Patents, Property Rights, and Regulation
Long viewed as a cornerstone of innovation policy, the U.S. patent system is designed to encourage invention and promote technological progress. Over time, many have come to view patents as property rights akin to those arising from tangible, physical property. However, a closer examination reveals that patent rights are fundamentally different from physical property rights and that the patent system functions more as a regulatory framework that defines and grants market exclusivities. And like any regulatory structure, the patent system is subject to rent-seeking and special-interest politics.
This essay explores how the current patent system, driven heavily by the interests of patent holders, can have adverse impacts—particularly in the pharmaceutical sector—and argues that a better understanding of the nature of patent rights will facilitate reforms that better align patents with their intended purpose: fostering innovation.
Patents Are Not Equivalent to Physical Property Rights
A critical starting point in this discussion is recognizing the fundamental difference between patent rights and physical property rights. The U.S. Constitution is silent on the issue of patents as property; rather, it authorizes Congress to “promote the Progress of Science and useful Arts” through “limited times” exclusive rights. Former U.S. Solicitor General Paul Clement noted that, among the nation’s Framers, there was “virtually no disagreement that patent rights are not vested by nature or the common law; instead, they are creatures of positive law whose scope, contours, and very existence depend on the will of Congress.”
Patents emerged historically as government-granted privileges, not as recognitions of pre-existing property rights. For example, early patents in England were not just for inventions. They were a form of royal patronage—“letters patent”—granting anything from an official appointment, to land, to a monopoly in a particular trade or industry. Corruption and abuse of these grants from the monarchy ultimately led to the Statute of Monopolies, passed in 1624, which curbed the ability to grant such privileges while repealing a large swath of patents. Importantly, patents for novel inventions were allowed only under the new law, which is seen as the origin of modern Anglo-American patent law.
The distinction between a patent—a form of intellectual property—and physical property stems from the economic nature of ideas and inventions, a distinction economists call “non-rivalrous” and “non-excludable.” Unlike physical property, one person’s use of an idea does not preclude others from also using it. Ideas exist without scarcity. As noted in an important study of patents produced for the U.S. Senate, someone who complains about a stolen idea “complains that something has been stolen which he still possesses, and he wants back something which, if given to him a thousand times, would add nothing to his possession.” Put simply, because ideas are different, Congress felt it necessary to create the patent system as a way for inventors to capture the benefits of their work.
The U.S. Supreme Court’s 2018 decision in Oil States Energy Services v. Greene’s Energy Group provided an even more explicit clarification of patents as public rights rather than private property rights. The Court ruled that inter partes review proceedings at the Patent Trial and Appeal Board do not violate the U.S. Constitution’s Article III (which states that only the judicial branch can decide legal arguments) or its Seventh Amendment (which guarantees the right to a jury trial). Justice Clarence Thomas, writing for the majority, stated unequivocally that patents are “public franchises” rather than “private rights.” This characterization firmly places patents in the realm of public rights that, should they fail to achieve their goal, can be reconsidered and reformed through administrative processes and statutory law.
Given the fundamental differences between tangible and intangible rights, applying a maximalist view of intellectual property that equates the two is deeply flawed. Many adherents of stronger patent laws rely on a “natural rights” framework to justify the equal treatment of these distinct forms of property, but this argument ignores the significant economic and legal distinctions between the two.
Moreover, treating a patent as an inviolable property right disregards their stated role to encourage progress in the arts and sciences. It also overlooks the social costs of monopolies, particularly on products with little novelty or innovation. As economist Friedrich Hayek warned, “[T]he mechanical extension of the property concept by lawyers has done so much to create undesirable and harmful privilege.”
Importantly, examining patents through a property rights framework offers no insights into important questions, such as the appropriate scope or duration of a patent or what standards should be adopted in order to yield the optimal level of invention and innovation. These are questions of positive law informed by legislation and regulation. By contrast, the lens of physical property rights offers no way to balance the benefits of incentivizing innovation against the costs of restricting competition and follow-on inventions.
Patents as a Regulatory Framework
Patents are more accurately understood as a regulatory framework established by Congress and administered by the U.S. Patent and Trademark Office (USPTO). The entire system of examining patent applications, granting exclusive intellectual property rights, and adjudicating patent disputes is a creation of statute and government bureaucracy. A federal agency with more than 14,000 employees is responsible for administering the patent system. Unlike physical property, patent rights depend on the institutional structure, incentives, and decision-making processes within the USPTO.
Yet despite the incentives this creates for invention, the system is not flawless. For example, the USPTO’s fee structure and funding model encourages the overgranting of patents, particularly when budgets are tight. Patent examiners also face time pressures and institutional biases that can lead to the approval of low-quality patents. Nevertheless, even in this contrary circumstance, the value and quality of patents remains a function of the institutional framework and incentives created by the patent system, which distinguishes patents from more traditional forms of physical property.
Of course, like any regulatory framework, the patent system is vulnerable to rent-seeking behavior and manipulation by special interests. Perhaps most notably, the U.S. pharmaceutical industry employs various strategies to extend patent protection and maintain market exclusivity for their products—often at the expense of patients and consumers. From 1999 to 2018, pharmaceutical companies spent $4.7 billion lobbying the federal government. Recent lobbying efforts include support for the Patent Eligibility Restoration Act (PERA) and the Promoting and Respecting Economically Vital American Innovation Leadership Act, (PREVAIL), both of which would strengthen the hand of patent owners and deter innovation—PERA by expanding what can be patented and PREVAIL by making it harder to challenge weak or invalid patents.
Pharmaceutical companies also employ various strategies to exploit the patent system and thus extend their market exclusivity to keep generic rivals out of the market. Evergreening strategies, such as filing numerous additional patents on minor modifications to existing drugs, are often used to extend exclusivity. Patent thickets—impenetrable walls of patents filed around the initial patent—make it extremely difficult for generic competitors to enter the market.
Patent thickets are most often created by extensive filing of so-called “secondary patents.” While a primary patent covers the product’s active ingredient, secondary patents can be filed for such elements as dosage, manufacturing process, delivery mechanism, or formulation. Secondary patents (many filed after the granting of the primary patent) have been criticized because, although the protected product changes can be relatively minor and/or of little therapeutic value, they can effectively delay market entry by generic manufacturers. Secondary patent thickets can be virtually impenetrable. For instance, one study of top-selling drugs in the United States found there was an average of 74 patents granted for each drug. Additionally, pharmaceutical companies filed an average of 140 patent applications for each drug—66 percent of them filed after U.S. Food and Drug Administration (FDA) approval.
Humira, AbbVie’s blockbuster arthritis drug, provides a good example. Originally approved by the FDA in 2002 for the treatment of rheumatoid arthritis, its use cases expanded to cover 16 indications including psoriatic arthritis, ulcerative colitis, Crohn’s disease, and psoriasis, among others. Humira has proved to be one of the most profitable drugs in history, netting AbbVie approximately $200 billion in global revenue since its introduction. In 2022 alone, AbbVie earned $21.2 billion from Humira—surprising, given that the primary patent expired in 2016. But AbbVie conducted an aggressive patenting campaign, racking up 166 secondary patents to maintain Humira’s exclusivity in the market. In fact, generic competition for Humira did not reach the U.S. market until 2023, when nine companies moved to offer biosimilar versions. One unbranded version has a list price 81 percent lower than Humira itself.
The USPTO’s willingness to grant follow-on patents, particularly weak patents of questionable validity, enables these quasi-monopolistic strategies. While individual secondary patents may eventually be overturned in court, they can still delay competition significantly and impose substantial costs on generic drug manufacturers—not to mention on patients and the health care system—for many years to come. Yet there is hope. In testimony before the U.S. House of Representatives, one witness declared that secondary patents were ripe for challenge because they may not satisfy the “novel” or “non-obvious” requirements of a valid patent. In fact, to date, legal challenges to secondary patents have been effective 67 percent of the time, while challenges to primary patents on active ingredients have succeeded only 8 percent of the time.
Conclusion
Patents play a critical role in innovation policy, but they are best understood as a regulatory tool to promote invention and innovation rather than as a right in the sense of tangible property. Unfortunately, this maximalist view of patents inhibits legal or even legislative remediation because each patent (whether primary or secondary), no matter how trivial or strategically motivated, is considered an inviolable “property right.” As noted, this perspective ignores the fundamental differences between intellectual and physical property, disregarding the regulatory role patents are meant to serve. Consequently, patenting strategies have emerged to extend monopoly protections without corresponding therapeutic benefits, effectively turning the patent system into a mechanism for rent protection rather than innovation enhancement.
Recognizing that patent policy is subject to manipulation and rent-seeking behaviors opens the door to much-needed reforms that can improve patent quality without deterring competition. The pharmaceutical industry’s patent gamesmanship serves as a stark reminder of the need for reform. The proliferation of secondary patents, the creation of patent thickets, and the practice of evergreening have all contributed to delaying generic competition and keeping drug prices artificially high. These techniques not only burden consumers and strain health care systems, but they also stifle genuine innovation by diverting resources from research and development to legal maneuvering aimed at extending (or challenging) the monopolies of blockbuster drugs.
In this light, efforts to reform the patent system should focus on improving its ability to promote innovation while curbing abusive practices that hinder competition and limit access to affordable medicines. Viewing patents as a regulatory framework rather than an inviolable property right will allow policymakers to better align the system with its core purpose of fostering innovation to benefit society.
Potential improvements could include raising standards for patent approval and providing more resources to improve the patent-examination process, with a more careful assessment of secondary drug patents. Restricting patents on minor modifications to existing products, such as new formulations or delivery methods that do not significantly improve therapeutic value, would help curb evergreening and patent-thicket practices that keep generic rivals out of the market. Strengthening and expanding the inter partes review process for challenging patents would help weed out invalid patents more efficiently and discourage some of the secondary patenting that delays competition. Taken together, such reforms would help restore balance to the patent system, ensuring it rewards true innovation rather than unnecessarily extending monopolies that impede innovation while keeping prices artificially high for patients and consumers.