Patent Duration, Breadth and Costly Imitation: Evidence from the US Pharmaceutical Market

58 Pages Posted: 24 Mar 2016

See all articles by Olena Izhak

Olena Izhak

University of Helsinki - Economics

Tanja Saxell

VATT

Tuomas Takalo

Bank of Finland, Monetary Policy and Research Department; VATT Institute for Economic Research

Date Written: March 23, 2016

Abstract

We investigate how changes in patent breadth and duration affect the imitation of new, patented drugs, and what those effects imply for the optimal patent policy design. We first formalize predictions of the basic theory of patent breadth and length, and derive a simple, testable rule for the optimal policy design that only requires data on generic firms' investments prior to patent expiration. We then test this theory in the US pharmaceutical industry where the Drug Price Competition and Patent Term Restoration Act of 1984 increased patent duration - by introducing term extensions that compensate for delays in regulatory approval process - while simultaneously narrowed breadth. Using two quasi-experimental approaches, we find evidence that suggests the probability of imitation increases with patent length and decreases with patent breadth. Our findings are consistent with the idea that society would benefit more from broader rather than longer patent protection.

Keywords: patent policy, innovation, imitation, pharmaceuticals

JEL Classification: O31, O38, D22, L11, L65

Suggested Citation

Izhak, Olena and Saxell, Tanja and Takalo, Tuomas, Patent Duration, Breadth and Costly Imitation: Evidence from the US Pharmaceutical Market (March 23, 2016). Available at SSRN: https://ssrn.com/abstract=2753543 or http://dx.doi.org/10.2139/ssrn.2753543

Olena Izhak

University of Helsinki - Economics ( email )

P.O. Box 17 (Arkadiankatu 7)
Helsinki, AL FIN-00014
Finland

Tanja Saxell (Contact Author)

VATT ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

Tuomas Takalo

Bank of Finland, Monetary Policy and Research Department ( email )

P.O. Box 160
Helsinki, FIN-00101
Finland

HOME PAGE: http://https://sites.google.com/site/tuomastakalo/

VATT Institute for Economic Research

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