The main positive aspect supporting the public interest generated by patent rights originates from the requirement that patents are granted in exchange for the disclosure of knowledge about the technicalities of an invention. Thereby, patents provide a trade-off that ensures that inventions are not kept as trade secrets by the originator, and thus can be freely used for the public benefit once a patent period expires, leading to an enhanced availability of useful products.4 It can therefore be deduced that patents themselves provide the foundation for cheaper generic competition as the disclosure requirement enables generic manufacturers to enter the market once a patent expires, without facing high research costs.5 Thus, it can be suggested that the exception to free-trade and anti-monopoly regulations provided by patent rights is balanced, to a certain degree, by the required disclosure of the invention and the timely limitation of the exclusive rights.6
Furthermore, a main reason for patents being offered to inventors is the creation of an incentive to be innovative.7 The premise of stronger patent protection therefore is to increase encouragement for the development of new products.8 It is generally accepted that, particularly in the field of pharmaceuticals, the research and development (R&D) of new products involves substantially high costs, ranging from between $115m and
$802m for the development of a single new drug.9 Additionally, pharmaceutical
4 cf. Dutfield G, ‘Healthcare Innovation and Patent Law’s “Pharmaceutical Privilege”: Is there a Pharmaceutical Privilege? And if so, should we remove it?’ (2017) 12 HEPL 453, 453; United Nations Economic and Social Council (ECOSOC), ‘The Impact of the Agreement on Trade-Related Aspects of Intellectual Property Rights on Human Rights’ (27 June 2001) Un Doc E/CN.4/Sub.2/2001/13, para 11.
5 cf. Phillips AA, ‘Strengthen Pharmaceutical Patent Rights: Lowering the Cost of Prescription Drugs by Stopping the Reckless Patent Litigation Abuse of Generic Companies’ (2006) Conn. Ins. L. J.
397, 407.
6 Cullet P (n 2) 140; Lucyk S, ‘Patents, Politics and Public Health: Access to Essential Medicines Under the TRIPS Agreement’ (2007) 38 Ottawa Law Review 191, 207.
7 cf. ECOSOC (n 4) para 11.
8 Abbott FM, ‘Trade in Medicines’ in Smith R and others (eds), Trade and Health: Towards Building a National Strategy (WHO 2015) 135.
9 ibid 128; ECOSOC (n 4) para 37; Hestermeyer H (n 1) 142 and 159; Lucyk S (n 6) 206.
Phillips even suggests that the development costs of new pharmaceutical products averages at
$897m. See: Phillips AA (n 5) 406.
183 research is a high-risk investment, as new drugs are required to go through expensive and risky clinical trials before being approved for marketing, so that shareholders commonly demand high returns in order to be willing to make such investments.10 A particular problem in the field of pharmaceuticals is that due to the lengthy research efforts and clinical trials required for marketing approval, the effective exclusive market protection of patents is shorter for medical products than for innovations in other fields of technology, and lasts, on average, for 11 years only.11 Furthermore, as a large proportion of pharmaceutical R&D is unsuccessful, with only one in five drugs in clinical testing being ultimately approved for marketing, novel medications that do succeed need to be capable of not only recouping their own R&D costs, but also compensating a corporation’s expenses into the R&D of unsuccessful products.12 Thus, if patents were too restrictive to provide adequate returns on pharmaceutical research, there would be the likelihood of investments being shifted to more profitable fields of technology.13
For these reasons, the research-based industry relies on patent protection to attract investors willing to support the development of new medical products. Patents, by providing exclusive rights to inventors, facilitate the successful commercialisation of new medical products, and therefore create the required research incentive by promising investors a period of monopoly position on the market which can be used to recover R&D costs and to make higher profits.14 In the end, it must be acknowledged that the investment into pharmaceutical research today is expected to have substantial benefits for future health.15 In consideration of the right to health, it must be remembered that not only the affordability of current medications is of concern, but
10 Abbott FM, ‘Trade in Medicines’ (n 8) 128; Michelsohn A, ‘Drug-Patent Abuse and the High Cost of Healthcare: Case of the Double-Half Dose-Time Injection’ (IP Watchdog, 20 March 2018)
<https://www.ipwatchdog.com/2018/03/20/drug-patent-abuse-high-cost-healthcare/id=95056/>
accessed 23 April 2018; Reichman JH, ‘Comment: Compulsory Licensing of Patented
Pharmaceutical Inventions: Evaluating the Options’ (2009) Pharmaceutical Regulations 247, 257.
11 Phillips AA (n 5) 406.
12 ibid; Lucyk S (n 6) 206-207.
13 Abbott FM, ‘Trade in Medicines’ (n 8) 128.
14 Abbott FM, ‘Intellectual Property and Public Health: Meeting the Challenge of Sustainability’
(2011) Global Health Programme Working Paper No7/2011, 9
<https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1965458> accessed 22 May 2019; Flynn S, Hollis A and Palmedo M, ’An Economic Justification for Open Access to Essential Medicine Patents in Developing Countries’ (2009) 37 Journal of Law, Medicine & Ethics 184, 186;
ECOSOC (n 4) para 11.
15 Henry D and Searles A, ‘Chapter 9: Pharmaceutical Pricing Policy’ in Management Sciences for Health, MDS-3: Managing Access to Medicines and Health Technologies (3rd edn, Management Sciences for Health 2012) 9.2 and 9.7.
184 that innovation is essential in the field of pharmaceuticals to advance the treatment of diseases for the future.16 Therefore, by providing a research incentive for the development of new cures to address disease burdens, patents not only serve the interests of the industry, but can further serve an undeniably positive purpose for public health.17
In comparison to other fields of technology, the pharmaceutical industry seems to be especially dependent on patent protection due to the high costs involved in medical R&D and clinical trials, and the comparatively low costs required for the manufacturing of generic copies.18 Information, like the knowledge of the technicalities of an invention, generally can be regarded as a public good, which once it becomes available can be used by anyone without any benefit for the creator.19 Thus, after the initial development of new pharmaceutical products, it is comparatively simple for a competitor to copy the drugs.20 Generic manufacturers can thus offer lower prices as they are not required to recover high investments made into R&D and clinical trials.21 For this reason, a perfectly competitive market does not provide adequate incentives for expensive high-risk research undertakings, as market prices determined by copied competition lowers prices to a level close to the production costs without taking account of the other costs involved in the R&D process.22 Therefore, there exists a market failure in that the free market is not capable of adequately facilitating inventiveness.23 Without patents, originator companies would be at risk of losing their investments as competitors could simply make profits by free-riding on an inventor’s expenses, with the added advantage of being able to provide cheaper prices.24 Without patent protection, the substantial costs and risks of pharmaceutical research could discourage innovation due to the real prospect of impaired profitability.25 Arguably, without patent protection a large number of available
16 Abbott FM, ‘Trade in Medicines’ (n 8) 117.
17 ibid 120; Phillips AA (n 5) 407.
18 Cullet P (n 2) 141; Dutfield G, ‘Healthcare Innovation and Patent Law’s’ (n 4) 462; ECOSOC (n 4) para 37.
19 Lucyk S (n 6) 206; Smith RD, Correa C and Oh C, ‘Trade, TRIPS, and Pharmaceuticals’ (2009) 373 The Lancet 684, 685.
20 Phillips AA (n 5) 413.
21 Henry D and Searles A (n 15) 9.8.
22 Hestermeyer H (n 1) 141-142.
23 ibid 141; Lucyk S (n 6) 206.
24 Hestermeyer H (n 1) 142; Phillips AA (n 5) 406.
25 Phillips AA (n 5) 412.
185 medications may never have been invented.26 Given these points, it can be suggested that patents safeguard the future development of new medicines by rewarding innovators and protecting inventors against unauthorised use of their inventions.27 It is further claimed by the industry that the patentability of new uses of known substances – as included in a number of TRIPS-Plus FTAs – provides incentives for conducting continued research into already patented drugs to find potential additional benefits.28 This is a controversial issue, however, as the availability of second use patents also facilitates strategic planning to prolong exclusive rights without providing any substantial added benefits; a strategy which is known as patent ‘evergreening’, as explained in chapter 2.5.1.1, and further elaborated below in 4.3.2.3.
Additionally, it is claimed that a generally heightened level of IP protection in developing countries is beneficial in that it arguably leads to the development of domestic R&D capacity, and that the overall strengthening of the international patent system would lead to higher levels of innovation globally, for the benefit of all countries.29 This can be exemplified by considering that in the wake of the TRIPS Agreement, Indian pharmaceutical companies, which traditionally focused their activity on the production of generic drugs, began to increase investments into their own R&D capacity, seeking to develop new innovative medicines themselves.30 Furthermore, heightened IP standards arguably make developing countries more attractive for FDI implying an overall benefit for those countries.31 This argument is derived from the consideration that investors in knowledge based industries may be reluctant to make investments in countries with insufficient IP standards due to an insufficient protection against piracy.32
The patentability of pharmaceuticals in developing countries is further defended by the research-based industry as a necessary requirement for keeping patented drugs at profitable prices in industrialised nations in order to recoup research investments. This
26 ibid 405; Hestermeyer H (n 1) 158; Lucyk S (n 6) 206.
27 Cullet P (n 2) 140; Hestermeyer H (n 1) 158; Smith RD, Correa C and Oh C (n 19) 685.
28 cf. Phillips AA (n 5) 407.
29 Turk M, ‘Bargaining and Intellectual Property Treaties: The Case for a Pro-Development
Interpretation of TRIPS but not TRIPS Plus’ (2010) 42 International Law and Politics 981, 1000-1001.
30 Phillips AA (n 5) 412.
31 cf. Turk M (n 29) 1001.
32 Richards DG, ‘A Skeptik’s View of Intellectual Property Rights’ in Bird RC and Jain SC (eds), The Global Challenge of Intellectual Property Rights (Edward Elgar Publishing 2008) 272.
186 argument is connected to the fear of the industry that cheaper prices may leak into developed markets as consumers may challenge high prices when cheaper drugs are available in developing countries.33 This suggestion, however, seems to be redundant as consumers in developed markets are aware of the poverty in developing countries and for decades have accepted that wealthy countries indirectly subsidise cheaper medications in developing countries.34
4.2.1.1 Objectives and Purposes of the International IP Regime
When scrutinising the arguments in support of patent rights, it is of essential importance to take into consideration the general objectives and purposes of the international IP system. As established so far, the main purpose of patents is to foster innovation and to facilitate technological development.35 Additionally, for patents under the WTO regime, a wider perspective needs to be adopted, taking account of the objectives of the WTO which include the clear goal of ‘raising standards of living’.36 Thus, when regarded in correlation with the statement of Art XX(b) of the GATT 1994, which provides members with the right to adopt measures ‘necessary to protect human, animal or plant life and health’, and Art 8(1) TRIPS which facilitates the adoption of measures ‘necessary to protect public health and nutrition’, it can be suggested that an integral purpose of the international patent regime is the protection and promotion of public health.37 Furthermore, the objectives of TRIPS emphasize the mutual advantage to both the producer and the user of technological knowledge, and particularly references the importance of social and economic welfare including the need for an
33 Abbott FM, ‘WTO TRIPS Agreement and its Implications for Access to Medicines in Developing Countries’ (2002) United Kingdom Commission on Intellectual Property Rights, Study Paper 2a/2002, 7 <https://ssrn.com/abstract=1924420> accessed 11 October 2018; Hestermeyer H (n 1) 165.
34 Abbott FM, ‘WTO TRIPS Agreement and its Implications’ (n 33) 7.
35 cf. Cullet P (n 2) 140.
36 Marrakesh Agreement Establishing the World Trade Organization (signed 15 April 1994, entered into force 1 January 1995) [WTO Agreement], Preamble; Guan W, ‘IPRs, Public Health, and International Trade: An International Law Perspective on the TRIPS Amendment’ (2016) 29 Leiden Journal of International Law 411, 414.
37 General Agreement on Tariffs and Trade 1994, Annex 1A of the Marrakesh Agreement
Establishing the World Trade Organization (signed 15 April 1994, entered into force 1 January 1995) [GATT 1994], Article XX(b); Agreement on Trade-Related Aspects of Intellectual Property Rights (as amended on 23 January 2017), Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization (signed 15 April 1994, entered into force 1 January 1995) [TRIPS Agreement], Article 8(1); See thereto: Guan W (n 36) 414; Frankel S, ‘Challenging TRIPS-Plus Agreements: The Potential Utility of Non-Violation Disputes’ (2009) 12 JIEL 1023, 1037-1038.
187 adequate balance between rights and obligations of IP rights holders.38 The TRIPS Agreement, however, does not provide further details on how such a balance shall be achieved.39