The Indian Supreme Court’s refusal to uphold the patent on Gleevec, the blockbuster cancer drug developed by the Swiss pharmaceutical giant Novartis, is good news for many of those in India suffering from cancer. If other developing countries follow India’s example, it will be good news elsewhere, too: More money could be devoted to other neefighting AIDS, providing education or making investments that enable growth and poverty reduction.
However, the Indian decision also means less money for the big multinational pharmaceutical companies. Not surprisingly, this has led to an overwrought response from them and their lobbyists: The ruling, they allege, destroys the incentive to innovate, and thus will deal a serious blow to public health globally.
These claims are wildly overstated. In both economic and social-policy terms, the Indian court’s decision makes good sense. Moreover, it is only a localized effort at rebalancing a global intellectual-property (IP) regime that is tilted heavily toward pharmaceutical interests at the expense of social welfare.
Indeed, there is a growing consensus among economists that the current IP regime actually stifles innovation.
The impact of strong IP protection on social welfare has long been considered ambiguous. The promise of monopoly rights can spur innovation (though the most important discoveries, like that of DNA, typically occur within universities and government-sponsored research labs, and depend on other incentives). However, there often are serious costs as well: higher prices for consumers, the dampening effect on further innovation of reducing access to knowledge, and, in the case of life-saving drugs, death for all who are unable to afford the innovation that could have saved them.
The weight given to each of these factors depends on circumstances and priorities, and should vary by country and time. Advanced industrialized countries in earlier stages of their development benefited from faster economic growth and greater social welfare by explicitly adopting weaker IP protection than is demanded of developing countries today. Even in the US, there is growing concern that so-called hold-up patents and me-too patents — and the sheer thicket of patents, in which any innovation is likely to become entangled in someone else’s IP claims — are diverting scarce research resources away from their most productive uses.
India represents only about 1 percent to 2 percent of the global pharmaceutical market. However, it has long been a flashpoint in battles over expansion of pharmaceutical companies’ global IP rights, owing to its dynamic generics industry and its willingness to challenge patent provisions both domestically and in foreign jurisdictions.
The revocation of patent protection for medicines in 1972 greatly expanded access to essential medicines, and led to the growth of a globally competitive domestic industry that is often called the “pharmacy of the developing world.”
For example, production of anti-retroviral drugs by Indian generic manufacturers such as Cipla has reduced the cost of life-saving AIDS treatment in sub-Saharan Africa to about 1 percent of the cost a decade ago.
Much of this globally valuable capacity was built under a regime of weak — in fact, non-existent — protection for pharmaceutical patents. However, India is now bound by the WTO’s agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), and has revised its patent laws accordingly, causing widespread anxiety in the developing world about the implications for global provision of affordable medicines.