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...biopharmaceutical companies still face rampant piracy and counterfeiting of patented products.
Increasingly global markets have rewarded biopharmaceutical companies with operations outside the United States and Europe with ample opportunities to expand successfully into new marketplaces around the world. At the same time, innovative companies in the biotechnology and pharmaceutical industries depend heavily on the protection of their intellectual property. In today's international markets, biopharmaceutical companies still face rampant piracy and counterfeiting of patented products. Since the establishment of the World Trade Organization (WTO) in 1995, important progress has been made in achieving better international harmonization of patent laws; however, many challenges for innovative biopharmaceutical companies remain, and new obstacles continue to emerge.
Paul Sharer, J.D.
Through the United States Trade Representative (USTR) and in close consultation with the biopharmaceutical industry, the US government has worked consistently for stronger and more harmonized international patent protections for innovative industries, both at the global level as well as in regional and bilateral negotiations with US trading partners. Various domestic trade laws are tools at the disposal of the US government to protect US patents from infringement. This article highlights the efforts in international patent harmonization and explores some of the ever-changing challenges that face the US biopharmaceutical industry.
The WTO agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) is the most comprehensive multilateral agreement on intellectual property to date.1 The TRIPS agreement was negotiated during the Uruguay Round trade negotiations and became effective on January 1, 1995. This agreement motivated WTO members to implement and enforce patent rights, including those for biopharmaceutical products and processes. Most WTO members were immediately bound by the standards stipulated by the TRIPS agreement, although the deadline for implementing its provisions was extended to 2000 for some developing countries, and was recently extended from 2006 to 2016 for least-developed nations.
TRIPS attempts to strike a balance between the long-term objective of providing incentives for future inventions and creations, and the short-term objective of allowing people to use existing inventions and creations. The agreement covers a wide range of intellectual property rights, from copyrights and related rights, trademarks, integrated circuit designs, geographical indications, and trade secrets to patents. The preamble of the agreement lays out its general goals as reducing distortions and impediments to international trade, promoting effective and adequate protection of intellectual property rights, and ensuring that measures and procedures to enforce intellectual property rights do not themselves become barriers to international trade.
Certain general provisions of the agreement apply to all forms of intellectual property rights, from copyrights to patents. These include the fundamental rules of international trade on nationals, and on most-favored-nation treatment of foreign nationals, contained in Articles 3 and 4, respectively. The national-treatment clause generally forbids discrimination between a member's own nationals and the nationals of other TRIPS members, with respect to the protection and enforcement of intellectual property rights. The most-favored-nation clause forbids discrimination between nationals of other TRIPS members, thereby affording all foreign nationals operating in a member state the same level of protection. An additional important general provision, Article 6, makes it clear that exhaustion of intellectual property rights is outside the scope of the TRIPS agreement.2
The substantive patent provisions of the TRIPS agreement first and foremost require member countries to make patents available for any inventions, whether product or process, in all fields of technology, provided that the inventions are new, involve an inventive step, and are capable of industrial application. As stipulated in Article 27, patents must also be available without discrimination as to the place of invention, the field of technology, and whether products are imported or locally produced. This important core provision presented a major step forward in international patent protection for the pharmaceutical industry in particular, as many nations had excluded pharmaceuticals and biopharmaceuticals from all patent protection prior to binding themselves to the standards of the TRIPS agreement. Countries where patent protection for pharmaceuticals was only recently introduced as a result of the TRIPS agreement include Argentina, Brazil, Guatemala, India, Morocco, and Turkey.
TRIPS allows for three important exceptions to the rule of patentability: (1) TRIPS excludes inventions contrary to ordre public or morality, (2) TRIPS excludes diagnostic, therapeutic, and surgical methods for the treatment of humans and animals, and (3) TRIPS members may exclude plants and animals other than microorganisms, as well as essentially biological processes for the production of plants, other than non-biological and microbiological processes. If members decide to exempt plant varieties from patentability, they must provide an alternative effective system of protection. The exclusive patent product rights conferred by TRIPS include the rights to make, use, offer for sale, sell, and import the product. Process patent rights must give exclusive rights not only over the process but over products obtained directly by the process. Patent owners may also assign patent rights and conclude licensing contracts. The term of protection for patents is 20 years, originating from the filing date.
With respect to the limitations of patent rights, TRIPS allows member states to provide for limited exceptions to the exclusive rights conferred by a patent, provided these do not unreasonably conflict with the normal exploitation of the patent or prejudice the interests of the patent owner. In addition, the TRIPS agreement does allow for compulsory licensing and government use without authorization of the patent holder, subject to certain conditions listed in Article 31. The extent to which compulsory licensing of life-saving patented medicines is permitted and considered acceptable under Article 31 of the TRIPS agreement has been the subject of much controversy among WTO members. The TRIPS agreement further contains general principles regarding the procedure to enforce intellectual property rights, including provisions on civil and administrative procedures and remedies. Disputes among WTO members with respect to their obligations under the agreement are subject to the WTO dispute-settlement procedures.
Striking the right balance between protecting patents and providing patients in developing countries with access to life-saving medicines has been a great challenge in the face of the worldwide AIDS pandemic and other devastating diseases such as malaria and tuberculosis. Biopharmaceutical companies are at the center of this debate. As global trade negotiations increasingly focused on the relationship between trade and development, the issue of providing access to medicines through the use of compulsory licensing came to the forefront at the 2001 WTO Ministerial Meeting in Doha, Qatar, where WTO members adopted the "Declaration on the TRIPS Agreement and Public Health."3 This declaration recognized the right of member states to grant compulsory licenses in cases of national emergency, or other circumstances of extreme urgency, such as public health crises relating to HIV/AIDS, malaria, tuberculosis, and similar pandemics.
One major issue not addressed by the declaration was that many developing and least-developed countries lack sufficient biopharmaceutical manufacturing facilities to produce drugs based on a compulsory license granted in the nation where the public health crisis occurs. It is, therefore, unclear whether countries with sufficient manufacturing capacity — and nations with strong generic drug industries, such as India and Brazil — could provide patented, life-saving medicines to poor nations without violating the TRIPS agreement. An interim agreement was reached prior to the 2003 WTO Ministerial Meeting in Cancun, Mexico, allowing WTO members to export pharmaceutical products made under compulsory licenses to certain criteria. At the request of the US and other western governments, this decision was accompanied by an oral statement from the WTO General Council Chairman emphasizing that the decision would be used in good faith, would be used only to deal with public health problems, and would not be used for industrial or commercial policy objectives.4 The format of this agreement, specifically the decision in combination with an oral statement, was the result of intense negotiations between the US government and other WTO members. The US government made it clear that it could accept the decision only in conjunction with the Chairman's statement. While this solution had seemed to lay the issue to rest at the time, it subsequently resulted in renewed controversy, leading up to the December 2005 WTO Ministerial Meeting in Hong Kong. Member states are currently negotiating whether the 2003 decision should be included in the TRIPS agreement. The US government has urged that the Chairman's oral statement also become part of TRIPS, while developing nations such as Brazil have strongly opposed that option.
Overall, the problem of how developing and least-developed nations can provide their populations with appropriate access to life-saving patented medicines and biopharmaceutical products without undermining effective patent protection has still not been entirely resolved. Despite tough negotiations at the WTO level, little or no use has been made of the flexibilities in the TRIPS agreement that allow for compulsory licenses. Innovative biopharmaceutical companies have made various efforts to donate patented medicines to patients in developing nations while advocating the retention of intellectual property protections that are crucial to future innovation. At the same time, the global AIDS pandemic and the spread of other serious diseases have not slowed. The issue will likely continue to be at the forefront of any discussion regarding the TRIPS agreement and international biopharmaceutical patents.
The protection of intellectual property rights has also played a key role in bilateral trade negotiations between the US government and its trading partners. The US government has consistently used bilateral and regional negotiations to improve intellectual property standards worldwide, and has pursued a policy of ensuring that bilateral trade agreements contain strong and effective patent protections. Patents for biopharmaceutical products are often at the center of these negotiations.
The North American Free Trade Agreement (NAFTA) provides strong intellectual property protections in its Chapter 17. In recent years, the US has also concluded bilateral free trade agreements (FTAs) containing strong intellectual property protections with Australia, Chile, Jordan, Morocco, and Singapore. An agreement with five Central American nations and the Dominican Republic has been signed and is awaiting implementation by the US Congress. The intellectual property chapters of these FTAs often provide for higher levels of protection in areas already covered by the TRIPS agreement. In a recent FTA with Australia, for example, the US government sought even better protection for biopharmaceutical patents, in particular with respect to non-tariff trade barriers such as Australia's Pharmaceutical Benefits Scheme.5
The US government is seeking similar high-level intellectual property protections in ongoing bilateral negotiations with Bahrain, Panama, and the five members of the South African Customs Union, and in additional negotiations with Andean nations and Thailand. Intellectual property protections are also key discussion points in negotiations toward a Free Trade Area of the Americas that would encompass all nations in North and South America, as well as in the Asia Pacific Economic Forum that includes 21 Pacific Rim countries. Bilateral, regional, and multilateral trade negotiations have, overall, been a key tool for the US government in its efforts to further strengthen and harmonize intellectual property protections for the biopharmaceutical industry worldwide.
In many countries around the world, certain problems are involved in implementing TRIPS-mandated standards into domestic law, and in enforcing existing domestic patent laws. Brazil, China, and India are all fast-growing economies with large markets and populations, and they have been of particular concern for research-based biopharmaceutical companies. These three countries also have substantial generic drug industries which are often able to exert a significant influence on commercial and industrial policy. In addition, Brazil and India have established themselves as leaders of a coalition of developing nations, often opposing US positions on stronger patent standards and enforcement.6
Some measures inconsistent with Brazil's obligations under TRIPS continue to be in effect. A 1999 amendment to Brazilian patent law gave the country's National Sanitary Supervision Agency (ANVISA) authority to review all patent applications for pharmaceuticals, and the agency has denied secondary-use patents to innovative companies despite approval from the Brazilian Patent Office. ANVISA's review authority has been a major factor in delaying patent applications. The agency's authority also discriminates against biopharmaceutical products, as other patented products are not subject to such reviews by regulatory authorities.
Another area of concern is Brazil's industrial property law that requires both domestic and simultaneous manufacture of every patent claim. Failure to adhere to this law can justify the issuance of a compulsory license. This requirement is in place despite TRIPS Article 27, which obligates member states to recognize that importing a product satisfies the requirement that a patent be "worked" in a member state. On a positive note, Brazil has not yet issued any compulsory licenses, although a relevant presidential decree governing the grant of compulsory licenses gives broad discretionary powers to government officials, and the Brazilian government has threatened the use of this decree in negotiations with the biopharmaceutical industry.
Ever since China's accession to the WTO in 2001, the country has been bound by the high intellectual property protection standards of the TRIPS agreement. While the Chinese government has undertaken serious efforts to improve patent protection, numerous problems persist. Inadequate enforcement of intellectual property rights, as well as an inability of the Chinese government to control widespread production and distribution of counterfeit pharmaceuticals, continue to create a difficult operating environment for biopharmaceutical companies. The innovative pharmaceutical industry loses an estimated 10 to 15 percent of its annual revenue in China to counterfeit products. Counterfeit pharmaceutical products are easily available in highly public areas, underlining the scope of the problem.7 Due to these problems, the US government continues to closely monitor China's IPR practices.
The beginning of 2005 and the recent passage of a new patent law have marked a significant step forward in the area of patents for biopharmaceutical products in India. While patents were not previously available for medicines, the TRIPS agreement required India to provide such protection by January 1, 2005. Pursuant to this requirement, the president of India issued a Patents Amendment Ordinance on December 26, 2004. The ordinance requires patents to be granted on new medicines as of January 1, 2005, as well as on medicines for which companies filed a patent application after 1995. This is in accordance with the "mailbox system" envisioned by the TRIPS negotiations. While India and other developing countries have been permitted to delay implementation of the standards under the TRIPS agreement until 2005, they have been required to establish a mailbox system to receive patent applications filed since 1995. India is now required to "open the mailbox" and grant patents for approximately 9,000 applications filed in the last decade. The 20-year term for patent protection will be counted from the submission date of an application, although a product is not protected until a patent is granted. Companies manufacturing generic versions of drugs that now receive patents will not, therefore, be responsible for infringement retroactively, but must cease production once the patent is granted.8 The ordinance was ratified by the Indian parliament on March 23, 2005. The passage of this law is expected to have a significant impact on India's $5 billion pharmaceutical industry, one of the world's biggest producers of generic drugs.
Additional recent improvements in India have involved reforms that streamline the nation's patent-application process, in particular the area of pre-grant opposition, timings, and deadlines. In addition, patents are not strictly limited to new chemical entities; secondary uses are also patentable. Recent patent legislation has not yet provided for an effective period of data exclusivity as required by Article 39 of the TRIPS agreement, although the issue is under discussion.
The US government has various tools at its disposal to encourage intellectual property protection worldwide. One of the most effective of these, the so-called annual "Special 301" review, was mandated by Congress in the 1988 Trade Act. Under the review, the USTR identifies countries that deny adequate protection or market access for intellectual property rights.9 In this publication, individual countries are warned that the US has concerns about their standard of intellectual property right protection. Investors are put on notice that their rights may not be adequately protected in that country.10 Listing a country in the report is often a first step toward improved intellectual property right protection and enforcement. Once a list of countries has been identified for the report, USTR must decide whether to designate any of the nations as "Priority Foreign Countries." This designation is reserved for those countries with the most onerous or egregious acts, policies, and practices with the greatest adverse impact on relevant US products, and those that are not engaged in good-faith negotiations or are not making significant progress in addressing these problems.
Another important tool used by the US government, beyond including intellectual property rights (IPR) in bilateral negotiations and trade agreements as outlined earlier, are preferential tariff-benefit treatments, such as the Generalized System of Preferences, the Caribbean Basin Initiative, and the Andean Trade Preferences Act. These programs provide tariff-free treatment to certain products from eligible beneficiary countries. Tariff-free treatment under all programs is contingent on adequate and effective intellectual property protection, and the threat of losing the benefits of these programs provides valuable leverage to the US government in advocating for better IPR protection with its trading partners.11
Strong US patent laws have long fueled innovation in the biopharmaceutical industry and have helped establish US biopharmaceutical companies as leaders in the world. In today's increasingly global markets, innovation and the development of new, cutting-edge, life-saving medicines will depend on better international harmonization of patent laws and more effective protection for biopharmaceutical products, not just in the United States but also in foreign markets. Ultimately, patients and consumers all over the world stand to benefit from laws that create incentives for biopharmaceutical research and for innovation through higher patent standards. As the importance of markets such as China and India for US biopharmaceutical companies continues to rise, many US companies will take on the challenge of entering those markets, bringing newer and better medicines to patients. Much progress has been made toward better market conditions through implementation of the TRIPS agreement and other patent standards, creating some promise for more stable operating environments. However, achieving strong patent protections at a standard comparable to those existent in the United States will require continued efforts by both the US government and industry. Until those protections are achieved, the biopharmaceutical industry must stay abreast of developments and challenges, and should actively work with the US government to find innovative solutions to the challenge of balancing access to medicines with adequate and effective patent protection.
Paul Sharer, J.D., is a partner specializing in biotechnology and pharmaceutical patents issues within the Intellectual Property Group at Mayer, Brown, Rowe & Maw LLP, 1909 K Street NW, Washington, DC 20006, 202.263.3340, fax 202.263.5340, PSharer@mayerbrownrowe.com
Martina Simpkins, LL.M., is a senior international legal advisor in the Government and Global Trade Group at Mayer, Brown, Rowe & Maw LLP, 1909 K Street NW, Washington, DC 20006, 202.263.3323, fax 202.263.5340, MSimpkins@mayerbrownrowe.com
1. The text of the TRIPS agreement is available at http://www.wto.org/english/docs_e/legal_e/27-trips.pdf.
2. The concept of exhaustion of intellectual property rights influences the extent to which the distribution of goods can be controlled by the owner of a patent or other intellectual property right. Under the exhaustion concept, once the holder of an intellectual property right has sold a product, the holder cannot prohibit the subsequent sale of that product; the intellectual property right has been "exhausted." While the US legal system assumes that exhaustion occurs on a national basis (ie, the intellectual property right is exhausted only in the country where the product was sold), this issue has been very controversial in the international community. A system of regional exhaustion is currently in place in the European Union, where a sale in any member state leads to an exhaustion of the intellectual property right in all EU member states. Others have even advocated a regime of international exhaustion, in which a legitimate sale in any country would lead to exhaustion of the intellectual property right worldwide, leaving the holder of the right unable to control the global distribution of its product after the first sale. See also International Chamber of Commerce Commission on Intellectual and Industrial Property, Policy Statement: Exhaustion of Intellectual Property Rights, January 7, 2000, available at http://www.iccwbo.org .
3. The text of the declaration is available at http://www.wto.org/english/thewto_e/min01_e/mindecl_trips_e.htm.
4. The General Council Chairman's statement is available at http://www.wto.org/english/news_e/news03_e/trips_stat_28aug03_e.htm.
5. The text of the relevant intellectual property chapter and side-letters is available at http://www.ustr.gov/Trade_Sectors/Intellectual_Property/IP_Chapters_in_FTAs/Section_Index.html.
6. In a recent development, Brazil and India have joined forces to oppose the US position on the relationship among the TRIPS agreement, the Convention on Biodiversity, and the protection of traditional knowledge. While the US opposes proposals for new disclosure requirements that could add uncertainties to patent protections, Brazil and India have advocated such requirements.
7. PhRMA, Submission pursuant to Request for Public Comment: Identification of Countries Under Section 182 of the Trade Act of 1974, 70 Fed. Reg. No. 1, dated February 11, 2005.
8. See "Important Changes Incorporated in Patents (Amendment) Bill," Hindustan Times, March 23, 2005.
9. Trade Act of 1974, as amended, 19 USC Â§ 2242.
10. The 2004 Special 301 Report is available at http://www.ustr.gov/Document_Library/Reports_Publications/2004/2004_Special_301/Section_Index.html.
11. For more information on these preference programs, see http:// www.ustr.gov/Trade_Development/Preference_Programs/Section_Index.html.