text: Fatal Side Effects: Medicine Patents under the Microscope Oxfam GB is a member of Oxfam International. Registered charity no. 202918 2 Contents Acknowledgements iii Oxfam GB's Health Programme iv Summary 1 Introduction 1 The health crisis 2 How much will the new patent rules increase prices? 2 Is TRIPS 'flexible' enough, and are the public-health safeguards adequate? 3 Will patenting in developing countries stimulate research into the diseases of poverty? 5 Is TRIPS good for development and poverty reduction? 6 The IP that TRIPS does not protect 6 Corporate social responsibility 7 Oxfam's principal recommendations 7 1. Background 9 Introduction 9 What is a patent, and what do World Trade Organisation (WTO) patent rules do? 9 Why are patents a health issue? 10 The development damage of excessive IP protection 12 Trade rules are loaded against the poor 13 2. The health crisis in developing countries 14 The burden of disease 14 Who pays for the medicines? 15 3. The impact of WTO patent rules on access, prices, and local industry 16 The new generation of medicines 17 Effective patent duration under TRIPS 17 Price differences 18 TNC views on the relation between prices and patents 19 The effect of patent systems on industry as a whole 20 4. The small print of WTO rules, and the political realities 21 What are the safeguards in TRIPS to protect public health? 22 Compulsory licensing 23 Parallel importing 24 Does this worsen the problem of sub-standard and counterfeit drugs? 24 How will the 'grey areas' be defined? 25 TRIPS plus: at the mercy of monopoly 25 Are transition periods the answer? 27 Can price controls and bulk purchasing help? 27 5. The relationship between patents and pharmaceutical R&D 28 What is not researched by pharmaceutical TNCs … 29 How patents can discourage socially useful research 29 How strong patenting can block research 30 Who really pays for research? 31 Technology transfer 31 i Contents 6. Medical bio-piracy in developing countries 32 7. The need for government action on health needs 34 Invest heavily in research 34 Who should do the research? 35 Complementary policies 35 8. The need for company action 36 Corporate philanthropy 36 Tiered, or differential, pricing 36 Policy influencing 37 9. Patent politics 38 Who makes the rules? 38 Who polices the rules? 38 Which governments want to change the rules … 39 … and which do not? 40 Public opinion 41 Who is responsible in London, Brussels, Geneva, and Washington, and in the boardrooms? 41 10. Policy recommendations 42 At the WTO 42 Patent rules at the national level 44 International action to develop new medicines, and improve procurement and delivery 44 At the WHO 45 The role of industry 45 Annexe: Selected articles of the 1994 WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) 46 Bibliography 50 Endnotes 54 ii Acknowledgements This report was produced by the Policy Department of Oxfam (Great Britain) as part of the 'Cut the Cost of Medicines' Campaign. The principal authors were Michael Bailey, Ruth Mayne, and Dr Mohga Smith. Oxfam gratefully acknowledges comments on drafts from Francisco Cannabrava (Brazil Mission in Geneva), Prof. Carlos Correa (University of Buenos Aires), Dr Peter Drahos (Queen Mary College, London), Nathan Ford (Médecins Sans Frontières - MSF), Daphne Fresle (World Health Organisation/Essential Drugs and other Medicines - WHO/EDM), David Grogan (industry analyst), Andrew Herxheimer (past Chairman of the International Society of Drug Bulletins), Rashid Kaukab (South Centre), Derek King (London School of Economics), Patrick Krappie (Mission of the Republic of South Africa in Geneva), Sol Picciotto (Lancaster University), Dr Peter Poore (public health consultant), Dr Jonathan Quick (WHO/EDM), Philippa Saunders (Essential Drugs Project), Matthew Stilwell (Centre for International Environmental Law), Alan Story (Kent University Law School), Sir John Sulston (co-founder of the Human Genome Project), Ellen T'Hoen (MSF), Anna Thomas (Voluntary Service Overseas - VSO), Bas van der Heide (Health Action International - HAI Europe), German Velasquez (WHO/EDM), Dr Gill Walt (London School of Hygiene and Tropical Medicine). Oxfam is also grateful to industry representatives and officials of the UK government, the European Commission and the World Trade Organisation for information and observations. Commentators do not necessarily share the views expressed in the paper. Oxfam has simultaneously issued two other publications as part of this Campaign: a shorter report entitled 'Patent Injustice: How World Trade Rules Threaten the Health of the Poor'; and 'Dare to Lead', an analysis of the responsibilities towards the developing world of GlaxoSmithKline, the UK-based pharmaceuticals company. All three publications and further information on the Campaign are available from Oxfam's website (www.oxfam.org.uk/cutthecost) or from Anni Long (email@example.com), tel no: +44 (0)1865 312127, fax no: +44 (0)1865 312245. iii Oxfam GB's health programme Oxfam GB's health programme addresses five broad themes: access to basic health services (including the issue of financing), access to essential medicines, access to water and sanitation, responding to HIV/AIDS, and health programmes in schools. This work focuses on reducing inequities, including those based on gender, and improving the appropriateness and quality of services. The programme spreads across more than 25 countries. Local projects support some of the most marginalised and impoverished groups. Others address the health needs of communities affected by conflict or natural disasters. Drawing on this experience and on research findings, Oxfam seeks to work with others to change policies, practices, ideas, and beliefs that affect poor people's health. In India, Oxfam's HIV/AIDS programme aims to increase treatment, care, and support for those infected and affected, as well as raising public awareness about the disease, while in Southern Africa we are piloting programmes to integrate responses to HIV/AIDS into development work. In Bangladesh, Sri Lanka, Ethiopia, Somaliland, South Sudan, and Liberia, Oxfam supports the rehabilitation of community health centres and the development of basic services, including medicine supply. In the Caucasus, the programme involves training health workers, improving access to essential drugs, and the development of community health insurance schemes. The Network for Consumer Protection, an Oxfam partner in Pakistan, promotes people's access to, and the rational use of, essential drugs. In Afghanistan, Oxfam has ensured that basic health services have been made available to remote communities in the highlands. Oxfam GB is widely known for its public health work in emergencies. The rapid supply of clean water to populations displaced from their own homes is vital, and Oxfam GB has particular expertise in this area. In recent years, major programmes have been established in the Great Lakes Region of Central Africa, in the Balkans, in Angola, and in the State of Orissa in India. iv Fatal Side Effects: Medicine Patents under the Microscope Summary Introduction Every week, 200,000 people die of infectious diseases, the great majority of them women, men, and children living in poverty in the developing world. Global patent rules agreed at the World Trade Organisation (WTO) in 1994 are deepening this public-health crisis by increasing the cost of medicines. In this report, Oxfam argues that governments must amend the rules now to ensure that impoverished people have access to the medicines they so desperately need, at prices they can afford. This demand is at the centre of a public campaign launched by Oxfam in February 2001. The WTO rules, laid down in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), were introduced after sustained lobbying by transnational corporations (TNCs). The Agreement obliges the member countries to grant at least 20-year patent protection in all fields of technology, including medicines. This enables already powerful Northern pharmaceutical TNCs to consolidate their market domination on a global scale. Longer patent periods will delay the appearance of the low-cost generic equivalents that traditionally supply developing-country needs – only the expensive, patented version of a new medicine will be available. At a time when millions of people are already unable to afford essential medicines, and when public health is threatened by a combination of new diseases and drug-resistant variants of old killers, WTO rules will further reduce access to modern medicines for poor people, and lead to unnecessary death and suffering. The controversy surrounding the price of patented HIV/AIDS drugs in Southern Africa has already drawn public attention to this issue. This report is structured as follows. Section 1 explains briefly how the WTO patent rules work and how they will affect the price of medicines in developing countries. It also sets out Oxfam's concerns about the wider negative effects of the rules, and the way in which management of the international trading system puts corporate interests before poverty reduction. Section 2 describes the health crisis in developing countries. Section 3 examines the likely effect of WTO patent rules on the price of medicines and on local pharmaceutical industries. Section 4 looks in more detail at WTO rules and their implementation in developing countries, giving Oxfam's assessment of the 'flexibility' that supposedly enables governments to ensure access to affordable medicines, and examining the problem of 'TRIPS plus' systems. The issue of whether high levels of patent protection will stimulate pharmaceutical research and development (R&D) relevant to developing countries is considered in Section 5. The relationship between TRIPS and the problem of bio-piracy in the pharmaceutical field is addressed in Section 6. Section 7 deals with the need for governments to fill the gaps in pharmaceutical research and increase health-sector support, while Section 8 looks at what companies could do to make drugs more affordable. Section 9 considers the politics of patent rules – who makes the decisions, and where governments stand on the issues. The final part, Section 10, presents the full range of Oxfam's policy recommendations. These focus on TRIPS reform and on the need for rich countries and TNCs to stop harassing developing countries on patent issues; they also cover the necessity for public funding for research into new medicines, and the role that industry could play in making medicines affordable. 1 The health crisis Medicine prices will rise in the context of a growing health crisis. Although there have been improvements in health indicators in many developing countries, 11 million people, the great majority of them poor, die every year from infectious diseases. AIDS claims three million of these lives, tuberculosis two million, and malaria one million. This human tragedy is compounded by the economic consequences of ill health, which destroys opportunities for poverty reduction. Africa's gross domestic product (GDP), for example, would be one-third higher if malaria had been eliminated 35 years ago. Drug-resistant strains of many common diseases such as pneumonia are spreading fast, making existing medicines redundant and posing a threat to public health in the industrialised world as well. In addition, developing countries face a rising incidence of 'First World' illnesses such as heart conditions, cancer, and diabetes. The HIV/AIDS epidemic now infecting 25 million people in sub-Saharan Africa demonstrates the huge risk posed by previously unknown diseases. All the new or improved drugs developed to face these challenges will be under patent for at least 20 years and, unless something is done, will be too expensive for people living in poverty. The causes of public-health crises are complex. One in five of the world's population does not have access to health services. Poor nutrition, inadequate water supply and sanitation, and the low quality of education are major contributory factors to ill health. Underlying these failures is the lack of equitable economic growth, itself a product of both national and international factors and the lukewarm commitment to poverty-reduction policies by many governments. Where governments have done their best, they have been seriously constrained by public-expenditure cuts caused by debt obligations and the structural adjustment packages prescribed by international creditors over the last two decades. Developing-country governments could do more to make medicines accessible to the poor. Many continue to spend far less on public health than on other priorities, such as military budgets. The impact of inadequate overall spending is compounded by inequitable patterns of spending. All too often, tertiary-level services used mainly by better-off groups absorb a disproportionately large part of the health budget, while primary health care is chronically under-funded. While the achievement of public-health goals depends fundamentally on equitable economic development and appropriate social policies, as well as on intensified interventions in the health field, one key policy is to ensure the supply of effective, affordable medicines. Access to medicines is particularly sensitive to price, since most poor people in developing countries pay out of their own pockets. And price is related to the presence of monopoly, or market exclusivity, in pharmaceutical markets, now greatly extended by the TRIPS Agreement – a point commonly ignored in Northern government discussions. However, the question of access to medicines is at least on the political agenda in rich countries. For example, the rising death-toll from killer diseases has prompted the G-8 to support global action to reduce the number of HIV/AIDS-infected young people by 25 per cent and to halve the cases of death and sickness caused by tuberculosis (TB) and malaria, although it remains to be seen whether an effective action plan will be implemented. How much will the new patent rules increase prices? The WTO-mandated introduction of industrialised-world intellectual property (IP) rights in developing countries means that, at a conservative estimate, new patented products could have a market monopoly lasting nine or ten years longer than in the past. In other words, poor people could have to wait an extra ten years before they can buy low-cost generic equivalents of new or improved drugs on the market. During this period, pharmaceutical TNCs will continue to charge high prices for patented medicines - prices that may be even higher in developing countries than in rich countries. Poor people and under-resourced health services will find themselves paying at least three times what they would otherwise have paid, particularly for the life-saving medicines for which there are no closely equivalent, off-patent substitutes. This 2 figure is likely to be an underestimate - for some products, prices could be ten or twenty times higher. But of course many sick people will simply do without, making TRIPS a prescription for a public-health disaster. Until recently, many developing countries either exempted drugs from patenting or allowed only limited patenting. Some created national industries capable of producing inexpensive equivalents of new patented products appearing elsewhere. Under TRIPS, every member of the WTO must introduce a comprehensive IP protection system, with a minimum 20-year term for all patents, including medicines, or face costly disputes that could lead to trade sanctions. In effect, patents on life-saving drugs are treated the same way as patents on ice-cream machines. Seventy developing countries had to be TRIPS-compliant by January 2000; the least-developed countries (LDCs) have been given an extension until 2006. Under the even stronger national patent protection demanded of developing countries by the pharmaceutical TNCs and some industrialised countries, monopolies for medicines are being extended still further. These 'TRIPS plus' rules are based on the most restrictive interpretation of TRIPS, weaken the public-interest safeguards it allows, or contain even longer protection for patent holders. Countries such as South Africa, Brazil, the Dominican Republic, and Thailand have been threatened with trade sanctions by the United States if they do not bring laws governing pharmaceuticals into line with what the TNCs want. In the case of the Dominican Republic, sanctions would have destroyed the jobs of thousands of women working in the textile industry and damaged the country's economic growth. The rules affect all drugs with patents filed after 1995, some of which are already on the market and some still under development. These include any new or improved medicines for treating TB, malaria, and HIV/AIDS, and for drug-resistant pneumonia, meningitis, and gonorrhoea. Advances in biomedical science hold out hope for novel medicines able to treat existing or new infectious diseases, as well as traditionally 'First World' diseases. Oxfam fears that all these new drugs will be surrounded by patents and priced out of reach of developing-country health services and individual families. Where there is widespread drug resistance, the established, cheap treatments are becoming ineffective, but people will not be able to afford the substitutes, or will suffer even greater economic hardship in their effort to pay. Women will be deterred more than men from buying medicines for themselves because of financial austerity or lack of control over family resources. Higher prices exacerbate the problem of people not completing courses of treatment or taking the right doses, which contributes to the spread of drug-resistance. Some industrialised countries claim that the patenting issue is not crucial for public health in developing countries since 'only' five per cent of the current WHO (World Health Organisation) Model List of Essential Drugs is under patent. However, one criterion for inclusion in the list, which helps developing countries decide which medicines they must prioritise in the face of severe resource constraints, is price. This rules out a number of vital but expensive products, such as anti-HIV/AIDS drugs. With the spread of drug resistance and with new or improved drugs appearing, the number of essential, patented products will grow. And as one developing-country trade official put it to Oxfam, 'When people's lives are at stake, five per cent is five per cent too many.' Some Third World governments argue that drugs on the WHO list or comparable national lists should be exempted from patenting in developing countries. Is TRIPS 'flexible' enough, and are the public-health safeguards adequate? TRIPS is a mixture of rules and principles that countries have to incorporate into their national legislation. Since it is not a detailed law, there can be widely different interpretations. TRIPS supposedly grants a government the leeway to strike an appropriate balance between the inventor's interests, the public interest in innovation, and the public good. The leeway includes the freedom to incorporate public-health safeguards in national legislation, such as the ability to override a patent and license local manufacture of a medicine. Faced with growing concern 3 about the negative development impact of TRIPS, including the threat to public health, some industrialised-country governments now accept a more liberal application of the Agreement, and indeed extol its 'flexibility' as a virtue. Oxfam welcomes this shift, but argues that the value of this 'flexibility' should not be overstated, and that the Agreement remains seriously flawed. The problems stem, firstly, from the demands of the Agreement itself, and secondly, from the political reality in which it is being implemented. With regard to the terms, the simple fact is that TRIPS gives countries no choice about important aspects of their national IP law and about the huge extension of patent protection for all products and processes, including medicines. Moreover, the safeguards to protect public health are hedged with conditions that make them difficult to operate, especially for the poorer countries: 1. TRIPS allows countries to adopt measures necessary to protect public health but then qualifies the principle by requiring that measures be 'consistent with' the Agreement. Oxfam believes that TRIPS should be amended to include a stronger statement on the primacy of public-health needs, similar to the 'general exception' clauses found in other WTO agreements. 2. TRIPS allows 'compulsory licensing', i.e. government authorisation of the production of a patented product on public-interest grounds, without the permission of the patent holder. Yet most developing countries cannot derive advantage from this resort, because they do not have the capacity to copy and manufacture medicines. TRIPS also sets onerous conditions for licensing, including the requirement that production be 'predominantly' for domestic needs, which potentially constrains production for export. Oxfam proposes that TRIPS be amended to make compulsory licensing a genuine, workable option. 3. TRIPS also allows a country to pass laws which enable it to import a patented product from wherever it is sold cheapest, whatever the wishes of the patent holder. This 'parallel importing' is an effective restraint on the most abusive pricing, especially if there is a country with effective price controls from where medicines can be obtained. However, with the extension of 20-year patenting worldwide and the resulting lack of generic competition, the tendency will be for patent holders to set higher prices everywhere, and there may be less 'parallel' differential. TNCs and the US government have been pressing vigorously for national laws to prohibit parallel importing, which Oxfam believes should be resisted. If TRIPS were consistent with the WTO's ostensible trade liberalisation philosophy, it would outlaw such prohibitions. The problems with the terms of the Agreement are compounded by the political realities. The United States is using political pressure and the threat of trade sanctions to force countries to enact laws which are based on a highly restrictive interpretation of TRIPS, which dilute or exclude key public-health safeguards, or which strengthen patent protection beyond the 'minimum standards' set by TRIPS. Until recently, the European Union was also overtly pressing for strict interpretations of the Agreement. Many developing countries do not have the political strength or technical expertise to resist these pressures. Nor do they have the ability to make good use of any safeguards once legislation is in place, either for fear of expensive litigation with companies, or because they cannot afford being taken to the WTO 'court' by powerful countries. These realities underline the pressing need for the WHO to provide independent data and technical assistance to poor countries, but they also call into question the nature of TRIPS itself. At the moment, powerful countries and the pharmaceutical TNCs are using the 'flexibility' of TRIPS to their advantage, imposing their interpretations of the grey areas of the Agreement on developing countries. The formal arbiters of ambiguity are the WTO Dispute Settlement panels; but, regrettably, their decisions may give more weight to economic concerns and to the commercial standards prevailing in the industrialised countries, and less weight to development 4 goals or to the public interest. WTO member-states could collectively issue definitive interpretations of TRIPS that protect the common good over the interests of big business, but this will require sustained pressure from public opinion. Fortunately, a growing number of health professionals, public-interest organisations, and trade unions are expressing fears about the social and economic damage caused by the Agreement, adding their voices to those of economic liberals who criticise its damaging effect on competition and efficiency, and even question its inclusion in the WTO framework. Oxfam hopes that this alliance will help to prevent the implementation of 'TRIPS plus' and will secure a fundamental review of the Agreement itself. Will patenting in developing countries stimulate research into the diseases of poverty? The main argument offered in support of TRIPS is that increased TNC revenues from patents will translate into greater pharmaceutical R&D. However, Oxfam believes that little of the extra profit derived from developing countries will be spent on R&D relevant to the diseases of poverty, and argues instead for large-scale public funding. One aspect of the deepening global 'health divide' between rich and poor is the tragic failure of the pharmaceutical industry to meet the need for medicines in the developing world. Only ten per cent of health research targets the illnesses that make up 90 per cent of the global disease burden. A miserly 0.2 per cent of research effort is directed to diarrhoea, pneumonia, and TB, which cause 18 per cent of all illness. Instead, TNCs are geared to manufacturing medicines of commercial interest, which means producing for the consumers in the industrialised world who make up 85 per cent of their market. Because poor women do not have the money to become 'a market', for example, there is little investment in the development of vaginal microbicides effective against sexually transmitted diseases, including HIV. Advocates of a high level of patent protection in developing countries argue that it will stimulate research into the diseases from which poor people suffer. For diseases common to rich and poor countries, the argument is bogus. Since most developing-country markets will remain relatively small for the foreseeable future, the extra revenue for companies will make no perceptible difference to R&D investment decisions. The lucrative markets will be the better-off households in economies like Argentina, Brazil, India, and China – the prizes sought by TNCs through the worldwide extension of IP protection. But the pattern of illness among the middle classes in the developing world is similar to that in the industrialised world, so their demand does not stimulate research into the diseases common among low-income families. For these diseases, the purchasing power of 1.2 billion people living on US$1 a day simply does not constitute a commercial incentive to R&D investment – a reality admitted by companies themselves. Spending on drugs by health ministries is also not large enough to act as a significant stimulus. 61 countries have public drug expenditure of less than US$10 per capita. Drug TNCs justify patent protection by the large sums needed for R&D; yet what matters is not that R&D is costly, but whether there is an adequate return on the investment. In the case of the pharmaceutical industry, returns are among the highest of any sector. While patents in Northern markets do generate huge resources for companies, only a relatively small part is allocated to therapeutically valuable research. Company figures for R&D spending are frequently exaggerated – indeed, marketing costs are often double expenditure on R&D. Moreover, a great deal of research goes into non-essential drugs, or into prolonging the life of money-spinning patented products by changing a dosage or formulation. Much socially useful research is funded by governments, charities, and, through fiscal incentives, by the taxpayer. 5 Given the fact that the market fails hundreds of millions of people living in poverty, there is an overwhelming case for major investments by governments in R&D, as well as in health-care delivery systems, and in subsidising access to treatment for those who cannot pay. Oxfam believes that increased public funding is the most effective and efficient way of generating the appropriate research. This effort should harness the strengths and capacity of industry, North and South. In order to maximise the benefits to people in poverty, governments should exercise due control over financial returns to the private sector. Oxfam proposes the creation of an international fund for research into medicines and vaccines, supported by governments worldwide, in proportion to their means. Operating under the auspices of the WHO, this mechanism could help to fill the gaps in funding and overcome the fragmentation of current research efforts and public-private partnerships. Is TRIPS good for development and poverty reduction? Patents benefit society by encouraging innovation, but the rules must strike a balance between the interests of the innovator and the public good. In multilateral agreements, a balance must also be struck between the commercial interests of the advanced industrial nations and the development needs of poorer countries. Oxfam believes that TRIPS and the associated national legislation in the pipeline are extremely unbalanced on both counts. The enforcement of excessive IP protection will put a brake on economic development in poorer countries, by raising the cost of the technology and knowledge-intensive products they need. Industrialisation usually relies on reproducing the technologies of the more advanced economies – patenting becomes of interest to a country only when it can innovate too. But even if patenting does have a pro-innovation effect in some sectors, prolonged across-the-board patent duration is a blunt instrument to achieve it. Nor is there any necessity for patent periods to be globally uniform, given that the socially optimal trade-offs will differ among nations. Strong patent protection might act as a modest incentive to foreign investment in developing countries, but this is a small potential advantage in relation to the costs. Oxfam's view is that, overall, the TRIPS Agreement will hinder the achievement of the international development targets for 2015, to which the UK government and others are committed. By depriving developing countries of a policy instrument for promoting national development that they themselves used, the rich countries are effectively 'pulling up the ladder'. Not only does TRIPS lack a credible development rationale, but many developing countries had little idea what the Agreement would commit them to in reality, and little choice about signing, since it was an integral part of the Final Act of the Uruguay Round. Oxfam therefore believes that there should be a far-reaching review of the public-health and development impact of TRIPS, reopening discussion on the appropriate length and scope of IP protection for poor countries. The TRIPS review due in 2001 offers an excellent starting point. TRIPS established different deadlines for country compliance. This provision was based on the practical recognition that it takes time to set up IP-protection systems, but does not contradict the 'one size fits all' approach of the Agreement, with which Oxfam disagrees. There is a strong case for linking transition periods to changes in development indicators rather than to arbitrary dates. A developing country could introduce higher levels of patent protection earlier for product areas where it has achieved international competitiveness, for example software in India. A delay in implementation would also help the many countries currently facing the huge administrative and financial burden of instituting complex IP systems. The IP that TRIPS does not protect Paradoxically for an agreement designed to protect property rights, TRIPS is silent about the appropriation from the South of traditional knowledge about medicinal plants, an IP 'crime' motivated by the desire of Northern companies to find new pharmaceutical products. First, TRIPS is unconcerned about the means by which a patent holder has obtained the knowledge 6 needed for the 'invention', and about the identity of the legitimate owners or originators of that knowledge. Secondly, the Agreement requires countries to allow patenting of micro-organisms and microbiological processes. This, combined with loose interpretation of 'inventiveness' in national Patent Offices, accelerates patenting of genetic resources and stimulates appropriation of developing-country biological assets by Northern companies. If a two per cent royalty were levied on genetic resources, the North would owe the South more than US$5bn in royalties for medicinal plants alone. Many developing countries want TRIPS amended to require patent applicants to disclose the origin of the resources or knowledge they are using, to obtain the prior informed consent of the original knowledge-holders, and to share the benefits with them. A tight definition of 'inventiveness' and 'novelty' in national law would exclude applications where the subject matter is not a real invention, or where the knowledge is already in the public domain. Corporate social responsibility Oxfam believes that the pharmaceutical TNCs can play a more positive role in public health in the developing world by adopting fairer pricing polices and research priorities, although this should be a complement to, rather than substitute for, the reform of WTO patent rules and national IP systems. Industry's greatest responsibility, arguably, is to give due weight to the public good when lobbying on legislation, and not to pursue commercial interest above all else. TNCs should reduce the price of key drugs in developing countries, within the framework of a standardised, transparent global system of equitable pricing. Medicines marketed in LDCs should be priced as low as possible, using marginal unit cost as a guideline and with appropriate safeguards against re-export. This is affordable, since these countries probably constitute less than 0.25 per cent of the world market. If companies disregard the fate of millions of poor people, they risk public criticism and the consequent threat to sales and investor confidence, as well as greater likelihood of regulatory action by governments. Although an equitable pricing system makes drugs more affordable in developing countries, it should be seen as a complement to the strategy of maintaining a low level of patent protection on medicines in poor countries and letting generic competition reduce prices. Equitable pricing does pose a significant administrative challenge, which does not arise with the market-based approach. Moreover, with TRIPS untouched, many generic manufacturers will be out of business, and developing countries will become increasingly dependent for drug supply on a handful of Northern transnational corporations. In contrast, with the kind of patent regime for medicines many developing countries had before TRIPS, there is scope to develop national industry and greater pharmaceutical self-sufficiency, with corresponding benefits for livelihoods and 'health security'. For these reasons, while calling for fairer TNC pricing, Oxfam also stresses the need for reform of WTO rules. Since the UK is the world's second-largest exporter of pharmaceuticals, and Europe as a whole supplies 75 per cent of the branded drugs imported by developing countries, European companies and governments have a major responsibility to act urgently on both these fronts. Oxfam's principal recommendations WTO Member States should reform global patent rules so that poor countries retain the right to make or import low-cost generic equivalents of the key medicines that they vitally need. Existing public-health safeguards need to be strengthened so that countries can limit the length and scope of patent protection on medicines without facing the threat of trade sanctions. An international fund totalling US$5bn should be established under the auspices of the WHO to fund research into new medicines and vaccines for infectious diseases plaguing poor countries. Resulting patents should be held as public goods, and prices controlled in order to ensure full benefit to people living in poverty. Funding should also be increased for primary health services and drug purchases in LDCs. 7 Rich countries, above all the USA, should stop using global trade rules and the threat of trade sanctions to force developing countries to introduce the excessively strong national patent laws sought by the pharmaceutical TNCs. TNCs should reduce the price of key medicines in developing countries to improve access by poor people and reduce pressures on over-stretched health-service budgets. Prices should be determined within the framework of a standardised, transparent system of equitable pricing which would offer drastically reduced prices to the poorest countries. Companies should also accept the introduction of strong public-health safeguards into patent laws. 8 Fatal Side Effects: Medicine Patents under the Microscope 1. Background Belkis Perez, 31, lives in a shack in Puerto Plata in the Dominican Republic. Belkis and her second child, Jennifer, who is now seven years old, were diagnosed HIV-positive three years ago, when she was pregnant with her third daughter, Yania. She did not receive the medication that would have prevented transmission of the virus, and Yania was also born with AIDS. Since then a large slice of the family budget goes each month on buying medicines, because the girls often suffer from amoebic dysentery, colds, or influenza. When Oxfam talked to Belkis in November 2000, she complained of stomach pains, but had not consulted a doctor, concerned about the price of the medicines she might be prescribed. Unable to afford costly anti-retroviral drugs that would combat AIDS, she said, 'I can't really see a future, not for me, not for my children. But we will keep on struggling.' A monthly course can cost up to US$1,200 – 12 times the minimum salary. 'We just cannot budget for anti-retrovirals,' says Dr. Raul Benoit, head of the government's essential medicines programme.i The United States, the Dominican Republic's main export market, has threatened trade sanctions against the country if it does not ban the production or import of cheap generic drugs that compete with US-patented products, including those needed to treat HIV/AIDS. Introduction Through its international relief and development programmes, Oxfam is acutely conscious of the health crises now afflicting a number of countries, most notably in Africa. In the sub-Saharan region, decades of community effort to build better lives are being swept away by the HIV/AIDS epidemic. In 25 countries, Oxfam is supporting health workers who are facing increasing challenges to public health with ever-diminishing budgets. Several years ago we were prompted by the worries of our local partners and public-health groups about the effects of patenting on the prices of priority medicines (a concern also voiced by developing-country governments) to research the subject in more depth and to take up the policy issues. We are also increasingly aware of how world trade rules and global economic management, of which the patent regime is now part, are affecting the lives of people living in poverty, and so we have stepped up our research and advocacy in that field. The present paper aims to support our campaign for improved access to essential medicines, and our campaign for a fair international trading system. What is a patent, and what do World Trade Organisation (WTO) patent rules do? A patent is a monopoly granted by the State for a specified length of time for the commercial exploitation of a scientific or technological invention. Its social function is to stimulate innovation. A patent can be filed on either a product or a process, if it meets the criteria of novelty, inventiveness, and capacity for industrial application. Discoveries per se are generally excluded, although the line between discovery and invention has proved hard to draw in practice. Patents are one part of a broader system of intellectual property (IP) protection which includes copyright, trade marks, geographical indications, and protection of trade secrets. 9 Until now, there has been no global minimum level of patent protection, giving governments considerable flexibility to decide upon the coverage and legal framework for patents, in accordance with their national interests. The WTO IP rules, now coming into force in many developing countries, introduce new global standards for all member states. Prior to this, many developing countries excluded products such as medicines or plants from patentability, or had short patent periods in order to keep prices down and encourage local industry. Up to 50 countries, including Brazil and Argentina,ii did not grant patents for pharmaceuticals. Some, such as India and Egypt, granted only process patents, thereby allowing local firms to produce products, patented elsewhere, by alternative processes. Some governments, while granting patents, routinely issued 'compulsory licences' on public-health grounds, authorising third parties to manufacture a patented product without the consent of the patent holder. In about 12 developing countries, most notably India, national pharmaceutical industries emerged capable of developing, manufacturing, and exporting inexpensive equivalents of the patented products that were appearing in industrialised countries. Other, less technologically advanced countries developed the capacity to formulate drugs, using imported raw materials. In this way, they could supply much of their drug needs. The availability of inexpensive substitutes has limited the effective monopoly enjoyed by Northern originator companies, and brings prices down dramatically. Many governments also used economic instruments such as tariffs or subsidies to encourage domestic production. Egypt, for example, took advantage of a range of policy instruments to become largely self-sufficient in medicines, and to supply neighbouring countries. Use of these measures will be seriously curtailed by WTO rules. Ironically, these policy options were precisely what enabled many industrialised countries to establish their pharmaceutical industry. Many European countries, including Switzerland, home of many innovative pharmaceutical companies, resisted providing pharmaceutical product patents until their industries had reached a certain degree of development. France introduced product patents in 1960, Germany in 1968, Japan in 1976, Switzerland in 1977, and Italy and Sweden in 1978.iii Yet in 1994, 123 nations, rich and poor, agreed mandatory, multilateral rules for IP protection. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was formally an appendix to the Final Act of the Uruguay Round of trade negotiations, which simultaneously gave birth to the WTO. The Agreement was described as a set of minimum standards, but in practice it constituted the most significant extension of patenting rights in the twentieth century. The pharmaceutical industry had achieved its greatest-ever lobby victory. Why are patents a health issue? The TRIPS Agreement obliges the now 140 member states of the WTO, and any which join, to introduce a comprehensive IP system, with a minimum 20-year patent term for all products, including medicines and the processes by which they are made. In the many developing countries that previously restricted patenting of medicines, TRIPS will delay the production of inexpensive generic substitutes for ten years or more. During this period, the prices of many medicines could be at least three and possibly many more times higher than they would otherwise be (see Section 3 for more detailed analysis). In Oxfam's view, these prolonged high prices for patented medicines, including those developed to treat drug-resistant disease strains, will reduce access for poor people and lead to unnecessary death and suffering. This a conclusion shared by many non-governmental organisations, including Médecins Sans Frontières: 'Innovative drugs are increasingly unaffordable in developing countries (other than for a privileged elite). The ban on local copies will quite simply rule out any access for the majority of the population.' iv TRIPS obliges countries to treat patents on life-saving drugs as essentially the same as patents on ice-cream machines, despite the fact that essential drugs are more akin to public goods, and access to them is a human right. The Agreement goes some way towards recognising this by allowing safeguards to protect public health, including the right of States to override a patent 10 and authorise third-party production of a medicine. But these safeguards are difficult for developing countries to use in practice, and are often not incorporated into the national legislation now being introduced. Some industrialised countries, notably the United States, are using political pressure and the threat of trade sanctions to force countries to enact laws which are based on a highly restrictive interpretation of TRIPS, which exclude key public-health safeguards and which extend IP protection beyond the minimum required by TRIPS. This drive for 'TRIPS plus' legislation reflects the continued influence of the pharmaceutical transnational corporations (TNCs) over Northern and developing-country policies, in pursuit of their commercial interests. New national patent legislation will take effect at different moments, although all WTO member-states, even the poorest in the world, must be compliant with the whole of TRIPS by 2006. If they are not, rich countries can take them to the WTO 'court', which can authorise trade sanctions if non-compliance continues. Even before new laws take full effect, developing-country governments must grant 'market exclusivity' for up to five years for medicines for which a patent application has been filed after 1995. This 'exclusivity' has the same effect as a patent. There are concerns that companies in developing countries are already abandoning the practice of developing generic versions of new patented medicines coming on to the market, and are under intense pressure to stop producing some of the generics that they already supply at low prices, such as treatments for HIV/AIDS and related conditions. Winners and losers in the global pharmaceutical industry TRIPS will affect countries differently, depending on their stage of development and whether they are predominantly producers or users of technology. In the pharmaceutical industry, gains will be concentrated in the ten industrialised countries whose TNCs dominate world production and where innovative research is almost entirely based. The European industry will be a big winner, as it produces 40 per cent of the world's pharmaceuticals and 60 per cent of the vaccines, and supplies 75 per cent of the branded drugs imported by developing countries. In contrast, developing countries, which either do not have a pharmaceutical industry or only have imitative capacity, will lose. For these countries, TRIPS will restrict their scope for copying and technology transfer, while at the same time increasing the cost of medicines. As a recent Brazilian report stated, 'The greatest beneficiaries of recent changes in Brazilian legislation and the implementation of the TRIPS Agreement have not been Brazilian companies or v institutions, but transnational companies, with their persistent hegemony in our market.' vi A UNIDO study in 1990 classified developing countries into four categories: 1. India, Mexico, China, Argentina, and Korea have quite sophisticated manufacturers who are capable of innovation in complex manufacturing processes. In India, within three to five years of a new patented drug's first appearance in a Northern market, the local industry has had an equivalent on sale in the Indian market, and available for worldwide export to other developing countries where the patent is not valid. 2. Eight countries, including Brazil, Cuba, and Egypt, can produce both therapeutic ingredients and finished products, and export to regional markets. They also have some innovative capacity in production processes. Some keep reliance on proprietary brands to a minimum – generics supply 93 vii per cent of the market in Egypt, for example. 3. Eighty-seven countries, including the Dominican Republic, Pakistan, and South Africa, produce some finished products from imported compounds, mainly for the domestic market. 4. Fifty-nine countries have no pharmaceutical industry at all. They have very small domestic markets and are totally reliant on imports. Most African countries are in this situation. In the first three categories, manufacturers include the big international companies as well as local companies operating under licence or producing generics. Overall, foreign-owned firms probably account for more than half of production in developing countries, though in India, for example, their share is only 20 per cent. Virtually all countries import medicines produced by the big international companies, although the degree of dependence on these products varies enormously. In the majority of countries, imports are principally supplied by the big companies, but most also buy some medicines from generic 11 producers, North and South. Developing countries accounted for 7.2 per cent of world exports in 1988, with India leading the field with 1 per cent. 12 The development damage of excessive IP protection 'Just as knowledge is becoming the undisputed centrepiece of global prosperity (and lack of it, the core of human impoverishment), the global regime on intellectual property rights requires a new look. The United States prevailed upon the world to toughen patent codes and cut down on intellectual piracy. But now transnational corporations and rich-country institutions are patenting everything from the human genome to rainforest bio-diversity. The poor will be ripped off unless some sense and equity are introduced into this runaway process.' Jeffrey Sachs (1999) 'Everyone has the right to share in scientific advancement and its benefit.' Article 15, Universal Declaration of Human Rights Patent laws are one of the ways to encourage innovation, and thus offer benefits to society. However, the rules must strike an appropriate balance between the commercial interests of the innovator and the public good. In multilateral agreements, a balance must also be struck between the commercial interests of the advanced industrial nations and the development needs of poorer countries. Oxfam and many public-interest organisations believe that the TRIPS Agreement and the associated national legislation in the pipeline in developing countries are extremely unbalanced on both counts. Excessive IP protection will have a negative impact on economic development, raising the cost of the technological expertise and products to which poorer countries need access if they are to compete and grow. For example, there are widespread concerns about the threat to rural livelihoods posed by the extension of patenting in agriculture, which will increase the price of seeds and other inputs. Industrialisation usually relies on reproducing the technologies of the more advanced economies, and patenting only becomes of interest to a country when it has developed a capacity to innovate.viii Indeed, the United States itself copied British technology extensively in the nineteenth century. It is sometimes claimed that strong patent protection in developing countries will stimulate foreign investment, because companies will be less afraid of their intellectual assets leaking into the local economy, but this is a relatively small potential benefit. In this light, 'the story of how TRIPS came to have a place at the WTO is one of remarkable achievement. It is remarkable because one country, the US, was able to persuade more than 100 other countries that they, as net importers of technological and cultural information, should pay more for the importation of that information.' ix High levels of patent protection will reinforce the growing market domination of the global corporations, who hold 90 per cent of patents. The marginalisation of small and medium enterprises in developing countries will have a negative impact on poverty reduction and equity. Some people in government and business in the industrialised world are now saying that today's high level of IP protection amounts to restrictive practice and is stifling competition everywhere. This fear is reinforced by the vertiginous rise in the number of patents, and the extension of patenting into controversial areas such as business methods and gene research. In 1999, IBM alone took out 2,756 US patents. Critics also cite the problem of inadequate scrutiny of patent applications and loose definition of the criteria for patentability, especially in the USA. TNC mobility and power also make it difficult for governments in impoverished countries to regulate them in pursuit of national development strategies, to control their anti-competitive practices, or to override patents on public-health grounds. The frenzy of fusion among pharmaceutical TNCs heightens anxiety over excessive corporate power. The December 2000 merger of UK-based Glaxo Wellcome with SmithKline Beecham created a conglomerate (GlaxoSmithKline - GSK) that leads the field in anti-infective, respiratory, and vaccine products, and whose combined revenue in 1999 was US$27.2bn. x This is equivalent to 315 times Uganda's public-health budget and 27 times that of Bangladesh, a country with 125 million people.xi Pfizer, which recently acquired Warner-Lambert, was expected to earn approximately US$31bn in 2000, including US$24bn in prescription pharmaceutical sales,xii making its income larger than the GDP of 115 developing countries. 13 A number of developing-country governments, notably those of African nations, are deeply unhappy about TRIPS. Oxfam believes there should be a far-reaching review of the public health and development impact of the whole Agreement, reopening discussion on the appropriate length and scope of IP protection for poor countries, and giving countries greater freedom to decide their own patenting regimes. The lid opens: When TRIPS was signed in 1994, few people in the industrialised countries, apart from an inner circle of trade officials and business lawyers, knew what the small print would mean for the real world. The mere mention of IP rules would bring glazed looks to the eyes of most politicians, and the broader public was barely aware that such rules existed. That began to change in 1997, when the US government, with support from the European Union, provoked a storm of controversy by attempting to coerce South Africa to change its policy on patents, which drug companies claimed violated TRIPS. In 1998 the then vice- president of the European Commission, Sir Leon Brittan, wrote to vice-president M'Beki of South Africa saying that the 1997 Medicines Act 'would appear to be at variance with South Africa's obligations under the WTO Agreement on TRIPS and its implementation would negatively affect the interests of the European pharmaceutical industry.'xiii Pretoria's offence was to introduce a law enabling it to avoid paying the exorbitant prices that international pharmaceutical companies were asking for their patented HIV/AIDS drugs by importing copies made by other developing countries and sold at one-tenth of the cost. South Africa had decided that reducing the incalculable suffering of four million victims of the disease was more important than passing the patent laws that the industrialised countries were demanding at the behest of their corporations. Fortunately, a rising tide of public opinion obliged the US administration to back away from trade sanctions, though its officials continue to raise concerns with Pretoria. The companies, however, have stepped up their offensive. The South African pharmaceutical manufacturers association, which represents the international companies, is taking the government to court in a bid to stop the importation of cut-price drugs.xiv The case will be heard in March 2001. Some observers believe that South Africa was not breaching the TRIPS Agreement, which highlights the fact that safeguards in the rules are not enough to ensure that, in practice, countries can confidently place public health before corporate interests. Trade rules are loaded against the poor The TRIPS Agreement throws into relief the way that today's world trade rules, policed by the WTO, are loaded against poor people and poor countries. The Uruguay Round agreements were heavily biased in favour of the industrialised economies. Moreover, countries had to sign up to all of them – it was an indivisible package, of which TRIPS was one part. Nor could a country register a reservation on particular clauses in an Agreement. Developing countries were locked into commitments, enforceable by trade sanctions, which were poorly understood and not always in the best interests of the majority of their citizens. The refusal by industrialised countries to consider these problems was one factor in the breakdown of the 1999 WTO Ministerial Conference in Seattle. Oxfam and many of its partners are therefore calling for a radical review of trade rules and trade institutions in order to put human development and environmental sustainability at their heart, and to correct the democratic deficit in their management. 14 2. The health crisis in developing countries The burden of disease The extension of patenting on medicines is happening in the context of a growing health crisis. Although there have been improvements in health indicators in many developing countries, eleven million people, nearly half of them children, die each year from infectious diseases. xv Pneumonia is the number-one killer, taking three and a half million lives. AIDS claims a further three million, and TB two million. Another million more succumb to malaria – most in Africa, and 75 per cent of them children. xvi Although the 48 least-developed countries (LDCs) face the greatest challenges, countries with higher per capita gross domestic product (GDP) but with marked social inequalities, such as Peru and Brazil, also face high levels of meningitis, malaria, dengue, cholera, tuberculosis (TB), and respiratory infections. This human tragedy is compounded by the economic consequences of ill health, which will claim even more lives as the prospects for poverty reduction ebb away. It has been estimated that sub-Saharan Africa's GDP would be up to US$100bn greater if malaria had been eliminated 35 years ago.xvii At the household level, an illness can affect the livelihoods and earnings capacity of the whole family. Oxfam research in Vietnam found poor farmers selling buffaloes to meet health costs. In Kampala, Uganda, three-quarters of poor urban households surveyed by Oxfam reduced spending on meals in order to buy medicines – a single episode of sickness cost one-third of their monthly income. Drug-resistant diseases, once they take hold, spread fast and pose a huge threat to public health. Malaria is re-emerging where previously under control, often in strains against which established treatments are helpless. Over the next 20 years, one billion people will be newly infected with TB, and 35 million will die, many of them from the resistant strains spreading throughout the developing world. xviii The WHO describes the development of drug-resistant gonorrhoea as one of the major health-care disasters of the twentieth century.xix As with all sexually transmitted diseases, women are particularly vulnerable to the infection, and less likely to seek treatment. Untreated gonorrhoea greatly increases the risk of HIV/AIDS infection, infertility, and miscarriages. This highlights the need for more attention to the diseases that affect women, countering the gender bias present in most health systems. In Zambia, resistance levels to front-line treatment for cholera and malaria exceed 60 per cent, and simple antibiotics are now ineffective in 40 per cent of respiratory infections.xx 'Drug resistance is a big problem in Bangladesh. In coming years, it will be more dangerous than HIV,' says Dr Samir Saha, head of microbiology in Dhaka's children's hospital. 'We have recently lost four patients to multi-drug-resistant disease. Eventually there will be new drugs, but they will be even more expensive than the antibiotics we use now,' adds chief paediatrician Dr Zaman Khan.xxi High drug prices, together with the lack of health services, contribute indirectly to the creation of drug resistance. Because of the expense, sick people take less than a full course of medicine, or stop treatment before completing a course. They feel better, but the strains not killed off develop resistance. Along comes a new treatment, which is inappropriately used, resistance builds up, and there is need for yet another new drug. The development of microbial resistance is worse in developing countries, but resistant strains are spreading and causing concern to health authorities in rich countries too. Scandinavia, for example, is worried about multi-drug-resistant TB spreading from Russia. Developing countries also face a rising incidence of traditionally 'First World' diseases such as cardiovascular conditions, cancer, and diabetes. To complete this grim picture, the HIV/AIDS epidemic has demonstrated the risk posed by newly virulent diseases, of which Ebola and West Nile Fever are other recent examples. It has been estimated that HIV now infects 25 million people in sub-Saharan Africa.xxii In Zimbabwe, perhaps one in every four adults has the virus, and in Botswana the figure could be more than one in three. In both countries, life expectancy has fallen by about seven years.xxiii 15 The effects of the HIV/AIDS epidemic in Southern Africa are felt throughout Oxfam's programmes. Across the region, staff turn up for meetings and activities with communities only to find them postponed as key people fail to appear, owing to their own illness, to the demands of caring for others, or to attendance at funerals. Ethan Mhlanga, Oxfam's co-ordinator in Zimbabwe, recalls a village near Masvingo where all but a few people were prevented from attending a project meeting because there were six funerals that day. 'When there is a funeral in a community, all adults are expected to attend. Imagine, if you have to go to funerals daily, you don't have time for the project. In one Zimbabwean partner NGO, most of the key people are not coming to work regularly because of their poor health. If those people are lost, it will virtually destroy an organisation that has been working to reduce poverty.' The causes of the public-health crises are complex. One in five of the world's population does not have access to health services. Poor nutrition, lack of water and sanitation, and the low quality of education are major contributory factors to ill health. Underlying these failures is the lack of equitable economic growth, itself a product of both national and international factors, and a half-hearted commitment from many governments to poverty-reduction policies. Where governments have done their best, they have been seriously constrained by public-expenditure cuts caused by debt obligations, and the structural adjustment packages imposed by international creditors over the last 20 years. Developing-country governments themselves could do far more to make medicines affordable to the poor. Many continue to spend far less on public health than on other priorities, such as military budgets. The impact of inadequate overall spending is compounded by inequitable patterns of spending. All too often, tertiary-level services used mainly by better-off groups absorb a disproportionately large part of the health budget, while primary health care is chronically under-funded. Although tackling disease depends critically on appropriate social and economic policies, as well as on interventions in the health field, one piece of the jigsaw is access to effective, affordable medicines and vaccines. As noted by Dr. Brundtland, Director General of the WHO, 'access represents a very important measure of the quality of health services. It is one of the key indicators of equity and social justice.'xxiv Access is particularly sensitive to price, because most poor people in developing countries pay for medicines out of their own pockets, and State health services spend a significant share of their budgets on pharmaceuticals. And price is related to the presence of monopoly, or market exclusivity, in pharmaceutical markets, now greatly extended by the TRIPS Agreement – a point regrettably missed out in Northern government discussions. Nevertheless, the G-8 has strongly reaffirmed its support for the UN targets to reduce the number of HIV/AIDS-infected young people by 25 per cent and to halve the deaths and illness caused by TB and malaria by 2010, although it remains to be seen whether effective action will follow. Who pays for the medicines? 'Many – even very poor people – can afford to buy drugs when the need is urgent and they are desperate. Our parents are just like all parents anywhere in the world. If a child is sick, they will do everything they can to help that child. They will borrow money. They will sell a cow. They will sell the tin from their roof. I see this every day.' Dr Zafrullah Chowdhury, health activist in Bangladesh In developing countries, most prescription medicines are bought over the counter by individuals (often without a prescription). State health services and private insurance schemes cover at best 50 per cent of purchases, and at worst only 10 per cent.xxv In South Asia, the figure is around 20 per cent. In Oxfam's experience very poor people do buy medicines, especially if the 16 illness is life-threatening, though often with great sacrifice by the family. Medicines find their way into remote rural areas via traders or people who have been visiting the towns. If people do not have the cash for medicines, they will sell animals or other assets, even land. Household research by Oxfam in Manila, in the Philippines, found poor families borrowing from relations or, if desperate, from moneylenders. Of course, at times people will simply go without medicines. This is particularly true for women, partly because they have less income than men, tend to have less control over household spending, and may be less able to sell assets or borrow. Developing countries spend a much higher proportion of their national health budgets on pharmaceuticals than industrialised countries – over one-fifth in the case of Mali, Vietnam, and Colombia. And these budgets are sometimes tiny. Oxfam research found that the allocation for drug purchases in the Delanta area of Ethiopia is nine US cents per person per year.xxvi Even in countries with much greater resources, the burden of drug procurement is substantial and could become intolerable. For example, if Brazil provided patented treatments to HIV/AIDS sufferers, the cost would consume the entire national drugs budget. Fortunately, despite US pressure, Brazil continues to manufacture equivalents at one-fifth of the cost of the US products and is making them widely available. This has reduced mortality rates by 50 per cent since 1996.xxvii 3. The impact of WTO patent rules on access, prices, and local industry 'Difficulties started in March, when their five-year-old daughter, Grace, had a serious bout of malaria. Given a lack of money, their first recourse was with local herbs. Unfortunately, the little girl's condition did not improve. The family borrowed money and bought a few tablets of chloroquine and aspirin from the local shop. After some improvement, the girl's health sharply deteriorated two weeks later… Her parents then sold some chickens and, with the help of neighbours, took her to Ngoro Hospital, where she was immediately admitted. However, the family was asked to pay (money) they did not have. They went back home to try to look for money. It was too late. She died on May 8 and was buried the next day.' Voices of the Poor, World Bank Price increases shall be a regular feature, and not an accident, with the introduction of and/or strengthening of patent protection in developing countries. One outstanding example is the case of pharmaceuticals. There is an uncontested and solid set of studies, undertaken in developed and developing countries, and in institutions such as the World Bank and International Monetary Fund, that consistently indicate that developing countries are going to suffer from substantial price increases and other costs. Prof. Carlos Correa (academic and TRIPS negotiator for Argentina during the Uruguay Round)xxviii With the WTO-mandated introduction of rich-country levels of IP protection, the period of effective market monopoly, or market exclusivity, granted to new or improved medicines sold in developing countries could increase by up to nine or ten years. During this time, pharmaceutical TNCs can charge higher prices for their patented product, based on what the individual market can bear, without having to face any competition from rival TNCs or low-cost generic producers. This will be particularly true for new life-saving medicines for which there are no closely equivalent, off-patent substitutes. At a very conservative estimate, prices could be three times or more what they might otherwise be, for this extra period. For some products, prices could be ten or twenty times higher. As The Economist put it, 'More countries are set to implement tough intellectual-property laws under TRIPS, so new drugs will gradually fall under more rigorous patent protection …Tough as it is today to get cheap versions of drugs to the poor, it is likely to get tougher still in future.'xxix This section looks first at which medicines will be affected by TRIPS, then at the likely impacts on price over time, and finally at the effect on local industry. 17 The new generation of medicines TRIPS requires all member states to give longer market exclusivity to all drugs with patents filed after 1995, some of which are already on the market and some of which are being tested. These include new or improved medicines for treating TB, malaria, and HIV/AIDS, and for drug-resistant pneumonia, meningitis, and gonorrhoea. Scientific advances hold out hope for novel medicines able to treat existing or new infectious diseases, as well as cancer, heart disease, and diabetes, which are increasingly prevalent in developing countries. Oxfam fears that all these new drugs will be ringed by patents and priced out of reach of developing-country health services and individual families. The European Commission, in a frank moment, accepted that the problem had already arrived: 'Several key products to prevent, diagnose and treat HIV/AIDS, malaria and tuberculosis, largely produced in industrialised countries, under patent, are still too expensive for the poor.' xxx Where there is widespread drug resistance, the old treatments are becoming ineffective, but people will not be able to afford the substitutes, or will suffer even greater economic hardship in their effort to pay. A WHO study showed that a staggering 70 per cent of patients with chest infections were resistant to first-line antimicrobials and needed newer antibiotics. xxxi Dr Brundtland has stated, 'With the onset of resistance…newer treatments are proving too costly to the vast majority of those living in poor developing nations.' xxxii Major advances in bio-medical science, including genomics, hold out hope for a new generation of medicines to prevent or treat the newly virulent diseases appearing worldwide, and to deal more effectively with some old, intractable illnesses. Mass screening of molecules for potential therapeutic value can be carried out relatively cheaply, for example. Sequencing of the TB bacillus genome occurred two years ago, and genetic sequencing of the parasite that causes malaria is currently underway, allowing new lines of research. Improvements can also be expected in treating cancer and diabetes. However, unless national governments are exercising rigorous control, all these new medicines will be priced out of reach of the world's poor. It has been argued that the patenting issue is not crucial for developing countries, since 'only' five per cent of the WHO Model List of Essential Drugs is currently under patent. The 308-strong list includes basic medicines that address common diseases safely, effectively, and inexpensively. Health ministries use it as the basis for their national-priority drug lists, on which scarce resources are concentrated. Yet since the WHO model list takes price into account, a number of vital medicines are excluded, such as anti-HIV/AIDS drugs. The list is periodically revised, and with the spread of drug resistance and the appearance of new or improved medicines, the number of essential but patented products will steadily grow. Developing-country governments have spoken out against even five per cent being subject to patenting because of their importance in treating disease, and have called for TRIPS to allow automatic patent exemption for drugs on the WHO list or on comparable national lists. Effective patent duration under TRIPS 'Is this the correct environment to sign up to a global agreement that gives monopoly control of new drugs to a handful of foreign companies?' Dr Zafrullah Chowdhury, Bangladesh The evidence suggests that WTO rules could extend the market exclusivity for new or improved patented drugs sold in developing countries by as much as ten or even fifteen years. During that period, prices will be far higher than they would otherwise have been. Although there are methodological problems when quantifying the price effect of new patenting laws and of TRIPS specifically, it is possible to make some rough estimates for each country. Further research in this area should be a high priority for concerned governments and for the WHO, which has a mandate from its 1999 Assembly to monitor the impact of TRIPS on public health. 18 In the past, after a novel, patented medicine has appeared in an industrialised country, it has taken an Indian drug company about four years to develop an equivalent generic product.xxxiii It then takes a year or two for this equivalent to establish a foothold in domestic and foreign markets and obtain the economies of scale that reduce costs. This meant that the TNC originator has had an effective monopoly for perhaps five to six years in countries with low levels of IP protection, such as India. Under TRIPS, the worldwide patent term is a minimum of 20 years, but since the TNC originator spends the first five to ten years after filing on research, trials, and obtaining regulatory approval for its new product, the effective monopoly in the market becomes 10 to 15 years. Product-development times have been falling over the last decade or more, thanks to technological advance and faster regulatory processes, so the average period of effective monopoly is now probably closer to 15 years. This double bonus for pharmaceutical patent-holders underlines how the extension of patent periods in TRIPS has little to do with social benefit and everything to do with corporate gain. Under the even stronger patent rules demanded of developing countries by the pharmaceutical TNCs and some industrialised countries, above all the USA, monopolies will be extended still further. These rules, commonly referred to as 'TRIPS plus', are based on the most restrictive interpretation of TRIPS, contain extra protection for patent-holders, and weaken the safeguards contained in TRIPS (see Section 4 for further details). Price differences The difference in price between patented and non-patented medicines is substantial in all countries. One indicator of the price effect of market monopoly is the difference between the price of patented drugs in markets with strong patent laws (i.e. no competition), and the price of generic equivalents produced in competitive markets where there is no patenting. As Table 1 illustrates, there is a stark contrast between the prices of patented products in ten industrialised countries and the price of the non-patented equivalent in India. For example, Roche's ceftriaxone, an anti-infective for respiratory tract infections, meningitis, and gonorrhoea, sells for between US$1,525 and US$3,380 in rich countries, while its Indian generic equivalent sells for US$277. According to UNAIDS, a combination of two AIDS drugs, AZT and 3TC, made by UK-based GlaxoSmithKline (GSK), that sells for about US$18 a day in the USA, and US$7 a day in Uganda, is marketed by generic manufacturers in Brazil for US$1.50.xxxiv Table 1: Retail prices for medicines under patent in ten OECD countries, and for their generic equivalent in India. (Prices of 100 units in US$, surveyed in 1999) xxxv Generic Patent Disease treated, and incidence Most Cheapest Generi name and holder expensive in OECD c in strength in in OECD India mg Ceftriaxone Roche Acute respiratory-tract 3380 1525 277 sodium infections (3.45m deaths – 1000mg 1998) Meningitis (140,000 deaths – 1998) Gonorrhoea (62m new cases – 1997) Ciprofloxacin Bayer Multi-resistant TB 549 169 10 500mg (Total TB: 1.49m deaths – 1998) Lamivudine IAF HIV/AIDS 524 290 115 150mg Biochem (2.8m deaths – 1999) 19 Some of the price differences in these examples might be attributable to higher production costs in OECD countries, for example, or to currency exchange-rates. However, price comparisons between developing countries with different patent regimes show similar results. One study shows that prices in Pakistan, which grants product patents for pharmaceuticals, are 3 to 14 times higher than in India, which will not grant them until 2005.xxxvi The most widely used anti-infective generic drug in India is ciprofloxacin, which is manufactured by nearly fifty companies. The drug is effective in the treatment of resistant shigella. Shigellosis causes most of the estimated 370,000 deaths from dysentery that occur worldwide each year in children under the age of five.xxxvii Its patented equivalent is eight times more expensive in Pakistan than in India. Although Pakistan is relatively richer than India, the difference in income is too small to explain the price differentials. The conclusion must be that when India moves to strong patenting, prices will rise significantly. This opinion is shared by Nihchal Israni, president of the Indian Drug Manufacturers' Association, who says 'prices in Pakistan, the Philippines and Indonesia, which now recognise product patents, are three to five times Indian prices'. xxxviii A simulation study of the Indian pharmaceutical market shows that the price increase following the introduction of product patents could be 250 per cent.xxxix In relation to the developing world as a whole, the author concludes that 'TRIPS requires the availability of product and process patents for pharmaceuticals virtually from 1995, dramatically changing patent laws in developing countries that earlier allowed such exclusions. This change will, almost certainly, lead to higher prices up to about 200–300% for patented medicines, including for some important diseases such as HIV/AIDS, in countries where such patents are valid.' xl Reports from China suggest that drug prices in Beijing and Shanghai have risen three or four-fold since the introduction of higher levels of patent protection in 1993. Another indicator of the impact of patenting is a comparison between the price of a patented product in a country where it enjoys a effective monopoly, and the price where it faces competition, as graphically illustrated by Pfizer's fluconazole sold in Thailand. The price of this treatment for fatal meningitis, contracted by one-sixth of Thai HIV patients, plummeted from US$14 to US$3 after local generic versions appeared at US$1.xli Evidence from the UK also points to a substantial price gap between patented and generic products: the average cost to the National Health Service of a generic prescription is £3.78, and that of a branded prescription is £13.04. A US Congressional Budget Office study of prescription charges showed that those for patented products cost three times as much on average as those for generics. In Canada, between 1969 and 1993, compulsory licensing kept prices low and helped the development of the Canadian generic-drugs industry. In 1993, the practice of compulsory licensing was eliminated as part of the North American Free Trade Agreement, thus reducing the supply of cheaper generics. xlii The Drug Manufacturers' Association, representing generic companies, estimated that the cumulative cost of this change to patients and taxpayers would be CAN$1.7bn by 2000, rising to CAN$4bn by 2010.xliii TNC views on the relation between prices and patents TNCs often deny that patents enable them to charge whatever a national market will bear, or that healthy generic competition keeps all prices down. They claim that most of the variation in the price of their products across countries results from factors beyond their control, such as tax and tariff levels, transport costs, retail mark-ups, and exchange rates. While drug prices are indeed difficult to compare across countries, not least because manufacturers are singularly secretive about their production costs and pricing policies, this claim does not stand up to scrutiny. A study of prices in ten African countries, for example, clearly showed that TNC pricing policies were the major variable. Moreover, it is wrong to assume that TNCs will automatically charge lower prices in developing countries for commercial reasons. In reality, prices are often higher because of the strategy of targeting sales at local elites – a low volume, high price market. Industrialised countries with national health systems are also better able than developing countries to negotiate reduced prices with the firms. 20 TNCs also argue that there are significant differences in quality between their products and those produced by generic manufacturers in developing countries, so like is not being compared with like. There is a problem of lower production standards and lack of regulation, and governments need to address the issue, but the quality difference is commonly exaggerated. Top-quality generic producers, such as Cipla Ltd. in India, meet the standards necessary to supply the UK and US markets, yet still sell at greatly reduced prices. Ceftriaxone sodium, on which Hoffman-La-Roche holds nearly 100 Swiss patents, can be used in the treatment of acute respiratory-tract infections that led to 3.45 million deaths in 1998. According to Bala and Sagoo, xliv this antibiotic costs 30 per cent more in Latin America than in developed countries. Despite desperate need and crippling constraints on Africa's health budgets, GSK's lamivudine, used in the treatment of HIV/AIDS, is 20 per cent more expensive in Africa than in the ten industrialised countries surveyed. A 1998 survey of 13 drugs found that prices in Tanzania were 50 per cent higher than in Canada. An unskilled worker had to work 8 days to buy these medicines in Canada, and 215 days in Tanzania.xlv In an effort to defuse criticism of the price effect of patents, TNCs sometimes point out that branded medicines that are off-patent are also more expensive than generics. This is true, but the price of the branded product usually falls sharply after patent expiry, even if a differential remains. Branded off-patent drugs marketed by the original patent holders can often command a better price than their rivals because of the market domination and brand loyalty that the company consolidates during its effective monopoly period and reinforces with expensive promotion. TRIPS contributes to this domination by prolonging the effective monopoly period. Another blow to the generic competition, and the final step towards the commercial commodification of medicines, could be allowing TNCs to advertise prescription drugs direct to consumers. This is still prohibited in the UK and much of Europe, but the companies are lobbying energetically to change the rules. In the developing world, where many people buy prescription drugs over the counter or from a local trader, the public will be extremely vulnerable to direct marketing. The fact that pharmaceutical TNCs can sell their products at huge premiums in some developing countries, even though cheaper generic equivalents are theoretically available on the international market, shows that the global marketplace is far from perfect. There is certainly not a free flow of information and products. Indeed, many smaller countries pay excessive amounts for drugs because they do not know what is available where, and they do not have a centralised purchasing scheme. This lack of information and organisation, combined with little experience of IP protection, is one reason for doubting that low-income countries will be able to resist international pressure for excessively strong patent protection, or that they will be able to exploit the public-health safeguards in TRIPS. Section 4 looks in more detail at these safeguards. The effect of patent systems on industry as a whole Since TRIPS will make it harder for domestic pharmaceutical industries throughout the developing world to compete with those of industrialised countries, incomes and employment in the sector will fall, and poor countries will gradually become more reliant on expensive patented imports. This will not only worsen the balance of payments, but it will also make access to medicines dependent on the availability of foreign exchange and on a limited number of suppliers, thus reducing 'health security'. Aid donors who help to finance the supply of priority medicines for low-income countries will also find that costs increase. The history of patenting in India offers important lessons about what could happen. In the early 1960s, at a time when India had strong IP laws, drug prices were among the highest in the world. Thanks to relaxation of patent laws in 1970 and an active industrial policy, Indian 21 pharmaceutical manufacturers came to offer some of the lowest prices in the world, successfully exporting to 130 countries. Local companies fear that TRIPS will now allow Northern TNCs to consolidate gradually their monopoly position. Much of the Indian industry, which employs nearly half a million people, may fail financially, although some of the biggest firms will survive by allying with the TNCs. Developing countries that seek to stimulate their national drug industry, as part of their public-health and industrial development strategy, will find their hands tied. TRIPS Article 27.1 (see appendix) implies that countries cannot make local manufacture a condition for granting a patent, although some interpret this article differently. Brazil is currently facing a formal dispute at the WTO, brought by the United States, because its 1996 Industrial Property law allows the state to require so-called 'local working' of the patent in certain circumstances.xlvi In summary, Oxfam's conclusion is that excessive IP protection granted by WTO rules will make medicines much less affordable to poor people and poor countries, and is therefore prejudicial to public health. A London School of Economics (LSE) research project on generic-drug policies, commissioned by the WHO, reached the same conclusion, stating that 'the impact of TRIPS on the developing world is significantly negative'. In defence of TRIPS, industrialised countries now claim that developing countries enjoy ample room to design appropriate national policies, that the Agreement contains adequate safeguards for public health, and that strong IP protection will stimulate needed research and development (R&D) – arguments that are addressed in the following sections. 4. The small print of WTO rules, and the political realities 'Patent rights are becoming ever more complicated and comprehensive, and the winners in the system of global ownership will be those with the resources to play the game. It is very difficult to see how the world's poorer countries will be among them; this flaw is fundamental, and carries real risks for the future.' Philippa Saunders, Essential Drugs Project, UK Under pressure from developing countries and public interest groups, many rich-country governments now argue that the TRIPS Agreement is merely a set of 'minimum standards', and that its flexibility grants developing countries the leeway to strike an appropriate balance between the inventor's interests, the public interest in innovation, and the public good. This includes the ability to override a patent when necessary, and to set prices. Moreover, they claim, there are longer timeframes for developing-country compliance. Oxfam believes this 'flexibility' is largely illusory, for four reasons: The terms of the Agreement constitute a massive extension of IP protection, give governments no choice about key features of their national patent law, and limit the right of governments to determine when and how they may reasonably override patent rights. Whether all this happens in 1996 or 2006 is essentially immaterial. The United States is putting enormous pressure on developing countries to introduce 'TRIPS plus' laws, based on a highly restrictive interpretation of TRIPS, which undermine public-health safeguards and offer even higher levels of patent protection. Moreover, once laws are in place, developing countries are subject to further pressure by pharmaceutical TNCs with armies of lawyers and deep pockets, and by the threat of trade disputes at the WTO. 22 Few developing countries have the specialised legal expertise and experience to interpret the rules to their own advantage with confidence or to risk costly legal or commercial battles. 'This is a fight between David and Goliath. Some of the multinational companies we are facing are bigger than the Dominican Republic itself,' says a representative of the local generic industry, referring to the US threat to block the country's exports because of its new patent legislation.xlvii In some developing countries, governments do not have a strong commitment to national development and poverty reduction, and will readily cede to external pressures. This is the harsh reality of the emerging global IP system, of which TRIPS is the centrepiece, however it looks from Brussels, Geneva or London. Patented versus Generic in Ghana GSK has warned Cipla Ltd, a rival Indian company exporting vital HIV/AIDS medicines to Ghana, that further infringement of GSK's patent rights there would be challenged. This might have pleased some of GSK's shareholders, but it could prove damaging to the 440,000 Ghanaians currently infected with the disease. GSK is selling Combivir (lamivudine/zidovudine) at US$4.20 per daily dose, 20% more than Cipla's equivalent, Duovir. There are experts who question whether GSK's claims would be upheld in court. The patents, which elsewhere run until 2016, do not appear to be valid in Ghana. Yet the warning has worked, and Cipla's drugs are not likely to be imported in these circumstances. xlviii Oxfam fears that many corporate challenges and threats to local companies and developing countries go unreported. GSK has recently offered Combivir to Ghana at US$2 per day as part of the UNAIDS-sponsored 'Accelerating Access Initiative' for African nations. This matches the price Cipla is now reported to be offering to Africa. If the Cipla equivalent had not been available, as competitor or benchmark, what would the price of the patented product be? GSK's worldwide operating profit on this one drug in 1999 was an estimated US$245m. The average health spending of member states in the African Regional Industrial Property Organisation (ARIPO), to which Ghana belongs, is just US$156m. What are the safeguards in TRIPS to protect public health? Defenders of TRIPS point to a number of features that supposedly safeguard the public good. Firstly, Article 8 of TRIPS (see appendix) states that member states can adopt measures necessary to protect public health, but it then qualifies the principle with the remarkable requirement that measures be 'consistent with' the Agreement. Oxfam believes that TRIPS should be amended to include a clear statement that 'nothing in the Agreement shall prevent the adoption of measures to protect public health'. This is a standard form of 'general exception' found in other WTO agreements. Secondly, TRIPS permits the exemption of therapeutic, diagnostic, and surgical methods from patenting, but does not extend this to medicines. To ensure access to any patented product, including medicines, TRIPS allows a government to authorise its production without the permission of the patent holder – a procedure known as 'compulsory licensing'. This option could theoretically be employed if a government were faced with overpricing by drug companies or refusal to supply a market. TRIPS also allows a country to engage in 'parallel importing', which means importing a patented product from wherever it is sold cheapest, whether the patent holder agrees or not. Oxfam believes that these two options do not constitute adequate safeguards, both because of the wording of TRIPS and because of the political realities in developing countries referred to above. 23 Compulsory licensing The compulsory licensing provision is important, but most developing countries, even if they include it in national legislation, cannot derive advantage from it, because it is hedged in with a number of conditions: The main problem is that a country needs to have a reasonably advanced pharmaceutical industry in order to reproduce new medicines, especially if this requires sophisticated 'reverse engineering', and must be able to achieve economies of scale to bring the price down to affordable levels. The great majority of developing countries fail on both counts. The solution might be to issue a compulsory licence and obtain the medicine from a generic manufacturer in another country who has the technical capacity. Some experts, such as Prof. Carlos Correa, argue that TRIPS allows this. The pharmaceutical TNCs argue that it does not. Whatever, a manufacturer is unlikely to make the required investment or offer a competitive price unless a compulsory licence has also been issued in the exporting country or a number of other countries, thereby creating a viable market. This could conceivably happen for a few medicines but is a hugely more complex and uncertain answer to the affordability problem than the simple alternative of allowing generic producers into the market before the minimum 20-year period now mandated by TRIPS. A compulsory licence has to be revoked once the circumstances that led to its granting have ceased to exist. The threat that a TNC could drop its local price and cause a licence to be cancelled could well deter any third party from making the investments necessary to get a generic equivalent on to the market in the first place. Compensation must be paid to the patent holder. The basis for this calculation is not fully specified, and a WTO dispute panel may not opt for a definition that is fair and in the public interest. In Canada, licensing rules fixed the payment to the patent holder at four per cent of the domestic sale price, far below what the big pharmaceutical companies wanted, but these rules were abolished under pressure from the USA. Licences must be issued on a case-by-case basis, after a failure to obtain a commercial licence on reasonable terms, and without unreasonably prejudicing the legitimate interests of the patent owner. These conditions add to the administrative and judicial burden, and create opportunities for TNCs to obstruct use of the safeguard via the courts or the WTO dispute mechanism. Article 31 (see appendix) states that the obligation to seek a commercial licence can be waived in national emergency. Oxfam believes that the health crises affecting many developing countries should be recognised as emergencies by governments and the WTO. Many developing countries, supported by Oxfam and public-interest groups, therefore call for TRIPS to be amended to make compulsory licensing a genuine, workable option. Double standards? In 1999, under pressure from a public increasingly angry about medicine prices, the US Congress passed the Prescription Drugs Act, which amends legislation on compulsory licensing. The Act allows the Secretary of Health to issue licences where 'the patent holder has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in a field of use; or to alleviate health or safety needs which are not adequately satisfied by the patent holder or if the patented material is priced higher than may be reasonably expected based on criteria developed by the Secretary of Commerce'.xlix However, the US Patent and Trademark office states that the government regards compulsory licensing as undesirable and unnecessary anywhere in the world, except where there is a violation of competition law or a declared national emergency.l 24 Parallel importing Parallel importing, i.e. importing from wherever a patented product is sold cheapest, works well if there are low prices around the world of which to take advantage, and it curbs the highest pricing by patent-holding TNCs. In 1999, Britain's health service made considerable savings by importing drugs worth £750m from other European countries (though the EU does not allow parallel importing from outside the region). The potential benefits are illustrated by price variations for GSK's amoxil: this antibiotic cost US$60 in Germany, US$40 in Indonesia, US$29 in the Philippines and New Zealand, US$16 in Italy, and US$8 in Pakistan. li However, with 20-year patenting worldwide and the lack of generic competition, the danger is that TNCs will set high 'world prices', and that parallel importing will offer little benefit. If one country retains tight price controls, other countries can in theory buy their drugs there. In practice, the TNCs may restrict supply to the country that operates price controls, so that it can only meet its domestic needs and has no surplus for export. In Europe, it has proved difficult under competition law to stop companies doing this. Alternatively, a TNC may operate a dual-price system in the country with price controls, with a higher selling price for goods destined for export. The European Commission has prevented GSK employing this practice in Spain, although the company has taken the case to the European Court. Across the world, TNCs have been pressing vigorously for national laws to prohibit parallel imports, as these reduce their capacity to charge the maximum that each individual market can bear. If TRIPS were consistent with the WTO's ostensible philosophy of removing barriers to trade, it would outlaw such prohibitions. Oxfam believes that it is vital for developing countries to retain the right to parallel importing in their national legislation, and for competition law to prevent TNCs from withholding supply. But if a company agrees to sell a medicine at a very reduced price in a particular developing country – so-called 'tiered pricing' – it is reasonable that governments should prevent that medicine from finding its way back into industrialised-country markets. The controls can be negotiated as and when necessary – it does not require a country to outlaw all parallel importing, as the TNCs demand. In the standardised, global system of equitable pricing proposed by Oxfam, there could be internationally agreed measures to prevent re-selling in rich markets (see Section 8). Does this worsen the problem of sub-standard and counterfeit drugs? The TNCs claim that parallel imports and compulsory licensing aggravate the problem of counterfeit and sub-standard drugs. The problem is serious, and companies and patients have a shared interest in solving it, but the TNC proposition is not well founded. If a manufacturer works to consistent quality standards internationally, or if regulatory authorities are sufficiently vigilant, parallel importing is not a risk for patients. The assertion by the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) that the recent US congressional proposal to allow parallel imports would let in 'unsafe or ineffective medicines' is puzzling, since the drugs have to be originally US-made. If the problem is one of exported sub-standard medicines finding their way back into the home market, the proper solution is to stop selling the sub-standard goods anywhere. Counterfeiting is slightly more difficult to control if there is greater trade in patented medicines, as with any product. The solution is better policing, international co-ordination, and tougher regulation. Banning parallel imports is the wrong remedy In fact, any restrictions on competition, including the longer market exclusivity granted by TRIPS, and the higher prices that result, act as an incentive to counterfeiting. If production under compulsory licence or production of any generic drug is sub-standard, the best solution is to improve regulation and quality assurance. If these aspects of health policy are weak, governments should be provided with appropriate technical assistance. 25 How will the 'grey areas' be defined? Powerful countries and companies are currently exploiting the 'grey areas' of TRIPS to their advantage, forcing developing countries into accepting their interpretation of the rules. Over time, the arbiters of ambiguity in TRIPS will be WTO Dispute Settlement panels, usually composed of trade experts. Since these give more weight to economic concerns and to the commercial standards prevailing in the industrialised countries, and less weight to development goals or to the public interest, Oxfam argues for substantial reform to the Dispute Settlement mechanism to make it a fairer and more balanced process. When disputes have a 'non-trade' dimension, such as public health, panels should make greater use of relevant expertise and amicus curiae briefs, possibly establishing joint panels with the WHO or other appropriate international organisations. Technical assistance to low-income countries for dealing with disputes should be increased. There should be an appeal mechanism involving an independent judicial body, though where a case involves a conflict between different international agreements, it could be dealt with by the International Court of Justice. Member states, through the WTO General Council or a Ministerial Conference, could collectively issue definitive interpretations of TRIPS that favour the common good over the interests of big business, but this will require sustained pressure from public opinion. Fortunately, increasing numbers of health professionals, non-governmental organisations, and trade unions are criticising the social and economic damage caused by the Agreement. They are adding their voices to those of economic liberals in government and the business community who criticise its damaging effect on competition and efficiency, and even question its inclusion in the WTO framework. If these coalitions develop in both North and South, there could be enough leverage to secure not only public health and development-friendly interpretations of TRIPS but also a commitment by governments to reassess the whole Agreement, and to stop the implementation of 'TRIPS plus' systems. TRIPS plus: at the mercy of monopoly 'Drug patents are like cats, they have many lives.' Matthew Harper (2000) As noted earlier, there is great political pressure on developing countries to extend IP protection well beyond the TRIPS minimum. Such laws have already been enacted in some developing countries and are in draft elsewhere. In West Africa, legislation has been put in place even before the WTO deadline for compliance. 'TRIPS plus' legislation can be biased in favour of patent holders in myriad ways, such as: Effective exclusion or restriction of compulsory licensing, leaving countries with no remedy if a company is charging excessively for an essential medicine. Prohibition of parallel importing of patented products, so that companies, in each national market, are free to charge whatever maximises returns. Measures to extend patent life. The four main devices to extend a drug's monopoly are as follows: 1. Legal restrictions on access to clinical test data presented to regulatory authorities by an originator company seeking approval for a new product. This controversial form of IP, known as 'data exclusivity', forces competitors to replicate trials, at great expense, or wait until the 'exclusivity' expires. The term is up to ten years in Europe, and can extend several years beyond the product patent. In some countries, even the authorities cannot use an originator's data to assess an equivalent product. TRIPS requires that national law protects data against unfair commercial use by third parties, but the pharmaceutical TNCs argue that this means the obligatory introduction of European-style provisions everywhere, and are lobbying the US and EU member states to support that view. This interpretation is hotly contested by generic manufacturers.lii 26 2. Legal prohibition of the development of an equivalent medicine by a competitor before the original patent expires. This ban on so-called 'early working' obliges a competitor to wait until patent expiry before testing and registering a product, thus adding three or four years to the de facto market monopoly enjoyed by the originator. A recent WTO dispute panel, in a ruling against the European Commission, clarified that TRIPS allows 'early working', although manufacture and stockpiling is prohibited. This reduces the post-patent delay in the appearance of a generic to some six months. However, national laws can still ban all early working. US pharmaceutical TNCs press for this in developing countries, even though US law allows it. 3. Loose definitions of patent criteria, such as 'inventiveness' and 'novelty', allow companies to take out a second patent on a product, either by modifying the dosage or an ingredient, or by 'inventing' a second use. This common industry practice is known as 'evergreening'. Nearly half of the new drugs approved for use in the USA in the 1990s did not offer important clinical improvements. Claritin, Schering-Plough's medication for allergies, which earned US$2.7bn in 1999, was evergreened by 'purification', extending its US patent from 2004 to 2014. Schering-Plough's first patent on the active ingredient was acquired as far back as 1981.liii Legally, competitors can copy the older product when its patent expires, but heavy branding makes it harder to enter the market. 4. In many industrialised countries, including Australia and the USA, governments have been persuaded of the need to allow extensions to patent duration if it takes an exceptionally long time to bring a product to the market. These are called Supplementary Protection Certificates in the EU. The problem of over-extended patent periods is not new. A review of the evidence in the USA 'suggests that the average effective patent life of many new drugs has increased by at least 50% between the early 80s and today'. This is mainly due to more efficient management of R&D and shorter FDA approval times. However, the study also concluded that 'for companies able to take advantage of the full array of changes in intellectual property protection, effective patent life of some drugs may have doubled'. liv Pharmaceutical industry profits also rose sharply in the same period. One study showed that the 1995–99 rate of profit in relation to revenue had risen to four times the Fortune 500 average.lv The US drugs industry lists countries whose patent laws it considers inadequate. The offenders find themselves on a 'watch list' maintained by the US government, which can later lead to unilateral trade sanctions. This 'Special 301' provision of the country's trade law was introduced in 1988 at the request of big business to force countries to introduce strong protection of IP. It has been used against more than 30 countries. India, Egypt, Brazil, and Argentina, all of which have strong generic-drug industries, have been among the prime targets. Apart from its uncertain legality in terms of WTO principles, the use of 'Special 301' has raised disturbing questions about corporate influence over US trade policy and WTO rules. The threat of trade sanctions, rehearsed by the USA, is pivotal in the implementation of the WTO regime. Given the way in which 'TRIPS plus' further extends corporate privilege at the expense of the public good, Oxfam believes that rich countries, above all the USA, should stop using global trade rules and the threat of trade sanctions to force developing countries to introduce the excessively strong national patent laws. There should be no pressure on countries to introduce 'TRIPS plus' systems. G-8 countries and the EU should issue a clear statement to the effect that they will not take action against countries that use compulsory licensing and parallel importing to respond to public-health needs. The United States should renounce the use of unilateral trade sanctions for alleged violation of the property rights of US-based pharmaceutical corporations. 27 Are transition periods the answer? TRIPS established different deadlines for country compliance. This provision was based on practical recognition that it takes time to set up IP-protection systems, but does not contradict the 'one size fits all' approach of the Agreement, with which Oxfam disagrees. Seventy developing countries were allowed until 1 January 2000 to comply, i.e. an extra five years from the date when the Agreement came into force. Developing countries that have to introduce product patents in areas of technology not already protected are granted until 2005. This includes patent protection for pharmaceuticals and agricultural chemical products. The LDCs were granted until 2006, and can apply for an extension on a case-by-case basis. Nevertheless, companies can file patent applications from 1995 onwards. When a country's new legislation takes effect, and if the patent is formally approved, the patent protection period dates from the moment of filing. Patent applications during the transitional period are held in a 'mailbox', whereby the applicant obtains exclusive marketing rights for up to five years until the patent is either refused or granted. By 2005/2006, few, if any, developing countries are likely to have reached a stage of development where they can benefit from strong IP protection. Even if patenting does have pro-innovation effects in some sectors, prolonged across-the-board patent duration is a blunt instrument with which to achieve it. Nor is there any necessity for patent periods to be the same globally, given that the socially optimal trade-offs will differ among nations. There is therefore a strong case for linking transition periods to changes in development indicators rather than to arbitrary dates, or better still, converting TRIPS to a plurilateral agreement, to which countries adhere when it suits them. This proposal is consistent with the important principle, recognised in all WTO agreements, that countries with a lower level of economic development should not have the same obligations as the advanced industrial nations. Indicators for adherence to TRIPS might include levels of technological development, capacity for innovation, and ability to compete internationally. These could be applied on a sector-by-sector basis. For example, India may have reached a point where it benefits from a high level of IP protection in the software field, but this does not mean that it gains by introducing the same level of protection for every other product or process. Deferral of the introduction of TRIPS rules would also spare countries the huge administrative burden of instituting 'First World' IP systems (legislation, patent offices, specialised judiciary, enforcement mechanisms, etc.) and the enormous financial cost, which amounts to tens of millions of dollars.lvi Can price controls and bulk purchasing help? In theory, TRIPS does not restrict use of price controls on patented medicines, a potentially very valuable policy instrument for ensuring affordability. But TRIPS does weaken the bargaining position of developing-country governments when dealing with companies, by making compulsory licensing a difficult last resort. Without the threat of compulsory licensing, a company is less likely to agree lower prices. And without the yardstick offered by generic production, it is harder to know where to set the price. The benefits of price controls are evident in Europe, where governments have kept responsibility for health services and regulate the type and price of medicines offered within national systems. France and Spain have been relatively successful at keeping prices down, and Britain now takes advantage of parallel imports from them. Pharmaceutical companies are lobbying against these controls and advocate the US system where 'the market' supposedly decides price. In fact, the combination of business-friendly patent laws and market concentration in the United States has led to some of the highest medicine prices in the world, an issue that featured prominently in the 2000 presidential elections. 28 Developing-country health ministries also find it hard to set prices or negotiate good deals on bulk purchases because they lack information about production costs, and because they are dealing with powerful, well-organised companies whose revenue will probably be larger than their national income. Attempts to calculate a TNC's costs can be thwarted by the company setting an artificially high price for active ingredients exported to its local subsidiary – part of a widespread practice known as 'transfer pricing'. Countries may also face pressure from individual Northern governments or multilateral donors not to regulate prices, as happened under Pakistan's Structural Adjustment Programme.lvii In Oxfam's view, Northern governments should not prevent developing countries from using policy instruments commonly employed in rich countries on public-health grounds. Developing countries will be greatly helped in negotiations with companies if TRIPS allows them the fallback option of issuing compulsory licences. They will also benefit from increased technical assistance and comprehensive market data, which the WHO should be funded to provide. 5. The relationship between patents and pharmaceutical R&D 'There is no patent. Could you patent the sun?' Jonas Salk, when asked about the patent on his vaccine for polio 'Novartis makes a drug to treat separation anxiety in dogs…. No major company is doing new research into sleeping sickness.' Donald McNeil, New York Times, 21 May 2000 Advocates of high levels of patent protection for pharmaceuticals in developing countries argue that it will stimulate R&D in the field of tropical and infectious diseases. Oxfam believes that commercial incentives will still be inadequate, and argues instead for massive targeted government investment in R&D. This may involve partnership with companies, but governments should remain firmly in charge and should exercise due control over returns to the private sector, so that the benefits to poor people are maximised. This proposal is discussed further in Section 6. First, we look at why the extension of patent protection will not generate more research into the diseases of poverty, and why patenting in general contributes less to medical innovation than is commonly believed, and sometimes even obstructs it. Our conclusion is that: Research priorities are determined by markets. The purchasing power of people in poverty and of under-funded health services is not a sufficient incentive for research into the diseases of the poor, even with high levels of IP protection worldwide. Much of the revenue from patents in the North goes into marketing, into research on medicines that are not genuinely innovative or important from a public health perspective, and into shareholders pockets. State funding contributes significantly to drug research and development, though some of it constitutes a subsidy to industry rather than a clear, public health-orientated investment. High levels of IP protection can distort research priorities and discourage investigation. 29 What is not researched by pharmaceutical TNCs … 'Enhancing life worldwide: Our strategic focus on innovation and unwavering commitment to excellence have produced pharmaceuticals that are meeting today's health care needs, while our pipeline promises to yield many of tomorrow's therapies.' Pfizer Inc. The pharmaceutical TNCs claim to 'enhance life worldwide', but the facts suggest otherwise: Only 10 per cent of research targets the diseases that cause 90 per cent of the global disease burden. TB, diarrhoea, and pneumonia, which account for 18 per cent of illness, receive only 0.2 per cent of R&D.lviii There has been only one new treatment for TB in the last 30 years. Only 13 of the 1,223 new drugs marketed between 1975 and 1997 were specifically developed to treat tropical diseases (and only four of these were direct results of industry R&D).lix Some diseases, such as sleeping sickness and leishmaniasis, are not researched commercially at all. Industry is geared to producing medicines of commercial interest, which means producing for people in the industrialised world, who account for 85 per cent of its market. It fails dramatically to meet the needs of women and men in the developing world, further deepening the 'health divide' between rich and poor. For example, progress towards development of vaginal microbicides that will be effective against sexually transmitted diseases, including HIV, has been fragmentary, mainly because industry lacks confidence that such a market exists. lx In other words, poor women do not have any money, so their health-care needs are not being met. In 2002, Africa will account for only 1.3 per cent of global pharmaceutical sales, and South-East Asia, including China, for a further 5 per cent.lxi Even allowing for sales growth due to rising incomes, most developing-country markets will remain relatively small for the foreseeable future. For diseases common to rich and poor countries, the claim that the extension of patenting will make a perceptible difference to R&D is without foundation. The lucrative markets will be the more affluent classes in the larger economies such as India, Brazil, Mexico, Korea, and China – which are the principal prizes sought by TNCs through the extension of IP protection. However, the pattern of illness among the better-off in the developing world is similar to that in the industrialised world, so their demand does not stimulate research into the diseases most common among low-income families. The purchasing power of the 1.2 billion people living on one dollar a day does not constitute a sufficient commercial incentive to research the diseases from which they are suffering, even if there is strong patent protection – a reality admitted by companies themselves. Spending on drugs by health ministries is also not large enough to act as a significant market stimulus. LDC health services typically spend no more than a few dollars per head per year on medicines. 61 countries have public drug expenditure of less than US$10 per capita.lxii How patents can discourage socially useful research The logic of the market leads to neglect of the diseases of the poor, but the patent system further reinforces this bias. The pharmaceutical TNCs focus on finding 'blockbusters' – products from which they can gross US$1bn or more annually during the life of the patent. In 1991, on average, 21 per cent of the revenue of the top 25 pharmaceutical companies came from a 30 single product.lxiii Since then, mergers between large firms have reinforced this pattern. One of the main consequences of recent mega-mergers in the industry has been a focusing of R&D on a narrower range of commercially-attractive products. These products may not even be treatments for serious illness – indeed, vast sums are spent researching baldness and obesity, for example. When Glaxo bought Wellcome in 1995, the aim of R&D was simple: to bring three financially important products to market each year from 2000.lxiv Blockbusting: the name of the game. Of the ten best-selling drugs in August 2000, three were anti-depressants, two were for lowering cholesterol, and two were for gastric ulcers. The remainder were for arthritis, hypertension/angina, and allergies/asthma.lxv Losec, one of the ulcer treatments, yields US$6bn a year for AstraZeneca,lxvi while the aggregated sales of the three anti-depressants (Prozac, Zoloft, Seroxat/Paxil) reached US$6.1bn lxvii – not far short of what the whole of Africa spends on medicines in a year. Losec is guarded by 14 different patents: as a company spokesman put it, this 'makes it very difficult for generic companies. It is like a minefield, you go a little to the left and then – boom! You bump into another one'. Since companies are desperate to extend the market-monopoly period of their winning products, they spend further R&D funds on modifying a dosage or an ingredient, and then apply for a new patent. Companies also invest heavily in developing 'me-too' drugs, which are therapeutically similar to successful patented products, but sufficiently different not to violate the patent. For example, Eli Lilly is trying to produce an impotency drug to compete with Pfizer's lucrative Viagra (sildenafil). This could reduce prices, but Lilly's R&D is therapeutically unproductive. How strong patenting can block research The excessive IP protection sought by big business can, paradoxically, obstruct research. In the USA, a patent-holder can deter others from researching in the same area because, once a product is patented, the protection extends to any use, even those as yet unknown or undisclosed.lxviii This is particularly problematic in genetics when, for example, researchers are discouraged from investigating the role of a gene in certain kinds of cancer if it is patented by another company. Even if they were to find a new function, not anticipated in the original patent application, they would still have to pay royalties to the holder in order to exploit it commercially. There might be several gene patent-holders with whom deals would have to be struck. Public-interest groups have drawn particular attention to the numerous patents on breast and ovarian cancer genes held by Myriad Genetics, and how this might discourage research or increase the cost of treatment.lxix In 1999, according to a newspaper report, Myriad Genetics claimed royalties from the UK's National Health Service for developing their own test kits for breast cancer susceptibility genes, BRCA1 and BRCA2. Myriad had patented these gene sequences even though their research had relied upon work by the Institute of Cancer Research in London. If forced to pay a licence fee to Myriad, Shirley Hodgson of Guy's Hospital said "in theory, it could completely cripple a lot of labs."lxx Even some big companies who normally lobby for strong patent laws are concerned about constraints on research imposed by patents held by the bio-tech industry.lxxi The situation is worst in the USA, where the law permits companies to register a gene patent and then do nothing with it for the whole twenty-year term, either waiting for a windfall or merely blocking the competition.lxxii Dr James Watson, whose work on DNA with Francis Crick laid the foundations for the Human Genome Project and the modern bio-tech industry, described the patenting of human genes as 'sheer lunacy'.lxxiii 31 But it can be different. The SNIP Consortium, a public–private partnership between the Wellcome Trust and some industries to investigate human genetic variations, will disseminate all findings as public goods. The companies funding the research have accepted that, by sharing, they can all learn more and benefit. The Internet, at the heart of the new economy, also demonstrates how socialising knowledge can sometimes be the best path to innovation: it developed though the interactive effort of people explicitly committed to keeping their work in the public domain. Who really pays for research? Pharmaceutical and bio-tech companies in the rich countries do invest significant sums in R&D, for the simple reason that it generates exceptionally high returns. While many people benefit from this research, and some companies have a business strategy based on being genuinely innovative rather than merely 'fast followers', by no means all innovation flows from the patenting system. And surprisingly little of the huge revenue from patents actually goes to innovation that brings genuine social benefit: Corporate research is not an act of philanthropy – it pays off. According to a US Senate report, not only does the pharmaceutical industry perennially lead all others in size of profits in relation to sales, but it also has the highest rate of return on capital, and on shareholder equity. The 1999 pre-tax profits of Merck's pharmaceuticals business were comfortably over 30 per cent of sales, while its R&D spend was around 12 per cent of sales. lxxiv Glaxo Wellcome (GW) figures were 30 per cent and 15 per cent respectively.lxxv A great deal of research into drugs is funded by governments, charities, and tax breaks. In most countries, R&D is tax-deductible, so if the marginal rate of corporation tax is 35%, for example, the real cost to a company of US$100 of R&D is US$65. Many countries also offer additional tax credits. Moreover, the pool of scientific information in the public domain, much of it paid for by public bodies, provides important inputs to commercial pharmaceutical research. Nevertheless, the resulting financial benefits accrue primarily to the patent holder.lxxvi Claims about the R&D costs of new drugs are frequently exaggerated – by a factor of ten, according to some critics. Company calculations often include market-research costs and the opportunity cost of capital, apart from glossing over the tax benefits.lxxvii Studies often relate total R&D spending to the number of 'new molecular entities' launched (i.e. drugs with a new active ingredient), ignoring the much larger number of approvals for new formulations and combinations, and thereby further inflating the figure for 'cost per new drug'. Moreover, many industry experts expect new technologies, notably genomics, to cut substantially the R&D failure rate. Lehman Brothers, for example, postulate a fall of more than 25 per cent in cost per new drug between 1996 and 2005.lxxviii Spending is rarely externally verified; in the United States, industry has gone as far as the Supreme Court five times in order to prevent official bodies from examining the figures. Much more money goes into marketing than goes into R&D. In 1999, GW spent 35 per cent of revenue on sales, general, and administrative costs, more than double R&D expenditure. Drug-industry advertising in the USA alone costs more than Africa spends on medicines.lxxix Marketing expenditure in the developing world is also substantial – up to 30 per cent of sales – and these costs are passed on to the patient. Technology transfer Advocates of the TRIPS Agreement argue that TNCs, including pharmaceutical companies, are reluctant to manufacture products in developing countries where patent protection is weak. It is claimed that, since local manufacture makes it easier for competitors to obtain a TNC's 32 know-how, a TNC will prefer to export finished products. Strong IP protection therefore increases licensing and direct investment by TNCs, and this in turn will stimulate R&D. There is some evidence that pharmaceutical TNCs are encouraged to invest because of the reduced damage caused by know-how 'leakage', but it is unlikely to be the most important factor in their decision. The LSE report commissioned by the WHO says: 'despite claims that TRIPS will encourage the transfer of technology for drug development, the reality has been a lack of technology transfer, with the multinational companies maintaining control in industrialised countries.…their response has primarily involved opening local distribution centres whose activities are restricted to the final stages of production – finishing and distribution'. It is true that some of the biggest Indian companies are likely to undertake R&D in partnership agreements with the Northern TNCs. However, this may be aimed principally at reducing the R&D costs for the TNCs, such as the cost of running clinical trials, and is unlikely to involve significant investment in researching the diseases that affect poor people. The patenting system also restricts knowledge diffusion to a select few, rather than sharing it with industry as a whole, and will increase the bargaining power of patent holders, allowing them to negotiate higher licence charges and royalty fees, or impose more onerous conditions for technology transfer. In summary, with a high level of patent protection in developing countries, the revenue from medicines developed principally for Northern markets, but important in the South, will rise. But there is no reason to believe that a significant share of the revenue from the sales in developing countries will go into R&D related to the diseases of poverty. Oxfam therefore believes that the most effective and efficient way of stimulating this research is through greatly expanded government action. This should harness the strengths and capacity of industry, North and South, with due control over financial returns to industry so that the benefits to people living in poverty are maximised. This proposal is discussed further in Section 7. 6. Medical bio-piracy in developing countries 'Even now, patents on life are being granted almost indiscriminately by patent offices, mostly in the North. These patents destroy a patent law system that was originally intended for mechanical inventions, in order to grant corporations and individuals private rights and ownership over biological and genetic resources, traditional knowledge and genetically modified organisms, in order to obtain monopoly profits. The patent system is being used to facilitate the theft of biological resources and traditional knowledge from the South. The monopoly control over such essential resources will also have tremendous impact on food security and the livelihoods of farmers and communities in the developing countries.' Joint NGO statement on TRIPS, December 2000 Paradoxically for an agreement designed to protect property rights, TRIPS is silent about the appropriation of traditional knowledge about medicinal plants from developing countries, an IP 'theft' motivated by the desire of Northern companies to find commercially valuable pharmaceuticals. First, TRIPS omits any requirements on patent applicants to state where the knowledge needed for their 'invention' was obtained, and who the legitimate owners or originators of that knowledge might be. Secondly, the controversial Article 27.3(b) of the Agreement (see appendix), currently under review, obliges all countries to allow patenting of micro-organisms and microbiological processes, i.e. everything related to the genetic manipulation and transfer of genes and cells. This, combined with a loose interpretation of 'inventiveness' by national Patent Offices, accelerates patenting of genetic resources, invariably by powerful Northern companies, and stimulates appropriation of the biological assets of the South. The Africa Group of nations has strong ethical and developmental objections to the patenting of life forms and deeply resents seeing its members' biological resources snatched away, to be later sold back to them at high prices. 33 Developing countries hold an estimated 90 per cent of the world's biological resources. Bio-prospectors take samples of plant material and document traditional medicinal uses developed by local communities over centuries. This knowledge is then exploited by TNCs to develop highly profitable drugs. More than half of the world's most frequently prescribed medicines are derived from plants or are synthetic copies of plant chemicals. It is estimated that if a 2 per cent royalty were levied on genetic resources that had been developed by local innovators in the South, the North would owe more than US$5bn in royalties for medicinal plants alone. In 1999, for example, a US patent was granted to a US-based pharmaceutical company for a diabetes remedy based on egg plant, bitter gourd, and jamun, despite the fact that the treatment had been used in India for years and was well documented in texts on medicinal plants. The Indian Minister for Agriculture described the patent as an 'onslaught on the traditional knowledge and practices prevalent in the developing countries' and called on the WTO to institute rules protecting local knowledge and products from poaching by foreign companies.lxxx In accordance with the commercial interests of its corporate sponsors, TRIPS is silent on bio-piracy. Many developing countries, including the Africa Group and India, along with development agencies like Oxfam, want to see TRIPS amended to make it consistent with the Convention on Bio-Diversity and the FAO's International Undertaking on Plant Genetic Resources. Patents applicants would then be required to disclose the origin of the resources or knowledge that they are using, to obtain the prior informed consent of the original knowledge holders, and to share the benefits with them. A tight definition of the criteria of 'inventiveness' and 'novelty' in national laws would also help to rule out applications in which the subject matter is not a proper invention, or where the knowledge is already in the public domain. Bio-prospecting in Chiapas:lxxxi Controversy surrounds a bio-prospecting project in Mexico carried out by the Maya International Collaborative Biodiversity Group (Maya-ICBG). Funded by the US government, Maya-ICBG seeks medicinal plants for development as pharmaceutical drugs in the Mayan highlands of Chiapas, a region where Oxfam has worked for 20 years. A Welsh company, Molecular Nature Ltd, will isolate and sell the active components of the plants to TNCs, which will own the patents on commercial development. As well as exposing the inadequacy of national and international regulatory frameworks to protect Mexico's wealth of traditional knowledge and natural resources, the dispute reveals two fundamentally different approaches to R&D. In contrast to a profit-driven, technology-intensive, and privatising approach to the exploitation of traditional knowledge, many local people would like to build on what they know for the benefit of the whole community. In 1985, a group of indigenous doctors began setting up community-level pharmacies for people to produce traditional medicines from their own resources. There are now 28 such pharmacies operating as part of the Chiapas health system, offering inexpensive and accessible treatments for common illnesses. Local projects like these can be further scaled up and integrated into health services if there is research into which plants work well, how to use them best, and how to manufacture to acceptable standards. The expertise for this exists – what is missing is money and training. Since women are often leading the efforts to 'rescue' and develop herbal medicines, and are frequently those responsible for traditional systems, programmes to scale-up must take care not to usurp their domain. If well-managed, however, the development of plant-based medicines can enhance local livelihoods. 34 7. The need for government action on health needs Since the market tragically fails the health needs of hundreds of millions of people living in poverty, there is an overwhelming case for major investments by governments in R&D, as well as in health-delivery systems and in subsidised access to treatment for those that cannot pay. International assistance in all these areas declined over the 1990s, although the 1999 World Health Assembly recognised the urgency to act, and the World Bank, the G-8, and the European Commission have all announced their intentions to step up their efforts, particularly in regard to reducing TB, malaria, and HIV/AIDS. There are now numerous initiatives on the table, many of which are partnerships involving governments, the private sector, and corporate philanthropy. Some focus on prevention, such as the Global Alliance for Vaccines and Immunisation (GAVI) and the European Malaria Vaccine Initiative, which has two products entering clinical trials. Others concentrate on the development of cures, or on delivery systems, or on subsidising drug purchasing. Some initiatives are potentially valuable, others are little more than thinly disguised subsidies to industry. An example of the latter was the US Export-Import Bank offer to make loans available to sub-Saharan Africa for the purchase of US-made, patented medicines for treating HIV/AIDS. Health ministers in the region said that the offer did not address the structural pricing problem and would aggravate an already grave situation of indebtedness. Overall, Oxfam sees the initiatives by Northern governments as positive, but still small in relation to need, and requiring much greater co-ordination. Governments and companies proudly announce new programmes that have some benefits in developing countries, but this can give an over-optimistic impression of the level of real success. The scale of human suffering caused by infectious disease demands a more wholehearted response. Invest heavily in research Oxfam proposes the creation of an international US$5bn fund to speed up research and development of medicines for infectious diseases in developing countries. Allocation of resources would follow clearly defined public-health priorities. These include the development of cheaper and more easily used vaccines and medicines for TB, malaria, and HIV/AIDS, and investment in grossly neglected diseases such as dengue, leishmaniasis, and African sleeping sickness. Resources will also be needed for new diseases such as Ebola haemorrhagic fever. Research priorities should build in a gender dimension and ensure that treatments for diseases that particularly affect women are investigated - for example, microbicides for the prevention of sexually-transmitted infections. Based on an industry figure of around US$300m for the average cost of new drug development (excluding the opportunity cost of capital invested), such a fund could finance at least fifteen breakthrough products. If the figure of US$50–100m quoted by some independent analysts is correct, the number of new products could be many times greater. The Fund, operating under the auspices of the WHO, would be a key means both for filling the gaps in current research effort, and for co-ordinating the presently fragmented efforts of individual countries and programmes. Evidently, it would not seek to replace networks that are working well, such as the International TB Alliance. The Fund could raise and disburse US$500m a year over ten years. All countries, rich and poor, could contribute annually according to their means, making it a genuine global initiative. The burden on the tax-paying citizen would be very small, especially since some of the funds could come from a tax on the profits of the big drug companies (a 0.5 per cent tax would raise US$170m), or from the US$100 levy on patent applications proposed by UNDP, which would generate a further US$350m. 35 Who should do the research? Much research can be conducted by networked public institutions, as was the case with the agricultural research that lead to the Green Revolution, and with the Human Genome Project. Public–private partnerships can also be part of the strategy, as the pharmaceutical industry has expertise in drug development and the necessary productive capacity, particularly for vaccines. However, incentives to industry must be designed to get real solutions, and generate a reasonable, capped return to the companies. If firms derive excessive financial advantage from publicly funded research, this will reduce the benefits to those in poverty. As noted above, although there has long been public subsidy of research by pharmaceutical companies, there is currently little transparency over their actual spending, and therefore no assurance of value for money. One partnership that seems to be working well is GSK's development of an improved anti-malarial called LapDap (chlorproguanil/dapsone) with funding from the WHO and the UK's Department for International Development (DFID). The investment is not large, because the active ingredients have been extensively tested. The product will not be patented, thus ensuring generic competition and affordable prices (US$0.50 per treatment). This is one of several medicines under development by SmithKline Beecham's Tropical Diseases Unit, now inherited by GSK and currently guaranteed at least a year of post-merger operation. SB's policy was to require only an 'acceptable' (as opposed to maximum) profit from the Unit. It is essential not to concentrate all public investment in industrialised countries, and to ensure that research centres and pharmaceutical firms in developing countries are able to play an active part in responding to the diseases of poverty. The domestic drug industry in several countries has a capacity to innovate that should be encouraged rather than stifled. The impact of the TRIPS Agreement makes it doubly important that, where public funds are invested, arrangements with industry over patents and prices are rigorous and subject to public scrutiny. One solution is for patents to be held as public goods, perhaps by the WHO, or for research results to be placed in the public domain. Another option is to require drug companies to offer their products developed with taxpayers' money at a reasonable price, as proposed by the US Congress in June 2000. The design and implementation of public–private partnerships should involve experts who are independent of the often cosy relationship between Northern governments and industry, as well as representatives of the developing countries. Complementary policies Even if commercially developed drugs were available at lower cost through more equitable pricing arrangements, and new drugs funded by public resources were marketed without patent protection, the poorest countries might still not be able to afford them. Oxfam and other groups concerned about public health believe that there needs to be a complementary international fund established which could subsidise purchases and reduce costs by bulk buying. The fund would offer long-term support on needs-based criteria and would remove the arbitrariness and uncertainty of bilateral drug donations by companies. Aid funds are also essential to support delivery systems in the poorest countries as part of their broader national health services. The decline in international assistance for the health sector in developing countries should be reversed, and support given to the poorer countries as grants rather than loans. 36 8. The need for company action 'We try never to forget that medicine is for the people. It is not for the profits.' George W. Merck, Merck & Co. The focus in this paper is on patent rules and how they might be changed in order to benefit the health of women and men in poverty. Yet pharmaceutical TNCs play a key part in determining the availability and affordability of medicines. First, they exercise great influence over the patent rules, nationally and globally. Secondly, they develop and manufacture most of the world's medicines, deciding what is produced (and what not), and how much it will sell for. Oxfam recognises the value of corporate philanthropy, but argues that effective social responsibility and 'enhancing life worldwide' must go beyond isolated acts of charity, and address the systemic issues of affordability. If companies do this, they will not only ensure benefits to women and men living in poverty but they will also improve their standing in the eyes of investors and the wider community. Companies which own well-known consumer brands will particularly benefit from an enhanced public image. GSK's soft drinks, Ribena and Lucozade, are household names in the UK, for example. Conversely, if companies disregard the fate of millions of poor people, they could face public criticism and the consequent loss of sales and investor confidence, as well as greater likelihood of regulatory action by governments. Corporate philanthropy Corporate philanthropy supports health projects throughout the developing world and offers drug donations or special price reductions. Donations for disease control programmes under the auspices of the WHO can play a very positive role when the disease is liable to eradication, as in the case of lymphatic filariasis (donations by GSK and Merck) and river blindness (donation by Merck, to be continued until the disease is eliminated). Giving drugs is inappropriate, however, when it distorts local priorities, when not accompanied by support for related health-care infrastructure, or when it is only for short periods. Oxfam and other public-health groups would also like to see more company research into infectious diseases, in co-ordination with publicly funded researchers. In order to avoid an individual company suffering a competitive disadvantage because of low returns, the major firms should all agree to allocate a set percentage of their research budgets for this purpose. While expanded and well-designed corporate philanthropy is highly desirable, it will have little impact in relation to the broader problem and it does not offer the 'drug security' which countries need. This is illustrated by GSK's help with treating drug-resistant malaria in East Africa, using its patented product, Malarone (atovaquone/proguanil). Malarone is a combination drug to deal with the widespread chloroquine-resistant strains. It is a three-day treatment, thus facilitating patient compliance with dosages, and costs US$42. The drug, patented until 2012, has commercial value in the industrialised world as a new, effective prophylactic and treatment. GSK promised one million free treatment courses a year for East Africa, as part of a well-designed programme. The question is: what price will be charged to the countries dealing with the rest of the 300 million cases, many of whom are resistant to existing medicines? And what will happen when the one million free doses have been used up in East Africa? GSK has suggested that governments should take out loans to pay the full price, but most of the countries with a high incidence of the disease are already drowning in debt. Had the drug been the subject of a public–private partnership similar to the case of LapDap, in which public-health needs were the overriding concern and IP protection a secondary consideration, it could be much more widely available. Tiered, or differential, pricing Tiered pricing, which means market segmentation so that developing countries pay less for medicines than rich countries, is a widely discussed way of increasing affordability. For the 37 pharmaceutical TNCs, making modest concessions on prices is a far lesser threat to their profits than reform of WTO intellectual property rules. The TNCs see tiered pricing as a limited, preferential system in which individual firms bilaterally negotiate different prices in different countries. This might bring some benefits, especially where there is sufficient public pressure on companies, but the scale is limited and the balance of negotiating power remains strongly in favour of industry. Instead, Oxfam argues for a WHO-sponsored, worldwide classification of markets, according to transparent and internationally agreed criteria of need, together with guidelines for pricing agreed by all large companies. The criteria could include a country's mortality/morbidity rates and ranking on the Human Development Index, as well as its capacity to pay. In some cases, it would make sense to group countries by region, especially where there is a significant measure of economic integration and co-operation, as in Central America or Southern Africa. Though a global scheme is an ambitious project, it could start with selected regions, or selected vital medicines, such as those used to treat HIV/AIDS and related illnesses, and then evolve to cover other key drugs. The present arrangements whereby prices for some vaccines are lower in developing countries are a good working precedent for such a scheme. GSK, for example, has been selling its patented hepatitis B vaccine to UNICEF at 10 per cent of list price.lxxxii In a comprehensive equitable pricing system, all firms respect the same guidelines, so no company will suffer a competitive disadvantage. Tax concessions currently available for drug donations could be reallocated to support the system, provided it is transparent, effective, and genuinely equitable. Governments will need to respond to industry concerns about leakage of products back into Northern markets by including measures for preventing re-import and smuggling. These could include different packaging for the reduced-price products and prohibition of their sale in rich countries. Within this global framework, Oxfam believes that all companies should set prices for priority drugs in the 48 LDCs as low as possible, using marginal unit cost as a guideline (i.e. the cost of producing an extra unit, which is commonly well under 10 per cent of sale price). This could dramatically bring down prices for the world's poorest people and demonstrate that companies are serious about their social duty. Since the LDCs probably account for less than 0.25 per cent of the global pharmaceuticals market, companies would hardly notice the revenue loss. Although an equitable pricing system makes drugs cheaper in poor countries, it should be seen as a complement to the policy of maintaining a low level of patent protection on medicines in developing countries and letting generic competition reduce prices. Equitable pricing does pose a significant administrative challenge, which simply does not arise with the market-based approach. Moreover, with TRIPS unreformed, many generic manufacturers will be out of business, and developing countries will become increasingly reliant for drug supply on a handful of Northern transnational corporations. In contrast, with the kind of patent regime for medicines many developing countries had before TRIPS, there is scope to develop national industry and greater pharmaceutical self-sufficiency, with corresponding benefits for livelihoods and 'health security'. For these reasons, while calling for fairer TNC pricing, Oxfam also stresses the need for reform of WTO rules. Policy influencing 'Any efforts to extend transition periods or renegotiate the substantive provisions of TRIPS should be vigorously opposed.' Transatlantic Business Dialoguelxxxiii Since companies operate in a competitive environment, it is hard for one company to do anything voluntarily which prejudices profits, and hence shareholder value, even if the act is virtuous. This limitation on philanthropy underscores the need for national and international rules that produce socially desirable outcomes by affecting firms equally. The greatest moral 38 responsibility of companies is therefore to accept laws that defend the public interest, and not to seek laws that only favour profits. Companies should accept government measures based on public-health needs, such as reasonable price controls, compulsory licensing/parallel imports, use of bulk purchasing, etc. and should support national and multilateral legislation that embodies the legitimate social purpose of IP protection. If companies want to persuade public-policy makers that R&D into the diseases of poverty will flow from patent protection in developing countries, they must be able to identify which diseases they will be targeting, in which markets, complete with data concerning costs and potential sales. Without such details, the benefits to developing countries remain hypothetical, while the benefits to companies are only too apparent. 9. Patent politics Who makes the rules? The WTO is an inter-governmental organisation dedicated to the promotion and liberalisation of trade, yet it harbours an agreement that erects barriers to trade, undermines competition, and protects private rights rather than those of States.lxxxiv The explanation of this paradox lies in the enormous power over the establishment of trade rules that is wielded by the TNCs in their pursuit of commercial gain. The US drug companies and other big businesses played a particularly significant part in the 1986–94 Uruguay Round negotiations as a result of the influence they exerted behind-the- scenes on their government. The recommendations of industry's Advisory Committee for Trade Negotiations (ACTN) and Intellectual Property Committee (IPC) were fundamental to the development of the US strategy for IP. The ACTN and IPC, in which Pfizer Inc. had the leading role, convinced the government that the 'theft' of US technology and profit could be halted only by creating international rules, enforced by the threat of trade sanctions. The US TNCs skilfully enrolled their European and Japanese counterparts to put pressure on the other rich-country governments, and the deal was done. In the words of Edmund Pratt of Pfizer: 'Our combined strength enabled us to establish a global private sector–government network which laid the groundwork for what became TRIPS.'lxxxv Many developing-country governments were unaware of the implications of TRIPS. 'To talk about TRIPS some years ago was totally unknown, it was something from another planet to most of us', said Ho-Chy Vega, director of the Dominican Republic's Pharmaceutical Trade Association, in an interview with Oxfam. lxxxvi Even now, many of the poorer countries are oblivious to the commitments they made in 1994. Even when developing-country trade officials knew what was going on, there was little scrutiny of the issue by parliaments, health professionals, and the general public. Dr Awudu Tinorgah, former director of Ghana's medical services and board member of an Oxfam partner organisation, stated recently that 'the Ministry of Health has no knowledge of TRIPS and what it will mean for access to medicines'. Mr Osafo-Acquaah of Phyto-Riker Pharmaceuticals, a local company interviewed by Oxfam in November 2000, says that 'the TRIPS Agreement has never been discussed by Ghana's drugs industry'.lxxxvii Who polices the rules? For the TNCs, the inclusion of IP protection into the domain of the WTO not only secured instant and obligatory extension of favourable patent laws worldwide, but it also offered them a means for free, effective enforcement – trade sanctions. The Dispute Settlement mechanism is the teeth behind the WTO's rules-based administration of the international trading system. If its panel upholds the complaint of one member state against another, the complainant is 39 authorised to impose trade sanctions on the infractor. Sanctions consist of imposing prohibitively high tariffs on selected exports. 40 Unfortunately, both trade agreements and the means for enforcing them are biased against poorer countries. According to WTO officials, the mechanism had been invoked 23 times on TRIPS-related issues by December 2000, but never by a developing country. Brazil and Argentina are currently being challenged by the USA over whether their patent legislation is TRIPS-compliant. Contesting a case at the WTO is extremely demanding for low-income countries. Consequently the threat of a dispute by a rich country is often enough to make them back down, even without the greater menace of losing valuable exports. In the absence of definitive interpretations of TRIPS agreed by member states, the panels determine the rules. India has recently complained that judgements have been biased in favour of patent holders, rather than users of knowledge. Which governments want to change the rules … Since signing the Agreement in 1994, most developing-country governments have expressed considerable concern about its probable negative impact on development. In the run up to the 1999 WTO Ministerial Conference in Seattle, almost one hundred developing countries signed around 12 proposals to reform TRIPS. One of these, a joint submission from the 'Like-Minded Group' of developing countries comprising Cuba, Dominican Republic, Egypt, El Salvador, Honduras, India, Indonesia, Malaysia, Nigeria, Pakistan, Sri Lanka, and Uganda, proposed that 'the list of exceptions to patentability in Article 27.3(b) of the TRIPS Agreement shall include the list of essential drugs of the World Health Organisation'. With the collapse of the Seattle talks, the proposals for reform have been passed to the WTO General Council Special Sessions on 'implementation concerns' of developing countries. The Like-Minded Group re-submitted a call for the exemption of essential drugs from patenting to the October 2000 General Council, but there has been no substantive discussion to date. In a recent paper to the TRIPS Council, the Africa Group of nations expressed concern about how TRIPS could lead to escalating medicine prices and divert research increasingly to developing products for the affluent rather than for the majority. Developing countries are also asking for a review of the deadlines for TRIPS compliance. Grave concern about the health impact of TRIPS has also been expressed through the UN system. Despite dogged resistance from some industrialised countries, led by the United States, the World Health Assembly in May 1999 charged the WHO with providing countries with technical support on patenting issues and for monitoring the effect of international trade agreements on access to drugs. A key issue in the 2000 Special Session of the UN General Assembly on Social Development was the right of people to essential medicines at affordable prices, and how this right is being undermined by TRIPS. The Group of 77, representing most of the developing world, proposed that essential and life-saving medicines be excluded from patentability, and that the TRIPS Agreement should not take precedence over the human right to health care. UNDP has taken a lead in highlighting concerns about the risk that TRIPS will raise the price of technology transfer, and can block developing countries from dynamic knowledge sectors such as computer software and generic drugs. It also argues that new patent laws pay scant attention to the knowledge of indigenous people, which results in a 'silent theft' of centuries of knowledge from developing to developed countries. lxxxviii More recently, the UN Sub-Commission on the Promotion and Protection of Human Rights declared that 'since the implementation of the TRIPS Agreement does not adequately reflect the fundamental nature and indivisibility of all human rights including the right of everyone to enjoy the benefits of scientific progress and its applications, the right to health, the right to food, and the right to self-determination, there are apparent conflicts between the intellectual property rights regime embodied in the TRIPS Agreement, on the one hand, and international human rights law, on the other'.lxxxix It also requested that the WTO take full account of existing State obligations under international human-rights instruments during the review of the TRIPS Agreement. 41 … and which do not? At the WTO, the USA and EU member states, including the UK, continue to defend TRIPS and have resisted developing-country calls to reform it. The USA, the main beneficiary of the Agreement, is particularly vehement in its refusal to countenance change. Technology is extremely important to its economy, which receives more than half of the world's royalties and licensing fees.xc US policy is also a testimonial to the remarkable influence exercised by big business over government, not least because it pays many bills. In 1997–99, the pharmaceutical industry spent US$236m on lobbying Congress and the executive. xci The health-care industry, in which the pharmaceutical sector is the largest player, was expected to spend US$90m in an attempt to influence the results of the 2000 US elections.xcii Until recently, the industrialised-country defence of TRIPS has closely mirrored the arguments from TNCs. They argue that the price of medicines is not the primary cause of poor people's lack of access to medicines. Consequently, seeking to amend TRIPS is a red herring, which will also have the undesirable effect of reducing R&D. More recently, there has been some movement in official positions as a result of public disquiet. The European Commission, for example, has now said that it will not press countries to implement 'TRIPS plus' legislation. This commitment will need monitoring carefully, since, to date, getting countries to sign up to all the international conventions on IP has been part of the brief given to EC officials who negotiate regional trade agreements. The US government and European Commission have had to stop overtly bullying South Africa over its Medicines Act (though corporate legal actions continue in the South Africa courts). In May 2000, responding to public pressure, President Clinton issued an executive order stating that the US would not take action against African countries which resorted to parallel importing and compulsory licensing when facing medical emergencies, provided the measures were consistent with the terms of the TRIPS Agreement. Unfortunately, press reports in January 2001 suggested that President Bush might reverse the order. While the EU is now expressing more openness to discuss developing-country concerns in the TRIPS Council, it has made it clear that it would consider reforms only in exchange for concessions in the next round of trade talks. In essence, this means treating vital development concerns affecting the health of millions of people as a bargaining chip to be traded at the negotiating table with the developing world. The European Commission has also recently launched an important and welcome new initiative, in which the UK government is closely involved, aimed at accelerating action to reduce major infectious diseases in the context of poverty reduction. The EC analysis notes that IP rules have a bearing on access to medicines but stops short of recommendations for change, preferring to place its faith in use of the TRIPS safeguards. The EC also stresses tiered pricing and technology transfer through voluntary licensing agreements as ways of improving access and affordability. The United States government has been very reluctant to admit the importance of more affordable drugs in the fight against communicable diseases, though it was finally persuaded to accept a clause affirming that point in a joint statement issued with the EU at the December 2000 G8 meeting on health in Okinawa. The UK White Paper on Globalisation published in December 2000 argues that 'the [TRIPS] agreement allows WTO members sufficient flexibility to implement domestic IPR regimes which take adequate account of their national circumstances'. The Paper also states that TRIPS does not affect access to and cost of pharmaceuticals, seeds, and technology for poor people, because countries can resort to parallel importing and compulsory licensing. At the same time, developing-country concerns are acknowledged, and the government declares itself 'open to constructive suggestions on how to improve the agreement in TRIPS reviews and to more substantive negotiations in the context of a new Trade Round'. As a contribution to this discussion, the government will establish a Commission to consider how IP rules 'need to develop in the future to take greater account of the interests of developing countries and poor people'. Oxfam welcomes this tacit recognition that there is a problem and hopes that the Commission will produce strong recommendations for effective policy reform that can be led by the UK and its European partners. 42 Public opinion There is widespread questioning of the way in which international trade rules are working. IP protection, though one of the more obscure and complex components of the system, is coming under scrutiny from various quarters. Public-interest groups everywhere are raising concerns about the effects on biotechnology, development, health, agriculture, and equity. Among economic liberals in business, government, academia, and the media, there are growing worries about the effect of high levels of IP protection on competition and efficiency; some believe that TRIPS should never have been part of the WTO system. Organisations such as Médecins Sans Frontières (MSF), Health Action International (HAI), the UK-based Voluntary Service Overseas (VSO), and the Washington-based Consumer Project on Technology (CPT) are campaigning internationally for pro-public-health interpretations of TRIPS and for other measures to improve access to medicines, as are civic organisations and consumer groups in developing countries, such as the Treatment Action Campaign in South Africa and Oxfam's local partner, the Network for Consumer Protection in Pakistan. Medicine prices are now also a source of intense controversy in the United States, where the elderly, the majority of whom are women, are outraged by what they have to pay. Developing-country governments, combined with public opinion in both North and South, can create the political momentum to change the rules. So who has to be persuaded? Who is responsible in London, Brussels, Geneva, and Washington, and in the boardrooms? In the UK, the Department of Trade and Industry (DTI), under the leadership of Stephen Byers, has overall charge of IP matters and oversight of the Patent Office. Kim Howells is the junior minister dealing directly with IP, while Richard Caborn is responsible for trade, including relations with the WTO. The DTI is the lead Whitehall department on the IP issue and broader trade matters in international organisations such as the EU and the WTO. In the EU, policy on multilateral IP rules is decided by member states, but the European Commission is active in trying to harmonise positions, and has been delegated authority to represent the members in WTO negotiations on the subject. IP policies fall under the mandate of the Directorate General for Trade (DG Trade), led by Commissioner Pascal Lamy. The EC is currently seeking to extend its power to negotiate on behalf of the member states on a number of trade-related subjects such as IP and investment – a 'fast-track' procedure that threatens to reduce public and parliamentary debate of the issues. The US Trade Representative (USTR), a cabinet member, is responsible for trade policy and speaks for the government in trade negotiations and at the WTO. President Bush's new appointee is Robert Zoellick. The Office of the USTR has very close relations with industry. The current head of PhRMA is an ex-Trade Representative. At the WTO in Geneva, the TRIPS Agreement has its own standing Council, composed of delegates from member states, although some of the issues are dealt with in the General Council. There is a mandated review of the TRIPS Agreement scheduled for 2001. Article 71.1 states that the member states shall 'undertake reviews in the light of relevant new developments which might warrant modification or amendment of this'. Changes in TRIPS would require consensus among the members in the General Council, or agreement at a Ministerial Conference. At the WHO, IP issues related to pharmaceuticals are covered by the Department of Essential Drugs and Medicines Policy (EDM). This Department is the central focus of work on access to essential drugs, and updates the Model List of Essential Drugs. It is also responsible for traditional medicine, including IP aspects. The EDM issues price information 43 on products on the model list, on a wide range of HIV-related drugs, and on starting materials for over 100 selected essential drugs. The WHO also has disease-specific programmes such as Roll Back Malaria and Stop TB. Pharmaceutical R&D for communicable diseases falls within the remit of the Programme for Research and Training in Tropical Diseases. In mid-2000 the WHO became an official observer on the TRIPS Council. The World Intellectual Property Organisation (WIPO), also based in Geneva, is the inter-governmental administrator of 18 international conventions on IP. TRIPS is in effect the enforcement mechanism for these conventions, not their replacement.xciii WIPO, which has a membership of 140 nations, seeks to harmonise and streamline patenting procedures. In industry, the giants are US-based Pfizer and UK-based GSK. The majority of the latter's shareholders are British, including many pension funds. The Association of British Pharmaceutical Industries (ABPI) represents more than 100 companies in the UK. Between them, they supply more than 90 per cent of the medicines prescribed through the National Health Service. Its US counterpart is PhRMA, which has the world's top ten pharmaceutical companies among its 45 members. The International Federation of Pharmaceutical Manufacturers' Associations (IFPMA) represents the industry worldwide, and is the main channel of communication between industry and international organisations that are concerned with health and trade-related issues. The generic manufacturers have their own trade associations: the European Generic Medicines Association (EGA) and the International Generic Pharmaceutical Alliance (IGPA). 10. Policy recommendations The greatest improvements in health will come from building health-care systems that prioritise the needs of the poor, and from the success of governments in increasing incomes and literacy, and in providing water and sanitation. Governments and international institutions have a responsibility to ensure that economic and social policies work in this direction. Within this portfolio of measures, improving access to medicines and vaccines plays a crucial part. This means ensuring both availability and affordability. Reducing the price of medicines for impoverished people is a complex task, but averting the impending disaster of excessively restrictive global patent rules is one clear priority. This requires action by governments at the WTO and at national level, and changes in the practice of pharmaceutical TNCs. Oxfam would like the UK government and the European Commission to take a lead in mobilising the international community to achieve this goal. At the WTO Some aspects of the TRIPS Agreement should be given immediate attention. In the meantime, work should start on a major overhaul that goes beyond the scope of the regular review process. Since the problems concern vital matters of public welfare, reforms should not be tied to the horse-trading associated with normal trade talks. The mandated review under TRIPS Article 71.1 creates the ideal opportunity to place the common good and sustainable development at the heart of the Agreement and to strike a better balance between IP rights and the rights of States to defend the public interest, notably the public's health. It also enables member states to ensure that TRIPS is consistent with other international agreements such as the Convention on Bio-Diversity (CBD) and human-rights instruments. From the public-health perspective, Oxfam calls for the following actions at the WTO: WTO Member States should reform the patent rules so that poor countries retain the right to make or import low-cost generic equivalents of the key medicines that they vitally need. Existing public-health safeguards need to be strengthened so that 44 countries can limit the length and scope of patent protection on medicines, without facing the threat of trade sanctions. In the short term, the TRIPS Council should review ambiguous provisions in the Agreement, issuing definitive interpretations that favour public-health goals and assuring governments the leeway to protect public health in national laws. The weak general public-health safeguard in Article 8 should be replaced by the unqualified statement that 'nothing in the Agreement shall prevent the adoption of measures to protect public health'. The conditions for compulsory licensing must be eased, including any restriction on production of medicines for export to countries where a compulsory licence has been issued. The right to engage in parallel importing and 'early working' of a patent should be clearly reaffirmed, along with the lack of obligation to introduce EU-style rules on data exclusivity. The forthcoming review of TRIPS should include a comprehensive assessment of the impact on health and development of high levels of IP protection. The review should be supported by independent studies by the WHO and other relevant international organisations, in consultation with governments and public-interest groups. The issue of the length of pharmaceutical patents and options for exemption should be addressed, along with the wider issue of whether strong IP protection will help or hinder the achievement of the international development targets. Inter alia, the review should assess how the Agreement is affecting the transfer and dissemination of technology, and consider how to operationalise the Article 7 commitments on this subject. WTO members should agree longer transition periods for introducing new IP laws, based on development milestones rather than arbitrary dates. In practice, this means that LDCs would not be required to implement any part of TRIPS for the foreseeable future, and implies a moratorium on WTO trade disputes with any developing country on the grounds of non-compliance with current deadlines. The Dispute Settlement mechanism should be reformed to allow public health and human rights considerations, as well as international development objectives, to be taken into account when deciding outcomes. This could include: appointing relevant experts such as health professionals to panels, and accepting amicus curiae briefs, in order to ensure more informed decision-making; establishing joint panels with the WHO or other appropriate international organisations when disputes have a significant 'non-trade' dimension; establishing a more independent, judicial process for dealing with appeals and referring disputes involving a conflict between different international agreements to the International Court of Justice; increasing legal and technical assistance to low-income countries. Rich countries, above all the USA, should stop using global trade rules and the threat of trade sanctions to force developing countries to introduce the excessively strong national patent laws sought by the pharmaceutical TNCs. There should be no pressure on countries to introduce 'TRIPS plus' systems based on the most restrictive interpretation of TRIPS, or in which the protection of IP goes beyond TRIPS standards. The negotiation of bilateral or regional trade agreements should not be used for this purpose. G-8 countries and the EU should issue a clear statement that they will not take action against countries that use compulsory licensing and parallel importing to respond to public-health needs. The United States should repeal the 'Special 301' trade provision and renounce the use of unilateral trade sanctions for alleged violation of the property rights of pharmaceutical corporations. 45 TRIPS should be amended to prevent the piracy of traditional knowledge and genetic resources from poor countries, in line with developing-country proposals and the Convention on Bio-Diversity. As a first step, the TRIPS obligation to grant patents for microbiological organisms should be lifted. It should require patent applicants to disclose the origin of the resources or knowledge used, to demonstrate the prior informed consent of the original knowledge holders, and to have made arrangements to share the benefits with them. Patent rules at the national level Oxfam proposes that developing-country governments, as well as spending more on health services for poor communities, should commit themselves to ensuring that patent laws protect public health, through the following measures: Designing patent legislation to provide maximum protection for public-health needs, including simplified procedures for issuing compulsory licences and the right to engage in parallel importing. Pressure for IP protection that goes beyond TRIPS should be resisted. Initiating research into the social and economic impact of TRIPS and into the costs and benefits of various patent regimes, assessed from a development perspective. Involving health ministries, other government departments, and parliaments in decision-making on IP rules, including fundamental questions such as minimum patent length. Encouraging broad public debate on the issues. International action to develop new medicines, and improve procurement and delivery In pursuit of research benefiting poorer people and countries, Oxfam recommends the following key steps for governments: The creation of a US$5bn international fund under the auspices of the WHO to fund research into new medicines and vaccines to treat the infectious diseases plaguing poor countries. Capital should be provided by governments worldwide, in proportion to their means, giving all countries a stake. The fund could help to overcome the fragmentation of current research efforts. Allocation of resources would follow clearly defined public-health priorities, include the development of cheaper and more easily used medicines and vaccines for TB, malaria, and HIV/AIDS, and investment in the treatment of grossly neglected tropical diseases. One objective should be to promote locally based R&D in developing countries, including research into traditional medicines. Much research could be carried out in the public and non-profit sectors, although industry would have an important role. In partnerships with industry, the arrangements over patents and prices should be rigorous and transparent, in order to maximise benefits for the poor. One solution is for research results to be placed in the public domain, or for patents to be held by the WHO. The design and implementation of public–private partnerships should involve independent experts and full participation by developing countries. An international fund should also be established to subsidise purchases of drugs and delivery systems in the poorest countries. Such a fund would offer long-term support on needs-based criteria and would remove the arbitrariness and uncertainty of bilateral drug donations by companies. It could also reduce costs by organising international tenders for bulk purchase. Aid funds are also required to support the all-important delivery systems, which must be properly integrated into national health services. The decline in aid for health services in developing countries should be reversed. 46 At the WHO WHO Member States should actively support and fund an expanded WHO role and work programme, including the following: a closer relationship with the WTO and a formal function in trade dispute settlement where public-health issues are involved; researching and monitoring the impact of TRIPS to help to ensure that trade policies support public health; helping countries to design patent and other trade-related legislation consistent with public-health needs; this includes a health-orientated definition of patentability and simplified procedures for issuing compulsory licences; developing global standards for equitable pricing of patented drugs; this could be linked to a database on medicine patents in developing countries established by WIPO; assisting countries/regions with broader policies for improved medicine provision, including greater use of essential drugs lists, expanded drug financing options and resources, bulk purchasing and price controls, tighter control of counterfeiting and sub-standard medicines, and measures to improve the efficiency of distribution and dispensing; further development of drug-price information services, including setting up an international drug-price database. The role of industry Extending the full benefits of modern medicines to the entire world's population will ultimately benefit both people and business. The pharmaceutical industry should therefore: support national and multilateral legislation that embodies the legitimate social purpose of IP protection; this may include exempting priority medicines from patenting on public-health grounds; accept government measures based on public-health needs, such as generic competition, reasonable price controls, compulsory licensing/parallel imports, use of bulk purchasing, etc.; establish a standardised and transparent system of equitable pricing; this should include reducing prices in LDCs for priority medicines, using marginal unit cost as a guideline; agree investment targets and priorities for increased research into the neglected diseases of poverty. 'The present patent law has played a major role in ensuring that the drug prices in India are among the lowest in the world and has facilitated the introduction of new drugs in the country. However, all that may change after 2005, when the patent law is likely to be drastically modified. Unless the government provides for compulsory licensing, fights the issue of exclusive marketing rights, allows non-commercial manufacture of patented products and insists on indigenous manufacture of patented products within a stipulated timeframe, the new law will end up encouraging monopolies and ultimately lead to domination of the industry by MNCs. This would affect both the availability and the affordability of essential drugs and the Indian consumer may have to pay a heavy price for his health and well being.' Chairman of Cipla, one of India's most successful pharmaceutical firms 47 Annexe: Agreement on Trade-Related Aspects of Intellectual Property Rights Selected articles of the Agreement: Article 6 Exhaustion For the purposes of dispute settlement under this Agreement, subject to the provisions of Articles 3 and 4 nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. Article 7 Objectives The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations. Article 8 Principles 1. Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement. 2. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. SECTION 5: PATENTS (Articles 27-34) Article 27 Patentable Subject Matter 1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. 1 Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced. 2. Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by their law. 1 For the purposes of this Article, the terms "inventive step" and "capable of industrial application" may be deemed by a Member to be synonymous with the terms "non-obvious" and "useful" respectively. 48 3. Members may also exclude from patentability: (a) diagnostic, therapeutic and surgical methods for the treatment of humans or animals; (b) plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof. The provisions of this subparagraph shall be reviewed four years after the date of entry into force of the WTO Agreement. Article 28 Rights Conferred 1. A patent shall confer on its owner the following exclusive rights: (a) where the subject matter of a patent is a product, to prevent third parties not having the owner's consent from the acts of: making, using, offering for sale, selling, or importing2 for these purposes that product; (b) where the subject matter of a patent is a process, to prevent third parties not having the owner's consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process. 2. Patent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts. Article 29 Conditions on Patent Applicants 1. Members shall require that an applicant for a patent shall disclose the invention in a manner sufficiently clear and complete for the invention to be carried out by a person skilled in the art and may require the applicant to indicate the best mode for carrying out the invention known to the inventor at the filing date or, where priority is claimed, at the priority date of the application. 2. Members may require an applicant for a patent to provide information concerning the applicant's corresponding foreign applications and grants. Article 30 Exceptions to Rights Conferred Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties. 2 This right, like all other rights conferred under this Agreement in respect of the use, sale, importation or other distribution of goods, is subject to the provisions of Article 6. 49 Article 31 Other Use Without Authorization of the Right Holder Where the law of a Member allows for other use3 of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the government, the following provisions shall be respected: (a) authorization of such use shall be considered on its individual merits; (b) such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time. This requirement may be waived by a Member in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. In situations of national emergency or other circumstances of extreme urgency, the right holder shall, nevertheless, be notified as soon as reasonably practicable. In the case of public non-commercial use, where the government or contractor, without making a patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government, the right holder shall be informed promptly; (c) the scope and duration of such use shall be limited to the purpose for which it was authorized, and in the case of semi-conductor technology shall only be for public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive; (d) such use shall be non-exclusive; (e) such use shall be non-assignable, except with that part of the enterprise or goodwill which enjoys such use; (f) any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use; (g) authorization for such use shall be liable, subject to adequate protection of the legitimate interests of the persons so authorized, to be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. The competent authority shall have the authority to review, upon motivated request, the continued existence of these circumstances; (h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization; (i) the legal validity of any decision relating to the authorization of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member; (j) any decision relating to the remuneration provided in respect of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member; (k) Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive. The need to correct anti-competitive practices may be taken into account in determining the amount of remuneration in such cases. Competent authorities shall have the authority to refuse termination of authorization if and when the conditions which led to such authorization are likely to recur; 3 "Other use" refers to use other than that allowed under Article 30. 50 (l) where such use is authorized to permit the exploitation of a patent ("the second patent") which cannot be exploited without infringing another patent ("the first patent"), the following additional conditions shall apply: (i) the invention claimed in the second patent shall involve an important technical advance of considerable economic significance in relation to the invention claimed in the first patent; (ii) the owner of the first patent shall be entitled to a cross-licence on reasonable terms to use the invention claimed in the second patent; and (iii) the use authorized in respect of the first patent shall be non-assignable except with the assignment of the second patent. Article 32 Revocation/Forfeiture An opportunity for judicial review of any decision to revoke or forfeit a patent shall be available. Article 33 Term of Protection The term of protection available shall not end before the expiration of a period of twenty years counted from the filing date.4 Article 34 Process Patents: Burden of Proof 1. For the purposes of civil proceedings in respect of the infringement of the rights of the owner referred to in paragraph 1(b) of Article 28, if the subject matter of a patent is a process for obtaining a product, the judicial authorities shall have the authority to order the defendant to prove that the process to obtain an identical product is different from the patented process. Therefore, Members shall provide, in at least one of the following circumstances, that any identical product when produced without the consent of the patent owner shall, in the absence of proof to the contrary, be deemed to have been obtained by the patented process: (a) if the product obtained by the patented process is new; (b) if there is a substantial likelihood that the identical product was made by the process and the owner of the patent has been unable through reasonable efforts to determine the process actually used. 2. Any Member shall be free to provide that the burden of proof indicated in paragraph 1 shall be on the alleged infringer only if the condition referred to in subparagraph (a) is fulfilled or only if the condition referred to in subparagraph (b) is fulfilled. 3. In the adduction of proof to the contrary, the legitimate interests of defendants in protecting their manufacturing and business secrets shall be taken into account. 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WHO (2000e) WHO Medicine Strategy 2000-2003, Geneva: WHO. 55 Endnotes i Interview with Oxfam, Santo Domingo, November 2000. ii Weissman (1996). iii Consumers International (1999). iv Medecins Sans Frontieres (2000). v Bermudez et al (2000). vi Balance (1991). vii Abouellenein (1996). viii Mayer (1998). ix Drahos (1995). x http://220.127.116.11/gw_index.html. xi Calculated from figures in UNDP (2000) and WHO (2000c). xii www.pfizer.com/pfizerinc/investing/annual/1999/pf99ar01.html xiii 't Hoen (2000). xiv Reuters, 15 January 2001, www.q.co.za/news/2001/01/010115-drug.htm xv WHO (2000a). xvi WHO (1999a). xvii WHO (2000b). xviii EC (2000). xix WHO (1999a). xx Oxfam interview with Dr. Francis Chisaka Kasolo, Consultant Epidemiologist, Lusaka, November 2000. xxi Oxfam interviews, Dhaka, December 2000. xxii UNAIDS (2000a). xxiii UNDP (2000). xxiv Speech made in Brazil in 2000, quoted in Myhr (2000). xxv WHO (2000c). xxvi Oxfam (forthcoming). xxvii UNAIDS (2000a). xxviii Correa (2000a) xxix The Economist, 30 September 2000. xxx European Commission (2000). xxxi WHO (2000a). xxxii WHO (2000a). xxxiii Keayla (1996). xxxiv UNAIDS, quoted in Wall St Journal, 13 July 2000. xxxv Bala and Sagoo (2000). xxxvi Lanjouw (1999). xxxvii WHO (1994). xxxviii Shankar and Pilling (2000). xxxix Watal (2000b). xl Watal (2000a). xli www.haiweb.org/campaign/cl/corpfocus.html xlii Correa (2000b). xliii www.healthnet.org/programs/e-drug-hma/e-drug.200008/msg00054.html. See also Correa (1999). xliv Bala and Sagoo (2000). xlv Bala, Lanza and Kaur, Retail Drug Prices: the law of the jungle, HAI News, 1998, quoted in Myhr (2000). xlvi http://www.cptech.org/ip/health/c/brazil/ xlvii Ho-Chy Vega, Director of the Pharmaceutical Trade Association of the Dominican Republic, interviewed by Oxfam in Santo Domingo, November 2000. xlviii Schoofs (2000). xlix http://thomas.loc.gov/cgi-bin/query/z?c106:H.R.2927 l Paper presented by Lois Boland of the US Patent and Trademark Office at an NGO meeting on compulsory licensing in Geneva, March 1999. www.haiweb.org/campaign/cl/boland.html li Research by the Consumer Project on Technology, quoted by Margaret Duckett (1999). lii European Generic Medicines Association (2000). liii NICHM (2000). liv ibid. 56 lv Quoted in NIHCM (2000). lvi Finger and Schuler (1999). lvii Oxfam (forthcoming). lviii UNDP (1999). lix Trouiller and Olliaro (1999). lx European Commission (2000). lxi www.ims-global.com/insight/report/global/report.htm lxii WHO (2000e). lxiii UNIDO (1991). lxiv Morgan (2000). lxv www.ims-global.com/insight/world_in_brief/0008/products.htm lxvi Shankar and Pilling (2000). lxvii Harper (2000). lxviii Cook-Deegan (2000). lxix Schweiger (2000). See also British Medical Journal (1996). lxx The Guardian, 17 January 2000. lxxi Pollack (2000). lxxii Weissman (1996). lxxiii Quoted by S. Connor (2000). lxxiv These figures, calculated by Oxfam using company website data, do not include Merck's non-pharmaceuticals business. lxxv 1999 Company Reports. lxxvi Story (2000). lxxvii New England Journal of Medicine (2000) and US Senate (1991). lxxviii Lehman Brothers (1997). lxxix NIHCM (2000). lxxx 'India may contest US patent on diabetic remedy' ENS, 27 August 1999, quoted in Bridges Weekly Trade News Digest Vol.3, Number 42, 25 October 1999. lxxxi Ticehurst (2000). lxxxii Garnier (2000). lxxxiii http://tabd.com/about.html lxxxiv Stilwell (forthcoming). lxxxv Sridhar (1999). lxxxvi Interview with Oxfam, Santo Domingo, November 2000. lxxxvii Interviews with Oxfam, Accra, November 2000. lxxxviii UNDP (1999). lxxxix E/CN.4/SUB.2/RES/2000/7. xc Figure for 1995. UNDP (1999). xci Public Citizen (2000). xcii Story (2000). xciii WHO (1999b). 57