1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar
Source link: http://archive.mises.org/9380/do-patents-save-our-lives/

Do Patents Save Our Lives?

February 5, 2009 by

[Chapter 9]

How essential are drugs patents as a piece of the machinery of the modern pharmaceutical industry? Incredibly so. Repealing them with no other changes would likely lead to a dismantling of a massive and lucrative industry that saves lives every day.

To elaborate, without patents, compensation for the hundreds of millions of dollars necessary for jumping through FDA hoops would not be forthcoming. Without patents, the huge manufacturers, who face mandatory disclosure requirements, would have their formulas taken by others and knock offs would immediately drive the price to marginal cost.

And the vast costs of redundant testing and retesting could not be absorbed by future revenue streams. And these streams are themselves uncertain due to arbitrariness of the FDA’s process. And thanks to wicked antitrust laws, companies face a legal minefield in combining efforts, cooperating on research, maintaining prices, and sharing markets.

But notice: all the reasons why patents in pharmaceuticals seem necessary are themselves due to some other form of government intervention: drug regulation, antitrust, government funding, and government mandates of all sorts. Regulation has begat regulation, with each step seemingly dependent on every other regulation.

The result is a massive rat’s nest of laws that is buried deep within a much larger hairball of the medical industry itself, which has been dominated by increasingly tight state controls for nearly a century. Then there is a further problem of liability confusion and court precedent that is woven through the system like a tapeworm in a deeply diseased body.

How can anyone begin to discuss only one aspect of the marketplace without thoroughly discussing all the other aspects? How can the authors of Against Intellectual Monopoly possibly sort through this thicket to make a case for repealing patents on pharmaceuticals?

Because of the above complications, I dreaded this chapter most. I was wrong to do so.What they have produced is a masterpiece of exposition. They have both the big picture and the small picture, with fascinating details in paragraph after paragraph. They take the reader through the logic and evidence at just the right pace, and manage the seemingly impossible: the reader is wholly convinced that drug patents are not necessary and in fact are doing great evil in the world today. It is the hardest case to make and they knew this going in. Theirs is a virtuoso performance, worthy of separate publication.

Some people love the pharms and other people hate them. The authors take a middle ground position. They do great good for the world. But they are embedded deep within in a regulatory that is stultifying the industry, and drug patents play a big role in this.

Can we imagine a world without drug patents? No need to dream. In the sweep of history, patents like we have today are essentially a postwar phenomenon, and prior to that, the industry developed faster in countries without patents than those with them. One way to show that is to examine 19th century chemical production. They tell the story of the French patent on coloring dyes granted to the La Fuchsine company, a patent that pretty well destroyed all development in France while the absence of patent in Germany, Switzerland, and Britain led to massive innovation and the beginnings of the modern industry. The US was very behind here due to its strong patents, and even in the first world war the U.S. had to import dyes from Germany in violation of the British blockade. This was how DuPont got its start.

In the last centuries, there have been pockets of pharm-patent freedom. Before 1978, it was Italy where a thriving industry existed for a century in the absence of patents. It only account for the discovery of 10% of the new compounds between 1961 and 1980. Foreign companies poured into Italy to imitate and develop. But this shut down after 1978 when Italy introduced patents under pressure from foreign multinationals. India then took the position of the free market country, and its industry began a huge player in the generic drug production market, until India too was forced into the WTO agreement and shut down its dynamic market.

The whole world of pharmaceuticals is now engulfed in incredible patent thicket, and people praise all the innovation taking place but rarely ask the question how much prior innovation really owes to the patent or how much innovation we might experience or how low the prices would be in absence of the patent.

Boldrin and Levine dare to ask the question about where the innovations of highest social value over the centuries have come from. They looked through medical journals and found several surveys. What were the medical milestones most significant in history? The list: penicillin, X-rays, tissue culture, anesthetic, chlorpromazine, public sanitation, germ theory, evidence-based medicine, vaccines, the Pill, computers, oral rehydration therapy, DNS structure, monoclonal antibody technology, and the discovery of the health risks of smoking.

Only two of those were patented or were due to some previous patent or brought about with a patent incentive.

A separate list of the top ten public health achievements of the 10th century was put together by the U.S. Centers for Disease Control. It is striking that not a single one involved patents at any level. Several people wrote in to complain that aspirin, Helicobacter pylori, and Medline were not on the list. None owe anything to patents.

Even looking at a list of top pharmaceuticals does not produce a patent-favorable result. Boldrin and Levine find that patents had nothing to do with: aspirin, AZT, cyclosporine, digoxin, ether, fluoride, insulin, isoniazid, medical marijuana, methadone, morphine, oxytocin, penicillin, phenobarbital, prontosil, quinine, ritalin (methylphenidate), salvarsan, vaccines, or vitamins.

Of the remaining products that owe their existence to patents, most were either discovered accidentally, were discovered in university labs, or were simultaneous discoveries that led to expensive battles over who would get the patent.

The authors turn to the problems of corruption in pharms and their relationship with doctors, and to the crazy requirements involved in redundant testing for patents and final FDA approval. More than half of newly patented drugs are nothing other than repackaging of existing drugs on the market.

It is not uncommon for a drug going out of patent to be re-patented as something new but that requires massive new clinical trials and high costs. The companies then have the incentive to market the patented over the out-of-patent product, and doctors have proven responsive to this tactic.

It is not surprising that even some studies sponsored by the pharmaceutical industry have concluded that they would be better off without the patent, given the high costs of otherwise adhering to the mandates, marketing, and all the rest, and especially given that the length of patent is comparatively short given the time required for FDA approval.

Despite all odds, the authors have made a very compelling case that a free market in pharmaceuticals would lead to the development of innovative drugs, save dramatically in all the associated costs of bringing drugs to market today, and save consumers a bundle. Even if you are completely unconvinced by this cursory summary, I urge you to read their entire case. It causes a mind shifting to take place, consistent with the overall theme of the book: competition, not monopoly, is the source of innovation and development.

Life-saving drugs are too important to be left to government grants of monopoly.

{ 65 comments }

Daniel C February 6, 2009 at 1:06 pm

ktibuk,

I have been awaiting a reply in the other thread, but I don’t mind continuing the conversation here. You write:

ktibuk: “If the people attacking the current patent system, jump to the conclusion that IP is illegitimate we have right to point this out I think.”

Sure, thanks for pointing it out. As it happens, these are not baseless conclusions. In fact, there has been a good amount of libertarian groundwork in this respect. Best of all is Stephan Kinsella’s treatise ‘Against Intellectual Property.’ I can confidently say that the author of this blog post would stand behind the theoretical work done there.

What do you know—these are no longer “jumped-to” conclusions! Do you have any actual critiques of Kinsella’s work? I’d be happy to discuss such criticisms here, but until you are ready to provide an argument I think it’s time to put away your claims to pre-emptive victory. It is simply talking past your opponents.

Daniel C February 6, 2009 at 1:12 pm

Silas / Person,

I have been awaiting a reply in the other thread, but I don’t mind continuing the conversation here. Among other things, you write:

Silas: “-You can just the same argue that “Property rights costs lives, because we could loot farms and feed the world’s poor if we didn’t have to respect them. Oh, don’t worry, communes and charities can take care of food needs afterward.” Anyone ready to argue that? No? Okay then.

“Next?”

Instead of “next,” I suggest we take care of what’s “first.” Your critique presupposes that the analogy between property claimed via IP claims and property claimed via Lockean homesteading is sound. It is not.

Stephan Kinsella has addressed this is his work, ‘Against Intellectual Property.’ The former claims on property are unjustified, as he points out early in the treatise. Since IP advocates cannot directly claim that they have homesteaded certain property, they most often rely on concepts like owning ideas or having sole rights to copying certain ideas. These latter strategies to claim justification fail for different reasons, as Kinsella points out in his book.

You have either assumed that this argument doesn’t exist, or you have assumed that it doesn’t work. Since I know you are familiar with Kinsella’s work, I’m assuming it must be the latter. But surely you haven’t come to that conclusion without a good reason to think so.

If so, would you mind sharing that with me in this thread? I have never seen such good reasons and would be happy to discuss them.

Daniel C February 6, 2009 at 6:11 pm

ktibuk and Silas,

After all your clamoring for a real argument and frustration that Mises bloggers agree with anti-IP claims, surely you won’t back away as soon as one person asks you the simple question: “Why?”

student February 7, 2009 at 3:00 am

It seems to me that whether or not patents and such should be property or not. The fact is they currently are by law, and abolishing them would be a taking under the constitution. The part of the debate that seems to be missing is how the current owners would be compensated if the government were to take them.

student February 7, 2009 at 3:11 am

If you had mortgaged your house to file a patent, would you take greenbacks for it?

Joe B February 7, 2009 at 8:13 am

Ktibuk,

Thank you for your response. This was the most cohesive Pro-IP statement I’ve seen yet. I think that from a natural rights perspective as you have described, your argument makes some sense.

However, as I have commented on other posts, I view natural rights in physical property as a description or moralization of the system that has evolved on the free market.

Daniel C asks “Why?” and I think this is also my contention. For physical property, “why” is answered because there is a need to allocate scarce resources. Over time, market forces have resulted in the property rights that Locke, Hoppe, and others have described. This system is considered “ethical” by libertarians because it has been shown to support individual liberty and wealth creation.

With IP, I don’t think that “Why” has been fully answered yet – I don’t mean by you, I mean by the universe. The natural rights argument takes the result of the physical property rights evolution and assumes that the same rules should apply. However, the fundamental problem of scarcity conflict is not relevant since one person’s use of an idea cannot preclude another’s use of the same idea. You are applying a solution to a problem other than the one that it is known to solve.

So why do we need IP rights? What fundamental problem do they solve?

I won’t argue that none exists, but I think that we don’t know it yet. If IP laws were to be universally abolished today, then the free market could reveal whether such a problem exists, and at the same time would deliver the most efficient solution. I can’t predict what this would be, and there may be multiple approaches for various contexts.

In a free market like this, you could propose your plan and try to convince people of its merits to influence their preferences. If a need for IP rights should arise, your plan could compete with other approaches until one or more proved to satisfy the market. Once we know it works, we can start discussing ethics.

Joe B February 7, 2009 at 8:15 am

Ktibuk,

Thank you for your response. This was the most cohesive Pro-IP statement I’ve seen yet. I think that from a natural rights perspective as you have described, your argument makes some sense.

However, as I have commented on other posts, I view natural rights in physical property as a description or moralization of the system that has evolved on the free market.

Daniel C asks “Why?” and I think this is also my contention. For physical property, “why” is answered because there is a need to allocate scarce resources. Over time, market forces have resulted in the property rights that Locke, Hoppe, and others have described. This system is considered “ethical” by libertarians because it has been shown to support individual liberty and wealth creation.

With IP, I don’t think that “Why” has been fully answered yet – I don’t mean by you, I mean by the universe. The natural rights argument takes the result of the physical property rights evolution and assumes that the same rules should apply. However, the fundamental problem of scarcity conflict is not relevant since one person’s use of an idea cannot preclude another’s use of the same idea. You are applying a solution to a problem other than the one that it is known to solve.

So why do we need IP rights? What fundamental problem do they solve?

I won’t argue that none exists, but I think that we don’t know it yet. If IP laws were to be universally abolished today, then the free market could reveal whether such a problem exists, and at the same time would deliver the most efficient solution. I can’t predict what this would be, and there may be multiple approaches for various contexts.

In a free market like this, you could propose your plan and try to convince people of its merits to influence their preferences. If a need for IP rights should arise, your plan could compete with other approaches until one or more proved to satisfy the market. Once we have seen that it works, we can start discussing ethics.

Joe B February 7, 2009 at 8:24 am

Ktibuk,

Thank you for your response. This was the most cohesive Pro-IP statement I’ve seen yet. I think that from a natural rights perspective as you have described, your argument makes some sense.

However, as I have commented on other posts, I view natural rights in physical property as a description or moralization of the system that has evolved on the free market.

Daniel C asks “Why?” and I think this is also my contention. For physical property, “why” is answered because there is a need to allocate scarce resources. Over time, market forces have resulted in the property rights that Locke, Hoppe, and others have described. This system is considered “ethical” by libertarians because it has been shown to support individual liberty and wealth creation.

With IP, I don’t think that “Why” has been fully answered yet – I don’t mean by you, I mean by the universe. The natural rights argument takes the result of the physical property rights evolution and assumes that the same rules should apply. However, the fundamental problem of scarcity conflict is not relevant since one person’s use of an idea cannot preclude another’s use of the same idea. You are applying a solution to a problem other than the one that it is known to solve.

So why do we need IP rights? What fundamental problem do they solve?

I won’t argue that none exists, but I think that we don’t know it yet. If IP laws were to be universally abolished today, then the free market could reveal whether such a problem exists, and at the same time would deliver the most efficient solution. I can’t predict what this would be, and there may be multiple approaches for various contexts.

In a free market like this, you could propose your plan and try to convince people of its merits to influence their preferences. If a need for IP rights should arise, your plan could compete with other approaches until one or more proved to satisfy the market. Once we have seen that it works, we can start discussing ethics.

Joe B February 7, 2009 at 8:27 am

Ktibuk,

Thank you for your response. This was the most cohesive Pro-IP statement I’ve seen yet. I think that from a natural rights perspective as you have described, your argument makes some sense.

However, as I have commented on other posts, I view natural rights in physical property as a description or moralization of the system that has evolved on the free market.

Daniel C asks “Why?” and I think this is also my contention. For physical property, “why” is answered because there is a need to allocate scarce resources. Over time, market forces have resulted in the property rights that Locke, Hoppe, and others have described. This system is considered “ethical” by libertarians because it has been shown to support individual liberty and wealth creation.

With IP, I don’t think that “Why” has been fully answered yet – I don’t mean by you, I mean by the universe. The natural rights argument takes the result of the physical property rights evolution and assumes that the same rules should apply. However, the fundamental problem of scarcity conflict is not relevant since one person’s use of an idea cannot preclude another’s use of the same idea. You are applying a solution to a problem other than the one that it is known to solve.

So why do we need IP rights? What fundamental problem do they solve?

I won’t argue that none exists, but I think that we don’t know it yet. If IP laws were to be universally abolished today, then the free market could reveal whether such a problem exists, and at the same time would deliver the most efficient solution. I can’t predict what this would be, and there may be multiple approaches for various contexts.

In a free market like this, you could propose your plan and try to convince people of its merits to influence their preferences. If a need for IP rights should arise, your plan could compete with other approaches until one or more proved to satisfy the market. Once we have seen that it works, we can start discussing ethics.

Joe B February 7, 2009 at 8:28 am

Ktibuk,

Thank you for your response. This was the most cohesive Pro-IP statement I’ve seen yet. I think that from a natural rights perspective as you have described, your argument makes some sense.

However, as I have commented on other posts, I view natural rights in physical property as a description or moralization of the system that has evolved on the free market.

Daniel C asks “Why?” and I think this is also my contention. For physical property, “why” is answered because there is a need to allocate scarce resources. Over time, market forces have resulted in the property rights that Locke, Hoppe, and others have described. This system is considered “ethical” by libertarians because it has been shown to support individual liberty and wealth creation.

With IP, I don’t think that “Why” has been fully answered yet – I don’t mean by you, I mean by the universe. The natural rights argument takes the result of the physical property rights evolution and assumes that the same rules should apply. However, the fundamental problem of scarcity conflict is not relevant since one person’s use of an idea cannot preclude another’s use of the same idea. You are applying a solution to a problem other than the one that it is known to solve.

So why do we need IP rights? What fundamental problem do they solve?

I won’t argue that none exists, but I think that we don’t know it yet. If IP laws were to be universally abolished today, then the free market could reveal whether such a problem exists, and at the same time would deliver the most efficient solution. I can’t predict what this would be, and there may be multiple approaches for various contexts.

In a free market like this, you could propose your plan and try to convince people of its merits to influence their preferences. If a need for IP rights should arise, your plan could compete with other approaches until one or more proved to satisfy the market. Once we have seen that it works, we can start discussing ethics.

Daniel C February 7, 2009 at 8:06 pm

Really? Nothing?

Okay. But I will remember this thread the next time either of you decide to troll on Mises.org.

Joe B February 8, 2009 at 8:36 am

Apologies for the quintuple post – I was receiving errors when clicking submit.

Drake February 8, 2009 at 12:47 pm

@Joe B

Congrats on another great post. I think it’s about time you started writing some full-length articles. I’m sure there are plenty of people who would like to read them :)

As to your point concerning physical property rights, I agree that scarcity is important. The fact that it is physically impossible for two people to wear the same hat at the same time means that – AT MOST – one person will be able to wear the hat at any given time. If the demand for hats is greater than one, the conditions of scarcity have been met.

That being said, I disagree that property rights arise out of a need to allocate scarce resources. People generally act to acquire resources for themselves, not to allocate them amongst others. I think that a system of property rights arises when homesteading, voluntary trading, and defense have a strategic advantage over aggression. When aggression has the advantage, individuals are forced to turn to isolation, servitude, or aggression themselves as the only means of survival. Therefore, it is the relative competitiveness of various survival strategies that determines their prevalence.

In the context of this thread, we must consider whether intellectual monopoly has a strategic advantage over copying. More specifically, it must be asked whether monopoly prices justify the costs of monopoly enforcement. In the case of file sharing, enforcement seems to be having a negligible effect, even while some of the costs are socialized through the court and police systems.

That being the case, it is doubtful that intellectual monopoly would be a viable strategy in a freed market. But if IM is non-viable, it would seem highly relevant to discuss what, if anything, would replace it, and I hope to see more discussion along these lines in the future.

Joe B February 8, 2009 at 9:42 pm

Drake,

I’m glad you’ve enjoyed my posts – Maybe once this thread has finished monopolizing my intellect, I’ll have time to actually write something on my blog…

I should clarify the “need to allocate scarce resources.” I meant this in the vein that you have described; I did not mean to suggest that there was some sort of central planning happening beyond normal market forces.

There have been several discussions in this thread suggesting alternative models for various forms of IP. I think that this is ultimately a challenge for entrepreneurs developing new business models, although a little speculation and brainstorming can’t hurt.

ktibuk February 9, 2009 at 2:02 am

@ Joe

“However, as I have commented on other posts, I view natural rights in physical property as a description or moralization of the system that has evolved on the free market.”

I think you are making a mistake by terming your view of rights theory as “natural rights”. Yours is closer to “conservatism”. Natural rights theory bases its claims on the nature of man and its surroundings, not evolution of institutions and rules through time.

I have asked you before on another thread but couldn’t follow up, by your rights view “the state” and even “slavery” is justified because they are very old institutions that evolved through history.

“Daniel C asks “Why?” and I think this is also my contention. For physical property, “why” is answered because there is a need to allocate scarce resources. Over time, market forces have resulted in the property rights that Locke, Hoppe, and others have described. This system is considered “ethical” by libertarians because it has been shown to support individual liberty and wealth creation.”

See this is the crux of the matter. Property rights are not positive rules and legislation with a goal to better society, but natural rights.

The fundamental property right is “self ownership”, and when claiming this I say as a natural rights theorist, “I own myself because I own myself” while you might say to be consistent, “society lets you own yourself because it is the best way to allocate resources”.

“With IP, I don’t think that “Why” has been fully answered yet – I don’t mean by you, I mean by the universe. The natural rights argument takes the result of the physical property rights evolution and assumes that the same rules should apply. However, the fundamental problem of scarcity conflict is not relevant since one person’s use of an idea cannot preclude another’s use of the same idea. You are applying a solution to a problem other than the one that it is known to solve.”

I will answer “the why” on another post, although I believe I have before. But I will give another shot. It will be the answer to the question “why there must be property rights” and it will compass both tangible and intangible. But I can tell you now, property rights are not about “conflict resolving” but homesteading and aggression.

“In a free market like this, you could propose your plan and try to convince people of its merits to influence their preferences. If a need for IP rights should arise, your plan could compete with other approaches until one or more proved to satisfy the market. Once we have seen that it works, we can start discussing ethics.”

I don’t have plan. There are no “great plans” in a free market. What I argue for is an ethical position. We may never have a free market, we may even have worst IP legislation compared to now. And it wont change anything.

Comments on this entry are closed.

Previous post:

Next post: