GAO Report Highlights How U.S. Policy Undermines Public Health

October 30, 2007
For Immediate Release
For More Information, contact: Robert Weissman, Essential Action, (202) 387-8030

In response to a request from Senator Edward Kennedy and Representative Henry Waxman, the Government Accountability Office today has issued a report on U.S. trade policy and access to medicines.

The GAO report highlights in some detail the many ways that the Bush administration has violated the Doha provision in the 2002 Trade Promotion Authority legislation. The Act designated respecting the Doha Declaration on the TRIPS Agreement and Public Health as a principal negotiating objective related to intellectual property.

“It is time for the Bush administration to stop defending Big Pharma’s interests in extended patent monopolies, at the expense of public health,” says Robert Weissman, director of Essential Action, a Washington, D.C.-based organization that aims to expand access to essential medicines. “The life-and-death consequences are just too high.”

“A new policy should have advancing public health, rather protecting large corporate contributors, as its starting point,” said Weissman. “From there, it’s easy to see what to do: promote generic competition — including but not limited for the AIDS drugs that the President’s own AIDS program is purchasing — stop pushing for higher patent and drug monopoly standards in developing countries, and explore new ways to promote both innovation and affordability.”
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A more detailed statement from Weissman follows:

The Doha Declaration affirms “that the [World Trade Organization’s Trade-Related Aspects of Intellectual Property (TRIPS)] Agreement can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all.” It specifies that “each member has the
right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted.”

Yet as the GAO study reiterates, the Bush administration has negotiated bilateral and regional trade agreements that undermine these rights. When Thailand and Brazil have sought to exercise these rights, the Office of the U.S. Trade Representative has threatened them with sanctions. As GAO reports, the administration justifies this behavior through bad-faith interpretations of agreements that clearly intend to provide public health guarantees.

To state the proposition again, the Doha Declaration states: “Can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all.” The meaning of this language is plain to everyone except those who willfully seek to distort its content.

The real-life consequence of the administration’s actions has been to deny people access to lifesaving and other essential medicines. Protecting Big Pharma’s patent monopolies and ability to price gouge consumers may seem like little more than payback for generous donations, but that’s not how it seems from hospital beds and patients’ homes around the world. There, the price of medicines is often a life-and-death matter.

Although the Doha Declaration is quite specific, GAO recommends that Congress should clarify what it means by respecting the Doha Declaration. The best way to do that is through support of the Brown/Allen resolution, S.Res. 241/H.Res 525. The resolution states that U.S. policy should be to: Honor Doha Declaration commitments; Not put
countries on the 301 list for exercising TRIPS flexibilities; Not negotiate TRIPS-plus provisions in trade deals; and Support new medical R&D norms that seek to provide a sustainable basis for a needs-driven essential health agenda.

GAO chose to limit the scope its report. There are other ways in which the executive branch is working to undermine the promise of the Doha Declaration, beyond what is included in the report. Congress should investigate and end these practices. They include:

• Misguided and poor quality technical assistance that encourages developing countries to overprotect pharmaceutical patent monopolies (this is mentioned in an appendix to the GAO report, but merits much closer scrutiny);

• Pressure on the World Health Organization (WHO) — including efforts to suppress important reports — not to advise countries on how to make medicines affordable; and

• Improper interference in the WHO Intergovernmental Working Group on Public Health, Innovation and Intellectual Property negotiating process, including by pressuring country negotiators not to support positions embodying Doha Declaration objectives.

Patent Reform and University Research

by Doug Lederman
Published at InsideHigherEd.com

With Congress weighing legislation that would alter federal laws governing the process of patenting inventions, including the fruits of university research, there might have been any number of reasons why the Senate Judiciary Committee would hold a seemingly broad-based discussion like the one it scheduled Wednesday afternoon, entitled The Role of Federally Funded University Research in the Patent System.

But as the discussion unfolded, it became clear that there was a very specific explanation for the hearing — an effort by one prominent senator to draw attention to the plight of one of his constituents, Iowa State University. Sen. Charles Grassley (R-Iowa) was not shy about thanking the committee’s Democratic chairman, Sen. Patrick Leahy of Vermont (“You said you’d hold a hearing, and you always keep your word”) for essentially concocting a framework in which Iowa State officials could balk at a provision in federal patent law that requires nonprofit entities that operate federally owned labs to return funds to the government if the royalties they earn on federally licensed inventions exceed 5 percent of their annual budget.
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Ames Laboratory, an Energy Department lab that Iowa State operates for the government, is the only such lab that has ever hit the threshold, paying the U.S. Treasury $1 million in 2006 because of its success in licensing the rights to a lead-free solder that was developed in part by researchers at the lab.

With encouragement from Grassley, Elizabeth Hoffman, executive vice president and provost at Iowa State, testified at Wednesday’s hearing that the 5 percent limitation unfairly affects small labs like Ames, while mammoth labs like Sandia National Laboratory, its partner on the solder research, never get close to the 5 percent threshold because their operating budgets are so much larger. She urged lawmakers to amend the Bayh-Dole Act — the 1980 law that set the guidelines for how nonprofit institutions have retained title to inventions resulting from federally funded research, filed patents and sold licensing rights to small businesses and corporations — by raising that threshold to 15 percent for “government-owned, contractor-operated” labs with annual budgets of under $40 million.

“Any such limitation must not discriminate against only a portion of government-owned, contractor-operated, nonprofit entities,” she said. “Certainly, it should not have an inequitable impact on a single, small and successful national laboratory.”

While Grassley endorsed Hoffman’s proposal — which was modeled on legislation that has been approved by the House of Representatives and introduced by Grassley in the Senate — Leahy, the only other senator to attend Wednesday’s hearing, expressed skepticism about it. If Congress raises the royalty threshold to 15 percent of a nonprofit’s budget instead of 5 percent, and Iowa State strikes gold with another invention, “won’t you want to change [the threshold] again?” Leahy asked.

“I hope we’re so successful,” Hoffman said. “At this point in time, we would be happy with the 15 percent.”

“At this point … I understand,” Leahy said with a smile.

Aside from the Iowa-centered pretext for Wednesday’s hearing, the discussion that unfolded did not point to any major transformative changes in the Bayh-Dole Act, even from witnesses who criticized some aspects of the law. Hoffman and the other witness who spoke on behalf of a university, Charles F. Louis, vice chancellor for research at the University of California at Riverside, heralded Bayh-Dole as an “inspired piece of legislation,” as Louis put it, that has helped universities transform the financial research support of the federal government into inventions and spinoff companies that have reaped huge benefits for taxpayers and the country. They, echoing calls by major higher education groups, urged Congress to take a hands-off policy and avoid any changes that would make it harder for universities to protect their patents and the rights to their inventions.

Arti K. Rai, a professor of law at Duke University School of Law, agreed that there was no need for lawmakers to contemplate “a major overhaul of the current system” by which universities patent government-funded research. But she argued that the incentive the government gives universities to patent inventions may not be as appropriate in all fields of research, singling out information technology in particular as an area in which the federal interest may lie more in having discoveries hit the market as open source applications rather than as patented products.
“At universities, there is sometimes too much emphasis on generating revenue,” Rai said. “Federal agencies and universities should show more sensitivity” to the idea that certain types of research might be better developed in non-commercial ways.

Robert Weissman, director of Essential Action, a nonprofit group that focuses on improving access to medical treatments and drugs, among other corporate issues, said Bayh-Dole had contributed to a situation in which medicines invented by university researchers have been licensed by drug companies that have priced the treatments out of the reach of many potential beneficiaries, in America and abroad. He also argued that the commercialization of university research, encouraged by the law, has helped create a culture of secrecy and increased institutional conflicts of interest.

He urged government officials — though not necessarily Congress — to ensure that the federal government does not let inventions it has helped pay for be priced and controlled in ways that rip off the government and its citizens, a threat that he envisioned increasing as the government sponsors more research into energy technologies in the coming years. “To address the frightening perils of climate change, we will need robust, competitive and efficient energy and energy services markets,” Weissman said. “There should be a presumption favoring open and collaborative development models that enable market players to obtain compensation through means other than enclosing the information commons and monopoly pricing.”

Testimony on Bayh-Dole Act

Essential Action Director Robert Weissman presented testimony to the Senate Judiciary Committee on the Bayh-Dole Act on October 24, 2007. The Bayh-Dole act sets rules for how inventions — including pharmaceuticals — developed with federal money will be owned and controlled.

The testimony is available here (warning: 4.5 megabyte file):
SenJudiciaryTestimony.10242007.pdf

An rtf version of the testimony, without appendices, is here:
weissman.judiciary.10-24-2007.rtf

The testimony argues that the Bayh-Dole system is not working. Drug companies are able to gain exclusive rights to U.S.-funded inventions, and then price gouge the taxpayers who funded the development of the medicines they buy as consumers. The companies even price gouge the government itself, which is the largest buyer of drugs. The Bayh-Dole Act contains various safeguards, but government agencies have refused to utilize them, even in cases of extraordinary abuse.

The introduction to the testimony follows.
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Chairman Leahy and Members of the Senate Judiciary Committee, thank you for the opportunity to testify today on the important subject of federally funded research and development.

I am the director of Essential Action, a nonprofit advocacy organization that works on pharmaceutical access and other corporate accountability issues. I am also counsel to Essential Inventions, a separate nonprofit corporation that aims to promote the creation and distribution of essential inventions and other works that support public health and access to information. Information about the organizations is available at and .

With colleagues, both organizations have urged federal agencies to exercise safeguards in the Bayh-Dole Act, which governs the disposition of federally sponsored inventions, to address pharmaceutical pricing abuses and promote affordable access to medicines. Unfortunately, our efforts have failed.

The Bayh-Dole Act was signed into law in 1980, and effectively expanded through administrative and subsequent Congressional action over the next decade. The law aims to promote commercialization of government-funded inventions. It transfers title to government-funded inventions to universities and other contractors. Universities in turn are able to license the inventions to other parties, including on an exclusive basis.

Although federal agencies have actively embraced the Bayh-Dole mission of licensing federally funded inventions to private corporations, our experience shows that the government has abrogated its duty to ensure that pharmaceuticals incorporating federally funded inventions are reasonably priced.

The result is a public policy outrage, and a public health tragedy. U.S. taxpayers pay to fund R&D. The government turns the fruits of the research over to pharmaceutical and biotechnology companies, which then price gouge U.S. consumers and even the government itself. Thus the industry is able to execute a double swindle of the public. There is little doubt that U.S. consumers experience financial hardship as a consequence, and sometimes have been deprived of needed medicines. The Bayh-Dole licensing system has, in too many cases, distorted and concentrated markets, and facilitated abuses of market power, all with substantial deleterious consequences for pharmaceutical affordability and other public health objectives — including promotion of the R&D enterprise. The public health consequences are most profound in the developing world, where high prices typically mean that patients go without life-saving and other essential medicines. There is a U.S. taxpayer component in the global health arena as well, because U.S. aid monies are not uncommonly used to buy drugs invented with federal research support.

Bayh-Dole created the climate in which these abuses could occur, but they were not inevitable. Government agencies could have implemented Bayh-Dole on terms that would have prevented or at least greatly limited the abuses that have occurred. With few exceptions, they have declined to do so.

In my testimony today, I will describe our initiatives and the federal government’s response. The first portion of my testimony briefly reviews the history of Bayh-Dole and associated statutes. The second section recounts our efforts to employ safeguards in Bayh-Dole. The third section presents and critiques the National Institutes’ of Health (NIH’s) stated rationale for refusing to apply price-restraining measures to pharmaceuticals incorporating NIH-funded inventions. Finally, I conclude with recommendations for policy changes and areas for the committee to examine as it begins its investigations into disposition of federally funded inventions. These recommendations draw both on our direct experience, and the overall experience in the Bayh-Dole era.

Essential Action Follow Up on Call for Industry Disclosure of Charitable and Educational Contributions

In July, a coalition of public health and consumer groups called on the largest pharmaceutical companies and the leading industry trade associations to adopt a policy of disclosing all of their charitable and educational contributions, on a global basis. To view the letter, click here.

Most of the companies responded to this request, or to a follow-up note. The responses were not uniform, and several companies indicated that they are or will expand their disclosures, or examine the issue. To view their responses, click here.

Essential Action replied to the industry and trade association responses, addressing objections raised by the companies, and reiterating the arguments for disclosure.

Schering-Plough Corporation

PhRMA

Eli Lilly and Co.

International Federation of Pharmaceutical Manufacturers & Associations

Pfizer Inc.