Marketing Authorization, Patentability Standards, and Strategic Patenting: Evidence from Pharmaceuticals

Abstract

Patents are designed to incentivize innovation. However, pharmaceutical firms often extend the period of market exclusivity with secondary patents on marginally beneficial improvements. Such behaviors evoke discussions about raising patentability standards. This study examines whether pharmaceutical firms move away from filing strategic patents once the focal drug gains marketing authorization and the disclosed trial-related information becomes novelty-threatening prior art. We construct novel patent-drug dyadic data and leverage unique European drug patent and marketing contexts. Using an event study methodology, we exploit plausibly exogenous variation in the length of time from patent filing to drug approval. First, we illustrate that drugs with early and late marketing authorization share similar ex ante patent and drug characteristics. Second, we support the hypothesis that strategic patenting behavior decreases substantially after marketing authorization. In contrast, meaningful follow-on innovations remain unaffected. Third, we show that these effects are likely driven by obstacles in the enforceability of marginal patents filed after approval. We analyze heterogeneity across firm type, patent type, disease type, and enforceability. Our results suggest that post-marketing increases in patentability standards are welfare-enhancing given examiners' and firms' self-adjustments, and we highlight the importance of better data provision to patent examiners to increase the quality of follow-up inventions.

Keywords: patentability standards, strategic patenting, follow-on innovation, drugs, marketing authorization

JEL Classification: O3, I1, K2