Questions About Drug Patents

The Canadian federal government recently announced the ratification of the Comprehensive Economic and Trade Agreement (CETA) with the European Union. While free trade enjoys near-universal support among economists, so-called ‘free trade deals’ do not always contain exclusively free trade policies and controversies occasionally arise.

In this case, one of the most contentious provisions of CETA involves the extension of Canadian patents granted to European brand-name drug companies, relating to the rights of sale of such drugs in Canada.

Over the next several weeks, I hope to explore the issues surrounding pharmaceutical patents in a series of blog posts. I hope to arrive at a clearer understanding of the fairness, effectiveness, and legality of intellectual property as it applies to the Canadian pharmaceutical industry. Today, I wish simply to enumerate my questions to act as a springboard for this investigation.

The traditional interpretation of the policy environment pertaining to pharmaceutical patents goes something like this: “Drug companies are motivated, among other things, to make profits and reduce their exposure to losses. Research and development in the pharmaceutical industry can cost billions of dollars per drug. Therefore, to ensure profitability and a steady supply of life-saving drugs, a company must be granted a temporary government-enforced monopoly over the sale of their new drug. It is sometimes OK to nullify a patent after a certain amount of time, to let generic drug manufacturers enter the market and drive down the price of the drug.”

Some questions I have for this narrative include:

1) Is the concept of “Intellectual Property” justified? What is the origin and function of property rights? How does this apply to non-material goods such as patents?
2) Is there really insufficient incentive for R&D without patents? Can non-patentable research be profitable? What does the empirical evidence say about this in relation to employment, investment flows, and production within the pharmaceutical sector?
3) Is the patent-granting process susceptible, like other government licensing schemes, to cronyism and the picking of winners and losers?
4) During the lifespan of a patent, what is the monopoly price-setting strategy of the brand-name drug company? How does this affect the purchasing power of insurers to honour their contracts and provide drugs to their policyholders?
5) If the above narrative is true, is there an “optimal patent length”?

Answering these questions should lead to a better understanding of the processes that Canadians rely on to help fight and prevent disease. Competing interests in this story are many, and include governments, consumers, private insurers, researchers, generic drug manufacturers, and brand-name pharmaceutical corporations. Be sure to check back here as I wade through these ideas of pills and patents.

Mike Craig is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

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