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Essays on Intellectual Property

Ryan Michigan, 2011
Faculty Advisor: Jerry Kim
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This dissertation consists of three essays on regulation. In the first essay, "Firm Reputation and Screening at the Patent Office" , we assert that the patent office is an important regulator, exerting influence on firm outcomes. Prior research argues that powerful groups such as top innovators are able to capture their regulators, gaining favorable treatment in return for either monetary contributions to legislators' political committees or hoped-for future employment of regulators in the firms they regulate or in the firms of their legal representatives. It is also argued that regulators face many audiences and attempt to maximize their legitimacy to political entities, legal entities, the general public and the firms affected by their regulation. This can introduce a lack of consistency in decision-making. Given the considerable power of many regulators, this has implications for both policy and firm strategy.

The patent office, in particular, faces considerable uncertainty about the value of the patent rights it provides. Further, patent examiners are under pressure to grant patents quickly and have no way of permanently disposing of an application other than by granting it. We argue that patent examiners tend to look for certain signals in attempting to determine the quality of the application. We assert that the patent office's focus on helping its clients obtain intellectual property rights make their clients' prior reputations most salient. Therefore examiners tend to rely on the prominence of the applicant in the prior patent art. This can grant either a positive or negative reputation depending upon the general reputation of that field in prior patent art.

We utilize a dataset of all patents granted from 2001-2003. We use examiner-added citations to prior patent art, controlling for applicant-added citations as a measure of examiner screening. We find that firm reputation for patenting influences the level of scrutiny to which a patent application is subjected. In the conclusion we discuss the implications of these findings.

In the second essay, "Which drugs obtain the Pediatric Exclusivity Provision" we examine the pediatric exclusivity regulation provision. Pediatric exclusivity is designed to reward companies for conducting pediatric trials for dosage and safety with 6 months' extra monopoly on their drug. Using data from the Medical Expenditure Panel Surveys from 1996-2007 and drug data from the FDA, we find that companies appear to base the decision to conduct pediatric trials almost solely on the basis of current sales (and hence presumably future projected revenue). We find the threshold for a sharply increased probability of obtaining pediatric exclusivity is annual sales of $260 million in the prior year. We estimate, very conservatively, that the total liability to consumers is US$ 21 billion as of end 2007.

We also find, in accordance with prior criticism, that, (barring ADHD drugs, which are marketed primarily to minors) even after controlling for the total sales, the proportion of sales to minors does not affect the probability of obtaining pediatric exclusivity. This is in concordance with regulatory capture theory which would suggest that a powerful group (i.e., brand-name drug manufacturers ) influenced Congress to pass this legislation to procure a benefit for themselves with a not-easily perceived cost to the much more diffuse group of pharmaceutical customers who pay brand-name prices for 6 more months as a result of delayed generic entry.

In the third essay "Pediatric Exclusivity - Are the intended benefits being realized?" we examine the underlying rationale for the pediatric exclusivity and test whether the intended benefits of pediatric exclusivity are being realized. The pediatric exclusivity rule is intended to provide benefits to pediatric patients by providing clinicians with label information regarding safety and dosage in pediatric populations. We test whether valuable and important information is being produced and disseminated by the clinical trials that are undertaken to gain pediatric exclusivity. We do this by examining the patterns of publication of clinical trials before and after pediatric exclusivity is obtained and by examining the patterns of prescriptions to minor patients before and after pediatric exclusivity is obtained.

We find no evidence of greater dissemination of pediatric information in the peer-reviewed literature after obtaining pediatric exclusivity. We also find no evidence of changing patterns of prescriptions to minor patients after pediatric exclusivity is obtained. This leads us to question the value of the information being provided and conclude that the intended benefits of pediatric exclusivity provision are not being realized. We conclude that pediatric exclusivity legislation is an example of regulatory capture, designed primarily to increase monopoly protection of the sales of brand-name drugs without producing many tangible benefits.

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