In the case of pharmaceuticals, when the particular patent expires, other drug manufacturers are free to then manufacture generic versions of the drug. That is entirely different from pirating the drug, which infringes on the patent holder’s rights before they have expired.

Developing nations, in particular, have attempted to circumvent the drug companies’ rights by instituting compulsory licensing of particular drugs. In this instance, a drug company is forced to give up its rights, in exchange for a fee, so that the country can assign a third party a license to produce that drug. Now, some developed countries are seeking to follow suit.

While countries believe in these cases that they are serving their best interests by lowering costs in the short term, in fact they often undermine those interests. These compulsory licenses increase costs to the drug companies by denying them profits necessary for the very high requirements for research and development needed to produce drugs. This leads to an increase in costs for consumers. For example, the continuation of R&D (highlighted in the quote above) drives increased innovation and reduced costs, and aborting R&D can only harm consumer welfare.

Some would argue that this type of licensing, and other “protective” measures taken by governments against property rights of foreign companies or individuals, is the sovereign right of nations. Sovereign nations certainly have the policy space to enact laws and policies that impoverish their own people, and sadly, this is too often the case. Sovereigns must understand, however, that damaging property rights, including intangible rights, is one of the strongest drivers pushing people into poverty and taking away their hopes and opportunities.

In Conclusion

If nations start from the standpoint of the interest of consumers, their own and those of the rest of the world, these distortions would be systematically reduced unilaterally. It is because nations generally do not take this enlightened view, especially given the power of cronies who benefit from the status quo, that we have international agreements, at bilateral, plurilateral and multilateral levels, to ensure that a gradual improvement in property rights can be secured.

Amongst nations who respect such fundamental rights, Free Trade Agreements (FTAs) have been concluded which reward and incentivize open trade, based upon property rights protections and competition. Clearly unilateral action by countries is possible, multilateral progress is optimal, but where neither can be achieved bilateral and plurilateral agreements among coalitions of willing countries will need to be relied on to deliver improvements.

For example, Singapore, highlighted on our website,  has more FTAs per capita than any other nation in the world. This is a country which demonstrates the positive impact on developing country economies when property rights, such as patents, are protected. Rather than undermining Singapore’s development, their strong protection of those rights, including for foreign companies, has led to unprecedented foreign direct investment, and the subsequent tremendous prosperity of all their people.