Is intellectual property necessary for innovation? Is it counterproductive? For the first time, the publication of significant quantities of evidence from the Human Genome Project demonstrates the latter.
As much as the official discourse would like it to be, the debate on intellectual property is not about whether authors or inventors would earn the same thing or more if this legal monopoly was abolished. The question is whether we need rents from a monopoly that only exists thanks to legislation for innovation to exist and whether more innovation is created with protection from intellectual property or without it.
In the field of theory, Michele Boldrin made a fundamental contribution which is now part of the corpus of economic theory by demonstrating that under certain conditions, which are common and widespread today, that incentive is not necessary.
Emprical evidence however, in fields like the biomedical and pharmaceutical industry, was scarce, though it did point to the innovator having incentives beyond patents that would be sufficient to justify and profit amply from R&D.
The type of evidence necessary is two similar innovations, one patented and the other not, coexisting in the market from the outset. The record current for illicit duplication is two years, accused but never proved in the case of the Warfarin, the generic version of an anticoagulant called Coumadin, originally patented by DuPont Pharmaceuticals Inc. What’s interesting about the Coumadin case is that it continues to create revenue of some 500 million dollars annually for DuPont. According to the Wall Street Journal, the monthly expense per patient is $35.50, compared with $28.60 for the generic. However, in spite of the difference in prices, Coumadin continues to have almost 80% of the market. Today, Coumadin remains DuPont’s flagship product, and central to the multinational’s bank accounts, in spite of having been one of the few cases where the nearly simultaneous appearance of a generic creates a situation comparable to the absence of patents.
The definitive case: the human genome
We surely owe the definitive empirical proof to the recent paper by Heidi Williams, a Ph.D. student in Economics at Harvard University.
Williams analyzes the consequences of the Human Genome Project, whose results from the sequencing of the genome belong to the public domain, with those of Celera, a business that hoarded its results under patents.
What’s interesting is that there are genes that were originally protected by Celera, which, by being resequenced through public effort, then became patent-free. This way, Williams could really do two different studies: in one, she compared the impact of patented genes with genes in the public domain from the moment of their sequencing, and in the other, the result of genes that were originally Celera’s being devolved to the public domain.
The result in both cases was similar: patents decreased innovation and its results by 30%. Additionally, in the cases where Celera enjoyed a brief period of monopoly, the negative effects on innovation were maintained, though at a smaller scale, after the gene sequencing was released. That is, the negative effects of intellectual property on innovation tend to persist even after the end of legal protection.
If we extend these conclusions to other settings of intellectual property, we’ll understand, for example, why books in the public domain lead to new editions and translations with more regularity that those under Creative Commons.
We already knew from theoretical models and the scarce empirical evidence available that a pharmaceutical market without patents would, in all likelihood, see greater investment in R&D because only innovation would guarantee temporary extraordinary rents close to those of monopolies. But it also would see a rapid expansion of innovations, in the form of generics, in less-developed nations.
Now we know also that biomedical patents reduce innovation by a third, but also that as short as the period of monopoly may be, the social cost tends to be maintained over time.
If we add up both results, the political consequences are clear: the political and social objective should no longer be the reduction in time or place for exclusive use, but rather its total elimination.