It is often argued that the best case for the existence of patents is in the pharmaceutical industry. The fixed cost of innovation is large, with estimates of the average cost of bringing a single new drug to market as high as $800 million in year 2000 dollars. Patent protection is more limited in the pharmaceutical industry than in other industries: because of the lengthy gap between discovery and approval of a new drug, the effective monopoly protection is estimated to last only twelve years – plus the three- to five-year extensions as allowed by the Drug Price Competition and Patent Term Restoration Act (known as the Hatch-Waxman Act) of September 1984. Indeed, according to the industry surveys mentioned in earlier chapters, the only industry in which patents are thought to play an important role in bringing new products to market is the pharmaceutical industry.

The pharmaceutical industry is worthy of special consideration also for another complementary reason. The technology operated by the pharmaceutical industry – the chemical and industrial processes through which medicines are produced, packaged, and shipped – seems to fit the hypothesis of constant returns to scale almost perfectly. That is, the cost of shipping the ten-millionth container of medicine is about the same as that of shipping the first. From that come the many complaints about the pharmaceutical companies not shipping medicines to poor countries – even poor African consumers would be willing to pay the few additional cents needed to produce the additional medicine.