THE INEVITABLE LOSS OF BILLIONS
IN PATENT RIGHTS
Paul J Sutton
A hypothetical scenario is set forth below to illustrate
what occurs among dozens of companies holding patents
covering highly successful pharmaceuticals. While the
scenario relates to pharmaceuticals, the same circumstances
will occur for mechanical, chemical, electrical, software,
and business method devices and systems.
Let us first focus upon the underlying premise used by
the country’s founding fathers to provide patent and
copyright protection for inventions and artistic creations.
For inventions, a “deal” is made under the US constitution
between the US government and inventors. In return for the
fruits of their creations and designs to be enjoyed by the
public at large, issued patents describing their inventions
are granted to inventors.
These give limited lawful “monopoly” rights for a limited
period of time during which they may exclude others from
practising their inventions.
Patents have a finite life and, unless extended by the US
Patent and Trademark Office (USPTO) under prescribed
circumstances, will expire 20 years from the filing date of
their underlying patent application. Patent extensions, not
to exceed five years, have been able to be granted after May
29, 2000, if a patent is delayed by the USPTO’s process
taking longer than normal.
While patents expire in 20 years in most cases, in practical
terms the actual time that a drug will be available to
consumers under patent will be much shorter. The actual
time that a drug will have patent protection may be as little
as five or six years, due to the complex drug-approval
process. This will necessarily eat into a patent holder’s
Let us now look at a hypothetical scenario that will have a
surprising similarity to actual events.
There is a sombre mood of gloom and anxiety in the
boardroom of a major pharmaceutical company, company
Z, despite a decade of extraordinary sales of its main drug,
Billions of dollars of annual sales have been facilitated by
company Z’s ownership of patent rights around the world
covering Cure-All. These patent rights have insulated the
company from competition from generic and branded
competitors alike. Company Z has increased its pricing
to the point where revenues and profits have far more
than offset the costs associated with the research and
development that resulted in Cure-All.
Having the market to itself has until now given virtually
every officer and employee of company Z a sense of
security and entitlement. So what in the world could cause
this gloom and anxiety among the company’s management
assembled in the boardroom?
It is the realisation that those wonderful patent rights
will be expiring very shortly, opening the company up to
competition from generics and other competitors who have
been champing at the bit to jump into the market with exact
copies of the Cure-All pharmaceutical formulation, and at
far lower prices than Cure-All has enjoyed to date.
The picnic appears to be over. Those in attendance look
in desperation to patent and general counsel for possible
strategies to extend the patent monopoly. There are no quick
and easy answers, although there may be business options
that will greatly protect company Z.
The foregoing hypothetical scenario is not at all far-fetched.
There are countless instances where this very set of facts
has come to plague companies, including big pharma for
example, as their extraordinarily valuable patents expire.
The first thing to acknowledge is that most pharmaceuticals
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