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Why drug companies and Hollywood love the TPP

TPP supporter Christopher Dodd, a former Senator who now leads the Motion Picture Association of America, talks to fierce TPP opponent Sen. Elizabeth Warren (D-MA).
TPP supporter Christopher Dodd, a former Senator who now leads the Motion Picture Association of America, talks to fierce TPP opponent Sen. Elizabeth Warren (D-MA).
Chip Somodevilla/Getty Images

In 1998, the United States Congress granted a 20-year extension of copyright terms — from the life of the author plus 50 years to the life of the author plus 70 years. Economists like Nobel Laureate Milton Friedman were incredulous, arguing that such long terms couldn't possibly increase the incentive to produce creative works.

Now, through the Trans-Pacific Partnership trade deal, the US is trying to force nations ranging from New Zealand to Vietnam to do the same.

And it's not just copyright terms. The US also has legal protections for digital rights management technologies that are designed to prevent piracy of movies and music. These protections, though, are loathed by the open source movement, and have had a wide variety of unintended consequences, from restricting cellphone unlocking to limiting people's rights to repair their own cars. Nevertheless, the TPP requires other countries to adopt similar provisions.

The stakes are highest in pharmaceuticals, where industry groups are seeking new regulations to limit competition from generic drugmakers, including extended patent terms and longer terms of exclusivity for a class of drugs called biologics. Critics say this will lead to higher prices, depriving millions of patients of access to lifesaving medicines. But defenders predict that drug companies will plow their profits into research and development, creating new drugs that will benefit everyone in the long run.

Little in the Trans-Pacific Partnership deal has generated more controversy than the chapter on intellectual property — and for good reason. The stakes in this chapter are literally life and death.

Advocates say higher prices are good for everyone in the long run

Supporters and opponents of the TPP's IP provisions are actually in broad agreement: The deal will mean that consumers pay more for drugs, movies, and other American-made products, producing larger profits for American companies.

What they disagree about is whether that's a good thing or not.

The argument in favor of these provisions is simple enough: Higher prices mean more innovation, and more innovation means more breakthroughs — some of them lifesaving.

"We've got lots of deadly diseases that have no effective cures," says Lee Branstetter, an economist at the Peterson Institute. "The process of attacking those diseases is an expensive one."

The TPP will delay the entry of generic drugs into overseas markets. With less competition, prices will be higher, and big American pharmaceutical companies will make more money. And while many public health groups think that's an appalling outcome, Branstetter argues they're not thinking about the big picture.

"This is an industry where there are a thousand failures for every success," he says. "The profits earned by a blockbuster drug have to cover the cost of drugs that fail."

Branstetter argues that US consumers have been bearing too much of the burden for funding drug development. And he says the same points apply to creative works. Rampant overseas piracy of US movies and music deprive US firms of profits, which in turn causes companies to invest less money in new blockbuster movies and hit songs.

The big question: Do stronger protections lead to more innovation?

Branstetter's argument depends on a big assumption: that increasing the profitability of drug or movie companies today will lead to more innovation and creativity in the future.

There's no guarantee that boosting drug company profits will cause them to spend a lot more on research and development — perhaps they'll spend it on marketing, or on dividends for their shareholders. Nor can we be sure that more spending will necessarily have a big impact on the number of lifesaving drugs that are invented or the quality of Hollywood blockbusters.

The argument seems particularly dubious when it comes to lengthening copyright terms. It defies belief to think that lengthening copyright terms from 50 to 70 years is going to induce Hollywood studios or record labels to invest more in creating content — 50 years is too far into the future to have any effect on a company's financial calculations.

The argument makes a bit more sense when it comes to the pharmaceutical provisions — it seems theoretically possible that limiting competition from generic drugs could boost pharmaceutical innovation. But few public health groups seem to be persuaded. Doctors without Borders, for example, strongly opposes the TPP's drug provisions, which the group says are "bad for humanitarian medical treatment providers such as MSF, and ... bad for people who need access to affordable medicines around the world."

One reason for that may be that the countries that will be most affected by these requirements are developing countries. Countries like Vietnam and Malaysia are poorer than most other TPP countries, and they also offer among the weakest legal protections for drug companies. The low average incomes in these companies — as well as in countries like Indonesia and the Philippines that might join the TPP in future years — means that even with stronger legal protections, they're not going to be able to contribute much to drug company profits.

So even if you're persuaded that larger drug company profits are needed to finance research and development, it still might not make sense to force lower-income countries to adopt the same legal standards as rich countries.

Trade deals lock in dubious policies here in the United States

Advocates of the TPP like to emphasize that the agreement won't require the US to modify its copyright or patent laws, and that seems to be true.

But that misses a big reason that critics of these policies oppose the TPP: The deal locks in policies that we may want to change in the future.

For example, the Obama administration seemed to be at war with itself over the best term of protection for a class of drugs called biologics. US trade negotiators originally wanted to require 12 years of protection for these drugs. Yet at the same time, Obama's budget wonks were arguing that protection should be reduced to seven years.

The TPP ultimately settled on a complex system where drugs get between five and eight years of protection. But if American policymakers decide that's too generous in the future, they'll have to renegotiate or withdraw from the trade deal in order to change domestic law.

Similarly, if Congress wanted to reform copyright terms or laws against circumventing copy protection technology, we'd have to renegotiate the TPP (and other trade treaties) before doing so.