FTAA - comments on IP and health care

[James Love <love@cptech.org>]

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Info-Policy-Notes | News from Consumer Project on Technology 
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June 31, 1998

As indicated before on this list, the United States is 
negotiating a trade agreement with some 34 countries in the 
Western Hemisphere.  CPT has participated in discussions over
intellectual property right provisions of the proposed treaty.
The following are our July 29, 1998 comments to the United 
States Trade Representative (USTR) on the intellectual 
property sections of the treaty, as they relate to health care.
(We filed separate comments with EFF, EPIC, Netaction and the 
National Writers Union on the IP sections that relate to 
information policy.)

(A copy of this is on the web at:
http://www.cptech.org/treaty/ftaa/ftaa-290798.html)

<------------begin letter------------------------>

               Consumer Project on Technology
            P.O. Box 19367, Washington, DC 20036
                    http://www.cptech.org
               202.387.8030; fax 202.234.5176


July 29, 1998*

Frederick L. Montgomery, Chairman
Gloria Blue, Executive Secretary
Trade Policy Staff Committee
Office of the U.S. Trade Representative
Room 501, 600 17th
Street, NW, Washington, D.C., 20508


Dear Sir and Madam:


Introduction

     We are writing to provide comments to USTR on the
proposed Free Trade Area for the Americas (FTAA).  CPT has
been involved in FTAA discussions since 1997, when CPT
participated in the FTAA Business Forum held in Belo
Horizonte, Brazil.  CPT, together with other groups, filed
position papers on health care and information technologies
for the 1998 FTAA Business Forum that was held in San Jose,
Costa Rica.  Before discussing substantive matters, we would
like to address a few process issues.  These will be followed
by substantive comments on intellectual property provisions
of the FTAA as they relate to health care.  We are also
sending under separate cover a second set of comments on
intellectual property and information policy, which is
signed by groups representing citizen, consumer, and author
interests.

Process Issues

     The Federal Register notice indicated that:

     Since the Santiago Summit, USTR has held informal
     consultations with various sectors of civil
     society, including consumer, labor, business and
     environmental interests, which have expressed
     views and an interest in commenting on U.S.
     positions and objectives for the nine negotiating
     groups.

     First, we would like to know with which "consumer" 
interests the USTR has held informal consultations.  Over the
past year, the USTR has repeatedly refused to meet with CPT
on issues concerning intellectual property and trade
matters.  In May 1998 CPT and six other consumer and public
health organization sponsored a workshop on trade
agreements, health care and intellectual property, and the
USTR refused to participate.  If there are consultations
with consumer groups over the FTAA negotiations, we would
like to know more about them.

     Secondly, at the 1998 Costa Rica Business Forum, the
U.S. Department of Commerce told CPT that the meetings were
open to anyone.  However, upon arrival in San Jose, while we
were free to attend the sessions, we were told we did not
have the right to speak, because we represented consumer
rather than commercial interests.   We asked to see the
rules that would prevent us from speaking on the various
proposals that were voted on, but were never providing
anything in writing.  I also contacted the U.S. embassy in
San Jose and asked if there were any briefings for U.S.
citizens on the negotiations, and was told there were none,
but I found out later this was not true.  We asked the U.S.
Department of Commerce if any U.S. government funds were
spent on the FTAA Business Forum, and never received an
answer.  It would be helpful to know how the FTAA Business
Forum is related to the official negotiations, and what
restrictions there are on consumer groups participating in
these discussions.  If indeed consumer interests are
specifically excluded from participation in the FTAA
Business Forum, why should it have any elevated status in
the development of a treaty that is supposed to benefit
consumers?

      We would also appreciate more information on what if
anything is actually happening concerning input from
non-commercial interests.  Also, we suggest the USTR adjust
its internal procedures to insure that its policies reflect
greater input from public interest groups, and rely less on
special pleadings from a handful of narrow commercial
interests.  For example, the membership of IFAC-3 and other
advisory boards should be changed to include consumer
representation, and USTR officials should not boycott
meetings with consumer groups.

Health Care and Intellectual Property Rules

     The most important starting point for intellectual
property and trade disputes as they relate to health care is
to establish that these disputes be evaluated on the basis
of public health concerns.  We strongly support the proposed
resolution to the World Health Assembly (WHA), that member
countries:

     ensure that public health rather than commercial
     interests have primacy in pharmaceutical and
     health policies and to review their options under
     the Agreement on Trade Related Aspects of
     Intellectual Property Rights to safeguard access
     to essential drugs

     The U.S. should explicitly endorse this approach, and
ask that a similar provision be included in the FTAA.  To
illustrate areas where it is important to clarify the
primacy of public health considerations, I am attaching a
copy of a May 12, 1998 letter to James McGlinchey in the
Office of Intellectual Property and Competition, United
States Department of State
(http://www.cptech.org/pharm/jm-may12.html).  As indicated
in this letter, there are many disputes concerning
trademarks where various industry groups have challenged
sound public health measures on the grounds that public
health measures violate trademark rights under the TRIPS or
NAFTA.  These involve such disputes as plain paper packaging
of cigarettes and infant formula and generic drug
substitution, for example, where public health concerns are
in direct conflict with commercial interests.

     One also expects to see a number of disputes over
compulsory licensing of biotechnology inventions.  In this
regard, the USTR staff is asked to read the 1996 FTC report,
Anticipating the 21st Century: Competition Policy in the New
High-Tech, Global Marketplace, and the sections on
intellectual property, to better appreciate the dangers of
overbroad and anticompetitive uses of intellectual property.
It is essential that the FTAA include provisions that
specifically say that countries should avoid "overbroad
patents and other rights that discourage innovation and lead
to antitcompetitive practices," a position that CPT and
Health Action International (HAI) proposed, without success,
to the 1998 FTAA Business Forum.

     Policies which concern competition and generic drugs

     The United States has been a leader in the development
of the generic drug industry.  The United States army used
procurement policy to promote generic competition.  The U.S.
FDA developed efficient mechanisms for generic drug
approval, state governments have enacted legislation to
promote generic drug substitution and health maintenance
organizations and private insurers aggressively promote
competition between generics.  These policies were
implemented in the United States to benefit consumers and
taxpayers, by making our health care system more affordable.

     There are several areas where regulatory policies can
create barriers to entry by generic drugs.  These should be
discouraged by the FTAA.

1.   "Unfair competition" rules for Health Registration data
should not lead to excessive periods of exclusivity.

     In the United States, the period of exclusivity for
health registration data is 5 years.  In the European
Community the period is generally 6 to 10 years.  However,
the EC adopted the longer terms to compensate for the fact
that some members, such as Spain and Portugal, did not have
patents on pharmaceutical products.  However, now that the
GATT/TRIPS provisions require WTO member countries to
provide 20 year patents on pharmaceutical products, the
original rationale for the longer term has disappeared. DG3
officials concede that it would be appropriate to revisit
this issue, in light on the changes in member country patent
laws.

     CPT believes the current 5-year period of data
exclusivity in the Hatch/Waxman act is excessive.  One good
example of this is Taxol, a cancer drug invented and
developed by the U.S. Government.  Competition for Taxol has
been restricted because Bristol-Myers Squibb (BMS) holds
exclusive rights to use the U.S. government test data for
drug approval.  BMS's role in the development of Taxol was
minimal.  The U.S. government invented Taxol, the methods of
manufacturing Taxol, and sponsored all of the clinical
trials that were used for the FDA approval in 1992.  Bristol-
Myers Squibb's sales for Taxol are now about $1 billion per
year.  In our opinion, the 5-year exclusivity has been
excessive, and has cost cancer patents dearly.

     In 1997 Bristol-Myers Squibb sought legislative
extension of the 5 year period, in return for an agreement
to give the U.S. government 3 percent of the net proceeds
from Taxol sales, and to spend another 3 percent on
research. (See: http://www.cptech.org/pharm/senhregd.html)
During the debate on this provision and similar efforts by
BMS to extend its Taxol monopoly, N.E.R.A. published a
report that said that a two-year extension of the FDA market
exclusivity for Taxol health registration data would cost
Taxol consumers $1.27 billion.  (See Richard P. Rozek, Costs
to the U.S. Health Care System of Extending Marketing
Exclusivity for Taxol, N.E.R.A., Washington, DC, March
1997.)  Congress rejected the statutory extension of the
period of exclusivity.

     In our view, the current U.S. and EC systems to protect
health registration data from unfair competition are badly
flawed, because they are not related to the company's
investment, which is the basis for the protection in the
first place.  Here it is important to point out that firms
do not need "unfair competition" protections if they can
obtain patents for inventions.  Health registration data is
only an important issue when the firm is not an inventor
under patent laws.  These are basically "sweat of the brow"
protection regimes designed to protect investment, not
genius.  It is inappropriate to provide genius type
protections when the government is actually protecting
investment.  A more appropriate system is one that is based
upon investment, and which provides compulsory licensing
based upon (risk adjusted) cost sharing, in order to avoid
abuses.  We have developed specific proposals for doing this
which we believe are more appropriate for international
norms than are the current U.S. or EC methods of protection.

2.   Countries should be permitted flexibility in writing
their own Bolar Provisions.

     We strongly oppose the efforts by the pharmaceutical
and biotechnology industry to narrow or repeal so called
"Bolar" provisions in patent laws.  The WTO/GATT/TRIPS
provisions for 20-year patents provide inventors with
adequate incentives.  This is particularly true in
pharmaceuticals, as the effective patent term has gotten
longer in recent years.  However, companies that have older
patents hope to extend the effective life of the patent by
preventing firms from doing tests on pharmaceuticals in
order to have timely registration at the time of patent
expiration.  This is a back door way to seek patent
extensions.  The U.S. Congress rightly provided specific
provisions in our laws that permit such testing during the
patent term.  All that countries should be required to do is
to limit the commercial sale of an invention without a
license.  There should be no limits on the use of patented
products in medical research.  We also believe it is
appropriate for firms to engage in the manufacture and
storage of goods in anticipation of patent expiration,
including export markets, so long as the good is not
actually sold in a market prior to patent expiration, in
that market.

3.   Countries should be permitted to exclude patents for
treatment regimes and doses of medication, and there should
be limits on trademark protection for "trade dress" of
pharmaceuticals, for public health reasons.

     The U.S. Congress recently determined that patients on
surgical procedures cannot be enforced.  We believe this
should be extended to treatment regimes for pharmaceuticals,
and that patents on doses of medicines should be avoided,
and trademarked protection for the "trade dress" of
pharmaceuticals should be limited.

     One basic problem for generic drugs is that patents get
confused when they switch from a branded to a generic drug,
when the color and shape of the pill has changed, and the
doses are arbitrarily different.  This leads to mistakes in
the use of the products, which harms the patient.

4.   It should be clear that countries can require generic
drug substitution, subscribing by generic name, or the
printing of the generic name on the packaging of the
product.

     The PhRMA members have argued in several international
forums that various methods of generic drug substitution,
subscribing by generic name or the printing of the generic
name on the packaging of the product violate NAFTA or
GATT/TRIPS provisions on trademarks.  It is important that
trade officials be clear that trademark rights do not
interfere with sound public health policies to promote
competition and the greater use of generic drugs.


5.   Generic approvals for biologics are needed.

     Countries should be required to provide expedited
regulatory methods for approval of generic versions of
biologics.

Other Trademark Issues

     As noted above, there are disputes in Canada regarding
plain paper packaging of cigarettes and in Guatemala
regarding World Health Organization (WHO) Guidelines for
marketing of Infant Formula.  Industry groups, sometimes
represented by former USTR officials, claim that public
health regulation of marketing runs afoul of GATT and NAFTA
trademark provisions. For of a discussion of these and other
issues, see our comments to the 1997 FTAA Business Forum in
Belo Horizonte, which is on the Web at
http://www.cptech.org/pharm/belopaper.html (no period).  It
is important that trade officials make it clear that
trademark rights under trade agreements not be interpreted
to prevent public health authorities from limiting or
regulating marketing and packaging of products.  To be
silent of this issue while such disputes occur is not
appropriate.  Also, be advised that Carla Hills, a former
USTR, has been making broad claims about NAFTA and GATT
trademark rights on behalf of tobacco companies, and that
Ms. Hills emphasizes her role in the negotiations over these
treaties.


Parallel imports

     Like the GATT/TRIPS, and unlike NAFTA, the treaty
should allow parallel imports of patented pharmaceuticals
and other products.  The mechanism of parallel imports is an
important way for consumers to avoid adverse price
discrimination that the patent holder can implement by
geographic area (see D.A. Malueg and M. Schwartz, "Parallel
Imports, Demand Dispersion and International Price
Discrimination", U.S. Department of Justice -- Antitrust
Division, 1993).  We also believe a broader global market
for pharmaceutical products will lead to more efficient
pricing decisions, with lower transaction costs.

     As an example of current price discrimination, PHARMAC,
a New Zealand government agency, reported this month that
BMS insists on charging New Zealand consumers 30 percent
more for the AIDS drug Videx (ddI) than it charges consumers
in the United States.  Sometimes the price differences are
such that drugs are more expensive in the United States than
elsewhere.  In general, companies price products on the
basis of local market conditions, but not necessarily upon
the consumer's ability to pay.  For example, Crixivan
(indinavir) is sold at a higher price in South Africa than
in the United States, despite the fact that the vast
majority of South-African AIDS patients are very poor.

     Obtaining competitive world prices is important for
poor countries or for countries with a small internal
market.  Allowed in several countries, parallel imports of
pharmaceuticals have shown to be effective in lowering drug
prices. A study of the price of HIV drugs in the UK shows that
parallel imports offer an average saving of 41% from the UK
list price, and a 30% saving from the UK best contract
price. The group of HIV drugs are among the most expensive
drugs marketed to consumers (see
http://www.cptech.org/pharma/sa/sa-10-97.html).

     Recent decisions by Australia (music CDs), New Zealand
(all goods except pharmaceuticals) and South Africa
(pharmaceuticals) to permit parallel imports has made the
issue of parallel imports an important trade issue.  In our
view, parallel imports are free trade, and efforts to limit
parallel imports are protectionist.  In Japan, some efforts by
firms to limit parallel imports are considered criminal
violations of antitrust laws.  In general, with the rise of
the Internet and global commerce, it is inappropriate to
seek barriers to parallel imports.  (See:
http://www.cptech.org/pharm/sa/sa-10-97.html)



Compulsory licensing

     Under GATT/TRIPS, member countries have the right to
issue compulsory licenses on patents, subject to several
safeguards and limitations.  Under NAFTA, compulsory
licensing is limited to cases resolved under antitrust laws.
The proposed Multinational Agreement on Investments (MAI)
would use the NAFTA approach.

     It is our view that the NAFTA/MAI approach is too
restrictive.  Government should be allowed to use compulsory
licensing when it is necessary to achieve public interests
goals.  In practice, the U.S. government and European
countries do a significant amount of compulsory licensing.
Much of this is done in the context of antitrust
proceedings, such as the 1984 EC undertaking with IBM, the
1998 essential facilities case with Intel, the several
recent FTC cases involving pharmaceuticals, biotechnology
and software, and the recent Department of Justice case
involving West Publishing.  We also have compulsory
licensing in the nuclear area, and compulsory licensing
based upon public interest criteria for certain government
funded inventions (see the U.S. Bayh-Dole Act, PL 96-517, as
amended by PL 98-620).


New Burden Sharing Approaches

     CPT has been urging trade officials and the FTAA
Business Forum to adopt a different approach to trade
disputes that involve health care.  In general, we believe
that in these disputes public health considerations should
have primacy over commercial considerations, and that when
it comes to health care research, the focus on the
agreements should be on burden sharing rather than property
rights per se.

     In this burden sharing framework, countries would be
asked to support minimum levels of health care research, and
be given flexibility in the mechanisms to achieve those
levels. Property rights such as patents or health
registration data are one such mechanism, but so too would
be direct government expenditures on research, such as the
U.S. National Institutes of Health (NIH), or R&D
reinvestment requirements, perhaps modeled on the R&D
funding proposed by BMS for extension of the term of health
registration data exclusivity.

     Thank you for the opportunity to provide these
comments.  We ask for a meeting with the USTR staff to
discuss these issues further.




Sincerely



James Love
Director
Consumer Project on Technology
love@cptech.org
http://www.cptech.org


---
* corrected July 31,1998 for typos.

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