Drug Patents and Welfare

by Stephan Kinsella on May 31, 2006

From the Mises Blog, 5/31/2006. Archived comments below.

I’ve pointed out before (2, 3) that the utilitarian logic behind patents—that it’s needed to provide “incentives” to innovate—could also be used to justify taxpayed-funded subsidies to artists and inventors. Interestingly, the World Health Organization, in a recent report,¹ points out the damage pharmaceutical patents pose to the poor in the developing world, and also notes that the incentive effect of IP in such countries, in these markets at least, may be limited or non-existent.

Here we have a quasi-governmental bureaucracy—which appears, not surprisingly, to advocate using government-funding to spur innovation—admitting that patents are not only not useful, but probably harmful, in the case of pharmaceuticals.

Ironically, even among those libertarian skeptics of IP, many of them claim that if a case can be made for patents, it is in the field of pharmaceuticals. Tsk Tsk.

Archived comments:

Comments (25)

Yancey Ward
I work as a pharmaceutical chemist and concede the point that IP in pharmaceuticals is not needed as long as you get rid of the FDA at the same time. The system, as it works today, inhibits innovation in the field, however, it is important to understand that IP is not the only problem.
Published: May 31, 2006 3:53 PM
Person
I can’t but shake my head whenever I see a discussion of intellectual property.Stephan Kinsella:I’ve pointed out … that the utilitarian logic behind patents … could also be used to justify taxpayed-funded subsidies to artists and inventors.
Sure, just like non-utilitarian arguments can and have been used to justify usury laws. Those arguments are *wrong* on a non-utilitarian basis, just as the case for government subsidies is wrong on a utilitarian basis. (Of course, I think you mean consequentialist.)

Interestingly, the World Health Organization, in a recent report, points out the damage pharmaceutical patents pose to the poor in the developing world, and also notes that the incentive effect of IP in such countries, in these markets at least, may be limited or non-existent.

Oh well, if the WHO says it…

I think I can safely guess without looking that the WHO didn’t account for the drugs that would simply not exist but for the profit-driven search for drugs. One more realistic (though not certain) way of making money from these poorer areas is to give away the drug for free while speculating in real estatein that area. If it increases population pressures, you could profit this way. I actually think Kinsella was given a paper a while ago suggesting exactly this.

Yancey_Ward:

I work as a pharmaceutical chemist and concede the point that IP in pharmaceuticals is not needed as long as you get rid of the FDA at the same time.

Sure, just as long as you can maintain an ironclad Omerta (code of silence) among those who know any part of the formula (and could thus give it away and destroy the value of 20 years and billions of dollars of research), or have everyone who does know the secret purchase an insurance policy worth billions of dollars. Neither of those sounds realistic.

To everyone following Kinsella’s other thread: I’ll get to you, don’t worry, regardless of how non-deserving you are of a response. It’s just that they started a rule on the blog limiting post frequency.
Published: May 31, 2006 4:35 PM
Frank N Stein
“drugs that would simply not exist but for the profit-driven search for drugs”I suppose this would convince utilitarian libertarians (ie, those who don’t initiate force so long as the numbers come out right), but as one could imagine ‘innovation’ in any field that government subsidizes (eg, let’s pour billions into bioengineering R&D;) or gives preferential treatment to, I’m not sure why a libertarian would want to argue for a monopoly of force restricting people from using their property as they wish. Keeping in mind that non-physical concepts are not property.
Published: May 31, 2006 5:11 PM
gmlk
The strange thing about the current system is that it seems to promote finding treatments for rich peoples luxury problems.Give them a cure, vacine, or lifestyle advice and you have a patient for a day; give them a treatment which has to be repeated daily and you have a costumer for life.It used to be that doctors where payed when the patient was feeling well. When the patient was ill the doctor would not receive any money until the patient was healed. In that way it was in the best intrest of the doctor to keep the patient healthy.
Our current system seems to promote illness.
Published: May 31, 2006 5:54 PM
Adam Knott
Only those supporting IP law know how to turn social and market demand into important goods.Without them, important goods could not be produced.We need them, not only to decide which goods and which classes of goods are needed by society, but also to make the laws that can transform the demand which society has, into those goods.
I for one, am in support of this group of people deciding for society, what is needed, and what laws are necessary to force everyone else to make it happen.
Published: May 31, 2006 7:29 PM
Curt Howland
Person, “the drugs that would simply not exist but for the profit-driven search for drugs.”Which ones would those be? Please be specific, I don’t want to mis-attribute you.
Published: May 31, 2006 7:59 PM
averros
Only those supporting IP law know how to turn social and market demand into important goods.Oh?How about — look in the mirror, pal, and say us what important good did YOU produce?
There’s a lot of people way more productive and inventive than you who are vehelmently opposed to the very notion of “intellectual property”.

In fact, it seems that nearly all most important inventions were made by the people who just didn’t care for owning the results – and did it because it was fun.
Published: May 31, 2006 11:11 PM
David C
IMHO, patents are a false property that are worse than slavery. Millions of Africans who died needlessly of AIDS because they were sued and forbiden to make generics. Millions of elderly people suffer from drugs with toxic side effects that don’t need to be toxic other than the exotic ones are more patnetable. Safety devices like the air-bag and anti-lock brakes were delayed 20 years because of patents. The list of retarded, delayed, and pushed out technologies goes on and on. While patents have done a lot to hinder collaberation and block off incremental technologies that were going to eventually be developed anyhow, there are almost no cases where patents have proven to be instrumental to a technologies development.How is the “I have no incentive to produce cotton on the plantation unless I can own slaves” any different than the “I have no incentive to to create xyz unless I can control how people use inventions” argument?How is “the wealth and prosperity of America is based on the plantation system and it’s right to control slaves” any different than “the wealth and prosperity of the America rests on the patent system and the right to control how people use inventions” argument?
How is the “Slaves are a property because their masters shiped them over at great financial risk” any different than the “Patents are a property because their holders subsidized heavy R&D;” arguemnt?

I don’t think most people understand that securing patent “rights” requires a certain type of physical control. Just as the commoditisation of the labor force pre-destined the violent death of the plantation system, and the commoditisation of information today is leading to the death of the media and music copyright industries, eventually rapid-prototyping and nano technology are going to bring production into the home and commoditize that. The death of the patnet system will be violent because it is baised off of physical control that must almost be total to work out in the “replication” age. It will likely cost billions of lives to break free from that control.

I also want to note that the US Civil War was the “bloodiest” war in history. More bloody that WW1, WW2, Vietnam, and Iraq. Why? Because they had recently developed all these new technological ways of killing people, but had not developed any countermeasures yet.

Another thing people should consider are the times when patents failed. Like when IBM assumed that they had the right to control the PC interface with their patents. When they lost in court, it created an nuclear explosion of business and commerce in the PC industry and the IBM compatable PC has lasted to this day.
Published: June 1, 2006 12:08 AM
quasibill
“I think I can safely guess without looking that the WHO didn’t account for the drugs that would simply not exist but for the profit-driven search for drugs.”Actually, from the ones I see them mention, they all would exist without the profit driven search for drugs. You see, most of the non-lifestyle drugs are “discovered” by university research laboratories, funded by charity and the government. The profit margin on cures is very small when compared to lifestyle treatments. That’s why big pharma concentrates its R&D; on lifestyle treatments. And before you put words in my mouth like you’ve been known to do, I have nothing wrong with that – lifestyle treatments are still products that people want, and that help the health of these people.However, it is misdirection and poor analysis of the highest sort to claim that the drugs the WHO is talking about being the kind that big pharma spends large amounts of money “discovering”.
And before one starts citing to years of research and billions of dollars, one should at least try to understand the point Yancey makes, and how that impacts drug research costs. Eliminate that, and your consequentialist argument loses what little traction it had to begin with.

Yancey –

absolutely. The FDA, AMA, and patents all work to distort our medical care market in such massive ways that discussing any single one as a “cure” to the problems we see is naive, at best.
Published: June 1, 2006 7:34 AM
Person
Frank_N_Stein: Thanks for joining the club of people who read my posts out of context. I was criticizing the WHO’s use of an unfair comparison, not arguing for the superiority of utilitarianism in libertarianism there.gmlk: Aren’t you supposed to be out somewhere claiming that car companies know how to make a 200 mpg car but refuse to, or that pantyhose companies know how to make run-free pantyhose, but refuse to in order to keep business?Curt_Howland: Why don’t you first give me an example of a service that would not be provided but for the existence of property rights in physical goods?
David_C: Wow, you already got to Godwin.

quasibill:

Actually, from the ones I see them mention, they all would exist without the profit driven search for drugs. You see, most of the non-lifestyle drugs are “discovered” by university research laboratories, funded by charity and the government.

If they were funded by charity, they would not assert a patent (and the WHO wouldn’t be griping about the patent). If they were funded by government, it does not follow that they didn’t result from patents. Before the Bayh-Dole Act, government-funded university research was noticed to be a tad sluggish, so to give them some incentive, they allowed such research to be patented. The incentivizing of this effect is hard to measure, but you can’t just assert that it’s zero.

And before one starts citing to years of research and billions of dollars, one should at least try to understand the point Yancey makes, and how that impacts drug research costs. Eliminate that, and your consequentialist argument loses what little traction it had to begin with.

Yancey didn’t make a point, just asserted that patents inhibit innovation, and the FDA drives up cost. Drugs require a significant investment, and would even if there were no FDA. Unless you can keep on Omerta (or buy an impossible insurance policy), you will lose the overwhelming majority of that investment.
Published: June 1, 2006 8:40 AM
Frank N Stein
“Drugs require a significant investment, and would even if there were no FDA.”1) Government enforcing a monopoly allows for a company to profit beyond what they would in a fully free market2) This expectation of exaggerated profits causes the company to invest in R&D; more than they would if they had to compete in a fully free market
3) This extra research leads to drugs being developed sooner than they would otherwise, which ostensibly will lead to more people being helped by drug therapy

Therefore, we have a utilitarian case to justify the initiation of force (or threat thereof), to keep the drug market from being fully free.

Isn’t that your position? How did I take it out of context?
Published: June 1, 2006 10:03 AM
Yancey Ward
Person,You clearly know almost nothing about drug research. FDA regulations are what drives the costs of drug research, and are the reason that IP is necessary to protect the huge investment costs.Any program in the pharmaceutical research area produces thousands of variations on the drug that actually is allowed to make it to the market by the FDA. Practically all of this work is discarded because it is not possible to bring more than one or two compounds selected from all of this work through the government mandated clinical trials. This is a huge loss on investment since the marketed drugs rarely effectively treat 50% of their targeted market, and often quite less, while the ineffectively treated may have responded to one of the discarded versions of the final drug. Without the FDA, treatments would make it to the market far more rapidly since it doesn’t take pharmas very long to actually identify effective compounds (often less than 1 year); and without the FDA and IP laws, pharmaceutical companies would have an incentive to rapidly produce better versions of the initially marketed drugs. Instead of having one or two compounds targeting a particular disease pathway, you would likely have dozens or hundreds that would actually provide society with more effective treatments.
As I wrote, you can get rid of IP in pharmaceuticals as long as you get rid of the government regulations, but I do agree that getting rid of IP alone would largely shut down pharmaceutical research in the private sector.
Published: June 1, 2006 10:17 AM
Person
Frank_N_Stein:1) Government enforcing a monopoly allows for a company to profit beyond what they would in a fully free marketDoes a free market necessarily exclude IP rights? Does the government’s enforcement of other property rights also count as a monopoly that allows greater profits than would otherwise prevail?
Therefore, we have a utilitarian case to justify the initiation of force (or threat thereof),

You can’t establish that it’s an initiation of force until you establish that the IP owner is not the just owner of that right, i.e., beg the question.

Isn’t that your position? How did I take it out of context?

A number of ways. First, in the part of my post you were responding to I was only debunking the WHO’s CBA, not defending utilitarianism. Second, I’m not invoking utilitarianism, but consequentialism, its superset. Third, as above, you begged the question.

Yancey_Ward:

You clearly know almost nothing about drug research.

No, I disagree with your underlying assumptions. I’m aware of them, I just disagree. Let’s see if we can’t lay off the vindictive.

FDA regulations are what drives the costs of drug research… They are *part* of it, sure, but I disagree about how much. On a market without their regulations, you would still want drug certification. You could still sell the uncertified drug with no guarantee whatsoever of a payment if it kill or hurts you; I just doubt that this market is as lucrative, or the drug able to secure a higher price, as you seem to think. The private drug certification/ insurance would of course be cheaper than the bureaucratic FDA, I doubt this is more than an order of magnitude. The fact remains that drug research would still be really really expensive. And like I said to you a month ago, even if it were “only” $50 million and 5 years to develop the drug, once researchers flush out the lowest-hanging fruit, they’ll go into the harder stuff, where it will be more expensive, due to the research’s difficulty.
Published: June 1, 2006 10:59 AM
Frank N Stein
“Does a free market necessarily exclude IP rights?”That’s a good question, but it’s a separate (prior) question from whether IP gives drug companies more incentive to innovate in drugs, and it is circular reasoning to then use that innovation claim as a justification for IP rights – that is, if you are not arguing based on utilitarian grounds.
Published: June 1, 2006 11:25 AM
Paul D
There’s quite a bit of hypocrisy when UP proponents (heh, I like that term) take utilitarian arguments and pretend they’re moral arguments. If you support a utilitarian position (and the coercion it requires), don’t take shame in saying so.Frankly, if the pharmaceutical giants needed patents, they could form free-market contract associations to avoid copying each others’ drugs within a certain period of time. The market would determine the specifics. Everyone, including the customers, would win. Getting the state involved just screws everything up.
Published: June 1, 2006 11:33 AM
Person
Frank_N_Stein, try to remember what you said more than one post back, please. You said:

Government enforcing a monopoly allows for a company to profit beyond what they would in a fully free market

You were claiming IP rights are not part of a “free market”, i.e., that a market respecting IP rights is not “free”. To that specific claim, you do not need to regress to consequentialist (not utilitarian — let’s see if I don’t need to remind you of the distinction a fourth time) concerns; you just need to rigorously define a free market so that it does include monopolies in physical property, but not intellectual property. Get it?
Published: June 1, 2006 11:36 AM
Person
Paul_D:There’s quite a bit of hypocrisy when UP proponents (heh, I like that term)UP stands for …? U___ property?
take utilitarian arguments and pretend they’re moral arguments.

Consequentialism and utilitarianism are theories of morality. I think you were looking for a different term.

If you support a utilitarian position (and the coercion it requires), don’t take shame in saying so.

Fourth time: there’s a difference between consequentialism and utilitarianism.

Frankly, if the pharmaceutical giants needed patents, they could form free-market contract associations to avoid copying each others’ drugs within a certain period of time. The market would determine the specifics. Everyone, including the customers, would win. Getting the state involved just screws everything up.

…?

The fact that your proposed “solution” involves cartelization should have been your first clue it’s unhelpful. How again do they stop people from copying others and undercutting them?
Published: June 1, 2006 11:41 AM
Frank N Stein
“you just need to rigorously define a free market so that it does include monopolies in physical property, but not intellectual property”As ‘intellectual property’ is an oxymoron, I think you have the burden of proof wrong. If you need a rigorous defense of private property (as a necessary component to realize human nature), see Mises.
As for consequentialism vs utilitarianism, it doesn’t much matter to me what equation is used to come up with the collectivist justification for initiating force, so forgive me for applying the wrong name to it.
Published: June 1, 2006 1:03 PM
Curt Howland
Person, “Why don’t you first give me an example of a service that would not be provided but for the existence of property rights in physical goods?”Good sir, you made a bald assertion. I am asking you to back up that assertion.
Published: June 1, 2006 1:12 PM
Paul D
“Unnatural Property” — a Robert Nanders coined it in another thread here on the front page.”Consequentialism and utilitarianism are theories of morality. I think you were looking for a different term.”Pragmatics? At any rate, the point is that you can either argue for state-enforced information control because it’s *useful* (i.e. encourages invention), or because it’s some kind of moral requirement. One can try to argue either case, but making a flimsy utilitarian case (UP is useful) and then claiming that gives it moral weight is a logical leap without basis.
“How again do they stop people from copying others and undercutting them?”

By joining a trade association and agreeing to those rules. Obviously, they can’t coerce behaviour from companies outside the association; but if UP were truly mutually beneficial, all major players would device a contractual system to replace the state’s arbitrary system.

Would such an association form, or would pharmaceuticals find it more profitable to compete on all levels? One can’t know until the laws are relaxed.
Published: June 2, 2006 3:59 AM
Jimmy Dean, the Sausage Maker
Person, “Why don’t you first give me an example of a service that would not be provided but for the existence of property rights in physical goods?”“The invention of the three-element vacuum tube will be generally accepted as a scienti�?c achievement of the utmost importance, but it is hard to argue that it was achieved by scienti�?c methods. De Forest was ‘a lone-wolf kind of Robin Hood: likable, shrewd and knavish, intent on speculative patents and on stock certi�?cates as a means of robbing the rich in the wondrous world of wireless.’ One of his principal ways of making money was to copy a device invented by someone else, with some minor variation in the hope that the courts would hold it a new invention and thus allow him to avoid the original patent. The three-element vacuum tube was the only one of these changes which had any value. The discovery that the variation was not minor but important was made several years after De Forest �?rst produced it and came largely by accident. ‘That in the course of infringing the Fleming valve patent he should have hit on the magic intervening-grid form of control, although without really understanding its modus operandi, was the marvel of the age.'” – Gordon Tullock, Organization of InquiryDoggone it, here is an example of the patent system motivating invention. I guess the patent system does work sometimes: when people try to infringe.
Published: August 4, 2006 8:54 AM
Person
I think I did pretty well in this thread — got one guy to reduce his position to advocacy of cartelization, got another to miss the point of a tu quoque, and got a third to blur issues. Seems I came out okay.
Published: August 4, 2006 9:59 AM
Vince Daliessio
Person;”Drugs require a significant investment, and would even if there were no FDA.”…aaand most of that money is spent in FDA clinical trials.
If both patents and the FDA were abolished simultaneously, Consumer Reports would cover the effectiveness portion, while UL would cover the safety portion.

With the cost of getting a pill to market then approaching the unit cost of manufacture, I would wager there would be MORE lifesaving drugs brought to market without patents, not fewer.
Published: August 4, 2006 2:57 PM
Person
…aaand most of that money is spent in FDA clinical trials.Well, Vince, like I said above in the post that you didn’t bother to read (like virtually everyone else here doesn’t read my entire posts):”[FDA tests] are *part* of [the high costs], sure, but I disagree about how much. On a market without their regulations, you would still want drug certification. You could still sell the uncertified drug with no guarantee whatsoever of a payment if it kill or hurts you; I just doubt that this market is as lucrative, or the drug able to secure a higher price, as you seem to think. The private drug certification/ insurance would of course be cheaper than the bureaucratic FDA, I doubt this is more than an order of magnitude. The fact remains that drug research would still be really really expensive. …”
You seem to think that the testing phase would be completely non-existent if there were no FDA regulation. i.e., no one would bother testing their drugs before selling them to the public, and insurance underwriters/stockholders would “take their word for it” that the drug wouldn’t kill people or result in damage awards. Or, perhaps, you accept they’d still test drugs, but know some reason that the non-FDA free market testing costs would be so insignificant as to render patents superfluous, but didnt’ bother telling me the basis for this belief.

Another five minutes of my life wasted…
Published: August 4, 2006 4:03 PM
drug rehab
Drugs will always exist, if we want or not, they will be. More or less people will fall pray to them but always should keep an eye open. Read before doing something you can regret later. My advice is to have a very good supplier like a family doctor that you can trust.
Published: April 10, 2008 11:18 AM