Joel had a post a while back where he wondered if there is "anything in TRIPS that would restrict the ability of a state to set price controls on patented pharmaceutical products." He doubted there was.
I was thinking about this issue recently, and while he is probably right, it seemed to me that maybe, just maybe, there was an argument on the other side. It's probably a losing argument, but nevertheless, it seemed like there was something there. Here goes.
The "exclusive rights" granted by intellectual property law, including patent rights, are not like most other rights, such as free speech, freedom of religion, etc. These more traditional rights have an inherent value, both in terms of the broader policy goals and the fulfillment of individual liberty. By contrast, "exclusivity" has no (or little) inherent value in and of itself. Article 28.1(a) of the TRIPS Agreement refers to the following exclusive rights: "making, using, offering for sale, selling, or importing." Does it really matter if you are the only one who gets to "make" something or "use" it? Do you feel better about yourself if no one else can do these things? Is society better off somehow? Is your liberty greater? I would think the answer to all these questions is no (or at least, "not much"). Instead, the real value of exclusivity is in the monopoly you hold and the higher prices you can charge. Since you are the only seller, you can charge whatever you want, with no fear of competitors undermining your price. As one paper puts it:
The Main Purpose of Patent Rights
Invention is a time-consuming business. It usually requires creativity, resources and time. Once an invention has been made it may be copied by competitors. In order to enable inventors to enjoy the fruits of their labour, most states protect intellectual property through patents and other mechanisms. This allows inventors to exploit their brainchild for a limited period without unwanted competition. The patent allows its owner to block the market entry of copied products and thereby gives him or her the opportunity to recoup expenses through monopoly pricing.
So, coming back to the original question of whether there is "anything in TRIPS that would restrict the ability of a state to set price controls on patented pharmaceutical products," if exclusive rights are really all about monopoly profits, and price controls undermine these profits, couldn't it be argued that price controls violate the exclusive rights set out in Article 28? While price controls don't affect exclusivity per se, as they don't affect whether someone else can take the actions in question (using, selling, etc.), they do undermine the purpose of exclusive rights.
On the other hand, perhaps the purpose of exclusive rights is not necessarily about allowing monopoly pricing. In the absence of the ability to charge monopoly prices, the patent holder would still have 100 percent market share, which, while not as valuable as monopoly profits, is pretty good.
