A closer look at the historical and international evidence suggests that while weak patent systems may mildly increase innovation with limited side-effects, strong patent systems retard innovation with many negative side-effects. Both theoretically and empirically, the political economy of government operated patent systems indicates that weak legislation will generally evolve into a strong protection and that the political demand for stronger patent protection comes from old and stagnant industries and firms, not from new and innovative ones. Hence the best solution is to abolish patents entirely through strong constitutional measures and to find other legislative instruments, less open to lobbying and rent-seeking, to foster innovation whenever there is clear evidence that laissez-faire under-supplies it.
The first iPhone was released on June 29, 2007. The first serious competitior, the HTC Dream (using the Android operating system) was released only on October 22, 2008. By that time over 5 million iPhones had been sold, and sales soared to over 25 million units during the subsequent year, while total sales of all Android based phones was less than 7 million. In the tablet market the iPad still has no serious competitor despite having been introduced on April 10, 2010. While it is hard to prove this delayed imitation would have occurred also in the complete absence of patents, it is a fact that Apple did not try to use patents to prevent the Android phones from coming into its market and the subsequent “patents’ fight” has been taking place largely after 2010, something that the Boldrin and Levine  model predicts. More to the point, companies typically instruct their engineers developing products to avoid studying existing patents so as to be spared subsequent claims of willful infringement, which raises the possibility of having to pay triple damages. Based on sworn testimony by Google’s chief of Android development in Oracle vs. Google (see for example Niccolai ) the engineers that developed Android were unaware of Apple (or other) patents, and so were unlikely to have been helped by them. How valuable financially, for Apple, was the delay in the Android phones entry? Based largely on the fact that Apple has kept its first mover advantage in spite of a large imitative entry in this market, the value of Apple stock – during a severe market downturn – has gone up by a factor of approximately five. While there may have been some delay in competition due to Apple’s threat – since executed – of patent litigation, the fact is that similar but less successful devices had been available for a number of years before Apple finally cracked the market.
disclosure in the case of drugs is more meaningful than in that of cars and most other products. The chemical formula and the efficacy of the cure as established by clinical trials are available to competitors essentially for free and it is the second (a public good, privately produced due to a political choice) that accounts for about 80% of the initial fixed cost.
We advocate reforming pharmaceutical regulation to either treat stage II and III clinical trials as public goods (to be financed by NIH on a competitive basis) or by allowing the commercialization (at regulated prices equal to the economic costs) of drugs that satisfy the FDA requirements for safety even if they do not yet satisfy the current, over-demanding, requisites for proving efficacy. It is ensuring the efficacy—not the safety—of drugs that is most expensive, timeconsuming and difficult. All the usual mechanisms of ensuring the safety of drugs would remain firmly in place. While pharmaceutical companies would be requested to sell new drugs at “economic cost” until efficacy is proved, they could start selling at market prices after that. In this way, companies would face strong incentives to conduct or fund appropriate efficacy studies where they deem the potential market for such drugs to be large enough to bear the additional costs. At the same time this “progressive” approval system would give cures for rare diseases the fighting chance they currently do not have. This solution would substantially reduce the risks and cost of developing new drugs.