Subject: RE: mandatory patent auctions
From: <stephen@xemacs.org>
Date: Thu, 5 Oct 2006 21:44:40 +0900

Anderson, Kelly writes:

 > I've heard the recommendation lately that the solution to the
 > Pharmecutical problem is to simply open the borders for the
 > importation of drugs from other countries.

This doesn't work.  First, if you just leave the patents alone, the
companies will be allowed to extract US royalties on imported drugs.
The fact that they're imported doesn't change the fact that they're
practicing the patent.

Next try: enforce "most favored nation" pricing.[1]  What will happen
here is that the patent-holders will simply price the poor out of the
market in order to hold on to their profits in the rich part of the
world, especially the U.S.  The U.S. price will go down a little bit.
This is ethically horrible.

What's left: expropriate the patents, or directly regulate the price.
The first is plausible, but (except in software and business methods)
I don't think it's a good idea.  Presumably neither do the "import
cheap drugs" advocates, or they'd just go straight there.  The second
is well-known in theory and practice to lose big.

 > That way, the US consumer isn't subsudizing the rest of the world.

There is no subsidy, just differential pricing.  The excess markup in
the U.S. does *not* go to consumers in the rest of the world; it goes
to the monopolist.  Arguably, it's very much the other way around,
since U.S. consumers are far more likely to own pharma stock than
those of any other country.


Footnotes: 
[1]  This is the rule in international trade that if you are shown to
be giving a tariff break to one country (the most favored nation), you
must apply the same tariff to all other countries party to the treaty.