Intellectual property rights: when it’s broken, fix it!
We need affordable medicines and we need more innovation. It’s time to reinvent the patents regime
India is failing to provide all its citizens access to affordable healthcare. Evidence of this is the slower rate of increase in life expectancy in India in the last few decades compared even with poorer Bangladesh, leave alone China. Moreover, where healthcare is available—and in many places in India it is, in some to fairly high standards—it is unaffordable for poorer people. Therefore, poorer citizens are extremely vulnerable to health shocks in their families which can reduce them to penury.
A significant part of healthcare costs is the cost of medicines. The state has been fighting a losing battle to reduce the prices of medicines, even essential medicines. Price controls are resisted by producers, and by advocates of free markets, as troublesome government interference. The Indian government has been pressed by health activists to prevent large foreign pharmaceutical companies from taking over Indian generic drug producers: they fear the foreign companies will suppress the production of generics or increase their prices to reduce competition to their own expensive medicines. These health activists, and some wings of the Indian government, are also fighting a losing ideological battle against foreign companies, foreign governments, and also with other wings of the Indian government, to stall the imposition of an intellectual property (IP) regime that they say will increase prices and reduce the availability of medicines that the poor need.
Intellectual property rights (IPR) has become an ideology. Nevertheless, it must be questioned many say, including Nobel laureate in economics Joseph Stiglitz. For many years he has researched and shown how the prevalent IP regime, with US corporate lobbies in the vanguard, is contributing to higher costs and reduced availability of life-saving medicines. He has been urging those who say they care about improving access to affordable healthcare to go beyond lip-service to that slogan and examine their own “theories-in-use”. He is not alone. Professors Michele Boldrin and David K. Levine, both distinguished professors of economics at Washington University in St. Louis, have presented mind-opening evidence for rethinking IPR in their book Against Intellectual Monopoly (2008, Cambridge University Press). Many in India have been urging this too. They are taking a bold stand against a powerful tide of vested interests that pushes them back each time they get a foothold.
A primary force in capitalism is the drive to accumulate capital somehow, explain thought leaders Immanuel Wallerstein, Randall Collins, Michael Mann, Georgi Derluguian and Craig Calhoun, in their joint treatise, Does Capitalism Have a Future? (2013, Oxford University Press). A time-honoured means of accumulating more capital is the creation of monopolies. Indeed, Adam Smith had already cautioned society against it, in his foundational treatise on capitalism, The Wealth of Nations. Boldrin and Levine explain how, in the modern “knowledge” era, IPR has become a means for monopolizing the use of knowledge to accumulate more capital, creating great wealth for some individuals and firms. Thus the IP regime, continuously adjusted in favour of those who already have knowledge capital, has become a large contributor to the increasing inequality within societies that Stiglitz and many others are concerned about.
IPR is expected, theoretically, to facilitate more innovation by enabling inventors to monopolize the use of their new knowledge for a while. In practice, it has not quite worked that way. In fact, there is considerable evidence that the creation of monopolies for increasing periods, and with wider coverage to “incentivize” innovation, does not do so. Boldrin and Levin write: “We observe that, while the incentive to patent and commercialize their findings should have been increased by the Bayh-Dole Act allowing patentability of such research results (enabling academics to make personal profit from university research), there is no evidence whatsoever that, since 1980 when the Act was passed, major medical scientific discoveries have been pouring out of American universities’ laboratories at an unprecedented rate. Good research was done before; good research is done now. At the same time, we are not aware of anybody claiming, let alone documenting that after the Bayh-Dole Act came into effect, the quality of bio-medical research in US universities and federally sponsored laboratories visibly increased. It just remained roughly where it was, meaning that patentability made no difference as far as general incentives are concerned.”
Taking a wider, global and historical view of drug discovery, they say: “The bottom line is rather simple: even today, more than 50 years after Germany, Italy, and Switzerland adopted patents on drugs and a good half century after pharmaceutical companies adopted the policy of patenting anything they could put their hands on, more than half of the top-selling medicines around the world do not owe their existence to pharmaceutical patents.”
With so much to be won by creating and defending a monopoly, so-called “innovative” pharmaceutical companies are spending twice as much on marketing their products and on defence of their patents and monopolies than they are spending on R&D. The patents disease has infected the innovative IT industry also, where large firms are registering more and more patents to defend themselves, and spending large amounts in epic battles among themselves on infringements. Many of their patents are for trivial “inventions”, such as the shape of a screen. Pharmaceutical firms try to “evergreen” their discoveries by applying for extensions of their patents and monopolies with minor improvements of their original inventions. Perversely, the belief that more patents are the way to go, is stimulating more litigation than more R&D.
A study, reported by The Economist (8 August 2015), estimates that, “Without the temporary monopoly patents bestow, America might have saved three-quarters of its $210 billion bill for prescription drugs. The expense would be worth it if patents brought innovation and prosperity. They don’t.”
The rules of the game, as always, are established by the players who know how to play the game and have been winning. “If you want to play with us”, they say, “you have to play according to the rules we set”. Those outside are in a fix. They can complain that the rules are not fair. They want to say that the way the game is being conducted is not producing the outcomes everybody says they want—medicines should be more affordable, and that new medicines must be invented for diseases poor people continue to suffer from, rather than new medicines for improving further the “lifestyles” of the rich. “If you question the rules of the game, we will not let you play with us”, the big guys respond. So it is with international trade rules. Nations with smaller economies and with poorer people want to participate in the global game so that they have access to opportunities to grow their economies, increase incomes of their citizens, and lift them out of poverty. If they seem to be making too much of a fuss about improving the rules, they are threatened that they will be shut out, and so they acquiesce.
Countries’ innovation abilities are being judged by, among other things, the number of patents registered in the country, and whether the country has the apparatus to implement the established rules of IPR. Are the country’s laws compliant with the international framework? Is there an adequate patent regime and sufficient legal machinery to implement the laws? No doubt, India must improve its ability to implement laws, whatever they may be. Therefore, it must improve its regulatory and legal systems. But the question that many in India and elsewhere, including Stiglitz and others, are asking is: should we not examine the logic and efficacy of the rules themselves? However, to question the rules of IPR seems to have become a heresy. Discussions about alternatives to the established IPR regime to achieve the universal goal of improved access to affordable medicines often break out into slanging matches of ideological epithets: “capitalist”, “socialist”, “anti-market”, etc. People seen to be representing opposing ideologies do not want to talk to each other, or even be seen listening to the other side for fear of being accused of traitorously crossing over.
An innovative dialogue to create an innovative IPR regime
All sides must come together to design a new system that can meet several objectives, including the need for sufficient resources and incentives for innovation, and the need for affordable and accessible medicines. If stakeholders in the system do not listen to each other and have confidence that the new system will meet its principal objectives, they will resist it. When negotiations for Trade-Related Aspects of Intellectual Property Rights (TRIPs) were becoming contentious and heated in 2003, especially between the US and India (one country with the largest number of “innovative” pharmaceutical multinational companies, the other with the largest number of producers of low-cost generics), some far-sighted leaders of pharma companies (US and Indian) and civil society realized the need for a new dialogue among all stakeholders in India. They agreed to meet to attempt to co-create an outline of a new system that could fulfil the aspiration they all had, which was an assurance of wider access to affordable and good quality healthcare and medicines to all Indian citizens.
It is not easy for people who have publicly demonized each other as heartless capitalists or rabid socialists, and who can also rightly claim that the other side does not see the full picture, to listen to each other and respect each other’s views. Yet, like the blind men around the elephant, they must respect what each other sees, so that they can see the whole elephant together. It is too easy to find facts selectively to support one’s own beliefs, and for dialogues to decay into mere debates and arguments with conflicting “facts”. It is better to understand different perspectives first, and to put together even a rough picture of the whole system—the whole elephant, before debating the sizes of its parts.
The dialogue in India proceeded well, as people learned to listen to others, rather than persisting with advocacy and defence of their own views as they were wont to. While the dialogue in India was underway, I had an opportunity to participate in a small, off-the-record meeting with a secretary in the US government in Washington. He asked me why Indians were being so difficult about TRIPs. I explained to him the tension between the need to encourage investment, especially foreign investment, to grow the pharmaceutical industry in India and the need for more affordable and easily available medicines. I said the Indian government would not like to be seen to have only pleased foreign companies: its responsibility to citizens was to ensure an accessible supply of affordable medicines. I mentioned to him the dialogue in India and the leadership role in it being played by a US pharmaceutical company.
He was pleased to hear about it and surprised too. “That company, and others here, are making our government’s life difficult,” he said. “There is pressure on us from citizens to allow people to bring medicines from Canada next door where they are cheaper. But these companies say that would harm the market for medicines in the US; it would reduce prices and reduce their incentives for innovation. So the government is caught in the middle of a debate about the interests of citizens versus the interests of big companies. Why cannot thoughtful people on both sides sit together and find a solution that is good for all,” he said.
Innovation is required in the IPR regime. It has become a fortress to be defended by those inside it. A wider tent is required which can include many diverse stakeholders’ needs within it. To design the new tent, innovation will be necessary in the way in which changes in the IPR regime are negotiated. The present process of negotiation is too adversarial. Among adversaries, the more powerful will win. Political scientists and economists explain that capitalism proceeds with the principle of “cumulative causation”. Those who have more can make even more. Thus capital accumulates in their hands until internal tensions within the system build up too much and a wave of creative destruction produces change and innovation.
The dialogue in India was aborted by the foreign companies when their case prevailed in the international negotiations (between trade experts and lawyers) and TRIPS was signed. Some concessions were made in TRIPs to satisfy those who were fearful that the agreement would further strengthen intellectual monopolies. The concessions included a safeguard mechanism for compulsory licensing, and limitations on patents which were not novel but merely an evergreening of existing monopolies. India has judiciously applied these remedies, as it should. However, whenever it does, it is accused of having a weak IPR regime and of not playing by the unwritten rule of the established IPR game that the purpose of IPR is to protect intellectual monopolies. When new trade agreements are proposed, India is threatened that it will be shut out of the game if it does not play by the established rules. India does not want to be shut out, nor can it afford to be. It wants to participate as a responsible partner in the global quest for sustained prosperity for everyone.
Patent law in its modern version was pioneered in Britain in 1623 with the aptly named Statute of Monopolies. Since then the IPR regime has evolved, as Boldrin and Levin say, “in bits and pieces by mixing court rulings with small legislative changes, and always on request from the industry that ‘needed’ to be monopolized—oops, protected. In one mature industry after another, patentability grew over time because of lobbying by would-be monopolists that had run out of steam for inventing and were too afraid of newcomers or foreign competitors.”
The connection between “patents”, which are the currency of the IPR game, and real innovation has been broken. Now the IPR game is to grab and to hold something, anything, and charge others who need to use it. The “intellectual property” seized may have been common knowledge shared within communities for ages—such as the medicinal properties of neem and turmeric. Grab it. Get your lawyers to patent it. Register it as your property. Then charge others who use it. There is no new invention. But “IPR” enables the grabber to become rich and others to become poorer. In the process, the value of traditional knowledge is monetized. Which causes more money to circulate in the economy—fees to lawyers to register and defend the patent, licence fees paid by users, etc. All this goes into the gross domestic product (GDP), whereas traditional knowledge which was open source, did not count in the money economy. The application of the IPR regime makes GDP go up, even without new knowledge being produced. At the same time, some individuals and firms become wealthier, while others, now forced to pay for what was free, become poorer.
A mantra of the 21st century is that the world, which shifted from an agricultural economy to an industrial economy in the 19th century, has now moved into a knowledge economy. The hope is that the discovery and application of knowledge will enable humanity to discover and implement solutions to its problems of poverty, inequity, and over-exploitation of natural resources. For knowledge to produce the outcomes humanity aspires for, one should go back to fundamental principles. Should nature, and knowledge, be converted into “property”? And should only some be given the rights to use and monetize that property?
If Stiglitz is ideologically left-of-centre among economists, The Economist is proudly right-of-centre. Yet both agree the IPR system must be changed. It is “Time to Fix Patents”, says The Economist in its editorial column (8 August 2015). It explains: “Patents are supposed to spread knowledge by obliging holders to lay out their innovation for all to see; they often fail because patent lawyers are masters of obfuscation. Instead, the system has created a parasitic ecology of trolls and defensive patent-holders, who aim to block innovation, or at least to stand in its way unless they can grab a share of the spoils. An early study found that newcomers to the semiconductor business had to buy licences from incumbents for as much as $200 million. Patents should spur bursts of innovation; instead, they are used to lock in incumbents’ advantages.”
The time has come to examine the fundamental principles of the IPR regime. Without doubt, India must improve the machinery for implementing any IPR regime. It must have competent patent offices, good competition regulators, and an effective judicial system. The pipes and valves of an efficient system must be in place. However, the 21st century question for India, and the whole world, is: what should be poured down the pipes of a good IPR machine? The old IPR wine now turning rancid, or a fresh, innovative wine? To make this new wine, an open-minded dialogue is required, with a lot more listening among stakeholders, and less arm-twisting by those with vested interests in the present system.
Arun Maira is a former chairman, BCG India, and member, Planning Commission.
To read more go to www.foundingfuel.com
Editor's Picks »
- Future Retail’s Q2 result shows improvement in same-store sales
- Private insurance firms grow at the expense of LIC stuck with a sick bank
- Page Industries’s lofty valuations get a reality check in Q2
- Q2 results: Grasim’s Vodafone Idea stake is proving costly
- How Vodafone Idea’s $3.5 bn fundraising will impact telecom in India