DEFINITION of 'Medical Patent'

A legal protection against market competition that a government grants to the inventor of a unique medical item or process. A patent prevents competitors from making, using or selling the patented item or process for a limited time. In the United States, the three categories of patents are utility patents, design patents and plant patents. Utility patents apply to machines, processes and manufactured objects as well as to useful improvements on these items. Design patents protect ornamentation. A 1980 Supreme Court ruling made it possible to patent living, man-made organisms, a key to the success of biotechnology firms. The United States Patent and Trademark Office grants patents in the United States, and these patents are valid for 20 years.

BREAKING DOWN 'Medical Patent'

A patent is a type of intellectual property right and a key driver of value for biotech companies. Biotech companies use patents to protect their intellectual property rights to items such as drugs. A patented drug is protected against generic competition for a specified number of years, which lets the company that developed it earn high profits that help compensate for the high research and development costs to bring the drug to market, but can also make the drug unaffordable for low-income patients. Other examples of health care patents include patents for software that helps physicians manage patients, patents for prosthetic limbs, and patents for physical therapy devices such as back braces. Patents may be owned by one company but licensed for use by another, making it possible for more than one company to profit from a patent.

If one company thinks another has violated patent law, it can file a patent infringement dispute in court to try to stop the other company from using its patented technology. For example, Amgen filed a lawsuit against Roche for infringing on five of its EPO patents; Roche admitted to the infringement in 2009, and the courts affirmed that Amgen’s patents were valid. Patent infringement can be problematic for investors if it reduces the profitability of the company whose patent is being infringed upon or if a company found to have infringed upon another’s patent has to stop selling an important product and/or is sued because it is found guilty of patent infringement.

Biotechnology patents are a controversial subject. Those in favor of biotech patents argue that they support scientific progress because they promise financial rewards to individuals and companies who successfully create new products that they can sell exclusively for a few years at a lucrative price. Those opposed to biotechnology patents argue that they are unethical because the high prices they generate limit access to health care for poorer individuals, especially in developing countries.

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