Patents: Protecting Inventors and the Public Good “In a world in which science is a rich-country prerogative while the poor continue to die, the niceties of intellectual property rights are likely to prove less compelling than social realities.”
—Jeffrey Sachs, economist and director of the Earth Institute at Columbia University1
Every year U.S. companies charge thousands of dollars for lifesaving drugs that seemingly cost pennies
to produce.2 Not only is this practice legal, it is defended by our Constitution. The “Patent Clause” (article I,section 8, clause 8) grants intellectual property rights, called patents, to individuals or businesses that createa new product or process. Currently, most patents protect inventors for 17 to 20 years.
Patent rights serve as an incentive for private individuals and firms to develop new products and techno-
logical innovations that ultimately provide an overall economic benefit to society. In exchange for investingsignificant resources, patent rights give the developer monopoly control over its newly created good for aspecified period. During this period the company (or individual) can set a high price on the new good andpotentially reap a substantial financial reward for risking its time, money, and development efforts. Oncethe property rights expire, however, society ultimately benefits as the good or process may be priced muchlower and therefore widely consumed. Generic drugs are one example.
Without the incentive of a large financial reward (“positive economic profits”), many argue that the inno-
vative good or process would probably have never been created. Thus, its overall benefit to society would neverbe realized. The large short-term profits for inventors, therefore, are a trade-off so that society may reap along-term gain.
Patents grant property rights to goods and processes ranging from children’s toys to computer technology,
but the property rights assigned to lifesaving drugs are perhaps the most intensely debated. One such debate,in 2001, was even prompted by the U.S. government. During the anthrax scare after the September 11 attacksat the World Trade Center, the U.S. governmentgranted to Bayer forits creation of the trade-name drug Cipro. Cipro is used for protection after exposure to anthrax. RescindingBayer’s patent rights would have allowed the government to acquire a larger supply of Cipro at a much-reducedprice in the short run. However, it could have reduced long-run confidence in the security of patent rights,thus discouraging drug manufacturers from continuing to invest in the discovery of other lifesaving drugs. Given these concerns, the Cipro patent was left intact.3 However, the internationally publicized considerationof patent invalidation by the United States prompted World Trade Organization delegates to sign an agreementlater that year allowing member countries to U.S. drug manufacturers continue toin several foreign countries today.
It is widely argued that the benefits of the patent system have, to date, outweighed the costs. The financial
incentive to create new and useful goods has provided advances in numerous fields, including those aimedat protecting and extending human life. However, in an age of bioterrorism and with the ability to bettermoderate global disease, some fear that the desire to ease human suffering today will begin to outweigh sup-port for inventors’ rights in the future. The question is whether rejecting those rights will mean sacrificingthe most important discoveries of tomorrow.
—By Lesli S. Ott, Senior Research Associate
1 From(The Economist, August 12, 1999); link provided by the Center for International Development at
2 The marginal cost of manufacturing each pill is pennies on the dollar, but the average research and development costs to create a
successful drug are estimated to exceed(see Chap. 1, p. 2).
3 It also helped that, in the face of possibly losing its patent, Bayer eventually agreed to provide Cipro to the U.S. government at
The views expressed are those of the author and do not necessarily reflect the official positions of the Federal Reserve Bank of St. Louis, the Federal Reserve System, or the Board of Governors.Additional Articles on Patents for Medical Innovations
by Frank R. Lichtenberg, National Center for Policy Analysis,Brief Analysis, No. 380, November 15, 2001.
This article discusses how violating patents for pharmaceuticals could negatively affect the future development of new drugs.
by Joseph E. Stiglitz, BMJ.com (British Medical Journal website) #333, 2006.
This report promotes using a medical prize fund in lieu of pharmaceutical patents as an incentive for drug development.
by David Ewing Duncan, CNNMoney.com, Fortune, March 17,2010.
This article gives a brief overview of the recent controversy surrounding the patenting of human genes. Free Data Sources and Reports Description:
Links to answers of general questions regarding U.S. patents. Published by:
United States Patent and Trademark Office
Understanding the WTO: The Agreements—Intellectual Property: Protection and Enforcement
The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was negotiated in the 986-94 Uruguay Round. It introduced intellectual property rules into the multilateral trading system for the first time. Published by: Location:
Pharmaceutical R&D and the Evolving Market for Prescription Drugs
This report by the Congressional Budget Office describes the current state of investment in drug research and development and the factors that influence it. Published by:
Congressional Budget Office (Economic and Budget Issue Brief, October 26, 2009)
The Liber8® Economic Information Newsletter is published 9 times per year, January through May and
August through November. The newsletter is a selection of useful economic information, articles, data,
and websites compiled by the librarians of the Federal Reserve Bank of St. Louis Research Library.
Please visit our website and archivesfor more information and resources.
questions or comments regarding the Liber8 Newsletter
Microscopic Polyangiitis What is Microscopic Polyangiitis? Microscopic Polyangiitis (MPA) is inflammation of the small and sometimes medium sized blood vessels. In the past MPA was thought to be a type of PAN and patients would have been told they had PAN. It is now recognised that they are separate diseases. In microscopic polyangiitis it is common for the smallest blood vessels (cap
Sprachraketen. Aus der Welt humor.ch der Lachforschung: Der hält ihm die Buchstabentafel vor, auf der steht C Z W X N Q Y S T A C Z, und fragt Fragen zum Humor: ihn: Können Sie das lesen? «Lesen?» ruft Der Lachtherapeut Dr. Michael Titze gibt Antworten. Frage: Beim Schwitzen transpirieren wir, wenn wir weinen, kommen uns die Tränen – was passiert beim Lachen?