It is widely believed that product patents tend to result in the creation of monopolies and hence to high prices. Some provisions of the TRIPs agreement can be used to mitigate some of these adverse effects. Within the scope of the trip’s agreement, basically three things can be done to ensure competition and competitive prices
1) Provide exemptions from grant of patents in certain cases
2) Provide exemptions to product patent rights in certain cases and
3) Provide compulsory licenses to non- -patentees to produce and sell the product.
It is well known that developing countries were put under political and economic pressure to force them to accept terms, which went against their interests. It is important for the developing countries to try to amend the negative features and take necessary steps.
There are several possible sources of dynamic gains to be had from granting patent protection.
1. The inventor’s profits are the most obvious source of dynamic gains. Without protection, inventors do not appropriate the benefits of new drug innovations and so have a sub-optimal incentive to invest in the research and development to discover, test, and bring them to market. Because patents allow inventors to appropriate more of the consumer surplus from their innovations, granting patents may increase welfare by stimulating additional R&D investment,
2. A second source of potential dynamic gains comes from the disclosure requirement today common to all-patent laws: specifications must be written to enable any person “skilled in the art” to make use of the innovation (Drug Discovery), As patentees reveal their innovations (Drug Discovery) in their patent applications, information about new technologies becomes more quickly available to others as an input into their own R&D. Finally, the availability of patents may increase the efficiency of the production of drugs and the efficiency of the research to discover and develop new drugs by facilitating contracting between firms.
The innovating firm is able to reveal its innovation without losing control and hence may be able to sub-contract parts of the development work at minimal cost. Similarly, the firm may be more willing to license the patented innovation to manufacturing firms for production.
Furthermore the static effects, as in a single country world, the identity of inventors is not important. The transfer of benefits from the hands of consumers, in the form of consumer surplus, into the hands of inventors, in the form of profits arising from the price increase may have distributional implications, but the effect of the transfer can be offset by domestic policies. It is not a net cost to the country.
In a multi-country world, however, the static costs to one country of introducing patent protection depend not only on the size of the deadweight loss but also on that who has invented it. If, for example, the newly available patent rights for pharmaceuticals in India are assigned entirely to inventors elsewhere, then the loss of consumer surplus is a net cost to India.
All of the profits accrue to foreign nationals in the form of royalties, if production remains in India but under license, or as export profits if the patented drugs are sourced from elsewhere and imported to serve the Indian market.
If the latter occurs, and local production is replaced by imports, the cost associated with the introduction of product patents is exacerbated by a loss of employment, a negative shift in the balance payments, and a loss of self-sufficiency.
A crucial feature of India’s lack of protection for pharmaceutical products is that it has enabled Indian firms to develop commercial production capabilities for on-patent drugs besides off-patented drugs before patent expiry and move rapidly into the world market with them on the day the patents have lapsed.
This means that the introduction of patent protection in India will facilitate an additional benefit on patent owners, over and above any profits obtained from sales in the Indian market: it will delay the erosion of the profits derived from world sales of patented drugs which comes about with generic competition.