Commentary

China’s Viagra Test

This article was published in Apple Daily (Hong Kong), August 11, 2004.

Early last month an international outcry arose when China lifted patent protection for Pfizer’s erectile dysfunction drug, Viagra. But the matter may not be as simple as the initial reaction suggested. Further proceedings will be necessary to answer that. Far more important, however, they will be crucial to answering a more fundamental question, central to China’s full participation in the global economy: Is China prepared to institute and live by the rule of law?

That concern looms especially large when it comes to protecting patents and other forms of intellectual property, about which China has been so notoriously deficient. More than two decades ago, China began instituting rudimentary protections for agricultural property, and the benefits were evident even to the regime’s most ardent communists. Yet the principle is no different in the case of intellectual property. As with crops, if we want the benefits of human industry and creativity, we must have in place a system that enables those who do the spadework to reap the rewards.

There are few industries in which that principle rings truer than pharmaceuticals. As regulatory regimes have grown in many countries over recent decades, much of the world’s drug research, development, and production has shifted to the United States, which is still relatively free. But even in the U.S., Food and Drug Administration safety and efficacy standards impose extraordinary up-front R&D costs on drug companies. On average, from the time a company first applies for a patent, it takes 12 to 15 years and $800 million before the first pill reaches the market. Obviously, if others were free to copy and sell that pill, having incurred none of those costs, there would be no incentive to make that kind of investment — and none of the modern “miracle” drugs that investment produces. No one grows crops if others are free to harvest them.

That’s why the international hue and cry went up last month when the patent re-examination board of China’s State Intellectual Property Office (SIPO) revoked Pfizer’s China patent for Viagra. Because the effect was to allow domestic Chinese companies to begin copying and selling the drug themselves, the decision had all the appearances of outright theft — from an American company, for the benefit of domestic companies. Indeed, just last week, China’s state media reported that 17 pharmaceutical companies, headed by Tonghua Hongtaomao Pharmaceutical Co Ltd. from northeastern China, are hoping to set up a joint-stock company to make the drug and sell it for half the price of Viagra.

Can they get away with that? It’s here that the devil may be in the details, but at the moment those details are less than clear, which is why further proceedings are so important. Pfizer’s Viagra entered the Chinese market in July 2000 as a controlled substance, not advertised, and available by prescription to a small number of hospitals. In September 2001, however, SIPO awarded Pfizer a so-called use permit for the drug. That’s a patent not on the ingredients but on the “novel” use to which they’re put.

It seems that the active ingredient in Viagra, sildenafil citrate, was first thought to be promising as a heart medication. During testing, however, the chemical’s use for erectile dysfunction was noticed, and so Pfizer began seeking patents for that use. But not all countries grant use patents. When China did in this case, it took less than a month for 12 domestic drug companies that use sildenafil citrate in their products to object — not least because granting Pfizer the patent meant that they would be unable to market their drugs as remedies for erectile dysfunction until the year 2014. That was the objection the patent re-examination board upheld when it lifted Pfizer’s patent last month, apparently because Pfizer’s application had failed to accurately explain the use of the drug’s key ingredients. Pfizer responds that the board is asking for information that was not required or requested when the company applied for the patent. It is appealing the decision.

The technical issues here are murky, to be sure, and may involve close calls, as is often the case in patent disputes. This is not the place to sort them out. That place, rather, is in the appellate proceeding that will follow. And in that forum, the larger issue could not be more clear. As this appeal is adjudicated, it is absolutely essential — for China, and the world that deals with it — that the proceedings be transparent, for all the world to see, if that huge nation is to become a full and trusted participant in the global economic community. The precondition for participation in that community is respect for property rights and contracts. Intellectual property is no less important than the real property the farmer tills. In fact, in the modern world, it is doubtless more important. The world will be watching.

Roger Pilon is vice president for legal affairs at the Cato Institute in Washington, D.C., and director of Cato’s Center for Constitutional Studies. He is the author, most recently, of “Drug Reimportation: The Free Market Solution,” Cato Policy Analysis no. 521.