Differential Pricing: Piercing or Fostering the Intellectual Property Incentive for Public Health?
SCHRIFTENREIHE DES ZENTRUMS FÜR EUROPÄISCHE RECHTSPOLITIK (ZERP), pp. 113-124, Christine Godt, ed., Nomos, May 2010
Posted: 5 Dec 2010 Last revised: 2 Oct 2017
Date Written: May 4, 2010
The present paper examines the relationship between price differentiation and intellectual property rights (IPRs). We explore this relation from two opposing, yet complementary angles. First, we investigate whether IPRs form a barrier to differential pricing. Do pharmaceutical patents hinder the coming about of price differentiation? What measures can be contemplated to achieve price differentiation in a setting dominated by patents on medicines? Are the measures any different in a world without patents on drugs? Second, we examine the reverse question and explore if, and if so to what extent, differential pricing pierces or stimulates the IP incentive. Does price control undermine the triggering role patents are assumed to play in fostering advancement in the health care field? Does the prospect of differential pricing discourage innovation in the health care sector?
The present contribution will not expand on the value of health , the right to health (care), nor on the specific relationship between the right to health (care) and IPRs.
The paper concludes that as to the effect of IP on differential pricing, it is clear that some IP based mechanisms (such as patent pools), as well as some IP safeguards (such as compulsory licenses and government use) may directly or indirectly contribute to the introduction of price differentiation and to the supply of the market with HIV drugs at affordable prices. Applying the compulsory license or the government use provision to achieve reduction of excessive prices of essential drugs seems to be in line with the TRIPs Agreement. It is doubtful, however, whether use of the compulsory license or the government use provision to coerce a patent holder to provide essential drugs at nominal cost or for free is compatible with the TRIPs Agreement, imposing an “adequate remuneration” for the patent holder.
As to the effect of differential pricing (achieved by measures discussed in the present paper, or other measures such as market segregation, exhaustion and parallel import, pooling of public procurement or bulk purchases) on the IP incentive and on innovation, it remains unclear what the long run effects will be on research and development into new drugs. Further economic research is needed to examine whether differential pricing either pierces or fosters IP incentives for public health, and whether more widespread differential pricing is economically feasible.
In short, IP may contribute to and does not necessarily hamper the establishment of differential pricing, on the contrary. It remains to be seen whether differential pricing hampers innovation and IP.
Keywords: HIV Drugs, AIDS, Antiretrovirals (ARVs), Bremen Declaration, Corporate Philanthropy, Confidential Rebates, Patent Pools, Unitaid Pool, Compulsory Licences, Government use, TRIPs Agreement, Funding, Subsidies, Millennium Development Goals
JEL Classification: D23, D45, H 41, H51, I18, K11, L14, L4, L 65, O13, O31, O32, O34
Suggested Citation: Suggested Citation