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The end of intellectual property protections?

Some thoughts on the evolving U.S. position on intellectual property protections for pharmaceuticals.

Pat Moore of the Chester County Health Department fills a syringe with the Moderna coronavirus vaccine before administering it to emergency medical workers at the Chester County Government Services Center in West Chester, Pa., on Dec. 29. (Matt Slocum/AP)

Last week, U.S. Trade Representative Katherine Tai announced a pretty big shift in the U.S. position on intellectual property rights for coronavirus vaccines: “The Administration believes strongly in intellectual property protections, but in service of ending this pandemic, supports the waiver of those protections for COVID-19 vaccines. We will actively participate in text-based negotiations at the World Trade Organization (WTO) needed to make that happen.”

The reactions to this news ran the gamut from progressives shocked that the Biden administration sided with them to libertarians disdainful of the announcement as worse than meaningless. And as near as I can determine, these reactions are not mutually exclusive. The shift is not insignificant, but it also does not presage all that much change. Compared with expectations, this policy shift means less good to come now and less bad to come in the future.

For progressives, this is the latest sign that Democrats are shifting away from the neoliberal position on trade-related intellectual property rights (TRIPS). The United States has been adamant about enforcing strong intellectual property rights protections ever since the beginning of the Uruguay round of GATT that led to the creation of the WTO in the first place. In 2001, it seemed that the United States had retreated from this position with the Doha declaration that allowed for countries to waive intellectual property rights to advance public health. After Doha, however, the United States and the European Union took steps to limit that contingency by promoting “TRIPS-plus” standards in their bilateral free-trade agreements.

Democrats have genuinely changed their tune on TRIPS in recent years. When the North American Free Trade Agreement was renegotiated into the United States-Mexico-Canada Agreement, House Democrats refused to ratify it until the Trump administration agreed to remove a provision that would have offered decade-long patent protections for “biologics” drugs. This latest announcement could be seen as another example in which the pharmaceutical sector has not gotten what it wanted from Democrats. They were certainly less than thrilled about the announcement. That their stocks took a hit from it hints that maybe they are not just posturing.

This leads us to the libertarian position — that this was a short-term exercise in symbolic politics at the expense of long-term innovation. Libertarians argue, correctly, that this will change very little in terms of vaccine dissemination, because patents have not been the binding constraint. In October, Moderna announced that it would not enforce its coronavirus-related patents during the pandemic. That did not trigger a tsunami of vaccine generics. As the Financial Times’s Alan Beattie notes, “India has all the IP and know-how it needs and yet still can’t produce enough for itself, let alone supply the world.” In addition to patents, a lot of tacit knowledge is required to manufacture mRNA vaccines.

Last month, the Economist laid out the rationale behind granting patent protection for pharmaceuticals:

The economic argument for IP protections seems compelling enough. Innovation is costly and risky. Pharmaceutical companies invest heavily in drug development with no guarantee of success. If other firms could freely copy a newly discovered treatment, then its price would quickly fall to the marginal cost of production, leaving the innovator unable to cover the costs of development. A short-term monopoly on production granted to innovating firms is needed to make the upfront investments economically worthwhile. Patents provide this protection.

The Center for Global Development’s Amanda Glassman, writing in Barron’s, fears the long-term consequences of making this move:

Vaccine manufacturing is not just a recipe; if you attack and undermine the companies that have the know-how, do you really expect they’ll be eager to help you set up manufacturing elsewhere? Is the plan to march into Pfizer and force its staff to redeploy to Costa Rica to build a new factory? Do the U.S. administration or activists care that this decision could take years to negotiate at the World Trade Organization, and will likely be litigated for years thereafter? Does it make sense to eliminate the incentive for private companies to invest in vaccine R&D or in the response to the next health emergency? And if the patent waiver is only temporary and building a factory takes months or years, will anyone bother to do so, even if they could?

This might be a concern, but the closer one looks at how this is likely to play out, the less disconcerting it seems.

For one thing, the United States is not the only veto player on TRIPS, and Germany’s Angela Merkel seems willing to play the heavy if the United States chooses not to. This is also an excellent reminder that the United States is not the only trading power to push for stronger intellectual property rights protections.

For another, as Brink Lindsey pointed out, intellectual property rights matter as a driver for long-term innovation, but they’re a poor inducement for pandemic responses. During a global pandemic, drug manufacturers are already going to feel incentivized to act as quickly as possible, because they are just as affected as everyone else. It is easy for governments to sweeten the pot even more with purchasing agreements and prizes for successful antidotes and vaccines — no patents required.

A close read of Tai’s statement makes it clear that this is an extraordinary situation, not that this is the new normal. Or, rather, that this is only the new normal when a pandemic the magnitude of the coronavirus hits the globe.

So, in the end, this move is mostly symbolic as it applies to the current pandemic and mostly symbolic as it applies to future drug innovations. It matters for future pandemics. In that situation, I suspect that the libertarians will be wrong.