(1998; 97 pages) [French] [Spanish]
4. South Centre
Speaker: Carlos Correa
Trade Agreements on Intellectual Property and Public Health in Developing Countries
The Agreement on Trade-Related Aspects of Intellectual Property Rights (the “TRIPs Agreement”) contains a number of provisions that are likely to affect access to medicines in developing countries. This is particularly the case in countries under the obligation to introduce patent protection for pharmaceuticals. But the effects may be also felt in countries that recognized such patents before.
The TRIPs Agreement, in effect, includes several provisions that are bound to strengthen the protection conferred on pharmaceutical product and processes, such as the provisions relating to:
• the duration of patent protection (minimum of 20 years from the application date);
• extension of the protection to the products directly obtained by a protected process;
• reversal of the burden of proof in the case of civil procedures relating to process patents;
• protection of confidential data submitted in applications for the approval of pharmaceuticals.
It should be noted that the TRIPs Agreement does not constitute a uniform law, and that WTO Member countries have some flexibility in their implementation of the Agreement’s provisions at the national level. Article 8 makes a specific reference to the protection of “public health” as one of the elements to be considered while formulating or amending national laws in conformity with the provisions of the Agreement. In addition, article 27 contains two health-related possible exceptions to patentability: “Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect... health...”. They may also exclude diagnostic, therapeutic and surgical methods for the treatment of humans (article 27.3.a).
Likewise, under article 30, Member countries may provide several exceptions (such as the so-called “Bolar exception”), and under article 31 may establish compulsory licenses, including for health-related grounds. Parallel imports may be also admitted on the basis of the principle of exhaustion of rights (article 6).
The possible effects of the changes in pharmaceutical patent protection in the health sector may be seen from different perspectives. The likely impact of the new rules on the prices of medicines has been addressed by a number of studies, undertaken before and after the adoption of the TRIPs Agreement.
For instance, in the pre-TRIPs period, Nogués (a World Bank economist) estimated consumer misallocation in developing countries and found that the introduction of pharmaceutical patents would entail significant welfare losses for consumers and income gains to patent owners.
After the adoption of the TRIPs Agreement, Subramanian (an IMF economist) examined the likely impact of introducing pharmaceutical product patents in small and large countries, in cases where either a perfectly competitive market or a Nash-Cournot duopolistic market becomes a monopoly under patents. The same author later applied this model to the particular case of Asian countries (India, Indonesia, Pakistan, Philippines and Thailand). He investigated annual price, welfare and profit effects for these countries consequent upon the TRIPs Agreement. Welfare and price effects were found to be negative for these countries, though given the transitional periods provided for by the Agreement and the extensive time required for the approval of new medicines, the effects would not be felt immediately. The same methodology, when applied to Argentina, also indicated a significant price increase (71%) and a fall in consumption (50%) when monopoly follows a competitive situation, and 16% and 25%, respectively, in the duopolistic-monopoly scenario.
There are several methodological problems for estimating the likely impact of changes in patent law on pharmaceuticals as a result of the implementation of the TRIPs Agreement since - among other reasons - there are important differences from country to country in respect of patent laws, the characteristics of the local pharmaceutical industry, income levels and patterns of consumption. In addition, it is difficult to estimate the market share that would be covered by patented products, and estimates on price increases and welfare effects require assumptions on price elasticity for which only scant evidence is available.
Though the results of the various studies undertaken on possible price increases for medicines vary significantly, there is no doubt that patents lead to prices higher than those prevailing without protection. The generation of monopolistic rents is, in fact, the very purpose and essence of the patent system. Hence, while introducing or strengthening patent protection, in conformity with the TRIPs Agreement, its possible social effects, particularly on the low-income population, should be explicitly and carefully considered.
Finally, from a public policy perspective, the possible effects of changes in patent protection on other aspects, such as local innovation, foreign direct investment and transfer of technology, should also be assessed. So far, the available evidence indicates that, in general, a reinforced and expanded protection is not likely to increase the local rate of pharmaceutical Research & Development nor the flows of technology and investments to developing countries.