Seizing Intellectual Property for Medicines Is Not a Path to Prosperity | American Enterprise Institute

Since healthcare is among the biggest costs to the federal government, it is reasonable to evaluate what is spent on medical care and to consider policies and regulations to root out waste. However, the re-emergence of proposals to take away intellectual property for drugs is counterproductive; they do not reduce costs, and invoking these policies would inform investors in a leading US industry, that they should find a better place for their money. At the same time, China has strengthened its intellectual property and is now home to over one-quarter of new drug development worldwide. Weakening intellectual property is not on the path to health and prosperity.

Government intervention on prices is popular; no one likes spending money on a prescription, and many people can’t afford the co-pays. Since generic copies of drugs are cheaper than brands, Sen. Elizabeth Warren (D-MA) has unsuccessfully promoted taking intellectual property on drugs to accelerate generic entry to make drugs cheaper (so did the Biden administration). Sen. Warren recently sent a letter to Elon Musk, where she asks DOGE leadership to revoke intellectual property rights on drugs and with Section 1498 waivers and “march-in” rights. The letter makes it sound far simpler to do and more effective at lowering costs than would occur in practice.

No US government agency has invoked these provisions for lower drug prices, despite being asked multiple times; it is both infeasible and futile to cost reduction.

Section 1498 allows the government to authorize a copy of a patented invention, without liability of being sued by the patent holder, in limited circumstances. Courts interpreted that Section 1498 would not apply merely because the US is a purchaser of drugs and wants to spend less money. The statute also provides that the patent holders are entitled to “reasonable and entire compensation”, which should (according to legal scholars, would) include lost profits. Taxpayers would have to pay the drug companies billions for their losses. 

March-in rights allow the government to infringe on drugs patents when federal funding was involved in their development if the patent holder fails to make the drug commercially available. However, only a tiny percentage of drugs could be eligible. Many drugs are developed with federal funding, often with NIH grants to universities, in early discovery. But the vast majority of drugs have privately held patents as well that the government cannot claim. Most of the expense and time of drug development occurs in the private market, where drug companies and venture investors fund large scale clinical trials in people and obtain patents on those inventions. Moreover, exercising march in rights would make university-developed drugs financially toxic, diminishing the value of these assets whose royalties fund higher education.

Enacted in 1980, the Bayh-Dole Act created a pathway from initial research to final consumer product, like a drug, by ensuring that inventors can obtain patents. It takes more than 10 years to test and develop for a new molecule or other technology to become an approved medicine. The promise of commercial success, that comes with a property right to market the invention, attracts capital investment in production and distribution chains and in the risky business of clinical studies.

Even though a patent for a medicine is 20 years, the vast majority of drugs have a generic competitor after 14 years, even when they have patents on some part of their invention. This system has both encouraged investment in new drugs and created an environment were more than 90 percent of drugs are generic. There are failures, but Sen. Warren’s proposals to take away property rights is not the solution to resolve them.