Earlier, we discussed the moves by Brazil towards breaking the patent on Merck’s efavirenz anti-retroviral drug (See Patents Are For Chumps) after declaring it a “public interest” medicine, which effectively gave Merck seven days to negotiate lower prices with the government or have Brazil break the patent by issuing a compulsory license.

More recently, things seem to have gotten worse as negotiations between the Brazilian government and Merck & Co. have broken down after officials turned down Merck’s offer of a 30 percent discount on the drug.

The World Trade Organization’s Doha Declaration on the TRIPS Agreement and Public Health, an amendment to the WTO’s TRIPS agreement on trade-related intellectual property rights, gives countries the ability to act to protect public health and promote access to medicines for all.

In this high-stakes game, the crisis is clear — there are currently 180,000 Brazilians with HIV, half of which use efavirenz. The amount of money at stake is also clear — Brazil would save $30 million this year alone on its expenditures for AIDS drugs for its citizens.

What’s not so clear, however, is: “Who should shoulder the burden of the healthcare costs to treat an ongoing health problem that effects all nations?”

Readers have written to state that the main concerns with the current system of rewarding innovation through patent monopolies (though limited) are:

a) The high prices that we allow innovators to charge for their innovations and the access problem that this creates;

b) The need for pharmaceutical companies need to receive fees to recoup their costs and develop new products; and

c) The unfairness of putting the burden of paying for medical R&D upon the sick.

This brings us to who should shoulder the burden of the healthcare costs? Should it be the drug companies themselves? It remains a moral dilemma that, at a time when 37.8 million people are living with HIV/AIDS, 25 million have already died of the virus (Lancet, 2005) and 14,000 more are infected each day (UNAIDS, 2004), the most recent Fortune 500 survey identifies the pharmaceutical field as the third most profitable U.S. industry, with a return on revenue exceeding 14%.* (Details here)

But, if we allow countries to break patents in order to reduce costs and, concurrently, increase access and treatment of patients, then we are putting 100% of the extra burden on the very company that developed the drug. Meanwhile, multi-billion dollar multi-national corporations are able to maintain their profits because they sell more mundane products like plasma TVs.

It is noteworthy that pharmaceuticals are not the only product that can have their patents broken. Since June of 2006, the U.S. government has issued compulsory licenses on patents at least five times, in cases involving a medical device sold by Johnson and Johnson, an automobile transmission used by Toyota, a set-top box for DirecTV, anti-piracy technology used by Microsoft, and computer memory chips.

The U.S. is not alone in bypassing patents: Italy issued compulsory licenses for a drug used to treat prostate enlargement and male pattern baldness (arguably a medical crisis). For recent examples of compulsory licenses, check out more at Knowledge Ecology International (KEI).

And, it’s not just patents that are of a concern, many people die each year due to the lack of drug research and development into “non-profitable” infectious diseases such as tuberculosis and malaria. It may just be that what is needed are honest discussions of how society as a whole should help people in lower and middle-income countries bear the burden of healthcare.

(*Note: return on revenue figure corrected for most recent figures.)

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  1. “at a time when… the pharmaceutical industry is making 18% return on revenues (Fortune 500, 2002).”

    Are they still making such a return??
    I’m sure 2006 figures wouldnt fit your story quite so well.

  2. Thanks for this balanced stance at the situation.

    Chapter 9 of this freely available online book by two economists is full of historical references of drug industry working well without patents:


  3. Let us not forget that corporations were initially established for the public’s interest. While they have long gone astray of that purpose and role, maybe this is one of many examples that should bring that mission back to the corporate actions, rather than shareholder primacy.