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Source link: http://archive.mises.org/5227/a-patent-success-story/

“A Patent Success Story”

June 26, 2006 by

Patent attorney Dennis Crouch writes on his generally excellent patent law blog Patently-O:

Today I am truly proud of the patent system. The block-buster drug Zocor (simvastatin) has transitioned off-patent and into the world of generics. Unlike other areas of IP law, patents really are valid only for “limited Times” and when those years have passed the property right evaporates — leaving the inventions “free as the air to common use.” (In the words of Justice Brandeis).

There is no question that patent rights played a major role in providing incentive to Merck to develop and test Zocor and to push it through the difficult FDA approval process. The incentive worked, Merck recouped its investment, and now generic versions will be sold at an unbelievably low price that is very near its production costs.

I submitted the following comment to his blog:

Dennis: I am curious as to your view on the following. The standard justification for the patent system (and one you implicitly endorse) is the idea that the system provides incentives that encourage innovation that benefits the public.

Would you agree that according to this standard, the patent system is a “good thing” only if its benefits “outweigh” its costs? (I have written on this here: There’s No Such Thing as a Free Patent.)

If so, your praise here of the patent system must presuppose that the benefits you point to in this case are clearly greater than the costs of having a patent system, right?

If you do, could you explain why you think this is the case? How great are the costs of the patent system, for example, and how great are its benefits, and what is the “surplus” or excess? In other words, how do you know there is a surplus?

I am not writing here to challenge you, but just out of curiosity. I’m a practicing patent attorney too and it’s not obvious to me what the costs or benefits of the patent system are, but it seems obvious that there are significant costs. So it seems to me that it might well be that the costs exceed the benefits. You and other patent attorneys always seem sure that the benefits far exceed the costs (that is, when it is even acknowledged that there are costs). I am just curious what makes you so sure of this.

He seems to basically concede my point in his reply,

Certainly, my little anecdote here does not prove anything and there are dozens of questions that must be analyzed before we would could determine whether the patent grant on simvastatin was an overall public good. And, the question of over incentives is not trivial or one that should be quickly brushed aside.


Jacob June 26, 2006 at 4:08 pm

It’s hard to make the case that the benefits do not outweigh the cost in industries with billion-dollar fixed-costs associated with new products (like pharma). On the other hand, it’s hard to make the case that IP restrictions are useful in industries with negligible fixed costs, like software and various forms of art. The problem is not IP, but a monolithic IP-system designed to be one-size-fits-all.

Kevin Carson June 27, 2006 at 12:29 am

This is really an area for quasibill to comment on, since he has better knowledge of the pharma industry’s workings than anyone else I’ve had contact with. But the argument, as I understand it, is that the patent system itself significantly increases the outlays necessary in the drug industry. Most of the cost is not for developing the drug itself, i.e. the one that’s actually sold. It’s for the R&D necessary to lock down patents on every chemically related drug that might otherwise be marketed by a competitor. As I recall quasibill’s argument, the main drug is often developed by some small outfit and bought out by a big pharma company, when then puts most of the extra resources into patent lockdown.

Jacob June 27, 2006 at 1:07 pm

From what I understand, there is also a near-billion dollar cost in getting regulatory approval from the FDA. This means high fixed-costs are endemic to pharma outside of the patent process itself.

Regardless of the detailed workings of any particular industry, industries that have high fixed costs of bringing easily-copyable products to market can benefit from patents.

Narconon Vista Bay October 9, 2008 at 1:00 pm

Wow, yet again the people who are in support of the FDA gloat at how it is so easy for them to get any new WONDER drug they have out onto the market. People die everyday from these wonder drugs and the FDA just keeps collecting on it. We need to do more research on the drugs that are out and the side effects they can have on us now and in 30 years from now.

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