TCS Daily


Commons Problems

By Michael Rosen - June 21, 2006 12:00 AM

Why should anyone have to spend more for a single prescription drug pill than it costs the drug company to manufacture that pill? Put differently, once a drug has been developed -- especially one that combats a life-threatening illness -- why should we permit pharmaceutical companies to charge anything above the marginal cost of the pills they make?

This is one of the key assaults on the patent regime in general -- and on the peculiarly modern practice of "patenting life" in particular. In the previous article in this series on the morality of obtaining a patent monopoly over living beings, I examined the objection that patenting life unfairly exploits creatures, their habitats, and native populations in their vicinity.

But if the exploitation criticism focused on the unfair deprivation patenting life causes others, a different line of argument decries the unjust enrichment accruing to major corporations. Often the prime culprits are large pharmaceutical companies who "hoard" knowledge that "properly belongs to everyone" and retail that knowledge to the public only at exorbitant prices. This is the "enclosure" objection, namely that private gain erodes the public good.

In a movement spearheaded by David Bollier and Lawrence Lessig, several scholars and ethicists have sought to "take back the commons" or restore to public use that which has improperly fallen under private control.

Bollier, a fellow of the University of Southern California's Annenberg School for Communication, defines the commons as a "cogent yet flexible term to describe the many shared, public aspects of our political economy and culture." One prominent example of such a commons, is the stock of living beings in the world, creatures that belong to everyone, if to anyone at all, and certainly not to any private company capable of producing inventions that derive from them.

Most generally, then, enclosure critics contend that life belongs to all living creatures, human or non-human, and that it is manifestly, inherently unfair to cordon it off privately to corporations or individuals. Arguing in his book Silent Theft: The Private Plunder of Our Common Wealth that nature as a whole provides $39 trillion of value to the global economy, Bollier believes that individual firms or persons should not be able to monopolize portions of it for themselves.

An offshoot of this argument maintains that because the federal government provided much of the funding for basic research in the sciences, private corporations should not be able to harvest the fruits of those studies. The government thus furnishes industry with a multibillion-dollar giveaway, lining the pockets of corporate executives who monopolize the well-funded research instead of distributing its results among the public.

Another example of the enclosure objection can be found in specific criticisms of bacteria patents. Some environmentalists fear that as companies like Monsanto continue to introduce the pest-resistant bacteria Bt into different crops, they sap the integrity of the world's stock of this important organism. By inserting the bacteria into many different species, they heighten the risk of the emergence of a "super-pest" capable of overcoming even Bt. In this sense, bacteria like Bt belong, properly, to the global commons of genetic stock and should not suffer the depredations of greedy corporations.

An outgrowth of this criticism takes Monsanto, in particular, to task for developing the so-called "terminator gene" which sterilized the seeds of crops that grew from seeds the chemical giant sold farmers. Monsanto defended its decision to prevent further (natural) reproduction of its product as a reasonable protection of its intellectual property.

But many crop-growers and activists decried the practice as a cynical disruption of traditional farming methods and as an attempt to "hook" farmers exclusively on seeds developed by Monsanto, to whom they would have to return time and again in order to grow crops. Some hyperbolically asserted that it "will inevitably lead to famine and starvation on a worldwide basis." On the whole, then, enclosure critics charge that companies unjustly plunder the public commons in search of private lucre.

Yet while the commons movement raises important questions, its proposed solution of restoring the commons by chipping away at private property rights goes too far and likely is unnecessary.

The enclosure objection, in the realms it examines, challenges much of the fundamental, Lockean justification of private property rights. Locke himself praises the very enclosure of the town commons that Bollier and his colleagues so deride. In his words, recorded in Chapter V of the Second Treatise of Government, one who encloses the commons "does not lessen, but increase the common stock of mankind." Most basically, creating or offering the possibility of private property endows would-be property-owners with a powerful incentive to work hard and accumulate wealth.

The free-market system promotes economic growth and offers individuals the ability to live comfortably. While, to be sure, some members of society may overstep the bounds of propriety by accumulating market power or by refusing to internalize costs their activities impose on society as a whole, these excesses are susceptible of correction through (mild) regulation. Yet the radical response that the commons movement voices in opposition to these excesses threatens to sap the vitality of the market as society's engine of prosperity.

The controversy over Internet browsers represents one example of this tension between the commons and market forces. In his book, Bollier makes much of the windfall that the Netscape Corporation reaped by appropriating technology developed by the federal government over several decades. According to Bollier, Netscape launched a "bid to become a monopoly in the browser space by freely appropriating government-developed software."

Yet it was precisely when, in 1994, Netscape transformed the browser technology into a marketable product that the Internet began to explode into the economic force it now represents. Only once a private company, motivated by profit, removed the browser from the public domain and made it commercially viable did the Information Superhighway become useful and available to the public. Bollier himself grudgingly acknowledges as much, writing in Silent Theft that "one happy result of the Netscape Navigator was to expand use of the Web dramatically and trigger a new era of Internet entrepreneurialism."

In the biotechnology context, too, while government has indeed sunk many billions of dollars into basic research, corporations have also invested great sums of research and development money. It is hard to conceive that a government patent bureaucracy could constitute as effective and efficient a mechanism for technological breakthroughs as corporations operating in a free market protected by some form of patent regime.

In a recent article in the Milken Institute Review, Tomas Philipson and Anupam Jena, two University of Chicago scholars, examined the particular case of HIV/AIDS drugs. They found that the miraculous life-extending and -enhancing medicines developed by, yes, large pharmaceutical companies since 1980 will have bestowed $1.4 trillion in value upon all past, present, and future people infected with HIV/AIDS. This number involves a calculation of the value of a given year of life (Philipson, an economist, can be forgiven for such a sanguine computation), multiplied by the numbers of years the drugs have extended lives, multiplied by the number of people who have been, are, or will be infected with the virus.

Astoundingly, though, in their estimation, drug companies will receive only $63 billion in profits over the lifetimes of their pharmaceuticals. While this number is large in absolute terms, it represents only 5% of the total value these corporations provide. In other words, the world as a whole -- the commons, as it were -- derives 95% of the utility created by private companies. This staggering data flies in the face of those like Bollier who find the root of most evils in multinational corporations.

Moreover, the specific claims of enclosure opponents often misstate or misrepresent important facts. An investigation conducted by the National Academy of Sciences found that "there is no evidence that unique hazards exist...in the transfer of genes between unrelated organisms." In other words, genetic insertion of life forms like Bt into plant life pose no particularly elevated risks, when compared with traditional plant breeding.

Others have pointed out that the patent regime, far from heightening the threat of a super-pest emerging to destroy massive swaths of cropland, instead provides incentives for inventors to develop newer, yet more efficient anti-pest technology. For example, even if a new or mutant pest somehow developed a resistance to Bt, scientists and ultimately farmers could turn to new genetic lines of bacteria even more effective than Bt.

Furthermore, the terminator gene episode, the very instance the commons movement cites as the exemplar of corporate greed and the problems of enclosure, in fact resolved itself in a natural and clean manner. Once Monsanto's terminator gene became publicized, in 1999, a wide backlash ensued among American farmers and consumers. The company swiftly removed the gene from its engineered crop products.

In this case, then, public pressure, not heavy-handed, top-down governmental regulation, compelled a corporation to stem what the public perceived as its excesses. Such a solution has much to commend itself over the massive changes proposed by the enclosure critics.

On the whole, then, while the commons movement raises important concerns surrounding the patenting of life, its criticisms are exaggerated and its proposed reforms, in overlooking the benefits that the market motive provides, threaten to stifle innovation. Yet another reason patenting life is morally justified.

Michael M. Rosen, TCS Daily's IP Columnist, is an attorney in San Diego

[For those interested, John Locke also writes in Chapter V of the Second Treatise that "the provisions serving to the support of human life, produced by one acre of inclosed and cultivated land are...ten times more than those which are yielded by an acre of land of an equal richness lying in waste in common."

Elsewhere, in Bk. IV, Chap. 12, Sec. 12 of An Essay Concerning Human Understanding, Locke praises inventors in general, noting that "he that first invented printing, discovered the use of the compass, or made public the virtue and right use of kin kina, did more for the propagation of knowledge; for the supplying and increasing of useful commodities; and saved more from the grave, than those who built colleges, work-houses, and hospitals." See also Garret Hardin, "The Tragedy of the Commons," Science 162:1 (1968), 243-8 (noting the free-rider problem posed by common "stewardship").

On the topic of Bt and resistance, see David Manspeizer, "Note: The Cheshire Cat, the March Hare, and the Harvard Mouse: Animal Patents Open Up a New Genetically-Engineered Wonderland," 43 Rutgers Law Review 417, 436 (1991).]

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4 Comments

Do you want new medicines??
>once a drug has been developed -- especially one that combats a life-threatening illness -- why should we permit pharmaceutical companies to charge anything above the marginal cost of the pills they make?

1. So that they have incentive to stay in business! So they they have incentive to pour their own billions into research! So they they exist in the first place!

2. A little teeny weeny consideration called right to property.


If you don't believe that number one is all that important, consider this. Canada, which uses "mild regulation" to curbe the "insane" profits that pharmaceuticals can make; produces less than 10% per capita of the drugs made in America. They produce less than 1% of the world's pharamceuticals despite being among the richest nations in the industrialized world.

Also note that yes, government funds a lot of the basic reseach, in large part argubly because they fund public universities and universities are where basic research often gets done - not because private institutions are never interested in basic research; but in any case, this basic research does not magically translate into medicines. If it did, Canada would be producing most of the world's new medicines. After all, they do spend a lot on erucation.

Consider this:

Of the money in public-private partnerships, often most comes from private side.

* In 2000/2001 the WHO had a budget of US$ 958 million of which US$ 100 million came from the industry and 300 US$ million from foundations. In many fields WHO’s own funds seem very small compared to the money provided by the industry. For example, in the period 1998/99 the WHO had only some US$ 29 million at its disposal for its control programme concerning tropical diseases (TDR), and for its tuberculosis programme it only had a budget of US$ 7 million. In comparison to this, Pfizer supported the International Trachom Initiative (ITI) with US$ 60 million over 2 years, and Bristol-Meyers Squibb donated 100 US$ million to the AIDS programme “Save the Future”. The Global Alliance on Vaccines and Immunization (GAVI) has a volume of more than 1 US$ billion, with the lion’s share of US$ 750 million coming from the Bill & Melinda Gates Foundation. Also for the Global Fund fighting against AIDS, malaria and tuberculosis the Bill & Melinda Gates Foundation promised to participate for the amount of US$ 100 million.

http://www.bukopharma.de/english/public-private-partnership.htm

* In 2004, research-based pharmaceutical companies spent a total of $49 bil discovering new medicines while NIH only spent only $28 billion total.

* NIH itself reported in 2001 that only 4 of 47 big-selling medicines received significant research aid from government in process of discovery.

http://www.phrma.org/files/Cost_of_Prescription_Drugs.pdf

Private funds poured into research grow each year, and while government can be given credit for helping basic research, they do very little to spur invention and discovery in the world of applied medicine research, drug discovery, medical devices and instruments or any filed not popular on the university campus.

A vital free market is the only answer to curing disease.

Obviously
>>Yet while the commons movement raises important questions, its proposed solution of restoring the commons by chipping away at private property rights goes too far and likely is unnecessary.

Where does a silly movement like this come from? Sounds like another form of collectivism wrapped in "scholarly" clothes.

I thought that we settled the issue of private property over 300 years ago.

ABD

Because they own it.
Why does anybody have the right to charge what they do? Because it belongs to them.

They could charge you $100 for an aspirin if they wanted too. The thing is that they would not sell very many aspirin would they? No one has the RIGHT to anything that does not belong to them. Reversely you have the Right to sell anything you own for what ever you like.

This is the bases of our economic system.

Until Kelo
"No one has the RIGHT to anything that does not belong to them"

Uh...at least until Kelo v. New London came to pass.

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