A prize system reduces wasteful expenditures and avoids court clog
Fisher III & Syed 17 *WilmerHale Professor of Intellectual Property Law, Harvard University, **Assistant Professor of Law, University of California at Berkeley (William W. Fisher III and Talha Syed, “Chapter 5: Prizes” in Infection: The Health Crisis in the Developing World and What We Should Do About It, https://cyber.harvard.edu/people/tfisher/Infection_Prizes.pdf) AM
The third and final potential benefit of a prize system is that it could reduce socially wasteful expenditures by pharmaceutical firms. The largest potential source of savings consists of marketing costs. Estimates of the magnitude of those costs under the current regime vary. Some scholars contend that pharmaceutical firms devote roughly one third of their revenues to marketing their products.10 Meredith Rosenthal and her colleagues suggest that the number is closer to 15%.11 Dean Baker and Norkio Chatani point out that “[a]ccording to the industry’s own data, in 2000 it employed almost twice as many people in sales promotion as in research, 87,810 in sales compared to 48,527 in research.” 12 These differences aside, there is little question that the amount that the firms are currently spending on marketing is substantial. For reasons we explored in chapter 4, only a portion of those expenditures redound to the benefit of society at large. In brief: To the extent that advertising better informs either patients or doctors concerning the merits of drugs and thus enables them to improve their own or their patients’ health, it is plainly beneficial. However, to the extent that advertising functions to expand or stabilize the market share of one of several substitute products – or leads to increases in drug consumption unjustified by health benefits – it is wasteful or pernicious. A prize system, if it were structured properly, might reduce these outlays. Most intriguing is the possibility that the mechanism for determining the magnitude of the awards might be designed so as to reduce firms’ incentives to engage in pernicious forms of promotion, while preserving their incentives to engage in beneficial forms of promotion. Another potential source of savings involves litigation costs. The resources currently consumed by lawyers and the court system resolving disputes involving pharmaceutical patents are enormous.13 A prize system would not be free of disputes, of course. But it might be designed to reduce the incidence of those controversies and the costs of resolving them.