Stimulating Innovation: Policy Gone Wrong

Yesterday, I tweeted about a post from Alex Tabarrok over at Marginal Revolution, in which he discusses the ludicrous Supreme Court case of Mayo Collaborative Services v. Prometheus Laboratories and what it could mean in terms of patents and innovation. Prometheus Labs essentially wants to patent dosage instructions for a particular drug, which would mean every time a patient is prescribed the medication (or the dosage changed), the prescriber would infringe upon patent rights if they did not pay the usage fee or get consent from Prometheus Labs. It is an absurd case and an example of policy meant to stimulate innovation gone horribly wrong. Unfortunately, this case is far from the only abuse of the innovation system seen in recent decades.

The pharmaceutical industry has been perhaps the most prominent in terms of finding ways to use intellectual property right laws to their utmost advantage. Minor modifications of brand name drugs have been given new patents, giving drug companies double (or if done again) triple the time of monopoly profits for what is essentially the same drug (i.e. Claritin vs. Claritin D). There is not much of a cost at all for these companies in releasing these slightly altered medications, but the payoffs can be huge. More so, the “generated innovation” from these minor changes are far from justified by the huge consumer costs incurred.

Unfortunately the malfunctioning of the patent system is not limited to pharmaceuticals. There are many other markets that similarly work around the laws and end up hurting outcomes with certain actions that do not foster innovation. The “patent wars” between Apple, Google, and other tech players are a recently popularized example. There are companies (Apple being the behemoth) that are collecting and using patents as a way to stop competitors from innovating and to win lawsuits. As a result, even those who were not originally in the patent-hoarding business, have been forced to get in to have more leverage in lawsuits. The acquisition of Motorola Mobility by Google earlier this year is a prime example.

What has happened with the patent system in the United States is that companies have evolved to match the incentives. That is expected and fine. What is not though is that the current system clearly is not incentivizing only innovation. In fact, it is sometimes doing just the opposite by stifling innovation. At a time when innovation is arguably very important for recovery, reform needs to be looked at. Downturn aside, it is an extremely important issue and one which effects so many important things from the prices of life-saving drugs to the future of tech. The case of Prometheus should light the fire for the reform process, but likely will not.