The monopoly factory: want to fix the economy? Start by fixing the Patent Office

The countless faulty patents that are pumped out through this process can be extremely damaging to the American economy. They force consumers to pay more than they otherwise should. They make the patent office an easy mark for those who would manipulate the system--and indeed have given rise to a whole new category of scammers: "patent trolls" (See sidebar.) Some economists think that all the extra patents in corporate portfolios have artificially enhanced the value of those stocks, creating what they call a "patent bubble," with potentially devastating results for many investors. Worst of all for the economy and for society as a whole, a faulty patent system can create substantial obstacles to basic, critical scientific and technical innovation.

Consider, for instance, the area of breast cancer research. In the early 1990s, a group of American and European genetic scientists, who had been working together to identify and sequence the genes whose mutations had been linked to breast cancer, began to believe they were on the verge of a collective breakthrough. By 1990, the group had significantly narrowed down the location of one of the key genes, BRCA1. The consortium reported that it was "very close" to finding BRCA1, with one researcher declaring that "it will probably be luck, whoever finds it."

One member of the consortium, University of Utah geneticist Mark Skolnick, was not inclined to wait on luck or collaboration. Skolnick founded a private company, Myriad Genetics, based in Salt Lake City. It was Myriad that took the final step to sequence BRCA1, using detailed genealogical tables kept by local Mormon families. The company designed a test for mutations, then quickly applied for, and was granted, patents covering how the gene could be used.

The broad language of these patents gave Myriad almost total control over how--and whether--researchers and clinical practitioners could study, and test patients for, the gene associated with a disease that affects around one in eight American women. In 1996, one researcher, the University of Pennsylvania's Arupa Ganguly, who had developed a test for breast cancer sanctioned by the National Cancer Institute (NCI) got a cease-and-desist letter from Myriad informing her that her work fell under their patents. Worried about the high cost of bringing the case to court, the university's lawyers decided not to challenge the claims--even though Myriad's patents have been overturned in Europe, and even though several leading experts have argued that they wouldn't stand up on appeal. After Ganguly had moved on to other projects, the National Institutes of Health signed a licensing agreement with Myriad, allowing NCI to continue testing, but requiring it to send all test samples to Myriad's Utah lab for analysis.

With no competition to control costs, Myriad can effectively set the price for its test. Women who would have been charged $1,600 by Ganguly's lab were immediately forced by Myriad to pay around $2,400. "If someone else develops a test that costs $50, that test won't come to market," notes Dr. Steven Narod, a leading breast cancer researcher at the University of Toronto.