1. 2218 Rayburn House Office Building
R&D and Access: How does one fund R&D, and achieve efficiency and fairness?
James Love
Presented at the Center for Medical Progress at the Manhattan Institute Conference: Health for Humanity: How Patent Protection Saves Lives. Panel on: Do Patents Prevent Access?
2218 Rayburn House Office Building
Washington, DC
9 December 2002

2. There are many barriers to treatment
Inadequate funding and infrastructure
Lack of education
Insufficient R&D on vaccines, new drugs, tests, delivery mechanisms
High prices

3. High prices are a barrier to access
Lack of competition
Regulatory barriers
Patent and other intellectual property barriers
Inefficient distribution systems
Inefficient procurement policy

4. The changes in prices for Fluconazole in Thailand, following the introduction of competition in 1998, made treatment affordable

5. Brazil's decision to purchase generic HIV drugs transformed the global market
Brazil changed its patent law in 1996, but could still buy generic products that were invented earlier
In the beginning, price savings were modest.
Over time, competition brought more benefits.
Brazil's decision to buy generic drugs was key to its ability to offer universal treatment
Other countries benefited from the Brazil decision to purchase generic products

6. Seven Antiretroviral products are widely Patented in Africa

7. Fixed dose combinations may reduce compliance problems
Patents are often a barrier to development of combination products

8. Alan Holmer, PhRMA. November 20, 2002. Economist Roundtable
".... the industry still supports the Doha Declaration on TRIPS and Public Health, which provides flexibility under the worldwide intellectual property agreement for developing countries to authorize a local manufacturer to copy a patented medicine, even without the patent owner’s consent under certain circumstances."
"The flexibility provided under the Doha Declaration cannot be a solution for a country that lacks pharmaceutical manufacturing capacity, therefore the industry also supports current negotiations of a solution to allow the poorest countries that lack manufacturing capacity to import patented medicines, without the patent owner’s consent, if the country is battered by HIV/AIDS, malaria, tuberculosis or an epidemic of similar gravity or scope and complies with TRIPS."

9. War and Patent Story

10. In 1903, Wilbur and Orville Wright flew the first airplane

11. In 1906 they received US patent No. 821,393 for a flying machine

12. Glenn Curtiss and others improved upon the Wright Plane
In 1909 Curtiss won the James Gordon Bennett Cup at Reims, France.
Backed by Alexander Bell and others, the Curtiss companies obtained additional patents

13. The Wright Brothers sued the Curtiss companies over patent infringement and won
After several years of litigation, in 1913, the Federal Circuit Court of Appeals ordered Curtiss to cease making airplanes
Henry Ford had earlier fought patent litigation that would have destroyed his business, and he helped Curtiss obtain a stay of the verdict.
Even then, patent litigation was very expensive.

14. In 1914, war broke out in Europe.

15. Aircraft became important to national security
It was impossible to manufacture aircraft in the USA without the Wright and Curtiss patents

16. The Navy asked FDR to study the aircraft patent problem
A National Advisory Committee for Aeronautics was created pursuant to an act of Congress “to consider and advise the President and the departments on aeronautical problems and to consider and devise some plan to remedy the existing difficulties” in the manufacture of aircraft.

17. The US government forced the patent owners to create the Manufacturers Aircraft Association Patent Pool
The US government threatened to nationalize the patents.
Royalties on the Wright Brother Patent was reduced from $1,000 to $200, then $100, then $25.

18. Postscript on “war” story
Patents weren't the only problem in fighting a war.
To fight a war you needed funding, infrastructure, training, political will, strategy and lots of other things.
But the government still fixed the patent problem, and did so in a hurry.

19. Farmer story

20. Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions
(52) Whereas, in the field of exploitation of new plant characteristics resulting from genetic engineering,guaranteed access must, on payment of a fee, be granted in the form of a compulsory licence where, in relation to the genus or species concerned, the plant variety represents significant technical progress of considerable economic interest compared to the invention claimed in the patent;
(53) Whereas, in the field of the use of new plant characteristics resulting from new plant varieties in genetic engineering, guaranteed access must, on payment of a fee, be granted in the form of a compulsory licence where the invention represents significant technical progress of considerable economic interest;

21. Chapter III, Compulsory cross-licensing, Article 12
1. Where a breeder cannot acquire or exploit a plant variety right without infringing a prior patent, he may apply for a compulsory licence for non- exclusive use of the invention protected by the patent inasmuch as the licence is necessary for the exploitation of the plant variety to be protected, subject to payment of an appropriate royalty. Member States shall provide that,where such a licence is granted, the holder of the patent will be entitled to a cross-licence on reasonable terms to use the protected variety.
2. Where the holder of a patent concerning a biotechnological invention cannot exploit it without infringing a prior plant variety right, he may apply for a compulsory licence for non-exclusive use of the plant variety protected by that right, subject to payment of an appropriate royalty. Member States shall provide that,where such a licence is granted, the holder of the variety right will be entitled to a cross-licence on reasonable terms to use the protected invention.

22. Postscript on EU Biotechnology Directive
When Europe wanted to address strong IP protections on genetically modified crops, by Monsanto, Dupont and others, they created a simple, mandatory, compulsory licensing program.
Did not signal an end of private property in Europe.

23. How do we fund R&D? Public and Donor Funds Research Mandates
Direct
Indirect
Research Mandates
Intellectual Property Rights
Patents
other exclusive marketing rights

24. TRIPS is limited and problematic framework for addressing global R&D
TRIPS does not address the problem of free riding for the creation of global public goods, such as research that enters the public domain.
Small return for non-profit and educational institutions
There are insufficient private incentives to invest in many important R&D projects.
Exclusive rights on R&D may not be the most efficient mechanism to finance R&D.
Patent can be barriers to conducting research
Private benefits are not equal to social benefits
Excessive investment in drugs with incremental benefits, insufficient investments in many areas.
Strong IPR protection can and does lead to access problems
HIV, Glivec/Leukaemia, Singulair/Asthma

25. Tim Hubbard’s demand curve problem
Cost
+ Marketing
+ R&D
Cost + Profit
Free
People treated

26. Global thinking on new models for IPR

27. Global brainstorming on intellectual property
Open Source/GPL models for software development
Peer to peer technologies and social organization models
UK Commission on Intellectual Property Rights
TACD IP agenda
Royal Society brainstorming on IPR
OECD IPR studies
US National Academies of Science
US Federal Trade Commission / Department of Justice hearings on competition and intellectual property.
MSF Working groups on IPR/DND
IETF working group on IPR
UNDP Human Development Report 2001
Blur/Banff discussions on music
Rockefeller Bellagio meetings / collective management of intellectual property rights
World Business Council for Sustainable Development Project on Intellectual Property Rights
Aventis Radical IPR scenarios
Ransom / Matching Funds model
WIPO access to genetic resources / traditional knowledge and folklore
WHO/Harare proposal

28. What are the benefits of initiating discussions on an R&D treaty?
Shift in responsibility from Trade and Industry ministers to health and finance ministers.
Multilateral framework (compare to G8 or World Bank)
Overcome sense of powerlessness on R&D issues.
Creates a mechanism to offset reduced incentives from weaker IPR regimes.
Stimulate critical thinking
Motivates proactive thinking for policymaking on health care R&D.
Provides explicit framework for technology transfer
Transparency
Research priorities

29. Models for R&D treaties
The Treaty of Europe: R&D as a development tool
Landmine treaty: Humanitarian de-mining technologies
Koyto Climate Treaty: Energy efficient technologies
G8: Negotiations over funding vaccines and drugs for neglected diseases
John Barton: Vaccines, public domain, technology transfer
Discussions on access to scientific journals
Human Genome Project: Clinton/Blair Agreement

30. Aventis Radical IP Scenarios

31. Decentralized decision making on R&D
Treaty requires minimum national contribution to R&D, and transparency of investment flows
Countries free to fund R&D in a variety of ways.
Range of options allowed
Strong IPR, high prices
Research mandates
Weak IPR regimes (non-exclusive rights liability models)
Public Funding
No IPR open source development regimes, marginal cost pricing
Each country’s system is without prejudice to claiming IP in other countries regimes, subject to non-discrimination

32. Aventis Radical IPR Scenario #1
No intellectual property rights
Every product is marketed as a generic drug.
$178 billion in US market falls to $45 billion or less, freeing up $134 billion in resources
A portion of the $134 billon in savings is transferred to R&D funds, replacing and expanding the $27 billion in private sector investments

33. Use Intermediators to invest in projects
Version 1.0.
Create several competing intermediators, that spend money, but don’t do R&D directly
evaluate performance, and
New allocations based upon performance
Version 2.0
Intermediators compete to raise funds from employers or persons managing funds on behalf of groups of patients

34. Benefits of Aventis Radical Scenario # 1
Fewer resources spent on lawyers
Reduces incentives for expensive and harmful marketing practices
Marginal cost pricing or products
No need to address parallel trade or create complex tiered pricing schemes
Consistent with decentralized decision making and economic incentives
Enables open source development models
Probably far cheaper way to fund R&D

35. Challenges with this scenario
Need to prevent countries from eliminating budgets for innovation
Need to create management structures that are decentralized and which avoid wasteful spending and have accountability, while taking risks.

36. Less radical, incremental approaches
Address research gaps
DND, Vaccines, Funding of public goods
Compensation for areas such as HIV where weaker IP rights reduce R&D incentives.
Research mandates
Agreement on transparency of investment flows
Transfer of technology
Good practices for licensing government funded inventions
Affirmative allocations of funds in developing countries

37. Parallel trade and pricing issues
TRIPS rules on exhaustion of patent rights need to be changed to allow selective exhaustion based upon country income or level of development
Pricing as an R&D issue
Reference pricing
World Health Organization or other non-WTO body for treaty or resolution on restrictions on the use of reference pricing.
US/Korea agreement on pricing
Korea must use average of G7 Prices

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