Biden Administration and WTO Actions Undermine Innovation in Health Care and Beyond

By SBE Council at 6 June, 2022, 9:12 am

No industry will be safe from government-led IP seizure.

by Raymond J. Keating –

Why would President Biden sign on to an effort that would undermine U.S. innovation, growth, and employment, as well as reducing critical medical treatments? It’s bizarre, but nonetheless, that’s exactly what would happen with an international effort to waive intellectual property (IP) rights and protections pertaining to COVID-19 vaccines.

As SBE Council has explained:

“The Director-General of the WTO has circulated a draft agreement to waive these IP protections – rights and protections that are provided under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). An upcoming WTO Ministerial Conference is scheduled June 12-15, and TRIPS-waiver supporters – such as China and India – are pushing hard for the waiver. These countries, and others, such as Russia, would be given a green light to use compulsory licensing to seize the patents of American-made COVID-19 vaccines.”

The Biden administration announced its support in May of last year.

It’s important to understand the implications if such an action were taken.

Most obvious, it would reduce incentives for entrepreneurship and investment in the pharmaceutical and medicine manufacturing industry. That is, investment in, development of and innovations in life-saving treatments would suffer.

The development of vaccines, therapeutics and other treatments directed at COVID-19 has been built on years of private-sector entrepreneurship and investment, that is, on individuals who were willing to take on the formidable risks and uncertainties to develop pharmaceuticals and medicines that save and improve lives. Considering the substantial dollar costs and the likelihood of failure, the possibility of returns must be present to incentivize such entrepreneurship and, especially, investment. In turn, such entrepreneurship and investment rest on a foundation of sound policymaking.

As noted in my book Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment published by SBE Council, assorted reasons “exist for this U.S. leadership, but in an increasingly competitive, integrated and mobile global economy, the lack of price controls on drugs in the U.S., coupled with stronger intellectual property protections compared to most other nations, are central. Given the tremendous costs and risks involved with developing new medicines, the ability to create, protect and earn returns on intellectual property is paramount in making sure that crucial investments and innovation occur.”

And U.S. leadership in this area should not be ignored. For example, Thomas J. Duesterberg, a Hudson Institute fellow, pointed out the following in a study:

“The United States is now the undisputed world leader in both medical science and the innovative products and treatments which are needed to meet the challenges of improving healthcare in a globalized world. This has not always been the case. The US is now the home for half of the global pharmaceutical companies which account for half of global sales for this sector. US firms now account for over 60 percent of innovative new drugs, up from 41 percent in the 1980s…

“About 75 percent of global venture capital (VC) investment in bio-medical science and product development goes to US firms. And private industry firms in the United States devote around 20 percent of their revenues to R&D. The US has raised its share of private sector research among developed countries from 43 to 57 percent since 1995.”

Duesterberg explained:

“The shift in relative competitiveness in this sector is a result of both push and pull. Europe, and similarly Japan, Canada, Australia, and other developed countries with national health care systems, decades ago began to emphasize price controls and limitations on approvals for new drugs as a means to keep their national health care costs within budget. Doing so, however, limits the ability of private sector firms to invest in new product research. In the United States, the basis of leadership in innovation is a combination of favorable tax treatment, regulatory actions to speed the approval process for new medicines, and massive support for academic research and lab-based medical science. A culture that favors saving lives over reducing costs also encourages and facilitates private sector investment in new product development. Additionally, national legislation in the 1980s prevented the US Medicare system from negotiating directly with private sector firms on pricing decisions for medicines.”

He also notes the importance of a patent system in the United States that protects intellectual property.

Government, or governments, eliminating intellectual property protections amounts to a direct attack on entrepreneurship and investment in pharmaceutical research, development and manufacturing.

Indeed, this international assault on IP supported by the Biden administration not only is shocking, as leading pharmaceutical firms developed vaccines and therapeutics for COVID-19 in near-miraculous time, but it sets a dangerous precedent in which government makes clear that when politics dictate, fundamental property rights can be undermined when it comes to pharmaceuticals and medicines.

Also, as noted in Unleashing Small Business Through IP, the notion that the pharmaceutical industry is all about so-called “Big Pharma” ignores the facts. Not only are today’s market leaders worth celebrating as entrepreneurial success stories, given that they were smaller, entrepreneurial firms at one time, and they earned market share by providing products that have served consumers well, but the U.S. continues to have “a very entrepreneurial pharmaceutical industry, populated by small and mid-size firms.”

Consider the breakdown of the pharmaceutical and medicine manufacturing industry by firm size (latest Census Bureau data 2019).

Pharmaceutical and Medicine Manufacturing Employer Firms

(2109 latest data)

Data Source: U.S. Census Bureau

So, out of 2,111 manufacturers, 1,052 had fewer than 20 employees, 1,291 fewer than 20, 1,679 fewer than 100 employees, and 1,939 fewer than 500 workers.

Add in nonemployer businesses, that is, self-employed with no employees. There were 2,186 in 2018 (latest data), and therefore, the number and share of small businesses in the pharmaceutical sector jumps even higher.

No industry will be safe.

Finally, it also must be noted that such an undermining of property rights means that entrepreneurship, investment and innovation are not safe in any industry, as political desires and special interest influences can be manipulated and presented in such a manner so as to try to justify the destruction of property rights in a host of industries.

In Unleashing Small Through IP, a key takeaway was the following:

“Government must establish, enforce and protect intellectual property rights through sound systems of patents, copyright and trademarks; strong laws protecting IP with the accompanying enforcement mechanisms; and maintaining a fair system of courts whereby creators are able to affordably protect their intellectual property and law enforcement can prosecute IP violators.”

Unfortunately, this effort supported by the Biden administration would do the exact opposite. If various governments see a need to expand access to COVID-19 vaccines, an understandable need, then the answer is to allocate funds accordingly to purchase and distribute such vaccines. But choosing to inflict real harm on the businesses, workers and investors who made COVID-19 vaccines, as well as on current, emerging and future businesses that will be essential to dealing with the next health crisis, by weakening property rights makes no sense whatsoever.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.