Trade Compliance

GHY discusses changes to international trade regulations and explores cutting-edge compliance strategies.

Do TPP’s Intellectual Property Rights Threaten or Protect Innovation? (Part II)

Posted March 17, 2015


Having set the context in part one for whether intellectual property rights (IPR) as proposed in the Trans-Pacific Partnership (TPP) will protect or threaten innovation, and broadly outlined the division between proponents of the trade deal and its detractors, we can now look at one of the most significant areas of technology where this open question is being hotly contested – the life science industry.

A major contributor to the U.S. economy, the biopharmaceutical sector supports more than 7.4 million jobs and contributes $426 billion annually to GDP, with exports totaling $52 billion. One of the most research and development intensive sectors, it accounts for almost $80 billion or 85% of the estimated $92.6 billion in life sciences R&D carried out in the U.S.  The biopharmaceutical sector leads all other areas of manufacturing in R&D expenditures, and all industries by volume of research performed, accounting for 80% of world’s R&D investment in health care biotechnology.

Last week, the Information and Technology Innovation Foundation (ITIF), a non-partisan public policy think tank based in Washington, released a new paper, “The Imperative of Protecting Life Sciences Innovation in the TPP,” outlining the reasons why the intellectual property provisions of trade deals such as TPP are not only of particular importance to the life sciences industry, but to many healthcare advocacy NGOs seeking the innovation that biologics research is producing to create new life-saving medicines. The document outlines why securing from its trading partners the same period of clinical data protection currently standard in the United States is considered essential in the long and costly process involved in bringing new biologic medicines to market.

The paper’s author, ITIF director Stephen Ezell states that robust intellectual property protections are the “fundamental foundation” on which private sector investment in biopharmaceutical R&D takes place. It is, he says a “grand bargain” – in exchange for having exclusive rights for a period of time, innovators must disclose their knowledge, as opposed to keeping it secret, thereby creating “knowledge spillovers” that spur others to innovate. This arrangement leads to a “virtuous cycle” of profits earned from one generation of biomedical innovation sowing the seeds for subsequent ones, a dynamic that Ezell says is vital for “true innovation-based industries” such as the biopharmaceutical sector which compete not by making a product cheaper, but by inventing next-generation breakthroughs.

ITIF contends that without adequate intellectual property protection, investment in the advanced research needed to produce next-generation medicines would be significantly curtailed and if the TPP fails to get the rules setting the foundational framework for life sciences innovation right, then the long-term result will be less innovation and fewer cures for unsolved diseases. The paper suggests that insisting on the strongest IPR protections in the TPP is not only in the United States’ best interests, but also that of partner countries if they wish the 12-nation trading region to be one in which innovation flourishes. In this regard, Ezell cites academic evidence demonstrating a positive relationship between the strength of an economy’s intellectual property protections and the extent to which it participates in trade, foreign direct investment, technology transfer, and local research and development and innovation activity.

One study referred to found that every 1% increase in the level of protection of IPRs in an economy (as measured by its scoring on the Patent Rights Index) contributes to on average a 0.7% increase in the domestic level of R&D. Another study shows that IPRs in developing economies are also associated with increased levels of technology-intensive foreign direct investment, which increases economic growth more than the “imitation growth potential” of less robust patent laws. By contrast, the United Nations Commission on Transnational Corporations (UNCTC) has found that weak IPRs reduce pharmaceutical and software investment.

Ezell concludes by noting that effective intellectual property rights systems have “always been about finding the right balance between creating the incentives for innovation while promoting the diffusion of knowledge and technical discoveries.” In the life sciences, effective IP systems must “balance incentives to invest in risky, lengthy, and expensive drug development efforts with the global public’s desire to have affordable access to medicines,” Ezell says.