Global Policy Forum

A Case of Corporate Profits over Public Health

By Cecilia Oh

The recent International AIDS Conference in Durban, South Africa (9-14 July) has put the spotlight yet again on the issue of affordability of essential medicines. The issue of patented drugs and access to essential medicines appears to be shaping up as a key controversy. The studies and statistics presented at the Durban conference inform us that one year's worth of the standard treatment of antiretroviral drugs costs between US$4,000-6,000. This puts it out of the reach of most of the people in the developing world, where most HIV infections are recorded. It is estimated that the current cost of antiretrovirals would have to be reduced by 95% before they can be affordable to all those who need them.(a)

A key factor in determining the cost of a particular drug is the patent on it. Of the 50% of the patients in developing countries who lack access to essential drugs, many die because the drugs are patented and therefore too expensive. These patented drugs include treatment for tuberculosis and AIDS as well as the Hepatitis-B vaccine. Public health activists and consumer groups warn that the World Health Organisation (WHO) estimates - one third of the world's population lacks access to essential drugs - will further increase. They are concerned that World Trade Organisation (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (which developing countries have to implement as of 1 January 2000) will give rise to factors that will put access to essential drugs and healthcare out of the reach of millions of people in developing countries.

The problem with TRIPS

'We went to Geneva where we presented (our) document to the staff of the GATT Secretariat. What I have described to you is absolutely unprecedented in GATT. Industry has identified a major problem in international trade. It crafted a solution, reduced it to a concrete proposal and sold it to our own and other governments ... The industries and traders of world commerce have played simultaneously the role of patient, the diagnostician and the prescribing physician.'(b)

The above is a quote from an industry representative, describing the role of industry in formulating the TRIPS Agreement. It is therefore not surprising that commentators describe the negotiation of the TRIPS Agreement as one that was forced by the developed countries against objections from many developing countries. The aim was to universalise the standards of intellectual Property Rights (IPRs) protection that developed countries had already incorporated within their legal systems.(c) Thus, the TRIPS Agreement now requires all WTO members to adapt their laws to the minimum standards of IPRs protection. During the 1980s, the gradual erosion of the developed countries' supremacy in manufacturing and technology, due to the rise of the Asian countries as competitors, was a cause for concern. The industrial lobbies convinced developed-country governments on the need to link trade with IPRs, in order to prevent imitation and to increase returns on research and development. Monopoly rights granted by IPRs were regarded as crucial to prevent the developing countries from further undergoing the 'catching-up' process towards industrialisation based on imitating and copying technologies, as the developed countries themselves had done. In other words, IPR protection was a tool to guarantee the comparative advantage that had so far ensured the developed countries' technological supremacy.(d)

Problems for developing countries

Prior to the negotiation of the TRIPS Agreement, over 50 countries (including developed countries) did not confer patent protection on pharmaceuticals.(e) Many developing countries regarded the absence of protection as necessary to promote access to drugs at competitive prices. Therefore, conforming to TRIPS provisions by recognising and strengthening protection of IPRs on pharmaceutical products and processes will cause problems for developing countries. Implementation of the TRIPS Agreement may lead to high drug prices, low access and a weakening of national pharmaceutical industries(f), due to factors described below.

Twenty-year protection: The minimum term of 20-year patent protection required by the TRIPS Agreement effectively allows a pharmaceutical company a monopoly over its patented drug. Free from competition, the company will be able to keep the price of the drug high during the protection period. By virtue of TRIPS protection, no generic equivalent can come into the market until expiry of the 20 years, denying patients cheaper alternatives.

Product and process patents: The TRIPS Agreement extends the scope of patent protection to both products and processes. Product patents provide for absolute protection of the product, whereas process patents provide protection in respect of the technology and method of manufacture. A process patent system promotes a more competitive environment and a check on prices, as compared to the monopoly system created through product patents. With the TRIPS requirement for both product and process patents, it will therefore be possible to apply for patent rights over a product for 20 years, and thereafter, further periods of protection could be applied for the processes by which the product is produced.(g)

Some experts also caution that the 20-year protection can be (ab)used to extend the monopoly through process patents as well as patents on usage form, dosage form and combination form. In the US, for example, patents have been taken on new combinations of drugs even when the product patent on the basic drug - the active ingredient - has long expired.(h) Monopoly protection would be extended through minor changes to the existing medicines where the product patents have expired.

Threat to domestic pharmaceutical industry: Developing-country pharmaceutical producers will find themselves pushed out of the market, having to compete with the large transnational corporations (TNCs). For the smaller producers in the developing world which specialise in and depend on manufacturing cheaper generic alternatives, this would no longer be possible (until the expiry of the 20-year period).

The TRIPS Agreement further requires patents to be granted regardless whether the products are imported or locally produced.(i) This means that patent holders can merely import their product, without having to work the patent in the country granting the right. This will mean that a TNC can supply global markets under the patent monopoly, exporting the finished product instead of transferring technology or making foreign direct investment.(j) This rubbishes TRIPS supporters' argument that strict patent regimes will increase the flow of technology and investment into developing countries.

Overriding patent rights

Notwithstanding the above, some provisions in the TRIPS Agreement do provide certain exceptions to patent protection of pharmaceuticals.

Parallel imports: Parallel importing is a means by which developing countries could lower drug prices. Where there are price differences for the same product in different markets, it is possible to import the product from the cheaper market for resale. The principle of IPR exhaustion allows any interested party from country A to purchase a product legally sold in country B for resale in Country A, without the consent of the patent holder.

Compulsory licensing: The use of compulsory licences is not prohibited by the TRIPS Agreement, although it is not specifically referred to in the agreement. The government or court of law may grant a licence to a third party to use a patent, without the patent holder's consent, under specified conditions, such as in cases of national emergency or extreme urgency, or to remedy anti-competitive practices.(k) Experts consider compulsory licensing a crucial element in increasing the affordability and availability of drugs, while ensuring that the patent holder is compensated for the use of the patent.

Battle lines drawn ...

But some developing countries have been reluctant to use these options for fear of trade sanctions by the developed countries. A report from Medecins sans Frontieres (MSF) details the US government's pressure on Thailand to restrict its use of parallel imports and compulsory licences. The Thai government passed a law banning parallel imports in 1992, under the threat from the US to limit textile imports (parallel imports are allowed again after amendments to the patent law which came into force in 1999).(l) Although patent law in Thailand provides for compulsory licensing, MSF reports that the Thai government - this time under threat of high tariffs on imports of wood products and jewellery - passed ministerial regulations in 1998 to restrict the use of compulsory licences.(m)

Without the life-prolonging AIDS drugs, hundreds of thousands of people in Thailand will die. Already 300,000 have died. AIDS activists and health experts have criticised the pharmaceutical companies for the lack of action on their previous pledge to reduce drug prices. They insist that one crucial method of improving access to drugs is compulsory licensing, and have condemned the US government's policy of protecting big business over people's lives.

When the South African government sought to enact the Medicines and Related Substances Control Bill, the US government accused it of failing to adequately protect American drug patents. The US objection was directed at provisions in the law which would allow for compulsory licences and parallel importing. Despite the considerable pressure exerted on the government and Parliament of South Africa, the bill was passed in 1997.(n) The pharmaceutical industry in South Africa, backed by the TNCs and the pharmaceutical lobby in the US, filed a legal challenge to the new law. The US government, taking its cue from its pharmaceutical lobby, began a process of negotiations and threats to get the South African government to change its stance.

It was only after intense campaigning by AIDS and health activists - successfully embarrassing Presidential candidate Al Gore and marring his campaign efforts - that the US retreated from its position and eventually reached a resolution of the matter. From reports, it is understood that South Africa has made clear its intention to use compulsory licensing and parallel importing in a TRIPS-compliant manner, and that the offending provisions in the act remain.(o)

These incidents of unilateral pressure have provoked outrage from many developing countries. Commentators also point to the irony of the situation. The US, like most developed countries, provides for compulsory licensing in its national laws. The US also grants perhaps the largest number of compulsory licences (more than a hundred such licences have been granted) to address anti-competitive practices and for government uses. It would appear that in the battle between the right to health and the right to monopolies and profits, the battle lines have been drawn between countries of the South on one side, and the Northern governments and their industrial lobbies on the other.

... at the World Summit for Social Development

The North-South battle lines were clearly drawn during the recent UN World Summit for Social Development, held in Geneva.(p) The G77 group of developing countries had proposed to exclude essential and life-saving medicines from patentability, in order to ensure access to such medicines. The developed countries - including the US, the EU, Canada and Japan - vehemently rejected this proposal, citing the need for patents to stimulate research and development. In response to Canada's call to delete the proposal, the South African delegate had said: 'When you are going to lose 25% of your productive work force due to HIV/AIDS, you cannot be so blasé with your comments'.(q)

The final agreed text does not include the G77 proposal to exclude essential medicines from patentability, but affirms countries' right to 'freely exercise' their legal options in an unrestricted manner. This was a reference to the pressure exerted by the US and its pharmaceutical lobby on developing countries not to exercise their option to take measures (such as compulsory licensing and parallel imports) already available to them under the TRIPS Agreement to ensure access to essential medicines.

Although some experts are of the opinion that this does not represent any change in terms of the developing countries' obligations to implement the WTO agreements, others believe that it is a point well worth making. It represents a moral victory for the developing countries, and it should also be seen as the first step to the real battle in the WTO.

... and at the WTO

The exclusion of essential drugs from patenting is expected to be discussed in the WTO, in the context of 'implementation issues'. During preparations for the WTO's Third Ministerial Conference, which took place in Seattle on 30 November - 3 December 1999, many developing countries raised the issue of the imbalances and inequities inherent in the WTO agreements. The developing countries had expressed dismay that having seen little of the benefits of the Uruguay Round (of trade negotiations which resulted in the establishment of the WTO), they were now being pressured to bear the considerable burden of implementing their onerous obligations. With respect to the TRIPS Agreement, developing countries were concerned over the costs and the socio-economic and developmental implications of establishing the strict IPR regimes required. In this connection, developing countries had tabled proposals for the reform of the TRIPS Agreement.

Of relevance is a joint submission from the Like-Minded Group of developing countries (comprising Cuba, the Dominican Republic, Egypt, El Salvador, Honduras, India, Indonesia, Malaysia, Nigeria, Pakistan, Sri Lanka and Uganda), which proposed that 'the list of exceptions to patentability in Article 27.3(b) of the TRIPS Agreement shall include the list of essential drugs of the World Health Organisation'. This proposal has yet to be considered, given the failure of the Seattle Ministerial Conference to conclude with any decisions. In the meanwhile, the WTO General Council, in a Special Session, has agreed on a work programme to address the 'implementation issues' raised. During the first Special Session (23 June and 3 July 2000), some of the implementation issues and proposals raised by the developing countries were discussed, including the proposal for exclusion of essential drugs from patentability. The Special Session is scheduled to meet again in October 2000.

Conclusion

Judging from the prolonged negotiations on the issue during the World Social Summit, it can be expected that the proposal of the Like-Minded Group to exclude patentability of essential drugs will generate heated debate. It is a legitimate concern that the TRIPS Agreement does not adequately take into account public health needs. The agreement has instead been described as a 'charter of rights for patent holders'.(r) There are no specific obligations towards the governments granting the patent rights. The interests of the consumers and patients have also been ignored. In order to protect the public interest of providing access to and availability of medicines and healthcare, developing countries will have to consider a wide range of factors. However, a key factor must be the implications of the TRIPS Agreement and its patent protection for drugs and pharmaceuticals.

In this regard, developing countries must be allowed to exercise the options already provided for in TRIPS and other international agreements, free from pressure. National legislation putting into effect the compulsory licencing, parallel importing and other options in a manner most conducive for the individual health, economic and development needs of a country should be considered of primary importance. At the WTO, developing countries will have to fight for their concerns to be effectively and promptly addressed. With respect to the TRIPS Agreement, developing countries have submitted proposals for changes to the agreement, in order to ensure that IPR protection does not undermine their economic and developmental prospects. In this regard, the proposal of the Like-Minded Group should be supported and adopted as a necessary first step to ensuring access to essential medicines and their affordability.

Acknowledgement

This report is based largely on information from the following documents: