Royalty stacking threatens innovation, warns report

As new technologies are invented in the pharmaceutical and biotechnology sectors, the number of fresh patents and related regulations is also on the rise and companies are increasingly becoming dependent on patented research tools and techniques.

Royalty stacking - the sharing of third-party royalties caused by a multiplicity of overlapping patents - is the largest patent dilemma industry participants must work towards overcoming, according to market research consultancy Frost & Sullivan. Compelled to pay large amounts to obtain these multiple licences, companies are forced to raise prices and are being discouraged from undertaking technical innovation.

'The concept of royalty stacking arises from the risk that multiple patents may affect a single product,' explains Frost & Sullivan industry manager Dr Raju Adhikari. 'As a result, the intellectual property necessary to get a product onto the market is owned by several different parties (known as anti commons), all of which demand a royalty payment from the ultimate seller of the product in question.'

While establishments such as the OECD are mandating licensing to avoid commercial uncertainty, the growing litigation is expected to increase time to market. Higher costs on end products are another hazardous offshoot of escalating patent costs - nearly 20% of net prices are based on expenses being incurred through royalty stacking and patent thickets, Frost & Sullivan estimates - while stacking can also affect the abilities of participating companies to effectively commercialise new products and services.

'Moreover, there is a growing reluctance by phar-maceutical companies to form strategic alliances with biotechnology companies for the fear of potential royalty stacking risks, which can reduce profits to a point where pursuing commercialisation is no longer viable,' adds Dr Adhikari.

To successfully foster innovation in the pharmaceutical and biopharmaceutical sectors, options such as the use of clearing houses, consortia and cross-licensing are expected to aid participants to overcome the problem. Patent pools, exclusive and non-exclusive licences are other effective tools against problems posed by multiple licences, as are demanding up-front payments rather than royalties and risk-adjusted royalties. Private contractual deals with ceilings on cumulative royalties may also be deployed to combat this issue.