The Continuum of Excludability and the Limits of Patents

Article excerpt

ESSAY CONTENTS

INTRODUCTION

I.   UNDERSTANDING THE CONTINUUM OF EXCLUDABILITY
      A. Patents as a Solution to Information Goods' Appropriability
         Problem
      B. The Key Determinants of Excludability

II.  ILLUSTRATING THE THREE INFLUENCES ON EXCLUDABILITY
      A. Negative Information About Drugs
      B. Lifestyle Interventions
      C. Innovations in Healthcare Quality

III. EXPLANATORY AND POLICY SIGNIFICANCE
      A. The Potential Distortions of Patents
      B. Specific Policy Prescriptions
      C. Broader Theoretical Implications

CONCLUSION

INTRODUCTION

Each year, nearly 30,000 people in the United States die from infections resulting from central-line catheters used for monitoring in intensive-care units (ICUs) in hospitals. (1) These deaths are in part a result of the growing problem of antibiotic-resistant infections in hospitals. (2) The intellectual property (IP) literature is replete with proposals to address that problem by incentivizing the creation of new antibiotics--proposals that sometimes have price tags in the billions of dollars. (3) But in 2006, a different kind of breakthrough was reported in the New England Journal of Medicine--a new technology that reduced the number of these infections by about two-thirds. (4) The technology was a humble checklist, featuring important and well-known hygienic practices such as hand washing and the use of antiseptic. (5) Clinical trials have shown that the intervention works in a range of settings, including in otherwise poor-quality ICUs. (6) While the mechanism is still somewhat unclear, it seems to work by giving nurses the authority to enforce the listed practices with doctors and by improving communication in hospitals in other ways. (7)

The checklist intervention is a classic information good: it is immaterial and was much more expensive to create (or to validate, which is often the more pertinent issue with medical interventions, as we will explain) than it is to copy. By any measure of social welfare, it is also a great intervention. It is cheap, has no known side effects, and prevents infections up front rather than simply treating them after the fact. If widely implemented in the United States, it could save more than 15,000 lives and $1 billion in treatment costs each year. (8) These figures are particularly impressive when compared to the billion--dollar figures often attached to proposals for new drug treatments.

Yet the checklist approach is unlikely to be well rewarded by even a very expansive patent system. Even if we assume that patent law permits a strong and enforceable patent on the intervention, it would be difficult for the creator to use that patent to appropriate any significant proportion of the social value created by the intervention. He would have to track behavior that is routine and to some extent cloaked by privacy norms related to doctor-patient relationships. Thus, the state of technology and of norms place limits on the freedom of our hypothetical patentee to enforce his patent. Of course, we should not overstate the case. An institutional factor would work in the inventor's favor: the existence of hospitals as an organized intermediary. This setup reduces the number of potential infringers and increases the likelihood of tangible evidence of infringing conduct by creating a "paper trail" of written or oral records of established hospital protocols. On balance, though, the checklist will be much less excludable than a drug.

Recognizing this shortcoming of the patent system draws attention to what we call "the continuum of excludability." As we elaborate below, excludability is not a binary quality, either "on" or "off' depending on the availability or absence of property rights. Rather, it is highly variable across information goods, and is affected not only by formal legal entitlements, but also by existing technologies for detecting or tracing such uses (and their costs); existing social norms regarding "acceptable" or "reasonable" enforcement efforts (in light of concerns about privacy, freedom of thought and speech, and so forth); and the existing institutions--or social roles, relations, and organizational forms--within which the predominant uses of the good will be made. …