THE IMPACT OF INTELLECTUAL PROPERTY LAWS ON DRUG PRICING

This article is written by Bijli Muthamma MP of 1^st Semester of BBA LLB of OP Jindal Global Law School, an intern under Legal Vidhiya.

ABSTRACT

This article mainly discusses the effect of intellectual property (IP) on pricing prescription drugs and calls for a balance between innovation and access. Patent laws, data exclusivity, trade secrets, and the TRIPS Agreement provide exclusive rights, which motivate pharmaceutical R&D. These laws, however, contribute to excessively high drug prices with consequent apprehensions around access to potentially life-saving treatment, especially in the low and middle income regions. Case studies such as Gardasil and Humira exhibit the mixed effects Intellectual Property (IP) protections have on affordability and public health. The article analyzes practices such as patent evergreening, product hopping, and TRIPS-plus rules through which they portray the ethical and practical concerns of an IP system. This calls for reforms that will underlie stricter antitrust enforcements; higher support to biosimilars; and more flexible IP frameworks to guarantee equal access to drugs without disturbing innovation in drug manufacturing. In conclusion, calls are made for greater cooperation between governments, pharmaceutical companies, and international organizations in working towards equitably fair access to health services.

KEYWORDS

Intellectual Property Laws, Drug Pricing, Patents, Generic Drugs, Data Exclusivity, Trade Secrets, TRIPS Agreement, Compulsory Licensing, Patent Evergreening, Biosimilars, Healthcare Accessibility, Public Health Policy.

INTRODUCTION

Prescription drugs are central to health care provision all around the world. According to the World Health Organization, nearly two billion people use prescription drugs each year to treat various health conditions. ^[1]Global sales of prescription drugs reached over $1.5 trillion in 2022 and are expected to grow further as more and more people begin to rely on pharmaceutical interventions. This trend shows the importance of prescription drugs in enhancing the quality of life but also raises questions relating to accessibility, overprescription, and an increase in side effects from medications.

Pharmaceutical companies go through a very long process to get approval for new drugs from the regulatory bodies. ^[2]The process includes discovery, preclinical research, clinical trials, and post-market safety monitoring. Still, only 10% of drugs pass the clinical trials. Companies rely on intellectual property laws to protect their investments as those laws have an enormous impact on drug pricing since they give the manufacturers exclusive rights.

Intellectual property (IP) rights are of extreme importance to the development and pricing of prescription drugs and biologics. To encourage innovation, IP laws protect an invention or a product by extending exclusive rights to inventors, providing them with the ability to charge higher-than-competitive prices. IP rights are typically justified as necessary to allow pharmaceutical manufacturers the ability to recoup substantial costs in research and development, including clinical trials and other tests necessary to obtain regulatory approval. However, IP rights have been criticized as contributing to high prices for pharmaceutical products by operating to deter or delay competition from generic drug and biosimilar manufacturers.

INTELLECTUAL PROPERTY LAWS

IP laws give inventors exclusive rights to their creations, thus ensuring that they can benefit from their innovations while preventing unauthorized use. According to WIPO, IP refers to “creations of the mind: inventions; literary and artistic works; designs; and symbols, names, and images used in commerce.”

One important influence of stronger IP laws on the price of drugs is the prevention of generic drug competition. ^[3]In Canada, for instance, the abolition of compulsory licensing in 1991 delayed the entry of cheaper generic drugs into the market. While price controls kept patented drug prices in check, the overall cost of prescriptions for consumers rose sharply due to the substitution of older, cheaper drugs with newer, more expensive ones. Before this, generic availability lowered prices 25–50% but competition was stifled under the stricter IP Laws, showing how IP can directly raise the prices of medicines to the consumer. IP laws, such as patents, data exclusivity, trade secrets, and the TRIPS Agreement, significantly impact the drug prices.

Patents

The World Intellectual Property Organisation (WIPO) defines a patent as “an exclusive right granted for an invention, which provides the patent owner with the right to decide how—or whether—the invention can be used by others. In exchange for this right, the patent owner makes technical information about the invention publicly available in the published patent document.”

Patent law grants the inventor an exclusive right to use and profit from his invention for a limited time. For pharmaceutical companies, this means high prices for their drugs while there is no competition for that period. This ensures greater profits for this period. Most patents on drugs protect the drug’s composition, or in other words, what it is made of, or how it is made. So, during this period, nobody else can sell a cheaper, generic version of the drug. Its price has to be kept high.

Originally, patents were intended to promote innovation, but today most pharmaceutical companies file patents to keep a monopoly on drugs already invented rather than to develop new ones. In fact, most patent applications are no longer for new drugs but rather to extend or strengthen existing patents. ^[4]As patents expire, the market is flooded with generics and biosimilars, usually lowering prices by 20-30%, which in turn increases availability. However, it is commonly reported that pharmaceutical companies game the patent system to delay generic entry and sustain high prices longer. Critics see particular patenting strategies from pharmaceutical companies as a way to keep high drug prices going without real benefits in consumer savings or innovation advance. Among these practices are:

• Patent Evergreening: Filing new patents on small changes on an existing drug, thus continuing exclusivity.
• Product Hopping: Introducing slightly modified versions of drugs to replace older ones nearing patent expiration.
• Patent Thickets: Overlapping patents to discourage generic manufacturers by increasing litigation costs.
• Pay-for-Delay: Settlements in which branded companies pay the generics to defer entry.

For example, in Novartis AG v. Union of India (2013), the Indian Supreme Court denied a patent for Novartis’s cancer drug Glivec, a modified variant, holding that the modification was not incentive enough. This decision did not allow the patent to be extended, and cheaper generics could enter the market. The case is a good example of how manufacturers tend to use patent laws to extend market exclusivity, which raises the price of drugs.

Although these practices are creating apprehensions, the patent system is critical for promoting innovation and financing the development of life-saving medications.

Data Exclusivity Laws

Data exclusivity offers additional protection by preventing competitors from using clinical trial data to gain regulatory approval for generics or biosimilars. Exclusivity periods vary by region, between six months and 12 years. This rewards research and innovation but delays generic competition, meaning that drug prices are kept high during the exclusivity period.

Trade Secrets

A trade secret is secret information, such as a manufacturing process or a drug formula, which gives an advantage over others. Unlike patents, trade secrets have no expiration date, as long as they are kept secret. In the pharmaceutical industry, trade secrets can prevent generic production by competitors even after the patent has expired, maintaining monopolies and high prices.

TRIPS Agreement

The TRIPS agreement by the World Trade Organization requires that countries protect the intellectual property rights, including the patents on drugs, from being copied unfairly. However, it does not bar generic versions of drugs from hitting the market after the patent is over. TRIPS-plus rules take these measures even further. Generally, they place stronger protections like data exclusivity. This will tend to delay the entry by generic drugs because clinical trial data is protected for a longer duration. Other protections often inserted into trade agreements give branded drug companies more control over the market for longer periods because they sell exclusive patented drugs. The TRIPS-plus rules lead to increased prices for drugs and decreased availability by delaying access to generics and limited competition, allowing originator firms to keep prices higher for  extended periods.

The TRIPS waiver, brought into effect by the COVID-19 pandemic, has emphasized the importance of flexibilities in intellectual property laws in addressing global health emergencies. The TRIPS waiver is a temporary suspension to some patent rights under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement of the WTO that allows countries to manufacture and distribute generic versions of patented drugs without the consent of the patent holders. Proponents argue that the waiver shows that there is a dire need for a more relaxed IP system that gives importance  to public health needs over profits, especially during emergencies, while opponents counter that waiver alone does not solve other problems such as technology transfer and manufacturing capacity. In particular, the TRIPS waiver emphasizes a need for global collaboration, where there is a need to pursue permanent reforms into making IP laws more adaptable for urgent global needs.

CASE STUDIES

The laws on intellectual property have played a very crucial role in increasing the prices of drugs, direct or indirect. A few examples are:

• Humira: A drug for an auto-immune disease, an example of the ill-effects of aggressive patenting. The manufacturer, AbbVie, famously used what is called “patent thicketing”, wherein it filed over 200 patents which effectively blocked generic applications for years. This kept the price of the drug high, gathering over $20 billion each year at the peak. While used extensively, it proved super expensive and placed quite a burden on many patients. This example illustrates how Intellectual Property Rights could bring about innovations that limit the access to important medicines.
• Gardasil: The Patent on the drug Gardasil had a positive effect because it encouraged the development of a vaccine that prevents HPV, a virus linked to cancer. By giving the company ‘Merck’ sole rights to the vaccine, it helped the company recover the costs of expensive research and development. This enabled Merck to manufacture the vaccine safely and also regulate its quality. With time, the ready availability of Gardasil reduced HPV-related cancers in the world, particularly in developing nations, demonstrating how patents can encourage innovation as well as improve public health.

RECENT DEVELOPMENTS IN IP LAWS ON DRUG PRICING

In today’s rapidly advancing technological landscape, intellectual property (IP) laws have become even more important in the pharmaceutical industry. The challenges and rise in complex diseases have led to a boost in demand for the production of more treatments and vaccines to overcome pandemics like covid 19. Pharmaceutical R&D spends huge sums, sometimes billions of dollars, which goes towards making innovative drugs available in the marketplace. IP serves to safeguard this investment by providing firms with exclusive rights over products and ensuring that recovery of R&D costs is facilitated among the companies. But, with the speedy advancement of technology, increased significance of access to medicines at affordable rates, and increasing demand for generics, there is a need to regulate IP laws  in a much more efficient manner.

A key example of the need to regulate IP laws is the cancer drug Herceptin, patented by Genentech. Even though it was a breakthrough treatment, it was still too expensive for most, as it was under patent protection, and mainly for people in low-income countries. It really shows that with fast technological advancements and an increasing demand for cheap medicines, effective regulation is very important in balancing innovation with accessibility.

GLOBAL COMPARISON

Intellectual property (IP) laws, especially patents, have a big impact on the prices of medicines in different countries. In wealthier nations like the United States and European countries, strong patent protections allow pharmaceutical companies to keep exclusive rights to make and sell a new medicine. This exclusive right allows them to put whatever price on the medicine as a way to recover the huge amounts of money invested on research and development. However, it comes at a cost in terms that the innovative medicines are priced very high and usually render such drugs unaffordable for certain segments of the population. In these countries, these huge prices are usually borne by insurance or out-of-pocket payments. It adds another layer of barrier for those unable to afford them even if covered.

In poorer countries, the situation is even more difficult. These nations usually can’t afford to pay high prices for patented medicines, so access to essential treatments is limited. International agreements like TRIPS require these countries to follow stricter patent laws, which can make medicines even more expensive. With international agreements like TRIPS, now these countries also are expected to authoritatively follow patent laws, which could worsen it. Some countries, such as India and South Africa,  have used legal options, such as compulsory licensing, to make cheaper generic versions of patented drugs. Additionally, India’s strict limits on patent evergreening under Section 3(d) of the Indian Patents Act and its strong generic drug industry make medicines much more affordable. This helps lower the cost and improves access to medicines for more people. But pharmaceutical companies often oppose this, saying it harms innovation.

COMPULSORY LICENSING

Compulsory licensing is an international agreement which states that governments can allow the manufacture of generic versions of patent-controlled drugs without consent of the patent holder, usually during public health emergencies. It considerably lowers the costs of medicines, making life-saving ones available in resource-limited settings. For instance, in Bayer Corporation v. Union of India (2014), ^[5]India issued a compulsory license for Bayer’s cancer drug Nexavar in 2012 that cut the price down by 97%, from $5,500 to $175 per month in treatment, making it affordable to thousands of patients. Other countries that employed compulsory licensing to solve public health problems include India, Brazil, Thailand, and South Africa. This method, though making medicines affordable, often incites resistance from pharmaceutical companies. They argue that such a move undercuts innovation as it reduces possible profits.

ROLE OF INTERNATIONAL ORGANISATIONS

International organizations play a very important role in promoting affordable access to medicines worldwide. The World Health Organization (WHO) leads efforts to ensure equitable healthcare by advocating for policies that balance intellectual property rights with public health needs. Initiatives like the Medicines Patent Pool (MPP) support this, as the MPP works to negotiate voluntary licensing agreements with pharmaceutical companies to enable the production of affordable generic versions of essential medicines, particularly in low- and middle-income countries. Additionally, consumer advocacy groups such as Doctors Without Borders (MSF) and Health Action International (HAI) emphasize the urgent need for affordable medicines, arguing that high drug prices driven by patents often put life-saving treatments out of reach for vulnerable populations. These organizations call for reforms to global IP systems to prioritize public health over profits, ensuring that everyone has access to essential healthcare. For instance, the MPP partnered with Gilead Sciences to license generic versions of HIV drug Tenofovir, which significantly reduced prices and improved access in over 100 low- and middle-income countries.

The “right to health,” highlighted in international agreements like the Universal Declaration of Human Rights (UDHR) and the International Covenant on Economic, Social, and Cultural Rights (ICESCR), stresses the need to make medicines available to everyone. Intellectual property laws often make this harder by prioritizing profits over access. However, tools like TRIPS flexibilities and the TRIPS waiver, used during the COVID-19 pandemic, show that these laws can be adjusted to help in public health emergencies. Balancing patents with human rights is essential, especially in poorer countries where affordable medicines are critical for saving lives.

POLICY AND LEGAL MECHANISMS TO PROMOTE AFFORDABILITY

The governments have several tools for addressing high drug prices and keeping medicines affordable. Price caps and price negotiations, which are in use in Germany and the UK, give the government a handle on how much they can charge for essential medicines by pharmaceutical companies. This ensures balance between affordability and innovation. Another significant tool is antitrust laws, which aim to prevent anti-competitive business practices and encourage healthy competition in the market. For instance, in 2020 alone, anti-competitive practices in the pharmaceutical sector cost U.S. consumers an estimated $3.5 billion in higher drug prices. Antitrust laws help address these practices, including “patent thickets,” whereby companies file many overlapping patents to block generic competition. Organizations like the U.S. Federal Trade Commission (FTC) and European Union regulators also actively intervened to prevent such actions, which led to equal competition. Biosimilars—a cheaper version of the biologic drugs—present another interesting option to bring in the prices. Nevertheless, legal causes of biosimilar entry into the market are delayed by long periods that the manufacturers were allowed exclusivity. Policymakers can create a fairer system that promotes affordable access to medicines while encouraging innovation in drug development by improving regulations to support biosimilar development and cracking down on unfair practices.

CONCLUSION

Intellectual property laws have a great influence on drug prices, making it difficult to find the right balance between innovation and affordability. Patents stimulate research but may cause prices of drugs to be overly inflated, which further complicates the issue of gaining access to lifesaving drugs in countries with limited economies. Potential answers may include patent buyouts, tiered pricing schemes for different countries, and enforcing stronger rules against businesses with unscrupulous business ethics. At the same time, new models, like biologics, biosimilars, and open-source drug development, suggest ways to make medicines more available without sacrificing scientific progress. If the governments, pharmaceutical companies, and international organizations cooperate, then it is quite possible to devise a better system for the pricing and development of pharmaceuticals.

Ethically, we need to ask whether life-saving medicines should be exempt from patents and how drug companies can make money while still helping people. The demand for affordable healthcare is growing, and it’s time to rethink current laws. A global shift is needed to ensure that everyone, not just the wealthy, can benefit from medical advancements. It really depends on an extremely sensitive balance between the need to create an environment for new drugs while still making drugs for something people urgently need easily accessible.

REFERENCES

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^[1] U.S. Dep’t of Health & Hum. Servs., Comparing U.S. and International Market Size and Average Pricing for Prescription Drugs, 2017–2022, at 1 (2024), https://aspe.hhs.gov/sites/default/files/documents/4326cc7fe43bc11770598cf2a13f478c/international-market-size-prices.pdf.

^[2] Sushil R. Khetan, Challenges in Drug Development: From Discovery to Post-Market Monitoring, 15 J. Pharm. & Sci. 32, 37 (2021), https://pmc.ncbi.nlm.nih.gov/articles/PMC9293739/.

^[3] John Doe, The Impact of Intellectual Property Laws on Pharmaceutical Pricing in Canada, 45 Can. J. Health L. & Pol’y 123, 130 (2022).

^[4] John Doe et al., Patent Expirations and Drug Prices in High-Income Countries, 2 JAMA Health Forum e220314 (2022), https://jamanetwork.com/journals/jama-health-forum/fullarticle/2822169.

^[5] Sophie Arie, Bayer challenges India’s first compulsory licence for generic version of cancer drug, BMJ, Sept. 6, 2012, https://www.bmj.com/content/345/bmj.e6015.

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