The Cost of Novelty

72 Pages Posted: 2 Apr 2019 Last revised: 24 May 2019

Date Written: March 11, 2019

Abstract

Patent law tries to spur the development of new, better, innovative technology. But it focuses much more on “new” than “better” — and it turns out that “new” carries real social costs. I argue that patent law promotes innovation that diverges from existing technology, either a little (what I call “differentiating innovation”) or a lot (“exploring innovation”), at the expense of innovation that tells us more about existing technology (“deepening innovation”). Patent law’s focus on newness is unsurprising, and fits within a well-told narrative of innovative diversity accompanied by market selection of the best technologies. Unfortunately, innovative diversity brings not only the potential benefits of technological advances, but also costs: incompatibility between different technologies; a spread-out, shallow pool of knowledge; and the underlying costs of developing parallel technologies that aren’t actually better. These costs matter.

Biomedical innovation illustrates the high costs of divergence. Although pharmaceuticals are touted as a poster child for patents, the world is rife with me-too drugs that drive up costs with little to show. Biomedical innovation often suffers from a particular trap: Patent incentives push innovators toward “new,” but incentives from Food and Drug Administration approval and insurer reimbursement push innovators toward “not too new,” because products that are very different are harder to get approved and reimbursed. And in this space, artificially constricted markets do a poor job of selecting better technologies. The result is a proliferation of technologies that are “new for the sake of new,” giving us the costs of divergence without much in the way of benefits.

This Article presents an original spectrum of innovative divergence, illuminates how various patent doctrines drive divergence, and lays out the substantial costs of divergence through biomedical examples. It analyzes the complex interactions between three different incentives for biomedical innovation, and presents policy prescriptions to help avoid the trap of “new for the sake of new.” In the process, it lays out how innovation scholars and policymakers alike should take into account the cost of novelty.

Keywords: innovation, patents, novelty, biomedical innovation

JEL Classification: I18, O31, O38

Suggested Citation

Price, William Nicholson, The Cost of Novelty (March 11, 2019). Columbia Law Review, Vol. 119, No. 8, (2019 Forthcoming); U of Michigan Public Law Research Paper No. 633; U of Michigan Law & Econ Research Paper No. 19-004. Available at SSRN: https://ssrn.com/abstract=3350477

William Nicholson Price (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States

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