“We’re Not Looking to Achieve Incremental Advances”

 

LevinsonArthurGenentechCEO.jpg   Genentech CEO Dr. Arthur D. Levinson.  Source of image:  online version of the WSJ article cited below.

 

(p. B1)  WSJ: You have multiple blockbuster biotech drugs on the market and more on the way. In such an uncertain business, how do you manage scientists to achieve that kind of success?

Dr. Levinson: We are first and foremost committed to doing great science. If a drug can’t be the first in class or the best in class, we’re just not interested. We’re not looking to achieve incremental advances or extend patents or do X, Y, Z unless it is going to really matter for patients. That allows us to bring in phenomenal scientists and encourage them to do the basic and translational research.

We decided 15 years ago that we would be committing (p. B2) to oncology, which at the time for us was new. We are now the leading producer of anticancer drugs in the United States. We took a lot of risks. In many cases, those risks paid off. We are now also in immunology. Again, the role of management here is to set the broad direction and then hire absolutely the best scientists and bring them in and say, ‘Do your stuff.’

 

For the full interview, see:

MARILYN CHASE. The Wall Street Journal "How Genentech Wins At Blockbuster Drugs CEO to Critics of Prices: ‘Give Me a Break’."   The Wall Street Journal  (Tues., June 5, 2007):  B1 & B2.

 

 GenentechStockPrices.gif   Source of graph:  online version of the WSJ article cited above.

 

The Case for Patent Law Reform

 

The author of the commentary quoted below is the head lawyer for Intel.  I believe that the evidence is strong that patents can provide strong incentives for innovation.  But the devil is in the details.  I have not studied the Patent Reform Act of 2007, so I am not sure whether, overall, it is an improvement over the current rules.  But the case for reform is strong, and the topic is one that highly deserves further research. 

 

(p. A15) The U.S. patent system is beginning to show its age; outpaced by the swift evolution of technology and commerce, it increasingly favors speculators over innovators, impeding innovation and economic growth. Fortunately, the bipartisan "Patent Reform Act of 2007," introduced in both the House and Senate, would improve the process for granting patents, and rebalance court rules and procedures to ensure fair treatment when patents wind up in litigation. The Senate Judiciary Committee will take up S.1145 today.

Congress needs to pass this bill, during this session, as the need for reform is clear. Nationwide, the number of patent lawsuits nearly tripled between 1991 and 2004, and the number of cases between 2001 and 2005 grew nearly 20%. Until 1990, only one patent damages award exceeded $100 million; more than 10 judgments and settlements were entered in the last five years, and at least four topped $500 million. One recent decision topped $1.5 billion.

The number of questionable, loosely defined patents, moreover, is rising. One company holds patents that it claims broadly cover current technologies that allow people to make phone calls over the Internet. Another has staked a claim on streaming video over the Internet generally and has pursued colleges for royalties on their distance-learning programs. In 2002, a five-year-old boy patented a method of swinging on a swing.

Unfortunately, under current law, parties that want to innovate in areas covered by questionable patents have only two options, both of them bad: an ineffective, rarely used re-examination process, or litigation — the average cost of which is, by some estimates, $4.5 million. This impedes innovation, as the FTC noted: "One firm’s questionable patent may lead its competitor to forgo R&D in the areas that the patent improperly covers."

 

For the full commentary, see: 

BRUCE SEWELL.  "Patent Nonsense."  The Wall Street Journal  (Thurs., July 12, 2007):  A15. 

 

Dinner with Hayek

 

Recently (6/10/07) at dinner with a group of foreign graduate students at George Mason University, I learned that one of the students was from Venezuela, and so I mentioned to her that one of my friends during my graduate student days at the University of Chicago had been from Venezuela, and that he had been responsible for bring F.A. Hayek to speak at the University.  When I said his name was “Cartea,” she said that she had had a professor named Cartea who was an admirer of Hayek, but who had unfortunately died in an accident a few years ago.

This was surprising and distressing news.

Cartea had charisma, and was not afraid to use it.  He was not always a model of responsible behavior, but he had such child-like enthusiasm, that it was hard to be mad at him for long.  One of his main weaknesses is that he loved books.  Often he would bring me his latest purchase from the Seminary Co-op Bookstore, hold it up, and say in his inimitable accent and cadence:  “Pure Gold!”    

In Chicago, I had a car, and Cartea did not.  He asked if I would drive him to pick up Hayek and Hayek’s wife at the airport.  When we got to the airport, Cartea was hungry and wanted to stop and get a hamburger.  I thought it was not prudent to take the time to do this, but Cartea was insistent, and we stopped. 

We ended up getting to the gate just barely by the time of the Hayeks’ scheduled arrival (these were the innocent pre-terrorism days when you could actually meet guests at their gate).  But to our dismay, we learned that the flight at arrived early, and apparently Hayek had grabbed a cab to the University.

So we drove to the Center for Continuing Education where the Hayeks were staying.  There we learned that they had headed to the then-best restaurant in Hyde Park, called something like the “Courtyard.” 

At some point along the way, while still in the airport I think, Cartea purchased a single rose.  We walked into the restaurant, and found the Hayeks.  And then, with a charm that I could admire, but not imitate, he flamboyantly presented the rose to Mrs. Hayek, to her obvious delight.  (I do not remember what he said, or how he explained-away our absence from at the airport—I do remember that the word “hamburger” did not pass his lips.

The pleased Hayek invited us to join them for dinner.  We did.  It was just me, Cartea, and the Hayeks, and it stuns me to think that of the four, only I am still alive.

I would like to be able to report that some deep issues of classical liberal political theory were discussed, but if they were, I have no memory of that.  My memory is that the discussion was mainly of a personal, small-talk variety.  For example, one or both of the Hayeks had long wanted to view a solar eclipse, so they had recently flown to somewhere in the world where such an eclipse had occurred.

And I remember Hayek teasing Mrs. Hayek for delaying their being together by marrying someone else before Hayek, and I remember her teasing him back that he should have made his intentions clear earlier.  (This was the second Mrs. Hayek; at some point I learned that he had divorced the first Mrs. Hayek.)

I only have a couple of other memories of this visit of Hayek to Chicago.  One was when (the next day?) Cartea had me drive Hayek to a press conference downtown.  Hayek thought I was going the wrong way, and was annoyed.  I was pretty sure I was going the right way (and it turned out I was right), but it was stressful for a graduate student to be disagreeing with an insistent, and highly admired, Nobel-prize-winner.

Another disjointed memory is that sometime during the visit I asked him to sign my copy of the first volume of Law, Legislation, and Liberty.  This he did with a disdainful frown, seeming to be annoyed that I would bother him with such a foolish request.

 

(Note one:  I do not remember when the dinner described above occurred, although it could be learned; I bet David Theroux of the Independent Institute would remember.  I was at the University of Chicago from the fall of 1974 through the spring of 1981; and I think the Hayek visit occurred sometime during the latter half of this period.)

(Note two:  this was not the first time I had encountered Hayek.  I drove down to St. Louis with Joe Cobb and another libertarian Chicago student whose name I regrettably cannot remember.  I believe that it was on this occasion that I had a good talk with Phylis Schlafly’s son, who made an articulate economic argument against patents; I think he even gave me an article by someone to bolster his case.  Ben Rogge introduced Hayek.  What I remember about the introduction was that in part of it, Rogge made a polite, but strong, swipe at Ayn Rand, saying I think, that Hayek’s thinking was a much sounder grounding for a libertarian philosophy.  Rogge knew I was a strong Rand enthusiast, so I imagined that he was making the comment mainly for my benefit.  Before the introduction, Rogge offered to take me over to introduce me to Murray Weidenbaum, who was at the event.  I regret that out of some temporary shyness, I declined the offer.  Anyway, on the way back from St. Louis, the discussion was so intense and interesting that I neglected to attend to the gasoline indicator, and we ran out of gas in some small town in Illinois.  I managed to get us to the town gas station, but it was closed because the owner, and all employees, were attending some local social function.  We ended up having to stay overnight in this God-forsaken berg.  Joe was very mad at me.)

(Note three:  the blog entry above was written on 6/11/07.)

 

Invention as a Form of Criticism

 

The toughest part of inventing isn’t solving problems. It’s figuring out which problems are worth the effort.

"A few years ago, an inventor patented a device that caused an electric motor to rock a chair," wrote Raymond F. Yates in 1942. "Now imagine, if you will, the sad spectacle of anybody too lazy to rock his own chair! No wonder he could not make money. If he had expended the same effort on something that was actually needed, he might be wealthy today instead of being sadder but wiser."

Mr. Yates, a self-taught engineer, inventor and technical writer, tried to nudge other inventors in the right direction with his book, "2100 Needed Inventions." Published by Wilfred Funk Inc., Mr. Yates’s book was a list of ways people could alleviate certain nuisances and defects of life and get rich for their trouble.

. . .

"Invention is really a systematic form of criticism," Mr. Yates wrote, and people tend to criticize the things that annoy them in their daily lives. Mr. Yates, for example, seems to have found most commonplace devices excessively noisy.

 

For the full story, see: 

CYNTHIA CROSSEN.  "DEJA VU; An Inventor in 1940s Gave Tips on Going From Smart to Rich."  The Wall Street Journal  (Mon., May 21, 2007):  B1.  

 

Intellectual Property Rights in Toilet

 

CHICAGO (AP) — The gun­man who fatally shot three peo­ple in a law firm’s high-rise office before he was killed by police felt cheated over an invention, au­thorities said Saturday.

  Joe Jackson forced a security guard at gunpoint to take him up to the 38th floor offices of Wood, Phillips, Katz, Clark & Mortimer, which specialized in intellectual property and patents.  He carried the revolver, a knife and a ham­mer in a large manila envelope and chained the office doors be­hind him, police said.

  Jackson, 59, told witnesses be­fore he was shot that he had been cheated over a toilet he had in­vented for use in trucks, Police Superintendent Phil Cline said.

 

For the full story, see:

"Shooter felt cheated over toilet, police say."  Omaha World-Herald  (Sun., 12/10/2006):   4A.

 

Sulfa: First Antibiotic Was Pursued for Profit

  Source of the book image:  http://ec1.images-amazon.com/images/P/1400082137.01._SS500_SCLZZZZZZZ_V52133117_.jpg

 

Economists have debated whether patents mainly provide incentives, or obstacles, to innovation.  In the story of the development of sulfa, the first powerful antibiotic, the desire for profit, through patents, was one motive that drove an important part of the development process; this, even though, in the end, sulfa turned out not to be patentable:

(p. P9) Mr. Hager follows a group of doctors into postwar German industry — specifically into the dye conglomerate IG Farben.  These men, having witnessed horrible deaths by infection on the battlefield, picked up on Ehrlich’s hypothesis by trying to synthesize a dye that specifically stained and killed bacteria.  Led by the physician-scientist Gerhard Domagk, they brought German know-how, regimentation and industry to the enterprise.

Year after year the team infected mice with streptococci, the bacteria responsible for so many deadly infections in humans.  The researchers then treated the mice with various dyes but had to watch as thousands upon thousands of them died despite such treatment.  Nothing seemed to work.  The 1920s turned into the ’30s, and still Domagk and his team held to Ehrlich’s idea.  There was simply no better idea around.

Then one of the old hands at IG Farben mentioned that he could get dyes to stick to wool and to fade less by attaching molecular side-chains containing sulfur to them.  Maybe what worked for wool would work for bacteria by making the dye adhere to the bacteria long enough to kill it.

. . .

The IG Farben conglomerate expected huge profits from Prontosil.  But then French scientists at the Pasteur Institute in Paris dashed these dreams.  The German scientists — all of them Ehrlich disciples — thought that the power to cure infection rested in the dye, with the sulfa side-chain merely holding the killer dye to the bacteria.  The scientists at the Pasteur Institute, though, showed that the sulfa side-chain alone worked against infection just as well as the Prontosil compound.  In fact, the dye fraction of the compound was useless.  You could have Ehrlich’s magic bullet without Ehrlich’s big idea!  This bombshell rendered the German patents worthless.  The life-saver "drug" turned out to be a simple, unpatentable chemical available in bulk everywhere.

 

For the full review, see: 

PAUL MCHUGH.  "BOOKS; Medicine’s First Miracle Drug."  The Wall Street Journal  (Sat., September 30, 2006):  P9.

(Note: ellipsis added.)

 

The reference for the book is: 

Thomas Hager.  The Demon Under The Microscope.  Harmony, 340 pages, $24.95

Some Evidence Patents Matter

Apparently the evidence is mixed on the importance of patents as an incentive to innovation, though it always seemed intuitive to me that patents should matter. Petra Moser has just published research from his dissertation, that seems to add evidence on the side of patents mattering:

How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World’s Fairs

Petra Moser

Abstract: Studies of innovation have focused on the effects of patent laws on the number of innovations, but have ignored effects on the direction of technological change. This paper introduces a new dataset of close to fifteen thousand innovations at the Crystal Palace World’s Fair in 1851 and at the Centennial Exhibition in 1876 to examine the effects of patent laws on the direction of innovation. The paper tests the following argument: if innovative activity is motivated by expected profits, and if the effectiveness of patent protection varies across industries, then innovation in countries without patent laws should focus on industries where alternative mechanisms to protect intellectual property are effective. Analyses of exhibition data for 12 countries in 1851 and 10 countries in 1876 indicate that inventors in countries without patent laws focused on a small set of industries where patents were less important, while innovation in countries with patent laws appears to be much more diversified. These findings suggest that patents help to determine the direction of technical change and that the adoption of patent laws in countries without such laws may alter existing patterns of comparative advantage across countries. (JEL D2, K11, L51, N0, O14)

Source:
Moser, Petra. “How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World Fairs.” The American Economic Review 95, no. 4 (2005): 1214-1236.