May 12, 2021
IP Waiver on Covid-19 vaccine patents: populism, not solutions
Soon after World War I broke out, the U.S. government expropriated several patents from Bayer, a German Chemical and Pharmaceutical company. It then sold them to US Winthrop Chemical Company. Cue America’s sly statesmen gloating with self-satisfaction: take that, Kaiser Wilhelm II. We just showed you!
The only problem with this seemingly brilliant plot to help win the war? US Winthrop struggled to apply several of the Bayer drug patents it had acquired from the Feds. The reason? It was unable to access the critical, uncodified knowledge from Bayer to put them into practice. Once Bayer was stripped of its intellectual property rights (IPR), it no longer had the incentive, nor opportunities, to share this knowhow with Winthrop through licensing agreements.
Unfortunately, the Biden Administration just made the same mistake that the Wilson Administration committed at the turn of the 20th Century: on May 5th it declared it would support a World Trade Organization proposal to temporarily waive pharmaceutical companies’ patents on Covid-19 vaccines to “allow developing nations to produce them”. U.S. Trade Representative Katherine Tai noted the growing urgency posed by the worsening pandemic in countries such as India and Brazil.
Our government’s intentions are not only noble, but in our vital national interest—after all, we’ve learned that this pandemic knows no political boundaries. But the way we’re going about it is dead wrong. Not only will it chill the incentives to invent the next batch of amazing vaccines needed when the next pandemic hits, but it won’t help end this one sooner. If anything, it’s the opposite.
Today, one of the biggest challenges facing developing countries who want to vaccinate a larger share of their populations is to set up sophisticated new production facilities needed to manufacture cutting edge vaccines that use mRNA and adenovirus vector technologies. That is, to learn how to make the most effective, yet sophisticated, inoculations the world has ever seen.
This means learning how to do things and scale things quickly. This means building new factories or retroffing older ones with specialized equipment.
That’s where patent licensing potentially comes in: with secure IPRs, US firms such as Pfizer and Johnson & Johnson could share tacit knowledge with licensees in the developing world about how to most quickly and effectively produce these vaccines in large quantities.
That is one of the chief benefits of strong patents: The technical, managerial, and marketing knowhow that complements inventions cannot be disclosed in a patent itself. Nor is it revealed in the new product or process. In other words, this complementary stuff is critical, but it’s not self-evident. It depends on sharing blueprints, manuals, charts, tips, even half-forgotten memories.
Provided that there is an IPR regime that protects foreigners, these things will be willingly shared by original inventors in the industrialized frontier with licensees in the developing world. Licensing agreements outline an ongoing relationship between these parties that enables them to work together and adjust inventions to differences in raw materials and other inputs, industrial organization, and consumer tastes.
Western companies earn royalties. Developing country firms also make the profits they need to put new things into practice. And consumers benefit too. This is a win-win solution.
An example outside of pharmaceuticals can help flesh this idea out. During the Second Industrial Revolution, new steelmaking techniques that employed Bessemer Convertors and Siemens-Martin Open Hearth Furnaces represented a quantum leap over previous techniques in terms of scale and sophistication. In turn, this required diffusing technology, knowledge, and skills.
However, when countries such as France, Sweden, and Spain first transitioned to modern steelmaking, inventors in England and Germany had to find ways to transfer tacit knowledge to adopters that was inordinately difficult to codify, as it was arrived at via intuition and learning-by-doing. Patents played a key role in broadcasting new steelmaking techniques to foreigners working in that industry. They also helped these entrepreneurs connect with original, foreign inventors and establish enduring relationships with them. The latter shared their knowhow and expertise with the former under the aegis of licensing agreements and brought them into their networks of suppliers and technicians.
In responding to the Biden decision to push for waivers on Covid-19 vaccines, the Pharmaceutical Research and Manufacturers of America, the pharmaceutical industry’s preeminent lobbying and trade group, put out a statement declaring that the waivers “do not address the real challenges to getting more shots in arms, including last-mile distribution and limited availability of raw materials.”
This is a correct assessment. If anything, Washington, D.C. should focus on both clearing supply chain bottlenecks that it had a hand in worsening with its decision not to remove Trump era trade tariffs. It can also help countries such as India with logistics, such as setting up software and auditing systems that will ensure vaccine distribution can happen with fewer hiccups.
Finally, it can play a constructive role in not weakening pharmaceutical companies’ IPR, but in helping them connect with potential licensees by reducing the costs of contracting, which is at the heart of forging healthy licensing agreements between patent holding American pharmaceutical firms and their cousins operating in developing countries.
