Andrew Choi's Blog

Being in a COMM 101 class that spent plenty of time discussing government intervention and ethics in business, I decided to share a New York Times article about the state of New York filing an antitrust lawsuit against a pharmaceutical company. According to New York’s attorney-general, Forest Laboratories, owned by Actavis, is seeking to force patients (consumers) to switch into a new line of dug for treating Alzheimer’s Disease while discontinuing the low-priced generic versions of the medication. To make a long story short (read the embedded article!), Actavis is creating a monopoly by using patents and its small niche as a rare disease drug producer to kick out competition, much to the possible expense of Alzheimer’s Disease patients.

Fig. 1) Actavis’ old drug, Namenda, is merely switched into Namenda XR, simply a pill with higher dosage to make administration more convenient. Image by Forest Laboratories Inc.

The heart of the matter lies in government control: to what extent is New York justified in suing Actavis? While desiring competition, US courts have traditionally been uneasy about barring companies from developing new products. Why? It suppresses innovation and the incentives for large companies to develop drugs for patients suffering rarer diseases. That argument is very valid with the case to Actavis, a leader in producing drugs for the notorious Alzheimer’s Disease. The image of governments barring industrial firms from innovation and development is a classic doomsday picture of the “end of economic liberties.”

However, it must not be ignored that with a monopoly, Actavis can exploit the situation to maximize personal gain (as per the assumptions of most capitalist economic models). This clearly puts Alzheimer’s Disease patients at risk. What makes this situation special is that Alzheimer’s Disease patients are not just consumers, but vulnerable consumers. Due to their reliance on the drug, patients have virtually no bargaining power over Actavis as they need it to survive! Also, if Actavis is going to be content with monopolizing its market, it’ll have little incentive to innovate new and better products for patience, defeating the argument that the lawsuit would restrict innovation from corporations. Lastly, pushing away patents allows other companies to innovate and bring medicine to needy patients. This will offer expanded room for jobs, fair prices, and an advancing society in one package. Ultimately, the action of government intervention can easily be justified when the product is limited and needed for the survival of a vulnerable group of people. Such products are too precious to be held in the hands of a company whose business model is driven by self-interest and must be guaranteed by a more “generous” entity.

Image Citation

Fig 1. Forest Laboratories, Inc.,. (2014). Diagram comparing Namenda with Namenda XR. Retrieved from http://www.namendaxrhcp.com/Assets/images/dosing-current-patients.png. (accessed September 14, 2014).

In technological industries, patents have traditionally been a keystone for maintaining an innovator’s sustainable competitive advantage. Patents have even been remarked by many SWOT analysts as a strength for producers, ensuring that a company can maintain a monopolistic hold in its niche in the market and therefore maximize revenue.

However, last summer Tesla Motors Inc. seemed to have acted against business logic by sharing its cutting-edge electric car patents to other companies. While this seems counter-intuitive for a relatively small-sized innovator seeking leadership in its industry, Tesla’s actions demonstrate how corporate social responsibility (CSR) and business opportunity aren’t necessarily “a zero-sum game.” Elon Musk’s blog post to customers explains that Tesla’s open source strategy does a variety of things that benefits the company:

1. It allows more companies to participate in the development of emission-less transportation, spreading Tesla’s vision for a green and environmentally sound world.
2. It expands the domain of Tesla’s leadership. By allowing competitors into the electric car niche, Tesla has the opportunity to prove to customers that it really is the paragon of technological innovation in the transportation industry.
3. It encourages more of the world’s brightest minds to participate in the process, accelerating the process of development and expanding the pool of talent that Tesla can access.
4. The seemingly altruistic nature of the act gives Tesla an image of a socially responsible organization.

“All our patent are belong to you.” Pool photo by Steve Jurvetson

The pluses of satisfying all stakeholders (customers, communities, the business) to progress the whole of society are affirmed in Freeman’s Stakeholder Theory. Furthermore, Milton Friedman’s argument that companies only incorporate CSR when it helps maximize profits is also exemplified in this case. Reconciling these two viewpoints with Musk’s initiative testifies how businesses can thrive by incorporating business ethics into their model, seeing CSR as opportunities for private gain.

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