[Ip-health] Para 6 Implementation Recommendations

[Robert Weissman]

With Canada and the EU looking to develop national legislation to
implement Paragraph 6 of the Doha Declaration, we thought it might be
useful to offer recommended guidelines for such legislation.

These are affirmative guidelines, not a critique of what has been
offered in Canada or elsewhere. It should be emphasized, however, that
the Canadian proposal for a "right of first refusal" for patent owners
in the exporting country runs entirely contrary to the spirit of the
Doha Declaration, and would completely eviscerate the agreed upon
implementation "solution" to Paragraph 6.

--
Robert Weissman,
Essential Action
202-387-8030



Implementation of the Doha Declaration Paragraph 6 Agreement --
Recommendations for Exporting Countries
Robert Weissman
Essential Action
February 3, 2004


Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public
Health noted the particular problems faced by countries with
insufficient manufacturing capacity and economies of scale to make
effective use of one of the key flexibilities afforded by the TRIPS
Agreement, the right to undertake compulsory licensing, for some or all
drugs. In an August 30 TRIPS Council decision, "Implementation of
Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public
Health" and an accompanying statement from the General Council
Chairperson, the WTO members established new TRIPS rules designed to
remedy these problems.

The implementation decision establishes a global trade framework for a
remedy. Actual implementation, however, will require legal and
regulatory implementation in both importing and exporting countries, as
well as, ultimately, actual decisions to issue compulsory licenses in
importing and exporting countries.

As countries craft implementing legislation, the overriding principle
should be to make the system as smooth and efficient as possible. As
much as possible, the goal should be to ensure that countries with
markets that are too small to achieve economies of scale for some or all
pharmaceuticals ("importing countries") should be in the same position
they would be if they had larger markets or more advanced manufacturing capacity.

This note offers guidelines for national implementation in exporting
countries of the August 30 implementation decision.

1. Exporting country authorities should grant all applications for a
compulsory license by a potential exporting manufacturer, contingent on
a showing by the exporter that they plan to export in response to a
request by an eligible importer.

2. A country is an eligible importer if it is a least-developed country,
or any country that has made a notification to the Council for TRIPS of
its intention to use the system as an importer, and which makes its own
determination that it lacks sufficient manufacturing capacity to met its
needs.

3. Licenses should authorize production of a quantity needed by the
eligible importer. The license should be open-ended, so that exporters
are authorized to export, over time, whatever amounts an importing
country indicates it needs, subject to a system whereby the importing
country provide notification of the required amounts, and those amounts
are disclosed on a timely basis in a manner consistent with the WTO
system for transparency.

4. The term of the license should be for the life of the patent in the
exporting country, unless the importing country indicates that it is no
longer eligible.

5. There should be no requirement in the exporting country for a prior
negotiation with the patent holder, and certainly not if one took place
in the importing country. The TRIPS obligation for negotiation for a
"reasonable period of time" shall be deemed met by negotiations, if
required, that occurred in the importing country.

6. The Paragraph 6 implementation decision obligates exporters to
distinguish their products as produced under the implementation
decision. The main concern is to ensure they are not confused with
patented products, and thereby potentially subject to diversion to
countries where the patent owner maintains a marketing monopoly. The
most important distinguishing feature is to use a different trademark
name for the export product. Exporting countries should require
exporters either to use a different trademark name from the patented
product, or only a generic name. Exporters should also be encouraged to
use different external packaging from the patent holder, including marks
indicating that the product is not for re-export. Where there is no
medical reason to the contrary, and where the cost of doing so is de
minimis, exporters should also the color and/or shape of products to
distinguish them from the patented version.

7. Before shipment, exporters should be required to post on their
website (or, as an alternative at their discretion, the WTO website),
the quantities being supplied and the distinguishing features they have
applied to the product or packaging.

8.   Compensation. The WTO requirements for compensation under a
Paragraph 6 export compulsory license is the standard of "adequate
remuneration" from Article 31(h) of the TRIPS. This is a less stringent
standard than "reasonable commercial terms." Under the terms of the
Paragraph 6 Agreement, the exporting country is required to set
compensation, taking into account the economic value of the product in
the importing country.  The importing country can waive compensation
when compensation is paid in the exporting country.

It might be possible to construct a system where compensation is set in
the importing country, and the exporting country considers that
compensation level to be wholly sufficient.

Wherever compensation is set, the key issue is to ensure the
compensation system is simple, quick and predictable. The compensation
should be based upon a reasonable royalty, following either the UNDP
royalty guidelines (recommending that rates normally be set at 4
percent, and adjusted upwards as much as 2 percent for products of
particular therapeutic value, or reduced as much as 2 percent when the
development of the product had been partly supported with public funds),
or a modified version of the Japan Royalty Guidelines. In 1998, the
Japan Patent Office adopted guidelines for determining royalty rates for
licensing patents owned by the Japanese Government. The royalty
guidelines range from 0 to 6 percent, and are well suited for cases
where there are multiple patents on the same product.

In legislating implementation of Paragraph 6, two features are centrally
important. First,
both exporting and importing countries must tailor their compensation
system to ensure there is no double compensation paid to patent holders.
Compensation should be paid in one country, but not both; or if for some
reason in both, it should be adjusted to reflect the amount paid in the
other.

Second, countries should adopt royalty guidelines to establish a
framework for compensation setting. It is enough for legislation to
stipulate that royalty guidelines be established, with the task of
developing them allocated to an appropriate administrative body.

9. The validity of a compulsory license in the exporting country shall
be subject only to administrative review. Injunctive relief should not
be available to the patent owner.

10. The implementing legislation should ideally apply to all healthcare
inventions, and at least to all pharmaceutical products, defined in the
Paragraph 6 Agreement as inclusive of all products of the pharmaceutical
sector, including active ingredients needed for manufacture of
pharmaceuticals and diagnostic kits. Implementing legislation should
specify that it applies to vaccines.