The ‘Patent Bargain’, Public Good & COVID19
Civil society groups demonstrate in February 2021 outside embassies of the United States, United Kingdom, Australia, Canada, Brazil, and other countries, which oppose a temporary WTO patent waiver on COVID-19 health products.

As the hotly contested proposal for an IP waiver on COVID-related health products comes up again for debate on Friday, 30 April at the World Trade Organization’s TRIPS Council, legal expert  Hyo Yoon Kang looks at the foundations of IP law to challenge “TRIPS waiver” naysayers. 

Geneva Health Files [GHF]: You have argued that IP law must serve the global public, not national interests, saying, ‘There is no logical reason why patent law’s grant of monopoly power cannot be curtailed, if its public purpose is not fulfilled.’ Can you elaborate?

Hyo Yoon Kang [HYK]: With my statement, I was transferring the commonly held justification for patent law at the level of national jurisdictions to the global level. Much of modern patent law’s legitimacy rests on the belief that the public will be better served by granting a limited monopoly right in an invention than allowing market competition. This is commonly known as the ‘patent bargain’: private risk is rewarded and incentivised in return for a limited private monopoly right, which in turn is supposed to benefit the public at large in a trickle-down or trickle-across effect. Yet the scale of such a bargain has arguably not been in an equilibrium for some time, as pharmaceutical companies’ price hikes and ever-greening practices [nb. referring to efforts to extend the life of some patents] have shown. Also, not all inventions have the same importance for the public. It is not sensible that medicines are treated in the same way as hair dryers in patent law.

Patent Bargain is Skewed 

In the current COVID-19 pandemic, the scale of the ‘patent bargain’ has become even more skewed against the public interest because monopoly rights are being claimed for inventions that have been effectively de-risked and funded with public taxpayers’ money, not to mention the decade long public support for basic research that has led to these products, such as the United States National Institutes of Health (NIH) funding of  mRNA vaccine technologies. These arguments have been published in the research literature, including The Lancet.. While there is no need to repeat what has already been said, it bears pointing out that – a year into the pandemic – governments have created a de-facto oligopolistic market dominated by a handful of companies that have been subsidised by the public sector, providing fora range of intellectual property protections, ranging from  patents to trade secrets.

How does such a skewed patent bargain play out on the global scale? At least since the 1995 World Trade Organization agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS), what counts as ‘public’ and ‘private’ in the context of IP can no longer be national categories. Yet the understandings of what is ‘public’ and ‘private’ in much of IP law discourse have remained rooted at the national level. The result is a dissonance of legitimacy between a transnationally enforceable IP legal structure and its justification based on 19th century concepts of sovereignty, colonisation and industrialisation.

Existing WTO IP flexibilities enshrined in “31bis” of the TRIPS agreement still make it difficult to export health products manufactured under a compulsory license to other countries in need.
Impracticability of Article 31bis

The history of TRIPS, including the de-facto impracticability of Art. 31 bis is one example. The unwieldy restrictions around, and consequent limited use of this provision – which is supposed to facilitate a country’s export of medicines produced under a compulsory license WTO members that cannot produce the needed medicine in sufficient quantities – illustrates how institutional design has not been a level playing field, and favoured certain multinational corporations over others from the start. We can currently observe the unequal effects of such a legal institutional design in the pharmaceutical industry’s resistance to any compulsory licensing, to the WHO proposed C-TAP patent pool,  and the TRIPS IP waiver  proposal. They clearly illustrate that particular, private interests hosted by a minority of nation-states are pitted against the global majority public health interest.

Serving the Global Public Interest 

This is why we ought to go back to the initial motivation that legitimised patent monopolies in the first place and conceive of the notion of a public clearly as a global public, and not a national one. If TRIPS is the legal architecture that underpins the ability to extract monopoly rent on a global scale, then by the same token, transnational patent law needs to serve a global public’s interest.

Lastly, the public interest in rewarding ‘inventions’ is often erroneously conflated with ‘innovation’ as a desirable good in itself. For example, the term “technological innovation” has been included as TRIPS’ objective in Article 7 of the TRIPS Agreement, albeit with a caveat that it should be of mutual benefit to producers and users of “technological knowledge”. 

Additionally, while much of the PR generated by intellectual property offices, the pharmaceutical industry and the media assume that they are interchangeable notions, in fact “inventions’’, “‘patents” and “innovations” are not the same. The belief that ‘patents equal inventions equal innovation’ is rather a myth. Economic historical research has been inconclusive as to the benefits of patents to innovation until to date.

[GHF] You have also spoken about how “the entanglement of governments with university science-entrepreneurs, venture capitalists and preferred industrial champions, further complicates the notion of what is ‘public’.” Can you elaborate?

[HYK] The notion of ‘public’ is used by a variety of actors with different interests without asking: who does the ‘public’ include, who does it exclude? Are governments acting in the best interest of their citizens?

Sciences are implicated in the erosion of the notion of ‘public’ since at least the Bayh-Dole Act 1980. (It allows for the commercialization of US federally funded research.) But the relationship between scientific research & development and  industrial implementation/production  stretches back to the 19th century and before. Publicly-funded universities and public research organisations are avid users of the intellectual property system, as recent European Patent Office analysis of pharmaceutical patent applications has shown. As much of their interests are monetary in nature now, university science departments, both fundamental and applied, cannot be necessarily understood as  ‘public’ without qualifications; for instance, the high profile CRISPR patent dispute involved scientists in universities or public research institutions, and their spin-offs.

Problem of Profit Motives Pervading Underfunded Universities is Complex 

In my Critical Legal Thinking piece, I  explained the patent interests of Oxford University and their scientists. These existed prior to Gates’ push for an exclusive contract with AstraZeneca, and it is not entirely accurate to portray the university scientists as the innocent victims of commercial influence. There are, of course, some exceptions to the (now unfortunately normalised) figure of the ‘scientist-entrepreneur,’.  I am thinking about Katalin Karikó who was instrumental in inventing the mRNA technology, [but holds no patents on it]. The pressure exerted on scientists by the university administration to apply for patents is not negligible, and the problem of private profit motives pervading underfunded public universities is a complex one.

In relation to a government’s public duties, the pandemic has laid bare how particular, private and corporate interests have permeated what ought to be essentially public processes and decision-making power beyond an advisory capacity. 

‘Venture Capitalist’ Thinking In Government

For example, in the UK, the Boris Johnson government has favoured certain private actors under the guise of having no time for public procurement processes during a pandemic. Some journalists have argued that it was such ‘Venture Capitalist  (VC) thinking’ that led to the UK’s vaccine success. The UK ‘vaccine tsar’, Kate Bingham, is a venture capitalist who has expressed that her vaccine procurement responsibility was ‘outside’ of politics (“Politics is separate”). In a recent FT interview, she claimed such VC thinking entailed that the government could not afford to be “penny pinching,” even if it was public money that she was spending. What is interesting is that the government, or the civil service, is regarded to have no capacity to direct and shape the process of vaccine manufacturing and distribution, whilst being expected to give a carte blanche. In other words, it is asked to pay and shush.

Some US patent academics had, moreover, argued on social media that more financial incentives should be given to pharmaceuticals by the government in order to scale-up vaccine production. Yet the COO of BioNTech stated on German TV that it was not the lack of financial incentive that made the scaling up of vaccine production difficult at the moment.

Need to Strengthen Public Sector Capacity – After Years of Austerity

What this pandemic has demonstrated very clearly, is that we need to strengthen public sector capacity after years of austerity rather than diminishing it. This will reduce the present dependency on corporate actors. Also governments and their officials need to negotiate harder on the public’s behalf instead of accepting without question financial sector mentality in which maximising profit margin is the rational thing to do. Such a mentality forgets that it is the taxpayers’ money, not their own, that they play with. The public underwrites all risk whilst the financial gain is all private and distributed among a small number of shareholders or corporate owners.

Without wishing to diminish the exceptional advances in vaccine development that we have seen in the past year, it is equally important to remember the extraordinary mobilisation of public funding into medical research and supplies which has been unprecedented in our lifetime.

Should the Government Act like a Venture Capitalist? 

It seems therefore odd and disproportionate to me that there doesn’t seem to be a single contract in the UK or US, in which a government has taken co-ownership of a vaccine patent or receives future royalty, precisely because the vaccine development efforts were headed by a venture capitalist or a former pharmaceutical executive who would normally demand such returns on their investments. Beyond this incongruence, there is the fundamental political question – should the government  act like a venture capitalist, at all? For example, the UK government runs the biggest venture capital fund in Europe which has received little scrutiny and is also reported to have taken a stake in Vaccitech, the Oxford University spin-off behind the Oxford/AstraZeneca vaccine. Alternative ways to balance public and private interests could be through IP restrictions on certain subject matters, national compulsory license legislation, and the enforcement of price ceilings on publicly funded inventions, but it will also be interesting to think about higher taxation on IP rent income.

[GHF] Some believe that IP is not a barrier for medicines during the pandemic. Particularly with respect to vaccines. It has been suggested that the WTO TRIPS IP waiver will not sufficiently address access barriers to vaccines or wider medical products – particularly since the waiver itself would  not force technology transfer.

[HYK] The TRIPS waiver proposal does not only comprise patents, but also copyright, industrial design and importantly, undisclosed information, such as trade secrets, in relation to the fight against Covid-19. Trade secrets are also part of IP. They are especially relevant in relation to Pfizer because it has decided to keep its vaccine manufacturing know-how secret.

Some argue that waiving patents is not sufficient because the knowledge-transfer and sharing of know-how are needed. This is certainly true, and also because of the low standard of the disclosure requirements in different national patent laws: the disclosed inventive information in patent documents is often woefully insufficient to be used as a “recipe” or for reverse engineering. That is also why analogising patents with recipes and copies is not accurate.

I find the arguments advanced against the TRIPS waiver proposal claiming that as “patents are not the problem” disingenuous because, even if know-how was shared, tech was transferred, and a vaccine was developed, it would be illegal to produce it without a license –  if the substance, its parts, or its process of manufacture, remains under patent protection. 

The patent holder would continue to hold the power to block vaccine production, regardless of existing or shared expertise and capacity. This is not a good way of clearing all barriers for scaling-up vaccine production in a global pandemic. The IP waiver is therefore necessary as an integral part of a concerted effort to share know-how and scale up production. We need the waiver in order to end the pandemic instead of prolonging it through artificial scarcity. Both IP waiver and tech transfer need to go hand in hand.

Turning the argument on its head, we may ask why is the pharma lobby and Gates Foundation  defending IP so much if it does not matter?  If they are not the problem right now, then why not waive the IP rights temporarily? It seems to me that they are fighting so vehemently against the IP waiver because patents do enable monopoly power, and a future profit pipeline of a huge global market desperate for the vaccine.

From a Purely Financial Perspective – It’s not In the Vaccine Makers’ Interest to End the Pandemic As Soon As Possible

From a purely financial perspective, it is not in the vaccine makers’ and their shareholders’ interest to end the pandemic as soon as possible. Even though policy makers and governments are reluctant to push the pharmaceutical players too hard, the pharmaceutical industry, universities and their technology transfer offices will not self-regulate and voluntarily open license their patents through C-TAP or share their know-how in the latest announced WHO Technology Transfer pool, precisely because it is contrary to their rational commercial self-interest to do so. In my view, there must be both a carrot and stick approach towards the vaccine makers to change their present course. This could include the introduction and implementation of national compulsory license measures.

[GHF] How do you see these IP issues, and the consequent  “capitalisation of knowledge” play out in the future with respect to  biological resources and digital health?

[HYK] I don’t think I can answer the question about biological resources and digital health accurately without looking more into detail into the main issues and players in these fields, but in relation to the latter we will see an increasing overlap of copyright and patent law issues because the key value driving digital health will be access to datasets for pattern recognition and correlation tracing. The current debates about privacy, social media and regulation of AI are instructive for digital health. Similar to internet companies, the valuation of digital health companies will be data and computing-capacity driven.

The role of IP law in the capitalisation of knowledge is that it creates a link between knowledge and speculative value through a legal monopoly right.

In a way, this is nothing new. Intellectual property rights have always acted as currencies of international trade (chemical patents in the 19th century, for example), and have been hence nationalistic instruments of trade policy. It is also nothing new that academic or university science departments have been implicated in industrial policy since the 19th century, which in turn shaped the foundations of modern patent law. Historians of science, science studies scholars, and myself from the patent law side, have studied the different phases and modalities of co-option of science into industry.

What has been novel since roughly the mid-1990s, is the pursuit of IP as not only monopoly for extracting monopoly rent in a commodity market, so via monetisation, (this is the case presently in the Covid-19 vaccine oligopoly), but using IP as a financial tool: either to raise more equity or as technique of financial arbitrage. I have analysed the financialisation of patents as assets. The financial forward-looking, speculative function of IP is reflected in the total reversal in the proportion between physical and intangible assets value in the S&P 500 index between 1975 and 2017. The last forty years have been characterised by increasing financialisation of knowledge-making and uses via IP, both through copyright and patent laws. As already noted, inventions, innovation and IP are routinely and misleadingly conflated today, partly as a result of patent office rhetoric that equates more IP with more innovation. Patents are seen as a key asset in the so-called “knowledge economy” of disruptive innovations. In turn, knowledge enclosures create new forms of colonial dependencies, as we observe now in this current pandemic.

As much of the current financialised economy rests upon monopolies that are enabled through intellectual property law, unless health data and knowledge about them are safeguarded through privacy or other rights-based measures, they will become as monetised and financialised as any other data. If they concern matters of global public health, IP rights will again stand in the way of health equity. I can only hope that we will learn the lessons of this pandemic.

Intellectual property law expert,  Hyo Yoon Kang,  is a Reader in Law at Kent Law School, University of Kent, United Kingdom. Kang works at the intersection of law, history of sciences, and science and technology studies.

Hyo Yoon Kang, IP specialist at University of Kent, United Kingdom

Adapted from the article first published in Geneva Health Files by Priti Patniak, GHF founder and publisher.

Image Credits: Tadeau Andre/MSF , AstraZeneca, Image credit: Shariq Siddiqui).

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