[Ip-health] Joseph Stiglitz: How Intellectual Property Reinforces Inequality

Krista L. Cox krista.cox at keionline.org
Sun Jul 14 21:26:04 PDT 2013


In the war against inequality, we’ve become so used to bad news that we’re
almost taken aback when something positive happens. And with the Supreme
Court having affirmed that wealthy people and corporations have a
constitutional right to buy American elections, who would have expected it
to bring good news? But a decision in the term that just ended gave
ordinary Americans something that is more precious than money alone — the
right to live.

At first glance, the case, Association for Molecular Pathology v. Myriad
Genetics, might seem like scientific arcana: the court ruled, unanimously,
that human genes cannot be patented, though synthetic DNA, created in the
laboratory, can be. But the real stakes were much higher, and the issues
much more fundamental, than is commonly understood. The case was a battle
between those who would privatize good health, making it a privilege to be
enjoyed in proportion to wealth, and those who see it as a right for all —
and a central component of a fair society and well-functioning economy.
Even more deeply, it was about the way inequality is shaping our politics,
legal institutions and the health of our population.

Unlike the bitter battles between Samsung and Apple, in which the referees
(American courts), while making a pretense at balance, seem to consistently
favor the home team, this was a case that was more than just a battle
between corporate giants. It is a lens through which we can see the
pernicious and far-reaching effects of inequality, what a victory over
self-serving corporate behavior looks like and — just as important — how
much we still risk losing in such fights.

Of course, the court and the parties didn’t frame the issues that way in
their arguments and decision. A Utah firm, Myriad Genetics, had isolated
two human genes, BRCA1 and BRCA2, that can contain mutations that
predispose women who carry them to breast cancer — crucial knowledge for
early detection and prevention. The company had successfully obtained
patents for the genes. “Owning” the genes gave it the right to prevent
others from testing for them. The core question of the case was seemingly
technical: Are isolated, naturally occurring genes something that can be

But the patents had devastating real-world implications, because they kept
the prices for the diagnostics artificially high. Gene tests can actually
be administered at low cost — a person can in fact have all 20,000 of her
genes sequenced for about $1,000, to say nothing of much cheaper tests for
a variety of specific pathologies. Myriad, however, charged about $4,000
for comprehensive testing on just two genes. Scientists have argued that
there was nothing inherently special or superior about Myriad’s methods —
it simply tested for genes that the company claimed to own, and did so by
relying on data that was not available to others because of the patents.

Hours after the Supreme Court’s ruling in favor of the plaintiffs — a group
of universities, researchers and patient advocates, represented by the
American Civil Liberties Union and the Public Patent Foundation — other
laboratories quickly announced that they would also begin offering tests
for the breast cancer genes, underlining the fact that Myriad’s
“innovation” was identifying existing genes, not developing the test for
them. (Myriad is not done fighting, though, having filed two new lawsuits
this month that seek to block the companies Ambry Genetics and Gene by Gene
from administering their own BRCA tests, on the grounds that they violate
other patents that Myriad holds.)

It should not be very surprising that Myriad has done everything it can to
prevent its tests’ revenue stream from facing competition — indeed, after
recovering somewhat from a 30 percent drop in the wake of the court ruling,
its share price is still nearly 20 percent below what it was beforehand. It
owned the genes, and didn’t want anybody trespassing on its property. In
obtaining the patent, Myriad, like most corporations, seemed motivated more
by maximizing profits than by saving lives — if it really cared about the
latter, it could and would have done better at providing tests at lower
costs and encourage others to develop better, more accurate and cheaper
tests. Not surprisingly, it made labored arguments that its patents, which
allowed monopolistic prices and exclusionary practices, were essential to
incentivize future research. But when the devastating effects of its
patents became apparent, and it remained adamant in exerting its full
monopoly rights, these pretensions of interest in the greater good were
woefully unconvincing.

The drug industry, as always, claimed that without patent protection, there
would be no incentives for research and all would suffer. I filed an expert
declaration with the court (pro bono), explaining why the industry’s
arguments were wrong, and why this and similar patents actually impeded
rather than fostered innovation. Other groups that filed amicus briefs
supporting the plaintiffs, like AARP, pointed out that Myriad’s patents
prevented patients from obtaining second opinions and confirmatory tests.
Recently, Myriad pledged it would not block such tests — a pledge it made
even as it filed the lawsuits against Ambry Genetics, and Gene by Gene.

Myriad denied the test to two women in the case by rejecting their Medicaid
insurance — according to the plaintiffs, because the reimbursement was too
low. Other women, after one round of Myriad’s testing, had to make
agonizing decisions about whether to have a single or double mastectomy, or
whether to have their ovaries removed, with severely incomplete information
— either Myriad’s testing for additional BRCA mutations was unaffordable
(Myriad charges $700 extra for information that national guidelines say
should be provided to patients), or second opinions were unattainable
because of Myriad’s patents.

The drug industry, as always, claimed that without patent protection, there
would be no incentives for research and all would suffer. I filed an amicus
brief with the court, explaining why the industry’s arguments were wrong,
and why this and similar patents actually impeded, rather than fostered,
innovation. Through my participation in the case, I heard heart-rending
stories of women who didn’t take the actions they should have, because they
believed the false-negative results of Myriad’s inferior tests. The better
tests would have told them they did in fact have a gene associated with
cancer.The good news coming from the Supreme Court was that in the United
States, genes could not be patented. In a sense, the court gave back to
women something they thought they already owned. This had two enormous
practical implications: one is it meant that there could now be competition
to develop better, more accurate, less expensive tests for the gene. We
could once again have competitive markets driving innovation. And the
second is that poor women would have a more equal chance to live — in this
case, to conquer breast cancer.

But as important a victory as this is, it is ultimately only one corner of
a global intellectual property landscape that is heavily shaped by
corporate interests — usually American. And America has attempted to foist
its intellectual property regime on others, through the World Trade
Organization and bilateral and other multilateral trade regimes. It is
doing so now in negotiations as part of the so-called trans-Pacific
Partnership. Trade agreements are supposed to be an important instrument of
diplomacy: closer trade integration brings closer ties in other dimensions.
But attempts by the office of the United States Trade Representative to
persuade others that, in effect, corporate profits are more important than
human lives undermines America’s international standing: if anything, it
reinforces the stereotype of the crass American.

Economic power often speaks louder, though, than moral values; and in the
many instances in which American corporate interests prevail in
intellectual property rights, our policies help increase inequality abroad.
In most countries, it’s much the same as in the United States: the lives of
the poor are sacrificed at the altar of corporate profits. But even in
those where, say, the government would provide a test like Myriad’s at
affordable prices for all, there is a cost: when a government pays monopoly
prices for a medical test, it takes money away that could be spent for
other lifesaving health expenditures.

The Myriad case was an embodiment of three key messages in my book “The
Price of Inequality.” First, I argued that societal inequality was a result
not just of the laws of economics, but also of how we shape the economy —
through politics, including through almost every aspect of our legal
system. Here, it’s our intellectual property regime that contributes
needlessly to the gravest form of inequality. The right to life should not
be contingent on the ability to pay.

The second is that some of the most iniquitous aspects of inequality
creation within our economic system are a result of “rent-seeking”:
profits, and inequality, generated by manipulating social or political
conditions to get a larger share of the economic pie, rather than
increasing the size of that pie. And the most iniquitous aspect of this
wealth appropriation arises when the wealth that goes to the top comes at
the expense of the bottom. Myriad’s efforts satisfied both these
conditions: the profits the company gained from charging for its test added
nothing to the size and dynamism of the economy, and simultaneously
decreased the welfare of those who could not afford it.

While all of the insured contributed to Myriad’s profits — premiums had to
go up to offset its fees, and millions of uninsured middle-income Americans
who had to pay Myriad’s monopoly prices were on the hook for even more if
they chose to get the test — it was the uninsured at the bottom who paid
the highest price. With the test unaffordable, they faced a higher risk of
early death.

Advocates of tough intellectual property rights say that this is simply the
price we have to pay to get the innovation that, in the long run, will save
lives. It’s a trade-off: the lives of a relatively few poor women today,
versus the lives of many more women sometime in the future. But this claim
is wrong in many ways. In this particular case, it is especially wrong,
because the two genes would likely have been isolated (“discovered,” in
Myriad’s terminology) soon anyway, as part of the global Human Genome
Project. But it is wrong on other counts, as well. Genetic researchers have
argued that the patent actually prevented the development of better tests,
and so interfered with the advancement of science. All knowledge is based
on prior knowledge, and by making prior knowledge less available,
innovation is impeded. Myriad’s own discovery — like any in science — used
technologies and ideas that were developed by others. Had that prior
knowledge not been publicly available, Myriad could not have done what it

And that’s the third major theme. I titled my book to emphasize that
inequality is not just morally repugnant but also has material costs. When
the legal regime governing intellectual property rights is designed poorly,
it facilitates rent-seeking — and ours is poorly designed, though this and
other recent Supreme Court decisions have led to one that is better than it
otherwise would have been. And the result is that there is actually less
innovation and more inequality.

Indeed, one of the important insights of Robert W. Fogel, a Nobel
Prize-winning economic historian who died last month, was that a synergy
between improved health and technology accounts for a good part of the
explosive economic growth since the 19th century. So it stands to reason
that intellectual property regimes that create monopoly rents that impede
access to health both create inequality and hamper growth more generally.

There are alternatives. Advocates of intellectual property rights have
overemphasized their role in promoting innovation. Most of the key
innovations — from the basic ideas underlying the computer, to transistors,
to lasers, to the discovery of DNA — were not motivated by pecuniary gain.
They were motivated by the quest for knowledge. Of course, resources have
to be made available. But the patent system is only one way, and often not
the best way, of providing these resources. Government-financed research,
foundations, and the prize system (which offers a prize to whoever makes a
discovery, and then makes the knowledge widely available, using the power
of the market to reap the benefits) are alternatives, with major
advantages, and without the inequality-increasing disadvantages of the
current intellectual property rights system.

Myriad’s effort to patent human DNA was one of the worst manifestations of
the inequality in access to health, which in turn is one of the worst
manifestations of the country’s economic inequality. That the court
decision has upheld our cherished rights and values is a cause for a sigh
of relief. But it is only one victory in the bigger struggle for a more
egalitarian society and economy.

Krista L. Cox
Staff Attorney
Knowledge Ecology International
(202) 332-2670

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