This is an original submission by Bernado Decoster. See also Bernado Decoster, Why Intellectual Property Isn’t Necessary to Reward Innovation.
Update: see also his Meds: The Seen—and Unseen—of Intellectual Property Laws and the vigorous comments section.
The Seen and the Unseen of Intellectual Property Laws
By Bernardo Decoster
April 17, 2022
Perhaps the greatest lesson to be learned in economics is that public policies have seen and unseen effects. The mastery of such a lesson is what separates the good from the bad economist. “The bad economist”, writes Henry Hazlitt, “sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.”1
The purpose of this article is to simply apply good economic reasoning to Intellectual Property Laws. By joining together not only the seen, but also the unseen consequences of intellectual property laws, we can achieve a solidly ironclad understanding of its impacts on humanity.
Seen Effects of Intellectual Property laws
In August 2015, Turing Pharmaceuticals acquired the marketing rights of Daraprim, a life-saving drug used to combat parasitic infections, and became its sole supplier. Overnight, the next month, it hiked its price 5,000% from $13.50 a tablet to $750,2 sparking nationwide protests.
More noticeably than on any other sector, the patent system’s seen effects on the pharmaceutical industry are severely damaging to consumers and free enterprise. According to the Association for Accessible Medicine, “[I]nnovation is critical to the success of the entire pharmaceutical industry. Without innovation there could be no generic pharmaceutical or biosimilar medicines for patients.”3 Big pharmaceutical corporations, with well organized lobbying funding, are able to sustain the foundation of the very monopolistic system that enables their abuse of consumers through high prices. Shielded by the power of the Government, for example, Roche / Genentech has had a virtual monopoly on the cancer drug Herceptin since 1985, and AbbVie, which markets the world’s number one selling drug, Humira ($18bn in global sales in 2017), has filed over 240 patent applications. These data points come from a 2018 report by the Initiative for Medicines, Access and Knowledge (I-MAK),4 which found that, on average, across the top twelve grossing drugs in America:
- There are 125 patent applications filed and 71 granted patents per drug; the majority of which are granted.
- Prices have increased by 68% since 2012, and only one of the top twelve drugs has actually decreased in price.
- There are 38 years of attempted patent protection blocking generic competition sought by drugmakers for each of these top grossing drugs – or nearly double the twenty year monopoly intended under U.S. patent law.
- These top grossing drugs have already been on the U.S. market for 15 years.
- Over half of the top twelve drugs in America have more than 100 attempted patents per drug.
These outrageous statistics point ever more strongly towards the notion that Intellectual Property Laws, unnecessary to reward innovation, are merely tools used by crony corporations close to government power to block competition and increase the price of their products.
Sadly, IP is not limited to the pharmaceutical sector, and its monopolistic effects are also heavily felt on the entertainment industry. The artificial monopoly granted and protected by the government leads to a standard “massified culture” and a creative stagnation within the entertainment industry; a phenomenon noted many decades ago by Max Horkheimer and Theodor Adorno, two Frankfurt Scholars, who missed the critical role played by IP laws in it and wrongly blamed entrepreneurs. It is precisely the blocking of competition, the blocking of free enterprise and entrepreneurial creation, that leads to a “mass cultural industry” dominated by big corporations.
Besides its horrid healthcare consequences and sociological disasters, Intellectual Property Laws also weigh heavily and directly on the taxpayer, via the bureaucracy of patent litigation. An incredibly detailed infographic from Anatomy of a Patent Litigation5 draws from varied sources as to reach the bureaucratic burden of IP Laws. The conclusion was about $31 billion dollars per year (maybe even reaching $42 billion),6 functioning as a tax and a clog on free enterprise.
Artificial monopolies, the bureaucratic burden, the rage-inducing high prices, the destruction of creativity are only some seen effects of Intellectual Property Laws. Much worse, however, are its unseen effects.
Unseen Effects of Intellectual Property laws
The worldwide call to break the patent on COVID-19 vaccines, fueled by the desire to accelerate its spread, revealed a basic economic truth hidden in plain sight: to limit knowledge is to limit human prosperity. Even key players faced shortages of vaccines due to third parties patents,7 yet virtually no one applied the same logical reasoning to other sectors. If patents on vaccine production limited the production (and subsequently, the spread) of vaccines,8 why wouldn’t this apply to any other technological innovation?
Let’s take a step back and look at the logic behind this truth. As economist Jesús Huerta de Soto writes, the “restrictions in the economy are imposed not by objective phenomena or material factors of the outside world (for example, oil reserves), but by human entrepreneurial knowledge (the discovery of a carburetor capable of doubling the efficiency of internal combustion engines would exert the same economic effect as a doubling of all physical oil reserves).”9
This is because production, the transformation process of inputs into outputs, involves human technique (technik), and this, in turn, is wholly dependent on the entrepreneurial knowledge being employed in such process. Humans employ a framework of knowledge, devices, and practices10 in order to produce goods, and entrepreneurs innovate by bringing more productive frameworks of knowledge into the economic reality. To slow down the development, use, and spread of technical innovation and prevent others from replicating and improving on these innovations is to limit human production; it is to act against prosperity itself. While resources are scarce and limited, our growing “fund of experience”11 allows us to constantly innovate and apply new practical entrepreneurial knowledge. Fencing said fund of experience is fatally kneecapping humanity’s advancement.
With these lenses, Intellectual Property becomes a much more hideous and ghastly public policy. The life-saving medicine never produced by African entrepreneurs,12 the hundred of millions of goods never produced by entrepreneurs worldwide because they were prohibited of using the latest technology, the millions – perhaps, billions – of people never lifted out of poverty, the technology never rolled out to people who desperately need it, and much more, are only a mere fraction of IP’s unseen effects we can think of. We can only imagine what the world would’ve looked like if the Industrial Revolution hadn’t been delayed by thirty years because of Watt’s patents on a separate condenser,13 for example, but the increased production was never undertaken because of it.
With the data laid out, and the sound economic theory explained, we have applied good economic reasoning to achieve a solidly ironclad understanding of the impacts of intellectual property laws on humanity: they are a fatal blow to entrepreneurship, free enterprise, and technological advancements. Its seen and unseen effects impose a terrible cost on humanity, and with virtually no benefit at all, IP Laws are perhaps only of use for cronies who wish to prevent competitors from challenging their high prices.
- Hazlitt, Henry. Economics in One Lesson. Mises Institute, 2011. https://store.mises.org/Economics-in-One-Lesson-P33.aspx. [↩]
- Pollack, Andrew. “Drug Goes From $13.50 a Tablet to $750, Overnight.” The New York Times, September 20, 2015, sec. Business. https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html. [↩]
- Association for Accessible Medicine. “Abuse of the Patent System Is Keeping Drug Prices High for Patients.” https://accessiblemeds.org/campaign/abuse-patent-system-keeping-drug-prices-high-patients. [↩]
- Initiative for Medicines, Access and Knowledge (I-MAK). “Overpatented and Overpriced: How Excessive Pharmaceutical Patenting is Extending Monopolies and Driving up Drug Prices.” August 1st, 2018. https://www.i-mak.org/wp-content/uploads/2018/08/I-MAK-Overpatented-Overpriced-Report.pdf. [↩]
- Ritholtz, Barry. “Anatomy of a Patent Litigation.” The Big Picture, September 29, 2010. https://ritholtz.com/2010/09/anatomy-of-a-patent-litigation/. [↩]
- Kinsella, Stephan. “Costs of the Patent System Revisited.”. Mises Institute, September 29, 2010. https://mises.org/wire/costs-patent-system-revisited. [↩]
- See: Storz, Ulrich. “The Patent Maze of COVID 19 Vaccines.” Expert Opiion on Therapeutic Patents 31, no. 12 (December 2021): 1177–88. https://doi.org/10.1080/13543776.2021.1945581. [↩]
- Patents on other essential technologies used in COVID-19’s treatment have also prevented the rescue of millions more. See, for example: Kinsella, Stephan. “Patents Kill Update: Volunteers 3D-Print Unobtainable $11,000 Valve For $1 To Keep Covid-19 Patients Alive; Original Manufacturer Threatens To Sue.” Center for the Study of Innovative Freedom (C4SIF), March 19, 2020. https://c4sif.org/2020/03/patents-kill-update-3d-covid-valve/. [↩]
- Soto, Jesus Huerta De. The Austrian School: Market Order and Entrepreneurial Creativity. Cheltenham: Edward Elgar Pub, 2008. [↩]
- Weber, Max. Economy and Society – A New Translation by Keith Tribe. Harvard University Press. https://www.hup.harvard.edu/catalog.php?isbn=9780674916548. [↩]
- Kinsella, Stephan. “Hayek’s Views on Intellectual Property.” Center for the Study of Innovative Freedom (C4SIF), August 2nd, 2013. https://c4sif.org/2013/08/hayeks-views-on-intellectual-property/. [↩]
- See Kinsella, Stephan. “Patents Kill: Millions Die in Africa After Big Pharma Blocks Imports of Generic AIDS Drugs.” Center for the Study of Innovative Freedom (C4SIF), January 1st, 2013. https://c4sif.org/2013/01/patents-kill-millions-die-in-africa-after-big-pharma-blocks-imports-of-generic-aids-drugs/ and Dvorsky, George. “Ebola Vaccine Delay May Be Due To An Intellectual Property Dispute.” Gizmodo. March 10th, 2014. https://gizmodo.com/ebola-vaccine-delay-may-be-due-to-an-intellectual-prope-1642035584. [↩]
- Boldrin, Michele. Levine, David K. Against Intellectual Monopoly. November 11th, 2005. http://www.dklevine.com/general/intellectual/against.htm. [↩]