Against Intellectual Monopoly

releases suggest," says
Sager.36
    Libraries have been written on the obvious connection between marketing and the lack of competition. The pharmaceutical industry is no exception to this rule, and the evidence Professor Sager, and many others, point
at has a simple and clear explanation: because of generalized and everextended patenting, large pharmaceutical companies have grown accustomed to operating like monopolies. Monopolies innovate as little as possible and only when forced to; in general, they would rather spend time
seeking rents via political protection while trying to sell at a high price their
old refurbished products to the powerless consumers, via massive doses of
advertising: "[Pharmaceutical] Companies today have found that the return
on investment for legal tactics is a lot higher than the return on investment
for R&D," says Sharon Levine, the associate executive director of the HMO
Kaiser Permanente. "Consumers today are paying an inordinate premium
under the guise of the creating the stream of innovation in the future. But
it's actually funding lawyers."37
    Economists call this socially inefficient rent seeking. It is ugly, but the
polite academic jargon rent seeking means "corruption" and all that comes
with it. We have already mentioned the music industry, where corruption
has become the standard marketing practice, as exemplified by the sorry
story of payola. In industries that are highly monopolized and in which the
returns from capturing the main distribution and information channels are
enormous, the temptation to bend and then break the rules is too strong to
resist, as public choice theory and economic common sense suggest. In the pharmaceutical industry, the main distribution and information channels
are not the radio and television stations, but the medical profession. Hence,
the unavoidable and continued temptation to capture the doctors, to make
them promote the drug, and to be silent over the other drugs. This is why
we have started to learn, more and more frequently, that "As Doctors Write
Prescriptions, Drug Companies Write Checks," as Gardiner Harris aptly
titled his report on how drug companies mail nice, fat checks to doctors
in exchange for "consulting activities" that amount to - doing absolutely
nothing, just keep prescribing our drugs, thank you.

    In Boston, federal prosecutors have been attempting to crack down on
these marketing practices. From the cases they have brought, it appears that
this is not just the usual story of the few rotten apples:
    Last month, Pfizer agreed to pay $430 million and pleaded guilty to criminal charges
involving the marketing of the pain drug Neurontin by the company's WarnerLambert unit. AstraZeneca paid $355 million last year and TAP Pharmaceuticals
paid $875 million in 2001; each pleaded guilty to criminal charges of fraud for
inducing physicians to bill the government for some drugs that the company gave
the doctors free.
    Over the last two years, Schering-Plough, which had sales of $8.33 billion last
year, has set aside a total of $500 million to cover its legal problems - mainly
for expected fines from the Boston investigation and from a separate inquiry by
federal prosecutors in Philadelphia who are investigating whether Schering-Plough
overcharged Medicaid.38
    The case is overwhelming, and there is not much value added in repeating
further stories of this kind, either older or more recent.39 Now, you may
wonder, what is the point of bringing this kind of scandal into an otherwise
serious debate? We are not trying to score some cheap moral points here -
even if, it should be said, the fact that business is business cannot be used to
put up with every kind of conceivable immorality. We are stressing, instead,
a dramatically poignant policy implication: a monopolized industry, where
patents are the core and foundation of the business method adopted, must
end up practicing rent seeking and bribery, it must conceal or suppress
relevant research findings, it must monitor doctors' prescription behavior,
it must employ a sales force three times the size of its research team, and it
must, finally, become one of the top donors of political campaign contributions.
    If this were the radio industry and the bribery affected the quality of the
tunes played on this station or another, there would be only a very mild
case for social concern. But this is the health industry, and the bribery is
affecting the