Bangkok Post letter: Abbott’s law firm’s deceptions

Article Misleads in Support of Big Pharma
by Robert Weissman, Professor Brook K Baker, Sean Flynn, and Judit Rius
Published at Bangkok Post

Peerapan Tungsuwan and William McKay (Business Post, April 23) misleadingly and incorrectly argue that Thailand’s compulsory licensing actions violate World Trade Organisation rules.

This comes as little surprise. The two work at the global law firm Baker & McKenzie, which has a huge business representing Big Pharma. Among Baker & McKenzie’s clients is Abbott, the drug multinational attempting to blackmail Thailand by withdrawing drugs it has submitted for marketing approval in the country. Other clients include Aventis and
Bristol-Myers Squibb, Pfizer and Eli Lilly.

The lawyers’ arguments do not pass the laugh test.
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They argue that Thailand’s action does not constitute “public non-commercial use” because the compulsory licence permits the Government Pharmaceutical Organisation (GPO), an arguably commercial organisation, to use the patents. That is irrelevant. The licences are for government use – distribution through the public health sector – which is what matters.

The United States, for example, routinely issues “public non-commercial use” licences in the defence sector to clearly commercial ventures (like Boeing and Lockheed Martin).

They complain that Thailand’s royalty rate is too low. They neglect to mention that the patent holders are free to appeal the royalty rates, but have in fact been uninterested in negotiating or litigating over royalties.

And they contend that Thailand did not consider each licence on its own merits. They ignore the reasoned basis that the Thai government has set out for its decision in each case. They creatively interpret provisions of WTO rules to suggest that governments must always enter negotiations prior to issuing compulsory licences, despite explicit language to the contrary – and despite common practice in the United States and elsewhere, where government-use licences are issued with no prior negotiations.

Peerapan Tungsuwan and William McKay aim to confuse readers by misleadingly citing international law with which few non-specialists are familiar. Had they disclosed their firm’s ties to Big Pharma, everything would have been much clearer.

ROBERT WEISSMAN

Director, Essential Action, Washington DC

PROFESSOR BROOK K BAKER

Health GAP, Northeastern University School of Law, Programme on Human Rights and the Global Economy, Boston

SEAN FLYNN

Associate Director, Programme on Information Justice and Intellectual Property, Washington College of Law, Washington DC

JUDIT RIUS SANJUAN

Foreign law adviser, Knowledge Ecology International, Washington DC

Bangkok Post, April 23, 2007

BY Invitation

Compulsory drug licences violate world trade treaty

PEERAPAN TUNGSUWAN and WILLIAMMCKAY

We are familiar with the controversy that has been swirling around the issue of compulsory licensing (CL) of patented pharmaceuticals in Thailand.

The Public Health Ministry has issued a white paper called “10 Burning Issues”, which is an apologia for CL. The ministry proclaims CL is “a form of social movement that aims at improving access to essential medicines and the health of people”.

In spite of substantial increases in budget expenditure in other areas, the ministry justifies CL by asserting that patented pharmaceuticals are too expensive for the Thai budget. It proclaims that the “public health interest must come before commercial interests”.

With this line of reasoning, the ministry might just as well announce that it will be compulsorily acquiring beds in private hospitals. Private beds are undoubtedly too expensive. Such an action would also improve access and place public health before commercial interests.

Perhaps sensing that it needs to find some additional rationale, the ministry also asserts that its CL is in “full compliance with the Thai national and international framework”. In this context, this means in full compliance with section 51 of the Thai Patents Act and Article 31 of the World Trade Organisation’s Agreement On Trade Related Aspects of Intellectual Property Rights (Trips).

In reality, we think the ministry has failed to comply with Trips in a number of important respects. In this article we will explain why this is so. In the next article, we will discuss what might be done about it.

First, we believe the ministry has failed to comply with Article 31(b) of Trips because it did not have prior consultations with patent holders. In our view, the CLs in favour of the Government Pharmaceutical Organisation (GPO) are for commercial use, not for “public non-commercial use” as the government claims and as required by Article 31 (b).

Second, the ministry has failed to comply with Article 31(h) of Trips because the royalty rates stipulated (0.05% in every case) are not “adequate” and fail to take into account the “economic value of the authorisation” (the CL).

And third and most important, the ministry has failed to comply with Article 31(a) because it has not considered each case “on its own merits”.

Let’s discuss each of these failures in more detail:

Failure to Consult: Article 31(b) of Trips mandates prior consultations with the patent holder except in cases of emergency or “public non-commercial use”. The ministry does not claim there is an emergency. However, it does assert that the CLs in favour of the GPO are for a “non-commercial purpose”.

We think the GPO’s use of the CL will be for a commercial purpose. In fact, Section 6(5) of the GPO Act states that the GPO carries on “business”. Sections 34 and 35 reinforce this basic objective.

For example, legislators envisaged the organisation making a surplus and having an obligation to pay this surplus to the government. The GPO also has joint ventures with private pharmaceutical companies. In the past, some wanted the GPO privatised.

The GPO will be selling the products for which Thailand is issuing CLs. The royalty obligations are expressed as a percentage of the GPO’s “sale value”. In short, the activities are commercial, both in form and substance. They do not cease to be such simply because the GPO is owned by the government.

Contrary to what the Public Health Ministry asserts in its white paper, Section 51 of the Patents Act is in fact silent on the issue of whether there ought to be prior consultations with the patent holder. However, Article 31(b) of Trips does say negotiations are required if the CL is issued for commercial use, and we think the ministry has failed to comply.

Inadequate Royalty Rate: The royalty rate of 0.05% of the GPO’s sales value is not “adequate” and does take into account the “economic value” of the CL as required by Article 31(h) of Trips. The sales value, and hence the economic value, of each product varies. Prima facie, one would expect that the royalty rates for each product should vary. But they do not. The rate is the same for all three products.

There is some curious logic in the White Paper. The ministry asserts that since the GPO will charge high retail prices for the products, royalty rates paid to the patent holders should be low.

The opposite conclusion is more apt. If prices are high, royalty rates ought also to be high to provide adequate compensation to the patent holder. To make the royalty rate “adequate” within the meaning of Article 31(h), authorities should assess what rate might be applicable if this was a voluntary licensing situation, not just a CL situation.

In our experience, rates in voluntary licensing situations would be much higher, typically in the range of at least 5% to 7.5 %, and quite possibly substantially more. In one recent case in South Africa, a 5% rate was determined for an antiretroviral, and that involved a licence to settle a competition dispute. In short, any adequate rate would be likely to be way in excess of the derisory 0.05% stipulated by the ministry.

Failure to Consider Individual Merits: The ministry failed to comply with Article 31(a) of Trips because it did not consider each case on “its individual merits”. This is the most basic and fundamental of all of the ministry’s failures to comply.

To consider any case on “its individual merits” by definition requires prior consultations with the affected party. That party must be given the opportunity to make its case and provide relevant evidence. These principles resonate in provisions such as Article 41(3) of Trips, which says: “Decisions on the merits of the case shall be based only on evidence in respect of which parties were offered the opportunity to be heard.”

In the case of every announcement of a CL, the ministry ignored these principles. It deliberately decided not to hold prior consultations. It seems the ministry had a preconceived view that any prior consultations were unlikely to be productive as far as it was concerned.

By stipulating a blanket, uniform royalty rate of 0.05% for each product, the ministry also failed to consider the individual merits of the products. Had it done so and given the patent holders the opportunity to present their cases, it may have realised each product and each CL is different, and accordingly the rates ought to have been different and more adequate.

Trips is an international treaty to which Thailand is as signatory. Under the new interim constitution, Thailand has an obligation to comply with its obligations under international treaties, including Trips. We will explore the legal implications of this obligation in our next article.

Peerapan Tungsuwan is a partner at Baker & McKenzie. She can be reached at [email protected] William McKay is a consultant with the firm, and can be reached at [email protected]