[Pharm-policy] Report on court case over South Africa Medicines nAct

[James Love]

Report on court case over South Africa Medicines Act
James Love <love@cptech.org>

Pretoria, South Africa.  Sunday, March 4, 2001.  I am in South Africa
for Monday's litigation over the South Africa patent act, which is both
an important legal proceeding and a media circus.  I'm start with a few
comments on the case itself, which are not widely understood, and then
explain what I think is depressing news about the relationship between
the case and compulsory licensing in the South Africa market.

The South Africa Medicines Act was amended in 1997, and the (now 39)
pharmaceutical company lawsuit was filed in 1998.   The 39 companies in
the case are most of the big pharma players, with the exception of
Pfizer.   For this note I will just refer to them as the South Africa
Pharmaceutical Manufacturers Association, or PMA, which is almost but
not the same membership, and much easier to type.

In the beginning, the South Africa government was trying to expand use
of off-patent generic drugs, and also to permit the import of patented
medicines, in cases where the patent owner was selling the medicine
cheaper in another country.  South Africa was then facing higher prices
for several medicines than were found in neighboring countries, or in
several cases, than in the US and European markets.  At this time, the
South Africa government was not pursuing a strategy of issuing
compulsory licenses on patents, and saw the act as a rather modest
effort to introduce US style cost savings from wider use of off-patent
generic drugs, and European style use of "parallel imports" of cheaper
foreign branded products.   This is very important, but almost entirely
misunderstood -- contrary to popular misconception, parallel imports
does not involve buying from generic suppliers, but rather just shopping
around for the best price a company charges internationally.  For
example, if the US actually gets around to permitting parallel imports
of medicines, US consumers could buy branded and patented medicines from
the Canadian and Europe markets, where prices are often lower.
Parallel imports are basically about free trade versus a company having
the right to engage in price discrimination, by country.   Put another
way, if South Africa permits parallel imports, it will be able to import
an Indian version of Glaxo's AZT, but not CIPLA's generic version of the
same drug.

This definition of parallel trade, from a PMA affidavit is a useful
definition.

the expression "parallel importation" is used to describe the activity
which occurs when goods which are available in a country from an
authorized distributor appointed by a manufacturer or licensee of such
goods, are also imported into the country and sold by another
distribution, who is not so authorize by the manufacturer.  The goods
imported "in parallel" by the unauthorized distributor may originate
from the same factory as the goods distributed by the authorized
distributor, or from anther factory of that manufacturer.  Goods so
imported in parallel are "genuine" goods, i.e. they are goods made by
the same manufacturer who makes the authorized goods and are thus not
counterfeit. . . . such goods are sometimes referred to as . . . "grey
imports." [Founding Affidavit, Mirryena Theresza Deeb, 1 February 1998,
page 98].

The large pharmaceutical companies,  particularly Merck, Bristol-Myers
Squibb, SKB, Glaxo and Johnson and Johnson, opposed these changes.
They argued that US style generic drug substitution laws were contrary
to WTO TRIPS rules on trademarks (certainly an aggressive
interpretation, and contrary to WHO opinion).   The drug companies also
argued that parallel trade of medicines still under patent violated
South Africa patent laws, which the companies said give the patent owner
the exclusive right to import.  The patent issues on parallel imports
are technical but not that complicated.  Basically, some countries have
a "first sale" doctrine, also known as "exhaustion of rights," which
says that the patent owner's rights are "exhausted" when the product is
sold the first time, so the products can later be sold in cross border
trade.   (According to one legal expert, it is ironic that according to
the case law in South Africa, international exhaustion already applies
to patented goods.)

The South Africa government responded to the PMA assertion that parallel
trade violated its patent laws by adding a section to the medicines act
that would override any such restrictions.  This was the now famous
"Section 15C" of the medicines act.

There was much confusion over these topics in 1997, particularly given
the PMA's aggressive advocacy and a series of public comments by US
embassy and trade officials, accusing the South Africa government of
violating drug company intellectual property rights.  CPT was asked by
the South Africa government to address the intellectual property issues
in the Medicines Act, and submitted comments to the South Africa
portfolio committee on October 6, 1997. In December 1997 the Act passed.
(http://www.cptech.org/pharm/sa/sa-10-97.html).

>From 1997 to 1999 the US government placed enormous pressure on the
South Africa government over Medicines Act, and in particular over
Section 15C of the Act.   During this period that PMA stressed that
Section 15C not only would permit international exhaustion of patent
rights, it would also permit the MOH to adopt procedures to bypass the
South Africa patents act, for example, to authorize the importation or
local manufacturing of generic products.

The PMA filed its lawsuit against the South Africa government in
February 1998, the government had to respond later that year.   During
this period, the South Africa government was under intense pressure from
Vice President Gore and a host of federal agencies, described in graphic
detail in this US Department of State report
http://www.cptech.org/ip/health/sa/stdept-feb51999.html.

In 1998 the South Africa government was still focused on its narrow
policy objectives to generic drug substitution and parallel importation
(a policy that ironically became prominent year 2000 US presidential and
congressional campaigns).  In responding to the PMA lawsuit in 1998, the
South Africa government said that Section 15c of the Act would only be
used parallel imports, and not for compulsory licensing of patents.
This position was undoubtedly an effort to avoid further trade problems
with the US government, as well as a statement of the original intent of
15c.

Also in 1998, the World Health Assembly began debate on the "Revised
Drug Strategy," which put the WHO right in the middle of disputes over
trade, patents and public health.  During the debate there was extensive
discussion over compulsory licensing of patents under the WTO rules.
During this period, while Mandela was still president of South Africa,
there was also a growing recognition that HIV was a public health
disaster.  Testing in South Africa indicated infections rates of 20
percent among pregnant women and higher in among certain populations.
South African government officials, after hearing for a year from the
PMA and the US government how Section 15C of the Medicines Act could be
used to bypass the South Africa patents act and issue "fast track"
compulsory licenses on patents, began to appreciate the greater
possibilities in 15C, and see the Medicines Act as a mechanism to obtain
cheaper generic versions of patented AIDS drugs.

In 1999 the trade dispute between the US and South Africa exploded into
the world news, after Act Up and other US AIDS activist began to disrupt
the Al Gore US Presidential Campaign.  By September 1999 it was clear
the US government was going to drop its trade pressures against South
Africa, and in what was considered a PR move at the time, the companies
in the suit, who had successfully blocked the implementation of 15C,
announced they would voluntarily "suspend" the law suit against the
government to enter negotiations over a possible settlement.  The
"suspension" of the lawsuit had no legal meaning, and the government was
still blocked from using the new Medicines Act, including not only 15C,
but also the provisions on generic drug substitution, oversight of
pricing and promotion and other issues opposed by the big drug
companies.

There were also a number of domestic complexities that were mudding the
waters.   South Africa has compulsory licensing provisions in its
existing patent law, and the provisions are not great, but also not
impossible, particularly in terms of public use.  The Minister of Health
was at odds with the Minister of Trade who was reluctant to issue
compulsory licenses under the old patent law, a relic of the apartheid
regime that permits compulsory licensing, but also offers the
possibility of extended and expensive litigation over licensing
requests.  15C was seen as a way of dealing with access to HIV medicines
outside of the general framework in the patent.   However, 15C was on
hold legally, due to the litigation.   Making matters much more
complicated was the growing frustration over President Mbeki's newfound
interest in "dissident" theories about HIV and AIDS, which made it
difficult for government officials to discuss initiatives that would
make antiretroviral drugs more affordable.

For more than a year there was no movement on the litigation, although
in several policy forums people in and out of government expressed the
belief that if the government won its court case over 15C it would
authorize domestic production or imports of cheap generics HIV drugs.
With 4 to 5 million HIV infected persons, and an AIDS death toll,
currently at 700 to 800 persons per day and growing, it is impossible
overstate the need to move forward.  The Treatment Access Campaign
efforts to import cheap generic versions of fluconazole into South
Africa illustrated both the opportunities to improve access, and the
lack of progress on intellectual property law reform.

The announcement that the lawsuit was finally moving forward was a
reminder that the issue of patents in South Africa had not gone away.
For some that have followed the case closely, it was a welcome effort to
bring the 15c issue to closure.  For most of the world, the lawsuit was
finally becoming visible, and it was shocking statement of drug company
power in the wake of an appalling human tragedy.

A read of the PMA briefs in the case are even more interesting than the
press coverage.  The PMA not only threw everything at the medicines act,
challenging virtually every aspect of the governments actions, but it
went deep into the new South Africa constitutional protections, and used
a number of human rights arguments against the Medicines Act, which the
companies can exercise as a corporate persons.  Generic drug
substitution, was the subject of a long line of attacks on rights to
speech and conscience, as were other parts of the act.

As the government's legal team begins to pour over the PMA case, a
surprising development began to emerge, not widely understood among
those covering the lawsuit.  According to some legal experts working on
the case, one of PMA's major legal challenges to the Medicines Act is
that 15c is ambiguous and overbroad.   And, since 1998, the government
has taken the position, in the litigation, that 15c will never be used
for compulsory licensing, but only for parallel imports.  Effectively,
the South African government has been arguing in court that 15c cannot
be used for compulsory licensing, and the PMA has been arguing it can.
To "win" the lawsuit, the government's legal team has been abandoning
any hope of using 15C for compulsory licensing.

The government's position is not an easy one, because PMA is basically
challenging everything it has done.  Today I watched a television show
that featured a panel discussion of  the PMA's Mirryena Deeb, the
Minister of Health legal advisor Patricia Lambert, and Mark Heywood,
from TAC.  All three guests were articulate and well informed.
However, in this appearance, Deeb went on about how the government can
use the WTO "safeguards" such as compulsory licensing, under its
existing patent act, and seemed almost the biggest proponent of
compulsory licensing on the show.    One observer later remarked that
the PMA was very comfortable with the compulsory licensing provisions
under the current act, because they were confident they could be blocked
in court, and would never be used.  15c had been held out as a fast
track alternative, and now apparently it will not be used for compulsory
licensing either.  Unless, that is, TAC, as a friend of the court, can
persuade the court to somehow accept the broader interpretation of the
Act.   However, a very real possibility is that legally, South Africa is
back to where they were in 1997, on the issue of compulsory licensing.
In this sense, the PMA's relentless assaults on the government are
succeeding, and the battle to get cheap generic HIV medicines into the
South Africa market are just beginning.

<-------------Section 15c-------------------------->

Section 15C

 The minister may prescribe conditions for the supply of more affordable
medicines in certain circumstances so as to protect the health of the
public, and in particular may-

(a)  notwithstanding anything to the contrary contained in the Patents
Act, 1978 (Act No. 57 of 1978), determine that the rights with regard to
any medicine under a patent
granted in the Republic shall not extend to acts in respect of such
medicine which has been put onto the market by the owner of the
medicine, or with his or her
consent;

(b)  prescribe the conditions on which any medicine which is identical
in composition, meets the same quality standard and is intended to have
the same proprietary name as that of another medicine already registered
in the Republic, but which is imported by a person other than the person
who is the holder of the registration certificate of the medicine
already registered and which originates from any site of manufacture of
the original manufacturer as approved by the council in the prescribed
manner, may be imported:

(c) prescribe the registration procedure for, as well as the use of, the
medicine referred to in paragraph (b).


<-----Sections of the Existing Patent Act-------------->

4.   State bound by patent.-A patent shall in all respects have the like
effect against the State as it has against a person: Provided that a
Minister of State may use an invention for public purposes on such
conditions as may be agreed upon with the patentee, or in default of
agreement on such conditions as are determined by the commissioner on
application by or on behalf of such Minister and after hearing the
patentee.



56.   Compulsory licence in case of abuse of patent rights.-(1)  Any
interested person who can show that the rights in a patent are being
abused may apply to the commissioner in the prescribed manner for a
compulsory licence under the patent. . . .
(2)  The rights in a patent shall be deemed to be abused if-
(a)	the patented invention is not being worked in the Republic on a
commercial scale or to an adequate extent, after the expiry of a period
of four years subsequent to the date of the application for the patent
or three years subsequent to the date on which that patent was sealed,
whichever period last expires, and there is in the opinion of the
commissioner no satisfactory reason for such non-working;
  b)	. . . . . .
(c)	the demand for the patented article in the Republic is not being met
to an adequate extent and on reasonable terms;
(d)	by reason of the refusal of the patentee to grant a licence or
licences upon reasonable terms, the trade or industry or agriculture of
the Republic or the trade of any person or class of persons trading in
the Republic, or the establishment of any new trade or industry in the
Republic, is being prejudiced, and it is in the public interest that a
licence or licences should be granted; or
(e)	the demand in the Republic for the patented article is being met by
importation and the price charged by the patentee, his licensee or agent
for the patented article is excessive in relation to the price charged
therefor in countries where the patented article is manufactured by or
under licence from the patentee or his predecessor or successor in
title.


-- 
James Love
Consumer Project on Technology
P.O. Box 19367, Washington, DC 20036
http://www.cptech.org
love@cptech.org
1.202.387.8030 fax 1.202.234.5176