United Nations Millennium Development Goals Project,

Task Force 5: Infectious Diseases and Access to Essential Medicines, Sub-Group Access to Essential Medicines

Analysis and Response to WTO Action Regarding Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health*

Professor Brook K. Baker**

________________________

* Draft for circulation only (December 10, 2003) – comments welcome b.baker@neu.edu.

** Northeastern University School of Law, member Health Global Access Project.

1. CONTEXT – DEVELOPING COUNTRIES’ NEED FOR ACCESS TO

ESSENTIAL ON-PATENT MEDICINES FOR TREATING HIV/AIDS

AND OTHER DISEASES 4-7

2. A BRIEF HISTORY OF INTELLECTUAL PROPERTY PROTECTION

NEGOTIATIONS: THE TRIPS AGREEMENT, AND DOHA DECLARATION,

AND THE PARAGRAPH 6 IMPLEMENTATION AGREEMENT 8-17

2.1 The WTO TRIPS Agreement 8-11

2.2 The Doha Declaration 11-15

2.3 Unilateral Impasse 15-17

3. COVERAGE OF THE AUGUST 30 PARAGRAPH 6 IMPLEMENTATION

AGREEMENT AND ITS RELATIONSHIP TO PRE-EXISTING AND

CONTINUING FLEXIBILITIES IN THE TRIPS AGREEMENT AND

THE DOHA DECLARATION 17-40

3.1. The Paragraph 6 Implementation Agreement

and Chairperson’s Statement 17-30

3.1.1 Pharmaceutical products and diseases covered 17-18

3.1.2 “Eligible Importing Members” 18-21

3.1.3 Eligible importing “regions” 21-22

3.1.4. “Eligible exporting Members” and “technology transfer” 22-23

3.1.5 Non-commercial motivation 23-24

3.1.6 Conditions on compulsory licenses: quantity terms and

royalty rates 25

3.1.7 Product differentiation requirements 25-27

3.1.8 Other anti-diversion measures 27-28

3.1.9 A procedural morass 28-30

3.2 The Full Spectrum of Sourcing Alternatives for Developing

Countries Post-Doha. 30-40

3.2.1 No patent options 31-32

3.2.2 Parallel imports 32-33

3.2.3 Article 31(b), (f) compulsory licenses – non-predominant

Quantities 33-35

3.2.4 Article 31(k) compulsory license 35-37

3.2.5 Legal certainty concerning post-Paragraph 6 Implementation

Agreement sourcing flexibilities 37

3.2.6 Limited exceptions under Article 30 37-38

3.2.7 The Paragraph 6 Implementation Agreement 39-40

4. LEGISLATIVE REFORM IN IMPORTING AND EXPORTING

COUNTRIES 40-48

4.1 Competition policy reform 41-45

4.2 Regulating voluntary licenses 45-48

5. POSSIBLE RAMIFICATIONS OF GLOBAL FUND AND U.S.

PROCUREMENT RULES 48-55

5.1 Global Fund policies 48-54

5.2 U.S. EPAR policies 54-55

6. ECONOMIC ANALYSIS OF EFFICIENT GENERIC MANUFACTURE

AND THE IMPORTANCE OF ECONOMIES-OF-SCALE 55-57

7. EMERGING NEGATIVE IMPACT OF BILATERAL AND

PLURILATERAL FREE TRADE AGREEMENTS ON

POST-DOHA AND POST-PARAGRAPH 6 FLEXIBILITIES 58-60

8. THE MANDATE FOR AN ARTICLE 30 LIMITED EXCEPTION

FOR ACCESS TO EXPORTED GENERICS 60-61

1. CONTEXT – DEVELOPING COUNTRIES’ NEED FOR ACCESS TO ESSENTIAL ON-PATENT MEDICINES FOR TREATING HIV/AIDS AND OTHER DISEASES

As recognized by the U.N. Millennium Development Goals Project, the burden of untreated, but treatable disease in developing countries is staggering.[1] For example, over 40 million people are living with HIV/AIDS, including nearly 27 million in Africa,[2] precipitating a global emergency[3] far overshadowing the SARS scare or the war on terror. Although millions of people living with AIDS in developing countries need immediate access to affordable antiretroviral medicines, 95% of them, including 99% in Africa, are living – and dying – without medicines that have dramatically extended lives in the U.S. and Europe.[4] AIDS is the paradigmatic example, but the issue of access to on-patent essential medicines is not limited to HIV/AIDS or antiretrovirals (ARVs) alone. Poor people in developing countries face a host of infectious diseases, e.g., tuberculosis, malaria, respiratory infections, diarrhea, and chagas disease, for which there is little or no access to medicines, even where cures exist. In addition to infectious diseases, people in developing countries contract many, more familiar and equally untreated diseases including diabetes, asthma, heart disease, cancer, and mental illness.[5] For these diseases, as common in the North as the South, there is a wider array of on-patent medicines, including anti-diabetics, beta-blockers, oncology drugs, and psychiatric drugs, all of which are critically important to the physical and mental health of poor people in developing countries and all of which are priced well beyond affordability.

It is against this backdrop of millions of lives lost needlessly every year that one must judge the world’s hesitant and often counter-productive response to the AIDS pandemic and other health problems in developing countries and applaud the growing movement to catalyze a robust trade in low-cost generic medicines. The enormous gap between the need for access to affordable on-patent medicines and its realization reflects a disconnect between the perceived interests of rich countries in the global North, including the highly profitable proprietary pharmaceutical companies[6] that research, develop, and produce patented medicines, and the interests of developing countries in the global South that require life-saving medicines to fight HIV/AIDS and other pandemics that are decimating their poverty-stricken populations. This disconnect occurs at the intersection of national and international intellectual property regimes, especially the World Trade Organization (WTO) Agreement on the Trade Related Aspects of Intellectual Property Rights (TRIPS),[7] national and regional capacities to manufacture and market pharmaceutical products efficiently, and global patterns of income inequality and poverty. While rich developed countries continue to pursue intellectual property protections and trade rules designed to guarantee incentives for discovery and profits for the proprietary pharmaceutical industry, there is a critical lack of access to medicines essential to counteract disease and to lower the body count of poor people in Africa, Asia, South America, and other developing regions.

Developed countries often promote enhanced intellectual property rights, including those of pharmaceutical producers, as important to development, where the rising tide of import-export economies will rehabilitate failed public health sectors and intellectual property protection will promote local research and development of medicines for diseases primarily found in Africa, South America, and Asia. An alternative solution, pursued by developing countries and treatment activists internationally, is the promotion of efficient generic production by a sufficient number of manufacturers at meaningful economies-of-scale so that medicines can be accessed at lowest cost. To enable trade in generic medicines, developing countries and pro-public health activists have launched a broad-based attack on intellectual property rights that hamstring developing countries’ ability to respond proportionately to their urgent crises and more prosaic public health needs by making treatment costs prohibitive.

That generic medicines are cheaper than their brand-name, patent-protected counterparts is undeniable. For example, in February of 2001, Cipla of India announced a price heard round the world – a standard package of ARVs for as little as $350/year to NGOs and $600/year to governments in Africa. As more Indian producers entered the market, prices fell even further, and the quality of the drugs was assured through the World Health Organization’s new pre-qualification program. This fall, a new benchmark price has been established by four generic producers, three Indian and one South African – less than $140 per year for the WHO preferred fixed-dose combination medicine.[8] Accordingly, standard quality generics are now available for a penny on the dollar of what the major pharmaceutical companies charge in rich markets.[9]

To enable purchase of assured quality generic drugs, developing countries and activists have also succeeded in convincing donors to establish funding structures such as the Global Fund to Fight AIDS, Tuberculosis, and Malaria[10] [Global Fund] and in agitating for greatly enhanced bilateral and multilateral donations so that there are reliable and sustainable reservoirs of purchasing power sufficient to provoke generic entry and to finance purchase of large quantities of medicine. In this regard, the promised tripling of the U.S. response to global AIDS, from $5 billion over five years to $15 billion, may be significant[11] as is the $1 billion commitment to date from the World Bank’s Multi-Country HIV/AIDS Program. Although the WHO Commission on Macroeconomics and Health recognizes the centrality of funding for AIDS, tuberculosis, and malaria in the fight against global disease, it advocates spending $34 billion a year by 2007 on both general and targeted health care programs in developing countries. With this level of funding, the world can begin to reverse the tide of disease, prevent 8 million deaths a year, and generate $360 billion in economic benefits a year.

Developed-country trade policy and pursuit of enhanced intellectual property rights have complicated a viable response to HIV/AIDS and other diseases where patented medicines are too expensive for poor countries to purchase. In place of an energetic global reaction speeding medical care to developing countries, the U.S. and its European and Japanese allies have enforced a protectionist system of intellectual property protections that frequently keeps low-cost drugs from people in need. This system, designed primarily to preserve drug companies’ exclusive access to private sector markets in middle-income developing countries, often forestalls access to dramatically cheaper generic medicines for people in immediate need.

The prime example of this imbalanced sense of priorities occurred in multilateral negotiations that established a uniform system of international intellectual property rights, the WTO TRIPS Agreement. But even after securing a new international standard of patent protection in the GATT negotiations, the U.S. continued to pursue its goal of heightened intellectual property protections through an ongoing series of trade sanction threats, its stubborn resistance in WTO negotiations aimed at liberalizing access to medicines, and its pursuit of bilateral and plurilateral negotiations designed to “ratchet” intellectual property protections to an even higher level.[12]

Section 2 of this paper presents a critical analysis of the U.S.’s continued defense of drug company prerogatives and of its multi-forum efforts to achieve even higher levels of intellectual property protection. Concurrently, Section 2 reviews the struggle of developing countries to codify greater recognition of public health issues and to engineer increased intellectual property flexibilities, a struggle that reached its high point in Doha, Qatar, on November 14, 2001 when the WTO adopted the Doha Declaration on the TRIPS Agreement and Public Health [the Doha Declaration].[13] Although the Doha Declaration confirmed member states’ freedom to issue compulsory licenses and to rely on parallel imports as an alternative source for lower-cost branded medicines, it left open sourcing issues for poor countries that cannot produce medicines efficiently through domestic manufacture because of insufficient or inefficient pharmaceutical capacity. For these countries, local production is impossible and importation from exporters is increasingly restricted because of a requirement in TRIPS that countries bypassing patent rights for particular medicines must produce predominately for their own domestic markets rather than for export. Thus, Paragraph 6 of the Doha Declaration required a resolution to the production for export dilemma by the end of 2002. Despite this deadline, U.S. intransigence resulted in impasse at the end of 2002, necessitating anther nine months of negotiation. Finally, on August 30, 2003, WTO members unanimously approved the Decision of 30 August 2003: Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health [Paragraph 6 Implementation Agreement].[14]

Section 3 of this paper, its major section, summarizes the August 30, 2003 compromise on the Paragraph 6 dilemma and then outlines in detail the multiple options that developing countries have for accessing medicines from willing producers under the TRIPS Agreement, the Doha Declaration, and the new August 30 Paragraph 6 Implementation Agreement. Section 4 of the paper then outlines the breadth of legislative reform that developing countries must enact in order to take advantage of the entire range of flexibilities that they now have. Because developing countries with marginal pharmaceutical capacity will still face questions about whether to invest in or subsidize local generic manufacturing or to import essential medicines from abroad, Section 5 of the paper provides a brief economic analysis of the prerequisites of efficient generic manufacture and the special importance of economies-of-scale in securing lowest prices. Section 6 discusses procurement policies of the Global Fund to Fight AID, Tuberculosis and Malaria and of unilateral initiatives such as the U.S. Emergency Program for AIDS Relief [EPAR]that might impact sourcing decisions.

Gains achieved in the Doha Declaration and in the Paragraph 6 Implementation Agreement risk being undermined because of the negative impact of bilateral and plurilateral free trade agreements being negotiated by the U.S. with individual developing countries and with developing regions. Thus, Section 7 of the paper highlights negative aspects of recent U.S. free trade agreements and other trade and intellectual property initiatives. This section recommends that developing countries insist on removing intellectual property provisions from bilateral and plurilateral trade agreements and that the TRIPS Agreement should now be seen as both a floor and a ceiling on IPRs. Finally, in Section 8, the paper argues for a simplified Paragraph 6 solution and attempts to persuade developing country negotiators that they should not settle for the flawed Paragraph 6 Implementation Agreement during their upcoming negotiation to amend the TRIPS Agreement on a permanent basis. In particular, the paper argues that developing countries should return to a simplified Article 30 solution that put them on equal footing with large, rich countries that can routinely satisfy their compulsory licensing needs through no-hassle, no-limits domestic production.

2. A BRIEF HISTORY OF INTELLECTUAL PROPERTY PROTECTION NEGOTIATIONS:

THE TRIPS AGREEMENT, AND DOHA DECLARATION, AND THE PARAGRAPH 6 IMPLEMENTATION AGREEMENT.

2.1 : The WTO TRIPS Agreement

The 1994 TRIPS Agreement introduced minimum global standards for protecting and enforcing nearly all forms of intellectual property rights: patents, copyrights, and trade secrets, including those applying to pharmaceuticals.[15] The Agreement was the result of a decade-long movement by a coalition of industries in the U.S. that united to secure an international standard of intellectual property protections that could be enforced through trade sanctions. Frustrated by the inability of the World Intellectual Property Organization to engineer global standardization and harmonization of IP standards, the pharmaceutical, computer software, publishing, and entertainment industries in the U.S. cooperated to form their own internal alliances and to lobby business groups to back enhanced intellectual property protections. This strengthened U.S. alliance then worked with industry leaders and networks in other developed countries to motivate the importance of globalizing IP protections. At the same time that they were cementing their intercontinental business alliances, these forward thinking industries convinced first the U.S. Trade Representative and then the E.U. and Japanese trade representatives that GATT was the forum within which intellectual property protections should be pursued. Although developing countries tried to create a coalition of the unwilling, the U.S. used its new Section 301 Special Trade List IPR authority to discipline recalcitrant nations and to the split the alliance. Reacting to competition from generic producers, the U.S. and E.U. pharmaceutical industry played a lead role in TRIPS negotiations.[16] At the end of the day its principal negotiator stated that the industry had achieved all of its aims, controlling the process and the content.[17]

The resulting TRIPS Agreement covers basic principles, standards, and use of patents, enforcement and dispute settlement mechanisms, and multiple other subjects, many of which are tilted in favor of intellectual property owners and against the interests of consumers. Under its key patent provisions, member countries must provide patent protection for a minimum of 20 years from the filing date of a patent application, Article 33, for any invention, including a pharmaceutical product or process, that fulfils the criteria of novelty, inventive step and usefulness, Article 27.1. Although preceding patent-rule pluralism in both the developed and undeveloped world had allowed policy-based discrimination between fields of invention, for example by excluding medicines, Article 27.1 expressly outlawed such discrimination. Similarly, it was no longer permissible to discriminate routinely against imports in favor of locally produced products, thus allowing major pharmaceutical companies to control the place of production despite illusory promises to undertake technology transfer.[18] Because of Article 28, the major pharmaceutical producers secured exclusive rights to exclude others from “making, using, offering for sale, selling, or importing” patented pharmaceutical products or products made with a patented process. In addition, Article 39.3 protects undisclosed information (including clinical test data) from “unfair commercial use,” a provision that may ultimately be interpreted to impede registration of generic drugs even where patent bars are overcome.[19]

Admittedly, there are important flexibilities in TRIPS, discussed in detail in Section 3, including autonomy under Article 6 to establish international exhaustion rules, which would thereby permit parallel importation[20] and authority under Article 31 to issue compulsory licenses[21] and under Article 30 to grant limited exceptions to patent holders’ right to exclude competition,[22] but the undeniable effect of the TRIPS agreement has been to consolidate the economic power and monopoly privileges of the proprietary drug industry. Given its pre-existing advantage in conducting research and development (96% vs. 4%), the developed world’s drug industry secured near absolute competitive advantage over the developing world’s via the TRIPS Agreement.[23] This advantage will eventually result in the net transfer of billions of dollars from the impoverished Global South to the affluent Global North.

At the time of its passage, many public health specialists in both developed and developing countries seemed unaware of the looming consequences of a rising tide of patent protection on the treatment of diseases.[24] However, the burgeoning AIDS crisis quickly caught people’s attention, especially given the astronomical cost of triple-therapies brought to the market in the mid-1990’s. As the developing world confronted the reality of tens of millions of HIV infections and the unaffordability of billions of patent-protected pills, critics questioned the deal that had been struck in the Uruguay Round. Early critics were joined later by more mainstream sources, many of whom offered their own critique of intellectual property fundamentalism, including the prestigious U.K. Commission on Intellectual Property Rights,[25] the UNDP,[26] the World Bank,[27] UNTACD/ICTSD,[28] and even the WTO itself in collaboration with the WHO.[29]

Even after codifying a universal and higher standard of patent protections for the pharmaceutical industry in the TRIPS Agreement, the U.S. continued its existing pro-PhRMA[30] trade policy by threatening developing countries such as Thailand,[31] South Africa,[32] and Brazil[33] with trade sanctions because they refused to grant greater TRIPS-plus rights to patent holders and/or because they proposed using TRIPS compliant means to access more affordable medicines. At the same time that the U.S. was engaged in “a full court press” against South Africa,[34] thirty-nine pharmaceutical plaintiffs sued the Mandela government challenging new legislation designed to permit parallel importation of medicines a patent holder had sold more cheaply in another country, generic substitution in filling prescriptions of off-patent medicines, and greater price transparency.[35]