Alex Tabarrok over at Marginal Revolution is proposing an interesting idea: He's suggesting that the lifetime of a patent be adjusted for the R&D costs that went into the ideas behind it. Things that took little effort would have a short term until expiration, while those who went through expensive slogs would have a better chance to recoup costs.
That's an idea that had never occurred to me, by which you can tell that I'm not an economist. And I can see the appeal - but I can also see the potential for abuse. For a while in graduate school, I shared an apartment with a fairly doctrinaire libertarian. We had quite a few discussions, as you can imagine, but I found that they often fell into the same low-energy state. He would point out the benefits of some scheme, and I would agree in the abstract. But I'd then imagine how it would have worked out in the northeast Arkansas county I'd grown up in. Theory and practice tended, in my view, to diverge.
As I think they would here, too. What I think this would do is create a powerful incentive to hocus one's R&D figures. In the drug industry, each extra year of patent protection can well be worth hundreds of millions of dollars in revenue, which is an incentive indeed (with hot fudge and extra sprinkles on it.) It's not like our drugs come cheaply to us now, but I can see that for an anticipated blockbuster, ways would be found to ensure that the patent racked up the longest possible life. You already see that happening at the back end of patent terms, as the constant battles with generic companies illustrate. Every possible reason is trotted out for why a given patent is invalid, and every possible means to preserve or extend the patent's term is invoked in response.
Frankly, we have enough trouble working out how much things cost in this industry already. I mean, we can see how much money we're spending, but assigning specific amounts to specific projects is harder than it looks. The number of people working on a project fluctuates constantly, for example, and many of them have other simultaneous responsibilities. Many supplies are bought in bulk and shared between projects, and all the analytical work is done on large capital-budget machines that are used constantly for everything. I've seen all sort of schemes to track costs by project, but all of them have a voodoo component.
Another problem is that the big money-making drug is only one part of a large patent, which would typically exemplify dozens or hundreds of separate compounds. Naturally enough, some of these took a lot more effort to discover, make, and test than others. If keeping track of costs per project is tough, costing things out by compound would be insane. Then there's the problem of multiple patents protecting the same drug. You'll see a composition of matter patent, a method-of-medical-treatment patent, several patents on specific formulations. . .when a generic company comes after you, these things are used as firewalls and are fought out as separate issues. And these would all have different R&D cost structures, although I've no idea how you'd figure some of them out, and thus presumably different patent lifetimes.
No, I think that passage of such a law would turn out to be the Cost Accountant and Patent Lawyer Full Employment Act of 200x. As I said, I can see the theoretical appeal. But in practice, I think that this attempt to reward the costs of innovation would only create more expensive makework, none of which would have anything to do with research itself. We've got too steady a supply of such as it is.