A Follow-on Innovation Perspective in the Biopharmaceutical Industry
New Horizons in Competition Law and Economics series
Chapter 2: The Patent System as a System of Balancing
2.1 The Patent Balance The patent system is an integrated means of addressing public policy concerns. It is concerned with encouraging the R&D of new intellectual products that would otherwise remain undeveloped or under-developed due to the ease of appropriability of knowledge and the difficulty in excluding others. While its main objective is to encourage innovation, it also has competing interests to address. Box 2.1: Main rationales of patent system 1. Invention motivation. The patent system provides incentives for investment in innovation by granting a limited monopoly that allows the inventor the opportunity to make a profit on the invention. This is the most common rationale for the patent system and its justification is usually based on the market failure rationale. In the absence of the government grant of property rights, it is argued that the competitive market would not give a sufficient incentive to induce the optimal amount of innovation. This is because knowledge could be described as a durable, indivisible, and non-rival commodity. While the costs of production are high, the costs of imitation and reproduction are low and there is ease of appropriability. Hence, it is argued ABA, The Economics of Innovation: A Survey, ABA, July 2002 available at http:// www.ftc.gov/opp/intellect/0207salabasrvy.pdf; F. Machlup, An Economic Review of the Patent System, Study No. 15 of the Subcomm. on Patents, Trademarks and Copyrights of the Senate Comm. on the Judiciary, 85th Cong., 2nd Sess. (1958); E.W. Kitch, The Nature and Function of the Patent System, 20 Journal...
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