Patents for Diagnostic Tools: An Economic Analysis
David Booton
There is concern in many countries about the impact that gene patents have on the
availability and development of diagnostic tests. Fears are not confined to the effect such patents
have on cost and access but also on the effects on research and development. The aim of this
paper is to consider how the law might meet these concerns. Two post-grant mechanisms are
explored. The first is an exemption to infringement which would allow the carrying out of
diagnostic tests. I set out to evaluate this mechanism by analysing the operation of an existing
research exemption under UK law and assessing the effect of the exemption, in its existing and
in the proposed expanded form (in which it would cover the carrying out of diagnostic tests) on
the incentives to invest in innovation that the patent system aims to provide. The conclusion is
that whilst the existing exemption has little impact on incentives to innovate, any expansion of
the exemption is likely to have a damaging effect on these incentives and so be counterproductive. The second proposed means of tempering the effect of patent rights is that patent
owners be compelled to license diagnostic uses of a claimed invention if they refuse to supply a
diagnostic test on reasonable terms. Economic theory supports confining property owners to a
remedy in damages where bargaining in respect of rights to that property is not possible. As
between patent owners and research scientists there are significant impediments to bargaining in
instances where the information generated by a diagnostic test has both clinical and research
value. The UK Patents Act allows for the grant of compulsory licences but the procedures
involved in obtaining such a licence are complex, cumbersome and difficult to apply.
Furthermore, the approach taken to the setting of royalties is payable under a compulsory licence
is relatively generous to patent owners which further discourages potential licensees to make use
of these provisions. The analysis shows that the public interest would not be better served by
reforms aimed at stripping away the procedural complexity and detail. Such a reform would
demand of courts an impossible balancing of ex ante and ex post considerations and would
involve large assessment costs. Nor, it is argued, should we rush to change the existing basis for
calculating royalties. The current approach acts to encourage courts to award licences in
situations of imperfect information and also guards against the scheme being perceived as a
disguised system of wealth re-distribution. The overall conclusion is that it is hard to see how
the existing post-grant mechanisms for tempering patent rights could be improved in a way that
would enhance research into the diagnosis and treatment of gene-based disease.
Throughout the paper the analysis is of UK patent law. The UK has an existing research
exemption and a developed scheme for allowing non-authorised uses so allowing an evaluation
of the current law as a foundation for the speculation on reform. One conclusion is that countries
without any research exemption or any procedure by which compulsory licences can be obtained
could safely adopt similar schemes to those in the UK without fear that this would damage the
patent system and the incentives it provides. But for the UK, and countries with existing
exemptions and compulsory licence schemes, the solution to the problem of gene patents putting
a brake on innovation is not to be found in either an expansion of the existing research
exemption or in reform of the procedures for the grant of a compulsory licence. If there is a
problem at all then a better solution may lie in refining the conditions that must be satisfied for a
patent to be granted on a gene sequence and in limiting the scope of product per se claims.