Do Patents Save Our Lives?

by Jeffrey A. Tucker

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 complete 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 system 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 19^th 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 accounts 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 became 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 an 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 20^th 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.

February 6, 2009

Jeffrey Tucker [send him mail] is editorial vice president of www.Mises.org.

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