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PANEL NARROWS PUBLIC POLICY OPTIONS

by Chakravarthi Raghavan


Geneva, 25 April 2000 -- The dispute between Canada and the European Union on pharmaceutical patents and generic products involve the obligatory patent rights to be provided by countries under Articles 27.1 and 28 of the TRIPS agreement, and the permissible exceptions in Article 30 for safeguarding public interest and public health policy options.

Canada advised the WTO dispute settlement body Tuesday that it would fully implement the ruling, but would need a 'reasonable period of time', and was discussing this bilaterally with the EC.

The panel had ruled that the provision enabling generic producers to develop and submit for regulatory approval the generic product, before the patent life expired was permissible, but not the stock-piling exception to enable generic producers to produce and stockpile the generic product six months before expiry of patent.

An outcome of this ruling is that it may strengthen the grip of the few transnational pharmaceutical firms over the global market and also give an edge to a few transnational generic pharmaceutical producers based in the industrial countries over smaller producers in developing countries in their own national markets.

Article 27.1 of TRIPS makes it obligatory for countries to provide patents for any inventions, products or processes, in all fields of technology. Article 28 sets out the "exclusive" rights conferred by a patent on its owner, while Article 30 sets out the exceptions in these terms:

"Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with the normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties."

Both Canada and the EC, the three-member panel chaired by Prof Hudec notes, agreed that three criteria to be met for an exception were: it must be 'limited', must not 'unreasonably conflict with normal exploitation of patent', and does not 'unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties."

And referring to the conflict between the parties on the meaning of "limited exceptions", the report says (Para 7.29) "...the Panel was AWARE (emphasis added) that the text of Article 30 has antecedents in the text of Article 9 (2) of the Berne Convention."

The panel does not say how it became "aware"; a footnote (No.391) merely quotes the text of Berne Convention's Article 9 (2).

In the same para, the panel states: "However the words 'limited exception' in Article 30 of the TRIPS Agreement are different from the corresponding words in Article 9 (2) of the Berne Convention, which reads 'in certain special cases'. The Panel EXAMINED THE DOCUMENTED NEGOTIATING HISTORY (emphasis added) of TRIPS Article 30 with respect to the reasons why negotiators may have chosen to use the term 'limited exceptions' in place of 'special circumstances'. The negotiating records show only that the term 'limited exceptions' was employed very early in the drafting process, well before the decision to adopt a text modelled on Berne Article 9 (2), but do not indicate why it was retained in the later draft texts modelled on Berne Article 9(2)."

There is no indication 'when', 'how' or 'where' the decision to adopt a text (for patents exception) modelled on Art.9 (2) of the Berne Copyright Convention was taken, and how the panel was made aware of this.

But footnote No. 392 refers us to Annex 6 to the report "for the various drafts of what became Article 30 discussed in Uruguay Round Negotiating Group on TRIPS."

The annex quotes from an "informal" GATT secretariat note No. 1404 of 12 June 1990 (the composite draft text the secretariat put together from draft texts tabled by the EC, the US, Japan, Switzerland and 15 developing countries. And, excepting for the formal text of the chairman (Document MTN.GNG/NG11/W/76 of 23 July 1990), all others cited in the secretariat note for the panel (annex 6) are 'informal texts' from its files.

Neither the public nor even WTO members have access to these files, and yet they are cited by the panel!

And even more extraordinary is the appendix to the annex, prepared by the WTO secretariat, citing texts under discussion in a WIPO Committee of Experts (not even a plenipotentiary diplomatic negotiating conference) by way of preparations for a draft patent law harmonization treaty. The WTO secretariat states in the appendix: "While the texts being developed in WIPO WERE NOT CIRCULATED OFFICIALLY (emphasis added) in the Negotiating Group on TRIPS, the Negotiating Group was kept informed by the WIPO representatives of developments in that work." The secretariat-drawn Appendix, then cites Articles 19 and 20 of a draft prepared by the bureau of the WIPO on 15 February 1990.

The panel does not explain, under what 'customary rules of interpretation of public international law', the informal texts and secretariat notes of what the WIPO officials informed the TRIPS negotiators, without officially circulating any document, could be 'supplementary means' of information for interpreting the treaty. More relevant as a 'supplementary means' for interpretation, perhaps would have been references to the complaints at the Trade Negotiations Committee and the GATT Council (and media reports) to the US use or threat of use of the 'Section 301' family of its trade laws, including the identifying and naming of countries under the Special 301 provision for investigations about their IPR protection, and the use of it to coerce key developing countries to yield in the TRIPS negotiations. That would show that TRIPS was a force majeure.

It may be noted that (whether or not the negotiators drew on the Berne Copyright convention language for the patent exception), the concepts behind copyright and patents have different origins and hence treated differently.

Copyright protection is only for the expression, and not ideas, procedures or methods of operation or mathematical concepts. Others can express the same idea differently without violating copyright. And the longer life-span for copyright of authors (beyond life-time) is related to these.

Patents protect the idea, the 'invention' that is 'novel' and capable of industrial application, and the one who first 'filed' gets the statutory recognition and monopoly right. The aim is to reward the inventor who files first and discloses, thus diffusing knowledge and enabling others to build on it.

And the original 14 year life (in the early English Patent law) is related to the 7-year period of a journey-man apprentice to a master craftsman, after which the apprentice could set himself as a craftsman. And at the end of a 14-year period, there would be the original master-craftsman, and two of his journey-man apprentices who also became craftsmen, practising the same craft. And a 'secret' known to three ceased to be a 'secret'. There are other oddities arising from the Hudec panel ruling.

According to the information supplied by Canada, getting drug and regulatory approval for chemicals and pharmaceuticals takes 8-12 years. Citing this, the panel points out that this means that for most patented pharmaceuticals, the 20 year patent life actually means only 12-8 years.

But what the panel does not refer to (and this was publlicly known to outside observers who were closely following these negotiations) is that this long period between 'patent' filing and actual ability to exploit it, was used in the Uruguay Round to justify extending the life of patents to 20 years.

The panel then cites Canada again for the view that generic producers take two to four years for development of the patented product and the regulatory process takes one to two-and-a-half years more. And if the development process, without approval by the patent owner, could not be performed during the life of the patent, the panel notes, this would result in the life of the patent, and the owner's monopoly right to exploit it, being extended by three to six-and-half years.

This, the panel notes would extend the life of the patent beyond the 20 years provided in the TRIPS Agreement.

As pointed out by Carlos Correa (2000) -- in his book 'Intellectual Property Righs, the WTO and Developing Countries,' Third World Network, pp 75-81 -- research and experimentation on an invention is admitted as an exception in the US. In Europe, in the Community Patent Convention, and in the patent law of EU members, experimentation on an invention without patent owner's consent is allowed for some commercial purposes as well. In the US, in 1984, the so-called Bolar exception was introduced in the US Drug Price Competition and Patent Term Restoration Act - following the court ruling in Roche vs Bolar Pharmaceuticals, where Bolar's right to begin Food and Drug Administration (FDA) approval process before expiry of patent was denied. The US 1984 law enabled testing to establish bio-equivalency of generic drugs before expiration of the patent, so as to enable such producers to place their products on the market when patent expires, and enable consumer to obtain medicines at lower prices. US courts have interpreted various acts as covered by the Bolar exception.

The panel appears to have accepted the prevailing US legal view about the Bolar exceptions in the US law, to uphold the Canadian regulatory review exception enabling generic producers to develop and get regulatory approval for their generic varieties, and enter the market as soon as the patent expires.

But on the stockpiling exception, the panel view is the one favoured by a US court in one case, while in two others the US courts took an opposite view that support the stockpiling exception. In the Intermedics and NeoRx cases, US courts considered stock-piling as legitimate; in a third (Biogen Inc. vs Schering AG, 1996), it was seen as an infringement (Correa p78, fn27).

The panel notes that the Canadian stockpiling provision would enable generic producers to manufacture and stockpile the patented product six months prior to the expiration of the patent, and without it they would take six months more, during which the patent owner would have an additional market lead.

Dealing with Canada's argument that without its limited stockpiling exception, generic producers can't enter the market on the expiry of the patent, the report says (para 7.35) ".... the Panel also considered whether the market advantage gained by the patent owner in the six months after expiration of the patent could also be considered a purpose of the patent owner's rights to exclude 'making' and 'using' during the terms of the patent. IN BOTH THEORY AND PRACTICE, THE PANEL CONCLUDED, THAT SUCH ADDITIONAL MARKET BENEFITS WERE WITHIN THE PURPOSE OF THESE RIGHTS (emphasis added)."

The panel does not explain from which particular wording of the TRIPS, it deduced this "purpose", but says that "in theory, the rights of patent owners are generally viewed as a right to prevent competitive commercial activity by others, and manufacturing for commercial sale is a quintessential competitive commercial activity, whose character is not altered by a mere delay in the commercial reward. In practical terms, it must be recognized that enforcement of the right to exclude 'making' and 'using' during the patent terms will necessarily give all patent owners, for all products, a short period of extended market exclusivity after the patent expires. The repeated enactment of such exclusionary rights with knowledge of their universal market effects can only be understood as an affirmation of the purpose to produce these market effects."

As a third party intervenor, the US appeared to support the Canadian regulatory exception, modelled on the US Bolar exception which the administration had assured Congress, during the Uruguay Round implementation act hearings, was taken care of in the TRIPS accord. But on the stockpiling exception, the US told the panel:

"Furthermore, a 'stockpiling' exception was NOT NECESSARY (emhasis added) to ensure immediate market entry of generic drugs, and thus was not necessary to protect the interests of third parties (language used in Art.30 of TRIPS). The United States was aware of no empirical evidence suggesting that the absence of the 'stockpiling' authority would result in any significant delay in market entry for generic drugs. On the contrary, the United States understanding was that generic manufacturers that had obtained regulatory approval generally had the ability to manufacture and distribute large quantities of drugs very quickly after patent expiration." (pp 142-143 of the panel report).

Canada responded by suggesting that the US was trying to protect its domestic market from competition from foreign generic producers.

The panel has not directly addressed the US argument against 'stockpiling' or the Canadian response. So, we are left to speculate how far its ruling is influenced by the US view.

The ruling has effects beyond that on Canada visavis the US or EC. Those developing countries with generic pharmaceutical producers could now safely incorporate a Bolar exception in their law. Even countries not producing generics might find it advantageous to do so, to enable early competition, and price reduction from generic drugs. But while developing country generic producers could thus get advanced marketing approval, by the time they are able to produce, 'stockpile' and supply to their own markets, they might face the competition not only of the giant pharmaceutical TNC producers marketing the patented variety, but the giant TNC generic producers too. And this could result in net welfare costs to the country.

The WTO dispute settlement process is now clearly creating new law and obligations through interpretations via rulings that have to be automatically adopted. This may be 'legal'. But every such 'legality', expanding the corporate rights against public interest, adds to the 'illegitimacy' of the system and spawns more opposition to the system across countries. (SUNS4655)

(This is the second of a two-part analysis. The first part was in SUNS 4654)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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