Did the Indian Supreme Court Help Indians?

You have probably heard of the Indian Supreme Court's ruling regarding Novartis' Glivec patent in a case that was supposedly a struggle between public health interests and intellectual-property rights. In essence, the Indian Supreme Court said, "Patents? We don't need no stinking patents."

The argument of some is that intellectual property rights lead to expensive drugs, which prevent appropriate patients from taking their medicines. Weaken the intellectual-property protection and drugs become cheaper, resulting in more patients being treated and better public health. But is this true?

What if a drug company charges too high a price for a drug like Glivec? If Novartis charges too much, Novartis won't make any money because it won't have any customers and it is hard to stay in business without customers. Companies have a strong built-in incentive to price their medicines appropriately. Because of this, drugs are usually plenty cheap for poor people in India. Novartis reports that 95 percent of patients in India receive Glivec free of charge. You cannot get much cheaper than free.

What weakening intellectual-property rights does in the short-term is make drugs even cheaper because there is more competition from producers. What this does in the long-term is dissuade drug companies from investing in the research and development that will give us tomorrow's miracle drugs. Why invest a billion dollars if you have no hope of getting a return on your investment? Pharmaceutical companies are dedicated, but they are not stupid. So to prevent five percent of its population from paying "a high price" for Glivec, the Indian Supreme Court has created a situation where there will be fewer Glivecs in the future.

Of course, the pharmaceutical industry is a global industry and the return on research and development from other countries, notably the United States, still ushers many new drugs to market. Where does this leave India? As a free rider. India is trying to take advantage of the R&D that you and I pay for.

It is in everyone's interest to give drug companies an adequate incentive to invest in new drugs. To do so, drug companies must be able to price their drugs well above production costs to a large segment of customers to cover the expense of R&D. However, each individual government's narrow self-interest is to seek a low price on drugs--closer to the manufacturing cost--and let people in other countries pay the high prices that generate the return on R&D investments. Each government, in other words, has an incentive to be a free rider. And that's what India is doing.

This is not that complicated. Bandy about concepts like public health and people lose their ability to think clearly. As a thought experiment, take anyone who cheered the Indian Supreme Court's ruling--like The Times of India--and turn their very arguments back on them. Would The Times of India invest money in reporting the news if anyone could take its stories and distribute them for free? No. But it would be fun to try and get a "cease and desist" letter from The Times' lawyers. The Times believes that it owns its stories just as much as Novartis owns Glivec. There is no difference, and if you take away the ownership, you take away the reason to invest. And that hurts us all.

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