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THIRD WORLD NETWORK BRIEFING PAPER

June 2001

TRIPS, PATENTS AND ACCESS TO MEDICINES:

PROPOSALS FOR CLARIFICATION AND REFORM

                     

CONTENTS                                                                                                      

SUMMARY …………………………………………………..                 

A. INTRODUCTION AND BACKGROUND   ……………….    

B. PATENTS AND PRICES…………………………………….

C. TRIPS AGREEMENT AND ACCESS TO MEDICINES … 

D. TIERED- OR DIFFERENTIAL-PRICING SYSTEM …….    

E. CONCLUSIONS AND PROPOSALS ……………………  

ACKNOWLEDGEMENTS:   This Briefing Paper was written by Cecilia Oh (Legal Advisor and Researcher with Third World Network), with the assistance of Martin Khor (Director, 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.  Comments made at this meeting were helpful when this version of the paper was drafted.

 

THIRD WORLD NETWORK BRIEFING PAPER

June 2001

TRIPS, PATENTS AND ACCESS TO MEDICINES:

PROPOSALS FOR CLARIFICATION AND REFORM

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 on 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 companies with monopolies over the production and marketing of medicines, allowing them to fix prices at high rates to maximise profits. The WTO-TRIPS Agreement has come under criticism for facilitating the extension of these patent rights around the world. The obligation under TRIPS to implement high standards of intellectual property protection, including the minimum 20-year protection for patent rights and the obligation to recognise product and process patents, will effectively eliminate competition from generic pharmaceutical producers and allow for increased prices of medicines beyond the reach of even more patients in the developing countries.

Public criticism has been mounting, as are questions about the legitimacy of patents on life-saving medicines. This has led to calls for changes or amendment to the Agreement, which many feel is too heavily in favour of private rights and commercial interests, and against public interests.

The process in the WTO TRIPS Council to have special discussions on TRIPS and Public Health (as a result of requests from developing country Members) provides an opportunity for WTO Members to consider the means of addressing the negative impacts of the TRIPS 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 in five main parts.

Section A provides an INTRODUCTION AND BACKGROUND to the public concerns on 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.

Section B 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 pharmaceutical MNCs.

Section C on TRIPS AGREEMENT AND ACCESS TO MEDICINES looks at some of the limitations on exclusive property rights of patent holders, 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 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 developed county Members have led many developing country Members to feel restricted in their ability to employ these measures at the national 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 pharmaceutical companies' legal challenge of the South African government are 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 in order to improve the situation? Section E on CONCLUSIONS AND PROPOSALS puts forward recommendations for some of the possible actions and makes some proposals for clarification and amendment 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. Section D on TIERED- OR DIFFERENTIAL-PRICING SYSTEM examines the proposal for a global tiered-pricing or differential pricing system, first mooted by the EU and currently under discussion in WHO and WTO.


A.            INTRODUCTION AND BACKGROUND

A.1      Health crisis in developing countries

About 14 million people die each year from infectious diseases, many of which 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 (WHO, 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 inter-linked factors - poverty, lack of access to health services, water and sanitation being 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 peoples’ 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 of them are in sub-Saharan Africa. In certain African countries, more than a quarter of the adult population has HIV, and life expectancy is projected to decline dramatically in the next ten 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, a year's worth of the standard treatment of three antiretroviral combination is estimated at US$10,000-15,000 (The Guardian, February 12, 2001).  This price level puts such treatment out of reach of most people in the developing world, where 95% of the people with HIV are from.

Public interest worldwide has been aroused by the health crises 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.

A.2      The TRIPS Agreement and patents on drugs

Patent rights are being extended around the world through the provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Proponents of the TRIPS Agreement argue that patents and other intellectual property rights 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 IPR 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 their competitors. This strategic use of the patent system has the effect of stifling R&D, preventing innovation and restricting information flows in the developing countries. Patent protection is sought to be justified on grounds that the negative effect of monopoly rights will be outweighed by the incentive for creative activity, innovation and research and development. This trade-off is beginning to be questioned because the price and competition costs of strict 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 will give 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 Members to adopt and enforce high standards of intellectual property rights protection, which were derived from the standards used in developed countries. Prior to the Uruguay Round, some 50 countries did not grant patent protection for pharmaceutical products (UNCTAD, 1996). This number included certain developed countries such as Portugal and Spain, and many developing countries such as Brazil, India, Mexico and Egypt. Many developing countries regarded the absence of protection necessary to promote access to drugs at competitive prices. Conforming to TRIPS - by recognising and strengthening protection of intellectual property rights 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 the 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 term of 20-year patent protection required by TRIPS effectively allows a pharmaceutical company a monopoly over the production, marketing and pricing of patent protected medicines. It will be able to keep the price of the drug high during the protection period, free from competition. By virtue of TRIPS protection, no generic equivalent can come into the market until expiry of the 20 years, 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 possible only in countries where the patent law protects processes but not products. The TRIPS Agreement extends the scope of patent protection to both products and processes. It would therefore be possible to apply for patent rights over products for 20 years, and thereafter, further periods of 20 years each could be applied for products covered by patented processes. Some experts also caution that the 20-year protection can also be abused to extend the monopoly through process patents as well as patents on usage form, dosage form and combination form. In the US for example, patents have been taken 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, having to compete with the large MNCs. For the smaller producers in the developing world, which specialise and depend on manufacturing cheaper generic alternatives, this would no longer be possible - at least, until the expiry of the 20-year period. In some developing countries, domestic production capacity may never be developed.

The TRIPS Agreement further requires patents to be granted, regardless whether the products are imported or locally produced. The means that patent holders can merely import their product, without having to work the patent in the country granting the right. This will mean that a MNC can supply global markets under the patent monopoly, exporting the finished product instead of transferring technology or making foreign direct investment. This rubbishes 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 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 of the poor. Of the 1,223 new chemical entities developed in the 21-year period between 1975-1996, only 11 were for the treatment of tropical diseases (WHO, 2001). The last major new tuberculosis drug was developed 30 years ago, but tuberculosis remains a major cause of death in many developing countries. Furthermore, there is concern that R&D in the pharmaceutical sector is concentrated on products intended for the lucrative developed country markets. Hence, 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.

Civil society groups and NGOs have called for amendment 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 socio-economic, technological development of member countries, including that of public health. Public criticism 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 increasing public opinion that the present model for intellectual property rights protection advocated by TRIPS is too heavily tilted in favour of private right holders and against the public interest. The public outrage over HIV/AIDS medicines has added fuel to the negative public perception about the IPR system and about the role of TRIPS.

All this is leading to a crisis of legitimacy for TRIPS. In the 6 years since its coming into force, there has been increasing evidence of many social and economic problems caused by the introduction of stricter intellectual property rights, as a result of the implementation of the TRIPS obligations.

A.3      Special Discussion of the TRIPS Council

Against this backdrop of public criticism, WTO Members have agreed to a special meeting on the issues related to patents and medicines. In June 2001, the WTO TRIPS Council will meet in a Special Discussion to consider the range of issues related to access to medicines at affordable prices, patents and the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). The Special Discussion is in response to the proposal of the African Group of countries at the WTO.

In its proposal for the special meeting to discuss the issue of patents and access to medicines, the Africa Group (Zimbabwe, 2001) had succinctly described the areas for action, as follows:

"Our challenge is to address the question of affordable access to drugs in a manner that is fair and equitable to all stakeholders; a way that seeks to avoid the abuse of patent protection through recourse to uncompetitive practices; 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."

Therefore, the Special Discussion will be an important opportunity for the consideration and resolution of the negative impacts of the TRIPS 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. This paper is organised in four parts, as follows:

·        How do patents on drugs affect access to medicines? Section B on PATENTS AND PRICES 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 licensing and parallel importation, measures which can be used in the context of protection public health and promoting access to affordable medicines. However, pressures have been applied on developing countries against the use of such measures. Section C on TRIPS AGREEMENT AND ACCESS TO MEDICINES 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? Section D on TIERED- OR DIFFERENTIAL-PRICING SYSTEM examines the proposal for a global tiered-pricing or differential pricing system, first mooted by the EU and currently under discussion in WHO and WTO.

·        What are the changes needed to the TRIPS Agreement and to the WTO process in order to improve the situation? Section E on CONCLUSIONS AND PROPOSALS discusses some of the possible action and makes some proposals for clarification and amendment of the TRIPS Agreement, in the context of the Special Discussion and the WTO processes beyond the Special Discussion.

B.            PATENTS AND PRICES

B.1      Effects of Patents and Monopolies on Prices

Patents enable prices of medicines to be sold at levels that are artificially high due to the curbing of competition. When medicines are under patent protection, the patent holder has a monopoly on the production and sale of the product for a minimum period of 20 years, and is thus, able to exercise a monopoly in the pricing of the product.

A key factor in fixing the price of a particular medicine is the patent on it, because of the monopoly on the medicine enjoyed by the patent holder. The WHO estimates that one third of the world population lacks access to essential medicines, and the number will further increase.

Patent rights enable the patent owners to fix prices of medicines at high levels, and the effect of patents and monopolies on prices is demonstrated by data; which compare prices of patented or branded products, and those of generic producers; 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.

(1)        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 of generic producers. For example, the US price of 3TC (Lamivudine) marketed by Glaxo is USD3,271 (per patient per year) whilst Indian generic manufacturers, Cipla Ltd. and Hetero Drugs Limited, offer their generic versions for USD190 and USD98, respectively. In the case of Zerit (Stavudine), the US price offered by Bristol-Myers Squibb is USD3,589 (per patient per year) as compared to USD70 and USD47 for the generic versions by Cipla and Hetero, respectively. As for Viramune (Nevirapine) marketed by Boehringer Ingelheim, the US price is USD3,508, compared to the Cipla and Hetero prices of USD340 and USD202 (Kavaljit, 2001). This point is further illustrated by Cipla's recent offer of USD350-600 for a year's supply of a combination of these three anti-AIDS medicines, as compared to the price of USD10,000-15,000 for the branded medicines.

(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 for US$0.29 and in India for US$0.64.  This compares with market prices for brand-name drugs at US$10.50 in Kenya, US$27 in Guatemala and (until recently) US$8.25 in South Africa (Oxfam, 2001).

The case of Brazil offers another good example. When the Brazilian 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 - halving the AIDS death rate and saving US$472 million from averted hospitalisations (MSF, 2001).

(3)               When a drug company sells the same product in different countries, 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 company's branded product is usually priced lower due to the competition it faces from lower-priced alternatives. The same brand may sold at higher prices in other countries where there is no competition from generic producers.

A Health Action International 1998 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 US$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, $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 (HAI, 1998).

(4)            Multinational drug companies practice transfer pricing in the trade of raw materials used in the drugs, and that this raises the cost of medicines in developing countries.

A study by Dr Zafar Mirza (The Network Association for Rational Use of Medication in Pakistan) compared prices of pharmaceutical raw materials imported into Pakistan for manufacture locally by drug MNCs.  The study found that several MNCs exported the raw materials to their subsidiaries in Pakistan at very much higher prices than the prices of the same raw materials if purchased from the open international market at competitive rates (HAI, 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 US$11,092 per kg whereas the competitive international price was US$320.  The price difference was 3360%. For an Italian-based drug MNC, the price of the raw material transferred from the MNC to its subsidiary in Pakistan was 7044% more than the price in the international market.

(5)        There is also a belief that drug companies sell their branded products cheaper in developing countries. This is often not the case. Prices of some products are higher in many developing countries. This makes medicines even less affordable, as countries with much lower per capita income 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 is available, are higher in Tanzania (annual per capita GNP of US$120) than in Canada (per capita GNP of US$19,380). The average retail price 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 OECD countries. The average prices of drugs surveyed in South Africa are higher than in any of the 8 Western European countries for which data is presented. South African drug prices are on average 4 times more than those in Zimbabwe (HAI, 1998).

B.2            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 the elimination of competition and the 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 a monopoly control on the production, marketing and pricing of medicines.

The pharmaceutical industry and its government supporters justify patents on medicines and high prices on the ground that R&D of pharmaceutical drugs is extremely expensive. Thus far, there is little convincing evidence to support this claim. Research indicate that industry estimates for R&D on each new drug ranges from US$350-500 million, while independent estimates range from US$30-160 million. Using either estimate, revenues from many life-saving drugs very easily exceed their R&D costs. For example, in 1999, the sales of Bayer's ciproflaxin totalled US$1.63 billion and Pfizer's sale of fluconazale totalled US$1 billion (MSF, 2001).

It is also debatable for drug MNCs to claim that their huge investments in R&D warrant the high prices for their products. A number of the patented drugs were not discovered by the MNCs. 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 the AIDS medicines. In fact, the NIH estimated that in 1995, its contribution to the overall US health R&D accounted for 30% of the total, whilst that of private industry amounted to 52% (Oxfam, 2001). And yet, it is the pharmaceutical industry that reaps most of the profits from the production and sale of medicines.

In addition, available data suggests that pharmaceutical companies spend more on marketing and administration than on research and development. As percentages of sales, research and development expenses account for 10-20%, while marketing and administration range from 30-40% (MSF, 2001).

It is not sufficient reason for pharmaceutical companies to justify high drug prices in developing countries as an incentive for research and development on new drugs. 80% 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 research and development costs. The profits of the pharmaceutical industry will also not be 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)ll 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).

An important conclusion made by K. Balasubramaniam, Pharmaceutical Advisor of Consumers International is as follows: 

"Consumers in developing countries can have regular access to affordable 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. The only way to ensure that chemical intermediates, 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 countries to exercise their rights for 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 products 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 WTO.

C.        THE TRIPS AGREEMENT AND ACCESS TO MEDICINES: COMPULSORY LICENSE AND PARALLEL IMPORTS

For a number of developing countries, the interpretation and implementation of the TRIPS Agreement requires resources and capacity in excess of those already existing. Implementation of the TRIPS Agreement represents a very significant extension in scope and duration of patent protection for developing countries, many of which had not hitherto provided patent protection for pharmaceutical products. Experts from developing and developed countries fear substantial increases in drug prices in the countries that had not granted such patents in the past.

The TRIPS Agreement, in its present form, contains 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 intellectual property rights and anti-competitive practices, and generally, to offset the negative impact of patent monopolies.

Two of the most important measures include the right of government to grant compulsory licences and the application of the principle of exhaustion of intellectual property rights, which allows for parallel importation of patented products. There are other important exceptions to patent rights provided for in the TRIPS Agreement, including exceptions for experimental 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.

C.1            Compulsory licensing

Compulsory licensing enables a government to issue a licence to a third party, whether a private company or government agency, for the right to use or exploit a patent without the patent holder's consent. Compulsory licensees generally compensate the patent holder through payment of remuneration.

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 may be enough to persuade patent holders on the need to act reasonably in cases of requests for voluntary licenses, whilst strengthening the bargaining position of potential licensees (TWN, 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.

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 licenses; 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 dependent patents. Questions have 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 Paris Convention related to compulsory licences, which have been incorporated into TRIPS Agreement. The Paris Convention allows countries a wide discretion to issue compulsory licences "to prevent the abuse which might result from the exercise exclusive rights conferred by the patent". During the Uruguay Round negotiations, 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 resistance from developing countries. The compromise was to leave open the grounds on which such licences could be granted.

The Paris Convention on the Protection of Industrial Property recognises the right to grant compulsory licensing on the ground of failure to work or insufficient working (Article 5A). This provision of the Paris Convention is 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 desirable, apart from its being necessary for making products available and affordable, but also for technology transfer opportunities and reduced foreign exchange expenditure caused by purchasing imports. However, the developed countries, EU and the US, in particular 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 may not be sufficient. At present, only around four developing countries - Argentina, Brazil, China & India - have strong enough national pharmaceutical sectors, to be able to develop and manufacture new medicines (Korea & Mexico are two other countries, now classified as OECD members) through the process of reverse engineering (Balasubramaniam, 2001). Therefore, these are the developing countries that are in a position to use compulsory licences to enable domestic firms to manufacture patented drugs. 

The compulsory licence provision in the TRIPS Agreement would be meaningless for the rest of developing country Members of the WTO, which do not have the domestic 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 be, in fact, the only viable means to use a compulsory license in cases where domestic manufacturing capacity does not exist, or the size of the local market does not justify local manufacturing, or where there is a need to promptly address and emergency situation. The compulsory licensee may 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 could be allowed to export the patented product. The TRIPS Agreement stipulates that a compulsory licence must be "predominantly" 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 limitation need not apply. This is the practice in the US in cases of compulsory licences granted under anti-trust legislation.

Since Article 31 does not lay down an exhaustive list of grounds for the issuance of licences, Member should be free to determine further grounds for the issuance of compulsory licenses. Therefore, the TRIPS Agreement does not limit the right of countries to establish compulsory licences on other grounds not explicitly mentioned (Correa, 2000b).

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 developed countries prove that compulsory licence system is still much in use (Correa, 2000a). The grounds and conditions on which compulsory licences have been regulated and granted in developed countries illustrate the flexibility and potential of the compulsory 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 licenses as a deviation from acceptable standards for intellectual property rights are not reflected in the policies actually applied in such countries (Correa, 2000a). In so doing, they practise a double standard - denying developing countries the use of effective policy mechanisms that they themselves have used and continue to use.

C.2            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 for 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). It would also be in line with WTO's trade liberalisation objective that from the moment a product is marketed, the patent holder can no longer control its subsequent circulation (WHO, 1999).

Nothing in the TRIPS Agreement prohibits parallel importation. Specifically, Article 6 allows each member country the freedom to incorporate the principle of international exhaustion of rights - the underlying justification for parallel imports - in its national legislation. It further 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 for public health interests, since the pharmaceutical industry generally sets prices differently throughout the world for the same medicines. Parallel imports would prevent market segmentation and price discrimination 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 medicines. 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 importation must be regarded as 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.

In order to avoid a possible discrimination complaint under Article 27.1 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 inventions (Correa, 2000a).

Developed countries and their corporations discourage parallel imports on the grounds that companies would then charge a single price worldwide - thus leading to an increase in the price that may otherwise be charged in low-income countries - were parallel importation to be implemented. This argument is a weak one, and available evidence provides contradictory proof, that in many developing countries, the prices of the same medicines are much higher than in developed countries.

Retail prices of 10 out of 13 commonly used drugs, for which comparable data is available, are higher in Tanzania (annual per capita GNP of US$120.00) than in Canada (per capita GNP of US$19,380.00). The average retail price 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 OECD countries. The average prices of drugs surveyed in South Africa are higher than in any of the 8 Western European countries for which data is presented. South African drug prices are on average 4 times more than those in Zimbabwe (Health Action International, 1998).

C.3            Obstacles in the use of compulsory licences and parallel importation

It is vital that the right of governments to use compulsory licences and parallel importation measures are upheld and respected. Such measures must also be capable of effective implementation.

These TRIPS provisions are coupled with numerous conditions, making them difficult to operationalise effectively 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 interpretation of the provisions relating to compulsory licences and parallel imports, with the purpose of restricting of 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 had stated " … recent legal challenges by the pharmaceutical industry and some members in national law and the WTO/DSU have highlighted the lack of legal clarity on the interpretation and/or application of the relevant provisions of the TRIPS Agreement" (Zimbabwe, 2001).

This was a reference to cases of Brazil and South Africa. In the WTO, Brazil has been taken by US to the WTO dispute settlement system for enacting legislation (which has yet to be enforced) allowing for compulsory licensing in cases of non-local working; i.e., where the patent is not exploited locally. In South Africa, the government was challenged in the court by 39 pharmaceutical companies, which sought a court declaration that the South African legislation on compulsory licensing was illegal. The companies recently dropped the challenge.

This situation has led to some unease and uncertainty on the part of developing country Members, who 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 conjunction with their corporations and industry lobbies have been exerting political pressure on developing countries to prevent them from exercising 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 reports 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, which was subsequently eased when AIDS activists caused significant embarrassment and damage to Al Gore's presidential campaign. South Africa was also the target of the now-dropped legal challenge by 39 pharmaceutical companies, which sought a court declaration that the South African legislation on compulsory licensing was illegal. Thailand has also been the target of similar US pressures. In Thailand, 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 (MSF, 1999). 

It is therefore, necessary for the WTO Members to clarify and come to a common and agreed understanding of the TRIPS provisions. Compulsory licensing and parallel imports are clearly allowed 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 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 interpretations that may restrict the scope and ability of developing country members to adopt measures to ensure access to medicines.

Proposals for the clarification or interpretation of the TRIPS Agreement are made in Section E below.

D.  DIFFERENTIAL OR TIERED PRICING

In response to the growing controversy over the issue of access to medicines, the European Commission 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 the public demands that the issue be tackled, there must also be caution in adopting the differential or tiered pricing approach. Lessons should be taken 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 contributed 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, with discounts on triple combination drugs, ranging from USD1,821 to USD1,008 for Senegal, and USD3,971 to USD1,974 for Uganda (MSF, 2001).

The recent announcement by Indian generic producer, Cipla, demonstrates that much more is possible. Cipla has offered much lower discounts on triple combination HIV/AIDS treatment (USD600 to governments and USD350 to Medicins Sans Frontieres) without restrictions on time, geography or quantity. This means that pharmaceutical companies are capable of much bigger price cuts. Since Cipla's offer, there have, in fact, been offers of further discounts from the pharmaceutical 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. The 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 in an equitable, fair and transparent process, given the circumstances. Most importantly, a differential pricing scheme must not be offered as a substitute for countries' rights to adopt compulsory licensing or parallel importation laws and measures.  The tiered pricing system must not result in conditions being imposed on participating countries that restrict such rights.

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 time (i.e. limited to only a number of years).  It must be negotiated and have results that are transparent, that involve all countries (and certainly all WTO Members) in a fully participatory way; and it must also involve transparent prices, rules and regulations. The beneficiaries must include all developing countries, and not 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 infrastructure to be able to treat large numbers of people immediately. In addition, Medicins Sans Frontier, 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.

E.  CONCLUSIONS AND PROPOSALS

The TRIPS Special Discussion represents an important opportunity to address the growing concerns that implementation of the TRIPS Agreement has hindered access to affordable medicines. The Special Discussion will also be an occasion to redress the imbalance within the TRIPS Agreement that favours exclusive intellectual property rights over public health interests.

Below are some recommendations for action by WTO Members, including proposals for the clarification and interpretation, and where required, the revision, of the TRIPS Agreement. It is further suggested that these proposals could be undertaken as part of the decisions agreed to at the forthcoming Ministerial Conference in Qatar.

E.1  WTO MEMBERS' RIGHTS TO ADOPT EFFECTIVE COMPULSORY LICENSING AND PARALLEL IMPORTS MEASURES

Compulsory licensing and parallel imports are policy options clearly allowed under the TRIPS Agreement, and they must remain so. The problem of differing or divergent opinions on the provisions in the TRIPS Agreement must be addressed in a manner that allows developing countries the maximum flexibility in interpreting and implementing the TRIPS Agreement 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 are able to make national policies with a sufficient degree of comfort and not find themselves in situations of uncertainty, including being at risk of being taken to 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 outbreaks 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. 

E.1.1            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 compulsory 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 the issuance of compulsory licences. Therefore, WTO Members can determine other grounds on the basis of which compulsory licenses can be issued.

Article 31, in specifying the conditions for grant of compulsory licences, refers to 5 possible grounds for the grant of compulsory licences. These are: cases of refusal to deal, situations of national emergency and extreme urgency, remedy of anti-competitive practices, public, non-commercial use and facilitation of use of dependent patents. 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 cannot be accommodated.

In order to effectively protect public health and promote access to affordable drugs, developing countries must be able to grant compulsory 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 patented product.

Sub-sections (a), (b) and (c) below explain the rationale and more detailed proposal for the three grounds listed above.

Another problem facing developing countries are the difficulties they face or may face in having to follow several procedural requirements or conditions prior to or in the process of granting compulsory licenses. Article 31 specifies several such conditions, including procedures for obtaining authorisation of the right holder on reasonable commercial terms and payment of "adequate remuneration," etc. These procedural conditions should not become a hindrance to the issuing of compulsory licenses.  Subsection (d) below provides a proposal for this.

(a)   Compulsory licence for non-working or insufficient working

The Paris Convention on the Protection of Industrial Property recognises the right to grant compulsory licensing on the ground of failure to work or insufficient working, in order to prevent abuses arising from the exclusive rights conferred by patents (Article 5A). This provision of the Paris Convention is incorporated into the TRIPS Agreement, by virtue of its Article 2(1). Therefore, the failure to work, or insufficient working of, a patent is a legitimate ground for the issuance of compulsory licences. From a developing country perspective, the local working of a patent is desirable for technology transfer opportunities to promote domestic manufacturing capacity. The ability to produce domestically will also help in reducing foreign exchange expenditure caused by purchasing 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, one that seeks to prohibit the non-working of a patent as a ground for granting compulsory licences. There is no justification for such an interpretation and thus, there should be a clarification 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 worked 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, 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 compulsory licences for importation of the patented product.  This may often be the only viable means to use a compulsory licence in countries where domestic manufacturing capacity does not exist, or the size of the local market does not justify local manufacturing, or where there is a need to promptly address and emergency situation.

The compulsory licensee may import from a compulsory licensee in another country. In addition, for compulsory licensing to be effective and to respond speedily to a national health need, member countries also should have the right to issue a compulsory licence and obtain medicines from a generic manufacturer in another country that has the necessary production 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 with a patented process;  and

(2)    importation of a patented product or a product directly made with a patented process from 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

There is a further question of whether and to what extent a compulsory licensee could be allowed to export the product for which he 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 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 as waived.  

It should be clarified that the TRIPS Agreement allows the export of medicines produced under a compulsory licence, and a flexible interpretation 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 license. If a restrictive interpretation is applied (i.e., that exports are not allowed under compulsory licences, or 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 potential compulsory licensees from accepting licences, since the domestic demand may not be sufficient for them 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 compulsory licence extended to cover the export of the product, so as to enable the manufacturer to have 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 supply of medicines, and at more affordable prices, to other countries that may wish to import from the firms holding compulsory licenses. It is also unrealistic to expect every WTO member country 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. Therefore, there will be global welfare gains and more affordable medicines especially for consumers in developing countries.

 

Proposal

The following clarification shall be made:

Members may issue compulsory licences that authorises the licensee to produce for the domestic market, to be able to also export a portion of its product, 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 licenses is limited by the procedural conditions (specified in Article 31) they have to meet prior to or in the process of granting compulsory licenses. These conditions can be an obstacle to the ability of governments to respond speedily and effectively to public health situations and 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 Ministerial Conference as follows:

Members shall review the procedural conditions for the granting of compulsory licenses with a view to simplifying and limiting of the conditions to enable Members to better respond to public health needs and situations. 

E.1.2            Parallel imports

Parallel imports are of particular importance in the health sector, since the pharmaceutical industry generally sets prices differently throughout the world 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 medicine from a country where it is sold at a lower price will enable more patients in the importing country to gain access to medicines. 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.

Parallel importation is implemented in many countries, both developed and developing.  Parallel importing 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. In 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. Specifically, Article 6 allows each member country the freedom to incorporate the principle of international exhaustion of rights - the underlying justification for parallel imports - in its national legislation. It should therefore be properly clarified that parallel importing is allowed under the TRIPS Agreement. Parallel importation can be undertaken where:

(1)   the patented product has been marketed in another country by the patent holder; or

(2)   the product is sold under a compulsory licence; or

(3)   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).

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).

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 legitimate manner, including in the case of non-authorisation by the patent holder, such as where the product was not protected in the exporting country.

E.2            BILATERAL OR REGIONAL PRESSURES

There are very serious and grave concerns about attempts to discourage or deny to member countries the use of options and flexibility in the TRIPS Agreement, through pressures applied in bilateral and regional arrangements. There have been attempts to exert pressure on developing countries to implement unnecessarily strict standards of intellectual property rights protection or TRIPS-plus measures in their national IPR laws.

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 legitimacy of the TRIPS 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.

E.3       A MORATORIUM ON DISPUTE SETTLEMENT CASES

The threat of being brought before the dispute settlement system can cause a situation of uncertainty, anxiety and unease. Such situation prevents developing country Members from having the level of comfort and confidence to exercise their rights adequately or fully within the flexibility of the TRIPS Agreement. There should, thus be a moratorium on WTO/DSU action that are aimed at preventing or limiting member countries' 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:

Members shall agree to abide by a moratorium on all dispute actions that are aimed at preventing or limiting developing country members' capacity to promote access to medicines and protect public health, particularly 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 resolution is achieved on the question of patents and access to medicines. 

E.4            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 patenting of drugs have 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 (with revisions to them where needed).

Both Articles 27.2 and 27.3 specify the exclusions from patentability that a country may provide for at the national level. The proposals for exclusion of medicines from patentability under Articles 27.2 and 27.3 of the TRIPS Agreement are provided below.

E.4.1    Article 27.2 (Patentable subject matter)  

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 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.

E.4.2    Article 27.3 (Patentable subject matter)

Article 27.3 states that:

"Members may exclude from patentability:"

(a)    diagnostic, therapeutic and surgical methods; 

(b)   plants and animals other than micro-organisms, and essentially biological processes for the production of plants and 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, to its list of subject matter that may be excluded from patentability.

Proposal:

A decision shall be made at the Ministerial Conference that Article 27.3 be amended by adding a new sub-paragraph (c),  The Article shall read as  follows:

Members may also exclude from patentability:  

…

(c) life-saving, vitally-needed medicines and medicines for the treatment of poverty-related diseases.

E.5            OVERALL BALANCING OF RIGHTS IN TRIPS AGREEMENT

The question of overall balancing of rights is not specific to the access to drugs issue alone, but rather a problem that arises from the implementation of TRIPS generally. The imbalances and problems in TRIPS need to be addressed. Many of the proposals to redress these problems in TRIPS are contained in the "implementation" 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 contained in Articles 7 and 8.  The credibility of TRIPS would improve if these proposals are adopted by Members, and if Articles 7 and 8 are effectively operationalised or improved upon.  The following is a proposal on improving Article 8.1

E. 5.1   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 socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement".

In the context of public health and access to medicines, Article 8.1 offers some scope for WTO Members to take necessary measures. However, the extent of its usefulness is limited by the phrase "provided that such measures are consistent with the provisions of this Agreement" as it to a large degree negates the underlying premise of Article 8; that is to enable WTO Members the flexibility of adopting policy measures for 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 compulsory licensing, parallel imports and exclusion of 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 socio-economic and technological development".

E.6            TIERED OR DIFFERENTIAL PRICING

A tiered or differential pricing system may make limited contribution to 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 intellectual property rights protection that could make medicines more expensive in the long term. As such, discussion on tiered and differential pricing initiatives should be undertaken outside of the WTO and the TRIPS Council. Discussions or negotiations on such initiatives shall not prejudice the rights of countries to adopt policy options in TRIPS, namely the right to implement 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 pricing shall not prejudice the rights of countries to adopt policy options in TRIPS, namely the right to implement compulsory licensing and parallel import measures, nor should such initiatives be seen as an alternative to competition from generic drugs.


References:

Balasubramaniam, K. (2000) Implications of the TRIPS Agreement for Pharmaceuticals: Consumers 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, March 20, 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, Malaysia

HAI (1994) HAI News, No. 78, August 1994 Health Action International

HAI (1998) HAI News, No. 100, April 1998 Health Action International

Kavaljit Singh (2001) Patents vs. Patients: AIDS, TNC and Drug Price Wars

Medicins Sans Frontiers (2001) Prescriptions for Action, MSF Briefing for the European Parliament - Accelerated Action Targeted at Major Communicable Diseases within the Context of Poverty Reduction, Medicins Sans Frontieres

Oxfam (2001) Cut the Cost, Patent Injustice: How World Trade Rules Threaten the Health of Poor People, Oxfam GB

TWN (1998) Options for Implementing the TRIPS Agreement in Developing Countries - Report of an Expert Group on the TRIPS Agreement and Developing Countries, Third World Network, Malaysia

UNCTAD (1996) The TRIPS Agreement and Developing Countries, UNCTAD, Geneva, New York

WHO (2000) Communicable Diseases 2000 - Highlights of activities in 1999 and major challenges for the future, World Health Organisation, Geneva

WHO (2001) Globalization, TRIPS and access to pharmaceuticals, WHO Policy Perspectives on Medicines, No. 3 March 2001, World Health Organisation, Geneva

Zimbabwe (2001) Statement by Zimbabwe on Behalf of 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

 


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