The U.S. Trade Representative is in the middle of ongoing trade negotiations involving intellectual property rights in multiple arenas. In defense of its pro-pharmaceutical industry position, the U.S. continually refers to the need to preserve the viability of the research and development pharmaceutical industry and the danger of generic medicines produced abroad flowing back into the United States. There are at least five major fallacies in the U.S. position: (1) U.S. patent law and drug registration law outlaws importation of unauthorized drugs, generic or patented, into the U.S.; (2) U.S. border protections are remarkably effective at preventing unauthorized entry of medicines; (3) nothing that is proposed for liberalizing access to generic medicines in developing countries would facilitate entry of unauthorized medicines into the U.S.; (4) although there is ample generic production and ample cheaper patented drugs for sale throughout the world at present, these drugs do not currently find their way to U.S. consumers to the detriment of drug company profits or consumer safety; and (5) the financial well-being of major drug companies and the availability of profits to pursue future drug discoveries does not depend on drug sales, hypothetical or actual, in developing countries.
The bottom line is that no legitimate interest of U.S. consumers, or of U.S. pharmaceutical companies, is at risk if the U.S. fulfills its solemn promise at the WTO last year to permit developing countries to have increased access to affordable generic medicines. There in a Declaration signed by a 140 Member Countries, the U.S. agreed that public health principles should animate interpretation of WTO intellectual property rules contained in the TRIPS Agreement and further agreed that TRIPS should be implemented so as to increase access to medicines for all, particularly for developing countries facing significant public health dilemmas, most especially (but not limited to) the major current pandemics AIDS, TB, and malaria.
The U.S. has a robust legal system that protects the interests the patent drug industry to exclude foreign competition and the unauthorized importation of on-patent medicines. When a patent is issued on a pharmaceutical product or process in the U.S., the patent holder is protected from all competition within the territorial U.S. for a period of 20 years. During that time period, the patent holder has the exclusive right of making, using, offering for sale, selling, importing, or otherwise distributing the patented medicine. Of particular importance is the protection against importation. Because the U.S. has adopted a system of national rather than international "exhaustion of rights," a U.S. patent holder can sell a patented medicine more cheaply in another country, say Spain, where it also has a patent, and still prevent the parallel importation of that cheaper patented product back into the U.S. Accordingly, were pharmaceutical companies to give price discounts on antiretroviral drugs to Africa countries, the companies would not have to fear that those drugs could be legally exported back for sale in the U.S. Similarly, because of patent-based rights to control all sale or distribution of patented medicines within the territorial limits of the U.S., no foreign country or company can export on-patent generic drugs into the U.S. Because the generic version would thereby be violating the U.S. patent, the patent holder could seek full legal recourse in a court of law against the offending exporter, importer, and local sales agent.
Accordingly, the existing patent regime in the U.S. outlaws the type of importation that the USTR hopes to avoid. But what about the danger of unauthorized entry are our borders porous to future importation of generic drugs produced by developing countries to satisfy their own public health needs despite our rule of law? The short answer is that there is remarkable little cross border transportation of unauthorized drugs even by individuals, let alone in bulk. U.S. customs agents, although they cannot search every package and although they have a somewhat dismal record of stopping the illegal drug trade, have a remarkable record of stopping unauthorized importation of medicines. Admittedly, there are stories of busloads of senior driving to Mexico or Canada from border-states and loading up on dramatically cheaper medicines. These purchases are ordinarily made through individual prescription sales and save consumers 50%. (Moreover, they are arguably legal given that the U.S. permits cross-border transfer of personal use prescription medicines.) But the truth of the matter is that these sales, even if augmented by currently illegal cross-border internet sales, constitute a tiny fraction of drug sales in the U.S. If the economic impact of individual importation and cross-border internet sales becomes to great, the U.S. could increase enforcement and stop both practices without running afoul of any pro-access rule proposed in current negotiation regarding the TRIPS agreement.
The U.S. argument is also based on the false premise that there will be a new flood of generic medicines that would somehow, through corruption or otherwise, be diverted into the U.S. This premise, in turn, is based on an underlying assumption that there are no generic drugs in the world now. However, there are a huge number of generic medicines in the world, almost none of which are finding their way illegally into the U.S. market. Why would selling more life-saving drugs in developing countries somehow make the U.S. more vulnerable to diversion and sale of Indian generics than it already is? If this risk is real, how come it hasnıt materialize for the billions of pills produced in India each year? Are African countries somehow more adept at smuggling than Indian manufacturers or wholesalers? The whole idea is preposterous if for no other reason that Americans simply will not buy medicines out the trunk of Chevy parked in some dark alley. Moreover, our drug distribution system, via pharmacies, is very tightly regulated. If generic diversion and gray market sales are not occurring now, thereıs no good reason to think they might happen in the future.
O.k., so if itıs illegal to import unauthorized medicines, if our borders are well guarded, and if there is no current problem of gray market sales even though the world is awash in generic drugs, is there some change being considered at the WTO that will increase the danger of under-priced medicines flooding the U.S. market? In a word, no. The pro-public health rules proposed by African Group countries and other developing countries will permit manufacture and export of low-cost generic medicines only to countries that: (1) (a) have issued a compulsory license if there is a competing patent on file or (b) have no patent on file whatsoever; and (2) have passed national legislation permitting the importation of generic medicines to satisfy legitimate public needs. Despite these theoretical options, the U.S. does not have to pass authorizing legislation, and it probably wonıt do so (even though there are good arguments that it should in order to be able to respond to extraordinary crises like bio-terrorism). Moreover, although U.S. law allows liberal governmental use of patented medical products (a right it does not currently pursue), U.S. law does not currently allow for issuance of compulsory licenses to satisfy indistinct public health needs in the private health care system. In other words, the U.S. completely controls its own destiny despite anything that is agreed upon in the ongoing WTO negotiations.
The final concern, frequently expressed by the USTR and by the pharmaceutical industry, is that the new IP rules must preserve the incentive for future research and development and that the interest of U.S. consumers in continued path-breaking medical discoveries is jeopardized if patent protections are not invoked worldwide. To rebut this concern, it is important to outline the current structure of the global drug market. In 2002, the world pharmaceutical market was estimated at $406 billion dollars. North America, Europe, and Japan together purchase 80% of that total and all of them have robust systems of patent protection which guard patent holders against generic competition. On the other hand, all of Africa, Latin America, Asia, and Africa, the so-called developing world, combine for only 20% of the global market (despite having 80% of the worldıs population); sub-Saharan Africa, the center of the HIV/AIDS pandemic, comprises a miniscule 1.3% of worldwide drug sales.
Accordingly, U.S. pharmaceutical companies make the vast bulk of their profits on secure sales in rich countries that have strong protections for intellectual property rights. Moreover, U.S. drug companies earn a very handsome rate of return, on their sales - 18.5% - which places them at the top of all U.S. industry groups, five times the all-industry average. As a result, the largest U.S. pharmaceutical concerns earned nearly $37 billion dollars last year, even after deducting expenses for current research and development. In general, U.S. pharmaceutical companies make more net profit, even after R&D, than they spend on R&D, which is fully tax deductible. Similarly, on average, they spend nearly twice as much on advertising, sales, and administration than they do on research and development. Accordingly, if drug companies need additional money for R&D because of some marginal losses of high profit sales in some subset of developing countries, they might consider reducing their marketing and sales expense where they ordinarily spend twice as much money, or they might consider dipping a little bit deeper into their monopoly profits. So, in sum, the pharmaceutical industry is remarkably profitable (and has been so for many years) and its ability to conduct future research and development is in no real jeopardy based on anything that happens to sales of some of its products in some developing countries facing compelling public health dilemmas.
However, even if the drug companies were not already making huge profits on sales in rich countries, more than enough to fund future research and development, are they losing profits by preventing access to medicines in developing countries? To the contrary, tens of millions of poor people are going without access to affordable patented medicines, and drug companies arenıt making a dime on those non-sales. How exactly are drug companies being hurt if someone else make the drugs much more cheaply, sells them to customers previously priced out of the market, and then pays a royalty, even a small one, to the patent holder, as they must under existing compulsory license rules? The worst that will happen to drug companies is that they might lose some highly profitable sales to a very narrow spectrum of rich elites in developing countries. However, this is a small price to pay in order to dramatically increase access to life-saving medicines for the other 98% of the population in poor countries.
The U.S. government and the pharmaceutical industry have tried to use a bunch of false arguments to block reform of international intellectual property rules that might otherwise permit developing countries to access dramatically cheaper, high quality generic medicines to address public health needs such as the HIV/AIDS pandemic. Anyone who thinks it doesnıt make a difference in access to medicines (and in donor support for drug purchases) to enable poor countries to buy generic antiretroviral drugs at $200 a year per person instead of buying patented equivalents at $10,000 a year doesnıt live in the real world. If any legitimate interest of U.S. consumers and pharmaceutical companies were at stake in permitting treatment access to millions of people now standing in a death queue, we might need to have a principled discussion about social justice and global solidarity and about what privileged people should give up to redistribute social goods to poor people. But in the final analysis, pharmaceutical consumers in the U.S. have no legitimate interest at stake if the U.S. were to permit increased access to affordable medicines for people dying by the millions from treatable conditions like HIV/AIDS, TB, and malaria.
Given this total lack of any legitimate self-interest, it is even more morally repugnant that the U.S. persists in irrational opposition to expanded access to life-saving medicines for our brothers and sisters dying miserable deaths from treatable disease halfway around the world. To do so merely to preserve a tiny sliver of redundant super profits for pharmaceutical giants, who lobby and contribute in proportion to their wealth, is a human rights abuse of historic proportions producing a system of pharmaceutical apartheid and death by patent. Fair-minded Americans should call their Congress people, Bush Administration officials, and the U.S. Trade Representative and express outrage at this callous misrepresentation of consumersı interests and this even more callous disregard of the lives and well being others, whose lives are just as important, valuable, and worth saving as our own.
Professor Brook K. Baker, Health GAP