[Ip-health] Premiere Law Firm's Specious Arguments on Thailand's Compulsory Licenses

[B.Baker@neu.edu]

Abbott's law firm, Baker & McKenzie, has penned a highly misleading article
in the Bangkok press, arguing that the Thai compulsory licenses are
unlawful under the TRIPS Agreement.  Three access lawyers refute their
contentions point-by-point.

World's "Premiere" Law Firm Goes to Bat for Abbott:  Specious Arguments on
Thailand's Compulsory Licenses
Professor Brook K. Baker, Health GAP and Northeastern U. School of Law,
Professor Sean Flynn, American University, Judit Rius Sanjuan, KEI
April 23, 2007

Baker & McKenzie proclaims itself as the world's leading global law firm,
so it's no surprise that this 3400 attorney firm with $1.5 billion in
annual billings would go to bat for another big enterprise, Abbott
Laboratories, now locked in an intense battle with Thailand over the
legality and propriety of a government use license issued for
Kaletra/Aluvia (lopinavir/ritonavir), a key AIDS medicine, issued on
January 24, 2007 (Peerapan Tungsuwan and William McKay, Compulsory drug
licenses violate world trade treaty, Bangkok Post, April 23, 2007).
Contrary to its reputation, and more likely for the benefit of its Big
Pharma clients including Abbott, Aventis, Pfizer, Bristol-Myers Squibb, and
Eli Lilly, the Baker & McKenzie attorneys have purposefully misread and
misrepresented the WTO TRIPS Agreement and wrongfully concluded that
Thailand's license are unlawful.

The authors make four TRIPS-related arguments, all of which mischaracterize
the law.

Tungsuwan and McKay first challenge the proposition that Thailand is
justified in issuing compulsory licenses on the grounds that "public health
interest must come before commercial interests," belittling those grounds
as comparable to acquiring beds in private hospitals.  The authors are
fully capable of reading Article 31 of the TRIPS Agreement, which contains
no express limitation whatsoever on the grounds upon which a compulsory
license can be granted.  The primacy of public health and public health's
validity as a ground for licenses, for cost-saving reasons or otherwise,
was confirmed in the Doha Declaration on the TRIPS Agreement and Public
Health of Nov. 2001 especially in paragraph 5(b) which reads:  "Each Member
has the right to grant compulsory licenses and the freedom to determine the
grounds upon which such licenses are granted."  Thus, if Thailand wants to
conserve resources in its world renowned HIV/AIDS treatment program, that
decision is 100% lawful.

Next, the two Baker & McKenzie lawyers argue that Thailand's government use
licenses are not for "public, non-commercial use" because they have been
granted to the Government Pharmaceutical Organization, a publicly owned
manufacturer and drug distribution agency.  Since the license is allegedly
not for public, non-commercial use, the authors argue that Thailand was
required to negotiate on commercially reasonable terms with the patent
holder before issuing the license and that it failed to do so.   In making
this argument, they acknowledge, as they must, that prior negotiations are
not required for public, commercial use licenses; they fail to acknowledge,
however, that Thailand had in fact engaged in fruitless discussions with
patent holders since 2005.

Contrary to the authors' argument, the "public, non-commercial use"
language of Article 31(b) of the TRIPS Agreement is focused on the "use"
made of the licensed product, not who the manufacturer or distributor is.
Here, the use is clear - Thailand will only use the licensed
lopinavir/ritonavir within its national public health insurance schemes.
Indeed,  Abbott will retain its exclusive rights to sell in Thailand's
small private sector where it can continue to charge its exorbitant
monopoly prices.   As apologists for Abbott, the authors would have us
believe that licensees such as the GPO cannot make medicines for profit
(not true), or that it's cheating when a locally owned public manufacturer
makes or imports a licensed product from abroad (nothing could be further
from the truth).  The compulsory licensing provisions of Article 31 permit
licenses to be granted to public or private, and domestic or foreign
entities.

The authors third argument is that the .05% royalty rate is unlawful
because it is not adequate and because it does not take into account the
"economic value of the authorization."  The authors continue with a
truthful observation that customary royalty are higher elsewhere.  While it
is true that royalty must be set fairly, TRIPS merely requires a review
remedy if the patent holder feels the royalty is inadequate.  Section 51 of
the Patent Act provides for such an appeal, and in fact Thailand has
invited Abbott to several meetings to discuss the royalty.  Instead of
appealing, however, Abbott has now decided to boycott royalty rate setting
discussions.

The authors' final argument about the "individual merits" of licenses is
plainly preposterous.  Once again arguing that prior negotiations are
required, the high-powered lawyers argue that Thailand cannot consider any
license on its individual merits if it has not engaged in "prior
consultations with the affected party."  Contrary to their claim, Thailand
unsuccessfully engaged in such discussions for several years.  More to the
point, however, the TRIPS Agreement expressly permits issuance of licenses
for emergencies, matters of extreme urgency, and public, non-commercial use
without prior negotiations (Article 31(b)).  Pursuant to this international
standard and in compliance with its own law, 28 U.S.C. sec. 1498(a) and
U.S. Executive Order 12889 , the U.S. and its contractors routinely issue
public, non-commercial use licenses without prior notice or negotiation,
for example to military hardware patents for its favored defense
contractors Lockheed-Martin and Halliburton.

These highly skilled lawyers are not stupid and they do know how to read.
They must be well aware of the authoritative scholarly interpretations of
the TRIPS Agreement, which clearly do not support their specious arguments.
However, high fees can buy twisted logic.  Here, the false arguments
threaten to obscure the legality of Thailand's compulsory licenses and by
necessary extension threaten access to life saving medicines.  In the U.S.
legal system, we have sanctions for frivolous arguments.  Here the authors
are seeking to mislead the court of public opinion rather than a judicial
tribunal.  That may make their offense even worse.

Professor Brook K. Baker, Health GAP
Northeastern U. School of Law
Program on Human Rights and the Global Economy
400 Huntington Ave.
Boston, MA 02115
617-373-3217 (office)
617-259-0760 (cell)

Bangkok Post, April 23, 2007

BY Invitation

Compulsory drug licences violate world trade treaty


PEERAPAN TUNGSUWAN and WILLIAMMCKAY


We are familiar with the controversy that has been swirling around the
issue of compulsory licensing (CL) of patented pharmaceuticals in Thailand.


The Public Health Ministry has issued a white paper called "10 Burning
Issues", which is an apologia for CL. The ministry proclaims CL is "a form
of social movement that aims at improving access to essential medicines and
the health of people".


In spite of substantial increases in budget expenditure in other areas, the
ministry justifies CL by asserting that patented pharmaceuticals are too
expensive for the Thai budget. It proclaims that the "public health
interest must come before commercial interests".


With this line of reasoning, the ministry might just as well announce that
it will be compulsorily acquiring beds in private hospitals. Private beds
are undoubtedly too expensive. Such an action would also improve access and
place public health before commercial interests.


Perhaps sensing that it needs to find some additional rationale, the
ministry also asserts that its CL is in "full compliance with the Thai
national and international framework". In this context, this means in full
compliance with section 51 of the Thai Patents Act and Article 31 of the
World Trade Organisation's Agreement On Trade Related Aspects of
Intellectual Property Rights (Trips).


In reality, we think the ministry has failed to comply with Trips in a
number of important respects. In this article we will explain why this is
so. In the next article, we will discuss what might be done about it.


First, we believe the ministry has failed to comply with Article 31(b) of
Trips because it did not have prior consultations with patent holders. In
our view, the CLs in favour of the Government Pharmaceutical Organisation
(GPO) are for commercial use, not for "public non-commercial use" as the
government claims and as required by Article 31 (b).


Second, the ministry has failed to comply with Article 31(h) of Trips
because the royalty rates stipulated (0.05% in every case) are not
"adequate" and fail to take into account the "economic value of the
authorisation" (the CL).


And third and most important, the ministry has failed to comply with
Article 31(a) because it has not considered each case "on its own merits".


Let's discuss each of these failures in more detail:


Failure to Consult: Article 31(b) of Trips mandates prior consultations
with the patent holder except in cases of emergency or "public
non-commercial use". The ministry does not claim there is an emergency.
However, it does assert that the CLs in favour of the GPO are for a
"non-commercial purpose".


We think the GPO's use of the CL will be for a commercial purpose. In fact,
Section 6(5) of the GPO Act states that the GPO carries on "business".
Sections 34 and 35 reinforce this basic objective.


For example, legislators envisaged the organisation making a surplus and
having an obligation to pay this surplus to the government. The GPO also
has joint ventures with private pharmaceutical companies. In the past, some
wanted the GPO privatised.


The GPO will be selling the products for which Thailand is issuing CLs. The
royalty obligations are expressed as a percentage of the GPO's "sale
value". In short, the activities are commercial, both in form and
substance. They do not cease to be such simply because the GPO is owned by
the government.


Contrary to what the Public Health Ministry asserts in its white paper,
Section 51 of the Patents Act is in fact silent on the issue of whether
there ought to be prior consultations with the patent holder. However,
Article 31(b) of Trips does say negotiations are required if the CL is
issued for commercial use, and we think the ministry has failed to comply.


Inadequate Royalty Rate: The royalty rate of 0.05% of the GPO's sales value
is not "adequate" and does take into account the "economic value" of the CL
as required by Article 31(h) of Trips. The sales value, and hence the
economic value, of each product varies. Prima facie, one would expect that
the royalty rates for each product should vary. But they do not. The rate
is the same for all three products.


There is some curious logic in the White Paper. The ministry asserts that
since the GPO will charge high retail prices for the products, royalty
rates paid to the patent holders should be low.


The opposite conclusion is more apt. If prices are high, royalty rates
ought also to be high to provide adequate compensation to the patent
holder. To make the royalty rate "adequate" within the meaning of Article
31(h), authorities should assess what rate might be applicable if this was
a voluntary licensing situation, not just a CL situation.


In our experience, rates in voluntary licensing situations would be much
higher, typically in the range of at least 5% to 7.5 %, and quite possibly
substantially more. In one recent case in South Africa, a 5% rate was
determined for an antiretroviral, and that involved a licence to settle a
competition dispute. In short, any adequate rate would be likely to be way
in excess of the derisory 0.05% stipulated by the ministry.


Failure to Consider Individual Merits: The ministry failed to comply with
Article 31(a) of Trips because it did not consider each case on "its
individual merits". This is the most basic and fundamental of all of the
ministry's failures to comply.


To consider any case on "its individual merits" by definition requires
prior consultations with the affected party. That party must be given the
opportunity to make its case and provide relevant evidence. These
principles resonate in provisions such as Article 41(3) of Trips, which
says: "Decisions on the merits of the case shall be based only on evidence
in respect of which parties were offered the opportunity to be heard."


In the case of every announcement of a CL, the ministry ignored these
principles. It deliberately decided not to hold prior consultations. It
seems the ministry had a preconceived view that any prior consultations
were unlikely to be productive as far as it was concerned.


By stipulating a blanket, uniform royalty rate of 0.05% for each product,
the ministry also failed to consider the individual merits of the products.
Had it done so and given the patent holders the opportunity to present
their cases, it may have realised each product and each CL is different,
and accordingly the rates ought to have been different and more adequate.


Trips is an international treaty to which Thailand is as signatory. Under
the new interim constitution, Thailand has an obligation to comply with its
obligations under international treaties, including Trips. We will explore
the legal implications of this obligation in our next article.


Peerapan Tungsuwan is a partner at Baker & McKenzie. She can be reached at
peerapan.tungsuwan@bakernet.com. William McKay is a consultant with the
firm, and can be reached at william.mckay@bakernet.com.