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Jewish World Review July 16, 2002 / 7 Menachem-Av, 5762

Doug Bandow

Doug Bandow
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Consumer Reports

Fighting the patent wars

http://www.NewsAndOpinion.com | America's pharmaceutical industry leads the world. But that hasn't stopped America's politicians from threatening to destroy it.

Because of new drugs, Americans live longer and better. But many people nevertheless believe pharmaceuticals cost too much. It is easy to take drugs for granted. Hundreds of new medicines are in the process to combat cancer, heart disease and strokes, AIDS, infectious diseases, and more mundane conditions. Observes Frank Lichtenberg of Columbia University, "On average, each new drug approved during the period 1970-91 is estimated to have saved 11,200 life-years in 1991."

Unfortunately, finding new products costs money -- more than $30 billion on research every year. Yet Congress is considering legislation to trim patent protections in order to speed generic drugs to the market. The McCain-Schumer bill would, advocates claim, "close loopholes" under existing law by, for instance, dropping the stay now granted on a generic when a patent-holder files an infringement suit.

Curiously, the attack on pharmaceutical patents is being led by the so-called Business for Affordable Medicine. In fact, BAM itself has many non-business members, including labor unions and governors.

But at its core are firms acting in their capacity as employers providing health insurance. They include General Motors Corp., Wal-Mart, Verizon, Eastman Kodak Co., Motorola Inc., Weyerhaeuser Corp., Kellogg Co., and Georgia-Pacific Corp.

Earlier this year BAM's co-chair, Jody Hunter, complained: "All prescription drug purchasers, including the corporations that belong to BAM, are frustrated by the rising cost of prescription drugs."

That's hardly surprising. They probably are frustrated with the high cost of other medical treatments as well.

But expense should not drive the pharmaceutical debate. Prescription drugs cost a lot, but without them people would die sooner, have more miserable lives, and spend more on alternative medical treatments.

Trade-offs are inevitable. Attempting to control prices directly (as many state legislators and congressmen want to do) or lower them indirectly (through patent adjustments by Congress) would reduce the number of new drugs and the speed with which they hit the market.

Today patents run for 20 years, but drug makers, in contrast to BAM members, lose half or more of a patent's useful life to the FDA approval process. Since most pharmaceutical leads result in dead ends and most drugs lose money, firms have only a very short time to sell a few blockbusters to fund their entire operations.

Nevertheless, the 1984 Hatch-Waxman Act created a major exception to both patent and drug laws by allowing generics firms to use and test patented drugs and avoid repeating the FDA-approval process. This allows generics producers to be prepared to sell on the day a patent expires. Generics now account for almost half of the market, up from just a fifth in 1984. Only about 6 percent of generics sales result in infringement actions, many of which are settled out of court. Of course, as BAM points out, that 6 percent includes many important and expensive drugs.

But patent law means nothing if it doesn't first protect the holder of a valid patent. The automatic stay only applies when a generics firm attempts to use a legal exception to begin selling before the patent's expiration.

BAM estimates that further trimming patent rights, causing the slightly earlier release of some generics, would save $71 billion over the next decade. That seems hopelessly optimistic. BAM also assumes that generics are as good as brand products. That may be the case for most of the people most of the time. But not always.

At least, according to BAM member General Motors Corp. Merrill Matthews, a visiting scholar at the Institute for Policy Innovation points out that GM strongly opposes what it terms "imitation parts," because they may wear out sooner and "could cause major safety problems." Why does GM treat "imitation drugs" differently?

Anyway, if customers are entitled to declare prices to be too high, then why stop with pharmaceuticals?

I think cars and film cost too much. So does cereal. Maybe Uncle Sam should go after BAM members.

In fact, many of them rely on patents. Matthews points out that Motorola was number 19 in the number of patents granted last year, with 778. Kodak came in at 20 with 719. General Motors ranked 93 with 176. The drug makers, in contrast, ranged from Bayer, with 362, to AstraZeneca, with 40. In 1984 Congress managed to strike a balance between patent and generic drugs that simultaneously yielded vibrant research and generic industries. No other nation comes close on either score.

Congress should look carefully before it leaps. There is no obvious right or wrong answer to questions -- such as how long and what details? -- when it comes to patents. But there are obvious right or wrong reasons. Arbitrarily trying to save money may be the worst reason of all.



JWR contributor Doug Bandow is a senior fellow at the Cato Institute. Comment by clicking here.

Up


07/09/02: Getting that quota feeling
07/02/02: Teetering on the Democratic edge
06/25/02: Judicial litmus tests
06/18/02: Killer teeth?
06/11/02: Europeans defending whom?
05/24/02: Threatening pharmaceutical innovation
05/14/02: The war crimes fantasy
05/07/02: Paying a high price for befriending Saudi princes
04/30/02: The price of postal monopoly
04/23/02: The war on charity
04/16/02: The forgotten human right
03/27/02: Cuba's struggle to be free
03/20/02: How to defeat Cuban communism
03/12/02: Junk science, redux
03/06/02: Axis of hubris
02/27/02: Washington-style campaign reform: incumbent protection
02/20/02: The grand Enron morality play
02/12/02: Rebuilding what?
02/05/02: Succumbing to the terrorist temptation
01/29/02: Democrats for what?
01/22/02: The Iraqi question
01/14/02: Profiling frequent flyers
01/08/02: Trade, not aid
01/02/02: Treason by any other name
12/26/01: Preserving freedom in an unfree world
12/17/01: Dealing with terrorism's aftermath
12/10/01: Emerging friendships?
12/04/01: Uncle Sam: Insurer of last resort
11/28/01: Expanding the circle of trade
11/20/01: Free to be stupid
11/13/01: The meaning of compassion
11/07/01: Patriotic scoundrels
10/30/01: The coming postal raid
10/16/01: First, do no harm
10/12/01: Good news from a suffering land
10/04/01: Defending whom?
09/25/01: The wrong solution to the wrong problem
09/21/01: The price of terrorism
08/28/01: Uncle Sam's retirement scam
08/21/01: Canberra's quaint naivete
08/14/01: Uncle Sam's false fuel economy
08/08/01: The Clinton administration in drag
07/31/01: The high cost of government
07/24/01: Kill the campaign reform illusion
07/17/01: Do as I say, not as I do
07/11/01: Lawyers at play
07/05/01: Western blundering, Macedonian disaster
06/26/01: How best to honor Bill Clinton?
06/19/01: A maturing Europe?
06/15/01: Tell Beijing to mind its own business
06/06/01: Ukraine's boiling cauldron
05/31/01: Protecting privacy from Uncle Sam
05/22/01: America's Balkan quagmire
05/09/01: The Taiwanese flash point
05/01/01: Globalization serves the world's poor
04/24/01: Who's cheating whom?
04/10/01: The NCAA scam
04/03/01: Balkan stupidities
03/27/01: McCain doesn't want a 'risk for our country'
03/20/01: Dubious Korean alliances
03/06/01: Coercive patriotism
02/27/01: Bombing without end
02/20/01: A dose of misplaced outrage
02/13/01: Psst: Tax cuts for taxpayers. Pass-it-on
02/06/01: Bridging the unbridgeable gap
01/23/01: Left-wing demagoguery
01/16/01: The drug war problem
01/10/01: Politics and trade
01/03/01: Hope for liberty?
12/27/00: The debris of war
12/19/00: What's the rule of law for?
12/15/00: Ending silicone breast implant saga
12/05/00: Election may yield victor, but there are no winners
11/21/00: A Bush presidential mandate?
11/07/00: Exprienced Gore? Yeah, right
11/01/00: Interventionist follies
10/17/00: America's brightening prospects in Ukraine
10/11/00: GOP budget scandals
10/03/00: How a pharmaceutical 'crisis' was created
09/27/00: Clinton's empathy has helped nobody
09/13/00: AlGore's risky budget policies
09/05/00: Military readiness and Korean commitments
08/29/00: Let sleeping hypocrites lie
08/21/00: Targeting a journalistic pariah
08/15/00: European garrison for Kosovo?
08/08/00: Journalistic cleansing at the Boston Globe
08/04/00: Junk science on trial
06/22/00: Eternal vigilance is the price of liberty
06/15/00: The end of U.N. peacekeeping
06/07/00: The Clinton regulatory miasma
06/01/00: Administration stupidity, congressional cowardice
05/25/00: The silence of the international community
05/18/00: Protecting the next generation

05/11/00: Freer trade with China will advance human rights

05/04/00: How not to save the Constitution

04/28/00: American tripwire in Korea long ago disappeared: Why are we still involved?

04/18/00: Clinton administration believes the IRS is too gentle, wants more auditors

© 2002, Copley News Service