Waiving Patents during Public Health Emergencies: Keeping Things in Perspective
Arguing whether intellectual property rights should be protected during a crisis is nothing new.
Should governments protect intellectual property (IP) rights when citizens are exposed to a highly infectious and deadly disease? If IP rights and patents are an obstacle to a speedier resolution to the emergency, should they be suspended? Is waiving patents enough?
A vital discussion these days is whether waiving intellectual property rights on COVID-19 vaccines will make a difference in how soon we can control the virus globally. Those in favour argue that to guarantee a prompt and effective vaccination worldwide, pharmaceutical companies should waive their IP rights and share the know-how with other vaccine producers. They contend that there is an untapped production capacity, kept as such to protect profits. Those against waiving patents claim that IP rights are the main reason we already have an assortment of vaccines in record time. And even if governments suspend IP rights, there is no guarantee that there will be a faster (or safe enough) manufacturing process.
Strong as arguments on both sides may be—and they certainly are—, they are nothing new. A little historical perspective is always a good thing when controversial issues are on the table. It is not just a matter of what lessons history has bestowed us (crucial as that is), but an invitation to appreciate that few things are new under the sun. Circumstances may have changed dramatically over the years, but when the essence of some debates lingers over time, it's healthy to wonder why we haven't moved on.
Strong as arguments on both sides may be—and they certainly are—, they are nothing new.
Hopefully, two relevant precedents will shed some light on our current quandary. Although eighty years separate the two cases presented here, common elements are evident between them and our current COVID-19 crisis. The more recent of these cases may still be fresh in the reader's memory: the South African amendment to its patent laws in 1997 to compulsory license AIDS medicines, including antiretroviral drugs. The other is a little more obscure: in 1917, the United States government repealed the patent for the drug used to curb the rising number of syphilis cases.
The American Salvarsan Case
During the First World War, American physicians voiced their concerns about the short supply of Salvarsan, a synthetic drug used for treating syphilis. Syphilis was the tenth leading cause of mortality in 1916 and 1917, and the United States' involvement in the war in Europe only intensified the fears of an upsurge of syphilis patients both at home and in the front lines.
Salvarsan (Arsphenamine), an effective chemical compound for treating syphilis without affecting the body (like a "magic bullet"), was one of German chemist Paul Ehrlich's most notable achievements. Although there were some deaths related to its use, the drug was considerably far more benign than alternative remedies available at the time: before Salvarsan, the preferred method for treating syphilis was administering mercury, both topically and orally, with devastating consequences for the patients.
Salvarsan was manufactured in Germany and, as the war progressed, it was increasingly challenging for doctors to access it. Not only was the British maritime embargo against German products affecting its availability, but no one was allowed to manufacture the miracle drug in North American without a licence from the patent holder. At that time, entrepreneur and politician Herman Metz was the representative of the German chemical company in the U.S. and owned the patent. He supplied Salvarsan to physicians directly to avoid the middleman and, in his own opinion, prevent speculation.
Anticipating the shortage, dermatologist Jay Frank Schamberg began making Salvarsan in his Dermatological Research Laboratories (DRL) in Philadelphia in 1915. This move, of course, started a legal battle with Metz for patent infringement that ended in a deal that allowed Schamberg to produce the drug but only to sell it to Metz. Metz, in turn, reserved the right to say when production had to stop—usually contingent on the supply coming from Germany.
But the agreement didn't last for long: by 1917, Schamberg had enough of Metz and appealed to the medical community for support to terminate the patent. In her analysis of this episode, historian Kathryn Steen argues that Schamberg took advantage of the "longstanding professional misgivings about patented medicines and medical devices" in the medical community. The high price and short supply of Salvarsan drove doctors to lobby the U.S. Congress for the abrogation of the patent rights. Despite all his efforts, doctors targeted Metz as the villain. The American Medical Association (AMA) led the charge and received support from recognized medical institutions, including the Mayo Clinic and Johns Hopkins University.
The high price and short supply of Salvarsan drove doctors to lobby the U.S. Congress for the abrogation of the patent rights.
A proposition to revoke the exclusive rights to manufacture Salvarsan reached the Senate's Committee on Patents. The committee was to consider one bill "suspending during the present emergency all rights arising out of any patent granted by the United States upon any compound or medicine of which Salvarsan is a constituent part." Another related bill would authorize the manufacture of "any drug, medicine, or other remedy or device which is protected by a patent or patents, trade-mark or trade-marks, and which cannot be procured at a reasonable price within the United States." The state of emergency and high prices of the drugs was the primary justification for the new legislation, and its goal was to expedite their manufacture in the country when they needed it the most.
The Senate hearings were filled with strong arguments from witnesses and letters sent by supporters. The American doctors appealed to the need of the public and the dire state of emergency as a good enough reason to waive the patent. Physicians at the Mayo Clinic, for example, said that the high price of Salvarsan was an example of a commercial monopoly that "profits at the expense of sickness and misfortune." Their main concern was the short supply of a critical drug and questioned the whole idea of a monopoly over something of vital importance for public health. For them, Salvarsan was used to "enrich private fortunes," and profits were not even reaching its inventor. They mentioned that other countries had already waived those private rights in such states of emergency and even went further as to ask for the review of all patents, not only for the duration of the war, but after it: "We urge that such an abrogation shall not be merely for the duration of the war but shall be permanent, and that, furthermore, there shall ultimately be a radical revision of our patent law, looking to the prevention of private monopoly of remedial agents indispensable to the public health."
But those arguing for the abrogation of the rights had a steep hill to climb: the U.S. Constitution states that Congress has the power "to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries." Creators and inventors need patent protection to have incentives to continue to invest their time and resources in new inventions. Such was Herman Metz's argument to justify his stance. The patent owner contended that he was not profiting and the price of his drug was fair and that it was just propaganda against him from his adversaries who wanted to force him to sell it at a lower price. He asked, for example, if the German chemist [Ehrlich] had not had patent protection for his discovery, "would we have had it? If he had not patented it, if a contract had not been made under the patent law giving it to the public, they would not have had that product." He also said that as the patent holder, it was his right to manufacture Salvarsan in the country and set the price, as he was 'entitled to a fair profit."
The Senate committee did not bother to make a ruling as they knew that the abrogation of German patents was inevitable: the Trading with the Enemy Act of 1917 (TWEA)—which confiscated all enemy properties during the curse of the war and returned them afterwards—was already on the way. The TWEA abrogated the German patent for Salvarsan and other drugs, opening the door for American chemists and pharmaceuticals for their manufacture. The Federal Trade Commission also gained the authority to license foreign-owned patents, copyrights and trademarks during the war.
The benefits of eliminating patents in the TWEA didn't stop with the wellbeing of American citizens and the treatment of syphilitic patients; there was also a financial advantage. Shortly after the TWEA was approved, the Guaranty Trust Company Of New York—a financial institution later acquired by J.P. Morgan—published a booklet explaining the act and its potential benefits. The new legislation, it says, "will undoubtedly open a large field of industry for the manufacture of many articles, now manufactured in Germany, by the uses of processes and devices which are protected here by patents held by Germans." In particular, waiving patents was a smart move if the U.S. chemical industry, which was clearly behind its German competition, was to catch up. As Steen puts it: "The confiscation of German chemical patents and their administration by the Chemical Foundation became one method by which American manufacturers and government officials hoped to duplicate the success of the German industry. Such a radical departure from the traditional American respect for private property and from the established patent system was made possible by the extreme political climate of World War I."
Waiving intellectual property rights, it seems, was good for patients and good for business.
The South African Antiretroviral Drugs Case
In the 1990s, South Africa was living an HIV/AIDS epidemic of unprecedented proportions. By 2000, 1 in 10 South Africans had HIV, and 9% of all deaths were attributed to the virus and its consequences. Reacting to this problem, the government of then-president Nelson Mandela sponsored the Medicines and Related Substances Amendment Act of 1997, which gave the Ministry of Health power to impose compulsory licensing and parallel importation of HIV treatments. The act's objective was to provide better access to several antiretroviral (ARV) drugs—which keep the virus in control and stop the disease's progression—, at the time unaffordable to most of the population. The first scheme would be through compulsory licensing, which overrode the intellectual property restrictions in the country and forced the patent holders to grant manufacturing licences to local manufacturers. The second, parallel imports, allowed the government to buy drugs from sources not authorized by the rights owner.
Unsurprisingly, the pharmaceutical industry and the United States government were not happy with the Amendment. They claimed that this new law violated the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), signed by South Africa and other nations in the World Trade Organization (WTO). The TRIPS agreement—negotiated in Uruguay in 1994 and put in effect the next year—sets minimum standards for intellectual property and protects the innovations in medicine by granting the companies exclusive patents for twenty years in every country that signs it. TRIPS was a big step toward IP protections globally, and it now includes provisions related to public health emergencies (see below). But according to its critics, it also allows the mark up of prices and the direct control of the distribution of the medicines, preventing low-income communities from accessing medications that could be available as generics (including complex treatments for grave diseases like AIDS). Signing TRIPS is mandatory for all WTO members.
A few months after the Medicines and Related Substances Amendment Act was signed, thirty-nine transnational pharmaceutical companies sued the South African government for violating TRIPS. Both the United States and the European Union backed the pharmaceutical companies and threatened South Africa with economic and commercial sanctions.
The arguments wielded then were very similar to those used for the Salvarsan case. During the 2001 WTO negotiations in Doha, the pharmaceutical industry argued that "compulsory licensing is a threat to good public health by denying patients around the world the future benefits of R&D capabilities of the research-based industry from which new therapies come." Compulsory licensing and other such measures against intellectual property would reduce the incentives for drug companies to develop new drugs and put at risk the very same patients the initiatives to reduce prices were trying to save.
Some NGOs came to South Africa's defence and successfully mobilized support from the international public opinion. Their arguments carried moral weight by drawing attention to the humanitarian problem in Africa and accusing companies of drug profiteering. Activists in South Africa argued that local pharmaceutical companies could manufacture the drugs for a fraction of their price. Just like Metz, public opinion accused American and European companies of inflating the prices.
By April 2001, unable to convince South African courts of the illegality of the amendment or its infringement of TRIPS, the pharmaceutical companies withdrew the lawsuit. Under international pressure, the United States changed its original position of rejection and stated that it did not object to compulsory licensing or parallel importing. Leveraging its new legislative powers and public support, South Africa managed to avoid granting compulsory licences and negotiated favourable deals with patent holders for voluntary licences to produce selected antiretroviral drugs. Something similar happened in Kenya. Zimbabwe, in contrast, did grant compulsory licences to a local company. In general, the new competing players in the African markets brought down the price of treatments.
Just like Metz, public opinion accused American and European companies of inflating the prices.
African countries can call this a worthy victory. The South African case brought a series of amendments to TRIPS and a provision that allows governments to take necessary measures to look after the health of their citizens in case of a national emergency. The member states have the freedom to determine when to grant compulsory licences and what constitutes an emergency. The problem is that the emergency clauses in the TRIPS agreement are not easy to use: lack of awareness and political will and inefficient administrative structures prevent countries with few resources from using the exceptions effectively. The exceptions are also mainly aimed at the manufacture of treatments for local markets, and exports of medicines made with compulsory licences are limited—a crucial aspect for the current COVID-19 crisis.
At this point, it would be fair to ask: how did this affect the local pharmaceutical industry in Africa? It depends on who you ask. For one, in 2003, Aspen, the largest generic drug manufacturers in South Africa, was granted voluntary licences to manufacture the generic version of several antiretroviral (ARV) drugs. In 2008, it already had a relatively high installed capacity for producing medication, approved by WHO, and "managed to capture a fair share of the local South African ARV market." Its stock prices steadily went up after 2003, and the firm now has subsidiaries in Europe, Latin America, the Middle East, North Africa, and Canada. But in Zimbabwe and Kenya, local producers faced significant challenges to meet international quality standards. The importation of pharmaceutical ingredients constrained them, and local companies did not capture considerable market shares.
The Common State of Affairs
Over one hundred years after the Salvarsan episode and twenty after the South African case, the world faces a similar debate. The idea of ailing citizens suffering a disease for lack of access is still the primary impulse behind proposed legislation changes. In all cases, the patent holders unsurprisingly have voiced their opposition. Arguments tend to gravitate towards the same ideas: one side saying that emergencies merit changes and the other defending the benefits of the status quo.
The longer we take to vaccinate people in low- and middle-income countries, the greater the risks of new variants developing and bringing harsher waves of infection
Earlier this month, the U.S. announced that it would support a temporary waiver of patents but did not specify how, and opposition is still strong. According to experts, negotiations among the WTO's members can take too long or even make things worse. Others insist that a temporary waiver is not enough: to meet the production targets, pharmaceutical companies have to share technology and know-how, and the supplies needed for production have to be accessible as well. In any case, it is also fair to guarantee a just compensation for the industry.
But time is of the essence: the longer we take to vaccinate people in low- and middle-income countries, the greater the risks of new variants developing and bringing harsher waves of infection. Whatever path we choose to take for this particular pandemic, it's even more important to make a decision that will prepare us for the next one.