Abstract
As the question posed at the end of Sect. 1.1.1 reflects, the case for test data exclusivity is in need of an economic justification. The tension between dynamic competition, necessary to develop new products, and static competition, necessary to keep prices low in the market, makes it inevitable that this exclusivity is justified from the perspective of societal benefit. The fundamental question of ‘why’ must be answered before one can delve into the ‘how’ part of the issue.
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- 1.
‘The strongest and most widely appealed to justification for intellectual property is a utilitarian argument based on providing incentives.’ Edwin C. Hettinger, Justifying Intellectual Property, in 18(1) Phil & Pub Aff. 31, 47 (1989) [hereinafter Hettinger (1989)]. ‘Patents have […] been justified by the fact that they provide an incentive for the production of new inventions.’ Lionel Bentley & Brad Sherman, Intellectual Property, 328, (2nd ed. 2001) [hereinafter Bentley and Sherman (2001)]. Incentive theory is also one of the justifications for copyright protection. Id at 35–6 (explaining that ‘without copyright protection, the production and dissemination of cultural objects would not take place at an optimal level’.) In Machlup’s words, monopoly-profit-incentive is one of the chief arguments for patent protection. He posits that ‘industrial progress is desirable, […] but [it] will not be obtained in sufficient measure if inventors and capitalists can hope only for such profits as the competitive exploitation of all technological knowledge will permit. To make it worthwhile for inventors and their capitalist backer to make their efforts and risk their money, society must intervene to raise their profit expectations. The simplest, cheapest and most effective way for society to hold out these incentives is to grant temporary monopolies […]’. Fritz Machlup, An Economic Review of the Patent System, Study No. 15, Study of the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, United States Senate, 85th Congress, 2nd Session 20 (1958) [hereinafter Machlup (1958)]. The incentive theory is also not without criticism. For example it is questioned whether (1) an incentive is really needed for innovation as many new products are created without any intellectual property protection? (2) if incentives are needed, do they necessarily have to be in the form of exclusive property rights? and (3) even if exclusive property rights may be argued to be the most appropriate incentive mechanism, determining the optimal level of such protection is quite difficult. Bentley and Sherman (2001) at 36 (presenting criticism of the incentive theory in the context of copyright protection). For similar and additional argument with regard to patent protection see Machlup (1958) at 24.
- 2.
See notes Sect. 1.1.1.
- 3.
Hettinger (1989) at 47.
- 4.
According to this theory ‘the right course of action is to promote the general good. This general good can also be described in terms of “utility”, and this principle of utility is the foundation of morality and the ultimate criterion of right and wrong.’ Richard A. Spinello, A Defense of Intellectual Property Rights, 167 (2009) [hereinafter Spinello (2009)]. According to Posner, ‘Utilitarianism […] holds that the moral worth of an action (or of a practice, institution, law, etc.) is to be judged by its effect in promoting happiness – “the surplus of pleasure over pain” – aggregated across all of the inhabitants (in some versions of utilitarianism, all of the sentient beings) of “society” (which might be a single nation, or the whole world’. Richard A. Posner, Utilitarianism, Economics and Legal Theory, 8 J. Legal Stud. 103, 104 (1979) [hereinafter Posner (1979)] (internal citations omitted).
- 5.
Hettinger (1989) at 48. Spinello states that ‘[i]n order to apply [utilitarianism] to intellectual property rights, it is necessary to convert this abstract moral idea into a more practical standard. This standard is usually expressed in economic terms of ‘wealth-maximization’. Thus intellectual property rights, according to this paradigm, are justified on the basis of the fact that they enhance overall social welfare by providing an incentive for new innovation, where social welfare is understood as the maximization of aggregate wealth society gets from its scarce resources’. Spinello (2009) at 167. For a differentiation between classic utilitarianism and the concept of wealth-maximization in Economics, see generally, Posner (1979) (arguing that the ‘difference between capacity for pleasure and production for others as the key to distinguishing utilitarianism and wealth maximization as ethical systems’).
- 6.
Intellectual property laws, especially patent and copyright laws protect information and knowledge aspects of a creation. Both information and knowledge are considered public goods. See Hal A. Varian, Markets for Information Goods, 3 (Draft of April 1998, revised: October 16, 1998) available at http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.66.1159&rep=rep1&type=pdf (last visited 2 June 2016) [hereinafter Varian (1998)] and Joseph E. Stiglitz, Knowledge As a Global Public Good in Global Public Goods, 308, (Inge Kaul et al ed. 1999) [hereinafter Stiglitz (1999)].
- 7.
Varian (1998) at 7 and Stiglitz (1999) at 309–10.
- 8.
Randall G. Holcombe, A Theory of the Theory of Public Goods, 10(1) Rev. Austrian Econ. 1, 1 (1997) [hereinafter Holcombe (1997)].
- 9.
Bentley & Sherman (2001) at 35.
- 10.
Non-rivalry is an inherent quality of a public good (in the present case, information or knowledge). The creator can reproduce another copy as many times as it wants without consuming the original. On the other hand, privately created knowledge is initially excludable. It only acquires the characteristic of non-excludability, once it is disclosed or can be or is visited. Once this happens, the non-rival character of the public good becomes a problem for the creator as it would not be able to stop others from reproducing it. Legal exclusivities are employed to guard the public good’s non-rivalrous nature (and not access to it). As long as another person is not allowed to benefit from the non-rival nature of knowledge (with certain exceptions), access is not a problem. The prime example of such use of exclusivities is in the patent system. The knowledge protected by the patent exclusivity has to be made accessible in order to exclude others from using it. With test data exclusivity too, protection against disclosure of the data is needless. See notes 35–37 and accompanying text in Chap. 1. Legal exclusivities attempt to restore some of the initial excludability of the public good, enabling private appropriation of the the benefits of its exploitation.
- 11.
Holcombe (1997) at 7 (using the example of television and radio broadcasts).
- 12.
Suzanne Scotchmer, Innovation and Incentives, 31–2 (2004).
- 13.
Stoll also makes a similar point: ‘Despite the fact that the patent system serves a different function, it is not farfetched to regard patent protection – if available for the specific product – as adequate compensation also for costs incurred for the market approval’. Peter-Tobias Stoll et al, WTO – Trade-Related Aspects of Intellectual Property Rights 655 (Peter-Tobias Stoll et al ed. 2009) [hereinafter Stoll et al (2009)]. Also see Lucas R. Arrivillaga, An International Standard of Protection for Test Data Submitted to Authorities to Obtain Marketing Authorization for Drugs: TRIPS Article 39.3 in 6(1) J. World Intell. Prop. 139, 149 (2003) [hereinafter Arrivillaga (2003)].
- 14.
It may be argued that patent law does not incentivize the generation of test data. It is an incentive for creation of useful inventions. David I. Bainbridge, Intellectual Property 343 (6th ed. 2007); Catherine Colston & Kristy Middleton, Modern Intellectual Property 57 (2nd ed. 2005). However, the rationale of the patent system is not to incentivize intermediate steps in the inventive activity, nor is it a protection against market risks. The patent system concerns itself with the end result of the inventive activity, which may, in many cases, fail to be considered eligible for patent protection by the society. As per the incentive theory, the society is not interested in the creation of goods/solutions that are not socially beneficial. Patent examinations attempt to separate socially valuable inventions from those that are not. Even then, the patent system incentives fail to stimulate investment in R&D where expected returns from such an investment are negative or insufficient. The case of pharmaceutical products for neglected or tropical diseases is instructive. There, the incentives provided by patent system have failed to stimulate investment in R&D, to find pharmaceutical products that could cure these diseases. The reason is that investors do not see a profitable market, though the need of such products may be much more immediate than many of the lifestyle drugs the industry churns out every now and then.
- 15.
The protection of database provides an analogy for test data protection. Generally, exclusivity protection is not available for the data collected in the databases. The TRIPS Agreement does not protect data or material in the database (see Article 10(2) TRIPS). In the European Union, the Directive 96/9/EC of the European Parliament and of the Council of 11 March 1996 on the legal protection of databases available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31996L0009:EN:HTML (last visited 2 June 2016) [hereinafter EU Database Directive] limits sui generis database protection to ‘obtaining, verification or presentation of the contents [of the database]’ in which there have been ‘qualitatively and/or quantitatively a substantial investment’. The European Court of Justice (ECJ) explained in ¶ 31 of Case C-203/02, The British Horseracing Ltd & Others v. William Hill Organization Ltd. held that ‘[t]he purpose of the protection by the sui generis right provided for by the directive is to promote the establishment of storage and processing systems for existing information and not the creation of materials capable of being collected subsequently in a database’(original emphasis). Hence even the EU Database Directive does not protect new materials or data. The Directive is concerned with the protection of the end product, the database itself and not the intermediate product, the data.
- 16.
For an overview of alternatives to patent incentives, see generally, Stephen M. Maurer, When Patents Fail: Finding New Drugs for the Developing World in Pharmaceutical Innovation: Incentives, Competition and Cost-Benefit Analysis in International Perspective 108 (Frank A. Salon & Chee-Ruey Hsieh ed. 2007).
- 17.
See notes 47–50 in Chap. 1.
- 18.
To be fair, there is a quasi-novelty requirement for pharmaceutical products containing new chemical entities. The US law grants five years of test data exclusivity protection only to pharmaceutical products that contain a new chemical entity. 21 CFR § 314.108(b)(2) (2003). On the other hand, the amended Directive 2001/83/EC of the EU does not put forward any such requirement. See Art 8 and Art 10. However, Art 3(2) of the Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency [hereinafter Regulation 726/2004], provides that the EMA shall approve under the Centralised Procedure pharmaceutical products appearing in the annex of the Regulation as well as products that do not appear in the annex but contains a new active substance not authorized in the Community. In any case, this novelty is only with regard to registration in a jurisdiction and not in the sense of patent law. See Sect. 3.5.2.2 for a detailed discussion of newness requirement of Art 39(3) TRIPS and also in the context of test data exclusivity.
- 19.
For the grant of five year test data exclusivity protection in the US, there is no requirement of proving that the underlying pharmaceutical product is better than the existing therapies. 21 CFR § 314.108(b)(2) (2003). Similarly, three year exclusivity is available where new clinical studies that are essential to the approval of the application are conducted. There too, a requirement of therapeutic advancement is absent. See 21 CFR § 314.108(b)(4) (2003). Similarly, under the amended Directive 2001/83/EC, for receiving eight years data exclusivity and overlapping ten years market exclusivity no therapeutic advancement needs to be shown. However, under the Centralised Procedure established by Regulation 726/2001, a pharmaceutical product has shown ‘significant, therapeutic, scientific or technical innovation’ if it does not contain a new active substance. Art 3(2) Regulation 726/2005. See Sect. 4.2.2 for further discussion. Under patent law, the industrial applicability or utility requirement is present but there too there criteria is not that the pharmaceutical invention should be an advancement over existing products.
- 20.
There may be cases where some novelty and non-obviousness is present in line extensions. In such a case, further patenting for another 20 years could be possible.
- 21.
Fackelmann (2013) at 172–9.
- 22.
This may be seen as similar to the practice of ever-greening of protection of pharmaceutical products. Ever-greening is an attempt at extending a pharmaceutical product’s exclusivity close to its expiry through additional follow-on patents or through new clinical studies. See Andrew W. Hitchings et al, Making medicines evergreen, 345 Brit. Med. J., e7941 (2012) available at http://www.bmj.com/content/345/bmj.e7941.pdf%2Bhtml (last visited 2 June 2016).
- 23.
This includes pharmaceuticals with new chemical entities as well as biologics.
- 24.
Bernard Munos, Lessons from 60 years of pharmaceutical innovation, 8 Nature Rev. Drug Discovery 959, 959 (2009) [hereinafter Munos (2009)].
- 25.
Many observers opine that the R&D model as well as the attitude of the originator pharmaceutical industry is primarily responsible for the decline in availability of truly innovative pharmaceutical products. See generally, Youssef L. Bennani, Drug discovery in the next decade: innovation needed ASAP, 17 Drug Discovery Today, S31 (2012); Robert R. Ruffolo, Why has R&D productivity declined in the pharmaceutical industry? 1(2) Expert Opinion Drug Discovery 99 (2006); Steven M. Paul, How to improve R&D productivity: the pharmaceutical industry's grand challenge, 9 Nature Rev. Drug Discovery 203 (2010). For an analysis of pharmaceutical innovation see FDA, Innovation or Stagnation: Challenge and Opportunity on the Critical Path to New Medical Products (2004) available at http://www.fda.gov/downloads/ScienceResearch/SpecialTopics/CriticalPathInitiative/CriticalPathOpportunitiesReports/ucm113411.pdf (last visited 2 June 2016).
- 26.
Munos (2009) at 962.
- 27.
Id at 966.
- 28.
NIHCM Foundation, Changing Patterns of Pharmaceutical Innovation: A research Report by the National Institute for Health Care Management Research and Educational Foundation, May 2002 available at http://www.nihcm.org/pdf/innovations.pdf (last visited 2 June 2016) [hereinafter NIHCM (2002)].
- 29.
Id at 7.
- 30.
Id at 5.
- 31.
Id at 5–7 and Figure 2.
- 32.
Id at 7.
- 33.
FDA webpage ‘Fast Track, Breakthrough Therapy, Accelerated Approval and Priority Review’ at http://www.fda.gov/forpatients/approvals/fast/ucm20041766.htm (last visited 2 June 2016).
- 34.
NIHCM (2002) at 5.
- 35.
Id at 6.
- 36.
361 new drugs contained an NME where as 558 were IMDs. There were also 116 other drugs included in the study. Id at 7.
- 37.
76 % of all new drugs were rated standard. Id at 8.
- 38.
Id.
- 39.
Id.
- 40.
Id.
- 41.
‘From the first to the second period, total new drug approvals grew from 430 to 605 as many new products entered the U.S. market. In the first period, the FDA approved 350 NDAs for drugs that were either NMEs or IMDs. In the second period, the agency approved 569 such applications, an increase of 219 new products that could be considered innovative to some degree.’ Id at 9.
- 42.
See Figure 7, Id at 10.
- 43.
This means that 192 out of 219 new drugs were no better than what was already available before the year 1995. Id at 9.
- 44.
Id at 10.
- 45.
Id at 14, Figure 10.
- 46.
Id at 16. Also see Fackelmann (2013) at 179 (‘considering both technical and economic risks of any completely new pharmaceutical development, investment appeal thus shifts in favour of line extensions’) and Geoffrey Duyk, Attrition and Translation, 302 Science, 603, 604, (2003) (‘the industry is reluctant to explore and develop de novo disease-preventive agents because of the considerable technical, development, and commercial risks.’)
- 47.
Id at 17.
- 48.
See Sect. 2.1.
- 49.
Oxfam International, All costs, no benefits: How TRIPS-plus intellectual property rules in the US-Jordan FTA affect access to medicine, Oxfam Briefing Paper, March 2007 [hereinafter Oxfam (2007)] available at http://www.oxfam.org/sites/www.oxfam.org/files/all%20costs,%20no%20benefits.pdf (last visited 2 June 2016).
- 50.
The Jordan-US FTA was signed on 24 October 2000 and entered in to force on 17 December 2001. Export.gov, U.S.-Jordan Free Trade Agreement, http://www.export.gov/%5C/FTA/jordan/index.asp (last visited 2 June 2016).
- 51.
Oxfam (2007) at 9.
- 52.
Id at 14.
- 53.
Id at 10 (see Table 1).
- 54.
Id at 15.
- 55.
The situation in Egypt, according to the report, where IP protection was less strict compared to Jordan, there was much more FDI as well as higher licensing activity. Id at 16.
- 56.
Id at 17 citing IMS Health and Jordan Food and Drug Administration.
- 57.
Ellen Shaffer & Joseph Brenner, A Trade Agreement’s Impact On Access To Generic Drugs, 28(5) Health Affairs w957 (2009), at http://content.healthaffairs.org/content/28/5/w957.full.pdf+html (last visited 2 June 2016) [hereinafter Shaffer & Brenner (2009)].
- 58.
Id at w961.
- 59.
‘Some forty-two drugs that are newly patented or covered by data exclusivity in Guatemala had already lost or will lose their patent or data exclusivity, or both, in the United States while remaining restricted in Guatemala.’ Id at w964-5.
- 60.
Id at w963-4 (see Exhibit 3).
- 61.
Miguel E. C. Gamba et al, Impacto de 10 años de protección de datos en medicamentos en Colombia, Serie Buscando Remedio No. 2 (March 2012) available at http://web.ifarma.org/images/files/buscandoremedio/BuscandoRemedio_2.pdf (last visited 2 June 2016).
- 62.
According to the English abstract of the report which is only available in Spanish, ‘[t]his figure was calculated from the total spending on protected new chemical entities during the period, compared with “theoretical” spending at competitive prices. There was estimated a “differential price” by observing price reductions once the data exclusivity protection period expired […] This figure corresponds to the value of the medical insurance of around 146.000 people, in a country that had made enormous efforts to expand the coverage of the Health System in the last 15 years. Considering that the total pharmaceutical market of the country is estimated in US $ 3.3 billion, it corresponds to a non-depreciable percentage of 15 %. It also corresponds to the annual per capita consumption (US $ 67–2010) on medicines of almost 6.2 million Colombian citizens.’ See also Francisco Rossi, Colombian citizens paid US $ 412 million EXTRA due to data exclusivity, available at http://www.lists.keionline.org/pipermail/ip-health_lists.keionline.org/2012-April/002010.html (last visited 2 June 2016).
- 63.
Mike Palmedo, Do Pharmaceutical Firms Invest More Heavily in Countries with Data Exclusivity? 21 Currents: The Int'l Trade L. J. 38, 44 (2013).
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Shaikh, O.H. (2016). Test Data Exclusivity: Raison d’être . In: Access to Medicine Versus Test Data Exclusivity. Munich Studies on Innovation and Competition, vol 4. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-49655-8_2
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