The US is angry with Thailand for encouraging copycats to undercut American intellectual property. The commerce department in Washington wants Thai officials to reverse their controversial decision to break patents on several drugs used in treating HIV/AIDS, heart ailments and cancer.
Bristol-Myers Squibb Co., Merck & Co.,Inc. and Abbott Laboratories, the three US drug makers that may be affected by the Thai decision on compulsory licensing, together had $14 billion (Rs56,000 crore) of cash from operations last year.
That’s a lot of money riding on intellectual property.
It’s quite natural for these companies to detest compulsory licensing, in which a patented or copyrighted product is given to others to manufacture to bring down its cost.
Thailand’s move to tap generic suppliers for key medicines—it says it has imported the first batch of Merck’s patented HIV/AIDS drug Efavirenz from India at half the price—is being decried as dangerous. Lobbyists for pharmaceutical companies say that other countries may be inspired to follow suit, as Brazil already has, jeopardizing future investments in drug discovery.
In this debate between protecting knowledge and saving lives, what’s important to remember is that neither Thailand nor Brazil has done anything illegal. Nor are they posing a credible threat to future drug discovery. Compulsory licensing of drugs is a legitimate right of any member of the World Trade Organization. A member government can take a patented medicine and give it to someone else to manufacture after efforts to negotiate a lower price with the patent-holder have failed. Even then, the owner of the intellectual property must be given “adequate remuneration.”
Thailand exercised its right late last year and ended up on the US government’s so-called priority watch list, which leaves it vulnerable to trade reprisals.
Leave aside the politics of international commerce and consider the economics of developing a new drug.
Finding a blockbuster entails spending 10 years or more sifting 5,000-10,000 compounds. And even then, after sinking $800 million in the project, success is not guaranteed.
Have Thailand and Brazil put humanity at risk by threatening to pull the plug on supernormal profit, which is the drug industry’s main incentive to innovate?
Intellectual property suffers from what economist S.J. Liebowitz, a professor at the University of Texas at Dallas, calls the “economic paradox of non-rivalrous goods pricing.”
A non-rivalrous product, or a public good, is one where there is no cost to the society of letting one more individual consume a product as long as he or she is willing to pay the amount spent in copying a bunch of chemicals into a blank tablet or capsule. However, if an HIV/AIDS drug is a pure public good, why should private capital bother investing in the uncertain business of discovering a newer, better one?
A legally enforced product patent solves the problem, albeit unsatisfactorily. It has an inbuilt bias against poor people because at least some of them must be excluded as consumers in order to create an incentive for privately funded discovery of a non-rivalrous good. Giving this unfair system an occasional jolt may not bring innovation to a halt.
A US district court ordered a compulsory licensing of General Electric Co.’s light-bulb patents in 1953; and that too at zero royalty. Today, we have more efficient, longer-lasting bulbs than we did 60 years ago.
Napster, James Watt
Economists Michele Boldrin and David Levine have made a compelling case against patents and copyrights in their book, Against Intellectual Monopoly. The authors claim that cerebral assets are different from physical ones: Legal defence of the ownership rights of a cow or a factory helps everyone; the same protection, when applied to ideas, hampers innovation.
The original Napster Inc., the music-swapping service that shut down in 2002 amid copyright disputes with record companies, comes to mind. But you could as easily look at James Watt, Boldrin and Levine. During the period when Watt had patents on steam engines, the UK added 750 horsepower (hp) every year. In the 30 years after the expiry of patents, more than 4,000 hp of steam engines were produced every year.
It’s time to stop the acrimonious blame game where governments—and non-government organizations such as Doctors Without Borders—accuse drug companies of predatory pricing, while the latter cry hoarse about being robbed of the just rewards for their large risks. Efforts must now be directed at deriving an acceptable framework for compulsory licensing with a third-party certifiable due process.
The idea of separating compensation from ownership, which is what compulsory licensing does, doesn’t appeal to those who dislike government interference in markets. They rightly note that it is a halfway house: Bob Dylan gets a cut every time someone releases a cover version of his songs through a mechanical licensing process; but he can’t stop anyone from having a go at ‘Knockin’ on Heaven’s Door’.
Yet, compulsory licensing has its positives. The very threat prompts brand-name drug makers to start offering price discounts. So as a bargaining tool, it achieves a better balance between innovators’ expectations and patients’ rights.
The US, which has used compulsory licensing to break down monopolies and keep its economy competitive, should take a more lenient view of Thailand’s move. It isn’t all that odious.