Dear Ms. Blue:
Essential Action submits these comments in response to a request from the Office of the U.S. Trade Representative for public comment on negotiating objectives for the proposed Free Trade Area of the Americas (FTAA) (Federal Register, July 12, 2001).
Co-Director Essential Action
P.O. Box 19405
Washington, D.C. 20036
August 22, 2001
Executive Secretary TPSC
Office of the USTR 600 17th Street, NW
Washington, DC 20508
Attention: Free Trade Area of the Americas Draft Text Release
Dear Ms. Blue:
Essential Action submits these comments in response to a request from the Office of the U.S. Trade Representative for public comment on negotiating objectives for the proposed Free Trade Area of the Americas (FTAA) (Federal Register, July 12, 2001).
Essential Action is a corporate accountability group that focuses especially on international issues. We have been involved in trade and intellectual property policy debates for more than a decade.
We preface our comments by noting that we are opposed altogether to negotiation of an FTAA on the North American Free Trade Agreement (NAFTA) model. Our view is that measured by any of numerous people-centered indicators (as opposed to corporate-oriented standards), NAFTA has been a complete failure, and highly detrimental to people and the environment in all three member countries. It is an agreement that should be reversed, not expanded.
These comments, however, focus on the potential intellectual property and investment provisions of an FTAA as they relate to issues regarding access to medicines and compulsory licensing. We hope in the near future to provide separate comments on the FTAA with regard to another pressing public health issue, tobacco control.
These comments are based on the official draft of the FTAA made public in early July 2001, and published on the FTAA website at http://www.ftaa-alca.org/alca_e.asp. That text is highly inadequate for purposes of public policy analysis. It suffers from serious citation shortcomings, a problem we seek to overcome as best we can in these comments. A more serious problem is that the draft text fails to identify which countries have introduced or support which provisions, making it difficult to assess which of multiple contradictory bracketed provisions are most likely to likely to enter a final agreement, and which are the most likely operative negotiating provisions.
Given these limitations, what can be said is this: There are numerous proposed provisions in the FTAA that would go far beyond WTO rules and that would dramatically limit countries’ ability to promote access to medicines. Lives are at stake in the negotiations that determine whether these provisions are incorporated into the final agreement, and in the national deliberations over whether a final agreement is adopted. To take one example, under these harmful provisions, Brazil, which runs what may be the developing world’s most effective HIV/AIDS treatment program, may find itself facing difficulties in making new drugs available.
We conclude that, should there be an FTAA, intellectual property and investments should be excluded from the agreement. If these chapters are included, a variety of the U.S.-backed proposals on intellectual property should be abandoned, and intellectual property should be excluded from the investment chapter.
I. THE INTELLECTUAL PROPERTY CHAPTER
THE CASE FOR EXCLUDING INTELLECTUAL PROPERTY FROM THE FTAA
There is no reason for inclusion of intellectual property provisions in the FTAA. All FTAA negotiating countries are members of the World Trade Organization and have committed themselves to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS establishes a comprehensive international standard for intellectual property protection, with a heavy tilt towards the interests of intellectual property (IP) holders.
The TRIPS rules constitute a floor of IP protection. With TRIPS already establishing a high level of IP protection in every Member country, there is no reason to include IP rules in regional agreements among TRIPS Members.
Because WTO TRIPS establishes a floor for all FTAA negotiating countries, including IP in the FTAA will almost certainly serve only one of two harmful purposes.
First, the FTAA may incorporate enhanced IP protection (“TRIPS-plus” provisions). Such provisions are not only unnecessary, but, as discussed below, dangerous and injurious to public health.
Second, many of the FTAA provisions are likely to mirror those already in TRIPS. This will impose no new obligations on FTAA members, but it will work to further lock in place TRIPS provisions that diminish the public domain, and to enhance the power of intellectual property holders. Under this scenario, if reforms ever occurred in the TRIPS that expanded the public domain, the FTAA members would still be required to maintain the pre-reformed policies that favor intellectual property holders. This is not a two-way street, however; changes in the TRIPS that work to expand the exclusionary and monopolistic rights of intellectual property holders would be binding on the FTAA member countries.
The duplicative obligations under TRIPS and the FTAA would benefit IP holders even in the absence of any changes in TRIPS. That is because the overlapping jurisdiction of the WTO and the FTAA on these issues would enable plaintiff countries in IP cases to forum shop, seeking to bring cases wherever they believe adjudicators to be most friendly.
There is a third possible effect of inclusion of some IP provisions in the FTAA. Where there is uncertainty in the margins of TRIPS, inclusion of provisions in the FTAA that expand the public domain could be operative. This might relate to such issues as the right to export under a compulsory license, whether under Articles 6, 30 or 31(f) of the TRIPS. Other limitations on intellectual property may have no binding effect, given the TRIPS floor, but would at least establish a positive example. There are some such proposals in the current FTAA text, including exclusions on the patentability of lifeforms, business methods and computer programs (pages 8.47, 8.49). We would support such pro-public domain provisions — they are the only IP provisions we would support in an FTAA — though we are skeptical of the likelihood of their inclusion given the U.S. role in the negotiations, and we note the possibility of working out such TRIPS ambiguities in the TRIPS Council, if the United States operates there with some respect for the public interest and public health, instead of maintaining a single-minded focus on defending the interests of intellectual property holders.
COMPULSORY LICENSING AND THE PUBLIC/PRIVATE SECTOR DIVIDE
Perhaps the most troublesome provision of the FTAA IP chapter is a proposed limitation on compulsory licensing to the public sector only (page 8.64 (6)). This provision would limit the grounds for compulsory licensing for non-public use far more than does the TRIPS agreement. Compulsory licensing, a critical policy tool to prevent price-gouging and promote competition, enables a government to instruct a patent holder to license the right to use its patent to a company, government agency, or other party. Compulsory licensing lowers prices to consumers by creating competition in the market for the patented good. Its impact is similar to the introduction of generic competition at the end of a drug’s patent term — prices come tumbling down.
Under the public sector-only provision of the FTAA, compulsory licensing to achieve the public health aim of making medicines more accessible would only be permissible if the licenses were granted to the “Government of the Party or by a private entity acting on behalf of the Government of the Party” (page 8.64 (6)). Under the more permissive TRIPS arrangement, by contrast, compulsory licenses could as a matter of course be granted to private parties for commercial, non-public use, so long as TRIPS procedures and rules, including payment of reasonable compensation to the patent holder, were complied with.
The public sector-only provision of the FTAA would permit compulsory licensing only for “the making, using or importing of the patented invention solely to satisfy the requirements of the Government use, and shall not entitle a private party acting on behalf of the Government to sell products produced pursuant to such authorization to a party other than the Government.” The public sector-only provision would prevent, for example, Peru from issuing a compulsory license on HIV/AIDS drugs to an Indian generic manufacturer, for sale in the private sector. There is no conceivable public policy rationale for such an outcome.
The provision does include a national emergency exception, but there is no reason for private sector compulsory licensing to be limited to these circumstances. Certainly, there are many instances, especially in developing countries, where access to medicines is a pressing issue but where national emergency conditions do not exist. And, for better or worse, it is the case that access to pharmaceuticals and medical treatment throughout the Americas is often obtained through the private sector. Why should price gouging be permitted in these instances? Why should people be denied access to treatments in these circumstances?
By contrast, TRIPS Article 31 contemplates a much more rational position, in which compulsory licensing is part of the basic schema of the intellectual property system, not a limited set of exceptions. Article 31(b) permits compulsory licensing generally, so long as certain procedural conditions are met. (1) Significantly, the FTAA provisions would impact on compulsory licenses outside of the pharmaceuticals sector, and on the United States, not just on our trading partners. Some of the IP provisions of the FTAA appear to conflict with existing U.S. law, and with various legislative proposals recently introduced in Congress. For example, 42 USC Sec 2183 permits compulsory licensing of atomic energy inventions. In the 107th Congress, Representative Sherrod Brown introduced HR 1708, which would permit compulsory licensing of pharmaceuticals and patented medical inventions.(2) In the 106th Congress, Representative Dennis Kucinich introduced HR 4739, which would permit compulsory licensing of patents on reformulated gasoline.(3) Compulsory licensing is likely to become increasingly important in the United States in the field of biotechnology, where patents on foundational inventions and multiple overlapping patents on single consumer products have the potential to seriously impede medical progress.
COMPULSORY LICENSING AND THE EXPORT ISSUE
One of the most serious TRIPS impediments to effective compulsory licensing involves limitations on exports. The FTAA appears poised to worsen this problem dramatically.
TRIPS Article 31(f) poses significant difficulties in making compulsory licensing operational. It specifies that compulsory licenses must be “authorized predominantly for the supply of the domestic market” of the country issuing the license.
This poses serious potential difficulties for small countries. These countries may wish to issue compulsory licenses to foreign producers, on the grounds that it would be inefficient or impossible to source from a domestic supplier that would have a license only to sell in a limited size market. Under TRIPS and the FTAA, this right to import is unimpeded. But there is the matter as well of whether a manufacturer would be able to obtain a license to export. The prospect of obtaining such a license under TRIPS is complicated by Article 31(f)=D5s predominantly for this supply of the local market requirement. However, a compulsory license proposal in the FTAA would raise the bar much higher, prohibited compulsory licensees from exporting altogether (page 8.64 (6)(b)).
In the context of TRIPS, countries and advocates have proposed a variety of means of dealing with the compulsory license for export problem. One of those proposals, involving a flexible interpretation of 31(f) itself, would be impossible for the Americas under the FTAA proposal. The other such proposals may also be undermined, since the firm language of page 8.64 (6)(b)) banning compulsory licenses for exports would make it much more difficult to interpret an FTAA provision that paralleled TRIPS Article 30, or an FTAA provision related to exhaustion of rights, in such a way as to permit compulsory licenses for export.
The impact of this provision would fall heaviest on people, especially poor people, in small population countries. There is simply no defensible rational for a policy that requires people in Central America or the Caribbean to pay more for medicines than people in Brazil, Mexico or Argentina, with people living in small countries denied the price reductions and greater accessability to medicines following from compulsory licensing, just because they live in smaller countries. This economically inefficient and illogical provision, which would exacerbate the most serious TRIPS impediment to compulsory licensing, must be abandoned.
LINKING MARKETING APPROVAL TO PATENT STATUS
A proposed provision of the FTAA would link marketing approval for a drug — based on a finding of safety and efficacy, or bioequivalence to a safe and efficacious product, granted by FDA-equivalent agencies — to patent expiration (page 8.65 (3)).
This arrangement establishes drug safety agencies as de facto IP enforcement agencies. In practice, this kind of arrangement is likely to yield unjustified patent extensions, as drug safety agencies, operating outside of their field of competence, improperly deny marketing approval to generic competitors.
In the United States, where marketing approval is linked to patent expiration, the FDA almost automatically grants 30-month monopoly protection to patent holders who claim a new patent on claims related to dosage levels or similar grounds of renewed patents for drugs nearing the end of patent protection. In deference to these patent claims, the FDA denies marketing approval to generic companies — even though many are subsequently found illegitimate. The result is that consumers are denied the benefits of competition, and lowered prices, for two-and-a-half years.
There should be no linkage between marketing approval and patent term. If a generic company markets an on-patent drug without license, under TRIPS the patent holder has adequate remedy at law. Stated differently, linkage can only serve to protect invalid IP claims — valid claims receive protection through normal judicial means.
Again, it bears emphasizing that the artificial inflation of the price of medicines that stems from such misuses of the IP system is often a life-and-death matter. Seemingly obscure IP provisions will have enormous consequences for how much preventable suffering is averted or endured by the poor.
IMPROPER GRANTS OF DATA EXCLUSIVITY
Article 39.3 of the TRIPS agreement requires members to grant “reasonable” protection to “undisclosed” pharmaceutical test data, the study data showing safety and efficacy. To gain marketing approval, generic companies typically show their product is bioequivalent to a patented product, and then rely on the patented product’s safety data to earn approval.
In many instances, if a generic company cannot use the already-generated registration data, it will not introduce a generic version of the patented product; the price of generating the data may be too high, or, just as important, take several years to replicate. If the company does choose to re-generate the data, consumers suffer from the delay in the introduction of the generic product that occurs while the generic firm re-conducts the relevant tests. Moreover, from a social point of view, retracing old tests to reach an already-known result is a tremendous waste of resources.
In those countries that establish set terms for registration data exclusivity (5 years in the United States, 10 years in the European Union), the period of exclusivity typically runs shorter than the patent term. Thus, registration data protections are not normally an impediment to the introduction of generics.
They are an issue, however, for new drugs that are not patent-protected or in cases of compulsory licensing. Where a compulsory licensing is granted for a drug for which registration data exclusivities remain in force, the data exclusivity can block the generic from gaining market approval.
An effective system of compulsory licensing must therefore permit compulsory licensing of registration data.
The FTAA includes TRIPS-plus proposals on registration data that would mandate five years protection for the data submitted to show drugs are safe and efficacious (page 8.65 (1)).
TRIPS language itself is quite vague on registration data.(4) It only covers “undisclosed” data, stipulates protection from “unfair” commercial use, does not address the issue of reliance upon published studies or foreign government drug approvals, and sets out no standards for how governments should protect against unfair commercial use.
It is unacceptable for trade agreements to contain language that increases monopolistic protection for registration data beyond that contained in TRIPS. Such measures may significantly impede efforts at compulsory licensing of pharmaceuticals and rapid introduction of generic competition.
EXTENSION OF THE PATENT TERM
The FTAA contains a proposal for patent extensions to offset delays in marketing approval for pharmaceuticals (page 8.65(8)). Like the harmful provisions on improper grants of data exclusivity and linking marketing approval to patent status, USTR has listed this provision as among the U.S. negotiating objectives for the FTAA.(5) The result of the patent extension provision would again be extended monopoly protection for drug manufacturers and gouging of consumers.
TRIPS obligates member countries to grant 20-year patents. Those patents provide a two decade monopoly on inventions. Patent terms seek to create a balance between providing incentives for inventors and the public interest in maintaining and promoting competition. The 20-year term manifested such a balance — albeit one tilted in favor of the corporate patenting sector — taking into account the known delays sometimes associated with marketing approval. Adding additional time to the patent term after a balance has been struck improperly tips the IP scheme too significantly for patent holders.
OTHER INTELLECTUAL PROPERTY CONCERNS
The FTAA contains other harmful TRIPS-plus provisions which should not be adopted.
These provisions include:
-A proposal to deepen dramatically the monopoly power of the holders of gene patents.(6)
-A mandate that FTAA countries rely on the private, unaccountable ICANN to resolve disputes over domain names, including disputes with significant free speech implications (page 8.14).
II. THE INVESTMENT CHAPTER
In addition to the intellectual property chapter, the investment chapter of the draft FTAA would provide an additional set of protections to intellectual property holders.
Essential Action is strongly opposed to the inclusion of an investment chapter in the FTAA. The NAFTA experience with an investment chapter shows how far-reaching and pernicious can be the effects of an investment agreement on a wide range of public interest considerations.(7)
But the implications are especially dire for intellectual property. To whatever extent there is a logic to investment agreements, it does not apply to intellectual property. Especially since intellectual property is a form of investment that is already protected under existing international trade agreements (and likely to be contained again in the FTAA), intellectual property should be excluded from any investment provisions contained in the FTAA.(8)
The FTAA investment proposal prohibits “performance requirements” imposed on investors (Article 7, page 3.5). Compulsory licensing would be such a performance requirement, as listed in Article 7.1(f) (page 3.6): “No Party may impose or enforce any of the following requirements … : to transfer a particular technology, production process or other proprietary knowledge to a person in its territory” [brackets excluded].
There are two important proposed exceptions to this provision. In Articles 7.1(f) and 7.4.2(b) is a proposed exception for such requirements resulting from an antitrust enforcement action. In Article 7.4.2(a) is a proposed exception for “measures relating to the transfer of intellectual property rights as set forth in and that are consistent with the provisions of Articles XXX (CITE TO SPECIFIC ARTICLES) of Chapter XX (Intellectual Property Rights)” [IN ORIGINAL].
Article 7.4.2(a) may well provide protection for compulsory licensing, though it is impossible to know this at this point, since the proposal is in brackets (as is the entire text) and the referenced articles in the IP chapter are unspecified.
But even if Article 7.4.2(a) does provide protection for compulsory licensing, the coverage of all performance requirements not compatible with the as yet unspecified provisions of the FTAA IP chapter will dramatically chill countries=D5 willingness to undertake compulsory licensing, as explained below.
The Article 7.1(f) provision raises a separate and distinct problem with regard to registration marketing approval data protection. Even if the United States does not succeed in winning inclusion of its proposal for five years data protection in the FTAA IP chapter, Article 7.1(f) would appear to provide independent protection of the registration data, with no clear endpoint, perhaps not even the five-year period sought by the United States. At what point could a country impose the “performance requirement” of enabling a generic competitor to rely on the registration data? No time limit appears contemplated in Article 7.1(f). Would reference to an IP provision on registration data exclusivity matter in this instance, given the nature of the IP language and the special nature of the registration data “investment?” These are pressing questions to which we do not see obvious and satisfactory answers.
Following the NAFTA model, Article 10 of the FTAA investment chapter includes a prohibition on expropriation absent payment of market value compensation. Article 10.9 would exclude compulsory licensing and intellectual property limitations from coverage under the expropriation provision, so long as these provisions are TRIPS-compliant, though again these exclusions, like the rest of the draft agreement, are in brackets.
It is absolutely vital that compulsory licensing and intellectual property be excluded from expropriation provisions. Failure to do so would make doing compulsory licensing extremely difficult and maybe impossible.
The expropriations/compensation language in the FTAA would likely mean that a government issuing a compulsory license would owe massive compensation to the patent holder. Under TRIPS Article 31 compulsory licensing, the licensee owes a reasonable royalty to the patent holder. By contrast, under the FTAA expropriation language, the patent holder would be entitled to compensation for an “expropriation” and for the fair market value of the “taken” property. This might well be the value of the lost sale (at the patent holder’s price) minus the paid royalty. The patent holder might quite likely seek more: the patent holder could also argue for lost profits on sales of the patented good, if the patent holder is forced to lower prices in the face of competition.
In such a scenario, no government would issue a compulsory license. Even the possibility of such a scenario, given the fact that liability would rest with the government, would be enough to chill any issuance of a compulsory license.
There must therefore be a crystal clear exclusion of intellectual property from the expropriations provision — not just TRIPS-compliant measures related to intellectual property. Absent such an exclusion, the chill from this provision may freeze out compulsory licenses altogether, as detailed below.
INVESTOR STANDING TO SUE
Following on the NAFTA model, the FTAA would give standing to investors to sue governments for violations of the investment chapter (Article 14).
Such standing would have devastating consequences for protection of the public domain and improving access to essential medicines.
With patent holders given rights to sue governments directly over intellectual property disputes, the “flexibility” that the United States says characterizes its present approach to intellectual property and public health matters would be largely meaningless. Even where the U.S. government chose to exercise its discretion not to challenge another country’s law, regulation or rule, a patent holder could proceed to do so. Under some of the proposed provisions of the FTAA, it appears even those contemplating making an investment could bring such a challenge and seek compensation for lost future profits (see for example, page 3.36 (3)).
The prospect of private actors bringing such suits would have a deep chilling effect on national governments. They would have to operate against the backdrop of private patent holders bringing investment chapter lawsuits against them regarding controversial provisions in the IP chapter. Given the potential severe compensation requirements under the IP chapter, and the pro-investor record established under NAFTA investment tribunals, governments would be strongly deterred from taking measures which might even conceivably contravene the investment provisions.
That is why the intellectual property exclusions in the investment chapter, if there is to be an investment chapter, must be broad, and not limited to TRIPS-compliant or FTAA IP chapter-compliant measures. Intellectual property holders must not have standing to sue under the investment chapter.
It is also worth noting that TRIPS already requires countries to maintain adjudicative remedies for alleged infringements on intellectual property rights, meaning intellectual property holders already have a direct remedy at law. But in these instances, at least, intellectual property right holders’ ability to sue and prospects for compensation are bounded by the TRIPS and IP chapter of the FTAA, and the adjudicative context is not the biased arbitration panels used by NAFTA and proposed in the FTAA.
It is unconscionable and unacceptable to negotiate provisions relating to access to medicines without first running them through a public health screen. If those provisions will harm public health, and meaningfully and unreasonably impede people’s access to medicines and medical treatment, then they must not be adopted. The intellectual property and investment provisions of the draft FTAA do not pass this test.
If there is to be an FTAA, there should be no intellectual property chapter included. If it is included, it must be stripped of all TRIPS-plus measures, though even replicating the TRIPS agreement in the FTAA will have harmful consequences for public health. And if there is an FTAA, there should be no investment chapter. If there is an investment chapter, then intellectual property must be excluded completely. Failing to do so will contravene and make irrelevant the “flexible” policy regarding public health that the USTR claims it applies to disputes regarding access to medicines.
More to the point, failing to take these steps will tend to make it more difficult for people to gain access to essential and lifesaving medicines, will deepen the monopolistic power of intellectual property holders and will facilitate price gouging of consumers throughout the Americas, including in the United States. No U.S. government agency should be pursuing such an agenda.
1. These conditions include: a prior effort by the proposed user to obtain authorization from the right holder on reasonable commercial terms (TRIPS Article 31(b)), that the compulsory license be granted for a specific purpose only (TRIPS Article 31(c)); that the license be non-exclusive, non-assignable and predominantly for use in the domestic market (TRIPS Article 31 (d), TRIPS Article 31 (e), TRIPS Article 31 (f)), that the license be terminated if the conditions giving rise to it cease (TRIPS Article 31 (g)), that the legal validity of the license and the terms of remuneration be subject to appeal to a judicial or administrative authority (TRIPS Article 31 (i), TRIPS Article 31 (j)).
2. The bill was co-sponsored by Representatives Marion Berry, Fortney Pete Stark, Thomas Allen, Bernie Sanders, David Bonior, Barbara Lee, Steven LaTourette, Albert Wynn, James Langevin, Danny Davis, Thomas Barrett, John Baldacci, Janice Schakowsky, Gene Green, Stephanie Tubbs Jones, Jerrold Nadler, John Lewis, George Miller of California and Peter DeFazio.
3. The bill was co-sponsored by Representatives John Elias Baldacci, Thomas M. Barrett, William Lipinski, Cynthia McKinney, Eleanor Holmes Norton and Frank Pallone, Jr.
4. “Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that data are protected against unfair commercial use.” TRIPS, Article 39.3.
5. USTR, “FTAA Negotiating Group on Intellectual Property, Public summary of U.S. Position,” http://www.ustr.gov/regions/whemisphere/intel.htm (No date, but released January 17, 2001).
6. On page 8.51 are provisions to: “=C9 2. When the patent protects a biological product that claims to have specific characteristics, the protection shall also cover any biological material derived through multiplication or propagation of the patented product and having the same characteristics. 3. When the patent protects a biological product procedure that claims to have specific characteristics, the protection shall also cover all biological material derived through multiplication or propagation of the material directly obtained from the procedure and having the same characteristics. 4. When the patent protects a specific genetic sequence or biological material containing that sequence, the protection shall also cover any product that includes that sequence or material expressing that genetic information.”
7. See, for example, Mary Bottari, “NAFTA’s Investor “Rights” A Corporate Dream, A Citizen Nightmare,” Multinational Monitor, April 2001.
8. Intellectual property is defined as a form of investment covered by the FTAA in several proposed provisions (pages 3.33, 3.34)