Intellectual Property Rights and Innovation: Evidence from Health Care Markets

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Citation: Heidi Williams (2015) Intellectual Property Rights and Innovation: Evidence from Health Care Markets.
DOI: 10.3386/w21246
Semantic Scholar: 10.3386/w21246


Though most public policies assume positive relationship between patent strength and innovation, two most careful studies found little evidence for longer or broader patents inducing additional research, and another line of research concerns how patents hinder follow-on innovation. Author argues too little evidence to draw conclusion that patent system generates little social value.

Author states cost of suboptimal patent system is that of "missing" R&D investment which is hard to measure due to lack of records on research abandoned or not undertaken due to flaws in patent system, and lack of knowledge concerning which research not undertaken or abandoned which would not have been efficient to undertake.

Challenges to empirical work: measuring research investments is difficult, as is finding variation in patent strength.

Author summarizes their two recent efforts to overcome these challenges:

  • new data disclosing non-patent metrics of research investment constructed by focusing on single-market case studies
  • new sources of variation in effective IP strength for different inventions

Patent and patent citation counts are not a good measure because variations in patent strength change incentives to patent, though some research has tried to overcome this by looking at variations in foreign filing upon a domestic change and citations to invalidated patents.

Author's view is that non-patent based measures of research and follow-on innovation is important, cites some existing work usng reported R&D investment, counts of scientific papers, citations to scientific papers, clinical trials and drug approvals, diagnostic test availability, and plant yields. Ideally welfare-relevant outcomes such as prices and health would be traced.

Country-level patent policy changes underpowered to show impact as they tend to be incremental changes and further, unlikely to influence global R&D market much.

Due to need to demonstrate efficacy for approval, drugs targeting late stage cancer will be approved faster than those targeting earlier stages. Author compiled dataset of advertisements recruiting patients for clinical trials, allowing a measure of commercialization lag and R&D activity (clinical trials) across cancer tpes and stages. Decreased commercialization lag (e.g., when surrogate endpoint or symptom improvement correlated with surivial is accepted for efficacy) increases public and private investment, latter moreso, indicating "missing" private R&D.

Author estimate on the order of $89 billion loss for US cancer patients diagnosed in 2003. Data indicates commercialization lag should be decreased, but can't be used to shape patent policy as unclear whether patent term is cause of decreased prviate R&D in presence of lag. Some ways to mitigate commercialization lag include establishing more surrogate endpoints and subsidizing R&D with long commercialization lags.

Theoretical literature on impact of patents on follow-on R&D, but scarce empirical evidence. Author analyze how Celera's contract-based (non-patent) IP in human genome data affected R&D, relative to genes that in the public domain due to having been sequenced by the Human Genome Project, linked with scientific publicaion of genotype-phenotype linkage and as a meausre of commercial development, laboratory test offerings listed on

Find Calera and HGP genes 2001-2009 have 1.2 and 2.1 scientific publications, with 3% and 5.4% used in diagnostic tests. All Celera genes were sequenced by HGP 2001-2003; those sequenced by HGP later (subject to Celera contract longer) converged in measures of scientific effort but not knowledge; cannot reject even very temporary restrictions have persistent effects on follow-on innovation. However, had Celera's patent applications not been rejected, the outcome may have been better, as info about its sequenced genes would have been more available had it not relied on control of distribution through contracts.

Theoretical and practical relevance:

New mechanisms for characterizing policy impact on R&D investment and follow-on innovation described, but analysis of dataset for each in this case does not provide evidence for the impact specifically of patent strength. Author has ongoing work to extend analysis.

Paper continues tradition of taking optimal system to be one which generates more R&D and commercialization, ignoring both opportunity costs and other impacts of IP. However, measuring R&D and commercialization not by merely counting patents, and calling for tracing welfare-relevant outcomes very welcome direction.