The relevance of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement to developing countries has been widely discussed at international fora, particularly regarding the impact of pharmaceutical product patents. Product patents restrict the ability of local firms to manufacture copies of new drugs, possibly leading to less competition, higher drug prices, and lower welfare in developing countries. These are the unintended public health consequences of what is primarily an industrial policy cool.
In this context, we examine the Japanese experience of introducing product patents in 1976 which also attracted heated discussion at that time. The anticipated price increase and product shortage were largely avoided, while the number of available products increased. (1) Negative consequences of product patents were largely averted through a series of well-coordinated policy instruments, the examination of which may provide suggestions for developing countries.
Japan's pharmaceutical patent policy
Japan's peculiar patent and utility model systems are said to have encouraged technology diffusion and incremental innovation in the overall economy. (2) The pharmaceutical patent system after 1976 was designed with the similar intention of streamlining the transition to the product patent regime. Two components of this system merit attention from the viewpoint of developing countries. One is the narrow interpretation of patent breadth, and the other is the system of "dependent-parent arbitration", a lesser known patent policy effective for promoting cross-licensing by threat of compulsory licensing. We examine these policy tools in turn, before discussing their effects on the R&D activities of Japanese pharmaceutical firms.
Breadth, or scope, is an important measure of the degree of patent protection. Broad patents provide stronger protection to parentees against competition from similar innovations. In contrast, narrow patents provide weaker protection to patentees, but create wider freedom to operate for subsequent innovators. In practice, patent breadth derives from the scope of claims allowed by the patent office, the application by courts of the "doctrine of equivalents," and other parameters of patent policy. When product patents were introduced, the Japanese patent system favoured narrow patents. Firstly, examiners at the Japan Patent Office were encouraged to literally interpret patent claims, which are verbal descriptions of the invention. In other words, only those claims supported by working examples were permissible --a practice that persisted until 1995. (3) Secondly, the "doctrine of equivalents", a liberal interpretation of patent claims used in the US, was not applied expressly in Japan until a Supreme Court ruling first endorsed it in 1998. (4) Thirdly, until 1988, the Japanese practice of allowing only one claim per patent created "holes" in the technology space, which were exploited by Japanese firms. (5)
The Japanese patent system provides for a wide range of grounds for compulsory licensing: (1) local working, (2) working of "dependent patents", and (3) public interest. (6) A dependent patent is one that must be used ira conjunction with another parent in order to produce commercial value. When Japan introduced product patents, the dependent-patent arbitration scheme became part of the government's effort to appease concerns about the adverse impact of product patents on downstream innovations such as novel manufacturing processes and new uses for existing pharmaceuticals. Under this scheme, the patent holder on a downstream invention (e.g. novel process) could request that the Japanese Patent Office (JPO) conduct binding arbitration over a cross-licensing contract with the holder of the upstream patent (e.g. product patent on new drug), if the parties …