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AIDS, IP and the WTO

By Flavio in News
Fri Feb 02, 2001 at 02:43:13 PM EST
Tags: News (all tags)
News

Slashdot linked some days ago to a NYTimes article which described how public AIDS treatment in Brazil has been working very well, despite it being a 3rd world country.

However, the US and WTO don't seem to be very satisfied on how it's run.


The project works on 2 basic principles:

  1. AIDS medicine is manufactured locally by government operated labs WITHOUT paying any royalties to the pharmaceutical companies which developed the drugs (and therefore own their patents). This is done legally because a loophole in WTO's charter which explicitly states that in case of national emergency a nation can disregard intellectual property rules and start manufacturing drugs on its own.

  2. AIDS treatment with relatively cheap locally manufactured drugs ends up being profitable because hospitals end up having a very small number of AIDS patients.
Apparently the US didn't like the idea and has filed suit with the WTO. To further complicate matters, the whole issue hinges on subjective interpretation of WTO's charter.

Check out the full scoop here (in Portuguese). [Babelfish gives a decent translation, so I recommend you use it. I couldn't find coverage of this elsewhere, but the link I provide is absolutely trustworthy.]

To further complicate matters, Brazil already has open litigation in WTO. In theory this [also controversial] matter shouldn't affect any other decision because it regards the legality of Brazil's government subsidy to Embraer, a national airplane manufacturer[1]. In practice both lawsuits make it more likely that the US and Canada will get what they want.

Considering Brazil has in the past exercised moments of blatant disregard for North America's capitalist influence[2] but also succumbed in very peculiar ways, one can't be sure on what to expect of this.

--
[1] Embraer has recently won large contracts which would've been otherwise awarded to Bombardier (a Canadian airplane manufacturer). Brazil and Canada are starting to retaliate commercially and judicially on different sectors of their economies and the situation may get ugly.
[2] which, albeit "the right thing to do", never turned out to be a profitable or pleasant choice

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AIDS, IP and the WTO | 19 comments (19 topical, editorial, 0 hidden)
profitable company #1 vs. profitable company #2 (3.66 / 3) (#1)
by Delirium on Fri Feb 02, 2001 at 01:12:07 PM EST

This isn't just an issue of "big evil US companies vs. poor AIDS patients." There is money being made on all sides of this issue, and the argument is not over if someone will profit, but who. The US pharmaceutical companies who developed the drugs being used feel they have a right to at least some compensation for their work. On the other hand, the Brazilian companies feel they should be able to make money selling the drugs to locals, and if they have to pay royalties to the drugs' inventors they won't have as high profit margins as if they manufacture them royalty-free. As was noted in the article, the royalty-free manufacturing is becoming rather profitable in Brazil.

I think a good solution would be to force them to pay royalties but take into account the country's economic situation and offer them a discount rate.

Profit vs. Profit (4.00 / 2) (#4)
by Flavio on Fri Feb 02, 2001 at 01:49:43 PM EST

Labs that synthesize these drugs without paying royalties exist in several places around the world and the article points out they make a profit even by selling at 90% discount.

I'm all for profit as long as cartels are abolished.

Flavio

[ Parent ]
Profit vs. Theft. (4.00 / 1) (#11)
by physicsgod on Fri Feb 02, 2001 at 10:20:29 PM EST

If Brazil (or wherever) were manufacturing these drugs without profit and without royalties I would have no problem with it, but this is a case of the Brazillian (and other countries') drug companies making money off the labor of the people who developed the drugs. In my world that's called theft and people go to jail for it. If Brazil wants to claim the moal high ground then they need to cut thier profit margins to 0, they could charge for materials and labor, but no profit.

--- "Those not wearing body armor are hereby advised to keep their arguments on-topic" Schlock Mercenary
[ Parent ]
No theft (none / 0) (#16)
by Haraldk on Mon Feb 05, 2001 at 11:42:49 AM EST

"but this is a case of the Brazillian (and other countries') drug companies making money off the labor of the people who developed the drugs. In my world that's called theft and people go to jail for it." Theft? How the heck could you call it theft if no ones loses anything he or she had prior to the alledged theft?

[ Parent ]
theft... (none / 0) (#17)
by your_desired_username on Mon Feb 05, 2001 at 01:04:16 PM EST

You do not understand. If I want something, and I planned to get it, and somebody else gets it, that is stealing, and I want some kind of petty vengence on the jerk who got there first. The fact that it was never mine in the first place has nothing to do with it.

[ Parent ]
They lost... (none / 0) (#19)
by physicsgod on Sun Feb 11, 2001 at 02:53:40 AM EST

The right to make money off their invention. Instead that money went to the brazilians. In effect the Brazilians let the US companies to all the hard work and then start profiting from it. An analogy: We're in a desert, I dig a well, then you come along and start pumping all the water out. Are you stealing? (Hint, where I come from if you did that you'd be lucky to see the next sunrise)

--- "Those not wearing body armor are hereby advised to keep their arguments on-topic" Schlock Mercenary
[ Parent ]
Sliding scales for AIDS drugs do exist (4.50 / 2) (#8)
by johnzo on Fri Feb 02, 2001 at 02:26:34 PM EST

I think a good solution would be to force them to pay royalties but take into account the country's economic situation and offer them a discount rate.

I believe that this situation already exists with anti-AIDS drugs; countries are organized into pricing tiers based on income, and drug prices are geared to match.

South Africa is a weird case according to pharma companies' rules; the high income of the white minority skews their national income to an extent that they're considered an upper-tier nation, so they pay far far more for AIDS drugs than a place like India does. So South Africa passed a law in 1997 authorizing their health departments to import cheap AIDS drugs from those lower-tier nations.

I'm not sure where the situation stands; the Clinton administration got very grumpy about this, even sending Al Gore to South Africa to scold them directly. South African phramaceutical subsidiaries have also filed suit in local courts.

Here's some links that I was able to find:

AIDS' sliding cost scale. (Gwynne Dyer 1999)

Does US Trade Policy Keep AIDS Drugs out of Reach? (HIV Insite 1999)

Title: India, Thailand, Brazil offer cheap AIDS drugs to developing world (Agence France Presse 2000

zo.

[ Parent ]

This is why... (3.00 / 2) (#2)
by theboz on Fri Feb 02, 2001 at 01:21:41 PM EST

Bill Gates donated money towards searching for a vaccine. I think that the companies do need to make a profit, however it should not be at the expense of the victims' lives. Also I'm not sure that the U.S. companies should be able to get any royalties from other countries such as Brazil, unless they have an agreement ahead of time as to what they will pay. I do have a problem with this being intellectual property as well. Things like medicine should have a very short lifetime so that there can be more competition and distribute the medicine more widely. We need to find a way for companies to make enough profit to continue research and development, but at the same time have their products be cheaper and widespread.

Stuff.

Not quite... (4.00 / 2) (#5)
by Pimp Ninja on Fri Feb 02, 2001 at 02:03:46 PM EST

There's one problem with what you say, and that's the fact that the R&D costs that go into developing a new drug and vaccine are immense - and recouping those costs takes years. A company that fails to protect its IP rights in a situation like that won't be around to come up with a second cure.


-----

If we demand from them without offering in return, what are we but better-
dressed muggers holding up the creative at the point of a metaphorical gun?


[ Parent ]
One question (3.00 / 1) (#7)
by theboz on Fri Feb 02, 2001 at 02:08:17 PM EST

Don't these companies get anything of our tax money? I would surely prefer my taxes to go towards finding a cure for cancer rather than giving some idiot senator a free vacation to Hawaii. I would hope they get something from the government to help their research.

Stuff.
[ Parent ]

Irrelevant (4.50 / 2) (#12)
by Pimp Ninja on Sat Feb 03, 2001 at 02:10:57 PM EST

Taxation... That's a touchy subject with me, so i guess i have to admit a bias on this. But i agree with you that i'd rather pay for cures than expensive vacations. But personally, i'd rather pay for neither. Selecting one or the other is literally a matter of the lesser of two evils, and not by much in my books.

That being said, does it matter? And how do we justify the expense to the millions of people who will never catch the diseases in question? The R&D is funded in large part (i don't know the precise percentage, not being an economist :) by those who benefit from it, and this is as it should be.


-----

If we demand from them without offering in return, what are we but better-
dressed muggers holding up the creative at the point of a metaphorical gun?


[ Parent ]
Subsidies (4.66 / 3) (#13)
by winthrop on Sat Feb 03, 2001 at 10:44:32 PM EST

Don't these companies get anything of our tax money?

Yes, pharmaceutical companies derive enormous amounts of money from government spending. I'm not an expert, but I believe there are two primary ways for this to happen:

  1. Tax cuts: Companies get tax benefits for doing R&D. Money being fungible and all, you can consider this basically a direct transfer of wealth from the government to the companies. (They would be doing the research anyway; they have to in order to exist.)
  2. Basic Research: The U.S. and other governments spend billions of dollars on basic research every year, both in-house and through grants. The findings from this research then go into the public domain where the for-profit companies can take the results the last mile from basic research to saleable (and patentable) product. In fact, oftentimes a researcher will do all their research at a government-funded institution like a University until the point when they see a way of recouping the investment, at which point they will move to or found a for-profit company. There is no copyleft on taxpayer-sponsored research.

You can probably tell I'm not particularly happy with government money going to the investors in biotech/pharmaceutical companies, but it is good at least that one way or the other the research is going on.

[ Parent ]

Drugs and Rock 'n' Roll (3.83 / 6) (#3)
by General_Corto on Fri Feb 02, 2001 at 01:49:16 PM EST

There's a strong similarity between drugs companies and the music publishing industry (i.e. your fave CDs). Both work on the premise that they put a lot of cash into a lot of R&D, and when the dust settles, you have a couple of big returns on your investment. In the case of the music industry, of course, you could just fabricate the entire band yourself and skip the talent search, but I digress :)

Given the number of years' worth of research that goes into finding a cure for water on the toenail and other more serious afflictions, it's not to surprising that the drug companies want to recoup the costs of that investment, and preferably over a long period of time (which allows further development of drugs). Because of the spread of online 'pharmacies,' you can't really offer a third world country massivly discounted drugs without having some form of administration in place to watch over distribution, as they'll just end up being sold back to the first world at slightly discounted prices. And, of course, such an administration would cost even more money.

This is a tough situation; people are suffering, others can help, but those others don't want to be placed in a situation where they help themselves out of business.


I'm spying on... you!
Bad situation for all... (3.71 / 7) (#6)
by trhurler on Fri Feb 02, 2001 at 02:03:54 PM EST

The Brazilians clearly cannot pay full US price - this isn't a matter of should or shouldn't, but rather a simple fact - the wealth to do so simply does not exist.

On the other hand, the cost of R&D for these drugs is so huge that one can hardly blame the companies doing that work for wanting compensation; contrary to common claims from people who have never even lived in a nation with a significant drug research firm, much less looked into the matter, this can cost tens and even hundreds of millions of dollars, and that money has to come from somewhere. If you screw over the companies, then you won't get new drug research, and in the long run, that hurts everyone.

A nice solution would be for the drug companies to be allowed to market drugs at different prices in different places and to do so under contracts that prohibit the re-exportation of the drugs. However, existing laws regarding anticompetitive behavior and so on will make this difficult or impossible to achieve. If you really want to see cheap drugs in poor countries, that's what you need to aim for - get the laws, US and otherwise, fixed so that companies can sell at market rates without being sued for antitrust violations and so on. This would be a fix that wouldn't need WTO loopholes or special cases, and it would help everyone, from US drug companies to patients in need of medication all over the world.

--
'God dammit, your posts make me hard.' --LilDebbie

A note about those drug prices (4.42 / 7) (#9)
by Alik on Fri Feb 02, 2001 at 04:12:11 PM EST

The standard reply to "Why are drug prices so damn high?" is "Because the companies have to spend insane amounts of money on R&D." This is true. However, R&D is *not* the major expense for a pharmaceutical firm.

Go look at the annual reports for 1999 of Merck, GlaxoWellcome, SmithKline Beecham, Pfizer, or Roche. (Others might work, but those are the companies whose financials I've reviewed.) In all cases, if you get to the deeply-buried page where they break down their operating expenses, R&D expenditures are about half of the amount spent on sales and marketing. Furthermore, I am told (although I cannot confirm it) that focus-group marketing research has the word "research" in it and is therefore a research expense, not a marketing expense.

In other words, it's not that they have to spend a lot of money to develop the drug; it's that they have to spend a lot of money to get you to desire this drug so badly that you will harass a physician into prescribing it and no other. (Well, either that or bribe us with free lunches and plastic trinkets so that we'll think of their drug above all others.)

Is this ethical? Good business? I don't know. It certainly causes me to have little sympathy for the "But they cost a lot to discover!" argument.

Thanks, Flavio. (4.00 / 3) (#10)
by johnzo on Fri Feb 02, 2001 at 04:21:28 PM EST

Don't the IP battles over the DMCA / DeCSS / DVD region coding / Napster / SDMI / etc seem kinda puny when you consider the ramifications of this particular IP battle? Thanks for injecting some perspective here, Flavio. zo.

No, it doesnt. (none / 0) (#15)
by arcade on Mon Feb 05, 2001 at 07:49:10 AM EST

Don't the IP battles over the DMCA / DeCSS / DVD region coding / Napster / SDMI / etc seem kinda puny when you consider the ramifications of this particular IP battle?

No. The battle is against the so called "Intellectual property" in general. At least from my point of view. I tend to attack the cases that _I_ care about. I expect the people that care about other things to attack the cases THEY care about.

So called "Intellectual Property" (who the fsck can own a thought? Or something that anyone can make?) is, or should be, a thing of the past. Its something some people invented to fuel development.

Those who develop are fully capable of exploiting what they've developed. If they are not, then too bad for them - let people that are able to exploit it and help the world.



--
arcade
[ Parent ]
then (none / 0) (#18)
by spacejack on Mon Feb 05, 2001 at 04:45:39 PM EST

you should try to understand the very large difference between copyrights & patents.

[ Parent ]
R&D won't stop if the companies suffer (none / 0) (#14)
by Peeteriz on Mon Feb 05, 2001 at 06:08:48 AM EST

.. simply because these companies aren't the only researchers around. As the article about AIDS and Brasil describeed, fur most of the drugs used, research came from goverment funded universities, not from the drug companies. The drug companies mostly do manufacturing and marketing, and take other's research.

AIDS, IP and the WTO | 19 comments (19 topical, 0 editorial, 0 hidden)
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