Aidan Hollis and Thomas Pogge discuss Intellectual Property and the HIF.*
Intellectual Property
A key feature of the HIF is that it does not require any substantial changes to the structure of intellectual property or licensing, and largely mimics the structure of the patent monopoly system. Suppose, for example, that a firm requires its own patents plus those of three other parties to market a drug. In the current system, it will have to obtain licenses from the other parties. The same will hold in the HIF system. If a firm develops a new use for an existing product, it will have to make mutually agreeable arrangements with the patentee if the manufacture of the product is covered by a patent, whether in the HIF system or in the patent monopoly system.
There are, however, several respects in which the structure of the HIF differs from that of the patent monopoly system. First, the incentives to challenge patents will be relatively weak, since generic companies will find themselves competing not against a firm with high prices, but against a firm with low prices. If the registrant sold the product at a price below the generic average cost of manufacture, generic firms would find entering such a market unprofitable until the end of the payment period, at which time the patents would be openly licensed. This approach would thus largely eliminate the wasteful litigation which consumes a great deal of the resources of pharmaceutical companies under the present system.9
Second, patentees will be unable to obtain disproportionate increases in profits through evergreening in the HIF. In the current system, small modifications to existing products may extend the monopoly profits. In the HIF system, small modifications are rewarded with small payments. This would diminish incentives for firms to use the patent system strategically.10
Third, firms will be able to make use of patents issued for new uses when those new uses are recognized as new indications. At present, patentees are largely unable to capture the benefits of performing clinical trials to demonstrate efficacy and safety of existing (older) medicines for new indications, leading arguably to inefficient use of our pharmaceutical armament. The problem is that a patent for a new use may not allow the firm to exclude other fi rms from selling the product, since neither the manufacturer nor the pharmacist necessarily knows how the product will be used.11 However, the HIF reward mechanism does not require exclusion: it only requires the patentee to provide evidence that the existing drug was in fact used for the new indication.
Finally, note that the HIF fixes the period of rewards at ten years for new products and five years for new indications. In the current system, the period of exclusivity tends to vary considerably, depending on how long clinical trials and the approval process takes. Since a drug which has longer clinical trials is not inherently a less valuable drug, the current system is flawed in this varied period of exclusivity. The HIF system simply offers a reward period of ten years, regardless of the length of patent exclusivity. This may, in some cases, lead fi rms to choose to use the HIF rather than monopoly pricing, if their expected patent protection under the current system is relatively short. In this respect the HIF provides a superior system of incentives.
** Aidan Hollis and Thomas Pogge, The Health Impact Fund, Making New Medicines Accessible for All, A Report of Incentives for Global Health, 2008