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Canada and Brazil Dealing with Tension between Ensuring Access to

Medicines and Complying with Pharmaceutical Patent Standards:

Is the Story the Same?

Comparative Program on Health and Society Working Paper Series 2003/2004

Jillian Clare Cohen, PhD* Assistant Professor Leslie Dan Faculty of Pharmacy University of Toronto Email: [email protected]

*The author wishes to thank the Lupina Foundation for its generous support of her research. In addition thank to research assistance from Laura Esmail and Emily Ng, Faculty of Pharmacy, University of Toronto. Comments are welcome as this paper is a work in progress.

Background to the Patent Story Health is a primary good which is fundamental for any person’s life.2 As a result, health care services generally and pharmaceutical services (which is the focus of this research) in particular are fundamental for the health of person and contribute to the essence of human life. From a practical point of view, pharmaceuticals can prevent or delay health conditions that require more costly care and they can substitute for less cost-effective interventions. Pharmaceuticals can complement other types of health care services to reduce morbidity and mortality rates and enhance quality of life. Governments are entrusted by their citizenry with the critical function of providing these services either directly through public health care services or indirectly through the regulation and oversight of private health care services. Despite the importance of pharmaceuticals at both the systems and individual levels, there is an acute gap in drug access globally. There is no one single cause of the drug gap but rather a number of conditions which have contributed to its unsatisfactory state of drug access globally and attempts to highlight some of the myriad of determinants which have contributed to the current situation. A helpful starting point is to use the definition developed by Management Sciences for Health (MSH) and WHO3. These are the criteria highlighted:

• Physical availability – the relationship between the type and quantity of product and

service needed and what is available; • Affordability – the relationship between the products and services and the user’s

ability to pay for them; • Geographic accessibility – the relationship between the location of the product or

service and the location of the eventual user of the product or service; • Acceptability –can be understood as patient satisfaction and is the congruity

between the user’s and the providers attitudes and expectations about the products and services and the actual characteristics;

• Quality of products and services – cuts across all elements.

While the drug gap is more pronounced in least developed and developing countries, pharmaceutical expenditure management has become a focus of most governments globally, irrespective of national income level, given increasing demands for pharmaceutical products and their rising costs which is creating strains on public health budgets as well as private health expenditure. For example, according to the Canadian Institute for Health Information

2 Susan Dorr Goold “Trust and the Ethics of Health Care Services” The Hastings Center Report; Nov/Dec 2001; 31, 6. pg.27.

Jillian Clare Cohen, Comparative Program on Health and Society, June 2004

2

3 Management Sciences for Health (MSH) “Defining and Measuring Access to Essential Drugs, Vaccines, and Health Commodities” Report of the WHO-MSH Consultative Meeting, 11-13 December 2000. http://www.msh.org/news_room/news_releases/26dec00.html (Accessed June 3, 2004).

http://www.msh.org/news_room/news_releases/26dec00.html

(CIHI), overall drug spending in Canada is forecast to have reached $18.1 billion in 2002.4 At the same time that governments are coping with double digit increases in pharmaceutical expenditure, fairly recent global pharmaceutical standards set by the World Trade Organization (WTO) has resulted in far-reaching patent protection. Generally, this may lead to less competition in the pharmaceutical market place globally, higher pharmaceutical prices, and thus continued pressure on government and private expenditure and a particular onerous burden on the poor, who proportionately spend more of their income on medicines. Methodology and Paper Organization This paper seeks to address the interplay between two major government responsibilities. One is the responsibility of government to provide health benefits for its citizens viewed narrowly through the provision of pharmaceuticals. The other is its responsibility to foster economic growth. Overlying these two responsibilities is the fact that governments participate in an international community and must seek to reconcile domestic interests with international interests; this two-level game, as Putnam termed it, is evident in terms of government policy towards pharmaceuticals5. More specifically, tension is extremely apparent in trade relations governed by global institutions, such as the World Trade Organization (WTO) and public health priorities of governments, particularly those with strong social policies in place. This provides the overall organizational framework for the paper. The paper is based on documentary analysis – legal documents, regulations - and academic literature. This paper is organized as follows. First, the tension between a government’s role as an economic maximizer versus a social provider is discussed. Second, this tension is explored through the lens of looking at Canada’s relationship with intellectual property law (in other words, patents for pharmaceuticals since 1969). Third, the tension is explored in another country context – Brazil in order to provide for a rich comparison of how states may differ or be similar with regards to trying to reconcile competing interests, both domestically and internationally. By understanding how each government has managed to deal with policy pressures in pharmaceutical patent law, ideally we can better understand how two states have dealt with the competing interests between commercial and social imperatives and determine if the stories are the same or divergent. Finally, the paper offers some conclusions based on the cases discussed. As Stein has pointed out “(t)he public sector traditionally has been responsible for social entitlements, and for the reduction of inequality within nation-states. The Keynesian welfare state, constructed to insure its citizens against the risk of private domestic markets, now faces a much more formidable challenge from global markets and global institutions7.” In

4 Canadian Institute for Health Information (CIHI) “Drug Expenditures in Canada 1985-2002.” 5 Robert Putnam, “Diplomacy and domestic politics: the logic of two-level games,” International Organization 42,3, Summer 1998, pp. 427-60. 6 Janice Gross Stein. The Cult of Efficiency. Anansi Publications: Toronto, 2001, p.55.


37 Ibid.

other words, international imperatives have made it more difficult for governments to maintain domestic standards in certain areas such as pharmaceutical provision. How do governments cope with this challenge? The somewhat messy junction of global trade standards and domestic public health demands comes to the forefront with intellectual property rights and pharmaceutical services. The colliding of international trade imperatives and government responsibility to ensure access of the population to essential drugs raises a number of important questions: How does the government cope with trade obligations while ensuring that it protects access of its population, particularly the most vulnerable, to pharmaceuticals? How do trade relations influence public policy shifts? Can the state withstand external pressure to reform domestic policies that deviate beyond the norm? Is the role of state as caregiver more robust than the role of state as economic maximizer? And, if the state becomes more concerned with its economic functions over and above its caregiver functions, will citizens lose trust in the state? And is the opposite true? In the perfect world, citizens confer trust on the state and expect the state to act in their best interest by providing for their basic needs, health, security, wealth etc. Government effectiveness in providing for its citizenry is discernible in its provision of health care services, particularly pharmaceutical services, which are often perceived by citizens as overall indicators of the quality of health care services. Government policy ideally should enable the provision of good quality, affordable medicines to citizenry. But when the state caregiver function is challenged and undercut by competing interests, such as international trade imperatives, this may have the undesirable effect of limiting the affordability of certain medicines. That begs the question: will citizens lose trust in the state if pharmaceutical prices are out of reach? One method for evaluating government accountability in the pharmaceutical sector is through the provision of satisfactory public policy in so far as good quality, cost-effective medicines are provided for the population. Public policy can be defined in a multitude of ways but for the purposes of parsimony, the definition that I use in this paper is from Dye who describes it as “(a)nything a government chooses to do or not to do8.” This is a simple definition but one which is elegant enough to capture the necessary nuances that a more narrow definition may not permit.


4

8 Thomas R. Dye. Understanding Public Policy. Prentice Hall: Englewood Cliffs, New Jersey, Princeton, 1972, p.2.

Canada’s Patent Story: Ebbs and Flows of Patent Policy Shifts Canada is the first country this paper will examine in view of the tension between a government’s role as social caretaker and its other role as economic “maximizer.” In Canada, public health insurance is viewed as a social right. Canadians expect publicly funded health care to conform to the five principles of the Canada Health Act: comprehensiveness, universality, portability, accessibility and public administration. In other words, social rights, such as access to health care services, as mandated by the Canada Health Act, are embedded in citizenship9. Anis has pointed out that pursuant to the Canada Health Act a "near-universal" health care system is in place that is similar across the country except with regards to the coverage of prescription pharmaceuticals. While all inpatient drugs are covered, outpatient prescriptions are not covered universally and coverage varies from province to province.10 But, pharmaceutical “rights” have been stretched in time beyond in-patient drugs in hospitals, to now include pharmaceutical benefits outside hospitals for certain population groups (e.g. seniors, natives, and economically disadvantaged). And with the aging of the population, rising drug costs and solid expectations that governments should offer sufficient pharmaceutical coverage to its population, the issue of pharmaceutical access is firmly grounded in the discourse on the rights of citizenry. The fact that the Romanow’s 2002 Report of the Commission on the Future of Health Care in Canada devoted an entire chapter (Chapter 9) to the subject of pharmaceuticals backs up this latter point11. The issue of access to drugs as a right opens up a wide number of issues. One of these is how does patent policy either contribute to or limit population access to medicines? Does robust patent law limit generic competition in the market and thus lead to increases in drug prices? There is an abundance of literature on this question and a healthy amount of literature, which is devoted to the issue of drug patent policy in Canada and its implications for Canadian governments, industry, and consumers. This section will provide an overview of a brief selection of these. Vandergrift and Kanavos state, “no other industry approaches the pharmaceutical industry in its degree of attachment to patent protection”.13 The authors underscore that the challenge that governments face is to try and balance their dual role of industry encouragement while attempting to contain the costs of pharmaceutical products.14 This challenge is in line with the broader theme of this paper as noted earlier. Lexchin examines the effects of compulsory licensing on the pharmaceutical industry and on drug prices. More

10 Aslam H. Anis. “Pharmaceutical policies in Canada: another example of federal-provincial discord.” CMAJ 2000; 162: 523-6. 11 Commission on the Future of Health Care in Canada“Building on Values: the Future of Health Care in Canada” November 2002. C http://www.hc-sc.gc.ca/english/care/romanow/index1.html (Accessed June 7, 2004), pp. 189-210. 12 Aslam H. Anis. “Pharmaceutical policies in Canada: another example of federal-provincial discord.” CMAJ 2000; 162: 523-6. 13 Michael Vandergrift and Panos Kavanos. “Health policy versus industrial policy in the pharmaceutical sector: the case of Canada.” Health Policy 1997; 41:241-260.


514 Ibid. p. 243.

http://www.hc-sc.gc.ca/english/care/romanow/index1.html

http://www.hc-sc.gc.ca/english/care/romanow/index1.html

specifically, he discusses the impacts of Bill C-22 and Bill C-91 (legislation dealing primarily with compulsory licensing that will be explained later) on generic firms, job creation, prices and provincial drug costs, R&D, and patent life. Larger generic companies have been prospering despite Bill C-22, but the affect on smaller companies is uncertain, due to the difficulty in gathering economic information. While there has been an increase in the number of R&D jobs, the number of jobs created outside the industry is unknown. However, the apparent loss in manufacturing jobs is almost five times greater than the increase in the number of R&D jobs. 15 In terms of its impact on prices and provincial drug costs, Lexchin notes that the lack of generic competition, as a result of Bill C-22, had removed price competition, and may be adversely affecting provincial drug plans.16 Since 1988, multinational firms have dedicated (i.e. voluntarily surrendered patents for public use) on 449 patents so that these are no longer the jurisdiction of the Patented Medicines Prices Review Board (PMPRB), which monitors drug prices of patented medicines.17 The PMPRB sets prices by comparing to those in seven selected countries. Lexchin criticizes that the countries selected may not be the best selection on which to base pricing, since some of the countries chosen have some of the highest drug prices in the industrialized world.18 His argument, therefore, is that these issues resulted in an overall increase in health care costs. Although Bill C-22 has resulted in increased R&D spending, the question that Lexchin raises is: what is the value of the R&D to the scientific community and to the Canadian public?19 Finally, Sawatsky and Cashore discuss the political context of the pharmaceutical patent environment in Canada, including compulsory licensing, and illustrate the historical events leading up to the passing of Bill C-22. Both papers put forth the argument that the multinational firms were very successful at influencing various parties to make changes in patent legislation that were favourable for them, but at the same time, created an unfavourable environment for the generic firms. Making a Difference? Patent Policy Shifts This section will turn to a review of the major policy milestones that are relevant for a discussion of the tension between Canada’s role as a social caretaker and an economic maximizer. Although pricing studies had already been commissioned as early as the 1950s in Canada, drug pricing as a policy issue became more prominent during the 1960s. It was at this time that two royal commissions (The Ilsley Commission and The Hall Royal Commission) as well as a House of Commons special committee on drug costs and prices

15 Ibid. 16 Ibid. 17 Joel Lexchin. “After compulsory licensing: coming issues in Canadian pharmaceutical policy and politics.” Health Policy 1997; 40: 69-80. 18 Ibid.


619 Ibid.

found that drug prices in Canada were high by global standards20 and cited patent protection as one of the key cost-drivers.21 The then Liberal Government under Prime Minister Trudeau took notice of these findings and argued that the high prices of pharmaceuticals were a consequence of patent protection which limited the level of price competition in the pharmaceutical market.22 Using the reports as a justification for political action, the Government then set out to initiate public policy changes that would help increase price competition in the Canadian pharmaceutical market and make pharmaceuticals more affordable for Canadians. In other words, the government would emphasize its role as social caretaker by creating an environment for greater price competition in the pharmaceutical market. However, the Government was also supporting its role as economic maximizer by implementing a policy that would promote a robust local generic drug industry. The result was the implementation of a more effective compulsory licensing regime. In 1969, the Canadian Parliament asked the Commissioner of Patents to approve compulsory licenses for drug patents under most circumstances. By way of definition, a compulsory license enables a third party to manufacture a drug that is currently under patent without the prior consent of the patent holder. Once granted a compulsory license, the licensee is obliged to pay a small royalty to the holder of the patent. In Canada, a small royalty – about 4 percent of the generic drug’s sales was given to the patent holder. Compulsory licensing did in fact result in more affordable pharmaceuticals thus enhancing the government’s role as a caretaker for it population. To clarify, prior to 1969, compulsory licenses were permissible in Canada. However, from 1923 to 1969, only 49 applications for compulsory licenses were submitted and only 22 of these were granted.23 This was a result of the fact that the law included a local working requirement and the Canadian market was too small to attract major manufacturers. The 1969 policy shift was significant because it contained a provision that allowed manufacturers to have a license to import a drug into Canada, rather than solely manufacture it.24 The Canadian Generic Pharmaceutical Association notes that this reform enabled the Canadian generic industry to grow considerably: “The successful growth of Canada's generic drug industry over its first twenty-five years can be attributed, in large part, to compulsory licensing, which was introduced by the federal government in 1969.25” Canadian drug prices

20 Today we know that pharmaceutical prices in Canada are at par with other jurisdictions and considerably less than those in the United States, which has partially contributed to the growth of Internet pharmacy purchases by Americans of Canadian drugs. 21 Joel Lexchin. “Pharmaceuticals, Patents and Politics: Canada and Bill C-22” p. 2. The Canadian Centre for Policy Alternatives, February 1992 and G. Bruce Doern and Markus Sharaput. Canadian Intellectual Property: The Politics of Innovating Institutions and Interests. University of Toronto Press: Toronto, Buffalo, and London, 2000. 22 Bruce Doern and Markus Sharaput. Canadian Intellectual Property: The Politics of Innovating Institutions and Interests. University of Toronto Press: Toronto, Buffalo, London, 2000, p. 46. 23 Lexchin, 1997, op.cit., p.70. 24 Ibid.


725 http://www.cdma-acfpp.org [accessed on 03 June 2004]

on average were 20 per cent below those of the United States by 1986 compared to 1969 when prices were considerably higher in Canada.26 Given that the value of the Canadian market is small (in 2004 it is no more than a little under three percent globally and this is more or less consistent with its share in the past), it is arguable that the American research based pharmaceutical industry was averse to compulsory licensing in particular, not predominately because of the potential loss of profits in the Canadian market, but rather for the example it set for other countries globally. The pharmaceutical industry, by way of reminder, is profoundly global and public policy trends being applied in one country may potentially serve as models for others. But, even though the industry operates at a global level, its base is highly concentrated in the United States. Pharmaceutical firms in the United States represent about one-third of the world’s total research and development spending.27 Throughout the 1990s, R&D has become concentrated in the United States. As an example of this concentration, out of fifty-five breakthrough medicines entering the market in 2002, a majority -- thirty-four - were from the United States.28 The interests of the international research based pharmaceutical industry, predominately those firms in the United States as expressed by the application of robust intellectual property rights are supported by the industry association group – Pharmaceutical Research Manufacturers of America (PhRMA), which maintains a careful watch on pharmaceutical policy internationally29. The industry association group lobbies the United States Government, primarily through the most relevant institutional body in the federal government – the United States Trade Representative (USTR). Consistently, PhRMA’s position on patents is that they offer firms the requisite incentives for investment in new drugs as it enables them to recoup its sunk costs and prods the USTR to take punitive action against countries that are perceived to be in significant breach of legal standards. Policy Shifts: the Good, the Bad and the Ugly The next fundamental policy shift in Canada’s patent law regime came about as a result of trade negotiations with the United States and resulted in a reduction in the reach of the compulsory licensing regime. The Free Trade Agreement (FTA) between the United States and Canada was concluded in 1989 and included within its package a provision dealing with compulsory licensing. By way of background, at the time of these trade negotiations, the Government in Canada was led by the Mulroney Government, which had a decidedly pro-American orientation and desire for an even heightened level of trade with the United States. The FTA represented the efforts to better integrate Canadian and American interests. It cut

26 David Crane. “Drug bill concessions seemed tied to trade talks.” The Toronto Star, December 7, 1986, B1. 27 Heinz Redwood. Price Regulation and Pharmaceutical Research: The Limits of Co-Existence. Oldwicks Press Limited: Suffolk, UK, 1993, p. 2. 28 Pharmaceutical Research Manufacturers of America, Annual Report, 2002, Washington, DC p. 16.


829 See http://www.phrma.org/international.

across a number of key economic areas; namely, agricultural trade, wine and distilled spirits, energy, automotive, and trade in services and personnel. The FTA Agreement was concluded two years after Canada amended its compulsory licensing law for pharmaceuticals with the passage of Bill C-22. The then Trade Minister Pat Carney denied that the inclusion of C-22 was part of the Canada-U.S. free trade agreement. However, this view is debatable given language from American public officials such as then Republican Senate Government Leader, Lowell Murray, who stated that, “ If (Canadians) were to defeat Bill C-22, I believe that many congressmen and senators in the United States would think twice about their support for the free trade agreement30.” Following much heated debate and political maneuvering, C-22 passed on December 7, 1987.31 It represented a critical policy shift because prior to the passage of C-22, a compulsory license could be granted to a firm at any point in time. The new legislation altered the right of any firm to seek a compulsory license by providing seven to ten years of market exclusivity (free from compulsory licensing) on new drugs approved for Canadian marketing. A compulsory license would only be awarded to a firm after seven years, if and only if, the firm receiving the license manufactured the necessary fine chemicals in Canada. If a firm produced them outside of Canada, then it could only receive a compulsory license after ten years.32 This policy shift suggests that the government was taking on its responsibility of economic maximizer over and above social caretaker. In order to appease opposition to this shift in pharmaceutical patent policy, the Government made an astute concession to the opponents of the legislation by agreeing to establish a “watchdog” institution to monitor prescription pharmaceutical prices in the Canadian market. Accordingly, the Patented Medicines Prices Review Board (PMPRB) was set up in 1987 as a significant gesture of appeasement to local opposition to Bill C-22 from groups such as the National Anti-Poverty Organization, and the United Senior Citizens of Ontario. Briefly, the PMPRB is an independent institution responsible for ensuring that prices charged by manufacturers of patented medicines in Canada are not excessive. The PMPRB is responsible for regulating the maximum prices that manufacturers may charge for patented drugs (prescription and non-prescription) in Canada at market entry and increases in drug prices over time. In most cases, the prices is the “factory-gate” prices at which the manufacturer sells the product to wholesalers, hospitals or pharmacies and it maintains the Patented Medicine Prices Index, which is an index of manufacturer prices. The PMPI measures the average year over year change in ex-factory prices. The policy shift undertaken by the Conservatives is significant because it ignored a critical study on the benefits of compulsory licensing to Canadian consumers. The now well-known Eastman Report did not support the reform of compulsory licensing. During the 1984 leadership campaign, Harry Eastman had been asked by the Trudeau Government to head A Commission of Inquiry on the Pharmaceutical Industry and specifically examine the issue of compulsory licensing. His report was made public in May 1985 and had concluded that

30 Joe O’Donnell. “Ottawa denies link to drug bill.” Toronto Star, October 10, 1987, A 4. 31 Doern and Sharaput, op.cit., p. 134.


932 Lexchin, 1992, op.cit. p.5.

compulsory licensing had saved Canadian consumers at least $212 million dollars in 1983 and thus he strongly supported maintaining it.33 To satisfy the research based pharmaceutical industry, Eastman had even proposed such concessions as four- year market exclusivity and higher royalty payments, based on research and development investment and the level of compulsory licensing. However, the findings of the Report were largely ignored, as discussed below, because other political and economic priorities took precedence. Further amendments to Canada’s pharmaceutical policy were introduced in 1992, again under the Mulroney Government and expressed in Bill C-91. These amendments represented strong support for the international research based pharmaceutical industry. The Bill eliminated compulsory licensing of drugs completely and retroactively voided all licenses obtained after December 20, 1991.36 It also extended patent protection to twenty years from the date that the patent application is filed. In return, the pharmaceutical industry promised greater research and development spending in Canada. A further regulatory change to the patent regime came one year after Bill C-91 with the Patented Medicines (Notice of Compliance) Regulations (1993) of the Patent Act. This regulation expresses that no generic drug can be approved by Health Canada until after any claim of alleged patent infringement is decided in court. That is, an automatic injunction for up to two years to prevent the sale of generic drugs is feasible simply by putting forward the argument that a patent has been infringed. The burden of proof was put on the generic drug industry; it is up to the generic drug firm to prove without a doubt that it is not in violation of patent law. This strongly suggests that the research based pharmaceutical industry is typically in a strong bargaining position because it can offer a “carrot” to governments, like Canada, such as economic investment as a reward for shifts in pharmaceutical public policies. In June 1993, after Bill C-91 was passed, the Pharmaceutical Manufacturers Association of Canada made a number of promises to make investments in research and development in Canada in return for this policy reform. For example, the industry made a commitment to make a minimum of $400 million in new investments by the end of 199637 or ten percent of its Canadian sales. R&D spending by pharmaceutical patentees by 1995 was $626 million and increased to $945 million by 2000. However, Canada’s level of R&D spending in 2000 was the lowest among a basket of comparator countries (France, Italy, Sweden, United Kingdom, United States, Germany and Switzerland).38

33 John Sawatsky and Harvey Cashore. “Inside Dope.” This Magazine 1986; 20(3): p.11. 34 Peter Drahos. “Bilateralism in Intellectual Property” A paper prepared for Oxfam, unpublished paper, March 2003. 35 Glen McGregor. “Take two patents… and call me next year: The never-ending war to redraw Canada’s arcane drug patent laws.” The Ottawa Citizen, January 20, 2002. 36 Vandergrift and Kavanos, op.cit., p.246. 37 “Pharmaceutical Manufacturers Association of Canada Commitments, Industry Canada, http://strategis.ic.gc.ca [accessed March 2003].


10

38 PMPRB “A Comparison of Pharmaceutical Research and Development Spending” PMPRB Study Series, S-0217, December 2002, p. 11.

http://strategis.ic.gc.ca/

Moving Towards Tighter Intellectual Property Law for Pharmaceuticals The subsequent key milestone concerning Canada’s pharmaceutical patent regime was brought about during trade negotiations between the United States and Mexico on the North American Free Trade Agreement. Despite much opposition to the trade deal within Canada, on January 1 1994, Canada, the United States and Mexico launched the North American Free Trade Agreement (NAFTA) and formed the world's largest free trade area. NAFTA was designed to foster increased trade and investment among the countries and included ambitious provisions for tariff elimination and reduction of non-tariff barriers, as well as regulation of investment, services, competition and the temporary entry of persons conducting business between the two countries. The further deepening of reforms on pharmaceutical patent law, that took place under the NAFTA Agreement, significantly, set into a place a model for the pharmaceutical industry that was later used in the Trade-Related Aspects of Intellectual Property Rights (TRIPS) negotiations.39 The thickening of pharmaceutical patent reform, as an aside, represented a meaningful policy shift for the Liberal Party. When in opposition, the Party had been opposed to the changes in the pharmaceutical law. The Conservative Government was called “back-room muggers” as a result of Bill C-91 and during the 1993 Election the Liberal Party even included pharmaceutical patent issues as a campaign issue.40 By conceding to pharmaceutical policy adjustments, Canada sought to prevent trade conflict with the United States that could have an impact on key areas of the economy. What is more, given that the provincial/territorial governments, not the federal governments, are responsible jurisdictionally for the provision of medicines, it was much easier for the federal government to make promises that could impact drug prices because it did not risk incurring the potential negative impacts of this policy decision. In essence, it “passed the buck” on this policy reform to the provinces/territories. The WTO and International Obligations Joseph Nye notes that globalization today is “quicker, deeper and thicker41.” That means the breadth of globalization is more far-reaching and also the imperatives of globalization are much faster. The example of international pharmaceutical patent law under the WTO is exemplary of this. By way of brief background, the WTO was established as a result of an agreement reached during the Uruguay Round (1986-1994). It resulted in the strengthening of the multilateral trade system with the creation of the “bricks and mortar” WTO as an international organization, distinct legal status, and governing bodies. It transformed the General Agreement on Tariffs and Trade (GATT) from a trade agreement into a permanent body -- an international institution with members. The Round also enlarged the multilateral trading system by including areas hitherto excluded from multilateral trade agreements—

39 Peter Drahos. “Bilateralism in Intellectual Property” A paper prepared for Oxfam, unpublished paper, March 2003. 40 Glen McGregor. “Take two patents… and call me next year: The never-ending war to redraw Canada’s arcane drug patent laws.” The Ottawa Citizen, January 20, 2002.


1141 Joseph Nye. Munk Centre lecture, University of Toronto, April 19, 2004.

such as intellectual property protection, under the TRIPS Agreement, the General Agreement on Trade in Services (GAS), and the inclusion of more comprehensive agreements in the agricultural and textile sectors. The Uruguay Round, in the final analysis, encouraged trade without discrimination (in accordance with the most-favored-nation clause) with the exception of custom unions and free trade areas. It also promoted predictable and growing access to markets, fair competition, and development and economic reforms. Pursuant to the TRIPS Agreement, governments must implement a minimum set of standards related to intellectual property rights; it compels them to reform institutions, policies, and firm behavior in local markets if they are not in line with international standards. This is an undeniably weighty intervention in domestic public policy making. Prior to the WTO, whether or not a patent was granted, was the responsibility of a national government. An inventor would file a patent application with a given government asking that government to recognize his exclusive right to his invention within the territorial boundaries of the State.42 The government could then independently determine whether or not to confer a patent. The TRIPS Agreement imposes changes on governments by limiting their discretion and thus autonomy in this area. The TRIPS Agreement covers a range of intellectual property issues beyond patents, such as trade-marks, industrial designs, and copyright applicable to any sector. It incorporates by reference most of the provisions of the international agreements on the protection of intellectual property rights and requires each member state to maintain sufficient procedures and remedies within its body of domestic law to ensure protection of intellectual property. These procedures and remedies must also be made available to foreign right holders. The TRIPS Agreement provides minimum standards for intellectual property law and procedures and remedies so rights holders can enforce their rights effectively. Member states are required to make the granting of a patent dependent on adequate disclosure of the invention. The main rule of TRIPS for patents is that they should be available for any invention, whether product or process, in all fields of technology with discrimination. Inventions covered under the patent law have to meet the criteria of novelty, inventive step and industrial applicability. More exactly, the minimum obligations for pharmaceuticals are: pharmaceutical products and micro-organisms are patentable for up until twenty years from the date the inventor files for the patent application. Second, there is no discrimination permitted against patent rights for imported products. Third, exclusive marketing rights are granted until patent expiry; and, there are transitional periods for developing countries without pharmaceutical product patents.43 Interestingly for Canada, the TRIPS Agreement does not prohibit compulsory licensing. Compulsory licensing is recognized pursuant to Article 31 of the TRIPS Agreement (“Other Use Without Authorization of the Right

42 World Health Organization, Action Program on Essential Drugs. “Globalization and Access to Drugs.” Health Economics and Drugs DAP Series, no. 7, revised, 1999, p. 15. 43 Heinz Redwood. “Brazil: The Future Impact of Pharmaceutical Patents.” Oldwicks Press


12Limited: Suffolk, England, 1995.

Holder”). But the ultimate decision about whether or not to use compulsory licensing resides with national governments. Canada Demonstrates its Commitment to International Community Membership Canada is a member of the World Trade Organization (WTO) and is thus required to ensure its pharmaceutical patent laws were harmonized with the criteria as set out in TRIPS. Canada’s harmonization of its pharmaceutical patent law in line with the TRIPS Agreement is expressed in Bill S-17, An Act to Amend the Patent Act, which became law on June 14, 2001. The legislation increases patents on more than 30 widely used prescription drugs from 17 to 20 years. But the story does not stop with this legislation. Canada’s public policy, which governs pharmaceutical patent law since 2003 has become a subject of intense debate in view of international developments dealing with the World Trade Organization’s Doha Declaration on TRIPS and Public Health and the Doha Accord of August 2003. By way of brief background, in November 2001, the Doha Declaration on TRIPS and Public Health was passed partially as a means to mitigate complaints from developing countries and health activists regarding the exigencies of the TRIPS Agreement. “…We agree that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health…We affirm that the Agreement can and should be interpreted and implemented in a manner supportive of a WTO member’s right to protect public health and, in particular, to promote access to medicines for all.”44 Doha was partially an effort to interpret article 31(f) of the TRIPS Agreement, which states that compulsory licensing shall be “predominantly for the supply of the domestic market.” That means, under WTO rules, countries with a public health crisis are able to forgo patent law and issue a compulsory license to a local manufacturer. But, given that the majority of developing countries lack the domestic capacity or technical expertise to manufacture on-patent pharmaceuticals, the interpretation of what this terminology means is crucial for ensuring access to medicine for the poor in many developing countries and the profit margins of the pharmaceutical industry. As such, the Doha Declaration includes the now well-analysed Paragraph 6, which recognizes the limitations of the terms of compulsory licensing for member countries of the WTO; particularly, for the least developed countries that cannot turn to local producers for the manufacture of medicines and called for an expeditious solution to the problem. That was not to be the case as a result of tough bargaining from primarily the United States. The “real” meaning of the Doha Declaration on the TRIPS Agreement and Public Health was contested for over a year and a half. It finally resulted in an agreement among member countries in August 2003. The Doha Agreement provides flexibility by permitting those countries that do not have the capacity to manufacture medicines to still use compulsory licensing by contracting out agreements with firms in other countries. Quickly moving to take advantage of this shift, on November 7, 2003, the Canadian Government approved Bill


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44 World Trade Organization Ministerial Conference, Declaration on the TRIPS agreement and public health, 2001, Doha.

C-56 (later renamed Bill C-9), which amends Canada’s Patent Act to allow for limited compulsory licensing. Bill C-9 was passed on May 14, 2004. While imperfect, it is consequential in that it permits generic manufacturers in Canada to produce and export patented medicines to those developing countries deemed as having insufficient local manufacturing capabilities by the World Trade Organization. Canada is setting a precedent internationally by introducing legislation to allow for the export of generic drugs to developing countries with public health emergencies. This unleashes the potential for more competition in the pharmaceutical market and more drug supply for those in need if developing countries can overcome certain barriers. It also suggests that Canada is willing to shore up its role as social caretaker, not domestically in this instance, but internationally, when moral imperatives are heavy enough, such as in the case of providing medicines for antiretroviral therapy for the poor in sub-Saharan Africa. The question remains if Canada is willing to move in this direction internationally, surely there will be pressure domestically to follow suit? In conclusion, Canada’s public policy towards pharmaceutical patents has shown a trend towards tighter enforcement of patent law, more limitations on generic competition, and the imposition of standards that are consistent with those set forth by the WTO. Still, Canada has countered stricter patent law with the creation of the PMPRB to ensure that patented medicines prices are not excessive and the institute has proven effective in maintaining prices that are below or at par with other comparable countries. What is more, provincial and territorial governments have also managed to put some control on drug prices through formulary decision-making. The recent initiative of Canada to revise its patent law in view of the Doha Accord also sets an important policy precedent. Despite the imperfections set out in the original November 2003 bill, the law signals that the Government will make changes to patent law when drug access situations are severe, such as in the case of the need for antiretroviral therapies for developing countries. The question this raises is as follows: is this reform a precedent for policy shifts for domestic drug policy? Double digit growth in pharmaceutical expenditures and the increasing demands of the population for pharmaceutical services likely will mean that the Government will have to devise creative policy solutions to ensure continued access of the population to the requisite medicines. In the following section, we turn our attention to the effect of patent law on the pharmaceutical sector in Brazil.

45 World Trade Organization Ministerial Conference, Declaration on the TRIPS agreement and public health, 2001, Doha. 46 Barbara Sibbald. “Are Canadians paying too much for their generic drugs?” CMAJ 2003; 169(7):702.


1447 PMPRB, Annual Report 2002, Washington D.C., p. 21.

Brazil and Its Patent Story: Does the Song Remain the Same? Brazil is a middle-income country48 and had a population of about 182 million in 2003, the largest in Latin America. It has had a persistent poverty problem, which international financial institutions, like the World Bank, attribute to poor economic performance. Brazil, moreover, has one of the most skewed income distributions in the world. The highest 10% of the income distribution in Brazil receives almost half of the income, 48%, compared to 41.7% in Mexico, 38.7% in the Russian Federation, 30.5% in the United States, and 23.8% in Canada.49 The Brazilian health system has both public and private facilities ranging from basic health care units to complex hospital facilities.50 Pursuant to Article 196 of the 1988 Constitution, access to health services (including access to basic medicines) is considered a constitutional right in Brazil. The Constitution expresses:

Health is a right of all and a duty of the State and guaranteed by means of social and economic policies aimed at reducing the risk of illness and other hazards and all the universal and equal access to actions and services for its promotion, protection and recovery.

Different levels of government: federal, state, and municipal51 share responsibility for public health services. The federal level of government defines the policies and regulations and provides technical and financial support to the states and municipal governments and provides some service delivery. These governments, in turn, contribute the remainder of the health budget and share responsibility for health service delivery. The federal government, though, provides the majority of the financial resources for public health expenditure in Brazil—about 71%. States contribute about 15% and municipalities the remainder—14%.52 States and municipalities also have the right to specific tax and expenditure functions, and are entitled to take over full management of basic health care for their respective health systems. They also can choose to “opt-out” of managing health services, and let the federal government take responsibility for their provision. This is usually the case for poorer municipalities and/or states, particularly in the supply of basic medicines. The delivery of public health care services is shared equally by the different levels of government: federal, state, municipal, and the national government health system (Sistema Unico da Saude [SUS]). In practice, the delivery of health services is increasingly being

48 GNP per capita of Brazil is US$4,570, World Bank, World Development Report (Washington, D.C.: World Bank, 2000). 49 “World Development Indicators,” http://www.worldbank.org, 2002. 50 Ministry of Health, Brazil, “The Brazilian National Drug Policy,” official document, January 2000. 51 The discussion of Brazil’s health system is taken from my prior work on Brazil’s pharmaceutical sector for the World Bank. (See Jillian Clare Cohen “Public Policies in the Pharmaceutical System: The Case of Brazil” World Bank Discussion Paper, No. 54, Washington, DC, 2000.


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52 World Bank, Brazil Country Management Unit, “Brazil Health Sector Strategy,” Washington, DC. 1999.

decentralized to the state and municipal levels, reflecting the government’s sensitivity to the population’s preference for more local governance. Notwithstanding the constitutional commitment to universal health care, in practice, the population’s access to health services and the quality of health services often vary according to geography, income, and government resources. This is a common problem to low and middle-income countries. The population’s access to essential medicines is a good example of a health inequity and will be discussed in more detail later. Well-organized lobby groups, like AIDS activists, however, have managed to use the new Constitution to benefit their drug needs. For example in 1999, the federal government allocated almost half of its drug budget on drug therapies for AIDS.53 The governmental resource allocations for medicines (as the policy suggests) seem to correspond to the disease and the power of the patient group lobby that relies on the medicine for their treatment. Health revenues are derived from taxes for social security, corporate taxes, financial transaction transactions, and others. All of these are deposited in a social security budget, which includes financing for pensions, health services, and social assistance.54 Although SUS is responsible for providing and financing health care for all of the population, its clients are mainly the 123 million Brazilians (74%) who cannot afford to be covered by the private sector.55 The SUS contracts out a large majority of inpatient care and outpatient care to a network of private and philanthropic hospitals, clinics and other facilities. The public sector manages and owns only 31% of the hospital beds it supports. Joint management commissions facilitate the coordination activities between the various levels of government. A tripartite joint management commission comprised of equal representation from the Ministry of Health, National Council of State Secretaries of Health, and the National Council of Municipal Secretaries of Health is responsible for the health sector. The bipartite joint commissions are similarly made up of equal representatives of the state secretariat of health and the municipal representatives of health within a state.56 Health councils, permanent bodies at each level of government, are in place and are charged with overseeing the implementation of health programs and have user representation (labor unions, patient groups) as well as representation from the health sector. In spite of that, it is not always clear which institutional body is really developing health policy. Brazil has embarked on a process of health system decentralization during the New Republic, as noted above, primarily to respond to the inefficiencies of the previous centralized administration of the military regime. The decentralization of health care system delivery has largely been implemented through the Basic Care Floor (Piso de Atencao Basico [PAB]) and the Family Health Program (Programa de Saude da Familia (PSF)). The PAB

53 Jillian Clare Cohen. “Public Policies in the Pharmaceutical Sector.” World Bank paper, 2000, p. 14. 54 World Bank, “The Brazil Health System: A Sector Impact Study.” Washington, D.C.: World Bank, Operations Evaluation Department, 1998. 55 Ibid.


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56 Pan American Health Organization, “Health in the Americas”, vol. 2, PAHO Scientific Publication 569 Washington, D.C.: PAHO, 1998, p.122.

guarantees the financing of select ambulatory services for municipalities capable of managing them. The federal government transfers resources to the municipal governments on a per capita basis. This ranged between R$10 to R$18 in 1998.57 The PSF is designed to promote community care and has a strong educational component. The cornerstone of this program is the health team whose members include a medical doctor, nurse, nurse auxiliary, and six health agents, who monitor health indicators and provide basic health services at the local level. Notwithstanding the constitutional commitment to universal health care, the population’s access to health services and the quality of health services varies according to geography, income, and government resources. ABIFARMA (Associacao Brasileira da Industria Farmaceutica), the Brazilian pharmaceutical industry association, compiled the information in Table 1 describing the tiered nature of the pharmaceutical market. Consumers are classified into three income groups: A, B, and C. Consumers in Group A comprise 15% of the population and consume 48% of all pharmaceuticals sold in Brazil. On a per capita basis this is comparable to European countries, such as Spain. Group B is made up of 34% of the population and these consumers purchase 36% of all pharmaceuticals sold. Lastly, Group C is made up of the poorest 51% of the population, consuming only 16% of the pharmaceuticals sold in Brazil.

Table 1

Profile of the Brazilian Pharmaceutical Consumer

Group Salary Range

(monthly basis) Percentage of the Population

Percent Market Share Consumed

Per Capita Expenditure on Pharmaceuticals

A

10+ minimum salaries

15

48

R$205

B

4-10 minimum salaries

34

36

R$ 68

C

0-4 minimum salaries

51

16

R$ 20

(Cohen 2000) Source: ABIFARMA 1998. A minimum salary is approximately US$100 per month. In November 1998, R$1.19=US$1.00. As an additional point, expenditures on medications total approximately one-fourth (23%) of the total income among 50% of the elderly population, which helps illuminate the problem of drug access in Brazil.58

Pharmaceuticals and Intellectual Property Law

Like the Canadian example, Brazil’s reform of patent law in accordance with WTO standards can be understood better by looking at its historical approach toward pharmaceuticals 57 Proposed Social Protection Special Sector Adjustment Loan, World Bank report no. P7231, BR, 1998, p. 42.


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58 Maria Fernanda Lima-Costa, Sandhi Maria Barreto and Luana Giatti. “Health status, physical functioning, health services utilization, and expenditures on medicines among Brazilian elderly: a descriptive study using data from the National Household Survey.” Cad. Saude Publica 2003; 19(3):735-743.

patents. Brazil once had had a vibrant local pharmaceutical industry that became subject to much buy-out from foreign investors in the late 1950s. This compelled then President Janio Quadro in 1962 to form a Commission of Inquiry on the Pharmaceutical Industry to study its transformation. One of the main findings from the Commission was that foreign firms had been able to take over local firms easily because of government policies like Instrucao 113. This regulation provided favorable exchange rates for firms importing capital goods for the set up of new factories in Brazil and was considered to be advantageous for foreign investors in general.59

By the end of the 1960s, foreign firms had effectively managed to capture the majority of the Brazilian pharmaceutical market. The predominance of foreign firms has remained relatively stable since then, even after the Costa e Silva government revoked its patent law on pharmaceutical products and patents in 1969. The legal right of local firms to produce drugs under patent was expressed in Law No. 5772 on Industrial Policy that took effect on December 21, 1971. Article 9c of the Law noted that non-patentable products included “…inventions having for their object … chemical-pharmaceutical products and medicines of any kind, as well as the respective processes of production or modification.”60 This policy shift was viewed as a nationalist victory by many of the Brazilian nationalists employed in the domestic pharmaceutical firms as well as those outside of the industry. They argued that the patent system as well as limited access to raw materials was preventing their industrial development. The Law would help these local firms develop the “know how” in the process of producing copies of the patented drugs via “reverse engineering”. Simply, Brazilian pharmaceutical firms would be able to “learn-by-doing.” The long-term expectation was that local firms would export their products and eventually build their own research and development capacities. This approach also assumed that local production of patented drugs would help ensure affordable drugs for the consumer. The efforts by the Brazilian government to create a national industry and reduce dependence on the imports of pharmaceuticals for the population’s basic health needs were part of a larger economic strategy of import substitution. The Pressure for Change Like Canada, Brazil’s pharmaceutical policy demonstrates ebbs and flows of change reflective of shifts in the global political economy. As will be discussed, in view of WTO imperatives, Brazil went through a dramatic shift in pharmaceutical patent standards. But the WTO imperatives did not mark the first time that Brazil had to deal with reforming pharmaceutical patent law. Brazil had made earlier attempts to reform its intellectual patent law for pharmaceuticals given external pressure from the United States. U.S. trade sanctions and suspension of the generalized system of preferences benefits for inadequate intellectual property rights in 1988 most notably compelled the Brazilian Government to attempt reform, although its efforts were largely in vain.

59 Ibid., p. 121.


1860 Redwood, op.cit., p. 59.

In 1988, the United States Pharmaceutical Manufacturers Association (PMA, as it was known as then) petitioned the United States Trade Representative, citing Brazil’s lack of process and patent protection for pharmaceutical products as “ an unreasonable practice that burdens or restricts US commerce.”61 In response to the PMA petition, on October 30 1988, the government of the United States imposed a punitive tariff of 100% on US$390 million worth of Brazilian goods as retaliation for Brazil’s refusal to grant patent protection to pharmaceuticals, and other information intensive technologies.62 The United States was (and remains) an important trading partner for Brazil so this policy had a painful impact on the economy. The sanctions were eventually lifted in 1990 when the Brazilian Congress announced its intention to submit a draft law for intellectual property rights protection for processes and products to the Brazilian Congress.63 The law that was presented to Congress in April 1991 was modeled on the one developed by the GATT and thus more in line with international obligations rather than domestic realities. Pressure exerted during this period, especially by the United States, led the Brazilian Executive Branch to submit a bill to the National Congress in April 1991 to modify the rights and duties pertaining to Industrial Property. The bill sparked immediate reactions and led to a nationwide movement by professional organizations, business associations, and organized civil society in general, charging that the bill violated consecrated international concepts, would have serious economic and social repercussions, and was out of keeping with an organized national industrial development plan.64 Given the controversy surrounding it, the bill passed first reading in the Chamber of Deputies only in 1993.65 Its passage was further hindered by the policies of the administration of Itamar Franco.66 He had adopted policies clearly in support of maintaining a highly protectionist environment for the local pharmaceutical manufacturers. His administration advocated generic drug use and price controls on drugs were reestablished, reversing the policy of price liberalization, which his predecessor, Fernando Collor, had initiated. Despite these set backs, pharmaceutical patent law would be reintroduced into the Brazilian Congress in 1996, once again as a result of external pressure due to Brazil’s membership in the WTO and TRIPS obligations. The reforms were ushered

61 PhRMA’s 1987 petition to the USTR. 62 Edgardo Buscaglia and Clarisa Long. “U.S. Foreign Policy and Intellectual Property Rights in Latin America.” Hoover Institution, Essays in Public Policy, Stanford, September 2000, p. 21. 63 Heinz Redwood. “New Horizons in India: The Consequences of Patent Protection.” Oldwicks Press Limited: Suffolk, 1994, p.21. 64 Jorge Bermudez, Ruth Epsztein, Maria Auxiliadora Oliveira and Lia Hasenclever. “The WTO Agreement and Patent Protection in Brazil: Recent Changes and Implications for Local Production and Access to Medicines.” Rio de Janeiro: ENSP/WHO Oswaldo Cruz Foundation, 2000. 65 Ibid.


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66 After leaving the Office of the President, Franco became the governor of the state of Minais Gerais.

in by the subsequent administration of Fernando Henrique Cardoso, which was trying to inspire confidence in foreign investors and thus not willing to forgo trade obligations. In January 1996, the Senate’s Economic Affairs Committee ratified a bill that protects industrial property. The Senate ratified the legislation on March 5 and the House followed suit by passing the legislation on April 10. By then, President Cardoso signed the Industrial Properties Law on May 14, 1996 (number 9279) and it came into force on May 15, 1997. The Law provides a higher level of protection for pharmaceutical patents than in most other developing countries. The extensive list of non-patentable inventions in Article 9 of the previous industrial property law from 1971 (Law 5772/71) has been reduced. Pharmaceuticals thus are now eligible for patent protection under Brazil’s law. The Industrial Property Law includes among other provisions a twenty-year product patent term; pipeline protection for products in the approval process; basic biotechnology in line with the TRIPS Agreement; a ban on parallel imports; and a one-year implementation period for patent protection for certain products.67

The Administration made further changes to support the application of intellectual property law in Brazil by appointing a new activist head for the Industrial Property Office (INPI). This government agency was created in 1970 but had limited power to enforce intellectual property due to under-funding and understaffing. The INPI is subordinate to the Ministry of Industry, Commerce and Tourism but enjoys some degree of administrative and financial autonomy. Domestic Pressure to Protect Local Health Interests over Trade Interests

Pressure from the AIDS lobby has undeniably influenced how liberally politicians are interpreting the imperatives of the law domestically. These include the threat of invoking compulsory licensing and demanding a local working requirement for international producers. For the latter, the Brazilian patent law requires that “unless the holder of the patent uses or produces innovation within national boundaries, other producers wishing to use the patented technique will be entitled to a license even without the patent holders consent.”68 This prohibits imports as a means of satisfying the condition that the patent is “worked” in the country.69 A patent is subject to compulsory licensing if the product is not worked in the territory of Brazil which it defines as “failure to manufacture or incomplete manufacture of the product” or failure to make full use of the patented process.”70

In response to the local working requirement provision, the U.S. pharmaceutical research-based industry association (Pharmaceutical Research Manufacturers of America (PhRMA)) asked the U.S. Trade Representative to include Brazil in the 2000 “Special 301” Priority Watch List. A June 2000 communication from the Permanent Mission of the United States to the Permanent Mission of Brazil and to the Chairman of the Dispute Settlement Body

67 http://www.pharma.org/issues. [accessed on 03 June 2004] 68 Buscaglia and Long, op.cit., p. 3. 69 http://www.phrma.org/issues. [accessed on 03 June 2004]


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70 U.S. Government Request for WTO consultations with Government of Brazil, World Trade Organization, official document, WT/DS199/1, June 8, 2000.

noted, “The United States considers that such a requirement is inconsistent with Brazil’s obligations under Articles 27 and 28 of the TRIPS Agreement, and Article III of the GATT 1994.” On the other hand, the working provision was a necessary concession to the domestic lobby that was in clear opposition to the terms of the TRIPS Agreement given that its implementation hindered the span of the drugs it could produce. 71

Furthermore, the Brazilian Government sought to modify the terms of the TRIPS Agreement to Brazilian political realities by issuing a Presidential Decree (October 6, 1999). This Decree regulates the implementation of Article 71 of the Law and allows for the granting of a compulsory license during national emergency situations. In December 1999, the Government also issued “Medidas Provisorias” (Temporary Measures) that under a revised Article 229-C, the new drug regulatory agency, the Agencia Nacional de Vigilancia de Sanitaria (ANVS), has the authority to approve all patent applications related to pharmaceutical products or processes. PhRMA argues that this is inconsistent with the anti-discrimination clause of TRIPS Article 27.1 and any review of applications other than for the criteria of patents is not consistent with the TRIPS Agreement. The U.S. industry argues that the INPI and not the ANVS should be the agency in charge of patent applications. Compulsory Licensing: Not an Empty Threat Brazil has become a model globally for its success in obtaining price concessions from the research-based pharmaceutical industry for antiretroviral medicines. One of the major reasons that Brazil has had so much success in negotiating price discounts from the pharmaceutical industry is the fact that it still has a viable local industry, both public and private. As such, Brazil continues to manufacture drugs needed to treat AIDS. Brazilian politicians and public health activists have argued that the AIDS crisis in Brazil is a national emergency; an estimated 580,000 persons72 are HIV-positive. The decision by the Brazilian government in 1997 to include highly active antiretroviral therapy (HAART) in its policy of universal access to health care appears to have led to a sharp decline in AIDS morbidity, mortality, opportunistic infection rates and hospitalizations.73 Brazil has put the international pharmaceutical industry on notice that unless they lower the prices of the remaining anti-retroviral drugs still under patent, the government is prepared to break patent licenses under the terms of a national emergency.

Public manufacturers in Brazil produce generic copies of eight out of twelve anti-retroviral drugs used in for the treatment of HIV-positive persons. The Brazilian approach has been to import the generic raw materials and use their public manufacturing facilities, such as Fundação para o Remédio Popular (FURP) (based in Sao Paulo) to manufacture locally finished products; it is being lauded by public health activists as a model for other states to emulate or benefit from. Developing states such as Burkina Faso, Cambodia, Guatemala,

71 Interview with a consultant to the pharmaceutical industry, Rio de Janeiro, December 1998. 72 World Bank interview with AIDS I project manager, Sandra Rosenhouse, September 2000.


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73 World Bank, Project Performance Assessment Report. “Brazil First and Second AIDS and STD Control Projects.” Washington, D.C.: World Bank, Operations Evaluation Department, 2004, p. ix

South Africa, and Uganda have been approaching Brazil for the purchase of its generic antiretrovirals. Brazil has also been discussing technology transfer with other developing states, so that they can begin producing pharmaceuticals.74 Cohen and Lybecker79 have pointed out that just prior to the Doha talks then Minister of Health of Brazil, Jose Serra was on the threshold of issuing the first compulsory license for an HIV/AIDS drug, demonstrating to the world that health concerns took precedence over patent obligations (and to gain political currency domestically). On 22nd August 2001, Serra, announced that Brazil had started the process to domestically produce nelfinavir, following failed negotiations with Hoffmann-La Roche Inc. (Roche) for a lower price for the drug citing a “national emergency” due to excessive prices of pharmaceuticals. The threat to invoke a compulsory license was not an empty threat but credible given that Brazil possesses the manufacturing capacity to produce the drug. If this threat came to fruition, international producers would lose valuable market share to domestic producers. Recognizing this, Roche deftly offered to lower the price of nelfinavir (Viracept®) by 13%. Cohen and Lybecker note further that this initial offer was rejected by Brazil and efforts were made for Far-Manguinhos, a state-owned laboratory in Rio de Janeiro to produce the drug.80 As the Roche negotiations continued, the Brazilian Health Ministry continued securing lower prices for many of the drugs for the HIV/AIDS cocktail in an effort to control the spread of HIV. Merck reduced their prices by 65% and 59% on the two HIV/AIDS drugs they provide to Brazil. In August 2001, Roche accepted to cut the price on nelfinavir by 40%, which was a significant price concession compared to its original offer. Brazil also made deals for reduced prices for efavirenz (Merck) and atazanavir (Bristol-Myers Squibb) in 2003. The Brazilian government has also been successful in improving affordability and access to essential medicines not directly related to HIV/AIDS. Following a request by the government of Brazil, Roche announced on March 31, 2003 that it will give Brazil the patent rights and the technology on benznidazole, a drug used to treat Chagas disease. While this represents a positive step in treating a disease responsible for the deaths of about 6,000 Brazilians a year, it is not a concession regarding the patent since benznidazole, first

74 Medicines Sans Frontiers, “Six-Month Report Card: Have AIDS Drugs Prices for the Poor Been Slashed?” press release, Geneva, December 1, 2000, http://www.accessmed-msf.org. 75 Stephen Buckley, “Brazil Becomes Model in Fight against AIDS,” The Washington Post, September 17, 2000, p. A22. 76 Including Doctors without Borders and ACTUP. 77 Donald McNeil Jr., “Patent Holders Fight Proposal on Generic AIDS Drugs for Poor,” The New York Times, May 18, 2000. 78 Rio de Janeiro Declaration, 2000. 79 Jillian Clare Cohen and Kristina M. Lybecker . “AIDS Policy and Pharmaceutical Patents: Brazil’s Strategy to Safeguard Public Health” The World Economy (forthcoming) 2004.


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80 Nelfinavir is one of twelve drugs utilized by the Health Ministry to treat HIV/AIDS. At a cost of over $88 million for Roche’s Viracept, this single drug accounted for 28% of government spending on HIV/AIDS treatment in 2000.

marketed more than 20 years ago in 1980 is not protected by a patent.81 Under the terms of the agreement, Brazil will take full control of the drug’s production and could even become a provider to other countries. Once Brazil begins making the medicine on its own, Roche will cease production.82 The Undeniable Impact of Policy Shifts on Market Dynamics The Brazilian pharmaceutical market is changing as sales of generic drugs are on the rise as a result of a government policy to foster intensified generic drug consumption and hopefully avoid some of the price issues which can arise from robust pharmaceutical patent protection83.

US$ value shares by licensing category for years to September 30 (Retail market at ex-manufacturer prices)

(Retail market at ex-manufacturer prices) *Products not yet assigned to a licensing category and non-patentable products Source: MIDAS

As part of a program to expand the access of the country’s poorest socio-economic population to drugs, the Brazilian government has become the largest purchaser of low-cost generic drugs for the public health care system. This policy direction was continued despite a change in the governing party in 2001. Doctors at public hospitals must now prescribe only generics, which cost an average of 40% less than original brand-name drugs, thus affording tremendous budget savings. As patents expire on 75 top-selling drugs in 2004, “the government aims to make Brazil an important generics production centre for Latin

81 Julien Reinhard. “Starting to Play by the Rules? Roche and Access to medicines and diagnostics in developing countries.” April 2003 (available at http://www.evb.ch/cm_data/Roche_study_April03.pdf) 82 “Roche to hand Brazil patent for anti-Chagas drug”, Reuters, 31 March 2003


23

83 It is important to note that generic drugs are not always priced more reasonably than patented medicines, although this tends to be the exception rather than the rule.

America.84” It is likely that with the new flexibilities offered by the Doha Agreement and international interest in Brazil’s generic pharmaceutical industry, that Brazil may become not only an important source of medicines for Latin America but also for many low and middle- income countries in other regions as well. In closing, Brazil has had to make some unwieldy policy twists and turns in the past decade in order to deal with international trade imperatives. While at the cursory level, it may appear that Brazil has moved closely towards meeting its international obligations, what is apparent when careful study is undertaken is that despite these shifts, Brazil has tried very hard to maintain the integrity of its social programmes – for example ensuring the viability of public drug manufacturers and making it abundantly clear that access of its population to essential medicines, particularly those needed to deal with HIV/AIDS takes precedence over trade concerns. Brazil is an example of a country that has managed to interpret international obligations in ways which meet local social norms, sometimes with the unsavoury consequence of being subject to a law suit from the US based research pharmaceutical industry association – Pharmaceutical Manufacturers of America (PhRMA) and also by being listed as a country on the United States Trade Representative’s Watch List. Comparing the Patent Stories: The Commonalities and the Differences What do the two patent stories have in common and what are the differences? Are these country cases generalizable or are they unique? Canada and Brazil show some similar desires to comply with trade demands put forward by the United States independently or through an international organization such as the WTO by ensuring that they have in place patent law, which is consistent with international standards. Brazil, albeit, has tended to demonstrate greater resistance85. Arguably, both countries were prompted to modify their patent law not so much for reasons related to creating incentives for pharmaceutical research and development domestically, although that case was made, but rather to ensure that they made gains in other areas of the world trading system. Canada was more compliant with its policy reforms than Brazil but made less dramatic policy shifts even though the abrogation of compulsory licensing held important consequences for the pharmaceutical market and industry in Canada. By comparison, Brazil moved from a regime, which permitted copies of pharmaceutical products and processes to one that did not permit either except in certain cases, as explicated earlier. This policy shift was far more monumental from a comparative point of view. Brazil has applied a liberal interpretation of the law and made use of its “forgiving” policy levers in order to deal with the policy shift. Still, the trend towards a tightening of intellectual property law in both Canada and Brazil may be now swinging backwards due to international pressure from health activists and the Doha Accord of August 2003 which allows for more “breathing space” for countries that must comply with intellectual property law standards. For example, in Canada, the May 2004

84 “Latin America: Healthcare and pharmaceuticals forecast”, Economist Intelligence Unit news alert, 2004 (available at http://home.aigonline.com/content/0,1109,17073-653-ceo,00.html)


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85 For example, during the Uruguay Round, Brazil and India led the protest against including intellectual property rights in the negotiations.


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legislation that amends patent law to allow for the export of select medicines is precedent-setting internationally but also holds some potential domestically for a revisiting of patent law in certain situations. And, tellingly, Canada, like Brazil, is listed as a country on the United States Trade Representatives (USTR) Special 301 list for 2004. The Special 301 list is included in United States trade law that requires the USTR to identify countries that do not provide adequate intellectual property protection or market access for those persons in the United States that rely on it. Phrma notes: “Canada does not meet its TRIPS obligations in a number of areas. PhRMA remains seriously concerned by the failure of Canadian regulatory authorities to provide effective data exclusivity, as required by TRIPS Article 39.3 and NAFTA Article 1711(5) and (6). Although Canada has data protection in regulations under the Food and Drugs Act, judicial decisions and interpretations by regulatory authorities have rendered that protection meaningless86.” In comparison to Canada, Brazil has demonstrated more of an aggressive approach towards protecting social norms over and above the implementation of intellectual property rights. The case of antiretrovirals was made earlier. As such it too is on the Special 301 list for 2004. PhRMA “…recommends that Brazil remain on the 2004 “Special 301” Priority Watch List due to continued erosion of IP protection and increased efforts to control prices of innovative medicines. In addition, the Government of Brazil has made no progress in addressing the huge patent backlog and unauthorized copies of pharmaceutical products continue to receive sanitary registrations that rely on undisclosed tests and other confidential data. Also of concern is legislation passed last year on compulsory licenses, which apparently is inconsistent with TRIPS obligations and with the August 30th Declaration of the WTO General Council, which is being used to threaten HIV/AIDS drugs manufacturers.”87 The governments of both Brazil and Canada were both compelled to reform their intellectual property law for pharmaceuticals as a result of external pressures and some domestic pressure that was congruent with external factors. At the same time, both governments have tried to ensure access of their populations to essential medicines. Canada has provided a check on intellectual property rights primarily through the creation of an institution -- the PMPRB. Brazil, on the other hand, has tended to resort to using the law as a means to mitigate the harshest effects of intellectual property law on its population, through the threat of compulsory licensing and the inclusion of a local working requirement in its law. Although patent protection for pharmaceuticals is not the single cause of challenges in drug access, it can undeniably lead to higher prices of medicines due to monopolies and thus alters market structure. This paper has tried to demonstrate the dimensions of pharmaceutical patents, falling under the theme of political economy. The patent stories of these two countries have been highlighted in part in this paper but will continue to evolve as pressures for change both for tighter and looser regimes persist.

86 http://www.phrma.org/international/resources/13.02.2004.583.cfm (Accessed, June 7, 2004) 87 http://www.phrma.org/international/resources/13.02.2004.602.cfm. (Accessed, June 7, 2004).

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comparing the impact of the trips agreement on ......the effects of compulsory licensing on the...

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