Abstract
In the United States, pharmaceutical patents have had a number of perverse and anticompetitive effects on the development and marketing of prescription drugs. Although some of these effects are unique to the United States, others have implications for patent policy across the world. Among the negative effects of drug patents are: (1) examples of misguided, anti-social, and anticompetitive promotion of patented drugs; (2) misguided incentives that push drug firms toward too much or too little research and development in critical areas: and (3) cartel-facilitating conduct linked to patent licenses or settlements of litigation involving drug patents. Some of these issues can be addressed directly through reforms in patent and competition law policy. There is, however, a need for a broader study of the role of patents in promoting drug research. That study should consider alternatives to the patent system, such as a prize system structured to supplement or partially replace patent rewards for pharmaceutical R&D.
Highlights
Patents are widely used in the pharmaceutical industry
This paper explores the reasons for this wide use and some of the perverse and anticompetitive consequences that often result
The analysis focuses on the United States, where a patchwork of healthcare, advertising and other laws contribute to anticompetitive results
Summary
Patents are widely used in the pharmaceutical industry. This paper explores the reasons for this wide use and some of the perverse and anticompetitive consequences that often result. Some form of exclusivity can offset the high expenses of developing a new drug, testing it to ensure its efficacy and safety, and obtaining regulatory approval. In many cases, this process can last for years and generate very substantial costs. In the United States, where there is relatively little price regulation, pharmaceutical firms may set prices that vastly exceed the cost of production and distribution, arguing that these high margins are needed to offset R&D costs. Drug firms that hold substantial patents are supposed to be rewarded with high returns that provide an incentive and financial backing for R&D.
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