Patent Wars

PATENT WARS….I’ve argued before that basic economics suggests that, one way or another, both profit levels and risk-adjusted returns are bound to remain more or less constant in the pharmaceutical industry. Thus, if prices fall in the U.S., they’ll rise in Europe. The alternative is that European national governments are both so stupid and such ruthless bargainers (!) that they’ll literally drive the pharmaceutical industry into the ground rather than pay higher prices.

Megan McArdle is decidedly of the opposite opinion. And who knows? Maybe she’s right. But although I don’t feel like arguing the entire big picture question right now, this particular passage struck me:

We cannot forbid pharmaceutical companies to sell into [European countries] at discount prices, because those countries can break the patents and license generic manufacturers to manufacture the drugs. All we would end up doing is removing a small source of profit from the pharma company’s books.

It’s true that we can’t forbid pharma companies from selling into Europe at any price they want, if only because about half the pharma industry is based in Europe in the first place and therefore outside even our theoretical control. But what’s this about European countries getting pissed off and just breaking patents willy nilly? That happens occasionally in third world countries, especially with expensive HIV drug cocktails, but has it ever happened (or been threatened) in a developed country with an ordinary pharmaceutical product? Wouldn’t that (a) be suicidal (American drug companies would abandon your market), (b) violate all sorts of trade agreements, and (c) set off a massive retaliatory trade war (if they can break Merck’s patents, we can break GlaxoSmithKline’s)? Maybe I’m missing something here, but a massive, global patent war seems pretty unlikely, doesn’t it?