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Drug patents - Omnia mutantur, nihil interit.
February 21st, 2005
12:24 am
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Drug patents

I'm writing this in Tom Black's car as Fred Zeleny drives towards Chicago. I'm going to a Final Fantasy concert.

So, yesterday over lunch I thought through this entry about medical patents, but I didn't get a chance to actually write it then. It was inspired by a flyer advertising re-imported drugs from Canada. (I don't think the arguments herein actually apply to Canada, though. Canada is a first-world country, and I say that if they want to have socialized medicine then fine, let them, but they shouldn't be allowed to have excessively cheap medicine—they're actually cheating the system by funding less medical development than they'd ought.)

Unlike many kinds of patents, I acknowledge that, whatever ethical issues they might raise, medical patents (by which I mean to refer primarily to patents on particular medications) serve a compelling purpose. Medical research is done because of medical patents that would not otherwise be done at all, and that (after those patents expire) benefits everyone by the invention of those drugs. The only reasonable way to oppose this that I can see is to claim that governments should fund all medical research, rather than having a market-driven research setup. I'm going to assume that the market is more efficient (i.e., likely to allocate available research funds in a way that is more beneficial to society and the world and to waste less of it in overhead) than government-funded research, or at least that such a market's existence is societally useful. If you disagree, you might still want to read on: most of my points concern the relation between different nations, rather than intra-national questions of how, exactly, those drugs are developed. Note: I'm going to assume that most research on medicine is done in the US (though if this is untrue, I think my fundamental argument is unchanged).

The obvious problem with medical patents is that, during the term of a patent, it can be infringed. In fact, poor countries have a compelling reason to do so—people are often dying because of the lack of these drugs. The real problem with this situation is that the poor countries aren't being irrational. There's no logical argument to convince them not to infringe these patents—it really is in their interests to infringe them, assuming no artificially imposed repercussions. So my first thought was that the US needed to be ready to enforce its patents, by means of trade sanctions or even going to war if necessary against poor countries that flagrantly infringe our medical patents. This would seem necessary because it's the only way to enforce the existence of a market for the results of medical research (as distinct from actual production of the drugs, which I'm assuming is a much cheaper process). And even poor countries benefit from the existence of such a market, since they get the benefits of the drugs after the patent expires (I think medical patents might last only 7 years?), even if it is in their interest to infringe individual patents.

However, then it occurred to me that these poor countries wouldn't be paying the while-patent-is-in-effect price for these drugs anyway—they might like to, but they just don't have the money. So, given that the First World can finance this drug development, what would be the harm in allowing Third World countries to just use them for the cost of physically manufacturing the drugs?

The problem is re-importation into First World countries, which would drive prices down and make the patents effectively moot. Even if re-importation were illegal, it would be extremely difficult and expensive to prevent smuggling. There's also a problem that classifying countries into First and Third World might be politically charged and controversial.

The more I thought about it, the more I became convinced that the solution was something like this: the US government should apply selective mercy in patent enforcement, and make it very clear when they're doing so. This makes the Third World countries realize that no, we're not just being jerks trying to oppress them, but drug development really does cost a huge amount of money and the market for that has to be created somehow. In deciding whether to enforce a given patent, factors I would consider would include severity of the condition treated (both in terms of threat to life and number of people affected), availability of other treatments, and cost of developing the drug (the more expensive it was to develop, the more likely that the patent should be fully enforced). In order to prevent drug companies from pouring all their research dollars into treatments for trivial conditions so their patents don't get confiscated, the lost profits from these forcibly open-sourced patents could be given to the company from which the patents were taken from a fund generated by a special tax on drug companies for that purpose. This spreads the cost over the entire industry, which I think is at least reasonably fair. (I recognize that if these patents could be “bought off” privately rather than the government having to do it, this system could be almost entirely market-driven. Suggestions on how the funding for this might be obtained are very welcome.)

Of course, this probably does still mean that any conditions that affect the Third World disproportionately more than the First World won't get as much research funding, but I don't really have a problem with that. In economic terms, it's clearly a fact that an average citizen of the First World is simply worth more than an average citizen of the Third World. To say that people are more than their economic value should not be to deny that they have an economic value; I think that people who would say this latter are usually just confused or dogmatic. Furthermore, I think that my system is manifestly kind to Third World countries—it allows them to freeload, sometimes, it just makes it more explicit when and how they're freeloading.

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From:papertygre
Date:February 21st, 2005 07:09 am (UTC)
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Charging a less-developed country less money for the same product seems like a valid instance of price discrimination, one that I think doesn't necessarily undermine the integrity of the patents on the drugs. If the drug company sells N units of drugs (each costing X dollars to make) at price Y > X in first-world countries, and 0 units of drugs in third world countries because the third-world countries can't pay price Y, then drug company could still make more money and also win accolades for its humanitarian efforts by selling M additional units of drugs at price Z (Y > Z > X) to the third-world countries. The main practical problem would be, as you point out, reimportation.

However, I'm not convinced that drug research is special when it comes to patents, or that drug research wouldn't get done if there weren't any. Currently, private drug research is very expensive, but a more open source and less proprietary model might still allow profitable drug development, though in perhaps a more incremental way. There are also the various alternative funding models that have been proposed for other kinds of intellectual work, such as completion bonds, mass pledges held in escrow, etc.

Odd coincidence, there was recently a discussion on patents in libertarianism, where the poster took a stance quite similar to yours.
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From:kenoubi
Date:February 22nd, 2005 01:29 am (UTC)
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However, I'm not convinced that drug research is special when it comes to patents, or that drug research wouldn't get done if there weren't any. Currently, private drug research is very expensive, but a more open source and less proprietary model might still allow profitable drug development, though in perhaps a more incremental way.

I'm not 100% convinced that drug research is special either, but I've seen quite a few people claiming that it is, and I find it plausible because the most valuable drugs are not variants of existing drugs (which might have fewer or different side effects, but are generally pretty similar) but brand new drugs, and it's incredibly hard to predict how the development of a brand new drug will go. Basically, I meant to take “drug patents encourage the development of new drugs more than the lack thereof would” as an axiom relative to the arguments I was making here.

There are also the various alternative funding models that have been proposed for other kinds of intellectual work, such as completion bonds, mass pledges held in escrow, etc.

One thing to note is that those funding models can be implemented under a system with patents, although of course if the patents grant an unfair advantage to a different development arrangement (namely, the current proprietary model) then they won't work.

From:rbraun
Date:February 21st, 2005 08:14 am (UTC)
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First, I'm not a Libertarian. My perspective on this is probably rather different from yours.

A lot of drug research is already done or funded by the government (NIH funding). One of the biggest corporate welfare handouts in history was the Bayh-Dole act of 1980, which allowed institutions and private corporations to profit from research done with federal funding. Given that, the pleas of drug companies that they always need a steady income stream to fund research are somewhat deceptive. Most of their own money, as far as drug development goes, ends up funding the FDA drug testing process (which actually is rather expensive).

I am strongly offended by your suggestion that the US "go to war if necessary" against countries which have different policies regarding patents. I don't know what kind of tortured logic you use to justify that. Smuggling occurs all the time for many different kinds of goods, and while it may not be possible to perfectly block re-importation, the US could make reimported drugs scarce and expensive if it wanted to, without involving the military.

The fact that you could consider the "existence of a market for the results of medical research" so important in itself that it could justify military action is somewhat disturbing. It also suggests circular logic to me; medicines are only as good as the people they help, and a wonder-drug express which churns out tons of new medicines is not very useful if those medicines in the aggregate do not genuinely improve human lives. As recent events with some blockbuster drugs show, many popular medications are questionably useful or even iatrogenic.
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From:papertygre
Date:February 22nd, 2005 03:31 am (UTC)
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This one's feisty.
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From:kenoubi
Date:February 22nd, 2005 03:40 am (UTC)
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A lot of drug research is already done or funded by the government (NIH funding). One of the biggest corporate welfare handouts in history was the Bayh-Dole act of 1980, which allowed institutions and private corporations to profit from research done with federal funding. Given that, the pleas of drug companies that they always need a steady income stream to fund research are somewhat deceptive. Most of their own money, as far as drug development goes, ends up funding the FDA drug testing process (which actually is rather expensive).

This seems like sort of a questionable objection. I don't support government subsidies of private research the economic benefits of which accrue to the entity doing the research. Also, I'd consider FDA testing or some roughly equivalent process part of the cost of developing safe, effective medicines.

I am strongly offended by your suggestion that the US "go to war if necessary" against countries which have different policies regarding patents. I don't know what kind of tortured logic you use to justify that. Smuggling occurs all the time for many different kinds of goods, and while it may not be possible to perfectly block re-importation, the US could make reimported drugs scarce and expensive if it wanted to, without involving the military.

It wasn't really meant as a suggestion. It was more of a thought experiment in pushing the situation to the extreme, asking what having a system of patents on medicines might commit us to doing in the ultimate case.

I don't doubt that the US could prevent re-importation well enough to jack the cost of re-imported medicines without involving the military, but that would basically mean a massive expansion of the War on Drugs, which I already don't support.

The fact that you could consider the "existence of a market for the results of medical research" so important in itself that it could justify military action is somewhat disturbing. It also suggests circular logic to me; medicines are only as good as the people they help, and a wonder-drug express which churns out tons of new medicines is not very useful if those medicines in the aggregate do not genuinely improve human lives. As recent events with some blockbuster drugs show, many popular medications are questionably useful or even iatrogenic.

My opinion is that in the long run, it's almost inevitable that the development of a new drug will genuinely improve human lives. Or rather, that the development of a large number of new drugs will genuinely improve human lives—clearly there are certain instances where the side effects of a new medication end up being so bad that it's not used any more, and the total net effect of that particular medication ends up being negative.

From:ixiel
Date:February 23rd, 2005 08:28 pm (UTC)

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I think it's more the threat of war that is instrumental than an actual war. I don't know how many people have been dragged at gunpoint to prison or shot for nonpayment of taxes, but I bet it's relatively few. That said, I'm sure I'm not the only one who would not pay all of my taxes if not for threat of men with guns showing up at my door intent on dragging me to prison, and paying taxes isn't (literally now) going to kill me. Actually going to war's really just incidental to the threat thereof.
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