Max Planck Institute for Innovation and Competition, Munich, Room 313
We theoretically derive a simple rule for the optimal patent breadth and duration of pharmaceutical patents. The rule requires only data on generic firms’ investments in imitation prior to the expiry of originator patents. We then test the rule using a unique patent level data set from the US. Paragraph IV challenges offer a clear metric of imitation and patent term extensions create the variation in patent term. Using two quasi-experimental approaches and newly constructed data, we document that extending patent length increases incentives to imitate whereas broadening patents reduces these incentives. Our results together suggest that effective terms of new drug patents should be made shorter and delays in commercialization of new drugs should be compensated by increasing breadth.
Contact: Felix Poege