The Law of Unintended Consequences Arises in Applying TRIPS to Patented Drug Protection in Developing Countries

    By Kevin E. Noonan --

In just the latest in a series of developments unwelcomed by Western drug companies, Brasil has threatened to distribute a generic version of Merck & Co.'s anti-AIDS drug efavirenz (Stocrin®).  This action is consistent with earlier steps taken by Brasil, as well as Thailand, that thwart the intentions of the provisions of the TRIPS agreement regarding intellectual property protection, while paradoxically being in full compliance with WTO policies and practices.

Brasil's actions have two bases:  the first is Article 78 of Brasilian Law 9279/96, the national implementing statute for the TRIPS agreement:

In cases of national emergency or of public interest, declared in a decision of the Federal Executive Power, and where the patent owner or his licensee do not satisfy such need, a temporary non-exclusive compulsory license to exploit the patent may be granted ex officio, without prejudice to the rights of the owner of the patent.

This statute is particularly relevant to therapeutics for treating AIDS, which is or is becoming a national emergency in Brasil as well as a number of important countries in the developing world.  The latest estimates (from 2005) indicate that more than half a million of Brasil's citizens are infected with HIV, and as a consequence the Brasilian government is providing anti-AIDS drugs to about 180,000 of these individuals at no cost.

The other aspect of Brasil's latest declaration of its intentions to act against the intended consequences of TRIPS is its warning that it will obtain the generic efavirenz not from its own, robust generic pharmaceutical industry, but from India.  Brasil can do this without risking WTO sanctions because it is permissible to do so under the WTO's Doha Declaration, adopted at a meeting of the WTO in Dohar, Qatar in 2001.  Specifically, the Declaration provides:

        Article 4. The TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all.
    In this connection, we reaffirm the right of WTO Members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.

        Article 5. Accordingly and in the light of paragraph 4 above, while maintaining our commitments in the TRIPS Agreement, we recognize that these flexibilities include:
        (a) In applying the customary rules of interpretation of public international law, each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.
        (b) Each Member has the right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted.
        (c) Each Member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency.
        (d) The effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each Member free to establish its own regime for such exhaustion without challenge, subject to the MFN and national treatment provisions of Articles 3 and 4.

        Article 6. We recognize that WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem and to report to the General Council before the end of 2002.

Brasil has interpreted the Doha Declaration, and Article 71 of its own TRIPS implementation law, as authorizing its planned importation of generic efavirenz from Indian generic companies.  And in view of Brasil's track record with Western drug companies, it is likely to prevail.

Brasil has given Merck one week to negotiate a "discounted" price for efavirenz, a strategy the Brasilian government has used successfully before.  For example, Roche reduced the price to the Brasilian government of neflinavir by 40% in response to the threat of compulsory licensing.  Brasil has also used the threat of compulsory licensing against Abbott (lopinavir/ritonavir) and Gilead Science (tenofavir), with the Brasilian Health Minister giving these companies a 21-day ultimatum for a "voluntary" license to patented anti-viral drugs.

For now, the situation has been limited to anti-AIDS drugs, since these clearly fall within the scope of the type of "national emergency" envisioned by the Doha Declaration.  However, Brasil has other provisions of its national patent law, specifically Article 68(1)(I) of Law 9279/96, that permit the Brasilian government to grant compulsory licenses for any pharmaceutical protected by a Brasilian patent that is not manufactured in Brasil.  Although the legality of these provisions is questionable under TRIPS, in 2001 the U.S. filed and then withdrew a complaint against Brasil before the WTO relating to this provision of Brasilian law invoked to support a compulsory license for anti-AIDS drugs (although Brasil agreed to "consult" with Washington prior to granting compulsory licenses under Article 68).

Brasil's actions are clearly part of a trend, in view of Thailand's grant last December of a compulsory license under Merck's Thai patent for efavirenz.  Both the economics and politics of the situation almost compel developing countries to follow Brasil's lead in using compulsory licensing to obtain generic versions of patented drugs from its own or another country's generic drug industry.  Brasil's success in its compulsory licensing regime necessitates Western governments and pharmaceutical companies to fashion a more effective approach to protecting intellectual property in developing countries in a manner consistent with these economic and political realities.

This is the first in a series of articles exploring the issue of compulsory licensing in developing countries.  For additional information on this topic, please see:

• "Not Getting It about Patented Drug Prices at The Wall Street Journal" - May 6, 2007

• "A Modest Proposal Regarding Drug Pricing in Developing Countries" - May 2, 2007

Comments

[Brad Crawford]

So, the Brazilians will get cheaper medicine, and the drug companies, in order to maintain their profits, will likely charge other countries more.

If more and more countries take this approach, where is the incentive for the drug companies to spend hundreds of millions of dollars developing a drug? This seems likely to help Brazil get cheaper medicine now, but they are hurting the possible development of future, life saving drugs.

[Kevin E. Noonan]

Brad:

It comes down to an allocation of costs. Since Western drug companies developed drugs for many years when these countries did not permit drug patenting, there should be little economic effects on the balance of recouping development costs. The fact is that these countries will one way or the other get the drugs at reduced costs, so why not adopt a regime based on facial or actual fairness, thereby avoiding the adverse political consequences associated with thye current political rhetoric? It would be pointless for Western governments to promote a system (WTO) purportedly to increase patent protection around the world that results in less patent protection than existed before the WTO/GATT/TRIPS regime.

Thanks for the comment.