"US backs waiver on vaccine patents to boost supply"

From the BBC:

The US has thrown its support behind a move at the World Trade Organization (WTO) to temporarily lift patent protections for coronavirus vaccines.

Advocates of the move say it would increase global vaccine production, but drugs manufacturers argue it will not have the desired effect. Critics say it strips financial rewards from cutting-edge drug developers.

Hang on, didn't President Trump pay you $10 billion to develop the vaccines? At whose risk and expense was that? You are also earning $20 or $30 a pop for the hundreds of millions of doses that the self-same US government is buying from you. And the further hundreds of millions which you hope "rich countries" will buy off you at full price and distribute to the developing world (see below).

The head of the International Federation of Pharmaceutical Manufacturers and Associations, Thomas Cueni, told the BBC's Today programme that technology transfer should not be enforced.

"I'm deeply concerned if you hand this over and allow companies to try to get it done the right way, safe and high quality, you could compromise the quality and safety of vaccines which we see now and it would be disruptive."

Well, he would say that wouldn't he? Does he mean that they are nobly saving lives in the developing world by preventing them from making their own vaccines? He's earned a "that's racist" as well.

"And it is also right now the disappointing unwillingness of rich countries to early share doses with the poor countries."

I'd shut up right now if I were him.

... pharmaceutical companies have called the decision by the US to back the sharing of secret recipes for vaccinations short-sighted, claiming it is understanding the production process that is the real challenge, particularly when it comes to the new breed of mRNA vaccines - such as Pfizer and Moderna - as well as the availability of raw materials. It is, they say, akin to handing out a recipe without sharing the method or the ingredients...

If it's the know-how that matters, why are they objecting to waiving the patent protection?

Patents, taxation thereof.

Income from patents is "rent" because it can only arise as a result of government protection, so it seems fair enough to me if a government wants to collect a bit of extra tax from patents. The amounts involved are a tiny fraction of land rents, so I'm not overly bothered, but the principle stands.

The nay-sayers claim that people will just register their patents off-shore, which under current rules can produce a tax saving (because the rules are stupid). But this is similar to the claim that foreigners wouldn't pay LVT on land and buildings they own in the UK or that UK landowners would evade the LVT by registering the land in the name of an off-shore company, which is clearly drivel on the facts.

The same applies to patents. The source of the income is not the patent itself, it is the income from selling the patented products. So the best way of taxing patent income is for the UK government to levy an extra tax on the sale of patented products in the UK, the same as it collects fuel duty from fuel sold in the UK, or booze and fags duty from booze and fags in the UK. It does not matter where the booze or fags were made, or who owns the factory which makes them. The tax is the same.

(Admittedly, tobacco duty in the UK is so stupidly high that smuggling is worthwhile, and they might be past the top of the Laffer Curve, but the principle stands, and most people love bashing smokers, so politically, it is seen as A Good Thing).

Current rules on patent income are stupid, because they go downstream and try to tax the income received by the patent holder. Wrong, it is best to tax that income at source i.e. the actual sales of patented products to end users.
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I envisage something like this, taking cars as an example...

Somebody, car manufacturer or inventor, in the UK or abroad, patents some car components and wants the UK government to give legal protection against competitors embedding similar components in cars which they sell in the UK.

He notifies the UK government that car model such-and-such includes patented components and pays the tax on the selling price of the new such-and-such models he sells in the UK.

It's up to the car manufacturer (or indeed the car manufacturer and inventor together) to decide whether they are willing to pay for that protection or not; or indeed use non-patented components on UK models.
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It doesn't matter who discovered the idea; or where the patent is registered; or who has registered it; or who manufactures the products; or where they are manufactured. All we tax is patented products sold in the UK. You can invent any permutation you like, the rule is the same...

a) UK inventor gets patent royalties from a manufacturer abroad? He does not pay the tax.

b) UK manufacturer pays royalties to patent owner abroad? No tax on that, only tax on the patented products which the manufacturer sells in the UK.

c) UK inventor registers patent off-shore and is paid the royalties there? So what? Why would he even bother? The royalty payments themselves are not taxed in the UK anyway, see example a).

d) Foreign manufacturer sells patented products in the UK? The tax is on the total value of UK sales.

e) UK manufacturer makes patented products and exports most of them? The tax is only due on UK sales. Exports are not liable to UK patent tax.

And so on.
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Is it a perfect system? No of course not. But we know that fuel, booze and fags duty "work" on an administrative level. The same general rules apply here.

Is it far more coherent than the current system? Certainly: it's like a very focussed VAT, with much lower dead weight costs.

How high do we set the rates? Depends on the product. Items with low production costs and high margins (medicines, software) get a high rate (50%?) and items with high production costs and low margins (cars, consumer electronics) get a low rate (5%?).

There's a Laffer Curve to this, and we pitch the rates at something lower than revenue-maximising rate.

How much would the tax raise? No idea, but either we get more money, or we get more competition/innovation. Win-win!
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It doesn't matter what other countries do.

PR China does not care about copying and patent infringement, so were PR China to demand such a tax, people would laugh in their faces and tick the box saying "While this product is patent protected in the rest of the world, we know that you will turn a blind eye if Chinese manufacturers copy it, the protection you offer is worthless so we won't bother paying it on sales in PR China, thank you very much."

In this example, it's not like car manufacturers will say, "We don't want to pay the 5% in the UK, so we'll only sell this model in countries with no patent tax", because the 5% tax on cars will have been set at much less than the extra profits they can make as a result of including the patented components in cars they sell in the UK.

Wealthy countries with a good legal system will be able to charge higher rates of tax than poor countries with a corrupt-ineffective-expensive-complicated legal system, so it motivates governments to make sure that their country is wealthy and their legal system is accessible, quick, low cost and effective, that way they can collect more patent tax. Reward for good behaviour!
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Same goes for franchise payments. Starbucks siphons money out of the UK by charging people (franchisees) for use of the name, logo, cup design etc. The branding is clearly being exploited in the UK, it's a UK activity/UK source of income, so that would be liable to normal UK corporation tax.

Does patent protection encourage or discourage innovation?

From the BBC:

Deep in a water treatment plant in Ramstein, near Kaiserslautern in south-west Germany, one woman believes she's found the answer [to fatbergs]. Dr Andrea Junker-Buchheit works for a start-up called Lipobak.

"We treat fatbergs with a special micro-organism solution. We grow bacteria which have been developed specifically to eat fat. They digest all the fat, all the grease, all the oil."
...
Work in this area started under a US patent nearly 30 years ago, but has come back to the fore since it expired.

What puzzles me is how they can charge $750 for a drug whose patent has expired.

From the NY Times:

Specialists in infectious disease are protesting a gigantic overnight increase in the price of a 62-year-old drug that is the standard of care for treating a life-threatening parasitic infection.

The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars…

Turing’s price increase is not an isolated example. While most of the attention on pharmaceutical prices has been on new drugs for diseases like cancer, hepatitis C and high cholesterol, there is also growing concern about huge price increases on older drugs, some of them generic, that have long been mainstays of treatment.

I accept that the trademark 'Daraprim' is protected, but surely the patent expired decades ago, so surely everybody else can happily manufacture generic versions and sell them for cost-plus?

Fun Online Polls: Intellectual Property rights & Complete Chaos

The results to last week's Fun Online Poll were as follows:

When a patent or copyright expires, does society as a whole...

become slightly wealthier - 71%
stay exactly the same - 26%
becomes slightly poorer - 3%

Which must be the correct answer.

Shakespeare's plays are long out of copyright, but they are still there for everybody to enjoy (or not as the case may be). Everybody can manufacture ring-pull cans without having to pay a fraction of a penny licence fee to the original inventor/designer for each one, and so on and so forth. Overall, the wealth is still there, it is just shared out slightly differently (and probably more efficiently).

Of course there is a loss to the original owner when his IP rights lapse but that is more than outweighed by the gain to 'everybody else'. Worst case, it's a break even.

Think about it, there are four variables in deciding what protection to grant:
- whether it gets protection in the first place,
- how expensive the registration procedure is,
- how long the protection should last, and
- to the extent a government taxes earned income, there is an argument for taxing such protected income before it taxes anything else.

Have we got the balance right? In some respects, no, but broadly speaking, we're not far off. Governments have to incentivise innovation without stifling competition, and this is a good way of doing it.

If the 3% who voted "slightly poorer" are correct, then that must mean that patents and copyrights should be protected for infinity, which is clearly wrong, or else we'd have it (doesn't apply to trademarks, they are protected in perpetuity).

Now, if we agree that government protection of what is ultimately earned income should only be time limited, why do we think that governments have the right to sell off the freehold of land for one initial payment, often centuries ago, and protect that source of unearned income in perpetuity?

Is there not a mismatch here?
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This week's Fun Online Poll.

Complete and utter chaos (multiple selections allowed).

Vote here or use the widget in the sidebar.

Fun Online Polls:

The results to last week's Fun Online Poll were as follows:

Of the 32 national teams at the FIFA World Cup, how many will end up disappointing their fans?

Selection
A few - 1%
About half - 4%
Most - 5%
Nearly all - 17%
All but one - 67%
All - 6%

My thoughts exactly: all but one. It's all just manufactured misery, I doubt very much whether the joy felt by the winning team's fans/nationals is greater than the disappointment felt by all the others, so such competitions are a negative sum game.
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I was musing about life, the universe and everything recently when an interesting analogy occurred to me.

That's the basis of this week's Fun Online Poll.

Vote here or use the widget in the sidebar.

"It’s time for tech firms to end their insane global patent wars"

Allister Heath, good on details but gloriously missing the bigger picture as per usual:

Patents were originally designed to spur innovators by giving them a way of profiting from their inventions; but the current ultra-strict application of patent rules has turned into a major block to progress.

Rather than trying to innovate or launch better products, some tech firms are now endlessly accusing one another of violating obscure patents. In fact, patent hoarding to stymie competitors has become a huge growth industry; the only winners are lawyers.

Apple and Samsung are currently locked in a bitter war; Google bought Motorola for its patents and is now locked in legal battles with Microsoft. The energy and time wasted is proving hugely destructive; these firms could be making new products to make all of our lives better but are instead allocating far too many of their resources on trying to cripple their competitors via lawsuits.

Patents are state-granted monopolies on an invention; they are only acceptable as a means of promoting innovation, not as a means of slowing it down.

Sure, there is a lot of rent being collected and a lot of time being wasted here to the detriment of the economy in general, but you could re-write the whole article substituting "land owners" for "patent holders" and reach much the same conclusion, only the amounts and deadweight costs involved would be about twenty times as big.

Homey-In-Chief makes more good points but fails to join the dots...

From City AM:

In some cases, a pound generated by capital or labour ends up being taxed so many times that it is almost entirely confiscated by the state; in other, much rarer cases, the tax levied is far lighter. This makes no sense, and we need a tax revolution which sees the current system swept away and replaced by a simple, clear tax code where all income is taxed just once at a single, flat rate, with as little opportunity for avoidance as humanly possible.(1)

Most critics of tax avoidance actually quite like high taxes, and want to wring out as much money from the economy as possible. I disagree: I want to slash tax avoidance, but at the same time I want the overall tax burden to be reduced as much as possible...(2)

Another flagrant instance of such double standards can be seen with the patent box, which enables companies to pay a lower rate of corporation tax of just 10 per cent on profits from patented inventions and certain other innovations. To widespread cheers, George Osborne is promoting his scheme – a blatant tax avoidance device – as a key tool to attract investment and business to the UK.

Yet when Luxembourg or other low-tax jurisdictions tout for business in similar ways, it’s deemed a scandal. Why is it OK for Big Pharma to pay much less tax, but not for water companies to do so, or Google or Starbucks? Why are some companies being treated better than others? Why the inconsistency? (3)

Our kafkaesque tax system is bonkers and broken. We need to tear it up and start again.(4)

1) Yup, agreed.

That tax would be Land Value Tax - truly earned income is not taxed at all, and residual income which would otherwise go into land rents is taxed once and once only at the same flat rate (anything up to 100%). Such a tax cannot be passed on, neither to consumers nor to producers/employees and neither does it affect anybody's gross income or total output - the flow is in the other direction: you start with turnover, deduct wages and other input costs (or you start with wages and deduct living costs) and the rest goes to land rents. Land rents are not really a cost, they are a residual profit share once everything else has been paid for.

2) Yup, agreed. What kind of tax does not wring a penny from the productive economy and cannot be avoided..? See (1).

3) Yup, agreed. The Patent Box is going to be great fun for us tax advisors and might, at the margin boost UK tax receipts or the UK economy, but the really evil thing is that patent income is basically government-protected monopoly income. If governments did not protect patent holders against infringement, it would be much lower.

Now, there are good arguments for giving such protection to innovators but clearly, the holder of the patent can choose where it should be registered and where the residual income is taxed. Patents are very internationally mobile, but the end-users aren't.

For example, you can register the patent for a whizz bang mobile telephone in the Bahamas if you wish and pay not tax whatsoever. But millions of people are not going to fly over to the Bahamas when they want to buy a new mobile phone (assuming they can smuggle it back through customs in their own country). So the only way to tax such income is at source, i.e. by slapping a tax on the sale of patented products to end users, wherever they may be.

But there is another kind of government-protected monopoly income which is not mobile in the slightest, the source of that income cannot be moved by as much as an inch... see (1).

4) Yup, agreed... see (1).