Biden’s Patent Madness

By Michael M. Rosen

Saturday, May 22, 2021

 

When the Biden administration announced in early May that it supported suspending global intellectual-property protections for COVID-19 vaccines, much of the world applauded. Advocates for the waiver of the so-called Trade-Related Aspects of Intellectual Property Rights (TRIPS) argued that relaxing patent rights for the medicines developed by Pfizer, BioNTech, Moderna, AstraZeneca, and Johnson & Johnson would enable generic manufacturers the world over to produce much cheaper yet equally effective vaccine doses in mass quantities and swiftly distribute them to the neediest places on the planet.

 

“This is a global health crisis,” U.S. Trade Representative Katherine Tai said in a press release, “and the extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures.” While the Biden administration “believes strongly in intellectual property protections,” its “aim is to get as many safe and effective vaccines to as many people as fast as possible.” And so, she said, America would support a pending petition before the World Trade Organization (WTO) to waive TRIPS protections.

 

India—which, along with South Africa, presented the petition to the WTO in October 2020 and which has been suffering this spring through an unprecedented explosion of COVID infections and deaths—expressed its “appreciation” for the Biden announcement. “We will continue to work with all stakeholders in the U.S. to collectively fight the global pandemic,” its ambassador to the U.S. said, “including through equitable distribution of affordable vaccines for global public health at this critical juncture.”

 

Meanwhile, the director-general of the World Health Organization (WHO) “commend[ed] the United States on its historic decision for vaccine equity and prioritizing the well-being of all people everywhere at a critical time,” declaring the decision “a powerful example of American leadership to address global health challenges.”

 

Domestic praise for the Biden move was equally extravagant. “I applaud President Biden and his administration for taking this bold step in response to the world’s most urgent crisis,” Vermont’s Senator Bernie Sanders proclaimed. “Our vaccination efforts here at home will only be successful if vaccination efforts in the developing world happen simultaneously. Supporting this waiver, and putting people over profits, will help us to do that by speeding up the production and availability of vaccines.”

 

“A pandemic,” according to a group of nine Democratic members of Congress, “is not the time to fuss over intellectual property rights”; instead, the “TRIPS waiver will allow sharing of the intellectual property required for vaccine manufacturing to get underway immediately.” Not to be outdone, New York Representative Alexandria Ocasio-Cortez retweeted a CNBC chart depicting a plunge in the stock prices of the COVID vaccine-makers in the wake of the decision, gleefully adding, “Let’s do insulin next.” Texas Democratic Representative Lloyd Doggett, chair of the House Ways and Means health subcommittee, tweeted that “with this waiver, we can share vaccine recipes, largely developed with taxpayer dollars, while assuring reasonable royalties to American manufacturers.”

 

Enough. In point of fact, the decision will not meaningfully accelerate vaccination where it’s most desperately needed. Moreover, it weakens incentives to develop life-saving innovations, including during the next pandemic. Note how it indulges the long-standing desire of those motivated by profit or by disdain for the pharmaceutical industry to undermine the global IP regime. And most telling, it distinctly disadvantages the U.S. relative to China, which in recent years has assiduously enhanced its commitment to intellectual-property-based innovation.

 

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First, the proposed suspension of IP rights actually does far too little. The glacially slow WTO process for authorizing generic formulations of the various COVID vaccines will not come close to resolving or even noticeably relieving the crisis engulfing India and other developing countries at this moment. America’s accession to the Indian and South African petition is not being echoed by other countries implicated in the decision—notably Germany, where Pfizer’s partner in innovation, BioNTech, is headquartered. More generally, the WTO’s TRIPS deliberations are carried out in an endless parade of sclerotic committees, which means bureaucratic delays and other holdups are guaranteed. Indeed, as even Tai recognized in her statement, the “negotiations will take time given the consensus-based nature of the institution and the complexity of the issues involved.”

 

Then, too, once authorized, generic manufacturers will have to begin minting copies of the pioneering shots that can satisfy myriad health and safety regulations across dozens of countries. Exhibit A in the inherent sluggishness of this process is Moderna, which announced in October it would voluntarily forgo enforcement of its patents on the COVID vaccine. Even so, as of this writing, no generic manufacturer has taken up its invitation. Exhibit B: India’s regulators have yet to authorize the Pfizer vaccine for domestic use, rendering any generic version of that jab useless.

 

While a pharmaceutical patent often provides the ingredients for a vaccine, it doesn’t always provide the instructions needed to assemble it, and generic drugmakers will require additional time to obtain, perfect, and execute those instructions. Getting rid of patent protection removes none of these formidable obstacles; indeed, the CEO of the Serum Institute of India flatly rejected any suggestion that patents have impeded the rollout of vaccines in developing countries. By the time effective generic production comes online, many months from now, the crisis will have passed, and hundreds of thousands more people will have died.

 

Far more effective than permitting the fabrication of generic vaccine doses, then, would be ramping up existing vaccine production, distribution, and export by the creators of the vaccines themselves—along with providing deep-freezers, refrigerated storage and transportation, and other logistical support to supply vaccines to those regions requiring them most urgently. In March, the WHO’s India unit candidly acknowledged “the need for a consistent and seamless cold chain transportation and storage logistics capability, which is the infrastructure we are lacking in the country, and especially in the hinterlands.”

 

To this end, the various vaccine-makers have already contributed tens of millions of doses to the WHO’s COVAX program, which has been laboring to vaccinate the developing world. AstraZeneca, which developed the jab used most frequently in the United Kingdom, forged a technology-transfer partnership with the Serum Institute in order to fulfill their “long-held commitment to broad and equitable access around the world.” All these voluntary efforts should be applauded and redoubled, but we hear no praise for the pharmaceutical makers from Washington’s liberal policy elite at all.

 

How about, instead of vitiating intellectual property rights, the U.S. government simply foots the bill for doses all around the world at a relatively modest cost, which some experts estimate at $50–$75 billion? This expenditure isn’t trivial, of course—but it pales in comparison with the trillions in new spending that the administration has recently championed. And would far more effectively promote American interests as an expression of our “soft power” while adding necessary protection to Americans from the spread of global variants that could bring new iterations of the virus back to American shores.

 

Second, the waiver proposal does too much. It effectively erases intellectual-property protection for the truly miraculous formulations developed by pharmaceutical companies, in astoundingly short order, that succeeded in throttling the severest pandemic to rage in over a century. These extraordinary technological advances owe a substantial debt to the patent system, which transforms risk and creativity into success.

 

Patents the world over constitute solemn contracts between innovators and the public. To borrow from Thomas Edison, in exchange for inspiration and perspiration, as well as open disclosure of the results of both, inventors are entitled to the exclusive use of their invention for a limited period of time. In the U.S. and other Western countries, the patent system has ignited the most spectacular efflorescence of ingenuity in the history of humanity, perhaps most blazingly in the life sciences. The TRIPS regime in particular was established by the 164 member-nations of the WTO to “facilitat[e] trade in knowledge and creativity” and to reflect the “legal recognition of the significance of links between IP and trade.”

 

In this instance, the vaccine pioneers invested billions of research-and-development dollars to create a product that isn’t, in fact, wildly profitable. Even Pfizer’s critics concede that its profit margin likely doesn’t exceed 20 percent, which is far less than consumer-electronics makers or software developers net. What’s more, that margin reflects Pfizer’s sales at relatively high cost to Western countries thus far; it will surely decline going forward as the company provides shots to less prosperous locales.

 

For the much smaller Moderna, now the darling of the biotech world, its innovative mRNA mechanism was literally a bet-the-company affair, and it deserves at least to be repaid for its substantial investment. In February, its CEO told Yahoo News that, had the vaccine failed its clinical testing, the company would have faced bankruptcy. And while Moderna has relaxed enforcement of its vaccine patents, the TRIPS waiver could force its entire mRNA mechanism into the public domain for all applications, including for use in vaccines against future diseases.

 

To be sure, the Warp Speed program adopted by the Trump administration pumped taxpayer cash into the coffers of these companies to supplement their own capital that they put at risk, but they have repaid that investment handsomely by providing hundreds of millions of vaccine doses in record time—an assembly-line triumph that is leading the United States out of its COVID-induced torpor. But without the promise of a reasonable payout for an immense investment, it would be foolish to expect the pharmaceutical geniuses that pulled this off to meet the next such global challenge with comparable alacrity. Violating the fundamental patent bargain between the public and industry will wind up severely harming both.

 

Third, the White House’s accession to the TRIPS waiver unwisely vindicates the long-held goals of an unholy alliance of India and South Africa specifically, along with a coalition of assorted Western progressive lawmakers and policy analysts, all intent on eroding IP rights. While the Trump administration and its predecessors resisted the siren song of loosening IP protection, the Biden team has succumbed.

 

Indeed, from the very founding of the WTO, India and South Africa have lobbied to weaken IP protection on pharmaceuticals specifically, owing at least in part to their position at the forefront of the generic-drug-manufacturing industry. While the COVID crisis is indeed dire in India (if less so in South Africa), it also dovetails with the long standing desire of both countries to chip away at patent enforcement in favor of local industry.

 

This is where the bizarre enthusiasms of leftist legislators become highly contradictory. Senators Sanders and Elizabeth Warren cheered the waiver proposal on the ground of “vaccine equity”—global vaccine equity—despite the unlikelihood it will deliver significant relief anytime soon. These lawmakers disdain “fussing” over patent rights because they believe, mistakenly, that innovators and those who invest in them will continue to satisfy their end of the IP bargain even when politicians violate theirs.

 

Other progressive groups have followed suit by using the occasion to launch familiar attacks against the companies. “Tai’s ability to face down the well-funded and powerful pharmaceutical interests fighting against this waiver without fear shows that she was a perfect choice for this crucial job,” thundered a press release from the left-wing Revolving Door Project. The Biden administration’s TRIPS decision has empowered this sort of rhetoric, with entirely foreseeable negative consequences.

 

Fourth, and perhaps most important, American acquiescence in weakening the global patent regime stands in stark contrast to the aggressive pro-IP stance adopted recently by China, America’s chief economic competitor. Long considered a scourge by those who valued intellectual property, and thought by many for decades to be a shameless copyist of Western technology, China has recently and decisively moved up the innovation food chain.

 

Chinese courts now offer fast, reliable, and effective justice, cracking down hard on IP violations. In 2019, some 22,000 patent-infringement cases were filed in Chinese courts, up from 5,000 in 2010. Patent holders win their disputes more than 60 percent of the time, and cases are typically decided within a year—statistics far more favorable to IP holders there than in American courts. New administrative rules entering into force this month provide for higher damages awards and shift the burden of proof to defendants.

 

Furthermore, late last year, Chinese Premier Xi Jinping announced a renewed focus on enforcing IP as a critical source of enhancing national economic strength. “Intellectual property is the core factor of global competitiveness,” Xi told the Politburo last November. “[It] has become a focus of many international disputes. We should dare to fight and fight well. We shall never give up our legitimate rights and national core interests.” Emphasizing the importance of intellectual property to securing Chinese national-security technology, Xi declared, “We can only improve our business environment and elevate the opening up of our country to a higher level and quality if we strictly enforce IP protection.”

 

In April, the Chinese Supreme People’s Court released a Five-Year Intellectual Property Protection Plan focused on strengthening IP protections by making courts more efficient and enhancing their enforcement capacities. There is, of course, much Communist Party bluster contained in these pronouncements, but also little doubt that China means business. Thus, at precisely the moment when the Biden administration is signaling weakness on IP enforcement, China is redoubling its commitment to protecting patents, trade secrets, and the like as a means of advancing its global position. Compounding the problem, at the same time, China has engaged in a vigorous campaign of vaccine diplomacy while the U.S. has remained essentially inert.

 

Given the increasingly high stakes of American competition with China, the waiver threatens to set back U.S. innovation and economic strength in an utterly gratuitous and pernicious manner. The move is a double whammy: It means we are squandering a golden opportunity to maintain competitiveness and build alliances around the world for empty rhetorical benefit.

 

For economic, security, diplomatic, and humanitarian reasons, the Biden administration should intensify, not loosen, the American dedication to intellectual-property rights, even if it must countermand interest groups it seems intent on trying to satisfy. Moreover, the White House should couple that commitment to a robust and systematic effort to export vaccines, necessary equipment, and logistical know-how to the rest of the world at low or no cost. Only in this way can the United States build global goodwill, end the current pandemic, and position itself and its innovators to prevail when the next one arrives.