Words: 3333
Brian Lam A Critique of Strong Patent Protection Abstract In this paper, I attempt to analyze the negatives and positives of patent protection. The discussion will include an analysis of impact to firms and profits, particularly in the pharmaceutical sector, their innovations as a result, and the ultimate impact to society. Traditionally, it is believed that stringent patent regulations hurt the profits of large biotechnology companies, giving them less of an incentive to innovate. As a result, society loses.
The paper will challenge this argument by considering the social infinite of allowing patents to expire and giving them less protection, through cheaper pricing of generic drugs, resulting in a greater number of innovations to society and investment in R&D. I will also discuss the importance of public funding of projects in the R&D phase, particularly among small inventors, along with the benefit of research done by universities, allowing them to take part in innovation in partnership with corporations as an approach more beneficial to society than what multinational pharmaceutical companies are capable of achieving on their own.
And hill these efforts result in more competitors within the global biotechnological industry, they may temporarily decrease profits to large firms, but provide opportunities for firms to become even more competitive and adapt their strategies in order to serve the greater good of the people who need affordable access to their products. In the pharmaceutical industry, the average cost of bringing a single new drug to market is as high as $800 million and lasts only 12 years apart from extensions (Bollard 1).
What is unique about the industry is that the cost of shipping a single notation of medicine is the same, whether it is the first or the millionth container. With such high costs and constant returns to scale, it is unsurprising that the innovation of new drugs causes large firms who’ve invested in R the desire to maintain the exclusive right to market and sell what they have created. Such firms, after years of investment and R, argue that patent protection provides the incentive to innovate.
When asked whether or not patenting has become obsolete, due to the rapid change in technology, the Pfizer UP and General Counsel for Global Patents and Policy, Roy Waldron replied that “we see intellectual [patenting] as a proactive instrument to help us build a lead position in this collaborative business model – to become industry preferred partner of choice” (Loony 2). Waldron argues it is the diffusion of information, or “knowledge spillovers” to the industry, that makes patent protection collaborative, stating that they provide a predictable and measurable structure to transfer and develop technologies.
However, the transfer of technology under conditions of permanent patent protection is limited to the pill a nonuser purchases, as recommended by a doctor or approved by the FDA. While the ingredients and uses of the drug are disclosed, the U. S. Patent Organization (USPS) grants the patent owner the right to produce, market and sell the drug, with no clear obvious benefit of knowledge to society unless they could be improved by smaller generic Aragua companies, making strong patent protection exclusive ratter than collaborative among the pharmaceutical industry.
There is negative social value in patenting a specific [drug], as this would exclude all others from producing it, even through different processes (Bollard 3). This exclusion raises a major concern to hospitals and patients who, by paying for these drugs are directly affected by such exclusion of patent laws. The obvious benefit to society of innovation in the pharmaceutical industry is the improvement in quality to a drug or the ability to produce the drug more cheaply.
Lower cost production, as well as more efficient use of chemicals allows for generic drugs to enter the market while exhibiting the same positive effects of brand-name drugs. It makes sense that the opportunity to challenge large biotechnology companies allows for competition which drives further innovation. A problem arises when these multimillion dollar firms realize the limits of profits in their patented drugs, and employ the opposite strategy by producing similar drugs and then selling them at higher prices.
Recently, three top doctors at New Work’s Memorial Sloan- Kettering Cancer Center [said] that Claptrap, the new cancer drug Sansei makes, which is twice the price of a similar medicine is too expensive and that the cancer center won’t even offer it to patients (Forbes). Sansei CEO Christopher Beseecher has claimed that the drug is worth its price, stating that the only difference is in the size f its dosage, which must be manufactured at a heavier weight in order to be approved by the FDA.
It is unlikely that top doctors at a prestigious cancer research center would mistaken the drugs benefits and disregard the dosage of a drug that it has administered for years to its very own patients. What results from the limitations of patent protections then seems to be a corrupt way of continuing to control the healthcare consumer market through unethical or unlawful practices. In a recent antitrust lawsuit, C.V. Carmaker Corp. and Radiate Corp. accused Pfizer and TVA Pharmaceutical Industries of conspiring to keep generic versions of the popular antidepressant Offshore off store shelves (Reuters).
The companies, who sell drugs over the counter to customers daily, claim injuries to their businesses in the form of overcharges, and are seeking triple the amount they have previously paid. Sharon Levine, associate executive director of the HOMO Kaiser Permanent has previously criticized legal tactics of large pharmaceutical companies by saying “consumers today are paying an inordinate premium under the guise of the creating stream of innovation in the future. But it’s actually funding lawyers” (Bollard 11).
Another method employed by these large pharmaceutical companies is paying a generic drug producer to stay out of the market. Exclusion payments work because the patentee stands to lose more from the invalidation of its patent than the generic challenger stands to gain (Hemophilia 27). Prior to this method, one of the earliest strategies for avoiding generic entry was to attempt a “thirty month stay’ in which pharmaceutical companies would file additional patents in the Orange Book of the FDA, which lists generic drugs, in order to overlap stays for a single drug.
Once a lawsuit was filed, a pharmaceutical company would immediately list an additional patent for a generic drug of its original, prolonging its stay even further. The result is money invested not in further innovation of new drugs, with the potential to cure eventual sufferers of deadly diseases, but a broken patent system that inhibits competition and encourages legal Tattles Instead. A Journalist Trot ten Economist commented, saying that “we rarely directly confront the effects of this immense waste of resources and brainpower and the retardation of the pace of discovery, but it affects us all the same (Economist).
Taking innovation from a sequential and complementary, or essential perspective from the software industry, researchers from the Boston University School of Law and Research on Innovation found that with regards to computer programs, the evidence suggests that, “far from unleashing a flurry of new innovative activity,” the firms that acquired most patents actually reduced their R spending relative to sales (Bessie 612).
Despite conventional wisdom that innovators would lack the incentive to innovate if they could not protect themselves adequately enough to cover their costs, it seems that investment is not directed into the production of innovative products but into maintaining a monopoly over markets they have been proven to be successful in. Research in the economic context of innovation provides context and insight into the patent debate.
In support of the opposing, traditional view of stronger patent protection, economists from Durham and Shanghai university contributed a report to the Journal of Macroeconomics, showing that in the sass, the strength of patent rights increased in the U. S. , and afterward private expenditure as a percentage of GAP in the U. S. Increased from 1. 2% in 1980 to 2. 5% more recently (Chug 749). In their model, it is assumed that there is a temporary leader who holds the latest patent and dominates their industry until a new innovation takes place.
The results show an increase in equilibrium R labor as the level of patent breadth, or strength increases. However, the problem with their argument is that it focuses on innovation within entire industries, rather than on one company. To say that strengthening patent protection improves the incentives for R, and thus driving technological progress could be similar to the realization of inventors that, because large corporations have benefited previously from new discoveries in the technology and information technology industries, it could also be profitable, and even immensely profitable, given new patent protection laws.
In addition, a patent alone cannot be the driver of innovation, but a new, unique and better invention that has the potential to profit. In analyzing the value of patents from a macroeconomic perspective, the same economists contributed a report to the Economic Letters Journal, with respect to the final sale value of a good, using the wage rate. They found that from a knowledge-driven approach, the wage rate showed a positive correlation with the value of new inventions.
However, from a labor equipment approach, using the price of final goods, given an elastic labor supply, the effect on the wage rate becomes inverted, when holding constant the wealth effect of monopolistic firms, where a lower wage decreases labor supply through the substitution effect (Chug 211). Their research therefore shows that stronger patent protection initially increases monopolistic profits, but negatively affects innovation of firms through reduced wages and thus labor.
It makes sense to say that the value of goods from an innovative perspective falls over time and less investment then, would be placed into n R. While evaluating patent protection from an economic perspective provides clues into investment in innovation, a strong argument would be lacking without a consideration for global R flows and better technology around the world. Innovation plays a critical role in achieving higher rates of economic growth through perpetual change Ana competition (Kumara 44).
Innovation across Dodders Is essential to society because of the possibility of knowledge spillovers, establishing new industries, and increasing profits to firms, which then increases not only returns o investors but in the process creates real social value through the consumption of new technologies. Unfortunately, the focus of the pharmaceutical industry has not been to innovate abroad but of how to sell abroad. The entrance of generic drugs, along with the refusal of hospitals to pay excessive prices for brand name drugs, has led to decreased growth in the U.
S. And projected increases globally, especially in emerging markets. However, the emergence of the middle class among these countries is accompanied by large populations that cannot actually afford the drugs. Michael Liveried, a financial analyst interviewed in the Financial Times, explained that “India is offering licenses because the government is trying to increase its healthcare breadth – offering more drugs to the wider population – but it’s not able to spend on branded drugs (Financial Times).
Therefore, pharmaceutical companies may do better by strategically pricing their drugs at lower prices in order to gain access to markets who cannot afford them, thus making them more competitive against generic companies while extending access to large populations through their advantage of scale. The alternative is to take charge in response to the so called “patent cliff,” at a time when blockbuster drugs such as Pfizer Lipton for weight loss and Sniff’s Pluvial are expiring, thus capping the growth of profits to these firms, by investing in innovation.
If capital is less of an issue for larger pharmaceutical firms than smaller generic firms and inventors, then these firms are in the best position to do so, regardless of the length of their “stay’ in these markets, offset by the growth potential of these markets. In an analysis of patent flows and R&D flows around the oral, economists have found significant insights into patents and R&D, specifically that overwhelming destinations of R&D FAD have been China and India (Kumara 4756).
Thus, pharmaceutical companies may do well in investing in R&D directly overseas in order to lock in price advantages. In addition to greater profits, a patent in a specific country provides protection from imitators from producing in that country and from outside imitators selling in that country (Kumara 4757). This has many implications for reaching smaller but faster growing countries, as the investment in R&D in various magnitudes could lead to explosive growth of sales lovably as new drugs are created and patented.
Today, the debate has become one not of whether patent protection is necessary or unnecessary, but how to adapt business strategy to changing conditions of the world and the potential to meet its needs through closer innovation and greater access. More investment overseas has a direct correlation with R&D per capita, which increases foreign patents per capita (Kumara 4763). If the debate has shifted towards adapting business strategy, then certainly government involvement would be included in the sphere of possibilities for increased R&D and patenting. In the past, this has worked quite well domestically within the U.
S. In 1980, the Baby-Dole Act or Patent and Trademark Law Amendments Act allowed for patenting of federal government-funded research. The new legislation embraced explicitly the goal of promoting patenting and licensing of National Institute of Health (NIH) grantees’ inventions by their academic institutions (Amazonian 723). By allowing institutions to patent their inventions, along with the growing scale AT government R Tuning programs, top researchers were teen addle to invest in R in partnership with private companies in the development of new rugs.
Previously, patents contributed to blocking entry into specific markets by smaller firms that did not invest heavily in R and marketing, specializing instead in the production of unpatented or off-patent drugs (Amazonian 724). Thus, the Baby- Dole Act provided an avenue for a truly collaborative way of innovating, the type of collaboration Pfizer Waldron was mistaken for in suggesting strengthening patent protection, which would block out new innovators.
One drawback of the legislation is that collaboration may provide increased opportunities for conflicts of interest, direction of research, less openness in sharing of scientific discovery (Starch 4). The rationale is that because private companies would not be in full control of patents, or reap entirely the rewards of their investment, that they would be less likely to engage in related R or contribute to R at a lesser extent.
However, the Baby-Dole Act provided opportunities for pharmaceutical companies to part take in projects they would not otherwise have invested in, and also increased participation among small firms, which tend to be more innovative than larger companies (Starch ). This ability to part take in a wider spectrum of R allowed opportunities to these pharmaceutical companies that are so desperately needed among investors today.
In a recent article of the Financial Times, a reporter notes that “venture capitalists have reduced investment in biotech, having failed to obtain a suitable return, and public spending on research is under strain in the U. S. And other developed economies” (Financial Times). Wicked this mean then, that a focused effort in collaboration with academic institutions, providing them with private funding, would increase the chances of creating new drugs that would lead to increased corporate profits, university revenues and greater health benefits to society?
It certainly raises an interesting possibility from an investor’s point of view. But the idea must be supported by research that can actually link the success of public funding with the centralization of new drugs. Roger Sevenths, from the Research Institute of Industrial Economics, contributed in an analysis of publicly-funded R&D programs and the survival of patents to the Journal Applied Economics, stating that “the total turn to R&D investments for society as a whole is greater than private return, since firms cannot utilize the results of all their R&D” (Sevenths 2).
Because the returns private R&D and the public are shared, it is important to consider the benefits of public funding in relation to R&D. In citing another research paper, Sevenths learned that “among Italian companies, publicly-funded R&D is sought and used in high-risk projects that could impact long term productivity and growth. ” Where self-funded R&D often involves those projects in which private firms are likely to earn a safe turn, publicly-funded R&D projects allow investment in riskier projects that would not have otherwise been taken among private firms.
Under publicly-funded terms, inventors received subsidized interest rates, ownership of their projects, and up to 50-70% of total costs. As a result, innovation increased, and patents with market- oriented government loans performed in the normal range of profitable private investment (Sevenths 14). While his research does not take into account private investment in the same projects in these countries, it has important implications for hat can be possible in the types of R&D that could be undertaken with larger Investment among pneumatically companies In ten u s.
In collaboration Witt puddle funding. The suggestion mentioned above in innovating across borders so to increase innovation abroad and access emerging markets can benefit by the research done by Tom Sharkskin, who notes in the Journal of International Economics regarding corporate taxation and the choice of patent location, confirms a significantly positive effect of R&D tax credits when locating patents at low-tax affiliated [countries] (Sharkskin 176).
Because they can be taxed at lower rates, hermetically companies gain an incentive in patenting across borders, not only for current drugs but for new R&D investments, in addition to further benefits such as tax credits and favorable trade policies that may arise as a result of extending access to those nations who need those drugs, including emerging economies.
In conclusion, the greatest benefit to society is patent policy that limits the power of pharmaceutical companies to control markets, allow for generic drugs that are affordable to the public, while increasing the innovation of newer and cheaper methods of producing rugs in order to shift the focus from patent extension to further innovation, resulting in reduction of unnecessary litigation and deceptive practices, resulting in increased competition and higher quality drugs.
In addition, practices that embrace public funding, strategic pricing and establishment across borders would allow for a globally collaborative effort in drug distribution, as well as new revenue streams for pharmaceutical firms as a result of partnering with academic universities in research, as well as governments so to increase cross-border innovation while receiving referential policies such as R&D tax credits and favorable policies. In light of this, we must not forget about the potential negative effects of establishing patent policy that is too light on smaller inventors.
While generic drugs reduce large corporate profits of pharmaceutical companies, they improve profits by forcing firms to continue to innovate. We then ought to hold smaller generic drug companies to the same standards, that they find ways to improve drug quality as well as to produce more cheaply, so to avoid situations where patent protection is shortened to the extent that hermetically companies would not earn their due profits for their inventions. These firms must be compensated for the investment of time and millions of dollars of R&D, or they truly would have no incentive to innovate, resulting in a loss to social welfare.