Frequently overlooked -- American companies are huge net-exporters of IP, IP licenses, and IP-protected stuff.
Take the recent Apple/Samsung fiasco, for instance. That's a net cash transfer of over $1B from the South Korean economy to the American economy. Maybe $2B to $3B total when accounting for all the factors.
Is that good? No, it's disgraceful, actually. But good luck convincing American legislators of some abstract far-future benefits to a less regulated world when the short-term result would be a worsening of the trade-deficit, a lowering of American exports, and a lowering of American income and tax yields.
It's a huge factor that's usually overlooked in these discussions -- the United States isn't a closed system.
>But good luck convincing American legislators of some abstract far-future benefits to a less regulated world when the short-term result would be a worsening of the trade-deficit, a lowering of American exports, and a lowering of American income and tax yields.
I'm not sure any of those is actually true. Maybe the trade deficit, but only on paper. In fact the money just goes into Apple's coffers instead of Samsung's, and in turn to Apple's shareholders instead of Samsung's. But they're mostly the same people. Large publicly traded companies are owned predominantly by highly diversified institutional investors. The fact that one company is nominally American and one is nominally South Korean doesn't really have any bearing. Apple manufactures almost everything in China and Samsung does a significant amount of R&D in the United States, and American and Korean investors both invest in both companies.
And the same goes for income tax -- Samsung pays U.S. income tax the same as Apple. (Which is to say not really at all, but that's a different debate.)
Transferring money from one to the other without creating any underlying economic activity has no productive economic consequences. It doesn't create any new non-litigation jobs or produce any new tax revenue, it's just the broken window fallacy as applied to corporate litigation.
> I'm not sure any of those is actually true. Maybe the trade deficit, but only on paper. In fact the money just goes into Apple's coffers instead of Samsung's, and in turn to Apple's shareholders instead of Samsung's. But they're mostly the same people. ... The fact that one company is nominally American and one is nominally South Korean doesn't really have any bearing.
I don't think the numbers bear that out. Take employment, for instance.
Samsung employment:
190,464 employees globally; 95,662 working in Korea (50.2% Samsung employees employed in Korea) [1]
Apple employment:
70,000 employees worldwide; 47,000 in the U.S. (67.1% Apple employees employed in U.S.) [2]
> Transferring money from one to the other without creating any underlying economic activity has no productive economic consequences. It doesn't create any new non-litigation jobs or produce any new tax revenue
Right, I don't disagree. From a global standpoint, it results in a wealth transfer from other countries to the United States that's somewhere between mildly negative sum (if you think patents are a net hinderance), mildly positive sum (if you think patents are a net gain), or neutral.
But it's definitely a wealth transfer to the USA. Without digging through all the financials, I'd speculate that in addition to more employees, Samsung also does a greater sum of capital investment into Korea than elsewhere, pays more corporate taxes in Korea than elsewhere, stimulates and patronizes Korean universities more than foreign universities, etc, etc, etc, etc, etc, etc, etc.
I don't even disagree with you philosophically... I'm sort of undecided when looking at policy to work from a starting point of Enlightment values / ethics / humanism, or to start with realpolitik, Schelling points, and incentives. The former is more aesthetic; the latter seems a much better predictor of what will happen in the future.
I'm not sure how comparable the employment numbers are given that Samsung does more of their own manufacturing whereas Apple outsources to Foxconn (or Samsung) et al. It makes Apple look like they have a much larger percentage of U.S. workers when you discount the six digit number of factory workers making iPhones in China.
But let's go ahead and assume Apple employs more U.S. workers per device shipped than Samsung. It's still the case that the money gained in litigation doesn't go to the workers. Apple isn't going to hire any researchers or manufacturers with $121B in the bank that they wouldn't have with $120B. The people who get the extra money are the shareholders in the form of either dividends or stock price, and the stockholders are again predominantly large institutional investors for both companies.
Where the economic effect comes in is that those investors will now expect based on past performance for Apple's stock to improve and Samsung's to decline, and so increase their holdings in Apple. If Apple as a rule employes more U.S. workers than Samsung then this is ostensibly a good thing for the U.S. because then Samsung may not have as much available capital to develop new products etc. and Apple will have more, so Apple will be more competitive in the market and need to hire new employees to meet demand etc. There is every possibility that this doesn't actually happen because Samsung can afford to take the hit and keep doing what they were going to do anyway and Apple doesn't have any productive internal use for the extra money, but if it does happen, that would be the national economic good that Congress would be interested in preserving.
But that's where we get back to the premise -- does the patent system help or hurt? Apple's U.S. employees are the researchers, not the manufacturers. Having more sales because the competition has been damaged by litigation and can no longer compete effectively will cause Apple to need more factory workers to sell the extra devices, but those workers are in China. Conversely, by harming the competition's ability to compete, Apple is less in need of the R&D jobs that employ U.S. workers, because the bar has been lowered as to how good of a device Apple needs to produce to make the sale, so why spend more on R&D? Why even spend as much as they might have against a more competitive Samsung?
The point is, funneling money into U.S. companies doesn't inherently produce U.S. economic growth or provide any benefits to U.S. citizens. And if it simultaneously causes economic inefficiency, it can in fact do the opposite.
Remember theres a difference between getting rid of patents and getting rid of intellectual property.
I don't think anyone is serious about suggesting we get rid of intellectual property; if you're create something, there should be protections to stop people ripping off your stuff and selling it without paying you for it.
It's patents that are the problem.
Patents let you capture an idea and prevent people from creating new things.
That's not protecting something you've created; it's stifling the creative will of others, because you don't want anyone to compete with you. It's the legislative antithesis of the open market.
It's merely conventional that humans can claim the property of ideas. Nobody can "steal" an idea, so there's no way of ripping off the creator.
The notion of intellectual property is now widespread because is the source of profit for companies, but it's not "natural" as the property of material stuff.
Apart from that, if you think that the current laws protect the creators from third parties profiting with their ideas, how do you think Microsoft got big?
I disagree that there should be protections to stop people from "ripping off your stuff" and selling it without paying you for it. Instead, there should be protections to stop people from copying your idea without you getting credit for it. But there don't need to be legal protections. All you need to do is make your idea public to prevent anyone else from claiming they were first.
I'm serious about getting rid of all patents and all copyrights.
Say I pay a Valve employee a million dollars for the current working source-code of Half-Life 3. I then compile it and release the first couple working levels for $10 a pop... I should easily be able to make 50 million out of that exercise.
What protections would Valve have in your no-copyright, no-ip scenario?
I'm not anti-trade secrets. In your scenario, the source code to Half-Life 3 is a trade secret that the Valve employee is obligated to keep. However, if the code is ever made publicly available to read, it's no longer a secret and no money should be made from selling or licensing it. And even if the source is never public, once binaries are made public, it should be perfectly legal to reverse engineer those binaries.
In a no-copyright world, Valve's business model would certainly have to change, but your particular example would work mostly the same as it does now. The major difference is that you wouldn't be able to make 50 million dollars. Once those levels were released, people would be able to share them freely among themselves. Only the first person has to pay the $10, which means if you're willing to pay a million dollars for illegal access to secret source code, you should probably have a better plan for what to do with it. =P
> Once those levels were released, people would be able to share them freely among themselves
> In a no-copyright world, Valve's business model would certainly have to change
Yes it would have to change. Honestly I don't think you've thought this all the way through.
You need to show how companies like Apple, Microsoft, Valve and the thousands of smaller software makers (Adobe, Autodesk, Bethesda, Roxio, Zynga, IBM, Oracle, Blizzard, Symantec, Norton, SalesForce.com, Konami, Blackboard...) can still make as much money as they do today and have the same protections they have today.
If you can't well, then we may as well sit around discussing what the world would be like if there was no war, or what kind of tidal waves two moons would generate.
According to http://en.wikipedia.org/wiki/Intellectual_property, types of intellectual property other than patents include copyright, trademarks, industrial design rights, and trade secrets. You could get rid of patents while keeping those other types of intellectual property.
And what's the efficacy of copyright, trademark, design rights, and trade secrets in protecting a new process, machine, manufacture, or composition of matter? The first three are not applicable, and the fourth may protect innovation but comes at the expense of no public disclosure.
None. And that's the point. The idea here is to stop granting monopoly on on these areas.
But that won't affect, for example, authors, musicians or marketers. It won't allow anyone to start screening movies without paying royalties, or a new social network called "Facefolio" or proprietary products based on GPL'd code.
There is definitely an element of US self-interest. The US invests a disproportionate amount of capital into R&D relative to its GDP compared to other countries and also reaps a disproportionate result from that R&D investment (i.e. US R&D investments tend to have a higher return per dollar invested compared to most countries).
I have a strong self-interest in making sure effective R&D happens: computers, biomedical, etc. I don't care where that investment happens for the most part. In terms of maximizing R&D output for the currency invested, US has been the clear leaders for a long time. I am less concerned with why the US is producing so much high-value R&D than with why so few other countries are producing anything comparable. A few European countries do produce similar results on a per capita basis but the tend to be outliers with tiny populations that don't add up to much in absolute terms.
Two things. R&D is not a generic, fungible thing. R&D that occurs in a patent environment will have a different focus than R&D that occurs without. I'd expect funding spent on lawyers writing defencive patent proposals would be figured on the balance sheet as R&D, even though it isn't. Or R&D spent finding new ways to extend existing patent rights of a drug. Or finding ways to innovate without breaching competitors' patents.
Secondly, there's no evidence to demonstrate that the amount of R&D that happens with patents is more than there would be without patents. I think you're focussed on the upside - companies that do some more work because of protection. But that needs to be balanced against the amount of research and development that isn't done because of the increased barriers to entry.
> The poster child for strong patent protection is usually the pharmaceutical industry, as drugs are easily copied and can cost upwards of a billion dollars to develop. Here, Boldrin and Levine admit that the government would likely need to step in. But rather than giving companies a legal monopoly over their formulas, the authors suggest we should modify the drug approval process to let makers start recouping their costs faster. They would also set up a prize system to reward companies that invent the new medicines we need.
This strikes me as a really fantastic idea. Actually, I wonder if insurance companies shouldn't offer these prizes regardless of the patent situation. They know intimately well which disorders cost them the most money. They could form a consortium and offer a prize for x amount of money for reducing the cost of treating some disorder by y dollars per patient, where x is guaranteed to be less than the amount of money they will save.
I'm a big fan of Boldrin/Levine but suspect they're wrong about this. The reason medical investigation is so expensive is because there's so much red tape around it in the form of approvals, and the convoluted systems health coverage in the developed world. It's a classic insiders' club. People got institutionalised into the culture, and then can swap between government and industry. There's no strong incentive for anyone in the game to keep costs down. Much more important for the insiders that the barriers remain high.
But there is a reasonable expectation that a pill your doctor prescribes will not kill you (with few notable exceptions). This is a good thing. Who is better at safety, the "free market" or the government?
Why do you quote free market and not the government. Neither one has any interest in actually promoting safety- both are only interested in security theater or protecting their bottom line. See the profitable war on drugs or the TSA. I really don't know the answer to the question, but the clear victor certainly isn't the government.
I'm always astonished by the idea that, were it not for patents and the profits they promise, "no motivation to develop drugs would exist".
At one point I worked with a group that raised money to finance medical research for patients with lupus. These were folks who were seen as too few, and suffering from something too complex, to be profitable. For the most part they were relying on some pretty toxic treatments that hadn't progressed since the 1950's - the pharmaceutical equivalent of pre-anastasia surgery.
Believe me, the people suffering from this were HIGHLY motivated to find a cure, and given an organization capable of focusing that interest, they've raised millions upon millions of dollars* to do exactly that. This was an early form of crowd-funding and it just obliterates the argument that "without patents, there's no motivation to cure stuff."
I'm sorry, but that is absolutely, categorically, and demonstrably false. If people are sick and dying, they have bottomless motivation. Indeed, the extraordinarily high prices people people put on their own lives ("my kingdom for a horse!") represents a profound reservoir of motivation.
The patent and approval system diffuses this deep and natural drive, replacing it with the more limited motivation offered by monopolistic rent-seeking (which aims not to cure disease, but to make it 'manageable').
The thing about an awful disease is that it develops a sense of community. I cannot imagine, for instance, someone who has raised a lot of money to find a cure saying, "yeah, but fuck the next generation that comes along and gets hit with the same affliction - those guys are on their own. WE paid for this, and the cure is OURS. They can reinvent their own damn wheel if they want to live."
Just...no, that's not how people think. What they really think is that in devoting themselves to finding a cure, they are finding a valuable role for themselves in a society that tends to see them as victims. It's how they recover a sense of self-worth and dignity. They are PROUD to pay it forward. Indeed, one of the top sentiments I heard from people I interviewed was "I want to find a cure so that no one else anywhere in the world ever has to suffer what I've gone through because NOBODY deserves this."
THAT's what real decency sounds like. And it's what our patent system frustrates in a very profound way. I know the pharmaceutical industry is always brought up as the tough case against patent reform - the exception that "must" be made in any discussions tending towards to liberalization. I'd argue the opposite. I'd say that this is one of the easiest cases to make. Maybe not a decade ago, but as the organizing power of the internet comes into focus, I can see a world where direct and massively distributed research finance is the norm, with the results made openly available to the entire world.
People who are sick used to feel terribly isolated. Thanks to the internet, that's changing. They're finding they discover others going through the same thing, and that they can use the same channels to pool their resources. Were they given tax credits, their resources would increase substantially. And they don't want to "manage" their diseases. They want to cure them. Researchers working on behalf of people trying to solve their own problem pursue tacks different from those who are working from companies looking to exploit that problem most profitably. And when people finding their own cures succede, their natural impulse is to share their triumph with all mankind, the world over, not start trade wars over IP that use the pain and death of millions already in - or facing - poverty as leverage.
*People who say research costs billions, not millions have been suckered by the most pernicious line of bullshit imaginable. The "billions" figure does not represent actual R&D costs, which, in a shocking number of cases, represent single-digit percentages of pharmaceutical company budgets. Instead, they represent the fully loaded costs of maintain legal departments to protect patents and marketing departments to push drugs in cases where they have marginal or negative value. Inflating the reported development costs into the billions is simply propaganda designed to make any system that doesn't involve patents seem like a financial impossibility.
Tens of millions of dollars won't get a drug to market. Will it fund research that could find useful leads that could produce a drug? Of course.
So how do you incentive private organizations to fork over the $100 million(1) or so it takes to get a drug to market? You provide a mechanism to regain your capital plus something more. It's a system that works pretty well.
(1) That's if everything works the first time. Since only 1 out of 10 drugs that are tested on humans get to market, it's closer to $1 billion on average.
As mentioned, that's a hugely suspicious "fact". As noted by the National Center for Biotechnology Information.
"In the March 2003 edition of the Journal of Health Economics, a trio of economists from the United States wrote about a number. Soon after, that number began popping up all over the place — in newspapers and political speeches, on television and the Internet. But the figure, despite reaching near-canonical status, drew criticism. Some said it was inflated. Less diplomatic detractors said it was a 9-digit fairy tale.
That number was 802,000,000. It was, according to the 2003 study, the number of US dollars that pharmaceutical companies spent, on average, to bring a new drug to market (J Health Econ 2003;22[2]:151-85). Now there are new numbers. Some health economists peg the current cost of drug development at US$1.3 billion, others at US$1.7 billion."
Key point: the data used to come up with the original number came from an industry financed source and was not made public. And here's a bit more coverage that throws additional cold water on 10 figure costs.
I agree that the numbers thrown around are often a lot of hand waving. However, let me make a few points few points.
1. Check out the Tufts Center for the Study of Drug Development. They calculate the cost to create a new drug and their methodology is very transparent.
2. You can do a simple sniff test on these numbers. Simply call up a CRO that runs clinical trials and ask "What will it cost me to run a Phase III clinical trial?" I did this recently for a project I was working on. They will freely give the numbers about since they are all in competition with each other.
This is what a recent survey of CROs found[1]:
"As for the average per-patient trial costs across all therapeutic areas, in Phase I, costs rose from $15,023 in 2008 to $21,883 in 2011. In Phase II, the cost rose from $21,009 to $36,070. In Phase IIIa, the cost increased from $25,280 to $47,523 and in Phase IIIb, cost jumped from $25,707 to $47,095. Finally, Phase IV expenses rose from $13,011 to $17.042."
Let's do some simple calculations. 1000 patients, 1 year trial. You need to complete two Phase III trials to keep the FDA happy.
1000 patients * $47,000 * 2 = $94M
And that's only for phase III trials. Add in the cost of discovery, pre-clinical work, formulation, Phase I, Phase II, all the paperwork with the FDA.
OK, great, now you're approved, you still need to actually make the drug which includes scale-up, testing, FDA certification of the manufacturing process, packing and distribution.
When I was working at a big pharma company, I heard about a new manufacturing site they had built in anticipation of a really big drug being approved. The cost? Several hundred million dollars. What happen when the drug got rejected by the FDA? The manufacturing site was written off (couldn't really be used to make anything else).
1) How do they keep them high? They are buying these services from a third-party.
2) These cost of clinical trials is increasing because FDA evidence requirements are getting stricter and stricter. Back in the 1950s, you could get a drug approved in under 2 years. Now? It's more like 5-8 years. Of course, you end up with much safer drugs this way.
Considering drug companies are always fighting with the FDA to do the bare minimum in terms of clinical studies, I would fathom to guess that your theory can't be supported with the existing evidence.
I have heard that drug patents are trivially circumvented by adding some irrelevant part to the active molecule. Instead it is the FDA approval process that prevents ripoffs.
Doesn't that mean pharma is the one industry where patents could be abolished with literally no consequence?
It is true that you can get around a patent by creating a slightly different molecule. However, drug companies aren't stupid. When they patent a drug, they are patenting a pretty big space around their molecule of interest. Pretty much every modification you can think of, they will patent. The resulting patents aren't just one molecule but rather an IP "space".
That doesn't follow. If patents were abolished companies that spent nothing on development would be able to produce the exact drug that the FDA had approved.
You know what else will drive up the costs? Running bad trial after bad trial after bad trial, burying the results, and only publishing if and when you finally come up with something positive.
Not only does this provide a dangerously (murderously?) distorted view of the compound in question, it means patients (read: victims) will be paying exponentially more for their "treatments".
It's an increasingly sordid business, and not one that can be defended in good conscience. As the Economist notes in its current review of "Bad Pharma" "This is a book that deserves to be widely read, because anyone who does read it cannot help feeling both uncomfortable and angry."
Funding the expensive regulatory process (which includes clinical trials and all the rest) is very easy to legislate. For example, grant a company some limited exclusive rights for commerce/sale of a drug they have funded through clinical trials.
A commercial restriction on the sale of a drug would be far less onerous and legally problematic than the current patent system.
A patent is granted for the invention of a drug, not the testing. If the monopoly were tied to the approval process, it would be limited to the country where the approval was granted. So shepherding a drug through the FDA approval process would get you a monopoly in the US, but not other countries.
Also, you can patent drugs that haven't been approved, which makes it basically impossible for anyone else to do the clinical trials. Breaking the link between the research and the approval process would make it easier for effective drugs to get tested and approved.
Finally, sure, that scheme would be a lot like patents. But at the very least it would be specific to the drug industry, where they are (maybe) useful, and wouldn't distort other industries where patents are actively harmful.
If you get your drug approved by the FDA, you get 5 years of market exclusivity (12 years of it's a biologic). However, it has to be determined by the FDA to be a NCE (new chemical entity). Right now, a company called Amarin is trying to get a drug approved that has no patent and they are hope to get the FDA to recognize their drug as an NCE.
If it for a very rare disease (orphan drug), you get 7 years of exclusivity (still 12 if it's a biologic).
During that time, no other application for the same NCE and indication will be approved by the FDA, giving the first applicant de facto market exclusivity in lieu of a actual patent.
>I'm sorry, but that is absolutely, categorically, and demonstrably false. If people are sick and dying, they have bottomless motivation.
Yes, but they don't have bottomless wallets. I'm sure a great deal of research would still happen in the absence of large potential profits. The problem is very little of it would lead to drugs your doctor could prescribe. The drug targets are the easy part - the hard part is getting a compound through clinical trials, and ones you get approved has to pay for the other 90% that didn't make it because they were too toxic or didn't work as well as existing treatments.
As a real-world case consider antibiotics. There's a huge need for new antibiotics - if you get the right strain of MRSA your doctor is going to be about as useful as the local faith healer. Same goes for a nasty strain of the clap that's making the rounds in Japan. Totally resistant to existing antibiotics - once you get it, it's not going away.
But for various reasons there's no money in antibiotics (or vaccines, either, but let's just stick with antibiotics). You don't get repeat customers, and the bugs will start to develop resistance in a few years. With no profit motive drug companies aren't doing what they need to do to bring new antibiotics to market. So there's nothing in the pipeline.
The concern, of course, is that if you did away with patents entirely every type of drug would be like antibiotics. Drug companies wouldn't exist at all, or they'd exist as contractors to governments (oh, and wouldn't that be efficient).
In some respects they do: often government or insurers are left with costs. The insurers make their margin upstream of this, so there's low price pressure on the drug manufacturers.
Also, demand for drugs is often inelastic, so people are more likely to make sacrifices here to pay for drugs. Which is fine in itself, but not when the high costs are the product of a cartel arrangement between government and industry.
>In some respects they do: often government or insurers are left with costs. The insurers make their margin upstream of this, so there's low price pressure on the drug manufacturers.
But governments and insurers don't save money by saving your life. They save money by letting you die before you get old. That was the ironic thing about the tobacco settlements in the US - the states sued the federal government claiming damages for the extra care they had to provide to people who smoked, when those people would have cost the state more money if they'd lived a normal lifespan.
In some cases a new drug will save money by keeping some damaging disease from becoming a problem and pushing expensive treatments far into the future. That's not the normal case, though. I'm all for helping people live out their threescore and ten in good health, but on average it doesn't save anybody money.
>Also, demand for drugs is often inelastic, so people are more likely to make sacrifices here to pay for drugs. Which is fine in itself, but not when the high costs are the product of a cartel arrangement between government and industry.
Here again there has to be some way for the people doing development to recover their costs. The patent system allows the drug company to charge more to every patient who takes a drug for twenty years. Without it that would all have to be covered by tax money. I like the patent system better, since it's biased toward charging people with lifestyle-related problems more money than people who take care of themselves.
Also, with the patent system companies will spend money on development for treatments that are within the realm of scientific possibility and not because advocates for that particular disease have more political clout. How many billions were wasted in the "war on cancer"? Government just doesn't do this sort of thing very well.
I was struck by how little effort the author put into describing the proposed solution for "the poster child for patents." Is the Atlantic going downhill?
How do you let drug companies recoup costs quicker without reducing the oversight that goes into drug approval? I am also a little curious about the free market implications. Instead of the invisible hand guiding drug development we will be relying on government autocrats? It seems that the incentives for governments to lengthen patent protection would just shift their nefarious attention to the prize system and drug approval process.
I don't see (har har) an invisible hand guiding commercial pharmaceutical development. I see an oligopoly of pharmaceutical corporations acting out of unenlightened self interest. From my layman's perspective, it seems that curing diseases is largely done by government- and university-funded research, while treating symptoms for profit is the domain of corporate R&D.
Most drug discovery and development is done in the private sector. Think 60%+.
Of the stuff that is gov't funded, it's basic research, not the development that actually gets a drug to market and that's what costs so much money.
EDIT: Wanted to provide some numbers.
252 drug were approved by the FDA from 1998 to 2007[1]. Where did they come from?
58% from pharmaceutical companies
18% from biotech companies..
16% from universities, transferred to biotech.
8% from universities, transferred to pharma.
During this same period, 118 drugs were considered to have scientific novelty. Where did those come from?
44% were from pharmaceutical companies.
25% were from biotech companies, and
31% were from universities (transferred to either biotech or pharma).
You need to dig a little deeper than that. Of the 252 drugs, how many where minor modifications of existing drugs. And how many where targeted based on government funded research.
Click on the link I provided and read the details. I even quoted the relevant numbers.
Of the 252 drugs that were approved, 118 were regarded as "scientifically novel" (not me-too drugs or minor modifications of existing drugs). They also did another cut where they looked at FDA "priority approvals", which basically means the FDA was willing to fast track the approval because the disease the drug was treating had no effective treatment.
As to your second question, over 60% of the scientifically novel therapies were discovered by pharma/biotech. They would have received no government funding for their research. The remaining 40% or so were discovered in university labs, of which a certain percentage were discovered via gov't funding (don't forget that industry-academic partnerships also make up a certain percentage of university funding).
A minor nitpic Drug R&D has a defacto subsidy in the tax code. see: "For purposes of section 38, the research credit determined under this section for the taxable year shall be an amount equal to the sum of" () As well as several other direct and indirect subsidies.
An oversimplified summary is that the majority of the pipeline for new drugs is in small companies. When one of these small companies develops a new compound that has an enormous potential market, it is purchased by one of the large companies that has better expertise in distribution and marketing, and can scale up production much more efficiently.
A tremendous amount of funding is put into the development of new drugs, yet it should be no surprise that much of this research produces nothing useful. Innovation anywhere results in hits and misses, yet investors are willing to assume the risk when they believe a certain percentage of success will sufficiently balance out the failures.
In effect, strong property rights allows a modularization of the different roles of drug development.
If people truly believe that there is a problem with the pharmaceutical industry, they should identify what the problem is first, and then unemotionally analyze how they could address those problems.
I tend to believe that there is a general consensus that the growing portion of GDP being devoted to pharmaceuticals is not sustainable, and quite likely already more than it would be in a better optimized economy.
What constrains the demand for pharmaceuticals? If something will save save your life, you may be willing to spend a million dollars on it. However, if you only have a 1/1000 chance of needing something, you may not be willing to spend $1000 on it when you're not under the gun. In order to balance all the many eventualities for potentially needed medical treatment either your government or insurance provider collects and organizes resources for people who need treatment today with the promise that all of the contributors will also receive treatment when needed. How much treatment?
How much treatment is generally determined by whatever is medically necessary. There may be some wiggle room on the definition of medically necessary, but it doesn't matter because this isn't what determines how much medical treatment you receive or might receive. What really determines how much medical treatment you can receive is how much medical treatment is available.
It probably sounds extremely cynical, but the idea of destroying pharmaceutical patents would likely accomplish what it sets out to do. It would dramatically lower expenditures on medicine. However, it wouldn't be because pharmaceutical companies would lose their profits,\1 it is because it would break the advance and development of new compounds that is probably occurring at too fast a rate.
Fueling the excessive rate of development, if it is excessive, is the knowledge of investors that the healthcare market is in a perpetual failure state. There is no constraint on demand. Unlike just about any other product, as long as you make a better product there will always be demand. Imagine doubling the price of a house in order to make it invulnerable to tornadoes. Maybe some people would do it, but they don't get the chance to purchase the modification while a tornado is bearing down on them, and they can't purchase different tiers of tornado insurance then be understandably furious when they find out it doesn't cover emergency home modifications. With other products, even potentially life-saving home improvements, people don't buy them just because they are better, they buy them if they are better and the improvement outweighs the additional cost.
If I were to rationally rank my preferences, I would rank an education that affects the quality of my adult life higher than I would rank a life-saving procedure that extended my life ten years. Some people would be able to choose both, etc, but no one is making those kinds of decisions about how much coverage they get, they simply choose 'whatever is medically necessary', by which they really mean, 'every sort of treatment that has completed development by the time I can use it'.
\1 One can invest in pharmaceutical companies if they think they have magical returns on investment, because little of the revenue is ultimately directed toward expensive research or acquisitions justifying investments in research done elsewhere. Judging by the quality of comments in the thread about efficient markets this morning, they may very well happen!
The "award system" for drug development is full of problems.
Who makes the call as to how much to award? Who decides who the award goes to (very few drugs are develop by one group alone)? Who decides when a drug is actually better than existing treatments?
Insurance companies already reward innovation. When a new drug hits the market, insurance companies collect and review all the data available and decide on how much access they'll provide their customers with. This analysis includes looking at a drug's impact on total cost of care.
Right now, the insurance companies' decisions are skewed by the fact that the new drugs have to be compared against the price of generic drugs. That means that unless the new treatment is orders of magnitude better, it won't be much of a cost savings until long after the inventors should have been rewarded for their innovation.
Might work nicely for diseases that take a long time to kill you, but insurance companies have no incentive to find a cure to something that kills you quickly and cheaply.
While it's true that insurance companies use cost as a major driver for decisions, however it's not the only driver.
In the US, insurance companies compete with eachother to provide coverage for employers. Many (not all) companies want insurance that is beneficial for their employers. If you drop coverage for something an employer wants, you may lose a major customer.
As long as they still cranked out out new, popular
products, companies like Apple would continue to profit by
being the first to market, which often confers a long-term
advantage.
Apple being first to market? When has Apple ever produced anything novel? Personal computers, MP3 players, smartphones, and tablets; were all invented by other companies. Apple's virtue is superior execution, not being first to market.
They didn't invent the tablet, they invented the tablet as we know it. It consider that to be a much harder thing to do. The concept of the tablet hardly needed inventing, just watch Star Trek, it was pretty obvious. The less obvious is the "how" (what you call the execution).
So the argument here isn't that a patent system is inherently bad; you could have a patent system that provides a net win for society. But over time, entrenched interests will find ways to twist the system to their advantage, at the expense of society at large.
Let's say this is true; how is this different from any government action in the marketplace? From education to finance to healthcare, we're confronted with problems that have may have good theoretical solutions by government, but the reality is that our solutions will eventually devolve to rent-seeking and regulatory capture by powerful entrenched interests. I have yet to hear a good solution to this problem other than severely limiting the ability of the government to interfere with markets in the first place.
How about an educated electorate that votes and votes good representatives into office who will diligently represent the interests of their informed electorate? Read through that sentence again, let it soak in, you will begin to see everything that is wrong with the American political system.
I think it's very tough to make the case that America is uniquely bad in this regard. Do you seriously think that Europe is a political utopia that elects people who only do the best for citizens, or that entrenched interests haven't captured public power and funds??
Well obviously America isn't uniquely bad in this regard if compared to the rest of the world and what we are talking about occurs on a spectrum so everything is relative but compared to other Western European nations I think America is absolutely quite bad in comparison.
The people I've known personally who've tried (and sometimes succeeded, one of them was a member of the European Parliament, my old Irish teacher Sean O'Neachtain) to get into public office have all been pompous assholes. You don't really get much of a choice.
Most HN-ers work on web startups where $100k is a lot of capital and time to market is everything. I don't think they have a good grasp on the mechanics of industries where you can burn through $100k in a few weeks and where a usable product might take 3-5 years or more to make it to market.
This. One of the biggest risks I would see in a startup these days is that the moment you start to be successful or even just get decent funding there's a decent chance you will be patent trolled out of existence.
The whole point is that its very difficult to quantify. The purpose of government, law, and indeed perhaps civilization itself is to reduce the amount of random, unquantifiable risks in daily life.
That's whats so bad about patent trolling. Its just so uncivilized.
zm didn't say it was difficult to quantify. He said there was a "decent chance" of being sued. The implication is that he has quantified it and that quantity amounts to a "decent chance."
"decent chance" implies you have quantified the probability and concluded it is somewhere between unlikely and likely. It needn't be precise, but it implies a quantity. There is a 0.001% chance of my dying in a car accident this year. If someone said "you shouldn't move to the suburbs because there is a decent chance you'll die commuting" you'd probably shrug that off as hyperbole. There is a 1-3% chance of pregnancy each year despite use of birth control. Would you say "there is a decent chance of knocking up your girlfriend even with condom use?" Possibly, but I think most people consider that probability "remote" rather than "decent." There is a 10% chance of being audited as a small business. Is that "decent"? I think most people would say "keep your books carefully, there is a decent chance of yor being audited."
1. Software costs next to nothing to produce. Why is it so easy to have startups in this sector? What is the overhead of a software/web company? It is almost all intellectual. Ask Microsoft. Pure profit.
2. It is difficult for examiners to find prior art because there is no "official" channel for "publishing" software research that they recognise. There is much know-how that is common knowledge among developers but is never published in any paper, textbook, standard, RFC, etc. The "database" for searching all these sources may end being a web search engine. That is not ideal.
1. Drugs are very expensive to produce. Not only the research, the equipment, the staff, but compliance with the regulatory regime. There are no protections against bad software to protect users (developers operate in a wild west type atmosphere), but we have many rules about medicines. These are designed to protect patients. Can you imagine an unregulated pharma industry? Profits take precedence over safety. It would be very dangerous for patients.
2. There is a littany of journals that public chemical, biological and medical research and they can all be searched easily in combined databases, to which most all pharmaceutical patent owners subscribe. It is not too difficult for examiners to find prior art and establish publication dates.
> 1. Software costs next to nothing to produce. Why is it so easy to have startups in this sector? What is the overhead of a software/web company? It is almost all intellectual. Ask Microsoft. Pure profit.
I'd argue software is extremelty expensive to produce, on the basis that distributing software is so insignificantly expensive that it could be called free. Relative to the costs of distribution, paying developers to write an application is extraordinarily expensive. So is maintaining that code, providing support, and advertising the product. I'd "guess" startups are so abundant in the software sector because distribution is so cheap, not because development is. Entering any other market's distribution channels on an international scale is prohibitively expensive for almost anyone but an already successful mid-sized company.
> 2. It is difficult for examiners to find prior art because there is no "official" channel for "publishing" software research that they recognise. There is much know-how that is common knowledge among developers but is never published in any paper, textbook, standard, RFC, etc. The "database" for searching all these sources may end being a web search engine. That is not ideal.
Even more fundamentally, it is hard to find prior art because software is information / knowledge and traditionally (in the context of math at least) we never had patents on it. If you consider the physical properties of software, it is just the presence of absence of charge over billions of indicants. Does the interface that exactly duplicates the ios home screen but has a binary representation that is nothing like the disassembly of it represent infringement, or the instant messenger whose disassembly looks 95% like the ios home screen? What happens when a music track and an android map are 90% binary identical?
> 1. Drugs are very expensive to produce. Not only the research, the equipment, the staff, but compliance with the regulatory regime. There are no protections against bad software to protect users (developers operate in a wild west type atmosphere), but we have many rules about medicines. These are designed to protect patients. Can you imagine an unregulated pharma industry? Profits take precedence over safety. It would be very dangerous for patients.
Absolutely you need to regulate the pharma industry somewhat, but I would also argue it is a consumers responsibility to know what they are putting in their bodies. We expect people to be able to judge their own alcohol consumption, how are prescriptions any different? If you make knowledge easily and readily available on what drugs do and their effects, consumers could make informed decisions. A lot of the fears in the phara industry is in how close-boxed knowledge is - you assume your doctor knows best, and don't investigate the effects of drugs you consume. I'd call it foolish to not understand the risks of what you are consuming.
> 2. There is a littany of journals that public chemical, biological and medical research and they can all be searched easily in combined databases, to which most all pharmaceutical patent owners subscribe. It is not too difficult for examiners to find prior art and establish publication dates.
That doesn't mean that a government granted monopoly on drugs is a good thing. When the expenses of drug research (which end up significantly being the rigorous 3 phase testing drugs need to pass to be allowed to be sold to end users) are so high, and profit motive is involved, drug costs spiral out of control. For Americans like myself without health insurance, we just can't afford to buy any of these drugs even with a prescription because they can cost upwards of $200 or more a bottle. The fact the actual drugs only cost at most a few dollars to produce per bottle, so the rest is profit to recoup research costs, doesn't help the fact that the good is cheap to make and is artificially expensive to recoup tremendous research costs. One (not me, but it is a theoretical) might argue that the R&D of a to-market drug could be just paid in full to whoever developed it, and that the formula itself could be released public domain. Taxes go up, drugs are cheap.
The key is that software development is an unavoidable sunk cost. Once it has been paid, it can be ignored in terms of considering per-unit pricing.
The actual marginal cost of each unit of software sold is pretty close to zero. This is what makes it so fantastically profitable compared to almost anything else.
The same is true of most drugs. Marginal cost is near zero compared to development cost.
In neither case do you necessarily have fantastic profits although if you can sell at scale at a good price it becomes very likely but if you have a drug for a niche market or software in a crowded market it is quite possible to make a loss.
This is neither an argument for or against the patent abolition proposition which I am torn on. I can definitely imagine with alternative arrangements for Pharma we could be better off than currently but I believe that there must be something possible that is better than both what we have now and better than nothing.
I think in half a century we won't have the backwards investment funding model in industries where units are extremely cheap but R&D id expensive. Instead you would have something akin to crowdfunding with guarantees and insurance against failed investments by those that want the end product, so the motive is not profit, but end product. That people who want a thing fund the creation of the thing, instead of people who want money funding an expensive up front thing that is then unnaturally restricted with patents and copyright to try to profit off the unit sales, when in many cases (pharma) they are near free, or in the case of software (past the first copy being distributed) are absolutely free (if those that have the software willingly share it).
The patent system somehow has morphed from shield to sword.
Protecting inventors is one path toward innovation, but it should be a byproduct of maximizing innovation and not the end state.
If the objective of the patent system is to foster innovation, then it should grant patents only if they are necessary for innovation, i.e., innovation wouldn't reasonably occur otherwise.
Amazon's one-click patent versus drug patents are two good cases. If the patent system didn't exist, is it reasonable to think someone else would come up with a one-click method of shopping? Yes. Drugs, however, often require hundreds of millions of dollars in upfront investment. It is reasonable to think that pharma companies couldn't raise the necessary capital, and therefore invent these drugs, without some protection.
I like that idea, and I believe it rings true with most responsible people. However, it's difficult to measure.
As an example, in the recent Apple v/s Samsung, if it weren't for Apple, we would still be dealing with shitty Nokia, Samsung and Sony Ericsson phones with crap OSes, no decent applications, and the phones would be anything but smart - because there was no need to improve.
Once Apple made everyone lift their game, their strategy has been to sue all large players aggressively to ensure they can't implement the things that Apple used, no matter how trivial (eg. the green telephone icon). On one hand you can argue that a "slide to unlock" was not done before on a smart-phone and deserves protection. On the other hand, you can argue that it's a very obvious solution for touch screens and someone else would have easily come up with it. You could also argue there's prior art (but that's another story). So ... In this instance, did Apple drive innovation? Yes. Was it necessary for Innovation? Maybe. Would the innovation have happened if Apple hadn't driven it? Not any time soon.
In my view, your definition needs to be tighter to cover scenarios such as these.
In case the Apple fans get their knickers in a knot, Apple aren't the only ones suing others over trivialities. The industry has been locked in a stale-mate for a long time.
Would the innovation have happened if Apple hadn't driven it? Not any time soon.
Maemo, Openmoko, and Android all serve as counterexamples to your claim that Apple was the sole driver of recent smartphone innovation. Our smartphones might look a bit different now had Apple not released the iPhone, but they would still exist. Industry consortia were developing higher-bandwidth data standards (a Danish friend told me in 200[012] that 256kbit/s access on cell phones was already widespread), companies were experimenting with different form factors, operating systems were being developed, etc.
In my view, your definition needs to be tighter to cover scenarios such as these.
Perceived scenarios such as these are often a product of missing information.
Thanks, rustynails77. I also agree it's very difficult to measure, which is why it fails to qualify as the optimal solution.
There is no magical solution, but the contours of the ideal system will account for the capital requirements of an invention. Areas with low capital requirements, such as "slide to unlock" and "one-click buying," should not warrant patent protection.
Not because they require less ingenuity, but because even absent patent protection, companies would still continue to differentiate through new features and ideas.
It's very similar to music and movies. Artists continue to introduce new sounds and new films even though success spawns a host of copycats.
Would Apple cease innovation on software features -- like "slide to unlock" -- if they weren't granted patent protection? I think it's reasonable to assume not because of the relatively small capital requirements and because of their passion to advance technology.
This is and endless argument, you either acknowledge that they pushed it forward or you don't but there wasn't a significant application platform, touch was nearly nonexistent and even dismissed by RIM, and while many of these things might be dismissed as obvious, Apple made it stick and they beat the entire current crop of competitors to the market.
Everything is easy once you've seen it done...
Take the typical Nokia and Motorola device from 1997 and the typical one from the iPhone launch, biggest improvements? More SMS and the phones got a little bit smaller
I agree that apple did bring it all together rather well (over a sustained marketing and development phase) but I just don't see how anyone could think that smart phones similar to those that we have today weren't inevitable with or without apple.
I don't think the argument is whether Apple pushed the industry forward. They absolutely did.
The question is, if they knew no patents would get awarded for software features like slide-to-lock or gesture control, would they still have introduced the iPhone?
I believe they would have, but it would be great to hear your thoughts if you disagree.
It seems we could solve this by adding some conditions around lifetime and protections offered by a patent. if you are a small company you are afforded maximum protections on your patent. If you're large scale company that has delivered products based on features you've patented, your patent stops being valid after 3 or 4 years. If you aren't actively trying to develop or sell a product based on a patented feature, the lifetime of the patent also is significantly reduced.
At Open Science Summit 2010, there were a few individuals proposing some prize funds and reforming the patent system. The transcripts are a little rough (I was typing), but here goes..
I'm unconvinced by their pharma argument. Some industries need patent protection. My preferred solution would be for the patent office to set different time limits for different industries, depending on the length of the innovation/commercialization cycle in that particular field.
So if it takes 10 years to develop a new drug and have it approved, give them 10 years of patent protection. If it takes a year to invent and perfect some user interface idea, give them a year's worth of patent protection.
Don't set the time limit on a case by case basis or everybody would claim to have thought about it for 30 years before it came to fruition.
The pharmaceuticals industry could never have grown so big without patents. That kind of drug research would have had to been done by publicly-funded bodies, such as universities. I kind of feel like this is an argument in favor of this article. It also explains why it will never happen. Now that we have big-pharma how are we doing to disassemble the thing that keeps it alive?
Simple, recognize that pharaceuticals are a highly special case and develop a custom set of protections/incentives. There is already a mountain of custom regulation for that industry.
It's absurd to think that the same age-of-steam monopoly grant system that currently sorta benefits the pharmaceutical industry should also apply to software, websites, business methods, and exercising one's cat.
It's completely retarded. In the literal sense, i.e., holding progress back. End the retardedness now!
The reason I didn’t suggest this is that industry-specific law feels like a byproduct of the lobbyist culture that has lead to many of our current problems and pre-existence doesn’t justify its continued creation. But, overall, I think you’re right and this is the pragmatic solution.
Most medical research already happens in publicly-funded bodies, bit it is then spun-off and captured by big pharma.
Not to mention that as many have pointed out over and over again, the main expenses of drug companies are not research, but drug approval bureaucracy and marketing.
Not all patents are by trolls or big corporates. Patents are crucial to medium size and small size firms. A healthy economy requires to create an environment for these firms to thrive. If you think big corporates are the ones to focus on, check out Germany: http://www.economist.com/node/18061718
The fashion industry does quite well thank you WITHOUT patents. Check it out. No patents in fashion. The most you can do is copyright a logo and slap that on your product. The rest is open season, and we all are the richer for it.
Patents only make lawyers rich at the expense of the rest of us (the 99%).
There is no meaningful comparison between the fashion industry and high technology. Keep in mind also that the fashion industry aggressively uses copyright, which last time I checked is also not too popular. That's why a lot of designer goods have a logo plastered all over them. If we abolished patents, there would be a short time span where everyone would prosper, but then eventually it would become clear that nobody is doing basic R&D, because it would be stolen by a competitor immediately. Also, I assure you there is no lawyer conspiracy. 99% of lawyers are in the 99%.
Thinking about this, the reverse might also work. Automate the process of granting patents such that patents are granted solely based on algorithms and prior art automated search. That way every one can get every patent immediately.
The work of the patent office then would be to validate the patents when there is a conflict, as a pre-requisite for a lawsuit. The office would have less work to do relatively I would think and hopefully would have more time to review the patents when they come to their desks that way.
It's no news that patents and copyright obstruct the progress of science and society (nobody ever listents to Stallman?).
Now, acknowledging that is far from being enough to abolish them. The world revolves around companies making profit, it's naive to think that the government will agree to rule against the huge companies that currently benefit from those restrictions.
I don't know how the US patent legislation is implemented but in many countries patents come with a compulsory license. That means that a patent holder cannot restrict others from using his invention. He only has the right to ask for the proper compensation. I think such a clause is imperative to truly have an effective means of promoting innovation.
Why take drastic steps like abolishing all patents. A big problem right now are software and design patents. If we're not willing to outright ban them, why not limit their term to 5 years?
> Somebody out there actually patented a method for moving information through the fifth dimension. As in the Bruce Willis movie. As in faster than the speed of light.
The article summarizes the alleged benefits of patents as:
a) They improve productivity (I'm assuming this is somehow an Economic encapsulation of the benefit of technological progress, although AFAIK technological progress is essentially a Big Problem for economic analysis, and one of those things that Economists wave off as a pathological one-off event that ruins their assumptions, so I'm guessing it's A-OK for Economists to approximate technological progress -- something they can't really cope with -- as simply output / production cost).
b) They are an alternative to trade secrets, which is dismissed in a single paragraph with the argument that you'll only patent something you can't protect for longer with trade secrets (because, as a typical economic actor you are omniscient and can perfectly predict how long you'll be able to protect something with a patent vs. secrecy).
The follow-up paragraph says this (emphasis mine):
> A more subtle point is that secrecy may bias the type of inventive activity away from innovations that are not easily kept secret to those that can be, viceversa for patents. There is historical evidence from Moser [2004, 2005] in this direction. In 19th Century expositions of inventions, while countries without patent systems had overall rates of innovation similar to those with a patent system, they did specialize in innovations which were more easily kept secret. How strong this bias would be if no countries had patent systems – that is, whether it is true that patents encourage innovations that would not otherwise be made, or if they just shift the location of innovation from country to country – is not known.
Oops. So this argument appears to be well-founded, and we don't know how big the effect is. Never mind, moving right along...
> A good case in point is that of the Wright brothers, who made a modest improvement in existing flight technology which they kept secret until they could lock it down on patents, then used their patents both to monopolize the U.S. market and to prevent innovation for nearly 20 years.
Yes, there was no innovation in flight technology between 1903 and 1923.
> The modern and highly successful open source software movement is a more contemporary example of how collaboration and exchange of ideas thrives absent intellectual property.
This is where they lose me. OK they lost me a while back. Where is the great open source project which is so awesome everyone is imitating it? Open Source is great at commodifying innovations produced by others. We've got imitation Windows UI, imitation Mac UI, imitation iOS, imitation UNIX, imitation Microsoft Office, imitation Photoshop...
> On the other side of the coin, the rationale for patent systems is weak. In most industries the first mover advantage and the competitive rents it induces are substantial without patents. Again: the smart- phone industry – laden as it is with patent litigation – is a case in point.
So, do they think Apple's first mover advantage would have been worth much if competitors had simply cloned everything it did? It was the delicate dance of ripping off Apple's ideas without crossing the line that created at least of the first mover advantage in this case.
I could go on and on -- the authors certainly do.
> In the case of patents, and particularly pharmaceutical patents, the situation is even more severe. We have made mention of the loss of human life due to the pricing of AIDS drugs.
Right, so kudos to the patent system for giving investors a reason to invest money and attention span to creating AIDS drugs, but once they're created they should sell them at break-even? Oh wait, no. No kudos to the patent system for the former -- they were inevitable. People like spending their money making stuff. It happens.
> A simple model helps to focus these thoughts. We suppose that there are two firms i = 1,2 who must choose between innovating (I) and not innovating (N). We have in mind here the creation of a new product, so that the choice to innovate is paramount to entering the market – a firm that does not innovate is assumed to have no product to sell.
Maybe if we do some pretend math it will make our thinking seem more rigorous. As something of a failed mathematician I like counter-examples. In this universe these guys are basing their entire theory on, the entire market for laundry soap does not exist.
Take the recent Apple/Samsung fiasco, for instance. That's a net cash transfer of over $1B from the South Korean economy to the American economy. Maybe $2B to $3B total when accounting for all the factors.
Is that good? No, it's disgraceful, actually. But good luck convincing American legislators of some abstract far-future benefits to a less regulated world when the short-term result would be a worsening of the trade-deficit, a lowering of American exports, and a lowering of American income and tax yields.
It's a huge factor that's usually overlooked in these discussions -- the United States isn't a closed system.