Patent trolls/Monetizers/PAEs/NPEs and Bio/Pharma

There’s recently been a lot of focus on patent trolls (so called by those who dislike them; they’re also known as patent assertion entities, nonpracticing entities, and monetizers, each with slightly different definitions; I describe them a bit more after the fold*): there have been Congressional hearings, a bill passed in the House, White House statements, state legislation, and quite a bit of academic attention.  Most attention, though, assumes this is mostly an issue for the high-tech and software industries; in particular, it’s usually assumed that the biotech and pharmaceutical industries are insulated from the phenomenon.  Robin Feldman (at UC Hastings) and I decided to reexamine that assumption, and argue in this piece that the conventional wisdom is wrong, and that biopharma is a relevant target for monetizers.

The basic argument of our piece is as follows: conventional wisdom holds that pharma need not worry about monetizers: even though patents are very important for drug companies, each drug is usually covered by just one or a few patents, and the company either owns them or has licensed them; otherwise it wouldn’t make the drug.  So there just aren’t patents out there that can be asserted; ergo, no monetizer problem.  And indeed, there hasn’t been much action so far.  We point to three challenges to this wisdom: (1) regulatory oversight increases the costs of inventing-around an asserted patent; (2) monetizers are spreading past low-hanging fruit; and (3) the business of selling drugs involves much more than just coming up with an active chemical compound, so that “much more” is still vulnerable to monetizers.  But the main thrust of the paper is against the assumption that there aren’t assertable patents out there.

We thought the patent holdings of universities would likely include lots of patents that might be used by monetizers against pharma, and we were right.  In a deliberately light skim across patent holdings of 5 major research university systems, we easily found many such patents.  The paper describes multiple different categories of patents that could be used, and provides examples of each.  We didn’t aim to be exhaustive, just to point out that the issue is a relevant one to biopharma (whatever you think of trolls), and that that industry should be taken into account–and should participate–in the policy debates about what happens next. 

* – For those who aren’t familiar with the troll phenomenon, the negative exemplar is a company that buys up low-quality patents that maybe shouldn’t have been issued by an overworked patent office, then demands payment from individuals or companies that are using some technology arguably covered by those patents.  The huge costs of defending patent infringement suits can act as a cudgel to bludgeon companies to settle, especially small businesses.  I should note that there are arguments that monetizers provide a valuable market-creation and pricing function for otherwise hard-to-value patents; whatever your views on the valence of patent monetizers, I think the point remains that they’re relevant to the biopharma space in a way we don’t normally assume to be true.

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