Pandemic, patents and patent hypocrisy 

Anis Chowdhury | Saturday, 6 February 2021

Big pharmaceutical companies, commonly referred to as 'Big Pharma', claim that patents protecting intellectual property rights (IPRs) are essential for innovations. They opposed the developing country proposal to temporarily suspend the World Trade Organization's (WTO) Trade-Related Aspects of Intellectual Property Rights (TRIPS) to enable mass production of generic versions of Covid-19 vaccines and drugs. They also dismissed the patent pooling initiative, Covid-19 Technology Access Pool (C-TAP) under the World Health Organization (WHO).

Unsurprisingly, Big Pharma is supported by the mouth-pieces of private capital and rich countries. For instance, The Wall Street Journal denounced the temporary TRIPS suspension as "A Global Covid Vaccine Heist", warning "their effort would harm everyone, including the poor". The US insists that IP protection is best to ensure "swift delivery". The UK dismisses the proposal as "an extreme measure to address an unproven problem".

The EU claims there is "no indication that IPR issues have been a genuine barrier … to Covid-19-related medicines and technologies". The union ignored the fact that no vaccine developer has shared research results needed to scale up vaccine output by others, including generic producers. The EU further claims "an [intellectual property] system is…also to ensure the publication and dissemination of research results when otherwise they will remain secret."

HYPOCRISY EXPOSED: Canada, while opposes the temporary TRIPS suspension, adapted its patent laws to issue its compulsory licences for Covid-19 vaccines and drugs. It also acquired five-times more Covid-19 vaccines than what is needed for its population. Australia procured 150 million doses of Covid-19 vaccines, nearly six-times its population of about 25 million, ostensibly to help out countries in the region. While US, UK, Australia and most other developed countries have provisions of suspending IPRs in their national patent laws invoking national emergencies, Germany has strengthened its patent law's suspension provisions to deal with the COVID-19 pandemic.  

Although the temporary TRIPS waiver implies treating vaccine production and distribution as public goods, and the European Commission (EC) President Ursula von der Leyen has spoken about "working together" and "solidarity" for the "public good", the EU continues to block it.

Only after AstraZeneca and Pfizer failed to meet their contractual obligations to deliver vaccines to EU countries, the embattled EC President is now criticising the companies for not meeting their contractual obligations. She did not hesitate to emphasise that EU taxpayers and governments had paid much to accelerate vaccine development and production.

South Africa has to AstraZeneca vaccine by paying more than double what the EU is paying per dose. The EU says that it is entitled to a lower price because it invested in the vaccine's development, but never mind that the AstraZeneca vaccine was literally tested on the bodies of South Africans who volunteered to be part of the clinical trial.

Meanwhile, drug companies are expected to make bumper profits while millions are dying unnecessarily. Investment bank Morgan Stanley expects nearly US$13 billion profit for Pfizer and BioNTech alone during the pandemic.

This is even though the governments and donors, have poured billions of dollars into Covid-19 vaccine projects. Shareholder activists filed shareholder resolutions with the US Security and Exchange Commission (SEC) asking Pfizer and Johnson & Johnson to inform their shareholders how "receipt of public financial support for development and manufacture of products for Covid-19 is being, or will be, taken into account when making decisions that affect access to such products, such as setting prices." Both companies, however, filed "no action requests" asking the SEC to rule that the companies can withhold such information from shareholders.

None of the governments required the recipients of public or taxpayers' money to agree to offer their products at fair prices or share intellectual property rights to enable faster production.

Innovations without patents: In practice, most innovations would occur even without the additional incentives of patents. Research has revealed that an industry can be exceptionally innovative without patents. For example, the 1910s through the 1930s was an insane period of innovation in American agriculture, with many advances in hybrid corn, new types of fertilisers and new ways to fight pests, even though during that period the law did not allow inventors to patent most agricultural innovations. If patents were the only way of incentivising innovation, there would not have been so many innovations in that period.

The 1851 world's fair in London included a significant share of scientific instruments from Switzerland and Denmark, which did not have patent protection of IPR. On the other hand, some countries that issued long-term patents had fewer entries at the same fair. Interestingly, sometimes people can apply for lots of patents without actually being super innovative.

BETTER WAYS TO INCENTIVISE INNOVATION: There are better ways to incentivise innovation. From a welfare perspective, the first-best way is for a sponsoring agency or government to offer the inventor a prize for innovation. Awards act as incentives by bringing forward and ensuring innovators share future gains from innovation into the present, often while releasing ownership of the work to the public. As the Director of US Chamber of Commerce Foundation observed, "Prizes are among the most effective-and overlooked-tools for incentivising breakthrough solutions".

Prizes or direct funding of research and development (R&D) could be more effective than patents to spur pharmaceutical innovation. For example, the US administration provided US$10.5 billion to pharmaceutical companies for Covid-19 vaccine development. Pfizer received a $455 million German government grant and nearly $6 billion in US for its Covid-19 vaccine programme and EU purchase commitments. AstraZeneca received more than £84 million ($111 million) from the UK government, and more than $2 billion from the US and EU for Covid-19 vaccine research and via purchase orders.

In addition to prizes and direct funding of R&D, numerous related mechanisms, such as buying out patents through direct negotiation with the innovators or by determining the value of innovation through a (shadow) auction can incentivise innovation. Moderna's vaccine emerged from a partnership with the National Institute of Health (NIH). Research at the NIH, Defence Department and federally funded university laboratories have been crucial for rapid US vaccine development.

DELINKING R&D COSTS FROM PRODUCT PRICE: Financing R&D must de-link the costs of R&D from the prices of products. The R&D funding agencies - public and private - subject the recipients to price their products at reasonable generic levels. While research is subsidised, and the government bears the risk, private producers cannot be allowed to capture monopoly rent, especially when the issue is public health.

Mainstream economists believe that the efficient or profit maximising price should be equal to the marginal cost of production. Thus, this could be an option to drive down the price of essential drugs and vaccines. Another option could be a simple mark-up over the average cost of production.

While direct funding or prizes can incentivise innovations, the de-linking of R&D costs from product prices will prevent inequality of access to essential drugs and vaccines in rich countries and between developed and developing countries.

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]