The US Administration announced on 5 May that it supports waiving intellectual property (IP) protections for Covid-19 vaccines.
“These extraordinary times and circumstances call for extraordinary measures,” US trade ambassador Katherine Tai said.
More than 100 developing countries have called on the World Trade Organisation to consider waiving the Trade-Related Aspects of Intellectual Property Rights (TRIPS) deal.
The move is backed by more than 400 officials across the EU, including the World Health Organization’s director general.
New York House of Representatives member Alexandria Ocasio-Cortes immediately tweeted out a call for the waiver to be applied to diabetes treatments. Similar demands have been made in the past about medicines for Ebola and AIDS.
The US Covid vaccine move led to an immediate fall in the price of shares of leading pharmaceutical companies including Pfizer. Pharmaceutical industry groups oppose the move.
It’s early days, but it should lead to a comprehensive review of global IP law, also a critical factor in the rise in the past 40 years in giant hi-tech firms including Microsoft, Google, Apple and Facebook.
Even supporters of IP rights recognise that it’s one of the most complex, costly and fast-growing set of laws affecting the global economy.
But there are strong objections in principle to IP law as well.
Economics accepts the existence and validity of IP, and all major companies now count them in their balance sheets as if they are identical to tangible assets. But the rationale supporting their widespread acceptance is not located within economic thought.
There are two defences of IP:
- Natural rights arguments. These assert that creations of the mind are entitled to protection as much as tangibles because they are the product of a person’s labour and a person’s mind.
- Utilitarian arguments. These claim that ownership of ideas should be allowed if that leads to a higher level of wealth and income.
Both arguments are flawed.
Natural rights in ideas are invariably applied only to some of them. For example, almost no one suggests that a person who developed a new word should be entitled to be paid every time it is used. The distinction between ideas that can be protected – and therefore owned – and those that cannot is, therefore, arbitrary.
Patents can only be secured for “practical applications” of ideas but not abstract and theoretical ones. The distinction between creation – deemed to be the source of ownership – and discovery, which is not, is also unclear in ideas.
Economists are familiar with criticisms of utilitarianism. These include the immeasurability of utility and the invalidity of interpersonal utility comparisons. Even if these are set aside, there is no conclusive evidence that the net gains produced by establishing ownership of ideas outweigh the costs.
Economists, consequently, are forced to return to first principles. The fundamental validation of a person’s right to ownership over anything is that it peacefully deals with scarcity. Without the allocation of exclusive ownership of scarce resources to individuals, there would be perpetual conflict and the distribution of property to the winners. Property rights only work, however, if they are visible and just.
“…in order for individuals to avoid using property owned by others, property borders and property rights must be objective; they must be visible,” Stephan Kinsella argues in Against Intellectual Property, a seminal critique of IP. “For this reason, property rights must be objective and unambiguous.”
Using this argument, property rights can only apply to resources that are both scarce and objectively definable. IP is neither.
An idea is infinitely reproduceable since it can be copied without the need to use scarce resources. For example, you might invent a new way of cooking an egg. The fact that someone copies that method in no way reduces the scarce resources (eggs, pans, cooking oil) that you own. Establishing property rights over the method of cooking you’ve developed will artificially create scarcity, probably reduce aggregate welfare and, in effect, establish your right to determine the way everyone else uses eggs they own.
The most compelling IP counter-argument is that unless people can assert property rights over inventions, they will have no incentive to develop them in the first place. Champions of this approach say the lack of enforceable IP rights is one of the reasons why human societies were so slow to capitalise on brilliant intellectual breakthroughs.
One example cited is that of birthing forceps which help ease childbirth. The original set was developed by the French Huguenot Chamberlen family in the 16th century. It was a medical breakthrough that could have saved millions of lives but was kept secret for 150 years, apparently because the Chamberlens couldn’t commercialise the idea.
There is some truth in this argument but it ignores the fact that human beings were inventing things before IP rights were defined in law. The profitable exchange of ideas is possible without IP rights. An individual who develops an idea can share it in a single transaction for which a payment is received. Musicians are paid for a single performance and will have to perform again to secure a further payment. An inventor can sell an invention in a single transaction for which he or she is paid in the way a manufacturer of a tangible would manufacture and sell a product. This provides an incentive for creation and trade without the application of intellectual property rights or the existence of intangible capital.
There is as yet no consensus about the treatment of IP and this should encourage economists to think more deeply about how they treat the concept. But, as practically all economic text books show, economics has treated IP as if there was no debate and that it is a product rather than a novel construct that has developed as the result of legislation and adjustments in accounting codes.
The reason why profit-making organisations count IP as equivalent to tangible assets and capital is comprehensible: it is to increase both the profits and the economic worth of their organisation in accounting terms. When treated as equivalent to tangible capital, IP raise the wealth and income of the managers and owners of such organisations.
A familiar objection rooted in economic thought to treating IP as assets is that copyright and patents grant monopoly power to their owners. They increase their income and wealth but these are transfers, at best.
More robust critics of copyright and patents argue that they actually suppress innovation and risk-taking by other individuals and organisations. They say, for example, legal protection of the recipe used to make Coca-Cola discourages more efficient makers of carbonated drinks. A more serious criticism is of patents in pharmaceuticals. Anti-AIDS medicines have been made more expensive and effectively unavailable to millions of sufferers as a result of patents laws. Companies making low-cost copies of such medicines can be, and often are, subject to litigation.
The argument that IP is economically and socially damaging is a strong one. The Covid epidemic has made it overwhelming. More and more people are beginning to recognise that IP is mainly theft from consumers and value-creators.
Covid could lead to a long overdue reckoning.