The economics of human gene patents

The author examines patents on DNA sequences, including data on gene sequence grants issued by the PTO during a 33-month period from 1998 to 2001. Policy supporting patents on DNA sequences and other elemental information that are far "upstream" in the product development pathway is contrasted with the economic bases and rationale for patents to pharmaceuticals, which require a protracted and expensive process of development and testing but that can be relatively cheaply and competitively imitated once they are approved and disclosed. How to allocate appropriately the economic returns among the upstream and downstream inventors is a challenging problem for economic theory, as well as for contemporary biomedical research, and is perhaps most familiarly embodied in licensing and cross-licensing disputes involving "reach-through" and "reach-back" rights. Such disputes can generate enormous transaction costs. They may become increasingly frequent and vexing with respect to the scope and overlap of patent claims on human gene sequences. On the basis of his analyses, the author argues that genome patent claims should be interpreted narrowly. He is particularly concerned with ensuring that the development of new (therapeutic) products is not blocked or retarded by a multiplicity of prior patent claims, but he is pessimistic that the diversity of participants in biotechnology will provide a "sufficient community of interest to organize comprehensive low-royalty cross-licensing" regimes. Accordingly, he suggests mandatory arbitration as one mechanism for resolving such problems.