A The Emergence of Novel Diseases

In its 2007 World Health Report,Footnote ³ the World Health Organization (WHO) noted the unprecedented rate at which new diseases are emerging. The report identified “at least 39 new pathogens, including HIV, Ebola hemorrhagic fever, Marburg fever and SARS”Footnote ⁴ and cautioned that these diseases, and older well-known ones, “pose a threat to health through a combination of mutation, rising resistance to antimicrobial medicines and weak health systems.”

Today, the best-known novel diseases are Ebola and COVID-19. Ebola is now fading from view but was terrifying not so long ago. Starting in 1976, when it was first discovered in humans, the disease simmered in West and Central Africa, killing a few hundred people a year.Footnote ⁵ Then, in 2013, it suddenly began to spread, ravaging Guinea, Sierra Leone, and Liberia, and sending tendrils into other countries.Footnote ⁶ A delayed but ultimately fierce public health initiative was able to halt the outbreak, but not before 28,000 people had died.Footnote ⁷

The threat that Ebola posed, particularly to the residents of African countries, is not fully appreciated. For example, Lagos, the largest city in Africa, almost experienced an outbreak. Had that happened, hundreds of thousands of people would have died.Footnote ⁸ Nor has the danger of an Ebola pandemic disappeared. An outbreak in the Democratic Republic of the Congo between 2018 and July 2020 killed another 2,300 people.Footnote ⁹ Additional outbreaks are likely.Footnote ¹⁰

As readers are surely aware, the COVID-19 pandemic has been far more globally devastating. As of this writing (December 2022), over 650 million people have been infected and over six million have died.Footnote ¹¹ Although the worst now seems to have passed, waves of increasingly contagious variants have kept the pandemic going.Footnote ¹²

Until recently, most developing countries suffered less from the COVID-19 pandemic than the richest countries, but this comparison no longer holds. Peru now has the highest cumulative death rate in the world, and many other Latin American countries are not far behind.Footnote ¹³ Sub-Saharan African countries, which long enjoyed relatively low infection rates, are now experiencing rising rates.Footnote ¹⁴

When one considers the impacts of COVID-19 infections and deaths on the economy and society of each country, the picture darkens further. Prior to the pandemic, the economies of most developing countries were more fragile than those of the United States or European countries. As a result, they suffered more severely from the lockdowns and the curtailments of exports and travel that the pandemic provoked.Footnote ¹⁵ For the same reason, developing countries are recovering economically more slowly than richer countries.Footnote ¹⁶

The initial success of developing and least-developed countries (particularly in Africa) in curbing the pandemic was attributable not to any special characteristics of their populations or climates, but rather to a combination of (a) their ability to prevent or limit the entry of potentially infected persons, (b) their foresight in imposing stringent limitations on social interactions with which most residents complied, and (c) the low average age of their populations.Footnote ¹⁷ When governments have been unable to curtail transmission through such measures, the results have indeed been catastrophic.

The premier example is Ecuador. Early in the pandemic, one or more infected persons apparently entered Guayaquil, the principal port.Footnote ¹⁸ The resulting outbreak was fierce. The hospitals and morgues were soon overloaded. Infected doctors waited in wheelchairs for their patients to die so that they could use their ventilators.Footnote ¹⁹ Bodies piled up in the streets.Footnote ²⁰ When a lockdown eventually managed to cap the disease in Guayaquil, it began to ravage Quito,Footnote ²¹ and the numbers of new cases continued to rise until May 2021.Footnote ²²

The healthcare systems of most developing countries are no better than that of Ecuador.Footnote ²³ The WHO notes that growth in the numbers of essential medical personnel, such as nurses, is barely keeping pace with population growth in most middle- and low-income countries.Footnote ²⁴ Added to this are a shortage of doctors, prohibitive costs, and infrastructure deficits that make access to healthcare infeasible for the poorest.Footnote ²⁵ In addition, several other conditions common in developing countries contribute to the risk that infectious diseases will spread rapidly: residences are close together (especially in the poor sectors of urban areas); most residents have neither savings nor credit and thus must work to survive; meager internet access limits opportunities to work at home; lack of refrigeration necessitates daily shopping;Footnote ²⁶ and limited sanitation inhibits the adoption of protective measures.Footnote ²⁷ In combination, these factors do not bode well for the Global South.

B Healthcare Nationalism

The second changed circumstance is a surge of what has been called “healthcare nationalism,” which is impeding the ability of developing countries to obtain the pharmaceutical products they need to meet both the new threats and the threats posed by the many diseases that have long been endemic to these countries.Footnote ²⁸

The situation with respect to COVID-19 is the most dire. When vaccines capable of preventing or mitigating the disease began to appear on the horizon, the governments of developed countries purchased, in advance, the bulk of the scarce supply. The governments of most developing countries lacked the resources to make similar anticipatory purchases.Footnote ²⁹ In some of the few instances in which developing countries have been able to place orders, they did not receive the promised supplies on time.Footnote ³⁰ The COVID-19 Vaccines Global Access (COVAX) Facility, a commendable multilateral effort to create a more equitable system for allocating scarce supplies, was unable to correct the imbalance.Footnote ³¹ The net result: the percentages of people in developing countries who are fully vaccinated remain much lower than the percentages in developed countries.Footnote ³²

The impact of the pandemic on nationalism in general and on so-called vaccine nationalism in particular is complex and varies significantly by country and region.Footnote ³³ But there is little doubt that, in the United States at least, popular sentiment supports the principle that the government of each country should satisfy the healthcare needs of its own residents before addressing the needs of the residents of other countries.Footnote ³⁴ That sentiment guided the US government’s response to the HIV pandemic,Footnote ³⁵ has thus far dominated the actions of the Biden Administration,Footnote ³⁶ and will surely remain influential if one of the many other infectious diseases that pose equally severe threats to the human population becomes rampant.

In sum, when confronted with future pandemics, we should expect substantial lags between the widespread introduction of therapies and vaccines in developed countries and the widespread distribution of those same drugs in developing countries. Particularly considering the weak healthcare systems of most developing countries, such lags will likely cause large numbers of unnecessary deaths.Footnote ³⁷

C The Prevalence of Substandard Medicines

The third changed circumstance is that the widespread distribution of low-quality medicines seriously threatens the health of residents in developing countries. This has likely been true for some time, but the scale of the problem has only recently become apparent. In 2017, the WHO, after aggregating many studies, estimated that 10.5 percent of the drugs distributed in low-income countries were either falsified or substandard.Footnote ³⁸ In middle-income countries, the number was barely lower: 10.4 percent.Footnote ³⁹ An even more recent and comprehensive study found the overall rate in low- and middle-income countries to be 13.6 percent and the rate in Africa to be 18.7 percent.Footnote ⁴⁰

The rates vary by type of drug. Least likely to be falsified or substandard are antiretrovirals (ARVs) because most of them are supplied through channels closely monitored by international donors.Footnote ⁴¹ The rates for tuberculosis drugs and antibiotics are higher – somewhere between 6 and 17 percent.Footnote ⁴² Most likely to be falsified or substandard are antimalarial drugs.Footnote ⁴³ In recent years, substandard vaccines have also been distributed in distressing numbers.Footnote ⁴⁴

The presence of falsified and substandard medicines in the market has three serious effects. First and most obviously, patients who consume such drugs obtain either zero or reduced therapeutic benefit. This impact is especially severe in the administration of antimalarial drugs to young children, who are particularly vulnerable to the disease.Footnote ⁴⁵ The most comprehensive study estimates that, roughly 122,000 children under the age of five die each year in Sub-Saharan Africa alone as a result of consuming falsified or substandard antimalarials.Footnote ⁴⁶ As the authors of the study concede, a good deal of uncertainty surrounds these numbers. But there is little doubt that the number of deaths is appalling.Footnote ⁴⁷

Second, when patients consume drugs that are supposed to cure them, but fail to do so, they (and their neighbors) lose faith in medical treatment. In settings where such faith is already shaky, this can diminish their willingness to consult doctors and receive treatment in the future.Footnote ⁴⁸

Finally, consumption of degraded medicines, or a course of treatment in which legitimate and falsified drugs are mixed, accelerates the emergence and spread of drug-resistant strains of the diseases in question.Footnote ⁴⁹ This, in turn, both makes it harder to suppress the diseases with medicines and may diminish the effectiveness of vaccines when they finally become available.

Identifying the sources of substandard drugs in developing and least-developed countries is a difficult task. However, public health officials in Africa and officials in various international agencies tend to believe that most substandard and falsified medicines are now coming from manufacturers in China and India.Footnote ⁵⁰ Most informed observers concur.Footnote ⁵¹ Officials associated with the International Criminal Police Organization (Interpol) are doing their best to locate and punish the firms engaged in this practice.Footnote ⁵² In addition, China recently increased the penalties for distributing falsified medicines.Footnote ⁵³ Unfortunately, the large profits that can be reaped by engaging in this practice, and the difficulty of detecting defective medicines, will likely maintain the market for substandard drugs for the foreseeable future.

To summarize: (a) new diseases threaten the lives of the residents of developing countries;Footnote ⁵⁴ (b) the surge in healthcare nationalism in developed countries impedes the ability of developing countries to obtain from overseas manufacturers the vaccines and drugs they need to address public health threats; and (c) the medicines that developing countries are able to import are frequently contaminated with falsified or substandard ingredients.Footnote ⁵⁵ This combination of developments sharply increases the potential benefits to the residents of developing countries of enlarging capacity for local production of pharmaceutical products.

To be sure, these changes do not neutralize entirely the objections that some economists have long made to augmentation of local production – namely, that it may forfeit economies of scale, increase the costs of drugs, and impair quality control.Footnote ⁵⁶ In the remainder of this chapter, we will note several contexts in which those hazards remain relevant and how the governments of developing countries could, and should, tackle them. But all things considered, the argument for enhancing local production is strong.

A Clearing Legal Space

As we have seen, a precondition of local production is that a firm considering making a drug has the legal right to do so. In the past, this requirement has rarely posed a significant barrier, either because the drug in question was no longer subject to patent protection (as is true of most “essential medicines”) or because the patentee granted the local firm a license (as was true of the Indonesian ventures created by the Japanese firms in the 1970s). However, in the future, a developing country may wish (or need) to enable local manufacture of a new therapy or vaccine without the permission of the patent owner. If so, the government of the country will be obliged to identify some reason why, despite the TRIPS Agreement, doing so would be lawful. Most of the potential reasons have been analyzed extensively in the literature, so we simply itemize them here:

1. (1) Several developing countries are not (yet) bound by the relevant portions of the TRIPS Agreement, either because they are not members of the World Trade Organization (WTO)Footnote ⁷¹ or because they are classified by the Committee for Development Policy of the UN as “least developed countries” and thus need not comply until 2033.Footnote ⁷² They are therefore free to structure their national patent laws to give local firms space to engage in reverse engineering and production of drugs.

2. (2) The Doha Declaration and article 31bis of the TRIPS Agreement leave developing countries considerable freedom to force patentees to grant low-royalty (nonexclusive) licenses to local firms when necessary to meet public health emergencies.Footnote ⁷³

3. (3) By following India’s lead in interpreting stringently the inventive-step requirement (also known as the nonobviousness requirement), developing countries could create space for local firms to manufacture some so-called me-too drugs – that is, those that provide little or no therapeutic advantage over their predecessors.Footnote ⁷⁴

4. (4) By refusing to follow the lead of the United States in extending the duration of patent protection to offset (partially) the time devoted to clinical trials, developing countries could empower local firms to commence manufacturing of a pioneering drug sooner than would be permissible in the United States or other developed countries.Footnote ⁷⁵

A fifth strategy has received less focus to date and thus merits closer attention. “Working requirements” consist of obligations imposed on patentees to “work” their inventions in the countries in which the patents are granted – in other words, to make the products or processes to which they apply available in those countries.Footnote ⁷⁶ Such obligations were once common components of national patent statutes, but during the twentieth century they were abandoned by many developed countries.Footnote ⁷⁷ They have not disappeared altogether, however. A few developed countries (such as the United Kingdom) still have them, and many developing countries have working requirements on their books.Footnote ⁷⁸

Working requirements come in various shapes and sizes. The more stringent ones require patentees to practice the patent within the country (for example, by manufacturing a patented product in a local plant or by granting a license to a local manufacturer); the less stringent permit patentees to satisfy the obligation by exporting to the country patented products produced elsewhere. Some are satisfied if the patent is practiced within any of a set of countries of which the country of issuance is a member. The penalties for violating the requirements range from forfeiture of the patent to various forms of compulsory licenses. Some penalties apply as soon as a patent issues; others take hold only after a prescribed period of time.Footnote ⁷⁹

Those countries that retain working requirements rarely enforce them.Footnote ⁸⁰ One of the reasons is continued uncertainty regarding whether such requirements are compatible with the Paris Convention (the premier multilateral agreement on patent law) and the TRIPS Agreement. Only once has a dispute presenting this issue come close to authoritative resolution. During the early stages of the AIDS pandemic, one of the ways in which Brazil sought to combat the disease was by threatening to enforce a working requirement against the holders of patents on AIDS therapies. The United States formally challenged that initiative as a violation of the TRIPS Agreement but eventually backed down before the claim was resolved.Footnote ⁸¹ Since then, there have been no WTO dispute-resolution proceedings in which the issue has been presented.

In the absence of an authoritative ruling on the issue, many scholars have ventured opinions. Some contend that all working requirements violate article 27 of the TRIPS Agreement – specifically, the prohibition against discrimination on the basis of “whether products are imported or locally produced.”Footnote ⁸² Others contend that at least the subset of working requirements that are enforced through compulsory licenses are justified by reading articles 27, 30, and 31 together or that the apparent hostility of the TRIPS Agreement to working requirements is neutralized by the more generous stance taken in article 5(A)(2) of the Paris Convention. Still others stake out compromise positions.Footnote ⁸³

To clear legal space for local pharmaceutical manufacturers, developing countries might make greater use of working requirements than they do at present, and they might then rely on one or more of the arguments summarized above to resist predictable attacks from adversely affected companies and countries. To be of value in the present context, such a requirement would of course have to define “working” as manufacturing the covered product locally, not merely as a willingness to export products to the country in question. Adoption (and enforcement) of such a duty would force patentees either to set up and operate a local manufacturing facility, to grant a license to a local manufacturer, or to acquiesce in unauthorized production by a local manufacturer – any of which would benefit the developing country at issue.

None of these five options, however, would do much good unless local firms could be confident that they enjoyed the legal authority to implement them. One of the main reasons that strategies like this have been infrequently employed is the uncertainty surrounding whether they could withstand opposition or sanctions from the governments of developed countries sensitive to the interests of the patentees.Footnote ⁸⁴ Two legal reforms would go far to establish confidence in the legality of these strategies.

First, developing countries should create or clarify declaratory-judgment procedures that enable local firms to initiate civil suits against patentees and obtain authoritative rulings in advance regarding their rights to manufacture specific drugs. In the United States, federal courts have limited the availability of such suits because of the so-called case or controversy requirement derived from the US Constitution,Footnote ⁸⁵ but most countries (including most developing countries) have no such constitutional constraint. By exploiting this freedom, developing countries could help local firms ascertain, with minimal risk, what they can and cannot do.

The second reform, by contrast, would require a change in the law and behavior of the United States – and perhaps some other developed countries. In the past, the United States Trade Representative (USTR) has frequently threatened or punished developing countries that had invoked TRIPS flexibilities.Footnote ⁸⁶ The USTR could be required to do the opposite. Several US government agencies already routinely and conscientiously provide private parties with guidance concerning the permissibility of proposed courses of conduct. For example, the Internal Revenue Service (IRS) issues “private revenue rulings” to individuals or firms that want assurance concerning the tax implications of business plans, and the Federal Trade Commission indicates in advance whether specific mergers would be permissible.Footnote ⁸⁷ US law could be amended to require the USTR to do something analogous when asked for guidance by a developing country.

Suppose, for example, that the government of Ghana were considering imposing a compulsory license or a “working” requirement on a COVID-19 vaccine. Prior to doing so, the government could submit a description of the plan to the USTR (and perhaps to either the WTO or the World Intellectual Property Organization) and request rulings from it concerning the permissibility of the initiative in question. The ideal response would consist of a published, reasoned analysis of the compatibility of the proposed initiative with TRIPS and other multilateral agreements. A more modest and practicable response, considering the limited resources and authority of the USTR, would consist of a simple statement that the agency would or would not initiate proceedings to challenge the initiative. The United States would be bound by the USTR’s response, much as the IRS is bound by its “revenue rulings.”

To be sure, the creation of such a mechanism would entail a significant adjustment of the USTR’s responsibilities. For many years, the agency has staunchly defended the interests of the pharmaceutical firms based in the United States whenever they have objected to initiatives by developing countries to promote access to medicine.Footnote ⁸⁸ To provide countries with good-faith determinations of whether it intended to challenge proposed initiatives, the USTR would have to change its practices and culture considerably.

The reorientation might be justified in either of two ways. First, the USTR might be persuaded to take more seriously its current statutory charge. In its own mission statement, the agency interprets that charge as follows: “American trade policy works toward opening markets throughout the world to create new opportunities and higher living standards for families, farmers, manufacturers, workers, consumers, and businesses.”Footnote ⁸⁹ This statement appropriately recognizes that US trade policy can and should be shaped to promote the welfare of all sectors of the US population, not just businesses concerned with maximizing their export markets. In several circumstances, increasing the ability of firms in developing countries to manufacture drugs redound to the net benefit of US residents.Footnote ⁹⁰ For example, if augmentation of local production significantly reduced the presence of substandard antibiotics in developing countries, the resulting inhibition of the development of drug-resistant strains of bacteria would be, in the long run, hugely beneficial to everyone on the planet. Similarly, the universal provision of vaccines could lead to a speedier recovery of the global economy from global pandemics, benefitting everyone, including US residents, in the long run. A preclearance system of the sort proposed above would enable the agency to identify such situations and thus to provide governments and firms in developing countries clarity concerning their authority to proceed.

The second route would be more sweeping and would likely require statutory change. Arguably, the aggressive way in which the USTR has been defining US trade policy since at least 1988Footnote ⁹¹ is no longer consistent with US foreign policy as a whole. The latter certainly includes some degree of attention to the welfare of the residents of the rest of the world.Footnote ⁹² To consistently privilege the interests of businesses based in the United States over the health of the residents of the developing world is no longer (if it ever was) compatible with the overall aspirations of the United States as a player on the world stage. It is also inconsistent with the globalized nature of scientific research today, which is characterized by transnational networks of research institutions and systems of knowledge creation, sharing, and exploitation. Adjusting to the realities of deeply integrated research and development (R&D) systems requires changes, not only in the science and technology policy of the United States, but also in its trade policy. It may well be time to amend the USTR’s charge to reduce the tension.

B Production Triangles

In 2007, the government of Uganda catalyzed an innovative joint venture between Quality Chemicals, a local distributor with no preexisting production capacity, and Cipla Pharmaceuticals, India’s largest generic producer.Footnote ⁹³ Cipla was given an equity share of 38.55 percent; Quality Chemicals was given 61.45 percent. The companies shared equally in the profits of the venture.Footnote ⁹⁴ The government underwrote the venture by guaranteeing a 23 percent stake (as part of Quality Chemical’s local equity) for the first plant, which was completed in 2008. The agencies responsible for the project were the Ugandan Ministry of Health and the Ugandan Investment Agency, which drew inspiration and authority from the Ugandan Drug Policy of 2002 and the Ugandan Investment Code Act of 1991.Footnote ⁹⁵

As part of the venture, Cipla Pharmaceuticals was required not only to build the plant using the blueprints of its WHO Good Manufacturing Practices (WHO-GMP)-compliant plants elsewhere, but also to train all segments of the Ugandan staff – management personnel as well as scientists, chemists, and engineers – over a period of five years.Footnote ⁹⁶ The deliverables specified in the agreement included: implementation of good laboratory practices, engineering for plant maintenance, information on selecting and sourcing of raw materials, organizing supply of other inputs, and planning for contingencies in production, marketing, and distribution.Footnote ⁹⁷ In addition, Cipla was expected to submit dossiers for GMP compliance to the WHO, thereby enabling Quality Chemicals to compete in international bidding processes.Footnote ⁹⁸ Last, but not least, the Ugandan government agreed to purchase all products produced in the plant for a period of seven years.Footnote ⁹⁹

A few analogous ventures are currently in the works. For example, the government of Mozambique has initiated a similar venture that includes the government of Brazil (playing the roles of sponsor and patent licensor) and a local manufacturer, Sociedade Mocambique de Medicamentos.Footnote ¹⁰⁰ But joint ventures of this sort remain highly unusual.

Such “triangular ventures” hold enormous promise for enhancing local production capacity. Their key features are:

• An experienced pharmaceutical firm, a local manufacturer, and the government of a developing country enter a long-term collaboration.

• The pharmaceutical firm provides know-how, training, guidance in creating manufacturing facilities capable of producing APIs, and advice to ensure compliance with protocols established by international organizations.

• The government provides some initial investment in the venture and, equally important, a commitment to purchase substantial quantities of the products of the venture.

• The local firm provides management, marketing, most of the personnel, and much of the financing.

One of the things that makes this model promising is that in many developing countries, the largest purchaser of drugs is the national government, which then distributes them through the public health system.Footnote ¹⁰¹ The government thus has the purchasing power necessary to provide the local firm with a sufficiently large and assured market to get off the ground. To be sure, the government’s purchases are often underwritten by international donor organizations, which oversee the tender process.Footnote ¹⁰² However, those agencies typically favor increasing local production and thus would not balk at arrangements like Uganda’s.

The government’s purchasing power need not be wielded profligately. An unqualified commitment to purchase unlimited quantities of drugs at whatever price the local company set would obviously be inappropriate. Benchmarks and time limits can and should be employed to avoid waste.

Crucial to the feasibility of triangular ventures is the commitment by the government to empower the local firm to manufacture APIs (in the case of drugs) or antigens and adjuvants (in the case of vaccines) by supporting the venture, and also, if possible, to participate in risk-sharing.Footnote ¹⁰³ As indicated above, experience has shown that the production of active ingredients of these sorts is essential to make such ventures profitable, thus minimizing and eventually eliminating the price premium that the government needs to pay for the drugs.

Of course, the details of such triangular collaborations will vary by country and product. Further experimentation as well as adjustments of ongoing projects would be necessary to determine the optimal arrangement in each jurisdiction. But triangular arrangements could go far toward boosting local production of pharmaceutical products, thereby promoting both health and prosperity in nations desperately short of both.

C Apprenticeships

An alternative way to stimulate transfers of the kind of technological know-how that has proven to be critical to local-production initiatives would be to create an apprenticeship program. Hundreds of years ago, apprenticeship was a common and highly effective system for transferring technical knowledge across generations. For example, in the sixteenth and seventeenth centuries, roughly 10 percent of the population of London were apprentices, and two-thirds of adult male residents of the city had at some point served as apprentices.Footnote ¹⁰⁴

This system could be adapted to strengthen the technical and soft skills necessary to build capacity for local drug production. Assume, plausibly, that a US or European manufacturer of a new drug or vaccine refused (or was forbidden by its national government) to export any of its products to developing countries until the needs of consumers in its country of residence were fully satisfied. Without impairing the pace of production, the firm could take on, as apprentices, scientists employed by existing or prospective pharmaceutical firms in developing countries. Working alongside the firm’s managers and scientists, the apprentices would absorb crucial technical knowledge and then return to their countries of residence to set up and run similar production facilities. They would be replaced by another cohort of apprentices, who would in turn return to their countries of origin, and so forth. In this way, firms in developing countries would gain access to the most current knowledge concerning how best to produce safe and efficacious drugs.

The feasibility of such a system is strengthened by the fact that apprenticeships have long been used effectively in German chemical and pharmaceutical firms.Footnote ¹⁰⁵ Increasingly, pharmaceutical firms in other countries are relying on them to train skilled workers.Footnote ¹⁰⁶ To be sure, the level at which the proposed program would operate is different. Instead of training technicians, the goal would be to train the scientists and managers who would be responsible for establishing and overseeing new and complex manufacturing processes. But if apprenticeship can be employed to teach advanced surgical techniques,Footnote ¹⁰⁷ it ought to work in teaching novel pharmaceutical manufacturing methods.

Recently, the Organisation for Economic Co-operation and Development (OECD) has emphasized the importance for African countries to prioritize ways of providing African firms affordable access to technology and know-how.Footnote ¹⁰⁸ One of the OECD’s specific recommendations is that African countries should encourage leading scientists and laboratories to participate in international research consortia and should incentivize local research centers to join international research partnerships.Footnote ¹⁰⁹ Apprenticeship programs of the sort described above would be one way of implementing this recommendation.

Creation of a system of this sort would require three things. First, mechanisms for selecting, coordinating, and supporting the apprentices would have to be established by the governments of developing countries – in much the same way that apprenticeship was regulated by the City of London in the seventeenth century. Second, to avoid corroding the primary markets of the sponsoring companies, the firms in developing countries that benefitted from this model would have to commit credibly not to export drugs to developed countries, and the governments in those countries would have to back the firms’ commitment. Finally, the pharmaceutical firms would have to be persuaded to participate in the system.

The first two of these tasks would of course be the responsibility of the developing countries. Our recommendation is that they move forward on both fronts promptly. Ideally, developing countries should use the regional organizations already in place (such as the African Union) to create such systems. Not only would that be more efficient than constructing country-specific regimes, but it would also reduce the logistical challenges for the pharmaceutical firms.

The third task will likely be the hardest. There is little chance that the major pharmaceutical firms would participate in this system voluntarily. Thus far, the firms that have developed the leading COVID-19 vaccines have shown little interest in sharing any of the information or discoveries they are generating.Footnote ¹¹⁰ Thus, to prompt them to pass on information to scientists from the developing world, they would have to be encouraged in some way – but how?

Three possibilities seem promising. The first capitalizes on the fact that almost all of the firms in the COVID-19 vaccine race have received substantial funding from the governments of the United States or the European Union.Footnote ¹¹¹ The funding provided by the US government has come at various times and in various forms, but in the aggregate already exceeds $9 billion.Footnote ¹¹² This amount is unprecedented, but public funding for pharmaceutical research is not; the percentage of new drugs that are funded in part by grants from governments is large and growing.Footnote ¹¹³ In such circumstances, the governments dispensing the grants that help sustain the research could and should insist, as a condition of acceptance, that the recipients commit to participate in the apprenticeship system described above if the research leads to new products.

Second, when developing new drugs and vaccines, private pharmaceutical firms often rely upon innovations made by government scientists.Footnote ¹¹⁴ In some instances, this reliance may be sufficiently important that, to comply with patent law, the firm would be obliged to include the government scientists in the list of inventors in its patent applications. That, in turn, gives the government substantial leverage, which it could use to insist that the firms participate in the apprenticeship program.Footnote ¹¹⁵

The third possibility capitalizes on the fact that pharmaceutical firms regularly conduct clinical trials of new vaccines and therapies in developing countries. Several trials of COVID-19 vaccines are already underway in African countries.Footnote ¹¹⁶ Such trials require the permission of the governments of the states in which they are conducted. It would be entirely reasonable for a government to condition its approval, not only upon a commitment by the firm to abide by safety requirements, as is routine, but also upon a commitment to participate in an apprenticeship program.

Fulfilling such a commitment would cost a pharmaceutical firm little. Indeed, the firm might well benefit from the insights and efforts of the apprentices. The supplies of drugs to the citizens of developed countries would in no way be impaired. And, by augmenting production capacity within developing countries, the apprenticeship system would save many lives.

D Quality Control

One of the reasons for the disturbingly high number of falsified and substandard medicines in developing countries is that the governments of those countries have inadequate control over drug supplies. This is partly because, as we have seen, most medicines are imported into those countries and, all too often, neither the foreign manufacturers nor the governments of the exporting countries are committed to ensuring that the products meet quality standards.Footnote ¹¹⁷ A major potential benefit of an increase in local production capacity is that it would reduce reliance on substandard foreign manufacturers and create opportunities to purge developing countries of defective drugs and vaccines.Footnote ¹¹⁸

In one important respect, this benefit would be realized automatically. Currently, the introduction of substandard and falsified pharmaceutical products into the supply chains in developing countries is often triggered by stockouts – that is, exhaustion of the supply of drugs. When distributors and pharmacies are unable to meet demand for particular medicines by purchasing them through regular channels, they turn to irregular sources, which, as one might expect, contain much higher percentages of nonconforming products.Footnote ¹¹⁹ Displacing imports with locally produced products would decrease the frequency of such stockouts in three ways. First, the time necessary to transport products from manufacturers to distributors and retailers would of course be shorter, thus enabling quicker responses to surges in demand. Second, local production eliminates customs barriers, where batches of drugs often languish. Finally, local producers are much more likely to prioritize local needs than are foreign manufacturers – and thus to ensure that scarce supplies do not end up elsewhere.

It would be a serious mistake, however, to rely entirely on these direct benefits of local production. The profits that unscrupulous suppliers can earn would remain high, and corruption in some developing countries would ensure that such suppliers could continue to ply their nefarious trade.Footnote ¹²⁰ To prevent the persistence or even exacerbation of the problem, it is essential that initiatives to augment local production be married with enhanced efforts to promote quality.

Such efforts can and should be made at three levels. First, the processes for determining which pharmaceutical products are approved for sale in each country should be improved. Second, manufacturing facilities must be built, maintained, and operated in ways that ensure their products are reliable and untainted. Finally, robust systems of post-marketing surveillance must be deployed to prevent contamination of the supply chain with falsified or poor-quality medicines. Fortunately, major initiatives on all three of these levels are already underway, but they must be intensified and adequately funded.

With respect to the drug-approval process, developing countries are increasingly recognizing, and capitalizing upon, the potential benefits of regional collaborations in creating and operating counterparts to the US Food and Drug Administration (FDA) and the European Medicines Agency (EMA). In Africa, for example, the African Medicines Regulations Harmonization Initiative (AMRH) is making good progress toward accelerating and improving the processes by which drugs are first approved for distribution.Footnote ¹²¹ Among its results is the African Union Model Law on Medical Products Regulation, which has now been adopted in twenty-five countries.Footnote ¹²² Even more promising is a treaty concluded in 2019 that, if fully implemented, would establish a continental African Medicines Agency analogous to the EMA. The fifteenth instrument of ratification of the African Medicines Agency Treaty was recently deposited at the African Union Commission, and the Treaty has now entered into force.Footnote ¹²³ It will enable considerable improvement and streamlining of the mechanisms for securing registration of new drugs in multiple jurisdictions.Footnote ¹²⁴

With respect to manufacturing quality, although few developing countries have already established systems for bringing local manufacturing facilities into compliance with the WHO’s GMP certification requirements,Footnote ¹²⁵ several are currently creating such systems. The United Nations Industrial Development Organization (UNIDO) has developed a “roadmap” for countries pursuing this objective, which has already been successfully implemented in Kenya and Ghana.Footnote ¹²⁶ In short, this is not an easy objective for many developing countries, but it is surely attainable.

Effective post-marketing surveillance systems have proven to be harder to implement, in part because of the ingenuity that unscrupulous counterfeiters have shown in circumventing systems for detecting their wares.Footnote ¹²⁷ But technologies are now available that, in combination, enable inspectors to identify substandard or falsified medicines at any point in the distribution chain. They come in various shapes and sizes. Some facilitate tracking of products from the moment they leave the manufacturers until they are delivered to patients. Comprehensive systems of this type are now in use – or in the process of deployment – in the United States, the European Union, China, India, Brazil, Turkey, and a few other countries.Footnote ¹²⁸ With sufficient funding, such systems could eventually be deployed in developing countries.

A second group of technologies does not rely on tracking, but instead uses visible or “scratchable” codes embedded in the drugs’ packaging to enable consumers to verify the authenticity of pills. The purchaser of a packet uses their cell phone to transmit the associated code to the manufacturer and receives, in response, a text message indicating whether its contents are authentic. Systems of this sort include Sproxil (developed in Nigeria) and Pharmsecure (developed in Nigeria and India).Footnote ¹²⁹

Yet another set of technologies relies upon testing the chemical composition of medicines at various points in the distribution chain. They include:

• High-performance liquid chromatography (HPLC) testing of samples in laboratories that have been qualified by the WHO to conduct such testing.Footnote ¹³⁰

• The “MiniLab,” developed in the 1980s by the Global Pharma Health Fund (and subsequently updated periodically), which makes possible analogous testing in the field.Footnote ¹³¹

• Systems that use a combination of portable scanners (relying on Raman, near-infrared, or Fourier-transform Infrared (FTIR) spectroscopy) and portable digital libraries (containing the spectral profiles of authenticated drugs) to determine, in the field, whether pills contain the ingredients they purport to contain. Examples of initiatives of this sort include the Southern African Quality Assurance Network (SAQAN) (a nonprofit venture with initial deployments in Namibia and Malawi) and RxAll (a for-profit venture with initial deployments in five other African countries).Footnote ¹³²

Systems of the first two types dovetail with patent and trademark law. In other words, they facilitate detection of pills that have been produced or distributed by companies lacking legal rights to do so. They are thus dependent upon quality-control measures (of the sort discussed above) that the authorized manufacturers employ. Systems of the third type instead determine whether tested medicines have the right amount of active ingredients (and are uncontaminated by unwanted substances) regardless of whether they have been lawfully manufactured. In most instances, the two systems will lead to the same results, but not always.

The various mechanisms currently available have features that may prove more useful in some countries than in others, depending on local factors, including the number and capacity of testing labs available, level of coordination across the responsible government agencies, expertise of testing staff, quality of telecommunications networks, transportation, and access to hospitals where drugs are distributed to patients. Regardless of the comparative advantages of any system, the point is that some reliable system of post-market surveillance is essential if the benefits of local production of pharmaceutical products are to be fully realized.

E Regional Organizations and Economic Communities

The final strategy we propose to support local production of pharmaceutical products leverages existing but underutilized regional frameworks to address legal and economic considerations necessary to strengthen the institutional environment in which local producers operate.

Regional integration has long been a significant feature of the international economic order. Starting with European regionalism in the 1958 Treaty of Rome, which established the European Economic Community, regionalism has gradually intensified and today is deeply entrenched in the multilateral trade system. Indeed, the idea of regional integration was codified in the General Agreement on Tariffs and Trade (GATT), which noted explicitly the “desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements.”Footnote ¹³³

The abiding interest in closer trade integration and liberalization has fueled subregional coalitions of countries politically committed to tackling economic development challenges. For many developing and least-developed countries, the formation of such regional economic communities (RECs) was a strategic response to overwhelming development challenges that individual countries lacked resources and capacity to address. The first UN Economic Commission for Africa (ECA) study on regional integration identified a number of benefits from regional integration, including increased foreign and domestic investment; increased global competitiveness; promotion of regional public goods; prevention of conflict; consolidation of economic and political reform; and economies of scale.Footnote ¹³⁴ These benefits, and the effectiveness of the regional institutions that support the integration process generally, offer important benefits with respect to local pharmaceutical production.

The treaties that establish RECs are especially complex (and, for our purposes, important) in Sub-Saharan Africa, which boasts several regional communities, including the South African Development Community (SADC) and the Economic Community of West African States (ECOWAS), with different purposes and overlapping memberships. Without much exception, however, all RECs anticipate deeper regional integration and are largely justified by concerns relating to overcoming major constraints to competitiveness, such as enabling economies of scale in production, achieving leverage in global fora, and enhancing mutual benefit from improved growth and development. These considerations are strongly aligned with the rationale for local pharmaceutical production.

Five aspects of the RECs can be employed to increase the feasibility of enhancing local production of pharmaceutical products. The first and most obvious is scale. Not all developing countries are large enough to support commercially viable pharmaceutical manufacturing firms selling products (directly or indirectly) to domestic consumers. If they are to participate in the initiatives set forth above, they must be combined into groups that enable economies of scale. The RECs provide ready-made combinations of this sort. The populations (in millions) encompassed by the principal developing-country regional communities are set forth in Table 5.1.Footnote ¹³⁵ With the possible exception of the Caribbean Community (CARICOM) and the Gulf Cooperation Council (GCC), all of these are sufficiently large to sustain vibrant and efficient regional pharmaceutical industries.

Second, member countries of RECs typically have similar disease footprints and thus need similar portfolios of drugs. Third, freedom of trading within these blocs means that shipments of goods can move easily and quickly from a manufacturer in one member country to distributors and consumers in other member countries. Fourth, many of the agreements underlying the RECs provide explicitly for cooperation in health matters and thus create legal frameworks that local firms can exploit. For example, article 110(1)(b) of the Common Market for Eastern and Southern Africa (COMESA) Treaty requires that member states cooperate in health “through the facilitation of movement of pharmaceuticals within the Common Market and control of their quality.”Footnote ¹³⁶ COMESA member states undertake to, among other things:

Similarly, article 29 of the SADC Protocol on Health requires that parties cooperate and assist one another in “(a) harmonization of procedures of pharmaceuticals, quality assurances and registration; (b) production, procurement and distribution of affordable essential drugs; (c) development and strengthening of an Essential Drugs Programme and the promotion of the rational use of drugs; [and] (d) development of mechanisms for quality assurances in the supply and conveyances of vaccines, blood and blood products.”Footnote ¹³⁸

In the ECOWAS region, the West African Health Organization (WAHO) is responsible for leading the harmonization of health policies, pooling resources, and strengthening cooperation to address health-related challenges in the subregion.Footnote ¹³⁹ Like SADC and COMESA, ECOWAS adopted a Protocol to establish WAHO that gave the institution a broad policy mandate to address health matters on a regional basis.Footnote ¹⁴⁰

These provisions and associated regional institutions establish clear authority for policymaking and a legal framework that would enhance the viability of local pharmaceutical production, including prospects to address many of the dimensions of the initiatives described in the preceding sections of this chapter.

Some RECs have already experimented with stronger regional commitments to address access to pharmaceutical products. For example, a SADC Pharmaceutical Business Plan was published in 2007 with the overall goal of reducing the disease burden in the region by enhancing sustainable access to affordable, safe, and efficacious essential medicines.Footnote ¹⁴¹ To achieve these targets, SADC identified several strategies aligned with the region’s Protocol on Health: harmonizing standard treatment guidelines and essential medicine lists; strengthening regulatory capacity, supply, and distribution of basic pharmaceutical products through ensuring a fully functional regulatory authority with an adequate enforcement infrastructure; promoting joint procurement of therapeutically beneficial medicines of acceptable safety, proven efficacy, and quality to the people who need them most, at affordable prices; and facilitating trade in pharmaceuticals within SADC.Footnote ¹⁴² Although implementation has been slow, the Pharmaceutical Business Plan provides an institutional platform on which the political commitments of states to local production of pharmaceuticals can be sustained and strengthened over time. Such action-oriented frameworks also offer important context to justify new legal or regulatory tools necessary to deploy strategic initiatives in response to public health challenges in the region.

Even absent formal provisions on health or medicines, regional organizations may operate under more general provisions concerning free movement of goods, security, or human welfare to undertake initiatives to support local production along one of the dimensions we have described. For example, under the general purpose of eliminating technical barriers to trade, the ASEAN Pharmaceutical Product Working Group was established by the ASEAN Consultative Committee for Standards and Quality with the objective of harmonizing pharmaceutical regulations of member countries.Footnote ¹⁴³ Harmonization of labeling standards for pharmaceutical/medicinal products in the ASEAN region was achieved in March 2006,Footnote ¹⁴⁴ and additional harmonization initiatives remain ongoing.Footnote ¹⁴⁵

A comparison of provisions to support local manufacture of pharmaceutical products suggests that most RECs already have the requisite legal and policymaking authority to launch and support local production initiatives (Table 5.2).

Finally, most RECs also have in place governance systems that could be employed to prevent paralyzing struggles among member countries concerning where pharmaceutical manufacturing plants will be located, which courts will have jurisdiction over the firms (particularly for triangular agreements), and which regulations are applicable.Footnote ¹⁴⁶ In their efforts to combat the COVID-19 pandemic, the institutions responsible for the implementation of regional integration agreements have already demonstrated impressive capacity to draw on the authority provided in the relevant treaties to accomplish novel measures such as standardization and deployment of common technology platforms needed to secure public trust in testing data, coordination of pooled procurement of diagnostics and other medical products, and establishment of regional lab-referral networks to assist the poorest countries that lack diagnostic capacity.Footnote ¹⁴⁷

In sum, in parts of the developing world there exist large differences between countries’ infrastructure, human capital, and security. These differences impede countries from relocating their pharmaceutical manufacturing capacity; therefore, organizing regional initiatives would be especially promising to remedy these issues. Even in areas such as the South Asian Association for Regional Cooperation (SAARC), where individual countries are large enough on their own to sustain local industries, regional initiatives may still offer advantages such as possible manufacturing complementarity between nations and common trading tariffs.

A Structure of the PPI

In essence, the PPI is intended to require pharmaceutical companies to devote resources to sharing the benefits of their patented medical inventions for charitable purposes. For each patent acquired from the USPTO, the PPI would require a pharmaceutical company to make a corresponding contribution to a domestic or global social welfare program. The USPTO can be the designated administrator of a pilot PPI program requiring each pharmaceutical company to contribute as PPI funds 1 percent of its annual post-tax profits from sales of patented medical products. Such financial contributions would apply to medical patents registered with the USPTO and already under patent protection, as well as any future medical patents the USPTO grants. Pharmaceutical companies would be able to take a range of actions to fulfill this responsibility, provided that they spend approximately 50 percent of PPI funds domestically and 50 percent internationally.

B 1 percent

With regard to the 1 percent of pharmaceutical companies’ annual post-tax profits from patented medical product sales that would fund PPI actions, a few questions arise. How should such annual profits be calculated? Some patented medical products contain one patent, while others consist of multiple patents. Should these patents be treated as equal? Further, a pharmaceutical company may manufacture many kinds of medical products, not all of which utilize medical patents. As of July 2021, Pfizer has 189 approved drugs and 29 medical patents registered in the United States.Footnote ³³ Some of those drugs use Pfizer’s existing patents, some use Pfizer’s expired patents, and some do not use any patents at all. Should Pfizer’s annual profits be calculated on sales of all Pfizer drugs in the marketplace in a given year or only those that use its medical patents? Pfizer may also license its patents to another company to make and sell medical products. For PPI purposes, should Pfizer’s patent royalties be included in its profits?

This chapter suggests that annual profits for PPI purposes should be determined as follows. First, such annual profits should be calculated based on sales of medical products using a company’s patents. The number of patents used in a medical product should be considered, and medical products that do not use a company’s patents should be excluded from the calculation of annual profits. However, a company’s royalties from licensing its medical patents should be included. Second, such annual profits should deduct the relevant taxes pharmaceutical companies pay.

Pharmaceutical companies should bear the burden of calculating their annual profits derived from sales of their patented medical products, and each should then submit an end-of-financial-year profit report to the USPTO. It would be relatively easy for these companies to calculate such profits. Many are publicly listed companies that utilize accounting firms to prepare documents about quarterly and annual profits for public release, and they also need to make annual tax filings. Therefore, as long as they identify the medical products that use their patents, they can figure out the post-tax profits accrued from sales of these products and contribute 1 percent to the PPI.

Meanwhile, the USPTO should provide channels for the public to make financial donations to the PPI. If the donor designates a specific company that is willing to accept the donation, the USPTO may allocate the donation accordingly. If a donor does not designate a company, the USPTO may allocate the donation to a company willing to use it for PPI actions.

While 1 percent may sound like a small contribution, Johnson & Johnson earned post-tax profits of approximately $15 billion each year from 2018 to 2020,Footnote ³⁴ and Pfizer earned around $11, $12, and $9 billion in 2018, 2019, and 2020, respectively.Footnote ³⁵ Based on these earnings, their respective contributions to a PPI fund would be approximately $150 million and $110 million each year.Footnote ³⁶ Adding other pharmaceutical companies and potential donations, the PPI could contribute enormous amounts of funds to the promotion of public health in the United States and developing countries.

C Review

The USPTO should require each participating pharmaceutical company to submit an annual report detailing the nature, scope, and effects of its actions taken in fulfillment of the responsibility attached to each of its medical inventions. In particular, the report should explain how a company’s expenditures on PPI actions have amounted to the requisite 1 percent of post-tax profits from sales of its medical products. The USPTO could review those reports every five years with a panel consisting of its own administrators, independent patent experts, auditing professionals, and public interest activists. The panel would decide whether a relevant pharmaceutical company has met its responsibility and, if not, make recommendations to the USPTO on mitigating actions the company should take.

Every ten years, the USPTO should conduct a comprehensive review of the PPI, studying its efficacy and how it should be improved with new measures to boost social welfare and safeguards to protect pharmaceutical companies’ interests. For example, the USPTO may review whether any of the five categories of PPI actions should be removed or any new category added. It may also review other issues such as whether 1 percent is a proper rate for financial contributions and how to improve the calculation of annual profits accrued from sales of patented medical products. Therefore, the PPI would continue to create dynamic schemes reflective of social and technological developments. To better implement the PPI, the USPTO should consider how it could collaborate with other governmental agencies, such as the Centers for Disease Control and Prevention, the FDA, and the United States Trade Representative, as well as international organizations such as the World Health Organization (WHO). The USPTO may invite them to share their expert opinions about how to improve the PPI and how to work together on specific programs to enhance the efficacy of pharmaceutical companies’ PPI actions.

Meanwhile, all USPTO decisions (including those by the panel it designates to review the PPI) could be announced subject to judicial review, allowing pharmaceutical companies to utilize judicial proceedings to settle their disputes with the USPTO should negotiations fail. The availability of this dispute resolution mechanism would prevent improper decisions that are unfair to pharmaceutical companies.

Nonprofit organizations may contribute to the PPI through actions such as creating a ranking of best-performing pharmaceutical companies entitled, for example, the World’s Most Responsible Pharma.Footnote ³⁷ Every year, this program would access and rank the performance of pharmaceutical companies’ PPI actions, thereby encouraging companies to design and carry out PPI actions diligently. It would also create an additional oversight system to monitor any problems with PPI actions and generate public discussion about subsequent solutions. Figure 6.1 shows the holistic operation of the PPI:

Figure 6.1 Patent Philanthropy Initiative (PPI)

A The PPI’s Potential Effects on Improving Public Health

How would the PPI promote public health in the United States and developing countries? COVID-19 provides a vantage point for a thought experiment about the PPI’s efficacy. If the PPI had been implemented five or ten years ago, the United States and the rest of the world would have been better prepared to cope with the COVID-19 pandemic.

First, the PPI would provide a feasible framework for large pharmaceutical companies’ sharing of technologies and know-how in developing countries. Deficiencies in the current global approach to technology transfer are evident in the current struggle to provide universal access to COVID-19 vaccines. Vaccine production has been largely limited to wealthy and highly industrialized countries and regions, including the United States, the United Kingdom, and the European Union.Footnote ³⁸ Vaccine acquisition has similarly favored such countries, with nearly 85 percent of all COVID-19 vaccines administered by May 26, 2021 going to people in high-income and upper-middle-income countries.Footnote ³⁹ Patent monopolies and the reluctance of firms to share technology through licenses have prevented pharmaceutical manufacturers in underrepresented regions from taking matters into their own hands, leaving only 43 percent of the estimated global vaccine manufacturing capacity being used as of February 2021.Footnote ⁴⁰

Moreover, even if all COVID-19 vaccine patents were to be waived, a lot of essential information is still not included in the patents, preventing manufacturers from immediately beginning production.Footnote ⁴¹ As complex biological inventions, COVID-19 vaccines are “highly dependent on specific manufacturing processes and practices, many of which are not disclosed in a patent.”Footnote ⁴² The challenge of reverse engineering such processes is one reason behind the expense and delay historically associated with the entry of biosimilars into the market.Footnote ⁴³

The PPI responds to the much-needed transfer of technologies and know-how. In public health crises, the PPI would encourage pharmaceutical companies to increase technology transfer and donate manufacturing ingredients and equipment to boost the production and distribution of vaccines, as well as medicines. After containment, the initiative would promote the medical capacities of low-income regions in the United States and developing countries in the long term. Efforts from developing countries alone have been insufficient to address deficiencies in local production of pharmaceuticals. For instance, through tax and import duty exemptions and import bans on forty-four locally made medicines, the government of Ghana sought to promote local pharmaceutical production and has reportedly established a 30 percent market share for local producers.Footnote ⁴⁴ However, the success of these measures is tempered by “limited product choice amongst local companies, low capacity utilization, and a lack of ability to manufacture APIs or expand production into new therapeutic categories.”Footnote ⁴⁵ Greater efforts by major pharmaceutical companies to transfer technology and know-how could be instrumental in overcoming such deficiencies.

By facilitating technology transfer measures toward developing regions, the PPI could promote greater global access to COVID-19 medicines and vaccines. Pharmaceutical companies would be more willing to transfer COVID-19 vaccine production know-how because their efforts could count toward fulfilling their PPI obligations. Such efforts are critical for enabling vaccine manufacturers in developing countries to ramp up production. As scholars have found, “[to] get off the ground, [firms in developing countries] typically need assistance from the enterprises already engaged in that process. The same is true for vaccines, where the production of bulk antigens remains the most daunting step to be mastered by developing country manufacturers.”Footnote ⁴⁶ Pharmaceutical companies could also take the PPI action of entering into collaborative licenses with vaccine manufacturers in developing countries, which would also promote COVID-19 vaccine production in these countries.Footnote ⁴⁷

Second, the PPI would promote greater self-sufficiency in developing countries, countering the nationalism that occurred at the expense of much of the world’s population during the COVID-19 pandemic. One means of pursuing this goal is through training health-care workers in developing countries. The WHO has declared the scaling up and strengthening of health workforce training and education a priority in both its 2019 Sustainable Development Goals global action plan and 13th General Programme of Work. This plan is intended “to address the global gap of 18 million health workers, and to support, strengthen and empower the existing health workforce.”Footnote ⁴⁸ Similarly, Global Health Progress has operated the Healthworker Programme since 2009 to address “the estimated shortfall of at least 7.2 million health workers.”Footnote ⁴⁹

Third, the PPI could help pursue the more general goal of ensuring universal access to affordable medicines. Drugs fall under two major categories: global drugs created for rich markets but also of benefit to developing countriesFootnote ⁵⁰ (a prime example of which are drugs developed to treat cancerFootnote ⁵¹), and drugs specific to developing countries, such as those designed to treat malaria or tuberculosis.Footnote ⁵² Historically, pharmaceutical investment has overwhelmingly favored research into global drugs. For instance, in 2001, the Harvard School of Public Health surveyed twenty major firms. It found that only eight respondents had conducted research over the previous year into tuberculosis, malaria, African sleeping sickness, leishmaniasis, or Chagas disease, while seven others had spent less than 1 percent of their research and development budgets on any of these.Footnote ⁵³ Currently, funds for research into developing country-specific drugs often come from public or philanthropic sources or public–private partnerships.Footnote ⁵⁴

Pharmaceutical companies under the PPI could, therefore, commit to investing more in addressing developing country-specific diseases to produce more effective drugs and increase competition to drive down prices. This would be instrumental in addressing diseases which have been largely eradicated in rich countries but remain a problem in the developing world. For instance, whereas the WHO recently declared that China was now malaria-free after reporting 30 million annual cases of the disease in the 1940s, malaria continues to kill hundreds of thousands annually, especially in Sub-Saharan Africa.Footnote ⁵⁵ In parts of Kenya specifically, cases are reported to be as high as 725 per 1,000 people.Footnote ⁵⁶ Moreover, the challenge of COVID-19 has undermined existing efforts to combat malaria. For instance, malaria cases spiked in some parts of Zimbabwe after the beginning of the pandemic.Footnote ⁵⁷ This problem could have continued to develop as the antimalaria drug chloroquine did show potential as a treatment for COVID-19, which could have made the drug less accessible for malaria patients in developing countries.Footnote ⁵⁸

B Responsibilities of the USPTO

A International Law Obligations and Constitutional Protection

B Pharmaceutical Companies

The third concern about the PPI’s legitimacy relates to whether it would disincentivize pharmaceutical companies from investing in and developing new medicines and vaccines. There is virtually unanimous agreement that the patent system is designed to promote innovation, as well as the societal benefits innovation provides, by rewarding investment with the opportunity to charge monopoly prices in exchange for the benefits of the innovation.Footnote ¹³⁴ It is therefore necessary to explore whether, in practice, the 1 percent of post-tax profits from patented inventions required by the PPI would harm medical innovation by discouraging investment in research.

Studies have frequently supported the notion that the pharmaceutical industry is especially reliant on the patent system. For instance, one study of US firms found that between 1981 and 1983, around 65 percent of pharmaceutical products would not have been introduced in the absence of patent protection.Footnote ¹³⁵ The study also found that 60 percent of products would not have been developed in the first place, a much higher percentage than in other industries studied.Footnote ¹³⁶ Similarly, a survey of UK research and development managers led economists to estimate that research and development expenditure would be reduced by 64 percent in the absence of patent protection, in contrast to an estimated 8 percent reduction across all other industries.Footnote ¹³⁷ These findings accurately reflect the reality of modern-day research and development in medicine, which typically requires years of work by large teams of scientists and can cost hundreds of millions of dollars.Footnote ¹³⁸ The development of new drugs often takes more than a decade to complete and only around one in eight will survive clinical testing and go on to reimburse firms for their efforts.Footnote ¹³⁹ Once a formula is found, products can be reverse engineered or imitated at very low cost, making it easy for competitors with free access to the market to price out the creators and make it difficult for them to recoup their costs.Footnote ¹⁴⁰ However, research in the 1980s found that the cost of imitating drugs was made 30 percent more expensive thanks to patent protection.Footnote ¹⁴¹

There are multiple reasons to suggest that the PPI is unlikely to have an impact sufficient to undermine patent law’s function in promoting medical innovation. First, pharmaceutical investment in innovation is also based upon demand, and so long as diseases continue to be a problem, pharmaceutical companies will continue to attempt to meet demand. To maximize profits, the pharmaceutical industry tends to focus on drugs to treat chronic conditions that affect a large number of people, and endeavors to stimulate this market demand by spending much more on marketing than on research and development.Footnote ¹⁴²

Moreover, as described, pharmaceutical companies have traditionally focused their research on “global drugs,” which are in the widest demand and offer the largest market.Footnote ¹⁴³ Studies have shown that the pull of market demand has been sufficient to encourage investment in innovation, even following the introduction of limitations on patent rights. For instance, one study of six antitrust consent decrees found that only one resulted in a reduction in investment.Footnote ¹⁴⁴ The study concluded that only the highly predictable imposition of a compulsory license on a very significant market would be likely to discourage innovation.Footnote ¹⁴⁵ As the PPI offers a choice of voluntary measures and will not force pharmaceutical companies to sacrifice their markets for global drugs in large wealthy nations such as the United States, the outcome is unlikely to be any different.

Throughout history, medical innovations have occurred regardless of the level of patent protection available. Commentators offer Switzerland as an example of an environment in which pharmaceutical innovation flourished even in the absence of patent protection.Footnote ¹⁴⁶ In the early 1900s, Swiss pharmaceutical companies began to produce drugs protected in other countries and quickly developed one of the most innovative and successful pharmaceutical industries in the world, resisting international pressure to introduce patent protection for pharmaceutical inventions until 1977.Footnote ¹⁴⁷

Second, an examination of how pharmaceutical companies currently use their funds suggests that the 1 percent of post-tax profits from patented products required by the PPI should not force firms to reduce research expenditure. Currently, the pharmaceutical industry only spends around 1–2 percent of gross revenues on basic research to discover new molecular entities, with most basic knowledge now coming from publicly funded laboratories and institutions.Footnote ¹⁴⁸ Although private pharmaceutical companies continue to be the primary contributor to overall research investment,Footnote ¹⁴⁹ their focus has been increasingly on late-stage clinical development and distribution of products, while academic researchers are increasingly responsible for the discovery and pre-clinical and early-stage evaluation of potential new pharmaceutical products.Footnote ¹⁵⁰

In fact, more pharmaceutical industry funds are directed toward efforts to maximize shareholder value than research and development. For instance, one study of how the eighteen largest US pharmaceutical companies use their profits found that, from 2006 to 2015, 99 percent of profits were distributed to shareholders, with 50 percent as stock buybacks and 49 percent as dividends.Footnote ¹⁵¹ The total $261 billion spent on buybacks amounted to 56 percent of the combined total of research and development expenditure.Footnote ¹⁵² This data suggests that there would be profits available to redirect toward innovation after 1 percent of profits from patented products have been donated through the PPI.

Last, but not least, in addition to assuming more responsibility for early research, the public sector offers many incentives to innovate in the form of funding, subsidies, and other benefits. For instance, though the majority of the National Institutes of Health’s (NIH) 2020 budget went toward funding research in universities, private pharmaceuticals were beneficiaries as well, with the three top recipients receiving $31,493,555, $11,323,283, and $8,428,162, respectively.Footnote ¹⁵³ The pharmaceutical industry also benefits from a research and development tax break, introduced in 1981, to encourage private sector investment in pioneering research.Footnote ¹⁵⁴ Moreover, in cases of sufficient demand, advance purchase orders from national governments can reduce the risks traditionally associated with pharmaceutical research. For instance, while in the process of developing COVID-19 vaccines, Johnson & Johnson, Moderna, and Pfizer all sold millions of doses to the US government.Footnote ¹⁵⁵ The combination of these ex ante and ex post rewards suggests that innovation would be encouraged “even in the absence of patent protection.”Footnote ¹⁵⁶

A Genesis

Data exclusivity and patent linkage were both introduced in the United States in 1984 as part of a legislative compromise intended to promote development of new drugs and expedite generic entry, along with other amendments to patent laws to similarly promote the same balance.Footnote ³ Although some aspects of these laws create regulatory barriers, they have also helped to promote more generics.Footnote ⁴

The new law promoted generic entry by permitting proposed manufacturers of generics to rely on clinical data of the originator drug companies to help infer the generic is safe and effective with a limited showing of bioequivalence to the original; this essentially provided an expedited approval process that avoided unnecessarily duplicating all the same clinical tests of the original approved drugs.Footnote ⁵ This reliance was only possible after a newly established term of data exclusivity from the date of approval of the originator. Permitting subsequent companies to rely on this clinical data to obtain regulatory approval was a major improvement. Previously, the Food and Drug Administration (FDA) considered this data to be an indefinite trade secret.Footnote ⁶ As a result, there were few generic drugs approved even after patents on the original drugs expired since potential generic companies needed to create their own clinical data, but could not recoup costs to do so.Footnote ⁷ Whereas the manufacturer of a new drug can easily recoup the costs of its clinical data by charging a premium enabled by a patent, a generic is by definition a copy of another’s drug and so would not meet the patent requirement of being “new.” To address pioneer companies’ concerns about the ability of generic companies to “free ride” on the time and expense of their data, data exclusivity was created.

In addition, generic companies obtained an exception from patent infringement for making a patented drug as part of clinical tests needed to create its proposed equivalent to conduct bioequivalence testing and obtain regulatory approval. This patent exception promoted generic approval and avoided undue extension of the patent term that would otherwise occur, since it typically takes years for regulatory authorities to review data. Although new at the time, most countries today have similar laws and the patent exception is also consistent with international IP rules.Footnote ⁸

Creators of new drugs also obtained benefits from this new law. First, they obtained an extension of the patent term to compensate for the fact that review of drug applications usually reduces the effective term of a patent since a patented drug has no market power without regulatory approval.Footnote ⁹ Moreover, these creators obtained patent linkage, a powerful new way to bar competitors from the marketplace by delaying regulatory approval to address alleged patent infringement. As a result of this law, applicants of new drugs submit a list of patents that would allegedly be infringed by manufacturing the drug when seeking regulatory approval. When drugs are approved, the patents covering the drugs, as well as their expiration dates, are published in conjunction with the drugs so that potential generic applicants are aware of these patents.Footnote ¹⁰ Generic applicants need to certify as part of their regulatory approval that there are no unexpired patents, thus creating a link between patent status and regulatory approval.Footnote ¹¹ Although the United States created a mechanism for a generic to potentially challenge whether linked patent(s) were invalid or not infringed, the system still generally resulted in an undue delay of two or more years while the patent issues were litigated.Footnote ¹²

In 1987, the EU created a similar abbreviated pathway for approving generics by permitting them to rely on earlier clinical data after a newly created period of data exclusivity expired.Footnote ¹³ Data exclusivity was granted for different reasons in the European Union than in the United States. Not all EU member states at the time provided the scope of patent protection desired by the pharmaceutical industry; Spain and Portugal did not provide product patents to pharmaceuticals and instead only patented methods of making drugs.Footnote ¹⁴ The European Union, however, has thus far not adopted patent linkage; the EU considers patents irrelevant to the function of a regulatory agency that is intended to protect public health.Footnote ¹⁵

B Parameters of Regulatory Barriers

C International Requirements and Prevalence of Regulatory Barriers

Before discussing the prevalence of regulatory protections globally, it is important to consider whether any international agreements require them. The foundational international agreement concerning IP is TRIPS, which applies to all members of the World Trade Organization (WTO) – that is, most countries of the world.Footnote ⁴¹ Since TRIPS was concluded in 1994, the United States and European Union have continued to seek stronger IP protection in a series of free trade agreements (FTAs) often referred to as “TRIPS-plus” agreements since they require more than TRIPS. Data exclusivity is more often required since only the United States requests patent linkage.

A International Obligations: TRIPS

Of particular importance to the issue of medical treatments, TRIPS requires all countries to provide minimal levels of patent protection in all fields of invention, including drugs.Footnote ⁸³ Although TRIPS requires that inventions be patented and subject to enforcement, there are exceptions from patent rights: a compulsory license and a “limited exception.” Since the “limited exception” under TRIPS has been narrowly interpreted thus far,Footnote ⁸⁴ a compulsory license to usual patent rights is the primary flexibility for minimizing the TRIPS requirement that patents must be granted on medical treatments. Consistent with prior international laws, TRIPS permits governments to issue compulsory licenses of patents which essentially permit the government to grant anyone the right to use a patented invention, subject to government-dictated royalties.Footnote ⁸⁵ However, TRIPS imposes additional conditions, including that they must be mostly for domestic use.Footnote ⁸⁶ In addition, after members realized that compulsory licenses were of no utility for countries that lack inadequate capacity to domestically manufacture drugs, TRIPS was amended to permit compulsory license for export to such countries with even more conditions.Footnote ⁸⁷

An important issue is the consequence for failure to comply with TRIPS. There is a WTO dispute settlement process that can mandate a country to bring its laws into compliance or else face sanctions that can include withdrawal of WTO benefits.Footnote ⁸⁸ Member states use this dispute process infrequently, likely due to fear of an undesirable ruling. However, the Global North has often suggested violations of TRIPS and based on this exercised unilateral pressure on countries. For example, there have been no formal WTO challenges concerning compulsory licenses, but the United States and European Union have repeatedly criticized use of these licenses and even done so during COVID.Footnote ⁸⁹

B Proposed and Actual Modification of TRIPS Requirements for COVID

After the Global North engaged in vaccine nationalism by pre-ordering many more vaccines than needed, and companies were unwilling to license adequate numbers of manufacturers, India and South Africa proposed waiving IP obligations under TRIPS so that countries could create COVID vaccines.Footnote ⁹⁰ Modification of TRIPS does not automatically change domestic IP laws. But modification can permit nations to modify domestic laws without international liability under the WTO and hopefully also without unilateral pressure from other countries. This section explains the original proposal, a counterproposal by the EU, and the ultimate agreement as background to understanding the extent to which they would impact regulatory barriers.

C Examining the Intersection of TRIPS Modifications and Regulatory Barriers

Now that the individual TRIPS proposals and actual waiver have been introduced, this section shows how each incompletely addresses regulatory barriers beyond the obvious fact that additional waivers of TRIPS-plus obligations would be required to remove all international barriers.Footnote ¹⁰⁵ But before discussing these, a few observations about the relevance of regulatory barriers to the Global South and Global North may be helpful.

Even though these proposals and actual waiver do not fully remove regulatory barriers, this is a nonissue in some countries. For example, neither South Africa nor India currently require data exclusivity or patent linkage. However, this may change; data exclusivity is proposed in the FTA between India and the United Kingdom currently under negotiation.Footnote ¹⁰⁶ Moreover, even if South Africa and India are successful in resisting FTAs that require regulatory barriers, both will likely soon exist in China, which has been an important source of COVID-19 vaccines. In addition, there are other developing countries that could make follow-on treatments that are currently subject to these regulatory barriers, such as Mexico, Vietnam, and Chile.

High-income countries that have these regulatory barriers may reduce their flexibility to protect domestic citizens during a pandemic. For example, early in the COVID-19 pandemic there were inadequate supplies of the treatment remdesivir, such that many recommended that the United States use its domestic powers to override usual patent rights.Footnote ¹⁰⁷ Although remdesivir was only approved for emergency use and thus not subject to data exclusivity, if it had been granted orphan drug exclusivity as its manufacturer had planned before public protest, that would have been an additional barrier.Footnote ¹⁰⁸ Moreover, the statutory provision permitting the United States to override patent rights for government use does not provide for overriding regulatory barriers such as data exclusivity or orphan drug exclusivity.Footnote ¹⁰⁹