Obligation to contribute to R&D costs Use of pharmaceutical inventions without authorization of patent owners James Love. CPTech 16 April 2004 Twelfth Annual Conference International Intellectual Property Law And Policy Fordham University School of Law:

Parallel Trade Case

New York Times, April 14, 2004, pages A1, c14, Gardiner Harris, “Price of AIDS Drugs Intensifies the Debate on Imports.”

Require parallel trader to contribute to R&D fund 15 percent of the different between purchase and sale price

Bayh-Dole Case

Ritonavir Drug invented by Abbott Laboratories on a grant from the NIH. Initially priced about about twice as high in USA other high income countries. In December 2004, Abbott increased price fivefold. Price increase only applies in USA, and only when purchasing non-Abbott protease inhibitors Price of standalone ritonavir now 10 times more expensive in USA than in other high income countries

Obligation of generic firms to fund R&D Payment of 5 percent royalty to patent owner, based upon generic price. Requirement to pay $.004 per milligram into fund for AIDS R&D. Different R&D fund management approaches considered. Require transparency, reasonable pricing reach-through clauses, and other public interest conditions on R&D fund.

Royalty on compulsory license for AIDS drugs in developing countries

Two different approaches for royalties Traditional approach Percentage of price of generic product Royalty corresponds with cost of manufacturing. Royalty does NOT correspond with medical value of product or ability to pay. Alternative approach Base for royalty is medical value of invention Payment adjusted for capacity to pay

Technology transfer approach

Obligations on generic firms: Middle Income Countries Require generic producers to contribute 13 percent (of value/ income adjusted base) to fund R&D. 4 percent is royalty to patent owner 9 percent into transparent R&D fund, spent locally IPR rights from R&D fund divided between patent owners, generic producers and performers of R&D Bayh-Dole type social clauses

Obligations on generic firms: Low Income Countries Require generic producers to contribute to fund R&D. Money placed into transparent R&D fund, spent locally IPR rights from R&D fund divided between patent owners, generic producers and performers of R&D Bayh-Dole type social clauses

Separate markets for R&D and products

US implementation Innovation fund is equal to .5 percent of GDP Every new drug becomes a generic product Use of product generates claims (by innovators) from the innovation fund. Compensation based upon incremental benefits of new products Products compete against each other. ADR model

Further reading January 29, 2004. Essential Inventions, Inc., Petition to use authority under Bayh-Dole Act to promote access to ritonavir, supported by National Institute of Allergy and Infectious Diseases contract No. Al27220. James Love, “Evidence Regarding Research and Development Investments in Innovative and Non-Innovative Medicines,” September 22, 2003. Burton A Weisbrod, “Solving the drug dilemma,” Washington Post. Aug 22, 2003: Tim Hubbard and James Love, 2004. A New Trade Framework for Global Healthcare R&D. PLoS Biology 2 (2):147-150