E-drug: CPT Comments to USTR Regarding FTAA Negotiations - Health Care
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This is what we sent the USTR on the public comment request for the FTAA
negotiations, on the issue of health care and intellectual property rights.
(the FTAA is the Free Trade Area for the Americas). jamie
(A copy is on the web at: http://www.cptech.org/treaty/ftaa/ftaa-290798.html)
<------------begin letter------------------------>
July 29, 1998
Frederick L. Montgomery, Chairman
Gloria Blue, Executive Secretary
Trade Policy Staff Committee
Office of the U.S. Trade Representative
Room 501, 600 17th
Street, NW, Washington, D.C., 20508
Dear Sir and Madam:
Introduction
We are writing to provide comments to USTR on the proposed Free Trade Area
for the Americas (FTAA). CPT has been involved in FTAA discussions since
1997, when CPT participated in the FTAA Business Forum held in Belo
Horizonte, Brazil. CPT, together with other groups, filed position papers on
health care and information technologies for the 1998 FTAA Business Forum
that was held in San Jose, Costa Rica. Before discussing substantive
matters, we would like address a few process issues. These will be followed
by substantive comments on intellectual property provisions of the FTAA as
they relate to health care. We are also sending under separate cover a
second set of comments on intellectual property and information policy,
which is signed by groups representing citizen, consumer, and author interests.
Process Issues
The Federal Register notice indicated that:
Since the Santiago Summit, USTR has held informal consultations with
various sectors of civil society, including consumer, labor, business and
environmental interests, which have expressed views and an interest in
commenting on U.S.positions and objectives for the nine negotiating groups.
First, we would like to know which "consumer" interests the USTR has held
informal consultations with. Over the past year, the USTR has repeatedly
refused to meet with CPT on issues concerning intellectual property and trade
matters. In May 1998 CPT and six other consumer and public health
organization sponsored a workshop on trade agreements, health care and
intellectual property, and the USTR refused to participate. If there are
consultations with consumer groups over the FTAA negotiations, we would like
to know more about them.
Secondly, at the 1998 Costa Rica Business Forum, the U.S. Department of
Commerce told CPT that the meetings were open to anyone. However, upon
arrival in San Jose, while we were free to attend the sessions, we were told
we did not have the right to speak, because we represented consumer rather
than commercial interests. We asked to see the rules that would prevent us
from speaking on the various proposals that were voted on, but were never
providing anything in writing. I also contacted the U.S. embassy in San
Jose and asked if there were any briefings for U.S. Citizens on the
negotiations, and was told there were none, but I found out later this was
not true. We asked the U.S.Department of Commerce if any U.S. government
funds were spent on the FTAA Business Forum, and never received an answer.
It would be helpful to know how the FTAA Business
Forum is related to the official negotiations, and what restrictions there
are on consumer groups participating in these discussions. If indeed
consumer interests are specifically excluded from participation in the FTAA
Business Forum, why should it have any elevated status in the development of
a treaty that is supposed to benefit consumers?
We would also appreciate more information on what if anything is actually
happening concerning input from non-commercial interests. Also, we suggest
the USTR adjust its internal procedures to insure that its policies reflect
greater input from public interest groups, and rely less on special
pleadings from a handful of narrow commercial interests. For example, the
membership of IFAC-3 and other advisory boards should be changed to include
consumer representation, and USTR officials should not boycott meetings with
consumer groups.
Health Care and Intellectual Property Rules
The most important starting point for intellectual property and trade
disputes as they relate to health care is to establish that these disputes
be evaluated on the basis of public health concerns. We strongly support
the proposed resolution to the World Health Assembly (WHA), that member
countries:
ensure that public health rather than commercial
interests have primacy in pharmaceutical and
health policies and to review their options under
the Agreement on Trade Related Aspects of
Intellectual Property Rights to safeguard access
to essential drugs
The U.S. should explicitly endorse this approach, and ask that a similar
provision be included in the FTAA. To illustrate areas where it is
important to clarify the primacy of public health considerations, I am
attaching a copy of a May 12, 1998 letter to James McGlinchey in the Office
of Intellectual Property and Competition, United States Department of State
(http://www.cptech.org/pharm/jm-may12.html). As indicated in this letter,
there are many disputes concerning trademarks where various industry groups
have challenged sound public health measures on the grounds that public
health measures violate trademark rights under the TRIPS or NAFTA. These
involve such disputes as plain paper packaging of cigarettes and infant
formula and generic drug substitution, for example, where public health
concerns are in direct conflict with commercial interests.
One also expects to see a number of disputes over compulsory licensing of
biotechnology inventions. In this regard, the USTR staff is asked to read
the 1996 FTC report, Anticipating the 21st Century: Competition Policy in
the New
High-Tech, Global Marketplace, and the sections on intellectual property, to
better appreciate the dangers of overbroad and anticompetitive uses of
intellectual property. It is essential that the FTAA include provisions that
specifically say that countries should avoid "overbroad patents and other
rights that discourage innovation and lead to antitcompetitive practices," a
position that CPT and Health Action International (HAI) proposed, without
success,
to the 1998 FTAA Business Forum.
Policies which concern competition and generic drugs
The United States has been a leader in the development of the generic drug
industry. The United States army used procurement policy to promote generic
competition. The U.S. FDA developed efficient mechanisms for generic drug
approval, state governments have enacted legislation to promote generic drug
substitution and health maintenance organizations and private insurers
aggressively promote competition between generics. These policies were
implemented in the United States to benefit consumers and taxpayers, by
making our health care system more affordable.
There are several areas where regulatory policies can create barriers
to entry by generic drugs. These should be discouraged by the FTAA.
1. "Unfair competition" rules for Health Registration data should not lead
to excessive periods of exclusivity.
In the United States, the period of exclusivity for health registration
data is 5 years. In the European Community the period is generally 6 to 10
years. However, the EC adopted the longer terms to compensate for the fact
that some members, such as Spain and Portugal, did not have patents on
pharmaceutical products. However, now that the GATT/TRIPS provisions
require WTO member countries to provide 20 year patents on pharmaceutical
products, the
original rationale for the longer term has disappeared. DG3 officials
concede that it would be appropriate to revisit this issue, in light on the
changes in member country patent laws.
CPT believes the current 5-year period of data exclusivity in the
Hatch/Waxman act is excessive. One good example of this is Taxol, a cancer
drug invented and developed by the U.S. Government. Competition for Taxol
has been restricted because Bristol-Myers Squibb (BMS) holds exclusive
rights to use the U.S. government test data for drug approval. BMS's role
in the development of Taxol was minimal. The U.S. government invented
Taxol, the methods of manufacturing Taxol, and sponsored all of the clinical
trials that were used for the FDA approval in 1992. Bristol-Myers Squibb's
sales for Taxol are now about $1 billion per year. In our opinion, the
5-year exclusivity has been excessive, and has cost cancer patents dearly.
In 1997 Bristol-Myers Squibb a sought legislative extension of the 5 year
period, in return for an agreement to give the U.S. government 3 percent of
the net proceeds from Taxol sales, and to spend another 3 percent on
research. (See: http://www.cptech.org/pharm/senhregd.html). During the
debate on this provision and similar efforts by BMS to extend its Taxol
monopoly, N.E.R.A. published a
report that said that a two-year extension of the FDA market exclusivity for
Taxol health registration data would cost Taxol consumers $1.27 billion.
(See Richard P. Rozek, Costs to the U.S. Health Care System of Extending
Marketing
Exclusivity for Taxol, N.E.R.A., Washington, DC, March 1997). Congress
rejected the statutory extension of the period of exclusivity.
In our view, the current U.S. and EC systems to protect health registration
data from unfair competition are badly flawed, because they are not related
to the company's investment, which is the basis for the protection in the
first place. Here it is important to point out that firms do not need
"unfair competition" protections if they can obtain patents for inventions.
Health registration data is only an important issue when the firm is not an
inventor under patent laws. These are basically "sweat of the brow"
protection regimes designed to protect investment, not genius. It is
inappropriate to provide genius type protections when the government is
actually protecting investment. A more appropriate system is one that is
based upon investment, and which provides compulsory licensing based upon
(risk adjusted) cost sharing, in order to avoid abuses. We have develop
specific proposals for doing this which we believe are more appropriate for
international norms than are the current U.S. or EC methods of protection.
2. Countries should be permitted flexibility in writing their own Bolar
Provisions.
We strongly oppose the efforts by the pharmaceutical and biotechnology
industry to narrow or repeal so called "Bolar" provisions in patent laws.
The WTO/GATT/TRIPS provisions for 20-year patents provide inventors with
adequate incentives. This is particularly true in pharmaceuticals, as the
effective patent term has gotten longer in recent years. However, companies
that have older patents hope to extend the effective life of the patent by
preventing firms from doing tests on pharmaceuticals in order to have timely
registration at the time of patent expiration. This is a back door way to
seek patent
extensions. The U.S. Congress rightly provided specific provisions in our
laws that permit such testing during the patent term. All that countries
should be required to do is to limit the commercial sale of an invention
without a license. There should be no limits on the use of patented
products in medical research. We also believe it is appropriate for firms
to engage in the manufacture and storage of goods in anticipation of patent
expiration,
including export markets, so long as the good is not actually sold in a
market prior to patent expiration, in that market.
3. Countries should be permitted to exclude patents for treatment regimes
and doses of medication, and there should be limits on trademark protection
for "trade dress" of pharmaceuticals, for public health reasons.
The U.S. Congress recently determined that patents on surgical procedures
cannot be enforced. We believe this should be extended to treatment regimes
for pharmaceuticals, and that patents on doses of medicines should be
avoided, and trademarked protection for the "trade dress" of pharmaceuticals
should be limited.
One basic problem for generic drugs is that patents get confused when they
switch from a branded to a generic drug, when the color and shape of the
pill has changed, and the doses are arbitrarily different. This leads to
mistakes in
the use of the products, which harms the patient.
4. It should be clear that countries can require generic drug
substitution, subscribing by generic name, or the printing of the generic
name on the packaging of the product.
The PhRMA members have argued in several international forums that various
methods of generic drug substitution, subscribing by generic name or the
printing of the generic name on the packaging of the product violate NAFTA or
GATT/TRIPS provisions on trademarks. It is important that trade officials
be clear that trademark rights do not interfere with sound public health
policies to promote competition and the greater use of generic drugs.
5. Generic approvals for biologics are needed.
Countries should be required to provide expedited regulatory methods for
approval of generic versions of biologics.
Other Trademark Issues
As noted above, there are disputes in Canada regarding plain paper packaging
of cigarettes and in Guatemala regarding World Health Organization (WHO)
Guidelines for marketing of Infant Formula. Industry groups, sometimes
represented by former USTR officials, claim that public health regulation of
marketing runs afoul of GATT and NAFTA trademark provisions. For of a
discussion of these and other issues, see our comments to the 1997 FTAA
Business Forum in Belo Horizonte, which is on the Web at
http://www.cptech.org/pharm/belopaper.html (no period). It is important
that trade officials make it clear that trademark rights under trade
agreements not be interpreted to prevent public health authorities from
limiting or regulating marketing and packaging of products. To be silent of
this issue while such disputes occur is not appropriate. Also, be advised
that Carla Hills, a former USTR, has been making broad claims about NAFTA
and GATT trademark rights on behalf of tobacco companies, and that Ms. Hills
emphasizes her role in the negotiations over these treaties.
Parallel imports
Like the GATT/TRIPS, and unlike NAFTA, the treaty should allow parallel
imports of patented pharmaceuticals and other products. The mechanism of
parallel imports is an important way for consumers to avoid adverse price
discrimination that the patent holder can implement by geographic area (see
D.A. Malueg and M. Schwartz, "Parallel Imports, Demand Dispersion and
International Price Discrimination", U.S. Department of Justice -- Antitrust
Division, 1993). We also believe a broader global market for pharmaceutical
products will lead to more efficient pricing decisions, with lower
transaction costs.
As an example of current price discrimination, PHARMAC, a New Zealand
government agency, reported this month that BMS insists on charging New
Zealand consumers 30 percent more for the AIDS drug Videx (ddI) than it
charges consumers in the United States. Sometimes the price differences are
such that drugs are more expensive in the United States than elsewhere. In
general, companies price products on the basis of local market conditions,
but not necessarily upon the consumer's ability to pay. For example,
Crixivan (indinavir) is sold at a higher price in South Africa than in the
United States, despite the fact that the vast majority of South-African AIDS
patients are very poor.
Obtaining competitive world prices is important for poor countries or for
countries with a small internal market. Allowed in several countries,
parallel imports of pharmaceuticals have shown to be effective in lowering
drug prices. A study of the price of HIV drugs in UK shows that parallel
imports offer an average saving of 41% from the UK list price, and a 30%
saving from the UK best contract price. The group of HIV drugs are among the
most expensive drugs marketed to consumers (see
http://www.cptech.org/pharma/sa/sa-10-97.html).
Recent decisions by Australia (Music CDs), New Zealand (all goods except
pharmaceuticals) and South Africa (pharmaceuticals) to permit parallel
imports has made the issue of parallel imports an important trade issue. In
our view, parallel imports are free trade, and efforts to limit parallel
imports are protectist. In Japan, some efforts by firms to limit parallel
imports are consider criminal violations of antitrust laws. In general,
with the rise of
the Internet and global commerce, it is inappropriate to seek barriers to
parallel imports. (See: http://www.cptech.org/pharm/sa/sa-10-97.html)
Compulsory licensing
Under GATT/TRIPS, member countries have the right to issue compulsory
licenses on patents, subject to several safeguards and limitations. Under
NAFTA, compulsory licensing is limited to cases resolved under antitrust
laws. The proposed Multinational Agreement on Investments (MAI) would use
the NAFTA approach.
It is our view that the NAFTA/MAI approach is too restrictive. Government
should be allowed to use compulsory licensing when it is necessary to
achieve public interests goals. In practice, the U.S. government and
European countries do a significant amount of compulsory licensing. Much of
this is done in the context of antitrust proceedings, such as the 1984 EC
undertaking with IBM, the
1998 essential facilities case with Intel, the several recent FTC cases
involving pharmaceuticals, biotechnology and software, and the recent
Department of Justice case involving West Publishing. We also have
compulsory licensing in the nuclear area, and compulsory licensing based
upon public interest criteria for certain government funded inventions (see
the U.S. Bayh-Dole Act, PL 96-517, as amended by PL 98-620).
New Burden Sharing Approaches
CPT has been urging trade officials and the FTAA Business forum to adopt a
different approach to trade disputes that involve health care. In general,
we believe that in these disputes public health considerations should have
primacy over commercial considerations, and that when it comes to health
care research, the focus on the agreements should be on burden sharing
rather than property
rights per se.
In this burden sharing framework, countries would be asked to support
minimum levels of health care research, and be given flexibility in the
mechanisms to achieve those levels. Property rights such as patents or
health registration data are one such mechanism, but so too would be direct
government expenditures on research, such as the U.S. National Institutes of
Health (NIH), or R&D reinvestment requirements, perhaps modeled on the R&D
funding proposed by BMS for extension of the term of health registration
data exclusivity.
Thank you for the opportunity to provide these comments. We ask for a
meeting with the USTR staff to discuss these issues further.
Sincerely
James Love
Director
Consumer Project on Technology
love@cptech.org
http://www.cptech.org
<-----------------end letter--------------------------->
James Love
Consumer Project on Technology
P.O. Box 19367, Washington, DC 20036
love@cptech.org, http://www.cptech.org
202.387.8030, fax 202.234.5176
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