An Economic Case for Waiving Intellectual Property Rights on Covid Vaccines

Introduction

The SARS-CoV-2 virus is rapidly mutating with several more infectious variants found locally and globally. Though the role of the new mutant strains behind the resurgence of infections is yet to be entirely ascertained, the new variants are not restricted by borders. Several vaccine candidates are approved globally, and the vaccination drive is underway. However, the vaccination rate remains low for developing countries due to limited production capacity. Hence, India and South Africa approached World Trade Organisation (WTO) to negotiate the temporary waiver of Intellectual Property (IP) rights on Covid-19 vaccines to remove the ‘artificial’ barrier of patents and boost production. There needs to be mutual agreement among signatory members of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) on the waiver to take effect. Though the USA reversed its original position of blocking the IP waiver, the proposal is yet to be accepted by several developed countries, and the degree of waiver remains open. The discussion on the scope and nature of IP waiver has not progressed since June 2021 despite the TRIPS council agreeing on a debate after several WTO member countries joined India and South Africa to propose temporary IP waivers for Covid-19 vaccines. This commentary briefly argues against the validity of the Covid-19 vaccine to qualify for a patent and reviews the evidence on the association between vaccination and virus mutations. The article concludes by discussing the need for non-pharma sectors and the governments of developing countries with large informal sectors to lobby against IP rights on Covid vaccine because of the economic cost borne by them due to new variant induced fatalities and lockdowns.

Covid-19 Vaccine Patents: A Question on Ethics of Patenting

A patent is a type of IP rights that protects an inventor for a stipulated period granting exclusive rights of an invention to the inventor within the geographical limit of the granting patent office. Countries under TRIPS grant both products as well as process patents. The economic rationale behind the institution of IP rights and patents is that knowledge is a public good (Langinier & Moschini, 2002). Thus, patents serve as an instrument to dissipate the market failure and underinvestment problem by incentivising the innovating firms to invest in research and development by granting monopoly rights over its invention (Langinier & Moschini, 2002).

The opponents of the Covid-19 vaccine patent waiver argue that the waiver would hurt the incentives of the pharmaceutical industry, discourage research and development spending, and obstruct innovation. On the other hand, proponents of the waiver argue on humanitarian grounds highlighting the importance of universal vaccination and the inability of the developing world and insufficient vaccine production infrastructure to achieve such a massive goal. The problem with this debate is that both the proponents and opponents of the waiver agree that the Covid-19 vaccine patent is valid and then go about arguing whether it is justified or not. However, we need to take a step back and first debate the validity of a Covid vaccine to qualify for a patent in the first place.

What qualifies as a patent is not straightforward and is often challenged in the court of law or an appellate body. During normal times, arguments about market failure, disincentives and underinvestment in research and development are valid and justified. However, will this argument hold during the Covid-19 pandemic? Not really. During a crisis like Covid-19, investment in research and development of the Covid vaccine was not a matter of choice or reflection of ‘risk’ by a firm to be considered for the grant of a patent. On the contrary, the investment in vaccine development was inevitable, and a considerable amount of public money has been spent on the same. The world has no other choice but to invest in vaccine development not just for the sake of ‘innovation’ but to contain the catastrophe. What can or cannot be patented is a matter of law, and the validity of the Covid-19 vaccine patents needs to be challenged and debated globally, not just in the court of law but also during WTO negotiations.

Paragraph 6 of the Doha Ministerial Declaration on the TRIPS Agreement and Public Health in 2001 empowers member countries to decide what constitutes a situation of extreme urgency and public health crisis and grant compulsory licences to tackle the same (WIPO, 2008). The Doha declaration further amended the TRIPS agreement in 2003 to give a waiver to remove export barriers under the compulsory licensing agreement under a public health emergency to countries lacking adequate manufacturing capacity. Abbott (2020) makes a case for IP waiver on Covid-19 vaccines under Article 73 of the TRIPS agreement on the grounds of emergency in international relations and the need to protect the security interests of the member countries. The extreme public health and economic crisis due to the Covid-19 pandemic calls for further amendment to the TRIPS agreement to renegotiate the scope of IP waivers on vaccines to tackle the current pandemic and future global health emergencies.

Is a Low Rate of Vaccination Associated with More Rapid Virus Mutations?

Undoubtedly, the patents rights, restricting production, will create hinderance in the vaccination rate. So how does delayed vaccination affect the outcomes for the world? Will a low rate of vaccination increase the chances of a more transmissible variant of the SARS-CoV-2 virus? There is a growing body of research whose preliminary findings suggest that Covid-19 vaccines are effective in curbing transmissions (Mallapaty, 2021). Williams and Burgers (2021), in their review of the evolution of SARS-CoV-2 and its implication on vaccines, assert that vaccination rate will positively correlate with the efficacy of the immunisation programme. The authors advocate rapid expansion of the vaccination drive by arguing that a higher vaccination rate will lead to a lower proportion of the vulnerable population, thereby reducing the scope for transmission and opportunities for the virus to mutate. Srivastava et al. (2021) conclude in their study that rapid mutations in SARS-CoV-2 may give rise to more transmissible variants, which have severe consequences for vaccines, therapeutics, and ferocity of the disease. Rella et al. (2021) model the probability of emergence of a vaccine-resistant SARS-CoV-2 virus strain and find that a faster vaccination rate significantly reduces the likelihood of the emergence of a resistant strain.

Winners, Losers and Economic Cost of IP on Covid Vaccine

The primary beneficiaries of Covid vaccine patents are pharmaceutical giants engaged in developing and disseminating the vaccines. The patents have a significant effect on the profits and share prices of these pharma firms, and unsurprisingly they are the biggest lobby against the temporary waiver of the IP on the Covid-19 vaccines. However, other sectors of the economy, for example, Aviation, Tourism, Retail, Oil and Gas, Automobile, Banking and Capital markets and so on, are at a higher risk of losses if there is a delay in vaccination caused by the artificial barrier of patents. According to the UN report on the world economic situation and prospects as of mid-2020, the world economy was expected to contract by 3.2% in 2020, marking the sharpest contraction in the post-1930 Great Depression-era, suffering an output loss of around $8.5 trillion in the following two years (UN-DESA, 2020). The mid-2021 report by the UN show minor sign of recoveries in major economies like China and the USA but continue to be sceptical about the broad-based recovery of the world economy due to surging Covid-19 infections, the emergence of new virus variants and inadequate and unequal vaccination around the world (UN-DESA, 2021).

As discussed in the previous section, a slow vaccination rate may likely give more room for the virus to transmit and mutate, which may give rise to a more infectious variant. A highly contagious strain will require fresh lockdowns and restrictions, causing demand shocks and disruptions in the production and supply chains for the affected sectors. Therefore, the businesses that are worst hit from Covid lockdown restrictions and pandemic-induced recession should lobby and pressurise to waive vaccine IP rights. Moreover, governments should lobby and raise their voice on behalf of the informal sector, including the daily wage earners, self-employed, and casually employed workers, millions back to poverty if the sector does not recover rapidly. India and South Africa, with a massive informal economy, have already raised their concerns at the WTO. It is now time for other developing countries with significant informal economies to raise their voice against vaccine IP. The Covid-19 has hit the world economy hard, and fresh lockdowns worldwide is a further setback in the path to recovery. The cycle of mutants induced ‘Covid Waves’ and resultant lockdown, and hence, the economic slowdown will only expand further in time if the vaccination rate does not catch up.

Conclusion

The rationale for a patent is economic based on incentivising innovation. Hence, the economic cost borne by various sectors of the economy due to new variants induced fatalities and lockdowns needs to be considered for a case for its waiver. Agreement on the IP waiver by the WTO members is only the first step. Next, the negotiations on the degree and nature of the waiver hold crucial significance in meeting the required vaccination rate to reduce the chances and severity of more variants of the SARS-CoV-2. Therefore, the member countries at the WTO should negotiate the degree of waiver based on a consensus reached on the maximum achievable rate of vaccination. The argument that the temporary patent waiver on the Covid-19 vaccine will disincentivise the innovating firms and affect research and development is groundless. WTO does not stand for safeguarding the interests of just one sector but stands for protecting the interests of all sectors of the economy through its commitment to facilitate trade for every sector. To keep its commitment to the non-pharma goods and services sector, WTO should temporarily exempt Covid vaccine IP from TRIPS. WTO should look at the larger picture and take a timely step to revive the crashing world economy.