Right now, senators, inventors, and tech companies are squabbling about how to reform the patent system to encourage more innovation. Some version of the embattled patent-reform legislation is expected to pass next month, and stakeholders are preparing for a gory fight over all sorts of itty-bitty nitty-gritties, such as how to calculate damages for patent infringement.
Meanwhile, some scholars and politicians are proposing something far more radical: They want to junk, rather than just rejigger, the patent system. Instead of handing out patent monopolies, they say, the government should offer cash prizes for inventions. In an ideal world, this would lead to cheaper products and motivate more research and development in fields that are unprofitable but socially valuable—such as new treatments for diseases that affect poor people. This solution may seem extreme, but targeting certain elements of the idea to particular inventions would be both politically feasible and entrepreneurially effective.
Patents are supposed to motivate innovation by guaranteeing monopolies on sales of inventions. Let's imagine, for example, that you invent and patent a vaccine for malaria. For 20 years, no one can compete with you in selling your invention to your customers.
The problem with malaria drugs, though, is that few manufacturers want to compete over your (almost entirely poor, almost entirely African) clientele. The few that do—mostly nonprofits and the governments of developing countries—can't afford to pay the colossal licensing fees you'd need to cover your $1.2 billion research and development costs. As a result, inventors like you, or big drug companies like Merck and Pfizer, aren't developing drugs for poor people. Like any other profit-driven industry, drug companies devote their resources to products that earn them money. In fact, in the most oft-cited case where a major pharmaceutical company developed a drug just for poor Africans, the drug was initially intended to treat an ailment with much deeper pockets: worms in domesticated animals (PDF).
What if the reward for innovation were an upfront cash prize, independent of the market for the invention? This is what Sen. Bernie Sanders, I-Vt., is proposing in a bill that's escaped the notice of the heavyweights fighting over the patent-reform legislation. Sanders' bill would eliminate drug monopolies; instead, all medical developments would automatically enter the public domain, so more companies could manufacture each new drug. With increased manufacturing competition and zero licensing fees, drug prices should, theoretically, plummet.
It's an enticing idea, and one that's not original to Sanders. Perhaps because it relies on using market forces to motivate socially conscious entrepreneurship, politicians and scholars from all over the political spectrum have had their eyes on prizes. This past year alone, John Edwards (PDF), Lindsey Graham, Hillary Clinton, Newt Gingrich, and Nobel laureate Joseph Stiglitz, among others, have each suggested prize systems for medical and environmental inventions. And there are well-known precedents for this scheme: Over the past few centuries, prizes have been designated for a longitude-measuring device (announced 1714, for up to 20,000 British pounds), a nonstop flight from New York to Paris (announced 1919, for $25,000; eventually awarded to Charles Lindbergh), and private space travel (announced 1996, the $10 million X-Prize).
The successful prizes—that is, those that found a winner—tended to have a few features in common. They were usually for solutions to specific, clearly defined problems, rather than being part of a blanket system to reward all innovations. They also allotted a generous amount of time for the feat to be accomplished before the prize expired (if it expired at all); they offered high rewards that presumably outweighed the costs of research as well as the profits that could be earned from diverting resources into alternate endeavors; and they were high-profile, guaranteeing the prizewinner fame as well as fortune.
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