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Eating the Cake and Having It

18 October 2021

The first English patent for invention was granted in 1449 for a glass making method. The inventor was granted a 20-year monopoly for the invention. One year later, a patent was granted in Venice in 1450 with a duration of 10 years also for glass making. Since then, other, individual countries adopted their patent laws and granted patents. A 20-year term became a gold standard for the duration of patents.

Patents were granted for all kinds of things including in the field of chemistry, such as medicines and agrochemicals. As time went on, it became clear that patents in the field of pharmaceuticals and agrochemicals have some particulars. Before a medicine goes to the public it should be tested and the developer of the medicine should obtain regulatory approval. This process may take time so that effective duration of patent may be curtailed by several years. Nevertheless the 20 years standard persisted for many years until USA passed its “Drug Price Competition and Patent Restoration Act” in 1984. The Act provided for an extension of term of a patent for the years spent for obtaining the regulatory approval. The maximum term of extension was five years.

This idea found a good response in other countries which passed their own regulations for patent extension term at different times. In Russia, this happened in 2003 when relevant amendments were made in the Russian Patent Law. China produced its Fourth Amendment to the Patent Law quite recently, in October 2020 with effect from June 2021.

Pharmaceutical companies immediately seized at the extension opportunity and beginning from 2004 about 250 patents were extended for several years in Russia. It may be assumed that the number of petitions for extension was larger however not all of them complied with the extension requirements. In the absence of accurate statistics in different countries it may be assumed however that the extension procedure is quite popular among pharmaceutical and agrochemical companies.

There is yet another procedure for extension of patents in various countries. For instance, according to EU Regulation 1901/2006, a supplementary patent certificate can be issued for further extension of the term of a patent for additional six months if the marketing authorization preparations included clinical trials specifically addressing pediatric use of a drug. Similar provisions are adopted in other countries (no pediatric extension is available in Russia). Additional term of extension may be explained by the fact that adults and children respond differently to the application of drugs so that drugs intended for the use by children need more research and investigation. Besides, additional term serves as encouragement for the companies to conduct more research.

The regulatory approval is not the only hurdle in the life of patents. Pharmaceuticals and agrochemicals, before they go to the patients (users) must be developed in the first place. Development of a pharmaceutical takes sometimes years and definitely lots of money. First, a potential drug should be discovered, perhaps one of thousands of synthesized substances. This should be followed by long and expensive preclinical and clinical studies. In all, development of a drug may involve years of research and an outlay of hundreds of millions of dollars and reach a billion before it reaches the final user.

When a medicine appears in the hospitals and pharmacies many patients discover that they cannot afford such a medicine. Attempts can be made to remedy the disease by cheaper methods however this may not be helpful so that that the patient cannot return to normal life and perhaps the state will have in any case to support the suffering person. So, inability to use an optimal medicine will inevitably lead to losses by the patient himself and by the state that in any case will have to care for that patient in different ways (keep him in a hospital, pay money if the person becomes disabled). The person may lose employment and become additional burden for the state. Possible losses are difficult to calculate when a patient does not receive the required treatment.

As is shown, high price of the medicine on the market is a forced option. A high price limits the number of patients who can afford such a medicine. But the patent owner cannot afford reducing the price because he has to redeem the expense made during the development of the drug and have money for further research of new drugs. Extension of patent term due to regulatory approval does not help much. The extended term of a patent cannot go beyond 25 years.

One of the options that could be proposed for the patent owners can be further extension of the patent term on the voluntary obligation of the patent owner to sell the medicine at a price affordable for the patients with simultaneous extension of the patent in proportion to the reduced price.

In order to make it possible it would be necessary to correct national laws. The law may provide that the patent owner should provide a document confirming his expenses. In his turn, the patent owner may collect the documents proving the expense for the development of a given drug and send them to an independent evaluator, such as the World Health Organization which could confirm that the cost of bringing the drug to the market is indeed justified. The World Health Organization does not opine on the market price of the medicine but only examines the documents relative to expenses made during the development of the medicine and either confirms the amount spent or not.

The patent owner could apply to a competent body in a country with a certificate obtained from the independent evaluator and conclude an agreement with that competent body, e.g., patent office or the government as the case may be. The agreement may provide that the patent owner sells a drug at a price affordable for the patients in that country and the competent body extends the duration of the patent to a number of years that would allow the patent owner to recover the money spent on the development of the drug and accumulate some money for further research. The system may be flexible: the cheaper the sales price the longer extension may be granted. This is a problem of easy mathematical calculation.

This setup has obvious advantages. The drug can be used by a larger number of patients which is in the interests of the patent owner as well as of the country where the drug is sold. The patent owner will recover the money spent on the development and trials of the drug. The activities of generics producers will be undermined by cheap prices of the original drug and longer period of patent validity. Even if a generic company obtains a marketing authorization in a country it will be difficult for it to compete with the company originator. Besides, the longer patent term will keep away generic companies from the market.

The sword of Damocles hanging over each patent owner in the threat of a compulsory license will be put away because the drug becomes affordable for rank and file.

In order to prevent transborder shipments of the drug from the country where such procedure is implemented to a country where such law is not yet in place the customs authorities will have to exercise more care or introduce regulations not to allow unauthorized import of the relevant drug.

There may also be underlying problems. There may be cases where the patent owner may wish to assign his patent or issue a license. In case of a license agreement the arrangements regarding the prices and duration of the patent should be reflected in the agreement because the rights and obligations rest with the patent owner. In case of assignment a two-fold solution is possible. The assignee may follow the line of conduct of the previous patent owner, or he may set the selling price of the medicine at will, however the duration of patent shall be corrected accordingly. The question arises if the assignment is effected beyond the term of 20/25 years. In this case the assignee shall keep to the price of the medicine previously set. Alternatively, assignment should not be allowed.

A patent may protect several different products if each of those products is based on the same basic substance. In this connection the question arises: should all those products be included in the extension permission and sold cheaply. It is difficult to predict at this point of time how the situation might develop should such extension be allowed.

In any case, the patent owner will have a choice: either to sell the drug dearly, generate discontent in the patients, have a limited patent term and compete with generic companies or sale it cheaper, have more consumers and enjoy a longer duration of the patent depending on the sales price of the drug.

It seems that the proposed solution may expand the opportunities for the patent owners as well as be beneficial for potential patients. And, what is good for the people, is good for the state.

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