[Ip-health] Economist - Brazil's corruption scandal may deal a blow to intellectual-property rights

[Mike Palmedo]

Brazil's corruption scandal may deal a blow to intellectual-property rights

The Economist
Jul 21st 2005

When both parties to a negotiation declare victory, it often seems too
good to be true--and in the case of a recent deal on AIDS drug prices
between the Brazilian government and Abbott Laboratories, an American
pharmaceutical firm, it was. On July 8th, the two sides announced an end
to a stand-off over the cost of Kaletra, Abbott's anti-retroviral
treatment. The drug accounts for nearly one-third of Brazil's budget for
AIDS medications, which it provides free to HIV-positive citizens. The
government had asked Abbott to cut Kaletra's price by 42% or grant a
licence for the state to produce it. If not, Brazil threatened, it would
disregard Abbott's patent and use a compulsory licensing procedure
sanctioned by the World Trade Organisation (WTO) to manufacture the
pills without the firm's permission.

Under the July 8th deal, Brazil would maintain its current annual
spending level of $109m on Kaletra until 2010. As in the next six years
the number of patients receiving the drug is expected to rise from
23,400 to 60,000, Brazil would pay a much lower average price per pill.
Abbott's revenues would not change. Both sides hailed the deal which
would let Brazil greatly expand its AIDS treatment scheme for nothing
without hurting the firm's bottom line.

The pact barely lasted a week. On the day it was made public, the health
minister who agreed to it, Humberto Costa, quit in a cabinet shuffle
prompted by the corruption scandal battering the government. On July
14th, his successor, Jose Saraiva Felipe, said that no deal had been
finalised, and that he wanted more discounts. "Breaking the patent has
not been discarded as a final alternative," he says. Abbott says it
still hopes to seal the deal negotiated with Mr Costa. But tweaks may
not be enough to bring the Brazilians back into the fold. As new
allegations surface daily about graft in the governing Workers' Party,
Mr Felipe may decide to show his spine by being tough on foreign drug
firms. "In a country where corruption is rampant, it's very good to show
that there are Brazilian public servants seeking the best possible
bargain," says Otto Licks, an intellectual-property lawyer in Rio de
Janeiro. "Keeping this in the media diverts attention from the scandal."
Playing to nationalist sentiment by granting local production rights to
local firms might also boost the government's popularity.

Although Abbott could probably afford the loss of the Brazilian revenues
(0.5% of its total sales) if a compulsory licence were issued, industry
representatives and patent-rights advocates fear the precedent-setting
effect of such a move. In the Uruguay round of WTO negotiations, wealthy
nations did agree to allow compulsory licences during public-health
emergencies. But according to Shanker Singham, author of a recent
journal article advocating strong intellectual-property rights in the
developing world, they did so only on the assumption that "governments
would be spartan in their use of this nuclear option, which overrides
everything else." If Brazil crosses this line, many other low- and
middle-income countries might follow, which pharmaceutical firms claim
would reduce incentives to invest in new drugs.

Naturally, advocates of greater access to essential medicines say that
more compulsory licences would be good, and dismiss talk that research
and development would suffer. "A domino effect would be excellent," says
Kevin Outterson of West Virginia University. "We should encourage poorer
countries to free-ride on Western innovation. They are not part of the
market anyway, and as long as it doesn't replace markets these companies
rely on, the gains to public health would be tremendous."