Government-Granted Patent Monopolies Lead to Corruption #54,279

January 28, 2023

The New York Times had an interesting article on how the drug company AbbVie made billions of dollars on the arthritis drug Humira by exploiting the patent system. AbbVie’s strategy was to file hundreds of patents on Humira, long after the drug had already been brought to market. This meant that even after its main patents had expired it would still have other patents that were still in effect.

The legal status of these secondary patents may have been dubious, but the company was prepared to spend large amounts of money suing potential generic competitors for patent infringement. This threat was sufficiently credible to get competitors to agree to delay entry for many years, and also to pay a licensing fee after they did enter the market.

This is now a common pattern for drug companies to protect their blockbuster drugs. There is a fundamental asymmetry in contesting infringement lawsuits.

The patent holder is suing to maintain a patent that allows it to sell its drug at the monopoly price. The potential generic competitor is trying to get the right to sell a drug at the free market price. Since there is so much more money at stake for the patent holder, it can profitably deploy far more resources to press its case than a generic competitor. That is why it is common for potential generic competitors to agree to delaying entry or just give up altogether.

This is the sort of corruption that economics predicts will result from government-granted patent monopolies.  


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