Intellectual property reforms will hurt economy

An interesting article by Jasson Urbach, who argues that the South African government’s proposals to reform the intellectual property regime will hinder trade and industry more than encourage it.

From Business Day Live
October 29, 2013

IT HAS taken three years of deliberation for the Department of Trade and Industry to draw up its sweeping proposal of how to reform South Africa’s intellectual property (IP) regime. Unfortunately, the policy proposals will hinder trade and industry more than encourage it.

The Draft National Policy on Intellectual Property has a distinct focus on pharmaceutical products. Its presumption is that patents are a major barrier to access to medicines and, therefore, are a major obstacle to health and development. Nothing could be further from the truth. The problem is not patents, but access to quality healthcare.

South Africa’s leading killers — tuberculosis, influenza, pneumonia and intestinal infectious diseases — can be treated with off-patent medicines at little or no cost, yet patients continue to die from these diseases because of failures throughout the complex continuum of healthcare.

The development of new medicines is crucial to combating disease. The key factor on which their development depends is robust patent protection. Generally, an average medicine costs more than R10bn and takes more than 10 years to bring to market. To justify such risk and expenditure, drug manufacturers depend on a small but predictable "window of opportunity" to capitalise on their innovations before generic versions are produced.

The reduced predictability and availability of IP protection proposed by the department would undermine existing conditions and create uncertainty, discouraging companies from investing in the development of new medicines.

The department proposes "introducing" compulsory licensing, whereby the government can break patents during a public health emergency and allow parallel importation, which is buying cheaper copies of a medicine abroad for use in South Africa. But these measures are already permitted under the Medicines and Related Substances Control Amendment Act and section 56 of the Patents Act.

It was these very provisions that civil society groups targeted in 2000, when they argued before the courts that the IP-rights regime was restricting access to antiretroviral (ARV) medicines used to treat HIV/AIDS in South Africa. The outcome was a compromise, and innovator companies voluntarily agreed to license out production and/or distribution of their ARV drugs. It is likely that this weakening in the guarantee of a return has also contributed to the decline we see today in the number of innovative companies developing new antiretrovirals and investing in South Africa.

The policy also proposes a substantive patent search and examination regime — a fine idea in principle but South Africa has limited financial resources and a chronic shortage of skilled personnel. Any additional layers of bureaucracy would compound the already severe delays in bringing new innovative medicines into the healthcare system and thus discourage investment even further.

The same goes for the proposal to introduce a new pre-grant opposition system. Under existing law, patents can be challenged after they have been granted. Opening them up to multiple challenges during the application process would increase costs and cause more delays in getting new medicines to patients, especially if challenges are frivolous.

Pharmaceutical companies spend a great deal in bringing a drug to market. It is not in their interest if it then cannot be used to make a profit. As an alternative to coercive measures, governments and civil society organisations should consider entering into mutually agreeable collaborations as opposed to one being forced by the other into a sale or to forfeit their property. Pharmaceutical companies are willing to negotiate, for example, to offer a reduction in price if the purchaser agrees to buy a specified volume. This is a normal commercial arrangement when both parties enter into a mutually beneficial agreement.

Counterintuitively, the architects of the proposed policy are using countries such as India and Brazil as their premise. South Africa cannot afford to copy ill-conceived industrial policies that drive IP-intensive industries out of the country.

IP-intensive industries are critical to generate long-term economic growth — and one of the most important, which affects the quality of health and the fitness of a country’s workforce, is the innovative biopharmaceutical sector.

Any amendments to this country’s IP policies should bear this firmly in mind and refrain from proposing short-sighted measures that will have devastating, long-term effects.

Urbach is with the Free Market Foundation.