Against Intellectual Monopoly

time.
    That said, we have seen that patents do not play a helpful role in pharmaceutical innovation. Far from encouraging great new health and life-saving
products, the system instead produces too much innovation and expense of
the wrong kind - me-too drugs to get around the other guy's patents and
get a share of a lucrative monopoly, and all the advertising and marketing
expenses attendant upon monopoly power.45 In the play that is life, health
is the ultimate commodity - we all want to live longer and stay healthier. As
we have just seen, patents do not have a useful role in this play.
Comments
    The point of view we take here is a very narrow one, and this chapter should
not be read as an overall evaluation of the current functioning of the pharmaceutical industry and of the impact that reducing patentability of new
drugs would have on it. In particular, it does not ask, as a complete analysis instead should, whether, under an alternative system, doctors, medical
researchers, and shareholders of Big Pharma would be better or worse off
than they are now.
Notes
    1. Hansen, Grabowski, and Lasagna (1991) report on the 1987 cost of developing a
new drug. The Department of Commerce reports an implicit gross domestic product
price deflator in the first quarter of 1987 of 72.487 and in 2000 of 99.317, which is
used to convert the $200 million year 1987 dollars of the earlier estimate to year 2000
dollars.
    2. The estimate length of medical patent protection is from Grabowski (2002), while
the impact on it of the Hatch-Waxman Act is from Grabowski and Vernon (1986,
1996).
    3. PhRMA (2007), p. 2.
    4. Basic information about the current structure of the drug industry and its economic
performance is widely available online. The specific data we quote are taken from El Feki (2005), http://healthguideusa.org/NationalCosts.htm, and various online
reports freely available at http://www.imshealth.com.

    5. Up from $253.7 billion in 2005, as reported by IMS Health at its Web site http://
www.imshealth.com. The top ten drugs accounted for about $41 billion.
    6. Hansen et al. (1991).
    7. Di Masi, Grabowski, and Hansen (2003). This study also explains the interest rates
used in capitalizing and discounting costs and benefits in the pharmaceutical industry.
    8. For the FDA's official announcement, visit http://www.fda.gov/bbs/topics/NEWS/
2006/NEW01514.html.
    9. These figures are from Pfizer's press report on December 3, 2006, and are still
available online from the many Web sites that reported the announcement, e.g. The
New York Times of December 4, 2006, available on line at http://www.nytimes.com/
2006/12/04/health/04pfizer.html [accessed February 24, 2008].
    10. Dutfield (2003), p. 78.
    11. In fact, a number of large chemical companies wanted to leave the industry completely free of any patent protection to avoid the fate of the French dye industry
(see note 14 herein) and favor its development. Apart from Dutfield (2003), see
also Seckelmann (2001) for additional details about the German patent system at
the end of the nineteenth century, and Arora, Landau, and Rosenberg (1998) for
various historical studies on the growth of the chemical industry.
    12. Again, Dutfield (2003), especially Chapters 4 and 5, is our main source of information. Zorina Kahn's online history of patent laws, at http://eh.net/encyclopedia/
article/khan.patents, provides a useful and easy-to-access summary of the main
facts.
    13. Quoted [as of February 24, 2008] in http://en.wikipedia.org/wiki/Community-
patent, on the basis of various media sources, such as http://www.eupolitix.com/
EN/News/200702/7be97fa5-3cb6-403f-aadf- 103ad99a9950.htm.
    14. To begin learning about the history of the dye industry and the crucial, if not
necessarily positive, role patents played in it, see Morris and Travis (1992) and
the plenty of references therein. For why patents and monopoly did not allow La
Fuchsine to thrive, see Van den Belt (1992). For similar stories of not-so-useful
patents in other sectors and countries, such as in the United States, see Murmann
(2004), where the initial stages of the dye industry are also carefully analyzed. If you
are curious about the nature of the mysterious dye fuchsine, Wikipedia can tell you
about its chemical composition.
    15. Meyer-Thurow (1982) provides additional information about both the dye industry
and the development of the German chemical industry. The absence of both organic
and