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Post-TRIPS Options for Access to Patented Medicines in Developing Nations

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  • F. M. Scherer
  • Jayashree Watal
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    Abstract

    This article explores the tension between granting patent protection under the TRIPS Agreements and the availability of medicines at affordable prices to developing countries. A crucial consideration under the TRIPS compulsory licensing option is the 'adequate remuneration' paid. A theoretical and empirical analysis shows that the royalties set under past compulsory licenses have been much lower than those that would be established under the 'foregone profits' standard of US patent law. To respect comparative advantage in the supply of licensed drugs, the TRIPS language requiring that compulsory licensing be predominantly for domestic supply needs clarification. The multinational drug pricing strategy that best combines equity with coverage of R&D costs is a variant of Ramsey pricing, under which prices are much lower in nations with low ability to pay and-or high price elasticities of demand than in wealthy nations. Statistical evidence on the prices of 15 AIDS drugs in 18 low- and medium-income nations reveals that tendencies toward Ramsey pricing were at best weak. To encourage Ramsey pricing, parallel exports should be barred from low-income nations, and price controls should not benchmark the prices charged in low-income nations. Outright donation can also enhance the supply of drugs to low-income nations. A quantitative analysis shows that when the marginal cost of production is low relative to 'inventoriable' average cost, donations can actually enhance a drug producer's after-tax profits under US tax laws. Minor tax law changes to enhance donation incentives are suggested. Copyright Oxford University Press 2002, Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Journal of International Economic Law.

    Volume (Year): 5 (2002)
    Issue (Month): 4 (December)
    Pages: 913-939

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    Handle: RePEc:oup:jieclw:v:5:y:2002:i:4:p:913-939

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    Cited by:
    1. repec:van:wpaper:vuecon-sub-12-00013 is not listed on IDEAS
    2. Adriana Breccia & Héctor Salgado Banda, 2005. "Competing or Colluding in a Stochastic Environment," Working Papers 2005-04, Banco de México.
    3. F. M. Scherer, 2003. "A note on global warfare in pharmaceutical patenting," Working Papers 03-11, Federal Reserve Bank of Philadelphia.
    4. Tamara Hafner & David Popp, 2011. "China and India as Suppliers of Affordable Medicines to Developing Countries," NBER Working Papers 17249, National Bureau of Economic Research, Inc.
    5. Acharyya, Rajat & García-Alonso, María D.C., 2012. "Income based price subsidies and parallel imports," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 25-41.
    6. Roy, Santanu & Saggi, Kamal, 2012. "Equilibrium parallel import policies and international market structure," Journal of International Economics, Elsevier, vol. 87(2), pages 262-276.
    7. Sumner J La Croix & Denise Eby Konan, 2006. "Have Developing Countries Gained From the Marriage Between Trade Agreements and Intellectual Property Rights?," Working Papers 200605, University of Hawaii at Manoa, Department of Economics.
    8. Adriana Breccia & Hector Salgado-Banda, 2006. "Competing or Colluding in a Stochastic Environment," Computing in Economics and Finance 2006 423, Society for Computational Economics.
    9. Bond, Eric W. & Saggi, Kamal, 2014. "Compulsory licensing, price controls, and access to patented foreign products," Journal of Development Economics, Elsevier, vol. 109(C), pages 217-228.
    10. Adriana Breccia & Hector Salgado-Banda, 2005. "Competing or Colluding in a Stochastic Framework," Birkbeck Working Papers in Economics and Finance 0504, Birkbeck, Department of Economics, Mathematics & Statistics.
    11. Hornbeck, Richard A., 2005. "Price Discrimination and Smuggling of AIDS Drugs," Scholarly Articles 11186012, Harvard University Department of Economics.
    12. Alka Chadha & Åke Blomqvist, 2005. "Patent Races, “Me-Too” Drugs, and Generics: A Developing-World Perspective," Departmental Working Papers wp0513, National University of Singapore, Department of Economics.
    13. Antonelli Cristiano, 2012. "Compulsory licensing: the foundations of an institutional innovation," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201207, University of Turin.

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