IP haves and have nots

The question of nullifying or not enforcing patents for foreign drug manufacturers has been a brewing controversy over the last few years. This year’s earlier dust up was between Abbott Labs (of the US) and Thailand, and this month it is Novartis (from Switzerland) and India. There is also the issue of whether these drug companies will be supported by their home governments, or attacked for political purposes.

Having a consistent enforcement of intellectual property was supposed to be solved by having emerging countries like India and China join the WTO, and then enforcement of the TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement that was part of founding the WTO. Still, enforcement of IP rights is up to national governments, legislatures and even local magistrates.

Supporters of the Indian (or Thai or other) actions argue that human health is more important than drug company profits. (Presumably not economists let alone Friedmanites making this argument). Or that rich markets should cross-subsidize poor markets. Ironically, the same activists who argue that developing countries should import the labor and environmental laws of Western countries are the most vocal in trying to keep out the IP laws.

Such pro-LDC analyses tend to downplay the benefits to local pharma companies that will make money from the compulsory licensing (or nullified patent). But then, before TRIPS, it was quite commonplace for countries to ignore foreign IP to help develop their local industry. Legally, countries are going to enforce the IP laws they feel like enforcing. No foreign countries are going to go to war over copyright or patent theft.

However, as Manuel Davis observed 40 years ago, TANSTAAFL (i.e., no free lunches). Ranjit Shahani made exactly this point in an interview Friday. Certainly as head of Novartis India, he’s hardly a dispassionate observer — in fact, he was very passionate:

First of all, the Madras High Court’s decision is not a setback for Novartis. It is a setback for innovation, for public health. …

On the issue of data protection and patents, the “copycat Indian generics” companies and MNCs are split. But there are no differences [between the MNCs and] the Indian research oriented companies, which are putting quite a bit into research themselves. The average spend of the top ten drugmakers stands at 6.6% of revenues and it compares to 18-20% spent by global drug companies. But this 6.6% expenditure will become infructuose if we don’t have a strong patent law, an environment which protects data and IP. So, it is not the Indian companies but the “copycat generic companies” versus the MNCs.

Shahani makes the argument if you want a domestic industry, you need good IP enforcement. Based on political reality, I argued exactly the inverse in 1995 paper on Japanese copyright law: you get good IP enforcement only when you have a strong domestic industry that needs it.

Meanwhile, as the FT reported earlier this week, Novartis has decided to cancel plans to increase R&D spending in India. As others have noted, research in developing countries is normally a prereq for researching health problems specific to such countries, so India takes a double loss.

Speculation is that the €90 million investment will go to China, consistent with earlier comments by Shahani that China has a more favorable IP climate. Foreign MNC money has created the high-tech industries in many counties — with talent and knowledge that spilled over to local startups - so the Novartis decision could hurt the Indian pharma industry more than they gain from cloning one drug.

I think Novartis is being realistic — go where it’s wanted, avoid where it’s not, and let sovereign governments make their own decisions. If Big Pharma gives up on developing country health problems — because they can only sell the drugs in countries that don’t believe in patent monopolies — then perhaps philanthropist Bill Gates can pay for all the missing R&D. It may be harder for Mr. Gates now that (since March) he’s only the world’s 2nd richest man.

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