Patents for Diagnostic Tools: An Economic Analysis
David Booton
There is concern in many countries about the impact that gene patents have on the availability and development of diagnostic tests. Fears are not confined to the effect such patents have on cost and access but also on the effects on research and development. The aim of this paper is to consider how the law might meet these concerns. Two post-grant mechanisms are explored. The first is an exemption to infringement which would allow the carrying out of diagnostic tests. I set out to evaluate this mechanism by analysing the operation of an existing research exemption under UK law and assessing the effect of the exemption, in its existing and in the proposed expanded form (in which it would cover the carrying out of diagnostic tests) on the incentives to invest in innovation that the patent system aims to provide. The conclusion is that whilst the existing exemption has little impact on incentives to innovate, any expansion of the exemption is likely to have a damaging effect on these incentives and so be counter-productive. The second proposed means of tempering the effect of patent rights is that patent owners be compelled to license diagnostic uses of a claimed invention if they refuse to supply a diagnostic test on reasonable terms. Economic theory supports confining property owners to a remedy in damages where bargaining in respect of rights to that property is not possible. As between patent owners and research scientists there are significant impediments to bargaining in instances where the information generated by a diagnostic test has both clinical and research value. The UK Patents Act allows for the grant of compulsory licences but the procedures involved in obtaining such a licence are complex, cumbersome and difficult to apply. Furthermore, the approach taken to the setting of royalties is payable under a compulsory licence is relatively generous to patent owners which further discourages potential licensees to make use of these provisions. The analysis shows that the public interest would not be better served by reforms aimed at stripping away the procedural complexity and detail. Such a reform would demand of courts an impossible balancing of ex ante and ex post considerations and would involve large assessment costs. Nor, it is argued, should we rush to change the existing basis for calculating royalties. The current approach acts to encourage courts to award licences in situations of imperfect information and also guards against the scheme being perceived as a disguised system of wealth re-distribution. The overall conclusion is that it is hard to see how the existing post-grant mechanisms for tempering patent rights could be improved in a way that would enhance research into the diagnosis and treatment of gene-based disease.
Throughout the paper the analysis is of UK patent law. The UK has an existing research exemption and a developed scheme for allowing non-authorised uses so allowing an evaluation of the current law as a foundation for the speculation on reform. One conclusion is that countries without any research exemption or any procedure by which compulsory licences can be obtained could safely adopt similar schemes to those in the UK without fear that this would damage the patent system and the incentives it provides. But for the UK, and countries with existing exemptions and compulsory licence schemes, the solution to the problem of gene patents putting a brake on innovation is not to be found in either an expansion of the existing research exemption or in reform of the procedures for the grant of a compulsory licence. If there is a problem at all then a better solution may lie in refining the conditions that must be satisfied for a patent to be granted on a gene sequence and in limiting the scope of product per se claims.