Key Points
- Generic competition is crucial to reducing the price of medicines in developing countries.
- The U.S. is pushing a negotiating agenda for the FTAA that would dramatically limit each country’s ability to undertake compulsory licensing, an important tool to promote generic competition.
- The U.S. negotiating position would make it difficult for other countries to emulate Brazil’s success in providing treatment to all persons with HIV/AIDS.
The U.S. is aggressively pushing for negotiation and completion of the Free Trade Area of the Americas (FTAA) agreement, a proposed trade deal involving the economies of 34 countries in the Western Hemisphere, stretching from Canada to Chile. It is effectively an effort to expand NAFTA, the North American Free Trade Agreement, to include all of North, Central, and South America and the Caribbean (except for Cuba).
FTAA negotiations are under way with a scheduled completion date of 2005. Although the negotiating text remains secret, it is clear that the agreement will be modeled on NAFTA. The U.S. has released a summary of its negotiating objectives for the agreement, indicating what Washington would like to achieve.
According to its summary position statement, the U.S. wants to include provisions that would require countries to adopt rules concerning intellectual property rights (IPRs) even more favorable to patent holders than required by the World Trade Organization (WTO). These new obligations would dramatically limit each country’s ability to constrain pharmaceutical pricing to ensure that essential medicines are affordable and accessible. In a variety of ways, the U.S. proposals would limit the ability of countries in the Americas to promote generic competition, including through compulsory licensing. Generic competition is the most important means (along with direct price controls) to reduce drug prices.
Compulsory licensing enables any government to grant a license to a
company, government agency, or other party to use a patent without the
authorization of the patent holder. The Costa Rican government, for example,
could issue a license to a local company for an HIV/AIDS drug manufactured
by Bristol-Myers Squibb. The Costa Rican firm would then manufacture the
drug for sale in Costa Rica under a generic name and would pay a reasonable
royalty to Bristol-Myers Squibb on each sale.
The generic competition created by compulsory licensing can lower the
price of medicines by as much as 95%. For example, two Indian generic
drug makers have offered to supply triple-drug combinations to people
with HIV/AIDS for $350 per person per year. Aside from very limited discount
programs that appear to be available only to African countries, the cost
of the same “drug cocktails” produced by brand-name companies
is $10,000 to $15,000 per person per year.
AIDS is not the only disease causing large numbers of preventable deaths
in developing countries, but it is certainly one of the most devastating.
Although the HIV/AIDS epidemic in Latin America and the Caribbean is nowhere
near as serious as it is in Africa, infection rates are still high. The
UN estimates that 1.4 million people have HIV/AIDS in Latin America, with
150,000 people newly infected with HIV in 2000 and more than 80,000 dying
from AIDS.
If compulsory licensing brought prices for triple-drug treatments down
to even $500 per person per year, most countries could provide pharmaceutical
treatments to their HIV/AIDS populations. Although poor, these countries
are considerably wealthier than African nations, and their HIV/AIDS populations
are considerably smaller. Thus, universal access to treatment in the region
is certainly within reach.
Brazil has led the way in showing how generic production can drive down
prices and enable developing countries to make drug treatments universally
available. It manufactures generic HIV/AIDS drugs (which are not patent-protected,
because Brazil has only recently adopted a WTO-style patent system for
pharmaceuticals). By doing so, it can guarantee pharmaceutical treatment
to every person with HIV/AIDS.
Brazil has shown that developing countries can administer an effective
HIV/AIDS treatment program, providing drugs to those with HIV/AIDS and
maintaining high rates of compliance with treatment regimes. It has proven
that generic production drives down prices: its cost for drug cocktails
is far below that of the multinational pharmaceutical firms, and the price
continues to decline. And the Brazilian experience—where infection
rates are now roughly half what the World Bank had predicted in 1994—strongly
suggests that treatment is an important component of prevention; healthier
people are less likely to spread HIV, and people are more likely to be
tested for HIV and then adopt safer practices if they know that those
with HIV/AIDS have hope of being treated. However, the U.S. thrust in
the FTAA negotiations significantly diminishes the prospect of other countries
in the Americas emulating Brazil’s public health accomplishments
in curbing HIV/AIDS and other diseases.
Problems with Current U.S. Policy
Key Problems
- If the U.S.-Jordan Free Trade Agreement serves as a model, the FTAA
will sharply limit the grounds for issuance of a compulsory license.
- The U.S. negotiating objectives for the FTAA inappropriately seek
to link marketing approval to patent status.
- The U.S. is attempting in the FTAA negotiations to extend patent
terms and create new intellectual property protections that will undermine
Latin American and Caribbean country efforts to promote access to affordable
medicines.
It is not possible to know exactly what the U.S. is advocating in FTAA
negotiations because Washington has only released a summary of its negotiating
objectives. Draft FTAA texts remain secret. However, the U.S. summary
proposals, along with the recently completed U.S.-Jordan free trade agreement
(FTA), provide some insight into the positions for which Washington is
lobbying. These include both the basic framework of the WTO’s Trade-Related
Aspects of Intellectual Property (TRIPS) and a series of ill-advised “TRIPS-plus”
measures, which would require countries to adopt intellectual property
rules that extend or grant new monopolistic patent and intellectual property
claims and diminish the public’s rights regarding intellectual property.
Perhaps the most worrisome U.S. initiative would directly limit the
grounds for compulsory licensing. Under the U.S.-Jordan FTA, compulsory
licenses to achieve a public health aim—even in case of a national
emergency—can only be granted to “government entities or legal
entities operating under the authority of a government.” Under the
more permissive TRIPS arrangement, by contrast, compulsory licenses could
as a matter of course be granted to private parties for commercial, nonpublic
use, so long as TRIPS procedures and rules, including payment of reasonable
compensation to the patent holder, are obeyed. TRIPS contemplates compulsory
licensing as part of the basic schema of the intellectual property system,
not as a limited exception.
If the U.S.-Jordan FTA provisions are adopted as part of the FTAA, it
would still be permissible for Argentina, say, to issue a compulsory license
to procure lower-priced AIDS or cancer drugs for its public health service.
But it would not be possible for a private Argentine drug company to obtain
a compulsory license to make lower-priced AIDS or cancer drugs available
generally on the market. The narrowing of scope for compulsory licensing
would tend to make governments less certain about their authority to use
this critical public health tool and more worried about facing domestic
lawsuits from industry if they do attempt compulsory licensing—thus
inhibiting action to advance public health interests.
A second troubling proposal contained in the U.S. summary of its negotiating
objectives for the FTAA would link marketing approval for a drug—based
on a finding of safety and efficacy (or bioequivalence to a safe and efficacious
product) granted by U.S. Food and Drug Administration (FDA)-equivalent
agencies—to patent expiration. Under the U.S. proposal, unless they
were sure there were no patent claims on a drug, FDA-equivalent agencies
could not grant marketing approval to generics.
There should be no linkage between marketing approval and patent term.
If a generic company markets an on-patent drug without license, under
TRIPS, the patent holder has adequate remedy under the law. Stated differently,
linkage can only serve to protect invalid intellectual property claims
since valid claims receive protection through normal judicial means.
A third TRIPS-plus proposal from the U.S. would create new restrictions
on the use of “undisclosed” pharmaceutical test data, the study
data submitted by drug companies to show that a product is safe and efficacious.
To gain marketing approval, generic companies typically show that their
product is bioequivalent to a patented product (that is, that the generic
is chemically similar and works the same in the human body) and then rely
on the patented product’s safety data to earn approval.
In many instances, if a generic company cannot use the already-generated
registration data, it will not introduce a generic version of the patented
product. The price of generating the data may be too high or may take
several years to replicate. If the company does choose to regenerate the
data, consumers suffer from the delay in the introduction of the generic
product that occurs while the generic firm reconducts the relevant tests.
In those countries that establish set terms for registration data exclusivity,
the period of exclusivity typically runs shorter than the patent term.
Thus, registration data protections are not normally an impediment to
the introduction of generics. They are an issue, however, for new drugs
that are not patent-protected or in cases of compulsory licensing. If
a compulsory license is granted for a drug for which registration data
exclusivities remain in force, the data exclusivity can block the generic
from gaining marketing approval. An effective system of compulsory licensing
must also permit the use of registration data, and this does not appear
to be contemplated in the U.S. negotiating position, which seeks to establish
for the entire hemisphere a minimum exclusivity period of five years for
registration data. In contrast, TRIPS is quite vague on registration data,
requiring protection of the data against unfair commercial use but imposing
no clear mandates.
A fourth problem with the U.S.’ negotiation position is that it
calls for patent extensions to offset delays in marketing approval for
pharmaceuticals. The result would again be extended monopoly protection
for drug manufacturers and further gouging of consumers. TRIPS obligates
member countries to grant 20-year patents. Those patents provide a two-decade
monopoly on inventions. Patent terms seek to create a balance between
providing incentives for inventors and enhancing the public interest by
maintaining and promoting competition. The 20-year term manifests such
a balance—albeit one tilted in favor of the corporate patenting sector—taking
into account the known delays sometimes associated with marketing approval.
Adding additional time to the patent term after a balance has been struck
improperly favors patent holders.
Toward a New Foreign Policy
Key Recommendations
- The U.S. should drop its efforts to include TRIPS-plus provisions
in the FTAA.
- Because all FTAA negotiating countries are already members of the
WTO and are bound by TRIPS, there is no reason to include any intellectual
property provisions in the FTAA.
- The U.S. should stop working to expand monopolistic intellectual property
rights and begin to explore protections for the public’s rights
regarding intellectual property.
The FTAA negotiating countries are all members of the World Trade Organization
and have already committed themselves to adhere to TRIPS. TRIPS establishes
a comprehensive international standard for intellectual property protection,
with a heavy tilt toward the interests of intellectual property holders.
The only reason to include intellectual property provisions in the FTAA
is to force countries to adopt TRIPS-plus obligations—many of which
are dangerous and injurious to public health.
Even inclusion in the FTAA of rules identical to the WTO’s would
be harmful, because if positive changes were achieved in the WTO intellectual
property rules, the FTAA countries would still be required to adhere to
the old, more restrictive rules. By contrast, if harsher rules were adopted
at the WTO, the FTAA countries would be required to adhere to them due
to their WTO membership. These overlapping obligations can complicate
and sometimes thwart positive reform of international trade rules to enhance
public rights.
More than just access to HIV/AIDS medicines is at stake in the FTAA
negotiations. People in Latin America and the Caribbean, as well as generally
throughout the developing world, are regularly denied access to needed
medicines because of price. (Of course, similar problems are not unknown
in the U.S.)
Although per capita income is dramatically less in Latin America than
in the U.S. or the other rich countries in the Organization of Economic
Cooperation and Development (OECD), drug prices in Latin America are comparable
to or even higher than those in OECD nations. A pharmaceutical pricing
study conducted by Health Action International analyzing more than a dozen
frequently prescribed drugs concluded, “The average retail prices
of 11 out of 13 dosage forms are higher in Latin America than in the OECD.”
There are many reasons for these price discrepancies, including the maintenance
of price control regimes in many OECD countries and the brand-name companies’
differential drug pricing, with higher prices charged in some developing
countries where the targeted market is limited to wealthy consumers. The
most effective way for Latin American and Caribbean countries to address
these pricing problems is through compulsory licensing and promoting generic
competition.
It is time for the U.S. to endorse compulsory licensing and to begin
to conceptualize ways to expand the public’s rights regarding intellectual
property. The agreement between the U.S. and the United Kingdom to put
basic data about genes in the public domain, rather than allowing this
information to be monopolized by private companies, is an example of how
public rights can be protected. International agreement is needed in several
other areas: to prohibit patents on life forms (the U.S. wants to allow
such patents in the FTAA); to guarantee minimum rights for educators,
researchers, and others concerning a wide range of “fair use”
issues regarding intellectual property for public benefit; to resolve
particular difficulties or uncertainties in TRIPS that make compulsory
licensing difficult for smaller countries (notably, a requirement that
compulsorily licensed products be made primarily for domestic consumption);
and to ensure that health and other vital public interests take priority
over commercial considerations in the crafting of intellectual property
policy.
Washington’s foremost challenge is to ensure that no harm is done
in intellectual property trade negotiations; this means foregoing intellectual
property provisions (especially TRIPS-plus conditions) in the FTAA. Current
official U.S. policy is that all health-related concerns regarding intellectual
property can be addressed through a “flexible policy,” by which
the U.S. will review its actions in individual cases to ensure that health
is not undermined. But even if it is administered in good faith, such
a policy is insufficient on numerous grounds. It does not provide countries
with the certainty they need to proceed with compulsory licensing and
the promotion of generic competition. It ignores how the very existence
of baseline rules tilted against compulsory licensing and access to medicines
makes it harder for developing countries to pursue compulsory licensing.
Even if the U.S. chooses not to enforce those rules, other countries can
still choose to enforce the rules and thus undermine access to generic
medicines. And Washington’s current flawed policy is based on a very
narrow understanding of when legitimate health interests conflict with
intellectual property rules.
Finally, provisions of the FTAA outside of the intellectual property
sphere pose a series of threats to public health. The services provisions
may facilitate the privatization of public health services, and the investment
provisions might give corporations standing to sue to block the implementation
of environmental and public health regulations or to deny the issuance
of compulsory licenses. Protecting public health must be prioritized over
commercial interests in these areas as well.
Robert Weissman is the editor of Multinational Monitor magazine and a codirector of Essential Action, a corporate accountability group. He is also a co-author of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, ME: Common Courage Press, 1999; see http://www.corporatepredators.org/).
