Drug Pricing Under Generic Competition: A Review of the Economics Literature

1 1. Introduction As a consequence of the TRIPS Agreement at the WTO, many developing countries have implemented or strengthened product patents in pharmaceuticals in recent years, though the Doha Declaration of 2001 clarified that the least developed WTO members may delay such implementation or enforcement of drug patents until 2016. TRIPS requires the provision of patents across virtually all fields of technology, including pharmaceuticals, for a minimum of 20 years. It also sets out restrictive conditions under which compulsory licenses may be issued. The agreement is silent on geographical exhaustion of rights (thereby leaving it up to each country whether to permit parallel trade) and whether governments may allow a research exception from the patent-use exclusive rights. Finally, while requiring protection of confidential test data, does not prescribe terms or a minimum period of protection. In short, TRIPS retains a number of provisions under which governments in developing countries may reasonably use regulatory authority to limit the scope of drug patents. Not content with this degree of protection, the European Union and, especially, the United States, in negotiating bilateral trade agreements with developing nations, have increasingly demanded intellectual property protection in pharmaceuticals that goes beyond TRIPS into the so-called "TRIPS-Plus" standards. These latter standards involve, among other things, virtually abandoning recourse to compulsory licensing, restricting parallel importation, the recognition of extension or continuation patents, and lengthy periods of confidentiality for clinical-trials test data.