[Ip-health] Pro-CL OpEd in Herald Tribune

[ben.krohmal@keionline.org]

http://www.iht.com/articles/2007/05/29/business/sxview30.php?page=1

Viewpoint: Drug innovation and the public good

 Andy Mukherjee Bloomberg News
Published: May 29, 200

The United States 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 AIDS, heart ailments and
cancer.

Bristol-Myers Squibb, Merck and Abbott Laboratories, the three U.S. drug
makers that may be affected by the Thai decision on compulsory licensing,
together had $14 billion in cash from operations last year.

That is 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 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 is
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 U.S.
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 means spending 10 years or more sifting through
between 5,000 and 10,000 compounds. And even then, after sinking $800
million in a 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 S.J. Liebowitz, an economist and
professor at the University of Texas at Dallas, calls the "economic
paradox of nonrivalrous goods pricing."

A nonrivalrous product 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 cost of manufacturing the product. In the case of
patented drugs, this is the cost of copying a bunch of chemicals into a
blank tablet or capsule.

However, if an AIDS drug can be treated as 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, via higher prices, as consumers in
order to create an incentive for privately funded discovery of new drugs.
Giving this unfair system an occasional jolt may not bring innovation to a
halt.

A U.S. district court ordered a compulsory licensing of General Electric's
light-bulb patents in 1953; and at zero royalty. Today, we have more
efficient, longer-lasting bulbs than we did 60 years ago.

Two 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 defense of the ownership rights of a cow or a factory
helps everyone; the same protection, when applied to ideas, hampers
innovation.

The original Napster, the music-swapping service that shut down in 2002
amid copyright disputes with record companies, jumps to mind. But you
could as easily look at James Watt, Boldrin and Levine say. During the
period when Watt had patents on steam engines, Britain added 750
horsepower every year. In the 30 years after the expiry of patents, more
than 4,000 horsepower of steam engines were produced every year.

It's time to stop the acrimonious blame game where governments - and
nongovernment organizations like Doctors Without Borders - accuse drug
companies of predatory pricing, while the latter cry themselves 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 certifiable, third-party process.

The idea of separating compensation from ownership, which is what
compulsory licensing does, does not 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 cannot 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. In Thailand,
Abbott, Novartis and Merck have offered price concessions. So as a
bargaining tool, compulsory licensing achieves a better balance between
innovators' expectations and patients' rights.

The United States, 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.