Give Up Patents for Free?
For sure, patents that read on a potential cure for Covid19 deserve special treatment. After all, the cure for Covid19 is not only crucial to save lives all over the world, but also to avoid the collapse of the global economy. Yet, what such a special treatment can look like and how special a treatment is necessary, this is where opinions diverge.
In the United States activists demand that the government should have the rights to the anti-retro viral ‘Remdesivir’. The Open Covid Pledge proposes that all IP related to Covid19 should be made freely available. Its founding adopters were technology companies such as Facebook, Microsoft, Intel, IBM and Amazon, who apparently did not find it too difficult to give away patents for free. Among pharmaceutical companies to the contrast, the idea of giving up related IP for free has been seen in a rather critical way.
With this in mind, the question for me is therefore not, whether patents related to Covid19 should be given away for free or not, rather the question arises how the profit motive can be managed in public private partnerships for health.
Public Private Partnerships for Health
Universities are often the source of valuable IP that is later on picked up by pharmaceutical companies. To turn potentially valuable patents into medications and vaccines, Universities need the support of companies. A university cannot take the leap from academic research to vaccine production on its own. The mechanisms provided by corporations allow to turn potentially valuable IP into products. It is only with the support of a company that original ideas of academics can be turned into solutions that serve the public health. Often universities pass on these patents to the private sector through a licensing agreement.
Pharmaceutical companies that ultimately bring vaccines and medications to the market are subject to market forces. They need to assure they stay profitable; they are forced to address competitive market dynamics and need to ultimately guarantee their products meet demand. While without a doubt, a pharmaceutical company has an equally important responsibility to preserve public health, but it needs at the same time remain profitable; quite simply because it is a business.
Managing the Profit Motive in Public Private Partnerships
Managing the profit motive in such public private partnerships remains a delicate balancing act. Coming to grips with the need to preserve public health, while giving companies a chance to be profitable has many facets. At present a binary approach prevails that either suggests to pass on IP ‘royalty free’ or to commercialize the IP to the best extent possible. I think there can be a middle ground between the two and this has so far gone unnoticed.
I call this IP management for public health. It allows pharmaceutical companies to remain profitable while, nonetheless preserving the assuring health for all. In this brief note I cannot explain all the facets of managing IP for public health. I can only focus here on two aspects. The terms of a licensing agreement and the royalty rate agreed in a licensing agreement.
The terms of a licensing agreement can contain clauses that help assure public health. A good example here is the technology transfer agreement that Yale University concluded with Bristol Myers Squibb. The university insisted that patients in Africa would have access to medication potentially resulting out of the technology transfer.
The other aspect, which I am ultimately more familiar with, pertains to the determination of a royalty rate. Royalty rates can be determined with the support of a host of different valuation methods. One can look for example look at the incremental value that the patents bring to the technology, one can also look at what royalty rates similarly situated patents have been able to fetch in the market or one can critically assess a royalty rate, while keeping the cumulative royalty stack in mind. These are just a few examples and the list is not exhaustive.
Licensing Rate Determination for Public Health
I briefly explain the underlying reasoning of the different methods. The incremental value approach is keen on encapsulating the worth a patent brings to the technology in comparison the value added that is derived from other factors, such as for example a firm’s own marketing efforts. The approach has been used by Courts to determine royalty rates. In the United States it is commensurate with the Georgia Pacific Criteria.
If this reasoning is applied to the question how to assure public health, then the determination of the rate is not based on its relationship to profits, but on its relationship to preserve public health. The approach and reasoning remain the same, but rather than look at turn over, revenues etc. one looks at the ability to preserve lives for patients in need.
Similarly, the approach to determine a royalty rate on the grounds of a comparison can be approached from a public health perspective. Here, one will need to spend time to find comparable licensing contracts that reflect the need to preserve health for all. The deal already mentioned with Yale University could for example serve as a blue print.
It is furthermore helpful to verify that the cumulative royalty stack a licensee may be facing allows it to remain profitable. Here, one can undertake calculations that allow to understand what a cumulative licensing rate, even if hypothetical, would look like. Equally such calculations occur regularly in licensing rate determinations. Translated to the need to preserve public health, such questions become even more important as a pharmaceutical company in need to preserve public health may not be able to obtain the same profit margins as a firm just simply eager to get as much money as it can.
Equipped with such a nuanced understanding of how to approach licensing contracts and licensing rates, there are strong chances to better meet the need to preserve health for all. It clearly offers a third way to mere binary approach to patents, where patents are either given up for free or commercialized to the best extent possible. Licensing strategies like these should be further explored and new ideas be promoted that allow to bridge corporate interests with public needs.
The Author’s Background
Dr Roya Ghafele is the Managing Director of Oxfirst Ltd, a law and economics consultancy. She has held lectureships (called ‘Assistant Professor’ in the US Academy) in law and international political economy with Oxford and Edinburgh University and served as an economist to the United Nation’s World Intellectual Property Organization, the OECD and McKinsey.