Threats to international patent protection: the pharmaceutical
industry's perspective
This guide is based on UK law. It was last updated in
October 2001.
The pharmaceutical industry has been under fire for some time
from various countries struggling to afford AIDS therapies.
Recently, there have been some important developments in Brazil.
These will have a significant impact upon the pharmaceutical
industry. Life Sciences companies with worldwide patent protection
should also be concerned.
Compulsory licensing
Brazil has exerted considerable pressure on the prices charged
by pharmaceutical companies by threatening the imposition of
'compulsory licences' on patented drugs.
Any country that is a party to the World Trade Organisation's
Trade-related Aspect of Intellectual Property Rights (TRIPS)
agreement is permitted to issue compulsory licences in certain
circumstances, which includes the need to combat a public health
crisis.
However, Brazil's patent laws go beyond this and have provoked
considerable criticism. The Brazilian government can issue
compulsory licences where a patent owner fails to manufacture a
patented product in Brazil within three years of grant.
Certainly, Brazil's approach appears to have been very effective
in forcing pharmaceutical companies to reduce prices. For example,
the Swiss pharmaceutical company Roche has recently announced a 40%
reduction in the price of one of its key anti-AIDS drugs
('nelfinavir' – a version of Viracept) following threats of
compulsory licensing from the Brazilian government.
Unlike the "public health" exceptions, Brazil's patent laws are
non-selective as they can be applied to any patented product, not
just life saving medicines. Some commentators have suggested that
it is, in reality, a somewhat cynical attempt to promote the
production of patented articles in Brazil under threat of
compulsory licensing. This view can only have been reinforced by
Roche's recent announcement of its intention to commence
manufacture of nelfinavir in Brazil.
Patent owners' rights versus the public interest
Clearly, few would argue with the TRIPS carve-out for genuine
public health emergencies. However, countries such as Brazil are
going further and eroding the value of patent rights.
One of the key justifications for patent protection has been
that it rewards and encourages innovation. Why would any particular
pharmaceutical company invest hundreds of millions of dollars in
R&D to
develop a new drug if its competitors were able to create cut-price
generic versions for free?
To quote Hank McKinnell (
CEO
of Pfizer): "you can
kill the golden goose, you will eat well today but tomorrow the
cupboard will be bare."
What is the likely impact?
In the long term developing nations may have scored something of
an own goal by seeking to erode patent protection. Pharmaceutical
companies have invested many millions of dollars (profits achieved
through sales of patented products) into researching malaria and
other diseases that have little direct impact on the developed
world.
If faced with falling profits as a result of losing patent
protection, it would not be surprising if such programmes were
cut.
Possible solutions
How could research be encouraged in the absence of proper patent
protection? The answer may come from a re-evaluation of how R&D
is funded. For example, it has been suggested that governments
could take a more active role in funding research, potentially in
partnership with the pharmaceutical industry. However, it is highly
questionable whether any government could persuade the industry to
make significant investments researching drugs without reward when
that same industry is free - in the absence of a global consensus
to move to other 'friendlier' climes.
Could other countries adopt this approach?
Brazil has stated that it is not seeking to act as a role model,
but other developing countries cannot help but be impressed by the
results that Brazil has scored through judicious use of the threat
of compulsory licensing.
The developing nations are seeking resolution of the issues by
calling on the WTO to give a declaration
regarding access to patented drugs. A statement is expected during
the course of the WTO ministerial conference in November.
Industry reaction
A major concern for the industry is that global patent
protection may become so weakened that 'second world' countries,
such as India (which has vast manufacturing capacity), will begin
production of generic versions of the most popular blockbuster
drugs, undercutting pharmaceutical companies.
Generally, the industry is walking a very difficult PR
tightrope. Public opinion sides with the governments struggling to
pay for the drugs needed to treat AIDS/
HIV
. The
position has not been helped by the wave of negative publicity that
greeted the legal action initiated by a group of pharmaceutical
corporations against South Africa, which has since been
abandoned.
A more positive development is the news that GlaxoSmithKline and
Shire Pharmaceuticals have just entered into a deal with one of
South Africa's largest generic drugs manufacturers to produce three
anti-AIDS drugs with the royalty payments being paid to a fund for
AIDS charities in South Africa.
The most promising approach seems to be 'behind the scenes'
negotiations and potential com promise on a country-by-country
basis.
Conclusion
Patent owners worldwide should watch out for developments in
Brazil and elsewhere. 'Second world' governments are increasingly
flexing their muscles and seeking to reduce patent protection.
Further industry-wide legal action and/or political lobbying (at
an international level) to protect patent rights seems inevitable.
This bulletin is not intended to be a definitive analysis of
legislative or other changes and professional advice should be
taken before any course of action is pursued.
