The International Fund for Innovation: further thoughts

Two and a half years ago, IP Finance posted this piece by Itaru Nita on what he called "a financial prescription for neglected diseases". There has been some further development of Itaru's work, so this weblog brings his current thoughts on his continuing work in progress. Itaru writes:

"The International Fund for Innovation: innovation today for innovations tomorrow?

This summer, a crowd of patent opponents and proponents will again be descending on Geneva when international organizations in the city convene a series of meetings to explore the future global legitimacy of patents. The participants will debate a wide variety of increasing concerns, which all turn on one basic issue: do we truly need patents at all?

Although patents are widely believed to boost innovations by protecting them, their obvious drawbacks include the inaccessibility of essential patented products to impoverished nations and unsuitability for unprofitable research into products that are truly needed.

To solve this fundamental puzzle, policymakers are urged to consider an International Fund for Innovation (IFI), this being a substantial and sustainable fund both to finance unimpeded access to indispensable innovations (for example essential medicines in developing nations and renewable energy technologies) and to foster research needed to combat neglected diseases, global warming and other problems.

The IFI would have three financial sources: an international "assurance premium" from patent applicants, a premium from patentees themselves and an allocation from the revenue of patent offices. Regarding the premium, the IFI would impose a nominal fee on patent applications and small levy on patent incomes, mostly royalties and compensation for patent infringement, plus a further allocation from patent granting fees. Although the assurance premium really serves as a kind of green tax on patent applicants and owners, as a Tobin or Pigovian tax on the detrimental effects of patent protection, we prefer "patent assurance premium" to “taxation” in order to emphasise the insurance function of the premium as outlined below.

Unlike other proposed financial solutions, economic downturns would not significantly affect the availability of funds from IFI because the assurance premium is linked to the global patent system. Historical trends have shown that the volume of patent applications and patent income does not drop significantly in times of economic contraction, but remains relatively constant. In addition, the IFI would receive a not inconsiderable annual revenue of almost 10 billion USD if it collected an assurance premium of just 100 USD for every international patent application and 10% of patent incomes worldwide.

A developing country would file with the IFI a request for financial assistance when it intended to produce a patented medicine for its inhabitants, but the government could not afford to pay licensing royalties and was forced to resort to a "compulsory licence", or to agonize as to whether to infringe the patent instead. Compulsory licensing takes place when a government allows for producing a patented product without consent of the patent owner. The IFI would consider the developing country’s request through an international quasi-judicial process. Where the request is granted, that country would be subsidized, allowing its government to pay any licensing royalties and to produce the needed medicine, without the need to resort to a compulsory licence or infringement.

In addition, impoverished nations without the ability to produce medicines would also request financial assistance from the IFI, to purchase a patented medicine directly from its patentee producer by means of IFI's subsidies.

Since the availability of these funds would minimize the likelihood that developing countries would issue compulsory licences or infringe, the assurance premium would serve as insurance against the risk of damage to the patent right, resulting in more precise implementation of an international agreement on patent protection. This function would allow industries to build consensus regarding their burden of paying the extra levy. In real terms, the patent assurance premium would be negligible relative to the entire cost of obtaining a patent, including not only office fees but also professional and translation costs.

It however, remains important to ensure an opportunity for developing nations to issue compulsory licences if they prefer, it rather than approach the IFI, because the Fund is a new option in addition to the flexibilities currently recognized by global patent law.

Further, genuine researchers could submit to the IFI a request for financial assistance where they attempt to develop a new drug for neglected diseases but cannot afford to invest and there is no chance of recouping their investments because those in need of their inventions live mostly in poor countries. After reviewing the request, the IFI would finance the research and development for such diseases, which, in turn, would insure the patent regime against growing global criticism, resulting in industries' increased willingness to pay the premium.

The IFI’s scope would not be limited to medicine but could cover any innovations society needs, where existing patent law provides insufficient economic incentive, typically including green technologies.

Here in Geneva, many leading secretariats and delegates have already shown their great interest in the IFI. With their support, we toil night and day to design elaborate detailed model depicting the IFI’s structure and operation in reality, not merely on paper".