From: sunder@grusin.crhc.uiuc.edu (Srinivas Sunder)
Newsgroups: soc.culture.indian
Subject: Re: AIDS drug by indian firm
Date: 6 Jan 1993 23:24:34 GMT
Organization: Center for Reliable and High-Performance Computing, University of Illinois at Urbana-Champaign
Distribution: world
NNTP-Posting-Host: grusin.crhc.uiuc.edu
Keywords: patent law, US, India


In article <1993Jan2.194625.5575@udel.edu>, chitoor@dori.cis.udel.edu (Srikrishnan R. Chitoor) writes:

 >|> Are we assuming that US patent laws are RIGHT ? Does not that kind of
>|> patent law encourage Monopoly and inefficiency (even if someone else
>|> finds a more efficient way to produce AZT, isn't it true that it cannot
>|> me made use of commercially ?).
>
>Actually, most patent laws are designed to expire in about 5-10 years. I
>believe that one of the intellectual-property quarrels between India and
>the US is about the fact that Indian laws allow only for a 5-year patent 
>protection period, while the US has a longer one. I think that in the US,
>you can use a more efficient process (so long as you have either
>invented the process or have bought rights to it) to manufacture something
>only if the original product-patent has been bought or has expired. In 

:This is where the fault lies. I agree that Indian patent law has its
:own faults, but does not resort to Monopoly to protect intellectual
property rights. Ofcourse I will present arguments to why I think so
shortly.

>India, there is apparently only a patent on the process, but not one on
>the product itself. So, they think that they are eligible to use the
>(more efficient?) process even though the product patent has itself not
>expired (actually, does not exist).

:There are two kinds of patents, product patents and process patents.
:The US patent law system mixes the two by allowing one who has
:the product patent to automatically have the process patent too.
:Indian law totally refuses to see the product patent part of it,
:but is much more progressive (in the sense that consumer comes up
:the winner).

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. 


[...]
>Fine. Since you brought up the question of whether or not US laws are 
>too monopolistic and anti-free-market, let me address that. The central
>idea that drives drug companies to do research and market their products 
>are the profits generated by marketing the products of their research. To 
>do research and develop a product takes millions (sometime billions) of 
>dollars, and the idea of providing a patent on the product before allowing 
>other producers with to manufacture it using the same basic research-results
>but a more efficient process from manufacturing it is to provide time for the
>original company to recover its investment. 

>Right now, when there are hardly any companies in India doing any serious
>research to develop drugs (whether a cause or an effect of the lack of 
>protection is a chicken-egg problem), the idea of no product patents on drugs is
>eminently sensible -- but only if you are afflicted with myopia. If there is

:Wait. This argument supposes that India follows its own patent law and
:US follows its own (both of them have faults). Basically the logic you
:are following has nothing to do with economics. It just says that
:``Now that there is a established standard followed by economies (US, Europe
:etc) worth more than half the total world economy, in the long run
:it will hurt India if it does not follow that system''.
:  Agreed, India will suffer, but that in now way proves that Indian
:patent laws are myopic. Just think for some time the situation if

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
by the chicken-egg problem, I meant that it is difficult to say whether the
patent laws in India are as they are because there is little indigenous research
anyway or whether there is little indigenous research because the patent laws
aren't protective enough.


:Now I will explain why US patent system is faulty and I will give an
:alternative that avoids these faults. Go thru' it and tell me if you
:still think US patent laws are `right'.
:    My argument is that US patent law supports monopoly. Let us start
:with the situation where there are two companies (ofcourse can be 
:generalized to more than two) X and Y that are involved in the AIDS drug
:research. Both of them spend millions (or billions as u say) on AIDS
:research and one of them gets the drug first (say X). Now X gets to
:market the product for 17 years. 

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.

:    Now since it is an AIDS drug, there is no demand side restraint
:(If I have AIDS, I will buy the drug with my last savings even if
:there is a slim chance of it saving my life) and there is a Monopoly
:(nobody else can produce the drug). So what else do you require to
:push up the prices (and people at X are not fools to let go of this
:opportunity, after all they are business men). 

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.

:   So X makes a whopping profit (after `recovering' its investment).
:At the end of 17 years, we have Y facing a loss of a few million (billion?)
:dollars and X facing a profit of a few m(b)illion dollars. Now X has an
:unfair advantage (it can even buy scientists from Y). This naturally
:leads to a monopoly system (the next time X and Y start researching on
:some thing, X can pump in more resources than Y). So do u agree
:that in the long run the US patent laws encourage monopoly ?

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.

:  I also agree to that Indian patent laws must recognise product
:patents, but it is not good to follow the US system blindly.
:As an alternative, Indian patent laws can recognise both product
:and process patents, but separate them. By this I mean that if
:X finds that AZT cures AIDS, it can be patented and whenever
:the *end* consumer uses the drug, X gets soem royalty directly
:from the consumer.
:   At the same time, the process to manufacture the drug should
:be allowed to be replicated. The royalty should be charged from
:the end consumer irrespective of which companies drug s/he uses
:and passed onto X.
:   This way 
:   (i) X can recover its investment costs.
:   (ii) Monopoly is not resorted to.
:So do u agree that this is a better solution ?

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
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
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.


>I hope that some Commerce ministry bigwig sees the logic in this and has the 
>sense to try and work out some arrangement like allowing the (new and improved, 

:I hope that India does not fall into the US patent trap.

And I hope they don't stick to the current system either.

>
>but plagiarized) AZT to be marketed only in India, thus shutting off a market 
>for B-W, but without straining relations excessively by also butting into other 

:This is the short term solution I would advocate.

Another alternative is to work out a royalty arrangement with B-W.

>foreign markets. We NEED these foreign dudes and companies.
                     ^^^^^^^^^^^^^^^^^^^^^^^^
:That does not mean blindly adhering to their system without considering
:the merits and de-merits of the system.

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.

:-Krishna.
:Opinions are mine.

-- 
Srinivas Sunder                                         sunder@crhc.uiuc.edu

If my employer shares these views, I'd be most surprised.
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