American innovation faces an existential threat: the steady erosion of intellectual property rights. Without strong and reliable IP protections, future generations will be deprived of life-changing -- and potentially life-saving -- new medicines.
Early-stage biotech funding is on track to decline 40% this year, and leading investors have made clear that one reason for the retreat is their declining faith in the sanctity of patents.
This retreat is understandable. Investing in life science is risky and expensive. Patents and other intellectual property are what protect new technologies from easy duplication by competitors. They're what offer the possibility of financial upside if all the risks are overcome and the technology actually makes it to market.
Yet in recent years, Washington has seemed hellbent on weakening the patent system.
Consider last year's Inflation Reduction Act, which allows the federal government to impose severe price caps on prescription drugs as early as nine years after FDA approval. Whatever one thinks of the price of branded medicines, price controls amount to cryptic patent reform.
Here's how. Just 12% of potential treatments entering clinical trials receive FDA approval. For the rare candidate that does succeed, clear patent terms allow firms to determine their own prices for a short period of time -- typically around 14 years after FDA approval -- before generic competitors are allowed to enter the market. This brief period of pricing autonomy is what allows developers to earn a return for investors and also make up for losses on failed projects.
The IRA undermines this system entirely by arbitrarily knocking years off of a drug's patent life.
Indeed, the IRA is already factoring into investment decisions. Recent SEC filings reveal that numerous biotech companies are putting promising drug development projects on ice because of new price controls. Bristol Myers Squibb recently said it will pause some research on a potential treatment for multiple myeloma. In total, the IRA could stop the development of up to 139 new medicines over the next decade. It also retroactively changes the rules of the game, and it singles out one of our most important industries. The consequences will be severe.
Attacks on patent rights go far beyond the IRA.
A number of Democratic members of Congress are pressuring the Biden administration to misuse a decades-old law -- the Bayh-Dole Act -- to "march in" and nullify exclusive licensing agreements for patented medicines developed with the help of government funds. The White House recently launched a working group to explore whether the government has authority to do so.
Many of those same lawmakers are claiming that the government can legally ignore any patent it wants under Title 28, Section 1498(a) of the U.S. Code.
Section 1498(a) dates back to just before the First World War and was written to ensure that patent owners are compensated if goods are made by or for the government during a war. Section 1498 does not permit the government to authorize private parties to infringe a patent in order to reduce prices. Yet Sen. Bernie Sanders (D-VT) recently urged the Biden administration to authorize the generic production of Eisai's breakthrough Alzheimer's treatment, Leqembi, claiming that Section 1498 provided the legal framework to do so.
The Biden administration seems open to this absurd interpretation.
In February, the Justice Department filed a "statement of interest" in a patent infringement suit filed by two companies against Moderna relating to technology used in its Covid-19 vaccine. It was an exceedingly unusual intrusion into a dispute between private firms. And in the Statement, the Justice Department suggested that Section 1498(a) could be invoked to authorize patent infringement by any private company that happens to sell an item to the government. By this logic, Section 1498(a) could be used to nullify the patents behind virtually any product purchased by the government at any time and for any reason.
U.S. policymakers' efforts to undermine our IP laws even extend beyond our borders. Last year, thanks to support from the Biden Administration, the World Trade Organization waived global patent protections for Covid vaccines, despite zero evidence that IP was hindering global immunization efforts. Now, the WTO is considering expanding that waiver to Covid tests and diagnostics, and the U.S. position remains a mystery. There is simply no basis for this give-away of American IP.
Many investors are rightly worried that the WTO debates are a harbinger of things to come. The United Nations Secretary-General recently stoked these concerns when he suggested "removing" IP rights for revolutionary green tech.
American IP rights have never been on more unstable footing. Without a course correction -- soon -- investors will turn to safer bets and stop funding the transformational research and development that advances life science and other critical technologies.
Andrei Iancu is board co-chair of the Council for Innovation Promotion. He served as the undersecretary of commerce for intellectual property and director of the US Patent and Trademark Office from 2018 to 2021.
