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Sunday, April 18, 2010

"The Case Against Gene Patents"

Joseph Stiglitz and John Sulston argue that "the patenting of human genes is wrong."

[I've been sitting on this post for a couple of days hoping to think of something to say about it, but haven't come up with much. One of the main ideas is that patents are not the only way to solve the market failure associated with innovative activity (the problem is the inability to stop others from taking advantage of your investment in research). An alternative is "government- and foundation-supported research in universities and research laboratories," and they prefer this alternative when "basic knowledge" is involved. I like this idea, but I'm not sure how "basic knowledge" should be defined.]:

The Case Against Gene Patents, by Joseph Stiglitz and John Sulston, Commentary, WSJ: Last month, a federal court in New York ... ruled that patents were improperly granted to Myriad Genetics on two human genes associated with hereditary breast and ovarian cancer. We participated in the case supporting the plaintiffs ... because we believe the patenting of human genes is wrong as a matter of science and as a matter of economics. ...
The court held that genes and human genetic sequences are naturally occurring things, not inventions. They ... contain the most fundamental information about humanity—information that should be available to everyone. The researchers and private companies that applied for these gene patents did not invent the genes; they only identified what was already there.
Proponents of gene patents argue that private companies will not engage in genetic research unless they have the economic incentives created by the patent system. We believe ... exactly the opposite... Patents such as those in this case not only prevent the use of knowledge in ways that would most benefit society, they may even impede scientific progress. ...
As we move into an era where the sequencing of all of an individual's genes is common and necessary for personalized medicine,..., the basic data must be freely available to everyone to interpret and develop. Our genetic makeup is far too complicated for a single entity to hold the keys to any given gene and to be able to choose when, if ever, to share.
Patents are also not necessary for ensuring that genetic tests come to market. Currently, Myriad does not allow any other lab ... to perform full diagnostic testing on patients ... at increased risk of hereditary breast and ovarian cancer. Because of this monopoly, Myriad is able to charge more than $3,000 to perform the test, a prohibitively high amount that keeps some women from being tested...
Other labs have said they would be willing to perform the test for a few hundred dollars,... and could also develop new tests... The information provided by the tests is of enormous importance: The lifetime risk of getting breast cancer is as high as 85% for mutation carriers.
Any marginal social benefits of patenting genes clearly do not measure up to the profound costs of locking down knowledge. ... Like basic mathematical theorems, genes are an example of "basic knowledge"—the kind of knowledge that typically cannot and should not be patented. ... It's true that knowledge cannot be produced without cost, but there is a proven alternative: government- and foundation-supported research in universities and research laboratories. ...
We see this ruling as a turning point in our thinking about our patent system, and more broadly, scientific research.

They say that patenting of human genes is wrong "as a matter of science and as a matter of economics." Economics and science don't deal well with this, but ethics might be involved as well.

One thing I'm confused about in the article is the difference between patenting the genes and patenting the test that looks for them. I understand why genes shouldn't be patented, but what about the test? If a company develops a life-saving test for a genetic disorder, but decides to use a patent to charge monopoly prices that exclude many people from taking the test, how should we respond? Give subsidies to those who can't afford it? Define it as basic research and outlaw the patent? Do nothing and let the market decide? We don't want to discourage the research that produced the test, but we don't want to exclude people either, so a new model is needed for these cases. The question for me is whether "government- and foundation-supported research in universities and research laboratories" provides the correct incentives. It does solve the patent/monopoly prices problem, but will it produce the research we need?

Another alternative is for the government to offer prizes for significant discoveries, e.g. for new, important drugs, but it's not clear to me that government can design the correct incentive system particularly in areas where we know little about which direction to proceed. As Sitglitz notes elsewhere:

Of course, the patent system is itself a prize system, albeit a peculiar one: the prize is temporary monopoly power, implying high prices and restricted access to the benefits that can be derived from the new knowledge. By contrast, the type of prize system I have in mind would rely on competitive markets to lower prices and make the fruits of the knowledge available as widely as possible. With better-directed incentives (more research dollars spent on more important diseases, less money spent on wasteful and distorted marketing), we could have better health at lower cost.

That said, the prize fund would not replace patents. It would be part of the portfolio of methods for encouraging and supporting research. A prize fund would work well in areas in which needs are well known – the case for many diseases afflicting the poor – allowing clear goals to be set in advance. For innovations that solve problems or meet needs that have not previously been widely recognized, the patent system would still play a role.


The market economy and the profit motive have led to extremely high living standards in many places. But the health care market is not an ordinary market. Most people do not pay for what they consume; they rely on others to judge what they should consume, and prices do not influence these judgments as they do with conventional commodities. The market is thus rife with distortions. It is accordingly not surprising that in the area of health, the patent system, with all of its distortions, has failed in so many ways. A medical prize fund would not provide a panacea, but it would be a step in the right direction, redirecting our scarce research resources toward more efficient uses and ensuring that the benefits of that research reach the many people who are currently denied them.

Stiglitz calls for a "portfolio of methods," and perhaps that's the best we can do. But once a portfolio approach including patents is adopted big business, e.g. the pharmaceutical industry, can use its power to distort the portfolio choice in its favor. Thus, the portfolio approach requires countervailing power, power that does not exist in sufficient quantity. Unchecked, the portfolio approach would likely end up looking much like the system we already have, so it's not clear to me that this is the answer.

    Posted by on Sunday, April 18, 2010 at 12:06 PM in Economics, Market Failure | Permalink  Comments (12)


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