Posted by on May 8, 2019 1:54 pm
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Philip Stevens, Executive Director, Geneva Network.


The European Parliament in April voted through a proposal that will allow generic companies to manufacture and export outside the EU copies of medicines that are still essentially patent protected in Europe.


This vote around what’s known as the Supplementary Protection Certificate (SPC) Export Waiver may seem like an arcane matter interesting to few people other than lawyers.


In reality, the vote was a clear declaration by the EU political institutions that Europe is prepared to weaken intellectual property rights, essential for incentivising innovation in its high-tech industries.


Emboldened, the Commission appears to be considering further moves against IPRs, including removing patents for improvements of existing medicines.


The anti-IP mindset of today’s Commission is ominous for Europe’s future because innovation matters more than ever. In a world where economic growth increasingly depends on “intangible” products and services based on human know-how, knowledge and creativity, only those countries that have the right policy attitude to innovation will thrive.


In addition to skills, regulation and tax policy, intellectual property rights (IPRs) are key to the knowledge economy.


Not only do IPRs provide legal certainty to those investing considerable sums into risky research and development (R&D), they are crucial to today’s networked innovation, in which different stages of product development, manufacturing and marketing are undertaken by multiple organisations, often across borders.


Without clearly defined and readily enforceable IPRs to protect proprietary knowledge, this kind of cooperation between people, companies and countries would be impossible.


Productivity gains, economic growth and crucially higher living standards will accrue to those countries that get the innovation policy framework right.


More countries are recognising this truth. China is in the process of overhauling its IP regime, toughening enforcement and raising standards of protection for copyright, patents and trademarks. Switzerland is raising some patentability standards beyond the EU. Even traditionally IP-sceptic India is taking steps in the right direction and bolstering its IP standards, according to the 2019 Global IP Index.


The European Union seems oblivious to these global trends. With its move against SPCs now a legislative formality, the talk is that the Commission may now double down on this error by weakening the ability of innovators to obtain patent protection for improved dosages, formulations or new uses of existing medicines. The thinking is that diluting these so-called “secondary patents” will cut the cost of medicines, thereby improving access.


This would be a mistake. The reality is that many important medical advances would not have occurred without the ability to patent follow-on innovation, because of the R&D cost and risk involved. The most successful innovative economies understand this, which is why they grant patents for these categories of invention.


A European move against secondary patents would simply reinforce the current trend in which health R&D spending takes place in jurisdictions which take IPRs seriously – Japan, the United States and increasingly China.


The Commission continues to send the signal that Europe is not concerned about innovation, but rather with protecting its globally uncompetitive generics manufacturing sector and short-term control of health budgets – ignoring the fact the most new medicines save more money than they cost through keeping people in work and out of hospital.


Investment capital is globally mobile and Europe does not have a divine right to prosperity. Trading partners are beginning to take note of the EU’s own goal, with the US ambassador to the EU in February accusing the EU of “slowly trying to erode” intellectual property rights.


China now captures more foreign direct investment in R&D than the US, with the pharmaceuticals sector attracting €1.37 billion between 2010 and 2015, according to FDI Markets. The contrast between Europe and such fast-growing markets is stark – and alarming for Europe’s future.


To its credit, the European Commission understands that innovation is a major driver of economic growth and has pulled a range of policy levers to encourage R&D investment, including the Lisbon Strategy and the Innovation Union initiative.


These have fallen well short.


The Lisbon Strategy target of Europe spending 3% of GDP on R&D by 2010 is now at 2%: 0.7% less than the US and 1.5% less than Japan. While US start-ups routinely grow to scale, Europe is populated by a creaking hinterland of ageing, less nimble R&D companies. China is catching up quickly, with an innovation performance growth rate five times that of the EU.


Getting Europe back on track with innovation is essential to meet its various social and economic challenges including anaemic economic growth and a rapidly ageing population. The European Commission should therefore desist with its counterproductive strategy of undermining intellectual property rights.


Rather, it should strive to have the highest standards in the world to attract the investment that is currently going elsewhere.


Philip Stevens is Executive Director of Geneva Network and a commentator and researcher on global innovation, development and trade policy. He is a Senior Fellow at IDEAS, Malaysia.