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European Biopharmaceutical Review
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Against a background of austerity and growing generics market, the
balancing act of encouraging innovation and preventing unfair market
dominance is more challenging than ever, and calls for a careful
analysis of the interface between intellectual property rights and
competition law.
Intellectual property (IP) rights are vital to
all innovative industries and none more so than the patent-rich
pharmaceutical sector. By giving exclusive rights to the creator of a
new innovation and protecting them from imitation, these rights allow
pharma companies to maintain profitability and ultimately secure
investment for new research and development (R&D). The equation is a
simple one: without patents and other forms of IP, there would be no
incentive for companies to invest in new drugs and treatments that
benefit everybody.
This is particularly true in times of
austerity, when even the ‘recession proof’ life sciences sector is
suffering from the pervading economic gloom. With drugs typically taking
10 to 12 years to develop, costing perhaps a billion pounds – and with
no guarantee of success – a squeeze on finances has resulted in low
R&D productivity and dwindling drug pipelines.
The industry
has also been left exposed by the fast-approaching patent cliff and its
devastating impact on revenues, as some of the biggest earning drugs
lose out to competitive generic rivals. As a result, beleaguered pharma
companies are cutting back on expensive and time-consuming R&D and
diversifying into more gainful areas. Without IP rights to reward
innovation and provide some measure of security in these tough times, we
might well see the end of R&D in some areas or markets altogether.
However, pharma companies are not the only ones to suffer from this
austerity. Governments are also under increasing pressure to provide
more cost-effective and accessible healthcare, especially as ageing
populations and the increasing incidence of middle-class conditions such
as obesity cause healthcare costs to spiral out of control. Although IP
rights are vital to encourage innovation, in such circumstances,
governments can sometimes decide to override them in favour of
encouraging competition and driving down price.
This is
particularly prominent in emerging markets where governments are looking
to protect a poor population and ensure the best access to medicines,
while also encouraging innovative companies to invest in their economy.
In India, for example, until 2005 it was impossible to obtain a patent
for a pharmaceutical product; only the process of making the drug was
patentable. That has now changed with amendments to the law, but the
Indian government still struggles to balance public interest with
upholding IP rights, and often favours generic companies or allows
generics to be manufactured despite a patent being in force.
One
example is the case currently being heard at the Indian Supreme Court
between drug-maker Novartis and India's patent office, which refused to
grant a patent on the company's cancer drug Glivec. Although the dispute
is focused on the level of innovation necessary to secure a patent
rather than the specific interplay of IP and competition law, the
underlying issues are very similar. A ruling in favour of Novartis will
improve IP protection and encourage companies who have previously been
wary of India’s lax IP laws to invest there. However, others are
concerned that this will jeopardise India’s ability to supply the
developing world with affordable generic medicines.
Striking a
balance between encouraging innovation and preventing unfair market
dominance has always proved difficult. Several international
organisations – including the World Trade Organisation and the
Organisation for Economic Co-operation and Development – have attempted
to do so. Although they found that countries agreed that both IP and
competition law are compatible and should co-exist, there was no
consensus as to how this could be achieved. In 2009 the European
Commission launched a sector enquiry examining the competitive
relationships between both originator and generic companies. However,
although the enquiry identified delay in the market entry of generic
drugs and a decline in innovation (as measured by fewer novel medicines
reaching the market), it gave no clear specific guidance on what is and
is not compatible with competition law.
Despite this
uncertainty, where governments feel that the exercise of IP rights could
lead to an unfair advantage or run counter to medical need, competition
law can come into play. One of the tools they may have at their
disposal in some countries is compulsory licensing, where a government
allows a third party to produce the patented product or process without
the consent of the patent owner in some situations. This was one of the
flexibilities on patent protection introduced by the World Trade
Organisation in 1995. One example of this is the landmark decision
earlier this year in which India granted its first ever compulsory
license for Bayer’s cancer treatment Nexavar. The German pharmaceutical
giant was ordered to license the drug to a home-grown generic drug-maker
on the grounds that it was failing to make Nexavar accessible to more
people.
Another manifestation of this difficult balancing
exercise is seen in the concept of ‘exhaustion of IP rights’. Pursuant
to this doctrine, once a product protected by patent or other form of IP
has been marketed, the rights of commercial exploitation over this
given product can no longer be exercised by its creator. In other words,
the later resale or other forms of commercial use by third parties can
no longer be controlled or opposed. This enables, amongst other things,
parallel trade, because the moment a product is first put to market in a
member state, the IP rights of the creator are ‘exhausted’. On the
other hand, if the parallel trader fails to comply with certain criteria
(for example, if they fail to give the trade mark owner notice of any
repackaging), then the balance again moves to the side of the IP rights
owner, who will have legitimate reasons to enforce its IP rights.
But
there are also more positive ways of ensuring that IP is shared. Many
companies are now voluntarily agreeing to cross-license patents with one
another or even to participate in industry-wide open innovation patent
pools. For example, this may give rise to industry ‘standards’ that may
be set to agreed criteria to allow many parties to develop technologies
incorporating the same (such as MP-3). Patent pools are well-established
in the telecommunication and electronics industry, but remain a
relatively new phenomenon in the life sciences sector. The industry’s
first tentative steps, however, are to be welcomed as they encourage
greater innovation and open access, particularly in the area of
biotechnology.
It is easy to see IP and competition law as
opposing forces in a case of patent versus patient. But in reality, both
are different means of achieving the same ideal of innovation and
improved medical treatment. IP rights allow companies to recoup
sufficient income to reinvest in the development of new drugs, while
competition puts pressure on companies to innovate in order to keep in
stride with market rivals. Both drive the R&D necessary to find new
drugs and treatments to benefit patients around the world. Some tension
will always remain between increasing supply in the short-term, by
opening up access to generic companies, and in the longer-term, by
retaining the incentive to invest. In such cases it is up to companies,
governments and courts to strike the right balance. |
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