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Jean Lanjouw

A Patent Policy Proposal
for Global Diseases

We are in the midst of a dramatic extension of the global reach of the patent system. Until
recently, in an effort to keep their prices low, many developing countries did not grant patents
on new pharmaceutical products. Heute, Jedoch, most countries have extended their patent
laws to include pharmaceutical innovations,and in order to fulfill World Trade Organization
membership requirements, the rest will soon follow.

Public concern over the price of HIV/AIDS drugs in Africa has focused attention on this
new global system and generated a debate between those who support the establishment of
strong patent laws to protect pharmaceuticals in developing countries, and those who would
weaken them. The choice does not, Jedoch, have to be limited to strong versus weak. Der
worldwide markets for drugs to treat cancer and malaria are very different and the global
patent system would be improved by being tailored to these different markets.

This policy brief outlines a proposal that would lower the price of pharmaceuticals that
treat important global diseases in developing countries, while at the same time allowing patent
protection to increase where it is most likely to lead to the creation of new products. Der Profi-
posal requires no changes in international treaties—only minor changes to U.S. patent law—
and would cost very little to implement.

Jean Olson Lanjouw was an Associate Professor, Dept. of Agriculture and Resource Economics,
U.C. Berkeley. She held fellowships at the Brookings Institution and the Center for Global
Development, in Washington D.C., and at the National Bureau of Economic Research in
Cambridge, Massachusetts. Prior to joining U.C. Berkeley in 2002, she was a faculty member in
the economics department at Yale University.

This paper previously appeared as Brookings Policy Brief no. 84, Juni 2001. We thank the
Brookings Institution for granting permission to reprint. Lanjouw’s work to advance the ideas pre-
sented in this paper is described further in the editors’ introduction to this issue.

Jean Lanjouw died on November 1, 2005, in Washington, Gleichstrom. The inaugural issue of Innovations
journal is dedicated to her memory.

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A Patent Policy Proposal for Global Diseases

WHEN IS THE EXTENSION OF PATENT RIGHTS IMPORTANT

The crux of the debate over the extension of rights in poor countries is the unavoidable trade-
off between new products and lower prices that is part of supporting research and develop-
ment through a patent system. Weaker rights allow generic competition to develop, which low-
ers the price of existing products. Clearly this benefits current disease sufferers. Auf dem anderen
Hand, more extensive rights give firms greater reason to invest in the creation of frontier prod-
Produkte. Jedoch, the extension of rights to new countries varies in importance. It encourages
new research investment when (ich) the profits available before the addition of the new countries
are very low, Und (ii) the countries introducing patent protection represent a sizeable market.
New rights will not have much effect when they add only a small increment to an already sub-
stantial world market.

TWO TYPES OF DRUG MARKETS: GLOBAL DISEASES, SPECIFIC DISEASES

From this perspective, the crucial observation is that there are two very different and identifi-
able types of drug markets. Some diseases, such as malaria, are specific to developing countries.
At least twenty diseases have more than 99 percent of their disease burden in low-income
Länder. Without patent protection in the developing world there has been little prospect of
profit from therapies for these diseases and therefore almost no private investment. Neu
patent laws in the developing world may encourage greater research on diseases of this type.

Global diseases are those like cancer, which are widespread in both rich and poor coun-
versucht. These diseases have received less attention in development debates over intellectual prop-
erty because they are not specific to developing countries. Jedoch, this does not mean that
they are not important causes of disability and mortality among the poor. According to a 1999
World Health Organization report, cancer and heart disease together account for 15 percent of
all ‘disability adjusted life years’ lost in the low and middle income countries (a statistic that
combines quality of life and mortality). This is four times higher than the disease burden due
to malaria. ‘Rich country’ diseases also cut across the income spectrum. A recent survey in
India found that cancer and heart disease were the cause of 12 percent of all adult deaths in
the bottom quintile of the wealth distribution. A significant share of developing country drug
expenditure goes to global diseases, which reflects the high incidences of these diseases.
Spending on cardiovascular drugs alone was 8 percent of total drug expenditure in Mexico,
Und 13 percent of total expenditure for Mexico, Argentina, and Brazil in 2000.

Gleichzeitig, given their limited resources, spending by poor countries represents a
remarkably small part of worldwide expenditure on global diseases. Zum Beispiel, poor coun-
tries with 46 percent of the world’s population—including China, Indien, Indonesien, Und
Pakistan—collectively are estimated to account for less than 2 percent of spending on drugs
for cardiovascular disease worldwide.

The disparity in spending between rich and poor countries is important. It means that the
profit derived from having a patent-based monopoly over sales in poor countries makes a very
limited contribution to the worldwide profits realized by pharmaceutical companies and
therefore to their incentives to invest in research. Sizable incentives to invest in cancer prod-
ucts already exist, due to demand in rich countries. Gleichzeitig, monopolies that lead to

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Jean Lanjouw

even small drug price increases can greatly reduce the number of poor people able to purchase
patented drugs and the income available for other purposes among those who do.

THE PROPOSAL: LIMITED PATENT USE

For global diseases, the profit
derived from having a patent-
based monopoly in poor
countries makes a very
limited contribution to the
worldwide profits realized by
pharmaceutical companies.

My proposal is novel in that it tailors protec-
tion to fit the vastly different worldwide mar-
kets for drugs aimed at different types of dis-
erleichtert. It sets up a mechanism that would only
affect inventors whose patents relate to a
global disease. Those patentees would effec-
tively be required to choose to make use of
their patent protection either in rich coun-
tries or in poor countries, but not both.
Because the profit potential in rich countries
is much greater, owners of patents related to
global diseases will naturally choose to relin-
quish protection in poor countries. Daher, Die
policy would lower prices in poor countries
where greater incentives are not needed, solch
as in the treatment of diseases like cancer. Gleichzeitig, it would keep intact patent-based
incentives for diseases such as malaria that are specific to poor countries, where there is a clear
argument to be made that new incentives are warranted.

How Does It Work?

Patents are national in coverage. Obtaining protection in France or Brazil, Zum Beispiel,
requires an application for a French or Brazilian patent. When an innovation is made in the
U.S., the inventor is required to apply first for a U.S. patent. To make subsequent foreign appli-
Kationen, the inventor must obtain a “foreign filing license” from the U.S. Patent and Trademark
Office (USPTO). This rule is in place to protect military secrets, and variants are found in
patent regulations in other countries. The policy proposed here is simply to require something
like the following declaration in the request for a foreign filing license:

ICH, the undersigned, request a license to make foreign filings for patent no. X, mit
the understanding that this permission will not be used to restrict the sale or man-
ufacture of drugs for ‘cancer’ in ‘India’.

In Wirklichkeit, rather than ‘cancer’ and ‘India,’ the declaration would specify one or more groups of
poor countries and corresponding groups of diseases.

To understand how the proposal would work, suppose there were three hypothetical phar-
maceutical companies: PharmaUS, a research-based multinational, CiplaIndia, an India-based
firm, and USGeneric, a generics producer. PharmaUS has a cancer drug protected by a single
patent in the US and a corresponding patent in India, and the company sells the product in
beide Länder. Then CiplaIndia (or USGeneric) enters the Indian market with its own version
of the same product. PharmaUS can choose to do one of three things:

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A Patent Policy Proposal for Global Diseases

(cid:129) compete
(cid:129) withdraw from the Indian market
(cid:129) sue CiplaIndia for patent infringement.
Under my proposal, nothing prevents PharmaUS from choosing to protect its rights in

The policy would lower prices
in poor countries where greater
incentives are not needed, solch
as in the treatment of diseases
like cancer. It would keep intact
patent-based incentives for
diseases such as malaria that
are specific to poor countries.

Indien. But if it does, then either CiplaIndia
oder, more likely, USGeneric, can go to
USPTO and claim that, by attempting to
stop CiplaIndia’s sales of the cancer drug in
Indien, PharmaUS has rendered its US
patent unenforceable. This is so because, von
taking this action, PharmaU.S. has falsified
the rich-or-poor declaration it made to
U.S.PTO to obtain the foreign filing
Lizenz. Patentees have a duty to deal with
the patent office in good faith, and failure
in this regard is clear grounds for rendering
a patent unenforceable. If the drug innova-
tion had been for a malaria product, Wie-
immer, a suit would give no grounds for ren-
dering the U.S. patent unenforceable. Der
declaration made by PharmaUS to obtain
its foreign filing license says nothing about
malaria. So what is the likely result? PharmaUS will not sue in India for infringement of can-
cer product patents because to do so would jeopardize its US patents, und die USA. is a much
bigger market for cancer drugs than India. Knowing this, CiplaIndia will enter the market and
prices in India will fall. Jedoch, PharmaUS will sue in India for infringements of malaria
product patents. Knowing this, CiplaIndia will avoid the suit by not entering the market—
retaining the incentive for pharmaceutical companies to invest in malaria products.

Advantages of the Proposal

The proposed policy has several key advantages:
(cid:129) It does not contravene existing treaties.
(cid:129) It can be implemented unilaterally, although it would be most effective and acceptable to

all parties if the industrialized countries were to coordinate and adopt similar policies.

(cid:129) It does not require any changes whatsoever to less developed countries’ (LDC) new patent
systems or the development of their enforcement procedures. The mechanism relies on the
quality and reliability of institutions in the countries implementing the policy and not on the
institutions in developing countries.

(cid:129) The policy would be fully controlled by those governments implementing the policy,
which would protect it from domestic political pressures in less developed countries. This is in
contrast to compulsory licensing by LDC governments, where pressure by local interests to
expand coverage to all diseases would be difficult for the domestic government to resist.

(cid:129) The mechanism does not require information that is not available. Most important, Es
does not require that patents be examined and identified as being for a particular disease. Der

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Jean Lanjouw

policy mechanism induces firms to volunteer the link between patents and products when the
information becomes known and only as necessary (d.h., in the event of a lawsuit).

(cid:129) Firms are free from outside control or monitoring. Eher, incentives are aligned to make
use of the better information available to firms about the relative size of global markets for dif-
ferent products.

(cid:129) Because it uses existing institutions and procedures, is largely self-monitoring, and does
not require the collection of information for each patent, the policy would cost very little to
administer and enforce. It need not be seen as an alternative to other policies within the con-
straints of fixed health or development budgets.

Choosing Countries, Measuring Profit Potential

Under the policy, die USA. Patent and Trademark Office would have a transparent and objec-
tive procedure to determine the composition of the groups of countries and diseases includ-
Hrsg, and would update the license declaration periodically as markets evolve and countries
develop. For a specified group of poor countries, the procedure would identify a group of truly
‘global’ diseases—those for which the percentage of the total potential profit coming from the
group of poor country markets represents less than some threshold share. The proposed pol-
icy would be flexible regarding whether to restrict coverage to just the very poorest countries
and include a broad set of diseases, or to target a wider group of countries and define the dis-
eases more narrowly. A practical approach might be a combination: to specify several sets of
increasingly poor countries and then determine appropriate diseases to include for each.

In order to implement the procedure, USPTO would need a measure of ‘potential profits,'
which could be estimated from pharmaceutical sales data that are already collected regularly.
The patent office also would need to know the market share threshold for drug sales in poor
Länder. A small, 2 percent share, Zum Beispiel, would cause a disease to fall under the policy
if expected profits from sales of treatment drugs in poor countries represented less than 2 pro-
cent of total global profits. Increasing the threshold share would allow the policy to cover a
larger number of diseases and confer greater benefits on the poor, but would begin to more
significantly dampen research incentives.

Which Patents Protect a Product?

The proposed mechanism is triggered by a lawsuit. One important reason for this feature is
that when an infringement suit is filed to prevent the sale of a product it is on the basis of a set
of patents. In order to be successful in prosecuting its suit, the patent owning firm has an
incentive to correctly announce which patents it believes best protect the product in question.
Daher, the link between products and patents is made automatically, which resolves the other-
wise intractable problem of how to identify the use of particular patents.

Which Products are for Which Diseases?

The patent office also needs a clear procedure for determining when a particular Indian prod-
uct corresponds to a particular disease. In my hypothetical example, CiplaIndia or USGeneric
will always have an incentive to claim that a disputed product is for cancer so as to render
unenforceable the U.S. patent of PharmaUS, while the latter will claim all products are for

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A Patent Policy Proposal for Global Diseases

malaria.

All products marketed in the U.S. are approved by the Food and Drug Administration
(FDA) for specific indications. daher, the problem could be resolved as follows: to render
unenforceable PharmaUS’s patent, CiplaIndia, (or USGeneric) must take the Indian product
and apply to the U.S. FDA for an abbreviated new drug approval. In doing this, CiplaIndia
would claim the Indian product’s equivalence to one already marketed in the U.S. with a can-
cer indication (or other global disease). The procedure would be precisely the same as that
already followed for any generic drug on the expiration of a patent on the original. If the FDA
issues tentative approval, or a preliminary letter of bioequivalency, the case that the Indian
product is for cancer would be made.

Preventing Arbitrage from Poor to
Rich Countries—Advantages for Firms

Given the climate of discontent
with the current patent regime,
and efforts to weaken it, manche
move away from the strongest
level of protection will probably
be necessary.

Firms have a legitimate concern about
‘low cost sources of supply’ and seepage
across borders into their major markets.
On the face of it, this proposal does not
seem helpful in this regard since its inten-
tion is precisely to encourage low drug
Preise, for some products, in poor coun-
versucht. Pharmaceutical firms may well
object to it on these grounds. Jedoch,
there must be ‘low cost sources’ if there is
to be any hope of ensuring the adequate
availability of drugs to poorer people.
The rich world will not supply levels of aid to developing countries that would make purchas-
es at U.S. prices feasible. Daher, the only appropriate response is to devise means to enable the
separation of markets, not to raise prices throughout the world.

A first step might be legislative confirmation that the U.S. does not have an international
exhaustion of rights doctrine, which would state clearly that holders of U.S. patents have the
right to prevent products from coming into the U.S. from elsewhere, even if the products were
originally sold by the patentholders’ own licensees or subsidiaries.

Enforcement is the bigger issue, Jedoch. Drugs are small and lightweight, which makes it
difficult to prevent products sold cheaply in a country where consumers are poor from flow-
ing back into markets where people will readily pay more for them. This is certain to be a far
greater problem in an era of Internet sales, with hundreds of thousands of pills crossing inter-
national borders in small, inconspicuous packages. Patentees will be hard pressed to identify
such individual infringements and reluctant to enforce a separation of markets by suing their
customers. Internet sales also pose a safety threat. How is one to know that a web-based phar-
macy is actually in North Carolina and not a counterfeit operation based overseas?

The participation of poor countries in efforts to prevent illegal movements of drugs across
borders will be key. The proposal described here is specifically designed to benefit developing
countries in a way that would be apparent to their populations. It would seem reasonable to
expect that leaders of these countries, im Gegenzug, would make efforts to ensure that drugs priced

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Jean Lanjouw

for their consumers do not leave their countries. This could be accomplished in a variety of
ways. Zum Beispiel, health authorities in all countries already specify features of drug appear-
ance and packaging. One could ask poor countries that are candidates for inclusion under the
policy to require that pharmaceuticals sold in their countries have certain identifiable charac-
teristics.

The proposal has other advantages. It provides an alternative to untargeted policies now
being suggested, such as across-the-board compulsory licensing of pharmaceutical patents or
price controls. Given the climate of discontent with the current patent regime, and efforts to
weaken it, some move away from the strongest level of protection will probably be necessary.
The simple policy proposed here—which requires only a modest change in the patent laws of
rich countries—would be a controlled move designed to preserve incentives where they are
needed most. In der Zwischenzeit, poor countries would continue to develop their patent systems fully
and no questions would be raised about their compliance with World Trade Organization
membership requirements. This would help shift international patent issues out of the realm
of continuous dispute and put discussions on a more cooperative footing.

CONCLUSION

This brief has outlined a policy for lowering the price of pharmaceuticals in developing coun-
tries for important diseases while at the same time maintaining the research and development
incentives of research-based firms. The policy requires no changes in international treaties,
only minor changes to our own legal code, and would cost little to implement.

Wir laden Leser zu Kommentaren ein. Please send an email to .

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