[Pharm-policy] FTAA Comments from Essential Action

[Robert Weissman]

Robert Weissman
Co-Director
Essential Action
P.O. Box 19405
Washington, D.C. 20036

August 22, 2001

Gloria Blue
Executive Secretary
TPSC
Office of the USTR
600 17th Street, NW
Washington, DC 20508
Attention: Free Trade Area of the Americas Draft Text Release

Dear Ms. Blue:

Essential Action submits these comments in response to a request from the
Office of the U.S. Trade Representative for public comment on negotiating
objectives for the proposed Free Trade Area of the Americas (FTAA)
(Federal Register, July 12, 2001).

Essential Action is a corporate accountability group that focuses
especially on international issues. We have been involved in trade and
intellectual property policy debates for more than a decade.

We preface our comments by noting that we are opposed altogether to
negotiation of an FTAA on the North American Free Trade Agreement (NAFTA)
model. Our view is that measured by any of numerous people-centered
indicators (as opposed to corporate-oriented standards), NAFTA has been a
complete failure, and highly detrimental to people and the environment in
all three member countries. It is an agreement that should be reversed,
not expanded.

These comments, however, focus on the potential intellectual property and
investment provisions of an FTAA as they relate to issues regarding access
to medicines and compulsory licensing. We hope in the near future to
provide separate comments on the FTAA with regard to another pressing
public health issue, tobacco control.

These comments are based on the official draft of the FTAA made public in
early July 2001, and published on the FTAA website at
<http://www.ftaa-alca.org/alca_e.asp>. That text is highly inadequate for
purposes of public policy analysis. It suffers from serious citation
shortcomings, a problem we seek to overcome as best we can in these
comments. A more serious problem is that the draft text fails to identify
which countries have introduced or support which provisions, making it
difficult to assess which of multiple contradictory bracketed provisions
are most likely to likely to enter a final agreement, and which are the
most likely operative negotiating provisions.

Given these limitations, what can be said is this: There are numerous
proposed provisions in the FTAA that would go far beyond WTO rules and
that would dramatically limit countries' ability to promote access to
medicines. Lives are at stake in the negotiations that determine whether
these provisions are incorporated into the final agreement, and in the
national deliberations over whether a final agreement is adopted. To take
one example, under these harmful provisions, Brazil, which runs what may
be the developing world's most effective HIV/AIDS treatment program, may
find itself facing difficulties in making new drugs available.

We conclude that, should there be an FTAA, intellectual property and
investments should be excluded from the agreement. If these chapters are
included, a variety of the U.S.-backed proposals on intellectual property
should be abandoned, and intellectual property should be excluded from the
investment chapter.


I. THE INTELLECTUAL PROPERTY CHAPTER

THE CASE FOR EXCLUDING INTELLECTUAL PROPERTY
FROM THE FTAA

There is no reason for inclusion of intellectual property provisions in
the FTAA. All FTAA negotiating countries are members of the World Trade
Organization and have committed themselves to the Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS
establishes a comprehensive international standard for intellectual
property protection, with a heavy tilt towards the interests of
intellectual property (IP) holders.

The TRIPS rules constitute a floor of IP protection. With TRIPS already
establishing a high level of IP protection in every Member country, there
is no reason to include IP rules in regional agreements among TRIPS
Members.

Because WTO TRIPS establishes a floor for all FTAA negotiating countries,
including IP in the FTAA will almost certainly serve only one of two
harmful purposes.

First, the FTAA may incorporate enhanced IP protection ("TRIPS-plus"
provisions). Such provisions are not only unnecessary, but, as discussed
below, dangerous and injurious to public health.

Second, many of the FTAA provisions are likely to mirror those already in
TRIPS. This will impose no new obligations on FTAA members, but it will
work to further lock in place TRIPS provisions that diminish the public
domain, and to enhance the power of intellectual property holders. Under
this scenario, if reforms ever occurred in the TRIPS that expanded the
public domain, the FTAA members would still be required to maintain the
pre-reformed policies that favor intellectual property holders. This is
not a two-way street, however; changes in the TRIPS that work to expand
the exclusionary and monopolistic rights of intellectual property holders
would be binding on the FTAA member countries.

The duplicative obligations under TRIPS and the FTAA would benefit IP
holders even in the absence of any changes in TRIPS. That is because the
overlapping jurisdiction of the WTO and the FTAA on these issues would
enable plaintiff countries in IP cases to forum shop, seeking to bring
cases wherever they believe adjudicators to be most friendly.

There is a third possible effect of inclusion of some IP provisions in the
FTAA. Where there is uncertainty in the margins of TRIPS, inclusion of
provisions in the FTAA that expand the public domain could be operative.
This might relate to such issues as the right to export under a compulsory
license, whether under Articles 6, 30 or 31(f) of the TRIPS. Other
limitations on intellectual property may have no binding effect, given the
TRIPS floor, but would at least establish a positive example. There are
some such proposals in the current FTAA text, including exclusions on the
patentability of lifeforms, business methods and computer programs (pages
8.47, 8.49). We would support such pro-public domain provisions -- they
are the only IP provisions we would support in an FTAA -- though we are
skeptical of the likelihood of their inclusion given the U.S. role in the
negotiations, and we note the possibility of working out such TRIPS
ambiguities in the TRIPS Council, if the United States operates there with
some respect for the public interest and public health, instead of
maintaining a single-minded focus on defending the interests of
intellectual property holders.


COMPULSORY LICENSING AND THE PUBLIC/PRIVATE SECTOR DIVIDE

Perhaps the most troublesome provision of the FTAA IP chapter is a
proposed limitation on compulsory licensing to the public sector only
(page 8.64 (6)). This provision would limit the grounds for compulsory
licensing for non-public use far more than does the TRIPS agreement.
Compulsory licensing, a critical policy tool to prevent price-gouging and
promote competition, enables a government to instruct a patent holder to
license the right to use its patent to a company, government agency, or
other party. Compulsory licensing lowers prices to consumers by creating
competition in the market for the patented good. Its impact is similar to
the introduction of generic competition at the end of a drug's patent term
-- prices come tumbling down.

Under the public sector-only provision of the FTAA, compulsory licensing
to achieve the public health aim of making medicines more accessible would
only be permissible if the licenses were granted to the "Government of the
Party or by a private entity acting on behalf of the Government of the
Party" (page 8.64 (6)). Under the more permissive TRIPS arrangement, by
contrast, compulsory licenses could as a matter of course be granted to
private parties for commercial, non-public use,  so long as TRIPS
procedures and rules, including payment of reasonable compensation to the
patent holder, were complied with.

The public sector-only provision of the FTAA would permit compulsory
licensing only for "the making, using or importing of the patented
invention solely to satisfy the requirements of the Government use, and
shall not entitle a private party acting on behalf of the Government to
sell products produced pursuant to such authorization to a party other
than the Government." The public sector-only provision would prevent, for
example, Peru from issuing a compulsory license on HIV/AIDS drugs to an
Indian generic manufacturer, for sale in the private sector. There is no
conceivable public policy rationale for such an outcome.

The provision does include a national emergency exception, but there is no
reason for private sector compulsory licensing to be limited to these
circumstances. Certainly, there are many instances, especially in
developing countries, where access to medicines is a pressing issue but
where national emergency conditions do not exist. And, for better or
worse, it is the case that access to pharmaceuticals and medical treatment
throughout the Americas is often obtained through the private sector. Why
should price gouging be permitted in these instances? Why should people be
denied access to treatments in these circumstances?

By contrast, TRIPS Article 31 contemplates a much more rational position,
in which compulsory licensing is part of the basic schema of the
intellectual property system, not a limited set of exceptions. Article
31(b) permits compulsory licensing generally, so long as certain
procedural conditions are met. (1)
Significantly, the FTAA provisions would impact on compulsory licenses
outside of the pharmaceuticals sector, and on the United States, not just
on our trading partners. Some of the IP provisions of the FTAA appear to
conflict with existing U.S. law, and with various legislative proposals
recently introduced in Congress. For example, 42 USC Sec 2183 permits
compulsory licensing of atomic energy inventions. In the 107th Congress,
Representative Sherrod Brown introduced HR 1708, which would permit
compulsory licensing of pharmaceuticals and patented medical
inventions.(2)  In the 106th Congress, Representative Dennis Kucinich
introduced HR 4739, which would permit compulsory licensing of patents on
reformulated gasoline.(3) Compulsory licensing is likely to become
increasingly important in the United States in the field of biotechnology,
where patents on foundational inventions and multiple overlapping patents
on single consumer products have the potential to seriously impede medical
progress.


COMPULSORY LICENSING AND THE EXPORT ISSUE

One of the most serious TRIPS impediments to effective compulsory
licensing involves limitations on exports. The FTAA appears poised to
worsen this problem dramatically.

TRIPS Article 31(f) poses significant difficulties in making compulsory
licensing operational. It specifies that compulsory licenses must be
"authorized predominantly for the supply of the domestic market" of the
country issuing the license.

This poses serious potential difficulties for small countries. These
countries may wish to issue compulsory licenses to foreign producers, on
the grounds that it would be inefficient or impossible to source from a
domestic supplier that would have a license only to sell in a limited size
market. Under TRIPS and the FTAA, this right to import is unimpeded. But
there is the matter as well of whether a manufacturer would be able to
obtain a license to export. The prospect of obtaining such a license under
TRIPS is complicated by Article 31(f)=D5s predominantly for this supply of
the local market requirement. However, a compulsory license proposal in
the FTAA would raise the bar much higher, prohibited compulsory licensees
from exporting altogether (page 8.64 (6)(b)).

In the context of TRIPS, countries and advocates have proposed a variety
of means of dealing with the compulsory license for export problem. One of
those proposals, involving a flexible interpretation of 31(f) itself,
would be impossible for the Americas under the FTAA proposal. The other
such proposals may also be undermined, since the firm language of page
8.64 (6)(b)) banning compulsory licenses for exports would make it much
more difficult to interpret an FTAA provision that paralleled TRIPS
Article 30, or an FTAA provision related to exhaustion of rights, in such
a way as to permit compulsory licenses for export.

The impact of this provision would fall heaviest on people, especially
poor people, in small population countries. There is simply no defensible
rational for a policy that requires people in Central America or the
Caribbean to pay more for medicines than people in Brazil, Mexico or
Argentina, with  people living in small countries denied the price
reductions and greater accessability to medicines following from
compulsory licensing, just because they live in smaller countries. This
economically inefficient and illogical provision, which would exacerbate
the most serious TRIPS impediment to compulsory licensing, must be
abandoned.


LINKING MARKETING APPROVAL TO PATENT STATUS

A proposed provision of the FTAA would link marketing approval for a drug
-- based on a finding of safety and efficacy, or bioequivalence to a safe
and efficacious product, granted by FDA-equivalent agencies -- to patent
expiration (page 8.65 (3)).

This arrangement establishes drug safety agencies as de facto IP
enforcement agencies. In practice, this kind of arrangement is likely to
yield unjustified patent extensions, as drug safety agencies, operating
outside of their field of competence, improperly deny marketing approval
to generic competitors.

In the United States, where marketing approval is linked to patent
expiration, the FDA almost automatically grants 30-month monopoly
protection to patent holders who claim a new patent on claims related to
dosage levels or similar grounds of renewed patents for drugs nearing the
end of patent protection. In deference to these patent claims, the FDA
denies marketing approval to generic companies -- even though many are
subsequently found illegitimate. The result is that consumers are denied
the benefits of competition, and lowered prices, for two-and-a-half years.

There should be no linkage between marketing approval and patent term. If
a generic company markets an on-patent drug without license, under TRIPS
the patent holder has adequate remedy at law. Stated differently, linkage
can only serve to protect invalid IP claims -- valid claims receive
protection through normal judicial means.

Again, it bears emphasizing that the artificial inflation of the price of
medicines that stems from such misuses of the IP system is often a
life-and-death matter. Seemingly obscure IP provisions will have enormous
consequences for how much preventable suffering is averted or endured by
the poor.


IMPROPER GRANTS OF DATA EXCLUSIVITY

Article 39.3 of the TRIPS agreement requires members to grant "reasonable"
protection to "undisclosed" pharmaceutical test data, the study data
showing safety and efficacy. To gain marketing approval, generic companies
typically show their product is bioequivalent to a patented product, and
then rely on the patented product's safety data to earn approval.

In many instances, if a generic company cannot use the already-generated
registration data, it will not introduce a generic version of the patented
product; the price of generating the data may be too high, or, just as
important, take several years to replicate. If the company does choose to
re-generate the data, consumers suffer from the delay in the introduction
of the generic product that occurs while the generic firm re-conducts the
relevant tests. Moreover, from a social point of view, retracing old tests
to reach an already-known result is a tremendous waste of resources.

In those countries that establish set terms for registration data
exclusivity (5 years in the United States, 10 years in the European
Union), the period of exclusivity typically runs shorter than the patent
term. Thus, registration data protections are not normally an impediment
to the introduction of generics.

They are an issue, however, for new drugs that are not patent-protected or
in cases of compulsory licensing. Where a compulsory licensing is granted
for a drug for which registration data exclusivities remain in force, the
data exclusivity can block the generic from gaining market approval.

An effective system of compulsory licensing must therefore permit
compulsory licensing of registration data.

The FTAA includes TRIPS-plus proposals on registration data that would
mandate five years protection for the data submitted to show drugs are
safe and efficacious (page 8.65 (1)).

TRIPS language itself is quite vague on registration data.(4) It only
covers "undisclosed" data, stipulates protection from "unfair" commercial
use, does not address the issue of reliance upon published studies or
foreign government drug approvals, and sets out no standards for how
governments should protect against unfair commercial use.

It is unacceptable for trade agreements to contain language that increases
monopolistic protection for registration data beyond that contained in
TRIPS. Such measures may significantly impede efforts at compulsory
licensing of pharmaceuticals and rapid introduction of generic
competition.


EXTENSION OF THE PATENT TERM

The FTAA contains a proposal for patent extensions to offset delays in
marketing approval for pharmaceuticals (page 8.65(8)). Like the harmful
provisions on improper grants of data exclusivity and linking marketing
approval to patent status, USTR has listed this provision as among the
U.S. negotiating objectives for the FTAA.(5) The result of the patent
extension provision would again be extended monopoly protection for drug
manufacturers and gouging of consumers.

TRIPS obligates member countries to grant 20-year patents. Those patents
provide a two decade monopoly on inventions. Patent terms seek to create a
balance between providing incentives for inventors and the public interest
in maintaining and promoting competition. The 20-year term manifested such
a balance -- albeit one tilted in favor of the corporate patenting sector
-- taking into account the known delays sometimes associated with
marketing approval. Adding additional time to the patent term after a
balance has been struck improperly tips the IP scheme too significantly
for patent holders.


OTHER INTELLECTUAL PROPERTY CONCERNS

The FTAA contains other harmful TRIPS-plus provisions which should not be
adopted.

These provisions include:

* A proposal to deepen dramatically the monopoly power of the holders of
gene patents.(6)

* A mandate that FTAA countries rely on the private, unaccountable ICANN
to resolve disputes over domain names, including disputes with significant
free speech implications (page 8.14).


II. THE INVESTMENT CHAPTER

In addition to the intellectual property chapter, the investment chapter
of the draft FTAA would provide an additional set of protections to
intellectual property holders.

Essential Action is strongly opposed to the inclusion of an investment
chapter in the FTAA. The NAFTA experience with an investment chapter shows
how far-reaching and pernicious can be the effects of an investment
agreement on a wide range of public interest considerations.(7)

But the implications are especially dire for intellectual property. To
whatever extent there is a logic to investment agreements, it does not
apply to intellectual property. Especially since intellectual property is
a form of investment that is already protected under existing
international trade agreements (and likely to be contained again in the
FTAA), intellectual property should be excluded from any investment
provisions contained in the FTAA.(8)

PERFORMANCE REQUIREMENTS

The FTAA investment proposal prohibits "performance requirements" imposed
on investors (Article 7, page 3.5). Compulsory licensing would be such a
performance requirement, as listed in Article 7.1(f) (page 3.6): "No Party
may impose or enforce any of the following requirements ... : to transfer
a particular technology, production process or other proprietary knowledge
to a person in its territory" [brackets excluded].

There are two important proposed exceptions to this provision. In Articles
7.1(f) and 7.4.2(b) is a proposed exception for such requirements
resulting from an antitrust enforcement action. In Article 7.4.2(a) is a
proposed exception for "measures relating to the transfer of intellectual
property rights as set forth in and that are consistent with the
provisions of Articles XXX (CITE TO SPECIFIC ARTICLES) of Chapter XX
(Intellectual Property Rights)" [IN ORIGINAL].

Article 7.4.2(a) may well provide protection for compulsory licensing,
though it is impossible to know this at this point, since the proposal is
in brackets (as is the entire text) and the referenced articles in the IP
chapter are unspecified.

But even if Article 7.4.2(a) does provide protection for compulsory
licensing, the coverage of all performance requirements not compatible
with the as yet unspecified provisions of the FTAA IP chapter will
dramatically chill countries=D5 willingness to undertake compulsory
licensing, as explained below.

The Article 7.1(f) provision raises a separate and distinct problem with
regard to registration marketing approval data protection. Even if the
United States does not succeed in winning inclusion of its proposal for
five years data protection in the FTAA IP chapter, Article 7.1(f) would
appear to provide independent protection of the registration data, with no
clear endpoint, perhaps not even the five-year period sought by the United
States. At what point could a country impose the "performance requirement"
of enabling a generic competitor to rely on the registration data? No time
limit appears contemplated in Article 7.1(f). Would reference to an IP
provision on registration data exclusivity matter in this instance, given
the nature of the IP language and the special nature of the registration
data "investment?" These are pressing questions to which we do not see
obvious and satisfactory answers.


EXPROPRIATION

Following the NAFTA model, Article 10 of the FTAA investment chapter
includes a prohibition on expropriation absent payment of market value
compensation. Article 10.9 would exclude compulsory licensing and
intellectual property limitations from coverage under the expropriation
provision, so long as these provisions are TRIPS-compliant, though again
these exclusions, like the rest of the draft agreement, are in brackets.

It is absolutely vital that compulsory licensing and intellectual property
be excluded from expropriation provisions. Failure to do so would make
doing compulsory licensing extremely difficult and maybe impossible.

The expropriations/compensation language in the FTAA would likely mean
that a government issuing a compulsory license would owe massive
compensation to the patent holder. Under TRIPS Article 31 compulsory
licensing, the licensee owes a reasonable royalty to the patent holder. By
contrast, under the FTAA expropriation language, the patent holder would
be entitled to compensation for an "expropriation" and for the fair market
value of the "taken" property. This might well be the value of the lost
sale (at the patent holder's price) minus the paid royalty. The patent
holder might quite likely seek more: the patent holder could also argue
for lost profits on sales of the patented good, if the patent holder is
forced to lower prices in the face of competition.

In such a scenario, no government would issue a compulsory license. Even
the possibility of such a scenario, given the fact that liability would
rest with the government, would be enough to chill any issuance of a
compulsory license.

There must therefore be a crystal clear exclusion of intellectual property
from the expropriations provision -- not just TRIPS-compliant measures
related to intellectual property. Absent such an exclusion, the chill from
this provision may freeze out compulsory licenses altogether, as detailed
below.


INVESTOR STANDING TO SUE

Following on the NAFTA model, the FTAA would give standing to investors to
sue governments for violations of the investment chapter (Article 14).

Such standing would have devastating consequences for protection of the
public domain and improving access to essential medicines.

With patent holders given rights to sue governments directly over
intellectual property disputes, the "flexibility" that the United States
says characterizes its present approach to intellectual property and
public health matters would be largely meaningless. Even where the U.S.
government chose to exercise its discretion not to challenge another
country's law, regulation or rule, a patent holder could proceed to do so.
Under some of the proposed provisions of the FTAA, it appears even those
contemplating making an investment could bring such a challenge and seek
compensation for lost future profits (see for example, page 3.36 (3)).

The prospect of private actors bringing such suits would have a deep
chilling effect on national governments. They would have to operate
against the backdrop of private patent holders bringing investment chapter
lawsuits against them regarding controversial provisions in the IP
chapter. Given the potential severe compensation requirements under the IP
chapter, and the pro-investor record established under NAFTA investment
tribunals, governments would be strongly deterred from taking measures
which might even conceivably contravene the investment provisions.

That is why the intellectual property exclusions in the investment
chapter, if there is to be an investment chapter, must be broad, and not
limited to TRIPS-compliant or FTAA IP chapter-compliant measures.
Intellectual property holders must not have standing to sue under the
investment chapter.

It is also worth noting that TRIPS already requires countries to maintain
adjudicative remedies for alleged infringements on intellectual property
rights, meaning intellectual property holders already have a direct remedy
at law. But in these instances, at least, intellectual property right
holders' ability to sue and prospects for compensation are bounded by the
TRIPS and IP chapter of the FTAA, and the adjudicative context is not the
biased arbitration panels used by NAFTA and proposed in the FTAA.


CONCLUSION

It is unconscionable and unacceptable to negotiate provisions relating to
access to medicines without first running them through a public health
screen. If those provisions will harm public health, and meaningfully and
unreasonably impede people's access to medicines and medical treatment,
then they must not be adopted. The intellectual property and investment
provisions of the draft FTAA do not pass this test.

If there is to be an FTAA, there should be no intellectual property
chapter included. If it is included, it must be stripped of all TRIPS-plus
measures, though even replicating the TRIPS agreement in the FTAA will
have harmful consequences for public health. And if there is an FTAA,
there should be no investment chapter. If there is an investment chapter,
then intellectual property must be excluded completely. Failing to do so
will contravene and make irrelevant the "flexible" policy regarding public
health that the USTR claims it applies to disputes regarding access to
medicines.

More to the point, failing to take these steps will tend to make it more
difficult for people to gain access to essential and lifesaving medicines,
will deepen the monopolistic power of intellectual property holders and
will facilitate price gouging of consumers throughout the Americas,
including in the United States. No U.S. government agency should be
pursuing such an agenda.

Sincerely,



Robert Weissman



FOOTNOTES

1. These conditions include: a prior effort by the proposed user to obtain
authorization from the right holder on reasonable commercial terms (TRIPS
Article 31(b)), that the compulsory license be granted for a specific
purpose only (TRIPS Article 31(c)); that the license be non-exclusive,
non-assignable and predominantly for use in the domestic market (TRIPS
Article 31 (d), TRIPS Article 31 (e), TRIPS Article 31 (f)), that the
license be terminated if the conditions giving rise to it cease (TRIPS
Article 31 (g)), that the legal validity of the license and the terms of
remuneration be subject to appeal to a judicial or administrative
authority (TRIPS Article 31 (i), TRIPS Article 31 (j)).

2. The bill was co-sponsored by Representatives Marion Berry, Fortney Pete
Stark, Thomas Allen, Bernie Sanders, David Bonior, Barbara  Lee, Steven
LaTourette, Albert Wynn, James Langevin, Danny Davis, Thomas Barrett, John
Baldacci, Janice Schakowsky, Gene Green, Stephanie Tubbs Jones, Jerrold
Nadler, John Lewis, George Miller of California and Peter DeFazio.

3. The bill was co-sponsored by Representatives John Elias Baldacci,
Thomas M. Barrett, William Lipinski, Cynthia McKinney, Eleanor Holmes
Norton and Frank Pallone, Jr.

4. "Members, when requiring, as a condition of approving the marketing of
pharmaceutical or of agricultural chemical products which utilize new
chemical entities, the submission of undisclosed test or other data, the
origination of which involves a considerable effort, shall protect such
data against unfair commercial use. In addition, Members shall protect
such data against disclosure, except where necessary to protect the
public, or unless steps are taken to ensure that data are protected
against unfair commercial use." TRIPS, Article 39.3.

5. USTR, "FTAA Negotiating Group on Intellectual Property, Public summary
of U.S. Position," http://www.ustr.gov/regions/whemisphere/intel.htm (No
date, but released January 17, 2001).

6. On page 8.51 are provisions to: "=C9 2. When the patent protects a
biological product that claims to have specific characteristics, the
protection shall also cover any biological material derived through
multiplication or propagation of the patented product and having the same
characteristics. 3. When the patent protects a biological product
procedure that claims to have specific characteristics, the protection
shall also cover all biological material derived through multiplication or
propagation of the material directly obtained from the procedure and
having the same characteristics. 4. When the patent protects a specific
genetic sequence or biological material containing that sequence, the
protection shall also cover any product that includes that sequence or
material expressing that genetic information."

7. See, for example, Mary Bottari, "NAFTA's Investor "Rights" A Corporate
Dream, A Citizen Nightmare," Multinational Monitor, April 2001.

8. Intellectual property is defined as a form of investment covered by the
FTAA in several proposed provisions (pages 3.33, 3.34).