[Ip-health] Comments of KEI regarding the White House OSTP call for comments on its Strategy for American Innovation

Claire Cassedy claire.cassedy at keionline.org
Wed Sep 24 08:46:25 PDT 2014


Comments of KEI regarding the White House OSTP call for comments on its
Strategy for American Innovation

Submitted by James Love [1] on 24. September 2014 - 0:19

Attn: Dan Correa, Office of Science and Technology Policy, Eisenhower
Executive Office Building, 1650 Pennsylvania Ave NW., Washington, DC 20504.
Email: innovationstrategy at ostp.gov [3].
Re: Strategy for American Innovation
Date: September 23, 2014

Knowledge Ecology International is a non-profit organization. Information
about KEI is available from our web page at http://keionline.org [4]. Our
comments follow:

1. The USPTO Office of the Chief Economist has yet to address some obvious
questions about patent and copyright policy.

Many persons thought government policy makers needed to use more economic
analysis to address controversial questions such as the costs and benefits
of extended copyright or patent terms, or whether or not patents should be
granted for software or business methods. So far, the Office of the Chief
Economist (OCE) at the USPTO is best known for the widely ridiculed March
2012 report: Intellectual Property and the U.S. Economy: Industries in
Focus, which used jobs in grocery stores and cut rate clothing stores to
create the easily anticipated impression that millions of jobs depend upon
every expanding intellectual property rights. This report, quoted endlessly
by the former head of the USPTO David Kappos and hundreds of right holder
public relations agents, came at a time when the United States needed to
ask hard questions about copyright and patent policies. With the rise of a
dynamic technology sector that dominates the global economy, the USPTO
might have asked, do software patents create or hurt job growth? Does
copyright fair use expand US jobs, or shrink US jobs? Instead, we have a
report that makes no attempt to make any useful conclusions about the real
challenges facing policy makers, and a government report that appears to
have been designed largely as propaganda for a handful of right holders,
including an increasingly strident motion picture industry that uses the
report to justify 95 year copyright terms, and pharmaceutical companies
that excel in raising prices for life saving drugs to an aging population.

KEI recommends the USPTO OCE adopt a work program that begins to explain
why we grant patents for certain activities, and attempts to evaluate the
appropriate term of protection and the balance of rights and exceptions
that enhance our wealth and social welfare.

2. Federal agencies that fund or subsidize clinical trials for new drugs
and vaccines should publish accessible data on the costs of those trials.
Sui generis intellectual property rights for medical inventions should be
conditioned upon the disclosure of data on the economics of drug

Nearly all significant debates about the appropriate pricing and
intellectual property rights for drugs and vaccines are influenced by
highly selective and sometimes self serving studies of drug development
costs, based upon closely held and/or secret industry data sets. At the
same time, the United States government spends billions of dollars on
clinical trials. If the public and government policy makers want to have
better evidence of drug development costs, they could begin by looking at
the costs of the trials that they are already funding. This would include
trials subsidized or funded by the NIH, the CDC, the Department of Defense,
Homeland Security, the Department of Veterans Affairs, or other federal

When KEI contacted the NIH asking for information on the costs of vaccine
trials, we were told that the NIH does not collect that information in any
formats remotely accessible or useable for studying the economics of
vaccine development. If true, this is a troubling omission.

KEI has been unable to get GAVI to respond to requests for information on
vaccine trial costs.

The Gates Foundation has not expressed a willingness to share information
with the public on the costs of vaccine trials.

Among the countless government and donor funded public/private partnerships
involved in drug development, there have been only a few episodic efforts
to provide evidence of the costs of the trials for the public’s use.

There are many extraordinary public benefits and subsidies given to drug
developers, such as the Orphan Drug Tax Credit, which covers 50 percent of
qualifying trial costs, the seven years of Orphan Drug market exclusivity,
the six months of exclusivity for pediatric testing, FDA test data
exclusivity for pharmaceutical drugs (3 and 5 years) and biologic products
(12 years), and FDA and USPTO patent extensions. These benefits are worth
billions of dollars to drug developers, and cost consumers and other
taxpayers billions of dollars. There are no current obligation on the
companies enjoying these benefits to share any data with the public on the
actual economics of drug development, or the sales generated by these

Does anyone honestly believe the public interest is served by policies that
maintain deliberate ignorance of drug development costs?

3. Information on the licensing of federally funded inventions is not well
organized, or accessible.

The federal government should require that all licenses for patented
inventions that have benefited from federal subsidies be made public, with
minimal and time limited redactions. This should extend not only to NIH
funded inventions, but to all federal agencies and to anyone who receives
federal funding, including researchers associated with universities and

The NIH should end its practice of redacting the royalty rates on NIH owned
patent licenses, and it should report all royalty income from specific
licenses, if not immediately, after a reasonable delay.

4. Open Source Dividend programs can better align private incentives with
public interests.

At present, there are strong private incentives to restrict access to
research, by patenting research, or keeping information private, in order
obtain the commercial benefits associating with the licensing of the
knowledge, materials or technology. This often makes sense for individuals,
but not necessarily for society.

Sir John Sulston was awarded the 2002 Nobel Prize in Physiology or
Medicine. Sir John Sulston also played a key role in pushing for sufficient
funding to ensure that the core data from the Human Genome Project entered
the public domain. (See, Sulston and Ferry, The Common Thread, 2002).

In one interview, Sulston speculated that medical research in the public
domain is worth nine times as much as medical research that is held
privately by pharmaceutical companies, because openness accelerates
scientific progress.

Innovation inducement prizes also present special issues. If an innovation
inducement prize can be obtained without patents, drug developers may have
incentives to rely even more on trade secrets, an issue addressed by
several academic researchers.

The open source dividend is designed to create an economic incentive to
share knowledge, materials and technology. As proposed in federal
legislative proposals by Senator Sanders (see, for example, S.627, 113th
Congress), a portion of innovation inducement prizes could be allocated to
persons who openly shared knowledge, material and technology, that were
deemed useful in the development of the prize winning products.

See: James Love and Tim Hubbard, "Prizes for Innovation of New Medicines
and Vaccines [5]," Annals of Health Law, Vol. 18, No 2, pages 155-186,
Summer 2009.

The open source dividend does not rely upon the use of innovation
inducement prizes. Indeed, one could simply require that a percent of all
drug sales (or drug sales reimbursed by Medicare and Medicaid) go into a
fund to be allocated to the open source dividend. The allocation could be
managed through a jury system, that would accept nominations for open
sourced research that would earn a share of the open source dividend.

Drug developers would both pay and benefit from this system. They would pay
by sharing the revenue from the product sales or rewards. They would
benefit by the expanded access to royalty free knowledge, materials and
data, and fewer transaction costs.

5. Fund the request by the National Academies to study the feasibility of
delinkage in drug development.

It is now fairly obvious that there will be no serious reform of drug
pricing or innovation incentives without full delinkage of R&D costs from
drug prices. The National Academies has proposed a study of the feasibility
of delinkage strategies, including end prizes, open source dividends and
upstream prizes managed by competitive intermediaries. This should move

[1] http://keionline.org/user/4
[3] mailto:innovationstrategy at ostp.gov
[4] http://keionline.org

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