This paper offers an economic rationale for compulsory licensing of needed medicines in developing countries. The patent system is based on a trade-off between the "deadweight losses" caused by market power and the incentive to innovate created by increased profits from monopoly pricing during the period of the patent. However, markets for essential medicines under patent in developing countries with high income inequality are characterized by highly convex demand curves, producing large deadweight losses relative to potential profits when monopoly firms exercise profit-maximizing pricing strategies. As a result, these markets are systematically ill-suited to exclusive marketing rights, a problem which can be corrected through compulsory licensing. Open licenses that permit any qualified firm to supply the market on the same terms, such as may be available under licenses of right or essential facility legal standards, can be used to mitigate the negative effects of government-granted patents, thereby increasing overall social welfare.
For several years, research at the Max Planck Institute for Intellectual Property and Competition Law (MPI) - in collaboration with experts from all over the world - has examined the trend of bilateral and regional agreements that include provisions on the protection and enforcement of intellectual property (IP) rights. By building on this research, the following principles – express core concerns regarding the use of IP provisions as a bargaining chip in international trade negotiations, the increasing comprehensiveness of international IP rules and the lack of transparency and inclusiveness in the negotiating process; and – recommend international rules and procedures that can achieve a better, mutually advantageous and balanced regulation of international IP. These principles emanate from several consultations within the MPI and especially from a workshop that was held with external experts in October 2012 in Munich, Germany. They represent the views of those first signatories and are open to signature by scholars who share the objectives of the Principles
and the many negotiators of the Trans-Pacific Partnership Intellectual Property Chapter who have difficult jobs, work long hours in far away locations and who have been very generous with their time and have often striven to be as open and informative as they can be within the rules they work under. The errors we make are our own. A previous version of this paper was published as Public Interest Analysis of the US TPP Proposal for an IP Chapter, available at http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1023&context= research.
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