Abolishing COVID-19 vaccine patents with global innovation prizes

November 18, 2020

On Thursday 12th November Owen Jones wrote an article for the Guardian in which he suggested that governments should not permit pharmaceutical companies to claim patents on COVID-19 vaccines.  Jones argues that such monopolistic patents, their enforcement, and the deals for vaccine provision made by some governments to the detriment of others, will result in predictable, avoidable, and highly undesirable global inequities in access to COVID-19 vaccines.

In response, Tom Chivers at Unherd wrote a piece that lays out some of the problems with removing intellectual property rights from pharmaceutical innovations.  Crudely put, the problem is one of incentivising scientific innovation.  As Chivers writes, there is a “real, and to some extent irresolvable, tension” between the two major functions of pharmaceutical companies.  On the one hand, these companies manufacture and distribute drugs – in most cases this can be done very cheaply.  On the other hand, these companies engage in scientific research to invent new drugs, and this process can be eye-wateringly expensive.

One of the functions of the patent system is to allow companies to recoup the costs of innovation via the sale of the final product.  By granted a state-enforced monopoly on the production and distribution of a product, patents ensure that the product can be sold at a very substantial mark-up, without the threat of market rivals selling the same product at closer to marginal cost.  Without this mechanism, Chivers worries, the major financial incentive to pharmaceutical innovation would be removed 

This is a real worry: much scientific innovation costs a huge amount of money, and without the ability to recoup that money, the major economic incentive to expensive scientific innovation is removed.  At the same time, Jones’ concerns about global equity and access to drugs are also real and very serious.  Fortunately, there are institutional solutions that might walk a path between these problems.  As Chivers writes, one possibility is for governments to award financial ‘prizes’ to the creators of effective COVID-19 vaccines:

we (governments, philanthropic agencies, etc) will give whoever comes up with the first vaccine some large amount of money: perhaps $1 billion, on the condition that they then agree to make it in large quantities and sell it at close to marginal cost to the developing world. 

Chivers argues that this approach is flawed, on the grounds that more than one company might produce an effective vaccine, and we don’t want our prize money to arbitrarily reward the first vaccine to be created, which might not be the most effective.

Luckily, this problem can be resolved by simply giving money to more than one company.  Moreover, we can use this institutional mechanism to take a step closer towards Jones’ preferred solution: in exchange for receiving the prize, a drug company forfeits the patent, and the drug enters the public domain.  (This mutually beneficial exchange between state actors and pharmaceutical companies could perhaps if necessary be backed by the threat of IP expropriation if the companies are unwilling to relinquish the relevant IP rights.)

As with any institutional structure designed to incentivise innovation, this idea has strengths and weaknesses.  The ‘collective action problem’ of establishing and administering the ‘COVID-19 Innovation Fund’ would not be trivial.  Ideally, to my mind, one would want such a fund to be administered at an international level, with national governments making contributions to the fund determined by their own level of national wealth – but of course this is easier said than organised.  Moreover, abolishing the IP associated with a drug does not in itself immediately facilitate production and supply of the drug – that is another challenge, requiring its own incentive system. There would be many other institutional challenges and obstacles.  

Nevertheless – we shouldn’t feel trapped in a false dichotomy created by the faulty idea that patents are the only effective mediating mechanism via which scientific innovation can be rewarded.  At the end of the day, patents are just a way that drug companies can make a lot of money.  It is perfectly possible to sever the link between the reward for innovation and the cost of drugs, by simply rewarding innovation directly.  In the case of COVID-19, this is relatively easily done, not least because governments are already spending colossal sums in their COVID responses, and because the costs of not rolling out a COVID vaccine are so high.

In conclusion: there is no good reason not to take seriously the approach of just giving the drug companies a load of money, and making the various COVID-19 vaccines part of humanity’s common treasury of knowledge. 

[Edited to add: I want to make clear that there’s a very extensive literature on these issues, and if I were doing this properly I’d actually discuss some of it – but I don’t have time, so I’m afraid this is the blog post.]

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