Intellectual Property = Monopoly = Inefficiency

[Brighteye]

Why are consumers entitled to life-saving drugs? Just because something exists that will make our lives easier or more pleasant doesn't mean that we should have it.
There seems to be the implicit assumption that we already own, in some way, anything that exists; that we are entitled to it. This isn't an argument working from the basis of a free market, but from something closer to communism.
Before we can have a market we need property. That's what patents are: a definition of property. What you're advocating is some sort of change whereby people don't have intellectual property in these areas.
It's as though you said 'Why do we allow people to own houses? Once someone owns a piece of land they can let it sit fallow and not farm it... look at the starving people in Africa. This is having terrible consequences for our society'.
Property comes first, and then the market. Markets without property aren't markets, but anarchy.

 

[Rambuchan]

Why are consumers entitled to life-saving drugs? Just because something exists that will make our lives easier or more pleasant doesn't mean that we should have it.
There seems to be the implicit assumption that we already own, in some way, anything that exists; that we are entitled to it.

Ah! The humanity!

I forgot that the whole purpose of mankind's ingenuity and industry is to make a profit and serve the market, and not to make our lives better or indeed to save them. How stupid of me!

Next time you're drowning in a river, and there's a life vest to hand to save you, I shall remember to check out who that life vest belongs to, and get their permission to use it, before I offer it out to save your life.

This isn't an argument working from the basis of a free market, but from something closer to communism.

Before we can have a market we need property. That's what patents are: a definition of property. What you're advocating is some sort of change whereby people don't have intellectual property in these areas.
It's as though you said 'Why do we allow people to own houses? Once someone owns a piece of land they can let it sit fallow and not farm it... look at the starving people in Africa. This is having terrible consequences for our society'.
Property comes first, and then the market. Markets without property aren't markets, but anarchy.

Heard it all before. And this is an inaccurate characterisation of the case in the OP (returned in kind with my opening to you).

The OP doesn't seek to abolish property rights or patents, but appeals to posters to offer a streamlining of the current system. GinandTonic, plarq and Erik have come close to offering this. What say you? And, are you aware of how patents slow down innovation?

 

[GinandTonic]

Why are consumers entitled to life-saving drugs? Just because something exists that will make our lives easier or more pleasant doesn't mean that we should have it.
There seems to be the implicit assumption that we already own, in some way, anything that exists; that we are entitled to it. This isn't an argument working from the basis of a free market, but from something closer to communism.
Before we can have a market we need property. That's what patents are: a definition of property. What you're advocating is some sort of change whereby people don't have intellectual property in these areas.
It's as though you said 'Why do we allow people to own houses? Once someone owns a piece of land they can let it sit fallow and not farm it... look at the starving people in Africa. This is having terrible consequences for our society'.
Property comes first, and then the market. Markets without property aren't markets, but anarchy.

You seem to misunderstand the purpose of patents.

Patents are not a positive right granted to the holder but a negative right withdrawn from every other individual. Such a limitation on the freedom of everyone else is granted so that, for a brief period, the inventor can exploit their monopoly. The exploitation of such a monopoly being an incentive to innovation.

In the case of drugs the issue is more complex because there are individuals who will die or suffer if the treatment is withheld. Where the individual is able to pay, clearly they should. The difficulty arises since there are many individuals who cannot afford to pay the brand price.

If only branded drugs are available, the patient is unable to aford them and dies/ suffers, while the licencee recieves no payment.

If generics are available the patient recieves treatment but the licencee recieves no payment.

Since there is no scenario where the holder of the patent recieves any advantage why are the generics being witheld? Why is the market being constrained when the purpose of such constraint is absent?

So thats the debate re drug licencing. While in moral and free-market terms it is an open and shut case the practicalities of tinkering with the system are vast.

 

[Fugitive Sisyphus]

Here we go again...

Patents are good but I agree that the present patent system is very flawed. There have been a number of threads on this.

 

[Brighteye]

The OP doesn't seek to abolish property rights or patents, but appeals to posters to offer a streamlining of the current system. GinandTonic, plarq and Erik have come close to offering this. What say you? And, are you aware of how patents slow down innovation?

I'd be happy to have you give us more examples. I prefer recent ones.

You seem to misunderstand the purpose of patents.

Patents are not a positive right granted to the holder but a negative right withdrawn from every other individual. Such a limitation on the freedom of everyone else is granted so that, for a brief period, the inventor can exploit their monopoly. The exploitation of such a monopoly being an incentive to innovation.

Apart from having entirely understood the purpose of patents, I still argue over your characterisation of what they are and how they differ from other rights. Rights are inherently double-edged, and any right can be called a limitation of someone else's freedom, because that's exactly what they are. My right to life is exactly the same thing as the law forbidding murder. My right to intellectual property is exactly the same thing as forbidding other people from using it.

In the case of drugs the issue is more complex because there are individuals who will die or suffer if the treatment is withheld. Where the individual is able to pay, clearly they should. The difficulty arises since there are many individuals who cannot afford to pay the brand price.

If only branded drugs are available, the patient is unable to aford them and dies/ suffers, while the licencee recieves no payment.

If generics are available the patient recieves treatment but the licencee recieves no payment.

Since there is no scenario where the holder of the patent recieves any advantage why are the generics being witheld? Why is the market being constrained when the purpose of such constraint is absent?

So thats the debate re drug licencing. While in moral and free-market terms it is an open and shut case the practicalities of tinkering with the system are vast.

Why should generic drugs be provided? Why should we force someone to give up their property rights in the name of someone else's welfare? That is communism, not socialism or enlightened democracy.
If we give free drugs to poor people, we find ourselves screwing people who are not poor. I think that an enlightened society should provide things equally or not at all, rather than make some people provide for themselves what others get for free.

I really don't see where you get the over-riding necessity to save lives from. It's kind, it's generous, but it's not such a great force that we must overthrow the bases of our society. Society is about equal opportunity more than saving lives, and I'd consider it highly unjust that people are deprived of property which is not taken from others simply because their property is considered useful for other people.

Can we not simply force patent-holders to accept any license offer that pays at least as much as their own company? Or, as part of the patent, make them accept at least two offers to market their property? Then companies could bid, and the patent holder would accept valuable offers, and then make money whichever of the two companies actually was the best.

If it were compulsory to have multiple licenses (as long as there were multiple companies that were interested) then it would force competition.

 

[illram]

Well Ram, I guess my question is: what is the alternative? What different system will strike the perfect balance between encouraging innovation and originality while protecting and rewarding those who innovate? I think any alternative will still necessitate some sort of system whereby people maintain the ability to profit off of their ideas.

 

[GinandTonic]

Here we go again...

Patents are good but I agree that the present patent system is very flawed. There have been a number of threads on this.

'bout the size of it.

Brighteye I dont understand how removing a limitation on the free-market is communist. In an unfettered free-market there would be no IP since the whole concept of IP is to distort the market. Clearly IP is a necessary limitation on the market, but it remains a limitation.

If you believe in patents so much let me ask if you agree with them expiring?

If the idea isnt to allow a short term distortion of the market to reward invention, before the market reverts to it's natural state, then why shouldnt every patent last in perpituity, pasted down through the generations?

If a life can be saved, and the patent holder has lost nothing, why should a person die? That persons death benefits the holder not a jot. Why should we go out of our way, spend considerable money, time and effort to ensure that person dies?

 

[Rambuchan]

Well Ram, I guess my question is: what is the alternative? What different system will strike the perfect balance between encouraging innovation and originality while protecting and rewarding those who innovate? I think any alternative will still necessitate some sort of system whereby people maintain the ability to profit off of their ideas.

I don't have much time right now, so will have to defer a detailed answer and responses to others.

For now though, I'll point out one term/concept/maxim that economists supposedly treasure, but rarely mention in such discussions for some reason, and one related policy area that could be focussed on.

The concept/term/maxim is - knowledge being "a public good".

The policy area - I reckon that the use of Compulsory Licenses by governments, and more of it, is a step in the right direction. These are typically only issued in special situations, like an AIDS epidemic, and we're probably familiar with the generic drugs cases in South Africa and India here. Another interesting recent case was the anthrax scare in the US in 2001. In that instance, the US government threatened to force Bayer to allow others to produce Cipro, the antibiotic most effective against anthrax at that time - because the knowledge they held was deemed to be a crucial "public good".

With Compulsory Licenses a pharmaceutical firm, or any other firm for that matter, can still produce their drug and still sell it competitively. And they still get their royalities. It's just that they don't reep such huge profits as they would like to.

The counter balancing benefits are too great to be ignored in favour of the corporate profit gripe here. The consumer benefits greatly in this scenario, particularly in the case of drugs and the developing world. Compulsorily Licensed drug manufacturers in say Brazil can produce drugs at vastly discounted costs when compared to those in say the USA. The savings for governments, the benefits in saved lives, and the knock on effect of those people being alive and functioning in the economy in such a scenario are huge plus factors.

There are other areas to look at too, particularly with regard to stimulating innovation.

 

[illram]

@Ram

OK. I think with drugs and pharmaceuticals you might have a point. I also have problems with drug companies making exorbitant profits that can be directly linked to a health crisis. These sorts of things can be dealt with on a case by case basis, so I don't think they require an overhaul of the entire system. Perhaps there should be a different set of rules for drugs or other patents related to biological material? I don't know.

But the vast majority of patents are not of this scenario and a general maxim of "knowledge being for the public good" doesn't really counter the benefits of having a patent system. You're still not overcoming the motivating factor patents give for people to try and come up with useful ideas.

 

[GinandTonic]

Just had a chat with someone who is fairly high up in a drugs multinational.

They were of the opinion that differential pricing was the way to go. Essentially since some countries are forced into generics, the drugs company would do beter to sell the puckka drugs at a price the nation could afford. The nation gets the real drugs and the company makes both profit and great PR.

The problem with this, they said was firstly that of the blackmarket. Branding the products and packaging will stop much of this, but the companies worry as to if the extra profit gained from the new market is greater than the loss caused by bleeding of the low-margin product into the full-price markets. To some extent this is mitigated by the fact that generics end up on the black-market anyway.

The second, and greater, issue is that of public perception of their margins. If they can sell x at 20 pence a pill and turn a profit the public may very well freak at the fact that they are expected to pay 500 quid a pill.

An example they gave me was of a drug that was being released for animal treatment at one 400th of the price for the human version. The animal version is, as they see it, a happy accident of the human research where they recoup their R and D expenses. Besides, as much as people love their pets, they just are not going to shell out the kind of money they would on people.

 

[GinandTonic]

@Ram

OK. I think with drugs and pharmaceuticals you might have a point. I also have problems with drug companies making exorbitant profits that can be directly linked to a health crisis. These sorts of things can be dealt with on a case by case basis, so I don't think they require an overhaul of the entire system. Perhaps there should be a different set of rules for drugs or other patents related to biological material? I don't know.

But the vast majority of patents are not of this scenario and a general maxim of "knowledge being for the public good" doesn't really counter the benefits of having a patent system. You're still not overcoming the motivating factor patents give for people to try and come up with useful ideas.

1 - There is a seperate patent system for drugs. Ten years from comming to market, not twenty years from registration. The patent can be violated by any country given sufficient crisis etc etc. I agree the drug system needs further work though.

2 - Given the pace of technological and industrial advance we have today there are instances where a twenty year patent is the whole life of a technology. The length of patents was established hundreds of years ago and was designed to give a window of oppertunity, a window where a person could profit from their monopoly and/ or establish their business. Multinationals still need to be able to profit from their innovation, but the times have radically shifted and the patent laws are not functioning in the manner they were drawn up for.

Not that they need to be scrapped, but that they need to be altered to do that which they were intended to do, in the manner they were intended to do it.

 

[Mise]

Intellectual Property Rights, enshrined in a patent, grant the owner of that property the exclusive right to use it. The patent owner may exclusively market his innovation, and his competition is stifled by IP law. This is the granting of an effective a monopoly.

In the absence of competition, this product doesn't get developed even further in the most efficacious fashion, leading to the best outcome for the consumer. After all, just because something is patented doesn't mean that it is in its most perfect state, a state most beneficial to the consumer. In such a scenario, neither is cost reduced for the consumer via competitive production and marketing. And further, with a lack of competition, what motivation is there to innovate upon a product further? They can just go on peddling the same sub-standard, over priced product at will. Critics of Microsoft will be all too familiar with this line.

The point you're missing is that inventors (at least idealised, homo economicus inventors, the type of which from whom the vast, vast majority scientific and technological advances originate) won't bother inventing stuff if their work will simply be stolen and distributed by someone else.

And similarly, the reason we protect investors is that without that protection no-one would get any money at all.

The point, therefore, is that patents provide a net benefit to society.

There is also the "me too" phenomenon to consider when speaking of the inefficiencies created by IP. Let's take pharmaceuticals for a notable example. If one firm discovers a drug, others are prevented from marketing exactly that drug (unless granted a paid license by the IP owner). But they can produce similar a drug, often called a "me too" drug, that is slightly different, and bring that to market.

This is not quite the pure monopoly described at top, but its outcomes can be even worse for consumers, innovators and the economy. "Me too" drugs are not privilege to the core IP that makes the original drug so great, but they do provide a similar service. Two important results of this situation are that a) inferior drugs crowd the market and subsequently b) the original drug doesn't sell as well. This all means that the innovator doesn't get remunerated for his "original" thought as fully as he would expect and consumers also suffer from an inferior drug. It's a lose-lose. And even when the "me too" phenomenon doesn't take place, consumers, especially in the developing world which can't afford the drug, do not even get to benefit from it or anything like it.

Again, it's not a lose-lose scenario, if you consider that without property rights, neither drug would have been invented at all, simply because there's no incentive.

Additionally, the people who buy the cheaper drug presumably do so because they feel it's a better buy than the more expensive drug (i.e. the extra benefit first drug isn't worth the extra cost). Hence, the consumers don't lose out by buying the cheaper drug, even if you disagree with their decision. And who are you to tell people what drugs to buy

So, why do we still have such an Intellectual Property Rights regime in place? What might be a better regime that strikes a more beneficial balance between the interests of public utility and those of the inventor?

I think the reason we keep the current patent laws is precisely because no-one's thought of a better regime.

P.S. forgive me if you've already answered these points elsewhere in the thread...

 

[Brighteye]

The patent can be violated by any country given sufficient crisis etc.
2 - Given the pace of technological and industrial advance we have today there are instances where a twenty year patent is the whole life of a technology.
...Multinationals still need to be able to profit from their innovation, but the times have radically shifted and the patent laws are not functioning in the manner they were drawn up for.

Why shorten the length of time? I'm allowed to own a car I build for all my life. Why not an idea I create? We should be lengthening it.

Brighteye I dont understand how removing a limitation on the free-market is communist. In an unfettered free-market there would be no IP since the whole concept of IP is to distort the market. Clearly IP is a necessary limitation on the market, but it remains a limitation.

No, my point was that it is not a limitation, but a necessary precursor to it. It's one of the founding principles on which the market is based, not a restriction without which the market could operate freely. The market requires property before we can have a market, or else no-one will have anything to trade in the market. We can't just say that people owning property restricts the free flow of material/ideas via the market, and that therefore we should abolish property, because without property there is no market at all. Of course we could just spread the ideas, in the same way that communists want to spread the wealth, but pretending that it's not a communist concept is silly.

If you believe in patents so much let me ask if you agree with them expiring?

On death for a person, after 10 years for a company seems reasonable.

If a life can be saved, and the patent holder has lost nothing, why should a person die? That persons death benefits the holder not a jot. Why should we go out of our way, spend considerable money, time and effort to ensure that person dies?

Why are we spending money, time and effort to make the person die? The person will die if nothing is done, and will be saved if we spend money, time and effort breaking patent law and bringing the drug to him.
Why don't we do that for every person who needs the drug? Just bring him the drug, and the patent-holder has lost nothing; he wasn't going to make a sale anyway. So what if the person could pay the exorbitant prices? He clearly wasn't going to, so the patent-holder has lost nothing.
Why don't we just provide ipods at manufacturing cost to everyone who hasn't got one? We're clearly not going to buy the things, so Apple haven't lost anything.
It's simple: things decrease in value if there's a lot of them. If lots of people are getting the treatment for free that I want to charge £500 for, then I won't get my customers.
If we force some people to be my customers, but let others get it for free, then we're punishing my customers. That isn't fair, and the only justification for it is, again, the communist argument that since they have property (in this case, money) it should be taken from them. Why should the rich pay for their healthcare when the poor do not? Why should rich countries pay for the AIDS treatment of poor countries?
Your argument seems to be based not on treating people equally, but on punishing those who have, in an attempt to make everyone equal no matter the effort or fortune they have in their lives. That is the essence of communism, and it leads to people not having any effort and squandering any good fortune.

The counter balancing benefits are too great to be ignored in favour of the corporate profit gripe here. The consumer benefits greatly in this scenario, particularly in the case of drugs and the developing world. Compulsorily Licensed drug manufacturers in say Brazil can produce drugs at vastly discounted costs when compared to those in say the USA. The savings for governments, the benefits in saved lives, and the knock on effect of those people being alive and functioning in the economy in such a scenario are huge plus factors.

There are other areas to look at too, particularly with regard to stimulating innovation.

But the purpose of the market is not actually to bring the greatest good to the most people. That's the utilitarian ideal, and the market is a good approximation, but the purpose of the market is not to benefit the consumers, but to provide the best opportunity for each person to do the best for himself. If we infringe on the 'rights' of the seller in order to aid the buyer then it's just as much of an imposition on our laws as if we do the opposite.
There is no them-and-us divide in which we're all consumers and some people out there are providers. Anyone with a job is a provider of some sort in the market. Would you approve if you were forced to earn the minimum wage for the same amount of work, and were forbidden from earning more 'for the public good'? That's what you want to do for the pharmaceutical companies. You want them to earn minimum profits so that the rest of us can benefit, and it's in direct conflict with the most basic principles of the free market and a free society.
I think that it's a revolting idea, because it is based on introducing communist principles into a society that is not communist.

 

[GinandTonic]

Why are we spending money, time and effort to make the person die? The person will die if nothing is done, and will be saved if we spend money, time and effort breaking patent law and bringing the drug to him.

No.

If we do nothing the generics will step in and provide the service at a fraction of the price. If the pukka drug can be supplied, by the same company, at one 400th of the price (and still turn an imediate profit) then a generic could do it at (at worst) a similar price. The licencee could do so delivering the same assurance of quality, turning a profit.

Not only are we talking about restricting independents ability to turn a profit and the companies own ability to turn a profit but the companies spend to lobby and nationstates spend to inforce.

This isnt an issue of of asking for charity from anyone, this is asking people to make money while they save lives doing what it is that they do.

 

[Rambuchan]

@Ram

OK. I think with drugs and pharmaceuticals you might have a point. I also have problems with drug companies making exorbitant profits that can be directly linked to a health crisis. These sorts of things can be dealt with on a case by case basis, so I don't think they require an overhaul of the entire system. Perhaps there should be a different set of rules for drugs or other patents related to biological material? I don't know.

Yes, having tailored solutions to different industries is the way forward. As we're seeing in economic development, so too in the land of IP. One size doesn't fit all. After all, there can be prohibitive costs involved with running a heavy IP regime, costs which some countries simply cannot afford. If they are spending money on IP lawyers, then they aren't spending it increasing their wealth to spend further down the line.

But the vast majority of patents are not of this scenario and a general maxim of "knowledge being for the public good" doesn't really counter the benefits of having a patent system. You're still not overcoming the motivating factor patents give for people to try and come up with useful ideas.

I would say that there are many other technologies and industries that the maxim does apply to (though this doesn't mean a blanket approach need be taken). Take the internet for example, of which Tim Berners Lee said the following, in 'Weaving the Web: The Original Design and Ultimate Destiny of the World Wide Web':

"[Patents present] a great stumbling block for Web Development. Developers are stalling their efforts in a given direction when they hear rumours that some company may have a patent that may involve the technology."

This climate, thick with patents and the threat of patent infringement suits, what is often refered to as a "patent thicket", is hardly condusive to innovation. Quite the contrary. It's actually discouraging innovation!

There's also the example of the automotive industry, which I highlighted earlier on. And we can add a fourth, providing brighteye with yet another example that he asked for; the string of FCC decisions throughout the 20th century against AT&T's monopoly of the telephony market in the USA. All these decisions were made to bring about greater competition and to allow innovation to rise to the top instead of it being litigated out of the market by the monopolist.

There's no reason to believe that these four diverse industries (pharmaceuticals, web development, car manufacture and telephony) do not present truths that apply elsewhere.

In all these cases, that maxim of the "public good" applies. Patents impede the dissemination and use of knowledge, which further innovation is built upon.

There is one other thing to add here: The time and money spent on filing patents, suits against patent infringement, strengthening a company's monopoly power through patents, and getting around other companies' patents, is all time and money diverted from innovation. This may seem like small beer, but so complex and heated is the patent field these days that it's quite a significant diversion. I wonder what the difference is between Microsoft's legal and R&D budgets.

 

[Rambuchan]

The point you're missing is that inventors (at least idealised, homo economicus inventors, the type of which from whom the vast, vast majority scientific and technological advances originate) won't bother inventing stuff if their work will simply be stolen and distributed by someone else.

But my dear, you have been conned!

You must be under the assumption that private, corporate industry is the main innovator and inventor. If you care to look into it, then you will soon find that you are very much mistaken. The places where invention and innovation truly takes place are in government funded laboratories (see mapping of the human genome for example) and in universities (where an 'open architecture' approach to knowledge us adopted).

What the corporations do provide is the delivery to market of these innovations (and the reaping of profit from a publicly funded invention) - which is what gives the impression that they are innovating.

And similarly, the reason we protect investors is that without that protection no-one would get any money at all.

The point, therefore, is that patents provide a net benefit to society.

Again, it's not a lose-lose scenario, if you consider that without property rights, neither drug would have been invented at all, simply because there's no incentive.

Do you really believe this? Where do you get these ideas from?

I would like you to go and have a look at the history of Intellectual Property Rights in two countries; The Netherlands and Switzerland. When you do so you will find that the first didn't have IP rights in place until 1907 and the second didn't have any until 1912. Were these countries devoid of innovation and invention until they enshrined IP rights?

Additionally, the people who buy the cheaper drug presumably do so because they feel it's a better buy than the more expensive drug (i.e. the extra benefit first drug isn't worth the extra cost). Hence, the consumers don't lose out by buying the cheaper drug, even if you disagree with their decision. And who are you to tell people what drugs to buy

Errr did you consider that the amount of money people have is determining what drugs they buy, or indeed whether they can buy any at all? No one is making their decisions for them, well, other than the level of their wealth.

I think the reason we keep the current patent laws is precisely because no-one's thought of a better regime.

Are you sure that heavily funded corporate interests, with swarms of highly trained and highly paid lawyers and lobbyists, aren't stalling the establishment of a more efficient and justice IP regime?

 

[JerichoHill]

Ram,

Amazingly you may agree here with me. What would you think of a patent system for pharmacuticals that would auction off any newly patented drug that is effective (per whatever reg organization we agree). However, the catch is that every X% of the time, the government would buy the patent at the second highest bid price (this is a second price double blind auction which is the best kind of auction to maximize revenue for the auctioneer) and release it as a generic for all?

 

[Ayatollah So]

Ram,

Amazingly you may agree here with me. What would you think of a patent system for pharmacuticals that would auction off any newly patented drug that is effective (per whatever reg organization we agree). However, the catch is that every X% of the time, the government would buy the patent at the second highest bid price (this is a second price double blind auction which is the best kind of auction to maximize revenue for the auctioneer) and release it as a generic for all?

That sounds pretty good. I hope that X% would be about two-thirds to four-fifths. Just leave enough cases privatized to keep the bidding honest.

 

[Desmond Hawkins]

Doesn't neo-classical economics suggest that technology is exogenously bestowed, and thus any government economic intervention to encourage its growth is wrong-headed?

 

[innonimatu]

a patent system for pharmacuticals that would auction off any newly patented drug that is effective (per whatever reg organization we agree). However, the catch is that every X% of the time, the government would buy the patent at the second highest bid price (this is a second price double blind auction which is the best kind of auction to maximize revenue for the auctioneer) and release it as a generic for all?

And how much would the company that required the patent and auctioned it be required to pay for its the use of public information during the research process that led to the patent?

I mean, if the government will be required to buy, into the public domain use, the "intellectual property" described in the patent, then it is only fair that the company selling it be required to buy, from the public domain, all the information used in the research process.
Somehow I don't think they would be able to turn a profit that way. Which only exposes the racket hidden behind the notion of "intellectual property".

The point you're missing is that inventors (at least idealised, homo economicus inventors, the type of which from whom the vast, vast majority scientific and technological advances originate) won't bother inventing stuff if their work will simply be stolen and distributed by someone else.

Mankind somehow managed to develop civilization until the 19th century without patents... so much for the idealized homo economicus inventors.