In recent weeks, delays in vaccination rates and the need to immunize the population have led to proposals to alleviate the shortage that exists in the face of enormous demand. Proposals among which the liberalization of patents stands out.
The United States government has been in favor of temporarily suspending patents for certified vaccines against COVID-19. Although it is a measure that must be negotiated with other countries, and with the pharmaceutical sector, it could be a turning point, and not only in the evolution of the pandemic, but also in the history of intellectual property rights. .
So, in the following article we will try to answer the following question: What consequences could this decision have?
Vaccines are still lacking
“Although production has been organized quickly and thousands of doses leave the factories every day, they are still few for the more than 7.837 million people who live in the world.”
Let’s start with the source of the problem: the shortage of COVID vaccines.
What is the reason? It is not the lack of response from the scientific world, which in a few months has managed to develop solutions that recently would have been made to wait several years. Nor is it a lack of our economies, since pharmaceutical companies have managed to organize the production of millions of doses in record time.
The problem, therefore, is not in the supply of vaccines, but rather on the demand side. Although production has been organized quickly, although thousands of doses leave the factories every day, they are still few for the more than 7.837 million people who live in the world.
It is clear, then, that the market demands an increase in production, but there is no consensus on how to achieve it.
One of the first resources was public funding for pharmaceutical companies to diversify research lines. While in many cases most of the investment remained private, this has contributed to several laboratories being able to develop their own vaccine. In this way, the danger of a monopoly has been avoided, with the consequent inefficiencies that it could cause in a market so rigid and stressed by that demand.
However, not even the proliferation of alternative vaccines has been able to satisfy world demand. For this reason, more and more political leaders have been in favor of temporarily revoking patents on vaccines in order to allow more companies to participate in the manufacturing process.
The objective, of course, is to speed up the production of vaccines and, in this way, reduce the time required to immunize the population. Supporters of this idea often argue that it would especially benefit poor countries, often relegated to the waiting lists of big pharma. Others, too, argue that the humanitarian urgency brought on by the pandemic must take precedence over any other consideration such as intellectual property.
For their part, there are also those who oppose the revocation of patents. It should be noted that these opinions do not come only from the pharmaceutical sector and interpret this idea as a threat to intellectual property.
To some extent, we can say that this controversy is part of a broader debate on the role of patents in a market economy. While the pandemic has given it more visibility, it is actually a controversy that has divided economists since the 19th century. Today, again, we can see that after 200 years of discussions on the matter there is no consensus even among the most liberal economists.
The patent controversy
“In the case of intangible assets, the protection of property is more complex. The reason is that preventive measures are much more difficult to implement than in the case of physical goods. “
The origin of the controversy lies in the evidence that a person who creates value for others, for that very reason, should be rewarded for it. This is the fundamental pillar of market economies, which is still a process of social interaction in which property rights are exchanged.
In the case of the production of physical goods, this problem is easily solved with property titles, which define very clearly the rights of each one. In this way, if a real estate agent wants to acquire land to build a home, it must first buy the title to the property from its owner. In turn, when you sell the home to a third party, the sale will only be effective when you transfer that title to them.
However, in the case of intangible assets, property protection is more complex. The reason is that preventive measures are much more difficult to implement than in the case of physical goods. Returning to the previous example, a security device can sometimes be enough to prevent a home from being illegally occupied, but it is almost impossible to prevent someone from copying entire fragments of a book and publishing them on their own.
It is precisely because of this impossibility that patents exist, so that the author, at least, has a legal right to act a posteriori against possible plagiarism. Thanks to them, if someone wants to reproduce someone else’s intellectual creation, they can only do so by purchasing a user license from the owner. Another option is to wait for the patent to expire, since they are only valid for a certain period of time.
Patents: Yes or no?
“Let us think, for example, of the transport revolution in the last two centuries, with the invention of the automobile, the bicycle, the train, etc. Would they have been invented if someone still had a patent on the wheel today? “
The main problem with patents is that, despite granting legal coverage to the owner, they do not prevent huge resources from being spent each year on lawsuits. Precisely for this reason, some people defend the abolition of patents or, at least, limiting their validity to a few years. From this point of view, the current system requires spending resources on legal disputes that do not generate value, instead of investing them in innovation.
Another argument against patents is that when the owner becomes a monopolist of his idea, he has no incentive to bring it to market efficiently because he has no competition either. In our case, a pharmaceutical company could be very successful in discovering a vaccine, but, in turn, be very inefficient when it comes to manufacturing it, resulting in a detriment to consumers, victims of a captive market.
In turn, if the monopolist is inefficient and refuses to sell user licenses to third parties, society may not take advantage of the full potential value of that idea. In fact, sometimes when there are no patents is when the economy advances the most. Let us think, for example, of the transport revolution in the last two centuries, with the invention of the automobile, the bicycle, the train, etc. Would they have been invented if someone still had a patent on the wheel today?
For their part, patent advocates argue that if there were no intellectual property protection, likewise, there would be no incentive to develop your own ideas. This reasoning assumes that very few would dedicate time and resources to an intellectual creation if, subsequently, they cannot benefit from the economic value that it generates.
This situation could especially affect those people or companies that may have the capacity to develop an idea, but not to bring it to market. This could be the case, for example, of independent researchers or small laboratories, which can discover a vaccine, but cannot manufacture it for millions of people.
For their part, the defenders of patents reject that their existence leads to a lack of competition. In fact, they often argue that, precisely, the impossibility of competition replicating a product is what forces it to look for its own alternatives, thus encouraging the innovation process.
Can you increase vaccine production?
«The supply of vaccines can only grow to the extent that production factors, including raw materials, do as well.. »
As we have commented previously, the case of vaccines against COVID has once again stoked this old controversy, replicating the same arguments on both sides.
On the one hand, pharmaceutical companies warn that abolishing patents could create a very dangerous precedent of legal instability. In this way, the research of new vaccines in the future would be discouraged.
On the contrary, both politicians and various analysts argue that with the millionaire contracts signed by the governments, the pharmaceutical companies have already more than recovered their initial investment. In addition, the suspension of patents could also benefit the sector, since it would allow companies dedicated exclusively to the manufacture of vaccines to participate, that is, without their own lines of research.
In any case, it is also necessary to remember that the revocation of patents is not a magic solution to increase vaccine production. Even if we admit that it is a necessary condition, it is clearly not sufficient. Remember that pharmaceutical companies have specific knowledge about how to make their own vaccines that other companies may not have.
We must also bear in mind that the supply of vaccines can only grow to the extent that production factors, including raw materials, do as well. The problem is that some vaccines require inputs that are not abundant in the market, which could prevent an increase in production, even if the patents are suspended.
Diversification or efficiency?
«A decision with very little consensus in our society, but no less relevant in our lives.«
Finally, we must not forget the possible effects of such a measure on the incentives and behavior of market agents.
Let’s start from the basis that today many governments follow the policy of buying everything that pharmaceutical companies can produce, and that only they can manufacture the vaccines they have developed.
This means that the only way for companies that want to participate is to have their own vaccine, since user licenses, in many cases, are difficult to acquire. In this way, different vaccines appear on the market; in fact, to this day, there are still more in the investigation phase.
On the contrary, in a scenario in which patents were suspended, it is possible that many companies diverted the resources they currently use to discover new vaccines towards the production of those already approved by others. Given that the main benefits would come from massively replicating an open access product, the incentives to open more lines of research would be reduced. In other words, it might not be profitable to bring a new product to market if it is enough to copy the one that others have invented.
Naturally, this situation could seriously affect smaller laboratories, dedicated exclusively to research. However, it could also bring the inherent benefits of increased competition.
Let us remember, before concluding, that, if under a patent system a company competes developing a better vaccine, under one of free access, the focus of the competition is in the manufacturing phase. In other words, companies would compete to produce the same vaccines more efficiently, which could ultimately translate into increased production.
The dilemma therefore consists in choosing between a few companies trying to develop many vaccines or, on the contrary, many companies competing to massively produce few vaccines. In short, diversify at the cost of efficiency or produce more by diversifying less. A decision with very little consensus in our society, but no less relevant in our lives.