Academic journal article The Journal of Social, Political, and Economic Studies

The 1998-2001 Legal Struggle between the South African Government and the International Pharmaceutical Industry: A Game-Theoretic Analysis

Academic journal article The Journal of Social, Political, and Economic Studies

The 1998-2001 Legal Struggle between the South African Government and the International Pharmaceutical Industry: A Game-Theoretic Analysis

Article excerpt

The authors analyze the 1998-2001 legal and public relations dispute between the South African Government and the Pharmaceutical Manufacturers Association over the former's attempt to over-ride patent rights. On final settlement the Government claimed 'victory', without demurral from the other side, despite conceding the very issue that had prompted legal conflict in the first place. The authors conclude that the success of HIV/AIDS activists in publicly spinning the original court case as a battle over access to HIV/AIDS therapies complicated the game for both the Government and the PMA. The resulting threat of rising public demonisation increased the public relations cost to the PMA of pursuing its suit. At the same time, the value to the Government of securing the right to compulsory licensing diminished, given its desire not to become responsible for antiretroviral provision under any legal regime. For public relations reasons, however, the Government could not directly reveal this preference. Maintaining this as private information also gave it a strategic advantage over PMA, one which it used to extract the PMA's nondemurral on the credibility of its public claim to 'victory'.

Key Words: Pharmaceutical Manufacturers Association, South African Government, Pharmaceutical Research and Manufacturers of America, World Trade Organization, Trade in Intellectual Property Rights Agreement, Nash equilibrium, HIV/AIDS, anti-retroviral treatment, compulsory licensing, parallel imports, public relations, activists.

In 1997, the South African Government passed the Medicines and Related Substances Control Amendment Act (1997-90). Almost immediately, the Pharmaceutical Manufacturers' Association of South Africa (PMA) challenged the constitutionality of the Act, arguing that it contravened South Africa's obligations as a member of the World Trade Organisation. After three years of dispute, the case came to court in March 2001. Within a month the parties settled out of court. To many observers and commentators, the history of this interaction has seemed confusing and contradictory. Popular media commentary generally supposed that the Government would use the Amendments Act to increase access to antiretroviral drugs. To date, however, Government policy on drug provision has not matched this anticipation. This fact appears to call forth a less straightforward hypothesis concerning the Government's legal and political strategy with respect to the PMA suit. In the following paper, we propose such an hypothesis by motivating a more complex but realistic utility function for the Government and then showing, by means of game-theoretic analysis, that this would rationalize the actual behavior of both parties.

The paper is organized as follows. First, we provide crucial background information on the context of the dispute with respect to relevant legal and economic issues concerning intellectual property rights, as defined by South Africa's domestic law and as constrained by the Trade in Intellectual Property Rights Agreement (TRIPS), to which South Africa is a signatory. We then describe the actual behaviour of the Government in detail, for the purpose of proposing an hypothesized utility function that rationalizes this behavior in accordance with a `principle of charity' reflecting a default presupposition of rationality. A similar exercise with respect to the utility function of the PMA is then required, since to rationalize an outcome by means of game theory involves showing that all parties' strategies are in equilibrium. We avoid ascriptions of esoteric or ad hoc knowledge to either party. Testimonial evidence is then provided so as to establish the plausibility of our imputed Government utility function. The imputed PMA utility function is justified by industry analysis, concentrated on the financial implications of the various dispute outcomes possible ex ante. Finally, we render our model and its assumptions suitably precise, and show that it indeed rationalizes the actual outcome, by modeling it game-theoretically and showing that given our imputed pair of utility functions the terms of settlement were the game's unique Nash equilibrium. …

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