Debunking Big Pharma's arguments for intellectual property rights

The unfortunate situation with the accessibility and availability of Covid-19 vaccine exposes darker sides of protecting intellectual property rights (IPRs). The problem is that poor countries have to wait at least until the end of 2023, according to the Economist Intelligence Unit,

Supported by most prosperous countries, big pharmaceutical companies opposed the proposal to temporarily suspend Trade-Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO) to enable mass production of generic versions of COVID-19 vaccines. They claimed that temporary TRIPS suspension "would jeopardise future medical innovation, making us more vulnerable to other diseases".

Big Pharma is also against the World Health Organization's (WHO) IPRs sharing initiative COVID-19 Technology Access Pool (C-TAP). Despite a lot of support from low- and middle-income countries, the industry officials dismissed pooling and compulsory licensing as unnecessary or even dangerous to the future of biopharma innovation. Launched in May 2020, C-TAP aimed to ensure equitable access to any approved Covid-19 vaccines and therapies, putting in place a system for sharing all intellectual property, information and clinical trials data needed to enable generic manufacturing.

Thus, the WHO shifted its focus from the idea of patent pools to COVAX, aimed at providing countries equitable access to COVID-19 vaccines, once they are licensed or approved. Instead of pooling patents, COVAX offers a procurement mechanism. However, according to Reuters' internal documents, COVAX faces a "very high" risk of failure besides other inadequacies. 

BIG PHARMA'S ARGUMENTS FOR PATENTS: Big Pharma claims that patents protecting IPR are necessary for the invention, especially in pharmaceutical and genetic or DNA diagnostic testing as research cost is prohibiting while uncertainty about success is exceptionally high. 

A patent provides an inventor or organisation with a temporary monopoly right, usually for 20 years, over the technology. This enables them to recover cost and make large enough profit - the monopoly rent - needed for reinvestment in research.

Mainstream economists believe that knowledge is a public good. That is, the use of a given piece of knowledge by one party does not diminish another party's use of that same knowledge - "non-rivalrous"; and once created, it is difficult to keep out others from learning about this piece of learning and using it - "non-excludable".

Therefore, once the cost of developing knowledge has been incurred, there is zero additional cost to having more parties use that knowledge, which can potentially drive large increases in welfare. However, paradoxically, knowledge can be underprovided by the market, or even not provided at all. When others can swiftly imitate an innovation, any profit generated by the innovation is quickly eroded. Therefore, the original innovator may choose not to invest in the development of his or her idea in the first place.

IPRs advocates claim that the solution is to make gains from particular innovations excludable by granting and enforcing patents.        

They further argue that patent rights can promote innovation by creating markets for ideas and innovation, thus facilitating transactions such as the licensing or sale of an invention. While creative firms focus on developing technologies, other firms with comparatively better production, distribution or marketing capabilities undertake commercialisation. This enables efficient allocations of ideas and technology.

Patents can also promote innovation by facilitating knowledge diffusion, as a condition of receiving a patent, inventors are required to describe the technology in sufficient detail so that someone skilled in the art can reproduce it.

PATENTS LOWER WELFARE: Patent rights solution comes at a cost; consumers or users must now pay for the monopoly conferred by the patent. Higher prices mean transfers from consumers. But many do not consume the good due to its cost. It implies a deadweight loss for the economy, lowering overall welfare.

Fostering innovation through the mechanism of market creation or licensing, remains an open question. Facilitating diffusion through knowledge sharing requirement does not hold in reality. Firms and their patent lawyers often obfuscate a technology's workings in the patent's description, and patent examiners rarely effectively enforce the full disclosure requirement. Furthermore, the evidence of searching the prior art in a given technological field often risk wilful infringement court rulings and associated larger damages.

A related issue is an age-old hold-up technique known as "patent trolling". In 1846, for example, Elias Howe obtained a US patent for an improvement in sewing machines. Howe's patent was broad enough to cover most commercially viable sewing machines; so, he used his patent to threaten litigations instead of commercialising his invention. When other firms sued based on their patents, production came to a near halt in the 1851-1856 "sewing machine wars". By 1867, Howe had received US$2 million in licence fees - roughly U$35.2 million in 2021 dollars.

Most patents are extensive, covering wide-range of related features of commercially viable innovations. Genuine inventors do not obtain them to protect their innovations from competitors; but acquired by unscrupulous organisations or individuals to threaten litigations, hoping to make money mostly through out of court settlements. Large corporations obtain such broad patents for defensive purposes, to prevent others from suing them over patent violations.

Such patent trolling strangles, rather than promote, innovation. The Harvard Business Review reveals that IPR law stifles innovation. The Economist has condemned patent trolling, which has reduced venture capital investment in start-ups and R&D spending, especially by small firms.

Patent trolling is most acute in the field of biotechnology and genetics. Here the issue involves a more fundamental question: whether naturally occurring DNA is a "product of nature," and applied techniques or methods to amplify and sequence this DNA can be considered an innovation to be granted monopoly right. In a land-mark case the judges at a New York District Court in 2013, unanimously ruled that any "naturally occurring" DNA sequences-"lie beyond the domain of patent protection" as products of nature and not of human engineering.

There is now a new practice involving predatory hedge funds taking short positions. Hedge funds borrow shares of pharmaceutical companies from brokers, then challenge drug companies' patents, to obtain a rapid fall of the share price. They buy back shares at a rock bottom price to return borrowed shares and profit from the difference between selling and buying. These billionaire-led hedge funds have no intention of making these medicines; they only challenge a patent to make more money.

The economic burden of patent lawsuits is historically unprecedented. These costs fall disproportionately on innovative firms: the more R&D a firm performs, the more likely it is to be sued for patent infringement, all else equal. Thus, patent rights can stifle, instead of promoting, innovation, and sustainable green technologies are not immune to patent trolls strangling.

Anis Chowdhury, Adjunct Professor at Western Sydney University and the University of New South Wales (Australia), held senior United Nations positions in New York and Bangkok. [email protected]