DRUGS, PATENTS, AND WELL-BEING.

• Author: Buccafusco, Christopher

TABLE OF CONTENTS INTRODUCTION I. PATENTS, MARKETS, AND WELL-BEING A. How Patent Law Tries to Improve the World B. The Challenges of Connecting Patents to Well-Being C. How Patents and Markets May Be Failing in Pharma D. Can the FDA Help? II. CONNECTING PHARMA PATENTS TO THEIR EFFECTS ON WELL-BEING A. Patents, QALYs, and Well-Being B. Which Patented Pharmaceuticals Improve Well-Being? C. Innovation Failures Are Socially Costly III. CREATING INCENTIVES FOR WELFARE-ENHANCING DRUGS A. Extending Patents for Beneficial Pharmaceuticals B. The Choice of Baseline C. Futility Patents D. Harnessing the Power of Markets IV. OBJECTIONS AND FURTHER CONSIDERATIONS A. Additional Rewards for Successful Drugs? B. Longer-Term Declines in Welfare C. Welfare Measurement, Age, and Disability D. Measurement Challenges for Vaccines and Personalized Medicine CONCLUSION INTRODUCTION

What is the purpose of patent law? The conventional understanding of patents is that they exist to promote innovation--or, as it says in Article I, Section 8 of the US Constitution, to "promote the Progress of Science and useful Arts." (1) But innovation is not good in and of itself. A society that innovated only more and better ways to torment itself (2) would not be doing well. Rather, the ultimate end of patent law should be to spur innovations that improve human welfare--innovations that make people better off. To accomplish this, patent law is parasitic on the marketplace. Patents entitle their owners to exclude competitors from making, using, or selling the patented invention for a limited time. (3) In effect, patents create legal quasi-monopolies: if only the patent owner can sell the patented invention, then the patent owner can charge (higher) monopoly prices and earn greater profits. It is this promise of greater profits that spurs innovation. (4)

Because patent law relies on the market--and the possibility of monopoly profits--it necessarily incorporates all of the strengths--and importantly, all of the many shortcomings--of market behavior. (5) Most notably, patent law relies on individual consumers to decide which inventions are valuable and which are not. Firms will only invest resources in developing inventions that will allow them to make money--that is, inventions that people will want to use and buy. The fact that people are excited to purchase an invention, even at monopoly prices, is usually taken to be a powerful signal that the invention is valuable and will increase human welfare. If not, why would people pay for it? (6)

But markets are hardly infallible. The fact that an innovation is beneficial for human welfare does not mean that it will be profitable, if the people whose welfare it will increase cannot afford it. This means that innovations that primarily serve poorer people will be underproduced. (7) In addition, sometimes it is possible to capture large market share with an invention that is only slightly better (or even no better) than the inventions that preceded it. This means that firms have significant incentives to play a version of follow-the-leader: if Firm A has created an invention that is selling well, Firm B can make money by creating a similar invention and siphoning off some of Firm A's customers, even if Firm B's invention represents, at most, a marginal improvement on Firm A's invention. (8) Patent law's reliance on markets can thus drive firms to invent products that they know will sell well, rather than products that might have a much greater impact on welfare.

These concerns are present across a wide range of technological areas, but perhaps nowhere more so than in the area of pharmaceuticals. There is substantial evidence that treatments for diseases that primarily afflict poorer people--including the citizens of developing nations--are dramatically underproduced, compared with drugs that treat diseases that afflict the wealthy. (9) In addition, the pharmaceutical markets are rife with "me too" drugs--drugs that treat diseases or conditions for which successful medications already exist. (10) A "me too" drug that taps into a large consumer market can be very profitable even if it offers small or zero (or negative) benefits compared with the drugs that preceded it. And these drugs, which contribute little or nothing to human welfare, can absorb scarce research and development funds from pharmaceutical firms and crowd out investment in drugs that might do much more good.

Policymakers have largely treated these shortfalls as if they are unavoidable, the necessary consequences of patent law's slavish devotion to the market. The problem has been thought to be one of measurement. (11) How could policymakers know which drugs are most valuable to welfare--and thus most deserving of encouragement and incentives--without a signal from the market? Put another way: if the entire point of patent law is to rely on the market to determine which inventions are valuable, it is no wonder that policymakers seem to be at a loss when the market turns unreliable.

But policymakers no longer need feel so constrained. In recent years, medical and psychological research on well-being has revealed new ways of understanding and measuring human welfare, to the point that policymakers can now estimate with accuracy how much a given disease or condition diminishes welfare, and how much a particular drug treatment improves it. The most promising approach involves the science of hedonic psychology, through which researchers have been able to determine close proxies for welfare. (12) Hedonic psychology is in its relative infancy, but there is an alternative as well: the medical concept of Quality-Adjusted Life Years (QALYs), which provides a reasonable measure of the length and quality of an individual's life. (13)

These tools permit policymakers to draw direct links, for the first time, between patents and human welfare. These types of connections are generally impossible for many types of inventions, such as consumer electronics. It is difficult to determine the welfare impact of a new iPhone, and any given electronic device likely incorporates thousands of patents, which makes it hard to isolate the welfare effect of any given patent. But these sorts of connections are entirely possible for one class of invention: pharmaceuticals. First, the new research tools described in the preceding paragraph have made it possible to reliably measure the welfare impacts of diseases and their treatments. And second, each drug is typically linked to one central patent on the active molecule itself. (14)

Armed with this sort of information, policymakers have the power to use the patent system in ways heretofore unimaginable, to directly incentivize welfare-enhancing innovations without needing to rely upon the market to get those incentives right. In this Article, we design and describe precisely this type of system of patent-based incentives. (15) We propose that policymakers grant extended patent terms to drug inventions that have a significant impact on human welfare, as measured using QALYs or hedonic psychology. (16) We further propose that policymakers lift many of the legal protections for patents that have an insubstantial effect on human welfare--which we term "futility patents"--making those patents easier to challenge and invalidate. The worst patents, those that offer zero or even negative contributions to social welfare, should be invalidated outright. The result would be a reorientation of pharmaceutical firm incentives: firms would have much greater incentives to pursue drugs that benefit poorer populations because the firms could receive extended patent terms for those drugs. And they would have much weaker incentives to pursue "me too" drugs and other medications that might be profitable but have minimal effects on welfare. All told, our proposal offers the possibility of remedying the inadequacies and inefficiencies of the market for pharmaceutical drugs, a problem that has vexed policymakers for decades.

Our Article proceeds in four parts. Part I explains the manner in which patents are meant to promote welfare and the ways in which systemic failures in the market for pharmaceutical drugs can cause them to fall short. Part II shows how policymakers can draw direct connections between drug patents and human welfare using hedonic psychology and QALYs. Part III describes and analyzes our proposal for heightened patent incentives for welfare-enhancing patents and diminished incentives for "futile" patents. Part IV responds to some potential objections and demonstrates that our proposal is resilient to a variety of potential concerns.

Patent law has been tethered to the marketplace for too long, to deleterious effect. We propose to decouple it, to the benefit of patients, drug companies, and society as a whole.

1. PATENTS, MARKETS, AND WELL-BEING

   The US Constitution gives Congress the power to grant patents to inventors in order "to promote the Progress of ... useful Arts." (17) Most courts and scholars understand this language to create a consequentialist foundation for patent law that encourages Congress to enact laws to enhance human welfare. (18) Indeed, the Patent Act seems to require that patents only be granted to "useful" inventions. (19) Yet despite these commitments, patent law and scholarship have taken a decidedly laissez-faire approach to the relationship between patents and welfare. (20) In this Part, we briefly introduce the standard theory for how patent law can enhance human well-being by solving a public goods problem in information. (21) We then show how courts and scholars have generally rejected the possibility of closely connecting patent doctrine--and especially particular patents--to well-being. Doing so, they argue, would involve insurmountable data and judgment challenges. (22) Moreover, many scholars believe that governmental attempts to connect patents to the well-being they generate are...