Question

1. Using a new drug developed by a pharmaceutical firm briefly outline, from the public and private perspectives, the costs and benefits of patent protection.

2.Show how there can be excessive investment undertaken if a number of pharmaceutical companies are researching and trying to develop the same innovation. How can the negative impact of patent races be reduced?

Answer 1

Part 1: A patent is a right, granted by the States to an inventor, to exclude others from making, using, selling or importing an invention throughout the economy/US without the inventor's consent.  Without a patent, anyone can make and sell your invention without your permission and without compensating you.  

PATENT PROTECTION BENEFITS TO THE INVENTOR

The benefits of securing a patent include:

1. Barrier to entry: ability to stop others from selling a competitive product,
2. Increased profits and prices: because you can stop others from selling a competitive alternative, you can charge more for your product, and
3. Leveled playing field: a patent can stop large companies from competing against you.

Part 2. The patent system is one of a suite of policy levers that has been used to attempt to bring the private returns captured by inventors closer to the social value of their inventions. By providing inventors with a temporary period of market power, patents aim to allow inventors to recoup the fixed costs of their research investments. The goal is for this temporary period of supra-competitive pricing to increase research investments relative to what would be realized in a competitive market with no government intervention. In addition, the patent system requires disclosure of the invention in exchange for the patent right.