Patents and other statutory types of market protections are used in the United States to promote scientific research and innovation. This incentive is especially important in research intensive fields such as the pharmaceutical industry. Unfortunately, these same protections often result in higher monopoly pricing once a successful product is brought to market. Usually this consequence is viewed as the necessary evil of an incentive system that encourages costly research and development by promising large rewards to the successful inventor. However, in the case of the AIDS drug Zidovudine (AZT), the high prices charged by the pharmaceutical company owning the drug have led to public outcry and a re-examination of government incentive systems.This Note traces the evolution of these incentive programs — the patent system, and, to a lesser extent, the orphan drug program — and details the conflicting interests involved in their development. It then demonstrates how the AZT problem brings the interest of providing inventors with incentives for risky innovative efforts into a sharp collision with the ultimate goal of such systems: ensuring that the public has access to the resulting products at a reasonable price. Finally, the Note describes how Congress and the courts have attempted to resolve these problems in the past, and how they might best try to solve the AZT problem in the near future.
Monopoly Pricing Under a Medicaid-Style Most-Favored-Customer Clause and its Welfare Implication