The Limits of the Patent System

Do Patents Kill Innovation?

Do patents kill innovation? Evidence is piling up that they do. This time the evidence is from the pharmaceutical industry itself. The strongest case for patent has been made out in the pharmaceutical industry. Since pharmaceutical research is inherently risky and requires substantial investment, it is argued that the sector requires a strong patent protection.

It is in cancer drug discovery that evidence has come out that patents destroy R&D. A paper, “Do fixed patent terms distort innovation? Evidence from cancer clinical trials” by Eric Budish of University of Chicago, Benjamin N. Roin of Harvard Law School and Heidi Williams of MIT demonstrates, through empirical study, how patent system distorts R&D for cancer therapy. The paper finds that patents generate distorted R&D incentives, in the case of cancer. Cancer research, particularly for early stage cancer, which is curable, requires long clinical trials. Therefore industry prefers to invest in R&D for metastatic cancers, which requires less duration trials, but the therapy may prolong the life by only a few months. This is of significant concern from a medical perspective. 

Surprisingly, the authors note that there has been no empirical study on patent protection and innovation.

Although theoretical models often assume a relationship between the strength of patent protection and the level of innovation, there is a remarkable dearth of empirical evidence on this link. For example, Lerner (2002) and Sakakibara and Branstetter (2001) find little evidence that stronger intellectual property rights induce more innovation.

Patent exclusivity is for a limited period of 20 years. There is usually a considerable gap between the filing of patent of the invention and the ultimate commercialisation. This may be referred to as a commercialisation lag. Normally for a drug the commercialisation lag is estimated to be about 10-12 years. Firms have to recoup their research investment and the profit during the patent period.

Cancer has a paradox from a patent perspective. The survival has to be measured over long periods of time. To explain, let us understand the two types of cancer. When it starts cancer is mostly localized (the primary site). At this stage it could be curable in many cases. At an advanced stage, the cancer spreads to other parts of the body. Metastatic cancer is a cancer that has spread from the primary site, where it started, to other parts of the body.

The authors cite the example of two studies reported in New England Journal of Medicine in 2011. A first study, de Bono et al. (2011), analyzed a treatment for

metastatic prostate cancer (an advanced stage of prostate cancer with a five-year survival rate of the order of 20 percent). The study tracked patient survival for a median time of 12.8 months, and estimated statistically significant improvements in survival (a gain of 3.9 months of life on average). A second study, Jones et al. (2011), analyzed a treatment for localized prostate cancer (an early stage of prostate cancer with a five-year survival rate of the order of 80 percent. The study tracked patient survival for a median time of 9.1 years, estimating statistically significant improvements in survival. Both the above cases have different patient follow-up times and this translates into a large difference in clinical trial length: 3 years for the metastatic cancer patient trial versus 18 years for the localized patient trial.

A private for profit firm will not carry out a trial for 18 years and bring a drug to the market when patent term itself is 20 years. As may be expected, the authors found that a private firm funded the study of the metastatic cancer patients with the shorter duration trial whereas the National Cancer Institute funded the study of localized cancer patients requiring long duration.

To find a real cure for a primary cancer, R&D is required over long periods of time. To demonstrate that cancer is cured, you need longer clinical trials with long commercialisation lag. The ‘for profit’ firms have very little incentive to do this. Therefore they focus on metastatic cancers that require only shorter clinical trials, where cures would amount to prolonging the life by few months.

Authors of the paper analysed the data from a clinical trial registry that has cataloged cancer clinical trials since the 1970s. They found the correlation that privately financed trials favoured shorter survival terms. The authors found that R&D investments on cancer treatments are strongly negatively correlated with expected survival time. They observed lower levels of R&D investment on inventions that required longer commercialization lags. This coupled with corporate short termism poses significant challenge to cancer research.

They also found that all six FDA-approved cancer prevention drugs (that are under-incentivized by the patent system), either relied on the use of surrogate endpoints for shorter trials or were approved on the basis of publicly financed clinical trials.

The authors point out that in the pharmaceutical industry, “drugs treating patients with short life expectancies can move through the clinical trials more quickly -and thus receive longer effective patent terms - than drugs treating patients with long life expectancies”. They provide several evidences showing patents distorting cancer R&D away from drugs targeting early-stage cancer patients or cancer prevention to late stage management.

In essence, the innovation that happens is not what is medically mandated, but driven by the industry’s ability to extract maximum during the patent term.

Another area where Patents are ineffective: Neglected and Orphan Diseases

Patents are a market driven tool. It works where there is a market from where it enables recouping of investments. Where market is absent, patents do not generate innovations.

Take the case of orphan diseases and neglected diseases. Remember, the United States is the largest pharmaceutical market of the world. Even there, if you have a disease which does not command a huge market which interests pharmaceutical companies, you don't have innovation. The Orphan Drugs Act of US characterizes orphan diseases as those diseases that affect small numbers of individuals residing in the United States that the diseases and conditions are considered rare in the United States. It goes on to state that:

·       because so few individuals are affected by any one rare disease or condition, a pharmaceutical company which develops an orphan drug may reasonably expect the drug to generate relatively small sales in comparison to the cost of developing the drug and consequently to incur a financial loss;

·       there is reason to believe that some promising orphan drugs will not be developed unless changes are made in the applicable Federal laws to reduce the costs of developing such drugs and to provide financial incentives to develop such drugs; and

·       it is in the public interest to provide such changes and incentives for the development of orphan drugs.

This enactment recognizes the limits of the patent system and therefore a policy instrument other than patents have been used to spur innovation.

Compared to the small number of patients affected by Orphan diseases, neglected diseases affect a large number of individuals. Neglected Disease are mostly tropical infectious diseases affecting a large number of people. They earn this sobriquet as pharmaceutical companies generally neglect R&D in them. Take the case of Tuberculosis (TB). TB is second only to HIV as the leading infectious disease mortality, worldwide. 1.5 million people died of TB in 2012 alone. Someone dies of TB every 25 seconds somewhere in the world. Yet the current drugs in use for TB hail from the 1950’s and 1960’s. The therapy is lengthy and toxic. No new drugs that shorten the regimen have been introduced despite the enormous progress made by pharmaceutical industry during this time; that is the story of innovation for neglected diseases. TB is only illustrative. Malaria, dengue fever, dracunculiasis, leishmaniasis, lymphatic filariasis, onchocerciasis, schistosomiasis, soil transmitted helminthiasis, trachoma and trypanosomiasis, so the list goes on, all affecting the poor in the tropical regions. These diseases may be affecting different parts of the world. But they have one thing in common – no innovation.

It is in this sector that the 90-10 gap was noticed by the Commission on Health Research for Development which published the report Health Research: Essential Link to Equity in Development. 90% of the innovation in healthcare relates to the diseases of a mere 10% of the population of the world. Pharmaceutical companies who make substantial profits from global sale of drugs prefer innovation in lifestyle diseases to that of neglected diseases.

Patents as a public policy tool has completely failed to drive innovation in neglected diseases.

Limits of the Patent System

All these point to the limits of patent as an instrument of public policy to drive innovation. It does not induce innovation in cancer nor does it in neglected or orphan diseases. Patent induced innovation works only in a narrow space where all other propitious conditions are present. Beyond this narrow market driven space, say cancer or neglected diseases, it simply fails to drive innovation.

Patents have been characterized by many as the ‘be all’ and ‘end all’ of innovation. There are many who argue and even believe that patents are the sine qua non of innovation. Provide the strictest of patent laws innovation will follow, so goes the argument. This argument has been adopted, post TRIPS, by most policymakers as a given.

But the reality is different. It is only one of the components of a complex ecosystem that makes up the innovation ecosystem. We have a tendency to assume many more functions for patents.

Patents perform a limited function. Patent system is a market based mechanism for capital accumulation. It acts as an instrument to grant a limited exclusivity to the innovator for a limited period. It does not fix other gaps in the innovation ecosystem and its presence on its own does not spur innovation. On its own it does not attract either innovation or technology or investment. A counterfactual proves this assertion. If it was indeed the case, some of the sub Saharan African nations who have the strongest of the patent laws should have been the most innovative as well. In any case, post TRIPS we have more or less uniform patent laws around the world but that has not spread innovation or investment across the world.

Public policy making is not always evidence based. That is the tragedy. It is most of the time based on beliefs. And the predominant beliefs of the age always find its place in the policies, without much evidence to support such beliefs, whether good or bad. Sometimes evidence emerges to the contrary but they are ignored if it is against the current belief.

Corporate short termism and limits of patent puts a limit on humanities quest to find cures for many diseases. There has to be other public policy instruments that would drive and support innovation in cases where patent system does not work, or worse, provide perverse innovation as in the case of cancer.

Call for Reform

Do patents kill innovation? Even the conservative journal like The Economist thinks so. The Economist has recognized the limitations of the patent system and has called for reform. This is what the Economist says:

A one-size-fits-all patent system does not cater to the specifics of innovation in the pharmaceutical industry. But tailoring patent law may encourage lobbying and corruption. A careful reform of the patent system is necessary: outright abolition of patents will not be enough to save cancer patients’ lives. 

In 2014, we are moving to 20 years of TRIPS. If many in the developing world ask, “what have we gained”, there is very little to answer to them in terms of better medicines for their diseases. If we accept that all lives have equal value,  it is time for policy makers to take a comprehensive look at innovation in the pharmaceutical sector and abhor the myopic view that patent cures all.

The Thing of the Future: Challenges Posed by Internet of Things

The Internet of Things (IoT) is a computing concept where the devices around us, referred to as objects, will be connected to the Internet and will be able to communicate over the net.

This requires the things around us to be equipped with minuscule identifying devices which communicates over the internet. The intelligent cars will drive by themselves.The fridge could communicate to the grocery store. With everything having a sensor and an identifying device, the location of a thing can always be identified.  Theft as we know will be a thing of the past as the product location is known at all times.

If you think this is futuristic, look around, there are elements of IoT, already in our midst. My son has a toy helicopter which is controlled by an app on the mobile or iPad. Technically the helicopter has sensor and RFID (Radio Frequency Identification Device) tag. A small RF device is attached to the iPad/mobile, and the helicopter works to the command from iPad/mobile. It relays and stores data about its flight on iPad. And, it is not an expensive toy!

The fact is that we have already passed the first wave of IoT, without even bothering about it. The first wave was the advent of barcodes and Radio-frequency identification (RFID) tags. This helped inventory management, tracking and basic identification. It enabled us to track our packets on our mobiles as they were on the move through courier operators. The second or the current wave is based on connecting sensors, objects, devices, data and applications. European Commission’s Digital Agenda For Europe predicts that the next wave could be called a “cognitive IoT” when systems around us acquire intelligence on its own to take autonomous decisions.

The Economist reported recently that many objects, including mundane things like light bulbs and door locks, are being hooked up to the internet by putting tiny chips (computers) into them and adding wireless connectivity.

Autonomous cars are being tested by all leading manufacturers. Mercedes has announced that its truck division has successfully tested an autonomous semi truck on the Autobahn in Germany. It predicted the future truck is a Mercedes-Benz that drives itself. With Future Truck 2025 project, they are seeing a market and dollar signs.

When dollar drives, technology moves fast.

Far Reaching Impact

With IoT, the physical world around us itself will be transformed into an information system.

 IoT digitizes the physical world around us by sending instantaneous information about themselves. The objects could communicate with the surroundings objects through the internet.  The object exchanges information about itself to its database, sends information about surroundings as well as receive information from the surrounding. This throws up massive amounts of data about the physical world surrounding us. The data is analysed by computer systems which enable them to take further decisions about themselves and the environment.

The significance of this cannot be understated. Human beings perceive others and the rest of the world in terms of the data that they have assimilated about such things over a period of time. IoT enables the machines to possess or access data about data of their surroundings. Objects will give out the data identifying themselves. So a machine may not just be a machine as perceived by you, it will be perceived by other machines as well.

Privacy, did you say?

Privacy? Wasn’t it a 20^th century concept?!!

Scott McNealy who was co-founder and CEO of Sun Microsystems was quoted in 1999 as saying ‘privacy is dead, get over it’. This was much before the Facebook and Twitter where we share our personal information and thoughts in most cavalier ways we couldn’t have imagined some 20 years back. This prompted Mark Zuckerberg to say: People have really gotten comfortable not only sharing more information and different kinds, but more openly and with more people

IoT will take it to the next level. One thing that physical objects do not need is privacy.

When you are surrounded by such connected objects, almost all information about your lifestyle will be available as transmitted by the objects. Every movement of yours could be recorded somewhere. This might include tiny cameras in your daily medical capsules that send images as it moves down your gut!

In the age of the Things, you are denuded of privacy! Just get over it…

There are some efforts to protect personal privacy through new laws. Economist reported that US, Britain, Germany and others are planning laws to prevent unwanted photographs to be published (revenge porn). Israel has already implemented such a law. The development of such jurisprudences might have  a bearing on how privacy concepts work out in IoT.

Whose Data is It?

A huge amount of data will be reported by devices. Such the data relating to individual behavior and preferences has immense commercial potential. It would almost be a marketers dream ; and a privacy lawyers nightmare.

Who should own this data and who should have access to the data relating to your online behavior? These would be interesting questions that will  have to be resolved in IoT world. Some may argue that the data should belong to the person whose actions have caused it to be generated. Such a view may not have legal backing based on the current legal jurisprudence.

Even today, we have ceded a bit of the authority over our own data to Facebook and Google. They are targeting advertisements on us based on the data generated by our online behavior. If we have already acquiesced with such actions these corporations for years, what right we will have to challenge anyone from using the data generated by our behavior as sensed by IoT.  

Copyright Law in the IoT era

The massive data that IoT throws up will land in huge databases. The legal system that currently deal with ownership of data is the Copyright Law, though there are some sui generis protection given to databases in some jurisdictions. Copyright does not protect information per se.  Much of the data will be information.  Mere collection of data does not entitle copyright protection. Copyright protects original works.  Unless there is conscious value addition to the data, which qualifies it to be original, a database does not enjoy legal protection under copyright law.

Here is what the TRIPS Agreement mandates on databases:

Article 10 (2): ‘Compilations of data or other material, whether in machine readable or other form. Which be the reason of selection or arrangement of their contents constitute intellectual creations shall be protected as such. Such protection which shall not extend to data or material itself…’

So the huge amount of data that gets thrown up may not get protection unless by reason of selection or arrangement of their contents constitute intellectual creations (original work). The protection of databases which do not meet this standard will be an issue in IoT era.

On more interesting copyright issue emerges.

Copyright law centers around the concept of author and the ‘work’ created by the author. What if there is no human author? In the case of computer programs, the Indian Copyright law takes care of this by defining author as ‘the person who causes the work to be created’. The person thus need not be a human being and could even be an artificial juridical entity like a company. The work for hire and contract of service conditions do address the issue of employee generated work, including data.

In IoT much of data is generated by inanimate objects which gets served in some cloud owned by a third party, using applications of yet another.

Back in 2003, I had written a ‘light’ piece on this issue of authorship without human interface, in the context of spirit directed writings titled, ‘Copyright: The Otherworldly Kind’. I had discussed some of the likelyhood of artificial intelligence created works. To quote:

“When in future artificial intelligence becomes a reality, the concept of author is likely to move away further from its human origins. Artificial intelligence may create works far removed from human hands that it may tend nearer to the creations of the otherworld! When sophisticated computers of future start generating works on their own, law may be groping into the sphere of paranormal. The legal concept of authorship this will face challenges in future…”

In the wake of advent of Internet, WIPO had convened a diplomatic conference to address the challenges posed by digitization and instantaneous communication through the web. It concluded WIPO treaties which took care of the so called digital issues. There was a proposal to conclude a database treaty, which was not taken up. IoT may demand another diplomatic conference to look at the issues relating to databases.

Copyright law emerged as technologies emerged addressing the issues posed by such technologies on authors rights. IoT may be giving us a wake up call on copyright law.

Big Data  

The rise in web traffic and the storage challenge of the data led to the development of Cloud based solutions. IoT will throw up more data and demand more web traffic. It is going to geometrically multiply the storage and traffic devices. Cisco estimates that about 50 billion devices will be connected by 2020, just in six years time. Compare this with 2012 when there were 8.7 billion connected objects globally, constituting 0.6% of the ‘things' in the world. In 2013, this number was exceeding 10.0 billion. Driven by reducing price per connection and the consequent rapid growth in the number of machine-to-machine (M2M) connections, Cisco expect the number of connected objects to reach 50bn by 2020 (2.7% of things in the world). The management of these platforms is a challenge that network majors are preparing.

Analysing the mammoth data itself will be a challenge; a challenge whose dimensions we may only be beginning to understand.

Security Issues: Antivirus in my Body?

This poses a new challenge. The devices require a software program to run it. If you have a software, by now we know that a virus will not be far away. So we all use antivirus softwares. The problem is that these computers do not have enough processing power to handle antivirus or anti-hacking securities prompting security experts to sound warning alarm.

So may be instead of your door being broken open, it will just be hacked!

And what about a capsule you may swallow for targeted action of a programmed nanomolecule in your body?  What if there is a virus in it, or worse, could be hacked?

Open Standards

It is important that the development of IoT is based on open standards. If billions of devices are to be connected and be interoperable, it cannot be done, if we do not have open standards that could be followed by anyone across the globe. IEEE has started work on global standards by setting up IEEE Standards Association.

IEEE has taken the lead in setting standards through global collaborations. One such IoT-related standard, IEEE 1888, was started in China by companies, universities, and other organizations that wanted to reduce  energy consumption of commercial buildings.  IEEE 1888 Standard for Ubiquitous Green Community Control Network Protocol relates to management of energy use of large commercial buildings with the use of sensors and surveillance monitors to use less energy.

PC World reported that hardware majors like Intel, Samsung and Dell are among the founding members of Open Interconnect Consortium (OIC), which later this year will deliver the first of many specifications for hassle-free data flow between devices, regardless of the OS, device type or wireless communication technology.

Open Source Software

Interconnection of devices and their interoperability require open source software. Consortias of industry are working to develop such open source softwares. The Open Internet Consortium are expected to contribute open-source code so developers can write common software stacks for communications and notifications across handsets, remote controls, wearables, appliances and other sensor devices. Microsoft has joined the AllSeen Alliance, which is building an open source framework for connecting homes, cars and mobile devices.

When Microsoft joins open source, there must really be something in it!

Autonomous Decisions:

The European Commission’s Digital Agenda For Europe predicts that the third or the next wave could be a “cognitive IoT”. This next wave of IoT will ride on hyper-connectivity, interoperability solutions and semantic enriched information with rich interfaces.

This semantic information layer may generate intelligence at different levels, in the objects, devices, network(s), systems and in the applications for suo motu evidence based decision making and priority setting by them. The McKinsey report says that this kind of machine decision making mimics human reactions, though at vastly enhanced performance levels.

IoT will bring hyper-connectivity to a global society, using augmented and rich interfaces to a society characterised by a higher semi-autonomous system behavior than today.

If decisions are taken by autonomous systems, what about the consequences of the same. A decision could lead to a series of event which could have consequence on many actors. If any of the actors face a legal injury, what about the legal liability of bad decisions? A man or a woman and not the machines will have face the judge and the jury. Where will the buck stop?

The Race Has Begun

IoT will dawn upon us even before we realise. There are challenges. But there is already a race to be ahead in the game. The following is an excerpt from an article, ‘The Age of The Internet of Things is upon Us’ by Dan Frost

I’m working on an IoT product at the moment, and the key is time to market. The technologies have all matured around the same time, and consumers are more open to what they can provide. Getting our product out there matters, and if that means saving a few weeks here and there by using a platform to bootstrap ourselves to market, that’s what we’re going to do.

However, although the underlying technologies are mature, the product market is not mature. We are still learning how to fit this into peoples’ lives and into existing businesses. Expect rapid development of such platforms as features such as security are improved.

China is on the forefront of development of IoT. It has set up a smart city WuXi at Jiangsu, based on IoT. China sees IoT as a new engine for economic growth and an opportunity to catch up with the developed countries. WuXi has established itself at the center of IoT with several research institutes, including Shanghai Institute of Microsystem and Information Technology (SIMIT), with strong support from Chinese government. 

There are several challenges, technological and legal, but the IoT era or the Era of Things is here.

The race is on…but are you in it?

The Next Wave: Internet of Things

The Next Wave

Digitisation of Information and advent of Internet as a medium of sharing this information is probably the biggest information revolution in human history since the invention of the printing press.

Now we are probably in the cusp of the next wave.  The Internet of Things.

The Internet as we know it is a global system of interconnected network of computers. The Internet Protocol (IP) provides IP addresses for computers on the Internet. IP provides an address to each machine connected on the web and in essence establishes the Internet itself. The standard Internet Transfer Protocols (TCP/IP) links the billions of computers. The interconnection is currently provided through wire, wireless and optical linking.

The Internet of Things (IoT) is the network of physical objects (Machines) interconnected through the Internet. Sensors embedded in the machines enable identification and interaction with internal states or the external environment. It is essentially Machine to Machine (M2M) communication. It need not be a machine in a conventional sense but an intelligent, physical object that's communications enabled. Such objects could be a device that has an individual IP address which enables it to be identified over the network.

IoT has evolved from the convergence of wireless technologies, micro-electromechanical systems (MEMS) such as sensors and the Internet. A smart object will contain MEMS to monitor the status of an object, person or environment. Wireless technologies such as Wi-Fi, Bluetooth, Z-Wave or 3G/4G enable them to connect to each other and/or to a cloud service.  ZigBee is fighting for its place in the internet of things against Wi-Fi, Bluetooth Low Energy and Z-wave.

Associated mobile apps would let users receive information and command specific functions of the devices they are connected to. This means integration of mobile, cloud and communication infrastructure.

There are elements of this infrastructure consisting of self communicating devices that exist even now. IoT will multiply its impact manifold. An example may illustrate this.

There are pacemakers which are now being implanted which communicate to the remote location regularly where the data is constantly monitored and analysed to take decisions. Doctors who monitor this data communicate with the patient. In a networked world the monitoring and analysis will almost be instantaneous. In case of an emergency, like a heart attack, an ambulance nearby could be located and alerted to take the patient to the nearby hospital that will be provided the necessary information before the ambulance reach. The patient might get a text message on the mobile to be ready for the ambulance (should be lucky if there is time to pick up a favorite book to read while in hospital!). You hardly had any choice in this decision, but could potentially be lifesaving.

IoT: Some Technological Issues:

The most prominent component of the Internet model is the Internet Protocol, which provides addressing systems (IP addresses) for computers on the Internet.  Till now the local networks of machines have been set up on proprietary protocols. Internet of things means moving away from such proprietary technologies to a common standard based format of Internet to which the objects (machines) can be connected.   

Internet Protocol Version 4 (IPv4) is the initial version used on the first generation of the Internet and is still in dominant use. It was designed to address up to ~4.3 billion Internet hosts. The explosive growth of the Internet has led to IPv4 address exhaustion. Consequently IPv6 has been developed. Most of the IoT devices would use IPv6 protocols.

Internet Companies are already gearing up for the challenge. Networking majors like Cisco are already offering value added services on IoT. They are connecting manufacturing floors, energy grids, healthcare facilities, and transportation systems to the Internet. Networking of machines has so far been done on proprietary protocols. The challenge is to convert them to standard based internet based protocols to seamlessly communicate on the web. Opening operational infrastructure to the internet opens security issues. Cisco is already providing a secure infrastructure over the Net that can support billions of context-aware devices, people, processes, and data.  This is what Cisco says:

The network plays a critical role as the connectivity platform for control and operational systems, sensors, machines, and devices. It must provide a secure infrastructure that can support billions of context-aware devices, people, processes, and data. Cisco connects the unconnected with an open standard, integrated architecture, from the cloud to end devices.

Standardising device communication is a challenge that companies are now addressing. he Linux Foundation, a nonprofit consortium that promotes Linux adoption, late last year announced the creation of the AllSeen Alliance to standardize device communications and to promote an open source code framework to enable devices to discover one another and then connect and interact. The code that it champions, called AllJoyn, was initially developed by Qualcomm but was subsequently made open source. ComputerWorld reports that even Microsoft has backed open source for IoT. AllSeen Alliance includes big vendors like LG, Panasonic, Sharp and Haier, the household names. This tells us the shape of things to come.

IoT throws up a number of challenging governance issues; about them in the next blog.