An Economic Justification for Open Access to Essential Medicine Patents in Developing Countries

25 Pages Posted: 18 Jul 2012

See all articles by Sean Flynn

Sean Flynn

American University - Washington College of Law; Program on Information Justice and Intellectual Property

Aidan Hollis

University of Calgary - Department of Economics

Michael Palmedo

American University - Program on Information Justice and Intellectual Property; American University

Date Written: June 3, 2009

Abstract

This paper offers an economic rationale for compulsory licensing of needed medicines in developing countries. The patent system is based on a trade-off between the “deadweight losses” caused by market power and the incentive to innovate created by increased profits from monopoly pricing during the period of the patent. However, markets for essential medicines under patent in developing countries with high income inequality are characterized by highly convex demand curves, producing large deadweight losses relative to potential profits when monopoly firms exercise profit-maximizing pricing strategies. As a result, these markets are systematically ill-suited to exclusive marketing rights, a problem which can be corrected through compulsory licensing. Open licenses that permit any qualified firm to supply the market on the same terms, such as may be available under licenses of right or essential facility legal standards, can be used to mitigate the negative effects of government-granted patents, thereby increasing overall social welfare.

Keywords: Patent, Essential Medicine

JEL Classification: l30

Suggested Citation

Flynn, Sean and Hollis, Aidan and Palmedo, Michael, An Economic Justification for Open Access to Essential Medicine Patents in Developing Countries (June 3, 2009). Journal of Law, Medicine and Ethics, Vol. 37, No. 2, 2009, Available at SSRN: https://ssrn.com/abstract=2112418

Sean Flynn

American University - Washington College of Law ( email )

4300 Nebraska Avenue, NW
Washington, DC 20016
United States

Program on Information Justice and Intellectual Property

4300 Nebraska Avenue N.W.
Washington, DC 20016
United States

Aidan Hollis

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-5861 (Phone)
403-220-5262 (Fax)

Michael Palmedo (Contact Author)

American University - Program on Information Justice and Intellectual Property ( email )

4801 Massachusetts Avenue N.W.
Washington, DC 20016
United States

American University ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

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