[Pharm-policy] US Statement at yesterday's TRIPS council meeting

[James Love]

U.S. Statement

Introducton

•	Before I read out my prepared statement, let me first thank Zimbabwe,
the Africa group and their co-sponsors as well as the E.C. for their
thoughtful contributions to our discussions today.  I believe Members
will see in my statement that we share many of their views.

•	The HIV/AIDS crisis is a terrible tragdy - for countries, families and
individuals.  The United States is fully committed to the battle against
this disease.

•	We very much want our discussion in this Council to make a
constructive contribution to this effort.

I.  Policy Points

•	Our discussion today is intended to clarify Members' views of the
interpretation and application of relevant provisions of the TRIPS
Agreement, particularly with respect to   the flexibility Members have
under the Agreement in providing access to life-saving drugs.

•	The United States supports this discussion. We hope that, through this
dialog, Members will come to appreciate the important role the TRIPS
Agreement plays in stimulating development and commercialization of new
life-saving drugs.  We also hope that this dialog will result in a
clearer understanding of existing flexibility in the Agreement which
enables Members to ensure that such drugs are available to their
citizens, particularly those who are unable to afford basic medical
care.  

•	TRIPS strikes the proper balance between these two objectives.  Some
have quite incorrectly blamed the Agreement for health crises or claimed
that it stands in the way of resolving such crises.  Quite the contrary,
Members have the ability under the Agreement to implement their
obligations in a way that fully supports their national health care
objectives.  

•	On the other hand, without the economic incentives provided by patent
systems, there would be far fewer drugs available for the treatment and
cure of life-threatening diseases. 

•	My comments first address the United States' broader policy approach
to fighting infectious diseases and life-threatening conditions.  Strong
patent, trademark, and trade secret protection is a  key element because
of the critical role such protection plays in the rapid innovation,
development, and commercialization of safe and effective drugs.
  
•	We are equally committed to ensure Members are able to use the
flexibility in the Agreement where necessary to meet their health care
objectives. In February, the Bush Administration reaffirmed the
commitment of the United States to a flexible approach on health and
intellectual property.  Under this policy, we have informed WTO Members
that, as they take steps to address major health crises, such as the
HIV/AIDS crisis in sub-Saharan Africa and elsewhere, the United States
would raise no objection if Members availed themselves of the
flexibility afforded by the WTO TRIPS Agreement.

•	A  comprehensive approach is needed to serious health problems. We
believe that participants in our discussion today should keep in mind
that the TRIPS Agreement – its obligations and flexibility – is, at
most, one element of the equation. To deal with serious health problems,
countries need to stress education and prevention as well as care and
treatment if health crises are to be eliminated. 

•	Health experts inform us that the cost of drugs is only one of many
important issues that must be addressed in any health crises.  Effective
drug treatment necessitates urgent action to strengthen health
management systems particularly directed to drug distribution and
patient monitoring. Appropriate drug selection policies and standard
treatment guidelines; training of care providers at all levels; adequate
laboratory support to diagnose and monitor complex therapies; and
systems for ensuring that the right drugs are used  for the right
purpose and in the right amount are all required to address the HIV/AIDS
crisis.

•	We must recognize that even if enough drugs to treat every single HIV
positive person were provided, free of charge, an adequate
infrastructure to deliver them and monitor their use does not appear to
exist in many areas most in need.  To  ensure that healthcare is
available, particularly to those unable to afford basic medical care,
health experts tell us that each country must also develop its medical
and public health infrastructure, increase the resources allocated to
health care, and take other appropriate steps.

•	That is why the United States will continue to pursue an integrated
approach to fighting disease, focusing on prevention of new infections
and training medical professionals, as well as on treatment and care. 

•	As tangible evidence of our commitment to this integrated approach to
fighting disease around the world, the United States continues to be the
largest bilateral donor of HIV/AIDS assistance, providing for nearly 50%
of all international HIV/AIDS funding. 

•	Recently, the United States announced a proposal for the creation of a
new global fund to fight HIV/AIDS, malaria and tuberculosis.  The United
States will back this international effort by providing $200 million in
seed money for FY2002 . The United States also will work with other
governments, private foundations, corporations, faith-based groups, and
other organizations to generate additional support for this global
effort.  Just today, it was announced that the Gates foundation has made
a major contribution of the fund.

•	In addition to the $200 million commitment to the new Global Fund, the
United States budget for FY 2001 increases funding to fight the
international HIV/AIDS epidemic to $480 million, increases to $10.2
billion the budget of the department of Health and Human Services, and
$2.5 billion for the National Institutes of Health for HIV/AIDS
research. 

•	My government invites the participation of other nations and other
partners in securing the necessary funding to address the global
HIV/AIDS pandemic.

	A.  Role of IPR in Developing New Healthcare-Related Technologies

•	Recognizing that it is but one part of a much larger equation, let me
focus on the role of intellectual property, particularly patents, in
supporting effective health care.

•	There is no question that patent systems serve public health
objectives by stimulating discovery, development and commercialization
of new products to prevent, treat, or cure illness. 

•	Specifically, the experience of the United States has been that a
period of  market exclusivity for innovated products and processes --
whether provided by a patent, data exclusivity, trade secrets or a
combination of these legal protections - is essential  to ensure
development and commercialization of new healthcare products including
pharmaceuticals, diagnostic products and medical devices.

•	Without a period during which unauthorized parties cannot sell copies
of the protected invention, the private sector may be unwilling to take
the immense risks associated with development of significant new
healthcare products.  Market exclusivity for the results of innovation,
not simply the possibility of a royalty, provides the necessary
incentive for companies to invest in research to discover, develop and
commercialize new products.

•	Contrary to what many have asserted, this exclusivity does not give
right holders a monopoly.  In fact, the scope of  the exclusivity
provided by a patent is quite narrow.  Based in part on the disclosure
associated with the patent application, even during the patent term,
competitive manufacturers are able to develop and market their own
competing drugs to treat the same illness, ensuring price competition
and a wide choice of effective treatments for both doctors and patients. 

•	We understand that in the United States alone there are presently more
than 100 new drugs for the treatment of HIV/AIDS in development, more
than 120 new drugs to treat heart disease and stroke, more than 135 new
drugs for treating or preventing infectious diseases, more than 400 new
drugs for treating or curing cancers, and more than 700 new drugs to
address diseases associated with aging.

•	These are in addition to the revolutionary treatments that have been
marketed in recent years that, every day, are saving lives that would
have been lost just a few short years ago. 

•	Many thousands of initially promising drugs never reach the market
because they have been found to be ineffective or too toxic.  It is the
prospect of market exclusivity that continues to spur the development
and commercialization of new products despite the high number of
unsuccessful compounds.

•	Simply put, intellectual property protection systems, particularly
patents and trade secrets, under the TRIPS model must be available to
create the environment necessary for new drug development.  This is
significantly different from an environment that merely promotes copying
of existing drugs.  

•	UN Secretary General Annan pointed this out recently, when he said,
"Intellectual property protection is key to bringing forward new
medicines, vaccines and diagnostics urgently needed for the health of
the world's poorest people. The United Nations fully supports the TRIPS
agreement --including the safeguards incorporated within it."  

•	We also note that the Resolutions approved by at the May 21 World
health Assembly clearly recognize the importance of intellectual
property in urging members to support, encourage and provide incentives
for increased investment in research related to HIV/AIDS, including in
the development of new preventive and therapeutic approaches and
technologies, including in particular HIV/AIDS vaccines and
microbicides."

•	Apart from stimulating innovation, however, a strong IPR regime –
particularly a strong patent regime – can also produce other benefits
for countries, regardless of whether the countries are developed or
developing.

•	For example, countries that have strong patent regimes are more
effective in attracting investments and market entry by innovative
companies.  The reasons for this are fairly simple – patents provide a
greater capacity for the innovator to compete based on the innovation. 
If the innovator cannot use the innovation to provide a market
advantage, there is a disincentive to enter the market, particularly
where others in that market can charge lower prices because they do not
need to recover the costs of research and development, nor invest in new
research and development.

•	As I have already noted, another important benefit of a patent regime
is that, in order to obtain a patent, an innovator must disclose all the
technical details of the invention, a requirement embodied in TRIPs
Article 29.  This disclosure stimulates a significant flow of
information to the public, including competing manufactures, that might
otherwise be kept secret.  Therefore, patent systems do not impede
research and development activities nor do they discourage competition. 
Patent systems encourage this activity.

•	Thus, patent regimes actually promote the objective of TRIPS Article 7
by contributing to the promotion of technological innovation and to the
transfer and dissemination of technology.

II.  TRIPS Reflects the Proper Balance Between Innovation and Access to
Healthcare

•	In establishing standards for patent regimes, and in providing certain
flexibilities, the TRIPS Agreement has struck a proper balance between
offering incentives for innovation and ensuring that there is access to
needed medicines.

•	Indeed, two documents available on the WTO website, the "WTO Fact
Sheet: TRIPS and Pharmaceutical Patents," and the "Technical Note:
Pharmaceutical Patents and the TRIPS Agreement," highlight how this
balance is struck by the Agreement.  We encourage Members to refer to
these documents as useful explanations of the Agreement and to avoid
documents circulated by other individuals and organizations that lack
the WTO's expertise.

•	We also want to note the European Communities' thoughtful paper on the
relationship between the provisions of the TRIPS Agreement and access to
pharmaceuticals.  We find many areas of agreement with them and note
with interest some of the questions raised about "permissive" readings
of Article 31.

•	Before discussing the specific articles of the Agreement most commonly
associated with access to medicine, I would like to remind delegations
that among the most significant flexibilities contained in the TRIPS
Agreement are the transition periods provided to developing and least
developing country Members, especially the specific transition period
provided to Members which had not established patent protection for
pharmaceuticals and agricultural chemicals at the time the Agreement
entered into force.

•	We would like to understand better  what  impact  the TRIPS Agreement
could be having on the health care regimes of  least developed country
Members given that these Members are not currently obligated to
implement the Agreement, including its patent provisions.  We are
particularly interested because certain Members have suggested that
these transition periods be further extended, even before these Members
have had any experience implementing the Agreement.

	A. Article 30 of TRIPS

•	Article 30 of the TRIPS Agreement allows Members to provide for
limited exceptions to exclusive patent rights so long as the exceptions
do not unreasonably conflict with the normal exploitation of the patent
or prejudice the legitimate interests of the patent owner, taking into
account the legitimate interests of third parties.

•	Earlier drafts of the Article reveal that negotiators had in mind
exceptions for such things as so-called prior user rights; acts done
privately and for non-commercial purposes; acts done for experimental
purposes; and similar activities.

•	We note that a panel considered Article 30 in a dispute between the
European Communities and Canada, regarding the provision of Canada's
patent law allowing generic manufacturers to make use of patented drugs
during the patent term solely for the purpose of developing data to
obtain marketing approval for a generic equivalent.  This policy was
designed to allow introduction of generic drugs on the market quickly
after the expiration of the patent.  The panel found that the exception
in Canada's law, with one exception, was sufficiently limited to fall
within the scope of Article 30. 

•	That means that exceptions for pre-expiration testing similar to those
provided in Canada and the United States which significantly accelerate
the availability of lower cost generic drugs can be included in Members'
patent laws without violating the Members' obligations under the TRIPS
Agreement.  This is an important flexibility in the Agreement that
enhances access to drugs.

	B.  Article 31 of TRIPS

•	It is apparent that Article 31 creates obligations for Members only
when a particular pharmaceutical is protected by a patent within its
territory.  It should be obvious that Members have no TRIPS obligations
with respect to products that are not protected by patents within their
territories, even though those products are patented elsewhere.  

•	Therefore, it is not necessary for a Member to grant a compulsory
license to produce a pharmaceutical product within its territory if
patent protection for that pharmaceutical product does not exist in its
territory.

•	As has been noted by the European Communities and others, Article 31
does not itemize the purposes for which compulsory licenses may be
granted.  Instead, the Article establishes conditions that must be met
with respect to compulsory licenses, conditions that are modified, in
some instances, depending upon the purpose for which the compulsory
license was granted.

•	Of course, article 31 must be read in light of the other provisions of
the TRIPs Agreement, including Article 27.1.  The latter provision
prohibits discrimination in the enjoyment of patent rights based on
whether products are imported or domestically produced.  In other words,
importation of a product, rather than domestic production, cannot
justify the grant of a compulsory license.

•	Because Article 31 does not specify the circumstances under which
compulsory licenses may be granted it is understandable that it does not
make express reference to public health.  Article 8.1 makes it clear,
however, that public health is one concern Members may take measures to
address, so long as the measures are consistent with the TRIPS
Agreement's provisions.  

•	While I will not discuss in detail each of the conditions established
by Article 31, I would like to highlight those that seem most relevant
for our discussion today. 

•	The second condition under Article 31 establishes an obligation, then
provides circumstances in which that obligation may be waived.  The
obligation is that unauthorized use may be permitted only if the party
seeking a compulsory license has been unable, within a reasonable period
of time, to obtain a voluntary license on reasonable commercial terms
and conditions.

•	That obligation may be waived in a national emergency or other
circumstances of extreme urgency or in the case of public non-commercial
use.  This waiver authority is, of course, very important for our
discussion today.

•	The possibility of waiver recognizes that, in the case of a national
emergency or other circumstances of extreme urgency, there isn't time to
enter into negotiations with a patent owner to obtain a voluntary
license.  Certainly, epidemics such as HIV/AIDS within a Member's
territory are as much a national emergency or a circumstance of extreme
urgency as war, civil strife, or natural disasters for purposes of
exercising the waiver authority.  The United Nations Security Council
made this point last year.

•	Paragraph (b) also permits a waiver of the requirement to seek a
voluntary license first in the case of public non-commercial use,
recognizing that requiring governments to do patent searches and seek
voluntary licenses before every procurement of goods or services for the
government's own use would delay the procurement of those goods or
services and would add to their costs.  

•	Paragraph (b) also makes clear, however, that in cases in which the
requirement to seek a voluntary license is waived, the patentees must be
notified as soon as reasonably practicable.  In addition, paragraph (h)
of Article 31 makes it clear that the patentees must be paid adequate
remuneration for the use of their patents, taking into account the value
of the authorization.

•	Paragraph (c) specifies that the scope of a compulsory license and its
duration are to be limited to the purpose for which the license was
authorized.  Obviously, were such a license granted on a patented drug
in order to address a condition of extreme urgency, such as an epidemic,
the use should be limited to providing the pharmaceutical to treat those
suffering from the disease or to prevent contraction of the disease, if
that is the purpose of the pharmaceutical.  The duration would likely
depend upon the duration of the epidemic.  Related to this, paragraph
(g) provides for the termination of compulsory licenses when the
circumstances that led to its issuance cease to exist and are unlikely
to recur.

•	Paragraph (f) is also very important for our discussion today, because
questions have been raised about whether a compulsory license can be
granted under a patent to a supplier from another country.   Paragraph
(f) states that compulsory licenses should be authorized predominantly
for supply of the domestic market of the Member authorizing the use.  

•	In our view, the nationality of the recipient of a compulsory license
is not relevant for purposes of Article 31.  What is relevant, in such a
case, would be whether the license results in infringement of a patent
for the same product in the licensee's country.  

•	Obviously, if no patent for the drug has been granted in the
licensee's country, no infringement would occur. If such protection does
exist, however, and the compulsory licensee chooses to manufacture the
drug in its country for export to the country that granted.  The
compulsory license, a problem is created.  If the patentee successfully
sued the producer in the other countr, the compulsory license originally
granted would be ineffective in supplying of the needed pharmaceutical.

•	For this reason, one must consider whether it would be appropriate to
limit eligibility for compulsory licenses to those parties that can
assure the government granting the license that they will be able to
supply the market without interruption that might result from
infringement of a patent in their own country.  

•	The non-national could make such assurances either because no patent
existed in its home country, because it had obtained a voluntary license
from the patentee in its home country that allowed it to produce the
patented pharmaceutical for the supply of the other market, or because
it planned to produce the patented pharmaceutical in the territory of
the country granting the compulsory license. 

•	The EC has identified a  possible interpretation of the agreement with
respect to whether a compulsory license can be granted under a patent to
a supplier from another country even where patent infringement might
otherwise be considered to have occurred.   This proposal raises
questions that should be addressed if there is further discussion of
this concept. 

•	Lastly, I would like to address two misconceptions regarding
compulsory licensing.  First, contrary to what some have asserted,
compulsory licenses under TRIPS are not intended to be a mechanism for
directing industrial development, protecting domestic industries against
foreign competitors, or for promoting the now widely discredited
economic policy of import substitution. 

•	The foundation of free trade embodied in the WTO system is the removal
of conditions that lead to inefficiencies in global trade. The WTO has
long recognized the trade-distorting nature of local content, import
substitution and local production requirements.   We note that the
non-discrimination clause of Article 27.1 of the TRIPS Agreement is
built on this foundation. 

•	Pharmaceuticals are among the best examples of products where these
principles are true. Pharmaceuticals can be efficiently produced in a
small number of locations and transported through international trade to
markets needing those products. Such efficiencies in production and
distribution lead to lower prices and faster supply of products to meet
demands, including those caused by public health emergencies.

•	Indeed, recent studues have shown that local production does not
necessarily result in lower prices.

•	Second, Some have observed that certain Members employ compulsory
licenses to remedy anti-competitive practices, as the TRIPS Agreement
clearly provides, with no ill effect to their patent system.  

•	Certainly the United States has never suggested that compulsory
licenses are not a fully appropriate and TRIPS-consistent way to remedy
anti-competitive behavior.  However, we would point out that compulsory
licenses are used in this manner to remedy an abuse, and not in the
normal course of doing business.  Therefore, it is inaccurate to suggest
that U.S. practice would support the conclusion that there would be no
negative implications for patent systems, and more importantly
incentives for developing future life-saving drugs if Members were to
permit widespread use of compulsory licences for any purpose.


	C.  Parallel Imports

•	So-called "parallel imports" are also sometimes raised in discussions
regarding access to drugs.  To be clear, we define that term to mean
legitimate goods produced by a patent owner or with the patent owner's
authorization that are purchased in one market where the price is
attractive, whether as the result of differential pricing by the
patentee in recognition of the economic development of a country, of
currency differences, of price controls, etc.,  and imported into
another country where a patent exists, without the authorization of the
patent owner.

•	There is no question that Article 6 denies Members the ability to
avail themselves of dispute settlement in relation to questions
involving parallel imports, except when those questions involve national
or most favored nation treatment. However, Article 6 of the TRIPS
Agreement does not, in our view, authorize parallel imports.  Members
must remember that Article 6 does not alter the substantive obligations
of the TRIPS Agreement, particularly those contained in Part II of the
Agreement. 

•	In our view, advocates of parallel importation overlook the fact that
permitting such imports discourages patent owners from pricing their
products differently in different markets based upon the level of
economic development because of the likelihood that, for example,
products sold for a low prices in a poor country will be bought up by
middle men and sent to wealthiest country markets and sold at higher
prices, for the benefit primarily  of the middle men.  

•	The lack of parallel import protection can also have significant
health and safety implications.  Our law enforcement and regulatory
agencies, especially FDA, have commented on how very difficult it is for
them to keep counterfeit and unapproved drugs out of our country even
with the strong parallel import protection provided in the United
States.

•	Advocating parallel imports, therefore, could work to the disadvantage
of the very people on behalf of whom the advocates purport to be
speaking.  As Dr. Brundtland in Oslo recently noted, "For differential
pricing to work on a large scale, I think we can all agree that there
must be watertight ways of preventing lower priced drugs from finding
their way back into rich country markets."

	D.  Article 39.3

•	With respect to Article 39.3, we concur with the EC's observation that
the most effective way of protecting test data against "unfair
commercial use" in a manner consistent with the TRIPS Agreement is to
ensure that regulatory authorities do not rely on such data for a
reasonable period of time, such as five years, as is the case in the
United States.

III.  Conclusion

•	To conclude, I believe it is universally agreed that we must provide
incentives for investment  in research and development of new and more
effective life saving drugs.  Effective patent systems, therefore, are
crucial if we are to find better treatments and ultimately cures for
HIV/AIDS and the many other diseases and health conditions that afflict
the world's population.

•	The TRIPS Agreement appropriately requires that an effective patent
system be provided within every WTO Member.  It also provides sufficient
flexibility by allowing certain limitations on patent rights to, among
other things, address public health issues, including diseases and
conditions that are epidemic and endemic.

•	We look forward to the interventions of other delegations, the in
depth analysis behind such interventions, particularly in those cases
where it is being asserted that TRIPS is not sufficiently flexible, and
to continuing this discussion in future
meetings.                           
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