The Intellectual Property World War (Part I and II)

The ongoing meetings of the World Trade Organization (WTO) have raised again what we believe to be the thorniest issue facing the international economy this decade: patents and intellectual property rights. While some recognize the importance of the issue as it relates to AIDS drugs, few economists and financial reporters are thinking of the long-term ramifications of a divided world along the lines of those who want intellectual property rights imposed upon the nations of world at once and those who prefer a more gradual approach and one that even includes a redress for past economic imbalances. The result, if the debate is not amicably resolved, will be increasing tensions and the possible fracture of international trade, sooner or later; in other words, a coming world war in trade.

We thought that in light of this, it would be good to roll out 2 communications that we sent earlier this year to a private group of opinion leaders, financial reporters, members of Congress and economists. Our analytical communications caused quite a discussion among those who are in our private e-mail loop - a discussion that continues to this day.

This summer, we will be offering such analytical commentaries on international economics and national politics and economics as part of a new service available exclusively through BlackElectorate.com. Stay tuned for an announcement soon.

Here is what we wrote in March and April:

Black Electorate Communications

African and Caribbean Political Economy Watch:

The Intellectual Property World War

March 29, 2001

Yesterday's announcement from Fidel Castro calling for the economically developing world to unite against the developing world on the issue of patents, most notably concerning AIDS drugs, is the latest shot fired in the emerging intellectual property war.

On one side are the major multinational corporations and Western governments. And on the other side, lined up, are the fledgling industrial sectors of the developing world and their national governments.

The battle between the major pharmaceutical companies and the South African government, whom Castro has now firmly thrown his weight behind, is the latest battle in the larger war.

But the battle over AIDS drugs is just that - a battle. The decisive front on which the war will be waged is the World Trade Organization (WTO) and TRIPS, the WTO's 1994 intellectual property agreement, under which 140 nations in the organization agreed to protect patent rights.

The AIDS drug debate opens a TRIPS controversy because the developing world and the developed world interpret the letter and spirit of TRIPS differently as it relates to the drug dispute.

The Western world claims that there is wiggle room in TRIPS for the poor nations to obtain drugs at affordable prices. The developing world disagrees and argues that TRIPS makes it virtually impossible for their countries to obtain medications that may mean the difference between life and death. And so, a few of them have decided to take matters in their own hands by generically and locally producing their own versions of drugs made outside of their countries.

Western governments and their pharmaceutical companies see such actions as thievery and are crying patent infringement. And the same governments and companies see many of the developing countries as hypocrites in that some of the countries that have been most vocal in opposition to TRIPS, in fact, helped to negotiate it and signed on to it.

On one side the American and European governments and corporations argue that too little protection for intellectual property would destroy their businesses and their incentives to innovate. They say without a period of time where their innovations remain exclusively their property they will be unable to recover their research and development (R&D) costs.

But the developing world counters that TRIPS represents the latest effort of the West to deny the developing world the ability to structure their economies and industries in ways that would allow them to eventually compete with American and European companies. They argue that they are being denied the freedom to develop their industries in a manner similar to the way that America and Europe grew their own.

They debate in the total opposite direction of the multinationals and Western governments. They state that too much protection for intellectual property stifles innovation. They say that excessive intellectual property right protection creates monopolies that stifle creativity and high prices.

On the AIDS drug issue, they argue that Western pharmaceutical companies, because of their patent protection, government subsidies and greed, are charging customers as much as 30 times their costs. Interestingly, the decision of drug companies to charge dramatically lower amounts for AIDS drugs in Africa has provided the best public evidence that such charges may be true. Drugs that cost $10,000 annually in America are being offered by several pharmaceuticals for $600 per year.

The drug companies are willing to drop prices like this in order to counter the bad public relations they are receiving over the controversy and because they recognize that if they do not make AIDS drugs affordable they send business to their generic competitors and even in the direction of those closer to the ground who produce herbal and alternative treatments for disease.

The wildcard in all of this has been India, which has a booming generic industry and although a WTO member, is allowed to produce generics because they had no domestic patent law when TRIPS was agreed upon.

The Indians have seen the African AIDS controversy as an opportunity. Cipla Ltd. An Indian firm has offered to provide generic AIDS drug cocktails to African nations for as cheap as $350 a year, per patient. The major pharmaceuticals of course, do not want India to fill in any gaps especially in light of the fact that India's generic industry has 3 more years to develop its capacity and move in on prospective drug sales in the developing world. TRIPS allows India until 2004 to continue producing generics.

Now that Cuba has promised to continue to develop its industrial and pharmaceutical capacity and has entered the fray on the side of Brazil and South Africa who face WTO intellectual property right infringement cases, the war of words has heated up, with Cuba boldly calling the West's arguments in defense of intellectual property rights bogus.

Castro points out that the Western world leads the way in intellectual property theft. Castro argues that not only have ideas and inventions been stolen from Africa, Latin America and Asia, but also actual scientists and inventors have been taken or lured from their native lands in order to work for transnational corporations or government agencies. Castro anecdotally points out that Cuban rum was stolen from his country and branded in other countries. In addition Cuba argues that 97% of registered patents are from the developed world.

Such charges are countered with a "to the victor goes the spoils" argument that does not see any need to apologize for Western technological advantage and advancement. However, many in the developing world counter that innovations are taking place every day in their countries but not being secured by patents out of respect for the collective interests of the society.

Charge and counter charge fly in abundance.

The argument promises to get more heated over the next year with the ultimate surrender probably coming from the side that is least able to unite its troops.

One can only wonder in what shape the intellectual property world war will leave the shaky world economy.

We think it has the potential to contribute to an international stock market collapse akin to the American and European tariff war of 1929.

This is that serious.


Black Electorate Communications

African and Caribbean Political Economy Watch

The Intellectual Property World War (PART II)

April 9, 2001

This week is an important one in the raging battle between the economically developed countries and those still struggling to reach basic levels of development.

Today, in Norway, a series of meetings begin between the World Trade Organization (WTO), the World Health Organization (WHO), non-governmental organizations (NGOs) and others. The subject is how the public health needs of developing countries can be met within the framework of global intellectual property rights, rules and regulations.

Many believe that a solution can be worked out, and on several fronts, international efforts aimed at a compromise continue. Significant developments occurred last week in two areas.

Last Thursday, U.N. Secretary General Kofi Annan obtained commitments from several major drug companies - including Pfizer and GlaxoSmithKline - to continue cutting prices of AIDS treatments for the world's poorest nations.

Also last week, on Wednesday, 128 Harvard academics led by Professor Jeffrey Sachs called for the establishment of a global AIDS fund of $1.5 to $5 billion which would be used to buy and aid in the distribution of AIDS drugs throughout the African continent.

Ultimately we think that the Sachs plan will be embraced by all parties concerned and certainly not just because of concern for dying Africans. The Sachs plan, which would certainly lead to an increase in the availability of AIDS drugs in Africa, would also be a boon to the major pharmaceuticals and the developed countries in several ways.

The Sachs-fund would purchase its funds from the major pharmaceuticals and not from generic drug companies in the developing world like Cipla Ltd in India. And although the drugs will be purchased at a fraction of their sales price in the developed world, the sheer volume of the purchases, which could reach anywhere from $1 million to 5 million Africans infected with the virus, would result in a boost in revenues for the firms.

It also would increase their market share significantly and through no cost of their own or the African governments, as it would be the Western world, which would be subsidizing the development of the infrastructure necessary to ensure the delivery of the drugs on the continent of 700 million.

And while the potential billions of dollars are nothing to sneeze at, they surely cannot be considered a straight donation. The money also represents a down payment on the estimated $150 million per nation required to make African WTO members compliant with TRIPS. For years now, the issue of how, and from where, the African nations would find the resources to become TRIPS-compliant has been unresolved.

The motives and actions of the developing world are also being questioned on a variety of fronts. For starters, many see the arguments of the developing world as suspect being that it was they who signed the TRIPS agreements in the first-place, leaving the hard task of actually implementing TRIPS to be addressed for years down the road. The struggle to get AIDS drugs into their country, at prices that their citizens can afford, represented an opportunity for Africa and the WTO members of the developing world to raise the concerns, issues and problems they have had with TRIPS but which they have not been able to effectively voice, with one exception, since the Uruguay Round ended in December of 1993.

That one exception, of course, being the WTO meetings in Seattle in 1999.

And we do believe that the genesis of these problems can be found in the Uruguay Round where the developing world made intellectual property concessions that it was not ready to live up to at the same time that the developed world shrugged its shoulders at requests to end its protectionism in areas like steel and agriculture.

Not to be overlooked, the WTO has agreed to hold talks on agriculture next month. But few believe that the developed world is willing to make the concessions in this area requested by those in poorer countries who complain that their products are denied entry, free competition and a level playing field with European and American markets.

This again points to the seriousness of these disagreements on intellectual property rights and trade issues as it really does produce alliances and coalitions that absolutely pit the entire developed world against the economically developed nations.

Punctuating this point were comments made last week by China's President Jiang Zemin before the U.N. Economic and Social Commission for Latin America and the Caribbean. The Chinese leader called for the developing world to recognize its common economic and trade interests and unite in a common front against the developing world on these and other issues. Zemin is taking this message everywhere on his 6 country tour in Latin America which includes visits to Argentina, Uruguay, Brazil, Venezuela and Cuba.

With tensions rising between China and the US; with Russia and China's entry into the WTO not yet secured; and with India's powerful generic drug industry siding with Africa in its fight with the major pharmaceuticals, we see a confluence of forces taking place that could potentially pit America and Europe against Latin America, Africa, and most of Asia, in a trade and intellectual property world war.

With each passing day this scenario sounds less far-fetched.

Cedric Muhammad

Wednesday, June 20, 2001

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