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Medical Monopoly: Intellectual Property Rights and the Origins of the Modern Pharmaceutical Industry

Author(s): Gabriel, Joseph M.
Reviewer(s):Troesken, Werner

Published by EH.Net (June 2015)

Joseph M. Gabriel, Medical Monopoly: Intellectual Property Rights and the Origins of the Modern Pharmaceutical Industry. Chicago: University of Chicago Press, 2014. x + 334 pp. $35 (hardcover), ISBN: 978-0-226-10818-6.

Reviewed for EH.Net by Werner Troesken, Department of Economics, University of Pittsburgh.

 

In his thought-provoking and well-researched book, Medical Monopoly: Intellectual Property Rights and the Origins of the Modern Pharmaceutical Industry, Joseph M. Gabriel explores the evolution of patenting, and to a lesser extent, trademark registration, in the American pharmaceutical industry. It is a fascinating and timely contribution. Gabriel begins by describing how in the late eighteenth and early nineteenth century, the “orthodox” medical profession obeyed and enforced strong norms against patents and trademarks. Patents and trademarks, he explains, were thought to inhibit the free exchange of ideas; hinder the transmission of therapies and drugs that might help alleviate human suffering; and promote quackery and nostrum vending. In addition, to the extent that patents and trademarks promoted monopolies and market power, they were sometimes seen as unpatriotic because of the central role that concerns about monopoly played in animating the American Revolution.

The norm against patenting appears to have been quite strong. Despite the huge potential for private gain and profit, for example, Edward Jenner did not patent his smallpox vaccine during the 1790s and early 1800s. As Gabriel points out, orthodox physicians decades later used Jenner’s behavior as a model of how physicians should behave (pp. 133-34). Similarly, while patenting grew increasingly common in other areas of the economy because of improved courts and administrative processes during the antebellum period, they remained rare in the medical and pharmaceutical industries. Gabriel writes (p. 44): “despite the rapid growth of patenting [in general], the shift to an increasingly friendly legal environment for resolving patent disputes, and a patent system that clearly allowed medicines to be patented . . . drug manufacturers did not share the enthusiasm for patenting. Between 1836 and the outbreak of the Civil War only a tiny number of patents were granted for medicinal goods.” Moreover, even when inventors developed and patented new and effective therapies during the antebellum period, practicing physicians often refused to respect those patent rights.

Consider, for example, the discovery of ether as a general anesthetic. In 1846, a year before the creation of the American Medical Association, a dentist named William T.G. Morton administered sulfuric ether to Gilbert Abbott. A “thin, spare man,” Abbott was “suffering from a tumor on the jaw, composed of a knot of enlarged and tortuous veins.” Although the ether initially left Abbott “flushed and exhilarated,” after four or five minutes he was sleeping as “quietly and soundly as any child,” and he remained asleep throughout the surgery to remove the tumor. As Gabriel explains, it was “a truly remarkable discovery.” Before the introduction of ether, surgery was an almost unimaginable horror. Here is how one patient, himself a surgeon, recalled an operation he had endured (Ashhurst 1896, p. 377): “The operation . . . necessitated cruel cutting through inflamed and morbidly sensitive parts, and could not be dispatched by a few strokes of the knife. . . . Of the agony it occasioned I will say nothing. Suffering so great as I underwent cannot be expressed in words, and thus fortunately cannot be recalled. The particular pangs are now forgotten; but the blank whirlwind of emotion, the horror of great darkness, and the sense of desertion by God and man, bordering close upon despair, which swept through my mind and overwhelmed my heart, I can never forget, however gladly I would do so.” In addition, ether (and later chloroform) did not just render surgery much less frightening and painful; it also made it safer. As Cheever (1896) argued, proper antiseptic care was predicated on effective anesthesia, because without the immobility and unconsciousness associated with the latter it was impossible to keep the wound clean and free from disease causing pathogens.

Yet when Morton patented his procedure, much of the orthodox medical community refused to honor it or characterized it as an imposition of quackery and monopoly. Only when physicians came to believe that, as a lowly dentist, Morton was not bound by the ethics of the orthodox medical community was this tension finally resolved. Quoting a prominent Boston physician, Gabriel writes (p. 61): “We all thought it very strange that any regular physician would, even for a moment, consent to apply for a patent for such a boon to humanity as this promised to be. But Dr. Morton was the only person known as the administrator of the article and he was at that time a dentist only, and therefore not subject to the medical ethics contained in the unwritten law of the profession.” Morton’s patent was, in the end, largely ignored by the medical community and his discovery earned him little financial reward. The final blow against Morton came in 1865 when a court in New York ruled that the use of ether in surgery was a discovery, not an invention, and as a result could enjoy no patent protection.

Although the pace of patenting medical devices and drugs picked up in the years surrounding the Civil War, orthodox medical practitioners remained united in their opposition to patents until the mid-1880s when Gabriel finds evidence of growing discontent among the flock. The most vocal reformer was Francis Stewart. Stewart chaffed at the notion, promulgated by the American Medical Association and other mainstream medical associations, that patents slowed the diffusion of medical knowledge and health-promoting therapies and drugs. For Stewart, “a thing patented [was] a thing divulged” because the patent system necessitated “the publication of full knowledge of every invention patented” (pp. 133-34). Not surprisingly, major pharmaceutical companies soon appropriated the arguments of Stewart and other reformers in an effort to promote patenting and better internalize the gains from their own scientific inquiries. Stewart himself worked for Parke-Davis (a large pharmaceutical company) occasionally, though it appears to have been an uneasy relationship. One aspect of Gabriel’s narrative I particularly like is how in examining the relationship between Stewart and Parke-Davis he deftly probes the complex relationship between the pursuit of profit and scientific advance. That deftness, by the way, is not unique to this specific discussion. It runs throughout the book.

Reformer physicians also argued that patenting might help make newly introduced drugs safer by giving their creators greater control over those who might use and employ the therapy. Consider, for example, this argument from a physician describing Edward Jenner’s dissatisfaction with poorly trained vaccinators who often subverted the efficacy of his vaccine and sometimes spread other infectious diseases as a result of their sloppy and unsanitary practices (Transactions of the American Medical Association, June 5-8, 1906, pp. 71-72): “A great deal has been said about the fact that Jenner did not take out a patent on vaccination. It would have been a great deal better for vaccination if Jenner had. He himself complained of the harm that was done by careless and ignorant vaccinators. If he had been able to control the standard of vaccine and the method of vaccinating for a few years, the result might have been very much better.” This excerpt is referring to the early history of smallpox vaccinations (during the early 1800s) when arm-to-arm cowpox vaccinations were said to have spread a wide variety of early childhood infections and sometimes might have even resulted in unnecessary childhood deaths. Although Gabriel does not discuss this episode in particular, he does describe how legislation during the early 1900s (such as the Biologics Control Act of 1902) helped to improve the safety of vaccines in the United States and how those improvements might have helped undercut opposition to mandatory vaccination laws.

Gabriel points to two pieces of evidence that suggest the anti-patent views of the orthodox medical community began to soften during the 1890s. The first of these was the willingness of Parke-Davis to patent a digestive enzyme. The second was the experience of Emil Behring in patenting the diphtheria antitoxin. Building on earlier work, Behring developed an effective therapy for diphtheria, a leading cause of death among young children. After several failed attempts, Behring finally succeeded in securing a patent, and while the orthodox medical community was highly critical of the patent, Gabriel argues that the surrounding rhetoric revealed a subtle but important shift in thinking. Physicians objected to the patent not because it was wrong to reward researchers for original discoveries — if a company invested vast sums of money in search of an effective drug, it was fine to reward the company for that effort with a short-lived monopoly — what most physicians objected to was the context and unjust nature of Behring’s patent. Gabriel writes (p. 168): “The reaction to Behring’s patent, while vituperative, did not presuppose that all such patenting was equally unethical. Indeed, numerous patented drugs were introduced around the same time without attracting such criticism.” Nor did the critique of the antitoxin appeal to the idea that it was a quack product that promised the world without delivering. On the contrary, the antitoxin was widely recognized as a highly effective intervention, and that is part of what fueled the opposition. Critics argued that it was wrong to profit off the suffering of young children while at the same time to deny anyone access to the drug because of a high price.

Although he concludes by reviewing recent historical developments, Gabriel ends his narrative in the early 1900s, by which time, pharmaceutical manufacturers were far more comfortable taking legal actions to enforce their intellectual property rights. One example of the new found strength to use the courts to protect patents was the experience of Bayer with aspirin. Bayer had attempted to patent aspirin in several countries but it was only in the United States where the courts (surprisingly perhaps) were willing to uphold and protect the patent. American courts upheld the patent, in part, because Bayer had been able to purify the underlying chemical to an extent previous manufacturers had not. This created a situation where aspirin sold for a higher price in the United States than it did in England and other European countries. Given this price differential, American pharmacists sometimes used foreign suppliers to acquire the product more cheaply and undercut Bayer’s American version. As Gabriel explains (p. 198), “Bayer was quite aggressive in its efforts to suppress Aspirin smuggling, and although the company preferred to settle out of court, it was not afraid to sue druggists it felt had violated its patent rights.” According to Gabriel, aspirin represented a turning point, and legitimate retail druggists would no longer countenance handling smuggled products to sidestep patent law.

Although patents hold center stage in Gabriel’s narrative, other legal developments also helped to sustain and promote intellectual property rights in the pharmaceutical industry. Particularly important in this regard where trademark law, pure food and drug law, medical licensing law, and antitrust law. Trademark law, for example, played a central role in helping firms brand their products, while antitrust law was important in shaping how the courts treated patent pools and vertical restraints such as resale price maintenance arrangements between retail druggists and manufactures. Branding might have been important in this setting if it gave firms an incentive to invest in quality and safety; and recent research in industrial organization suggests resale price maintenance might have given retail druggists an incentive to carry high-quality and high-priced products they otherwise would have shunned (Asker and Bar-Isaak 2014).

References:

John Ashhurst. 1896. “Surgery before the Days of Anesthesia,” Boston Medical and Surgical Journal, 85: 378-80.

John Asker and Heski Bar-Isaac. 2014. “Raising Retailers’ Profits: On Vertical Practices and the Exclusion of Rivals,” American Economic Review, February 2014, Vol. 104 (2): 672-86.

David W. Cheever. 1896. “What Anesthesia Has Done for Surgery,” Boston Medical and Surgical Journal, 85: 381-84.

Werner Troesken is the author of four books. Why Regulate Utilities? (University of Michigan Press, 1996) argues that state utility commissions were created in response to a fundamental contracting problem between municipalities and utility companies. Water, Race, and Disease (MIT Press, 2004) shows how and why investments in public water systems benefited African Americans more so than whites. The Great Lead Water Pipe Disaster (MIT Press, 2006) explores the origins and magnitude of water-related lead poisoning. Troesken’s most recent book, The Pox of Liberty: How the Constitution Left Americans Rich, Free, and Prone to Infection (University of Chicago Press, 2015), shows how legal and political institutions shaped the American disease environment for good and for bad. His current research projects explore the political economy of Jim Crow (joint with Daniel Jones and Randy Walsh); the causes and consequences of municipal ownership in the water industry (joint with Brian Beach and Nicky Tynan); and the long-term effects of early-life shocks related to lead exposure (joint with Joe Ferrie and Karen Rolf), water quality (joint with Brian Beach, Joe Ferrie, and Martin Saavedra), and nutrition (joint with Karen Clay and Ethan Schmick).

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Subject(s):Business History
History of Technology, including Technological Change
Markets and Institutions
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII