The intellectual property policy requires a "workable" compulsory licensing system

The long-awaited Draft Intellectual Property (IP) Policy, recently published by the Department of Trade and Industry (dti), proposes several key reforms to South Africa’s IP policy. The aim is to introduce changes that will make it more difficult to register patents, easier to “break” patents, and to limit the remedies available to patent holders.

The Draft IP Policy correctly points out that “Knowledge, innovation and technology are increasingly becoming the drivers of progress, growth and wealth. Therefore, South Africa needs to transition towards a knowledge economy, and away from over-reliance on natural resources. A specific framework of conditions is necessary to enable South Africa to make this transition, and an IP Policy is one of the core elements required to achieve this objective”. Contrary to the intention conveyed in this statement, the proposed policy changes will weaken the IP rights environment in SA and create serious ramifications for SA’s economic growth and job creation prospects.

For science, technology and innovation to drive economic growth, SA requires a strong respect for IP rights. Innovators need assurance that their ideas, once registered with the Companies and Intellectual Property Commission (CIPC) and disclosed to be capitalised upon, will receive adequate protection. Predictable laws and institutions that attract and encourage investment are fundamental to economic growth and job creation.

IP rights protection in the pharmaceutical sector is of immediate concern. SA urgently needs to contribute to finding new innovative solutions to combat various diseases prevalent in Africa. Professor Kelly Chibale of the University of Cape Town (UCT)’s Drug Discovery and Development Centre (H3D) states, “Existing unmet medical needs require innovative solutions and the necessary research and development is expensive. Based on recent estimates, on average one new drug could take up to $2.5 billion to discover and develop and represents anything up to 10,000 false starts. Someone has to pay for these costly failures along the way to one success”.

The proposed policy, however, calls for a “workable” compulsory licensing system to be put in place and recommends introducing a non-judicial mechanism for awarding such licences. Compulsory licences allow the government to “break” a patent and give a licence to a local manufacturer (or perhaps, in SA’s case, the proposed state manufacturer, Ketlaphela) to produce a drug. In simple terms, the government wants to make it easier to expropriate IP from innovators by bypassing the courts but this will almost certainly not pass constitutional muster.

For many years, critics of patents have claimed that for HIV/AIDS treatment programmes and various other healthcare interventions to thrive, we need to produce medicines locally and do away with vast swathes of the drug patent and IP regime. The research cited in an article published in the journal Health Affairs debunks this worldview, however, and demonstrates that negotiation and collaboration on mutually beneficial terms provides better returns than simply taking someone’s property.

In the article, Canadian and US researchers, Read Beall, Randall Kuhn and Amir Attaran construct a database of compulsory licensing activity for anti-retrovirals. They then compare the prices attained through compulsory licensing against those in the WHO’s Global Price Reporting Mechanism and the Global Fund’s Price and Quality Reporting Tool. The authors find that “Compulsory license prices exceeded the median international procurement prices in nineteen of the thirty case studies, often with a price gap of more than 25 per cent”. In other words, if developing countries want to obtain cheaper drugs, especially for HIV/AIDS drugs, circumventing patents by issuing a compulsory licence is not a good strategy for securing the best price. The best price is more likely to be obtained through voluntary negotiations.

Given the SA government’s aspirations to weaken property rights by making it easier for it to issue compulsory licences and to establish a state-owned pharmaceutical company, the findings of this peer-reviewed journal article should give it pause to rethink its strategies. Indeed, Beall et al state, “Countries may desire a compulsory licensing strategy as a possible way to build local industry, even if it means overpaying for drugs. However, the ethics of this kind of policy are thorny, since this means that, given a fixed budget fewer antiretrovirals will be bought and fewer HIV/AIDS patients will be treated”.

Rather than trying to make it easier to expropriate property and thwart innovation, policy makers should enact simple reforms that will improve access to medicines. One urgent reform would be to overhaul the process of registering medicines and devices. SA’s drug regulator, the Medicines Control Council (MCC), or its successor, the newly formed South African Health Products Regulatory Authority (SAHPRA), can take more than seven years to approve a drug that typically has already been approved by US or European regulators. This bureaucratic inertia has resulted in a backlog of more than 2,000 drug applications and is denying thousands of SA patients’ ready access to medicines that could cure or manage their symptoms. For cancer and HIV patients, these delays are often fatal.

One solution to improve the registration timelines would be for SAHPRA not to attempt to undertake the entire review process itself, but rather to draw on the work of larger, better-resourced foreign drug regulators. This would prevent duplication of efforts, save public money, and speed up access to medicines.

The dti’s Draft IP Policy takes SA in the wrong direction. Robust IP protections will foster local innovation and attract committed investors who can drive SA’s economic growth and human development long into the future. Without them, we will never make the transition from a resource-based economy to one based on knowledge and ideas.

Author Jasson Urbach is a director of the Free Market Foundation and head of its Health Policy Unit.

This article was first published in ENT News on November 2017

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