Indian Drug Ruling Strikes a Blow for Free Enterprise

Dean Baker

10/04/2013

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Last week India’s Supreme Court rejected the Swiss pharmaceutical company Novartis’ patent on the cancer drug Gleevec. While the immediate issue was the ability of Novartis to charge its patent-protected price for the drug in India, the decision will have an enormous impact on the future of public health not only in India, but around the world.

The key issue is whether we will follow a pattern in which patent monopolies are continually lengthened and strengthened. This has been the goal of the U.S. government in trade negotiations led by both Democratic and Republican presidents. The TRIPs provisions of the Uruguay Round of the WTO negotiations were the clearest manifestation of this drive. These provisions, which were added at the request of the U.S. pharmaceutical industry, require countries throughout the world to adopt U.S.-type patent laws. In addition, the United States has sought to further strengthen patent protections in all the bilateral and multilateral trade agreements that it has negotiated over the last two decades.

There is a similar story domestically where the duration of patents was increased from 14 years in the 19th century to 17 years up until 1994. Currently the duration is 20 years from the date of filing. More importantly, the United States has a notoriously lax patent system that makes it possible for drug companies to patent almost anything in order to throw obstacles in the path of would be competitors. In the 1997 there was a famous incident in which an “inventor” was able to obtain a patent on a peanut butter sandwich.

The result of stronger and longer drug patents is incredibly high drug prices. The United States is the only country in the world that effectively gives drug companies a complete monopoly on the production of drugs that are essential for life or health and then lets them charge whatever they want. The result is that we spend almost $300 billion a year for drugs that would likely sell for less than $30 billion in a free market.

This is the context in which the Novartis case must be understood. Novartis had filed for a patent on Gleevec, a highly effective treatment for leukemia. Novartis sells the drug in the United States for $70,000 for a year’s dosage. By contrast, India’s drug manufacturers can produce high quality generic versions for less than one-twentieth of this price. While the U.S. price would make Gleevec prohibitively expensive for everyone except the richest people in India, the generic version could be affordable for people with insurance or for the government’s health care system.

The Indian Supreme Court decided that India’s patent law did not require it to follow the U.S. model and rubber stamp any patent that came through the door. It determined that Gleevec was not qualitatively different from the drug from which it was derived, and therefore did not meet the law’s requirement that a patent involve an innovation. This means that India’s generic manufacturers will be able to continue to produce a generic version of the drug.

This importance of this case goes far beyond Gleevec and India. India’s generic industry has been providing drugs for much of the developing world over the last two decades. The major drug companies in the United States and Europe would very much like to get rid of this competition. If they could force India to adopt a patent system that ties up potential competitors in endless litigation then it would accomplish this goal. In the drug companies’ dream world the Indian generic manufacturers would agree to be junior partners, manufacturing brand drugs subject to patent monopolies in exchange for a share of the booty. However the Court’s decision suggests that they are likely to go in the opposite direction, being ever more aggressive promoters of generics in India and elsewhere.

The impact of this decision is likely to eventually be felt even in the United States. It will be impossible to maintain disparities in drug prices that could reach into the hundreds of thousands of dollars. Either the drugs will come to the United States or the people will go to the drugs. The cost of travel and hotel stays will be dwarfed by the potential savings.

With luck this court decision could eventually make the corrupt U.S. patent system untenable. Patent monopolies are an antiquated and incredibly inefficient way to finance drug research. There are other mechanisms to support research; for example the $30 billion annually spent on research by the National Institutes of Health.

Paying for research upfront rather than through government-granted patent monopolies would eliminate the incentive to lie about the safety and effectiveness of drugs. It would also allow for much faster progress since all results would be fuller public so that researchers could more easily build on each other’s findings.

The costs of protectionism can be large, as economists frequently point out when discussing 20 percent tariffs in steel or import quotas that raise the price of shoes or shirts by 10 percent. For some reason they become strangely silent when it comes to patent protection that raise the price of drugs by 1000 percent or even 10,000 percent.

The U.S. political system may be too corrupt to rein in the wasteful patent system in the United States, but thankfully India’s government and courts are not beholden to the same interests. The ruling of Indian Supreme Court could turn out to be a momentous victory for people around the world.

- Dean Bakeris the co-director of the Center for Economic and Policy Research (CEPR) www.cepr.net. He is the author of The End of Loser Liberalism: Making Markets Progressive. He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.

(This article was originally published in Truthout [http://truth-out.org/news/item/15594-dean-baker-india-strikes-blow-against-big-pharma]on April 8, 2013).

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