The author assesses the  physicians\u27 immunity statute  from legal policy, ethical, and financial perspectives, and concludes that alternatives such as licensure and monetary incentives would better serve the goal of encouraging invention more effectively by rewarding it

Dirksen, Steve

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A Reconsideration of the Physicians’ Immunity Statute

Duke Law Scholarship Repository

iBRIEF / Health & Biotechnology Cite as 2001 Duke L. & Tech. Rev. 00278/6/2001A RECONSIDERATION OF THE PHYSICIANS' IMMUNITY STATUTE The author assesses the "physicians' immunity statute" from legal policy, ethical, andfinancial perspectives, and concludes that alternatives such as licensure and monetaryincentives would better serve the goal of encouraging invention more effectively byrewarding it.INTRODUCTION¶ 1           In a controversial case, a physician, Samuel Pallin, sued another physician, JackSinger for infringing a patent that Pallin received for a single stitch cataract surgerytechnique.1 Believing that such patents were inappropriate, Singer fought the lawsuit and movedfor summary judgment declaring the patent invalid.2 While the court denied Singer's summaryjudgment motion, the court did invalidate some of Pallin's patent claims at trial.3 Because Singerdemonstrated to the court that Singer had performed the procedure one month before Pallin filedhis patent application, the court partially invalidated Pallin's patent, and Pallin agreed not toenforce his remaining valid claims against Singer.4¶ 2           In response to the Pallin case, Representative Greg Ganske and other physicians inCongress sought to limit the ability of a patentee to enforce his rights against a practicingphysician.  They supported their position by citing a patient's restricted access to care, the highercosts of health care caused by patent royalties, and the duty of physicians to share knowledgewith others. They took the position that patents are unnecessary to advance medicine, and citedother countries' prohibitions on medical procedure patents.5 Although the initial attempt toprotect practicing physicians was unsuccessful, Congress eventually chose to protect physiciansand health care facilities from patent infringement liability if they performed a medicalprocedure on the human body that does not involve patented machines, patented matter, or validbiotechnology patents.6 This statute, more commonly known as the "physicians' immunitystatute," states that:[w]ith respect to a medical practitioner's performance of a medical activity that constitutes an infringement under section 271(a) or (b) of this title, the provisions of sections 281, 283, 284, and 285 of this title shall not apply against the medicalpractitioner or against a related health care entity with respect to such medical activity.7 ¶ 3           The following paper examines the statute's implications from a legal, ethical, andhealth insurance perspective and suggests a possible alternative to the current regime.LEGAL POLICY ANALYSIS¶ 4           While the physicians' immunity statute laudably seeks to increase access to patientcare at reduced cost, it conflicts with the policies underlying the patent system. The patent policyof creating incentives to invent supports eliminating physicians' immunity for three reasons.First, the elimination of all remedies for infringement destroys the incentive to invent.  Aphysician-inventor invests human capital and financial capital to perform routine health careservices.   A physician often will notice problems or complications in the physician's field andmay discover a new way to eliminate these complications through routine practice.  Routinepayments to physicians do not include a concurrent reward to improve the state of the art, andinventors who labor trying to solve a modest complication receive no compensation for theirinvestments.  Furthermore, many patented procedures require extensive clinical research that isleft uncompensated by the physicians' immunity statute.8 For example, Surrogate EmbryoTransfer (SET) technology required extensive clinical research to develop the technique for apatent. Procedures like SET require private investment that only will be obtained by offering themonopoly incentives protected by infringement remedies under the patent statute. While manymedical procedures with low capital investment still may find their way to the market, highcapital procedures require that protections afforded by infringement remedies for theseprocedural innovations be offered to patients.9 ¶ 5           In addition to the need to recover invested capital, the physicians' immunity statute also differentiates the roles played by academic and commercial medicine by eliminating the incentives for innovation in the private sector.  In academic medical research, scientists obtain funding through NIH grant applications, private donations, and technology transfers initiated under the Bayh-Dole Act.10 Successful academic medical researchers have a strong incentive to invent created by their dependence on outside funding while unsuccessful academic researchers will face difficulties funding their projects.  The inherent funding structure in academic research partially alleviates the elimination of patent incentives caused by the physician immunity statute.  On the other hand, private physicians, who constitute the vast majority of practicing physicians today, have no such incentives. They must rely on the commercial market to recover their investments, which is a questionable assumption under the current structure of theAmerican health care system.  This distinction created between academic and commercialmedicine prevents optimal use of the intellectual resources present in the medical community. ¶ 6           Although the physicians' immunity statute has limited the ability of doctors to enforcea medical procedure patent, they have continued to file for these patents for the reputationalbenefits associated with patent ownership. However, the enhanced reputational value created bypatent ownership will not allow a patentee to recover his or her investment, lowering theincentive to invest in researching the new techniques in the first place. As such, unless thephysicians' immunity statute is changed, society can expect fewer medical procedureinnovations in the future as fewer physicians invest the time and money in research.ETHICAL ANALYSIS¶ 7           While the economic benefits of invention present the strongest arguments for patentingmedical procedures, the strongest arguments against patenting medical procedures derive fromthe professional ethics of medicine.  The American Medical Association ("AMA") requires aphysician not to withhold information for financial gain.11 The paradigm for a physician underthe medical ethics code is one of a "teacher who imparts knowledge of skills and techniques tocolleagues, and a student who constantly seeks to keep abreast of new medicalknowledge."12 However, the AMA's teacher-student paradigm is inconsistent with the realitiesof education because it ignores that financial incentives envelop the teacher-student relationshipat all educational levels.  Students pay teachers precisely because the teacher has invested highamounts of capital to obtain their knowledge, and as such, are compensated financially for theirinvestment. Similarly, a physician-inventor could expect reasonable compensation for teachingothers as long as he does not withhold his knowledge for personal gain. Similarly,student-physicians could expect to pay teacher-physicians for their expertise. ¶ 8           The AMA also argues that the physicians' immunity statute is necessary to avoid undesirable secrecy among the medical professionals.13 According to the AMA, if physicians can enforce their patents, they will be forced to keep their innovations secret. While secrecy is inherently associated with the patent system, this argument overlooks the intrinsic procedures of the patent system to encourage public disclosure. For example, to obtain a patent, the applicant must disclose a written description detailing to one of skill in the art how to make and use the invention. In addition, the patent system has a one-year grace period to file an application that allows the applicant to disclose publicly the invention and still obtain a patent.14 As such, information in the American patent system reaches the public as soon as the technique has beenperfected.¶ 9           The AMA has another valid ethical concern supporting the physicians' immunitystatute: restricted access to patient care.  If physicians must pay heavy licensing fees, they willface an ethical conflict between their financial interests and the best interest of thepatient.15 Physicians may be deterred by the threat of liability every time they seek to modify oruse patented procedures.16 The patentee also may unreasonably limit the number of licensees orcharge unreasonable royalties that may make access to a lifesaving medical procedureunavailable from a practical standpoint.17 HEALTH CARE FINANCING ANALYSIS¶ 10           In the United States, health care is financed through three mechanisms: privateinsurance, government insurance, and self-insurance.  Private insurance companies, such as BlueCross/Blue Shield, offer a variety of insurance policies such as managed care or fee-forservice.18 Private insurance is most commonly provided by a person's employer althoughindividual plans are also available.19 These plans may provide a limited network of approvedproviders to consumers.20 Government insurance comes from two publicly funded programs forselect populations, Medicare and Medicaid, which generally cover the elderly and the poorrespectively.21 Over 42 million Americans do not qualify for government insurance or receiveprivate insurance from their employers, and they collectively form the self-insuredpopulation.22 ¶ 11           The financial burden of paying patent royalties presents perhaps the strongestobjection to allowing recovery of patent royalties for infringing medical procedure patents. Since both private insurance and government insurance have capped the amount that they willspend for medical procedures, any extra royalty payment is likely to be passed ontoconsumers through higher premiums. Such an increase in rates will likely adversely affectenrollment or benefits because people will be unable to afford the higher costs. Moreover,insurance companies may deny coverage of patented procedures until the patent's term expires,forcing doctors to use less innovative techniques or absorb the royalty costs themselves.  Finally,insurers may choose to force the provider to bear the cost by maintaining payments under thecontract.  The provider again will have a financial incentive to use less innovative techniques. ¶ 12           In addition to the financial burden presented by patent royalties, the distribution of patent royalties also presents an objection to eliminating physicians' immunity. Allowing patent royalties and infringement liability would harm those Americans who are self-insured becausethey are unprotected from high medical costs by insurance price ceilings.  Any patent royaltywould fall directly on the self-insured, an outcome that is inconsistent with medical publicpolicy requiring medical access to all. ¶ 13           On the other hand, the restricted consumer choice currently presented by healthinsurance companies supports the elimination of the physicians' immunity statute. The limitednetwork of physicians that a patient under private insurance can choose inherently denies themedical procedure patentee the benefit of his patent.  If an inventor makes a better widget, hewill be able to market his improvements to the public, and once the public recognizes thisimprovement, the patentee will be able to receive monopoly profits under his invention.However, in the current system, a medical invention patentee is not guaranteed to receive higherprofits because consumers are not able to select the better procedure or physician.  Consumersare limited to the providers covered by their insurance contract, and a doctor must rely on hisreputation to receive referrals.  While some consumers will request referral to the patentee,insurance plans will force other consumers to seek treatment from physicians who are either notlicensed to practice the patent or unskilled in the new procedure.  The restriction by insurancecompanies of patients' ability to choose the patentee as their physician decreases the incentivefor the physician to invent under the patent system. POTENTIAL REFORM TO PHYSICIAN IMMUNITY¶ 14           As demonstrated above, the legal, ethical, and insurance arguments supporting thephysicians' immunity statute are mixed at best because the system fails to recognize thenecessity of allowing physicians to recover the investment they made in researching theinnovation. A better solution would be to allow a medical procedure patentee to recover his orher investment by licensing the technology. Just as Congress created a zero dollar price tag forinfringement of a medical procedure patent under section 287(c)(1), Congress should have asimilar power to provide a limited remedy that does not preclude preserving patent incentives toinvent.  If the physician refused to license a technology, Congress could create a nominaldamages provision allowing other physicians to use the procedure by paying small, nominaldamages.¶ 15           Such a threat of nominal damages will not encourage significant litigation, should encourage reasonable licensing agreements, and should offer a modest return on investment for a procedure to the patentee.  For an invention derived from everyday medical experience, a nominal damages provision would preserve a small incentive to invent that should be the rewardfor proper invention. ¶ 16           However, imposing nominal damages does not solve the larger question of whethersociety should allow expensive procedures, such as SET, to obtain full patent protection to raisecapital or encourage private investment in research.  A nominal damages provision will notaccomplish this goal even in the aggregate with large numbers of infringement actions or lowpriced licenses.  Several commentators have proposed a full patent damages provision for highcapital inventions that require investment for research, development, and regulatorycosts.23 While this type of provision encourages investment, the financing mechanisms and costcontrol techniques of insurance companies will decrease access to these techniques for mostpatients and further increase the burden on the self-insured population.  A remedy for theproblems presented by these capital-intensive medical procedures comes down to a pure policychoice between access and increasing innovation.¶ 17           As a practical concern, removal of the physicians' immunity statute opens a potentialfloodgate for litigation.  Physicians may choose to enforce their patent rights vigorously and tryto use the patent to seek expensive licenses if full royalty remedies are restored.  However, thePallin case teaches would-be claimants to act at their own peril because a medical procedurepatent may be invalidated through proper evidence.24 Proving infringement liability forprocedural patents is extremely difficult.25 Increased opportunities for litigation also mayencourage physicians to license their patent rights to large insurance companies who are betterequipped to engage in expensive litigation.  This could drastically alter the current insurancefinancing schemes and significantly decrease access to care.  Any changes made to the physicianimmunity statute must be carefully designed, and the need to encourage investment in medicalprocedures may better be met by increased funding.26 CONCLUSION¶ 18           The physicians' immunity statute responded to a public concern over the Pallin case but may have been a hasty reaction to the problem.  It became effective over the protest of several prominent senators who objected to hasty passage of the legislation.27 It protects the ethical concerns highlighted by health care professionals by protecting access to care and physician autonomy.  However, the statute places severe constraints on the ability to invent by undervaluing human capital and private investment in medical research.  The statute also protects all insured parties from royalty costs and helps to alleviate the burden of the self-insured.  While these considerations are important, reconsideration of the elimination ofmonetary incentives for research should be considered to protect the Constitutional foundationof the patent system to promote science and the useful arts.28By: Steve DirksenFootnotes1. Pallin v. Singer, 1995 U.S. Dist. LEXIS 20824, at **8, 36 U.S.P.Q.2d 1050 (D.Vt. 1995).2. Id. at **8.3. Id.4. Pallin v. Singer, 1996 WL 274407 (D.Vt. 1996); Seth Shulman, Cashing In on MedicalKnowledge, Technology Review 38, 43 (March, April 1998).5. 142 Cong. Rec. at H8277.6. 35 U.S.C. §287(c)(1) (West 2001).7. Id. §287(c)(1).8. Beata Gocyk-Farber, Note, Patenting Medical Procedures: A Search for a CompromiseBetween Ethics and Economics, 18 Cardozo L. Rev. 1527, 1551 (1997).9. Id. at 1554.10. Tamsen Valoir, Government Funded Inventions: The Bayh-Dole Act and the Hopkins v.CellPro March-In Rights Controversy, 8 Tex. Intell. Prop. L.J. 211, 232 (2000) (discussing theBayh-Dole Act's success).11. AMA Council on Judicial and Ethical Affairs, Ethical Issues in the Patenting of MedicalProcedures, 53 Food & Drug L.J. 341, 343 (1998).12. Id.13. Eric M. Lee, 35 U.S.C. §287(c)--The Physician Immunity Statute, 79 J. Pat. & TrademarkOff. Soc'y 701, 711 (1997).14. Id.15. AMA Council, supra note 12, at 345.16. Id.17. Gocyk-Farber, supra note 9, at 1545.18. Douglas A. Hastings et al, Fundamentals of Health Law, 245-249 (1995).19. Id. at 254.20. Id. at 245-249.21. Id. at 193, 234.22. Health Care Statistics (visited 4/6/01) . (Based on most recent figures from 1999 forAmericans under 65 who self-insure.23. Linda Rabin Judge, Issues Surrounding the Patenting of Medical Procedures, 13 Santa ClaraComputer & High Tech. L.J. 181, 212 (1997).24. Shulman, supra note 4, 43.25. Chris J. Katopis, Patients v. Patents: Policy Implications of Recent Patent Legislation, 71 St.John's L. Rev. 329, 355 (1997).26. Gocyk-Farber, supra note 9, at 1557.27. Katopis, supra note 26, at 337.28. U.S. Const. art. I §8, cl. 8.

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A Reconsideration of the Physicians’ Immunity Statute

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