Business

Business Forum: Patent protection should take a back seat in a crisis

We need a way to make it safe for businesses with the capability to manufacture essential medical devices to do so without fear of litigation.

Bloomberg Opinion

March 29, 2020 at 8:12PM

Shown is a 3-D printed model at the stand of the company Stratasys during an exhibition in Erfurt, Germany, in 2016. (The Minnesota Star Tribune)

With essential medical equipment in short supply these days, doctors have been doing everything they can to get what they need to keep treating coronavirus patients.

One team of Italian physicians hit on the idea of making up for a shortfall of valves used in CPAP hoods — used to give oxygen to patients — by using a 3-D printer to make their own.

This worked, but the company that manufactures the valves wasn't happy and may have had grounds to sue for patent infringement.

Suing doctors in the midst of a pandemic isn't a good look, and the company quickly clarified that it wasn't planning on taking the doctors to court — indeed, it has been making the parts available for free to medical practitioners on the front lines.

But the underlying question is real: What happens when the coronavirus emergency bumps up against intellectual-property law?

Most medical technology is heavily protected by patents, which give companies the legal right to block others from producing the same or similar goods.

There are sound reasons for patent protection: Who would want to invest the time and money in inventing something if everyone could freely copy it without shouldering the same costs?

In the midst of the coronavirus crisis, though, there's a pressing need to produce essential equipment as soon as possible. And the patent owners don't always have the capacity to build as much as we need.

(That seemed to be the case with the Italian valve manufacturer.)

We theoretically could suspend the relevant intellectual-property rights temporarily and let anyone who wants to start producing needed goods do so when shortages crop up. That's tempting, but it's also probably not the right way to go.

First, there are quality concerns: There would have to be some kind of central authority to coordinate production, probably in communication with the companies that normally make the products.

Additionally — and perhaps more fundamentally — there's an incentive issue. If we get in the habit of suspending intellectual-property rights for technology we need in times of crisis, then we reduce companies' incentives to develop precisely the technologies we need in emergencies.

There might even be a ripple effect right now. Think, for example, of all the companies working to develop coronavirus tests and vaccines; they need to feel comfortable that if they succeed, they will be able to profit from those discoveries at some point.

But at the same time, we need a way to make it safe for businesses with the capability to manufacture essential medical devices to do so without fear of patent litigation.

To solve this, it might make sense to take inspiration from my Harvard colleague Michael Kremer, one of last year's economics Nobel laureates. In a 1998 paper, Kremer proposed a system of patent buyouts in which the government acquires the rights to inventions of great public value at critical times.

Under such a program, the government could purchase medical-device patents and then place them in the public domain. That would free manufacturers — with coordination from government — to produce those devices and meet soaring demand at times like this.

The buyout wouldn't even have to be permanent — it could, for example, expire after a national emergency has ended.

Of course, there are challenges in setting prices to make sure patent owners get their fair share.

Kremer proposes a system of auctions among potential manufacturers of the patented products, with the government then paying the patent owner the highest amount bid plus a markup to account for social value.

Most of the patents acquired this way would be owned and licensed by the government, but some would be sold to highest bidders at their declared values, as a way of encouraging honest bidding.

For a temporary buyout during a pandemic, we might use a simpler and faster mechanism, assessing patent values based on pre-pandemic prices, then paying a hefty markup to account for the social returns of getting the intellectual property to the public.

As with all government programs, this would require oversight. We need to make sure the value doesn't just flow to well-connected businesses or investors, whether they're buyers or sellers.

We might also worry about companies gumming up the system with low-quality patents. One company, for example, recently sued to halt the production of coronavirus tests, alleging infringement on some patents acquired from the fraudulent health-tech startup Theranos.

If the government starts offering to acquire coronavirus-relevant patents, those sorts of profiteers will quickly come out of the woodwork.

So we will need scientists and engineers in charge of figuring out which patents are really in the public interest and worth buying.

And of course, none of this should be taken lightly — only in extraordinary circumstances might it make sense to take private property and place it in the public domain, even temporarily. But these are not normal times.

Scott Duke Kominers is associate professor of business administration at Harvard Business School. He wrote this for Bloomberg Opinion.