Toronto licensed insulin to Eli Lilly for a year, then made every future patent on it public property

the problem

A university lab could make insulin but not enough of it, and either licensing option handed the drug to one gatekeeper

background

what everyone would do

The two moves a cash-strapped 1922 research lab would normally take: sell the patent outright to whichever pharmaceutical company pays most, or grant one company a permanent worldwide exclusive for guaranteed royalties. Either one hands a life-saving drug to a single gatekeeper who then sets its price and pace of supply.

what they saw

The committee saw that the original insulin patent was not the real point of leverage — every improvement patent that would follow it was. A one-year exclusive gave Lilly enough incentive to build capacity without giving away control forever, and requiring the university (not Lilly) to keep holding the underlying patent meant Toronto could license others the moment that window closed. Making pool membership — assigning your own improvement patents back — the price of any license turned each manufacturer's private R&D into a shared commons instead of a competitive moat.

the move

Toronto's Insulin Committee split the license instead of picking a side: Eli Lilly got a one-year exclusive to manufacture and sell in the US, Central and South America — enough runway to justify investing in mass production — while patent rights everywhere else stayed with the university, which separately licensed Britain's Medical Research Council and Denmark's Nordisk lab. Then in 1923 the committee added the mechanism that mattered: every licensee, Lilly included, had to assign any patent on its own manufacturing improvements back to the university, which pooled them and licensed the improved methods onward to every other manufacturer.

why it works

Time-limiting Lilly's exclusivity gave it the capital certainty to invest in mass production without letting that investment calcify into permanent control. The pooling clause then meant that when Lilly (and later Squibb, Parke-Davis and others) solved production problems like purifying insulin's isoelectric point, that improved method flowed back through the university to every other licensee instead of staying proprietary. Manufacturers therefore had to compete on how efficiently they could produce insulin, not on locking rivals out of a better process, which pushed supply up and price down faster than exclusivity ever would have.

the payoff

By November 1923, multiple licensed manufacturers were competing on production efficiency rather than on patent exclusivity; Connaught Labs alone was making 250,000 units of insulin a week from its new Toronto plant and had cut its price from 5 cents to 2 cents a unit within the year. No single company ever cornered the insulin supply, and the University of Toronto collected roughly $8 million (CAD) in royalties between 1923 and 1967 without ever manufacturing a vial itself.

where it breaks

Pooling only works if the licensor keeps enough legal leverage to make patent-assignment a real condition of the license, and if there is more than one credible manufacturer willing to compete rather than one dominant player who can simply refuse the terms. It also depends on the underlying patents actually being the bottleneck — if a competitor can design around the pooled patents cheaply, the pool loses its grip, and once the patents themselves expire (as insulin's did), the pricing discipline it enforced expires with them.

what came after

The structure is now cited by historians of science as an early, deliberate case of a university 'patenting in the public interest,' and the $1 sale by Banting, Best and Collip became the founding legend of accessible insulin. The legend is complicated by what came after: once the original patents and the pooling obligation had long expired, US insulin pricing in the 21st century became a byword for pharmaceutical price-gouging — a reminder that the mechanism, not the goodwill behind it, was what kept prices down.

references

1. [1]Chapter 3: The Making of InsulinConnaught Fund, University of Toronto, 2021connaught.research.utoronto.ca
2. [2]Insulin Patent Sold for $1Banting House National Historic Site of Canada, 2018bantinghousenhs.ca

keep it

same kind of clever

• 1922 · Colorado River Basin states (negotiated under Secretary of Commerce Herbert Hoover)Seven states stopped racing each other to use a river first by splitting it in half instead of state by state
• 1935 · U.S. Congress / Senator Thomas ConnallyTexas couldn't stop its own oil producers from cheating, so Washington cut off where the cheated oil could be sold
• 1970 · Dee Hock / National BankAmericard Inc.Rival banks would never let a competitor run their shared card network, so Dee Hock designed a company nobody could own enough of to control it