ented genetic diagnostics, where we see some evidence of patents interfering with university research, are an important exception. There is, also, some evidence of delays associated with negotiating access to patented research tools, and there are areas in which patents over targets limit access and where access to foundational discoveries can be restricted. There are also cases in which research is redirected to areas with more intellectual property (IP) freedom. Still, the vast majority of respondents say that there are no cases in which valuable research projects were stopped because of IP problems relating to research inputs.

We do not observe as much breakdown or even restricted access to research tools as one might expect because firms and universities have been able to develop “working solutions” that allow their research to proceed. These working solutions combine taking licenses, inventing around patents, infringement (often informally invoking a research exemption), developing and using public tools, and challenging patents in court. In addition, changes in the institutional environment, particularly new U.S. Patent and Trademark Office (USPTO) guidelines, active intervention by the National Institutes of Health (NIH), and some shift in the courts’ views toward research tool patents, appear to have further reduced the threat of breakdown and access restrictions, although the environment remains uncertain.

We conclude with a discussion of the potential social welfare effects of these changes in the industry and the adoption of these working solutions for dealing with a complex patent landscape. There are social costs associated with these changes, but there are also important benefits. Although we cannot rule out the possibility of new problems in the future, our results highlight some of the mechanisms that exist for overcoming these difficulties.

INTRODUCTION

There is widespread consensus that patents have long benefited biomedical innovation. A forty-year empirical legacy suggests that patents are more effec-

2  

See Scherer et al. (1959), Levin et al. (1987), Mansfield (1986), and Cohen et al. (2000). For pharmaceuticals, there is near universal agreement among our respondents that patent rights are critical to providing the incentive to conduct R&D. Indeed, data from the Carnegie Mellon Survey of Industrial R&D (cf. Cohen et al., 2000) show that the average imitation lag for the drug industry is nearly 5 years for patented products, whereas for the rest of the manufacturing sector, the average is just over 3.5 years (p < 0.01). Moreover, recent evidence shows that the profits protected by patents constitute an important incentive for drug firms to invest in R&D (Arora et al., 2003).



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