Executive Summary

Patents are exclusive property rights in intangible creations of the human mind. They exist only as provided in the laws of sovereign states, and can be enforced only to the extent that application has been made and a patent granted covering the territory of an individual state. Patent rights are limited in duration, with the global standard being 20 years from the date of application. The new product, article of manufacture or process described in the patent application must be something that has never been previously disclosed anywhere in the world and something that would not be obvious to a person ordinarily skilled in the field involved. Determinations of whether these requirements have been met are made by comparing the claims of the patent applicant against the body of published literature in the field, including previously issued patents. This process is called examination, and it assures that no one is able to claim patent rights on anything that already is existence.

Patents work differently indifferent industries. In the electronic industry patents are often shared among competitors through pooling or cross licensing. This sharing is necessary because a given product often contains many patented technologies. However, in the pharmaceutical, chemical and biotechnology industries the patent normally equals the product, and protects the extensive investment in research and clinical testing required before placing it on the market. Patent protection for chemical and pharmaceutical products is especially important compared with other industries because the actual manufacturing process is often easy to replicate and can be copied with a fraction of the investment of that required for the research and clinical testing.

The extensive cost required to produce a new pharmaceutical product has meant that private sector investment in pharmaceutical innovation has been disproportionately directed to products meeting the needs of patients in developed countries, particularly in the United States, which combines strong patent protection with a market free of price controls.

Until the TRIPS Agreement in 1994 many developing countries provided no patent protection for pharmaceutical products. And, while countries that have joined the WTO have obligated themselves to provide such protection, least developed countries are not required to meet this obligation until 2016. The continuing lack of patent protection for pharmaceutical products makes it very difficult to establish research-based industries in most developing countries. Most medical research in these countries takes place in the public sector. The lack of any means of patenting these inventions and the related lack of experience in licensing them to the private sector, suppresses the development of commercial enterprises focused on alleviating the disease burdens common to developing countries.

The controversy over availability of patented therapies for the treatment of HIV disease has resulted renewed interest in the compulsory licensing of pharmaceutical products. After two years of discussion, the WTO Council recently affirmed that the TRIPS Agreement permits such compulsory licenses in health emergencies, even in cases where the compulsory license is for an imported product. However, to date, no compulsory licenses actually have been issued, even though the threat of compulsory licensing has been used as a means of seeking lower prices.

One danger in compulsory licensing is that it will discourage further the commercial R & D necessary to new drugs to fight global epidemics. Another danger is that compulsory licensing can be used to seek price levels below what a given national market is capable of supporting, further concentrating the burden of financing pharmaceutical innovation on developed country consumers and discouraging development of drugs targeted at the disease burdens of countries using compulsory licenses.

There are promising developments in countries such as India and Brazil that are beginning to use patents to develop commercial pharmaceutical industries that produce products directed at local diseases and available at price that patients in those countries can afford. Foundations and nonprofit organizations such as the Bill and Melinda Gates Foundation and OneWorld Health, Inc. are supporting such efforts. These efforts show that developing countries have the capacity to build research-intensive pharmaceutical industries capable of operating profitably in the conditions of the local market. However, for such local industries to take root and grow, effective patent protection must be made available, the commercialization of publicly funded research must be encouraged, and compulsory licensing must be kept to a minimum. Wealthy countries can assist this process by subsidizing local markets for the purchase of drugs through the Global Fund, and by direct programs of assistance such as that recently proposed by President Bush. Consumers in all countries can share the burden of drug development equitably by paying for medicine at a price level consistent with their means, rather than attempting to shift the costs of drug development to others.

Read the rest of this report on the pharma patent system.