Threat to international patent protection: the pharmaceutical industry's perspective

Out-Law Guide | 30 Mar 2005 | 2:27 pm | 3 min. read

The pharmaceutical industry has been under fire for some time from various countries struggling to afford AIDS therapies.

This guide is based on UK law. It was last updated in October 2001.

Recently, there have been some important developments in Brazil. These will have a significant impact upon the pharmaceutical industry. Life Sciences companies with worldwide patent protection should also be concerned.

Compulsory licensing

Brazil has exerted considerable pressure on the prices charged by pharmaceutical companies by threatening the imposition of 'compulsory licences' on patented drugs.

Any country that is a party to the World Trade Organisation's Trade-related Aspect of Intellectual Property Rights (TRIPS) agreement is permitted to issue compulsory licences in certain circumstances, which includes the need to combat a public health crisis.

However, Brazil's patent laws go beyond this and have provoked considerable criticism. The Brazilian government can issue compulsory licences where a patent owner fails to manufacture a patented product in Brazil within three years of grant.

Certainly, Brazil's approach appears to have been very effective in forcing pharmaceutical companies to reduce prices. For example, the Swiss pharmaceutical company Roche has recently announced a 40% reduction in the price of one of its key anti-AIDS drugs ('nelfinavir' – a version of Viracept) following threats of compulsory licensing from the Brazilian government.

Unlike the "public health" exceptions, Brazil's patent laws are non-selective as they can be applied to any patented product, not just life saving medicines. Some commentators have suggested that it is, in reality, a somewhat cynical attempt to promote the production of patented articles in Brazil under threat of compulsory licensing. This view can only have been reinforced by Roche's recent announcement of its intention to commence manufacture of nelfinavir in Brazil.

Patent owners' rights versus the public interest

Clearly, few would argue with the TRIPS carve-out for genuine public health emergencies. However, countries such as Brazil are going further and eroding the value of patent rights.

One of the key justifications for patent protection has been that it rewards and encourages innovation. Why would any particular pharmaceutical company invest hundreds of millions of dollars in R&D to develop a new drug if its competitors were able to create cut-price generic versions for free?

To quote Hank McKinnell (CEO of Pfizer): "you can kill the golden goose, you will eat well today but tomorrow the cupboard will be bare."

What is the likely impact?

In the long term developing nations may have scored something of an own goal by seeking to erode patent protection. Pharmaceutical companies have invested many millions of dollars (profits achieved through sales of patented products) into researching malaria and other diseases that have little direct impact on the developed world.

If faced with falling profits as a result of losing patent protection, it would not be surprising if such programmes were cut.

Possible solutions

How could research be encouraged in the absence of proper patent protection? The answer may come from a re-evaluation of how R&D is funded. For example, it has been suggested that governments could take a more active role in funding research, potentially in partnership with the pharmaceutical industry. However, it is highly questionable whether any government could persuade the industry to make significant investments researching drugs without reward when that same industry is free - in the absence of a global consensus to move to other 'friendlier' climes.

Could other countries adopt this approach?

Brazil has stated that it is not seeking to act as a role model, but other developing countries cannot help but be impressed by the results that Brazil has scored through judicious use of the threat of compulsory licensing.

The developing nations are seeking resolution of the issues by calling on the WTO to give a declaration regarding access to patented drugs. A statement is expected during the course of the WTO ministerial conference in November.

Industry reaction

A major concern for the industry is that global patent protection may become so weakened that 'second world' countries, such as India (which has vast manufacturing capacity), will begin production of generic versions of the most popular blockbuster drugs, undercutting pharmaceutical companies.

Generally, the industry is walking a very difficult PR tightrope. Public opinion sides with the governments struggling to pay for the drugs needed to treat AIDS/HIV. The position has not been helped by the wave of negative publicity that greeted the legal action initiated by a group of pharmaceutical corporations against South Africa, which has since been abandoned.

A more positive development is the news that GlaxoSmithKline and Shire Pharmaceuticals have just entered into a deal with one of South Africa's largest generic drugs manufacturers to produce three anti-AIDS drugs with the royalty payments being paid to a fund for AIDS charities in South Africa.

The most promising approach seems to be 'behind the scenes' negotiations and potential com promise on a country-by-country basis.

Conclusion

Patent owners worldwide should watch out for developments in Brazil and elsewhere. 'Second world' governments are increasingly flexing their muscles and seeking to reduce patent protection.

Further industry-wide legal action and/or political lobbying (at an international level) to protect patent rights seems inevitable. This bulletin is not intended to be a definitive analysis of legislative or other changes and professional advice should be taken before any course of action is pursued.

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