TWN Info Service on Health Issues (Jul13/03)
16 July 2013
Third World Network

How Intellectual Property Reinforces Inequality

By Josephe E. Stiglitz

In the war against inequality, weíve become so used to bad news that weíre almost taken aback when something positive happens. And with the Supreme Court having affirmed that wealthy people and corporations have a constitutional right to buy American elections, who would have expected it to bring good news? But a decision in the term that just ended gave ordinary Americans something that is more precious than money alone the right to live.

At first glance, the case, Association for Molecular Pathology v. Myriad Genetics, might seem like scientific arcana: the court ruled, unanimously, that human genes cannot be patented, though synthetic DNA, created in the laboratory, can be. But the real stakes were much higher, and the issues much more fundamental, than is commonly understood. The case was a battle between those who would privatize good health, making it a privilege to be enjoyed in proportion to wealth, and those who see it as a right for all and a central component of a fair society and well-functioning economy. Even more deeply, it was about the way inequality is shaping our politics, legal institutions and the health of our population.

Unlike the bitter battles between Samsung and Apple, in which the referees (American courts), while making a pretense at balance, seem to consistently favor the home team, this was a case that was more than just a battle between corporate giants. It is a lens through which we can see the pernicious and far-reaching effects of inequality, what a victory over self-serving corporate behavior looks like and† just as important† how much we still risk losing in such fights.

Of course, the court and the parties didnít frame the issues that way in their arguments and decision. A Utah firm, Myriad Genetics, had isolated two human genes, BRCA1 and BRCA2, that can contain mutations that predispose women who carry them to breast cancer† crucial knowledge for early detection and prevention. The company had successfully obtained patents for the genes. ĎOwningí the genes gave it the right to prevent others from testing for them. The core question of the case was seemingly technical: Are isolated, naturally occurring genes something that can be patented?

But the patents had devastating real-world implications, because they kept the prices for the diagnostics artificially high. Gene tests can actually be administered at low cost† a person can in fact have all 20,000 of her genes sequenced for about $1,000, to say nothing of much cheaper tests for a variety of specific pathologies. Myriad, however, charged about $4,000 for comprehensive testing on just two genes. Scientists have argued that there was nothing inherently special or superior about Myriadís methods it simply tested for genes that the company claimed to own, and did so byrelying on data that was not available to others because of the patents.

Hours after the Supreme Courtís ruling in favor of the plaintiffs† a group of universities, researchers and patient advocates, represented by the American Civil Liberties Union and the Public Patent Foundation† other laboratories quickly announced that they would also begin offering tests for the breast cancer genes, underlining the fact that Myriadís Ďinnovationí was identifying existing genes, not developing the test for them. (Myriad is not done fighting, though, having filed two new lawsuits this month that seek to block the companies Ambry Genetics and Gene by Gene from administering their own BRCA tests, on the grounds that they violate other patents that Myriad holds.)

It should not be very surprising that Myriad has done everything it can to prevent its testsí revenue stream from facing competition† indeed, after recovering somewhat from a 30 percent drop in the wake of the court ruling, its share price is still nearly 20 percent below what it was beforehand. It owned the genes, and didnít want anybody trespassing on its property. In obtaining the patent, Myriad, like most corporations, seemed motivated more by maximizing profits than by saving lives† if it really cared about the latter, it could and would have done better at providing tests at lower costs and encourage others to develop better, more accurate and cheaper tests. Not surprisingly, it made labored arguments that its patents, which allowed monopolistic prices and exclusionary practices, were essential to incentivize future research. But when the devastating effects of its patents became apparent, and it remained adamant in exerting its full monopoly rights, these pretensions of interest in the greater good were woefully unconvincing.

The drug industry, as always, claimed that without patent protection, there would be no incentives for research and all would suffer. I filed an expert declaration with the court (pro bono), explaining why the industryís arguments were wrong, and why this and similar patents actually impeded rather than fostered innovation. Other groups that filed amicus briefs supporting the plaintiffs, like AARP, pointed out that Myriadís patents prevented patients from obtaining second opinions and confirmatory tests. Recently, Myriad pledged it would not block such tests† a pledge it made even as it filed the lawsuits against Ambry Genetics, and Gene by Gene.

Myriad denied the test to two women in the case by rejecting their Medicaid insurance  - according to the plaintiffs, because the reimbursement was too low. Other women, after one round of Myriadís testing, had to make agonizing decisions about whether to have a single or double mastectomy, or whether to have their ovaries removed, with severely incomplete information† either Myriadís testing for additional BRCA mutations was unaffordable (Myriad charges $700 extra for information that national guidelines say should be provided to patients), or second opinions were unattainable because of Myriadís patents.

The drug industry, as always, claimed that without patent protection, there would be no incentives for research and all would suffer. I filed an amicus brief with the court, explaining why the industryís arguments were wrong, and why this and similar patents actually impeded, rather than fostered, innovation. Through my participation in the case, I heard heart-rending stories of women who didnít take the actions they should have, because they believed the false-negative results of Myriadís inferior tests. The better tests would have told them they did in fact have a gene associated with cancer. The good news coming from the Supreme Court was that in the United States, genes could not be patented. In a sense, the court gave back to women something they thought they already owned. This had two enormous practical implications: one is it meant that there could now be competition to develop better, more accurate, less expensive tests for the gene. We could once again have competitive markets driving innovation. And the second is that poor women would have a more equal chance to live† in this case, to conquer breast cancer.

But as important a victory as this is, it is ultimately only one corner of a global intellectual property landscape that is heavily shaped by corporate interests† usually American. And America has attempted to foist its intellectual property regime on others, through the World Trade Organization and bilateral and other multilateral trade regimes. It is doing so now in negotiations as part of the so-called trans-Pacific Partnership. Trade agreements are supposed to be an important instrument of diplomacy: closer trade integration brings closer ties in other dimensions. But attempts by the office of the United States Trade Representative to persuade others that, in effect, corporate profits are more important than human lives undermines Americaís international standing: if anything, it reinforces the stereotype of the crass American.

Economic power often speaks louder, though, than moral values; and in themany instances in which American corporate interests prevail inintellectual property rights, our policies help increase inequalityabroad.In most countries, itís much the same as in the United States: the lives of the poor are sacrificed at the altar of corporate profits. But even in those where, say, the government would provide a test like Myriadís at affordable prices for all, there is a cost: when a government pays monopoly prices for a medical test, it takes money away that could be spent for other lifesaving health expenditures.

The Myriad case was an embodiment of three key messages in my book ĎThe Price of Inequality.í First, I argued that societal inequality was a result not just of the laws of economics, but also of how we shape the economy through politics, including through almost every aspect of our legal system. Here, itís our intellectual property regime that contributes needlessly to the gravest form of inequality. The right to life should not be contingent on the ability to pay.

The second is that some of the most iniquitous aspects of inequality creation within our economic system are a result of Ďrent-seekingí: profits, and inequality, generated by manipulating social or political conditions to get a larger share of the economic pie, rather than increasing the size of that pie. And the most iniquitous aspect of this wealth appropriation arises when the wealth that goes to the top comes at the expense of the bottom. Myriadís efforts satisfied both these conditions: the profits the company gained from charging for its test added nothing to the size and dynamism of the economy, and simultaneously decreased the welfare of those who could not afford it.

While all of the insured contributed to Myriadís profits† premiums had to go up to offset its fees, and millions of uninsured middle-income Americans who had to pay Myriadís monopoly prices were on the hook for even more if they chose to get the test† it was the uninsured at the bottom who paid the highest price. With the test unaffordable, they faced a higher risk of early death.

Advocates of tough intellectual property rights say that this is simply the price we have to pay to get the innovation that, in the long run, will save lives. Itís a trade-off: the lives of a relatively few poor women today, versus the lives of many more women sometime in the future. But this claim is wrong in many ways. In this particular case, it is especially wrong, because the two genes would likely have been isolated (Ďdiscovered,í in Myriadís terminology) soon anyway, as part of the global Human Genome Project. But it is wrong on other counts, as well. Genetic researchers have argued that the patent actually prevented the development of better tests, and so interfered with the advancement of science. All knowledge is based on prior knowledge, and by making prior knowledge less available, innovation is impeded. Myriadís own discovery† like any in science† used technologies and ideas that were developed by others. Had that prior knowledge not been publicly available, Myriad could not have done what it did.

And thatís the third major theme. I titled my book to emphasize that inequality is not just morally repugnant but also has material costs. When the legal regime governing intellectual property rights is designed poorly, it facilitates rent-seeking† and ours is poorly designed, though this and other recent Supreme Court decisions have led to one that is better than it otherwise would have been. And the result is that there is actually less innovation and more inequality.

Indeed, one of the important insights of Robert W. Fogel, a Nobel Prize-winning economic historian who died last month, was that a synergy between improved health and technology accounts for a good part of the explosive economic growth since the 19th century. So it stands to reason that intellectual property regimes that create monopoly rents that impede access to health both create inequality and hamper growth more generally.

There are alternatives. Advocates of intellectual property rights have overemphasized their role in promoting innovation. Most of the key innovations† from the basic ideas underlying the computer, to transistors, to lasers, to the discovery of DNA† were not motivated by pecuniary gain. They were motivated by the quest for knowledge. Of course, resources have to be made available. But the patent system is only one way, and often not the best way, of providing these resources. Government-financed research, foundations, and the prize system (which offers a prize to whoever makes a discovery, and then makes the knowledge widely available, using the power of the market to reap the benefits) are alternatives, with major advantages, and without the inequality-increasing disadvantages of the current intellectual property rights system.

Myriadís effort to patent human DNA was one of the worst manifestations of the inequality in access to health, which in turn is one of the worst manifestations of the countryís economic inequality. That the court decision has upheld our cherished rights and values is a cause for a sigh of relief. But it is only one victory in the bigger struggle for a more egalitarian society and economy.