Are Efforts to Extend Patent and Copyright Laws Good for Business or Good for Society?

When it comes to foreign trade, U.S. businesses are famous advocates for strong, consistently applied intellectual property rights. Drug companies worry about weak patent law in India and software companies complain about the Chinese approach to property law. But what about the application of property laws at home? Are many firms more concerned with securing competitive advantage than with ensuring impartial laws?

The theory behind copyright and patent laws has long been that those who create goods and services should be granted a monopoly interest over the rights and profits from their innovations for a reasonable amount of time.

However, in recent years, especially in the drug and entertainment industries, patent laws have been regularly pushed beyond former time limits, either permanently, or in some cases, by way of special rulings for specific products.

“Congress gives and Congress takes away,” said G. Richard Shell, professor of legal studies at Wharton. “There has been a lot of legislative maneuvering to gain competitive advantage. To use a football analogy, it’s like making first-and-goal and suddenly finding they have lengthened the field by 30 yards.”

In 1998, Congress extended the life of copyrighted works, including songs, images and characters, for 20 more years. Before that, copyrights lasted 75 years. Now those copyrights last 95 years from inception or, if the work was created after 1978, 70 years after the death of the author, artist or composer.

The change in the law was pushed by the Disney Corporation, which would have seen its exclusive rights to characters like Mickey Mouse and Donald Duck go into the general public realm. Had the law not been enacted, Mickey would have gone off copyright in 2004, and Donald (along with Pluto and Goofy) would have become public domain in 2009.

“The terms of the grant are wildly long,” said Wharton legal studies professor Dan Hunter. “Isn’t 70 years enough after the death of an author? Apparently Disney doesn’t think so because at some point, they will petition for 100 … If you have a system that continues to extend and extend and extend, it upsets the balance between the grant of monopoly and the other rights that we have.”

“It wasn’t just the Disney people who supported this, but Bob Dylan and members of the Gershwin estate as well,” added Shell. “At some point, I think, you have to say, ’enough.’”

While Dan Rodriguez, professor of organization and management at Goizueta considers himself a conservative, he agreed that there is some need for governmental oversight of patents and copyrights. “You want to have firms with the strongest incentives possible for innovation. The idea that you spend more time trying to extend a patent or copyright than you do in research and development means you are not innovating.

“Sure, if anyone could suddenly copy Mickey Mouse, it would damage Disney right now,” he added. “But the issue is whether Disney is going to have the same incentive to create new movies or new cartoon characters if Mickey came off copyright protection. I would say they have more incentive. If Mickey is no longer protected, then it would affect Disney’s revenue stream and it would be forced to focus more strongly on innovation.”

According to Hunter, the constant extension of copyrights has societal as well as legal implications. “Many examples that we take for granted have fallen into the public domain. Bach, Handel, Haydn. If there were a marketing arm of Mozart, Inc., these days would you have to extend” copyright protection to them? At what point should companies stop pushing for more and more protection?

Great works of art are “the common heritage of mankind,” Hunter added. “Isn’t there a socially desirable function to have Handel and Shakespeare for everyone? If you are a grade school [teacher] and ask Disney if [your school] can put on a kiddie version of some recent movie, the company would say, ‘Sure, and here is the license fee.’ Disney would argue that it has invested a lot of money in this, but it comes to a point when [this approach] is socially undesirable.”

In the drug industry, according to Emory law professor Margo Bagley, the issues are a little more complicated. For example, because it takes a long time for drugs, even those granted a patent, to get approval from the Food and Drug Administration, an extension of patent protection is sometimes valid. In addition, “if the drug was hung up in FDA approvals for a long time or if it was delayed [by appeals] or if there is a backlog at the U.S. Patent and Trademark Office, there may be valid reasons for extensions,” Bagley said.

In 1996, the terms for patents were changed by law. Formerly, a patent was valid for 17 years from the date of its issuance. The new law changed it to 20 years from the date of its filing, which put it more in line with laws around the world.

In the drug industry, however, it takes an average of more than seven years for a drug to go from patent filing to market. Thus, according to Rodriguez, drug companies often petition Congress to extend the patent life of a popular drug, claiming the company hasn’t had enough time to recoup its investment.

In some cases, drug companies “may appear on the surface to be right,” said Rodriguez. “For instance, Schering-Plough has only two or three drugs on patent. If they lose patent protection and generic drugs start being made, they will lose a lot of income. If that happens, they may be forced to merge or be acquired by a larger company. They may have drugs in first- or second-stage trials, but they have run out of time and money to finance them through.”

The question is whether Congress – when it allows relatively short drug patent extensions, such as 18 months – is acting in the best interests of the companies, not the public. Schering-Plough’s connections to the campaigns of current Attorney General, but then Sen. John Ashcroft (R., Missouri) and Sen. Orrin Hatch (R., Utah), among others in Congress, is being investigated to see whether the extension the company sought for Claritin, a drug to treat seasonal allergies, was justified.

“Another trick these companies do is pay off generic drug makers not to make the drug more cheaply after patent protection ends,” said Rodriguez. “If they are merely paying these companies off, where is the social benefit? Now fewer people will have access to a possible life-saving drug product. Plus, they are not spending time innovating. They are not creating anything new.

“There is a fine line here,” he added. “Sure, any company would rather have revenues coming in from a patented drug. They are high-margin revenues. At what point do you cut that off and say they have to work on more drugs? For very complex drugs and complex diseases like cancer, where you do need 20 years of research and $5 billion in development funds, maybe that is okay. But how do you determine that? Who would be the arbiter?”

Wharton’s Hunter said the notion that drug manufacturers alter pharmaceuticals slightly just to extend a patent is not really valid. “At the time of the patent, you specify a system of claims. That which you don’t claim is open to your competitors, so what you want at the outset are claims that are as broad as possible. You can’t come along and change a little bit. Either you wanted to do it in the first place or your competitors likely will have done it. That’s the point of a patent. You are telling your competitors what you are doing so they can’t.”

Rodriguez contrasts the U.S. drug industry to software makers. “That industry doesn’t care about patents, mostly because the companies are innovating so rapidly that their competitive protection is not tied up in a patent. Hewlett-Packard lets everyone see inside their new laser printer because their strategy is not to worry about the last product to market, but the next two or three.”

In the end, he feels, the general effect of these copyright and patent extensions will only serve to weaken creativity. “Fifty years of copyright protection, shouldn’t that be enough? From a purely incentive basis, it doesn’t make sense to be more than that. The laws have gone a little too far. On a rare occasion, someone may have been hurt. But the U.S. has been the most creative country in the world with the old laws, so why should they be changed?”

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