Prizes CP Supplement - Michigan 7 2024 HPP

Prizes CP Supplement
Notes
Thanks to all of the students who worked on this file: Amelia, Ania, Arjun, Devin, Garrett, Lucy, Noah, Zoe and Ziya.
This CP is designed to be a supplement to the material in the starter packet. It includes helpful new evidence vs the pharma / disease / health areas of the topic as well
Shavell & Van Ypersele advocate for an optional prize system where an inventor would have to choose between a prize or patent but could not have both. Against most affirmatives this should not be an issue but against an aff like PERA that creates patent ELIGIBILITY but doesn’t require that people seek patents or mandate that patents are provided, the “do both” permutation has some logical value.
The Fisher III & Syed article is written about the medical / pharmaceutical context and their arguments are most applicable in that area. There is even evidence in the aff section that says their conclusions about patents and prizes are unlikely to apply in other contexts.
Net Benefits
Politics – Prizes Popular with Congress
Prizes are popular with congress
Burstein & Murray, 16 --- * Burstein is an Associate Professor of Law at Cardozo School of Law. Murray is the Associate Dean for Innovation and William Porter (1967) Professor of Entrepreneurship at MIT Sloan School of Management (SPRING 2016, Michael J. Burstein and Fiona E. Murray, Harvard Journal of Law & Technology, Volume 29, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2741827, AS)
These private sector efforts served as models for a new generation of government-sponsored innovation prizes. The Obama administration made prizes a key part of its National Strategy for American Innovation in 2009, and Congress responded in 2010 when it passed the COMPETES Act. The statute grants all federal agencies the authority “to award prizes competitively to stimulate innovation that has the potential to advance the mission of the respective agency.” Federal agencies as diverse as the Department of Energy, the Department of Housing and Urban Development, the Federal Trade Commission, the National Endowment for the Arts, and the Department of Transportation have offered at least one hundred prize competitions under the authority of the COMPETES Act. Nine of the COMPETES Act challenges in fiscal year 2014 had prize purses worth more than $100,000. Government-sponsored innovation prizes appear to be gaining popularity among lawmakers: As of this writing, the House of Representatives has passed a bill which would expand the use of prizes even further by creating a dedicated biomedical prize innovation fund for the National Institutes of Health.
Court Clog – Prizes Avoid Litigation
Prizes avoid litigations and lawsuits
Gandjour & Chernyak ‘11, Afschin Gandjour and Nadja Chernyak, Department of Public Health, Faculty of Medicine, Heinrich-Heine University Düsseldorf. (October 2011, Health Policy pg 170-177, accessed online via Science Direct “A new prize system for drug innovation”, https://www.sciencedirect.com/science/article/abs/pii/S0168851011001114, accessed 6-25-2024, AJ)
In addition, as the reward system does not provide for licensing copycat drugs, it prevents welfare losses from free riding and excessive market entry. This is in line with the reasoning of [36], who argued that if an entrant causes incumbent firms to reduce output, entry is more desirable to the entrant than to society. Further, there is no need to subsidise start-up and production costs of generic manufacturers. Litigation costs because of patent infringement lawsuits against generic manufacturers also vanish. Finally, firms currently allocate substantial resources to marketing8 in order to protect their profits. Restricting excessive entry and competition for market share could change the proportion between R&D and marketing expenditures.
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.
Solvency
S – Prizes Solve Better
A reward system is preferable --- lowers the costs of pharmaceuticals, computer software, recorded music, and visual products while increasing the incentive to innovate --- patents don’t provide sufficient incentives
Shavell & Van Ypersele, 01 --- *Harvard Law School and National Bureau of Economic Research, AND ** University of Namur and Catholic University of Louvain (October 2001, Steven Shavell and Tanguy Van Ypersele, “Rewards versus Intellectual Property Rights,” Nexis-Uni, ZK)
Importance of the Advantages of Reward Systems. To appreciate the [*545] possible advantages of reward systems, it is helpful to consider areas of innovation where the social losses due to intellectual property rights are likely to be high, namely, where the difference between price and production cost (after innovation) is large. Such areas of innovation may be exemplified by development of pharmaceuticals, computer software, and recorded music and visual products. Here, prices are often substantial in relation to production cost; drugs may sell for many times their marginal production cost, the price of computer software is generally nontrivial even though its marginal production cost is essentially zero (it can be downloaded from the Internet), and similar statements can be made about compact disc recordings, cable television broadcasts, and first-run movies. In a regime with rewards, drugs would be far cheaper and more widely used, all computer software would be free, and electronically recorded materials would be inexpensive, arguably engendering significant increases in consumer welfare. Moreover, there would also be potential gains from enhanced incentives to innovate, as profits from patent and copyright may fall considerably short of consumer surplus. For example, Kremer suggests that studies of the social versus the private returns from research indicate that private profits from research might well be only one-third of the social returns. Because optimal rewards would reflect the social returns, rewards would increase overall incentives to invest.
IV. CONCLUSION
Reward systems, or optional reward systems, and especially those based on sales-related information, appear on reflection to hold promise as alternatives to our system of intellectual property rights, because there is no necessity to marry the incentive to innovate to conferral of monopoly power in innovations. As such, serious study of the possibility of reward systems, with a view toward their implementation at least on an experimental, partial basis, is worth contemplating.
A reward system avoids high costs from patent-created monopolies --- information difficulties can be overcome
Shavell & Van Ypersele, 01 --- *Harvard Law School and National Bureau of Economic Research, AND ** University of Namur and Catholic University of Louvain (October 2001, Steven Shavell and Tanguy Van Ypersele, “Rewards versus Intellectual Property Rights,” Nexis-Uni, ZK)
TWO basic means of stimulating innovative activity are compared in this paper. One is a system of rewards paid by the government to innovators. According to this system, innovations would pass immediately into the public domain, becoming freely available to all. The other approach is the familiar system of intellectual property rights that we employ, notably, patent and copyright protection, under which the government confers to innovators exclusive rights to market the goods and services that embody their intellectual works.
Our main conclusion is that the intellectual property rights system does not enjoy any fundamental advantage over the reward system. Indeed, an optional reward system--under which an innovator can choose between a [*526] reward and intellectual property rights--is superior to the intellectual property rights system in the model we examine. These findings derive from the primary virtues of reward systems: that incentives to innovate are provided without granting innovators monopoly power over price and that the magnitude of research incentives may be selected by the government. A principal difficulty with reward systems, however, concerns the government's need for information to calculate rewards (although the government might be able to base rewards on sales and other ex post data).
To motivate our analysis, we first mention a significant historical episode about the patent system and rewards. Although a fairly well articulated patent system had emerged as early as the 1400s in Venice and had spread through much of Europe and the New World by the end of the eighteenth century, the system came under strong attack in the next century, especially during the period 1850-75. 1 Criticism of the patent system reflected dislike of monopoly power, both because it harms consumers who have to pay high prices and because it can hinder improvements and subsequent innovations if patent holders disallow that. 2 Many economists disapproved of the patent system, and in some countries, such as Germany, the economics profession was virtually unanimous in its opposition to patent. 3
Reward systems were widely discussed as an alternative method of spurring innovation (and they had been used to a not inconsiderable extent). 4 For [*527] example, Robert Macfie, a member of Parliament in England and an influential champion of rewards, set out a proposal for a government-financed reward system to replace patent; the London Economist pressed for adoption of a reward system; and economists examined rewards in professional journals, books, pamphlets, and conferences. 5 Opinion was, however, divided on the virtues of rewards (criticism of patents did not imply endorsement of rewards). The chief argument against rewards concerned difficulties in their administration; it was typically expressed by John Stuart Mill, who maintained that patent is preferable "because it [patent] leaves nothing to anyone's discretion; because the reward conferred by it depends upon the invention's being found useful, and the greater the usefulness, the greater the reward." 6
As a consequence of the criticism of patent and also of the possible utility of rewards as an alternative, many countries in Europe prepared to reform or abolish patent, and some actually did so: England established a series of royal commissions from the 1850s to the 1870s to investigate the patent system; Chancellor Bismarck recommended abolition of patent in Prussia in 1868; Holland repealed its patent system in 1869; and Switzerland, which had no patent law, rejected legislation to adopt it in 1863. Nevertheless, Europe ultimately embraced patent, but for reasons that may perhaps be regarded as more politically accidental than indicative of a substantive policy judgment favoring that system. 7
In any case, today, intellectual property rights provide the principal legal financial stimulus for innovation. 8 Rewards are little employed; their payment appears to be limited to inventions in the area of atomic energy and to certain other exceptional cases, although they were provided to inventors in the former Soviet Union. 9
[*528] Modern economic literature reflects our reality and takes the general optimality of intellectual property rights largely as a given; the possibility of rewards is paid relatively little attention, despite the history we have summarized and despite the seeming appeal of the topic to the intellect of the economist. 10 There have been few papers written in economics journals in the past century on reward. 11 Two exceptions are those by Michael Polanvyi and Brian Wright. 12 Polanvyi recommends, in a sustained and insightful but informal argument, that rewards be adopted to foster innovation and to avoid the social losses associated with patent monopoly power; he offers reasons why informational difficulties facing the government in determining awards should not prove insurmountable. Wright is the first to consider a formal model of innovation in which innovators possess superior information to the government, and he finds that rewards are better than patents if the government's information is sufficiently good. Also, Michael Kremer, in an interesting, related paper, suggests that the government could avoid social losses associated with patents by purchasing them at a price that it obtains from an auction process. 13 (Governments have in fact occasionally purchased patents, and proposals for this to be done programmatically have sometimes been advanced.) 14 Another paper of significance is by Suzanne Scotchmer; although she does not emphasize rewards, she characterizes the optimal form of patent system under the assumption that innovators possess superior information to the government. 15
[*529] In this paper, we examine a model in which a single potential innovator knows the demand curve for the product innovation he might produce before he invests in research, whereas the government knows only the probability distribution of demand curves. 16 We first compare the patent system (for concreteness, we refer to patent rather than to copyright or to intellectual property rights in general) to the reward system, and then we investigate optional reward systems. 17 The chief contributions of the paper are that it clarifies the comparison between patent and reward systems through the use of a simple and natural model of innovation and that it considers the optional reward system and shows it to be superior to patent. 18
S – China / Competitiveness
Solves China and tech leadership – incentivizes and prices are key – not patents
Duan, 19 --- J.D. from Harvard Law, Technology and Innovation Director at the R Street Institute, where his research focuses on intellectual property issues (February 2019, Charles Duan, “U.S. PATENTS AND COMPETITIVENESS WITH CHINA,” https://www.rstreet.org/wp-content/uploads/2019/02/Final-Short-No.-671.pdf, JMP))
INNOVATION THROUGH PRIZES, NOT PATENTS
Technological growth in China has largely been spurred through the Chinese government’s concerted effort to provide subsidies, incentives and prizes for innovation in key areas such as artificial intelligence and wireless communications. Released by China’s State Council in May 2015 the “Made in China 2025” plan calls for the development of Chinese high-tech industries through “financial support policies” and “fiscal and taxation policy” designed to circulate money to businesses in those industries.2 In accordance with this, the Chinese government invested $430 million in artificial intelligence research over the course of just six months in 2018.3 China has also outspent the United States in 5G mobile communications technology by $24 billion since 2015.4
China is encouraging its citizens to file patent applications but those encouragements further demonstrate that technological development in China is being motivated by prizes rather than patents. The Chinese government subsidizes the costs of patent filings, which eliminates friction toward filing5 but it also offers patent applicants a wide range of valuable rewards, ranging from tax breaks,6 to desirable housing,7 to government contracts8 and even commutation of prisoners’ sentences.9
To the extent that patents are stimulating greater innovative activity in China, then, it is likely because of the rewards offered rather than the patents themselves.
IS PATENT ENFORCEMENT REALLY DRIVING GROWTH IN CHINA?
Indeed, there are multiple reasons to believe that patents and patent enforcement are of minimal value and interest in China, such that the patent system is not a substantial driver of growth in the country.
For one thing, Chinese patent applications are low in quality. Chinese law offers three types of patents: “invention” patents akin to standard utility patents for inventions in the United States, “design” patents for ornamental or decorative features on products and “utility model” patents for “technical solutions proposed for the shape and structure of a product.”10 The latter two patent types are less rigorously examined and less powerful as enforcement tools.11 Multiple recent studies show that Chinese patent filings have been predominantly of the design and utility model types, which suggests that the incentives for filing patents are not encouraging serious inventive activity.12
Furthermore, Chinese patents tend not to be retained for long. A Bloomberg study found that 90 percent of design patents in China, and substantial numbers of invention and utility model patents too, are abandoned within the first five years of their enforcement term.13 This again suggests that patents and patent enforcement are not a substantial asset for the Chinese innovation economy.
And finally, patent enforcement damages in China tend to be very low. In fact, a 2018 survey of Chinese patent litigation found that the median damage awarded was under $5,000.14 It is hard to believe that such a small monetary sum drives high-tech innovation, particularly when compared to billions in government investment. To be sure, China is considering amendments to its patent laws that could theoretically bolster patent enforcement but those amendments are not in effect and likely are not yet affecting the behavior of technology firms.15 As a result, there is little reason to believe that patents and patent enforcement are a serious driver of the technological innovation that China enjoys today.
S – Pharma / Diseases
***note – there is more solvency evidence about pharma / disease also from this author in the block “AT: Can’t Determine the Prize – Value Based Pricing”
Patents don’t effe

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