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India, Intellectual Property, and Innovation
Our conversation about Martin Shkreli and Indian pharmaceuticals reminded me that I’ve been having a mental debate with myself for a while. Where better to air my confusion than Ricochet?
As I argued, the case for importing generic medications from India is open-and-shut. I strongly suspect our failure to permit this is more owed to pharma-company rent-seeking and protectionism than to concern for public safety. American consumers are discerning enough to make their own decisions about whether they trust drugs from overseas. If we allowed them to come into the country, rigorous and trustworthy private mechanisms for inspecting overseas drug manufacturing facilities would quickly emerge, just as they have for awarding Michelin stars to restaurants around the world.
But I’m confused about the ideal regulatory regime for medication under patent, and indeed, for intellectual property generally. It’s a challenging problem if you think markets allocate scarce resources more efficiently than central planners do. The legitimate fight between the US and Indian pharma — “legitimate,” in the sense of, “I’m not sure who’s right” — is a case in point.
The US and India argue about the length of time a drug should be under patent. I can’t imagine an answer to this question that’s not arbitrary; nor can I imagine an effective private arbiter. Unless I’m missing something obvious, it seems to me that yes, we need the government to make and enforce this decision in some arbitrary (but consistent and predictable) way — and not just domestically, but globally.
That’s a lot of government.
Geeta Anand of the Wall Street Journal explains the problem this way:
The latest skirmish in the Indian government’s long-running battle with the global pharmaceutical industry came last week, when officials withdrew patent protection for an emphysema drug marketed by Germany’s Boehringer Ingelheim GmbH.
India’s refusal to recognize patents on some of Western drug makers’ most profitable medicines has been the cause of considerable rancor between New Delhi and governments in the U.S. and Europe, who say India is failing to adhere to global intellectual-property rules.
There can be no denying being tough on patents could cost India substantially in foreign investment—and that means lost jobs and growth. The country’s pharmaceutical sector was expected to grow to at least $48.8 billion in sales by 2020 from $11 billion in 2012, according to PricewaterhouseCoopers. Novartis AG, the Swiss company, has said it would reconsider launching new drugs in India after losing a court battle in 2013 to get a patent approved. Pfizer Inc. said at the time it was, “concerned about the environment for innovation and investment in India.”
Rigorously and globally enforced patent, copyright, and IP laws are obviously essential to innovation. If there’s no promise of unusual remuneration for inventing something new, people will have vastly less motivation to invent new things. If other people or companies can immediately copy and sell the idea or the product you invent, there’s little incentive to invest in research and development, little incentive to be creative, and little incentive to hire or cultivate inventive people. So I can think of no alternative to patent and copyright laws. But owning a patent gives you a monopoly on supply. And monopolies are not in the best interests of consumers.
Nowhere does the tension between creating incentives to innovate and protecting the interests of consumers seem more obviously in conflict than in pharmaceutical research and development. Pharmaceutical companies, obviously, want to gain and extend patent protections, and of course we want to them to have those protections. It costs a lot of money to create and test a new drug, and no one would do it if it were impossible to make a profit from it. In fact, we want to create very strong incentives for these companies to profit by discovering new drugs, particularly ones that cure diseases from which we now routinely die, or ones from which we’d begin to die again if the drugs we have cease to work. Think about new antibiotics, for example: The possibility that the ones we have will cease to work is real. So certainly, we want pharma companies to have very strong financial incentives to make new ones.
The hard question, for me, is how long any given drug company should enjoy a patent, and here, I can think of no way for markets to function absent a large amount of basically arbitrary government intervention. As the Journal notes,
India’s refusal to recognize patents on some of Western drug makers’ most profitable medicines has been the cause of considerable rancor between New Delhi and governments in the U.S. and Europe, who say India is failing to adhere to global intellectual-property rules. …
Indian law is strict in limiting what can and cannot be patented – and, local activists argue, justifiably so. Foreign pharmaceutical companies and their political allies may not like that, but it is hard to argue – morally, at least — against India’s approach.
It’s not clear to me that it’s a hard moral argument to make. The moral argument for a US-style patent regimen is the one I’ve made above: If we make drug discovery too unprofitable, pharmaceutical companies will cease to do it. But clearly, we don’t want companies to have monopolies forever. That would prevent consumers from enjoying the benefits of competition among producers.
So what, exactly, is an optimal patent regimen? One that gives us the best balance between providing pharmaceutical companies with an incentive to innovate and ensuring they also have incentives to copy each other’s innovations and compete on price? Is there such a thing as a non-arbitrary answer?
India’s law sets a higher bar for protection than in some other countries, limiting the ability of companies to get patents for new versions of drugs whose active ingredients were previously known unless they can show significant therapeutic benefit. U.S. and European patent laws more readily grant patents to updated versions regardless of whether they offer major improvements in efficacy over the original compounds. …
In 2006, India’s patent office refused to give Novartis AG a patent for Glivec, an extremely effective drug for a rare cancer. The patent office argued that the drug’s active ingredient was already known before the development of Glivec, and that it wasn’t significantly more effective than the earlier version. …
In 2012, India’s Intellectual Property Appellate Board revoked a Roche Holding AG patent for a hepatitis C drug saying technology involved in the drug’s invention was “obvious” and could be replicated easily. …
As Anand reports, the complaint among pharma companies in the US is usually the reverse:
[the US] patent office granted monopoly protection too easily for innovations that didn’t represent major advances over existing medicines or known science, a practice known as “evergreening.”
Longer-acting versions of old medicines were given patents, allowing their manufacturers to market them as better than the older versions, whose patents had expired—and whose prices were cheap. The collective effect of a low bar for patents drives up healthcare costs and insurance premiums for patients.
Anand concludes that India’s right:
To be sure, India’s patent office and courts can be arbitrary at times—and their individual decisions may not always be above reproach.
But taken together, India’s efforts to set a high standard for patents on life-saving medicines whose costs are often beyond reach of the majority of the population should be applauded and defended against attacks from the West.
In both India and the US, I suspect that the regulatory environment will to some degree reflect regulatory capture: Both countries have huge incentives to protect their own industries from foreign competition. But assume an entirely corruption-free regulatory environment and decisions that are truly made in the best interests of the public.
To whom should pharmaceutical patents be awarded, how long should they last, and why?
Can these rules be generalized to other forms of intellectual property?
Published in Domestic Policy, Economics, General, Healthcare
One of the main roles of the state is to protect the public. Regulating the sale of medicines in the interests of patient safety is a proper function of the state. Even Jeremy Corbyn wouldn’t want to nationalise the Michelin restaurant guide.
Citation required.
Fascinating questions, Claire.
While we muse over them, Gaby, let us not forget that here in the US, it is from foreign enemies that the state is to protect us. Not to make us safe from every risk of life or other people, badly intentioned or not. It’s that reasoning that has brought us the nanny state.
And yet the businesses of Google, Twitter, Facebook, Amazon, Uber, AirBnB and even Apple do not rely upon patent protection. For sure, where a dozen or more engineers are gathered there shall arise an in-house patent attorney division, but none of the innovation, creativity and cultivation of inventive people characteristic of these companies is affected by the performance of the IP professionals.
I don’t agree that this is a proper function of the state, but even if I did, ought implies can. The FDA, last I heard, was hoping to increase its staff in India to 12. Twelve people. India is a country of 1.3 billion people. The idea that the FDA could inspect not only every pharmaceutical plant in India but every other step of the supply chain, including the post or other parcel services, is beyond absurd. It’s not at all absurd to imagine a private enterprise doing this. The result in practice of insisting the FDA guarantee that every medication any consumer might encounter is 100 percent safe has been drug shortages.
Google?
But their business, and their innovation etc., doesn’t depend on this stockpile. I bet they have hundreds of labour lawyers on retainer, too, but that doesn’t mean labour regulation breeds innovation.
If that isn’t one of the main roles of the state then let’s just abolish borders, all police powers and the armed forces now. Challenging the role of the state in ensuring public safety is what gets us labeled as crackpots (and loses us votes.)
Caveat Emptor is not a rational policy for the safety of your food and drug systems. Who wants to go back to people peddling Laudanum as a cough and cold syrup?
It still is: or codeine, at least, is sold as a cough suppressant, in syrup form, over-the-counter in France. As far as I know, it’s not widely abused. In the US, you’d need a prescription for it. The US has a much higher rate of opioid addiction, so I’d conclude the government’s involvement in regulating the sale of Laudanum-like cough syrup in the US hasn’t worked.
I do challenge the role of the state in assuring food and drug safety. The US federal government does a bad job of it. Saying this may lose us votes, but it’s true that we’re now suffering from drug shortages even though there’s no shortage of these drugs. So blame the electorate.
This is a conundrum.
I don’t normally find myself defending government bureaucracy but the FDA is in a no win situation. If they don’t approve a drug fast enough they’re cruel heartless bastards who let people die. And when it all goes sideways and people die then they’re cruel heartless bastards that didn’t do due diligence. (A cursory Google search brings up a list of 35 FDA approved drugs that later had to be pulled because of lethal side effects.)
Now, there is intellectual property and there is intellectual property. If you buy a designer knock off or a bootleg dvd or share a song or two (or thousands), yeah, somebody’s wallet gets hurt. If drugs are reformulated then maybe somebody dies.
Drug manufacture is not just the chemicals that do the job we’re looking for them to do. There are also excipients, or what your medicine bottle refers to as “inactive ingredients.” Those can be be stabilizers, binders, and preservatives. “Inactive,” however, does not mean inert or harmless. In some liquid drugs alcohol is considered an “inactive ingredient” in the formulation but it is certainly not totally benign. Even artificial coloring may be dangerous depending on the source.
And here’s another piece of information that gets lost in the argument about generic drugs: If a drug is found to cause a lethal side effect the generic manufacturer can not be found liable. It’s the original patent owner that is still on the hook! (Mutual v. Bartlett, Pliva v. Mensing and Wyeth v. Levine.)
Furthermore because of the FDA’s labeling requirements (Generics must carry the exact, word-for-word literature as the original) if a generic is found to have side effects the manufacturer is legally forbidden to add that to the label. And that includes so-called orphan drugs no longer sold by the originating pharma company.
Bottom line? This is not as simple as you think it is.
And you would be wrong. According to the book Codeine (Brigid M. Kane, edited by SUNY-Buffalo Professor of Pharmacology D. J. Triggle, Chelsea House, 2007) only 5% of the use of Neo-codion in France can be linked to legitimate medical use. (pp. 67-68).
How would they know? Are they actually following the people who buy it home and standing by the medicine cabinet to see whether people use it when they don’t have a cough?
As I said: The magic words are “at your own risk.”
Does anyone read Derek Lowe’s blog? He has a lot to say about Pharma research: http://blogs.sciencemag.org/pipeline/
“…data on Neocodion use were extracted from the French drug-dependence monitoring programme (OPPIDUM [Observation des Produits Psychotropes Illicites ou Détournés de leur Utilisation Médicamenteuse])”
So we solve the heartbreaking paradox by abolishing them.
On to the next problem.
Then you and others need to do the real work of tort reform. You need to do the real work of reducing the cost of medicine instead of just complaining about its price.
Nice work and some very good thinking.
I note the word “arbitrary” was used with respect to India. That is a bigger crack than may appear. Indian courts and officials are extremely arbitrary in protecting the home team and the home team makes them happy for it. India is democratic-log-roll-ocracy.
I have crawled all over the world – sometimes literally. The manufacture and sale by Indian (Chinese) and other firms of phoney, diluted dosage or poorly produced drugs is a serious matter in the third world. They make the same pills with the same markings that big Pharma does. Places that are quasi-failed states like Nigeria offer trans-shipment points and disguised manufacture points to cover up the real producers. Quality control is fine – but, the market is getting flooded with ineffective tablets sold at large discounts. Some of these are entering the US market and represent an enormous opportunity for criminals. Most of the rest of the world does not have effective enforcement to protect their citizens from this. Many of my friends travel to the US to buy prescription drugs knowing they cannot trust the drugs in the Ukraine, Dubai, or Thailand will be the real thing.
We are hearing far too little about this.
One interesting thing to note is pharma companies are performing covigilence to monitor social media to identify where counterfeit drugs might be showing up. They pick this out of comments made about prescription drugs no longer offering relief and zoom in.
I can’t even find a reference to codeine in the most recent report. Can you? They track nicotine consumption down to the last cigarette, but codeine seems to have fallen off the radar.
The assumption is that the “state” knows how and cares about protecting the public more than pharmaceutical companies know and care about being sued or having their brand name trashed. I don’t buy generics from China because I don’t know them. Moreover, we often assume that if the FDA approves a drug it is because it works and is safe. That isn’t necessarily the case. In addition we assume that Pharmaceutical companies must have a long term monopoly to make a profit, but that is because it costs them so much to get FDA approval. Companies generally make profits only during the brief monopolies they have because they’re new to a product, service or place.
As I understand it, the OPPIDUM survey concerns people in drug treatment centers of various types. I’m not sure what it can say about pharmaceutical use in the general population.
They lump them together with all other opioids other than heroin. The source I cited was clearly labeled 2007 and was the most recent direct citation I could find.
Still, I find your argument puzzling. Your main thrust seems to be that big pharma is causing needless deaths and is therefore bad. But then you argue that any regulatory scheme that tries to make sure what they’re selling is medicine and not poison is also bad. So needless death from drug shortage is bad but needless death due to ineffective or improperly researched and tested drugs is just fine?
When your father underwent his recent cardiac procedures you were totally unconcerned about the drugs he received or whether or not the procedure they performed was well studied? And if you weren’t worried about them, why not?
Not at all. I argue that the FDA is keeping drugs that people want, possibly life-saving ones, from entering the US market.
I have no objection to having an FDA if people want it, but I object to it having the power to ban from entering the country drugs that I wish to use at my own risk, and to it having the power to make decisions about cost and risk that are properly mine to make.
Both are bad, but I wish to make the choice for myself and assume the risk.
No, we were of course very concerned. Fortunately, there was a great deal of publicly-available data about both.
Well, of course we were worried: a 2-3 percent chance of dying is not “no risk.” But we were certainly able to appraise the risk rationally and make the decision for ourselves about what risk we were willing to take, given our financial means, and our risk tolerance.
Forgive me for thinking poorly of you, but my gut reaction is that in those desperate hours leading up to surgery you did not quiz the doctors or hospital administrators on their drug sources. Nor do I think you would cavalierly accept your father’s death if it turned out the hospital was cutting corners by buying untested generics from Bob’s of Bhopal.
I’d feel better if our drugs were all made in American factories, for both safety and jobs reasons. But the “safety” thing falls a little bit hollow when we’re already getting drugs from China and food from Mexico.
But it’s not the case that the Indian drugs the FDA won’t let into the country are “untested generics from Bob’s of Bhopal.” The drugs they won’t let in are ones the French are perfectly happy to let in, drugs widely exported everywhere else in the world, and drugs that go through testing as rigorous as any plant in the US. They just haven’t been inspected by our federal government.
Do you feel that way about all imported goods? Or just pharmaceuticals? If so, why?
Food from all over the world. And food tastes a lot better because of it.
The best argument I have read in the affirmative for Patents and Copyrights comes from the chapter of the same name in Ayn Rand’s Capitalism, the Unknown Ideal.
She gives a well thought out position for patents (limited to a specific term of years) as opposed to copyright (limited to a lifespan + years).
The point made regarding India’s position on new uses for old formulas struck a chord with me – why do we permit evergreening?
This being said, a company can choose not to seek a patent for its algorithm – preferring instead to keep it as a trade secret (Google, KFC, Coca Cola) – or they can maintain a trademark (indefinite duration) – but big pharma is not allowed to use those means. Because somehow (unlike chicken or cola) the government chooses to regulate to a greater degree the things big pharma provide to put in our bodies.
My main problem with the FDA is that they have moved away from a safety regime to an efficacy regime and I think that is wrong.
Mostly stuff we swallow, but especially drugs. We’ve already had some QA issues with some Chinese drug factories. A race to the bottom of drug prices because of cheap outsourcing makes your wallet feel better, but it also means a strong temptation for foreign factories to cut corners.
Thanks, TD. I just looked it over and I think I’ll start reading more from him.