HOW INTELLECTUAL PROPERTY RIGHTS ENCOURAGE PHARMACEUTICAL INNOVATION

Abstract

With patent laws governments intervene into the marketplace to provide incentives to innovators to invest their know-how, time, and money into the creation of inventions under circumstances of the appropriability problem associated with intangible assets. The intellectual property notion of trade secrecy means specific information that possesses commercial value and that reasonable efforts have been taken to keep it secret. Innovative pharmaceuticals, both radical and incremental, are especially susceptible to the appropriability problem in knowledge-based economic activity, for turning a prospective molecule as identified in the laboratory into a medicine that may be distributed in the public health system requires many years of computer modeling, animal-testing and, finally, clinical trial testing. Clinical trials are performed in three phases and each phase results in a plethora of data. Drug laws specify that such data are kept confidential by health regulatory authorities for a period of 5 years in the United States and for longer periods in most of Europe. Sufficiently strong appropriability regimes facilitate licensing and cross-licensing relationships between and among universities and business. Substantial empirical research supports the utility of the Bayh-Dole model and doubts the existence of a patent anti-commons (editor note: the existence of numerous rights holders frustrates achieving a socially desirable outcome), in the life sciences.