Patents vs. People

Intense pressure by U.S. trade negotiators and multinational drug companies on Argentina to adopt wider- reaching intellectual property laws may succeed in eradicating the Argentine system of providing relatively cheap pharmaceuticals to its citizens.

Argentine drug companies competitively manufacture and sell a wide variety of drugs that are controlled as legal monopolies under patent laws in the United States and other countries that extend patent protection to pharmaceutical inventions. Argentina, which does not issue patents on drugs, currently boasts one of the world's largest pharmaceutical industries and drug prices are generally far lower in Argentina than in countries that do enforce patent protection on pharmaceutical drugs. Domestic Argentine companies currently control roughly half of the $3 billion Argentine market for pharmaceutical drugs.

For many years, multinational drug companies have been trying to change national policy in Argentina by lobbying the Argentine government, funding "think tanks" which promote the use of patents for pharmaceuticals and lobbying the United States and other countries to impose stiff trade sanctions against countries which do not recognize patents on pharmaceuticals.

While attempts to persuade the Argentine government that it is in the country's best interest to recognize patents on pharmaceutical drugs have failed, multinationals have been quite successful in obtaining help from U.S. trade negotiators. The U.S. Trade Representative has lobbied extensively for tough intellectual property provisions in the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT) and has been very aggressive in bilateral negotiations, threatening Argentina and other countries with trade sanctions if they don't adopt laws providing U.S.-style intellectual property rights for pharmaceutical inventions.

The costs of yielding to U.S. demands would be high for Argentina. Argentine drug companies stand to lose hundreds of millions of dollars if the Argentine government adopts the patent law changes sought by the multinational drug companies and the U.S. trade negotiators, as a monopoly patenting system would give exclusive control of many drugs to U.S. and other multinational pharmaceutical corporations. Argentine consumers would also suffer, since the country's current pro-competition system has led to much lower prescription drug costs.

Patented pressure

In response to pressures from U.S. trade negotiators, the Argentine tine executive branch asked the Argentine Congress in 1991 to consider legislation that would fundamentally reform the country's intellectual property laws and extend patent protection to pharmaceutical drugs. The legislation met stiff domestic resistance from the Centro Industrial de Laboratorios Farmaceuticos Argentinos (CILFA), the trade association representing domestic Argentine pharmaceutical companies.

In spring 1994, the United States dramatically increased the pressure on the Argentine government. In late March, Vice President Al Gore, on an official visit to Argentina, announced that unless Argentina passed U.S. -backed legislation on pharmaceutical patents, it would be included on a list of "priority foreign governments" to receive trade sanctions from the United States. After he met with Gore, Argentine President Carlos Menem told the Argentine newspaper Pagina, on March 22, that Argentina would not be included on a "short list" for entry into NAFTA unless it passed legislation on pharmaceutical patents.

On April 30, 1994, U.S. Trade Representative Mickey Kantor announced that he was giving the Argentine government just 60 days to pass U.S.-backed legislation on patents or face trade sanctions from the United States under Section 301 of the U.S. Trade Act.

Kantor's threat, together with high-profile lobbying by 'U.S. Ambassador James Cheek, sparked a backlash in the Argentine Congress and embarrassed the Menem administration, which until then had been highly supportive of U.S. views on the proposed changes in patent laws. In a news conference held on April 2 6,1994, in anticipation of the April 30 ultimatum, Domingo Cavallo, the Argentine Minister of the Economy, indicated that "this method of retaliation does not pass a patent law. It creates greater resistance in Argentina." There was some skepticism in Argentina about U.S. resolve, since the United States currently enjoys a S2.5 billion trade surplus with Argentina. There was also considerable resentment over the terms of the patent law legislation sought by the United States, which greatly exceeded the provisions which had been negotiated in the recently concluded Uruguay Round of GATT.

The Argentine Congress ignored the 60-day deadline, and on June 30, Kantor announced that the United States would not impose trade sanctions on Argentina, effectively backing down from the earlier threat. The threat of future U.S. trade sanctions looms over Argentina, however, and the Argentine executive branch and Congress and the U.S. trade negotiators are continuing efforts to resolve the dispute.

Looking for compromise

The Argentine government faces a number of difficult choices. Although there is considerable pride and support for its successful domestic pharmaceutical industry, Argentina is stung by criticism, principally from the United States, for acting outside of accepted international norms regarding intellectual property rights. Argentine Member of Congress Rafael Flores introduced legislation in 1991 that would provide for 10-year patents on pharmaceuticals manufactured in Argentina. The Flores proposal also set up a system of non-exclusive compulsory licenses, whereby drug patent holders must grant licenses to other companies, which pay a 5 percent royalty to the patent holder, to produce versions of the same drug.

The Argentine domestic drug manufacturers, through CILFA, supported the Flores bill, but multinational drug companies and the United States rejected the proposal, instead demanding legislation providing 20-year patents on drugs with no compulsory licensing. The U.S. terms are considerably stricter than required by the new Uruguay Round of GATT's intellectual property agreement, completed on April 15, 1994. Under the new GATT, which has yet to be approved by Argentina or the United States, a country would be required to provide 20-year patent protection for any new invention, regardless of the "field of technology" or whether the products are "imported or locally produced." The new GATT does not require retroactive protection and provides for a transition period for developing countries of up to 10 years to extend patent protection to areas of technology not currently covered.

Whether the new GATT allows compulsory licensing is ambiguous. Under the trade pact, a country may "adopt measures necessary to protect public health," it may take actions to "prevent the abuse of intellectual property rights" and it may counter corporate use of patents which "adversely affect the international transfer of technology." The new GATT also allows for nonexclusive compulsory licensing when third parties are unsuccessful in obtaining licenses for technology "on reasonable terms and conditions" within a "reasonable period of time," provided that the owner of the patent is paid "adequate remuneration." At the same time, however, the trade agreement clearly intends patents to confer exclusive rights to patent holders, including the right to prevent third parties not having consent from "making, using, offering for sale, selling or importing" products based upon the patent.

U.S. negotiators insist that Argentina adopt stronger patent law protection than is required under the new GATT or than exists in many developed countries. For example, U.S. negotiators are lobbying to eliminate the new GATT transition period and asking for retroactive protection for drugs patented before changes in the law. The United States also wants Argentina to ban "parallel" imports of drugs with an Argentine patent from members of Mercosur, the Latin American common market, even though such practices are now legal in the European common market.

The differences between the U.S. wish list and the new GATT requirements are large. If Argentina and the United States sign the new GATT, the United States will be prohibited from imposing trade penalties against Argentina, so long as Argentina follows the new GATT provisions, provisions that allow a lengthy transition period and appear to provide some elbow room for a system of compulsory licensing.

The United States, however, is pressing frantically in bilateral negotiations to get a deal before it approves, and is thus bound by, the new GATT. U.S. negotiators are using NAFTA, which Argentina is eager to join, as an incentive. Argentina is unlikely to be offered membership in NAFTA unless it makes changes in its patent laws.

Lobbying with religious fervor

Among the most disturbing aspects of the U.S. lobbying campaign is the degree to which the government is working hand-in-glove with industry.

Officials at the economics section of the U.S. embassy in Argentina acknowledge they rely upon the multinational pharmaceutical companies for most of their information about drug patent and pricing policies. They even seem genuinely surprised when told that some members of the U.S. Congress are advocating a system of cost controls for the United States which would include the option of compulsory licensing.

Embassy officials also openly acknowledge that the United States is asking Argentina to take steps that significantly exceed what it could demand if the new GATT were in force, but say that since the United States has yet to approve the new GATT, it intends to get as much as it can during the bilateral negotiations. One U.S. embassy official agreed that it would be fair to say that, with respect to pharmaceutical patent protection, the United States wants Argentina to "be more Catholic than the Pope."

Pressuring North to South From Canada to Chile, the United States has exerted enormous pressure on countries in the Western hemisphere to adopt U.S.-style patent policies. In the spring of 1993, the Canadian government repealed the law establishing that country's system of compulsory licensing under U.S. pressure as a precondition to joining NAFTA. The result, according to Brenda Drinkwalter, president of the Canadian Drug Manufacturers Association (CDMA), which represents Canadian-owned pharmaceutical firms, was higher drug prices, the de-listing of insurance coverage for some high cost pharmaceuticals, large increases in the profits of the multinationals, little net gain in R&D investments in Canada and a very hostile business environment for Canada's domestically owned pharmaceutical companies, which only have a market share of less than 10 percent of the Canadian market. In South America, resentment runs even higher to the heavy-handed lobbying by the United States on intellectual property issues. Alvaro Villalobos of the Peruvian national pharmaceutical association says, "If you are a Peruvian and want to do business utilizing the centuries-old traditional Inca cloth-dyeing method, you can't because the process has been patented by U.S. companies ... If we want to use those dye techniques, we would have to pay royalties to the U.S. companies." And Jose Plubins, who works with the Chilean drug manufacturers association, disputed assertions that foreign investments would flow to the countries that change their patent laws, noting that after Chile enacted changes in its patent laws in 1991 multinational firms such as Pfizer, Bristol-Myers Squibb, Schering, and Warner-Lambert's Parke-Davis subsidiary left the country. - J.L.

Seeking Alternatives In early May, 1994, the Argentine domestic drug manufacturers, through the Centro Industrial de Laboratorios Farmaceuticos Argentinos, working with the Association Latinoamericana de Industrias Farmaceuticas, the trade association for Latin American drug companies, sponsored an International Forum on Health Care Reform in the United States and the Situation in Latin America, held in San Carios de Bariloche, Argentina. The purpose of the forum was to focus attention on the fact that the United States, which is holding out its own patent system to Argentina as a model, is experiencing a crisis in the cost of health care and is weighing various methods of controlling health care costs, including the costs of pharmaceuticals. The U.S. delegation consisted of three professors, a political consultant and myself. Representatives from the Canadian government and Canadian generic drug manufacturers were also invited to participate, as were a number of industry, academic and government officials from Latin America. The U.S. presentations described the problem of skyrocketing pharmaceutical prices and exhorted the Argentines not to capitulate to U.S. intellectual property demands. Professor Michael Davis, of Cleveland State University College of Law, urged the Argentines to resist U.S. pressure to adopt sweeping changes in pharmaceutical patent laws, warning the Argentines to resist "harmonimperialism," which would deny the Argentine government the opportunity to decide for itself how to treat intellectual property. University of Minnesota Professor Steven Shondelmeyer and Albert Einstein College of Medicine Professor Peter Arno described the deepening problems in the United States concerning the pricing of pharmaceuticals. My presentation included a description of the Taxpayer Assets Projects research on the role of the U.S. government in funding the development of new drugs - the United States contributed significant funding for the development of 70 percent of all U.S.-discovered "priority drugs" approved by the FDA from 1987 to 1991. I also described proposals to combine price controls for pharmaceuticals with mechanisms that increase funding for new drug research and development (R&D). One proposal arose in a 1983 dispute over whether or not the U.S. government would allow Bristol-Myers to receive an extension of an exclusive license to sell cisplatin, a government-funded drug discovery that was then the largest selling cancer drug in the world. Bristol-Myers claimed that it needed the exclusive license in order to earn monopoly profits which in turn would fund its cancer research program. Andrulis Research Corporation, a firm that wanted a non-exclusive license for cisplatin, said that the government could have its cake and eat it too by giving out non-exclusive licenses, which would lead to competition and price reductions for cisplatin, while requiring all license holders to contribute equally to a research fund that would be administered by the government. Andrulis told the government it could set the R&D fund at any level it wanted. The U.S. government rejected the Andrulis proposal and extended the Bristol-Myers exclusive license, but the Andrulis approach remains a sound one. I told the Argentines that there is a broad interest in the development of new pharmaceutical technologies and that the countries which contribute to R&D resent those which do not. But efforts to calm the resentment and promote new technology should focus on the issue of R&D spending rather than measures to increase the monopoly power exercised by the multinational drug companies. I recommended that the Argentines adopt a policy of patent protection with compulsory licensing (which requires a patent holder to license the patent to another producer in exchange for a reasonable royalty), in combination with a national R&D royalty, collected from all drug sales, that would be reinvested in R&D projects through the Argentine universities, in a manner similar to U.S. government support for university research. This proposal was warmly received, and there was considerable interest in the development of a program that would allow the country to develop and control its own domestic R&D programs, allowing the country to direct resources to such ailments as Chagas' disease, a painful and often fatal disease that afflicts an estimated 1 to 2 million persons in Latin America. Even if the World Trade Organization (WTO), the successor to the General Agreements on Tariffs and Trade (GATT), begins operation in July 1995, as scheduled, there still may be room for countries like Argentina to pursue innovative intellectual property systems, such as the one I suggested or others. Adrian Often, from the GATT secretariat, explained the provisions of the new GATT that related to compulsory licensing. At the Bariloche forum, I asked Often if GATT would prevent a country from developing a program that would allow a drug company to choose between a system of monopoly patents and price controls, which is clearly legal under GATT, and a system of non-exclusive compulsory licensing. By making the company choose between price controls and non-exclusive licensing, it might not be considered "compulsory" by the WTO. Otten said he did not have an opinion on the legality of such a program. - J.L.