From: chitoor@bifur.cis.udel.edu (Srikrishnan R. Chitoor)
Subject: Re: AIDS drug by indian firm
Followup-To: soc.culture.indian
Keywords: patent law, US, India
Organization: University of Delaware, Newark
Date: Thu, 7 Jan 1993 16:44:12 GMT

In article <1ifpniINN7bb@roundup.crhc.uiuc.edu> sunder@grusin.crhc.uiuc.edu (Srinivas Sunder) writes:
>
>I disagree that the consumer gets helped in the long run. In the Indian
>system, there is little incentive to do R&D at all, and in the SHORT run,
>it is possible that the consumer will come out ahead. In the long run,
>the lack of incentives for the private sector to innovate will hurt the 
>consumer. 

No. This `lack of incentive' argument does not hold water. Assume that
there are no patent laws, the maximum that can happen is that the
companies do R&D but cling onto their results like a leech and treat
it as a corporate secret (as some other person pointed out, an example
is coke's ingredients). Actually, then there will be pure competetion.
I am not advocating it because this is not practical.

>My point is not that India will suffer because those big bad foreigners will
>get mad at us. What I meant that it is myopic on our part to choke off any
>avenues for indigenous research by not protecting the patents. In the long
>run, if we wind up both making those foreigners mad at us AND choke off incentives
>for indigenous companies to innovate, we'll have the worst of all worlds. And

Look at above argument.

>Now, the assumption is that both will come up with the same product.
>Example, some other company has come up with another AIDS drug now
>(DDI - by B_M_S, I think). In that case, both get to slug it out 
>and the marketplace referees. 
>
>If both come up with the same product, what happens is that only the winner
>comes out with the patent. One of the vagaries of the marketplace,
>"Early inventor gets the patent." Even with your later proposed solution,
>company X comes off better because it gets royalties as a result of it
>having patented its drug ahead of Y, and can do all the same things to Y.

Yeah, but company X has no Idea of how efficient the process developed
by company Y is, and secondly the end user using the product of company
X gets charged the same amount. If X tries to undercut, Y can lodge
a complaint against X (It is perfectly practical and some american 
companies HAVE filed such lwasuits against japanese companies 
successfully).

>Case in point is B_W. They came into a lot of flak for the price of
>AZT being too high. The nice thing about a free-market is consumerism
>and moral pressure, and as a result of all the bad publicity, they lowered
>their prices by as much as 50%. The new CEO of B_W thought that was a
>mistake (a good business-man), but if they hadn't lowered the prices,
>they faced boycotts of all B-W products (the AIDS lobby is quite vociferous)
>and though their revenue has been flat, they haven't been able to raise
>prices. While demand-side restraint may not be there, that isn't all that
>the marketplace operates with (though demand sets MOST of the prices, I'll
>admit). You can't underestimate the power of consumer sentiment. Similarly,
>the makers of Taxol are coming under fire for proposing a higher than
>expected price for their drug (which helps ovarian cancer patients) and
>are likely to go lower.

The above argument applies to just the US. In third world countries
like India, where the consumer movement is just not strong enough,
the company can peacefully rip off consumers. Secondly, my contention
about `lack of demand side restraint' still holds. If someone has AIDS,
s/he is not going to care about what the AIDS lobby says, the person
is still going to buy the drug at whatever price is asked for by the
company if it is going to save life.

>If the product-patents are indefinite, that is true. They are instead
>designed to achieve a balance between giving an incentive for R&D on
>the one hand, and preventing monopolization of the marketplace on the
>other hand. Now, your scenario IS a valid one, and a solution to it
>would be to lower the time-limit on patents to lessen the monopolistic
>effect. I don't deny that monopolies COULD be caused, just that the
>evidence is that not many have been under the given laws.
>
>This envisions that everyone gets access to the patent, manufactures it,
>and charges a competitive price for the final product, with a cut going
>to the inventor. Not a bad idea, but some problems exist. Now, suppose the
>inventor charges royalties depending on the manufacturer and dealer selling
>the product (like say, a computer company offering cut-rate deals on software
>bought from its outlets), it will be in a position to drive off competitors

No. Undercutting charges can be brought against the company.

>from the marketplace, favour only its own company, and bring about a monopoly 
>again. Even more likely is that the patents will be far from fully-documented
>in public, with the research wing making known certain manufacturing-related
>details available only to its favoured manufacturer (Microsoft was accused of
>doing that with some of its Windows-related code recently) giving it a chance

This is actually the no-patent scenario we are talking about, then
some other company can freely reproduce the same technology and patent
it (loss to the original producer). This is disincentive enough to
not document all the original patent.

>to get a monopoly on the market again. While there do exist laws to combat 
>that, there is no guarantee that they will work. Either way, an interesting 
>alternative. Certainly worth exploring. All it proves is that there isn't a 
>perfect solution to the problem.
>
>And I hope they don't stick to the current system either.
>
>Another alternative is to work out a royalty arrangement with B-W.

No. Leave nothing to the guys at B-W. They might charge a royalty that
offsets the cheaper manufacturing cost.

>That holds good  for just about anything. I meant the above statement in the general
>context of offering SOME product protection to patented products from foreign 
>companies, as opposed to none.
>
>Srinivas Sunder                                         sunder@crhc.uiuc.edu

-Krishna.
Opinions are mine.
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