Thursday, November 20, 2014

Lives versus Profits

NEW YORK – The United States Supreme Court recently began deliberations in a case that highlights a deeply problematic issue concerning intellectual-property rights. The Court must answer the following question: Can human genes – your genes – be patented? Put another way, should someone essentially be permitted to own the right, say, to test whether you have a set of genes that imply a higher than 50% probability of developing breast cancer?

To those outside the arcane world of intellectual-property rights, the answer seems obvious: No. You own your genes. A company might own, at most, the intellectual property underlying its genetic test; and, because the research and development needed to develop the test may have cost a considerable amount, the firm might rightly charge for administering it.

But a Utah-based company, Myriad Genetics, claims more than that. It claims to own the rights to any test for the presence of the two critical genes associated with breast cancer – and has ruthlessly enforced that right, though their test is inferior to one that Yale University was willing to provide at much lower cost. The consequences have been tragic: Thorough, affordable testing that identifies high-risk patients saves lives. Blocking such testing costs lives. Myriad is a true example of an American corporation for which profit trumps all other values, including the value of human life itself.

This a particularly poignant case. Normally, economists talk about trade-offs: weaker intellectual-property rights, it is argued, would undermine incentives to innovate. The irony here is that Myriad’s discovery would have been made in any case, owing to a publicly funded, international effort to decode the entire human genome that was a singular achievement of modern science. The social benefits of Myriad’s slightly earlier discovery have been dwarfed by the costs that its callous pursuit of profit has imposed.

More broadly, there is increasing recognition that the patent system, as currently designed, not only imposes untold social costs, but also fails to maximize innovation – as Myriad’s gene patents demonstrate. After all, Myriad did not invent the technologies used to analyze the genes. If these technologies had been patented, Myriad might not have made its discoveries. And its tight control of the use of its patents has inhibited the development by others of better and more accurate tests for the presence of the gene. The point is a simple one: All research is based on prior research. A poorly designed patent system – like the one we have now – can inhibit follow-on research.

That is why we do not allow patents for basic insights in mathematics. And it is why research shows that patenting genes actually reduces the production of new knowledge about genes: the most important input in the production of new knowledge is prior knowledge, to which patents inhibit access.

Fortunately, what motivates most significant advances in knowledge is not profit, but the pursuit of knowledge itself. This has been true of all of the transformative discoveries and innovations – DNA, transistors, lasers, the Internet, and so on.

A separate US legal case has underscored one of the main dangers of patent-driven monopoly power: corruption. With prices far in excess of the cost of production, there are, for example, huge profits to be gained by persuading pharmacies, hospitals, or doctors to shift sales to your products.

The US Attorney for the Southern District of New York recently accused the Swiss pharmaceutical giant Novartis of doing exactly this by providing illegal kickbacks, honoraria, and other benefits to doctors – exactly what it promised not to do when it settled a similar case three years earlier. Indeed, Public Citizen, a US consumer advocacy group, has calculated that, in the US alone, the pharmaceutical industry has paid out billions of dollars as a result of court judgments and financial settlements between pharmaceutical manufacturers and federal and state governments.

Sadly, the US and other advanced countries have been pressing for stronger intellectual-property regimes around the world. Such regimes would limit poor countries’ access to the knowledge that they need for their development – and would deny life-saving generic drugs to the hundreds of millions of people who cannot afford the drug companies’ monopoly prices.

The issue is coming to a head in ongoing World Trade Organization negotiations. The WTO’s intellectual-property agreement, called TRIPS, originally foresaw the extension of “flexibilities” to the 48 least-developed countries, where average annual per capita income is below $800. The original agreement seems remarkably clear: the WTO shall extend these ��flexibilities” upon the request of the least-developed countries. While these countries have now made such a request, the US and Europe appear hesitant to oblige.

Intellectual-property rights are rules that we create – and that are supposedto improve social well-being. But unbalanced intellectual-property regimes result in inefficiencies – including monopoly profits and a failure to maximize the use of knowledge – that impede the pace of innovation. And, as the Myriad case shows, they can even result in unnecessary loss of life.

America’s intellectual-property regime – and the regime that the US has helped to foist upon the rest of the world through the TRIPS agreement – is unbalanced. We should all hope that, with its decision in the Myriad case, the Supreme Court will contribute to the creation of a more sensible and humane framework.

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    1. CommentedSarchis Dolmanian

      “Fortunately, what motivates most significant advances in knowledge is not profit, but the pursuit of knowledge itself. This has been true of all of the transformative discoveries and innovations – DNA, transistors, lasers, the Internet, and so on.”

      This observation is in synch with a concept introduced by Csikzentmihalyi: “flow – the state in which people are so involved in an activity that nothing else seems to matter; the experience itself is so enjoyable that people will do it even at great cost, for the sheer sake of doing it.” (

      Unfortunately modern world is dominated by another concept: “monetization”. “To monetize is to convert an asset into or establish something as money or legal tender. The term monetize has different meanings depending on the context.”

      In real life reaching the state of 'flow' is not enough, one also has to eat. Maslow's pyramid is eloquent enough. If somebody wants to discern between two flow producing activities 'profit' comes in quite handy. Being profitable means not only a real demand for whatever is supplied but also that that activity is run by a diligent operator. In this sense profit is a very good efficiency indicator.

      Contemporary economic and social life seems to be dominated by another logic. Profit has become a goal, not an indicator. Instead of trying to achieve the state of 'flow', people try to get rich. Instead of finding happiness by doing something meaningful people try to numb themselves by 'consuming'. We have transformed ourselves from 'free spirits' into 'consumers'.

      It seems that we have forgotten what Max Weber tried to teach us. “As Calvinism developed, a deep psychological need for clues about whether one was actually saved arose, and Calvinists looked to their success in worldly activity for those clues. Thus, they came to value profit and material success as signs of God's favor.” In this vision 'profit' is indeed an indicator and we should also remember about "Asceticism and the Spirit of Capitalism."

      And yes, this is indeed an agency problem.

    2. CommentedDavid Peterson

      I believe the patent system should be abolished! Just because one person or group discovered a method to do something does not mean they are the only who ever will. The patent system causes delays in commercial development time, costs companies ridiculously, and slows the rate of development. Rather than kept locked up, why not release the innovation? Big companies will argue that this will harm their profits, your profits do not take priority over the worlds problems. They will argue, it costs money to develop these technologies, well if you are the first, you will make the money first, to hold on and deny others is inhuman, others who may even stumble upon it on their own are subject to this injustice. I am a software engineering student, and a tech tinkerer, could I develop something in the future that I could patent? Maybe...would I? No. And in my opinion, patenting anything biological is simply ridiculous, especially human genes. If there was ever a method for restoring any human body to proper and optimal function, and it was patented and never released, I believe it would be time for war...

    3. CommentedEric Adler

      "More broadly, [patents are inefficient] as Myriad’s gene patents demonstrate."

      Myriad is anecdotal. On balance, I don't know if patents are good or bad, but we shouldn't extrapolate broad conclusions from a single instance.

    4. CommentedPaul Peters

      In an information rich world, people can be provided enough information to make a choice on which company they prefer to buy from and which one not. There are many of such conformal habits which come to play, such aas rewarding a company for risktaking and pre-investing in a potential dead-end. This should be on the label, for buyers to take note of, but not enforced by intellectual property rights which do not apply in a globalized world anymore and merely translate to monetary rewards.. in this case for things unethical.
      While back i did some research into ethical consumerism and ended up with a very simple modality to address all the "soft" factors that exist outside of price and neuromarketing...

        CommentedPaul Peters

        Odd synchronicity..

        CommentedPaul Peters

        Odd synchronicity..

    5. CommentedLeo Arouet

      Notable artículo. Las patentes están siendo la barrera para la innovación y el medio por el que las empresas farmacéuticas son notablemente son beneficiadas, inclusive a costo de las personas que son perjudicadas...

    6. CommentedG. A. Pakela

      Was the Yale test developed independently of the Myriad test? There are multiple statin drugs on the market, each with their own patent, the most prominent of which have expired. There is a cost to innovation, and property rights must be guarded for all including those of us who should own our own genes.

    7. CommentedPaul A. Myers

      The gene companies "typed" the DNA of today's Supreme Court and have concluded that now is the time to push the fight. This Supreme Court is moving jurisprudence in the US back to about 1897 and the waves from its decisions will lap right up to the side of the "separate but equal" doctrine of Plessey v Ferguson. How very clever: use the New Medicine to throw average Americans into a modern form of debt peonage!

    8. Commentedjack lasersohn

      A few points on Stiglitz's musings beyond the narrow issues in Myriad.
      First, the suggestion that the patent system is the key driver of "corruption", because patents make it profitable. Yes , profit is required for anyone to engage in bribery, but that is true in all industries and a trivial observation. As Stiglitz must know, the real reason for this kind of bribery, in medicine and any other industry, is the 'agency' problem. The person taking the bribe is able to direct someone else's money to flow in a preferred direction. That is a real problem in medicine just as it is with 'purchasing managers' for manufactures and many others, but has nothing to do with patents.
      In fact, the DOJ turns a blind eye to such 'bribery' when they think it lowers their costs. For example they permit 'group purchasing organizations' to legally bribe purchasing managers of hospitals to use monopsony power to force prices down.
      Even more incredible, and soon to become a major scandal, the US government is now launching a kickback program of its own, where it will pay doctors directly to deny care to patients, either by using inferior technology or even more directly.
      The potential for bribery of physicians as agents, by either industry or payers is a well known problem. We once attempted to limit it by requiring that physicians pledge to act only in the interest of patients and not accept bribes either from those wishing to overuse or overpay for care, or ,just as damaging, under-use and underpay for care. It was call the Hippocratic oath.

    9. Commentedjack lasersohn

      Where to begin?
      First, Stiglitz is simply wrong on certain key facts. He suggests that Myriad's discovery 'would have been made in any case' merely through the decoding of the human genome. Really? There are thousands of decoded genes whose function remain completely unknown. Myriad's contribution, and the hard part of genetic research, was discovering the casual relationship between the genes and breast cancer. This discovery effort is ongoing, costs billions of dollars and is incredibly risky. It is possible that it would occur at some level if funded entirely by the government, but it is embarrassing for a Nobel prize winning economist to imply that the incentive provided by patent monopoly has not vastly increased the scale of investment and the pace of discovery.
      He further suggests that the patents have impeded academic research. Ridiculous. Academic research is completely exempt from the patent laws. True , these selfless academics cannot commercialize their academic discovery, for a strictly limited time period, but that is what Stiglitz is objecting to in the first place.
      Finally, it is worth emphasizing that the patent monopoly is only granted for twenty years, a reasonable and limited period, especially when compared to other truly outrageous 'intellectual property' grants such as copyright, which is granted for 75 years after the death of the creator. We seldom hear objections to protecting Mickey Mouse cartoons for this period from economists, perhaps because such protections also apply to their extremely profitable textbooks.
      I happen to agree that Myriad's patents on the actual Brac1 genes themselves should probably not be allowed, but this is entirely different from disallowing their patent on the predictive value of the genes for breast cancer.
      An analogy that may be easier for Stiglitz to relate to would be patenting the symbols of hieroglyphics versus a copyright on the translation into English.

        CommentedJeffrey Scofield

        You've sidestepped some facts to try an make an argument.  Myriad holds the patent on the breast cancer gene and the test method for that gene.  The Myriad test for the gene currently costs in excess of $4,000.  This cost is prohibitive and does limit the number of people who know they have the gene and whether or not they participate in clinical  research. Without question patent monopolies, in their present form,  do restrict scientific progress.  Twenty years of gatekeeping by Myriad is an eternity considering the accelerating pace at which genetic research techniques are moving.