nep-ipr New Economics Papers
on Intellectual Property Rights
Issue of 2015‒10‒25
four papers chosen by
Giovanni Ramello
Università degli Studi del Piemonte Orientale “Amedeo Avogadro”

  1. Pharmaceutical Patents and Generic Entry Competition: A New View on the Hatch-Waxman Act By WAN, Yunyun; MIYAGIWA, Kaz
  2. Patents as Quality Signals? The Implications for Financing Constraints on R&D By Bronwyn Hall
  3. Measuring Recovery: TTIP: Are 40 Cents a Day Big Gains? By David Rosnick

  1. By: WAN, Yunyun; MIYAGIWA, Kaz
    Abstract: We present a formal analysis that sheds new light on the Hatch-Waxman Act. Hatch-Waxman restores incentives to develop new drugs by extending the patent life for them, but also promotes generic entry by reducing entry costs and by providing 180-day marketing exclusivity to a first challenger to the patent. Although these two objectives appear incompatible, our model shows that marketing exclusivity, with a significant entry cost reduction, contributes to incentive restoration. It finds however that social welfare is lower with marketing exclusivity. Finally, our analysis suggests that marketing exclusivity not be granted in the case of drugs for rare diseases.
    Keywords: innovation, generic entry competition, patent, pharmaceuticals, Hatch-Waxman
    JEL: I18 K23 L13
    Date: 2015–08–30
  2. By: Bronwyn Hall
    Abstract: Information about the success of a new technology is usually held asymmetrically between the research and development (R&D)-performing firm and potential lenders and investors. This raises the cost of capital for financing R&D externally, resulting in financing constraints on R&D especially for firms with limited internal resources. Previous literature provided evidence for start-up firms on the role of patents as signals to investors, in particular to Venture Capitalists. This study adds to previous insights by studying the effects of firms’ patenting activity on the degree of financing constraints on R&D for a panel of established firms. The results show that patents do indeed attenuate financing constraints for small firms where information asymmetries may be particularly high and collateral value is low. Larger firms are not only less subject to financing constraints, but also do not seem to benefit from a patent quality signal.
    Date: 2014–07
  3. By: David Rosnick
    Abstract: This issue brief examines widely cited studies on the potential gains from the Trans-Atlantic Trade and Investment Partnership (TTIP) and finds that they would deliver no more than 40 cents per person per day in the U.S., and 0.2 euros per person per day in the EU. These projections are also optimistic, as they result in part from significantly underestimating the costs from patent protections for pharmaceuticals, copyright enforcement and other protections under the TTIP that could increase the price of a product by thousands, or tens of thousands, of percent.
    Keywords: TTIP, trade, TPP, terms of trade, growth, patents
    JEL: F F1 F4
    Date: 2015–08
  4. By: Gerard Llobet (CEMFI, Centro de Estudios Monetarios y Financieros); Jorge Padilla (Compass Lexecon)
    Abstract: There is considerable controversy about the relative merits of the apportionment rule (which results in per-unit royalties) and the entire market value rule (which results in ad-valorem royalties) as ways to determine the scope of the royalty base in licensing negotiations and disputes. This paper analyzes the welfare implication of the two rules abstracting from implementation and practicability considerations. We show that ad-valorem royalties tend to lead to lower prices, particularly in the context of successive monopolies. They benefit upstream producers but not necessarily hurt downstream producers. When we endogenize the investment decisions, we show that a sufficient condition for ad-valorem royalties to improve social welfare is that enticing more upstream investment is optimal or when multiple innovators contribute complementary technologies. Our findings contribute to explain why most licensing contracts include royalties based on the value of sales.
    Keywords: Intellectual property, standard setting organizations, patent licensing, R&D investment.
    JEL: L15 L24 O31 O34
    Date: 2014–12

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