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When people think of monopolies, they usually think of something like Google with its 90% market share in search, Microsoft with its 90% share in operating systems, or Comcast with its dominance of US cable. But monopolies in markets often come from patents and intellectual property ā and in the case of pharmaceuticals, they often cover an individual drug.
Patents give drug makers a period of time with no competition where they can be rewarded for their innovations, encouraging drug companies to invest in costly research and development that might take years to pay off. The logic behind patents is sound, and drug companies devote billions of dollars to find extraordinary cures that extend our lives.
But intellectual property, once an unremarkable area of law, has exploded since the 1980s. From 1900 to 1982, the number of patents increased by around 138%. After 1982, the number of patents extended increased by an astounding 416% by 2014. Not only did the number of patents explode, the areas they cover has expanded in ways the Founding Fathers never intended.
Over the past few decades, copyright protection has been extended to unpublished works, the requirement to register oneās copyright has been dropped, and copyright terms have grown from 28 years to the life of the author plus 70 years. This is the dark side of patents, when they are often used as a tool to gouge customers. In the case of drug companies, patents allow them to rip off patients. The longer the drug lacks competition, the longer companies can charge extortionate prices.
The cost to society is immense. The United States spends over $3 trillion annually on health care, and 10% is spent on drugs. The average American spends more than $1,000 a year on prescription medications, 40% more than the next highest country, Canada, and double what Germany spends.
The broadest study done on the reasons for the increase in costs appeared in the Journal of the American Medical Association: āThe most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration (FDA) approval and by patents.ā Generic drugs are the main reason why drug prices have fallen, but access to them is generally delayed by numerous business and legal strategies.
When patents are about to expire, for example, the pharmaceutical industry seeks endless extensions through ‘reformulation’ of their drugs or minor modifications to the methods of delivery. Reformulation involves changing the drug just enough to obtain additional patent protection, while keeping enough characteristics the same, so that previous clinical testing results can be relied on to obtain FDA approval. There is no new innovation, no new discoveries or any greater benefit to patients, yet companies can continue to charge high prices.
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