A good intro to the economic issues surrounding pharmaceutical patents, from Richard Posner and Gary Becker. Posner writes,
Invention is a cumulative process; a new invention is usually an incremental improvement on an existing one. So the more patents that are “out there,” the greater are the costs involved in negotiating for a license from every patentee whom the new inventor may arguably be infringing. Because a patent can be obtained without even a prototype, because patent examiners are overworked and it takes less work to approve than to reject a patent application, and because the U.S. Court of Appeals for the Federal Circuit, which reviews patent validity, is extraordinarily pro-patent, the number of issued patents has grown steadily in recent decades. There is concern that some fields are so blanketed with patents (which may be owned by firms that do no production at all—whose business plan centers on demanding license fees under threat to sue for patent infringement) that innovation is actually being impeded.
Becker writes,
I do not like the hype and some other salesmanship of big pharma and bio-tech companies, but this industry has made enormous contributions to raising world health. It is likely to become even more important in the future as drugs are developed to match individual genetic differences. One does not want to kill this goose that is laying golden eggs by ill-thought out and counterproductive “reforms”.
Becker also favors, as does Alex Tabarrok, allowing drugs to reach the market only after safety trials. He suggests eliminating efficacy trials in exchange for shorter patent lives.
For Discussion. How could we reduce the burden of the patent system that Posner describes while not taking away the incentive to innovate?
READER COMMENTS
Lancelot Finn
Dec 14 2004 at 7:41pm
Well, it seems to me that the court should be somewhat less pro-patent. The trouble with all kinds of regulation is that people assigned to enforce it will spin their wheels and interfere more than necessary. How to get judges to behave themselves better is another trick. They’re not democratically accountable in an ordinary way.
There’s no easy way out of this one.
glory
Dec 15 2004 at 9:37am
how about gov’t patent buyouts 😀
it doesn’t have to be gov’t either, like it could be along the lines of the ansari x-prize as well…
cheers!
Ashish Hanwadikar
Dec 15 2004 at 1:29pm
Another alternative to patents is for medical insurance companies to invest in drug R&D. See my post for more detailed
take. Insurance companies collect premiums before they have to pay the claims. Medical insurance companies can use this funds to provide capital for drug R&D. Insured patients can then be provided drugs at a significant discount as they indirectly financed the drug development.
Medical insurance companies also have significant incentive to develop safe drugs as they will be legally responsible for paying the claims arising out of drug-related side effects.
Lawrance George Lux
Dec 15 2004 at 2:28pm
The true solution lay in issuing Patents with defined royalty per unit. Governments should not tell Business or Research they have a monopoly, and can gouge whatever Price desired. We can define the monopoly by defining the exact Royalty right–Dollar value. lgl
Ronnie Horesh
Dec 15 2004 at 3:17pm
“How could we reduce the burden of the patent system that Posner describes while not taking away the incentive to innovate?”
Define and quantify exactly what we want to achieve, such as a continuous increase in a welfare-adjusted quality of life indicator. Then reward people for helping to achieve it however they do so. My suggestion: issue tradable [non-interest bearing] bonds by auction that become redeemable for a fixed price once quality of life has exceeded a certain level for a sustained period. All activities of drug companies would then be inextricably tied to this targeted outcome. Market incentives would channel resources into wherever they will do most to increase quality of life.
Boonton
Dec 15 2004 at 3:26pm
Couldn’t insurance companies achieve this by simply buying corporate bonds and stock from pharma companies? The monopoly profits that drug companies earn thru patents would then be partially returned to insurance companies through interest & dividend payments as well as stock appreciated.
An alternative plan is to incorporate some type of market system in the patent game. A suggestion:
1. With each patent application the applicant will state a market price for his proposed patent.
2. The patent holder *must* sell that patent into the public domain for any offer that meets that price.
3. The patent fee will incorporate a yearly tax based on the market price of the patent application. These funds can go into a pool to purchase ‘essential’ patents and fund general R&D.
The patent applicant is forced to disclose an honest value of the patent. If he states a value that is too low to avoid the tax he runs the risk of having the patent purchased into the public domain either by the gov’t, competitors, or interest groups. If he states a value that is too high he will pay excessive taxes.
In the meantime, the revenue generated can cut the costs of what society deems to be essential innovations.
Leland Burrill
Dec 17 2004 at 12:50pm
because it’s difficult to assess the true value of a patent until after the claimed pharmaceutical enters the market.
Consider Gleevec. Gleevec debuted as a kick-ass drug for one kind of rare cancer. Great news for the people who have one kind of rare cancer, but not really helpful for people who don’t. Novartis wasn’t even planning to move forward w/ Gleevec because it was too niche market. Patient groups put pressure on the company to move the drug along and now it turns out Gleevec is good for more than just one kind of cancer and may be helpful against many cancers.
And Gleevec’s novel mode of action has inspired a plethora of new research. Gleevec’s a billion dollar drug now whereas original projections topped out near a couple hundred million.
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