Every new medicine is the result of a long, painstaking and costly research and development process. Thousands of compounds are tested but very few survive the rigorous testing process. That process and the products it produces must have intellectual property protection. Developing and bringing a product to market is hugely expensive to undertake and very easy to imitate.1 No industry could survive in the face of free riding by imitators on innovators’ investments. But that protection is fundamental in the pharmaceuticals industry, where the investments are measured in billions and the development process in decades.
The portfolio of patents that relates to each product (its uses, forms and manufacturing process) is never granted automatically. They are granted only after expert scrutiny generally from the European Patent Office (“EPO”), a body widely regarded as conducting one of the most rigorous patent examinations in the world. Their expert examiners, well versed in the industry, chemistry, biotechnology and its developments, will conduct a global review of prior art, from patents and scientific literature, testing the claims for novelty and inventive step. The review lasts 44 months on average and just under half of patent applications fail examination.
Patents that endure that scrutiny are still not secure. Challengers, in addition to the opportunity of offering observations during the patent prosecution process, have a range of risk-free legal tools to “clear the path” if they believe their imitations should not lawfully be restricted by the patent. They can oppose the patent, seek revocation or seek declarations of non-infringement. There is no reason why a well-advised imitator should need to launch “at risk” of infringement proceedings, including damages and pre-trial injunctive relief.
The resulting patent exists only on paper. It is intangible and worthless without judicial protection. Generic entry rapidly and irreversibly takes market share and devalues the price of the patented product. Judicial relief must include not only compensation, to the extent it can be calculated, for the damage caused by illegal generic imitation, but also effective pre-trial relief given the many cases in which compensation is both too little and too late to safeguard the innovator’s rights.
The incentives created by the patent system stimulate competition through innovation rather than retard it. The concept of “patent thickets” that prevent follow-on innovation, sometimes alleged in other industries, is not one recognized in the pharmaceuticals industry. The patent system creates a race to innovate to produce products that are both first in class and followers that improve upon and differentiate themselves from the class leader. Even there, the innovative competition does not stop, with rivals seeking to improve upon the products they have launched with better, more convenient and efficacious combinations, formulations and delivery systems.
The huge cost, risk and complexity of the development process, in this industry above all others, makes intellectual property protection essential. The pharmaceuticals industry is characterized by precisely those features which economists recognize present the strongest case for protection, and where intervention by regulators will be the most harmful: enormous upfront investments funded almost exclusively by the industry out of current income and profits; the potential for innovations overtaking the incumbent products; speculative prospects of success and many costly failures; and a limited window of commercial exploitation. Where the “firm has engaged in substantial, high risk investment, and is enjoying the benefits of ‘superior skill and enterprise’, [competition law] claims should be treated with caution.”