Patent nonsense

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There are many ideas out there about how we can replace the current patent system for pharmaceuticals with a system that costs society far less AND actually meets human needs. Here is a brief summary of only a few of those ideas.

1. The Prize Model
One alternative to patents is called the “Prize Model.” This is where drug companies can compete for rewards for specific results. The prizes, which would be awarded by governments or other publicly-accountable groups, could reflect public health priorities, with greater rewards for innovative products, products that meet previously-unmet needs, or innovations which make the overall pharmaceutical system work better (such as better databases or research techniques, etc).

It’s really a simple idea: Governments would place large sums into a fund that would be allocated every year to firms that bring new products to market. In exchange for these large payments (“prizes”) the company would give up all patent rights, so the product would be available to anyone who wants to produce it. Very quickly we’d see ultra-cheap generic versions, and people would have quick access to much-needed drugs. The “prize” could be awarded all at once, or allocated in installments as the effectiveness and safety of the drug is evaluated over time. The more effective, the bigger the “prize.” Simple.

In the words of James Love of the Consumer Project on Technology ( http://www.cptech.org/ ), under a “prize” system “the costs of marketing medicines, which today is far higher than the amounts invested in research and development (R&D), would be greatly reduced. There would be much less concern over counterfeiting, parallel trade, and the management of price control systems. Most importantly, the poor would have much better access to medicines.”

2. Direct Funding of Drug Development
This is the simplest of all: Governments could directly fund drug development. Governments already do a lot of this. For example, in the U.S. we have the National Institutes of Health, as well as (somewhat skimpy) government contributions to international initiatives like the UN’s Global Fund to Fight AIDS, Tuberculosis and Malaria. I discussed this idea in Nygaard Notes Number 118 (“High Drug Prices Explained”), where I talked about how the savings from the reduction in the costs of the drugs would be far greater than the costs of the direct funding. That’s because of the phenomenal economic inefficiencies built into the current system.

3. Open Collaborative Public Goods Models
In the computer world, there is a movement known as “open source” in which software and other useful high-tech stuff is developed with contributions from anyone who can offer an improvement. Improvements are then shared freely online with anyone who wants to download them. All sorts of interesting and useful things have been given to the world using this model, without anyone having a patent on any of it. I did most of the research for this article, in fact, using the Mozilla Firefox internet browser, which is an open-source product that has liberated me from the patent-protected Internet Explorer and Netscape browsers. (Visit http://www.opensource.org/ to learn more.)

In the biology field there is a similar movement afoot, where databases, scientific info, and other biological information is increasingly open to all researchers, freely and without restriction. You may have heard of the Human Genome Project, which is an international research effort to sequence and map all of the genes (together known as the “genome”) of members of our species. It was finished in 2004, and a key part of the project was that all researchers could access the human genome data to verify, replicate or challenge findings found there. No one made a profit from doing it.

Such an open, collaborative model could play an important role in drug development. Just as with the other models above, the money saved by eliminating the marketing, overpricing, and so forth that comes with a patent system could be used to support a variety of open source, or public domain, efforts.

4. The Social Security Model
Social Security works by requiring all workers to contribute to a general fund that is then used to support anyone who suffers a loss of income through death, disability, or loss of a breadwinner. Everyone is required to contribute for the good of all. What an idea!

Scholars Tim Hubbard and James Love have proposed a type of system for drug development that sort of works like the Social Security system. In their system, consumers (or employers) would be required to make contributions into drug research and development (R&D) funds. These R&D funds would be licensed and regulated, like pension funds. A public body would manage the funds on behalf of consumers, in the interests of public health. In Hubbard and Love’s model, there would be more than one public body, which they call “R&D Funds.” As Love describes it, “The R&D Funds would compete on the basis of their prowess for drug development, and upon their priorities. The actual business model for financing R&D would be tested in the market. The R&D Funds could experiment with prize systems, direct investments in profit or non-profit entities, open collaborative public good models, or other approaches. Business models that were better would attract more funding.”

While the government would set the required contributions, as with Social Security taxes, the employer (or employee) would be free to choose the particular intermediator that received their contributions. The most effective ones would get more money.

5. Mixed Models
Governments could decide to adopt a mixed model, with a certain percentage of national R&D investments allocated to each of these (or other approaches), and over time, based upon experience, increase or decrease allocations based upon results. The important proposition is that business models could themselves compete, and evolve.

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