Prize System for Inventions
Some economists and legislators have advocated for a prize system instead of a patent system for pharmaceutical drugs (see Medical Innovation Prize Fund Act) given the potential for price hiking and deterring R&D in our current patent system. Legislators have proposed bills that provide for prize systems for a small class of drugs (see Prize Fund for HIV/AIDS Act). Under this system, companies that invent a new drug will receive a lump sum prize from a pool of up to $3 billion per year and no right to exclude would be awarded to the company. The money for the prize pool would be provided by the federal government and insurance companies. A panel of experts would determine which drug performs the best allowing research to be targeted towards a specific problem.  Proponents of the HIV/AIDs Act including Bernie Sanders suggest that the prize system may lower barriers to entry and allow nontraditional parties to participate in finding a needed solution.
Proposed Prize Systems have taken many forms including:
- Opt-in systems where the government pays at least the monopoly profits that the patent holder would expect to receive.
- System where patents are exchanged for compensation through an auction.
- Offer cash subsidy to consumers who value the patented product more than the marginal cost but cannot afford the patented product at a monopoly price.
Many consider implementing a federal prize system for inventions to be impractical for several reasons. Determining both the criteria for award winning products and the valuation of each winning drug may pose a significant challenge. Suggestions include valuation based on social value, lifestyle improvement, or medical necessity. Additionally, awarding a prize too early may dissuade companies from commercializing products or pursuing R&D. Completely eliminating bias from the panel that decides awards may prove impossible and therefore decrease the competition needed to make the system work.