Jan 21, 2023Liked by Rafael R. Guthmann

It's important to recognize that, at least in the United States, the clock on the duration of a patent begins when an application is filed with the USPTO. The current 20-year term was lobbied for by the pharmaceutical industry for "new chemical entities", which require up to a decade and $1 billion in double-blind clinical trials before the FDA allows the patented drug to be prescribed to patients, leaving only 10 more years for capturing returns on upfront investment. Moreover, patents define products not markets, and so an exclusive right to sell, say, Lipitor, did not prevent quick entry by other patented drugs for reducing cholesterol ("statins"). The disclosures required in publicly available patent applications allow rivals to "invent around" existing innovations. Patents don't necessarily create long-lasting monopolies.

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If pharmaceutical patents functionally last 10 years, then they are pretty close to our estimate of optimal patent duration. Posner's guesstimate was that patents should last 10 years.

Since firms can circumvent existing patents, that would also mean that the optimal policy is for patents to last longer than our model (which implicitly assumes perfect patent protection during the time its enforced), to compensate for this effect.

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Interesting. Thanks!

Your argument is kind of utilitarian. What about the moral side? Is it moral to give an entity (e.g. the state) the right to grant monopolies? Does this lead to wrong incentives and potentially corruption?

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