[Ip-health] Jagdish Bhagwati op-ed: Patents & the Poor

[Mike Palmedo]

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Patents and the poor
By Jagdish Bhagwati
Published: September 16 2002 20:18 | Last Updated: September 16 2002
20:18

The provision of medicines in poor countries has become the principal
focus of dispute in the wider debate on intellectual property rights and
whether they should be included in World Trade Organisation rules.

Thanks to the mighty political muscle of pharmaceuticals companies and
their lobby groups, intellectual property protection has formed part of
WTO rules since the Uruguay round, which concluded in 1995. Drugs
companies, backed by the US government, managed to include IPP in the
form of the trade-related intellectual property agreement. This not only
allowed sanctions to be imposed on countries deemed to be using
intellectual property without paying a royalty; it also established a
20-year patent to protect companies' knowledge.

There are two problems here. First, IPP is not a "trade" issue; the WTO
ought to be about lowering trade barriers and tackling market access
problems. The inclusion of IPP has turned the organisation into a
royalty collection agency.

Second, and to the chagrin of the poor countries today, the inclusion of
IPP in WTO rules has resulted in a proliferation of yet more lobby
groups, such as labour unions, which have been spurred on by the success
of the IPP lobby groups to push for their own agendas to be incorporated
into WTO rules. It is hardly surprising that poor countries see the WTO
increasingly as the target of western lobby groups determined to exploit
the WTO to their own advantage, using the specious argument that their
causes have to do with trade in some intrinsic way.

One of the original arguments drugs companies used in support of IPP was
that the lack of protection in poor countries would handicap research
and development. Yet this is deeply flawed, for the simple reason that
while poor countries have plenty of need for drugs, they have no
effective demand.

To understand why the drugs companies nonetheless see IPP in poor
countries as a money-spinner, it is necessary to distinguish between two
types of diseases: those that are primarily present in poor countries,
such as malaria; and those that afflict all, such as Aids.

In the case of diseases such as malaria, it is clear that IPP cannot
ensure any decent return for drugs companies because poor countries
cannot pay. Instead, there are several ways of developing and producing
the necessary drugs for poor countries, in particular through the use of
public and quasi-public funds.

In the old days, there were institutions such as the Institute for
Tropical Medicine in England. Today there are more sophisticated
variations on the use of public funds. But however elaborate these
become, one thing is clear: IPP has no useful role in the provision of
drugs specific to poor countries.

All that changes in the case of developing drugs to fight diseases such
as Aids, which affect rich and poor nations alike. Here, drugs companies
make profits in rich countries' markets; IPP there is clearly something
they value. But when it comes to supplying these drugs to poor
countries, the companies face weak demand. In response, their strategy
is to sell to poor countries, producing at low marginal cost and
charging the little that these poor markets will bear.

In addition, pharmaceuticals companies try to increase their profits by
selling their drugs to health programmes operating in poor countries. By
tapping into the aid money these programmes receive, the companies in
effect increase demand and their returns.

IPP in the poor countries would therefore seem of little value to the
drugs companies. Yet it comes into play because the companies want to
prevent the more advanced poor countries competing in these markets with
generic copies. These copies are, in effect, the same drugs as those
sold by the big pharmaceuticals companies. However, they are sold at
lower prices, which places a cap on the amount drugs companies can raise
their prices in poor countries. Through the application of IPP, drugs
companies can therefore stop countries such as India and Brazil from
exporting to countries such as Gabon.

Many pressure groups from the industrialised countries have criticised
the drugs companies for the way they use IPP - and they are right to do
so. But these groups also object to "parallel imports" - the
segmentation of rich and poor countries' markets in order to prevent the
importation of lower-priced drugs sold by the drugs companies to poor
countries.

Yet to end segmentation would be a big mistake: without this mechanism
the rich and poor countries would form a single market and the prices
charged to poor countries would rise. Segmentation enables poor
countries to secure low prices for their drugs.

There are often paradoxical ways to help the poor - segmentation is one
of them. The lobby groups that try to defend the interests of the
poorest countries should take note.

The writer is a professor at Columbia University and a senior fellow at
the Council on Foreign Relations