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Earth Trends by Martin Khor

Monday 26 March 2001

PATENTS SYSTEM FACING LEGITIMACY CRISIS

The laws protecting owners of intellectual property (such as patents and copyright) have been tightened worldwide as a result of rules in the World Trade Organisation.  There is now increasing concerns from economists, consumers and governments of developing countries that high IPR standards are unsuitable for developing countries.  The recent controversy of the astronomical prices of patented medicines for AIDS has highlighted such concerns.  (This is the first in a series on IPRs and Development). 

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The global system of intellectual property rights (IPRs) is facing a crisis of public legitimacy as citizen groups around the world question how patents and copyright laws are blocking the access of ordinary people to medicines and information technology. 

Farmers' groups and indigenous people are also outraged that their traditional knowledge on how to use plants and seeds is being stolen by big companies that patent their plants or knowledge without their permission.

Meanwhile, governments from developing countries are concerned that their companies and industries are now blocked from copying or using patented modern technologies, which affects their development prospects.

An international seminar on Intellectual Property and Development held in Brussles last week discussed these and other problems arising from the IPR system that was recently disseminated to countries worldwide under the World Trade Organisation's agreement on TRIPS (trade-related intellectual property rights).

High ranking officials from the European Commission, including the EC Trade Commissioner Pascal Lamy, law professors, diplomats and many non-governmental organisations took part in the seminar, which was organised by Oxfam International.

The seminar is one of many meetings and campaigns now taking place, questioning many aspects of the IPR system.

The very existence of TRIPS itself in the WTO is also now being called into question, by prominent free-trade economists (such as Jagdish Bhagwati) and public citizen groups alike.

The TRIPS agreement was established as part of the WTO in 1995, although for many years the developing countries had tried to prevent the IPR issue from coming under its ambit.

Many developing countries had tried to resist the entrance of IPRs as a subject in the Uruguay Round, and then they tried to limit what they saw as the more damaging aspects of the proposals coming from developed countries. 

TRIPS requires all members states of the WTO to introduce high standards of IPRs (such as patents and copyright) in their national laws.

In the six years since TRIPS was established,  there has been increasing evidence of many social and economic problems (some of them quite dramatic and very serious) caused by the introduction of stricter IPR laws.

This is leading to increased public awareness around the world that the present IPR system is heavily tilted in favour of IPR holders and against the public interest.  In an increasing number of cases, this dissatisfaction has given rise to public outrage and street demonstrations. 

Among the problems are: 

--   The jacking up of prices of consumer products (including some essential items such as medicines) by companies owning IPRs, reducing consumers' access and affecting their welfare, health and lives;  

--   The high cost to firms in developing countries which have to pay high royalties for use of technology, or are unable to get permission from IPR holders to use modern technologies, thus affecting the countries' ability to modernise;  and

--   The phenomenon of "biopiracy" in which corporations (mainly of the North) have been able to patent biological resources and the knowledge of their use (most of which originate in the South).

In all cases, the IPR holders, which are mainly large corporations of the North, are given the special privilege of monopoly rights which prevent competition from other or potential producers, and can thus earn super and monopoly profits, which economists call "rentier income."

There is mounting public demand for change.  The range of demands include:  more time, flexibility and freedom for developing countries to implement TRIPS;  restraint by developed countries and their corporations from taking action against developing countries;  and a review and revision of TRIPS to remove the problematic aspects; as well as the removal of TRIPS altogether from the WTO.

Critics argue that IPRs are not "natural rights" but rather privileges granted to inventors to reward them for inventions.  This privilege of monopoly is supposed to be an incentive for innovation, and to enable recovery of cost. 

Any IPR system has to balance the privilege given to inventors and corporations owning the IPRs with the public interest.  The public interest includes consumer welfare, the right of other producers to use technology, the right to development, and environmental protection. 

TRIPS has resulted in a very significant shift in the balance in the IPR regime away from the public interest towards the monopolistic privileges of IPR holders.  Since TRIPS is an legally-binding international framework enforceable in the WTO through the threat of trade sanctions, it has been able to effectively disseminate a model of IPR regime throughout the world to over its 130 Member states.   

TRIPS has therefore instituted a basically "one-size-fits-all" system of IPRs.  Or rather, it has instituted a system where all members have to make use of  a minimum size of shoes, say Size 11, whatever the size of their feet.  Minimum but high IPR standards are set, for countries of differing levels of development.    

It is in the developing countries where the unsuitability and effects of many of the inappropriate provisions are most adversely and acutely felt.   And even in the developed countries, consumers, the public and the scientific community in general  also suffer adverse effects.

One of the major problems is the effect on consumers' ability to buy patented and copyrighted products, especially essential items such as medicines and foods.

The prices of many IPR-protected products are jacked up, in some cases many times above the cost of production, because the corporations owning a patent or copyright are enabled to prevent competition from other or potential producers. 

In the pre-TRIPS period, countries were able to set their own IPR policies and legislation. Most developing countries exempted essential consumer items, especially pharmaceutical drugs, food products and biological materials (including seeds and plant varieties) from patentability.   

Under TRIPS, governments must allow patents for medicines and food products, as well as for some biological materials.

Prices of some consumer products are fixed by companies owning IPRs far above the levels that would prevail had there been free competition. The most obvious and example is pharmaceutical drugs, as shown dramatically in the well publicised case of medicines for treating AIDs.

A year's supply of a combination of AIDS medicines costs US$10,000 to 15,000 in the USA.   The price for a similar combination offered by an generic drug producer in India is around US$300.   The margin of profit for the branded product covered by patent is thus astronomical.  

TRIPS requires that if a patent for a medicine has been registered in a developing country, other producers are not permitted to produce, import or sell the medicine (without the permission of the patent holder).  Patients in developing countries will thus be even more unable to afford medicines that are patented, as the AIDS drugs example shows.

TRIPS does allow that in the case of "national emergency" a government is allowed to make use of "compulsory licensing" provision to suspend the patent right, and thus allow production or import of the product.  However, when South Africa introduced such legislation in respect of AIDS drugs, it was put under pressure by some developed countries, and then sued in court by over 30 transnational drug firms. 

Developing countries are thus coming under pressure not to exercise their right, under TRIPS, to relax IPRs in certain circumstances.  This kind of bullying has given TRIPS, which already has a bad name, an even much worse image as it has become obvious that the big companies that own patents, and governments of some rich countries, are so adamant in putting the right to make monopoly and super profits above the right of patients to health and life.

Public outrage over this was expressed in South Africa and other developing countries, and echoed in developed countries through reports and actions by groups such as Medicine Sans Frontier, Oxfam, RAFI and GRAIN, and through the media.

To offset the criticisms, one of the drug firms announced it would supply a combination of two AIDS drugs at US$600 per treatment per patient per year to South Africa, a price level at which, it said, it would not make a profit. 

There was thus an implicit admission that the profit margin for selling the drug at US$10,000 and above is astronomical.  The reduction in the price for South Africa is read by some as an attempt by the company to limit the public outrage, save the patent system from a possible basic challenge, and offset the need of developing countries to exercise their option of compulsory license.

In the case of another product, computer software, the prices are also usually far above the cost of production.  If they have to purchase software products at the high market prices, most consumers in developing countries would be unable to afford them, and this would shut them out of an important part of the "knowledge society" and be a major contribution to the global "digital divide."   

In many countries, consumers have obtained copies of software freely or cheaply.  However there is increasingly strict enforcement of copyright laws, made mandatory by TRIPS, in many countries, with raids by government enforcement agencies together with representatives of multinational software companies. 

As enforcement becomes more effective, the would-be users of software (individual consumers as well as companies and educational institutions) will find their access shut off or significantly reduced.

 

 


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