Meds: The Seen—and Unseen—of Intellectual Property Laws

Perhaps the greatest lesson to be learned in economics is that public policies have seen and unseen effects. The mastery of such a lesson is what separates the good from the bad economist. “The bad economist,” writes Henry Hazlitt, “sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.”

The same economic reasoning should be applied to intellectual property laws. By joining together not only the seen, but also the unseen consequences of intellectual property laws, we can achieve a solidly ironclad understanding of its impacts on humanity.

Visible Effects of Intellectual Property laws

In August 2015, Turing Pharmaceuticals acquired the marketing rights to Daraprim, a life-saving drug used to combat parasitic infections, and became its sole supplier. The next month, it hiked the price of the drug 5,000 percent, from $13.50 a tablet to $750, sparking nationwide protests. 

More noticeably than in any other sector, the patent system’s visible effects on the pharmaceutical industry are severely damaging to consumers and free enterprise. According to the Association for Accessible Medicine, “Innovation is critical to the success of the entire pharmaceutical industry. Without innovation there could be no generic pharmaceutical or biosimilar medicines for patients.” Big pharmaceutical corporations, with well-organized lobbying funding, are able to sustain the very monopolistic system that enables their abuse of consumers through high prices. Shielded by the power of the government, for example, Roche/Genentech has had a virtual monopoly on the cancer drug Herceptin since 1985, and AbbVie, which markets the world’s best-selling drug, Humira ($18 billion in global sales in 2017), has filed over 240 patent applications. These data points come from a 2018 report by the Initiative for Medicines, Access and Knowledge (I-MAK), which found that, on average across the top twelve grossing drugs in America

  • There are 125 patent applications filed and seventy-one granted patents per drug, the majority of which are granted.
  • Prices have increased by 68 percent since 2012, and only one of the top twelve drugs has actually decreased in price.
  • There are thirty-eight years of attempted patent protection that are blocking generic competition sought by drug makers for each of these top-grossing drugs—or nearly double the twenty-year monopoly intended under US patent law.
  • These top-grossing drugs have already been on the US market for fifteen years.
  • Over half of the top twelve drugs in America have more than a hundred attempted patents apiece.

These outrageous statistics point ever more strongly toward the notion that intellectual property laws, unnecessary to reward innovation, are merely tools used by crony corporations close to government power to block competition and increase the price of their products. 

Sadly, IP is not limited to the pharmaceutical sector, and its monopolistic effects are also heavily felt in the entertainment industry. The artificial monopoly granted and protected by the government leads to a standard “massified culture” and a creative stagnation within the entertainment industry, a phenomenon noted many decades ago by Max Horkheimer and Theodor Adorno, two Frankfurt scholars who missed the critical role played by IP laws in the phenomenon and then wrongly blamed entrepreneurs. It is precisely the blocking of competition, the blocking of free enterprise and entrepreneurial creation, that leads to a “mass cultural industry” dominated by big corporations.

Besides its horrid healthcare consequences and sociological disasters, IP laws also weigh heavily and directly on the taxpayer via the bureaucracy of patent litigation. An incredibly detailed infographic from The Anatomy of a Patent Case draws from varied sources to show the bureaucratic burden of IP laws. It concluded that litigation functions as a tax of about $31 billion dollars per year (maybe as much as $42 billion) and a drag on free enterprise.

Artificial monopolies, the bureaucratic burden, the rage-inducing high prices, and the destruction of creativity are only some visible effects of IP laws. Much worse, however, are its unseen effects.

Unseen Effects of Intellectual Property laws

The worldwide call to break the patent on covid-19 vaccines, fueled by the desire to accelerate their distribution, revealed a basic economic truth hidden in plain sight: to limit knowledge is to limit human prosperity. Even key players faced vaccine shortages due to third-party patents, yet virtually no one applied the same logical reasoning to other sectors. If patents on vaccine production limited the production (and subsequently, the distribution) of vaccines, why wouldn’t this apply to any other technological innovation?

Let’s take a step back and look at the logic behind this truth. As economist Jesús Huerta de Soto writes:

Restrictions in the economy are imposed not by objective phenomena or material factors of the outside world (for example, oil reserves), but by human entrepreneurial knowledge (the discovery of a carburetor capable of doubling the efficiency of internal combustion engines would exert the same economic effect as a doubling of all physical oil reserves). 

This is because production, the process of transforming inputs into outputs, involves human technique, which, in turn, depends entirely upon the entrepreneurial knowledge being employed. Humans employ a framework of knowledge, devices, and practices in order to produce goods, and entrepreneurs innovate by bringing more productive frameworks of knowledge into the economic reality.

To slow down the development, use, and spread of technical innovation and prevent others from replicating and improving on innovations is to limit human production; it is to act against prosperity itself. While resources are scarce and limited, our growing “fund of experience” allows us to constantly innovate and apply new practical entrepreneurial knowledge. Fencing off said fund is fatally kneecapping humanity’s advancement.

With these lenses, intellectual property comes into focus as a much more hideous and ghastly public policy. The life-saving medicine never produced by entrepreneurs, the hundreds of millions of goods never produced by entrepreneurs worldwide because they were prohibited from using the latest technology, and the millions—perhaps billions—of people never lifted out of poverty, the technology never rolled out to people who desperately need it are only a mere fraction of IP’s unseen effects.

Conclusion 

With the data laid out, and the sound economic theory explained, we have applied good economic reasoning to achieve an ironclad understanding of the impacts of intellectual property laws on humanity: they are a fatal blow to entrepreneurship, free enterprise, and technological advancement. Their seen and unseen effects impose a terrible cost on humanity, and with virtually no benefit at all, IP laws are perhaps only of use to cronies who wish to prevent competitors from challenging their high prices.