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Do Fixed Patent Terms Distort Innovation?: Evidence from Cancer Clinical Trials

73 Pages Posted: 15 Nov 2013  

Eric B. Budish

University of Chicago - Booth School of Business

Benjamin N. Roin

MIT Sloan

Heidi L. Williams

MIT Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: September 5, 2013

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.

Suggested Citation

Budish, Eric B. and Roin, Benjamin N. and Williams, Heidi L., Do Fixed Patent Terms Distort Innovation?: Evidence from Cancer Clinical Trials (September 5, 2013). Chicago Booth Research Paper No. 13-79. Available at SSRN: https://ssrn.com/abstract=2353471 or http://dx.doi.org/10.2139/ssrn.2353471

Eric Budish (Contact Author)

University of Chicago - Booth School of Business ( email )

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Benjamin Roin

MIT Sloan ( email )

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Heidi Williams

MIT Department of Economics ( email )

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HOME PAGE: http://econ-www.mit.edu/faculty/heidiw

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