Tuesday, March 30, 2010

Reining in patents

LA Times article "Reining in patents" (March 30th, 2010) complicates a very simple question: without profit based incentives, would firms bother to look for new goods?
Underlying many of these disputes is a fundamental question about what patents should cover. It's easy to articulate the principle that patents should apply only to inventions, not discoveries. It's not so easy to draw that distinction in practice, especially when technology is changing so rapidly. What's more, any decision to rein in patent protection risks reducing the incentives that lead people to invest in research and development. But it also could lead to more knowledge being shared sooner, leading to further innovation.
In order to make public any new drug, whether it be "discovered" or "invented," a firm needs profit-based incentives. Without the potential for profits, we can expect drug companies will stop looking for gene-based solutions to disease. Simply put, without a patent, competition ensues and profits are whittled away. Patents give companies the right to set prices and make profits. When so much in the drug industry is patentable, why should we expect any firm to bother looking for cures that are not?

1 comment:

  1. There is nothing to prevent someone from inventing or discovering therapeutics, diagnostics or devices which are then not patented. If it were profitable or desirable to do so and avoid the costs of patenting people would do so. None do. Ipso facto there is no economic attraction to developing unpatented therapeutics. If there is no desire to develop therapeutics without patents now then the absence of patents would not increase the desirability of developing unpatented therapeutics. It could be argued that for all therapeutics patents are more desirable - hence the reason for the absence of unpatented therapeutics - but that in the absence of the more lucrative patented alternative there may be some therapeutics that would be developed unpatented. Given that the absence of any such therapeutics now indicates that by definition therapeutics become less profitable without patents it necessarily follows that the obliteration of patents would reduce the development of new therapeutics. Yet when one looks at the Return on Invested Capital of biotechs their results even with patents are miserable as a glass. Doubtless elimination of patents would annihilate the half of new therapeutics that arise from the biotech industry. Similarly the low Return on Invested Capital of the device industry in the device industry implies that elimination of patents would pretty much kill off innovation in that industry. The Pharmaceutical industry is uneven in return on invested capital - with many companies with challenges affording innovation even in the current situation with patents - and some companies doing well - overall a troubled industry with incredible levels of mergers reflecting the failure of many large industries. Given the struggles of many large pharma and the high levels of risk with poor to mediocre return on invested capital doubtless many would go under without patents. Hence the decision to eliminate patents could be expected to wipe out the biotech, device and a big chunk of the pharmaceutical industry. It sort of makes one wonder why anyone would continue to invest in the small amount of innovators left. Just who is it that will compensate the people who could have benefitted from the future innovations of the biotech, device, diagnostics or pharmaceutical industries but will not benefit because those industries are wiped out?