The Chamber’s false claims on counterfeiting are not the only intellectual property issue where their arguments have been debunked as inaccurate. My weekly technology law column (Toronto Star version, homepage version) focuses on the proposed trade agreement between Canada and the European Union, which could have big implications for the costs of pharmaceutical drugs, on which Canadians spend $22 billion annually.
The E.U. is home to many of the world’s big brand name pharmaceutical companies and one of their chief goals is to extend Canada’s intellectual property rules to delay the availability of lower cost generic alternatives. Earlier this year, the Chamber’s IP Council released a report claiming that Canada lags behind other countries and encouraging the Canadian government to follow the European example by extending the term of pharmaceutical patents and “data exclusivity.”
The CIPC (which counts several brand name pharmaceutical companies as members) claims the reforms would lead to increased pharmaceutical research and development in Canada. But last month University of Toronto law professor Edward Iacobucci released a study that thoroughly debunks the CIPC claims, predicting increased consumer costs and noting that there is little evidence the changes would increase employment or research spending.
Iacobucci’s blunt assessment of the report:
The CIPC Report does not offer objectivity in its assessment of Canada’s patent regime. It rather is a straightforward piece of advocacy on behalf of the branded pharmaceutical sector. The Report makes no effort to place Canada’s patent law in an international context or address international relations, but instead simply asserts without justification that Canada would suffer if it fails to grant the same concessions to the pharmaceutical industry that the EU and US have made. The flaws in this basic approach undermine each of the CIPC Report’s recommendations.
Iacobucci points out that competition from generic pharmaceuticals can have an enormous impact on consumer costs. For example, when generic alternatives to the cholesterol medication Lipitor appeared on the market in 2010, annual revenues for the drug dropped by $350 million. Given the billions spent on pharmaceuticals each year, rules that delay generic competitors can lead to huge additional costs.
Iacobucci also questions the premise that increased intellectual property protection for pharmaceuticals will invariably lead to job growth and increased research and development spending. On the employment front, he notes that the brand name and generic pharmaceutical companies are both big employers in Canada – 15,000 employees for brand name and 10,000 for generics – and policy changes might not yield any net new jobs.
Iacobucci challenges the notion that because intellectual protection is good, more protection must be better. The report notes that this is particularly true in the Canadian context, which is a small player in the global pharmaceutical market. Canada represents only 2.5 percent of the world market, meaning that Canadian laws have little impact on international incentives to innovate.
In fact, Iacobucci reveals that previous Canadian attempts to use policy levers to generate increased pharmaceutical research have largely failed. In 1987, Canada began enacting a series of reforms with the promise from brand name pharmaceutical companies that their research and development budgets would equal at least ten percent of domestic sales. The government kept its end of the bargain with changes that delayed the entry of generic drugs by up to two years and granting eight years of data exclusivity. Yet despite the reforms, Canadian research and development spending has regularly failed to meet the ten percent target.
Moreover, while the percentage of research and development spending may not have increased, Canada’s pharmaceutical trade deficit certainly has. In 2000, the Canadian pharmaceutical trade deficit – the amount that imports exceeded exports – stood at $3.7 billion. By 2009, the trade deficit had grown to a record $6.4 billion.
Those numbers help explain why Canada will face great pressure to favour brand name, predominantly foreign-based pharmaceutical companies. As Fast tallies the costs and benefits of further pharmaceutical reforms, the Iacobucci study confirms that there is little in it for Canada and sheds more light on the questionable claims of the Canadian Chamber of Commerce’s advocacy efforts.