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AbstractThis paper connects ideas from recent literature on the economics of intellectual property (IP) to address the question: Did the strengthening and broadening of IP rights from important patent policy changes in the US promote greater innovation? The analysis rests on the theory of cumulative innovation, which shows that if IP rights on a pioneer invention extend to follow‐on research and impediments to contracting exist, then strengthening patents can actually reduce overall innovation. Recent empirical studies are consistent with the theory: patents can significantly deter follow‐on research in "complex" technology areas where contracting is difficult (computers, electronics, telecommunications) but not in drugs, chemicals and human genes. I outline remedies from court decisions and antitrust policy for addressing inefficiencies from patent trolling, patent thickets and the anti‐commons of fragmented ownership. I then apply the analysis to the antibiotics market, drawing on recent research, to examine how patent and competition policies can be used to improve incentives for drug development in the battle against antibiotic resistance. The literature provides persuasive evidence that the policy changes overreached in broadening and strengthening IP rights and reveals important patent reforms for improving the effectiveness of patent systems in the US and Canada.

Countries worldwide face an antibiotics health crisis. Resistant bacteria are rendering the current stock of antibiotics ineffective, and the pipeline of back-up drugs is running dry. Canada contributes more than its share to this global problem, with per-capita doses of antibiotics exceeding those of many of its peer countries in the Organisation for Economic Co-operation and Development. In a simple dynamic framework, we identify an efficient policy that reduces overuse and hence prolongs the lives of antibiotics. The policy includes (a) narrow patents to allow substitute drugs; (b) a flexible competition policy to permit limited coordination between competitors; (c) a regulatory standard on new substitute drugs to contain cross-resistance; and (d) a Pigouvian tax to reduce post-patent generic output. Complementing this patent-competition-regulatory-tax regime, additional incentives not dependent on sales, such as subsidies, prizes, and expedited regulatory reviews, may be necessary to promote development of new antibiotics.