note on Bruce Lehman and the IIPI HIV/AIDS proposal

[James Love <love@cptech.org>]

This is a note on Bruce Lehman and the International Property
Institute (http:www.iipi.org) proposal for HIV/AIDS.  The
proposal is on the web at: 

	http://www.iipi.org/eng/projects/aids.htm
						
Bruce Lehman has been pushing DHHS, the World Bank, UNAIDS and
others on an anti-compulsory licensing and parallel import agenda
for some time.  He is supporting tiered pricing, which would be
based upon voluntary actions by the pharmaceutical industry or
possibly by price controls.  PhRMA is reportedly unhappy with Mr.
Lehman's endorsements of price controls, and Mr. Lehman isn't
that enthusiastic himself on this point, as he notes that
companies may withdraw from markets when faced with very low
price mandates.  

Mr. Lehman makes a number of attacks on compulsory licensing or
parallel imports that are incomplete, misleading or inaccurate. 
For example, he says that AZT is "difficult, if not impossible,
to replicate and administer without the cooperation of their
developers."  Since AZT was invented in 1964 on an NIH grant, and
is now sold by companies in China, India and Argentina, this is
hard to swallow.  Of course, several other AIDS drugs are also
available in countries where the drugs are not protected by
patent.  Mr. Lehman makes much of the problem of cheap drugs
moving from poor to rich countries, but his solution is for the
World Bank to put pressure on poor countries not to authorize
parallel imports -- Mr. Lehman is dealing with the wrong end of
the market.

Mr. Lehman dismisses the benefits of compulsory licensing, and
ignores virtually all empirical evidence that compulsory
licensing or elimination of exclusivity rules has led to enormous
price changes for drugs like AZT, 3TC and Diflucan (Fluconazole). 
Of course, when you ignore things like real world price savings,
you can make some uninformed DHHS or World Bank officials think
there is no point in compulsory licensing.

See http://lists.essential.org/pharm-policy/msg00122.html
and the recent 95 percent decline in the price of Fluconazole in
Thailand, following elimination of exclusivity, for example, for
evidence that Mr. Lehman ignores.

Mr. Lehman also implies that drugs sold under a compulsory
license in a poor country will be imported to rich countries as
parallel imports, undermining the whole international pricing
structure and harming global R&D. 

	"an effort to use compulsory licensing to address 
     issues of affordability could have a serious 
     impact on the integrity of the international patent
     protection system. Large scale importing of products
     produced under compulsory licenses could undermine 
     the cost structure of these same products in countries 
     where parallel import is legal."

How this will happen is a mystery, since the company that gets
the compulsory license in one country will (in all but cases
involving antitrust litigation) not have a legal right to sell in
another country.   Mr. Lehman seems to be mixing compulsory
licensing and parallel importing together, without thinking
through or explaining how the two work together.  Consider, for
example, the current case with 3TC, an important AIDS drug sold
internationally by Glaxo, and also manufactured by CIPLA in India
where there is no patent.  For 150 mg/60 tabs of 3TC, Glaxo
charges $262 in the US and CIPLA charges $46.51 in India.  This
is a big price difference.  But CIPLA can't sell in the USA or UK
market, because it doesn't have US or UK patent rights.  And, if
CIPLA was to sell 3TC in South Africa under a compulsory license,
it still couldn't sell 3TC in the US or the UK.  It could simply
add South Africa to the countries where CIPLA could legally sell
3TC.  And, if the USA enacted its legislation to permit parallel
imports (HR 1885, S 1191), 3TC from CIPLA still couldn't be
marketed in the USA, because CIPLA would not have a valid USA
license.

However, what Mr. Lehman did not explain is that the UK or the
USA could authorize parallel imports of Glaxo's 3TC, sold in
different countries, including, for example, the version that
Glaxo sells for $114.42 in India, where Glaxo competes against
CIPLA drug (which sells for $46.51).  

If rich countries were to permit parallel imports of products
sold by Glaxo in India, Glaxo might want to raise its price in
India.  But if Glaxo did this, consumers could buy the drug from
firms that had the compulsory license in India, South Africa, or
elsewhere.  This would lead to a stronger generic industry.

One strategy that Glaxo might undertake (or the firm that
actually holds the 3TC patent) would be to license the patent
rights to another firm that did not sell in both countries. 
Glaxo could give BMS a license to sell 3TC in South Africa (and
even manufacture the drug for BMS).  Likewise, BMS (or the patent
owner) could license Glaxo to sell d4T in South Africa (and even
manufacture the drug for Glaxo).  Or more generally, drug
companies could license their patents to third parties in
different geographic markets, including, when appropriate,
capable local firms.  This is, of course, done widely now for
many products, where one firm might market a product in the US,
for example, while other firm has the rights to the EU market. 
There could be licenses to firms that sold only in the markets
where compulsory licenses exist.

In general, compulsory licenses lend themselves very well to the
very types of price discrimination that Mr. Lehman seems to favor
(discounts for poor countries), because of the geographic
boundaries of the licenses (TRIPS Article 31.f), and they seem to
be a less trade restrictive practice than banning international
exhaustion of rights (banning parallel imports), which Mr. Lehman
is pushing.
					
Finally, a note about Mr. Lehman.  He is the controversial former
US Commissioner of Patents and Trademarks.  His tenure at the US
PTO was accompanied by lots of controversy, particularly over his
unsuccessful attempts to push overly restrictive proposals on
digital copyright.  These proposals were criticized (by CPT and
others) on the grounds that they violated privacy and harmed
technical innovation.  Mr. Lehman's version of a "digital agenda"
was eventually rejected at a 1996 WIPO treaty, in favor of an
alternative and more balanced proposal that was offered by
African countries and backed by a large coalition of consumer,
library and academic groups, and computer, internet and
telecommunications businesses.  

-- 
James Love, Director, Consumer Project on Technology
I can be reached at love@cptech.org, by telephone 202.387.8030,
by fax at 202.234.5176. CPT web page is http://www.cptech.org