Patents, Prescription Drugs, and Price Controls

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As a libertarian, of course, I’m opposed in general to price controls. But a limited case can be made for a version of price controls in the case of prescription drugs. Hear me out.

Medicare is of course an unjust, unlibertarian program that amounts to wealth transfer from taxpayers to Medicare recipients. Expanding Medicare to include prescription drugs exacerbates the amount of theft. What makes the additional theft even worse are the artificially high prices charged by pharmaceutical companies for their drugs–artifically high due to the patent monopoly and FDA regulatory process.

What this means is that the federal government is spending billions of taxpayer dollars on prices inflated by federal government laws. It’s ridiculous. If the feds insist on stealing out money to purchase drugs for seniors, the least it can do is buy them at the cheapest possible price. One way to do this would be to simply issue compulsory licenses to generic drug manufacturers for any patented drug covered by Medicare. (The feds can license third parties to manufacture patented articles, without patent infringement liability; this was threatened in the Cipro anthrax drug a couple years ago. Yes, the feds have to pay “compensation” to the patent holder, but the level of compensation is bound to be less than the monopoly profits normally reaped by Big Pharma.)

This could be done selectively, for patented drugs for which an “exhorbitant” price is being charged. In short, Big Pharma would be told: “Lower your price or we will short-circuit your patent.”

Unfair, some might argue. Why? Drug companies are not entitled to the patent monopoly in the first place. So how is it a violation of their property rights for the government to threaten to take it away unless prices are lowered? Any drug company would be free to ignore the threat and compete on the free market (i.e. without patent protection).Couple other comments: There is no reason to restrict this “price control” technique to drugs purchased by Medicare–it could be used to de-inflated patent-monopoly-inflated prices across the board–Medicare, and other drug customers, would all benefit.

Second, even if there is a utilitarian case for patents, there is no reason for a one-size-fits-all policy–the “reward” need not be so high in all cases. So, there could be a a commission or board which looks at each patented drug and determines a “fair” rate of return and limits profits to that amount–on pain of losing the patent.

Also, of course, all FDA barriers to drug reimportation should be removed; and abolishing the FDA would also help lower drug prices.

Yet another approach would be to lower the patent term from approximately 17 years to 5 or so years for pharmaceuticals (and/or adopt a “utility model” type of patent system used in some other countries, where the patent term is shorter than the normal “utility patent” but it’s easier to obtain the patent–for the utility patent, both novelty and non-obviousness (“inventive step”) must be present; for the utility model, the invention need only be novel.)

Or as a patent attorney friend writes, “If you have to deal with the patents I’d rather see a bidding process. For example a person seeking a patent could disclose their invention subject to a confidentiality provision. Then the govt. and the inventor could bid for patent term. Govt could say “I’ll give you a 2 year monopoly for that stupid idea.” Drug co. could say “What, no way. I can’t live on that I need at least 20 years.” Then they meet in the middle, or not as the case may be. The same process could be used for all inventions not just drugs.”

1:20 pm on January 5, 2004