Diamonds Are Forever. Why Not a Drug Patent?
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As noted above, patents do not in and of themselves lead to monopolies and any lack of competition, and so patent owners still need to compete in the market on the basis of price and quality. In fact, a perpetual patent would be more likely to lead to lower drug prices. Many factors go into drug pricing, but one definite factor is the need to recoup development expenses and maximize revenues and profits over the lifetime of the patent. Since drug companies currently only have a finite lifetime during which they have patent protection, they have to try to squeeze every drop of profit possible in that short period. This leads to prices higher than in a completely free market. In fact, this perverse disincentive was only exacerbated when patent lifetimes were shortened from seventeen years from patent issuance to twenty years from patent application. It often takes three years just to get a first office action from the United States Patent & Trademark Office (the first substantive response you get after filing a patent), let alone an allowed or issued patent!
And for sure, a 20-year patent lifetime for a drug is actually a lot less than that. That’s because drugs are regulated and must be approved by the Food & Drug Administration before they can become marketable products at all. It often takes up to ten years of clinical trials to get an FDA approval, meaning that drug companies are left with very short patent lifetimes in which to recoup and profit from their investment in the development of a drug. That investment has recently been estimated at over one billion dollars per every approved drug (amortized over research & development, clinical trial costs, including all preclinical and clinical/regulatory failures), so the pressures to rapidly recoup massive research and development expenses have been ratcheted up in the extreme (driving drug prices higher). But is the solution patent reform that would further shorten patent lifetimes, as some politicians and pundits would like to see happen? No, that would only make things worse. The solution is to go the opposite direction.
With a perpetual patent, drug companies would be free to think longer term about pricing (without the artificial addition of patent lifetime in the equation). They would set prices lower in order to discourage new competitors from entering their market. This would enable the innovator to retain greater market share, and generate higher long term sales. The likely result is pricing near, if not lower, than current generic pricing.
In fact, with perpetual patents, the public good is better served because the incentive to discover and develop drugs is maximized. Secure in the knowledge that they will own the products of their own discovery and development efforts, drug companies will be able to assess the true risk vs. reward of any development programs free of artificial time limits imposed upon their ownership of those products. This means that even the development of treatments for diseases affecting smaller number of patients can become economical. The companies that invest in such treatments can benefit from perpetual protection of their intellectual property, which mitigates the negative effect of the size of the potential annual market. Perpetual patents would create the optimal environment under which innovators, drug development companies, and financial investors could invest intellectual and financial capital in even greater numbers of potentially fantastic therapies. Is the public good not best served by delivering the most and best drugs into the healthcare system at the lowest possible prices? Perpetual patent protection would have that effect.
These are simply quick and relevant arguments for the institution of perpetual patents. The subject has generated, and deserves, treatises of tens of thousands of words, not just the fifteen hundred words you have read here. However, I hope that I have been successful in convincing you that a rational approach to property rights would treat all types of property equally, whether tangible or intellectual. Such an approach is actually the best way in which to serve the public interest.