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Intellectual Property Rights: Help or Hindrance?

April 16, 2003
Council on Foreign Relations

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[Note: A transcript of this meeting is unavailable. The discussion is summarized below.]

Background

Debate on Trade-Related Aspects of Intellectual Property Rights (TRIPS) has gone on since the 1980s. Initially, the United States and Europe reached bilateral agreements with developing countries. In the mid-1980s, intellectual property rights were brought into a multilateral framework as wealthy countries pushed for their inclusion in the General Agreement on Tariffs and Trade (GATT). Developing countries opposed such a measure, but signed the final agreement in order to gain admittance to the World Trade Organization (WTO).

In the mid-1990s, the debate over intellectual property rights became a focus of public attention in the United States as a result of two trends: the spread of the AIDS epidemic, and the development of effective but expensive treatments by the pharmaceutical industry.

Today, the parties on each side of the dispute hold inflexible stances. Industries argue that the TRIPS agreement encourages research and development, and draws developing countries into an international system. NGOs, on the other hand, insist that the production of generic drugs must be permitted so that poor populations have access to medication.

The Challenge of Establishing Intellectual Property Rights

The patent system today balances two inherent trade-offs. Less protection leads to lower prices, which increases access to drugs. Greater protection leads to higher prices, which create incentive to produce new drugs. The difficulty in developing a patent system is determining how to balance access and incentives.

There are two different drug markets: one that targets diseases of the developing world, such as malaria, leprosy, and schistosomiasis; and one that targets global diseases, such as cancer, heart disease and diabetes.

In the developing world, the goal is to encourage more research in order to develop products. For decades, public and philanthropic funding has supported such research, but these resources are insufficient to meet public health needs. A patent system in developing countries may induce private companies to devote research to the diseases of these poor areas. More importantly, though, patents may facilitate public-private partnerships to develop drugs because they would clarify which components of a product each partner holds rights to.

Yet it is the global diseases that are increasingly becoming a major public health burden in developing countries. From a profit perspective, however, the markets of all the developing countries together account for an extremely small portion of drug sales. About half of the world’s population, for example, accounts for less than 2% of cardio-vascular drug sales.

Until a consistent system of intellectual property rights is established and enforced, research will be impeded. Companies currently considering making an investment have no idea what kind of intellectual property protection they will have ten years into the future in developing countries. Because research is expensive and long-term in nature, companies have little incentive to invest in such uncertain markets. Generic producers face the same uncertainty as they do not know which rights they will enjoy in the future and which will be rescinded.

The Proposal

In developing a system of intellectual property protection, where you strike the balance between access and incentives should depend on whether you are addressing diseases of the developing world or global diseases because the markets for each are very different.

The proposal allows companies to obtain patent protection in most countries of the world if they invent treatments for diseases specific to developing countries, and in all wealthy countries if they invent treatments aimed at global diseases, allowing poor countries to access generic drugs. The result is that incentives are maximized where necessary to encourage research and development, and yet access is preserved where research and development would already be supported by wealthy countries.

Method:

  • First, look at the poorest countries – those with a GDP per capita of less than $500, for example. Determine the sales for a particular drug, such as a cancer drug. Compare these sales to the global sales for that drug. If the sales in these poor countries are less than 2% of global sales, then there should be no patent protection for this drug in these poor countries because they constitute such a small segment of the drug’s market.

  • Look at a second tier of countries – those with a GDP per capita of $500-$1500, for example – and add it to the first group. Do the same calculation to compare the sales of the cancer drug in this larger group with the global sales. If sales in this group are still less than 2%, then there should be no patent protection.

  • When the sales within a group of countries exceed 2% of global sales, then the final tier of countries added should have patent protection.

  • Repeat this process each year for each drug.

The result is that the poorest countries of the world have no patent protection, and therefore can access generic drugs. Ascending the tiers of countries, protection starts with drugs for diseases that are particularly severe in those countries, i.e. drugs that comprise a large share of the market. Protection would broaden in wealthier countries until it covered all drugs in the wealthiest tier. As countries develop over time and grow in wealth, they are pulled into the system of full patent protection.

A structure such as this, which differentiates between less developed and more developed countries, would be perceived by local residents as more fair than the current structure that enforces the same patent protection everywhere.

This system also addresses the concerns of NGOs to establish competition with generic producers in the poorest countries with minimal procedural hassle; as well as concerns of the drug industry to establish clear rules and a structured system that protects profitable markets.

Implementation would occur via legislation of developed countries, and therefore need not be negotiated at the WTO. As a result, this system would not change the obligations of developing countries vis-a-vis TRIPS.

Limitations of intellectual property right reform

No patent system can by itself resolve public health dilemmas because patent laws can only make certain drugs more easily accessible; they cannot create resources for the purchase of drugs, or force national governments to increase public health spending. The hope is that governments of developing countries will be able to afford greater quantities of drugs if there is no patent protection and therefore greater access to generic products.

A patent system is also unable to address what may be the most serious impediments to effective treatment of disease in developing countries: government corruption and poor health service organization.

In addition, the patent system proposes may not reduce the threat of diseases specific to developing countries, such as tropical diseases. Treatments currently exist for all tropical diseases, and in many cases, these are offered free of charge by companies in countries undergoing public health crises. Therefore, the incentives that this patent system creates may be unnecessary.

Nevertheless, intellectual property protection will have a great impact in developing countries in the future. At some point, their governments will obtain resources to purchase drugs, and will better organize public health spending. When this happens, companies will seek patent protection before investing in products aimed at these markets. Moreover, a system in which poor countries obtain drugs by relying on the goodwill of companies is simply not a good one. Companies should not be treated as development agencies responsible for what is happening in the developing world.

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