Free ridin'

Todd Seavey from the American Council on Science and Health has himself worked up into a lather about Thailand's willingness to break drug company patents to cut its spending on AIDS drugs: (Drug Patent Violations, Knock-Offs Harm Us All)

Contrary to the assertions of the Thai government and Doctors Without Borders.. violating drug companies' patents and making knock-offs of their drugs is not in the long-term best interest of patients. Just as letting people shoplift today can drive stores out of business tomorrow -- and just as price controls make customers happy for a day but produce long-term shortages -- so too do patent violations gut the incentive to invest millions in researching the even better drugs of tomorrow...Economically and scientifically ignorant moves like this could shrivel or destroy the pharmaceutical industry, and that will not make the Thais or anyone else healthier in the future.

(Actually, the drug companies have a lot more to fear from today's Supreme Court decision that will make it harder for them to patent obvious inventions for extended release formulations.)But let's examine Seavey's arguments for a minute:

• Is breaking a patent like shoplifting? Will it "drive stores out of business"?
• Will moves like Thailand's "shrivel or destroy the pharmaceutical industry"?

Shoplifting hurts stores because they get zero revenue for goods they paid for. It raises their cost of doing business by forcing them to pay for security measures and to raise prices to make up for their losses. I'm not sure what the "stores" are in Seavey's analogy. In general, drug wholesalers and pharmacies are pleased to stock and sell generics, which tend to be as or more profitable than branded products. (Drug stores don't tend to allow shoplifting of generic or brand drugs.)Thailand isn't going to be stealing pills from Abbott, it's just not going to place any orders.Thailand's moves aren't going to affect whether companies continue to develop new drugs and certainly won't destroy the industry. That would only happen if the US, Europe or Japan eliminated patents. Thailand doesn't factor into the go/no-go decision for pharmaceutical development. Sure, Thailand is freeloading --but look at the benefits they're already deriving in the form of lower prices from the branded players.The best hope the drug makers have to keep Thailand and other developing companies from breaking their patents is to find other pressure points besides the unpersuasive (not to mention untrue) argument that they are destroying incentives for drug development. That's why the pharmaceutical industry pays such close attention to trade legislation.There's a self-correcting mechanism that makes Thailand and its ilk less of a threat to the pharmaceutical industry than it may seem. Once a country starts producing substantial intellectual property of its own it begins to be more respectful of patents. That transition is highly correlated with an increase in national wealth that makes a country able to pay for high-priced drugs in the first place.