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Do fixed patent terms distort innovation? Evidence from cancer clinical trials

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Author Info

  • Eric Budish

    ()
    (Booth School of Business)

  • Benjamin Roin

    ()
    (Harvard Law School)

  • Heidi Williams

    ()
    (Massachusetts Institute of Technology)

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    Abstract

    Patents award innovators a fixed period of market exclusivity, e.g., 20 years in the United States. Yet, since in many industries firms file patents at the time of discovery ("invention") rather than first sale ("commercialization"), effective patent terms vary: inventions that commercialize at the time of invention receive a full patent term, whereas inventions that have a long time lag between invention and commercialization receive substantially reduced - or in extreme cases, zero - effective patent terms. We present a simple model formalizing how this variation may distort research and development (R&D). We then explore this distortion empirically in the context of cancer R&D, where clinical trials are shorter - and hence, effective patent terms longer - for drugs targeting late-stage cancer patients, relative to drugs targeting early-stage cancer patients or cancer prevention. Using a newly constructed data set on cancer clinical trial investments, we provide several sources of evidence consistent with fixed patent terms distorting cancer R&D. Back-of-the-envelope calculations suggest that the number of life-years at stake is large. We discuss three specific policy levers that could eliminate this distortion - patent design, targeted R&D subsidies, and surrogate (non-mortality) clinical trial endpoints - and provide empirical evidence that surrogate endpoints can be effective in practice.

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    File URL: http://www-siepr.stanford.edu/repec/sip/13-001.pdf
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    Bibliographic Info

    Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 13-001.

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    Date of creation: Sep 2013
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    Handle: RePEc:sip:dpaper:13-001

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    Cited by:
    1. Jeffrey Clemens & Joshua D. Gottlieb, 2013. "Bargaining in the Shadow of a Giant: Medicare's Influence on Private Payment Systems," NBER Working Papers 19503, National Bureau of Economic Research, Inc.

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