Since last winter, vaccines have become the backbone of most developed countries fight against the Covid-19 pandemic. After a record-breaking fast development by a handful of companies and its approval by regulators, the administration of vaccines has paced up rapidly and by the second half of this year, most of Europeans and North-Americans are expected to be vaccinated.
However, most of the developing countries are still waiting for significant amounts of doses, leading the United States to propose waving patent rights for Covid vaccines in order to ease its production. George Chondrakis, associate professor of strategic management at Esade Business School, discusses with Carlos Serrano, associate professor of economics and business at Universitat Pompeu Fabra, on intellectual property rights and its role in boosting vaccines supply around the world.
George Chondrakis: Welcome to Esade Do Better Podcast, I am George Chondrakis, associate professor of strategic management at Esade Business School. I am here with Carlos Serrano, who is an associate professor of economics and business at Universitat Pompeu Fabra here in Barcelona. Carlos has a PhD in economics from the University of Minnesota, he previously taught at the University of Toronto, and was also a research analyst at the Federal Reserve Bank of Minneapolis. Welcome Carlos.
Carlos Serrano: Hi George, thanks for inviting me.
George Chondrakis: Carlos is with us today as he is an expert in intellectual property rights in technology markets. He has presented his work to the US Patent Office and the OECD. His research has been discussed in public hearings on innovation policy at the US Department of Justice and the Federal Trade Commission. And his work has been cited in amicus curiae submissions to the US Supreme Court. I invited Carlos to have a chat about one of today’s most hotly debated issues – namely, should we get rid of patents for Covid vaccines? Now this proposal has received renewed publicity after the Biden administration hinted that it would favour waiving patent rights for Covid vaccines. Carlos, can you briefly explain to us why we have patent rights for vaccines in the first place?
Carlos Serrano: The purpose of the patent system is to encourage innovation by granting inventors and companies a patent for their inventions. These patents, or patent rights, provide the inventors the right to exclude others from making, using, offering for sale, or selling their invention. And they do so for a limited time that is roughly 20 years from the application date of the patent. That’s one purpose of the patent system. A second purpose is to improve the efficient flow of knowledge and facilitate the transfer of technology protected by these patents. And I highlight the second purpose because this is going to come in handy later. So, in short, the purpose of patents, or the patent system, is to encourage innovation, facilitate the transfer of technology, and develop efficient market structures.
The purpose of patents is to encourage innovation, facilitate the transfer of technology, and develop efficient market structures
George Chondrakis: Thanks Carlos. And I think you are right that within the pharma context most people agree that patents are a good thing. Now, given that point, why all this fuss about Covid-19 vaccines? What is the rationale behind waiving patent rights?
Carlos Serrano: The immediate practical concern that we have in Spain, Europe, and elsewhere, is the near time limited supply of vaccines. Some governments, like ours, conjecture that waiving patent rights would open the supply of vaccines so that we can all get vaccinated as soon as possible. Their argument is that these patents or patent rights are the main reason for the supply constraint. And the rational is that patent owners like Pfizer, BioNTech, and AstraZeneca are preventing other firms from developing vaccines, or that the licensing fees these companies charge are too high and they are acting like monopolies.
As you can imagine, I do not agree with this rational. My view and the view of others as well, is that the bottleneck is different. It is firstly the specialist equipment that is needed for these vaccines to be developed. We know that most of the specialist equipment required is already in use. We do not have enough equipment. Secondly, there is a shortage of materials, meaning the inputs that go into these vaccines. We need to produce more of them. And thirdly is the lack of trained and experienced people to expand the production of these companies and help in technology transfer. Time and money can fix these three issues but waiving patent rights will not. However, patent rights could become a bottleneck if these issues were out of the way. But right now, they are not.
Most of the specialist equipment required to produce vaccines is already in use. We do not have enough equipment
George Chondrakis: People who are familiar with this field would feel that your points make sense and I agree with your point of view. But one might assume that having a patent right is an additional problem, an additional kind of impediment in the development of vaccines. Some people would argue that during a pandemic it’s not a good idea to maximise profits for the pharma companies. What precisely is the problem here? Or to put it differently, will waiving the patents solve any of the issues that relate to the lack of supply?
Carlos Serrano: No, I think not. For example, I don’t see how waiving the patent rights is going to have an implication on the supply of specialist equipment. This equipment is not made by the pharma companies. We would need a different type of help, we would need financial help or we would need help solving coordination problems. Governments could help solve these sorts of problems to speed up production, but I don’t see how removing patent rights is going to have any material impact. Another issue is, for example, the lack of trained and experienced people to expand production. These vaccines are fairly new and so there is a limited number of people who know how they work, and often the knowledge and the technology is not in a book that you can just read – although patents are public. It requires that Pfizer or Moderna send their personnel to other companies to teach them how to make a vaccine and how to develop it. It’s hard to train people.
We can talk later about how we can do it, but I don’t see how waiving patent rights is going to encourage the people who have the knowledge in Pfizer and Moderna and others to release this knowledge. In fact, it may be better to do the opposite and commit to unforeseen patent rights so that these companies have the right incentives to facilitate this knowledge and transfer it to others. And then they may be compensated for doing so. For example, the production of other companies could be used as a measure of how effective the transfer of knowledge from Pfizer and Moderna has been. The solution is not to waive the patent rights – but to commit to them. We could tell the pharmaceutical companies not to worry and even if you transfer costly tacit knowledge today that can later be imitated, your patent rights will still be useful in the future and others will not be able to avoid paying you dues.
George Chondrakis: Absolutely. And I think it’s interesting to note that the Moderna patents have already been waived, or at least Moderna has agreed to not to enforce its patent rights, and we have seen no imitations, which suggests that that the bottleneck is not the patent itself, but the production capacity. It’s very challenging for firms to develop such sophisticated production techniques. And now one could argue: ‘Fine, I agree with Carlos, I agree with your point of view, but we are in the middle of a pandemic, people are dying, why don’t we just to waive these patent rights? And even if that doesn’t help, then at least we tried’. Now, do you think there are any problems with that approach while thinking about waiving different variants or Covid, or maybe even different pandemics or different types of illnesses we might deal with in the future?
Carlos Serrano: In the short run, which is the main concern of policy makers, I don’t see how waiving patent rights is going to help. In the long run, it could backfire, as you said. We know that these sort of patents provide incentives, and so companies like BioNTech spend 10 or 20 years doing R&D and often failing. If they don’t expect to recover their investment then it is unlikely that they will have the incentives today to make those investments. So it’s possible that if these patents were waived today, or if there is uncertainty as to whether in the future patents could be waived, then these companies may not make the right investments, or fewer companies may make investments.
In the short run, I don’t see how waiving patent rights is going to help. In the long run, it could backfire
I want to highlight how lucky we have been, at least here in Europe and in North America. It is true that there is limited supply, but we have some six or seven vaccines approved. But this is a small number. Now suppose that in Europe we didn’t have Pfizer and BioNTech. So basically, we would depend on AstraZeneca and Moderna, and there are hardly any supplies of Moderna in Europe, because they are all in the US. How would we do? This is a small number problem, meaning if we start playing around with the incentives for innovation, then fewer firms means fewer types of technology – and fewer types of vaccines.
We want to have different supply chains and we want firms to experiment. We want to have many firms with very different technologies, so that if there is another crisis, the supply chain problems will hopefully be less severe because we will be relying on different inputs and technologies and even differently trained people. I think it is potentially very dangerous to give up the patent rights, especially because we are likely to have another pandemic in the future.
George Chondrakis: Absolutely, thanks Carlos. Let’s think about the steps ahead – it’s clear that you don’t think this is good public policy and I agree with you. What would be a good public policy that could help increase vaccine production? Pharma companies have their own incentives to do that – such as licensing, fees, etcetera. But from a policy perspective, do you think there is anything that governments could do to ensure the speedy production of vaccines?
Carlos Serrano: Early on in your second question, you asked me about what the bottleneck is and I mentioned three issues. One was specialist equipment, the second was a shortage of materials, and the third was a lack of trained and experienced people to expand production and make technology transfer faster. The first two are well known. We basically need more intermediaries, and more companies producing specialist equipment. In the short or medium run this can be solved by providing the financing and putting the right incentives in place. The Trump administration did some of this. These incentives strongly encourage companies to expand, even before a vaccine is available. That’s in the short run.
What is harder to solve in the short run is the lack of trained people. For example, we want to have more biotech companies in Europe. But how long does it take to train a biotech specialist … well… it takes four years to get an undergraduate degree, it then takes five years to get a PhD, followed by a two-year postdoc, and then another one-year postdoc. So basically, it takes more than a decade to train an experienced specialist who can help make a vaccine. And we need many of these specialists. We need many because if we want to expand technology transfer and production we need more people.
It takes more than a decade to train an experienced specialist who can help make a vaccine. And we need many of these specialists
But we also want to have more trained people because the more we have, the more entrepreneurship there will be, the more startups there will be, and the more options for vaccines we will have in the future. And in this third pillar of training people, governments can have a much bigger impact than a private company. Governments should encourage and facilitate this type of education, perhaps by making the undergraduate fees to study medicine and biotechnology cheaper. Also by facilitating the hiring of this type of people in startups by waiving their social security payments for a while and so on.
George Chondrakis: And my final question is do you think there is a role for the government to encourage or force Moderna, Pfizer, and the other owners of these Covid vaccine patents, to be more active in licensing? Do you think governments should put pressure on companies to share their technology? Of course, with payments in return.
Carlos Serrano: This idea is untested. We haven’t done anything like this as far as I know. But I think there is an opportunity to foster private-public partnerships. And the way I thought it could be done is by somehow compensating these companies for transferring technology to other nations such as Morocco, China, or South America. I know it’s costly because these firms could otherwise expand. But we want others to also expand. So, how can we do that? I would compensate these pharma firms based on how many effective vaccines are produced by such partnerships. The more they produce the better for society and for Pfizer and BioNTech.
I would compensate pharma firms based on how many effective vaccines are produced by partnerships with other nations. The more they produce the better for society and for Pfizer and BioNTech
The idea would be to give incentives for these companies to encourage them to share – but not the patent – as the patent is just a paper document. We want to encourage these companies to transfer knowledge. And we will not do so by just waiving their rights. Now you might say: ‘But Carlos, these pharma companies are making a ton of money. Are we going to pay them even more?’ I say yes – because that’s how we solve these problems. People must understand that the cost to society of not having people vaccinated is huge. Let me give you an example. Pfizer recently announced that its sales for this year are going to be something like $50 billion. This is a big number – we don’t know what its profits will be but it’s going to be a fairly large number as well.
Now, let’s think about Spain. The Spanish GDP is roughly $1.4 trillion. As Spanish GDP has dropped 10% – a bit more actually – that means a shrinkage of $140 billion. So, Pfizer is making let’s say $20 billion, but just in Spain we are losing $140 billion because we haven’t vaccinated enough people yet. It’s going to be very hard to recover this loss. Now Spain is just one country. France’s GDP is $2.8 trillion, and Germany’s is $3.8 trillion, and they have lost 7 to 10% of their GDPs. So, the issue here is not how can we get our vaccines one euro cheaper. I mean that is ridiculous. We should be thinking about how much we must pay so that we can get everybody vaccinated as soon as possible. This applies to Europe and the people we rely on in Africa and Latin America. That’s my view, but I’m not in the government.
George Chondrakis: Carlos, this has been very informative, thank you for being with us today, and thank you for helping us make better sense of this debate.
Carlos Serrano: Thank you George and thanks for inviting me.
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