E-drug: Patent Pools, Access to HIV treatments in Africa
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[Warning: long message BS]
At MSF's recent meeting on drugs for neglected diseases, there was a
discussion on patent pooling, and in particular, whether a system like the
GNU GPL copyleft system for copyright might be appropriate for pools of
patents and data that could be freely shared with persons who joined the
pool. Warren Kaplan drew our attention to this interesting white paper on
the USPTO web page on patent pooling. Dr. Kaplan also explained that in the
past the government has effectively used a patent pool to give a group
compulsory license on a large number of patents, using in particular the
1917 example involving aircraft patents, a pool created at the advice of
then Assistant Secretary of the Navy FDR, to overcome the blocking patents
held by the Wright Company and the Curtiss Company. It would be interesting
to think about an HIV patent pool being created in South Africa, for
example, to permit access into the market for products that treat HIV, or to
create a US R&D patent pool that all recipients of US NIH funds could be
required to join. Here are some sections from that White Paper. Jamie
James Love, mailto:james.love@cptech.org,
http://www.cptech.org
voice +1.202.387.8030, mobile +1.202.361.3040, fax +1.202.234.5176
http://www.uspto.gov/web/offices/pac/dapp/opla/patpoolcover.html
http://www.uspto.gov/web/offices/pac/dapp/opla/patentpool.pdf
PATENT POOLS: A SOLUTION TO THE PROBLEM
OF ACCESS IN BIOTECHNOLOGY PATENTS?
By Jeanne Clark, Legal Advisor, Office of Patent Legal Administration
Joe Piccolo, Associate Solicitor, Office of the Solicitor
Brian Stanton, Biotechnology Technology Center Practice Specialist, and
Karin Tyson, Senior Legal Advisor, Office of Patent Legal Administration
with Assistance from
Mary Critharis, Associate Solicitor, Office of the Solicitor
Stephen Kunin, Deputy Commissioner for Patent Examination Policy
United States Patent and Trademark Office
December 5, 2000
III. PATENT POOLS AND THEIR HISTORY
A "patent pool" is an agreement between two or more patent owners to license
one or more of their patents to one another or third parties.5
Alternatively, a patent pool may also be defined as "the aggregation of
intellectual property rights which are the subject of cross-licensing,
whether they are transferred directly by patentee to licensee or through
some medium, such as a joint venture, set up specifically to administer the
patent pool."6
Over the last one hundred and fifty years, patent pools have played an
important role in shaping both the industry and the law in the United
States.7 In 1856, the Sewing Machine Combination formed one of the first
patent pools consisting of sewing machine patents.8 In 1917, as a result of
a recommendation of a committee formed by the Assistant Secretary of the
Navy (The Honorable Franklin D. Roosevelt), an aircraft patent pool was
privately formed encompassing almost all aircraft manufacturers in the
United States.9 The creation of the Manufacturer's Aircraft Association was
crucial to the U.S. government because the two major patent holders, the
Wright Company and the Curtiss Company, had effectively blocked the building
of any new airplanes, which were desperately needed as the United States was
entering World War I.10 In 1924, an organization first-named the Associated
Radio Manufacturers, and later the Radio Corporation of America, merged the
radio interests of American Marconi, General Electric, American Telephone
and Telegraph (AT&T) and Westinghouse, leading to the establishment of
standardization of radio parts, airway's frequency locations and television
transmission standards.11 A more recent patent pool was formed in 1997, by
the Trustees of Columbia University, Fujitsu Limited, General Instrument
Corp., Lucent Technologies Inc., Matsushita Electric Industrial Co., Ltd.,
Mitsubishi Electric Corp., Philips Electronics N.V. (Philips),
Scientific_Atlanta, Inc., and Sony Corp. (Sony) to jointly share royalties
from patents that are essential to compliance with the MPEG_2 compression
technology standard.12 In 1998, Sony, Philips and Pioneer formed a patent
pool for inventions that are essential to comply with certain DVD-Video and
DVD-ROM standard specifications.13 Yet another patent pool was formed in
1999, this time by Toshiba Corporation, Hitachi, Ltd., Matsushita Electric
Industrial Co., Ltd., Mitsubishi Electric Corporation, Time Warner Inc., and
Victor Company of Japan, Ltd. For products manufactured in compliance with
the DVD-ROM and DVD-Video formats.14
[snip]
IV. LEGAL GUIDELINES FOR FORMING INTELLECTUAL PROPERTY POOLS
The Justice Department has applied these guidelines in considering and
approving three proposed patent pools. Its first review set forth the
following additional guidelines:
(1) the patents in the pool must be valid and not expired,
(2) no aggregation of competitive technologies and setting a single price
for them,
(3) an independent expert should be used to determine whether a patent is
essential to complement technologies in the pool,
(4) the pool agreement must not disadvantage competitors in downstream
product markets, and
(5) the pool participants must not collude on prices outside the scope of
the pool, e.g., on downstream products.31
Currently, the guidelines have been "collapsed" into the following two
overarching questions: (1) "whether the proposed licensing program is likely
to integrate complementary patent rights," and (2) "if so, whether the
resulting competitive benefits are likely to be outweighed by competitive
harm posed by other aspects of the program."32 In analyzing these issues,
the Justice Department has focused on the patents to be licensed (i.e., an
independent expert in the relevant technology determines that they are
"essential" to complementing the central technology in the pool), the joint
licensing arrangement (i.e., collusion is unlikely, access to technology is
enhanced), and the positive effects on innovation (e.g., the pool
participants are required to license to each other "essential" patents they
obtain in the future, less of a chance for future "blocking" patents, newer
patents weigh heavier in calculating royalties to patent owners).33
[snip]
V. BENEFITS FROM THE POOLING OF BIOTECHNOLOGY PATENTS
The re-emergence of the formation of patent pools suggests that the social
and economic benefits of such arrangements outweigh their costs. This
section will discuss some of the significant benefits of patent pooling, as
well as some of their costs.
A first benefit associated with the pooling of patents is the elimination of
problems caused by "blocking" patents or "stacking" licenses.34 In
biotechnology, the granting of patents to nucleic acids may create blocking
patents or lead to stacking licenses. As demonstrated in the emerging
airplane technology in the early 1900's, corporations that hold patents on
an industry's basic building blocks can prevent each other, as well as
others, from bringing commercial products to the market.35 By creating a
patent pool of these basic patents, businesses can easily obtain all the
necessary licenses required to practice that particular technology
concurrently from a single entity. 36 This, in turn, can facilitate rapid
development of new technology since it opens the playing field to all
members and licensees of the patent pool.37 For example, the recent patent
pool encompassing MPEG-2 technology led to the rapid formation of a
standardized protocol to protect copyrighted works on the Internet.38
Similarly, patent pools can eliminate the problems associated with blocking
patents or stacking licenses in the field of biotechnology, while at the
same time encouraging the cooperative efforts needed to realize the true
economic and social benefits of genomic inventions.39 In addition, since
each party in a patent pool would benefit from the work of others, the
members may focus on their core competencies, thus spurring innovation at a
faster rate. A second benefit is that patent pools have the potential to
significantly reduce several aspects of licensing transaction costs.40
First, patent pools can reduce or eliminate the need for litigation over
patent rights because such disputes can be easily settled, or avoided,
through the creation of a patent pool. A reduction in patent litigation
would save businesses time and money, and also avoid the uncertainty of
patent rights caused by litigation. 41 In addition, small businesses, which
cannot usually endure the costs of litigation, are more likely to survive
and prosper if they are free from legal suits over patent rights in the
future.42 Second, a patent pool creates an efficient mechanism for obtaining
rights to a patented technology. 43 Parties interested in a certain
technology covered by a patent pool can, in one stop, license all the
patents essential to a core technology. 44 Without a patent pool, a company
would have to obtain licenses separately from each holder of the essential
patents. Not only does the process of individual licensing require more
time, money and resources, but it also establishes a motivation for some
patent owners to hold out on licensing their patent.45 For example, if a
company knows that they own the last patent a consumer needs to practice a
particular technology, they can demand a substantially higher royalty
because they realize that the value of all the other licenses that the
consumer already purchased depends on obtaining this last license.46 Patent
pools address this anticompetitive "hold out" problem by providing a means
in which most, if not all, necessary licenses are obtained at one time. In
addition, patent pools often require a grantback license of any improvement
patents on the core technology of the patent pool to reduce the risk of
future lawsuits.47 A reduction in transaction costs is particularly
important to biotechnology firms, where a significant portion of their
research and development funds are being diverted to cover transaction
costs, thus slowing down further innovation. 48
A third major benefit from patent pooling is the distribution of risks. Like
an insurance policy, a patent pool can provide incentive for further
innovation by enabling its members to share the risks associated with
research and development.49 The pooling of patents can increase the
likelihood that a company will recover some, if not all, of its costs of
research and development efforts.50 Depending on the structure of the pool,
all members may receive a set income based upon a percentage of the pool's
royalty regardless of the "economic" value of their individual patent. For
example, under the MPEG LA patent pool, all essential patents are equal in
value no matter the cost of the research and development required for their
actualization. 51 This arrangement evenly distributes the wealth of the pool
to all its members. In addition, all members of a patent pool have equal
access to the technology in the pool, which may enhance the commercial
potential of the patented invention of an individual member.52 A mechanism
that distributes risks and provides greater access to related technology
should be extremely attractive to biotechnology businesses that have to fund
the high research and development costs inherent in this area of innovation.
53
Finally, a fourth benefit of patent pooling is an institutionalized exchange
of technical information not covered by patents.54 A patent pool provides a
mechanism for free sharing of technical information related to patented
technology among its contributing members and its licensees.55 By fostering
lines of communication between the members, trade secrets would become less
prevalent. Instead, the members would have an incentive to avoid overlapping
efforts, especially in the field of biotechnology. Competitive success in
the market place depends upon access to information in order to use limited
resources efficiently, and patent pools would provide greater access to
information for its members. This is particularly important in biotechnology
where the potential for commercial development is staggeringly high,
especially if limited resources are used effectively and efficiently. 56
Critics have stated that patent pools have several anticompetitive effects.
The first criticism is that patent pools inflate the costs of competitively
priced goods.57 This argument is based on the assumption that while certain
patents may be considered to be legally blocking, such patents actually
cover competitive alternatives to a certain technology, and that the pooling
of these patents will expand monopoly pricing.58 This criticism can be
dismissed by careful evaluation of patent pool arrangement as to whether the
patents are truly "blocking" as outlined in the IP Guidelines.59
A second reason why critics feel patent pools should not be encouraged is
that pools shield invalid patents.60 Companies who fear that their patents
will be invalidated in court are eager to settle by creating a patent pool.
61 This, in turn, will force the public to pay royalties on technology that
would have become part of the public domain if the patents were actually
litigated in court. While certainly a valid concern, patent pools can avoid
this situation if the patents for the pool are selected and monitored by an
independent expert to evaluate the patents.62 In addition, oversight of
patent pools by the Department of Justice and the FTC provide further
assurance that the pools are not shielding invalid patents. For example,
recently, a FTC complaint against Summit and VISX charged the companies with
unlawful price fixing involving their patent pool. 63 In addition, the FTC
challenged the patent pool because it was protecting an invalid patent.64
Thus, the formation of a patent pool does necessarily prevent the technology
in an invalid patent from being returned to the public domain.
A final criticism of patent pools is that such pools eliminate competition
by encouraging collusion and price fixing.65 Careful evaluation of patent
pools under the IP Guidelines should alleviate this important concern. One
of the many factors that the IP Guidelines evaluate is the patents'
relationship to the industry and to each other.66 If the patent pool harms
competition and reduces further innovation, then the members of that pool
may face antitrust violations, which should discourage the formation of
anticompetitive patent pools.67