TRIPS, pharmaceuticals, developing countries, and the Doha "solution".

Pharmaceutical prices in the developing world have been much in the news lately. The bulk of the attention stems from the HIV/AIDS epidemic which affects many developing countries acutely, and where much of the infected population is said to be unable to obtain effective therapies because of their prohibitive cost. The annual cost of advanced retroviral therapies in South Africa, where one in eight persons is thought to be infected, is said to be about $12,000, far beyond the means of most South Africans.1 Only about 5 percent of the 1 million citizens of Thailand believed to be infected are able to afford the AIDS therapies prescribed to them.2 Much of the problem is attributed to the prices charged by pharmaceutical companies for their patented medications. A UN study reports, for example, that 150 mg of the HIV drug fluconazole costs $55 in India, where the drug does not enjoy patent protection, as compared to $697 in Malaysia, $703 in Indonesia, and $817 in the Philippines, where the drug is patented. Similarly, the HIV treatment known as AZT costs $48 per month in India, as compared to $239 in the United States, where patent protection exists.3 Developing nations where patents are in place seek to reduce those prices with measures that the pharmaceutical manufacturers say would infringe their intellectual property rights. Some of these initiatives have already brought forth legal challenges. South Africa was the target of litigation initiated by a number of pharmaceutical manufacturers over South Africa's Medicines and Related Substances Control Act of 1997.4 The US government also initiated an action against Brazil within the World Trade Organization ("WTO") over the compulsory licensing provisions in Brazil's Industrial Property Law.5 Developing nations subsequently united in an effort to relax (or at least "clarify") the scope of intellectual property protection required for pharmaceuticals under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS" or "Agreement"). Certain developed nations, most prominently the United States and Switzerland, responded with a campaign to protect their interpretation of TRIPS against any developments that might undermine it.6 The eventual result was a ministerial interpretation of the TRIPS agreement in the form of a "Declaration on the TRIPS Agreement and Public Health," one of the few concrete legal developments during the recent WTO ministerial meetings in Doha, Qatar ("Doha Declaration" or "Declaration"). The Declaration gave the developing nations many of the legal "clarifications" that they were seeking, although a number of issues remain unresolved. The precise impact of the Doha Declaration on the policies of developing nations remains to be seen, but it seems likely that the Declaration will embolden them to enact measures that will reduce the returns to pharmaceutical patent holders, at least with respect to drugs that are used to treat certain diseases. Such measures will likely include the award of compulsory licenses for the production of patented medications (with minimal royalties payable to the patent holder), and the allowance of "parallel imports" of medications from nations where prices are lower. This essay will take a preliminary look at the merits of such policies from an economic perspective, and draw on this analysis to suggest some directions for the resolution of legal issues that remain on the table after Doha. The ultimate wisdom of measures that relax intellectual property protection for pharmaceuticals in developing countries turns on complex matters, including empirical issues about which one can only hazard an educated guess. It is conceivable that patent rights in the developing world have negligible impact on research incentives. They may simply raise prices on patented drugs, transferring rents to foreign pharmaceutical patent holders, and creating deadweight losses by pricing consumers out of the market who are willing to pay the marginal cost of medicines but not the monopoly markup charged by the patent holder. …