By Katia Gomez
In 2007, not only was the pharmaceutical industry proclaimed the 3rd most profitable industry of the United States by Fortune Magazine, surpassed only by oil production and the communications industry, but it also earned the title of the 12th fastest growing industry out of a ranking of over 50 others.1 The trajectory that has led to such renowned economic standing can be wholly attributed to predatory competition strategies, which are successfully aimed at curtailing the generic production of drugs worldwide that would inevitably slash profits for Big Pharma. This paper attempts to analyze the game structure of the TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights), which provides drug companies with the reinforcement to fiercely deter foreign competition from threatening their monopolies. The group of 153 member countries that comprise the World Trade Organization are hence signatories of the TRIPS Agreement as well and for the purposes of game analysis can be divided into 3 players: developed countries and Big Pharma, low to middle income countries (LMICs) with manufacturing capabilities, and least developed countries (LDCs) and poorer LMICs. As will be discussed in detail, the asymmetrical share of power among the three is immediately evident and consequently will serve as the core of the collective action problem. Laudable attempts by developed countries to enervate the impact of intellectual patent rules (IPRs) on the generic drug industry have been relegated to words on paper, while pharmaceutical companies continue to severely influence government policy on IPs. The dependent nature of many developing countries on developed countries have largely replaced the necessary condition for individual rationality, not to mention the loose adherence to TRIPs measures by those developed countries, such as the US and EU, that were the most fervent advocates of its emergence. The obstacles that prevent prospects for a successful agreement are manifold and enmeshed in corporate preferences being actualized by protectionist-like government policies. The positive correlation between economic and social productivity and the well-being of a population should be incentive enough to support rather than hinder developing countries access to life-saving medicines. The unresolved question remains: Is it feasibly possible to reconstruct one of global health’s biggest controversies in a way so that the collective payoff is evenly distributed and all players benefit?
TRIPS Agreement Background
Intellectual property rights have been a subject of contention as far back at the late 19th century with the Paris Convention of the International Union for the Protection of Industrial Property and the Berne Convention on copyrights. Nearly a century later these same rules would culminate in the formation of the TRIPs agreement, not only a product of establishing the World Trade Organization, but the outcome of a prolonged struggle by pharmaceutical companies to monopolize the drug market in developing countries.2 The first attempt took place under the auspices of the WIPO (World Intellectual Property Organization), a UN based Intellectual property enforcement body, but the lack of an “enforcement mechanism” was an unsatisfactory characteristic that drove developed countries to seek out an agreement in which they could “use trade sanctions to legally enforce intellectual property rights.”3 Dating back to the 1960s and 1970s, American pharmaceutical companies attempted and failed to enact a treaty that would have mandated “universal pharmaceutical patents.”4 Developing nations achieved a rare victory against the corporate leverage of Big Pharma, however, their interests were once again curtailed by the determination of developed countries to gain compensation for their contributions to the drug industry. Rather than accepting their defeated proposal, the developed countries involved made a drastic maneuver to use their influential standing in the international arena to transform IPRs into a trade issue that would, in practice, force WIPO to relinquish IPR enforcement to these national governments. The 1980s was a period of corporate intervention in government policy and powerful lobby interests were given leeway to lay the foundation for US IP policy. The extent of the influence is represented in the formation of The Advisory Committee for Trade Negotiations, conveniently chaired by CEOs of Pfizer, IBM, Council of the Motion Picture Industry, and Merck & Co. 1989 marked a turning point in intellectual patent protection as the USTR formally passed the Omnibus Trade and Competitiveness Act to “open foreign markets and secure higher standards of protection for US-held IPRs.”5 Upholding the universal standard of knowledge as a public good was compromised in order to categorize and treat IP as a trade commodity, thereby ceding more authority to Big Pharma and developed countries. As an incentive to cooperate, developing countries were offered trade privileges in the agriculture and textile sectors and leniency from “Special 301” actions. The Uruguay Round of the GATT would serve as the final product of effortless attempts to establish an international IP regime and with the backing of the EU and Japan, the institution of the World Trade Organization was brought to fruition.
Game Structure as Related to Developed Countries/Pharmaceutical Companies, Developing Countries with manufacturing capacity, and Least Developed Countries or Developed Countries without capacity
Knowledge as a public good
The public good in question is one in which all other public goods can be improved upon if given the freedom to operate in a nonexclusive non-rival manner such that aggregate gain is dispersed to all parties affected. Given that knowledge forms the groundwork of innovation, some of the greatest health and environmental problems have been solved through the united contributions of ideas. However when knowledge is removed from the public domain and branded with a price tag, the nonexclusive character of its public nature is compromised. In the case of the TRIPs agreement, the protective restrictions of patent usage has disregarded the “wholeness” of a global think tank and instead dismantled equal access to knowledge and relegated it to individual production units. In deciding what player will gain the advantage in controlling these individual units, it is rather easy to predict that developed countries, with their abundant economic resources and innovative capacity to make the most efficient use of this knowledge would ultimately prevail. In thinking about TRIPs as a flawed international economic agreement, it may prove of some use to consider patents as profitable individual units of knowledge whose supply is severely curtailed by private ownership. Former Chief Economist of the World Bank, Joseph E. Stiglitz substantiates the critique of TRIPs’ abuse of knowledge distribution and the inappropriate placement of IP in trade agreements: “TRIPs was concerned with a totally different issue- in some sense it was concerned with restricting the movement of knowledge across borders.”6 Stiglitz also sheds light on an easily circumvented detail of the agreement by highlighting the words “Trade-related” thus allowing the US government to proceed with their aim. As is best represented by the historical legacy leading up to TRIPs, corporate interests have a reputation for writing their self-interests into government policy. Further perpetuating the sense of foreboding for developing countries, control over trade issues strategically lends itself to control over the supply of the commodities concerned. The unique circumstances that characterize the TRIPs agreement is the seemingly apathetic approach taken by developed countries in not acknowledging the foreseeable negative repercussions on public health in developing countries. If it is established that one party possesses a greater capacity to make use of knowledge in a way that would facilitate the expeditious accruement of benefits to all parties, that party should, in theory, take on the leadership role of developing the knowledge into tangible results in a nonexclusive manner. However, this idealistic notion of cooperation does not conform to the reality of profit seekers. Big Pharma has not shown any reluctance in monopolizing a public good through strict enforcement of IPRs.
Why the Original Version of TRIPS Led to Subsequent Collective Action Failures
In adhering with the 5 basic criteria that standardize the rules of a treaty agreement, individual and collective rationality form the foundation of a participant’s own reasoning to join. An examination of the TRIPs Agreement highlights the initial disparities amongst players that forecast the preferential bias that would give developed countries and Transnational Pharmaceutical Companies (TNPCs) the upper hand in negotiating. The first condition that must be met in order to ensure that all parties can agree on the collective and individual rationality of an agreement is the assurance that an aggregate gain is obvious and can serve as incentives for all parties to negotiate towards a common goal, the collective belief that all will be made better off. The TRIPs Agreement represents a unique case in that the final draft was a result of a legacy of power struggles for intellectual patent rights dating back to the Paris Convention of the late 19th century. In other words, developed countries and TNPCs have long been fighting for their profit-driven incentives and the agreement symbolizes the culminating point of their intransigent stance on the issue. Needing to ensure that the aggregate gain would superficially appear to outweigh the potential costs to developing countries, the dominant players strategically offered a number of enticements such as liberalized trade in textile, agricultural products and less stringent enforcement of Special 301 measures.7 As A. McCabe states, “many developing countries agreed to the provisions of the TRIPs Agreement in order to negotiate from the stronger position of a block of united countries rather than unilaterally, and to gain concessions on issues important to them, such as agriculture.”8 As will be discussed later, the solidarity of these players did become a highly influential factor in paving the way to the Doha Declaration; however the pharmaceutical industry and government had already forged an unwavering symbiotic bond that had prepared them to bargain on their terms. With incentives firmly in place for both parties, it easily followed that developed countries could equivocate a rational explanation to convince developing countries that they would lose out by not participating. Joseph E. Stiglitz blatantly reaffirms this notion: “TRIPS presents an example par excellence: it is based on the view that stronger intellectual property rights lead to better economic performance. Particular American and EU corporate interests… have attempted to use trade agreements to force developing countries to adopt intellectual property laws that are to their liking.”9 In reality what is truly manifesting for developing countries, excluding more industrialized countries such as Brazil, India, and China, is that access to knowledge is being greatly inhibited by TRIPS measures and technological transfer as a result is restricted rather than distributed.
In a game structure analysis of this agreement it may have been predicted to fail considering that the aggregate gain seems largely skewed in favor of developed countries that increase profits for their corporate partners while poorer countries must adapt to additional barriers on improving healthcare access within their populations. In an online document published by the WTO, an emphasis is placed on the pool of knowledge that all players partake in as one of the rewards of the TRIPS Agreement: “…the protection of intellectual property should contribute…to the transfer and dissemination of technology, to the mutual advantage of users and producers of technological knowledge and in a manner conducive to social and economic welfare…”10
In examining another component of the 5 features, that which ensures compliance through adequate incentives and punishes those who do not comply, it is useful to identity the accused and the accusers in specific cases of noncompliance. The 39 lawsuits brought against Nelson Mandela and the South Africa Department of Health by pharmaceutical companies was a regrettable decision that would internationally tarnish the reputation of Big Pharma. In 1997 the South African Government “had authorized the health department to determine the conditions under which parallel imports to lower the costs of AIDS treatment should be permitted.”11 After threatening to impose trade and economic sanctions on the government, the USTR faced mounting protest and criticism by NGOs who fervently defended South Africa in seeking treatment for its growing HIV/AIDs affected population. Following the withdrawal of their lawsuits, the USTR attempted one additional time to build a case against the country but succumbed once more to the now bolstered negotiating position of South Africa.
Following the failed attempt to punish noncompliance in South Africa, the USTR sought out flaws in the use of compulsory licensing in Brazil at the expense of undoing the success of the HIV/AIDS treatment program within the country that had used generic anti-retrovirals to treat the majority of its patients. In an unusual turn of events, the UN Commission on Human Rights condemned the United States for violating the agreement that allowed access to medication in the case of a pandemic such as HIV/AIDS.12 The Brazil case outlines the unique complexity that underlies TRIPS’ potential to satisfy the necessary conditions for compliance considering both players were simultaneously being accused of reneging. However, the individual circumstances of noncompliance bring to light a much more critical issue that threatens to destroy the agreement. In the decision to make intellectual property an issue of trade and subsequently the medical treatment that stems from such protected knowledge, Big Pharma and the developed countries were also involving themselves in issues of human rights. Successive failures show the extreme importance of the context in which TRIPS operates, the threat of publicly revealing pharmaceutical companies as an onerous opponent of health accessibility in poor countries was dire enough to force their retreat. In the case that a developing country truly did violate a TRIPS measure that was formerly agreed upon, pharmaceutical companies and developed countries would be censured by global health NGOs and civil society alike if attempts to punish noncompliance were disclosed to the public. Following Big Pharma and the US’s attempts to regulate the supply of affordable generic drugs in developing countries, the large-scale demand in countries afflicted with communicable diseases creates breeding grounds for third party deterrents.
The rise of counterfeit drug markets, predominantly within developing nations, was an unforeseen negative externality of the TRIPs Agreement that not only exacerbated health concerns through harmful imitations but also subsequently led to a separate collective action problem that would implicate Big Pharma once again. According to statistics from the World Health Organization, “It has been estimated that up to 15% of all sold drugs are fake, and in parts of Africa and Asia this figure exceeds 50%. The FDA estimates that fake drugs comprise approximately 10% of the global medicine market.”13 The astonishing figure that corresponds to developing countries can conveniently be attributed to the increased difficulty in obtaining affordable generic drugs due to TRIPS limitations on procurement. An undersupply of essential drugs that can be purchased at a price feasible for the world’s poor has created a window of opportunity to flood the drug market with copycat versions that can easily be passed off for the genuine medicine. The economically deprived circumstances of the sick in developing countries support risk-taking behavior in purchasing potentially harmful drug replicas. To demonstrate the scope of the problem, in 2002 fake drugs took the lives of 192,000 Chinese patients, forcing Chinese authorities to shut down 1,300 factories suspected of producing 57 million dollars worth of fake drugs.14 In Haiti, Nigeria, Bangladesh, India, and Argentina, 500 children also fell victim to “the toxin diethylene glycol in the manufacture of fake paracetamol syrup”, used to treat mild to moderate pain and fevers in children.15 The range of national socioeconomic status being affected by counterfeit markets shows the invasive nature of cheap drugs in populations that are not willing or cannot afford those that are legally available. Further exacerbating the problem is the divided stance in spreading public awareness of counterfeits on the market; this is largely due to “brand owners [ignoring] their sale because of fear that alarm over ineffective counterfeit copies could adversely affect sales of the real product (and buyers of counterfeit drugs are in any case unlikely to be purchasers of the more expensive genuine product).”16 Along with pharmaceutical reputations at risk, empirical evidence has also reported numerous instances of government corruption in which officials “have been accused of involvement in the false certification of counterfeit drugs, while in others, governmental agencies have been criticized for suppressing information.”17 This smaller scale collective action problem works to discredit the legitimacy of the original TRIPS agreement and proves how unfeasible it may be to deter third parties when demand for cheap drugs lures profit seekers to take advantage of the situation.
Did the Doha Declaration Bridge the Power Gap Between Players?
As was discussed in the background of Doha, the Declaration on the TRIPS agreement and Public Health was a face saving approach, by the US and Europe primarily, to address developing countries’ concerns that the provisions in the agreement would hinder their ability to supply life-saving drugs at an affordable price for their population. The controversy that had arisen, in response to South Africa and Brazil’s victorious counterattack against Big Pharma, created a major advantage for the developing countries in voicing their demands for more leniency of certain TRIPS measures. In this second round of negotiations the representation among players was far more equitable than the former. This can abundantly be attributed to “the emergence of a cohesive group of developing countries articulating and advocating an essentially common position.”18 A united front was central to the proposal by “the Africa Group, Barbados, Bolivia, Brazil, Dominican Republic, Ecuador, Honduras, India, Indonesia, Jamaica, Pakistan, Paraguay, Philippines, Peru, Sri Lanka, Thailand, and Venezuela”, and would ultimately prove to be the tactic needed to ensure a favorable response by developed countries to the grievances being raised.19 Referring back to the five essential features of compliance, developed countries took notice of the compromised state of individual rationality facing countries that had been negatively impacted by intellectual patent rights. This was a vital maneuver if the stronger players planned on regaining incentives to cooperate and, some may argue, conceal the growing notion that “for diseases principally of relevance to developing countries…., Pharma does not meaningfully invest in the development of new drugs because patients cannot pay for them.”20 Although the final text of the Declaration states that, “the TRIPS Agreement… should not prevent members from taking measures to protect public health…and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health, and in particular, to promote access to medicines for all,” the initial position of the US was less optimistic about announcing that the original provisions did in fact jeopardize the healthcare systems in countries already disease-ridden. Bolstering Big Pharma’s adamant position that the TRIPS agreement should not be modified for risk of violating intellectual property rights, the US argued that the public health system in developing countries was fragile for many reasons other than price and therefore patents did not present as significant an obstacle to accessibility as was being claimed; for this reason “compulsory licensing should be used restrictively, that exceptions to patent rights must be limited, that protection of test data is mandated…”21 Even though the EU chose a more sympathetic stance on the matter, they along with the US understood that their aggressive position on IPRs needed to be reconciled with the inclusion of flexibilities to compulsory license usage. The situation threatened to lead into a stalemate if developed countries did not find a solution to structuring payoffs more efficiently; developing countries needed reassurance that it was still in their self-interest to participate with the agreement.
Despite the fact that the Declaration resulted in more leeway to implement compulsory licensing and LDCs were given a time extension to adopt TRIPS measures, the problem of preventing third party deterrents remained unresolved. Whereas the first situation of deterrents was primarily the workings of a market failure to adequately supply affordable drugs, the next problem that arises is that of bilateral and regional trade agreements that threaten to enervate the achievements made in Doha. Commonly referred to as “TRIPS-Plus measures,” these bilateral free trade agreements (FTAs) are a strategic tool used by the US and EU governments to impede upon the newly won concessions in the Declaration and in effect exploit the desire of developing countries to promote their export industry and facilitate trade relationships.22 Despite being such vigorous advocates for the TRIPS agreement, it is the US government, oddly enough, that comprises the majority of the side negotiations to seek out loopholes in abiding by their own statutes. Reneging on their commitment to loosen stringencies on generic production, “Under the US-Australia FTA, drugs produced under compulsory license in Australia are excluded from parallel importation, even to alleviate a public health crisis in a neighboring country.”23 Comparable FTAs have been initiated with Singapore and Morocco, while the EU has not lagged far behind conducting their own negotiations with the Southern African Customs Union, Chile, Morocco, Mexico, the Palestinian Authority, and Jordan.24 When the dominant players, such as the US and the EU, are simultaneously dictating the rules of the game while coercing other governments with economic incentives to subsequently violate them, the TRIPs agreement should in theory be relegated to nothing more than ineffectual text. As the original institutors of the agreement, the developed countries had logical incentive to seek out compensation for their pharmaceutical companies’ patents in the cases of South Africa and Brazil; it would appear that they were justifiably punishing non-compliance and sending a warning to potential defectors. However, the contradictions are enormous in a way that underscores the double standard that those bound to TRIPS are confronted with.
The Paragraph 6 System: The Addition of an Inclusionary Clause for Least Developed Countries That Lack Manufacturing Capacity
An overwhelming share of the burden falls on LMICs to satisfy the mandates necessary to obtain a compulsory license and export under the paragraph 6 System to eligible importing Members. As was discussed in the background summary, importing members are considerably exempt, and for good reason, from the administrative tasks and technical requirements that suppliers must meet. Although it is with just cause that the burden is lifted from LDCs, it appears that the incentive for LMICs, such as India and Brazil, who possess the technological prowess to domestically produce any number of generic drugs, must be based on altruism considering the absence of any sound payoff. In the long run, it remains to be seen if the enticements to enter into bilateral agreements with transnational pharmaceutical companies for the production of commercial products will provide a disincentive to withstand all of the technicalities and additional costs of supplying LDCs. An example of such a disincentive is discussed in the Globalization and Health Journal, “…if a country wanted to issue a compulsory license for efavirenz, tenofovir and lamivudine as a triple combination therapy for HIV/AIDS, this would require separate applications for each medicine involving three different manufacturers…”25 Overlooking the clear case of free riding by LDCs, exporting Members’ will have much of the final say in whether or not the united front, that successfully achieved a number of concessions in Doha, will remain intact.
The Paragraph 6 System has thus far been the most recent modification to the TRIPS Agreement and is hailed by the WTO’s Director-General as “the final piece of the jigsaw…allowing poorer countries to make full use of the flexibilities in the WTO’s intellectual property rules in order to deal with the diseases that ravage their people.”26 This overly optimistic perspective appears to be disproved considering that only 21 countries, to date, out of the necessary 100 have signed on to make Paragraph 6 a formal amendment.27 Evidently there exists a contrasting viewpoint regarding the status of the collective action problem surrounding the Agreement; one that has been inherited since the principal negotiations in 1994. If one perceives power asymmetries amongst players to be the reoccurring obstacle to achieving a consensus, then the solution is one rife with political and socioeconomic facets that cannot solely be implemented with an agreement. Recognizing that subsequent negotiations, although they admittedly facilitated the distribution of generic drugs to the most vulnerable populations, in practice, did not solve the overall market failure, but rather, “adjusts [the market] to the public health situation in developing countries by allocating scarce resources to areas of higher return, and in doing so leaves the poor to suffer.”28 Although the demand for life-saving medicines is needed on an extremely grand scale in pandemic prone countries, the investment that is required to promote R&D in these diseases is subject to failed attempts in upholding knowledge as a non-exclusive public good.
The Brazilian Pharmaceutical Industry and TRIPS
Brazil represents a unique case, and in some respects a hopeful prospect for other rising developing countries, by successfully designing their domestic pharmaceutical industry to withstand the pressure from Big Pharma and instituting a national AIDS policy that would serve as the impetus of a larger universal healthcare target. Serving as an exemplary model of a “weaker” player changing the terms of the game to make payoffs more equitably distributed, “…the Brazilian government positioned itself as an “activist state”, attempting to balance the responsibilities of public health, industrial growth, trade relations, and multinational companies.”29 Granted the successful implementation of TRIPS provisions into national policy is largely attributed to an outpouring of “national social mobilization” and the reformist Cardoso administration, however, the need to adapt to new intellectual patent regulations opened up manifold opportunities for the national healthcare system reform which “strengthened national pharmaceutical industry…and the intention to broaden access to health care services and medicines to a larger section of the Brazilian population.”30 Following the healthcare advocacy trend started by the National AIDS Program, the 1999 Generics Law provided the local Brazilian drug companies with the tools to better categorize generic medicines through a list of standards and norms and also assistance in discerning the biological compatibilities of generic drugs.31 The enactment of this law greatly restrained Big Pharma profits and conversely bolstered the local drug companies as more and more multinational pharma companies abandoned the sale of “off-patented product lines” and ventured into the marketing of “innovative-patented products.”32 New prospects in the generic drug industry opened up for local companies especially in enabling them to produce at a lower cost while making use of their advantageous position as a trusted business sector within society. Along with a growing domestic presence, Brazilian drug companies were also making headway as an international competitor even forging agreements with some Big Pharma companies seeking to strategically take advantage of the historically tight-knit relationship between local businesses and the population. In contrast to what might have been popularly predicted, adaptation to the TRIPS Agreement was not a wholly negative experience but rather the national government deliberately intervened with policies to sustain local companies and rescue their population from the potential onerous externalities that victimized other developing countries. In addition to securing the domestic market and institutionalizing universal health care, advancements were visible in “the indicators of market share, levels of investments in quality manufacturing and new products, the numbers of new products launched and the expansion of exports into new markets…”33
In analyzing the Brazil case as it pertains to game structure and the TRIPS Agreement, the Brazilian government successfully discovered loopholes around the enmeshed power asymmetries that threaten to undo individual rationality for the more vulnerable developing countries with more to lose. Big Pharma faced unforeseen obstacles in enforcing intellectual patent rights in Brazil due to a highly determined civil society and a government administration that stood in solidarity with its citizens to bring public health to the forefront of its agenda. This brings into question the ability of other developing countries to replicate Brazil’s success, considering the immense dearth of administrative resources and unsound institutions which are then consequently not suitable environments for civil society to flourish. With this reality in mind it, is difficult to say if the aggregate gain can be extended far enough to reach susceptible developing countries that remain easy targets for the third party deterrents discussed earlier.
The Indian Pharmaceutical Industry and the Temptation for Profit
Although the Brazil case represented an instance in which exploitation by multinational pharmaceutical companies was not only largely thwarted, but gave way to significant reforms in public health policy and reinstated local drug companies as a viable contender in the domestic market; India’s response to impeding Pharma interests is a more ambiguous case that lends to an unequal balance of benefits and costs. The impact of stronger intellectual patent rights created diverse implications for the larger Indian drug firms and greatly damaged smaller local firms’ ability to meet the rising costs of remuneration. The defense mechanisms taken on by India’s competitive drug companies serve to reiterate the profit-based deception that MNCs purposefully enact through provisions in the TRIPS Agreement. As a more prominent actor in the bloc of developing countries, the prospects for India to compete aggressively with MNCs in the international pharmaceutical industry are a realistic ambition, but are also quite dependent on foreign direct investment that would provide the basic requisite transfer of knowledge to spur domestic research and development. The sincerity of the statement issued by the WTO claiming that the TRIPS Agreement is not about, “simply maximizing the level of protection for intellectual property,” is greatly question by evidence to the contrary in India.34
Assessing the potential threat that emerging Indian pharmaceutical companies posed on international consumers, MNCs devised strategies that could maximize the repercussions of strict intellectual property rights on domestic ability to efficiently compete. In efforts to circumvent foreseeable restraints on domestic growth in the drug sector, many large Indian firms chose “industrial upgrading through the proposed path of integration with the international pharmaceutical industry.”35 Local firms could no longer expect to garner adequate payoffs by confining production to internal supply while MNCs continued to monopolize within domestic drug industries and enforce IPRs to the fullest extent. Acting from the most advantageous position, local firms would need to shift business toward “growth via export of generics to regulated markets, contract manufacturing and hosting for outsourcing of drug discovery research, drug development and clinical research.”36 However, the national drug industry was quickly introduced to the reality that the necessary inputs of knowledge are treated as commodities and their availability could be either expedited or stymied; it would be at the will of the US, EU, and Big Pharma.
Despite behaving in accordance with the IPRs mandated by TRIPS, Indian pharmaceutical companies still faced numerous obstacles in retrieving the technology that should have been made abundantly available with the increase in foreign direct investment and the growth of mergers with MNCs. Proving to have a counter effect, “the costs of technology transfer…have tended to lead to excessive direct and indirect costs due to restrictive clauses and a decrease in the bargaining power of the technology buyer.”37 Another manipulative tactic by Big Pharma to constrain potential competition is the use of “mergers, acquisitions and takeovers to facilitate the parent firms to increase their control over the operations located in India.”38 By fastening their hold on domestic markets through enticements of cooperative gains, MNCs secured their international status as a monopoly and shut down opportunities for local companies to “play catch up.” To demonstrate the extent in which MNCs and government will subvert patent regulations to increase short term profits, the US and EU governments have shown their culpability in aiding Big Pharma with patent life extensions. The Federal Drug Regulation Authority (USFDA) is especially active in malpractice regarding the allowance of “pharmaceutical-specific-reengineering of patent length and breadth.”
The governments of the US and the EU have even privileged their individual pharmaceutical industries by framing national legislation to cater to their particular needs. One such legislation in the US is the Hatch-Waxman Act in which “the government has a system of patent term ‘restorations’ that can extend the monopoly of original patentee for a maximum of five years in addition to the initial patent term.”39 Aside from government assistance, Big Pharma also unilaterally conduct their own delay tactics by way of issuing lawsuits against generic manufacturers for infringing upon patents, strategically timing merger offers to replace incentive for firms to make use of patent expiration, and manipulating the biological components of drugs to claim consecutive rounds of patent ownership. In theory, it would appear that the WTO’s genuine concern for a balance of knowledge could potentially be followed through with productive FDI in domestic drug industries, however, in reality, the evidence proves that extreme measures are being taken to ensure that patent monopolies are maximizing profits for as long as possible.
Taking into account the overwhelming amount of resources that Indian pharmaceutical companies must disperse for the purposes of combating predatory lawsuits by MNCs while also building up their manufacturing capacity for increasingly innovative products, the incentive to direct additional investment into harnessing R&D for diseases of the developing world is largely absent. As domestic firms are becoming even more submersed in “the emerging international division of labor” it follows that pharmaceutical advancements will only “move even further away from the goal of development of medicines for developing countries.”40 Following suit behind MNCs, Indian drug companies are being coaxed into conforming to globalized standards of profit-seeking which ultimately lead to markets of developed countries, particularly the West. Some scholars argue that the responsibility now falls on the Indian government to motivate their drug industry to direct more energy towards the production of more “public goods” rather than “market goods.”41
The individual cases of Brazil and India provide both optimistic and disheartening perspectives on how leading developing countries can operate within the confinements of TRIPS measures; however their unique experiences fortunately are not dichotomous enough to predict only success or failure for other emerging economies. What remains most unsettling is the lack of incentive for these countries with the pharmaceutical capacity to lead the R&D path for diseases afflicting impoverished populations, nonexclusive to their own. In order to keep domestic industries afloat, in the midst of stringent intellectual property rights that significantly hamper future investments and chances to use public knowledge for further advancements in drug production, national drug firms are left with little option other than to maximize profit from Western markets and even this choice has proven onerous and costly.
Concluding Remarks and Future Prospects
Fourteen years following the enactment of the TRIPS Agreement and after two subsequent revisions of the original document, real improvements remain stagnant and at the mercy of developed countries. While multinational pharmaceutical companies continue seeking out loopholes to renege on flexible IPRs in developing countries, the demand for affordable life-saving drugs is being neglected and the generic drug industries of LMICs such as India and Brazil are losing incentive to invest in R&D for diseases of the poor because of burdensome interference by Big Pharma. Developed countries have shown themselves to be equally culpable by harnessing their strategic global position to abuse the notion of knowledge as a public good. The WTO’s misleading mission statement insists on a “balance of rights and obligations” and the long run payoffs for developing countries once revenue from patents has been accrued and transformed into innovative R&D; however the reality of the situation appears much bleaker.
The truth of the matter is that treating diseases endemic to the developing world is not cost-effective for pharmaceutical companies especially with the increasing amount of wealthy clients who demand other types of drugs. Non-exclusivity, a core fundamental of public goods, is being violated when the world’s poorest populations are in essence being told that their lives will not produce payoffs that would match the cost of developing essential drugs, so therefore they cannot be treated. If an altruistic incentive is not a realistic condition for developed countries to comply with the agreement, then their governments should at least consider the safety of their own populations in thwarting spillovers from civil unrest or pandemics that can escalate and cross borders. National security and overall global stability in regions prone to poverty and violence should warrant enough collective rationality to make TRIPS self-enforcing.
In the case that developed countries do not perceive “poor” diseases as hazardous or urgent enough to strictly comply with all terms of the TRIPS agreement, the supply side of the problem has in part been satisfied through multilateral efforts by global public-private partnerships (GPPPs) such as the Global Fund for HIV/AIDs, malaria, and TB. What may seem contradictory or simply an attempt to reconcile one’s past infringements is the fact the US is by far the largest contributor to the Fund, while simultaneously backing Big Pharma’s relentless enforcement of IP protection that prevent these same target countries from having access to cheaper medicines.42 Pharmaceutical companies themselves, some may rationally argue for PR purposes, have joined in partnerships with host countries and the WHO to supply treatment. On the surface it appears as if these tenacious players are indeed global health advocates; however their actions as represented in this paper prove the contrary.
From a moral standpoint it would appear that global health alone should be the foremost incentive for all players to cooperate in overcoming any barriers; however a pragmatic perspective reveals the truth behind the power of profit. A panacea-like solution to solving the collective action problem at hand is unlikely to surface due to the extremely disparate incentives that exist, which ultimately lead to non-compliance and a breeding ground for 3rd party deterrents. Despite the presence of charitable organizations and GPPPs that serve to allocate scarce resources, in this case medicines, to developing countries, this is a not a permanent solution to ensuring that a sufficient amount of supplies are readily accessible to populations when a need arises and does nothing to promote autonomous health institutions. If true headway is to be made in reinstating collective rationality and creating a standard for noncompliance, the US should take initiative in resisting lobbyist pressure by Big Pharma and set an example for developed countries to be a voice for their developing counterparts while still upholding international codes.