Wednesday, December 13, 2006

Michael Abramowicz on "Perfecting Patent Prizes"

by Ben Krohmal

Professor Michael Abramowicz presented “Perfecting Patent Prizes” yesterday at CPTech. The presentation was based on his lengthy 2003 law review article of the same name. Michael began his presentation with an overview and critique of much of the literature proposing prizes or buyouts (see this annotated list of much of this literature) in lieu of patent monopolies: Guell and Fischbaum’s eminent domain proposal, Shavell and van Ypersele’s optional prize system, Kremer’s auction guided buyout proposal, Duffy’s buyout with shareholder compensation, and Lichtman’s coupon approach. Of these, Michael thinks the Duffy proposal (apparently to date it has only been published as a footnote) is generally the strongest. Briefly, Duffy’s suggests that the government meet secretly to decide whether to seize various pharmaceutical patents. When the government does seize a patent, it reimburses those who held shares of the patent holder immediately prior to the seizure by the amount that the company’s stock falls in a given period after the seizure is announced. Michael argued that each proposal has several critical flaws (see his PowerPoint presentation).

Michael’s proposal is to have a fixed prize fund to which patent holders could apply in exchange for turning their patent over to the public domain. A government body would be given broad discretion in awarding shares of the fund, with assumption that the resulting uncertainty would not significantly diminish research incentives so long as there is no pattern in which sort of innovations tend to be over- or under-rewarded by the fund. Significantly, decisions about what share of the fund a given innovation would receive would not be made until ten years after the patent is transferred to the public domain, in order to provide more opportunity for information about the social value of the drug to be revealed.

Michael concluded by suggesting that the Medical Innovation Prize Fund Act (H.R. 417) could be improved by making the proposed prize system an optional alternative to traditional patents. He argued that an optional prize system would be more likely to attract the support of the pharmaceutical industry, that it would lend itself to implementation on a smaller scale trial basis, and that it would be able to better accommodate the possibility that appropriate levels of R&D spending as a percentage of GDP will change over time.


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