Drugs Without Patents: Profit and Cornucopia

pattent applicationProponents of intellectual property rights and patents say that without them, drug companies could not profit. They’d just be undercut by generics, which would lead to a downward spiral of decreasing innovation, undercutting the entire industry. Furthermore, socialists argue that a truly free market would not get drugs to the poor. These arguments fail for several reasons: research costs, trade secrets, incentives for continuous innovation, and incentives for rapid worldwide distribution.

Research Costs

Research costs would be much lower in a free world without government intervention, support, and regulation of drug-development. Intellectual property rights, and patents in particular, make drug-development more expensive, as companies need to purchase patented products to do their research; by creating artificial monopolies, the patents make these products more expensive. Furthermore, numerous and onerous FDA regulations make drug-development more expensive.

Trade Secrets

Companies could still keep trade-secrets. “Trade-secrets” require no government intervention to be propped up, but only the ability to keep a secret, and to bind employees to non-disclosure agreements with severe consequences for breach. Companies would likely insure against bad employees breaching NDAs, and those who violated NDAs would of course be sued and blackballed.

Continuous Innovation

To the extent that generics created by reverse-engineering would be produced, this would create an incentive for innovators to continue innovating and at a rapid pace, rather than resting on their laurels. Money that would be wasted on patent lawyers can now be spent on research. You might see a create-and-develop cycle. I.e., drugs like Tylenol would be created and then continuously and incrementally improved upon by the company that made them. Thus, there would be an upward spiral of increasing innovation, spurred by competition, with innovators constantly racing ahead of those attempting to copy them, and all parties trying to minimize production costs, increase quality, and improve efficiency.

Rapid Worldwide Distribution

A natural defense strategy of innovators against generic copycats in a free market would be rapid and immediate disbursement of drugs world-wide.

A natural defense strategy of innovators against generic copycats in a free market would be rapid and immediate disbursement of drugs world-wide. To defend against companies specializing in the production of generic drugs, companies making new drugs would have an incentive to get those new drugs out to as many people around the world (who could benefit from them) as fast as they possibly could. To accommodate poor regions with many who couldn’t afford said drugs, they would have reason to price-discriminate almost down to cost of production and disbursement and to offer payment plans.

Socialists typically assert that the free market would prevent drugs from reaching those most in need of them. On the contrary, in a free market, companies would have incentives to get drugs to those who most need them as quickly as possible, lest there be time for a competitor to undercut them.

Comments on this entry are closed.

  • good post. keep ’em coming!

    regarding the article, i’m not against what the FDA is doing to protect regular citizens, but it should be a private sector enterprise, kind of like what JD Power does to certify and rate other companies.