Do fixed patent terms distort innovation?
Evidence from cancer clinical trials
Patents award innovators a fixed period of market exclusivity, e.g., 20 years in the United States.
Yet, since in many industries firms file patents at the time of discovery ("invention") rather than first
sale ("commercialization"), effective patent terms vary: inventions that commercialize at the time of
invention receive a full patent term, whereas inventions that have a long time lag between invention and
commercialization receive substantially reduced - or in extreme cases, zero - effective patent terms. We
present a simple model formalizing how this variation may distort research and development (R&D).
We then explore this distortion empirically in the context of cancer R&D, where clinical trials are
shorter - and hence, effective patent terms longer - for drugs targeting late-stage cancer patients,
relative to drugs targeting early-stage cancer patients or cancer prevention. Using a newly constructed
data set on cancer clinical trial investments, we provide several sources of evidence consistent with
fixed patent terms distorting cancer R&D. Back-of-the-envelope calculations suggest that the number
of life-years at stake is large. We discuss three specific policy levers that could eliminate this distortion
- patent design, targeted R&D subsidies, and surrogate (non-mortality) clinical trial endpoints - and
provide empirical evidence that surrogate endpoints can be effective in practice.