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Property Rights, Pharmaceuticals, and East Asia: Turning Gold
Jean-Marc F. Blanchard, Ph.D.
The Trade-Related Aspects of Intellectual Property Rights Agreement
(TRIPS), one of the many agreements that established
the World Trade Organization (WTO), sets forth international norms
and legal standards with respect a variety of intellectual property
rights (IPR) such as copyrights, trademarks, and trade secrets.
In recent years, government budgetary woes and endemics and epidemics
such as the HIV/AIDS crisis have put severe pressures on countries
to violate or tepidly support the provisions of TRIPS relating
to drug patents. Drug patents are important because they limit
the sale, use, and manufacture of patented products, and, where
appropriate, the use of patented drug manufacturing processes.
East Asia is no stranger to the aforementioned pressures. Furthermore,
the national development objectives of East Asian governments
provide them with incentives to interpret TRIPS in a self-serving
Last April, the Office of the United States Trade Representative
(USTR) issued its annual Special 301 Report on global IPR protection.
The report shows that East Asian countries do not always protect
drug patents. Taiwan suffers from some trademark counterfeiting
while South Korea does not take adequate steps to prevent patent-infringing
products from obtaining marketing approval. Furthermore, certain
U.S. pharmaceuticals continue to experience difficulties in obtaining
administrative protection for their products in China.
Although the situation with respect to drug patents in East Asia
is not dire, there are a number of trends that threaten it. The
first trend is the deteriorating public finance situation in East
Asia. Relatively slow economic growth is producing pressure on
many governments to tighten their budgets, which have been in
deficit as a result of fiscal stimulus programs undertaken to
stabilize or increase economic growth over the past few years.
A second is the growing number of infectious diseases needing
attention. These diseases raise not only budgetary issues, but
also huge politico-economic issues because of their effect on
family structures and the workforce. A third trend is the need
for countries to find new sources of economic development. One
noteworthy source that East Asian governments are currently emphasizing
is the biotech sector.
Despite their acknowledgement that patent rights can provide an
incentive for drug research and development, the preceding trends
are leading East Asian countries to adopt a variety of ameliorative
tactics vis-à-vis their pharmaceutical burdens. These tactics
include price controls, cuts in drug reimbursement rates, and
parallel importation. Moreover, East Asian and other countries
are lobbying for the ability to use confidential drug test data,
for the transfer of technology to support the development of domestic
pharmaceuticals, and for more time to comply with TRIPS.
To the pharmaceutical industrys dismay, these pressures
are also leading East Asian countries (as well as other developing
countries) to use compulsory licensing in a liberal fashion, to
authorize compulsory licensing for production abroad, and to move
slowly in establishing the enforcement systems that TRIPS requires.
Although the specific justifications advanced by governments for
such measures are often questionable, their general right to authorize
compulsory licensing for domestic production is not. Article 31
of TRIPS specifically allows compulsory licensing for government
use, or in a national emergency or circumstance
of extreme urgency.
Looking ahead, the East Asian environment for IPR will worsen
the greater the benefit that each country derives from exploiting
drug patents and the lower the cost that it will incur from exploiting
them. Benefit is a function of each countrys health care
requirements, its drug manufacturing capabilities, its economic
development needs, and its financial situation. Cost is a function
of each countrys bargaining power versus patent holders.
Factors increasing a countrys bargaining power include abundant
financial and political resources, allies with financial and political
clout, and a friendly normative environment. Factors increasing
the patent holders position include financial and political
might and powerful allies. Its power also is enhanced to the extent
that an adversary country has its own medical products whose IPR
it needs to protect.
Historically, the pharmaceutical industry has dealt with threats
to its IPR by attempting to exercise power. This is changing,
however, as shown by the industrys creation of various drug
subsidy programs such as the Together-Rx prescription savings
program and its contributions to various global disease initiatives.
Of course, pharmaceutical companies have not given up entirely
on using their muscle. The industry, however, must be careful
about emphasizing a realpolitik strategy because it can backfire
in the court of public opinion. Moreover, pressure against developing
countries has led them to undertake a counteroffensive in the
WTO regarding the proper interpretation of TRIPS provisions.
In the short-run, pharmaceuticals should adopt a three-pronged
strategy, which reduces the benefits that countries derive from
infringing upon patents and increases the costs of such infringements.
First, they should seek to partner not only with global health
organizations, but also multilateral and bilateral development
agencies. Such partnerships will leverage their charitable activities
and deal directly with some of the root causes of the global health
care crisis. Second, they should undertake public relations initiatives
that reach wider audiences. Third, they should support developing
country efforts to nurture industries using traditional medicines
and indigenous biological endowments. In the long run, it is to
the advantage of the pharmaceutical industry to assist global
efforts to facilitate economic development. This is due to the
fact that development can reduce the incentives for governments
to break drug patents and can create a more hostile environment
for patent violators.
Although the pharmaceutical industry always will be under a modicum
of pressure given government budgetary pressures, rising health
care burdens, and economic development objectives, more effective
strategies can help to prevent the current situation from degenerating
into an unending bad TRIP(s).
A. Kabak, C.