Intellectual property and innovation vs. envy

January 8, 2008

Some groups have convinced the public that intellectual property (IP) through patents can be skipped and overruled when we're talking about public welfare, public health in particular. The catchword, "patients over patents" summarizes it. Intellectual property rights (IPR) is an important matter that should be respected and strengthened, not weakened, if we want to encourage continuing innovation to battle ever-changing and evolving diseases.

One analogy can be presented this way. Consider you are an agri-biotech company. You have developed a rice variety that can help its consumers boost their immunity against malaria, tuberculosis, and diarrhoeal diseases. It took you two to three decades of painstaking research and development, employing the brightest scientists and most dedicated researchers in the world. Naturally the price of your rice is high, maybe five to 10 times the price of ordinary rice. Then government comes in to compel you to shorten your patent on such rice variety, if not outright skip your IPR to such invention, because many poor people cannot afford to buy that rice, because public health is at stake. How would you feel?

Property rights is the cornerstone of a free society. Remove or weaken property rights and some bully can expropriate your property anytime, from your cellphone to TV, to your song composition and biotechnology invention, and society will border into mediocrity, if not chaos. It will be a society where hard work and innovation will be discouraged, and robbery and envy is encouraged.

The “Cheaper Medicines Bill” currently in Congress is an example of weakening IPR, demonizing the medicine innovators as evil while retaining the multiple taxes on medicines and keeping silent on the limited competition among pharmaceutical companies. If our Congressional leaders really want medicines to become more affordable to the people, they should have crafted a bill that will drastically cut or abolish import tax, VAT, and other taxes on medicines, the way they are debating whether to abolish the import tax and reduce/abolish the VAT on petroleum products as world oil prices have touched the 3-digit level of $100 a barrel. This way, the price of medicines will not only go down, but the number of competing pharmaceutical companies, even drug traders and drug stores will also increase, which will further add more pressure for prices to go down and quality to improve. Let the currently demonized pharmaceutical companies expand to several dozens, if not hundreds, and let them slash each other’s throats in fierce competition.

Theoretically, IPR on an innovation should be forever, not limited to some arbitrary number of years of patent life. Why 20 years? Why not 15, or 23, or any other number of years? When Toyota invented the Corolla, it has forever IPR or patent on that car model, and it prevents Nissan, Ford, Honda, GM, Fiat, Hyundai, or any other car manufacturers from creating another Corolla, but they can create their own car model that has more or less similar features and power as the Corolla, at a different price. So the charge that a patent or IPR is equivalent to a “monopoly” is wrong because competing firms can always produce a similar product or model with a different name.

Thus, the Senate version is wrong in weakening IPR for medicine innovations. Instead of encouraging the entry of more competing medicine innovators from around the world to come into the country through IPR laws that will give them longer term, if not forever protection of their innovation, the Senate version has chosen to discourage their entry.

But the House version is worse because it intends to create another bureaucracy, a drug price control body. Price control attempt by governments of any commodity or service almost always results in even higher prices. This is because price control discourages sufficient supply of good-quality commodities or services, and low supply relative to demand results in higher prices.

"Parallel importation", or the importation of patented or licensed product or service without the permission of the IP owner, is another track in weakening IPR and innovation. Better to have free trade, with no government bureaucracy giving accreditation or authorization of who can do the importation. And free trade necessitates the abolition of import tax as this tax immediately raise the price of the imported good or service.

People, firms, and institutions that are not innovative enough are often driven by envy. They envy those who risked high and later earned high. But risk-takers do not always earn all the time, they also lose since innovation is always a risky undertaking. You do not know whether your invention will be useful or not, and if proven to be useful, you are not sure if the consumers will patronize it or not. And if the consumers will patronize it, you are not sure if government regulations and bureaucracies will allow it to prosper or not.