by Robert Weissman

SOMETIMES, THE MULTINATIONALS LOSE

In September, the U.S. government announced that it will stop bullying South Africa to abandon efforts to make essential medicines available to its population.

The announcement represented a bitter pill for the pharmaceutical industry, which has relied on the U.S. Trade Representative to act as its proxy in pressuring countries around the world to abandon policies that the drug companies believe to be contrary to their interests.

The reversal of U.S. policy came as a result of a strategically savvy campaign conducted by AIDS activists in the United States.

They forced the issue onto the national political scene and into the national media in June, when they interrupted Al Gore's announcement that he was running for president.

Chanting "Gore's Greed Kills" and "AIDS drugs for Africa," the protesters dogged Gore at various other public events for a three-month period.

Two million people die annually from AIDS-related causes, the overwhelming majority in the Third World, and the number is skyrocketing. Drug treatments that enable many people with AIDS in industrialized countries to survive are priced out of reach of all but a tiny number of HIV-positive people in the Third World. When South Africa and other Third World countries have sought to take measures to reduce the price of AIDS and other essential medicines, the U.S. government has threatened trade and other sanctions to block them.

The disruptions of Gore's speeches turned what the major media had considered an obscure trade or intellectual property issue into what the major outlets considered a newsworthy event. Widespread coverage of the protests prodded the vice president's staff to move quickly to change U.S. policy.

AIDS AND AFFORDABLE MEDICINES

Approximately one in seven Kenyans and one in four people in Zimbabwe has HIV/AIDS. In South Africa, 22 percent of adults are HIV positive. Overall, more than 22 million people in Africa are estimated to be HIV positive.

South African life expectancy, which stood at 59 years in 1990, is projected to be below 40 by 2010. Because AIDS primarily strikes young adults, it is decimating Africa's working population. And it has already created millions of orphans. U.S. Surgeon General David Satcher has likened the HIV/AIDS epidemic in Africa to the plague that decimated Europe in the fourteenth century.

The HIV/AIDS epidemic is severe in Asia and Latin America, as well, but not on the scale of Africa. About two-thirds of AIDS infections to date have occurred in sub-Saharan Africa, according to UNAIDS and the World Health Organization. More than 70 percent of AIDS deaths have occurred in Africa.

In the United States, existing treatments enable many people with HIV/AIDS to survive and live relatively healthy lives. But life-saving HIV/AIDS drug cocktails (drug combinations) cost about $12,000 a year in many African countries - vastly out of the reach of all but a small handful of the growing African population with HIV/AIDS. And so for virtually everyone in Africa, an HIV/AIDS diagnosis is a death sentence.

Given the extraordinary cost of life-saving treatments for AIDS, and the high costs of pharmaceuticals for many other ailments prevalent in the Third World, developing countries have sought ways to reduce prices and increase treatment accessibility.

Historically, developing and industrialized countries have used a variety of intellectual property approaches to lower medicine prices.

Many denied patent protection to pharmaceuticals altogether. Others permitted patents only on processes (the way a drug was made) rather than on products.

Patent protection, which is justified as providing an incentive to invent new products, grants a monopoly to manufacturers and enables them to charge whatever they like for a product without fear of direct competition. Since the cost of manufacturing a drug is typically low compared to the sale price, the patent monopoly is responsible for a very high proportion of the cost of medicines that remain on patent.

Countries such as India, Argentina, Brazil and Turkey have maintained loose intellectual property laws covering pharmaceuticals. As a result, they developed strong national generic drug companies, and consumers in those countries benefited from lower prices for many drugs.

But countries' ability to maintain less restrictive pharmaceutical patent policies changed in 1995, with the ratification and implementation of the General Agreement on Tariffs and Trade (GATT) Uruguay Round agreements. The Uruguay Round established a new set of global rules on intellectual property, drafted in large part by industry and contained in the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), and a new enforcement institution, the World Trade Organization (WTO). The TRIPS rules required countries to adopt strict, U.S.-style patent rules for almost all products, including pharmaceuticals. Developing countries were permitted a five-to-ten year period to phase in the new rules.

With TRIPS greatly constraining countries' intellectual property policy options to lower drug prices, consumer and public health advocates, as well as a few developing country governments, began to turn their attention to two TRIPS-legal policy tools: compulsory licensing and parallel importing.

Compulsory licensing enables countries to instruct a patent or other exclusive rights holder to license the right to use its patent to another party. South Africa might issue a license on a patented HIV/AIDS drug manufactured by Bristol Myers Squibb to a local producer. The South African maker would then manufacture the drug for sale in South African under a generic name, and it would pay a reasonable royalty to Bristol Myers Squibb on each sale.

The value of compulsory licensing is that it introduces competition in the market for the patented good. Its effect is similar to the introduction of generic competition at the end of a drug's patent term - prices come tumbling down. Compulsory licensing can lower the price of medicines to consumers by 75 percent or more.

Parallel imports involve imports of a product from one country and resale, without authorization of the original seller, in another. South Africa might purchase HIV/AIDS drugs in France, and then resell them in South Africa. In the case of pharmaceuticals, where prices differ significantly by country - with the price even in the United States sometimes lower than in developing countries - parallel imports can be a tool to enable developing countries to lower prices for consumers.

In 1997, South Africa adopted a Medicines Act that empowered the government to undertake both parallel importing and compulsory licensing policies, though the government's initial purpose was only to authorize parallel importing. Adoption of the Medicines Act set the stage for the showdown between AIDS activists and Gore.

THE U.S. "FULL-COURT PRESS"

Multinational pharmaceutical companies object to compulsory licensing and parallel importing, which limit their absolute control over drugs prices. Parallel importing undermines the companies' ability to price differentially throughout the world. Compulsory licensing inhibits their ability to set prices within a particular country.

Over the past decade, the pharmaceutical industry and its U.S. trade association, the Pharmaceutical Researchers and Manufacturers Association (PhRMA), have managed to enlist the Office of the U.S. Trade Representative (USTR) to serve as a virtual strong-arm of the industry. USTR has threatened or imposed unilateral trade sanctions against a wide array of countries for maintaining intellectual property policies, including compulsory licensing and parallel importing, that run afoul of PhRMA's wishes.The targeted countries range from Albania to Vietnam and include Argentina, Brazil, Egypt, India, Israel, Cyprus, Jordan, New Zealand and Thailand.

After South Africa passed its Medicines Act, the South Africa case quickly became of central importance to the pharmaceutical industry - and hence to the U.S. government. South Africa had passed a new law, not just maintained a longstanding one; it was a leader in the developing world, and might set an example for other countries; its Medicines Act permitted parallel importing and compulsory licensing, two policies of greatest concern to the industry; and it failed to back down in the face of U.S. pressure.

The industry responded directly to the South African legislation with a lawsuit in South African courts seeking to block implementation of the controversial provision of the Medicines Act. That suit remains pending.

Industry also employed the U.S. government to undertake a massive bullying effort to get South Africa to repeal the provisions.

"All relevant agencies of the U.S. Government - the Department of State together with the Department of Commerce, its U.S. Patent and Trademark Office, the Office of the United States Trade Representative, the National Security Council and the Office of the Vice President - have been engaged in an assiduous, concerted campaign to persuade the Government of South Africa to withdraw or modify" the Medicines Act provisions that give the government the authority to pursue compulsory licensing and parallel import policies, a February 1999 report from the State Department says.

The State Department report explains how "U.S. Government agencies have been engaged in a full court press with South African officials from the Departments of Trade and Industry, Foreign Affairs, and Health," to pressure them to change the law.

Along with USTR, the central vehicle by which the U.S government applied its pressure on South Africa was the U.S.-South Africa binational commission, which was co-chaired by Gore and current South African President (and former Deputy President) Thabo Mbeki. The AIDS protesters targeted Gore because of his leading role in the binational commission, as well as his vulnerability to negative publicity.

The State Department report showed just how thoroughly the U.S. government enmeshed itself in the South African drug policy dispute:

• Gore raised the issue repeatedly with Mbeki, and U.S. cabinet-level and sub-cabinet officials including Secretary of Commerce Richard Daley pressured their South African counterparts in private meetings.
  
  
• The U.S. government enlisted the Swiss, French and German presidents to raise the issue with top South African officials.
  
  
• The U.S. embassy in Pretoria made frequent public statements against the Medicines Act and repeatedly lobbied South African officials for repeal of its controversial provisions.

In May 1998, USTR placed South Africa on the Special 301 watch list. Appearing on the Special 301 watch list notifies a country that the United States is unhappy with its trade-related policies, and threatens subsequent trade sanctions unless the listed country revises its policies.

In June 1998, the United States announced that it would suspend preferential tariff treatment (under the "GSP" program) for certain South African goods while the intellectual property dispute continued. South African media said the tariff reductions were being held "hostage" as punishment for South Africa refusing to repeal the provisions of its Medicines Act that offend the multinational drug companies.

In April 1999, USTR again placed South Africa on its watch list, and scheduled an expedited "out-of-cycle" review of South Africa's intellectual property policies. In placing South Africa on the list, USTR objected not only to South Africa's authorization of compulsory licensing and parallel imports, as well as other intellectual property policies. It also complained about South Africa's vocal support in the World Health Organization for fair-pricing mechanisms for drugs.

"During the past year, South African representatives have led a faction of nations in the World Health Organization in calling for a reduction in the level of protection provided for pharmaceuticals in TRIPS," USTR charged.

USTR's threat of sanctions against South Africa for the advocacy of certain public health positions seemed to mirror a February 1999 complaint from PhRMA. In its submission to the USTR requesting that South Africa be listed as a priority country under Special 301, PhRMA stated, "From the recent remarks and actions, the apparent intent of the Government of South Africa is to not only defend its diminishment of the effectiveness of patent protection in South Africa, but to urge other countries to similarly weaken patent protection for pharmaceutical products."

STANDING UP TO U.S. PRESSURE

South Africa's then-Minister of Health, Dr. Nkosazana Zuma, was unrelenting in the face of U.S. pressure. In July 1997, in a meeting in Washington, D.C. with PhRMA officials, Zuma said, "It is unacceptable for South Africa to pay higher prices than Australia" for pharmaceuticals, and she never backed down from that position.

Although the Washington, D.C.-based Consumer Project on Technology supported the South Africans' efforts, their position was not well represented in the United States. Even several African-American health organizations urged the South Africans to change their policy.

The balance of forces began to shift in early 1999. First, Representative Jesse Jackson, Jr., D-Illinois, introduced the HOPE for Africa bill in the U.S. House of Representatives. The HOPE bill contained a provision which would have forbidden the U.S. government from pressuring South Africa or any other country for pursuing public health-oriented intellectual property policies that were compliant with TRIPS.

Then, in March, the Consumer Project on Technology, along with Medicins Sans Frontieres (Doctors Without Borders) and Health Action International, an international network of health, development, consumer and other public interest groups, sponsored a conference in Geneva on compulsory licensing. The conference elevated the profile of the issue among policymakers in the United States. It also elicited an official U.S. government statement distributed in conjunction with a presentation by Lois Boland of the U.S. Patent and Trademark Office.

In the statement, for the first time, the U.S. government acknowledged that it was demanding countries do more than meet their obligations under TRIPS. "The fact that [the U.S. government] view is not reflected in the TRIPS agreement, in the multilateral context, is fully acknowledged. In our bilateral discussions, we continue to regard the TRIPS agreement as an agreement that establishes minimum standards for protection and, in certain situations, we may, and often do, ask for commitments that go beyond those found in the TRIPS agreement."

In April, AIDS activists, led by ACT-UP Philadelphia and ACT-UP New York, and grouped together in the newly formed Health Gap Coalition, held a demonstration in downtown Washington, D.C. in support of the intellectual property provisions in the HOPE bill and in opposition to official U.S. government policy. Approximately 700 people demonstrated, and 16 were arrested outside PhRMA's headquarters.

On June 16, a handful of AIDS activists disrupted Al Gore's formal announcement in Tennessee that he was running for president. They quickly followed with disruptions in New Hampshire and elsewhere. Suddenly, the media, Members of Congress and others became interested in the substance of the U.S.-South Africa intellectual property dispute.

PROPERTY RIGHTS AND WRONGS

With the spotlight intensified, PhRMA became reticent about publicly articulating its position on the dispute. The industry's basic argument, occasionally made directly or stated by proxies, was two-fold.

The first claim was that compulsory licensing and parallel importing would unfairly impinge on the companies' intellectual property rights.

South Africa's defenders responded that compulsory licensing and parallel importing are part of the intellectual property system - it is one of the many limitations on patent rights, and patent holders know this when they receive a patent.

They also emphasized that parallel importing and compulsory licensing are common practices around the globe. James Love of the Consumer Project on Technology pointed out that many European countries regularly engage in parallel importing of pharmaceuticals. He noted that, in the United States, compulsory licenses are regularly issued in antitrust cases or by legislative mandate. He located compulsory licenses in the United States on products ranging from pesticides to pollution control devices to computer processing chips.

The second prong of the industry argument was that the high cost of research and development (R&D) requires that companies be given freedom to charge whatever they want.

"Compulsory licensing," Tom Bombelles, assistant vice president for international affairs at PhRMA, told ABC News, "creates an active disincentive to research-based pharmaceutical industry involvement in the international effort to improve public health in developing countries, as companies will choose not to develop medicines which will not be patent-protected. Such disincentives are more likely to drive patients and the availability of medicines further apart."

But South Africa's backers challenged PhRMA's claims with the following arguments:

• The drug companies routinely exaggerate the costs of developing new drugs. They rarely note that governments often finance the key research and development costs of important new drugs. In the case of HIV/AIDS, for example, James Love emphasized, the two leading candidates for compulsory licensing are the drugs AZT and ddI, both of which were developed at the National Institutes of Health at U.S. taxpayer expense. Both drugs have generated huge profits for the drug companies already.
  
  
• The R&D "scare card," as Public Citizen's Dr. Peter Lurie called it at a July hearing of a House Government Reform subcommittee, is an "empty threat." Lurie argued that although the industry - which spends far more on marketing, advertising and administration than R&D - regularly claims that government efforts to restrain prices will undermine R&D, prior initiatives to constrain price gouging (e.g., Medicaid price controls) have not in fact translated into lower R&D expenditures.
  
  
• African markets are paltry for the multinational drug companies - 2 percent or less of the global total (developing countries' share is about 10 percent). Lower revenues from developing countries, should they occur, would not affect companies' R&D efforts, or profitability, to any significant extent.
  
  
• Because compulsory licensing will increase company sales (as it lowers prices), it may not harm industry earnings, or may hurt earnings less than initially appears to be the case. If compulsory licensing expands access to AZT and ddI in Africa and the developing world, while not undermining high prices in the USA and Europe, the companies could come out ahead, since they are selling so little in developing country markets now.

This final argument led industry critics to believe that the real reason for the industry's vociferous opposition to South Africa's policies was that the United States - the market of primary concern to the drug industry - might follow the South African lead and adopt compulsory licensing or parallel importing of pharmaceuticals.

As AIDS activists raised the temperature on the debate over drug company activities in Africa, the industry and its allies pulled out a new set of arguments.

They asserted that parallel imports and compulsory licensing will not lower drug prices sufficiently to make them widely available in poor countries. But South Africa's backers countered that these policies would in fact enable many more Africans to obtain drug cocktail therapies; they would also lower prices for drugs that treat AIDS-related opportunistic infections, enabling many to avoid preventable suffering, and would make more affordable short-course therapies, for example to prevent mother-to-child transmission.

Industry representatives and allies also claimed that making HIV/AIDS drugs available to Africans would create drug-resistant strains of the disease.

"Delivery of complex, demanding AIDS drugs without the necessary infrastructure and supervision is a Ôrecipe for disaster,'" Dr. John Siegfried, senior medical officer for PhRMA, told the House Government Reform subcommittee in July, quoting Dr. Thomas Coates of the University of California, San Francisco's AIDS Research Institute.

Lurie responded at the hearing that the deny-treatment argument was misguided from a public health as well as ethical point of view. "The solution to the development of drug resistance due to patient difficulty in adhering to the often-complex AIDS drug regimens is not denial of drug, but rather interventions to improve adherence," he said. "In fact, high drug prices are one of the causes of non-adherence, as poor patients may take partial drug courses to save money." Moreover, "such interventions have had substantial success with tuberculosis in developing countries."

Additionally, South Africa's defenders noted, the deny-treatment argument ignored the many benefits that lower medicine prices will have for treating opportunistic infections, mother-to-child transmission and other AIDS-related problems that do not raise the specter of drug resistance.

AGITATION AND CAPITULATION

In September, the activist campaign achieved a dramatic victory. The U.S. Trade Representative and the South African government announced that the dispute was resolved, and the U.S. government would cease pressuring South Africa on the issues of compulsory licensing and parallel imports.

There apparently was no written agreement between the United States and South Africa, or if there was the two governments are refusing to release it, but the countries' "joint understanding" appears to represent a total U.S. capitulation. South Africa appears to have made no concessions, promising only to adhere to its TRIPS obligations - a commitment it had already made repeatedly.

While savoring their victory, the AIDS activists also pointed to its limitations. First, they continued to acknowledge the overriding importance of developing and maintaining adequate health care systems in poor countries, and of ongoing efforts to find a cure for AIDS.

Second, they noted, the agreement applies only to South Africa. They quickly demanded that the U.S. globalize its new policy.

Finally, they began to shift their emphasis to a demand that the U.S. government license the patent rights it holds to essential medicines to the World Health Organization, which could then disseminate low-priced versions of the medicines worldwide.

Building on their previous success, the AIDS activists planned to drive these issues forward at a large Washington, D.C. demonstration in October and in subsequent protest activities.

Multinational Monitor's Robert Weissman is also co-director of Essential Action, a corporate accountability group that worked to change U.S. policy in the South African intellectual property dispute.