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Weakening Intellectual Property Protections Will Hamper European Innovators

Posted by Philip Stevens at 14 June 2018, 16:30 CET |

As Europe is beset by economic problems – high unemployment, growing debt and increasing business competition from emerging markets – you would think that the European Commission would be doing everything to boost economic growth.

The Commission's new proposals for an overhaul of the intellectual property rights that govern research and development of new medicines, released in late May, look set to achieve the exact opposite.

The issue is the system of "supplementary protection certificates" (SPCs) allowed under EU intellectual property legislation, which can extend a medicine's patent by up to five years. This important right has existed in Europe since the early 1990s and compensates for time taken by the mandatory period of regulatory review, which can eat up to 15 of the 20 years of patent term, leaving insufficient time to recoup R&D investment costs.

Following a period of review and public consultation, the Commission proposes to dilute SPCs to allow generic manufacturers to export medicines outside the EU while the SPC is still in force. This is a significant weakening of the European intellectual property framework.

The claim of both the Commission and Medicines for Europe, the generics lobby group, is that such an export waiver would bring back generic manufacturing currently done outside the EU, creating thousands of high tech jobs, in line with the EC's October 2015 plan to upgrade the EU single market.

For those more concerned with Europe's overall economic environment, rather than the plight of a single low-margin manufacturing industry, the Commission's proposals ring alarm bells. It may well be the case that the SPC export waiver helps the European generic industry at the margins. But this will be at the cost of higher value jobs in the innovative pharmaceutical industry, and crucially to European innovation, the life blood of our economic growth.

Innovation is vital to Europe's future economic growth, accounting for around 50% of US annual GDP growth, for example. Yet Europe is becoming an innovation backwater, easily outspent on R&D by peer nations such as the United States, Japan, South Korea and Australia, according to the 2017 European Innovation Scorecard. 

One bright spot in this picture is the life sciences sector, one of Europe's innovation success stories. Europe's innovative biopharmaceutical companies invest an estimated €35 billion in R&D every year, ranking them among the biggest contributors to European innovation.

This success is partly due to Europe's high standards of protection of intellectual property, now at risk from the Commission itself. Its own study into the potential impacts of the SPC waiver demonstrates that a shortening of the period of patent protection will cause EU life sciences companies to invest less in R&D.

Other independent studies support this, with one analysis finding that the SPC waiver would cost the European innovative pharmaceutical industry up to 7,700 direct and 32,000 indirect job losses, and a loss of €312 million in R&D investment.

By weakening a major intellectual property right, Europe is at risk of confirming its growing reputation as an inhospitable place for innovation, more concerned with protecting the low-value manufacturing industries of yesteryear. The move is doubly baffling considering that emerging competitors are moving in the opposite direction and bolstering their IP frameworks in a bid to develop competitive advantage in knowledge-based industries.

Investment capital is globally mobile and Europe does not have a divine right to prosperity. There are new competitors alongside our old rival, the USA. China, for instance, correctly senses that future prosperity will come from a knowledge-based economy, not manufacturing products invented elsewhere. Beijing has been steadily improving the quality of its IP framework over recent years, only this month instituting its own form of SPC to grant five-year patent extensions for medicines.

This new approach is paying dividends: 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.

The Commission would no doubt have taken all this into account had its public consultation on the issue been more than a cursory box-ticking exercise designed to arrive at a pre-determined conclusion. There was limited opportunity for public comment, and its results were published on the same day as the Commission's proposals, allowing no time for debate. The concerns of owners of SPCs, who are almost unanimously opposed, and a substantial body of critical economic analysis appear to have been discounted altogether.

At the final count, it's hard to see Europe's generics industry – a business where margins are razor thin – being competitive in the long term with the likes of India and China where production costs are much lower. This makes the Commission's preoccupation with boosting it at the expense of innovation all the more confusing.

The EU's precautionary, risk-averse attitude to regulation has already chilled investment in innovative sectors such as chemical and agricultural biotechnology, and is currently holding back Europe's role in the Artificial-Intelligence based "Fourth Industrial Revolution". This latest proposal from the Commission will only accelerate Europe's relative decline.

Philip Stevens is Director of Geneva Network, a UK-based research organisation working on innovation and trade issues.
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Philip Stevens

Philip Stevens

Philip Stevens is Director of Geneva Network, a UK-based research organisation working on innovation and trade issues