Essential Action Comments on the Intellectual Property Chapter of the U.S.-Morocco Free Trade Agreement and the Impact on Access to Medicine

The U.S.-Morocco Free Trade Agreement intellectual property chapter closely tracks the provisions of the U.S.-Central America Free Trade Agreement. Like the U.S.-Central America Free Trade Agreement (CAFTA), the U.S.-Morocco Free Trade Agreement (FTA) includes a wide array of provisions that will delay the introduction of price-lowering generic competition, meaning consumers can be expected to be price gouged in the best of circumstances, and that, in the worst cases, patients will be deprived of medicines that could save their lives or ameliorate needless suffering.

By Robert Weissman
Essential Action

April 8, 2004

The U.S.-Morocco Free Trade Agreement intellectual property chapter closely tracks the provisions of the U.S.-Central America Free Trade Agreement. Like the U.S.-Central America Free Trade Agreement (CAFTA), the U.S.-Morocco Free Trade Agreement (FTA) includes a wide array of provisions that will delay the introduction of price-lowering generic competition, meaning consumers can be expected to be price gouged in the best of circumstances, and that, in the worst cases, patients will be deprived of medicines that could save their lives or ameliorate needless suffering.

The first part of these comments notes the provisions of the U.S.-Morocco FTA that parallel those of CAFTA. It does not describe the import or impact on access to medicines of each provision in great detail; those more lengthy descriptions are included in our CAFTA analysis.

The second part of these comments identifies a troubling provision not in CAFTA. This provision requires countries to ban parallel importation — also known as reimportation — of pharmaceuticals. Such provisions have been included in other bilateral trade deals to which the United States is a party, but have not received much attention.

The third part of these comments focuses on a novel feature of the U.S.-Morocco FTA: an exchange of letters between negotiators that purport to establish an understanding that the intellectual property provisions in the agreement will not undermine access to medicines. It explains why this exchange of letters is deceptive, and unlikely to have any significant mitigating impact on the harmful substantive provisions of the FTA.

1. Delaying Generic Competition

1.1. Data Exclusivity Protections

Like CAFTA, the U.S.-Morocco FTA obligates countries to establish special monopoly protections for pharmaceutical regulatory data. These monopoly protections are not required under the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property (WTO’s TRIPS). The impact of these measures will be, at least, to greatly delay countries from undertaking compulsory licensing.

As a condition of selling pharmaceuticals, countries require pharmaceutical sellers to submit data showing their drugs are safe and effective. This data is commonly referred to as registration data, or marketing approval data.

Generating the data, based on animal and human testing can be relatively expensive, costing in some cases tens of millions of dollars.

To gain regulatory approval to sell generic versions of drugs already approved for market, generic companies generally do not repeat these studies, which are very time consuming and, from the perspective of the relatively low-capitalized generic industry, costly. Instead, they typically show their product is chemically equivalent and bioequivalent (meaning it will work the same in the body as the brand-name drug). Then the generic companies simply rely on the drug regulatory agency’s approval of the patented product to earn approval for the generic version of the product.

If the generics are not able to rely on approvals granted based on the brand-name data, in many cases they simply will not enter the market. The U.S.-Morocco FTA includes a number of provisions that will impede this reliance. As a result, generics will effectively be barred from entering the market — even if patent terms have expired, and even if countries have issued compulsory licenses that would otherwise enable them to sell on the market while a product is on patent — until the monopolies on use of the data expire.

Under the U.S.-Morocco FTA:

-Countries would be required to provide five years of data protection from the moment a product was given regulatory approval in their country. (Article 15.10.1) This amounts to an effective five-year bar on compulsory licensing from the time of marketing approval.

-Countries must grant five years data exclusivity protections to brand-name companies if their product has received marketing approval anywhere in the world — even if the brand-name company has not introduced the product in their country. (Article 15.10.1)

-Regulatory data monopolies must be granted for the marketing approval data submitted for all “new pharmaceutical products.” Under TRIPS, the requirement of data protection applies only to data submitted for new chemical entities. Under the FTA, data protection must be granted for any new product containing a chemical entity not previously approved in the country — even if it is not actually new. (Article 15.10.1)

1.2. A De Facto Prohibition of Compulsory Licensing

Like CAFTA, the U.S.-Morocco FTA contains an especially far-reaching data monopoly protection that would have an even more devastating impact. It would effectively make compulsory licensing impossible in the United States and Morocco, except perhaps as a remedy to some anticompetitive practices.

Notwithstanding the provisions discussed in the bulleted points just above, the FTA’s Article 15.10.4 appears to prohibit any generic firm from relying on the data submitted by a patent holder at any point during the term of the patent unless the generic firm has the permission of the patent holder.

If in fact this language means what it says, then generic firms cannot rely on marketing approval data for a product for the entire term of the product’s patent, even if a compulsory license is issued. This provision appears to be an effective bar to compulsory licensing, including for emergency use, in Morocco or the United States.

As we mentioned in our CAFTA analysis, because this provision appears so draconian, Essential Action has asked the U.S. Trade Representative to clarify if the language should properly be interpreted to mean something other than what it appears. In an informal meeting, a USTR representative agreed that the Essential Action interpretation of the language appeared to be correct, but promised to contact us later with clarification. We have not yet received any clarification.

1.3. Extending Patent Terms and Overprotecting Patents

The U.S.-Morocco FTA also tracks CAFTA in extending the life of a patent and in providing overprotection for patents:

-Patent extensions must be provided to offset delays in the grant of a patent (Article 15.9.7).

-Patent extensions must be provided to offset delays in marketing approval for pharmaceuticals (Article 15.10.3).

-The agreement creates an incentive for brand-name drug companies to submit bad patent applications. Article 15.9.9 requires countries to permit patent applicants to amend their patent application. This gives patent applicants an incentive to submit inadequate applications or overly broad patents.

-The FTA’s investment rules will inhibit compulsory licensing. The investment chapter specifies that compulsory licensing done in compliance with TRIPS and/or the FTA’s intellectual property rules does not violate the investment chapter’s limitation on expropriation (Article 10.7.5) or performance requirements (Article 10.9.3). However, even with these savings provisions, the agreement’s investment chapter rules are so severe that they are likely to chill countries’ willingness to undertake compulsory licensing, as they fear being subjected to investment agreement penalties.

2. Restrictions on Parallel Importation/Re-importation

The U.S.-Morocco FTA includes a provision that appears in other trade agreements, but not in CAFTA, which would effectively prohibit parallel importation, or reimportation, of pharmaceuticals.

Under the TRIPS Agreement, countries have complete freedom to undertake parallel importation. For pharmaceuticals, parallel importation involves the importation, without the consent of the patent owner, of patented drugs that have legitimately been put on the market in another country.

Parallel importing enables countries to shop on the global market for the best available price for products. In the case of pharmaceuticals, companies may price differentiate between different national markets, and shopping on the global market (or at least within countries of a comparable level of economic development) may enable countries to reduce their pharmaceutical bills significantly.

In the United States, parallel importation of pharmaceuticals is typically referred to as reimportation. Reimportation of pharmaceuticals is not presently permitted in the United States, but legislation is pending to legalize it. Public support for reimportation is strong, and it is increasingly popular among state government officials who would like to obtain the price benefits available by purchasing lower-priced drugs sold in Canada.

One strategy that brand-name companies are looking at in order to thwart reimportation is to employ contract terms that prohibit buyers of their products from re-selling them. Thus as part of the contract by which it buys products from, say, Pfizer, a Canadian pharmacy would be prohibited from re-selling its product in or to the United States. If such contract terms are enforceable, then even if the United States were to legalize drug reimportation, the brand-name drug companies would have a tool available to prevent reimportation from occurring.

Article 15.9.4 of the U.S.-Morocco FTA would require countries to prohibit drug reimportation (or parallel importation of any patented product). A footnote says this prohibition on parallel importation may be limited to cases where the patent holder places restriction on import by contract or other means — but adding such contractual terms is no burden to brand-name drug companies, and leaves them with the absolute power effectively to proscribe drug reimportation.

3. The Deceptive Letters of Understanding

An attachment to the U.S.-Morocco Free Trade Agreement includes letters of understanding between the U.S. Trade Representative Robert Zoellick and an (unnamed) Moroccan Government Official.

The letter purports to explain that the intellectual property provisions of the free trade agreement will not undermine national efforts to ensure access to medicines for all, but it provides little if any relief from the onerous provisions in the trade deal itself.

The second paragraph of the letter “confirm[s] the following understanding shared by [the] two Governments, in relation to Chapter 15 (Intellectual Property Rights);”

“The implementation of provisions of Chapter 15 of the Agreement does not affect the ability of either Party to take necessary measures to protect public health by promoting access to medicines for all. This will concern, in particular, cases such as HIV/AIDS, tuberculosis, malaria and other epidemics as well as circumstances of extreme urgency or national emergency.”

This statement of understanding expresses noble sentiments, but is unlikely to make much if any material difference in the implementation of the agreement.

First, it is clearly subordinate to the terms of the agreement itself, since it is external to the agreement.

Second, it refers only to measures “necessary” to protect public health. In international trade language, “necessary” is often a very limiting term. A measure may be “necessary” to promote public health only if there is no other way to achieve the public health objective, even if the alternatives are not politically or financially viable.

Third, and most importantly, the statement does not purport to a) modify the intellectual property chapter of the agreement; or b) create an exception to terms of the agreement that may conflict with the goal of promoting access to medicines for all. It merely offers a description of the understood impact of the agreement. But in fact, as these comments argue, such an understanding is at odds with many of the substantive terms of the agreement, which will delay the introduction of price-lowering generic competition, effectively block countries’ ability to undertake compulsory licensing of pharmaceutical products, and even erect an effective prohibition on parallel importation (re-importation) of pharmaceutical goods. At most, the letters of understanding can be utilized to shape interpretations of the U.S.-Morocco FTA, and to argue for pro-public health interpretations — but not to override specific provisions that clearly are deleterious to public health and the goal of achieving access to medicines for all.

By way of further illustration, consider alternative approaches that would have had more substantive effect. A first alternative would simply have been not to include the onerous intellectual property provisions, since their purpose is to delay introduction of price-lowering generic competition. Or, the intellectual property chapter of the agreement could have been excluded altogether, since both the United States and Morocco are already members of the WTO, and bound to uphold the terms of TRIPS. A second alternative would have been to include language in the actual text of the U.S.-Morocco agreement that created a clear public health exception: “Each party may provide an exception to any provision in this Chapter that in practice conflicts with the paramount public health goal of promoting access to medicines for all.” Such an alternative, or a variant, would have been remained undesirable — since the default rules embedded in the agreement would remain those provisions which do undermine or delay generic competition and block parallel importation — but at least it would have showed a seriousness about giving countries some flexibility under the terms of the agreement to address public health considerations.

The third paragraph of the letters of understanding establish that, if TRIPS is amended, the parties shall enter into consultations to adapt the U.S.-Morocco agreement appropriately. This presumably relates to a possible TRIPS amendment incorporating the Doha Declaration Paragraph Six implementation waiver decision (involving the issue of countries’ ability to export more than 50 percent of what is produced under a compulsory license for a pharmaceutical product, in order to meet public health needs in an importing country). Because there are no limits on compulsory licensing included in the U.S.-Morocco agreement, a revision of the TRIPS prohibition on exporting more than half of the production of a pharmaceutical product produced under compulsory license should not require any parallel changes to the U.S.-Morocco agreement. However, effective compulsory licensing would require changes in the data protection scheme included in the U.S.-Morocco FTA. (By contrast, the minimal data protection requirements in TRIPS should not require revision.) Whether the parties have in mind creating even limited exceptions to these provisions to make the Doha export provisions workable is unclear.

Conclusion: Reject the U.S.-Morocco FTA

Unfortunately, the U.S.-Morocco FTA provisions on patents and regulatory issues related to pharmaceuticals follow the model of CAFTA and other preceding U.S. bilateral trade agreements.

The misleading assurances of the “letters of understanding” to the contrary, the agreement is sure to undermine the public health goal of ensuring access to medicines for all.

The U.S. Trade Representative is on a mission to impose these TRIPS-plus terms on countries around the world through bilateral trade deals. The consequence will be needless death and suffering. Thanks to the breadth of these trade deal provisions, including on the issues of reimportation and marketing approval data, the impacts will be felt directly in the United States, as well as in U.S. trading partners.

These are dangerous and deadly terms. The agreements that contain them, including the U.S.-Morocco FTA, should be rejected.