Generic Incentives for a Balanced Pharmaceutical IP System

1. Prepared by José Luis Cárdenas T., LL.B., LL.M. & Ph.D. May 2013 Generic Incentives for a Balanced Pharmaceutical IP System

2. Agenda • Optimal level of IP protection • Problem of sham patents • Free riding problem • Need of incentive for challenging IP rights • “Effective Reward” in TPP • De-link “Effective Reward” from Patent Linkage • What “Effective Reward” model to follow? • Conclusions

3. Theoretical Framework • Both innovation and health level are drivers of economic growth: • intellectual property rights and especially patents foster innovation = economic growth/health. • Access to affordable pharmaceutical products plays a substantial role in the health level among all countries, which, in turn, it is another relevant driver of economic growth/health.

4. Optimal level Economic Growth Access (+) Innovation (-) Access (-) Innovation (+) Welfare Loss Welfare Loss 0 Level of (Pharma)IP Protection

5. Optimal Level • The proper balance can not be determined ex-ante for a given economy. The existing level of pharmaceutical IP protection will be the result of an ex-post dynamic interaction between IP seekers (IP applicants/holders) and IP challengers, within a given IP landscape.

6. Optimal Level • A patent system will tend to reach an optimal level of pharmaceutical patent protection if symmetric incentives exist, which encourages both IP seekers and IP challengers to act (proper balance). • Only under such a landscape (with symmetric incentives) the dynamic interaction referred above will lead to an optimal level of pharmaceutical patent protection contributing to economic growth.

7. Shampatents IP challenger Optimal level Economic Growth Access (+) Innovation (-) Access (-) Innovation (+) Welfare Loss Welfare Loss 0 Level of (Pharma)IP Protection

8. Economic Incentive needed to compensate costs!!! (Likelihood * Benefit) – Cost > 0 Economically Rational to Challenge … Market Supra –competitive prices Normal return rates $ IP $ IP Seeker IP challenger No $ $ Thirdplayer Free-riding = desincentive for challenging!

9. Preliminary Conclusions • Challenging IP rights is an economic decision • Without symmetric Incentives: welfare loss • Incentives for challenging IP rights lead to optimal level of IP protection.

10. "Effective Reward" in TPP • Article 9, subparagraph 5(d) IP Chapter: “Each Party shall provide: when a Party delays the grant of marketing approval consistent with subparagraph 5(b)(i), provide an effective reward, consistent with the provisions of this Agreement, for the successful challenge of the validity or applicability of the patent” • Means: “Effective Reward” is linked to the acceptance of Patent Linkage!

11. De-link "Effective Reward" from Linkage • No rational for conditioning “Effective Reward” to the acceptance of Patent Linkage • IP rights are itself an economic incentives which need to be compensated with an “Effective Reward” –system in order to approach the optimal level of IP protection.

12. What “Effective Reward” model to follow? • 180-day exclusivity period not necessarily works in other countries (Hatch-Waxman model) • Adjusted to local market/regulatory context

13. Conclusions • Pharmaceutical IP system is currently unbalanced; means welfare loss • Symmetric incentives lead to optimal level of IP protection • TPP should include requirement to implement a “Effective Reward” –system

14. Conclusions • Requirement to implement a “Effective Reward” –system should not be conditioned to the acceptance of Patent Linkage • Should be adjusted to local context

15. Thank you! Joseluis.cardenas@asilfa.cl