There is an almost unbounded interest in the development of new health care technologies that will prolong life or reduce suffering. The pace and direction of innovation will depend in part on the resources mobilized for research and development (R&D).
National governments have a variety of policy instruments to lift and shape R&D expenditures. Public sector grants and contracts, tax incentives, government imposed research mandates, philanthropic efforts, and an expanding universe of intellectual property protection schemes are all important in raising levels of R&D investments. Each instrument has its own advantages and shortcomings. Most countries undertake a mixed strategy of public and private funding.
In recent years the framework for funding such R&D has become the subject of a multilateral, regional and bilateral trade negotiations. The most important discussions have concerned intellectual property rights, the systems of private rights in data and inventions that protect investment and create incentives to develop new commercially important products. The World Trade Organization (WTO) Agreement on the Trade Related Aspects of Intellectual Property Rights (TRIPS) is the best known such agreement, but increasingly important are other multilateral agreements administered by the World Intellectual Property Organization (WIPO), and hundreds of bilateral and regional agreements on intellectual property norms and enforcement mechanisms, particularly those between the United States or Europe and smaller economies.
It is well known that patents and other forms of intellectual property protection have only limited efficacy in stimulating innovation in the health care field. Basic research, development of high-risk projects, and research on vaccines or neglected diseases are some well-known examples of areas where private market incentives are insufficient to secure adequate investment. There is also considerable evidence that systems of intellectual property protection are fraught with high costs in terms of administration and dispute resolution, and a number of well-known inefficiencies, such as anticompetitive barriers to follow-on innovators. Recently there is considerable interest in new collaborative open source development models, which in some cases work best with little or no intellectual property protection.
Intellectual property regimes that rely upon exclusive rights often lead to unacceptable barriers to access to treatments. This is a problem in both rich and poor countries. For example, while developing countries struggle to pay for the least expensive HAART regimes to treat AIDS, there are also increasingly severe problems managing limited budgets for AIDS treatments in the United States and other wealthy countries, particularly with the introduction of products such as T-20, which are so expensive they threaten to exhaust limited public funding for indigent AIDS patients. Canada, France, Sweden and the UK are among the countries that see high fees for breast cancer screening patents as a barrier to deployment of these new technologies. The impact of high prices in the United States is a growing crisis for access among the uninsured, and in the United States, Europe and other OECD countries there are substantial controversies over which treatments will be reimbursed under public or private insurance schemes -- a rationing of the most expensive new medicines.
Historically, governments have recognized these and other limitations, and complement the intellectual property approach with a variety of direct and indirect public subsidies to raise investment levels in health care R&D. The United States, for example, will spend more than $27 billion this year at the National Institutes of Health (NIH), and more through a variety of other agency efforts, and also subsidize R&D though income tax credits. Every OECD country and many developing countries have some public sector grant, tax or other subsidy programs to support health care R&D. In some areas, the US government simply mandates that private firms undertake R&D as a condition of doing business. Other national governments have their own mixed models of supporting R&D. For example, in the UK domestic prices of pharmaceutical drugs depend in part upon firm R&D expenditures, Canada linked NAFTA changes in its patent laws to a negotiated increases in levels of R&D that industry was obligated to undertake, and at the regional level, Brazil has imposed R&D mandates on private sector firms.
Despite the widely recognized importance of non-intellectual property factors in determining the levels of R&D and the rate of innovation in new treatments for disease, there has been little discussion of the trade related aspects of such programs. There are notable exceptions, such as the G-8 discussions regarding funding R&D on drugs for neglected diseases, or the Blair/Clinton statement on the benefits of unencumbered access to human genome sequence. The G-8 discussions involved a handful of wealthy countries that were motivated to raise global levels of R&D on specific diseases, such as malaria or tuberculosis, that primarily afflict the poor, and for which the patent system does not provide sufficient incentives relative to the importance of these diseases from a public health perspective. The Blair/Clinton statement on the Human Genome Project (HGP) sought to address a different global IPR failure. The United States NIH, the UK Welcome Trust, and funding agencies in Japan, France and Germany agreed that donor and public sector funds would be used to sequence the human genome, and to place the results immediately in the public domain, without any IP claims. The no-IPR approach to the HGP was influenced by the growing interest in “open source” development models for software and medicines, that emphasized the benefits of increased access to information, and it also enjoyed substantial support within the pharmaceutical sector, due to concerns that broad gene patents would saddle researchers and firms with high royalties and deter development of new products. The Blair/Clinton statement strongly supported the principle of making raw research data freely available in order to maximize its use, as a way of obtaining the greatest medical benefits for humankind.
There are additionally a number of proposals for global agreements that would increase funding for vaccines, broaden the scientific commons, or address other areas where there is a both a need and an opportunity for global cooperation on the development of public goods. However, none of these initiatives have the same level of multilateral, regional or bilateral attention that is now given to agreements on intellectual property rules.
We propose a new emphasis be placed on the development of formal global frameworks that consider jointly both the IP and the non-IP instruments for funding health care R&D. One fundamental rationale for any global framework is to address the free rider problem. There are global benefits to R&D, but local costs. The efforts to create more uniform IP regimes are efforts to share more broadly the costs of funding R&D, but there is clearly a need to expand the trade framework to address a broader range of funding instruments.
Even for a privatized research model, the IP regime by itself only addresses one aspect of financing R&D. In particular, the regulation of drug prices and the availability of social insurance to pay for medicines are two very important factors in determining the level of incentives for new drug development. Indeed, in recent years, the United States trade policy has placed increased emphasis the issue of drug pricing or the structure of social insurance reimbursement schemes, even though the US does not regulate drug prices or provide social insurance for drug purchases in its domestic market. The United States successfully demanded that Korea impose a seven country reference pricing system for minimum prices on innovative drugs, and the US trade officials have pressed Australia, Canada, France, Germany, New Zealand, Thailand and many other countries to raise prices and extend reimbursement for new medicines. The US efforts to raise prices are bitterly resented by governments and patients, as higher prices inevitably reduce access to new treatments, and they do not recognize other ways that countries might support R&D, such as funding research that enters the public domain, or any number of public private partnerships to advance particular public health goals.
This article is an excerpt from “From TRIPS to RIPS: A better Trade Framework to support Innovation in Medical Technologies” first presented at the "Workshop on Economic Issues Related to Access to HIV/AIDS Care in Developing Countries" at Université de la Méditerraneée, Marseille, France, 27 May 2003.
James Love is director of the Consumer Project on Technology (CPTech) of the Center for Study of Responsive Law. CPTech is active in areas such as intellectual property, telecommunications, privacy and electronic commerce, and conducts projects relating to antitrust enforcement and policy.