Country Disputes: Our Concerns and What We Are Doing

As countries seek to make medicines affordable and speed access to generic competition, a number of disputes have emerged, both as to what is permissible under international trade rules and what is advisable as a matter of policy. Essential Action has sought to intervene in these disputes to clarify the flexibilities that countries have under international trade rules and advance the public health, human rights and economic policy rationales for measures to lower the price of medicines.

We also place a great emphasis on proactive work, providing educational materials and technical assistance to developing countries regarding the available measures to lower the price of drugs, especially through compulsory licensing.

Here’s more about our approach on these questions:

Global campaigns over the last decade have highlighted the flexibilities available to developing countries under international trade rules, but only about a half dozen have issued compulsory licenses.

Why have other nations not exercised the rights that they have fought so hard to defend at the international level and that can bring such clear public health benefits? The reasons are multiple. They include the fear that countries issuing compulsory licenses will face pressure directly from the U.S. government, threats issued by Big Pharma and their proxies, a belief that issuance of compulsory licenses will deter foreign investment, the political weakness of most ministries of health, and a culture of the sanctity of patent protection among many patent offices that have a key role in many countries’ compulsory license decision-making. Additionally, in the case of AIDS drugs, many countries have been able to reap the benefits of generic competition for first-line ARV therapies because those drugs are not patented in their countries; and even where the drugs are patented, the lower brand-name prices that followed from worldwide generic competition represent dramatic savings from the price available five years ago (though they are still typically 2-4 times higher than generic prices, even for first-line therapies).

But there are other reasons that compulsory licenses have not been issued. One is the remaining widespread misconceptions about the conditions under which compulsory licenses may be issued (notably the myth they compulsory licensing is possible only under conditions of emergency). A second is uncertainty about the mechanisms to issue compulsory licenses, and uncertainty about how to handle certain policy issues, notably the fixing of compensation to patent owners. Both of these apply to both governments and NGOs in developing countries. And a third reason is simple but in some sense the most important: with governments declining to act on their own, very few compulsory license applications have been filed, enabling governments to avoid making what they perceive to be controversial decisions on licensing.

Essential Action Publications and Papers

Pharmaceutical Links of NGOs Contributing to the World Health Organization’s Second Public Hearing on Public Health, Innovation and Intellectual Property, November 2007
pdf version: igwg.contributorlinks.pdf

U.S. Compulsory Licensing and Government Use
By Robert Weissman
Presented at the International Conference on Compulsory Licensing, November 22, 2007

Essential Action Director Robert Weissman Testimony to the Senate Judiciary Committee on the Bayh-Dole Act and management of federally funded inventions, October 24, 2007.
Pdf version (warning: 4.5 megabyte file): SenJudiciaryTestimony.10242007.pdf
An rtf version, without appendices: weissman.judiciary.10-24-2007.rtf

Forthcoming from Essential Action and colleague organizations:
TRIPS-Plus Provisions in Trade Agreements: Consequences for Public Health
By Robert Weissman

From the International Journal of Intellectual Property Management:
Public Health-Friendly Options for Protecting Pharmaceutical Registration Data
By Robert Weissman

Forthcoming from the Center for International Environmental Law:
Briefing Note on the Development of U.S. Trade Policy
By Robert Weissman

A cost sharing model to protect investments in pharmaceutical test data
By Judit Rius Sanjuan, James Love, Robert Weissman
May 2006

WTO/TRIPS Agreement and Access to Medicines: Appropriate Policy Responses
Report of the Regional Consultation, organized by Health Action International, Third World Network and the World Health Organization, held in Colombo, Sri Lanka on 17-19 April 2003
Report Prepared by Robert Weissman

Cost Containment Mechanisms for Essential Medicines, Including Antiretrovirals, In China
By German Velasquez, Carlos Correa and Robert Weissman
Health Economics and Drugs, EDM Series No. 13
World Health Organization, 2003

WHO’s Network for Monitoring the Impact of Globalization and TRIPS on Access to Medicines
Meeting Report 19-21 February 2001, Chulalongkorn University, Bangkok, Thailand

The WTO: Areas of Concern, and What We Are Doing

The global minimum standard for patents and other forms of intellectual property is set by the World Trade Organization (WTO). Members of the WTO, which include every significant economy in the world except Russia, must provide at least the monopoly protections mandated by the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS); they may provide longer or more robust monopolies, if they choose.

In the patent arena, the basic standard is for countries to provide U.S.-style patents, extending 20 years on all categories of inventions that meet the standards of patentability (new, useful and non-obvious).

TRIPS, however, also permits countries to make use of important flexibilities, most importantly the right to compulsory license — to authorize generic competition for products or processes while they rmain on patent.

A quirky provision in the TRIPS Agreement limits the ability of countries to export under a compulsory license (no more than half of production may be exported). This inhibits generic producers from achieving price-lowering economies of scale, and poses a serious problem for smaller and poorer countries, which have little choice but to rely on imports.

The WTO has adopted a purported solution to this problem, but it is riddled with problems. Essential Action is working to advance best practices for implementing this solution, but is especially promoting a TRIPS-compatible alternative: issuing compulsory licenses under anti-trust/competition rules.

Here’s a more detailed discussion of the issue:

Despite the success of the access to medicines campaign’s effort to defend TRIPS flexibilities, including the right to issue compulsory licenses, one serious problem remains in the agreement. This is known as the Article 31(f) problem. Article 31(f) is a provision requiring compulsory licenses to be predominantly for supply of the domestic market, meaning 50 percent or more of sales of compulsorily licensed products must be in the domestic market.

This Article 31(f) limitation on exports poses a more complex problem than is immediately obvious, but the core problem is straightforward: countries issuing a compulsory license and seeking to import generic versions of a medicine will have difficulty finding suppliers.

Once a country has made a decision to issue a compulsory license for a pharmaceutical, it must locate a supplier who can provide a lower-priced version of the licensed product. Ideally, it will be able to rely on multiple suppliers, who will compete among each other to lower prices. But in many cases, countries will conclude that domestic sources are inadequate. There may be no domestic firm with the capacity to make a product; domestic firms may lack needed technology to operate efficiently; domestic firms may not be able to supply a product cheaply enough; or there may be too few domestic suppliers to generate competition. This problem is particularly severe for many developing countries and small market economies, but depending on the product, it may be true even for industrialized nations. It is also a particularly severe problem for the raw materials that make up pharmaceuticals; while many countries are able to formulate medicines, the raw material market is geographically concentrated, with Chinese, Indian and Korean firms dominating the world market.

Under the TRIPS Agreement, countries have absolute rights to issue a compulsory license to authorize imports of generic products, and can import the totality of the product to be put on the market pursuant to the compulsory license.

But if the product is on patent in the export market, the importing country faces two TRIPS-related problems. First, a compulsory license must be issued in the exporting country; and second, most of what is produced under the compulsory license in the exporting country must normally be for domestic consumption. But what if the potential exporting country does not choose to issue a license for the domestic market? Or what if domestic sales of the potential exporter aren’t large enough to enable significant exports (since under Article 31(f) exports cannot exceed domestic sales)?

In these scenarios, a potentially importing country will not be able to find a supplier.

Because one of the most important low-cost pharmaceutical manufacturers, India, effectively did not provide patent protection for pharmaceuticals until 2005, importing countries had a willing supplier. But Indian suppliers will now be constrained by patents, at least on new products, unless compulsory licenses are issued domestically.

Developing countries raised this issue in the negotiations leading up to the Doha Declaration, and the declaration promised that the issue would be addressed by 2002. It was ultimately addressed in 2003 (via the “Paragraph Six Solution,” referring to the paragraph in the Doha Declaration that promised the problem of exports would be resolved), with a convoluted and bureaucratic approach on which rich countries insisted, and which will not be adopted as a permanent amendment to TRIPS.

Nonetheless, the Paragraph Six Solution is not impossible to use. Developing countries, however, have not sought to utilize it. There might arguably be a political strategy underlying this decision, but if so, it is not bearing fruit. And a much better way of highlighting the problems of using the Paragraph Six Solution, if that is one’s goal, is to attempt to use it, and thereby show its flaws.

For potential exporters, there is an underutilized way to circumvent the limitation on exports of compulsory licensed products: Compulsory licenses issued to remedy anti-competitive conduct are not required under TRIPS to be predominantly for the domestic market. So invocation of competition rules as the basis for issuing a compulsory license can avoid the export problem, and the complication of the Paragraph Six Solution, altogether.

Trade Agreements: Our Concerns, and What We Are Doing

In many countries, issuing compulsory licenses or otherwise speeding generic competition is being deterred by the rules contained in bilateral or regional free trade agreements.

With developing country opposition firm to any expansion of patent rights or undermining of flexibilities at the World Trade Organization level, the United States is pursuing a strategy of what it calls competitive liberalization — entering into bilateral and regional trade deals that ratchet up patent and other IP protection for pharmaceuticals (via “TRIPS-plus” provisions). The U.S. goal is three-fold: force an increasing number of countries to live under TRIPS-plus provisions, limit the number of countries that object to U.S. demands for TRIPS-plus (since they have already acceded to them), and establish TRIPS-plus provisions as an effective global standard that can ultimately be ratified at the World Trade Organization and imposed on those countries that have not yet succumbed to U.S. demands.

Essential Action is working to educate the public and policymakers — in the United States and developing countries — about the public health damage caused by such provisions, focus attention on alternative proposals (particularly related to the “data exclusivity” issue, described below), provide technical assistance to country negotiators, and suggest best practices for implementing TRIPS-plus provisions.


The U.S. is pushing for a long list of TRIPS-plus demands in bilateral and regional trade negotiations. The most important include:

– Extension of the patent term to offset delays in patent or regulatory approval;
– Requirements that drug regulatory approval be linked to patent status (“linkage”), meaning that FDA-like agencies cannot give approval to a generic version of a product if a patent is claimed on it;
– Restrictions on parallel importation; and
– Investment agreement protections for patents and related IP rights.

All of these provisions are very dangerous. But probably the most worrisome of the TRIPS-plus demands, and certainly the top priority of Big Pharma, is yet another — “data exclusivity.”

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.

Trade agreements’ data exclusivity provisions specify that countries must maintain a five-year prohibition (and often longer) on the right of a generic firm to use or rely on the clinical test data submitted by brand-name drug companies. This amounts to a guaranteed five-year marketing monopoly for brand-name drug makers, distinct from the patent monopoly.

A data exclusivity provision thus means that 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 point them to sell on the market while a product is on patent — until the monopolies on use of the data expire.