Medicines, Patents, and TRIPS

• Author: Arvind Subramanian
• Position: Division Chief in the IMF's Research Department
• Pages: 22-25

Has the intellectual property pact opened a Pandora's box for the pharmaceuticals industry?

Page 22

If you had asked the average policy wonk in the field of finance or development about TRIPS, even until a few years ago, you would probably have elicited a quizzical expression of bemusement, betraying mild condescension: how important can that be compared with broader and weightier matters, such as exchange rates, fiscal policy, aid, and debt?

But the agreement on TRIPS, or the Trade-Related Aspects of Intellectual Property Rights, including Trade in Counterfeit Goods (see box), has turned out to be among the more significant elements of international cooperation and treaty making in the past decade. Negotiated during the 1986-94 Uruguay Round of world trade talks, TRIPS introduced intellectual property rules into the multilateral trading system for the first time. For developing countries, this has had profound consequences, not all of which have been beneficial, making TRIPS a bellwether of the antiglobalization backlash of recent years. In particular, the high prices of AIDS treatments have shined an ethical spotlight on patent protection. Ironically, and as a testament to the iron law of unintended consequences, TRIPS may well prove to have as great an impact on medicines and health policy in industrial countries.

TRIPS and pharmaceuticals

For developing countries, the most important aspect of the TRIPS agreement relates to its provisions on patents, especially as they affect pharmaceuticals. Prior to TRIPS, most developing countries had "weak protection" for pharmaceutical patents. This took the form of short patent terms (typically 4-7 years), narrow scope for defining the invention to facilitate ease of imitation, and relatively permissive use of compulsory licensing to dilute the monopoly power of the patent holder. (Compulsory licenses allow third parties to exploit the technology protected by the patent. Patent holders are compensated, albeit only partially, for the dilution of their exclusive rights through the payment of royalties.) Industrial countries, in contrast, provided "strong protection," with a patent term of about 20 years and limited possibilities for imitation or dilution of monopoly power.

In the Uruguay Round, which offered scope for bargaining and the exchange of concessions between countries, developing countries sought compensation for the likely negative impact of TRIPS. Industrial countries agreed to liberalize their textiles, clothing, and agricultural markets to provide increased access to the exports of developing countries. Higher standards of protection for intellectual property in exchange for better access for clothing and agricultural goods thus constituted the grand bargain in the Uruguay Round between industrial and developing countries.

What is TRIPS?

The TRIPS agreement of the World Trade Organization (WTO) requires all member countries to adhere to minimum standards of intellectual property protection (for example, all technological inventions must be protected for at least 20 years). TRIPS constitutes one of the three pillars on which the WTO now rests, along with trade in goods and trade in services.

The minimum standards of protection in TRIPS cover different kinds of intellectual property, including patents (which grant market exclusivity for technological inventions), copyright (for artistic and literary works), and trademarks (for names and symbols). TRIPS requires that...