IP and AIDS
I've been looking into the consequences of threatening sanctions and got interested in the back-and-forth battle between pharma companies and countries over drugs. For example, Brazil has managed to obtain AIDS drugs for cheaper by threatening to ignore patents (link ), but at the same time the US has been able to pressure Brazil to pay the companies by threatening trade sanctions (link
).
Here are short summaries from the above links. First, the undeniable (at least short-term) success of Brazil's approach for Brazilian citizens:
Bargaining with pharmaceutical firms to bring down the price of Aids drugs and producing cheap generic versions has saved Brazil $1bn, a study has shown.
Infection rates in the Latin American country have been kept at a similar level to the US, the report finds. And more than 180,000 Brazilians have access to Aids treatment. Brazil's achievement is described as "remarkable", in the study published by researchers at the Harvard School of Public Health in the United States.
Next, recent US reaction:
The standoff with Abbott was not the first time Brazil has clashed with large pharmaceutical companies. The country has successfully forced drug companies to lower prices on AIDS medicines several times in recent years by threatening to break their patents and produce copycat versions locally.
This agreement could also ease tensions between the left-leaning government of President Luiz Inácio Lula da Silva and the Bush administration, which has been pressing Brazil to step up its protection of intellectual property rights. Several members of Congress had urged the United States trade representative, Rob Portman, to retaliate by applying trade sanctions if Brazil followed through on its threat to break Abbott's patent.
The benefit of this approach is that it makes necessary drugs widely available. The cost is that it discourages R&D into new AIDS drugs. The legal situation is actually not entirely clear-cut, since Brazil claims "emergency" exemptions from certain patent laws. On the global scale there is concern that permitting the manufacture of generic AIDS drugs might make it more difficult to prevent knock-offs of less critical drugs, and so companies have generally been willing to sell AIDS drugs for less as long as their IP rights are respected. Obviously it's a PR nightmare to insist that poor countries pay US prices or go without. More here :
What was at stake for big pharmaceutical companies wasn't really the tiny AIDS market in Africa, which represents only 1 percent of the billion-dollar AIDS market, but the larger patent system. Makers of new products or processes are now guaranteed a 20-year market monopoly under a World Trade Organization Agreement on Trade Related Aspects of Intellectual Property and Public Health, or TRIPs. US trade officials feared that softening TRIPs' rules for lifesaving HIV medicines in a pandemic would usher in generic competition for other products.
Undeterred, Brazil fought back, arguing that Article 68 of Brazil's 1997 patent law allowed it to make generics to address its national emergency. These drugs, made only for its national AIDS program, not for export, do not break patents. In 1990, Brazil, the second-most populous country in the Western Hemisphere, had an exploding AIDS epidemic: average survival time was less than six months after a clinical diagnosis. Most citizens lacked access to HIV tests and drugs. Today [2003], there are 600,000 Brazilians with HIV, half the number predicted a decade ago. Two hundred and fifty thousand people are under care, and 130,000 get antiretrovirals, most of them three-drug regimens. Nationally, 70 diagnostic laboratories measure viral loads and T cells three times a year for those on therapy. Officially, anyone who tests positive and registers with the public health system qualifies for free drugs and care.
There are a few points of interest to me here. First is the debate over how best to get expensive drugs to people who genuinely need them while simultaneously preserving the profit incentive for companies to develop those drugs in the first place. Second is the legal aspects of making generics, which I had always assumed was clearly illegal but which appears to be a bit more complicated and context-dependent. Third is the effectiveness of threats in this area -- it is somewhat surprising to me that so much leverage is available just by threatening future action, since in other contexts I have so far not found mere threats to be particularly compelling. Of course past actions give these threats a certain credence that they might not otherwise possess.
Anyway, what do you guys think?
- Brendan's diary
- Login or register to post comments
Comments :
patents as government policy
Patents (and copyrights) are a government policy to encourage the development "of the useful arts and sciences" (to paraphrase the US Constitution) -- the law regarding patents is whatever a soverign nation says the law is.
How this relates to international trade agreements is a different issue. Personally, I don't think that the USA should get involved. I'm insulted that the USA views it's citizens/consumers as a bargaining chip that can be used to increase the profits of big corporations. I'm not sure about our trade agreements with Brazil, but hate how NAFTA and CAFTA were written to provide windfall profits to IP holders by pressuring Latin American countries to expand their IP regimes...similar to how the USA gave a windfall to Disney with the "Mickey Mouse Protection Act
" .
Finally, if a country wants to increase efficiency by breaking a patent monopoly, but want to maintain the R&D incentives of the patents, I suggest that they break the patent and provide some sort of compensation to the patent holder...though it would be hard/impossible to calcualte an objective price for the patent. I guess in the end the compensation would be determined by how much the government wants to encourage further development of these types of drugs.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
I figure it's hard for a particular (non-US) government
to see the big picture as far as encouraging future development goes -- they probably calculate that their needs are immediate and that R&D is primarily driven by the expected profit in western countries anyway.
One problem from my perspective is that even setting aside the moral considerations, there's no true market here -- because of the patents, there's basically only one (or a few) options for purchasing a particular drug, so prices aren't driven down by international competition.
Maybe your idea could be tweaked to have countries (or coalitions of countries) put out bids for future drugs (and the right to manufacture generics), which could then be met (or not) by competing companies. But you're right, it's really hard to calculate an objective price for a unique drug, especially if that drug is of critical medical importance.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
patents are inefficient
Dean Baker did a good review of the patent situation
in The Conservative Nanny State. You may want to check it out. He suggests that research incentives should take the form of grants and prizes, since the patent system produces all sorts of inefficiencies and conflicts of interest.
There's been some other debate on the issue over at Freedom Democrats
..
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
Thanks for the links
(I also liked your piece on Obama > Clinton, while I was over there.)
Come to think of it John's piece on drug reimportation
is relevant as well.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Wow!
What a wild and fascinating side track.
Interesting that the patent, not the drugs themselves, was seen as the money maker..... with a 20 year market monopoloy..... verrrrry interesting. I like the fighting spirit displayed by the Brazilians.
It is the economy, stupid.
Why is that a surprise?
Without the patent, competition will reduce the drug's price to levels where there are no excess profits to be had (i.e. no profits beyond cost of capital).
At least in the pharma space (small molecules), as opposed to the biologicals space (large molecules like proteins), you can trivially prove that your "generic" drug is chemically identical to the drug already on the market, at which point you automatically get to take advantage of all the published studies showing safety and efficacy and automatically win FDA approval -- so there's really no barrier to entry.
It's only in the biologicals space that you can effectively keep a drug a "trade secret," making drug IP valuable for longer than the patent period.
If you couldn't patent drugs, or the patents were unenforceable, there would be little to no private R&D investment in coming up with new drugs. So I can't cheerlead the efforts of countries like Brazil to strongarm pharma companies into offering lower prices by threatening to violate the patents.
The patent system isn't perfect at encouraging drug R&D, but it's better than nothing. It's a challenging problem to try to come up with a better system.
Now, what's *really* odd is to see laissez-faire capitalist types like me argue in favor of laws against drug reimportation! How can someone in favor of free trade of all sorts argue against allowing drugs to be imported from overseas?
Drug reimportation sounds like a classic free trade issue, but it's really not. It really *is* important for drug companies to be able to charge different prices worldwide -- higher prices in richer countries, lower prices in poorer countries. This differential pricing allows a lot more people to use the drug, without hurting (and in fact enhancing) the monopoly profits of the drug company.
Remember, monopolies don't *necessarily* hurt economic efficiency -- a perfectly price-discriminating monopoly would actually not hurt economic efficiency at all. Differential drug pricing from nation to nation is a fairly effective form of price discrimination. By allowing "free trade" in drugs, you'd break down the price discrimination, causing a drug to only be able to have a single world price rather than a price per country.
This isn't the only consideration with drug reimportation, and it has benefits too -- but the case for allowing drug reimportation is not a slam dunk.
Call me naive
I found it surprising.
The Brazilians cleverly realized that health is important to survival, and declared that manufacturing the generic version was a national security issue. They made the drug generically and sold it only in their own country. I admire the creative solution to a difficult problem that served everyone's interests well.
Yes your anti-free trade policy for drugs seems peculiar and surprising. All I can surmise is that you must work for a drug company in Texas, and that you are not a drug dealer :-)
I don't see how this is different than the problem of intellectual property which we export regularly on all kinds of products. I guess the pharmas are a powerful world wide lobby with strong connections.
It is the economy, stupid.
No, but oddly enough...
...my brother just recently took a job at BIO
, a major biotech lobbying organization.
Okay Mr. Economist Guy
(your brother is a lobbyist...... for crazy science, eh!)
If you were king of the world, what would you do about the current credit crunch due to the sub prime housing market crises.
Do you agree with freezing the rates as Sec. Hank Paulson suggests.
Do you think that Fannie Mae should step in and help out as the CEO of CountryWide suggests?
Do you think it should just be left alone to fall where it may. (There is a liquidity problem with lending capital that seems serious!)
Mr. Moody says that the pain from this will be felt for at least a decade. (He mentioned something about similarities in the housing markets during the Great Depression)
And why why why are the risk assessment managers being allowed to abandon ship scot free (is that from dred scot) when they clearly failed miserably to do their job, a la Enron. Claiming there was no risk in originating loans with no papers is INsane! Why was this allowed. Isn't it illegal.
I would like to see the housing prices drop like a rock, as a part of the correction. That is what I think should happen.
The dirty little secret is, that the Federal Govt giving states less and less money, a la Grover Norquist, have become more and more dependent on state taxes for revenue. So the high apparaisal of housing created more money for the state thru taxes. Plus each transaction, had a fee, a real estate fee, an originater fee, etc, that generated money for the state. The less transactions, the less money for the state. So as the feds starve the states for cash, the bubblicious price of speculative housing markets put money in the state coffers to make up the difference.
Just curious what your take is on this whole sub-prime mortage meltdown and what your solution would be, IF you were king. ;+)
It is the economy, stupid.
I'd take a pretty hard line
No bailouts, just macroeconomic stabilization to prevent a deflationary depression caused by bank runs (widespread insolvency of the financial system). This may result in a recession, perhaps even a deep recession, but so be it.
Some financial institutions may fail in the process. That's a good thing.
Some individuals may lose their homes. Probably a good thing on net.
patents are not "laissez-faire"
No, that's not odd. You've already broken your laissez-faire principles by supporting the patent system. Patents are a government program, and by opposing reimportation you are simply proposing regulations that make the program work as it was intended.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
Easy to criticize, hard to come up with something better
From your other post, it sounds like you believe "research incentives should take the form of grants and prizes." Not that such an approach *can't* work (for example, I'd be happy to see NASA abolished and replaced with a prize system -- "$1B to the first team to land a man on Mars and bring him back safely"), but it has problems of its own.
1. How does the government pay for the grants and prizes? This requires higher taxes, and taxes impose costs on the economy too. It's not at all obvious that the cost to the economy from the monopolies in the patent system is greater than the cost to the economy of the taxes required to finance a grant/prize system.
2. How does the government decide the value of the grants/prizes? For example -- we often don't know the value of an invention until well after it's invented, so setting an appropriate prize up front may be difficult. The prizes' values may be set too high or too low.
3. What about discoveries that no one anticipated? Won't these discoveries go unrewarded because of the lack of any prize money allocated to them?
4. Research grants are money without accountability. This leads to rent-seeking. I've seen this first-hand: people working in labs sucking down grant money without doing any actual research (or, worse, fabricating results so it *looks* like they're doing research, when in fact they're just twiddling their thumbs playing around on their computer).
5. Since discoveries benefit everyone in the whole world, why should the US's 300 million people pay all the taxes to finance research that results in discoveries that benefit 6 billion people? Shouldn't the other 5.7 billion people have to kick in some money for the research too? This line of logic naturally leads to the idea that scientific research should be financed by a world government that has the power to levy taxes, at which point I am going to run for the hills screaming. The patent system requires global IP treaties, sure, but at least I'm not paying taxes to the UN (talk about money down the drain).
Patents aren't perfect, but they're better than nothing, and it's not easy to design a better system.
basic criticism of USA Intellecutal Property program
Before I get started, if this was meant to respond to my previous post
("patents are not laizze faire), then I totally missed the connection.
It seems that you weren't really focusing on that point. With that being
said, what I've written below may not focus on your specific points too well,
though it does hit a few of them in an attempt to clarify exactly what I
meant in the other comments. I'll address your specific points in
another comment.
In general, I'm ambivalent about intellectual property (IP) as a policy
of promoting innovation; I would not complain about a modest IP program
that is recognized as being a government program. However, I do have a
problem with how many Americans and the government treat IP.
First, I have a problem with the assumption that IP is indispensable.
I object to the ideological assumption that IP is like other forms of
property, when it is clearly a government program. Along those lines,
the prohibition of unauthorized reselling (not just re-importation) of
patented items is implicit in the idea of patents.
I object to the economic assumption that there is no other way to
promote innovation, and I object to the ethical/economic assumption that
the benefits of IP-promoted innovation outweigh the costs of the IP
system (whether financial or cultural).
Second, I have a problem with government policies that aggressively
promote the IP program, placing the interests of IP owners above the
interests of everyone else (this aggressiveness is generally justified
by the assumption of indispensability).
I object to the retroactively extension of IP (Mickey Mouse Protection
Act). I object to allowing IP concerns to dominate over other concerns
such as tariff reduction (NAFTA, CAFTA) and the people's right to own
computational tools (Digital Millennium Copyright Act).
This aggressive promotion of the IP program indicates that the IP
program has morphed into something much bigger than a simple incentive
system funded by the people who benefit from the innovation. Many of
these reforms to the IP program provide windfall profits to IP holders,
and the incentives that they do provide often come at the expense of the
general public rather than from the beneficiaries of the innovations.
Basically, IP has become a tool with which the ruling class exploits the
American people.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
response to defense of intellectual property
More to your points...
On points 1,2, and 4, they are all valid points. All I have to add is
that the NSF and DARPA do a pretty good job of providing grants and
prizes (though the prize system is still pretty new).
Also, the assertion that research grants have no accountability is completely at odds with my own experience. The grant-funding agencies delegates oversight to other institutions (Universities, research journals, etc) and the rule for individual investigators is "publish or perish".
Point 3 is good, if it is rephrased to say "the combination of
entrepreneurs and markets are more effective at identifying and rewarding useful innovations than a dedicated
grant/prize agency ."
Obviously, someone (the inventor) anticipated the usefulness.
On point 5, I totally disagree.
First, I think the claim about global government is completely
unfounded. I can't say much more because I don't understand how you reached that conclusion: the efficacy of the US grant system is independent of the existence of foreign grant systems. Furthermore, governments can make agreements to provide sufficient funding to their own R&D programs...similar to how NATO handles defense obligations.
Second, I think that it is arrogant and tyrannical to assert that foreigners should have to fund research just because the US does. No-one has an obligation to pay for a service that he did not
agree to pay for, no matter how much he may benefit from it. Within a country, you can make the argument that required contributions are simply the result of a democratic policy to promote the public good (within the context of the national culture), but this logic doesn't extend to the entire globe. This point
is amplified by the fact that many people do not want innovation (in
general), but that innovation destroys their previous opportunities so
that they need to adopt the innovation just to maintain their previous
status. It's pretty sick to make them pay to encourage further innovation.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
OK, so I don't want to be forced to pay either
Nope -- if research is a public, non-excludable good that benefits everyone on the planet, then each individual government, optimizing for its own citizens' (as opposed to foreigners') welfare, will choose to tax and spend *too little* on research.
So I'd apply the same logic at the national or state level. I know you said in your very next sentence that you don't accept that, but I consider "democracy" to be nothing other than tyranny of the majority. I reject the "right" of 51% of the population to vote to tax and spend the money of the other 49%.
Democratic Republic
not a democracy.
It is the economy, stupid.
democratic tyranny
If democracy isn't legitimate, then no government program is legitimate, and consequently patents are illegitimate.
There's nothing to argue about now.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
Our brilliant forefathers foresaw this problem
and therefore created the legislature to represent the people.
In the legislature elected representatives have to hash out their difference BEFORE than can pass laws, to avoid mob rule. It's a dialogue to prevent tyranny of the masses. Our government is one that requires concensus and compromise. If you don't get your way there is always HOPE because there is always another election. The process is slow by design.
The worst assault on our constitution are these referendums (or whatever they are) where one crazy person, can get people to sign a petition (often by baiting the signers with lies, and often people from out of state. just say Club for Growth) and circumvent the legislative process. I think this should be ruled unconstitutional. It is damaging to our country.
[sorry if this is a bit off topic]
It is the economy, stupid.
That's not what I said
A policy can be supported by a minority and be just; a policy can be supported by a majority and be unjust. There is not necessarily a connection between the degree of popular or legislative support for a policy and the policy's merits.
Obviously there is a connection
between the degree of popularity of policies as to whether or not people are willing to go along with said policies and willing to pay taxes for said policies.
The more concensus reached the better, and hopefully that means less legislation that is silly and unnecessary foolishness.
It is the economy, stupid.
Eminent Domain as a solution?
The US government could use Eminent Domain to force sale of the patent and then 'donate' the patent into public domain as part of that whole foreign (and local) assistance (and heck, UN dues as well if needed)
The companies get their profit incentive as they are paid a fair market value for the research, prices drop as everything is a generic.
part of the calculation
If I read you correctly, you are proposing that the company be compensated with an amount equalt to what they spent on R&D for that particular drug.
That's a start, but it doesn't account for the risk that they took in developing the drug. Many drugs fail before coming to market, and that money is just lost. I think the "fair market price" would have to include some sort of multiplier applied to the R&D cost.
Also, this should only be done in extreme circumstances because there's a risk that the drug companies would lobby to have this system used to offload unprofitable drugs onto the government.
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas
Market Value, not R&D only
No, they would have to get a fair compensation for the patent and not just the R&D aspect. Can't just be a multiplier though, that would reward inefficient research.
do monopolies have market value?
How can you judge the market value of a monopoly? There is nothing to compare it to. I suppose you could look at the current monopoly profits and the remaining duration of the patent, but profits depend upon the ability of the company to expand the market and the introduction of competing treatments.
I suppose you could get somewhere with this "market value" approach, but the biggest problem I see is the amount of time that would be require for a market to form (so we can determine what price it sells at and how many units are sold at that price).
"You have seen how a man was made a slave; you shall see how a slave was made a man." --Frederick Douglas