden White House can fix one of the most broken aspects of our drug system with no help from Congress. It can give out fewer bad patents.
Drugs are costly because brand-name medications are patent-protected monopolies. Despite making up only 10 percent of prescriptions, brand-name therapies account for 80 percent of drug spending. The U.S. government gives manufacturers temporary monopolies, primarily through patents and other legislative protections that block generic competitors from entering the market. Drugmakers prolong their market power by obtaining additional “secondary” or “tertiary” patents on successful drugs apart from the original patent on the active ingredient.
Although drugmakers’ original patents are often strong, protecting difficult-to-develop molecules, these follow-on patents are weaker. These patents give manufacturers monopolies on everything from tweaked syringes to which types of patients should receive the drug. Some follow-on patents have become notorious, such as one granted to Abbott Laboratories protecting the addition of peppermint and cotton candy flavors to its HIV drug. Reviews have shown that such patents are invalidated in court at a much higher rate than drugmakers’ original patents.
Nevertheless, brand-name manufacturers then use this thicket of patents to delay competition from generics, costing Americans billions of dollars every year in higher prices. For example, AbbVie has stopped competition to its blockbuster drug adalimumab (Humira) by securing more than 100 patents on every aspect of the therapy. The company’s chief executive called the Humira patents an intellectual property “minefield.” In the United States, where AbbVie’s patents still protect its monopoly, the company hiked adalimumab prices by 16 percent between 2017 and 2018, boosting sales by almost $2 billion. In Europe, by contrast, when Humira began facing competition in 2018, AbbVie slashed its price by 80 percent.
Why is the government giving out so many weak patents? One reason is the Patent and Trademark Office (PTO) treats patent applicants, rather than the public, as its customers. In a recent presentation, the PTO’s “Patent Customer Experience Administrator” praised its “customer focus” because it leads to an “increased likelihood to purchase” — that is, to apply for a patent. As scholars Michael D. Frakes and Melissa F. Wasserman show in important studies, this culture is driven by PTO’s funding. Critically, all of the agency’s revenue comes from fees, and it collects most of its fees only if a patent is granted. This would be like the DMV only collecting the fees through which it paid its employees’ salaries if applicants pass their driving test.
The agency’s reliance on issuance fees biases the agency toward speedily reviewing and granting patents. Examiners are given bonuses in part based on how quickly they are able to crunch through applications. Although the agency adjusts its time targets based on the application’s complexity, these goals are disproportionate to the applications’ economic importance. Examiners are supposed to spend 26 hours assessing a patent on a protein drug directed at the immune system, and 17 hours on patents for fishing lures. For context, adalimumab — a single protein drug used for numerous immunologic conditions — brought in about $12 billion in U.S. sales in 2017, or more than twice as much as the entire U.S. fishing harvest that year.
Under pressure to move quickly, examiners spend an average of 19 hours per application in considering a decision of whether to grant a 20-year monopoly. According to a study by the Government Accountability Office, 70 percent of examiners say they do not have enough time to do as thorough of a job as they would like. Because the law puts the burden on the government to show that a patent application should not be granted, such time constraints mean the PTO grants too many invalid patents.
The problem of weak drug patents has worsened under the Trump administration. In the past two years, the PTO has made it even more difficult for examiners to reject patent applications. The office issued directives that increase the amount of work examiners must do to reject certain applications, such as those that seek to patent a process found in nature. Predictably, these directives decreased examiners’ rejections for such ineligibility by more than 25 percent.
The Biden administration can fix these problems, helping to lower drug prices and increase innovation. These changes can start immediately, without congressional action.
First, the PTO should give examiners more leeway to reject ineligible applications. The PTO can develop new guidance that gives applicants predictable advice while blocking invalid applications.
Second, the PTO should give examiners more time to do their jobs. Frakes and Wasserman estimate spending $20 million more on examining secondary drug patents would save more than $1 billion a year by speeding competitors into the market and lowering drug prices. That’s less than 1 percent of the PTO’s $3.7 billion budget for 2021. The PTO has said it is reviewing the current examination system, and the Biden administration should make sure the changes emphasize rewarding quality. For example, the agency can cut bonuses for examiner speed and increase payouts for issuing patents that protect novel and creative inventions, rather than obvious tweaks of prior work.
Finally, because the PTO has the power to set its own fees, the agency can reduce its dependence on revenue from granting patents. The agency could raise the initial application fee and cancel the fee for issuing a patent. This step might take a time-consuming regulatory process, but it would prove critical — weaning the agency off its destructive “customer” focus and directing its energies toward serving the public.
Though weak patents are a particular scourge in the prescription drug market, these proposed fixes would improve innovation and access in all parts of the economy. To be sure, if Congress is willing to work with the White House, there is much more the government can do to improve how it rewards new inventions. But the Biden administration need not wait. The incoming president can act on his first day in office to ensure the PTO is doing what the Constitution asks of it: promoting “the progress of science and useful arts.”