The rules were never supposed to apply to extremely low CAPEX industries like software, however—hence why “abstract ideas” were excluded from intellectual property law and are often negotiated and renegotiated in the courts as incumbent monopolies and patent trolls try to use regulatory capture to maintain their status.
I definitely agree that a bigger difference between original investment costs and copying costs makes patents more beneficial, but all of the criticisms I pointed out still apply. The Pharma industry spends billions on patent courts and lobbying. This has to be subtracted from the benefits that they provide, in addition to all the welfare losses from super expensive name-brand drugs.
What do you think about using prizes or direct subsidies for high CAPEX projects instead of IP?
In a more meta sense, I wonder if it is possible to have patents only for high CAPEX industries. It may be that the lobbying forces will inevitably push to expand the reach of patents, and one cannot separate the benefits of high CAPEX patents from the costs of low CAPEX ones.
Patents are a necessary part of motivation to commercialize in high-CAPEX industries
Pharma companies take advantage of regulatory capture and abuse the IP system to eke out longer exclusivity periods than are typically allowed by law (e.g. making negligible changes and repatenting a drug); this has been a net drain on innovation
No cap, benchmark, or standard on biotech pricing has allowed companies to slowly ramp up pricing far beyond what is considered reasonable (e.g. the gradual ramp-up to a Million Dollar Pill)
Prizes and direct subsidies already exist for high-CAPEX projects and are also a crucial part of the system as it exists today. Almost all biopharma research starts out as state-funded work out of universities or NIH, until it reaches a point where it’s ready for trials and gets spun out into a business. The trials themselves are then often further subsidized. There’s a lot of work and money that has to go into making biotech viable just because of how little we understand about fundamental biology.
Patents are much more useful in high-CAPEX industries, but I wouldn’t call them necessary. There have been expensive capital investments without patent protection, even if they are not common.
Agree here.
’Reasonable” does a lot of work here. Economists usually define reasonable as price = marginal cost and the whole goal here is to raise price high above that level. But the point is well taken that there is more consternation over pharma pricing than is justified.
This is sort of an orthogonal point but I think the reliance of pharma on patents is an example of the “break your leg and give you a crutch” strategy that the government often takes. A huge part of the CAPEX that goes into pharma development is going through FDA approval. So if that process is not going to change, patents are essential for further pharma development. But in some lassiez-faire counterfactuals I think we could get more pharma development even without IP protection.
I think that prizes could replace the incentives of patents without most of the negative second order effects that I pointed out. Theoretically you could just match the monopoly profit with a subsidy, get the efficient quantity produced, and there are some mechanisms for dispersing the cash which avoid the rent dissipation.
The exclusivity rights conferred by intellectual property are exceptionally important in areas where the innovator’s CAPEX requirements are high, but the cost to copycats is low—like biopharma, energy, or even mining. The creation of a temporary monopoly engineers sufficient market value to make initial investment of high-risk capital on the order of hundreds of millions (if not billions) of dollars worthwhile and palatable (e.g. see https://dukespace.lib.duke.edu/dspace/bitstream/handle/10161/6707/Record5.pdf; https://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1019&context=facpubs).
The rules were never supposed to apply to extremely low CAPEX industries like software, however—hence why “abstract ideas” were excluded from intellectual property law and are often negotiated and renegotiated in the courts as incumbent monopolies and patent trolls try to use regulatory capture to maintain their status.
I definitely agree that a bigger difference between original investment costs and copying costs makes patents more beneficial, but all of the criticisms I pointed out still apply. The Pharma industry spends billions on patent courts and lobbying. This has to be subtracted from the benefits that they provide, in addition to all the welfare losses from super expensive name-brand drugs.
What do you think about using prizes or direct subsidies for high CAPEX projects instead of IP?
In a more meta sense, I wonder if it is possible to have patents only for high CAPEX industries. It may be that the lobbying forces will inevitably push to expand the reach of patents, and one cannot separate the benefits of high CAPEX patents from the costs of low CAPEX ones.
There are a few issues to parse here --
Patents are a necessary part of motivation to commercialize in high-CAPEX industries
Pharma companies take advantage of regulatory capture and abuse the IP system to eke out longer exclusivity periods than are typically allowed by law (e.g. making negligible changes and repatenting a drug); this has been a net drain on innovation
No cap, benchmark, or standard on biotech pricing has allowed companies to slowly ramp up pricing far beyond what is considered reasonable (e.g. the gradual ramp-up to a Million Dollar Pill)
Prizes and direct subsidies already exist for high-CAPEX projects and are also a crucial part of the system as it exists today. Almost all biopharma research starts out as state-funded work out of universities or NIH, until it reaches a point where it’s ready for trials and gets spun out into a business. The trials themselves are then often further subsidized. There’s a lot of work and money that has to go into making biotech viable just because of how little we understand about fundamental biology.
Patents are much more useful in high-CAPEX industries, but I wouldn’t call them necessary. There have been expensive capital investments without patent protection, even if they are not common.
Agree here.
’Reasonable” does a lot of work here. Economists usually define reasonable as price = marginal cost and the whole goal here is to raise price high above that level. But the point is well taken that there is more consternation over pharma pricing than is justified.
This is sort of an orthogonal point but I think the reliance of pharma on patents is an example of the “break your leg and give you a crutch” strategy that the government often takes. A huge part of the CAPEX that goes into pharma development is going through FDA approval. So if that process is not going to change, patents are essential for further pharma development. But in some lassiez-faire counterfactuals I think we could get more pharma development even without IP protection.
I think that prizes could replace the incentives of patents without most of the negative second order effects that I pointed out. Theoretically you could just match the monopoly profit with a subsidy, get the efficient quantity produced, and there are some mechanisms for dispersing the cash which avoid the rent dissipation.