The Fight Over Patent Protection for Pharmaceuticals:
A Major Ongoing International Negotiation Will Set the Rules

A major international negotiation regarding patent protection for pharmaceuticals is now underway. Even now, negotiators from Europe, Asia, Africa, and the Americas are battling behind closed doors over issues that will affect the world's peoples for a long time to come.

What is at stake? To hear developing countries such as South Africa, the Philippines, and Brazil describe it, this is a battle to provide drugs to millions of people suffering from HIV/AIDS. To hear the U.S. describe it, however, this is a battle over Viagra.

In the end, the developing countries are mostly right - and it is both in the U.S.'s interest, and the right thing to do, to recognize that.

The Basic Treaty on Drug Patent Protection

The basic international treaty on the issue of drug patent protections is called TRIPS. It requires developing nations to protect patents, including the patents of pharmaceutical companies that produce life-saving medicines. Accordingly, it sets a time limit as to how long these nations can continue to manufacture or import generic versions of patented drugs.

The U.S. patent system works like this: For a time, only the patented drug can be sold; generics are forbidden. Then generics come on the market, where they are much cheaper than the original drug offered by the patent holder itself.

In developing countries, however, the situation is different. Few can afford the patented U.S. drug, so generic copies are made very quickly - before the U.S., European, or Japanese patent has expired.

Consider, for instance, the anti-AIDS drug cocktails. The U.S. originals had sold for more than $10,000 a year. The Indian generics, in contrast, cost only some $300 a year. In countries like Malawi or Nigeria, with an average income of $170 and $260 a year, the U.S. original drugs were entirely out of reach, whereas the generics were barely affordable for some.

Eventually, pressure from the Indian companies that produced the generics, and from HIV/AIDS activists, resulted in a lower price from the Western pharmaceutical companies. But meanwhile, TRIPS' strong pro-patent stance threatened the availability of generics.

The Compulsory Licensing Exception to TRIPS

For the developing countries, however, there remains at least some hope of procuring crucial drugs for their people. TRIPS permits an important, but limited exception, for "compulsory licensing" - a mechanism by which the government can compel a patent holder to grant a license.

Compulsory licensing is a kind of safety valve. When governments give individual companies a monopoly such as a patent, they recognize that there might be times when the monopolist demands too high a price, or even refuses to sell. In such cases, governments sometimes reserve the right to compel the monopolist to license the product at a price set by a third party.

TRIPS's exception for compulsory licensing only applies under limited conditions (such as, at times, a declaration of national emergency). It requires adequate compensation to the patent holder. It also requires that compulsory licenses must be employed "predominantly for the supply of the domestic market," not for export.

The Doha Agreement: Beyond Compulsory Licensing

Unfortunately, that last condition - that compulsory licensing ought not to apply to exports, but only to domestic production - has proved very troublesome.

Many developing countries do not have a significant drug manufacturing capacity and, even with compulsory licensing, must import generics. For instance, countries such as Malawi and the Philippines are not able to produce drugs for AIDS and other diseases; their only option is to import them from Indian drug manufacturers. But TRIPS's compulsory licensing exception makes this difficult.

In November 2001 - in Doha, Qatar - the industrialized nations took an initial stab at this problem, by agreeing to a new declaration. The Doha Declaration began by recognizing "the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics." It went on to observe "public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics."

In light of these international health crises, the Declaration's signatories agreed that their patents on medicines should not stand in the way of developing nations' taking measures to protect public health. TRIPS, the treaty made clear, must be interpreted to promote access to medicine to all.

In particular, the countries agreed to solve the issues with compulsory licensing and imports "before the end of 2002," through further negotiations. Unfortunately, though, no solution was reached.

The 2002 Negotiations: The U.S. Scotches a Compromise

In the 2002 negotiations, the Western countries and the developing world disagreed on what the scope of the compulsory licensing exception should be. The Western countries tried to keep two lists as short as possible, in order to minimize pharmaceutical companies' revenue losses: the list of countries eligible for compulsory licenses, and the list of diseases with respect to which compulsory drug licenses could be granted. The developing world wanted longer lists.

By December 2002, the EU, Japan, and Switzerland--all countries that are home to large pharmaceutical companies--had agreed to support a compromise text. But the United States - alone among all the 144 nations of the World Trade Organization - blocked the compromise.

Why? News reports have suggested that lobbying and extensive political contributions by pharmaceutical giants could be the reason. For instance, the Wall Street Journal reported that pharmaceutical companies - which had donated more than $50 million to mostly Republican candidates in last year's Congressional election - had subsequently sought Congress's help in convincing the Bush Administration to reject the compromise.

The Bush Administration's main argument against the compromise was that it went beyond the Doha agreement, which, the Administration argued, targeted only HIV/AIDS, tuberculosis, malaria, and a handful of other specified epidemics. Here, the Administration was on weak ground.

In fact, the Doha Declaration was not limited to the diseases specified in the text. Recall that the Declaration began by recognizing "the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics." It went on to observe "public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics." As any lawyer knows, introductory words such as "especially" and "including" generally do not signify that a list is exhaustive. And certainly, in such a heavily-negotiated document, the inclusion of those words was intentional. The Doha declaration thus was meant to encompass not only the listed diseases, but also other diseases.

But which additional diseases were to be covered? United States Trade Representative Robert Zoellick argued that the Doha accord would be twisted to permit breaking patents for drugs, such as Viagra, that combat sexual dysfunction.

But none of the developing countries are arguing for the right to produce Viagra. If this were the problem, it could have been easily solved last year--by requiring that the disease be life-threatening. Rather the real debate is over drugs that treat other illnesses--such as heart disease, cancer, pneumonia, and asthma--all major killers in the developing world. It appears that, with the exception of HIV/AIDS, the United States would prefer to limit the covered diseases to those principally found in the tropics, rather than including the diseases prevalent throughout the world, including in the West. The developing world is right to insist on more; cancer does not strike Westerners alone.

Current Negotiations Offer a Possible Solution to the Deadlock

There is some hope that the ongoing negotiations might break the deadlock on the list of diseases. Brazil has helpfully suggested that the World Health Organization (WHO) could serve as an expert body to assess whether any particular illness presents a serious public health problem that might require compulsory licensing. The European Commissioner for Trade, Pascal Lemy, has agreed that this would help assure that "the system would be used in good faith."

Assuming that the parties to negotiations can agree that the WHO will be the arbiter of when compulsory licenses can be granted, does that mean the problems with importing generics are solved? Almost - but one important issue remains. The U.S. and other developed countries are reasonable to insist on strong safeguards to protect against the generic drugs being imported into the rich nations - where the public health system is strong enough to absorb the cost of the original patented drugs.

After all, pharmaceutical companies are not the enemy. They deserve to make a profit on their original, risky research and development, at least from those who can afford to pay. It's important to remember that it is companies like Bristol-Myers Squibb, GlaxoSmithKline, Merck, Pfizer, and Roche--along with universities, foundations, and governments--that helped develop these lifesaving drugs in the first place.

Still, even if the companies' profits are hurt somewhat, a solution to the impasse will, on balance, be positive. Nobel Laureate economist Amartya Sen observes, "Maybe their profit margins would go down a little bit, but in comparison to the masses of good it can do in terms of treatment of some of the most miserable people in the world--suffering from diseases, in a state of poverty, the benefits are just absolutely enormous."

The United States has recently shown leadership in the fight against terrorism. It should also show leadership in another crucial international fight--against the diseases that plague humankind. We must help bring affordable medicines and vaccines to the world's people.