[Ip-health] Bangkok Post letter: Abbott's law firm's deceptions

[robert weissman]

http://www.bangkokpost.com/260407_News/26Apr2007_news24.php

Bangkok Post
April 26, 2007

*Article misleads in support of Big Pharma*

Peerapan Tungsuwan and William McKay (Business Post, April 23)
misleadingly and incorrectly argue that Thailand's compulsory licensing
actions violate World Trade Organisation rules.

This comes as little surprise. The two work at the global law firm Baker
& McKenzie, which has a huge business representing Big Pharma. Among
Baker & McKenzie's clients is Abbott, the drug multinational attempting
to blackmail Thailand by withdrawing drugs it has submitted for
marketing approval in the country. Other clients include Aventis and
Bristol-Myers Squibb, Pfizer and Eli Lilly.

The lawyers' arguments do not pass the laugh test.

They argue that Thailand's action does not constitute "public
non-commercial use" because the compulsory licence permits the
Government Pharmaceutical Organisation (GPO), an arguably commercial
organisation, to use the patents. That is irrelevant. The licences are
for government use - distribution through the public health sector -
which is what matters.

The United States, for example, routinely issues "public non-commercial
use" licences in the defence sector to clearly commercial ventures (like
Boeing and Lockheed Martin).

They complain that Thailand's royalty rate is too low. They neglect to
mention that the patent holders are free to appeal the royalty rates,
but have in fact been uninterested in negotiating or litigating over
royalties.

And they contend that Thailand did not consider each licence on its own
merits. They ignore the reasoned basis that the Thai government has set
out for its decision in each case. They creatively interpret provisions
of WTO rules to suggest that governments must always enter negotiations
prior to issuing compulsory licences, despite explicit language to the
contrary - and despite common practice in the United States and
elsewhere, where government-use licences are issued with no prior
negotiations.

Peerapan Tungsuwan and William McKay aim to confuse readers by
misleadingly citing international law with which few non-specialists are
familiar. Had they disclosed their firm's ties to Big Pharma, everything
would have been much clearer.

ROBERT WEISSMAN

Director, Essential Action, Washington DC

PROFESSOR BROOK K BAKER

Health GAP, Northeastern University School of Law, Programme on Human
Rights and the Global Economy, Boston

SEAN FLYNN

Associate Director, Programme on Information Justice and Intellectual
Property,

Washington College of Law, Washington DC

JUDIT RIUS SANJUAN

Foreign law adviser, Knowledge

Ecology International, Washington DC



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.