Transcript Patent-Antitrust Interface in the Pharmaceutical Industry from a

Patent-Antitrust Interface in
the Pharmaceutical Industry
from a Developing Country
Perspective
Thomas Cheng
University of Hong Kong
IP and Innovation Conference
Moscow, April 22, 2014
Patent-Antitrust Interface in
General
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A balance between generating innovation
incentives and minimizing consumer welfare loss
Louis Kaplow’s ratio test: Patentee
reward/monopoly loss
Assumption is that patentee reward is needed to
attract innovations.
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Is that true?
What is the theoretical perspective and empirical
evidence on that?
Theoretical Perspective on the Need for
Patentee Reward to Generate Innovation
Incentives
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Does the pharmaceutical industry require patentee
reward to generate innovation incentives?
Appropriability conditions in an industry:
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Profitability of invention
Imitation:
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Profit potential of imitation
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Imitation costs
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Number of potential imitators
Ease of imitation
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Codifiability of technology—tacit knowledge involved?
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Complexity of technology
Amount of investments required to undertake the imitation
Imitation lag/first mover advantage
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Augmented by brand loyalty.
Theoretical Perspective on the Need for
Patentee Reward to Generate Innovation
Incentives
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Does the pharmaceutical industry require patentee
reward to generate innovation incentives?
Low appropriability conditions in the pharmaceutical
industry:
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Usually high profitability of invention
Imitation:
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Profit potential of imitation
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Imitation costs
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Number of potential imitators
Easy to imitate
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Relatively codifiable technology/less tacit knowledge involved
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Complexity of technology
Usually no special investments required to undertake the imitation
Imitation lag/first mover advantage
Empirical Evidence on the Need for
Patentee Reward to Generate Innovation
Incentives
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Taylor & Silberston (1973):
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Data from 27 firms
64% of pharmaceutical R&D dependent on patent protection
(compared to 17%of chemical R&D, 5% of mechanical
engineering R&D).
Mansfield et al. (1981):
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For two-thirds of the pharmaceutical products the ratio of
imitation costs to innovation costs was less than 0.8.
For two-thirds of the pharmaceutical products the ratio of
imitation time to innovation time was less than 0.7.
Empirical Evidence on the Need for
Patentee Reward to Generate Innovation
Incentives
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Mansfield et al. (1986):
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For over 30% of pharmaceutical R&D patent protection was
deemed to be important (compared to 10% to 20% for petroleum,
machinery, and fabricated metal products).
Levin et al. (1987):
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Patent protection found to be the most important means of
appropriation in the pharmaceutical industry (the only industry)
Do Developing Countries Have the
Innovative Capacity to take advantage of
the innovation incentives?
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Keith Maskus (2000):
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Pharmaceutical R&D not expected to rise in Lebanon, South
Korea, and Argentina after the introduction of patents for drugs.
“Few, if any, firms in developing countries are likely to find it
attractive to engage in fundamental R&D in competition with
the major international research-based pharmaceutical
companies, which have expertise in research and marketing and
benefit from significant economies of scale.”
Julio Nogues (1990):
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Pharmaceutical R&D not expected to rise in Argentina after the
introduction of patents for drugs.
“[T]he development of new chemical entities is outside the reach
of local companies in any developing countries, since there are
no firms in such countries big enough to finance the high costs of
pharmaceutical R&D.”
Do Developing Countries Have the
Innovative Capacity to take advantage of
the innovation incentives?
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Scherer & Weisburst (1995):
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Italy introduced patents for pharmaceuticals in 1978. Prior to
that, Italy had a vibrant generic sector.
After the introduction of pharmaceutical patents:
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No significant increase in pharmaceutical R&D expenditures relative to
world trends.
No significant increase in the number of new drug entities introduced by
Italian firms.
A sharp deterioration of the Italian balance of trade in drugs. Export sales
plummeted.
Domestic drug manufacturers were gradually taken over by multinational
firms.
Generic production capacity moved to India.