Drop Patents for Pharmaceuticals

The Globalisation Institute points out a new study indicating that patents for pharmaceuticals aren't necessarily that good for innovation in the industry. Based on the example of Italy, the empirical evidence is that both innovation and competition declined following the adoption of patents for pharmaceuticals. I would bet that prices also go up following the shift to patents. It's a contributing factor to the high price of health care in America.

Thanks for pointing out the study and the Globalisation Institute. Both interest me greatly. :)

More reading...

I am disappointed in the Globalization Institute for citing such a flimsy, poorly written text. Boldrin and Levine's chapter lacked primary data or direct citations of the references they used. Many of their statements were prefaced on phrases, such as "it is widely known" or "as everyone knows," which is not only poor construction for serious analytical work or research.

Moreover, the presentation of their historical analysis was extremely biased. First of all, the German case they use relates to chemical dyes, not pharmaceuticals. Second, its analysis of patenting is incredibly one-sided, focusing entirely on the temporary "negative right" aspect. The commonly missed issue in this debate is that patent laws make all innovations permanently part of public domain after awarding temporary rights. To quote the Economist:

Before the 18th century, innovations were mainly kept secret through trade guilds. Sometimes monarchs capriciously granted indefinite exclusive rights to someone they favoured. Intellectual-property law was meant to remedy this by requiring the invention to be vetted by experts, limiting the right to a set period and making knowledge more widely accessible through public disclosure. Its development was part of the drive towards democracy and capitalism and the abolition of royal privileges and monopolies.

The authors advocate is a system where all innovations are available to the public by mandate with no recompense to the creator and pretend that is the intellectual property environment before patent law. Without a patent system, America would be stuck importing dye from IG Farben until an intrepid American figured out how to the duplicate the process. If this analogy is transferred to modern times, do you think "Big Pharma" would even bother selling AIDS drugs to Africa? It would probably be too much of a risk of exposing "sources and methods." I am always surprised by how unbelievable short-sighted some people can be.

---------------------------
I am a freedom-lover.

News-Intelligence-Music

Open source advocates that focus on medicine should aim at achieving a fair balance of IP rights. If you push down on patent length, then pharmaceuticals will be less willing to license their products (and probably increase prices), but if extending patents past 20-30 years clearly stifles innovation. This is a tough question and I would interested to see some comprehensive economic research on the subject.

---------------------------
I am a freedom-lover.

News-Intelligence-Music

dean baker, who blogs over at maxspeak!, has some good ideas in regards to patent reform in the area of pharmaceuticals partitularly.

here's a link : http://www.cepr.net/pages/intellectual_property_page.htm

His bit on the "Free Market Drug Act" (that was conveniently tied into an Avian flu ancedote about Tamiflu) was not much better than the work cited by the Globalization Institute. Instead not providing citations for his assertions, Mr. Baker succeeded in mostly citing his own written work on the subject. But I digress...

The system he articulates is incoherent and a flight of fancy. Not only does it force the US drug industry into a pseudo-nationalization schedule, it advocates the re-establishment of State Owned Enterprises (SOEs). Did Mr. Baker miss the global failure of almost all SOEs in the 1980s and 1990s?

Also, did Mr. Baker consider the systematic implications of his proposal? His proposal would effectively replace the so-called "Big Pharma" with "Big Gov't Pharma" by handing defacto control of an entire market (currently populated by hundreds of actors) to just 10 state-sponsored actors. How is this improving the current situation?

Now I am all riled-up over this issue, I think I will craft a blog post.

---------------------------
I am a freedom-lover.

News-Intelligence-Music

i hadn't read that piece, though now that i have, for the most part it is a short summary of the much more in depth article Promoting Good Ideas on Drugs: Are Patents the Best Way?, as well as some new ideas for public-funding of research as introduce by Dennis Kucinich in 2004 under the "Free Market Drug Act".

You are grossly misrepresenting the content of that bill, calling it "nationalization", calling the funding method "State Owned Enterprises" and then making the uninformed assertion (and as such, entirely incorrect) that it would create a government monopoly over the entire market.

The bill does two basic things:
1) it increases public-funding for pharmaceutical research by $30 billion (the amount currently spent by the pharma-industry).
2) It states that any company that uses that public funding for research loses the rights to the patent, which is put in the public domain. So any company with the manufacturing ability may produce the drug.

The effect of the above two policies would be to move the industries incentive from rent-seeking through patents, to competitively seek market advantage through production efficiency.

It would also open up avenues for much higher innovation because much more information will be freely available.

Furthermore, in no way does it prevent pharma companies--or any private actor--from funding their own research, and holding their own patents.

Your so-called "SOE"'s would actually be government funded corporations, who would presumably contract out much of their research to universities, just as "big-pharma" does, who would lose their funding if they were not providing results.

Finally, it would free up a huge chunk of our GDP that is currently being held hostage to excise taxes on patented pharmaceuticals. The amount the government alone would save on reduced drug costs under medicare would pay for the additional amount spent on research.

Anyway, of course this is not a perfect solution, but it addresses many of the problems of our current rent-seeking system which incentivizes copycat drug research, falsification and restriction of research findings, political lobbying for more government favors over patents, and huge economic on social costs due to the inflated price of government monopoly protected drug production.

You are a free-trader, you are adamantly against tariffs, for which i salute you, and decidedly agree. so, why do you so readily support intellectual tariffs?

I concede, I misinterperted the following statement below to mean that all pharmceutical inventions will be held in public domain:

All the patents generated through this research would be placed in the public domain so that the drugs could be sold in a competitive market. All the research findings that resulted from this support would also be made fully public so that other researchers could benefit from it.

But after a second glance reveals I was mistaken, only the patents generated by the government would be held in public domain. This changes the implications of the proposed system, but I still take issue with it (which I will discuss below).

In response to green's second comment, I submit the following quotes:

The FMDA would create competition by establishing 10 distinct government-sponsored companies, each of which would be granted approximately $3 billion a year to finance the research and development of new drugs.

At periodic intervals (e.g. 10 years), a commission of public health experts and research scientists would evaluate the output of each corporation. The two least efficient would be eliminated and two new ones would be created in their place. This should ensure that inefficient companies do not gain an indefinite claim on public funds.

If the government is creating the entity, finances it and exercises the power to dismantle it, I think it is fair to call the entity a SOE. I don't mean to mince words here, but the above description falls well within traditional definitions used in the school of political-economy.

I appreciate Mr. Baker's zeal to move the perogative of scientists and firms responsible for pharmaceutical R&D from profit to a general sense of the public good, some of plan is flawed. Instituting drug prizes is fine, it gives something to strive for and helps to focus work.

What is not acceptable is the US government doing more than providing competitive grants to researchers. Establishing state-backed R&D firms depresses the total R&D market - why bother spending R&D dollars on an innovation if a state-backed firm gets there first?

---------------------------
I am a freedom-lover.

News-Intelligence-Music

Don't get me wrong, I do not normally endorse the imposition of exclusive economic rights in any market, but patents are a tough question (especially when it comes to health issues). The pre-patent formula was clearly not acceptable because it lacked the public disclosure of innovations. A system mandating public disclosure without patent rights does not work either because it stifles the imperative to invent (why research anything when you just have to give away your product immediately?). The current system has its flaws as well, but we won't rehash the most common complaints.

I object to systems proposed by Dean Baker or others based on my experience in the study of political economy, specific with the newly industrialized countries in Asia. Japan, Taiwan and South Korea were able to catapult their development after WWII because they employed state-lead strategies. By picking winners or targeting sectors with multifaceted economic policies, a state can push its economic development farther than normal market forces would.

This has a dark underside, however, because it entrenches government influence even after the economy becomes mature. In times of crisis, the government hampers a economy's ability to adapt and fit market needs. A FMDA-esque solution does the same thing by entrenching the government in the drug sector. I do not doubt that such a scheme would produce life-saving drugs and maybe lower costs, it would probably be too slow to meet the market's health needs. Imagine having the same post-Asian Financial collapse floundering that Japan's banking system (nearly 10 years old now) or South Korea's chaebols experienced, but in the American drug industry. I wouldn't mind paying more for my drugs if I knew it would mean they could be delivered when I needed them.

The drug industry is experiencing the same issues the software industry did before the bursting of the dotcom bubble. Software companies percieved that is was more profitable to use patent rights as a fortress that defended their product's territory. Once demand for products declined, the surviving software companies adopted aggressive licensing and open source strategies. The growth of software industries abroad also helped to encourage the growth of licensing.

Instead of dragging this on, I will make a blog post sometime in the next few days explaining my thinking on the subject. I am a bit busy with school and switching jobs (still in the national security community, just no longer in the DoD).

---------------------------
I am a freedom-lover.

News-Intelligence-Music

to be honest, i am not a big fan of the government funded corporations--that was kucinich's idea, but i think it raises a really interesting question:

while market-fundamentalists decry any government intervention in the economy they happily accept the deadweight loss associated with patents, and other government enforced monopolies. when we begin with the shared understanding that a patent itself is a government intervention, that creates its own inefficiencies, we can as the question "is there a better way to use less a less coercive government regulation to provide economic rewards for research, while allowing the marginal cost of production to be determined amongs market participants?". i think that's an important question, and it's the kind of question that we need to be asking on a whole host of issues if we want market friendly solutions that require less government intervention. the issue with government funding and publicly owned patents becomes very questionable if funds go directly to pharma companies--there would need to be insulation, but i'm not sure government funded corporations are necessarily the answer.

the only other thing i hope you would address in your posts is in regard to your quote:

"I do not doubt that such a scheme [FDMA] would produce life-saving drugs and maybe lower costs, it would probably be too slow to meet the market's health needs. ... I wouldn't mind paying more for my drugs if I knew it would mean they could be delivered when I needed them."

I think the latter half of the statement misses the point that the pharma-industry is not delivering the drugs in 2 ways:

1) we are not just paying "more", we are choosing between eating, and taking pills.
2) we do not need 10 other viagra copycats, the important work is not being done because research is being wasted on searching for the quickest profit, and massive amounts of potential research funds are being wasted on rent-seeking.
3) the enclosure of scientific progress builds the delay into the system.

looking forward to your post