I had a post ready to go tonight, but we'll roll that one over to tomorrow. I'd suggest that if you're interested in patents and their place in the drug industry (and hey, who isn't, right? Uh, right?) that you trot over to the new Becker/Posner blog for a discussion of the topic. (Permalinks are here and here.)
Both of them have an excellent understanding of the issues involved, commensurate with their reputations. Gary Becker leads off by examining several possible reforms, but has some reservations:
"To be sure, a patent system creates a tension between the effect that prices well above costs of production have in reducing the use of drugs by sick persons, and the effect of high prices in helping companies recoup their large R&D spending. This tension is the cause of the increasing attacks on drug companies as more blockbuster drugs have been introduced during the past couple of decades. So an important public policy question is whether we can do better than the present patent system? I believe we can improve how the system operates in many ways, but some suggestions are likely to make matters worse rather than better."
Richard Posner's suggestion is to actually shorten patent terms a bit. His reasoning:
"Against this it may be argued that the fact that the drug companies apparently do not have excess profits show they need every bit of patent protection they have. Not necessarily. Competition for a profit opportunity may transform expected profits into costs. Suppose the drug companies believe that the invention of some new drug will yield the successful inventor a $1 billion net profit. The prospect will induce heavy expenditures on being first (the aggregate expenditures may actually exceed $1 billion). The result is that none of the companies, or the industry as a whole, may have abnormal profits. Now suppose that as a result of a shortening of the patent term, the prospect for the successful inventor is for making only an $800 million profit. Less will be spent on the patent race. Yet consumers as a whole may be better off, because the investment saved may have greater value elsewhere in the economy. The entire patent prize goes to the firm that crosses the finish line first, and so a firm might spend a huge amount of money to beat its nearest rival by one day even though the value to the public of having the invention one day earlier might be negligible. This danger is greater, the bigger the prize. Shortening the patent term would reduce this potential waste by reducing the revenue from a patent; it would also reduce the transaction costs of licensing, because more inventions would be in the public domain."
My worry about this idea is that the prices of drugs discovered under this system would rise to make up the difference in the patent term, making the "prize" about the same size as before. Complaints about price-gouging would only increase, and I fear that we'd end up in worse shape than before.
I like a couple of Becker's suggestions better: he would like to consider the idea of offering prize money instead of patent protection for diseases with the greatest impact on public health (here's a detailed proposal, on which more later), and he's also in favor (PDF) of loosening the FDA's efficacy requirements and turning drugs out on to the market after proving safety.
Steve Postrel of SMU tried to persuade me of that last idea a couple of years ago, and I wasn't having any. But I'm slowly coming around to it, although my original objections are still somewhat in force - namely, that it could be an open invitation to snake-oil salesmen (which would only pollute the whole industry's reputation - I know, like it's so clean right now), and that any such regulatory change would have to be coupled with some kind of tort reform. Even with all the FDA-mandated testing we have now, the trial lawyers flense the flesh from our bones when anything goes wrong. See Exhibit A, over there in Rahway.