The international framework for extending patent rights to pharmaceuticals in developing countries, as spelled out in the TRIPs Agreement, continues to provoke widespread criticism and intense debate. This paper begins by examining the arguments for and against stronger global patent protection for pharmaceuticals. It focuses on what markets affected by different diseases stand to gain under such regulations, and what they stand to lose—the incentive to invest in research and development versus the deadweight loss of protection. Lanjouw argues that the optimal mechanism may require differential treatment for innovations based on the characteristics of the disease and on the intended market. She considers the benefits and drawbacks of traditional mechanisms for differentiating between types of protection and proposes a new mechanism.

The author’s argument for differential protection is based on the observation that there are two very different types of drug markets, created by two different kinds of diseases: neglected diseases that primarily affect developing countries, and global diseases that are widespread in both rich and poor nations. In the case of neglected diseases, patents may provide an incentive and spur research on pharmaceutical products for the developing world. As for global diseases, the justification for patent protection in developing countries is less clear. The aim of differential protection is twofold: to stimulate innovation in the treatment of neglected diseases, and to guard against price erosion in major markets while continuing to provide affordable treatments for global diseases in developing countries.

Lanjouw reviews existing intellectual property and regulatory mechanisms and considers how effective they are at providing differentiated patent protection. She then considers the benefits and drawbacks of three alternatives: controlling what products are eligible for patent protection by legislating exclusions for certain subject matter, price control regulation, and compulsory licensing. The author examines the economic and political factors involved in implementing each policy and concludes that all three alternatives have serious drawbacks.

Lanjouw proposes a new mechanism that would require patentees to select a protected market, either rich countries or developing nations, whenever they create a pharmaceutical innovation relevant to the treatment of a “listed” global disease. Patent owners would presumably opt for protection in rich countries, which would allow competition and lower prices in poor ones. In the case of a non-listed disease (including neglected diseases specific to poor nations), patentees would be granted global protection. Designation as a poor country would be determined using statistics from the United Nations; diseases would be listed if the expected profits from treatment sales within an identified group of poor nations fell below a specified threshold. One of the main advantages of the proposed mechanism is that the decisions regarding protection (i.e., where to seek it, the profitability of different markets, which diseases are impacted, etc.) are made by the agent with the best information—the innovating pharmaceutical firm—rather than by a regulatory body. The mechanism is also compliant with TRIPs, a major factor given how difficult it is to amend the agreement. Finally, the mechanism is designed to ensure that administration and enforcement costs remain very low and are triggered only in the event of a lawsuit—an unlikely occurrence given the mechanism’s construction.

Any new intellectual property protection framework for pharmaceuticals should help to provide drugs in poor countries at affordable prices and encourage innovation in treatments for neglected diseases.
Lanjouw’s mechanism provides an effective remedy to the first challenge, but it leaves the second unanswered. On this front, the mechanism runs up against many of the same limitations that render existing policies ineffective: