Policy Studies Technology and Innovation

Patent Reform and Pharmaceuticals: The Key to Lower Drug Prices

by Wayne Brough

Jan 12, 2023

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Author

Wayne Brough

Resident Senior Fellow, Technology and Innovation

Key Points

The pharmaceutical industry is often criticized for artificially high prices, which are driven in part by the fact that patents can be used to prolong market exclusivity and delay competition.

Revenue-seeking drug companies often use the patent system to extend the exclusivity patents provide via a variety of tactics, including “evergreening” their products, building “patent thickets” and encouraging “product hopping.”

Policymakers have adopted reforms to improve the quality of patents and established procedures to remove weak or broad ones. These measures are central to debates over drug pricing as patents are at the core of discussions about innovation and competition.

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Patent reform can help reduce drug prices

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Introduction

While there can be no doubt that the pharmaceutical industry is a significant and productive sector of the U.S. economy, it is not above criticism. For example, one report catalogues various tactics drug companies use to exploit the patent system to extend product exclusivity far beyond the 20 years stipulated by law. This impedes new entrants into the marketplace and imposes significant burdens on consumers and patients through higher prices. Ultimately, excessive patenting may also reduce the pace of innovation, which subverts the stated goal of patent policy: to incentivize innovation such that the dispersion of knowledge increases, benefitting society as a whole.

This paper examines the market structure of the pharmaceutical sector as well as the strategic patenting practices of drug companies to identify potentially adverse impacts on competition and consumer welfare. Additionally, this study reviews legislative and regulatory changes that address concerns over the functioning of the patent system to identify policy changes that may significantly improve the system. These legislative and regulatory changes should ensure that the patent system remains true to the vital role of promoting invention and innovation while providing access to pharmaceutical products in a market where prices are not held artificially high.