Patents: overview and applications

Patents

Bayer must make its decision on an appropriate course of action in context of two key variables -- shareholder interests and corporate ethics. Bayer's indecision was the worst of both worlds -- it resulted in considerable erosion of goodwill and it a suspension of the patent would not have been in the best interests of shareholders. Patents exist to protect intellectual property, and this holds even in the event of a public health crisis. Bayer has an obligation to protect its intellectual property rights because that is in the interests of the shareholders. The only reason not to uphold theses property rights is in the event that doing so would create such a negative perception of the company as to impact the business in the long-run.

From an ethical perspective, it is not the perception of profiting from crisis that is the consideration. Utilitarian ethics would demand that if the release of the Cipro patent was the moral imperative, it should be released. Determining the moral imperative, however, is the role of management and based on societal norms. Consequentialist ethics would view the issue as one whereby putting profit over public health is a risky proposition for Bayer. If the company was unable to meet the need for Cipro, it would be roundly criticized and face a profound erosion of goodwill. Moreover, in the long run the consequentialist perspective supports the idea that protecting patents encourages innovation by providing the opportunity for monopoly rents. The system, therefore, should not be broken in the event of public panic; while politically expedient, such moves discourage innovation (Sterckx, 2006). Bayer therefore has an ethical dilemma to address.

Given that the market is the United States, the moral imperative is defined by the American people. In this society, drug patents and intellectual property are held in high esteem, but the health of the community is also held in high regard. Sacrificing short-term profits to help the community is something that would be viewed favorably and indeed for many Americans would be considered the correct course of action. Given that consequentialist ethics supports the utilitarian view that Bayer should temporarily release its patent on Cipro, that is the course of action that company should take.

In suspending the patent voluntarily, Bayer achieves two key objectives. The first is that it demonstrates considerable good faith that under the circumstances a temporary suspension would not be abused by competitors. This demonstration of good faith and an interest in the public good can only benefit the company in terms of goodwill, both with governments facing a perceived health crisis and among a fearful populace. The second objective would be to build shareholder value. Shareholders lose in the short-term because Bayer loses its pricing power on Cipro and because the potential sales volumes are reduced. However, the shareholders benefit in the long-run from the goodwill that the gesture generates. The shareholders were never expecting a massive run on Cipro, so they are not sacrificing expected profits. The lesson Bayer learned in the wake of World War Two was the value of goodwill with governments. By helping to solve their problems voluntarily, Bayer can avoid circumstances like the aspirin debacle by building a stockpile of goodwill to be used later.

One step Bayer should undertake is to continue to be aggressive in meeting FDA guidelines on the taking of Cipro. The company should include these recommendations, in English, on supplies sent to Mexico, because they know that some of these will end up in the U.S. Given the nature of the anthrax scare, however, Bayer should increase its labeling standards. Consumers are more likely to take the drug inappropriately under these circumstances. Although Bayer would not have had any way to knowing it at the time, they could have faced significant risk if their labeling, in light of the panic, was considered to be inadequate (Wyeth v Levine, 2008). Therefore, Bayer should support the recommendations of the CDC, as that should meet the standard for vigorous application of consumer warnings. It should especially emphasize that Cipro is not to be taken unless in an emergency situation and in consultation with a physician.

It is not wrong for Bayer to profit from a public health problem. All pharmaceutical companies, health care providers and health insurance companies in the United States profit from public health problems. Moreover, the system of patent protection is set up specifically to protect intellectual property rights so that companies can extract monopoly rents in order to offset the high cost of drug development. It has been argued that there are social welfare costs to this system, but there has been insufficient social will to change the system (Dunne, n.d.) Thus, the public has defined the moral imperative as accepting the leveraging of patent rights to earn profit from public health problems. That conflicting views exist supporting the notion that voluntarily surrendering the patent does not change the fact that Bayer would be doing nothing wrong by the standards of American society by profiting from the crisis.