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TRIPS and Pharmaceuticals
- 1. TRIPS and Pharmaceuticals Sean Flynn American University Washington College of Law
- 2. MSF, Untangling the Web of Antiretroviral Price Reductions (2011)
- 3. “[T]he ability of patent holders to charge for the use of their patent rights, either in the form of royalties or through end product prices is constrained by the ability of the country granting the patent to pay. Poor countries will inevitably pay proportionately less than wealthy countries for the use of patent rights.” -Edmund Kitch (1994)
- 6. Price Volume Revenue 100 0 90 10 80 20 70 30 60 40 50 50 40 60 30 70 20 80 10 90 0 100 Price Volume Revenue 100 10 90 11 80 12 70 13 60 14 50 15 40 16 30 17 20 18 10 19 0 11
- 7. Price Volume Revenue 100 0 0 90 10 900 80 20 1600 70 30 2100 60 40 2400 50 50 2500 40 60 2400 30 70 2100 20 80 1600 10 90 900 0 100 0 Price Volume Revenue 100 10 90 11 80 12 70 13 60 14 50 15 40 16 30 17 20 18 10 19 0 11
- 8. Price Volume Revenue 100 0 0 90 10 900 80 20 1600 70 30 2100 60 40 2400 50 50 2500 40 60 2400 30 70 2100 20 80 1600 10 90 900 0 100 0 Price Volume Revenue 100 10 1000 90 11 990 80 12 960 70 13 910 60 14 840 50 15 750 40 16 640 30 17 510 20 18 360 10 19 190 0 11 0
- 11. Argentina
- 13. Core elements of IP regimes (Pam Samuelson, “Preliminary Thoughts on Copyright Reform”) 1. Statement of subject matters /forms that IP applies to 2. Eligibility criteria for specific people and works a: who is eligible? b: what standards must a work meet to be eligible? c: what procedures must be followed to obtain / maintain rights? 3. A set of exclusive rights 4. A duration for the exclusive rights 5. A set of limitations / exceptions to exclusive rights 6. An infringement standard 7. A set of remedies against those who infringe
- 19. Indian Patent Act Sec. 3(d) The following are not inventions within the meaning of this Act, - d. the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance . . .
Editor's Notes
- Good evening. I’m Sean Flynn, Ass Dir of PIJIP.
- I start most of my lectures on this topic with this picture. It is a widely used MSF slide showing that before generic companies entered the market AIDS drugs were priced at $10,000 a year in every country. It sets the context for the policy problem our countries are dealing with – how to tailor intellectual property policy to meet its objectives of incentivising innovation without unduly harming social welfare.
- The argument that high minimum standards for patent protection do not unreasonably harm developing country consumers is based on a fallacy. It is argued that patent holding firms will voluntarily lower their prices in pooerer markets because otherwise they would make no sales in those markets. The argument is based on a fact – that monopoly pricing power in any market is not infinite. If a firm charges too much it will make no sales in the country. In a competitive market, sellers are constrained in pricing power by the cost of production. Charge too much , other firms will undercut you. In a monopoly market there is a constraint on pricing too – but it is on the demand side. So won’t firms be forced to charge less where the demand in a market can only afford to pay less?
- I contributed to some work some time ago that focused on that point – arguing that it is rational – it should be fully expected, that monopolies will engage in relatively uniform pricing across devdeloping and rich countries because of high income inequality.
- The patent system is a policy tool that promotes a trade off. We give the patent holder a limited monopoly over the sale of its invention to allow it to enjoy higher prices and profits for a period of time, thus creating incentives to innovate and to disclose innovations through the patent application. This graph is assumes the cost of producing the good in question is 0. In a competitive market (where new firms would enter if they could undercut the price of the incumbent firms) the price of the good supplied would be very close to 0 and essentially every consumer who wanted the good would be able to buy it at a price less than they would be willing to pay. Thus, in economic terms, the competitive market for this good would produce a consumer surplus equivalent to the entire area of the triangle. In a monopoly market, they dominant firm can set price without any new entry. Profit is maximized by scaling back production and serving a smaller market at a higher price. In this case, the most profit is earned by selling 50 units at $50, rather than 100 units at close to $0. There is still restraint on the price – but the restraint is a function of the demand curve. Raise the price, and less people will buy; increase production and the lower price needed to sell all units will eat away at profits. There are two primary effects of this alteration of the market. The first is that there is a transfer of surplus/profits from consumers to producers. That area is marked “profits.” In economic terms, this wealth transfer has no social welfare effects, although it may if the consumers have a higher utility of income than the firm. The second effect is what is termed deadweight loss, the area marked DWL on the graph. This represents consumers who would have bought the good at a lower price but are excluded at a higher price. In economic terms this is a net loss to social welfare. This traditional graph has a very simple, straight demand curve. Since the demand curve is the only constraint on pricing, the shape of this curve is very important. If it changes, the profit maximizing price and the amount of deadweight loss will change as well.
- When there is a monopoly, the price is determined by demand. It is the amount consumers are willing and able to pay. Consider this little lesson I run in my classes. Assume you are a monopoly and the cost producing a good is zero. In one example if you charge 100 no one is willing and able to buy. Every time you lower your price by 10, volume increases by 10. It is a 45 degree demand curve. Cost of production is zero. Your firm will make in profit the volume times the price – marked “revenue” in column three. What do you charge?
- In 1., you maximize price right in the middle of the market. For half of the people who want it, they wont pay the price. The other half is served.
- But in the market in the right the demand curve is much more steep. The effect is because pricing behavior in a monopoly setting is impacted by the shape and slope of the demand curve.
- If you assume that willingness to pay will equal ability to pay, then the demand curve will look an income inequality curve. That is the graph on the left. It assumes that the richest would pay 5% of income on an essential medical good, as would the poorest. It results in a revenue curve like the one the right. If you set at the price that only the richest 10% can afford, you lose money from volume. Until you get to about 50% / 60% of the market. The price optimum in that make believe market is about $1200.
- It looks a lot like the market on the left – 50% served, 50% excluded. But developing countries tend to look more like the right. They have a small segment of very wealthy – 1% or 10% of the market that can afford very high prices. Often they also have private insurance.
- If you take a middle income country with income inequality a lot like Ukraine’s – you see a very different profit maximizing price. Because the curve is very steep (left) it leads to pricing behavior where it as profitable to serve just 10% of the market instead of 40 or 50%. This is basically the economic case for why you need to use TRIPS flexibilities in middle income countries.
- http://www.strategy-business.com/article/13201?gko=bd2d7 For U.S. businesses, it is the future of the market. But note where the big markets are – mostly countries we do NOT have an FTA with. Lead among them China and India.
- What is IP? How does it work?
- Argentina’s guidelines are part of a broader trend. ICTSD and UNCTAD have sets of guidelines encouraging similar steps. These can be seen as part of a much broader internaitonal literature – including by the WHO and human rights bodies – encouraging the narrowing of patent grants to promote access to affordable medications.
- Brazil is now considering similar rules as part of a legislative package.
- Those rules include a proposal for a new passage limiting patents on new forms and uses.
- South Africa is now considering patent reform.
- And central to its proposals is also a limitation on new form and use patents.
- And finally India has enacted Section 3(d) of its patent act.
- There has been a coordinated campaign by patent holding pharmaceutical companies in the north to challenging these legal changes. The US annually holds a Special 301 hearing to identify countries on its watch lists of what it considers the wors intellectual property systems. The US based pharmaceutical association, PHRMA, complained in 2013 that Argentina’s law violates the TRIPS agreement. And I know a similar claim is working its way through US courts.
- Other relevant international law must include human rights law and the right to health. Human rights laws provide other internatioanl law that must be promoted.