Reducing prescription drug prices has long been a goal of Democrats in Congress and the White House. But in a strange twist, a group of Senate Democrats—along with one Republican—has backed a bill that would increase drug prices by preventing people from challenging weak or invalid patents.
How patent thickets raise drug prices
As I’ve discussed elsewhere, the single biggest problem with prescription drug prices is the fact that federal law gives strongly preferential treatment to biologic drugs over traditional small molecules. Biologic drugs—drugs manufactured from living cells—represent less than one percent of all U.S. prescriptions, but roughly half of all U.S. drug spending, net of rebates.
In part this is because there are lots of subtle things one can tweak about how a biologic drug is designed and manufactured that have minor effects on a drug’s performance, but major effects on a drug’s financial value. That’s because each of those subtle tweaks, if patented, leads to a new, 20-year monopoly for the drug manufacturer. By law, every patent—no matter how much or how little innovation it contains—gets the same 20-year exclusivity rights.
Drug companies have gotten very good at using thickets of these weaker patents in the U.S. to troll or block low-cost “biosimilar” competition. But the patent thicket strategy hasn’t worked as well in Europe. Why?
The success of patent opposition procedures in Europe
The European Patent Office has long had an opposition procedure by which any individual or company could challenge the validity of a recently issued patent. Patent examiners can’t always know whether or not something that someone is trying to patent is obvious to someone skilled in the art, or has been done before. The opposition process allows those claims to be litigated in a simple and low-cost way.
This ends up being good for innovation. Truly innovative patents that survive the opposition procedure are thereby strengthened, because courts know that these patents have already survived a thorough vetting. And weak patents that should never have been issued are whittled away.
Take the case of Humira, the AbbVie
AbbVie took advantage of the 5-year delay to further raise prices on Humira in the U.S., and the company netted about $80 billion in Humira revenue in the U.S. between 2018 and 2023 at American consumers’ expense.
The U.S. adopts its own patent opposition procedure
In 2011, the U.S. Congress passed the America Invents Act, sponsored by Sen. Patrick Leahy (D., Vt.) and Rep. Lamar Smith (R., Tex.), which the Congressional Research Service describes as “the most significant patent statute enacted by Congress in over 50 years.” The AIA’s most important reform was the creation of two new European-style patent opposition procedures, through a new agency called the Patent Trial and Appeal Board (PTAB).
Silicon Valley tech companies had long been frustrated by patent trolls who hamstrung their products with trivial patents, and the passage of the AIA was a major victory for U.S. innovators. Thanks to PTAB’s streamlined process, challenging a patent through PTAB costs hundreds of thousands of dollars, compared to millions of dollars through the more traditional system.
Unfortunately, it has taken a while for the U.S. patent opposition process, called inter partes review, to get going. As I described in a 2020 paper, early attempts by private actors to invalidate weak drug patents using PTAB were stymied by an aggressive drug industry lobbying campaign.
Here’s how it works: Once a patent has been issued by the U.S. Patent and Trademark Office, anyone can challenge the validity of the patent using post-grant review (if the patent was issued no more than nine months ago) or, more commonly, inter partes review (for patents issued more than nine months ago) by petitioning PTAB. PTAB then decides to either deny or institute the petition, based on whether the petition and its initial response “shows that there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the [patent] claims challenged in the petition.”
Once PTAB institutes the petition, and begins adjudicating the patent challenge, the parties frequently settle, ending the opposition process in about 30 percent of PTAB cases. According to the USPTO, of the 27,804 patent claims challenged in fiscal year 2023 (each patent can contain several claimed inventions), PTAB ruled against the patent holder 5,894 times, or 22 percent of the time. Roughly 21 percent of the claims were settled (the yellow bars on the above chart).
Of the roughly 3.8 million active patents in the United States, as of September 2023 the PTAB opposition procedure has fully invalidated 1,037 and partially invalidated 3,170, or 0.11 percent of active patents.
Because the economic rewards of patent monopolies are so high, Congress’ creation of PTAB has turned out to be one of the most heavily litigated statutes in modern history. From 2016 to 2021, the U.S. Supreme Court heard no fewer than six cases regarding PTAB. While the High Court has ended up tweaking how PTAB works, however, the opposition procedure remains largely intact.
As drug companies continue to use thickets of weak patents to protect their high-priced drugs, it is essential to preserve and improve the patent opposition process in the United States. But, strangely, a group of largely Democratic members of Congress is going in the opposite direction, by introducing legislation that would sabotage the America Invents Act’s reforms.
The PREVAIL Act rewards patent trolls
The most recent version of the bill, called the PREVAIL Act, was introduced by Delaware Sen. Chris Coons (D.) and co-sponsored by Sens. Dick Durbin (D., Ill.), Mazie Hirono (D., Hawaii) and Thom Tillis (R., N.C.). The bill would enable patent trolls to prevail against innovators, by gutting the opposition process.
Under PTAB, anyone can challenge an issued patent: either a would-be competitor or potential infringer, or simply someone acting in the public interest, like a nonprofit public interest law firm. This is essential to PTAB’s proper functioning, because this way, weak patent thickets are cleared out before businesses develop a competing product.
The PREVAIL Act flips this around, requiring PTAB challengers to “have been sued or threatened with a patent infringement lawsuit before filing a PTAB challenge.” This provision would basically destroy the PTAB reform, by eliminating the ability of private actors to clear out patent trolls and thickets prior to infringement lawsuits. PREVAIL contains a host of other provisions designed to make it hard for multiple entities to challenge a weak patent in different ways.
PREVAIL’s sponsors claim that the bill is necessary because “about 80 percent of instituted PTAB proceedings that reach a final written decision result in the invalidation of at least one challenged patent claim, with 65 percent of those proceedings resulting in the invalidation of all challenged patent claims.” But this is misleading, because only a quarter of patent claims going through the PTAB process actually reach a final written decision (the blue and orange bars in the rightmost column of the USPTO chart above). In reality, of the 19,738 patent claims challenged through PTAB in 2023, 5,894 were ruled unpatentable, or 30 percent.
If PREVAIL were to pass, companies like AbbVie would enjoy years of extra monopoly power—and the ability to extract tens of billions of dollars from patients and consumers—by delaying the cleanup of their patent thickets until the last possible minute.
Chris Coons, Mazie Hirono, and Dick Durbin all claim to support lower prescription drug prices. So why are they sponsoring a bill that would increase the power of monopolists to keep drug prices high?
Instead of gutting PTAB, we should strengthen it
Indeed, instead of undermining the Patent Trial and Appeals Board, we should enhance its utility. Thanks to one of the Supreme Court cases I was mentioning above, government entities are no longer allowed to challenge patents under PTAB. That’s too bad, because agencies like the Centers for Medicare and Medicaid Services and the Federal Trade Commission are well-positioned to understand which weak drug patents increase prices for patients and taxpayers.
Ideally, Congress should fix this, by specifying that government agencies do have the ability to challenge patents through PTAB. Barring that, both private philanthropists and the U.S. Department of Health and Human Services could award grants to public interest law firms that will bring drug patent challenges before PTAB.
Those who value free-market principles for prescription drugs should especially value the role of the patent opposition process to reduce unfair monopolies and increase competition.
Not all patents are created equal, and not all bureaucratic decisions to issue patents are infallible. Patent examiners in the U.S. routinely issue patents—and thereby 20-year monopolies—for claims that aren’t real inventions. Just as pruning a rose bush helps it grow, clearing out weak patents improves the quality and legitimacy of the truly innovative ones.
