Patent Protection

Patent Protection (Internet Law)

This section introduces, discusses and describes the basics of patent protection. Then, cross references and a brief overview about Internet Lawin relation to patent protection is provided. Note that a list of bibliography resources and other aids appears at the end of this entry.

How does a patent restrict competitors

Patents can be used in anti-competitive strategies, whose aim is to exclude other companies (competitors) from the market. In that context, patents are not just means to exclude competitors, they are instruments used by incumbent firms to raise entry barriers. Patents are also used by new entrants to penetrate markets. Patents are used in standard-setting processes and for making alliances. This diversified role of patents renders their effect on competition more complex. Some anti-competitive strategies are clearly illegal, others are abuses of the system, permitting an undue extension of the exclusive right beyond the one granted by the patent office. These practices can be deterred, and often are, by a close monitoring by competition authorities. A question raised to patent offices is to what extent could such practices be hampered upstream, by granting patents which would not facilitate, or would even hamper them? Could patent law and practice tackle some of these problems?

Pharmaceutical companies enjoy patent protection for their products. Once the patent has expired, producers of similar generic products can enter the market. Pharmaceutical companies that try to prolong patent protection for a product may breach EU competition rules. Such behaviour can also have the side effect of removing incentives to innovate as competition from generic products encourages the creation of new products. In this respect, AstraZeneca was deemed to abused the patent system and the system for authorisation of medicines with the aim of delaying competition to a blockbuster drug from generic and parallel imported pharmaceuticals. AstraZeneca was fined €60 million. The appeal is currently pending before the Court of First Instance. As a result of this first case, the Commission intensified the monitoring of competition in the sector of generic medicines. The first findings indicate that competition in the market for human medicines may not be working well in Europe; fewer new medicines are being brought to market and the entry of generic medicines sometimes seems to be delayed. The Commission has therefore opened a sector inquiry to investigate the reasons for this.

The financial institutions have devised various tools for patent holders to obtain monetary value from their patents more promptly than collecting royalties from licences. These mechanisms include securitisation based on anticipated royalty income streams, auction of patents, patent collateralisation, patent sale-lease-back arrangement, and patent litigation insurance. The European Commission opened formal proceedings in January 2009 after complaints were lodged in July 2008 because of non-requested services. Standard & Poor’s is the only issuer of valid identifying numbers of American bonds or stocks. Without these unique numbers, securities cannot be exchanged, according to international agreements aimed at avoiding duplication and potential loss of assets. According to plaintiffs, Standard & Poor’s is thus benefiting from its monopoly by imposing charges not only on providers of financial data such as Bloomberg and Thomson Reuters, but also by charging financial institutions directly. The potential new charge follows a wide-ranging review of rules governing credit rating agencies’ activities launched by the Commission in November 2008. Internal Market Commissioner Charlie McCreevy has chosen to highlight the responsibilities of rating agencies on several occasions during the ongoing financial crisis. The agencies stand accused of setting excessively high credit rates, which later turned insolvent.

In one of the scenarios on how might intellectual property regimes evolve by 2025, patent pools are brought into account. In the setting called ‘Blue Skies’, a globally positive attitude to technology has led to flourishing healthcare R&D. Pharmaceutical companies still rely on patents, albeit with restrictions that ensure research exemptions and access for poorer nations. Areas such as genetic diagnostics have adopted a system of licencing, patent pools and clearinghouses to ensure optimal use of available technologies. But major breakthroughs come from a thriving information and communication technology sector that enables new forms of disease prevention by combining sophisticated diagnostics, advice and the control of human behaviour using technology. Epidemiological, pharmaceutical and genetic research is helped by huge interconnected databases bringing genomic, clinical, familial and social data together on a worldwide scale. Ethical objections to biotechnology have made way for ‘utilitarian’ cost-benefit appraisal: stem-cell treatments, advanced prosthetics and embryo screening are accepted. The first attempts at genetic enhancement are supported in large parts of society.

Finally, complements to competition and patents are open source, open science, open access, open innovation and open standards. Open source projects are based on collaborative innovation and are characterised by a non-proprietary setting. Open science offers free collaboration and rapid public disclosure of results with no restrictions on use other than acknowledging the source. Open access provides users free reading, downloading, copying, distributing, printing, searching or linking. Open innovation prioritises partnering, licencing and venturing to combine internal and external sources of ideas and technologies. Open standards are publicly available specifications which give a common method of achieving a particular goal.

Author: Victor Rodriguez

Resources

Further Reading

• Merges R. Institutions for intellectual property transactions: The case for patent pools.
• Shapiro C. Navigating the patent thicket.
• Overwalle G, Zimmeren E, Verbeure B, Matthijs G. Models for facilitating access to patents on genetic inventions. Nat Rev Genet. 2006;7:143–54.
• Clark J. Patent pools: a solution to the problem of access in biotechnology patents?
• Bessen J. Patent thickets: Strategic patenting of complex technologies.
• European Patent Office. Scenarios for the future.
• Lerner J, Tirole J. Efficient patent pools. Am Econ Rev. 2004;94:691–711.
• Encaoua D, Ulph D. The effects of competition on innovation and growth. Paris: Universit Panthon-Sorbonne: Cahiers de la Maison des Sciences Economiques; 2000. Catching-up or leapfrogging?
• Guellec D, van Pottelsberghe B, van Zeebruck N. Patent as a market instrument The economics of the European patent system. In: Guellec D, van Pottelsberghe B, editors. IP policy for innovation and competition. Oxford: Oxford University Press; 2007.
• Wragge and Co. Pharmaceutical patents need a new lease of life. Managing Intellectual Property, December 2008 and January 2009.
• European Commission. Pharmaceutical sector inquiry: Preliminary report. DG Competition Staff Working Paper. Brussels: European Commission. 2008.
• Singh T. A bitter pill of sector inquiry for the drug business. New Europe 16, 810 (30 November-6 December) 2008. p. 38.
• Klepper S. Entry, exit, growth, and innovation over the product life cycle. Am Econ Rev. 1996;86:562–83.
• Kaniovski S. Product differentiation and competitive selection. J Evol Econ. 2005;15:567–80.
• Cohen W, Klepper S. Firm size and the nature of innovation within industries: The case of process and product R&D. Rev Econ Stat. 1996;78:232–43.
• Aghion P, Bloom N, Blundell R, Griffith R, Howitt P. Competition and innovation: an inverted-U relationship. Quart J Econ. 2005;120:701–28.
• Encaoua D, Hollander A. Cahiers de la Maison des Sciences Economiques. Paris: Universit Panthon-Sorbonne; 2004. Price discrimination, competition and quality selection.
• Reitzig M. The private values of ‘thickets’ and ‘fences’: towards an updated picture of the use of patents across industries. Econ Innov New Technol. 2004;13:457–76.
• Roox K, Pike J, Brown A, Becker S. Patent-related barriers to market entry for generic medicines in the European Union: a review of weaknesses in the current European Patent System and their impact on the market access of generic medicines. Brussels: European Generic Medicines Association. 2008.
• European Commission DG Competition, Pharmaceutical sector overview.