INTERNATIONAL IP PROTECTION
4. The advanced pharmaceutical industry in Europe and IPRs
4.4 THE IMPORTANCE OF IPRS TO THE ADVANCED PHARMACEUTICAL INDUSTRY
4.4.3 The Importance of Trademarks to Pharmaceutical MNCs
It was previously submitted that there is a considerable difference between patent and trademark monopolies. The former secures a monopoly on an invention,
be it a product or a process, while the latter secures a monopoly on the use of an identifying mark. Hence, the market power derived by patents is closer to a model of ʻpure monopolyʼ, while that generated by the ʻproduct-differentiationʼ function of trademarks is closer to a model of monopolistic competition.91
Nevertheless, pharmaceutical companies attach great importance to trademarks and consider them an important tool for securing the market power of their products. In fact, it has been estimated that the pharmaceutical industry as a whole is one of the most sophisticated and active users of trademarks. Evidence from 1974 and 1981 suggests that pharmaceutical and other related products had an overwhelming share (approximately 40 per cent) of the world-wide use of trademarks.92 The advanced pharmaceutical industry is also one of the most intense users of brand advertising aimed at creating goodwill for brand-based drugs. It is estimated that pharmaceutical MNCs spend as much as 35 per cent of annual sales on promotion of brand-based drugs worldwide.93 In the US alone, the pharmaceutical industry spent more than $5.8 billion on product promotion in 1998, a 19 per cent increase from the previous year.94
The ability of trademarks to prevent the rapid decline in the market share of out- of-patent drugs vis-à-vis generic-based substitutes makes them an important tool for research-based pharmaceutical MNCs. Consider, as an example, prescription drugs. By definition, prescription drugs can only be purchased with a doctorʼs approval. Given that prescription drugs are extremely important in terms of their life-saving ability and profit-generating capacity, information on these products is provided primarily to doctors and pharmacists. During the patent term of protection, research-based MNCs have an exclusive period in which they can influence doctorsʼ decisions by creating brand loyalty. Promotional activities in this sphere are quite notorious and involve gifts, banquets, seminar trips, bonus deals, one-to-one meetings (usually referred to as ʻdetailingʼ), presentation gimmicks, and so on.95
Empirical evidence suggests that expenditures aimed at creating the brand loyalty of doctors soared during the last decades. Expenditure on advertising directed to physicians in the US reached $4.6 billion in 1998, an 18 per cent increase from 1997 levels (approximately $4 billion).96 With regard to one- to-one detailing, it was estimated that in the five leading European markets (Germany, France, UK, Italy and Spain) in 1993 there were about 62 000 medical representatives for approximately 350 000 GPs, that is about one representative for every five physicians.97
Once achieved, brand loyalty becomes an important factor in the ability of pharmaceutical MNCs to preserve the market position of their out-of-patent prescription drugs. Several studies have indicated that doctorsʼ preferences for well-known brands (as opposed to generic substitutes) derive not from calculations of price or quality, but rather because pharmaceutical MNCs are able to secure brand loyalty during the market exclusivity of their original products.98
Furthermore, not only does brand loyalty enable original brands to continue to lead the market, but it also allows pharmaceutical MNCs to charge prices that are still considerably higher than existing generic alternatives. For instance, using data from frequently prescribed generic drugs in 1975, UNCTAD found significant price differences reaching to hundreds and even thousands of per cent, both in developed and developing countries, between generic substitutes and leading original brands.99 Thus, despite the reduction in prices due to patent expiry, brand loyalty to original out-of-patent prescription drugs allows pharmaceutical MNCs to continue to charge a premium for their products.
Pharmaceutical MNCs also invest in other promotional strategies aimed at creating brand loyalty in prescription drugs. One of the most dominant forms of brand marketing since the 1990s is ʻdirect to consumerʼ (DTC) advertising of prescription drugs. As its name implies, DTC advertising is directed primarily at consumers. Apart from its ʻinformationalʼ value, DTC advertising in prescription drugs enables pharmaceutical MNCs to increase consumer demand for brand- based products.
Several studies have shown that pharmaceutical MNCs regard DTC advertising in prescription drugs as an extremely effective tool in their battle against generic-based substitutes.100 In the US, where DTC advertising has been legal since 1983, promotional expenditures ʻexplodedʼ from about $13.1 million in 1989 to $2.7 billion in 2001.101 Not surprisingly, pharmaceutical MNCs, such as GlaxoSmithKline, Pfizer, AstraZeneca, Merck and AHP, invested most of their prescription drugs advertising in DTC promotions.102 The phenomenal success of DTC advertising in the US spurs the demand of pharmaceutical MNCs that such advertising should also be legalized in Europe. For this purpose, research-based pharmaceutical companies, as well as their related associations, labour to promote the idea that DTC advertising is beneficial to consumers.103 For instance, in 1999 the Association of the British Pharmaceutical Industry (ABPI) established a task force known as the Informed Patient Initiative aimed at presenting pharmaceutical MNCs as responsible and reliable information agents.104
Finally, the ability to create product differentiation through trademarks also implies that pharmaceutical MNCs have an overwhelming advantage in the market of OTCs. Since OTCs can be purchased directly by consumers, pharmaceutical companies can secure brand loyalty through aggressive advertising campaigns. Superior financial resources allow pharmaceutical MNCs to invest more in promotional campaigns and, as a result, to secure the market position of their products.105 This conclusion is emphasized by the European Commission:
Once again, therefore, price is less important than other considerations. Moreover, in this field as elsewhere, the large company is better placed than the small one. Whereas
with research-based drugs, it is the cost of innovation that is the barrier to entry or survival, here it is the cost of marketing.106
Pharmaceutical MNCs have also been known to seek regulatory approval for the re-classification of prescription drugs to OTCs as their patent expiry date approaches.107 Such a strategy enables pharmaceutical MNCs to use the period of market exclusivity granted by the patent term of protection in order to create brand loyalty for their products. Thus, pharmaceutical MNCs may engage in ʻpreemptive advertisingʼ in order to beat generic-based competitors in the race for brand loyalty in OTCs.
Pharmaceutical MNCs consider trademarks as important intangible assets.
Varying methods of brand advertising can secure the loyalty of both doctors and patients. In the case of doctors, extensive brand promotion breaks the linkage between drug prescription and calculations of price and quality. Therefore, trademarks are used as a complementary tool for extending the market position of original out-of-patent prescription drugs vis-à-vis generic alternatives. They allow pharmaceutical MNCs to charge a high premium on their products, though to a much lesser extent than that charged during the patent term, despite the existence of cheaper generic and quality assured alternatives. In the case of the general public, trademarks allow pharmaceutical MNCs to use their superior financial capabilities to invest in aggressive advertising campaigns that will secure their domination in the market for OTCs. In the US, pharmaceutical MNCs also invest heavily in DTC advertising of prescription drugs, creating an additional route of brand loyalty for such products.