The COVID-19 coronavirus has become a global pandemic. With infection and fatality rates several times greater than the flu, the worry is that this is not a fleeting scare such as SARS or Ebola but a seasonal virus with lasting effects. The race to develop treatments and a vaccine is well underway and initial testing appears promising. Recent news reports suggest that President Trump offered money to a German company researching a coronavirus vaccine in order to obtain a vaccine “only for the United States”. The details of this reporting may turn out to be incorrect, but these developments nevertheless provide an opportunity to think about new and better ways to provide incentives to create, produce and distribute vaccines, both as a general matter and for COVID-19 in particular. In particular, we should consider whether patents are suitable here or whether a system based on government-funded prizes is a better approach.
The current system of drug production is based on the idea of patents, which are temporary monopolies over a particular process or product granted to inventors for a defined time period. That monopoly creates incentives for companies to invent new products by letting them charge prices above what would be available in a free market. As a result, medicines are one of the most lucrative areas for successful inventors.
This approach may or may not be the right one for medicines in general. Perhaps for obesity drugs or acne medication, the current system is acceptable, although even for those products there is a debate about the best approach. But for a virus such as COVID-19 that comes out of nowhere and causes a sudden global pandemic, the system clearly doesn’t work.
A number of companies around the world are working on a vaccine for COVID-19. In all likelihood, one of those companies will discover the vaccine first and receive a patent. Many companies will receive nothing for their work and efforts, and in all likelihood lawsuits alleging patent infringement will abound. That means a single company could have a monopoly over a product that is desperately needed by people all around the world. The potential economic payoff from a COVID-19 vaccine is immense.
At the same time, we have to keep incentives in place and give inventors a reason to do the hard work necessary to create a vaccine. It is simply not rational for anyone to spend hundreds of millions of dollars to create a medical breakthrough with only the expectation of a “thank you, we’ll take that”. But patents are not the only way for governments to compensate inventors. In this case, a better way would be for governments to join together and offer financial prizes for a vaccine. Rather than an all or nothing financial windfall for one winner, multiple companies that contribute to achieving the goal would be rewarded. Prizes have been suggested by economists for many years now, and have been used successfully in the past. It's time to put them into practice for the coronavirus.
Importantly, a prize system separates the act of inventing the vaccine from production and distribution. Under the patent system, the company holding a monopoly controls everything and could limit production and distribution. A better approach would be to provide the incentives for invention, but then allow others to produce and distribute the vaccine. That opens up the market for more companies to be involved, and potentially for those in need to get the vaccine faster. Thus, one or more vaccines would become available for anyone to make and the public and private sector can explore a variety of ways to get vaccines to market as quickly as possible.
There will inevitably be calls for nationalism in relation to a coronavirus vaccine, but the sentiment that "we have no allies" in this crisis is misplaced. Whether we have allies is, in fact, a conscious choice. We could have allies, and we will be better off if we do. Governments that choose to work together with others will be more likely to get the necessary medicines that their citizens need more quickly and efficiently.
By contrast, we will all be harmed if vaccines are part of a nationalistic economic competition, with governments and inventors seeking monopolies over vital health products that are needed by the whole world. Governments should pool resources to promote the rapid development and distribution of effective treatments and a vaccine for COVID-19. There is scope for cooperation here, and governments should look for ways to work together instead of engaging in destructive economic nationalism and relying on a patent system that will not produce the fastest and most efficient solution to resolve this global health crisis.
Simon Lester is the associate director of Cato's Herbert A. Stiefel Center for Trade Policy Studies. Bryan Mercurio is the Simon F.S. Li Professor of Law at The Chinese University of Hong Kong