TCS Daily


Intellectual Property and Developing Countries

By Alexander van Gelder - September 28, 2004 12:00 AM

Much press attention has focused on the negative connotations of adopting intellectual property standards in developing countries, as many are to do shortly according to the WTO's Trade Related Aspects of Intellectual Property Agreement (TRIPS).

Criticism generally highlights the enormous gap between what countries can afford and the actual cost of medicine. TRIPS dictates that countries must respect patent-protected medicine. It is true that empirical studies have frequently shown patent-protected medicines to be more expensive than competitively priced "generics". Detractors predict the worsening of an already disastrous situation. In the short term, it appears that developing countries only lose. They have to buy medicine at higher costs, and their own generic industries, according to TRIPS, will become illegal.

According to TRIPS creators and supporters, the agreement provides countries with options -- nations struggling with the purchase of enough high-priced patented medicine can counter by issuing a "compulsory license". Through a somewhat clumsy process, a compulsory license transfers the rights to produce a specific medicine to a third-party. In issuing the compulsory license, countries circumvent the relatively high price offered by the patent holder and legally buy from competitively priced domestic or foreign producers, as long as the quantities and price are registered with the WTO to protect property rights by preventing re-exportation.

TRIPS legislation should be enough to segment markets. In this way, the flexibility provided for in the agreement balances the need to fuel innovative research and development activity and the need for procurement of medicine, especially in developing countries.

In the real world, though, compulsory licenses do not work the way they are supposed to. In the short window that they have become available to some countries in need, their lack of use is apparent. Given the right circumstances, however, the very intention of issuing a license can have just the same effect.

When Brazil officially adopted the TRIPS standards in 2000 it threatened to issue a compulsory license for the AIDS drug Viracept, patented by Roche. Using this threat as leverage, the government negotiated a 40-percent price reduction with the company. In the end, the compulsory license was never issued. Many things worked in Brazil's favor in this instance, but the point is that prices can be negotiated lower. Lessons are to be learned from this example.

As already noted, since 2000 few licenses have been issued. There are several reasons for this. One involves the bureaucracy required before drugs can be produced and delivered. Another is that political pressure has been exerted on smaller and less developed countries on behalf of large pharmaceutical firms, represented by their governments, to persuade them not to issue business-threatening licenses to third party producers. Whether or not compulsory licenses do work, developing nations can still obtain cheaper medicines by exercising skill at the negotiating table.

Brazil was able to negotiate because the threat of issuing a compulsory license was credible enough for pharmaceutical companies to take seriously. Individually, smaller developing countries don't have much in common with the Latin American behemoth, but collectively they do: a large population base and a potentially large client base. Grouped together at the WTO, they might be able to create some leverage for negotiation. Pooling of resources and coordinated preparation would be needed, but in this way negotiating economies of scale would be realized.

Groups of developing nations would then be ready and willing to negotiate, appearing perfectly capable of issuing meaningful compulsory licenses through the eyes of pharmaceutical companies. From companies' perspective, an organized group of countries appearing ready and willing to issue a business-threatening license would likely be all that it would take to reduce prices.

With countries negotiating together, partnerships could be enhanced by collectively buying medicine as well. If developing countries bought medicines together, sizeable markets for pharmaceutical companies would be available for those with the means to comply. For companies, sacrificing price for increased volume represents a viable business option, both for their bottom line and also for the publicity that they would surely receive. At the same time, developing country consumers would be gaining important market demand.

Another major problem related to the HIV/AIDS pandemic is that policymakers don't have precise enough information on the amount of people who have contracted the disease. Due to the lack of quality health-care infrastructure, the number of people infected in many sub-Saharan countries is calculated imprecisely, frequently through gross estimation. Adopting TRIPS and acting collectively will help in this respect.

For political will at the top to be effective, substantial effort to get a more precise idea how many people actually have contracted the disease and how many more people are at risk is necessary. Countries need to have concise statistical information regarding its severity before they can move forward to negotiate. It is only once this has happened that wide-scale alleviation becomes possible. Call it the diagnosis before the prescription. With precise information, negotiations would likely proceed even faster.

These initiatives will be costly and maybe even time-consuming, but the situation could be confronted in a constructive way. Adopting TRIPS standards, as theory goes, will propel innovation and economic growth through the alleviation of a public health disaster. The porous state of public health in developing countries means that there can be no magic bullet to cure all. Using newly adopted TRIPS standards collectively can act as an impetus for these poor afflicted nations to start making a difference for themselves. Will they take the initiative?

Alec van Gelder (alecvangelder@hotmail.com) is an economist living in Brussels.


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