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Intellectual Property Rights Series
TRIPS, Drugs and
Public Health:
Issues and Proposals
A Report by
Third World Network
TWN
Third World Network
2
TRIPS, Drugs and Public Health:
Issues and Proposals
is published by
Third World Network
121-S, Jalan Utama,
10450 Penang, Malaysia.
© Third World Network 2001
Printed by Jutaprint
2 Solok Sungei Pinang 3, Sg. Pinang
11600 Penang, Malaysia.
1st Printing 2001
2nd Printing 2003
ISBN: 983-9747-61-4
ACKNOWLEDGEMENTS
This paper was written by Cecilia Oh, Legal Advisor and Researcher with
Third World Network, with the assistance of Martin Khor, Director of
Third World Network. Valuable comments were contributed by Carlos
Correa, Bhagirath Lal Das and Chakravarthi Raghavan. A draft of the
paper was discussed at a meeting attended by several delegations of
developing countries and hosted by the Indonesian Mission in June 2001.
This version has benefited from comments made at the meeting.
CONTENTS
Summary
1.
Introduction and Background
Health Crisis in Developing Countries
The TRIPS Agreement and Patents on Drugs
Special Discussion on TRIPS and Public Health
2.
Patents and Prices
Effects of Patents and Monopolies on Prices
3.
4.
5.
The TRIPS Agreement and Access to Medicines
1
4
4
5
9
12
12
19
20
23
Compulsory Licensing
Parallel Imports
Obstacles to the Use of Compulsory Licences and Parallel
Importation
25
Tiered- or Differential-Pricing System
28
Conclusions and Proposals
31
WTO Members' Rights to Adopt Effective Compulsory
Licensing and Parallel Importation Measures
Bilateral and Regional Pressures
A Moratorium on Dispute Settlement Cases
Excluding the Patenting of Medicines
Overall Balancing of Rights in TRIPS Agreement
Tiered or Differential Pricing
32
39
40
41
43
44
References
46
Summary
A global health crisis is at hand. Millions of people die each year from
infectious diseases that are treatable and preventable in many cases. The
death toll is unacceptably high in developing countries, where many die
because they do not have access to effective and affordable medicines.
The public outrage over the high prices of HIV/ AIDS medicines has also
raised public awareness of the problem of access to medicines and the
role of patents in increasing the prices of medicines.
Patents on pharmaceutical products and processes provide drug compa
nies with monopolies over the production and marketing of medicines,
allowing them to fix prices at high rates to maximise profits. The World
Trade Organisation's (WTO) Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) has come under criticism for facili
tating the extension of these patent rights around the world. The obliga
tion under the TRIPS Agreement to implement high standards of intellec
tual property protection, including a minimum 20-year protection term
for patent rights and the obligation to recognise product and process
patents, effectively eliminates competition from generic pharmaceutical
producers and allows for increased prices of medicines that will now be
beyond the reach of even more patients in the developing countries.
Public criticism is mounting, as are questions about the legitimacy of
patents on life-saving medicines. This has led to calls for changes or
amendments to the TRIPS Agreement, which many feel is too heavily in
favour of private rights and commercial interests, and against public
interests.
The process in the WTO's TRIPS Council (which monitors the operation
1
of the TRIPS Agreement) to have special discussions on the issue of TRIPS
and public health (as a result of requests from developing-country WTO
Members) provides an opportunity for WTO Members to consider the
means of addressing the negative impacts of the Agreement on public
health and access to medicines.
This paper discusses some issues relevant to the discussion on the TRIPS
Agreement, patents and access to affordable medicines. It is organised
into five main parts.
Chapter 1 provides an introduction and background to the public con
cerns over the worldwide health crisis, the TRIPS Agreement and patents
on drugs, and the process of the special discussion on patents and
medicines in the TRIPS Council.
Chapter 2 on patents and prices examines the effect of patents and
monopolies on the prices of medicines. The discussion here provides
evidence of the impact of patents on the pricing of medicines, as well as
examples of anti-competitive behaviour of the multinational pharmaceu
tical corporations.
Chapter 3 on the TRIPS Agreement and access to medicines looks at some
of the limitations on the exclusive property rights of patent holders which
are specifically provided for within the TRIPS Agreement. These include
compulsory licensing and parallel imports, which can be used to curb
anti-competitive practices and abuses of intellectual property rights.
Compulsory licences and parallel imports are important tools in the
context of protection of public health and promoting access to affordable
medicines.
However, narrow interpretations of the TRIPS provisions relating to
compulsory licences and parallel imports put forward by some devel
oped-country Members have led many developing-country Members to
feel restricted in their ability to employ these measures at the national
2
level. There have also been cases of pressures applied on developing
countries in relation to their use of compulsory licences and parallel
imports. The cases of the Brazil-US dispute in the WTO and the pharma
ceutical companies' legal challenge against the South African govern
ment were just two obvious examples of such pressures.
In light of these developments, there have been calls for clarification and
revision of the TRIPS Agreement in order to ensure developing countries'
ability to effectively exercise their rights within the Agreement. What are
the changes needed to the TRIPS Agreement and to the WTO process that
can improve the situation? Chapter 5 puts forward recommendations for
possible actions and makes some proposals for clarification and amend
ment of the TRIPS Agreement, in the context of the process of the special
discussions in the TRIPS Council as well as other WTO processes.
This paper also assesses the role of differential or tiered pricing within the
current debate on patents and medicines. Chapter 4 examines the pro
posal for a global tiered-pricing or differential-pricing system, first
mooted by the European Union and currently under discussion in the
World Health Organisation (WHO) and the WTO.
3
1
Introduction and
Background
Health Crisis in Developing Countries
About 14 million people die each year from infectious diseases, many of
which are preventable or treatable, such as acute respiratory infections,
diarrhoeal diseases, malaria and tuberculosis. Up to 45% of deaths in
Africa and Southeast Asia are thought to be due to an infectious disease
(World Health Organisation, 2000). The death toll is unacceptably high in
developing countries, even as health indicators show improvements in
many countries of the world. This health crisis is caused by several
interlinked factors - poverty, and the lack of access to health services,
water and sanitation being just some of them. However, a vital factor in
the promotion of public health - and very often a matter of life and death
- is the supply of effective and affordable medicines and people's access
to such medicines and treatments.
In the case of HIV/AIDS, a human tragedy of mind-boggling dimensions
is now at hand. Of the 36 million people with HIV/AIDS in the world, 25
million are in sub-Saharan Africa. In certain African countries, more than
a quarter of the adult population are infected with HIV, and life expect
ancy is projected to decline dramatically in the next 10 years. For
example, life expectancy in South Africa is projected to fall by 20 years by
the year 2010 due to the spread of HIV/AIDS. The HIV/AIDS epidemic
has put the spotlight on the issue of affordability of essential medicines.
In industrialised countries, AIDS deaths have been dramatically reduced
partly because of the availability of life-saving medicines. However, the
cost of a year's worth of the standard treatment, a combination of three
antiretroviral drugs, may come up to US$10,000-15,000 (the Guardian, 12
February 2001). This price level puts such treatment out of reach of most
4
people in the developing world, where 95% of the people with HIV are
from.
Public interest worldwide has been aroused by the health crisis in the
developing countries, caused by the exorbitant prices of drug treatments.
HIV /AIDS medicines are a high-profile example, but there are also many
cases of medicines for other life-threatening diseases being made
unaffordable, simply because companies owning or controlling patents
on the medicines have been able to block competition from other firms
and other products. Prices of patented medicines are very much linked
to the monopolies enjoyed by pharmaceutical companies, protected and
maintained by patent rights.
The TRIPS Agreement and Patents on Drugs
Patent rights are being extended around the world through the provi
sions of the World Trade Organisation (WTO) Agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPS). Proponents of
the TRIPS Agreement argue that patents and other intellectual property
rights (IPRs) are essential for promoting research and development
(R&D) as well as stimulating innovation. Yet, there has been scant
evidence that the introduction of TRIPS-compliant standards of IPRs
protection has promoted transfer of technology, R&D or innovation in
developing countries.
The intensive use of the patent system by corporations is intended to
protect their competitive edge and markets by keeping out competitors.
This strategic use of the patent system has the effect of stifling R&D,
preventing innovation and restricting information flows in the develop
ing countries. Patent protection is sought to be justified on grounds that
the negative effect of monopoly rights will be outweighed by the incen
tive for creative activity, innovation and R&D. The value of this trade-off
is being questioned because the price and competition costs of strict
5
patent protection have been very high. In the health and pharmaceuticals
sector, this trade-off often comes with life-or-death consequences.
The implementation of the TRIPS Agreement gives rise to factors that can
put access to medicines out of reach for millions of people in the
developing world. The TRIPS Agreement obliges WTO Member coun
tries to adopt and enforce high standards of IPRs protection, which were
derived from the standards used in developed countries. Prior to the
Uruguay Round of multilateral trade negotiations that spawned the
WTO, some 50 countries did not grant patent protection for pharmaceu
tical products (United Nations Conference on Trade and Development,
1996). This number included certain developed countries such as Portu
gal and Spain, and many developing countries such as Brazil, India,
Mexico and Egypt. Many developing countries regarded the absence of
protection as necessary to promote access to drugs at competitive prices.
Conforming to TRIPS - by recognising and strengthening protection of
IPRs over pharmaceutical products and processes - will cause problems
for developing countries. Implementation of the TRIPS Agreement may
lead to high drug prices, low access to medicines and a weakening of
pharmaceutical industries in tire developing countries.
It is feared that patent protection for pharmaceutical products and
processes will have the effect of reducing or eliminating competition
from generic production of medicines. There are about 10 industrialised
countries with the pharmaceutical industry and research base capable of
developing new chemical entities or new medicines. The multinational
drug companies in these countries own most of the pharmaceutical
technologies and products through patents (Balasubramaniam, 2001).
The minimum 20-year patent protection period required by TRIPS effec
tively grants a pharmaceutical company a monopoly over the produc
tion, marketing and pricing of patent-protected medicines. During this
protection period, the price of the patented medicine could be kept high
in the absence of competition. By virtue of TRIPS protection, no generic
equivalent can come into the market until expiry of the 20 years, thus
I
■
6
denying patients cheaper alternatives.
Domestic manufacturing of pharmaceutical products in developing
countries will come to a standstill. Developing countries are able to
produce new medicines by a process of reverse engineering; that is,
researchers in developing countries may develop a new process different
from the process invented (and protected by patent) to manufacture the
new medicine or chemical entity. Reverse engineering is thus possible in
countries where the patent law protects processes but not products.
However, the TRIPS Agreement extends the scope of patent protection to
both products and processes. Implementation of TRIPS therefore means
that generic production of medicines will no longer be possible.
It is also a concern that the requirement for both product and process
patents may be abused. For example, it would be possible to apply for
patent rights over a product for 20 years, and thereafter, further periods
of 20 years each could be applied for products produced by the patented
process. Some experts caution that the 20-year protection can also be
abused to extend the monopoly through process patents as well as
patents oil usage form, dosage form and combination form. In the US, for
example, patents have been taken out on new combinations of drugs
even when the product patent on the basic drug - the active ingredient has long expired. Monopoly protection would be extended through
minor changes to the existing medicines where the product patents have
expired.
Developing-country pharmaceutical producers will find themselves
pushed out of the market, not being able to compete with the large
multinational corporations (MNCs). For the smaller producers in the
developing world that specialise in and depend on manufacturing cheaper
generic alternatives, this would no longer be possible - at least not until
the expiry of the 20-year period. In some developing countries, domestic
production capacity may never be developed.
7
The TRIPS Agreement further requires patents to be granted regardless
of whether the product is imported or locally produced. This means that
patent holders can merely import their product, without having to
"work" the patent in the country granting patent protection. This will
mean that an MNC can supply global markets under its patent monopoly
by exporting the finished product instead of transferring technology or
making foreign direct investment. This does not support the argument of
TRIPS proponents that strict patent regimes will increase the flow of
technology and investment into developing countries.
TRIPS proponents and the pharmaceutical industry further argue that
patent protection is essential to ensure R&D for new drugs, but there has
been little evidence to demonstrate that the patent system will ensure
investment in R&D for diseases that afflict mainly the poor. Of the 1,223
new chemical entities developed in the 21-year period between 19751996, only 11 were for the treatment of tropical diseases (World Health
Organisation, 2001). The last major new tuberculosis drug was devel
oped 30 years ago, although tuberculosis remains a major cause of death
in many developing countries. There is concern that R&D in the pharma
ceutical sector is concentrated on products intended for the lucrative
developed-country markets, given the increased investments for R&D
on drugs for impotence, obesity and baldness, instead of R&D on new
and more effective drugs for life-threatening or poverty-related "Third
World diseases", including malaria and tuberculosis. The diseases of the
poor attract very little R&D by the large pharmaceutical companies
because they are not promising income generators. Only 0.2% of healthrelated R&D worldwide goes into pneumonia, diarrhoeal diseases and
tuberculosis - diseases which account for 18% of the global disease
burden (United Nations Development Programme, 1999).
Civil society groups and non-governmental organisations (NGOs) have
called for revision of the TRIPS Agreement so as to ensure a proper
balance between the protection of private rights and corporate interests,
and the promotion of public interests in the socioeconomic and techno8
logical development of Member countries, including public health. Pub
lic criticism of the TRIPS regime is mounting, as are questions about the
legitimacy of patents on life-saving drugs and the global monopolies
provided to pharmaceutical companies by such patents. There is increas
ing public concern that the present model for IPRs protection advocated
by TRIPS is too heavily tilted in favour of private right holders and
against the public interest.
All this is leading to a crisis of legitimacy for TRIPS. In the six years since
its coming into force, there has been increasing evidence of many social
and economic problems caused by the introduction of stricter IPRs as a
result of the implementation of the TRIPS obligations. The public outrage
over HIV/AIDS medicines has added fuel to the negative public percep
tion about the IPRs system and about the role of TRIPS.
Special Discussion on TRIPS and Public Health
Against this backdrop of public criticism, WTO Members commenced a
process of special meetings of the TRIPS Council to discuss issues related
to patents and access to medicines. The Africa Group of countries in the
WTO had proposed a special session of the TRIPS Council to address the
controversy surrounding patents and access to medicines, describing the
areas for action as follows:
"Our challenge is to address the question of affordable drugs in a manner
that is fair and equitable to all stakeholders; in a way that seeks to avoid
the abuse of patent protection through recourse to uncompetitive prac
tices; a way that seeks to provide legal clarity in the interpretation and
application of the relevant TRIPS provisions which allow the adoption of
certain measures to enable the protection of health; indeed, a way that
seeks to realise the objectives and principles of the TRIPS Agreement, and
to restore confidence in a rules-based multilateral trading system."
9
After initial opposition from certain developed countries, WTO Mem
bers agreed on a Special Discussion of the TRIPS Council in June 2001.
During the Special Discussion, 50 developing countries (including the
Africa Group, and countries from Asia, the Caribbean and Latin America)
put forward a joint statement to the TRIPS Council, calling on the WTO
membership to "ensure that the TRIPS Agreement does not in any way
undermine the legitimate right of WTO Members to formulate their own
public health policies and implement them by adopting measures to
protect public health".
The developing countries wanted affirmation of this common under
standing, in order to clarify the differing (and restrictive) interpretations
of TRIPS being advanced by some developed countries. They expressed
concern that such restrictive interpretations would unduly limit their
rights to undertake the full range of public health policy measures, for
fear of legal challenge either in domestic courts or before the WTO
dispute settlement mechanism. The Special Discussion in June ended
with most WTO Members, including a number of developed-country
Members, expressing support for the developing-country proposal for
action at the WTO's Ministerial Conference in Doha, Qatar in November
2001. They also agreed to hold another Special Discussion in September
2001. The US, however, struck a discordant note, when it refused to
acknowledge that there were problems related to TRIPS and access to
medicines. It asserted that the TRIPS Agreement strikes a proper balance
between offering incentives for innovation and ensuring access to medi
cines, and that there were inherent flexibilities in the Agreement, such as
the transition period for developing countries.
During an informal meeting of the TRIPS Council in July 2001, develop
ing countries reiterated their intent to secure a tangible outcome to the
Special Discussion process. They have called for the initiation of a process
to identify elements to be included in the Doha Ministerial Declaration
which would give practical effect to the affirmation of the primacy of
public health over TRIPS.
10
The process of identifying these elements and the issues related to them
is expected to come under much discussion and debate within the TRIPS
Council and the WTO, especially in light of the upcoming Ministerial
Conference. This paper highlights some of the issues pertinent to the
debate:
•
How do patents on drugs affect access to medicines? The following
chapter examines the effect of patents and monopolies on the prices
of medicines.
•
The TRIPS Agreement places certain limitations on the exclusive
property rights of patent holders. These include compulsory licens
ing and parallel importation, measures which can be used in the
context of protection of public health and promoting access to
affordable medicines. However, pressures have been applied on
developing countries to eschew the use of such measures. Chapter
3 discusses these measures, and the obstacles faced by developing
countries in the use of such measures.
•
What is the role of differential or tiered pricing in the debate on
patents and medicines? Chapter 4 explores the proposal for a global
tiered-pricing or differential-pricing system, first mooted by the
European Union and currently under discussion in the World
Health Organisation (WHO) and the WTO.
•
What are the changes needed to the TRIPS Agreement and to the
WTO process in order to improve the situation? Chapter 5 considers
some of the possible actions and makes some proposals for clarifica
tion and amendment of the TRIPS Agreement, in the context of the
Special Discussion and the WTO processes beyond it.
11
2 P
atents and Prices
Effects of Patents and Monopolies on Prices
Product patents enable medicines to be sold at prices that are artificially
high due to the curbing of competition. Product patents provide for
absolute protection of the product. Process patents, on the other hand,
provide protection in respect of the technology and methods of manufac
ture. With process patents, generic versions of medicines may be pro
duced through alternative processes, allowing for competition from
other producers. Product patents, however, prevent generic production.
The TRIPS Agreement, in requiring patent protection for both products
and processes, will allow the patent holder an effective monopoly on the
production and sale of the patented product for the duration of the patent
(which, under TRIPS, is a minimum of 20 years). The patent holder is
therefore able to exercise a monopoly in the pricing of the product. This
relationship between patents and drug prices must be viewed in light of
the WHO estimate that one-third of the world population currently lack
access to essential medicines, and this number is likely to increase.
The effect of patents and monopolies on prices is demonstrated by data
which compare prices of patented or branded products and those of
generic products; prices of the same product sold in different countries;
and the prices of raw materials used in the production of medicines, in the
open competitive market and in transfer-pricing practices of MNCs.
Some key points can be inferred from the available data:
(1)
12
Prices of branded or patented products are often far higher than
the prices of similar medicines produced by alternative or generic
sources.
A comparison of prices for HIV/AIDS medicines illustrates the fact that
the drug MNCs sell their medicines at much higher prices than those
charged by generic producers. For example, the US price of 3TC
(Lamivudine) marketed by Glaxo is US$3,271 (per patient per year)
whilst Indian generic manufacturers, Cipla Ltd. and Hetero Drugs Lim
ited, offer their generic versions for $190 and $98 respectively. In the case
of Zerit (Stavudine), the US price offered by Bristol-Myers Squibb is
$3,589 (per patient per year) as compared to $70 and $47 for the generic
versions by Cipla and Hetero respectively. As for Viramune (Nevirapine)
marketed by Boehringer Ingelheim, the US price is $3,508, compared to
the Cipla and Hetero prices of $340 and $202 (Kavaljit, 2001). This point
is further illustrated by Cipla's offer of $350-600 for a year's supply of a
combination of these three anti-Al DS medicines, as compa red to the price
of $10,000-15,000 for the branded medicines. In August 2001, Cipla
launched a three-in-one AIDS tablet, which combines the three drugs,
Lamivudine, Stavudine and Nevirapine. The new tablet, called Triomune,
is said to cost patients around $38 for a month's supply (Reuters, 6 August
2001).
(2)
When generic competition is introduced, prices of the patented
product will fall.
Competition from generic producers will result in the lowering and
levelling of prices of medicines. For example, the drug fluconazole is
marketed by generic companies in Thailand at $0.29 and in India at $0.64.
This compares with market prices for brand-name drugs at $10.50 in
Kenya, $27 in Guatemala and (until recently) $8.25 in South Africa
(Oxfam, 2001).
The case of Brazil offers another good example. When the Brazilian
13
government began producing AIDS drugs generically, the prices of
equivalent branded products dropped by 79%. The domestic production
of AIDS drugs has enabled the Brazilian government to offer universal
free treatment, making its AIDS programme one of the most successful,
having halved the AIDS death rate and saved $472 million from averted
hospitalisations (Medecins Sans Frontieres, 2001).
(3)
When a drug company sells the same product in different coun
tries, it adopts a policy of price differentiation, setting price levels
"according to what the market can bear".
In a country where alternative or generic medicines are available, a
branded product is usually priced lower due to the competition it faces
from the cheaper alternatives. The same brand may be sold at higher
prices in other countries where there is no competition from generic
producers.
A 1998 Health Action International survey on Zantac, an anti-ulcer drug
manufactured by Glaxo, indicated that the company lowered the price of
the drug in India (marketed as Zinetac) because of competition. Several
generic manufacturers in India produce ranitidine, the generic name for
the active substance contained in Zantac. The survey showed that 100
tablets (150mg) of Zantac were sold for $2 in India, $3 in Nepal, $9 in
Bangladesh, $30 in Vietnam, $37 in Thailand, $41 in Indonesia, $55 in
Malaysia, $61 in Sri Lanka, $63 in Philippines and $183 in Mongolia. It
was also sold at $23 in Australia, $77 in Canada, $196 in Chile, $132 in El
Salvador, $150 in South Africa and $97 in Tanzania (Health Action
International, 1998).
(4)
Multinational drug companies practise transfer pricing in the
trade of raw materials used in the drugs, and this raises the cost of
medicines in developing countries.
A study by Dr Zafar Mirza (The Network Association for Rational Use of
14
Medication in Pakistan) compared prices of pharmaceutical raw materi
als imported into Pakistan for local manufacture by drug MNCs. The
study found that several MNCs exported the raw materials to their
subsidiaries in Pakistan at much higher prices than the prices of the same
raw materials if purchased from the open international market at com
petitive rates (Health Action International, 1994). In the case of one drug
produced by a German-based company, the price for the raw materials
charged to the company's subsidiary in Pakistan was $11,092 per kg
whereas the competitive international price was $320- a price difference
of 3,360%. For an Italian-based drug MNC, the price of the raw material
transferred from the MNC to its Pakistani subsidiary was 7,044% more
than the price in the international market.
(5)
There is a belief that drug companies sell their branded products
more cheaply in developing countries. This is often not the case.
Prices of some branded products are higher in many developing
countries. This makes medicines even less affordable, as countries
with much lower per capita incomes have to pay much higher
prices for the same medicine as compared to prices in developed
countries.
Another study by Health Action International shows that retail prices of
10 out of 13 commonly used drugs for which comparable data are
available are higher in Tanzania (annual per capita Gross National
Product of $120) than in Canada (per capita GNP of $19,380). The average
retail prices of 20 commonly used drugs in 10 developing countries of
Central and South America are all higher than the average retail prices of
the same drugs in 12 countries of the Organisation for Economic Coop
eration and Development (OECD, the “rich countries" club). The average
prices of drugs surveyed in South Africa are higher than in any of the
eight Western European countries for which data are presented (Health
Action International, 1998).
15
Conclusions
The above discussion suggests that the pharmaceutical industry fixes the
prices for medicines by setting the limits according to what the market
can bear (Balasubramaniam, 2001). Profit maximisation, through elimi
nation of competition and maintenance of market monopoly, is the main
objective. Patent protection is the most effective tool for drug MNCs to
keep out competition from generic producers and thus maintain mo
nopoly control over the production, marketing and pricing of medi
cines.
The pharmaceutical industry and its government supporters justify
patents on medicines and high prices on the ground that R&D for
pharmaceutical drugs is extremely expensive. Thus far, there is little
convincing evidence to support this claim. Research indicates that indus
try estimates for R&D on each new drug range from $350-500 million,
while independent estimates range from $30-160 million. Whichever
estimate is used, revenues from many life-saving drugs are found to very
easily exceed their R&D costs. For example, in 1999, the sales of Bayer's
ciproflaxin totalled $1.63 billion and Pfizer's sales of fluconazole totalled
$1 billion (Medecins Sans Frontieres, 2001).
The drug MNCs' claim that their huge investments in R&D warrant the
high prices for their products is debatable in another respect. A number
of the patented drugs were not in fact discovered by the MNCs. Rather,
public-funded institutions and universities were largely responsible for
the initial R&D of several medicines. For instance, the National Institutes
of Health (NIH) in the US was instrumental in the discovery of a number
of AIDS medicines. In fact, the NIH estimated that in 1995, its contribu
tion to the overall US health R&D accounted for 30% of the total, whilst
that of private industry amounted to 52% (Oxfam, 2001). The United
Nations Development Programme's (UNDP) Human Development Report
16
1999 states that some 70% of drugs with therapeutic gains were produced
with government involvement (United Nations Development Pro
gramme, 1999). And yet, it is the pharmaceutical industry that reaps most
of the profits from the production and sale of medicines.
In addition, available data suggest that pharmaceutical companies spend
more on marketing and administration than on R&D. As percentages of
sales, R&D expenses account for 10-20%, while marketing and adminis
tration add up to 30-40% (Medecins Sans Frontieres, 2001).
It is not sufficient reason for pharmaceutical companies to justify high
drug prices in developing countries as an incentive for R&D on new
drugs. Eighty percent of the projected worldwide drug market is in North
America, Europe, Japan and Australasia. All of Africa accounts for only
1.3% of the world market in pharmaceuticals. In fact, Africa and Asia,
with 67% of the world's population, account only for 8% of the world
market (Balasubramaniam, 2001). The small markets in developing
countries will not significantly affect the R&D costs. The profits of the
pharmaceutical industry will also be little affected by weaker patent
protection in developing countries which would enable the latter to
manufacture and market medicines at lower prices.
The Africa Group in the WTO has stated: “ [ A] 11 this has further aroused
public interest and led to the conclusion, in some quarters, that patents
have enabled drug companies to raise prices of their products far above
the levels that can be afforded by a great number of people. Further it is
argued that contrary to the principles and objectives of the TRIPS
Agreement, the present model of intellectual property rights protection
is too heavily tilted in favour of rights holders and against public interest.
...In the same manner, patent protection is seen, whether rightly or
wrongly, as shielding drug firms from competition from other firms and
other products" (Zimbabwe, 2001).
17
An important conclusion made by K. Balasubramaniam, Pharmaceutical
Advisor of Consumers International, is as follows:
"Consumers in developing countries can have regular access to afford
able drugs when chemical intermediates, raw materials and finished
products are available at competitive prices in the world market. This will
not be possible when new life-saving drugs are given protection for 20
years and patent holders have the exclusive monopoly for manufacture,
distribution and sales. Tire only way to ensure that chemical intermedi
ates, raw materials and finished products are available at competitive
prices in the world market and countries can freely import them is to have
appropriate legislation, which will provide for compulsory licensing and
parallel importing. Developing countries need assistance to enact such
laws. They should not be in a rush to initiate the complex process of
reform of the national legislation on IPR" (Balasubramaniam, 2000).
Despite the clear need for developing corm tries to exercise their rights to
compulsory licensing and parallel imports to enable their people to have
access to affordable medicines, a major and perhaps the most disturbing
aspect of the crisis of patents and drugs is that obstacles have been and
are being put in the way of developing countries seeking to make use
of TRIPS provisions on compulsory licensing or parallel imports in
order to buy or produce drugs at more affordable prices.
The case of access to affordable medicines has illustrated a disturbing
aspect of TRIPS: that this Agreement has facilitated, and is continuing
to facilitate, anti-competitive behaviour and the flow of trade in prod
ucts at prices that are influenced or determined by monopolistic
elements, which hinder trade at free-market prices. This runs counter
to the trade-liberalisation principle of the WTO.
18
3
The TRIPS Agreement and
Access to Medicines
For many developing countries, the interpretation and implementation
of the TRIPS Agreement requires resources and capacity in excess of
those existing. Implementation of the Agreement entails a very signifi
cant extension in the scope and duration of patent protection for devel
oping countries, many of which had not hitherto provided patent protec
tion for pharmaceutical products. Experts from developing and devel
oped countries alike fear substantial increases in drug prices in the
countries that had not granted such patents in the past.
However, the TRIPS Agreement, in its present form, does contain certain
provisions that can be used to limit patent rights. These limitations or
exceptions are to be effected through national legislation in order to curb
abuses of IPRs and anti-competitive practices, and, generally, to offset
the negative impact of patent monopolies.
Two of the most important measures in this regard are the right of
governments to grant compulsory licences and the application of the
principle of exhaustion of IPRs, which allows for parallel importation of
patented products. These measures are perhaps the most crucial in
enabling access to affordable medicines, particularly in developing
countries that do not yet have local production capacity in the pharma
ceutical sector. There are also other important exceptions to patent rights
allowed by the TRIPS Agreement, including exceptions for experimen
tal use and the "Bolar" exception, which are relevant in the discussion on
pharmaceutical products. This paper will focus on the use of compulsory
licensing and parallel importation measures.
19
Compulsory Licensing
Compulsory licensing enables a government to issue a licence to a third
party, whether a private company or government agency, to use or
exploit a patent without the patent holder's consent. Compulsory licen
sees generally compensate the patent holder through payment of remu
neration.
Many developed countries make available some forms of compulsory
licences, either in their patent laws or under the specific sector legislation.
Such licences are regarded as a crucial element in their patent laws and
are mechanisms used to promote competition and prevent abuse of
patent rights and monopolies. The mere existence of a legal provision for
compulsory licensing may be enough to persuade patent holders of the
need to act reasonably in cases of requests for voluntary licences, whilst
strengthening the bargaining position of potential licensees (Third World
Network, 1998).
In the context of pharmaceutical patents, such licences constitute an
important tool to promote competition and increase the affordability of
drugs, without depriving the patent holder of reasonable compensation.
Grounds for Grant of Compulsory Licences
Provisions relating to compulsory licences or "non-voluntary licences"
are contained in Article 31 of the TRIPS Agreement. Article 31 makes
specific mention of five possible grounds for the granting of compulsory
licences, that is, in cases of refusal to deal, in situations of national
emergency and extreme urgency, to remedy anti-competitive practices,
in cases of public non-commercial use and to facilitate the use of depend
ent patents. Since Article 31 does not lay down an exhaustive list of
grounds for the issuance of compulsory licences, WTO Members should
be free to determine further grounds for such issuance. Therefore, the
TRIPS Agreement should not be interpreted to limit the right of countries
20
to establish compulsory licences on other grounds not explicitly men
tioned.
Questions have indeed arisen as to whether WTO Members may issue
compulsory licences on other grounds not specified within the TRIPS
Agreement. On this point, reference should be made to the provisions of
the Paris Convention for the Protection of Industrial Property related to
compulsory licences, which have been incorporated into the TRIPS
Agreement (by virtue of the latter's Article 2.1). The Paris Convention
allows countries wide discretion to issue compulsory licences "to pre
vent the abuses which might result from the exercise of the exclusive
rights conferred by the patent". During the Uruguay Round negotia
tions, efforts were made by a number of developed countries to limit the
freedom available to countries under the Paris Convention in the grant of
compulsory licences. However, these efforts failed due to strong resist
ance from developing countries. The compromise reached was to leave
open the grounds on which such licences could be granted.
The Paris Convention recognises the right to grant compulsory licences
on the ground of failure to work (i.e., where the patent is not exploited
locally) or insufficient working (Article 5A). This provision of the Paris
Convention has been incorporated into the TRIPS Agreement. On this
basis, failure to work, or insufficient working of, a patent should be a
legitimate ground for the issuance of compulsory licences. From a
developing-country perspective, the local working of a patent is desir
able, apart from its being necessary for making products available and
affordable, for the technology-transfer opportunities it offers and for the
reduced foreign-exchange expenditure that would otherwise have gone
towards purchasing imports. However, some developed countries, in
particular the EU and the US, have tried to press for a very narrow
interpretation of the TRIPS Agreement, one which seeks to prohibit the
grant of compulsory licences on the ground of non-working of a patent.
Where a developing country finds that it is in the public interest to
encourage domestic production of patented medicines, for the purposes
of controlling and preventing diseases and in the interests of availability
and affordability, compulsory licensing will be a vital policy tool.
However, this alone may not be sufficient. At present, only a few
developing countries - Argentina, China, Egypt and India (Korea and
Mexico, now classified as OECD members, are two other such countries)
- have strong enough national pharmaceutical sectors to be able to
develop and manufacture medicines through the process of reverse
engineering (Balasubramaniam, 2001). Therefore, these are the develo
ping countries that are in a position to use compulsory licences to enable
domestic firms to manufacture patented drugs.
Such a measure would, however, be meaningless for the rest of the
developing-country Members of the WTO, which do not have the domes
tic manufacturing capacity. This raises the question of whether these
countries would be able to grant a compulsory licence for the importation
of the patented medicine product. This may in fact be the only viable
means to use a compulsory licence in cases where domestic manufactur
ing capacity does not exist, where the size of the local market does not
justify local manufacture, or where there is a need to promptly address
an emergency situation. In these cases, a compulsory licence could be
granted to enable a compulsory licensee to import from a compulsory
licensee, or from other sources, in another country.
There is a further question of whether a compulsory licensee producing
a patented drug would be allowed to export the patented product. The
TRIPS Agreement stipulates that a compulsory licence must be "pre
dominantly" for the supply of the domestic market. Therefore, exports
are possible, although they should not constitute the main activity of the
licensee with regard to the licensed product. In cases when a compulsory
licence has been granted to remedy anti-competitive conduct, this limi
tation need not apply. This is the practice in the US in cases of compulsory
licences granted under anti-trust legislation.
22
Developed countries have largely relied on compulsory licences as a tool
to limit exclusive rights and prevent or remedy abusive practices. Recent
legislative changes in these countries prove that the compulsory-licens
ing system is still much in use (Correa, 2000a). The grounds and condi
tions on which compulsory licences have been regulated and granted in
developed countries illustrate the flexibility and potential of the compul
sory-licensing system to address a multiplicity of public interests and
concerns.
Such evidence indicates that arguments voiced by developed countries'
governments and industry against compulsory licences as a deviation
from acceptable IPRs standards are not reflected in the policies actually
applied in these countries (Correa, 2000a). They are practising double
standards by denying developing countries the use of effective policy
mechanisms that they themselves have applied and continue to apply.
Parallel Imports
Parallel imports involve the import and resale in a country, without the
consent of the patent holder, of a patented product that was put on the
market of the exporting country by the patent holder (Correa, 2000a). The
underlying concept behind parallel imports is based on the principle of
exhaustion of rights. This principle is premised on the fact that where the
patent holder has been rewarded through the first sale or distribution of
the product, he/she no longer has the right to control the use or resale of
the product (Correa, 2000b). This would also be in line with the WTO's
trade-liberalisation objective that from the moment a product is mar
keted, the patent holder can no longer control its subsequent circulation.
Nothing in the TRIPS Agreement prohibits parallel importation. Indeed,
Article 6 specifically allows each Member country the freedom to incor
porate the principle of international exhaustion of rights - the underlying
justification for parallel imports - in its national legislation. It further
23
states that Members are not subject to the WTO dispute settlement
system for disputes relating to exhaustion of rights.
Parallel imports are of particular importance in meeting public-health
interests, since, as we have seen, the pharmaceutical industry generally
sets prices differently throughout the world for the same medicines.
Parallel imports would prevent market segmentation and price discrimi
nation by patent holders on a regional or international scale. Parallel
importation of a patented medicine from a country where it is sold at a
lower price will enable more patients in the importing country to gain
access to the medicine. Such measure would also not prevent the patent
owner from receiving remuneration for the patented invention in the
country where the product is first sold. In this regard, parallel importa
tion must be regarded as a legitimate measure which WTO Members are
permitted to adopt to protect public health and nutrition as provided for
in Article 8 of the TRIPS Agreement.
In order to avoid a possible discrimination complaint under Article 27.1
(which touches on non-discrimination in the enjoyment of patent rights)
and benefit all sectors of the economy, it is recommended that parallel
importing should be permitted within national legislation for patented
goods in all fields of technology and not only for health-related inven
tions (Correa, 2000a).
Developed countries and their corporations discourage parallel imports
on the grounds that companies would then charge a single price world
wide - thus leading to an increase in the price that may be charged in lowincome countries - were parallel importation to be implemented. This
argument is a weak one, for, as shown above, available evidence provides
proof that in many developing countries, the prices of the same medi
cines are in fact much higher than in developed countries.
24
Obstacles to the Use of Compulsory Licences and Parallel
Importation
It is vital that the right of governments to use compulsory licences and
parallel importation measures is upheld and respected. Such measures
must also be capable of effective implementation.
The TRIPS provisions governing these measures are, however, coupled
with numerous conditions, making them difficult to operationalise effec
tively and speedily. More significantly, although the TRIPS Agreement
allows for these measures to be undertaken for the protection of public
health, some developed countries have sought to give a narrow interpre
tation of the provisions relating to compulsory licences and parallel
imports, with the purpose of restricting the scope of such measures. This
situation has led to the perception that there is a lack of legal clarity or
common understanding of the TRIPS provisions. As the Africa Group
has stated, "recent legal challenges by the pharmaceutical industry and
some members in national law and the WTO/DSU [Dispute Settlement
Understanding] have highlighted the lack of legal clarity on the interpre
tation and/or application of the relevant provisions of the TRIPS Agree
ment" (Zimbabwe, 2001).
This was a reference to recent legal challenges faced by South Africa and
Brazil. In South Africa, the government was challenged in court by 39
pharmaceutical companies which sought a court declaration that the
country's legislation on compulsory licensing was illegal. The companies
eventually dropped the challenge under intense public pressure. In the
WTO, Brazil was hauled up by the US before the dispute settlement
system for enacting legislation (which has yet to be enforced) allowing for
compulsory licensing in cases of non-local working. In June 2001, the US
withdrew its complaint against Brazil on the apparent condition that
Brazil would, prior to issuing a compulsory licence under the disputed
legal provision, hold "talks" on the matter with the US.
25
Although these challenges have been withdrawn, the threat of similar
challenges still exists. This situation has led to some unease and uncer
tainty on the part of developing-country Members, which are now
hesitant or feel circumscribed in their ability to undertake such measures
in their national legislation.
Equally disturbing is the fact that some developed countries, in conjunc
tion with their corporations and industry lobbies, have been exerting
political pressure on developing countries to prevent them from exercis
ing their rights under TRIPS, and from enacting policies and laws on
compulsory licensing and parallel imports for HIV/AIDS drugs and
other drugs. Articulating the same concerns in the TRIPS Council, the
Africa Group has reported on "attempts ... by some developed countries
through bilateral and regional arrangements to get developing countries
to apply TRIPS-plus measures, or to forego their rights" (Zimbabwe,
2001).
Examples of such pressures include the bilateral pressure applied on the
South African government by the US administration against measures
which would allow for compulsory licensing and parallel importing. The
pressure was subsequently eased when AIDS activists caused significant
embarrassment and damage to then US Vice-President Al Gore's 2000
presidential campaign. Thailand has also suffered a similar experience.
US pressure was brought to bear on the Thai government to ban parallel
imports and to restrict the use of compulsory licences, under threat of
high tariffs on Thai exports (Medecins Sans Frontieres, 1999).
It is therefore necessary for the WTO Members to clarify and come to
a common and agreed understanding of the TRIPS provisions. Com
pulsory licensing and parallel imports are clearly permitted within the
TRIPS framework. Therefore, developing countries should be allowed
the maximum flexibility in interpreting and implementing the TRIPS
Agreement provisions, and should be allowed to do so without fear of
26
litigation or other pressures. It is vital that interpretations allow full
flexibility for developing countries to exercise their rights to provide
affordable medicines to their people, rather than restrict the scope and
ability of developing-country Members to adopt measures to ensure
access to medicines.
Proposals for clarification or interpretation of the TRIPS Agreement
along these lines are made in Chapter 5.
27
4
Tiered- or DifferentialPricing System
In response to the growing controversy over the issue of access to
medicines, the European Commission (the executive branch of the Euro
pean Union) has proposed a "tiered-pricing" system that would work to
offer lower drug prices to developing countries whilst maintaining prices
in the developed countries. The concept of differential pricing has also
been taken up by the WHO and WTO Secretariats.
Whilst these initiatives signal an effort to respond to public demands that
the issue be tackled, the differential- or tiered-pricing approach must also
be viewed with caution. Lessons should be drawn from the UNAIDS
Accelerating Access Initiative which involves industry discounts on
AIDS drugs. The process has been described as "slow, grudging and
piecemeal". After almost a year since the announcement of the initiative,
the medicines are still too expensive for the majority of the AIDS patients.
The country-by-country, company-by-company approach has contrib
uted to the delay and has also resulted in different prices for different
countries. There are also concerns that the individual deals differ in terms
of the duration and quantity. It was recently reported that only Senegal,
Uganda and Rwanda have negotiated deals for discounts on triple
combination drugs, with the prices falling from $1,821 to $1,008 in
Senegal, and from $3,971 to $1,974 in Uganda, per patient a year for a
triple-therapy regimen (Medecins Sans Frontieres, 2001).
The announcement and offer by Indian generic producer, Cipla, demon
strates that much more is possible. Cipla has offered much lower prices
on triple combination HIV/AIDS treatment ($600 to governments and
$350 to the medical relief organisation Medecins Sans Frontieres) without
28
restrictions on time, geography or quantity. This means that pharmaceu
tical companies are capable of much bigger price cuts. Since Cipla's offer,
there have in fact been offers of further discounts from the pharmaceu
tical companies.
The fact that the pharmaceutical industry favours the differential-pricing
concept has also raised questions about a hidden agenda - to offer the
differential-pricing scheme in exchange for restrictions on countries'
rights to adopt compulsory licensing or parallel importation measures.
Tire EU, in proposing the differential-pricing system, has also raised the
issue of the need for safeguards against the "leakage" of low-priced
medicines destined for specific markets into the markets of developed
countries.
It will be crucial for discussions or negotiations for such a system to be
carried out in an equitable, fair and transparent process, given the
circumstances. Most importantly, a differential-pricing scheme must
not be offered as a substitute for WTO Members' rights to adopt
compulsory licensing or parallel importation laws and measures. The
tiered-pricing system must not result in conditions that restrict such
rights being imposed on participating countries.
If an initiative on differential pricing is to be considered, it must be
approached on a multilateral basis and not on a country-by-country
basis. It should not be limited either by place (the countries involved) or
by time (limited to only a number of years). Negotiations and outcomes
thereon must be transparent, involving all countries (and certainly all
WTO Members) in a fully participatory way, and must also involve
transparent prices, rules and regulations. The beneficiaries must include
all developing countries and not be limited to only the poorest countries.
Some life-saving medicines are priced beyond the reach of most of the
world's population. Middle-income countries should be included in
such a system, as they are more likely to have the capacity and infrastruc
ture to treat large numbers of people immediately. In addition, Medecins
29
Sans Frontieres has called for tiered pricing to be based on the equity
principle. This requires dramatically reducing medicine prices to a level
that is reasonably affordable to the patient so that the medicines will not
simply cost less but will truly be affordable to the patients who need
them.
30
5 C
onclusions and Proposals
The TRIPS Council Special Discussions on TRIPS and Public Health
represent an important opportunity to address growing concerns that
implementation of the TRIPS Agreement will hinder access to affordable
medicines. As the developing countries have made clear, they regard the
Special Discussions as a process which will culminate in a tangible and
implementable outcome, hence their proposal for the Doha Ministerial
Declaration to specifically address the issue. The developing countries
have identified several elements which they consider vital to be included
in the Ministerial Declaration, including the use of Articles 7 and 8 in the
interpretation of all provisions in the TRIPS Agreement; the right of
Members to determine the grounds on which compulsory licences may
be issued; recognition of compulsory licences issued to a foreign manu
facturer; the right to parallel import; a moratorium on all dispute actions
aimed at preventing or limiting access to medicines, or protection of
public health; and the extension of hansition periods for developing and
least developed countries.
In this context, this paper makes some recommendations for action by
WTO Members, including proposals for clarification and interpreta
tion and, where required, revision of the TRIPS Agreement. It is
suggested that these proposals could be realised as part of the decisions
agreed to at the forthcoming WTO Ministerial Conference in Doha in
November 2001.
WTO Members' Rights to Adopt Effective Compulsory Licensing
and Parallel Importation Measures
Compulsory licensing and parallel imports are policy options which are
clearly allowed under the TRIPS Agreement, and they must remain so.
The problem of differing or divergent opinions on the provisions thereon
in the TRIPS Agreement must be addressed in a manner that allows
developing countries the maximum flexibility in interpreting and imple
menting the provisions. In the context of access to medicines, it is vital
that interpretations be adopted that allow full flexibility for developing
countries to exercise their rights.
It is also critical that developing-country Members be able to make
national policies with a sufficient degree of comfort and not find them
selves in situations of uncertainty, including being at risk of being taken
before the dispute settlement system of the WTO, when exercising their
rights within TRIPS. In this regard, Members must have clear and agreed
guarantees that the TRIPS Agreement does not prevent or limit their
obligation to protect public health and to respond effectively to out
breaks of diseases or pandemics and other health priorities. WTO
Members should also support the implementation of policies and rules
that encourage generic competition and local production of life-saving
drugs. It is in this light that some of the provisions of the TRIPS
Agreement should be interpreted and clarified.
Compulsory Licensing
The TRIPS Agreement refers to a number of grounds for the grant of
compulsory licences but does not limit the right of countries to establish
such licences on other grounds not explicitly mentioned (Correa, 2000b).
Article 31 of the TRIPS Agreement, which refers to the issuance of
compulsory licences, does not lay down an exhaustive list of grounds for
such issuance. Therefore, WTO Members can determine other grounds
on the basis of which compulsory licences can be issued.
32
The usefulness of Article 31 as a provision to balance against broad patent
rights that hinder access to affordable medicines will be unnecessarily
limited if other grounds (besides the five possible ones specifically
referred to therein) cannot be accommodated.
In order to effectively protect public health and promote access to
affordable drugs, developing countries must be able to grant compul
sory licences on a range of grounds, including the following:
(a) in cases of failure to work or insufficient working;
(b) for importation of a patented product;
(c) for export of a patented product.
Sub-sections (a), (b) and (c) below explain the rationale and set out more
detailed proposals for the three grounds listed above.
Another problem confronting developing countries is the difficulties
they face or may face in having to follow severa 1 procedural requirements
or conditions prior to or in the process of granting compulsory licences.
Article 31 specifies several such conditions, including procedures for
obtaining the authorisation of the right holder on reasonable commercial
terms, and payment of "adequate remuneration". These procedural
conditions should not become a hindrance to the issuing of compulsory
licences. Sub-section (d) below provides a proposal to address this
matter.
(a)
Compulsory licence for non-working or insufficient working
As mentioned earlier, the Paris Convention for the Protection of Indus
trial Property recognises the right to grant compulsory licences on the
ground of failure to work or insufficient working, in order to prevent
abuses arising from the exclusive rights conferred by patents. This
provision of the Paris Convention is incorporated into the TRIPS Agree
ment. Therefore, the failure to work, or insufficient working of, a patent
33
is a legitimate ground for the issuance of compulsory licences. From a
developing-country perspective, the local working of a patent is desir
able as it presents opportunities for technology transfer to promote
domestic manufacturing capacity. The ability to produce domestically
will also help in reducing the outflow of foreign exchange for the
purchase of imports, an important factor for many developing countries.
However, there have been cases of some countries advocating a very
restrictive interpretation of the TRIPS Agreement that seeks to prohibit
compulsory licensing on the ground of non-working of a patent. There is
no justification for such an interpretation; thus, there should be a clarifi
cation to the effect that the non-working or insufficient working of a
patent shall be a ground for the grant of compulsory licences.
Proposal
The following clarification shall be made:
Members may issue compulsory licences for the exploitation of a patent
where the patent fails to be ivorked or is insufficiently worked in the
country.
(b) Compulsory licence for importation of patented product
A compulsory licence for exploitation of a patent on the grounds of non
working or insufficient working is appropriate where a country already
has a reasonably advanced pharmaceutical industry for pharmaceutical
production. At present, however, very few developing countries have
this capacity. Where domestic manufacturing capacity is limited or non
existent, other measures are needed.
The TRIPS Agreement should not prohibit the option of using compul
sory licences for the importation of a patented product. This may often
34
be the only viable means to use a compulsory licence in countries where
domestic manufacturing capacity does not exist, where the size of the
local market does not justify local production, or where there is a need to
promptly address an emergency situation.
The compulsory licensee may import from a compulsory licensee who
has been granted a licence to produce a patented medicine in another
country. Ln addition, for compulsory licensing to be effective and to
respond speedily to a national health need, WTO Members should also
have the right to issue a compulsory licence to obtain medicines from a
generic manufacturer in another country that has the necessary produc
tion capacity.
Proposal
The following clarification shall be made:
Members may issue compulsory licences for:
(1)
importation of a patented product or a product directly made ivith
a patented process; and
(2)
importation of a patented product or a product directly made with
a patented processfrom a compulsory licensee in another country or
a producer in another country where the product is not protected.
(c)
The ability of a compulsory licensee to export
A further question arises as to whether and to what extent a compulsory
licensee could be allowed to export the product which he/she is licensed
to produce. The TRIPS Agreement stipulates that a compulsory licence
must be "predominantly" for the supply of the domestic market (Article
31(f)). Therefore, exports are allowed, although there appears to be a
35
limitation on the amount or proportion that can be exported. However,
in cases when a compulsory licence has been granted to remedy anti
competitive conduct, this limitation is waived.
It should be clarified that the TRIPS Agreement allows the export of
medicines produced under a compulsory licence, and a flexible interpre
tation should be given regarding the amount of export. In many countries
with small populations, it may not be economically worthwhile for a local
manufacturer to produce only for the local market, and thus the producer
should be enabled to export should it apply for and obtain a compulsory
licence. If a restrictive interpretation is applied (i.e., that exports are not
allowed under compulsory licences or are allowed only under narrow
conditions), there is a danger that compulsory licences may only be of use
to countries with large enough markets to justify domestic production. In
this case, countries with smaller populations would be penalised in that
they would not be able to have a viable industry due to the restriction on
exports. Smaller local markets in developing countries often deter poten
tial compulsory licensees from accepting licences, since the domestic
demand may not be sufficient for production to be cost-effective. The
ability to export will provide an incentive for compulsory licensees in
such countries. Therefore, a domestically-based manufacturer that has
been granted a compulsory licence to produce a patented product
primarily to satisfy domestic demand, can have the licence extended to
cover export of the product so as to enable the manufacturer to enjoy
economies of scale and thus be cost-effective.
Another major benefit of a flexible interpretation that allows for export is
that there will be a greater volume of medicine supply, and at more
affordable prices, to other countries that may wish to import from the
compulsory licensees. It is unrealistic to expect every WTO Member to be
able to develop the technologies and investments required for domestic
production capacity. Therefore, these countries should be free to import
from compulsory licensees (by virtue of the principle of exhaustion) to
address public-health needs. There will be global welfare gains and more
36
affordable medicines especially for consumers in developing countries.
Proposal
The following clarification shall be made:
Members may issue compulsory licences that authorise the licensee to
produce for the domestic market and to also export a portion of its
production, and this portion can be significant and should not be unduly
restricted (by Article 31(f)).
(d) Simplification of procedural conditions
As explained above, the right of developing-country Members to grant
compulsory licences is constrained by the procedural conditions (speci
fied in Article 31) they have to meet prior to or in the process of granting
the licences. These conditions can limit the ability of governments to
respond speedily and effectively to public-health needs. Thus, a decision
should be taken to ease the conditions on grounds of public health.
Eventually a revision of Article 31 may be required.
Proposal
A decision shall be taken at the WTO Ministerial Conference as
follows:
Members shall review the procedural conditions for the granting of
compulsory licences with a view to simplifying and limiting the condi
tions to enable Members to better respond to public-health needs and
situations.
Parallel Imports
Parallel imports are of particular importance in the health sector since the
37
pharmaceutical industry generally charges different prices in different
countries for the same medicines. Parallel importation can prevent
market segmentation and price discrimination by patent holders on a
regional or international scale. Parallel importation of a patented medi
cine from a country where it is sold more cheaply will enhance access of
more patients in the importing country to the medicine.
Parallel importation is implemented in many countries, both developed
and developing. It is a useful policy tool by which developing countries
will be able to provide quick access to life-saving drugs, and to respond
speedily to a health crisis or need. Ln this regard, parallel importation
must be considered a legitimate measure which WTO Members are
permitted to adopt to protect public health and nutrition as is provided
for in Article 8 of the TRIPS Agreement.
No provision in the TRIPS Agreement prohibits parallel importation. As
stated above, Article 6 allows each Member country the freedom to
incorporate the principle of international exhaustion of rights in its
national legislation. It should therefore be properly clarified that parallel
importing is allowed tmder the TRIPS Agreement. Parallel importation
can be undertaken where:
the patented product has been marketed in another country by the
patent holder; or
(b) the product is sold under a compulsory licence; or
(c) the product is marketed in another country through legitimate
means without the authorisation of the patent holder, such as where
the product is not protected in the exporting country (i.e., in the case
of a generic producer of medicines such as Cipla in India).
(a)
In order to avoid a possible discrimination complaint under Article 27.1
and benefit all sectors of the economy, parallel importing should be
permitted for patented goods in all fields of technology and not only for
health-related inventions (Correa, 2000a).
38
Proposal
The following clarification shall be made:
Members shall be allowed to implement parallel importation policies
and regulations in the following manner:
(1)
importation of a patented product originating in any country,
where the product was marketed in such a country by the patent
owner or his licensee, or where it was sold under a compulsory
licence; or
(2)
importation of a product marketed in a foreign country in a legiti
mate manner, including in the case of non-authorisation by the
patent holder, such as where the product was not protected in the
exporting country.
Bilateral and Regional Pressures
Serious and grave concerns have been expressed over attempts to dis
courage or deny Member countries from invoking the options and
flexibility provided for in the TRIPS Agreement, through pressures
applied in bilateral and regional arrangements. There have also been
attempts to exert pressure on developing countries to implement in their
national IPRs laws unnecessarily strict standards of IPRs protection that
go beyond what is required by the TRIPS Agreement ("TRIPS-plus"
measures).
There should be a commitment by all WTO Members that they will not
pursue strategies of pressure or intimidation against countries that take
measures to protect public health and promote access to drugs. Any
attempt to coerce developing countries into foregoing their rights under
the TRIPS Agreement would deal a serious blow to the credibility and
39
legitimacy of the Agreement and the WTO.
Proposal
The following decision shall be incorporated in the Doha Ministerial
Declaration:
Members shall affirm their commitment not to exert bilateral or regional
pressures on developing-country Members to forego their rights to adopt
effective compulsory licensing and parallel importation measures and
other measures to promote public health permitted under the TRIPS
Agreement, or to pressurise or compel them to adopt measures and
standards beyond their obligations in the TRIPS Agreement.
A Moratorium on Dispute Settlement Cases
The threat of being brought before the WTO dispute settlement system
can cause uncertainty, anxiety and unease. Such a situation prevents
developing-country Members from having the level of comfort and
confidence to exercise their rights adequately or fully within the flexibil
ity of the TRIPS Agreement. There should thus be a moratorium on WTO
dispute actions that are aimed at preventing or limiting Member coun
tries' capacity to address access to medicines and public-health issues.
Specifically, Members should agree that there shall be no cases brought
against developing-country Members in relation to the exercise of their
rights to adopt compulsory licensing and parallel import measures, until
a satisfactory resolution is achieved on the question of patents and access
to medicines.
Proposal
There shall be a decision incorporated in the Ministerial Declaration as
follows:
40
Members shall agree to abide by a moratorium on all dispute actions that
are aimed at preven ting or limiting developing-country Members' capac
ity to promote access to medicines and protect public health, particu
larly with regard to the exercise of their rights to adopt compulsory
licensing and parallel importation measures. The moratorium shall be
with immediate effect, and shall be in force until a satisfactory resolu
tion is achieved on the question of patents and access to medicines.
Excluding the Patenting of Medicines
In respect of more effective measures to protect public health and
promote access to medicines, a discussion should commence on the
means by which countries can be given the flexibility of an option to
exclude medicines (or certain categories of medicines) from patenting.
Where the patenting of drugs has resulted in problems of access and high
costs that prevent or hinder the treatment of diseases and the saving of
lives, an option should be available for developing countries to exempt
or exclude medicines from patenting on public-health grounds. Such
exemptions or exclusions can be accommodated within the provisions of
certain Articles of the TRIPS Agreement (with revisions where needed).
Both Articles 27.2 and 27.3 specify the exclusions from patentability that
a country may provide for at the national level. Proposals for exclusion
of medicines from patentability under these provisions are provided
below.
Article 27.2
Article 27.2 states that:
"Members may exclude from patentability inventions, the prevention
within their territory of the commercial exploitation of which is necessary
to protect ordre public or morality, including to protect human, animal or
41
plant life or health or to avoid serious prejudice to the environment,
provided that such exclusion is not made merely because the exploitation
is prohibited by their law".
Proposal
The following clarification shall be made:
Article 27.2 enables Members to exclude from patentability medicines or
certain categories of medicines, including medicines that are essential,
life-saving, vitally needed or used for treatment of poverty-related
diseases.
Article 27.3
Article 27.3 states that:
"Members may also exclude from patentability:
(a) diagnostic, therapeutic and surgical methods for the treatment of
humans or animals;
(b) plants and animals other than micro-organisms, and essentially
biological processes for the production of plants or animals other than
non-biological and microbiological processes ..."
This Article provides a list of subject matter that can be excluded from
patentability. Article 27.3 should be amended by including medicines or
categories of medicines in the list.
Proposal
A decision shall be made at the Ministerial Conference that Article 27.3
be amended by adding a new sub-paragraph (c), which shall read as
follows:
42
Members may also exclude from patentability:
(c) life-saving, vitally needed medicines and medicines for the treatment
of poverty-related diseases.
Overall Balancing of Rights in TRIPS Agreement
The question of overall balancing of rights is not specific to the issue of
access to drugs alone, but is rather a problem that arises from the
implementation of the TRIPS Agreement generally. The imbalances and
problems in the Agreement need to be addressed. Many of the proposals
to redress these problems in TRIPS are contained in the "implementa
tion" proposals in paragraphs 21 and 22 of the Draft Ministerial Text of
the Seattle Ministerial Conference, and several of these proposals relate
to the objectives and principles of the Agreement set out in Articles 7 and
8. The credibility of TRIPS would be enhanced if these proposals are
adopted by Members, and if Articles 7 and 8 are effectively opera tiona Used
or improved upon. The following is a proposal on improving Article 8.1.
Article 8.1 ("Principles")
Article 8.1 states that "Members ... may adopt measures necessary to
protect public health and nutrition, and to promote the public interest in
sectors of vital importance to their socioeconomic and technological
development, provided that such measures are consistent with the
provisions of this Agreement".
Article 8.1 offers some scope for WTO Members to take necessary
measures in the context of public health and access to medicines. How
ever, the extent of its usefulness is limited by the phrase "provided that
such measures are consistent with the provisions of this Agreement" as
the latter to a large degree negates the underlying premise of Article 8,
which is to allow WTO Members the flexibility to adopt policy measures
43
for the public good. It should therefore be clarified that the public-interest
intention of Article 8 should not be frustrated, and a revision of the
provision should be undertaken for this purpose. In line with a suitably
amended Article 8.1, Members will have certainty when they adopt
measures to protect public health. Such measures would include com
pulsory licensing, parallel imports and exclusion from patentability of
medicines (or some categories of medicines).
Proposal
A decision shall be made at the Ministerial Conference that Article 8
shall be amended as follows:
No provision in this Agreement shall have the effect of preventing or
limiting the right of any Member to adopt measures necessary to protect
public health and nutrition, and to promote the public interest in sectors
of vital importance to their socioeconomic and technological develop
ment.
Tiered or Differential Pricing
A tiered- or differential-pricing system may make a limited contribution
to addressing the problem of access to medicines. To be effective and
equitable, initiatives on tiered or differential pricing must be approached
on a multilateral basis, with the participation of patent holders and
generic producers in fair and transparent negotiations.
However, it is crucial that any differential-pricing initiative must not be
used to extract promises of IPRs protection that could make medicines
more expensive in the long term. As such, discussions on these initiatives
should be undertaken outside of the WTO and the TRIPS Council. The
discussions or negotiations shall not prejudice the rights of countries to
adopt policy options permitted under TRIPS, namely the right to imple
44
ment compulsory licensing and parallel import measures, nor should
such initiatives be seen as an alternative to generic competition.
Proposal
Discussions or negotiations on initiatives on tiered or differential pric
ing shall not prejudice the rights of countries to adopt policy options in
TRIPS, namely, the right to implement compulsory licensing and paral
lel import measures, nor should such initiatives be seen as an alternative
to competition from generic drugs.
45
References
Balasubramaniam, K. (2000), Implications of the TRIPS Agreement for Pharmaceu
ticals: Consumer Perspectives, Consumers International.
Balasubramaniam, K. (2001), Access to Medicines: Patents, Prices and Public Policy
- Consumer Perspectives, paper presented at Oxfam International Seminar
on Intellectual Property and Development: What Future for the WTO
TRIPS Agreement?, Brussels, 20 March 2001.
Correa, C. (2000a), Integrating Public Health Concerns into Patent Legislation in
Developing Countries, South Centre, Geneva.
Correa, C. (2000b), Intellectual Property Rights, the WTO and Developing Countries
- The TRIPS Agreement and Policy Options, Third World Network, Penang.
Health Action International (1994), HA1 News, No. 78, August 1994.
Health Action International (1998), HAI News, No. 100, April 1998.
Kavaljit Singh (2001), "Patents vs. patients: AIDS, TNCs and drug price wars",
Third World Resurgence, No. 131-132, July-August 2001, pp. 11-15.
Medecins Sans Frontieres (1999), Access to HIV/AIDS Medicines in Thailand, MSF
Report to the National AIDS Committee of Thailand, August 1999, MSF
Campaign for Access to Essential Medicines website, www.accessmedmsf.org.
Medecins Sans Frontieres (2001), Prescriptions for Action, MSF Briefing for the
European Parliament on Accelerated Action Targeted at Major Communi
cable Diseases within the Context of Poverty Reduction.
Oxfam (2001), Patent Injustice: How World Trade Rides Threaten the Health of Poor
People, Oxfam Briefing Paper.
Third World Network (1998), Options for Implementing the TRIPS Agreement in
Developing Countries - Report ofan Expert Group on the TRIPS Agreement and
Developing Countries, Third World Network, Penang.
United Nations Conference on Trade and Development (1996), The TRIPS
Agreement and Developing Countries, UNCTAD, Geneva and New York.
United Nations Development Programme (1999), Human Development Report
1999, UNDP, New York and Oxford.
World Health Organisation (2000), Communicable Diseases 2000 - Highlights of
activities in 1999 and major challenges for the future, WHO, Geneva.
World Health Organisation (2001), Globalization, TRIPS and access to pharmaceu
ticals, WHO Policy Perspectives on Medicines, No. 3, March 2001, WHO,
Geneva.
Zimbabwe (2001), Statement by Zimbabwe on Behalfof the Africa Group on the Crisis
Arising from the Effects of Patents on Prices and Affordability of Pharmaceutical
Drugs, Permanent Mission of Zimbabwe to the World Trade Organisation,
Geneva.
46
TRIPS, DRUGS AND PUBLIC HEALTH: ISSUES AND PROPOSALS
Millions of people die each year of diseases which are preventable or treat
able, and this health problem has assumed crisis proportions in the devel
oping world. For most patients in the poor countries, the medicines to
treat these lethal ailments are simply priced out of reach by producers who
enjoy monopoly control over the manufacture and distribution of the drugs
- control granted by rigorous intellectual property standards mandated
under the World Trade Organisation (WTO) Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS).
While the TRIPS regime is seen to be heavily tilted in favour of private
intellectual property rights holders and against the public interest, there
are provisions in the Agreement which allow Member countries to limit
patent rights to address public-health needs. This report by Third World
Network discusses the policy options permitted under these safeguards two of the most important of which are compulsory licensing and parallel
importation - to secure access to affordable medicines. Proposals are for
warded for clarifying these provisions to affirm developing countries' right
to invoke them with full flexibility. As well, the report suggests amending
TRIPS rules where required in order to ensure that the Agreement will not
stand in the way of measures taken by developing countries to protect
public health and to save human lives.
TWN INTELLECTUAL PROPERTY RIGHTS SERIES
is a series of papers published by Third World Network to provide
a critical analysis of intellectual property rights protection from a
Third World perspective. A particular focus is given to the WTO
Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) and its implications for developing countries.
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