In this case, company GSK faces the accusation that it monopolizes the price of AZT, a drug used to kill and deactivate HIV virus. Though GSK is granted the right to exclusively market the drug, lack of competition leads to some undesirable outcomes and ethical condemnation. The current patent system as a result draws a lot of attention and debates. In my opinion, though the patent system prevents company from suffering competitors’ imitation, it reduces necessary competition, makes the world more unequal and impairs the shareholder values.
From the perspective of consequentialism, which contends that we should judge an action in virtue of its consequences, the current patent system is problematic. When the firms are protected by the patents, they can monopolize the market and set a price higher than that in competitive market. Here is the reason: if GSK were in a market with competition, it couldn’t set price high because customers would switch to other cheaper substitutes. But patent-protected GSK dominates the market, how many drugs it puts on the market will affect the ultimate market price, namely the more drugs it markets, the lower price it get from the last sold drug. So GSK can now set the price by deciding how many drugs to produce, and to get a higher profit it will produce fewer drugs than it would in a competitive market. As a result, there will be few AZT in the market and the price will be high because of short of supply.
In addition, with patent weapon GSK can attack any other company which intends to step in the market to get a share. In this case, the pharmaceuticals firm Barr was sued because it sold a similar drug at a lower price. Some of my opponents may step out and argue, “It is known to all that in pharmaceutical field the cost of researching and inventing a new kind of drug is far higher than imitating the producing a similar drug. If we don’t use the patent to protect the innovative firms, other companies would free-ride the benefit and reduce the incentive for all companies to invent new drugs.” This plausible argument probably is the best justification for the legitimacy of pharmaceutical monopoly. But the problem is that sometimes the company that gets the patent is not the FIRST one that gets the idea and invents the new drug. It’s not unusual to see in the history that several people came out with similar inventions independently. (For example, Newton and Leibniz independently set foundation of calculus) One possible and destructive outcome of patent-mania would be that companies try hard to get patent in order to exclude other companies from getting the benefit. But this leads to an irony: patent system was legislated for the purpose of getting more innovations, but it now turns out that companies use patents to bar competition and creation. To some extent, patents actually delay the innovations. Many companies can’t wait to patent their crude ideas and products without further research and investigation, and the huge amount of patents actually set threshold for later companies to do the refinement because they first have to pay patent fee to those companies. So I cast doubt on my potential opponents’ argument because it’s hard to know whether other companies imitate or invent independently, and patent may reduce or delay the innovations.
Patent system has another bad outcome. Pharmaceuticals firms do researches in area they think will give them substantial profits, and thus it’s not hard to find out why companies focus on inventing drugs treating prevalent diseases like heart diseases. But there is another kind of disease called orphan disease that is ignored by private sectors. Companies don’t have financial incentive in making and marketing new medication for two reasons. First, these diseases are rare. Second, diseases like malaria are prevalent in poor countries, and thus patients cannot afford the high price of medicine. As a result, these people lack medicine to get rid of the diseases and face miserable outcomes.
As I have analyzed, pharmaceuticals firms, when granted the monopoly rights, will not produce enough drugs and set a high price to get maximum profits; a lack of financial incentive leads firms to neglect researching non-profitable orphan diseases treatment. From the perspective of deontology, a philosophy school contending that actions should be judge based on their adherence to rules, patent system is bad because it causes more inequality. Thousands of third-world people die of AIDS, malaria because of shortage of necessary medical treatment. These poor people are deprived of the usage of drugs due to exorbitant prices; they even cannot get generic drugs because patent systems exclude these substitutes to protect high-price drugs.
Some headstrong opponents may object that, “But if we don’t adopt the patent system, the shareholder value of pharmaceuticals firms will be impaired and their employees will be poorer. Your argument isn’t consistent because you are just transferring one group’s welfare to another group, and you eliminate inequality by creating new inequality.”
It seems that I fall into a fallacy, but I would argue that being free from the patent system may not hamper shareholder value. Here are the reasons. With the existence of patent system, companies have to take great effort applying and getting the licenses. They also have to scrutinize whether other companies are suspicious of plagiarizing their ideas. In order to maintain their benefit, patent-protected companies will use lawsuits to bar competitors from the market. All of these methods and procedures consist of huge amount of opportunity costs. The companies could have time, energy, money to do more researches to lower the cost of producing. In my opinion, companies like GSK are bearing big and unnecessary cost to protect their limited benefit brought by monopoly rights. This short-sighted way of business will eventually impairs the shareholder values in the long run. Besides, the companies may get the reputation like non-cooperating and overbearing, which will incur bad consequences in future business.
Some people may suggest that an alternative to fix the problems caused by private patent system may be government funding and sponsoring. This method has the advantage of fixing market failure, namely directing companies to pay attention to orphan diseases, but it’s not a flawless plan. There are two possible drawbacks. The first is the incentive problem. Conventionally government funding is given to the applicants before substantial physical progress, so it brings about the classic issue of information asymmetry. Researchers, after being given the fund, may not work wholeheartedly because they are not using their own money; they may intentionally delay the progress in order to get more fund; they may also set aside the project for a while and concentrate on their own work. The second problem is that researches may be negatively influenced by bureaucratic red tape and political goals.
In my opinion, prizes may be a good method for fixing the issues. For example, now the government plan to let more poor people get drugs treating AIDS. It can offer sponsorship to the companies whose samples are qualified for the standard test set by FDA. Government doesn’t have to worry about cost because it’s up to every participating company to control its cost. If the company thinks that it can get profit, it will join. Government covers part of the investment to all qualified companies and let those companies to compete. By doing this, no patent need to be granted, but innovations are guaranteed because all companies want to be the first one to step in the market and get a profit.
In conclusion, patent system may not be the best method to stimulate innovations because of inevitable costs like market failure and ethical controversies. If we can come out with a way to fix the problems, the world will be a better place to live.
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