Assessing the Role of IPRs to foster R&D: the case of vaccines and drugs for neglected diseases.

• Author: Szogs, Astrid
• Position: Intellectual Property Rights - Report

Abstract

The role of Intellectual Property Rights (IPR)s as incentive for innovation in the pharmaceutical sector has been a considerable concern by different bodies at national and international level. This paper analyses the inadequacy of IPRs to foster Research and Development (R&D) for vaccines and drugs for neglected diseases, mainly in importance for developing countries. Based on this, the paper discusses in how far IPRs encourage innovation in different national and socioeconomic contexts. Special emphasis is also given to the need to take the nature of different markets and the level of economic development into account in the making of global IPR frameworks. The paper makes a contribution to debates on the role of health care for development by discussing a range of mechanisms that may support health care R&D. Such framework can be used to address public health goals.

Introduction

The broader context for this study can be seen in the challenges that exist in the relationship between private and public interests regarding biotechnological innovations, and the role that Intellectual Property Rights (IPRs) (1) play in this relationship. The IPR system (2) was originally introduced to bridge the gap between public and private interests, by granting monopoly power over the invention to the investor, while at the same time requiring complete disclosure of the knowledge to society. However, this incentive to innovate does not always work sufficiently, and despite the incentive companies are not always encouraged to invest in Research and Development (R&D), as is the case for neglected diseases.

From the point of view of private companies, there is a need for rather strong patent protection in the industry due to the long, expensive and risky R&D processes in biotechnology (Mansfield, 1986, Levin et. al. 1987). While the industry requires strong Intellectual Property (IP) protection, in order to secure some returns for the expensive investment in R&D for new products, the protection that IP provides in this case still does not sufficiently fulfill its incentive role.

As a matter of fact, we have in recent years moved towards a regime of stronger IP protection. This trend became very apparent, for example, when the Agreement on Trade- Related Aspects of Intellectual Property Rights (TRIPs) has been put in place in 1994. But although stronger IP protection that is now provided through the implementation of TRIPs, this does not seem to have ameliorated the case discussed here.

The purpose of this paper is to contribute to the debate on difficulties concerning balances between public and private interests in relation to biotechnology innovations and argues that the patent system does not always fulfill its incentive role sufficiently. The paper concludes that we need a more holistic approach and recommends us to take more than one single policy instrument into account when trying to create a market for products for neglected diseases. It is therefore useful to apply a systemic perspective, rather than focusing only on one component of a larger system, such as IPRs.

The main focus of this paper is to explore the inadequacy of IPRs to foster R&D for vaccines and drugs for neglected diseases (3) with main importance for developing countries. Theoretically, the paper discusses one particular aspect of innovation systems, and approaches the problem from an inter-disciplinary perspective. The paper therefore provides a presentation and discussion of legal and economic aspects of IP as they relate to R&D for drugs and vaccines for neglected diseases.

In this specific case, which is used to exemplify a more general theoretical problem, IPRs do not serve as an incentive to direct resources towards R&D for these diseases. This is despite the fact that there is a clear need for such investments. What we can observe in this case is an imbalance between private, commercial interests and public, societal needs. It appears, therefore, that the IPR system, is not fully capable of balancing different interests.

The paper is organized as follows. The first part deals with theoretical foundations, addressing the general institutional framework of IPRs, IP and its relation to innovation, the case of IP in biotechnology, as well as international standards of IP protection. The next part discusses the inadequacy of IPRs as policy instrument in the case of neglected diseases. The final part extends the discussion and draws some conclusions and policy implications.

The Role of Intellectual Property Rights

During the last decade, international interest in the protection of IPRs and their impact on competition, innovation and international technology transfer has grown. IPRs are today high priorities on the agenda of policy makers, academics and business firms. As knowledge and immaterial products are increasingly important in the world economy, the role of IPRs is becoming more crucial. Their role has also been enhanced by globalization, where innovators, especially multinational companies, through the increasingly globalised production since "with the growth of globalised production, when innovators (in particular large transnational companies) gear R&D more and more to world than to national markets (Lall, 2003). The increasingly globalizing and knowledge-based economies in today's industrialized societies are characterized by rapid changes and we can observe how knowledge is rapidly diffused around the world and applied in products and processes at an advanced level. More then ever before policy debates on legal and managerial aspects of the creation, diffusion and appropriation of new knowledge, as in IPRs, are hot topics. (4)

A primary rationale for IPRs has been that they are necessary for the provision of incentives to inventors in order for them to invent and disclose their ideas to society. When an invention is introduced to the market, it can in many cases be easily imitated (5). Thus, in the absence of IP protection, inventors may find that others imitate their invention, and thereby the economic returns for those who originally had the idea are reduced. In this case, inventors would even face a disincentive, as they have invested resources for the invention, while others imitate it and without the initial costs may even achieve a superior economic position. Thus, what we find is a tension between the financial returns that are necessary in order to provide an incentive to invest in R&D and the rapid and widespread diffusion of new technology. Both these aspects are necessary for technology to contribute to economic growth and social welfare. Hence, a central issue is how we can achieve an appropriate balance between the incentive to innovate and the diffusion of new technology. This is also a fundamental policy question at the international level (Wallerstein, B., Mogee, M.E. & Schoen, R., 1992: p.13).

Intellectual Property and its relation to innovation

Intellectual Property (IP) is one part of a company's intellectual capital. IP assets are protected by systems of IPRs (6). These are often seen as providing incentives for innovation, as they are considered as essential mechanisms for securing economic returns on certain kinds of innovation. Further, IPR systems can help innovators define, record, measure, value and manage knowledge assets for commercial purpose. The role of IPRs as incentive for innovation in the biopharmaceutical sector has been a matter of considerable concern for different bodies at the national and international levels (7). There also continues to be concern and criticism of the extension of patent rights on pharmaceuticals in the developing world as required in the TRIPS agreement (Lanjouw, 2002).

Intellectual Property and its relation to innovation systems

Within the analytical framework provided by the concept of innovation systems (Lundvall, B.-A. 1992; Nelson and Rosenberg, 1993), IPRs can be considered as forming part of the institutional framework of an innovation system. They can further be considered as being part of "the strategic options in the knowledge economy" (Ganguli, 2000: p. 167). Hence...