Friday, October 06, 2006

Works in progress: Dan Cahoy

Dan Cahoy, Confronting Myths and Myopia on the Road from Doha: His interest in the topic grew out of discussions about a potential bird flu pandemic, which could have created a massive need for Tamiflu, a patented product. If the patent had been overridden for public health reasons, which countries should have been allowed to do so and what should they have had to pay for it?

What is the purpose of compulsory licensing? Views have changed over the years. Traditionally it was considered a way to promote home industries, as with the requirement that patents be worked in the country. That’s disappeared as a rationale. The primary rationale now is to increase access to public health. Secondary category: remedial licensing to remedy antitrust violations.

Once access is our goal, the mechanism becomes of interest. Most research and commentary concerns what will trigger compulsory licenses, presuming that the compensation will be low. But compensation is an independent variable from what triggers the license, and looking at it might offer some solutions not otherwise apparent.

Myths of remuneration: (1) license must always be something less than market value; (2) a submarket rate is adequate or reasonable (there are problems determining what reasonable compensation is because a drug is usually just part of a company’s portfolio; what perspective are you going to take, the value of what the drug does for the user or the value of the investment to the shareholders?); (3) remedial antitrust licenses offer a model (punishment for badness isn’t the same thing as licensing for greater social good, and antitrust-imposed licenses are artificially low, often zero, because they’re designed to deter bad behavior rather than to affect levels of involvement in the industry).

His proposal: Move toward default regimes preserving innovation incentives but also access where necessary. Suggests default of market compensation, including in LDCs. Compulsory licensing is not a way to lower prices, but to solve emergencies and permit a relief valve. The model would not be that different from infringement. Under most cases, compulsory licenses wouldn’t be favored – only when a patent owner is charging a supercompetitive price.

If there were an industrial development rationale for licensing, that would change things.

How do we maximize access under these conditions? Under TRIPs, any country can do a compulsory license, and adequate remuneration isn’t defined, so it’s relatively arbitrary. We should try a hybrid: In a pandemic that impacts countries across the spectrum, industrialized countries should pay market rates, developing countries should pay development-indexed royalties, while LDCs should pay no royalty. If we really care about access, LDCs are the ones with no real ability to pay (and thus no potential gain to the patent holder). This would at least allow drug companies to do better predictions.

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