infoJustice

Author: Charu N. Gupta

Abstract: Economists’ standard notion of intellectual property rights considers a single patent per product, with a clearly defined scope, certain enforcement, and a fixed term of monopoly protection. Yet common across industries are “imperfect” intellectual property rights: More than one patent may cover a single product, with the scope and enforcement of each uncertain, contributing to an indeterminate period of monopoly protection.

Using data on the pharmaceutical industry, I systematically document the presence of imperfect intellectual property rights and provide the first evidence on the extent to which they impact competition. In a sample of novel drugs, I show that roughly 70 percent of drugs are covered by multiple intellectual property rights.

I offer evidence on two mechanisms by which the accumulation of such rights for a single drug may delay generic entry: by introducing a binding later patent expiration and by increasing uncertainty in the scope and enforceability of remaining patents. In an instrumental variables analysis, I determine that the accumulation of patents for a single drug product delays generic entry by over 2 years per drug (amounting to 17.5 percent of mean monopoly life), well beyond the expiration of the drug’s initial molecule patent. This research suggests large consequences for consumer welfare in terms of drug pricing and offers an important nuance for future work on optimal patent policy and innovation—that intellectual property rights are less rigid than we typically assume.

Citation: Charu N. Gupta. One product, many patents: Imperfect intellectual property rights in the pharmaceutical industry. The Wharton School, University of Pennsylvania. Job Market Paper. (2020). Full Text.