[Ip-health] Stiglitiz et al piece on Obama pressuring India

Michael H Davis m.davis at csuohio.edu
Wed Feb 11 06:21:55 PST 2015

What Stiglitz doesn't mention is that India could take full advantage of TRIPS by excepting pharmaceutical methods completely from patent protection.

My new article explains this in detail.

Michael H. Davis

Prof. Mickey Davis
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-------- Original message --------
From: Dean Baker <Dean.Baker1 at verizon.net>
Date:02/11/2015 9:06 AM (GMT-05:00)
To: ip-health <ip-health at lists.keionline.org>
Subject: [Ip-health] Stiglitiz et al piece on Obama pressuring India


  Obama Versus Obamacare







NEW YORK – The US Patient Protection and Affordable Care Act
President Barack Obama’s signature 2010 health-care reform, has
succeeded in extending insurance coverage to millions of Americans who
would not otherwise have it. And, contrary to critics’ warnings, it has
not pushed up health-care costs; in fact, there is some hope that the
cost curve may finally be bending downward.

But whether “Obamacare” succeeds in curbing excessively high health-care
costs is not assured. That will depend on the Obama administration’s
other policies, particularly in an area that might seem unrelated: the
United States’ ongoing discussions with India over intellectual
property. And here, Obama appears determined to undermine his own
signature reform, owing to pressure from the powerful US pharmaceutical

Pharmaceutical costs account for an increasingly large component of US
health-care spending. Indeed, outlays for prescription drugs, as a share
of GDP, have nearly tripled in just 20 years. Lowering health-care costs
thus requires greater competition in the pharmaceutical industry – and
that means allowing the manufacture and distribution of generic drugs.
Instead, the Obama administration is seeking a trade deal with India
that would weaken competition from generics, thereby making lifesaving
drugs unaffordable for billions of people – in India and elsewhere. This
is not an unintended consequence of an otherwise well-intentioned
policy; it is the explicit goal of US trade policy.

Major multinational pharmaceutical companies have long been working to
block competition from generics. But the multilateral approach, using
the World Trade Organization, has proved less effective than they hoped,
so now they are attempting to achieve this goal through bilateral and
regional agreements. The latest negotiations with India – the leading
source of generic drugs for developing countries – are a key part of
this strategy.

In the 1970s, India abolished pharmaceutical patents, creating an
advanced and efficient generics industry capable of providing affordable
medicines to people throughout the developing world. That changed in
2005, when the WTO’s Agreement on Trade-Related Aspects of Intellectual
Property Rights
<http://www.wto.org/english/docs_e/legal_e/27-trips_01_e.htm> (TRIPS)
forced India to allow drug patents.

But, in the view of America’s pharmaceutical industry, TRIPS did not go
far enough. The Indian government’s desire to enhance its trade
relations with the US thus provides the industry an ideal opportunity to
pick up where TRIPS left off, by compelling India to make patents easier
to obtain and to reduce the availability of low-cost generics.

So far, the plan seems to be working. Last fall, during his visit to the
US, Indian Prime Minister Narendra Modi agreed to establish a working
group to reevaluate the country’s patent policy. The US participants in
the group will be led by the Office of the US Trade Representative,
which serves the pharmaceutical companies’ interests, rather than, say,
the National Academy of Sciences, the National Science Foundation, or
the National Institutes of Health.

How might India tighten its patent system? For starters, it could lower
its standards for what is considered a “novel” product, and thus one
that merits intellectual-property protection. As it stands, India sets
the bar quite high, resulting in its refusal to grant patents for new
combinations of existing drugs. India could also stop issuing compulsory
licenses to allow other companies to produce a patent holder’s drug, in
exchange for a fee – an arrangement permitted under TRIPS, but anathema
to the drug industry.

India’s current policies allow drugs to be sold at a small fraction of
the monopoly prices commanded by patent holders. For example, the
Hepatitis-C drug Sovaldi is sold for $84,000 per treatment in the US;
Indian manufacturers are able to sell the generic version /profitably/
for less than $1,000 per treatment. The generic price is still a huge
expense for people living on a few dollars a day; but, unlike the US
price, it is manageable for many governments and aid organizations.

This is hardly an isolated example. Low-cost generics have made it
possible to treat tens of millions of HIV/AIDS patients in the
developing world.

In fact, the threat of competition from Indian generics is partly
responsible for major pharmaceutical companies’ decision to make some of
their drugs available to the world’s poor at low prices. If the US
compels India to tighten its patent rules substantially, so that they
resemble US rules more closely, this outcome could be jeopardized.

Of course, if America’s strong patent regime were, as its proponents
claim, the best way to foster innovation in the pharmaceutical industry,
the Obama administration’s policy toward India could perhaps be
justified. But that is not the case.

Because patents are essentially government-granted monopolies, they lead
to the same inefficiencies and rent-seeking behavior as any other such
market distortion. A patent that raises the price of a drug a
hundred-fold has the same effect on the market as a 10,000% tariff. In
such cases, drug companies gain a powerful incentive to mislead doctors
and the public about their products’ safety and effectiveness, and even
to promote their drugs for inappropriate uses, often using innovative
to persuade doctors to prescribe them.

Furthermore, patent-supported research encourages secrecy, as companies
disclose only the information needed to acquire patents. Yet openness is
crucial for efficient scientific progress. Many economists, including
the authors
have suggested
a variety of alternatives <http://www.ncbi.nlm.nih.gov/pubmed/19088104>
to patent-supported R&D and testing that avoid these problems.

If the Obama administration succeeds in forcing India to strengthen its
patent laws, the change would harm not only India and other developing
countries; it would also enshrine a grossly corrupt and inefficient
patent system in the US, in which companies increase their profits by
driving out the competition – both at home and abroad. After all,
generic drugs from India often provide the lowest-cost option in the US
market once patent terms have expired.

Obama was right to push for a health-care reform that would increase the
sector’s efficiency and accessibility. In its dealings with India, the
Obama administration is pursuing a policy that flouts these goals, with
consequences not just for India and the US, but for the entire world.

Dean Baker (baker at cepr.net)
Center for Economic and Policy Research 1611 Connecticut Ave., NW
Washington, DC 20009
202-293-5380 (ext 114)
202-332-5218 (H)

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