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Press Release

    Cultural Pollution and Life-Saving Medication

    05/21/2002

    It is an open secret that the political institutions of the United States are often captured by economic interests who seek to further their own agendas at the expense of what can colloquially be referred to as the “greater good.” While much of the impetus for increased regulation of donations to political parties and their candidates has been based on a desire to “return” political decision-making to its traditional roots, as any student of the Constitution and the Federalist Papers can attest, this problem has been around as long as representative government has existed.

    In Federalist 10, James Madison chronicled the ways in which the U.S. Constitution presented “a republican remedy for the diseases most incident to republican government.” Instead of pretending that “special interests” would not try to manipulate the government, or that elected officials would be too righteous to succumb to such temptation, Madison presented a realistic view of the ways the constitution would set up a Newtonian system of checks and balances that would prevent a majority faction from imposing its will on the minority.

    Essentially, Madison’s greatest fear – and the most fecund objection of the opponents of representative government – was that a strong, centralized representative government would replace royal tyranny with the potentially more oppressive tyranny of the majority. Madison argued that the Constitution would protect minority interests – most notably property holders – from such threats by enlarging the relevant sphere, which would “take in a greater variety of parties and interests; (making) it less probable that a majority of the whole will have a common motive to invade the rights of other citizens.”

    While the diversity of interests and viewpoints among this large republic has limited the extent to which smaller groups act in tandem to oppress the minority, historical economic analysis reveals that Madison partially misdiagnosed the problem. Our Constitutional system of government has allowed MINORITIES to invade the rights of MAJORITIES when a piece of legislation has concentrated benefits and broadly diffused costs.

    Tax breaks or credits for particular industries are the most often cited example of this phenomenon in collective decision-making, but the list is long. In fact, as economists Gordon Tullock and James Buchanan explained in their seminal 1962 book, The Calculus of Consent, “Almost any conceivable collective action will provide more benefits to some citizens than to others.” Passionate minorities understand this and have taken action throughout the history of the republic to attain advantages through political influence that they could not have gained in the free market.

    Intellectual Property
    Perhaps the best example of this dynamic is the way that copyright and patent law has diverged since the Constitution was adopted. Although both come from the same Constitutional provision in Article I, Section 8: The Congress shall have Power… To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries,” the terms and powers of copyright and patent could not be more dissimilar today. The length of copyright is now 70 years after the death of the author, or 95 years for works for hire and now includes regulations on technology used to protect digital content from unauthorized use. Patents are much closer to copyright’s original term (14 years) and are valid for 20 years from the time of application, though in most instances the period when the patent can be exploited commercially is much shorter.

    The reason for the divergence can be attributed to the differing influence of the economic interests protected by patent and copyright and the checks exerted on each by rival interests. Whereas the benefits of copyright extensions are concentrated among a cadre of power financial interests in the music, film, and publishing industries, their costs are diffused across the public as a whole.

    In plain English, when copyright is extended – or its powers expanded – a small group extracts huge financial gains from the monopoly franchise, while each consumer incurs very little cost and barely notices. As a result, lawmakers – interested in reelection, or simply improving their own position once they leave office – respond to the pressure of special interests willing to do whatever it takes to gain their approval. Consumers pay more for movies and music, but the difference is not significant enough for them to take action and the legal maneuvering is too stealth for most to notice.

    By contrast, the beneficiaries of patents are not an easily identifiable interest group. Patents are granted for any discovery or invention ranging from the Rubik's cube, to pogo sticks, to genetic therapies. While the inventors of each would derive benefit if allowed to extend their monopoly beyond its original term, they are not a coordinated group with a common lobbying strategy like the Recording Industry Association of America, or the Motion Picture Association of America. The closest thing is the Institute for Patents and Inventors, http://invent.org/index.asp or the United Inventors Association, both of whom have little influence in Washington and mostly help inventors who are unfamiliar with the system to get patents.

    The closest thing to an organized interest group whose main concern is patent integrity is the Pharmaceutical Research and Manufacturers of America (PhRMA), which is a coalition of drug innovators. However, the strength of this interest group in Washington and state capitals is very limited because well-defined commercial interests – mainly health insurers, the government, and employers – are the main purchasers of their products and use their own influence as a passionate minority to influence lawmakers.

    In the Senate Today

    Currently, the United States Senate is considering legislation sponsored by Sens. John McCain (R-Ariz.) and Charles Schumer (D-N.Y.) to weaken patent rights in an effort to drive down the costs insurers and employers must pay for prescription drugs. General Motors, for instance, spent $1.3 billion (up 14 percent from the previous year) on prescription drugs for its employees and retirees last year alone. The bill – supported by a coalition of employers known as Business for Affordable Medicine – would prevent innovator drug companies from seeking remedies from generic manufacturers who infringe on their patented products and allow the Food and Drug Administration (FDA) to approve generic drugs that are not duplicates of innovator drugs and therefore could not be approved under current law as generics.

    The rationale for the suit is that drug innovators use the current patent regime – which prevents the FDA from approving generics for 30 months if infringement litigation is pending – to prevent generics from coming to market. But the facts indicate that this is not the case at all. Between 1984 and 2001, 8,259 generic applications were made to the FDA; 478 raised patent issues, resulting in 58 court decisions, of which only 3 were alleged to involve anti-competitive intentions on the part of innovator drug companies.

    The goal of Sens. Schumer and McCain’s legislation is not to “close loopholes” as alleged, but to reduce drug innovator revenues, of which 20 percents are reinvested into drug development. New drugs save and improve the quality of lives, but they cost money. Corporations striving to cut costs realize that reducing patent protection would reduce future spending on prescription drugs by reducing the number of new prescription drugs available, which account for 90 percent of drug spending increases.

    It costs an average of $800 million to bring a new pharmaceutical product to market. That money can only be recouped through patents, which prevent competition from generic companies who invest less than $1 million to copy and reproduce existing drugs. Weakening patents will reduce revenues, which will reduce research and development, which will reduce the number of new life-saving medications – it’s just simple arithmetic.

    Ironically, as the Senate considers changes to further erode patent protection, it is considering a bill, sponsored by Commerce Committee Chairman Ernest (Fritz) Hollings, to further expand copyright by making it a felony to sell or provide “any hardware or software that reproduces copyrighted works in digital form.” Movies cost up to $300 million to make and, like pharmaceuticals, need protection if that money is to be recouped. The threat posed by digital piracy is great, and Hollywood wants new laws to erase it at the expense of innovation and liberty.

    Perhaps the high-tech community, who would be regulated by this piece of legislation, will finally provide opposition to copyright’s perpetual expansion. But one has to wonder why Congress would be considering such a piece of legislation in the first place given the tech community’s need for copyrighted material for their own sales and ability to defend it?

    Copyright lasts, on average, 80 years longer than pharmaceutical patents, regulates software and provides for jail terms for unauthorized technical research. Few would dispute that pharmaceutical patents fulfill the Constitutional goal of “advancing science,” while little of what the entertainment industry produces would be thought of as “useful art.” Pharmaceuticals give AIDs-ravaged populations in Africa hope, while some of Hollywood’s copyrighted offerings do little more than to fill young Americans with angst. Yet, the United States Senate is poised to strengthen the legal protection afforded to Eminem’s newest CD, while weakening the patent on life-saving medical breakthroughs.

    As the goings-on in the Senate demonstrate, contemporary political decision-making is so driven by self-interested corporate sponsors seeking concentrated benefits from equally self-interested lawmakers, that Madison’s vision illustrated in Federalist 10 seems to concern a completely different world. Madison’s concern with majority tyranny is a valid one, but in hindsight, it is clear that Madison was dead wrong when he wrote: “If a faction consists of less than a majority, relief is supplied by the republican principle, which enables the majority to defeat its sinister views by regular vote.”