Intellectual Property in the Context

of the WTO TRIPS Agreement:

challenges for public health
 MINISTER OF HEALTH
Humberto Costa

PRESIDENT OF OSWALDO CRUZ FOUNDATION

Paulo Marchiori Buss

DIRECTOR OF NATIONAL SCHOOL OF PUBLIC HEALTH

Jorge A. Z. Bermudez

COORDINATOR OF NUCLEUS FOR PHARMACEUTICAL POLICIES

Jorge A. Z. Bermudez
 Intellectual Property in the Context
of the WTO TRIPS Agreement:
challenges for public health

EDITORS:
Jorge A. Z. Bermudez
Maria Auxiliadora Oliveira

WHO/PAHO Collaborating Center for Pharmaceutical Policies

National School of Public Health Sergio Arouca
Oswaldo Cruz Foundation

S ALU
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Rio de Janeiro, September 2004

Copyrigth © 2004 ENSP/WHO – Oswaldo Cruz Foundation – FIOCRUZ, Jorge A.Z.
Bermudez.

No part of this publication may be reproduced, stored in a retrieval system, or

transmitted in any form or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without prior permission of the National School of Public
Health Sergio Arouca.

ISBN: 85-88026-16-3

Cover and Graphic Design: Lucia ReginaPantojo de Brito

English Translation: Laura Anne Krech
Revisions:
Claudia Garcia Serpa Osório de Castro
Gabriela Costa Chaves
Thiago Botelho Azeredo

NOTE FROM THE AUTHORS

This book presents information produced or compiled by Nucleus for
Pharmaceutical Policies professionals and external collaborators regarding the process
of implementation of the TRIPS Agreement in developing countries, focusing on its
implications for public health policies, particularly those related to access to medicines.
Interpretations and views expressed in this publication are solely the
responsibility of the authors, not representing any official or institutional position,
as to the issues here approached.

Center for Scientific and Technological Information/ Library Lincoln de Freitas

Cataloging-in-Publication Data

2004
Center for Pharmaceutical Policies (NAF)/ENSPSA/FIOCRUZ
Av. Brasil, 4036, rooms 915/916
ZIP Code: 21 040 -361, Rio de Janeiro - Brazil
Telephones:+ 55 21 38829023
Fax: + 55 21 22601652
E-mail: [email protected]
Authors

André Luis de Almeida dos Reis

Pharmacist, Master of Science, Doctoral Candidate in Public Health/
National School of Public Health Sergio Arouca (ENSP)/Oswaldo Cruz
Foundation (Fiocruz)
Professor of Pharmacy at the Estácio de Sá University
Researcher, Center for Pharmaceutical Policies (NAF)/ ENSP/ FIOCRUZ.

Carlos Maria Correa

A lawyer and economist from Argentina, Director of the Centre for
Interdisciplinary Studies on Industrial Property and Economics Law,
at the University of Buenos Aires. Member of the WHO Commission
on Intellectual Property Rights, Innovation and Public Health.

Egléubia Andrade de Oliveira

Social Worker, Master of Social Work (UFRJ), Doctoral candidate in
Public Health Health/ National School of Public Health Sergio Arouca
(ENSP)/Oswaldo Cruz Foundation (Fiocruz) and intern at the Center
for Pharmaceutical Policies (NAF)/ ENSP/ FIOCRUZ.

Gabriela Costa Chaves

Pharmacist, Masters candidate in Public Health/ National School of
Public Health Sergio Arouca (ENSP)/Oswaldo Cruz Foundation
(Fiocruz) and intern at the Center for Pharmaceutical Policies (NAF)/
ENSP/ FIOCRUZ.

Germán Velasquez
Economist, PhD in Economy. Coordinator of the Drug Action
Programme/ World Health Organization (WHO).
Jorge A. Z. Bermudez
MD, Master in Tropical Medicine, PhD in Public Health. Senior
Researcher and Director of the National School of Public Health
Sergio Arouca (ENSP)/Oswaldo Cruz Foundation (FIOCRUZ),
General Coordinator of the Center for Pharmaceutical Policies
(NAF)/ENSP/Fiocruz, WHO/PAHO Collaborating Center for
Pharmaceutical Policies, Rio de Janeiro, Brazil.

Maria Auxiliadora Oliveira

MD, Master in Tropical Medicine, PhD in Production Engineering.
Researcher and Assistant Coordinator of the Center for
Pharmaceutical Policies (NAF), National School of Public Health
Sérgio Arouca (ENSP), Rio de Janeiro, Brazil.

Maria Telma Oliveira

Pharmacist, Master of Science from the Chemical Institue of the
Federal University of Rio de Janeiro (UFRJ). Post-graduate
specialization in Medicines and Cosmetics at the National School
of Public Health Sergio Arouca (ENSP), Rio de Janeiro, Brazil.

Rogério Luiz Ferreira

Pharmacist, Post-graduate specialization in Public Health, Masters
candidate in Public Health/National School of Public Health Sergio
Arouca (ENSP)/Oswaldo Cruz Foundation (Fiocruz) and intern at
the Center for Pharmaceutical Policies (NAF)/ ENSP/ FIOCRUZ.

Ruth Epsztejn
Bachelor’s degree in Production Engineering (UFRJ - 1977), Masters
in Production Engineering (COPPE – 1988) and Doctorate in
Production Engineering (COPPE – 1998). Coordinator of the
Production Engineering course at CEFET/RF (1998-2003),
Department Head of CEFET/RJ (1999-2003), CNPq DTI fellowship
recipient for the project “Strengthening Rio’s Metros (Fortale-
cimento da Rio-Metrologia)” from the Rio de Janeiro Technology
Network (2003 until present).
Thirukumaran Balasubramaniam
Graduated from the University of Pennsylvania with a B.A. in
Economics and a Minor in European History. Worked at the
Consumer Project on Technology (CPTech) mainly on issues related
to health care and intellectual property. He then joined the World
Health Organization in Geneva as a technical officer in the
Department of Essential Drugs and Medicines Policy dealing with
access to medicines and intellectual property. After WHO, he worked
at Health Action International in Colombo, Sri Lanka. Currently, he
is CPTech’s Geneva Representative.
Foreword
The Brazilian pharmaceutical market is one of the world’s ten largest
with a yearly income totaling close to US$ 10 billion and characterized by a high
concentration of transnational companies, mainly when segmented by therapeutic
class. Ministry of Health expenditures for four different categories of medicines
represent one tenth of the total market value, equivalent to US$ 1 billion.
Examination of the implications of intellectual property rights on access to
medicines is a recent development in the field of public health Not long ago,
this topic was confined to economists and lawyers specializing in intellectual
property. The 49th World Health Assembly, which was held in May 1996, changed
this by bringing the consequences of globalization and trade agreements on
access to medicines to the forefront. In that year the World Health Assembly
adopted the “Revised Medicine Strategy” resolution to be incorporated into
WHO medicines policy, which included gathering “information on the impact of
the World Trade Organization on national policies for essential medicines”.
Following the adoption of the resolution, WHO’s Essential Medicines Action
Programme developed an action plan with the following points:

1. Identification of WTO agreements related to access to essential

medicines and pharmaceutical policies, with subsequent notification to
Member States of their existence.
2. Study of the implications of globalization on innovation, development,
production, trade and prices of medicines; with the purpose of
identifying possible negative effects that the TRIPS Agreement and/or
other trade agreements have on access to essential medicines.
3. Notification of Member States on the need to adopt measures to
protect public health.

There is no doubt that the adaptation and implementation process of

the TRIPS Agreement has had an impact on the pharmaceutical sector as well as
on access to medicines. Among the consequences, it is important to highlight
the delay in introducing competing generic medicines to the market. In essence,
patent protection creates a monopoly of exploitation rights for the patent owner.
In the case of TRIPS, exclusive exploitation rights extend for twenty years. As
liberal economics has demonstrated, the lack of competition results in a lack of
stimuli to lower prices, which therefore remain high and end up compromising
public policies aiming to expand access to medicines. One cannot ignore the
fact that the extension of monopoly rights for such long periods of time inhibits
local production, even when countries have the industrial capacity.
In Brazil, discussion of the implications that trade agreements have on
public health is firmly established in the government’s agenda and has resulted
in specific actions. I am sure that the countries in this region also welcome
industrial policies that promote social justice and equity for their populations.
The government is taking action to help the pharmaceutical sector
overcome its current external economic and technological dependence through
investments and capacity building, with a special emphasis on the official network
of public laboratories. Also, expansion of access will count on integrated actions
and distribution decentralization. The recently inaugurated Popular Pharmacy
Program (Programa Farmacia Popular do Brasil) represents a further step in the
direction of ensuring access to low cost medicines.
Additionally, we have the fundamental concern of doing our best to
reduce the costs of medicines within our National Health System (Sistema Unico
de Saude). Its mandate include universal access to medicines. Nevertheless, it
is still necessary to continue to thoroughly examine all possible alternatives to
effectively meet social policy needs.
Publications such as this one bring to light background conflicts between
social and economic policies and contribute to inform different groups of persons
in a globalized world who need information to act with caution, maturity and
directed towards the public good. This is not the first, nor the last publication in
this genre. Whether you agree or not with the authors´ positions, these debates
have definitely been inserted into the health agenda. This is, without doubt, the
unquestionable contribution that we would expect from them.

Humberto Costa,
Minister of Health
Brasília, Brazil
Center for Pharmaceutical Policies

The Center for Pharmaceutical Policy (NAF) – since 1998 a PAHO/WHO

Collaborating Centre for Pharmaceutical Policies – is part of the Sérgio Arouca
National School of Public Health, Oswaldo Cruz Foundation, Rio de Janeiro,
Brazil. It is composed of professionals of the highest academic levels in different
fields of knowledge such as Medicine, Pharmacy, Sociology, Social Work and
Biology, with experience in health services and advocacy.
NAF has been working in permanent interaction with the three levels of
government in Brazil, and in constant collaboration and interchange with the
Health Technology and essential medicines programs of PAHO and WHO. Its
global references for planning activities come from the WHO Department of
Essential Drugs and Medicines Policy, PAHO Essential Drugs and Technology
Program, and the Brazilian National Drug Policy.
The Center has been participating in the processes of formulation,
implementation and evaluation of Pharmaceutical Policies in the context of
Health Reforms in the Americas and in Portuguese and Spanish-speaking countries
around the world, development of research and elaboration of documents, books,
and papers; organization of regional courses for policy-makers, meetings, seminars
and other international events, teaching at post-graduate public health courses,
development of collaborative studies at national and regional levels, adaptation
and translation to Portuguese of specific WHO reference documents and
development of activities aiming to improve access to care for PLWHA.
NAF’s initial activities included: participation in the Brazilian National
Drug Policy formulation (1998), coordination of the Essential Drugs List review
in 1998 (published 2000), production of the National Therapeutic Formulary,
2000, evaluation of health programmes such as the National Evaluation of the
Basic Pharmacy Programme, 1998-1999 (Medicines for Primary Health Care),
evaluation of the Pharmaceutical Services in the State of Rio de Janeiro and
Pharmaceutical Services and access to Antiretrovirals in the City of Rio de Janeiro.
Recent activities are the Pharmacological and Clinical Bases for Currently
Used Medicines in Brazil, 2002, support to ANVISA (Brazilian National Regulatory
Agency for Health) for the definition of priorities for generic medicines, seminars,
and a broad range of educational activities in Rational Use of Medicines, translation
of the Teacher’s Guide to Good Prescribing and the 12th Revision of the WHO
Model List of Essential Medicines, development of the Brazilian Hospital
Pharmacies Evaluation (phase I) .
Research and Post-graduate studies and projects include: Overview of
the Brazilian pharmaceutical industry, National Drug Policy in the context of
Colombian Health Reform, Brazilian Hospital Pharmacies Evaluation (phase II),
Evaluation of Pharmaceutical Services in Primary Health Care (Case study), High-
cost drugs in Brazil. Are they Essential Drugs?, Evaluation of mechanisms and
indicators of access to Essential Drugs in Brazil, Financing AIDS care in Latin
American and Caribbean Countries, Monitoring the process of implementation
of the TRIPS Agreement in Latin American and Caribbean countries, Brazil
Pharmaceutical Situation (PAHO/WHO), National Evaluation of the HIV/AIDS
Pharmaceutical Services Program, Development of a Methodology for Monitoring
Medicines Market.
Participation in international initiatives including PAHO-World Bank-IDB
(Shared Agenda): Pharmaceutical Clearinghouse for the Americas, Millennium
Project (UNDP) – Aids, TB, Malaria, and Access to Medicines Task Force, Médecins
sans Frontières: Drugs for Neglected Diseases (DNDi), Management Sciences
for Health (Joint WHO-MSH): Development of a Methodology for Evaluating
Access to Drugs in Developing Countries (SEAM Study), Health Action International
(Joint HAI-WHO): Development and Testing a Methodology for Comparative
Studies on Drug Prices in Developing Countries, WHO: Network for Monitoring
WTO Trips Agreement and the Access to Essential Medicines, Global Fund PSM-
Advisory Panel.
Since 2002 NAF has been hosting the Secretariat of the Global Care
Financing Network for PLWHA, a jointly initiative with UNAIDS and the French
Ministry of Foreign Affairs.
NAF has also undertaken projects of multilateral collaboration, in NDP
with Angola (1998), Honduras (1999), Comparative Drug Prices (Mexico, Brazil,
Argentina), Health Care Financing and Access to Antiretrovirals in Latin America:
case studies of Argentina, Bolivia, Brazil, Colombia and Honduras.
Other relevant recent initiatives include participation in the Brazilian
Transition Government period of 2002: Pharmaceutical Policies Working Group
(including economic regulation and access to medicines), the new structure of
the Ministry of Health (the Secretariat for Health, Technology and Essential
Supplies), advisory activities substantially enhanced with the Ministry of Health,
close interaction and follow-up on cooperation enacted by the Brazilian HIV/
Aids Programme and joint international proposals (TRIPS Agreement monitoring
and Doha Declaration). The NAF coordinator, Dr. Jorge Bermudez, currently Director
of the National School of Public Health has also been actively participating, as
part of t he Brazilian delegation, in the last four World Health Assemblies (2000-
2004) and in the recent meetings of the WHO Executive Board.
Jointly with PAHO and WHO, NAF has organized three international
seminars: The I International Seminar: Medicines in the context of the Health
Reform: Looking for Equity, 1998 (58 participants, 16 countries), The II
International Seminar: Drug Policy, Equity and Access, 2000 (61 participants, 10
countries) and The III International Seminar on Access to Drugs: Fundamental
Right of the Citizen and Duty of the State. 2002 (54 participants, 18 countries).
Jointly with UNAIDS and the French Ministry of Foreign Affairs NAF has also
organized three Satellite Meetings: (1) “Financing Care in Latin America and The
Caribbean: Options for Large-Scale Programs”, Havana, Cuba April 2003; (2)
“Opportunities for Reaching 3 million people with ARV treatment by 2005, Dakar,
Senegal, December, 2003, (3) “From Barcelona to Bangkok: Financing Treatment
and Care to Reach 3 by 5”, Bangkok, Thailand, July, 2004.
The present publication presents information produced or compiled by
NAF professionals and external collaborators regarding the process of
implementation of the TRIPS Agreement in developing countries and its
implications for public health policies, particularly those related to access to
medicines in developing countries.

It intends to be a contribution to health sector professionals´ better

understanding of the WTO TRIPS Agreement and Public Health, especially
regarding the implications for access to c are and to medicines in the
developing world.
Table of Content

Abbreviations and Acronyms ............................................................. 17

Part I – Intellectual Property Rights and Public Health

Chapter 1 – Intellectual Property in the Context of the WTO TRIPS

Agreement: What is at Stake? ......................................................... 23

Chapter 2 – Bilateral Trade Agreements and Access to Essential

Drugs .................................................................................................... 63

Chapter 3 – Ownership of Knowledge-Implications of The Role

of The Private Sector in Pharmaceutical R&D ............................... 71

Chapter 4 – WHO in the Frontlines of the Access to Medicines

Battle: The Debate on Intellectual Property Rights and Public
Health ................................................................................................... 83

Chapter 5 – Effects of the TRIPS Agreement on the Access to

Medicines:Considerations for Monitoring Drug Prices ................ 99

Chapter 6 – WTO TRIPS Agreement Implementation in Latin

America and the Caribbean ............................................................ 117

Part II – Intellectual Property Rights in Brazil

Chapter 7 – Expanding Access to Essential Medicines in Brazil:

Recent Regulation and Public Policies ....................................... 129

Chapter 8 – Brazilian Intellectual Property Legislation ............ 153

Chapter 9 – Pharmaceutical Patent Protection in Brazil: who

is benefiting? .................................................................................. 163
Abbreviations and Acronyms

ABIFARMA – Brazilian Transnational Pharmaceutical Companies Association

ANVISA – National Health Surveillance Agency

ARIPO – African Region Industrial Property Organization

ARV – Antiretroviral

CEME –Central Medicines Agency

CIPIH – Commission on Intellectual Property Rights, Innovation and Public

Health

CL – Compulsory License

CMS – Medicare Centres and Medicaid Services

Conass – National Council of State Health Secretaries

Cptech – Consumer Project on Technology

CUP – Convention of the Paris Union

DCB – Brazilian Non-Proprietary Name

DFID – UK Department for International Development

DSU – WTO Dispute Settlement Understanding

EB – Executive Board

EDL – List of Essential Medicines

EDM – WHO Department of Essential Drugs and Medicines Policy

FARMANGUINHOS – Institute of Technology in Medicines

FDA – Food and Drug Administration

FFOE – College of Pharmacy, Dentistry and Nursing

FTA – Free Trade Agreements

17
FTAA – Free Trade Area of the Americas

FTC – US Federal Trade Commission

FUNED – Ezequiel Dias Foundation

FURP – Foundation for Popular Medicines

GATS – General Agreement on Trade in Services

GATT – General Agreement on Tariffs and Trade

GI – Gastrointestinal

GSK – Glaxo Smith Kline

HAART – Highly Active Antiretroviral Therapy

HAI – Health Action International

HMOs – Health Maintenance Organizations

IMDs – Incrementally Modified Drugs

IMF – International Monetary Fund

INN – International Non-Proprietary Name

INPI - National Institute for Industrial Property

IPR – Intellectual Property Rights

IQUEGO – State Chemical Company of Goiás

IVB – Vital Brazil Institute

LAFEPE – State Pharmaceutical Laboratory of Pernambuco

LAFERGS – Pharmaceutical Laboratory of Rio Grande do Sul

LAFESC – Pharmaceutical Laboratory of Sta. Catarina

LAQFA – Air Force Chemical and Pharmaceutical Laboratory

LEPEMC – Laboratory of Teaching and Research in Medicines and Cosmetics

LFM – Navy Pharmaceutical Laboratory

18
LIFAL – Pharmaceutical Laboratory of Alagoas

LIFESA – State Pharmaceutical Laboratory of Paraíba

LPM – Medicines Production Laboratory

LQFE – Army Chemical and Pharmaceutical Laboratory

LTF – Pharmaceutical Technology Laboratory (UFPB)

Medicines Act – South African Medicines and Related Substances Control

Amendment Act

MoH – Ministry of Health

MSF – Doctors Without Borders (Medicins sans Frontières)

NDAs – New Drug Applications

NDP – National Drug Policy

NGO – Non-Governmental Organization

NIC – Newly Industrialized Countries

NIH – National Institutes of Health

NIHCM – National Institute of Health Care and Management

NME – New Active Entities

NOB – Basic Operational Norm

NSAIDs – Non-Steroidal Anti-Inflammatory Drugs

NUPLAN – Center for Research on Food and Medicines (RN)

OAPI – Organization of Intellectual Property

OECD – Organisation for Economic Co-operation and Development

PBS – Pharmaceutical Benefits Scheme

PFB – Basic Pharmacy Program

PhRMA – Pharmaceutical Research and Manufacturers of America

19
PLWHA – People Living with HIV/AIDS

PMA – Pharmaceutical Manufacturers’ Association of South Africa

Pró-Genéricos – Brazilian Generic Medicines Industry

PTO – US Patent and Trademark Office

R&D – Research and Development

RDS – Revised Drug Strategy

RENAME – National List of Essential Medicines

RPI – Industrial Property Magazine

SADAP – South African Drug Action Programme

SNVS – National Sanitary Surveillance System

SUS – Unified Health System

TRIPS Agreement – Agreement on Trade Related Aspects of Intellectual

Property Rights

TRIPS Council – WTO Council for TRIPS

TT – Technology transfer

UNAIDS – United National Joint Program on HIV/AIDS

UNDP – United Nations Development Program

UNICEF – United Nations Children’s Fund

USTR – United States Trade Representative

Waxman-Hatch Act – US Drug Price Competition and Patent Restoration Act

WB – World Bank

WHA – World Health Assembly

WHO – World Health Organization

WIPO – World Intellectual Property Organization

WTO – World Trade Organization

20
Part I – Intellectual Property
Rights and Public Health
 Chapter 1

Chapter 1
Intellectual Property in the Context
of the WTO TRIPS Agreement:
What is at Stake?

Jorge A. Z. Bermudez, Maria Auxiliadora Oliveira

& Gabriela Costa Chaves

Introduction
The most extensive negotiation round of the General Agreement on
Tariffs and Trade (GATT) was the Uruguay Round, which ended in the signing of
a series of multilateral trade agreements in April 1994, including the Agreement
on Trade Related Aspects of Intellectual Property Rights (TRIPS Agreement).
This Agreement addresses, among others, the subject of patents and establishes
that all Member States of the World Trade Organization (WTO)-created in January
1995-should grant patents for inventions in all technological fields, including
pharmaceutical products and processes.
A patent is considered an instrument of economic policy that, depending
upon the country, can reap benefits or not. It is argued that patents stimulate
investment in scientific and technological development, producing innovations
and benefits for society. In fact, in the last 50 years the development of new
medicines has been highlighted as an important determinant of increasing the
quality of life and life expectancy of large percentages of the world’s population.
However, despite stimulating innovation, patents by their nature create
monopolies, which in turn allow pharmaceutical companies to establish and
implement high prices for a minimum period of 20 years (as established in the
TRIPS Agreement). One consequence is the delay in commercialization of
generic versions of medicines1, which offer more affordable prices especially
for poor populations.

1
The concept of a generic medicine varies among policy agreements and national regulations.
For example, while Brazil, the United States and Canada require a bioequivalence test to
approve generic medicines, most developing countries do not.

23
Bermudez, Oliveira & Chaves

Although access to medicines is the result of many different dimensions,

which range from service organization to patient adherence to treatment,
medicine prices are one of the essential components because they have a
direct impact on affordability for governments and individuals. For this reason,
the implementation of the TRIPS Agreement was discussed and negotiated in
many national and international forums related to public health.
The first time the theme of trade agreements entered into the health
agenda was during the 49th World Health Assembly (WHA) in 1996. Since then,
various governmental, non-governmental and international organizations have
been developing initiatives aiming to maximize the positive effects and minimize
the negative effects of the TRIPS Agreement on access to medicines for
populations in developing and least developed countries.
This chapter discusses aspects of the TRIPS Agreement related to public
health and identifies the principal actors involved in the negotiations and their
interests as well as debates that emerged from the implementation process -
starting in January 1995. It describes the outcomes of several negotiations in
international arenas.
The chapter is organized into six topics. The first two present a
conceptual and brief historical process of the organization of the international
system of intellectual property. The third describes and discusses the principal
characteristics of the TRIPS Agreement, pointing out the mechanisms and
flexibilities that can favor drug policy implementation. The fourth and fifth
topics describe, from a historical perspective, the debates and negotiations about
the implications of the TRIPS Agreement on public health, which have been on
going since 1995. Relevant actors and interests involved are also described, as
well as their achievements. For the section on final considerations, the authors
reflect upon the challenges that will be faced by these different actors in the
coming years.

Intellectual Property and Industrial Property: from the Paris

Convention to WIPO
Intellectual property is a generic expression involving the rights
individuals hold over their own creations, work and production, based on intellect,
talent and skill. Intellectual Property covers two broad areas: Copyright and
Industrial Property. The first area protects literary, artistic, photographic,
cinematographic works and software. Industrial Property is a collective term for

24
 Chapter 1

a set of rights related to an individual’s or company’s industrial or commercial

activities, such as: use of trademark, geographical indications, industrial designs,
patents, layout-designs (topographies) of integrated circuits and protection of
undisclosed information (Bermudez et al., 2000a).
The first Patent Law known in history was approved in 1474, in Venice,
and granted the inventor exclusive rights to produce their invention for a limited
period. Nevertheless, when a new product was placed in the market, it received
insignias, emblems and other identifying marks that permitted merchants to
control distribution of goods and to keep a portion of surplus value generated
by production for themselves. Since the producer, in this context, was unable to
maximize profits, strategies were developed to guarantee control over the product
commercialization chain. Thus the modern trademark system emerged.
After the Industrial Revolution, in the 19th century, international
regulations for Industrial Property arose when manufacturers had already gained
greater control over production and distribution of their inventions through
systems of patents and trademarks. Before the 19th century, no international
system of industrial property existed. Each country had autonomy to define
their legislation. Therefore, an invention under patent protection in one country
could be used by another without violating any laws.
In 1883, several countries (Brazil included) signed the famous Paris
Union Convention (hereafter referred to as Paris Convention) whose three basic
premises operate the International Industrial Property system:

(1) Independence of patents and trademarks2;

(2) Equal Treatment for Nationals and Foreigners3;
(3) Priority Rights4 (Bermudez et al., 2000a).

2
Independence of patents and trademarks means that granting a patent in one country bears
no relationship to granting it in another.
3
In the area of national legislation for Industrial Property, Equal Treatment for Nationals and
Foreigners bars any sort of preferential treatment or discrimination that favors national
interests.
4
The priority rights concept means that parties filing a claim to a patent, utility model,
industrial model or design, or industrial, commercial, or services trademark in one of the
Patent Union countries, or their successors, have the right to file the same claim in other
signatory countries with priority rights under the time frames established by the Convention.
25
Bermudez, Oliveira & Chaves

The signatory countries of the Paris Convention believed that an

international industrial property system would enable the creation of production
centers into different regions of the world. Thus, new technology could be
exploited through the use of qualified local labor and through better access to
raw materials, resulting in quality products at lower prices (Barbosa, 2003).
The Paris Convention, signed in 1883, has been revised eight times:
1886 Rome, 1890-1891 Madrid, 1987-1900 Brussels, 1911 Washington; 1925 the
Hague; 1934 London; 1958 Lisbon; 1967 Stockholm (Gontijo, 2003). This
Convention survived both World Wars as well as the creation of the World Trade
Organization (WTO) in 1995 and presently is in force (Barbosa, 2003).
In 1884, Paris Convention established an international office to conduct
administrative procedures. In 1886, with the Berne Convention in force, -which
had the objective of protecting literary and artistic works-, another international
office was created. In 1893, a merger occurred between these two offices and
resulted in the creation of the Unified Office for the Protection of Intellectual
Property, more commonly known as BIRPI (Bureaux Internationaux Réunis pour
la Protection de la Propriété Intellectuelle). In 1970 the BIRPI gave rise to the
World Intellectual Property Rights Organization (WIPO), headquartered in Geneva
(WIPO, 2003).
After the Second World War, a new global economic order was
established and new international organizations were created. Through
multilateral agreements, these organizations mediated relations between nations.
The International Monetary Fund (IMF) and the World Bank (WB) were both
institutionalized in 1944, and their initial objectives were to manage the
international monetary system and to finance projects that could reconstruct
the economy of European countries devastated by the war. Additionally, it is
important to highlight the creation of the General Agreement on Tariffs and
Trade (GATT) in 1947. The importance of GATT extends beyond that conferred to
a mere treaty; it was a milestone for multilateral negotiations aiming to diminish
international trade barriers.
GATT was not considered an organization; therefore, countries that abided
by the agreement were referred to as contracting parties. They had the following
obligations (1) to concede Most-Favored-Nation5 treatment to all other parties,
5
The Most Favored Nation treatment-existent in the GATT and also incorporated in the TRIPS
Agreement-means that the WTO signatory countries can not give differential treatment to
goods coming from different exporting countries. In other words, any advantage given to a
country’s product should be conceded to all WTO Member States (Velasquez & Boulet, 1999;
Barbosa, 2003).
26
 Chapter 1

(2) to grant tariff concessions to all other parties, and (3) to not take measures
that would result in obstacles to international trade. These measures allowed
the GATT to achieve its objective of “…reducing customs duties and other barriers
to trade and eliminating all discrimination in international trade.” (Velásquez &
Boulet, 1999:10).

It is worth mentioning that the GATT fostered a series of multilateral

trade negotiation rounds, which represented important steps towards organizing
international trade. During the period from 1947 to 1961, the rounds played an
important role in the reduction of custom duties. The Kennedy Round (1964-
1967) led to a further decrease in customs duties and the negotiation of an
agreement on anti-dumping practices. The Tokyo Round (1973-1979), formalized
a series of agreements regarding: (1) technical barriers to trade (2) government
procurement (3) subsidies (4) customs valuation (5) import licenses (6) anti-
dumping practices.

The most extensive negotiation round was the Uruguay Round, which
lasted from 1986 to 1994 and culminated in the creation of the World Trade
Organization (WTO).

From GATT to the World Trade Organization

The 1980s were marked by a new reality of international trade, in which
the GATT rules were no long adequate. After the economic crises of the 1970s,
the world was shaken up by a profound capitalist reform, supported by the
informatics and communications revolution. Therefore, it became possible to
integrate spatially decentralized productive processes. New technology influenced
all economic sectors. For example, it revolutionized the financial system by
enabling simultaneous electronic connections between different markets (Vieira,
1997).

At the same time, privatization, deregulation and increased flexibility

of markets intensified international competition for private capital. In this context,
as Viera (1997) remarked, a new set of phenomena occurred: (1) increasing
unification of national and international finance markets into one source of
rapidly moving capital; (2) accelerated formation of regional economic blocks
(3) transnational mergers and acquisitions; and, (4) the need to coordinate the

27
Bermudez, Oliveira & Chaves

largest national economies, expressed by the creation of the G7. This new
spatial configuration of the world economy came to be known as Globalization.

In the same period, Japan, along with some Asian countries (the New
Industrialized Countries6), gained competitiveness in the field of technology
through clever use of the intellectual property system. Thus, it was possible to
note a considerable loss of technological leadership by the United States that,
as a short term measure, launched a unilateral offensive and imposed trade
sanctions onto countries that did not conform to the parameters they defined
as acceptable (Barbosa, 2003).

The Uruguay Round was organized to discuss issues related to

international trade and, due to pressure from the United States, other areas
such as services and intellectual property rights (IPR) were discussed. This
round stands out from those held previously because of the efforts made to
harmonize national trade policies related to protection of intellectual property.
In practice, this Round affected a series of national economic and trade policies
that define competition rules within countries (Correa, 1997).

It is important to remember that in 1986, when the Uruguay Round

began, the majority of developing countries did not grant patents for
pharmaceutical products. However, over the years this situation changed
substantially within the context of State reform processes, implemented in the
majority of these countries. Changing the rules governing intellectual property
rights was one of the requirements imposed onto developing countries in bi-
lateral trade agreements with developed countries (Tachinardi, 1993; Correa,
1997).

The end of negotiations occurred in April 1994 in Marrakech, Morocco

with the signing of a series of trade agreements to be administered by a new
organization-the World Trade Organization (WTO). This organization began to
function in January 1995, in Geneva, acting as an organ of the United Nations,
counting 147 Member States as of April 2004 (WTO, 2004).

6
There are Asian and Latin American NICs, such as Korea, Taiwan, Singapore, Hong Kong,
Brazil, Argentina and Mexico.

28
 Chapter 1

WTO responsibilities are:

1. Administration of the new multilateral trade agreements;

2. Provision of a forum for fresh negotiations;

3. Settlement of disputes;

4. Surveillance of national trade policies;

5. Cooperation with other international bodies in drawing up of economic

policies at the global level.

Despite also including sectoral or plurilateral agreements, only

multilateral agreements are obligatory for WTO Member States. Besides the
multilateral agreements related to trade in goods are the General Agreement
on Trade in Services (GATS) and the TRIPS Agreement.

Since the WTO was created in 1995, WIPO has no longer been the
principal institution sponsoring discussions and negotiations of agreements on
the subject of intellectual property. Thus, it focuses only on the practical aspects
of implementation of the new system. Nevertheless, there is a movement within
WIPO to maintain its importance, in spite of TRIPS (Gontijo, 2003).

Chart 1 contains summaries of the main differences between the WTO

and the GATT (Velásquez & Boulet, 1999).

CHART 1: Main differences between the GATT and the WTO

GATT WTO
Nature Multilateral agreement, without an It is a permanent institution.
established organizational structure that
counts on an ad hoc secretariat
Mandate The agreement was applied on a The mandates are permanent.
provisional basis.
Scope of rules All norms applied to trade in goods. All agreement norms apply to trade in
goods, services and also aspects of
intellectual property rights related to
trade.
Type of Originally multilateral, but during the The majority of agreements are
Agreements 1980s, a series of optional plurilateral multilateral, and all Member States
agreements were added. must abide.
System for the Slow and susceptible to blockages Fast and automatic, and dispute
settlement of settlement decisions are better
disputes assured.

Source: Adapted from Velásquez & Boulet, 1999.

29
Bermudez, Oliveira & Chaves

The TRIPS Agreement: Principal Characteristics

The TRIPS Agreement is divided into seven parts composed of 73 articles.
Part II contains the most important elements for Public Health, especially in
relation to access to medicines. The matters covered in this section include: (1)
copyright and related rights, (2) trademark, (3) geographical indications, (4)
industrial designs, (5) patents, (6) layout-designs (topographies) of integrated
circuits and (7) protection of undisclosed information (8) control of anti-
competitive practices in contractual licenses.

The TRIPS Agreement defines minimum standards in the field of

intellectual property rights that the WTO Member States must incorporate into
their legislation. More restrictive legislation can be implemented, provided that
such legislation is consistent with the provisions of the TRIPS Agreement, as
stated in Article 1. Two important aspects should be highlighted from this Article.
First, the TRIPS Agreement rules set minimum standards for protection of
intellectual property rights. Second, the Agreement must first be incorporated
into national legislation, before it is enforced at national level (Barbosa, 2002).

Article 7 establishes the objectives of the TRIPS Agreement, emphasizing

that, “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 defines the principles of the TRIPS Agreement, which include

the right of Member States to:

(1) adopt the 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) defend themselves against 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.

Before the TRIPS Agreement, the Paris Convention signatory countries

could opt to extend or exclude patent protection for some technological fields,

30
 Chapter 1

recognizing national autonomy to define the best strategy for social and economic
development. After January of 1995, WTO Member States were required to
comply with TRIPS, which meant granting protection to all technological fields,
except for the exceptions stated in Article 277.

Consequently, countries lost the autonomy to choose the patent

protection regime that would best benefit their social, economic and
technological development. This happened because developing and least
developed countries were obligated to abide by the minimum requirements of
the TRIPS Agreement, which include granting patents for products and
pharmaceutical processes essential for health policy implementation.

The protection of property rights includes: (1) products, (2) processes

and (3) uses. A patent holder is guaranteed exclusive rights of exploitation for
a period of time, a competitive advantage. It is argued that patents provide
incentives for research and development (Barbosa, 2002). However, this occurs
only when the patented product gains market share, which means that research
is mainly driven by market forces (MSF, 2002).

It is important to note that the industries of the chemical and

pharmaceutical sector are most in need of patent protection because their
products are easily copied. Thus, a patent guarantees financial return for
investments in research and development (Sherer & Watal, 2001; Benkimoun,
2002; Mansfield, 1986). However, patents for medicines can be contradictory
in nature, since these products can save lives. In other words, the monopoly
conferred by a patent allows the pharmaceutical industry to establish high prices,
which consequently can affect access to medicines (Oliveira et al., 2004).
According to statements from national drug policy program managers from

7
There are exclusions allowed to patentability for reasons of public order, moral grounds -
including protecting human life or public health, animal or vegetable, or to avoid serious
damage to the environment. Surgical methods- therapeutic or diagnostic- are also excluded,
so are essentially biological processes, plants and animals, except for microorganisms
(Bermudez et al, 2000).

31
Bermudez, Oliveira & Chaves

Latin America and the Caribbean8, prices constitute one of the most significant
barriers to access medicines, especially among the poorest populations. On the
other hand, as described in the CIPR9 report on intellectual property and
development policy (2002), there are technical problems in establishing a causal
relationship between patents and drug prices. According to the authors, prices
are influenced by other conditions such as: purchasing power, existence of
competition, market structure, responsiveness of demand to price, governmental
price controls and regulations (CIPR, 2002). The issue of medicine prices has
been intensely debated in several national and international forums, and as a
result, the subject of trade agreements and public health has been incorporated
into the health agenda (WHO, 1996; WHO, 1999; UN, 2001).

Since the TRIPS Agreement treats medicines as any other good, it can
potentially have a negative impact on access to medicines, especially in
developing and least developed countries (Velasquez & Boulet, 1997; T’Hoen,
2002, Supakankanti et al., 2001; Bermudez et al., 2000a e Correa, 2000).

In order to minimize negative effects of patent protection on access to

medicines, the TRIPS Agreement allows countries to adopt flexibilities and
safeguards to protect public health. Chart 2 presents the main TRIPS Agreement
provisions related to drug policy.

8
In April 2003, in Havana, Cuba the Satellite Meeting entitled, “Financing Care in Latin
America and the Caribbean: Options for large scale programs” took place, during which
some managers of national drug programs for HIV/AIDS treatment in Latin America and the
Caribbean emphasized the importance of price in relation to access. Francisco Rossi,
coordinator of the ARV access program in Colombia, stated that despite the existence of
other determinant factors, price, without a doubt, is the most important factor involved. Price
requires a large portion of resources, which could be utilized for other actions considered
necessary in an integral approach to control the epidemic (Rossi, 2003).
9
The Commission on Intellectual Property Rights (CIPR), created by the United Kingdom
Department for International Development, examined how national IPR regimes could be
better designed to benefit developing countries.

32
 Chapter 1

CHART 2: TRIPS Agreement provisions that favor health policy

implementation

PROVISIONS TRIPS AGREEMENT DEFINITION

ARTICLE

Transition period to adapt national Art. 65 Since January 1995 WTO

legislation to the TRIPS Agreement Member countries have had the
Transitional
following deadlines to modify their
arrangements
national legislation:

Art. 66 1. Developed countries: 1

year until Jan/1996
Least developed
countries 2. Developing countries: 5
years until Jan/2000
3. Least developed countries:
11 years until Jan/2006.

Transition period to recognize patents Art. 65.4 Developing countries have an

in technological sectors not protected additional 5 year period (until
before the TRIPS Agreement. (For 2005) to recognize patents in the
example, patent protection in the above referred to sectors.
chemical sector of various countries.)
Note: The Ministerial Doha
Declaration on TRIPS Agreement
and Public Health (WTO, 2001)
established in paragraph 7 that
least developed countries could
extend the transition period for
pharmaceutical products and
processes until 01/01/2016.

Parallel imports or exhaustion of Art. 6 - “Parallel” imports involve the

rights at regional and/or international import and resale in a country,
Exhaustion of rights
levels. without the consent of the patent
holder, of a patented product
which was put on the market of
the exporting country by the title
holder or in another legitimate
manner
(Correa, 2000:71).

Bolar Exception (early working) Art. 30 Exceptions to This exception allows a company
Rights Conferred to complete all the procedures
and tests necessary to obtain
market approval for a generic
product, before the original patent
expires (Correa, 2000).

Compulsory Licensing Art. 31 Allows exploitation of a patented

object, without patent holder
Other Use Without
consent through government
Authorization of the
authorization, but with
Right Holder
remuneration.

Sources: Velásquez & Boulet (1999), Correa (2000) e Bermudez et al. (2000a).

33
Bermudez, Oliveira & Chaves

As described in Chart 2, the transition period for patent protection in

the pharmaceutical sector could be used so as to permit developing countries
to build local industry. Consequently, countries could be more competitive in
the market, while at the same time diminishing external economic and
technological dependence, a typical characteristic of developing countries’
pharmaceutical sectors (Bermudez, 1995).

It is important to point out that many developed countries only granted

patents for medicines after building their national industries (Bermudez, 1992).
India opted to utilize the full transition period to strengthen local technological
capacity. This has enabled the development and consolidation of infrastructure
for research and development as well as manufacturing capabilities, which has
allowed India to conquer a greater international market share. One important
result of this policy has been the ability to market medicines, such as those
needed to treat HIV/AIDS. These generic versions are available at significantly
lower prices than those offered by patent holding transnational companies in
other countries (Morrison, 2003).

The parallel imports flexibility represents an important pro-competition

tool to promote access to lower-cost medicines. This tool aims to take advantage
of current differential pricing practices used in several countries. There is no
violation of the TRIPS Agreement because the patent holder’s right was already
exhausted in the country where the product was originally commercialized at a
lower price.

In Brazilian patent law, the international exhaustion of rights (parallel

imports) is allowed under compulsory licensing, as established in article 68 of
Law #9.279/96 (Brasil, 1996) and in article 10 of Decree #3.201/99 (Brasil, 1999).
The 1999 Decree regulates when and how a compulsory license can be issued
in the case of national emergency or public interest. In 2003, some of these
articles were modified by Decree # 4.830/03 (Brasil, 2003). The new version of
article 10 changed the rules related to parallel imports. After issuing a compulsory
license, Brazil can import the protected invention from any country where the
invention has already been put on the market by the patent holder or with the
patent holder’s consent. The new version of article 10 now permits importation
of the invention from a country where it is not under patent protection. In
practice, this permits importation of products from countries that are still using

34
 Chapter 1

the transition period to grant patents for pharmaceutical products and process,
such as India.

The Bolar exception allows immediate marketing of generics after patent

expiration, thus promoting competition with the innovator medicine, which can
lower prices. As stated by Creese & Quick (2001) competition is probably the
most powerful policy instrument for the reduction of drug prices, when the
patent has already expired. In the United States, when a patent expires and
there exists just one competitor, the average wholesale price drops to 60% of
the reference drug price, and when there exists 10 competitors, the price falls
to 29%. For example, Canada has extensively used this provision for decades to
strengthen its national technological capabilities and industrial base to produce
generic drugs, consequently increasing access to medicines for its population
(Reichman & Hasenzahl, 2002).

Compulsory licensing (CL) is considered an essential element of health-

sensitive industrial property legislation, especially if the country does not have
strong anti-trust legislation like the United States. A CL is an important tool in
public policy for all WTO Members because it promotes competition, facilitates
reduction of prices and compensates the patent holder for use of the invention
(CIPR, 2002; NIHCM, 2002; Abbott, 2002). The grounds for issuing a compulsory
license under TRIPS Agreement are described in Chart 3.

35
Bermudez, Oliveira & Chaves

CHART 3: Grounds for issuing a compulsory license

GROUNDS FOR ISSUING A DEFINITION
COMPULSORY LICENSE

Failure to exploit or exploit on A CL can be issued when a patent has not been locally exploited
reasonable terms within a period of three years from the date of its original
concession.
Public Interest A CL can be issued when public interests prevail over the individual
interests of the patent holder. Public interest does not necessarily
have to be at the national or federal level, it could come from any
sphere of government. This condition is consistent with article 31 of
the TRIPS Agreement and can be applied in situations that fit the
principles established in article 8.
National Emergency A CL can be issued to respond to a national emergency, whether it
is public or collective interest.

Remedy Anti-Competitive A CL can be issued to remedy anti-competitive practices, such as

Practices cartels and dumping.

Failure to obtain license under A CL can be issued when voluntary permission has not been
reasonable terms obtained to exploit the patent.
Lack of Local Production According to article 5 of the 1967 Stockholm version of the Paris
Convention, lack of local production can be grounds for issuing a
CL (this issue is further discussed in the next section)

Dependent Patent When there is an intermediate product or process that is patented

and essential to produce the licensed invention, then, it is
necessary to issue a CL for the intermediate product or process
(dependent patent).

Source: Adapted from Correa, 2000; Barbosa, 2003.

The power of CL can be illustrated by the Brazilian example. In 2001,

Brazil threatened to use the CL mechanism in order to obtain price reductions
of four antiretroviral medicines (ARV), (Bermudez & Oliveira, 2002). It is important
to highlight the role played by the public pharmaceutical laboratories, which
have been essential for the implementation of national drug policy in Brazil
(ALFOB, 2002). In the price negotiations mentioned above, involving the Brazilian
government and three transnational pharmaceutical companies (Merck & Co,
Inc., Roche and Abbott), the Instituto de Tecnologia de Fármacos/Oswaldo Cruz
Foundation/Ministry of Health (Farmanguinhos) was able to provide reference
prices to the Ministry of Health. Also, Farmanguinhos has the capacity to reverse
engineer some patented ARVs. Therefore, the government was able to threaten
to issue a CL in the case of a deadlock. The negotiation resulted considerable
price reductions: 64.8% for Indavir, 59% for Efavirenz, 46% for Lopinavir/ritonavir

36
 Chapter 1

and 40% for Nelfinavir, thereby allowing sustainability of the national AIDS
program10.

In 29th October 2003, the Malaysian Government issued a Compulsory

Licence to import the following antiretrovirals from the Indian company CIPLA:
didanosine 100 mg and 25 mg tablets; zidovudine 100mg capsule; lamivudine
150mg+zidovudine 300mg tablet. In 5th April 2004, Mozambique also issued a
Compulsory Licence (01/MIC/04) to the company Pharco Mozambique Ltda.,
which presented a project for local production of a triple compound of lamivudine,
stavudine and nevirapine.

In the past decades, the United States and Canada have frequently
used compulsory licensing in different technological fields, including drugs. The
Canadian case is particularly emblematic because its extensive use of compulsory
licensing for drugs led to the development of a domestic generic drug industry
(Reichman & Hasenzahl, 2002).

For the health sector, it is particularly important to analyze the reforms

of intellectual property legislation. This is because these regulations define
patentable subject matter, exceptions to exclusive rights and flexibilities and
safeguards applied in the pharmaceutical industry and other health technologies.

According to Correa (2000), health-sensitive industrial property law must

include all flexibilities and safeguards allowed under TRIPS, for example, inclusion
of international exhaustion of rights (parallel imports), Bolar exception as well as
many conditions which allow a compulsory license to be issued. It is also
important that countries use the full transition period for legislation reform. The
incorporation of TRIPS flexibilities and safeguards are not mandatory but are
essential to minimize negative impacts on health policy from patent protection.
As stated by the author, legislation sensitive to public health needs enables
governments to act efficiently in national emergencies and in situations involving
public interest.

Thorpe (2001), Keyla (2003) and Oliveira et al. (2004) analyzed industrial
property legislation of WTO Member States in Africa, Asia and Latin America and

10
A similar process of price negotiations for three ARVs has just ended (2003). In 2003,
these ARVs were responsible for 63% of the Ministry of Health’s ARV expenditures, close to
US$120 million.

37
Bermudez, Oliveira & Chaves

the Caribbean. These three studies examined the incorporation of the TRIPS
Agreement provisions into national IPR legislation. The countries studied were:
Argentina, Brazil, Mexico, the Andean Community (Bolivia, Colombia, Ecuador,
Peru and Venezuela), Honduras, Panama, the Dominican Republic, India,
Indonesia, Thailand, Sri Lanka, Member States of the African Intellectual Property
Organization (Benin, Congo, Guinea, Nigeria, Burkina Faso, Ivory Coast, Equatorial
Guinea, Mali, Chad, Central African Republic, Gabon, Mauritania, Togo) and
Members of the African Regional Industrial Property Organization (Botswana,
Lesotho, Somalia, Uganda, Gambia, Malawi, Sudan, Zambia, Ghana, Mozambique,
Swaziland, Zimbabwe, Kenya, Sierra Leone, Tanzania). The results demonstrated
that these countries did not fully incorporate all the TRIPS flexibilities and
safeguards, which could enable them to achieve better public health outcomes.

The TRIPS Agreement and the global health agenda: who are the actors
involved?
The 49th World Health Assembly (WHA) in 1996 was the first health
related event in which the potential consequences on access to medicines
from globalization and international trade agreements were discussed. In same
year, WHO Medicines Strategy Resolution mandated the WHO to report on the
impact of the work of the WTO with respect to national drug policies and essential
drugs and make recommendations for collaboration between WTO and WHO,
as appropriate. Consequently, the WHO Action Programme on Essential Drugs
developed a strategic plan with the following objectives:

(1) To identify issues related to access to essential medicines and

pharmaceutical policy within WTO Agreements and to inform the
Member States;

(2) To study the implications of globalization on innovation, as well as

development, production, marketing and medicine prices, aiming
to identify potential impacts of the TRIPS Agreement and other trade
agreements on acccess to essential medicines;

(3) To inform Member States about the necessity to adopt measures to

protect public health.

38
 Chapter 1

The resolution provided WHO with the mandate to examine, through a

public health lens, the new framework of the multilateral trade system after the
establishment of the WTO (as stated in Chapter 4). Then, in 1997, the WTO
launched its first publication on the TRIPS Agreement and Public Health —
Globalization and Access to Drugs – which contained information to advise
Member States how to implement the TRIPS Agreement in a way that maximizes
benefits and minimizes negative impacts on access to medicines (Velasquez &
Boulet, 1999).

This publication contains a brief history about international trade rules

and provides guidance for policymakers from the health sector-who generally
do not have a background in legislation of intellectual property rights-about the
potential impact of the TRIPS Agreement on public health and access to
medicines. Authors identified and described the flexibilities and safeguards of
the TRIPS Agreement that could be implemented by Member States in
order to protect public health as well as promoting access to medicines for
their populations.

The publication was well received by representatives from developing

countries and public interest non-governmental organizations involved in the
international debate on access to medicines. However, it received bruising criticism
from the Pharmaceutical Research and Manufacturers of America (PhRMA) and
the United States government who argued that the publication was misleading
and clearly biased. They stated that this document encouraged both piracy of
patented medicines and inadequate protection of intellectual property rights in
the pharmaceutical sector by WTO Members States (Velásquez, 2003).

Facing criticism, the WHO contracted an external group of specialists to

revise the publication. In 1999, a new version containing a number of essentially
editorial corrections was published, which corroborated the points of view and
the interpretations made by the authors in the first edition.

In 1999, the 52nd WHA approved WHA Resolution 52.19 Revised Drug
Strategy (RDS), which mandated the WHO to monitor trade agreements and
their implications on public health, especially the WTO TRIPS Agreement. This
resolution was approved after almost three years of controversial discussions.
For example, during the 51st World Health Assembly in March 1998, the proposal
(EB101.R24) had been rejected because it included questions related to trade

39
Bermudez, Oliveira & Chaves

agreements and public health. Instead, the Assembly opted to send the proposal
back to the Executive Board, which then formed an ad hoc working group to
examine its most controversial points11

A lengthy process of discussion and consultation began, culminating

with the development and approval of the WHA Resolution 52.19 at the 52nd
World Health Assembly in 1999. The resolution emphasized that trade issues
require examination from a public health perspective and also recognized that
the TRIPS Agreement provides flexibilities and safeguards to protect health.

The resolution takes into account the concerns of many Member States,
particularly developing countries, about the potential negative impacts of
international trade agreements on local capacity, production and access to
medicines. Therefore it is recommended that the Member States should: (1)
ensure that public health interests will prevail over commercial interests, in the
development and implementation of national drug policies; (2) explore and
revise the flexibility and safeguard options in trade agreements, aiming to
guarantee access to essential medicines.

This resolution requested the Director General to cooperate with Member

States in monitoring and analyzing international trade agreements in order to
develop policies and regulatory measures capable of maximizing the positive
effects and mitigating the negative impacts of trade agreements (WHO, 1999).

One result was the creation of the WHO Network for Monitoring the
Impact of the TRIPS Agreement and Globalization on Access to Medicines,
composed of four WHO collaborating centers in pharmaceutical policy, clinical

11
The three most controversial points of the Resolution EB 101.R24 were:
“… (b) the new global agreements related to trade could have a negative impact on the
capacity of local production and on access and price of medicines in developing
countries.....[preamble].
1. Member States are urged:
. . . (2) to affirm that public health should prevail over commercial interests, in health and
pharmaceutical policy...
2. To request to the Director General:
. . . (6) to cooperate with Member States in the analysis of agreements that were supervised
by the World Trade Organization and their implications on public health and the pharmaceutical
sector and to cooperate with the development of appropriate policies and regulatory
measures.” (PAHO, 1998).

40
 Chapter 1

pharmacology and health economics12. The Network’s main objective is to

develop, test and implement a methodology to monitor the impact of the TRIPS
Agreement on access to medicines (WHO, 2001a). As part of this strategy, the
following publications have already been released: Supakankunti et al. (2001),
Bermudez et al. (2000a) e Oliveira et al. (2004).

Other important actors participating in the debate of trade agreements

and public health are public interest NGOs, especially Doctors Without Borders
(MSF), OXFAM, Health Action International (HAI), Consumer Project on Technology
(Cptech) and Act Up.

In March of 1999, Cptech, HAI and MSF held a meeting to discuss the
use of compulsory licensing as a strategy to expand access to ARV medicines
(T’Hoen, 2002). In 2000, they organized a conference entitled, The Amsterdam
Conference on Increasing Access to Essential Drugs in a Globalized Economy,
which included the participation of 350 persons from 50 countries. During the
conference, “The Amsterdam Statement” letter of commitment was drafted,
whose directives provide guidance for NGOs and other actors involved in the
TRIPS Agreement and Public Health debate (T’Hoen, 2002). Other NGOs, such
as OXFAM (Cut the Cost campaign), the Treatment Action Campaign from South
Africa (TAC) and Act Up entered into the discussion later.

The 1999 United Nations Development Program (UNDP) Report on

Human Development addressed the issue of the TRIPS Agreement and access
to medicines. This was the first time that the United Nations took a position on
this subject. This report pointed out the potential downsides of the new intellectual
property system for developing and least developed countries. For example,
the proposed modifications to IPR legislation required by TRIPS can be so
restrictive that they go against national interests. For developing
countries, the costs of maintaining this type of patent system outweigh the
benefits (T’Hoen, 2002).

12
WHO Collaborating Centers are responsible for the collection of data in their respective
geographical regions: Department of Health Economics, Faculty of Economics from the
University of Chulalongkorn – Thailand (Asia); National School of Public Health, Oswaldo
Cruz Foundation-Brazil (Latin America and the Caribbean); London School of Economics –
United Kingdom (Europe).

41
Bermudez, Oliveira & Chaves

Then, the United Nations Sub-Commission on the Promotion and

Protection of Human Rights published resolution 2000/7 on Intellectual Property
and Human Rights (UN, 2000). This resolution declares that a conflict exists
between the TRIPS Agreement and International Human Rights Law: “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”.

In 1999, during the 3rd WTO Ministerial Conference in Seattle, the

Joint Program of the United Nations on HIV/AIDS (UNAIDS) highlighted the
risks that policies and international trade agreements could have on access to
goods and services essential for the prevention and treatment of HIV/AIDS.
UNAIDS also supported: (1) differential pricing for HIV/AIDS related products —
like condoms and pharmaceutical products; (2) reduction or elimination of
customs tariffs for products related to the prevention or treatment of HIV/AIDS;
(3) measures to promote generic drug competition and using the Bolar exception;
and (4) using compulsory licensing.

In 2001, during the 54th World Health Assembly, Brazilian representatives

criticized the methodology used in The World Health Report 2000 Health Systems:
Improving Performance (Almeida et al, 2001; Noronha, 2001). Additionally,
because Brazil was a part of the WHA Executive Board during 2001, they pushed
the issue of national drug policies, which was not included in the WHA agenda,
into the discussion “Strengthening Health Systems”. After bitter clashes, the
WHA Resolution 54.11-WHO Medicine Strategy was approved (WHO, 2001b).
The impact of trade agreements on access to medicines is mentioned several
times and the resolution reaffirms the WHA request that the WHO Director
General should continue to analyze the impacts of trade agreements on health.

The resolution, in addition to previous WHO Revised Medicine Strategy

resolutions, urged Member States to cooperate with respect to Resolution 2001/
33 of the United Nations Commission on Human Rights. The latter recognizes
that access to medicines in the context of pandemics such as HIV/AIDS, is a
fundamental element to obtain the human right of enjoying the highest attainable
level of physical and mental health.

42
 Chapter 1

In 2002, since the issue of national drug policies was included in the
55th World Health Assembly agenda, the Brazilian delegation presented a proposal
for resolution, which received support from various other countries. After arduous
discussions the proposal entitled, “Ensuring the Accessibility of Essential
Medicines” was approved. This new Resolution mentioned the recently approved
Doha Declaration on the TRIPS Agreement and Public Health, and also reaffirmed
the previous year’s resolution, which highlighted the need to examine the impact
of international trade agreements on access to medicines. The Resolution also
calls attention to the relationship between access to medicines and the recent
changes in intellectual property legislation of Member States, in order to comply
with the TRIPS Agreement (WHO, 2002).

The 56th World Health Assembly was held in May 2003, and one of the
most polemic issues originated from a proposal formulated by the Brazilian
Delegation, which also received the support from various developing countries.
After one week of intense debates, Resolution WHA 56.27-Intellectual Property
Rights, Innovation and Public Health- was approved by consensus (WHO, 2003).
An important result of this resolution was the establishment of the Commission
on Intellectual Property Rights, Innovation and Public Health (CIPIH). The
Commission is composed of ten high level technical members who began
activities in April 2004 (WHOa, 2004). The 57th World Health Assembly in May
2004 increased the Commission’s mandates, and in 2006 they will present a
final report.

The theme of intellectual property and access to medicines was discussed

during the World Health Assembly in 2004 through Resolution WHA 57.14 Scaling
up treatment and care within a coordinated and comprehensive response to
HIV/AIDS (WHOb, 2004).

The TRIPS Agreement and the Doha Declaration: what are the interests
at stake?
The first episode of clashes between pharmaceutical patent holders
and government authorities, who are responsible for implementing access to
medicines policies, occurred in 1998. After President Mandela signed the South
African Medicines and Related Substances Control Amendment Act (Act. 90/
1997), the Pharmaceutical Manufacturers’ Association of South Africa together

43
Bermudez, Oliveira & Chaves

with 39 transnational pharmaceutical industries filed a lawsuit against the

Government of the Republic of South Africa in the High Court of Pretoria alleging
that these changes violated the TRIPS Agreement and the South African
Constitution. The litigation procedures resulted in an immediate suspension of
the Amendment.

The Amendment Act was entirely consistent with the TRIPS Agreement
provisions: it created a legal framework aiming to increase the availability of
lower-cost medicines in the country. The main components of this Act that were
questioned by the pharmaceutical companies were: (1) generic substitution for
drugs with expired patents; (2) the establishment of a committee to regulate
medicine prices transparently; (3) incorporation of the exhaustion of rights
mechanism at the international level (parallel imports); and (4) establishment of
an international competitive tendering system to assure provision of medicines
for the country.

The litigation against South Africa included governments from other

countries, such as the United States and the European Union, headquarters to
the pharmaceutical company litigants. Together, they threatened to instate trade
sanctions if South Africa did not revoke the Amendment, which damaged the
commercial interests of their industries. Other actors were involved in this
conflict, among those, representatives of the international campaign of access
to medicines, particularly from the NGOs mentioned previously. NGOs played
a decisive role in mobilizing public opinion against the United States, whose
position centered upon defending the commercial interests of its companies
without considering the impact on human rights. For example, due to pressure
from NGOs during the United States Presidential campaign, the US government
was forced to reverse its position against South Africa13.

In April 2001, after three years of clashes and intense international

pressure, the litigants were obliged to withdraw their lawsuit against South Africa.
This happened for two reasons in particular: first, the litigants lacked technical
arguments since the amendment did not violate the TRIPS Agreement in any

13
In December 1999, after numerous protests, the United States government withdrew South
Africa from the 301 Watch List, where countries that have violated trade rules are placed.
(Benkimoun, 2002).

44
 Chapter 1

way and second, the pharmaceutical companies lost government support from
the US and Europe. Harvey E. Bale, president of the International Federation of
Pharmaceutical Manufacturers (IFPMA), stated that the pharmaceutical companies
originally benefited from the support of the US and European governments.
However, once the litigation process commenced, political support disappeared
due to the general backlash that arose, which radically changed the original
political context (Benkimoun, 2002). One of the principal arguments used by
activists was that 400,000 people died of AIDS during the suspension of the
amendment, because they could not afford to pay for treatment.

This episode was groundbreaking for the following reasons:

1. It contributed to the debate on the public health implications of the

TRIPS Agreement in different international forums. This clash exposed
the tensions that exist between the interests of patent holders and the
right to life of millions of sick people;

2. It demonstrated the importance and necessity of international activism.

NGOs organized rallies in the US and Europe, to stop their governments
from supporting the litigating pharmaceutical companies. These actions
caused the US government to reevaluate and change their policies on
issues related to trade and public health;

3. The United Nations Organizations, particularly UNAIDS and the WHO,

demonstrated their relevance as supranational mediators in conflicts of
interest.

During the WTO 3rd Ministerial Conference in Seattle, which took place
from November 30th through December 3rd in 1999, some WTO Members
(European Union, Hungary, Japan, Korea, Switzerland and Turkey), proposed the
exclusion of patentability for all medicines on the WHO Essential Medicines List,
or, that developing countries could issue Compulsory Licenses for these medicines.
It was hoped that this measure could provide an incentive for patent holders to
license their products locally, under appropriate conditions, in order to make
these drugs available at reasonable prices (WTO, 1999).

However, this proposal did not increase access to medicines in

developing countries; on the contrary, it might limit the use of Compulsory
Licensing to only a few patented products on the WHO Essential Medicines List.

45
Bermudez, Oliveira & Chaves

At this time, only 11 of the 306 medicines on the list were patented (T’Hoen,
2002).

During the Seattle Ministerial Conference, President Clinton announced

changes to United States policy on intellectual property rights and access to
medicines. Due to the pressure from NGOs and international public opinion,
the American government decided that the US Trade Representative (USTR)
together with the Department of Health and Human Services, would establish
new processes and guidelines to analyze questions related to health and
Intellectual Property Rights.

In February of 2001, the United States took action against Brazil at the
WTO Dispute Settlement Body, alleging that article 68 of the Brazilian Industrial
Property Law (9279/96) violated the TRIPS Agreement. Article 68 establishes
that the lack of local production of the patented product is ground to issue a
compulsory license.

The United States argued that this paragraph of Brazilian law violated
articles 27.114 and 28.l1 of the TRIPS Agreement. The Brazilian government
defended itself arguing that its industrial property legislation does not interfere
in any way with the provisions of the TRIPS Agreement. Article 68 had been
formulated based on Article 5(2) of the 1967 Paris Convention, which states:
each country of the Union can adopt legislative measures, such as compulsory
licensing, to prevent abuses resulting from exercising exclusive rights conferred
by the patent, which include the lack of exploitation.

There are contradictions implicit in the TRIPS Agreement and this has
generated controversy amongst experts in the field of intellectual property rights
(Correa, 1996; Barbosa, 1999). Article 27.1 prohibits any type of discrimination as
to the place of invention, the field of technology and whether products are
imported or locally produced. However article 2.1 allows Member States to
abide by the clauses described in article 1 through 12 and 19 of the 1967 Paris
Declaration.

14
Article 27.1 of the TRIPS Agreement establishes that: “… 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.”

46
 Chapter 1

Why is the local exploitation of a patent important? According to Gontijo

(2003), when a country grants exclusive rights to exploit an invention it has to
receive something in return. From this perspective, there are two kinds of
benefits: the first and most common is the disclosure of the invention. This
allows a country to increase local knowledge and to reduce the time spent on
research, as long as the invention is marketed only after patent expiration. The
second benefit is local production.

It is important to mention that industrialized countries like the United

States, England, France and Germany all required local exploitation of foreign
patents in order to develop local production capacity, thereby increasing the
capabilities of their manufacturing industries. Therefore, the greatest benefit a
country can obtain from a foreign patent is its local production. If not, these
inventions merely become instruments of the market, favoring importation,
which leads to trade imbalances (Gontijo, 2003).

In June 2001, to de-escalate the tense situation between the United

States and Brazil, Brazil agreed to sign a bilateral agreement with the US as long
as the action against Brazil was withdrawn from the WTO Dispute Settlement
Body. The US withdrew the action after intense international pressure from
NGO activists, who argued that an unfavorable decision for Brazil could negatively
impact the continuity of the National AIDS Program. This Program guarantees
universal access to care for PLWHA (law 9.313/96) and is considered an example
for other developing countries.

Another important step occurred in February 2001 when the European

Union adopted the Action Programme to Accelerate the Fight Against HIV/
AIDS, Tuberculosis and Malaria. This Program inspired debates and resolutions
in the European Parliament to recognize potential problems between the TRIPS
Agreement and access to medicines, as well as highlighting the need for a new
equilibrium and redefinition of priorities (EU, 2001; T’Hoen, 2003). In June
2001, on the wave of a large global movement for access to medicines, New
York was host to the United Nations Special Session on HIV/AIDS, which produced
the Declaration of Commitment on HIV/AIDS (UN, 2001). Governments of 189
countries committed to implement integral programs composed of national
and international actions to combat the HIV/AIDS epidemic, demonstrating that
care, including access to medicines, support and prevention are indivisible

47
Bermudez, Oliveira & Chaves

components for an effective response. The Declaration establishes a number

of specific goals and targets that include:

(1) Reduction in transmission of the virus in children and adolescents;

(2) Improving HIV/AIDS education;

(3) Guaranteeing access to care including treatment;

(4) Improving support for orphans

The Declaration also mandated that the United Nations General Assembly
dedicate at least one day each year to evaluate the progress and implementation
of the established goals (UNAIDS, 2003).

To achieve the goal of guaranteeing access to care and treatment for

PLWHA, the Declaration established article 55, that urges countries, “to cooperate
constructively in strengthening pharmaceutical policies and practices, including
those applicable to generic drugs and intellectual property regimes, in order
further to promote innovation and the development of domestic industries
consistent with international law.”

In April 2001, a group of African countries, known as the African Group,

brought up the need to include the access to medicines debate into the TRIPS
Council agenda15. This request was based on the immense crisis of the HIV/
AIDS epidemic on the African continent16 and also due to pressure from
transnational pharmaceutical companies and developed country governments.

In June, a Special Session of the TRIPS Council was held about intellectual
property and access to medicines. This reunion was a milestone in the history
of the multilateral trade agreement system because it marked a change in the

15
The TRIPS Council meets every three months to discuss different controversial and ambiguous
issues related to the TRIPS Agreement. Separate Councils exist to discuss the other WTO
agreements. What is discussed in these Councils is reported to the WTO Council General.
These discussions become part of the agenda for the WTO Ministerial Meetings, which
occur every two years.
16
In December 2000, WHO and UNAIDS estimated a total of 36.1million people living with
HIV/AIDS in the world (UNAIDS, 2001). Of these, more than 95% were living in developing
countries in Africa, Latin America, Asia and Eastern Europe. The largest number of cases,
25.3 million (70%), occurred in sub-Saharan Africa. Not only do these statistics show the
seriousness of the HIV/AIDS pandemic, but also the dramatic and radically unequal geographic
and social distribution of the disease.

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 Chapter 1

WTO paradigm, recognizing that intellectual property rights were neither absolute
nor superior to other fundamental rights (Velásquez, 2003).

In the Special Session, Zimbabwe, on behalf of the African Group,

formulated a proposal urging WTO Member States to issue a special declaration
affirming that none of the TRIPS Agreement provisions should impede Member
States from taking the necessary measures to protect public health.

In September, the TRIPS Council dedicated one full day to discuss access
to medicines. The African Group, with the support of 19 other countries,
presented a draft of the Ministerial Declaration on the TRIPS Agreement and
Public Health. This draft reinforced the idea that the TRIPS Agreement should
not limit the autonomy of Member States to formulate their own public health
policy. Developed countries such as the United States, Japan, Switzerland, Australia
and Canada prepared an alternative draft, emphasizing the importance of
intellectual property protection for research and development. This draft intended
to limit the use of TRIPS Agreement flexibilities to special situations of crisis or
national emergency (T’Hoen, 2002).

In November, during the Fourth WTO Ministerial Conference in Doha,

Qatar, the development of poor countries was discussed (WTO, 2002). An
important result of this Conference was the Doha Declaration on the TRIPS and
Public Health, which is considered a victory for developing and least developed
countries, principally because it recognizes the countries’ autonomy to implement
the TRIPS Agreement in the best possible way for public health.

The Doha Declaration recognizes the gravity of the public health crises
that affect the majority of developing countries, especially HIV/AIDS, tuberculosis
and malaria, among others. The Declaration also reflects developing countries’
concerns related to the TRIPS Agreement and public health.

The conditions that facilitated issuing the Declaration were: (1) the
mobilization of developing countries, who acted together in a block; (2) the
strong pressure from international NGOs and public opinion expressed in the
media; (3) the fact that the United States and Canada had threatened to
issue a compulsory license against the German company Bayer, the
producer of ciprofloxacin, during the anthrax scare and its use in biological
terrorism (T’Hoen, 2002).

49
Bermudez, Oliveira & Chaves

The majority of developing countries and the generic pharmaceutical

industry received the Declaration with enthusiasm. Since then, developing
countries have achieved greater freedom to incorporate and utilize the TRIPS
Agreement flexibilities to increase access to care for their populations. For the
generic industry, the Declaration was an important advance because it reinforced
each country’s right to incorporate all TRIPS flexibilities, such as establishing the
grounds to issue a compulsory license and freedom to use the Bolar exception.

This enthusiasm was not shared by the transnational pharmaceutical

industry, which reacted to the Declaration with the following arguments:

(1) patents are not the principal barrier to access to medicines in poor
countries — the lack of organized health care systems and national
wealth are the principal barriers to access (Attaran & Gillespie-White,
2001);

(2) weakening patent protection could have a negative effect on

research and development of new drugs Bale (2002).

(3) India, China and other developing countries were able to increase
market share by selling copies of patented drugs to countries without
technological capacity, who had issued compulsory licenses.
Transnational pharmaceutical companies are concerned that the
generic industries of these countries will prioritize their commercial
interests above the necessity for innovation (Bale, 2002).

Regarding access to medicines, Velásquez et al. (chapter 4) stated that,

“the Doha Declaration recognizes that medicines are not just another commodity
and may be differentiated from other inventions in order to protect public
health”. Paragraph 4 of the Declaration reaffirms the principles expressed in
article 8 of the TRIPS Agreement and emphasizes that access to medicines is an
important component of health policy:

“ 4. We agree that the TRIPS Agreement does not and should not
prevent members from taking measures to protect public health.
Accordingly, while reiterating our commitment to the TRIPS
Agreement, we affirm that the Agreement can and should be
interpreted and implemented in a manner supportive of WTO
members’ right to protect public health and, in particular, to

50
 Chapter 1

promote access to medicines for all. (bold text emphasis of the

authors). In this connection, we reaffirm the right of WTO members
to use, to the full, the provisions” in the TRIPS Agreement, which
provide flexibility for this purpose.

Paragraph 5 establishes how certain rules and flexibilities of the TRIPS

Agreement could be interpreted under the Declaration. For example, for
developing countries, the compulsory licensing mechanism is an important
instrument to achieve some health policy objectives, such as guaranteeing access
to medicines for all by purchasing copies of patented medicines at lower prices
(Correa, 2002). Sub-paragraph 5.b states that, “each Member has the right to
grant compulsory licenses and the freedom to determine the grounds upon
which such licenses are granted”. This is important because the majority of
developing and least developed countries are more vulnerable to pressures
from the developed countries with whom they have entered into bilateral and
regional trade agreements. These agreements intend to enforce more restrictive
trade rules than those already established in TRIPS Agreement17.

The question of issuing a compulsory license in countries without

technological capacity for local production went without a solution for almost
two years. Paragraph 6 of the Declaration mandated that the TRIPS Council
would find an expedited solution by December 2002.

The lack of technological capacity for local production was a barrier to

issue a compulsory license, because TRIPS Agreement article 31(f) establishes
that production under a compulsory license should be destined to supply
predominantly to the licensee’s domestic market. Therefore, countries that
could produce licensed medicine were not allowed to export to countries that
did not have local manufacturing capacity.

This issue was discussed and negotiated in different forums, including

various TRIPS Council meetings, for almost two years. A solution that fully
satisfied all parties involved in the debate was extremely difficult to find
(T’Hoen, 2002).

17
The second draft of the Free Trade Area of the Americas (FTAA) contained more restrictive
provisions than the TRIPS Agreement. For this reason, any more restrictive trade agreement
is referred to as TRIPS-plus.

51
Bermudez, Oliveira & Chaves

What were the interests at stake? How was it possible to find a solution
that, on the one hand, increased access to medicines, while on the other hand
attended to the interests of the transnational pharmaceutical industry, including
profits on investments in research and development? According to Pascal Lamy,
the Trade Commissioner of the European Parliament (letter January 11, 2003),
these concerns expressed by the transnational pharmaceutical industry were
exaggerated because, “…if the poor countries are unable in any case to buy the
medicines, where are the lost profits for the industry, where is the opportunity
cost, where is the problem?” This means that the majority of countries without
manufacturing capacity are so poor that they do not participate in the global
pharmaceutical market, hence, they do not contribute to the generation of
profits18. In conclusion, mechanisms that guarantee access to medicines for
poor populations will not interfere or diminish the financial return of the
pharmaceutical industry.

In order to preserve the interests of the transnational pharmaceutical

industry, any mechanism to promote access must be transparent, including
notification procedures and safeguards against diversion (re-exportation). The
possibility of re-exportation exists for a medicine that is imported under
compulsory licensing to countries where this drug is marketed at a higher price.

The solutions proposed for the paragraph 6 problem included: (1) the
United States proposed a moratorium19 for AIDS, tuberculosis and malaria and
eventually a limited list of infectious diseases; (2) the European Union proposed,
through the use of Amendment 196 (Directive 2001/83/EC), a “suspension” of
article 31 (f) of the TRIPS Agreement, “in cases which the drug is exported to a
third country, that has issued a compulsory license, or one in which it is not
protected by patents”; and (3) the proposal from the Mexican Ambassador
Eduardo Perez Motta 20.

According to IMS estimates for 2002, the pharmaceutical market generated 406 billion
18

dollars, of which 80% come from the United States, Europe and Japan. The remaining 20%
came from the other parts of the world home to 80% of the planet’s population.
19
The United States promised not to go to the WTO Dispute Settlement Body when a country
without the technological capacity issues a compulsory licence for drugs used to treat AIDS,
tuberculosis and malaria.
20
For a detailed discussion of the legal mechanisms available for a solution to paragraph 6 of
the Doha Declaration see Correa, 2002 and Abbot, 2002.

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 Chapter 1

After three months of debates and negotiations, the TRIPS Council

meeting was held in December 2002 in Tokyo. In this meeting the proposal
developed by the Mexican Ambassador Eduardo Perez Motta -president of the
TRIPS Council- was rejected. The proposal included the following components:
(a) Definition of a Pharmaceutical Product; (b) Geographic Coverage (definition
of countries eligible to import and export); (c) Transparency (notifying the TRIPS
Council and putting all information about the process on the website); (d)
Safeguards to prevent trade diversion (making the information public in regards
to the amount of medicines necessary, special packaging as well as administrative
and legal measures); (e) Legal Mechanisms (waiver of article 31 (f) of the TRIPS
Agreement for the exporting country21 and a waiver of article 31 (h) for the
importing country; (f) transfer of technology and capacity building in the
pharmaceutical sector (encouraging cooperation between exporting and
importing countries); and (g) the decision would be in force until an amendment
to article 31 of TRIPS resolves the problem of countries without technological
capacity.

The majority of country representatives and interest groups present at

the meeting harshly criticized Ambassador Perez Motta’s proposal. A coalition
of NGOs developed a document asking the delegates to reject Motta’s proposal.
They argued that the proposal: (1) ambiguously defines a pharmaceutical product
(2) limits the use of compulsory licensing in the importing countries (3) creates
excessive safeguards to prevent against diversion (re-importation) (4) requires
both the importing and exporting countries to issue compulsory licenses (5)
does not permit the use of one of the authorized interpretations of TRIPS article
30; and (6) does not consider the generic industry interests (CPTECH et al.,
2002). In addition, the United States, pressured by a strong transnational
pharmaceutical industry lobby, vetoed Ambassador Perez Motta’s text, alleging
that the scope of diseases defined was too large (T’Hoen, 2003).

Aiming to re-open negotiations, in January 2003, Commissioner Pascal

Lamy developed a proposal that increased the list of diseases22 contained in the
United States proposal and introduced the WHO as an intermediary consultant

21
A Waiver is a legal mechanism that permits the suspension of legislation, or parts of it, or
its effects, for a limited time.

53
Bermudez, Oliveira & Chaves

(South Centre, 2003). However, the proposal did not include other important
public health problems, such as infectious and non-infectious diseases prevalent
in developing countries, for which patented medicines exist. It was argued that
the lists were developed on the basis of commercial criteria rather than public
health needs.

According to an analysis in the South Centre Bulletin no. 59 (2003), all

proposals would create two different systems: (1) for countries with technological
capacity, they would have the freedom to issue compulsory licenses at any
given time and (2) for countries without technological capacity, they would be
subject to additional, more restrictive conditions and lose the autonomy to
define what is a public health problem.

On August 30th, 2003, the TRIPS Council published the Decision (IP/C/
W/405) entitled, “Paragraph 6 implementation of the Doha Declaration on the
TRIPS Agreement and Public Health” (WTO, 2003). This decision, launched on
the eve of the 5th WTO Ministerial Conference in September in Cancun, Mexico,
was identical to Ambassador Eduardo Perez Motta’s proposal the year before.
Chart 4 describes some important points of the Decision.

22
The diseases covered under the Lamy proposal are the following: HIV/AIDS, malaria,
tuberculosis, yellow fever, plague, cholera, meningococcal diseseas, African tripansomiasis,
dengue, influenza, leishmaniasis, hepatitis, leptospirosis, pertussis, polio, shistosomiasis,
typhoid fever, measels, dysentery and arboviruses.

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 Chapter 1

CHART 4: Key points of Decision IP/C/W/405, August 30th, 2003.

DEFINITION AND CHARACTERISTICS

Any patented product or product that was manufactured through a

PHARMACEUTICAL patented process in the pharmaceutical sector necessary to attend to
PRODUCT public health problems. Also included are active ingredients for
manufacturing as well as diagnostic kits necessary for product use

Any least developed Member country or any other country that has
notified the TRIPS Council of its interest in using the system as an
MEMBER COUNTRY importer. The Member should notify the Council at any time if it will us
IMPORTER the system in full or in a more limited manner. Some Members cannot
utilize the system as importers and others can use it only in cases of
national emergency or other circumstances of extreme urgency.

The country that utilizes the established system in the Decision to

MEMBER COUNTRY
produce pharmaceutical products for export to designated importer
EXPORTER
Member countries.

Waiver of article 31 (f) of the TRIPS Agreement

Article 31 (f) of the TRIPS Agreement establishes that the objective of
production done under a compulsory license should be to
predominantly supply the internal market. This article should be
temporarily suspended so that the exporting country can produce drug
for the importing country.
LEGAL MECHANISM When an exporting Member country issues a compulsory license unde
the system established in this Decision, the patent holder should be
adequately remunerated according to what is established in Article 31
(h) of the TRIPS Agreement. When a Compulsory License is issued fo
the same products in the importing country, the obligation established
in article 31 (h) should be suspended for these products because the
exporting country already completed remuneration.

The importing country should send a notification letter to the TRIPS

Council with the following information:
Name and quantity of the products needed;
Proof that it is a Least Developed Country and that it does not have the
capacity to produce the products in question;
Confirmation that a Compulsory License will be or already was issued;
The exporting country should issue a compulsory license that agrees to
the following conditions:
CONDITIONS FOR Only the quantity established by the importing country can be produced
IMPLEMENTATION under this license;
The products produced under this license should be clearly identified
with specific labeling, to show that production was done through the
decision s established mechanisms;
The suppliers should distinguish these products from others through
different packaging, colors and forms.
Before sending the products to the importing country, the licensee
should release the quantity and characteristics of the product that will
be supplied on a website. Additionally, the exporting country should
notify the TRIPS Council that a Compulsory License has been issued.

To make sure that imported products

under the system defined in this decision
DIVERSION are used for public health, the importing
(RE-EXPORTATION) country should take certain security measures.
The measures taken should be proportional to
the country's administrative capacity and to
prevent re-exportation of the imported product.

55
Bermudez, Oliveira & Chaves

International NGO representatives responded to the Decision with

criticism and highlighted the following points, where were consistent with their
position adopted the year before (FLECK, 2003):

1. The implementation procedures for compulsory licenses are

slow, bureaucratic and increase administrative costs, which
consequently increase drug prices;
2. Poor countries of Africa, Asia and Latin America have to go
through unnecessary red tape to prove that they do not have
manufacturing capacity;
3. The bureaucratic procedures dissuade generic drug producers,
because they generate investment risks;
4. The requirement for different packaging can increase medicine
production costs.

Despite the criticisms, the August 30th Decision may be considered a

feasible solution at the present moment for countries without the technological
capacity to produce the necessary medicines. However, the challenge remains
to implement the Decision in a way that promotes access to medicines for
populations in developing countries and least developed countries.

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EU (European Union), 2001. Access to medicines for AIDS patients in the Third World.
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NORONHA, A. B., 2001. Relatório sobre a Saúde do Mundo 2000: o estopim da bomba.
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Chapter 2

Bilateral trade agreements

and access to essential drugs

Germán Velásquez

Thanks to bilateral trade agreements (or free-trade agreements - which

go under the acronym FTA), Latin America may well export far more flowers, at
the risk of finding itself without a single flower for the graves of those who will
die from the lack of essential drugs. During the last three years, the developing
countries have won one battle in the field of health, in the framework of the
multilateral trade negotiations within the World Trade Organization (WTO).
However, the bilateral trade agreements between the United States of America
and Costa Rica, Central America, Morocco, Chile, Jordan, Singapore and Sri Lanka
to name but a few, unfortunately seem to mark a step back. Not only do they
undermine the progress made, they also seek to subject the health sector to a
ruthless commercial rationale under which rights, values and principles are
bartered just like textiles, computers or bananas. From the commercial angle,
anything is negotiable, item for item. From the angle of public health, access to
health care and to drugs are rights, and rights are not negotiated for merchandise.

The justification for “globalizing” drug patent standards, which is required

by TRIPS, is that it represents a means of ensuring the continuity of research
and development - R&D - into new products, which is largely in the hands of the
private sector. According to this line of argument, research is highly expensive
and the 20-year patent guarantees a monopoly, making it possible to recover
and remunerate expenditure on research. In accordance with the WTO TRIPS
Agreement, the Members of the Organization are required to provide a minimum
of 20 years’ protection for drug patents. This 20-year monopoly prevents
manufacturers of generics from producing the drugs for this period, thus

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preventing free competition, which in the last 50 years has significantly brought
down the price of drugs. This system of research and development into new
products, which is based on a commercial monopoly, keeps prices high and
prevents most of the products developed from becoming immediately available
to most of the people who need them.

It was four years before the developing countries discovered and

achieved recognition for the exceptions for which the TRIPS Agreement makes
provision in order to protect public health, and access to drugs in particular. At
the November 2001 Ministerial Conference at Doha, these rights were ratified
under pressure from the developing countries, who were united by the dramatic
health situation caused by epidemics such as AIDS and many other diseases
which may be prevented or cured with regular access to drugs. Over the last
three years, the debate within the multilateral trade system has come to accept
that the right to health ranks above commercial obligations. The discussion
centred on the primacy of health and the possible exceptions that could be
made. Tensions between health and trade appeared to abate; however, the
requirements of the bilateral agreements -FTA- in respect of health-related
intellectual property rights have now called into question a step forward which
the international community had seemingly accepted and ratified. Many bilateral
or regional trade agreements have sought to include measures relating to
intellectual property that go beyond the requirements agreed upon in TRIPS:
extension beyond 20 years of the validity of patent protection, restrictions on
the possible use of exceptions such as so-called compulsory licences1 or parallel
imports2 to protect health. As a rule, there is a tendency to restrict the rights
acquired through multilateral negotiations within WTO by means of bilateral
agreements in which bargaining power is dramatically unbalanced and unequal.

1
Compulsory licenses are authorizations that States may grant to third parties allowing them
to use a patented drug without the consent of the patent holder in cases where a patent is not
worked, health emergency or other circumstances which a country’s legislation may define.
2
Parallel imports, which are authorized by TRIPS in conformity with the principle of international
exhaustion, are made when drugs protected by patent are imported, without the intervention
or authorization of the patent holder, in order to benefit from the lowest prices at which the
drugs have been legitimately sold in another country.

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We shall now take a detailed look at the progress achieved, in what

areas it has taken place and what has been won during the last three years, in
order better to understand what is being lost or what we stand to lose.

For the first time in the fifty five years since the present international
trade system -GATT and WTO- came into being, the November 2001 Ministerial
Conference in Doha gave special treatment to medicines and adopted a declaration
on the TRIPS Agreement and public health. It was recognized and affirmed that
a medicine capable of preventing disease and death or restoring health is not
simply another item of merchandise. The possibility of accepting that the debate
on access to life-saving medicines is not a legal and commercial issue, but an
issue of human rights and ethics was agreed upon. Some were so bold as to
launch the idea that medicines are a global public good. As Carlos Correa has
observed (Correa, 2002), the Doha Declaration represents, rather than the end
of a process, the initial step for rethinking the TRIPS Agreement in light of the
public interest; however, the FTA may dash the hopes raised by Doha.

The step taken at Doha is particularly important bearing in mind the

contradictions that are appearing within the system of R&D for new
pharmaceuticals; the purpose of patents is to enable research, but the fruit of
the research is not available to all. Obviously, research and development of new
drugs have to be preserved, as long as they are capable of saving lives as soon
as they have been developed. During the last 20 years, hardly any research has
been conducted to develop drugs for ailments such as Chagas’ disease,
leishmaniasis, schistosomiasis or sleeping sickness which affect millions of people
in the developing countries.

The current drug R&D system offers no transparency as regards the

actual cost of research, the way prices are set, how research priorities are
determined or the attempts made to surround with a cloak of confidentiality
the data in the health register, which should be in the public realm.

This latter issue - exclusive protection of data - merits special attention

because, as Carlos Correa has stated, it may seriously undermine the flexibility
authorized by TRIPS: the inclusion in FTA of the obligation, which is not required
by TRIPS, to grant an exclusive period of protection for the test data submitted
for marketing approval of pharmaceuticals. Article 39.3 of TRIPS prohibits solely
the unfair commercial use of the confidential information submitted, whereas

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 Gérman Velásquez

the FTA would prevent a second applicant from availing itself of the approval
granted to the party which submitted the information. Acceptance of this demand
would signify that for five, eight or ten years, depending on the conditions
accepted by each country, the national health authorities would be unable to
base themselves on prior registration to approve a similar pharmaceutical. As
Correa has noted, this will squeeze competitors’ products out of the market,
with inevitable consequences on drug prices.

The drug R&D system, which is founded uppon a commercial model

whose basis is the monopoly afforded by patents, could find itself in a severe
crisis in the next few years. The crisis would affect not only the developing
countries, where the system is incapable of responding to current problems
such as, for example, access to ARV, but also the developed countries. For this
reason, suggestions are being made in some quarters for alternative and
innovative mechanisms and solutions as a way out of what is a seemingly vicious
circle. The challenge is to come up with global solutions that are sustainable in
the long term.

Innovative solutions offering alternatives and ways of improving the

current system are what are expected of the independent Commission on
Intellectual Property Rights, Innovation and Public Health (CIPIH), recently
established by WHO. The role of this Commission is inter alia to consider the
importance and effectiveness of i ntellectual property regimes and other
incentive and funding mechanisms in stimulating research and the creation of
new medicines.

This is a particularly complex problem in which actors, interests and

views of very diverse nature and origin interact; this calls for a comprehensive
and multidisciplinary approach to the topic. The vision needs to reconcile existing
international law and the various domestic legal regimes and to permit the
operation of trade to be combined with respect for human rights.

The first requirement is to rationalize the system and to define priorities

for research and development of new drugs on the basis of the actual health
needs of people rather than of potential markets, as is the case today. Secondly,
research should first and foremost be public and not private. How is public-
sector research to be funded? There are a number of paths that should be
explored a little further:

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 Chapter 2

part of the taxes raised on tobacco and alcohol, as is the case in Thailand;

a tax on global sales of medicines;

a tax on drug advertising, on which billions of dollars are currently spent
or invested;

a tax on drug wholesalers;

a tax on gambling and lotteries;

the Tobin tax on international financial transactions, as has been proposed
by Canada, UNDP and Enrique Iglesias, President of IDB; 0.5% raised by
means of an international agreement, the revenue from which would be
used to finance research and development of new products which would
immediately be marketed without patent protection and whose price
would not include the cost of R&D, which would have already been
covered by other means;

medicines were afforded special status and treatment at Doha; why should
special treatment not be reserved for R&D into new drugs?

Shouldn’t research in areas of interest to human life be considered a
public good?

Shouldn’t governments meet the cost of clinical trials, which are extremely
expensive and which at present have to be paid for by private industry,
which incorporates the cost into research costs, thus passing it on to the
price of the drug. Shouldn’t clinical trials to develop new drugs be
considered a public good? Isn’t it true that there is growing distrust
about manipulation of the results of trials by the pharmaceutical industry,
which designs, conducts, supervises and pays for them? Just over one
year ago, in a joint editorial, the editors of the world’s main scientific
journals expressed their concern about the manipulation of trials and of
their results.

As W.K. Farlow of Oxford University has pointed out, whatever option,

or combination of options is adopted, the new sources of funding will need to:

generate large enough volumes of funds;

be less costly and more efficient than previous sources of funding;

guarantee stability over the medium and long terms.

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 Gérman Velásquez

It would be neither reasonable nor sensible to forcefully prolong, by

means of a bilateral trade agreement, a system which is manifestly on the verge
of a crisis. It is highly perilous to argue, in countries where mechanisms for
redistributing national wealth are weak or non-existent, that so long as the trade
balance is positive and exports increase three fold, then it matters little if the
cost of medicines doubles. This also holds for countries where reimbursement
of medicines has not yet fully become one of the services to which citizens are
entitled. In 90% of the developing countries, medicines are paid for directly by
patients, who are not reimbursed by some form of social security, as is the case
in the industrialized countries. The unavailability of drugs may jeopardize the
health systems which, with great difficulty, many countries have been building
for a number of years.
According to a study carried out by Chaves (2004) from the Social
Security Fund in Costa Rica, where 100% drug coverage has been achieved by
means of State procurement of generic products, if it were impossible to purchase
generics, coverage would extend only to 19% of the population. The same
study showed that expenditure on ARV, which currently amounts to 5.9% of
total expenditure on drugs, would rise to 15% if generics became unavailable.
However, not only the developing countries are affected. “For how
long will it be possible for the health systems of the industrialized countries to
bear the cost of reimbursing medicines, with the arrival, for example, of new
drugs to treat cardiovascular diseases and cancer, or of the drugs that will be
developed and patented, thanks to research carried out using public funds, into
the human genome, and of the range of treatments connected with an ageing
population?”(Velásquez, 2003)
In the United States of America, forecasts by the Medicare centres and
Medicaid Services (CMS) show that national expenditure on health is set to
double (from US$ 1 400 to 2 800 trillion) between 2001 and 2011 (Heffler et
al., 2002). According to CMS, expenditure on pharmaceuticals will increase three-
fold between 2001 and 2011, rising from 142 to 414 billion dollars. The dilemma
for private insurers will be whether to reduce coverage or to increase premiums.
In many European countries, expenditure on drugs as a proportion of
health expenditure is significantly higher than in the United States, currently
around 10%. By comparison it is 17% in France, 16.3% in Belgium, 17.1% in
Greece and 12.8% in Germany. It is from the countries of Western Europe which,

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 Chapter 2

despite the ultra liberalism of the Thatcher years, have managed to preserve
access to health as a public right, that future solutions will come.

If the World Health Organization were called on to write a prescription

for the FTA epidemic, what would it prescribe? The best remedy, as the Alma Ata
Declaration recognized, is prevention. It could provide immunization against
FTA in the form of a political decision which might read something like this:

“Anything which might undermine the right of access to medicines

and to health care IS NOT NEGOTIABLE and is to be excluded from any
trade agreement”. To put it in words is easy; putting it into practice is another
matter; everything will depend on the political courage, conviction and capacity
of our present governments to avoid selling off access to health care for future
generations in exchange for selling more flowers, whose cost will be measured
in lives.

Bibliographic References

CHAVES, A., 2004. Generic drugs policy and access to drugs. (Lecture given in Lima,
Peru on 30 January)
CORREA, C. M., 2002. Implications of the Doha Declaration on the TRIPS Agreement
and Public Health. Health Economics and Drugs, EDM Series No. 12. Geneva:
WHO. WHO/EDM/PAR/2002.3
HEFFLER, S.; SMITH, S.; WON G.; CLEMENS, M. K.; KEEHAN, S. & ZEZZA, M., 2002. Health
Spending Projections for 2001-2011: The latest outlook. Health Affairs, Mar/Apr,
207-218.
VELÁSQUEZ, G., 2003. Hold-up sur le Médicament. Le profit contre la santé. Unhealthy
profits. Le Monde Diplomathique, juillet 2003, pages 1, 26 et 27. 27 Jan 2004
<http://www.monde-diplomatique.fr/2003/07/VELASQUEZ/10226>

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 Chapter 3

Chapter 3
Ownership of knowledge-
implications of the role of the
private sector in
pharmaceutical R&D

Carlos María Correa

Governments are responsible for a significant portion of global research

and development (R&D) spending. However, since the 1980’s, a steep decline in
the share of government funds for R&D is a trend common to all major
industrialized and many other OECD countries. While in the mid-1980s, an average
of 45 percent of those countries’ R&D funds were from government sources, by
1998 this figure had fallen to less than one-third. This trend does not reflect a
reduction in total R&D expenditures, but a change in its composition: the private
sector has a growing role in the creation of knowledge, including basic science1 .
In the largest OECD countries (with the exception of Italy), the private sector
performed between 62 and 70 percent of total national R&D (National Science
Board, 2002).

Private and public sources also coexist in pharmaceutical R&D. The

division of labor in pharmaceutical R&D between the public and private sectors is
related, at least in principle, to the nature of the knowledge that is fostered
(Macroeconomic Commission, 2001). In most cases, the discovery of

1
Though only about 1% of the industry’s R&D budget is channelled into academic research, an
increasing proportion ( from 2,6% in 1981 to 6,4% in 1998) of such research is financed in
OECD countries by industry (National Science Board, 2002). However, private industry invests
the largest part of global funds for pharmaceutical R&D. Unlike the public sector, the industry’s
research agenda is dominated by profit making objectives. Most of industry’s R&D concentrates
on applied research and development, though funds are also devoted to basic research. In
1999, for instance, 24,5% of R&D spending was on basic research in UK, 36% in the USA and
18,4% in Canada (Patented Medicine Prices Review Board, 2002).

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Carlos Maria Correa

important new drugs is made by public institutions, which later license their
development and exploitation to private firms. Some 70% of drugs with therapeutic
gain were produced with government involvement (UNDP, 1999). Basic research
that led to the discovery of potential “drug leads” has almost always been publicly
funded at universities, in-house government facilities, or research institutes in
Europe, North America, and Japan. Since the beginning of the 20th century,
publicly funded research has led to major drug lead discoveries in, for example,
tuberculosis, other infectious diseases and cancer. More recently, publicly funded
research has led to the discovery of anti-retrovirals for the treatment of HIV/
AIDS. Publicly funded genome research has also produced many drug leads
(MSF, 2001). In the United States, the federally funded biomedical research
supported by the National Institutes of Health (NIH) plays a vital role in new drug
development, feeding into the R&D activities of the private pharmaceutical industry
that operates under patent protection (Macroeconomic Comission, 2001).

In addition to this direct and important contribution, many developed

countries’ governments grant tax credits and other incentives for R&D [1]. Subsi-
dies for pharmaceutical R&D are available in many developed countries, and are
permissible, under certain conditions, under the WTO agreements. The US
government, for instance, paid for the initial development, preclinical research,
and clinical research of many important drugs, including many used for cancer
and HIV-related diseases.

Given the objectives and nature of the industry’s activities heavily rely
on the acquisition and enforcement of patents worldwide. A common belief is
that patents are normally acquired to protect new drugs, and thereby recover
the substantial R&D investments made for increasing the range of available
therapies. But the number of patents annually obtained to protect genuinely
new pharmaceutical products is very small and declining, whereas thousands of
patents are applied or granted for pharmaceutical-related inventions. Patents are
growingly acquired in relation to “upstream” inventions, that is, scientific discoveries
rather than specific technical solutions. This kind of patenting detracts from public
domain knowledge that could be used downstream by many researchers to
explore multiple inventive opportunities; it deprives society of the benefits that
the widespread use and dissemination of basic scientific ideas could generate

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(Macroeconomic Commission, 2001). The problems raised by this form of

privatization of science have been addressed by an extensive literature (Barton,
2002; Eisenberg, 2001). Patents, on the other hand, are ordinarily acquired for a
myriad of follow on, merely incremental or minor developments. This article
examines the patterns of appropriation of innovation in pharmaceuticals, and
how patents are often used as strategic tools to block or delay generic competition.

Innovation in pharmaceuticals

Today’s technological advances in pharmaceuticals lay the basis for

tomorrow’s innovations, which in turn lay the basis for a next round, and so on.
Developments are susceptible of further changes and improvements, by the
original inventor or by others (Merges & Nelson, 1996). Innovation in this sector
follows, hence, an essentially “cumulative” model of innovation2 .

Innovation in pharmaceuticals rely increasingly on the knowledge gleaned

from preceding innovations and on generally available techniques (Long, 2000).
Like in other sectors, innovation “has shifted away from models based on absolute
novelty and first improvement towards a model in which innovation is no longer
driven by technological breakthroughs but by the routine exploitation of existing
technologies” (Foray, 1992).

Many of the new chemical entities of pharmaceutical use do not entail

a genuine therapeutic progress; they are “me-too drugs” developed as a result of
the great deal of emulation of successful drugs undertaken by rival companies”
(Casadio Tarabusi & Vickery, 1998). Pharmaceutical innovation also includes a
large number of improvements on or minor changes to existing drugs, and the
identification of new uses of known products. Incremental innovation is often
motivated by the objective of extending the commercial benefits derived from
existing products, particularly when original patents expire and new patents may
be used to prolong market exclusivity.

2
As opposed to the “discrete” model, where the prospects of variations and improvements
of inventions are substantially bounded.

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Carlos Maria Correa

According to a Report of the National Institute for Health Care and

Manegement (NIHCM), from 1989 to 2000, the FDA approved 1,035 New Drug
Applications (NDAs). Of these, a third (35%) were products with new active
ingredients, or NMEs. The other 65% used active ingredients that were already
available in a marketed product. Over half (54%) were incrementally modified
drugs (IMDs), or new versions of medicines whose active ingredients were already
available in an approved product. The rest (11%) contained the same active
ingredient as identical marketed products (NIHCM, 2002).

Priority NMEs, the most innovative type of new drugs, were rare in the
12-year period 1989–2000. Just 153 or 15% of all new drug approvals were
medicines that used new active ingredients and provided significant clinical
improvement. Drugs providing moderate innovation comprised another 28% of
approvals. 57% of approvals were for drugs showing only modest innovation, at
best. Of these, 46% made some modification to an older product containing the
same active ingredient, while the remaining 11% were identical to marketed
products. As a result, the NIHCM reports, priority NMEs contributed little to the
increase in new products, and most growth came from products that did not
provide significant clinical improvement, especially modified versions of older
drugs (NIHCM, 2002).

Patenting cumulative innovations

The cumulative nature of innovation has important repercussions on

the patent system. Though theoretically conceived to reward inventions marked
by considerable originality, the patent system is plagued with grants covering
incremental, minor, in some cases trivial, developments. They are not the product
of inventive efforts, but rather the outcome of “taking a speedy path down a trail
that was obvious to many” (Merges & Nelson, 1996:128). This kind of invention
constitutes today the subject matter of the bulk of patents grants. In 2001, the
United States Patent and Trademark Office granted over 171.000 patents, almost
twice the number granted ten years before. This increase cannot be simply
attributed to an increase in R&D productivity, but to the flexibility of the patent

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system to permit the protection of follow on and other developments (Barton,

2000:1933-1934).

Moreover, there is increasing evidence about poor patent quality3 . “Non-

obviousness” or “inventive step” (one of the key patentability requirements) is
assessed against a standard4 that many follow on and routine innovations do not
find difficult to meet. In addition, under patent law a claimed invention is presumed
patentable, unless examiners can prove otherwise. “The procedures to evaluate
patent applications”, notes the US Federal Trade Commission (FTC), “seem
inadequate to handle this burden5 . The patent prosecution process involves only
the applicant and the PTO. A patent examiner conducts searches of the relevant
prior art…with only the applicant’s submissions for assistance” (FTC, 2003). Such
searches in most cases only include prior patents, and not books and journals.
For this reason, the UK Royal Society has come up with the recommendation
that “novelty searches should be broader, including the journal and trade literature
as well as patents and patent applications” (The Royal Society, 2003). These
problems are faced even in large patent offices, like the US Patent and Trademark
Office (PTO), which operates with a staff of more than 6.0006 and collects more
than $ 1 billion in fees annually (GAO, 2002).

Large firms have rapidly learned how to exploit the pro-patent

presumptions and the shortcomings in the examination process. They apply
different strategies to offensively use patents as means to encumber or block
potential competitors. Thus, “blanketing” strategies aim at turning an area into a

3
A poor-quality patent is one that is likely invalid or contains claims that are likely overly broad
(FTC, 2003).
4
Based on the fiction of what a “person with ordinary skill in the art” would have been able to
derive from prior art.
5
The rules applied in patent procedures tend to favor the issuance of a patent. According to
testimonies collected by FTC, “if the examiner does not produce a prima facie case of
obviousness, the applicant is under no obligation to submit evidence of nonobviousness.” In
addition, “office personnel must treat as true a statement of fact made by an applicant in
relation to the asserted usefulness of the invention, unless counteravailing evidence can be
provided that shows that one of ordinary skill in the art would have a legitimate basis to doubt
the credibility of such a statement.” Likewise, “there is a strong presumption that an adequate
written description of the claimed invention is present when the application is filed.” (FTC,
2003).

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Carlos Maria Correa

jungle or a minefield of patents, for example, “mining” or “bombing” every step

in a manufacturing process with patents claiming minor modifications. “Fencing”
refers a situation where a series of patents, ordered in some way, block certain
lines or directions of R&D. “Surrounding” takes place “when an important central
patent, especially a strategic patent, can be fenced in or surrounded by other
patents, which are individually less important but collectively block the effective
commercial use of the central patent, even after its expiration. Often, surrounding
patents pertain to different applications of a basic invention (Granstrand,
1996).“Flooding” is based on the acquisition of many patents on minor on
incremental variations on technology developed by another company (Sankaran,
2000).

Glasgow (2001) identifies five main ways that pharmaceutical firms

employ to artificially extend the patent life of their drugs: (a) using legislative
provisions and loopholes to apply for a patent extension; (b) suing generic
manufacturers for patent infringement; (c) merging with direct competitors as
patent rights expire in an effort to continue the monopoly7 ; (d) recombining
drugs in slightly different ways to secure new patents and layering several patents
on different aspects of the drug to secure perennial monopoly rights; and lastly,
(e) using advertising and brand name development to increase the barrier to
entry for generic drug manufacturers (Glasgow, 2001)

The application for and acquisition of patent rights over minor

pharmaceutical developments is, thus, one of the strategies used to preserve
and expand market dominance. Backed by substantial budgets for patent
acquisition and litigation, pharmaceutical companies have been able to
“evergreen” many of their most valuable patents, thereby substantially delaying
the entry of generic competition. According to US lawmaker Waxman (one of
the authors of the US Drug Price Competition and Patent Restoration Act pf

6
Interestingly, US patent examiners are paid partly through bonuses for “disposal” of cases.
While a granted patent is always a case of disposal, a rejection may not be, since the applicant
may still amend the application and pursue its approval.

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1984, commonly known as the “Waxman-Hatch Act”) brand-name companies

“have used creative lawyering to try and extend the period of their monopolies
long past the intended time intended by Congress” (Seltzer, 2003)

The validity of pharmaceutical patents

Patenting certain features of a modified drug or process often enables

pharmaceutical companies to extend intellectual property protection well beyond
the term of the original patent. In fact, as noted by the NIHCM, “drug manufacturers
patent a wide range of inventions connected with incremental modifications of
their products, including minor features such as inert ingredients and the
form, color, and scoring of tablets. In many cases, these patents discourage
generic companies from trying to develop a competitive product” (NIHCM, 2002).

Poor quality patents acquired to encumber or delay generic competition

are generally aggressively used against competitors. But they are likely to be
invalidated totally or partially if subject to a more serious scrutiny than at the
patent office. A US FTC study found that for nearly 75% of the drugs covered by
the study, brand-name companies initiated patent infringement litigation against
the first generic applicant8 . A court decision had been made (at the time of
conclusion of the study) for 53 drug products out of 75. A court decision resolved
the patent infringement claims for 30 drug products. Generic applicants prevailed
73% of the time (FTC, 2002). Settlements were reached in 38% of the instances.
Nine of these settlements obliged the brand-name company to pay a certain
amount of money to the generic applicant. In seven cases the brand-name
company licensed the generic applicant to use the patents for the brandname

7
For instance, Hoechst Marion Roussel (Aventis) paid Andrx several million US dollars to delay
the introduction of a generic version of the drug Cardizem CD. The Federal Trade Commission
settled a case in 2000 between Abbott Laboratories and Geneva Pharmaceuticals over charges
of payments to delay the introduction of generic versions of patented drugs. Civil charges for
anti-competitive practices have also been brought against Schering-Plough Corporation, Upsher-
Smith Laboratories and American Home Products, on grounds that the companies entered into
anti-competitive arrangements with the motive of delaying generic versions of a drug, K-Dur
20 potassium-chloride supplement (Sampath, 2003).

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Carlos Maria Correa

drug product prior to patent expiration, and in two cases the settlements allowed
the generic applicant to market the brand-name drug product as a generic product,
under the brandname company own marketing approval. In 18 instances, a court
held that the brand-name company’s patents were either invalid or not infringed
(FTC, 2002:17-18). In addition, litigation took place against the second generic
applicant in cases where the first generic applicant settled its patent infringement
litigation. Out of a total of 20 drug products with first generic settlements, 9 drug
products involved litigation with the second generic applicant. In 4 cases, there
was also settlement with the second generic applicant, in 3 cases the second
generic applicant won the patent infringement suit, while brand-name companies
only prevailed in one infringement suit (FTC, 2002).

Illustration

There are many examples of evergreening strategies of pharmaceutical

companies. Médicins Sans Frontieres (MSF), for instance, reports about the Glaxo
Smith & Kline 1991 patent application to protect the combined use of AZT and
3TC. The patent application states that using the two drugs together has a surprising
effect in that, e.g., the emergence of resistance is reduced. The patent granted
by the European Patent Office was opposed by Novartis, who partially succeeded
in reducing the scope of the patent .GSK then filed another patent application in
1995 to protect the broad idea of using AZT, 3TC and abacavir in combination, on
the grounds that using the three drugs together has a surprising effect in that
e.g. the emergence of resistance is reduced. GSK then filed a patent application
in 1996 to protect the combination of AZT and 3TC in a tablet formulation (AZT,
3TC and a non-active ingredient, a glidant) (MSF, 2003).

Another telling example is paroxetine, an antidepressant compound. It

has been known both in its basic form and in the form of its pharmaceutically
acceptable salts since at least 1977. The patent makes explicit reference to the
paroxetine base and to its maleate, and other pharmaceutically acceptable a acid

8
The brand-name company generally sued all generic applicants if the drug product had
annual sales larger than $500 million in the year the first generic applicant filed its marketing
approval (FTC, 2002:18)

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salts are covered by the reference in the general formula. It also refers to the
use of a widespread general technique for preparing hydrochlorides. However,
with 1985 priority, Beecham (who had obtained a license from the owner of the
original patent) obtained patent EP 233.403 claiming crystalline paroxetine
hydrochloride hemihydrate. Later, with 1995 priority, the company requested
protection through application WO 96/24595 for four different forms of paroxetine
hydrochloride anhydrate, and for various paroxetine hydrochloride solvates; with
1997 priority documents, it requested protection under WO 98/31365 for
freeflowing paroxetine hydrochloride obtained using the “spray-dried” technique;
with 1998 priority documentation, it applied (now as SmithKline Beecham), through
WO 99/47519, a patent for a crystalline form of paroxetine free base, paroxetine
free base in substantially pure form and paroxetine free base which is substantially
solvent free; and with 1998 priority requested protection through WO 99/40084,
for salts of paroxetine with various acids. In addition to endeavouring to protect
every possible form of paroxetine base and of paroxetine salts with different
acids in various forms, SmithKline applied for protection of the use of paroxetine
in liquid form or as a solid absorbed in or by another solid (WO 99/26625 and
WO 99/48499). Finally, the circle was rounded off by claiming paroxetine maleate,
a product which had been described in the original patent US 4,007,196 (Correa,
2001; Hutchins, 2003).

Conclusions

Patents have become a key factor in the R&D process in pharmaceuticals.

Though in certain contexts, they provide the incentives to develop new
pharmaceutical products from which society may benefit, by its very nature they
limit the diffusion of the innovations that they are intended to promote. When
the innovation process is cumulative, strong protection for the first generation
producer limits the scope of second generation producers, and slows down follow
on innovation.

Patents often establish barriers to entry unjustified in terms of the

technical contribution effectively made. Low standards of patentability have
allowed a significant expansion of patent coverage. Strategic patenting diverts

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Carlos Maria Correa

resources into litigation and restrains legitimate competition. While this is taking
place in both developed and developing countries alike, it is particularly worrying
in the latter since competition laws are in many cases inexistent or poorly
implemented, and domestic firms are generally too small to bear the costs and
risks of litigation. Developing countries have struggled in the last years to confirm
their rights to use the flexibilities allowed by the Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPS), particularly in relation to parallel
imports and compulsory licenses. Without abandoning these efforts, they should
pay more attention to the way in which patents are examined and granted, in
order to avoid abuses and the negative effects on access to medicines that
secondary patents on non-inventive developments entail.

Bibliographic References
BARTON, J. H., 2002. Research-tool patents: issues for health in the developing world.
Bulletin of the World Health Organization 2002: 121-125.
BARTON, J., 2000. Reforming the patent system. Science, 287:1933-1934.
CASADIO TARABUSI, C. & VICKERY, G., 1998. Globalization in the pharmaceutical industry.
International Journal of Health Services. 1: 67-105.
CORREA, C., 2001. Trends in drug patenting. Buenos Aires: Corregidor.
EISENBERG, R. S., 2001. Bargaining over the transfer of proprietary research tools: is
this market failing or emerging. In: Expanding the Boundaries of Intellectual
Property (R. Dreyfuss, D. Zimmerman & H. First, eds.). Oxford: Oxford University
Press.
FORAY, D., 1992. Production and distribution of knowledge in the new systems of
innovation: the role of intellectual property rights. STI, 16: 119-152.
FTC (Federal Trade Commission) 2002. Generic Drug Entry Prior to Patent Expiration. 15
November 2003 htpp://www.ftc.gov
FTC (Federal Trade Commission), 2003. To Promote Innovation: The Proper Balance of
Competition and Patent Law and Policy. 15 November 2003 htpp://www.ftc.gov
GAO (United States General Accounting Office), 2002. Intellectual property: Information
on the U.S. Patent and Trademark Office’s Past and Future Operations. Report to
Congressional Requesters. 28 October 2003 http://www.house.gov/jec/gao.pdf
(GAO-02-907)
GLASGLOW, L. J., 2001. Stretching the limits of intellectual property rights: has the
pharmaceutical industry gone too far? IDEA The Journal of Law and Technology, 2:
227-258.

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GRANSTRAND, O., 1996. The Economics and Management of Intellectual Property.

Towards Intellectual Capitalism. Northampton: Edward Elgar.
HUTCHINS, M., 2003. Extending the monopoly – How ‘secondary’ patents can be used
to delay or prevent generic competition upon expiry of the basic product patent.
Journal Generic Medicine, 1: 57-71.
LONG, C., 2000. Patents and cumulative innovation. Washington University Journal of
Law and Policy, 2:229-246.
MACROECONOMIC COMMISSION, 2001.Macroeconomics and health: investing in health
for economic development, report of the commission on macroeconomics and
health, Chaired by. Sachs, J. D, Presented to Gro Brundtland, H. Director-General of
the World Health Organization, on 20 December 2001. Geneva: WHO. 2 November
2003 htpp://www.who.int
MERGES, R. & NELSON, R. R., 1996. On limiting or encouraging rivalry in technical
progress: the effect of patent-scope decisions. In: The Sources of Economic Growth
(R R Nelson, org.). Cambridge/London: Harvard University Press.
MSF (Médicins Sans Frontiers), 2001. Fatal Imbalance. The crisis in research and
development for drugs for neglected diseases. Geneva: Médicins Sans Frontieres.
MSF (Medicins sans Frontiers), 2003. Drug Patents Under the Spotlight Sharing Practical
Knowledge about pharmaceutical patents. Geneva: Médicins Sans Frontieres.
NATIONAL SCIENCE BOARD, 2002. Science and Engineering Indicators 2002. Arlington.
V.A. National Science Foundation.
NIHCM (National Institute of Health Care and Medicines), 2002. Changing Patterns of
Pharmaceutical Innovation. Washington: NIHCM Foundation.5 November 2003
htpp://www.nihcm.org
PATENTED MEDICINE PRICES REVIEW BOARD, 2002. A Comparison of Pharmaceutical
Research and Development Spending in Canada and Selected Countries. Canada.
November 10 2003 http://www.pmprb-cepmb.gc.ca/CMFiles/ss-0217e14HCB-
492003-5262.pdf
SAMPATH, P. G., 2003. Designing National Regimes That Promote Public Health
Objectives. Maastricth: UNU/ INTECH. (INTECH Discussion Paper; September
2003)
SANKARAN, S. K., 2000. Patent flooding in the United States and Japan”. The Journal of
Law and Technology, 1: 393-428.
SELTZER, J., 2003. Changes to Aid Generic Drugmakers Afoot in Congress. Reuters.
October 30.
THE ROYAL SOCIETY, 2003. Keeping Science Open: The Effects of Intellectual Property
Policy on the Conduct of Science. London: The Royal Society. (Policy document
02/03)

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UNDP (United Nations Development Programme), 2003. Human Development Report.

New York: Oxford University Press.

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Chapter 4
WHO in the Frontlines of the
Access to Medicines Battle:
The Debate on Intellectual Property
Rights and Public Health

Germán Velásquez, Carlos M. Correa

& Thirukumaran Balasubramaniam

Introduction

The Declaration on the TRIPS Agreement and Public Health (WTO, 2001),
adopted by the World Trade Organization (WTO) Ministerial Conference in Doha
in November 2001 marked a watershed in international law relating to public
health. This landmark Declaration enshrines the principle that developing countries,
the World Health Organization (WHO), civil society, international trade and legal
experts, and the greater public health community have “publicly advocated and
advanced over the last four years, namely, the reaffirmation of the right of WTO
Members to make full use of the safeguard provisions of the TRIPS Agreement in
order to protect public health and promote access to medicines” (WHO, 2002a).
By singling out public health, and in particular pharmaceuticals, from other trade-
related issues, the Doha Declaration recognizes that medicines are not just another
commodity and may be differentiated from other inventions in order to protect
public health.

The Declaration represented the culmination of a process initiated by

the African Group in April 2001 at the WTO Council for TRIPS (TRIPS Council).
Zimbabwe, on behalf of the African Group, requested a special session of the
TRIPS Council with the objectives of clarifying the flexibility which Members
were afforded under the Agreement and examining the relationship between
the TRIPS Agreement and affordable access to medicines. This request arose
from a growing sense of frustration among developing country Members of the
WTO at the spate of pressures employed by the pharmaceutical industry and

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certain developed country Members to impede developing country Members’

application of the public health safeguards1 of the TRIPS Agreement to ensure
access to life-saving medicines. These disputes ranged from litigation and the
threat of legal action in national courts to the initiation of dispute settlement
proceedings under the WTO Dispute Settlement Understanding (DSU). The
African Group observed that,

a]s the recent upsurge of public feelings and even public outrage over
AIDS medicines had shown, there was at the moment a crisis of public
perception about the intellectual property system and about the role of
the TRIPS Agreement, which was leading to a crisis of legitimacy for the
TRIPS Agreement. Whilst this storm was raging outside the WTO, and
legitimately so, Members inside the WTO could not shut their eyes and
ears. Each Member, from developing and developed countries, had to
respond, and had to respond adequately and appropriately. It was for
this reason that the African Group was proposing the convening of a
special session of the TRIPS Council to address the issues relating to
TRIPS, patents and access to medicines.

This upsurge in public sentiment and awareness of the tensions between

intellectual property rights (IPRs) and access to medicines was prompted by
NGO and media scrutiny of the increasing difficulty of reconciling countries’
obligations to abide by international trade agreements with public health needs.
This disconnect was perhaps best crystallised by the South African court case
which saw an attempt by the multinational pharmaceutical industry to forestall
the Government of South Africa from instituting a range of public health sensitive

1
The public health safeguards of the TRIPS Agreement provide Members recourse to mitigate
potential negative impacts of the Agreement, most notably its impact on the price of medi-
cines. The TRIPS safeguards include setting standards for patentability which reflect public
health concerns, legislative provision for compulsory licensing, exceptions to exclusive rights
and other measures which promote competition, full use of the transitional period and legis-
lative provision for parallel importation (WHO, 2001).

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measures including parallel importation,2 compulsory licensing,3 generic

substitution and international price tendering. This court case and other similar
actions, including the WTO dispute settlement case brought by the USA against
Brazil on its local working provision on compulsory licensing, resonated with the
international community because of their inextricable association with the HIV/
AIDS pandemic.

In 2004, WHO estimates the number of people infected with HIV/AIDS

to be between 34 and 46 million (WHO, 2004). Two thirds of the total live in
Africa, and one fifth in Asia. A typical course of highly active antiretroviral therapy
(HAART) recommended by the WHO for resource poor settings (WHO, 2002b)
would have cost around $10 000 in 1998, the year the pharmaceutical industry
initiated proceedings against the Government of South Africa. The South African
court case and the US-Brazilian trade dispute highlighted growing concerns over
the implications of the TRIPS Agreement for public health, in particular for access
to medicines (Correa, 2002).

The special Session of the TRIPS Council on intellectual property and

access to medicines, held in June 2001, was a landmark in the history of the
multilateral trading system. The ultimate objective of the process initiated by the
African Group and supported by like-minded WTO Members was to clarify and
reach a common understanding that would resolve the uncertainty and ambiguity
associated with the use of the TRIPS Agreement’s public health safeguards. The

2
Parallel importation is importation, without the consent of the patent-holder, of a patented
product marketed in another country either by the patent-holder or by another authorized
party. Parallel importation enables promotion of competition for the patented product by
allowing importation of patented products marketed at lower prices in other countries. If the
importing country’s patent regime provides that the patent-holder’s right has been “exhausted”
(in TRIPS terminology) when the patented product has been placed on the market in another
country, the patent-holder cannot use his/her patent right in the importing country to prevent
parallel importation. Article 6 of the TRIPS Agreement explicitly states that practices relating to
parallel importation cannot be challenged under the WTO dispute settlement system.
3
“Compulsory licensing enables a competent government authority to licence the use of an
invention to a third party or government agency without the consent of the patent-holder. …
Grounds for compulsory licensing may include public interest, problems linked with national
emergencies such as epidemics, public non-commercial use, or anti-competitive practices
(Article 31). … Any such use should be authorized predominantly for the supply of the
domestic market of the Member authorizing such use (Article 31 f) (WHO, 2001).

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Velásquez, Correa & Balasubramaniam

emergent consensus, a testament to the collaborative work and efforts of actors

which included developing countries, like-minded industrialized countries, civil
society and intergovernmental organizations, posited that international trade rules
should not undermine the legitimate right of WTO Members to formulate their
own public health policies and adopt measures to safeguard public health. The
Doha Declaration on the TRIPS Agreement and Public Health was based on the
principle that public health interests are paramount in public health and
pharmaceutical policies, a principle presaged in the Declaration’s antecedent,
the Revised Drug Strategy of the World Health Organization, as described below.

The Revised Drug Strategy and the “Red/Blue Book”

controversy.

In 1996, the World Health Assembly, the WHO’s highest governing body,
passed a resolution on the Revised Drug Strategy requesting WHO “to report on
the impact of the work of the WTO with respect to national drug policies and
essential drugs and make recommendations for collaboration between WTO and
WHO, as appropriate” (WHA, 1996a). This resolution provided WHO with the
mandate to examine the new architecture of the multilateral trading system
brought about by the establishment of the WTO in relation to public health.
Proposals for this mandate were introduced by the Islamic Republic of Iran whose
representative noted that his Government was very much concerned about the
impact of the World Trade Organization on pharmaceutical industries in developing
countries in the light of his country’s efforts to promote and implement the
essential drugs concept (WHA, 1996b). Although concerns over the inclusion of
intellectual property into the multilateral trading system had been voiced by
many developing countries during the Uruguay Round negotiations, this resolution
marked the first time these concerns were broached in the international public
health agenda.

Pursuant to the mandate of the World Health Assembly, the WHO Action
Programme on Essential Drugs published a monograph entitled, Mondialisation
et Acces Aux Medicaments: les Implications de L’Accord ADPIC/OMC (Velásquez
& Boulet, 1998). This guide was written with the objective of informing health
policy professionals with limited or no legal background on the potential impact
of the TRIPS Agreement on public health and pharmaceutical policy. The authors

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noted that, prior to the TRIPS Agreement, countries had considerable freedom to
determine the standard of intellectual property appropriate to their local context.
The TRIPS Agreement established minimum standards for the protection and
enforcement of IPRs. The authors observed that the agenda of the Uruguay
Round that preceded the establishment of the WTO was driven by the industrial
policy objectives of developed countries with developing countries playing a
minor role in the negotiations. Although the authors noted that TRIPS imposed
standards historically derived from industrialized countries, the Agreement still
provided considerable discretion to safeguard public health. As the monograph
examined TRIPS from a public health perspective, the authors identified the
safeguard provisions in the Agreement that enabled countries to protect health
and promote access to medicines. These safeguards include compulsory licensing,
parallel importation, limited exceptions to patent rights and the use of the
transitional periods. They are built into the TRIPS Agreement to promote
competition, ensure against the abuse of economic power and remedy anti-
competitive practices.

This monograph, nicknamed the “Red book” because of its red cover,
advocated interpretations fully within the ambit of the TRIPS Agreement and
widely accepted by the academic literature. However, its publication provoked a
heated response among certain quarters. While this document was well received
by many developing countries, Ministers of Health from the non-aligned
movement, and civil society, the pharmaceutical industry and some industrialized
country Member States criticized the report as unbalanced and misleading. In
the opinion of the Pharmaceutical Research and Manufacturers of America (PhRMA),
this monograph was

a deeply flawed document that misleads the public and creates a false
impression of how the WTO TRIPS agreement[sic] will affect
pharmaceuticals. The paper seeks to rationalize the continued piracy of
pharmaceuticals inventions…and encourages WHO members not to
implement adequate and effective intellectual property protection for
pharmaceuticals (Bomballes, 1998)

The Government of the United States of America prepared a 17-page

paper “pointing out the inaccuracies and false implications with which the
document is riddled” (U.S. Government, 1998). WHO revised a revision of the

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monograph with independent external reviewers and input from the WTO. A
revised version, the “Blue book” was published in January 1999 with a number of
essentially editorial corrections, confirming the views and interpretations given
in the Red book.

At the same time, there was also controversy surrounding the revision
of the World Health Assembly Resolution on the Revised Drug Strategy which
would strengthen WHO’s mandate to monitor international trade agreements.
In January 1998, the Executive Board of WHO passed a draft resolution (WHO,
1998a) on the Revised Drug Strategy which urged Members States to

“ensure that public health rather than commercial interests have primacy
in pharmaceutical and health policies and to review their options under
the Agreement on Trade Related Aspects of Intellectual Property Rights
to safeguard access to essential drugs”.

The draft resolution requested the WHO Director-General to

“assist Member States to analyse the pharmaceutical and public health

implications of agreements overseen by the World Trade Organization
and to develop appropriate policies and regulatory measures”.

This draft resolution was prompted by concerns of Board Members,

including Canada, Egypt and Zimbabwe, on the potential impact of WTO
agreements on access to medicines (WHO, 1998b). The representative from the
Government of Canada noted that

“experience had shown that those in the health sector needed to play a
much more active part, both individually and collectively, in international
trade discussions. Regrettably, industrial or intellectual property
considerations often took precedence over health concerns in current
trade negotiations. Moreover, the complexity of such discussions often
made it more difficult to argue the health case. Much better international
data on prices were needed, and he would urge WHO to collaborate
with OECD, which had a significant effort under way in that connection”
(WHO, 1998b).

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In May 1998, this resolution was submitted to the Fifty-first World Health
Assembly for consideration. It met with considerable opposition from a few
WHO Members States. Furthermore, some countries opposed the operative
paragraph instructing WHO to examine the TRIPS Agreement because it held
that WHO was not the competent authority to interpret trade agreements. In
order to reconcile the differences a drafting group was set up but, after over 15
hours of contentious negotiations, no consensus was reached. The resolution
was reluctantly referred back to the Executive Board for further consideration
(United States Mission to Internatrional Organizations – Geneva, 1998; WHA,
1998). An ad hoc working group comprising 59 Member States met from 12 to
16 October 1998 and drafted a compromise text. This resolution was subsequently
approved by the 103rd Executive Board and the Fifty-second World Health Assembly.
The new Revised Drug Strategy urged Member States to “ensure that public
health interests are paramount in pharmaceutical and health polices” and requested
WHO

“to cooperate with Member States, at their request, and with international
organizations in monitoring and analysing the pharmaceutical and public
health implications of relevant international agreements, including trade
agreements, so that Member States can effectively assess and
subsequently develop pharmaceutical and health policies and regulatory
measures that… maximize the positive and mitigate the negative impact
of those agreements”(WHA, 1998).

The resolution provided WHO with a broad mandate, not limited to just
the TRIPS Agreement, to analyse the implications of globalization on public health
and to advise Member States, at their request, on public health issues in relation
to international trade agreements. As noted by Ian Roberts, Special Adviser to
South Africa’s Minister of Health, the “importance of this resolution is that health
now has a role in all international trade and finance agreements.”(HAI/MSF, 1999)

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South Africa: The intersection of public health and intellectual

property rights

In 1996, South Africa introduced a National Drug Policy (NDP) to remedy

structural deficiencies in its pharmaceutical sector inherited from the apartheid
regime. Although South Africa boasted a sound domestic pharmaceutical industry,
its health care system was characterized by the juxtaposition of a private health
care system on par with the first world and a public health sector beset by third
world conditions. This inequity in health care was compounded by the chronic
inaccessibility of essential medicines in the public health sector. For example, in
1990 the private health care sector, which covered around 20% of South Africa’s
population, accounted for 80% of the country’s total expenditures in
pharmaceuticals (Department of Health, 1996). Furthermore, the growing HIV/
AIDS epidemic highlighted the impact of prices of medicines in South Africa,
among the highest in the world. Thus, the objectives of the NDP were to ensure
an adequate and reliable supply of safe, effective drugs of acceptable quality to
all citizens of South Africa and the rational use of drugs by prescribers, dispensers
and consumers (Department of Health, 1996). In order to implement these
objectives, the South African Drug Action Programme (SADAP) was established
with funding by the UK Department for International Development (DFID) and
executed with the support of the WHO Department of Essential Drugs and
Medicines Policy (EDM).

The key objectives of the South African NDP were codified into law
when President Nelson Mandela signed the South African Medicines and Related
Substances Control Amendment Act (Medicines Act) in December 1997. The
Medicines Act provided the Government of South Africa recourse to generic
substitution, quality control of imported medicines, international competitive
tendering for the public sector, an essential drugs list and standard treatment
guidelines. Many of these measures were long-standing public health principles
advocated by WHO. In addition to these measures, South Africa’s Medicines Act
adopted a regime of international exhaustion thus permitting the parallel
importation of medicines.

Following the passage of the Medicines Act in December 1997, the

research-based pharmaceutical industry and some industrialized countries worked
in tandem to “repeal, suspend, or terminate” certain provisions of the Medicines

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Act. In particular, they asserted that the parallel importation and generic substitution
clauses of the Medicines Act contravened the TRIPS Agreement. In February
1998, the Pharmaceutical Manufacturers’ Association of South Africa (PMA) and
39 other applicants filed suit against the Government of the Republic of South
Africa in the High Court of South Africa alleging that the Medicines Act violated
the South African Constitution. Although the PMA specifically targeted Section
15(C) of the Medicines Act, the subsequent litigation forestalled the entire Act
thus freezing all the public health policy measures articulated in the NDP.

The Medicines Act conflict was singled out in the 1999 USTR Special
Review. The entry for South Africa noted that the

“Medicines Act appears to grant the Health Minister ill defined authority
to issue compulsory licenses, authorize parallel imports, and potentially
otherwise abrogate patent rights…During the past year, South African
representatives have led a faction of nation’s in the World Health Or-
ganization (WHO) in calling for a reduction in the level of protection
provided for pharmaceuticals in TRIPS.”(USTR, 1999)

The reference to WHO indicated the USG’s displeasure at South Africa’s

leading role in the controversy over the Revised Drug Strategy during the Fifty-
first World Health Assembly. With respect to South Africa’s interventions at the
World Health Assembly, PhRMA expressed concern that other countries would
follow South Africa’s path in implementing the public health safeguards of the
TRIPS Agreement to the perceived detriment of holders of intellectual property
rights. Although sub-Saharan Africa accounted for only 1% of the world
pharmaceutical market (IMS Health, 1997), the implementation of the Medicines
Act would set a precedent that the pharmaceutical industry and industrialized
countries were loath to accept. In February 1999, the United States Department
of State (State Department) reported to the US Congress on the US Government’s
efforts to repeal the South African Medicines Act:

“All relevant agencies of the U.S. Government…have been engaged in

an assiduous, concerted campaign to persuade the Government of South
Africa (SAG) to withdraw or modify the provisions of Article 15(C) that we
believe are inconsistent with South Africa s obligations and commitments
under the WTO Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPS).”(Department of State, 1999)

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Despite the onslaught of over three years of trade pressures and

sanctions, the Government of South Africa held its ground and refused to
compromise its position on the Medicines Act. South Africa’s position was
strengthened by a range of different actors united in the principle that commercial
interests should be subordinate to public health interests. This loose coalition of
developing countries and certain segments of industrialized country governments,
civil society, international organizations including UNAIDS, UNICEF, and WHO,
international trade experts, and the greater public health community, was due
to the international outcry raised by this diverse set of actors over the morally
untenable position of the pharmaceutical industry and certain developed countries
in the South African case. In May 2000, President Bill Clinton issued an Executive
Order exempting sub-Saharan Africa from the US pressures to forestall their use
of the TRIPS public health safeguards to mitigate the impact of the HIV/AIDS
pandemic.

The role of the civil society coalition, which included ACT UP, Consumer
Project on Technology, Health Action International, Health Gap, Médicins Sans
Frontières, Oxfam, and the Treatment Action Campaign to name but a few, should
not be underestimated (‘t Hoen, 2002). Much of the progress of the access to
medicines campaign can be credited to civil society efforts. In particular, civil
society drew media attention to the South African court case and the greater
question of IPRs versus public health. Using an array of tactics, which included
protests, direct action, technical briefing seminars on TRIPS public health
safeguards, and media coverage, civil society effected a major shift in OECD
government positions vis-à-vis TRIPS and public health. Although the real
motivations for the policy changes are not clear, the loss of the US and EU
government support for the case, resulted in the withdrawal of the lawsuit by the
PMA and pharmaceutical firms (‘t Hoen, 2002). The victory of the South African
Government marked a turning point in the TRIPS and public health debate and
set a precedent for developing countries. South Africa’s resolute defence of its
National Drug Policy prevailed over the industrial might of certain OECD
governments and the pharmaceutical industry because it was based on sound
public health principles, it was TRIPS consistent and was based on WHO guidelines
for National Drug Policies. This not only lent it moral legitimacy in the court of
public opinion but also juridical legitimacy in the court of law.

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The World Health Organization: Implementing the mandate of the

Revised Drug Strategy
At the core of the Revised Drug Strategy resolution of the Fifty-second
World Health Assembly was the principle that public health interests are paramount
when formulating pharmaceutical and public health policies. In order to fulfil
the mandate given to WHO to monitor the impact of globalization and international
trade agreements on access to medicines, WHO established a Network for
Monitoring the Impact of TRIPS and Globalization on Access to Medicines. This
network is comprised of four WHO collaborating centres in Brazil, Spain, Thailand,
and the United Kingdom and legal and public health experts with specialized
knowledge and understanding of the public health and pharmaceutical dimensions
of international trade agreements. The network has endeavoured to answer four
main questions: (1) the effect of patent protection on the price of essential
medicines, (2) the impact of patent protection on generic entry, (3) the impact
of IPRs in spurring new drugs for neglected diseases and (4) the effect of TRIPS
on transfer of technology and direct foreign investment. The Revised Drug
Strategy and its successor, the WHO Medicines Strategy, instructed WHO to
cooperate with Member States, at their request, to develop pharmaceutical and
health policies related to international trade agreements. With respect to the
TRIPS Agreement, WHO advised several Member States4 on how to implement
public health safeguards consistent with the Agreement.

Since the passage of the Revised Drug Strategy, WHO has provided
technical guidance to Member States on the public health implications of the
TRIPS Agreement and other international trade agreements through policy
documents and regional workshops. Under the aegis of the Revised Drug Strategy,
WHO briefed health, patent office and trade officials in over 60 countries on
TRIPS implementation. WHO published and funded various papers, reports and
monographs providing policy guidance to countries on public health and IPRs in
relation to TRIPS safeguards, traditional knowledge, protection of test data, model

4
Since 1996, WHO’s work in this area has involved direct country support in Brazil, Brunei
Darussalam, China, Dominican Republic, Indonesia, the Islamic Republic of Iran, Kenya, the
Republic of South Africa, the Kingdom of Cambodia, Nicaragua and Thailand. This technical
cooperation has involved assessing the patent status of antiretrovirals, analysing the IPR and
drug regulatory provisions.

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legislation, patenting strategies in pharmaceuticals, and co-authored a joint study

with the WTO on the health and trade implications of the WTO Agreements. The
crux of WHO’s policy guidance with respect to the TRIPS and access debate has
been guided by the core principles that the “enjoyment of the highest attainable
standard of health” is a fundamental human right and that essential medicines
are not just another commodity. Although WHO acknowledged the important
role of IPRs in stimulating research and development of new drugs, it noted with
concern questions raised about the impact of IPRs on the price of certain life-
saving medicines and the failure of the IPR regime to stimulate the development
of drugs for neglected diseases. In its policy guidance to Member States, WHO
advocated the full use of the TRIPS public health safeguards, as appropriate, to
protect public health and promote access to essential medicines. These safeguards
included setting standards for patentability which reflected public health concerns,
legislative provision for compulsory licensing, authorizing parallel importation of
health care inventions, other measures which promote generic competition, the
full use of the transition period accorded to least-developed countries under the
Doha Declaration, and resisting pressures to adopt “TRIPS-plus” standards of IPR
protection.

The road to Doha

The conflicts arising between safeguarding access to medicines and
upholding obligations to international trade agreements brought two important
issues to the fore on the debate on health and trade questions. The first was the
realization that a combination of generic competition, advocacy and legislative
provision of TRIPS safeguards had a significant pro-competitive effect on the
price of medicines, as evidenced in the dramatic more than 95% price reduction
in the indicative annual cost for a triple therapy antiretroviral regime from $10
000 in 1996 to $140 in South Africa in 2003. This realization was further confirmed
when Brazil’s negotiation after the threat to issue a compulsory licence on Merck
and Hoffman-La Roche’s antiretroviral patents resulted in a significant price
reduction of antiretrovirals supplied to the Government of Brazil. The expediency
with which Canada and the USA successfully threatened the use of the
compulsory licensing to secure lower prices for ciprofloxacin following the anthrax
scare after the events of 11 September 2001, confirmed the possibility of using
TRIPS safeguards to promote access to essential medicines.

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The second issue raised by the health and trade debate was the pressing
need to ascertain the level of flexibility which WTO Members were afforded
under the TRIPS Agreement. As the South African court case and the Brazil-US
dispute over compulsory licensing showed, legal uncertainty created a “chill
effect” on Members’ efforts to enact and use the public health safeguards of the
TRIPS Agreement. The African Group’s request to hold a special session of the
TRIPS Council to discuss intellectual property and public health related questions
was accepted by WTO Members. Pascal Lamy, the European Union Trade
Commissioner remarked,

L’essentiel de notre position réside en un point clé : nous pensons que

l’Accord laisse aux Membres de l’OMC une latitude suffisante pour mettre
en place un régime de propriété intellectuelle susceptible de répondre
aux préoccupations en matière de santé publique. Notre conviction est
qu’il appartient aux Membres de l’OMC, au sein du Conseil ADPIC, d’in-
terpréter cette flexibilité, plutôt que laisser cette tâche aux panels.(Lamy,
2001)

The adoption of the Doha Declaration underscored the principle that

international trade rules could not and should not undermine the legitimate
right of countries to protect public health. The Declaration, a validation of public
health ideals anticipated by the debates on the WHO Revised Drug Strategy, was
possible due to the resolute defence of these ideals by developing countries
and their allies in civil society. The Declaration represents but a first step in
making the multilateral trading system compatible with health interests. Much
more needs to be done. The recently published report of the UK Commission
on Intellectual Property Rights,5 recognized the concerns articulated by developing
countries, civil society and WHO that “one size fits all” intellectual property

5
The United Kingdom Secretary of State for International Development, Clare Short, established
the UK Commission on Intellectual Property Rights (CIPR) in May 2001 to consider how IPRs
“could best be designed to benefit developing countries.” (Forward to CIPR report by Sir Hugh
Laddie, UK High Court Patents Judge). The six member panel brought different perspectives to
the table, incorporating voices from developing and developed countries, with experience
from fields including: economics, ethics, law and science and from academia, industry and
government. See e.g. http://www.iprcommission.org/graphic/home.htm.

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Velásquez, Correa & Balasubramaniam

regimes, historically derived from those adopted in industrialized countries, are

not appropriate for developing countries in different stages of economic
development. Furthermore, the report concludes that developing countries should
integrate their development policies, including on public health, into IPRs regi-
mes suited to their conditions and needs.

It is now realised that the right to health and the expansion of trade are
different issues. Essential drugs must be considered a global public good.
Promoting the right to health involves guaranteeing the right to benefit from
technological advances, and a recognition of the supreme value of human dignity,
principles recognized in many international treaties and accepted by most states.

Bibliographic References
BOMBALLES, T., 1998. (Letter from the Pharmaceutical Research and Manufacturers of America
vice-president to the World Health Organization, 30 June.) PhRMA.

CORREA, C., 2002. Implications of the Doha Declaration on the TRIPS Agreement and Public
Health. Geneva: WHO. WHO/EDM/PAR/2002.3

DEPARTMENT OF HEALTH, 1996. National Drugs Policy for South Africa. Pretoria: Department of
Health. 2 July 2004 http://www.doh.gov.za/docs/policy/drugsjan1996.pdf

DEPARTMENT OF STATE, 1999. U.S. Government Efforts to Negotiate the Repeal, Termination, or
Withdrawal of Article 15(C) of the South African Medicines and Related Substances Act of
1965. Washington: Department of State. (Report of the US Department of State to the US
Congress, 5 February)

HAI/MSF (Health Action International/ Médecins san Frontières), 1999. Joint NGO Press Release
on WHA Revised Drug Strategy. Geneva. 24 May 1999 http://lists.essential.org/pharm-
policy/msg00095.html.

IMS Health, 1997. Projected World Pharmaceutical Market 2002. IMS.

LAMY, P., 2001. Accès aux médicaments et lutte contre les maladies transmissibles, Commis-
sion Industrie du P.E, 19 juin. Bruxelles: UE.

‘T HOEN, E., 2002. TRIPS, pharmaceutical patents, and access to essential medicines: a long
way from seattle to doha. Chicago Journal of International Law, 3(1).

UNITED STATES MISSION TO INTERNATIONAL ORGANIZATIONS - GENEVA, 1998. Revised Drug

Strategy at WHO: Atmospherics of the Debate and Recommended Plan of Action. (Cable to
the US Department of State, 27 May)

UNITED STATES, 1998. Globalization and access to drugs. July 21. Washington

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USTR (United States Trade Representative), 1999. Office of the United State Trade Representative
Press Release, Special 301 Annual Review, 30 April.

VELÁSQUEZ, G. & BOULET, P., 1998. Globalization and Access to Medicines: Implications of the
WTO/TRIPS Agreement. Geneva: WHO. (1st edition, no longer in print).
WHA (World Health Assembly), 1996a. Revised Drug Strategy. Geneva: WHO. WHA49.14

WHA (World Health Assembly), 1996b. World Health Assembly Official Records. Geneva: WHO.
WHA49/1996/REC/3

WHA (World Health Assembly), 1998. World Health Assembly Records, 51st Session. Geneva:
WHO.

WHA (World Health Assembly), 1999. Revised Drug Strategy. Geneva: WHO. WHA52.19

WHO (World Health Organization), 1998a. Revised Drug Strategy. Geneva: WHO. EB101.R24

WHO (World Health Organization), 1998b. Executive Board, 101st session: Summary records.
Geneva: WHO. EB101/1998/REC/2

WHO (World Health Organization), 2001. Globalization, TRIPS and access to pharmaceuticals.
Geneva: WHO. (WHO Policy Perspectives on Medicines, No. 3)

WHO (World Health Organization), 2002a. Statement of the World Health Organization at the
WTO Council for TRIPS. Geneva: WHO.
WHO (World Health Organization), 2002b. Scaling up Anti-retroviral Therapy in Resource Poor
Settings. Geneva: WHO.

WHO (World Health Organization), 2004. World Health Report 2004 -changing history. Geneva:
WHO.

WTO (World Trade Organization), 2001. The Fourth WTO Ministerial Conference, 9-14 November.
Doha: WTO. WT/MIN(01)/DEC/2

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Chapter 5
Effects of the TRIPS Agreement
on the Access to Medicines:
Considerations for Monitoring
Drug Prices

André Luis de Almeida do Reis,

Jorge A. Z. Bermudez
& Maria Auxiliadora Oliveira

The concept of access in health encompasses some distinct, although

correlated, dimensions, which address the compatibility between the patient
and the health care system: availability, accessibility, accommodation, affordability
and acceptability (Perchansky & Thomas, 1981; Luiza, 2003). When considering
access to drugs in the context of the most frequent arguments over intellectual
property (IP) protection, patents are predicted to have effects on three of these
dimensions. For example, in the case of availability, innovation could be stimulated
and better therapeutic options might become available to the public; for
acceptability, the new drugs developed might be perceived by users as better
therapies (whether or not they might actually be); and effects might also be
seen on affordability, due to an increase of drug prices, pushed by the premium
prices of patented products set by enterprises during the market exclusivity
period, in order to recover research and development (R&D) expenses.

Much concern has been raised about the consequences of new, patented
medicines to the health systems in developing and least-developed countries
as they may represent an unbearable burden of treatment costs, hence hindering
access to newer and better therapies. Nevertheless, it is not an easy task to infer
the effect of IP protection on drug prices, and for such a purpose, one should
consider the interplay of a myriad of factors that may have a role in drug pricing.
Features that shape the supply and demand sides of the pharmaceutical market,
along with background issues, and their connections must be understood in
order to model the conduct of pharmaceutical companies in setting prices for
their products.

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Here, some of these features will be discussed, bearing in mind their

relevance to drug pricing and focusing on access to medicines: innovation in
the pharmaceutical industry, and the role of patents; market segmentation and
competition, characteristics of the demand for pharmaceuticals; and regulation
and health system organization. Finally, mapping the changes that can be
expected from enacting the Trade Related Aspects of Intellectual Property Rights
(TRIPS) Agreement through national legislation will guide the identification of
what can be done to monitor the effect of drug patents on access to drugs in
developing and least-developed countries.

Intellectual property and medicines: what do patents really mean?

Patents are generally regarded as the most effective mean of
appropriating the benefits from innovation in the pharmaceutical industry. This
occurs because of the very nature of the technology developed: a medicine is
a molecular entity1 plus the information about its effects in human beings –
including therapeutic efficacy and safety. Hence, most of the investiment in
new drug R&D is incurred to generate information, from preclinical stages to
the phase III clinical trials required for granting product approval, which become
available to the public (Scherer, 1996:360). As organic chemical synthetic and
pharmaceutical formulation methods are reasonably available, an imitator can,
in the absence of patents or other kind of market exclusivity, spend just a
fraction of innovator investiment and consume much less time in developing a
copy of the original product. The same is not true for a new producer that tries
to “invent around”, e.g. making slight modifications in the chemical structure of
the drug that are not covered by the original patent granted, as this new product
will also have to pass through all the clinical development phases. This is why
pharmaceutical patents are considered incentives for innovation in this field:
the gains derived from R&D spending, through charging prices well above the
marginal production costs, will not accrue to imitators, at least during the
exclusivity period.

1
This is also true for herbal medicines if one considers them an assembly of molecules
exerting a therapeutic effect.

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However, profiting from innovation also depends on other features like

complementary capabilities and assets required for the successful
commercialization of an innovation (e.g. distribution channels, services,
complementary technologies). These features guide strategic marketing decisions
of firms which can choose to license their technology, to contract out, to integrate
with others, or to invest in accessing such assets (Teece, 1986)2.

As shall be discussed further, some of these capabilities and assets are

correlated to factors that determine product price. Consequently, they should
be considered when addressing the profitability of innovation in the
pharmaceutical industry. Marketing strategies, for example, are aimed at
reinforcing the attributes of new medicines, leading to favourable evaluations
by consumers (patients and doctors) and, as a result, to an enhanced ability of
determining drug prices.

Additionally, revenues generated by patented medicines are greatly

skewed. Scherer (1993) estimates that about 55% of industry profits come from
around ten percent of the drugs. Grabowisk and Vernon (2000) have studied
two cohorts of new molecular entities (NME) launched from 1980 to 1984 and
from 1988 to 1992, respectively, demonstrating that only 30% of products with
greater revenues yielded values higher than the estimated average R&D
investiment of US$ 231 million per new drug (DiMasi et al., 1991). Despite the
controversy on the validity of this last value3, these figures indicate the inherent
risk of this kind of investiment, but mainly reflect the different opportunities for
profiting from innovation due to factors that drive the diffusion and the pricing
of pharmaceutical products.

2
Consider, for example, the collection of small and medium size firms in the American
biotechnology industry that rely on patent protection to create a strong bargaining position
for a joint venture or a license deal with a large pharmaceutical enterprise that has production
and market capabilities (Mazzoleni & Nelson, 1998).
3
Refer to the work “Rx R&D Myths: The Case Against The Drug Industry
’s R&D ‘Scare Card’” (Public Citizen, 2001) for an accurate questioning on the original
estimates made for DiMasi et al. (1991).

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Patterns of Innovation in the Pharmaceutical Industry

and Medicine Prices

Initially, one can consider the relationship between the innovative profile
of new pharmaceutical products and their prices. Highly innovative medicines,
whose formulation generally includs drugs that act by new pharmacological
mechanisms of action, and which are often the first products in a market segment,
are launched at premium prices. This is due to the less elastic demand generated
by their therapeutic potential (i.e. consumers are more willing to pay for a
product that supposedly offers a better health result) and the conditions of
market competition. These products often become “blockbusters”, and account
for a great part of a firm’s revenues. Their active compounds become the leads4
for the development of new drugs with the same mechanism of action.

Lesser innovative products, the so-called me too drugs, composed of

new molecules that follow a molecular structural pattern already established in
a therapeutic group, tend to be launched on the market at similar or lower
prices than previous competitors except when they show significant clinical
advantages , like fewer side effects or a more convenient dosage regimen. In a
recent study on pricing trends of new prescription drugs on the American market
from 1995 to 1999, DiMasi (2000) analyzes the introduction of new products in
specific therapeutic groups and describes the link between prices and degree
of innovation.

In order to complete the picture, one should refer to the new products
that do not contain new active principles, but rather consist of new formulations
(including new dosage forms, like extended drug release), new combinations of
molecules already on the market, or new salts or esters. Usually, these products
have a lesser innovative profile when compared with previous ones – and hence,
lower launch prices. Nevertheless, there may be exceptions, since some products
can exert considerable therapeutic advantages, such as the antiretroviral drug
combining lamivudine and zidovudine.

4
Strictly, the term lead compound is applied to the molecule that originally exerts an in vivo
pharmacological activity (Barreiro & Fraga, 2001:237), not necessarily resulting in a drug.
Here, its original meaning has been adapted to indicate the strategy of follower firms,
managing to explore a successful innovation strategy.

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Empirical evidence corroborates the hypothesis that the prices of new

medicines are related to product attributes like the degree of innovativeness.
Lu and Comanor (1996) analyzed the prices of new pharmaceuticals introduced
onto the American market between 1978 and 1987 and compared the mean
launch prices of new products with the weighted mean price of already
commercialized competing drugs. Their study demonstrated a price level
proportional to the degree of innovativeness, as determined by the FDA in its
reviewing process5. As depicted in table 1, products with major therapeutic
advances commanded average prices twice as high as those embodying only
modest advances.

TABLE 1: Prices for New Pharmaceuticals Relative to Those of

Existing Drugs (USA, 1978-1987)

Ratio of Launch Prices of New Drugs to

FDA Designation of
Prices of Existing Drugs
Therapeutic Advance
Acute conditions Chronic conditions
Important advance 2,97 2,29
Modest advance 1,72 1,19
Little/no advance 1,22 0,94

Adapted from Lu & Comanor (1996) in Schweitzer (1997).

As shown in table 2, a similar trend can be derived from the ratio of

prices per prescription of new drugs in 1995 and 2000 with prices per prescription
of drugs approved before 1995, already commercialized in the USA, by type of
innovation as assigned by FDA classification (NIHCM Foundation, 2002).

5
Until 1992, FDA had a three level ranking system for new drugs approved according to their
significance to human health, as described in table 1 (Public Citizen, 2001).

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TABLE 2: Average Price per Prescription of New Drugs in Relation to Old

Drugs* (USA, 1995 and 2000)
Ratio of New Drug Prices per Prescription to
Type of Innovation
a
Old Drug Prices per Prescription
(FDA classification)
1995 2000
Priority NME 2,64 2,45
Standard NME 1,39 2,20
Priority IMD 1,75 2,26+
Standard IMD 1,18 1,74

*Approved before 1995.

a
FDA classification for new drug applications (NDA), according to active principle – new
molecular entities (NME) and incrementally modified drugs (IMD), for products with
already approved compounds – and evaluation of therapeutic potential. A priority status
accounts for a clinical improvement over available therapies and a standard status for no
significant clinical improvement.
+
Value excluding HIV antiviral drugs. Value including HIV antiviral drugs = 3,81

Source: Elaborated based on data from NIHCM Foundation (2002).

In this study from the National Institute for Health Care Management
Foundation on the changing patterns of pharmaceutical innovation, based on
FDA data, it is worth noting that incrementally modified drugs (IMD) accounted
for 60% of new products launched in the USA from 1989 to 2000. When
comparing the periods from 1989 to 1994 and 1995 to 2000, IMD accounted
for 71% of the growth in product introductions (62% for standard IMD). Only
3% of total change came from priority new molecular entities (NME) those
characterized by the most innovative profile (NIHCM Foundation, 2002).

Further, the mean price per prescription of IMD products relating to

older drugs had a significant increase between 1995 and 2000, approaching the
price of more innovative drugs (table 2). When including antiretroviral drugs
pertaining to the priority IMD category, the price ratio comes to 3.81, superseding
the priority NME ratio (table 2).

Those figures reflect the strategy of firms facing the recent trends in
the pharmaceutical market: a reduced number of new molecular entities launched
worldwide the FDA approved only 17 NME in 2002 and 21 in 2003, compared
to an average of 31 for the previous five years (FDA, 2004) and a great number
of lead products with expiring patents. New incrementally modified versions of
branded drugs are aggresively promoted before patent expiration, persuading

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doctors to switch their patients to the new products, transfering brand loyalty
and hindering them from generic competition (NIHCM Foundation, 2002). This
indicates the importance of product differentiation in drug diffusion and pricing,
as new IMD are generally not (much) better therapeutic options, however they
are able to command higher prices.

Diffusion of New Medicines, Product Differentiation

and Pharmaceutical Marketing

Another important issue to understand regarding the diffusion of new

drugs and pricing is product differentiation, based on the consumers’ perceptions
of the products’ attributes. Hence, differentiation is ultimately derived from
subjective factors – even when based on objective data, such as the level of
innovativeness – occuring in many possible ways (Losekann & Gutierrez, 2002).
For instance, a new medicine may be considered a better option for a given
therapeutic indication, favoring its adoption, or consumers may prefer the product
from an individual producer in place of similar products from competitors. In
any case, differentiation affects the identification of product substitutes,
constraining competition.

The diffusion of health technology, like medicines for example, has two
fases: adoption and use. The former has been historically more extensively
studied and addressed by public policy. Among the factors that drive adoption
are the characteristics of the technology, of the adopter institutions or individuals
and of the environment financing, planning etc. (Banta & Luce, 1993). Product
differentiation favours the diffusion of a new drug by means of influencing
adoption decisions.

Pharmaceutical marketing aims also at reinforcing product differentiation,

in order to maximize market penetration and the ability to set prices. A good
example comes from the competition between Tagamet (cimetidine) and Zantac
(ranitidine) in the late 1980s. Tagamet, the first H2-blocker antiulcer agent, was
introduced to the American market in 1977, while Zantac, Glaxo’s version of an
H2-blocking agent, was launched in 1981. Although it had fewer side effects, the
real advantage of Zantac over Tagamet was Glaxo’s marketing strategy. They
had contracted Hoffman-La Roche to strengthen its capacity to promote its

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product worldwide. Despite a 4-year entry lag and a 50% higher price, Zantac’s
sales increased dramatically, totaling US$ 2.4 billion versus Tagamet’s US$ 1.2
billion, in 1990 (Schweitzer, 1997:43).

Market competition and medicine pricing

The example above highlights the fact that competition occurs even
during the market exclusivity rights of a producer. As discussed previously, this is
the case for the introduction of me-too drugs and also for products exerting
effects through different mechanisms of action, but directed for the same
therapeutic use (eg. statins and fibrates for treating hyperchloesterolemia). Hence,
the characteristics of the specific market segment where a firm is launching a
new product modulate its market diffusion strategy, including the introduction
price and pricing trends over time. Innovative drugs exert “first movers”
advantages, consolidating brand loyalty, which permits them to mantain high
prices while retaining considerable market share for many years (Scherer,
1996:371). Followers generally undergo a “penetration” strategy, where drugs
are initially priced at lower prices aiming to gain market share, and then the
price is raised over time (Schweitzer, 1997:103). One-hundred and forty-eight
new drugs were introduced on the American market between 1978 and 1987
(table 1). Their inflation-adjusted prices eight years after product launch
were on average 7, 32 and 62 percent higher than the launch prices for drugs
in categories of important, modest and little/no therapeutic advance (Lu &
Comanor, 1996).

The introduction of generic products after patent (or other market

exclusivity rights) expiration undermines the differentiation process. Thus,
competition moves toward prices. As a result, there will generally be high demand
price elasticity6 between generic substitutes, but possibly also, to a lesser extent,
among chemically different therapeutic substitutes. Ellison et al. (1997) describe
this phenomenon for the market of oral cephalosporins in the USA.

6
Demand price elasticity – or simply demand elasticity – accounts for the variation in the
consumption of a good following a change in its price. The more elastic demand is, the more
price sensitive is consumption.

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Grabowski and Vernon (1996) found a characteristic loss of more than

half of market share for branded drugs in the first year of patent expiration
between 1984 and 1993 in the American market. On average, drug producers
have tended to concentrate on price insensitive consumers7, thereby reinforcing
brand loyalty in order to mantain prices at a profit maximizing level (Scherer,
1996:376-378). Nevertheless, this may not be a typical pattern of generic take-
up following patent expiration, as suggested by the multi-country study (USA,
UK, Germany and Japan) performed by Hudson (2000). This study shows
differences most likely related to legal and regulatory framework, health system
organization and market size.

Prices and the demand for medicines

The multifaceted profile of demand for drugs leads to different
approaches to the promotion and pricing of products by the pharmaceutical
industry. Pricing will vary according to the interplay of features such as regulation
and demand market power. There is strong evidence of this pricing trend: in the
USA, a great variation on prices paid for the same products among federal
purchasers (Medicaid and Veterans Administration), hospitals and Health
Maintenance Organizations (HMOs) has been observed (Reidenberg, 2001).
Even producers of innovative branded drugs who respond to generic competition
through high priced sales (as discussed above) are able to capture some of the
price sensitive customers by offering secret discounts to HMOs with aggressive
procurement policies (Scherer, 1996:378).

A paradigmatic case of the influence of demand market power on pricing

is the evolution of zidovudine prices in Brazil in the 1990s. In spite of generic
producers entering the market, a dramatic drop in prices only occured after the
establishment of a national AIDS program including universal access to treatment
and central procurement of antiretroviral medicines (Oliveira et al., 2000).

When this question is examined focusing on distinct national markets, a

rhetorical argument arises: differential pricing according to income level. Thereby,

7
Those can be characterized by risk aversion, imperfect information and/or generous health
insurance coverage.

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Reis, Bermudez & Oliveira

a producer would adapt the price of its product to a profit maximizing point
corresponding to the demand elasticity of a particular market, resulting in lower
prices in less affluent countries8. It implies that contribution of these markets to
profits and R&D expenses recovery would be (much) lower than in richer ones,
but without their contribution there would be fewer global gains, considering
that the producer is acting in the international market9 (Danzon, 1997). This is
the case for the innovative core of the pharmaceutical industry. Nevertheless,
there are many exceptions observed in this type of pricing behavior. Some
products are more expensive in developing countries than in developed ones
and inconsistent price differences exist among developing countries with the
same income level (Maskus & Ganslandt, 2002; Balasubramanian, 1998; Bermudez
et al., 2001). Considering the previously discussed factors influencing demand,
the observed price differences reinforces the notion that prices are set at a
maximum value according to market context.

Finally, one should also consider the underlying role of the health care
system and of the regulatory background in the interplay of market forces. This
may include the registry of pharmaceutical products, including rules for generic
product introduction, existence of price control mechanisms, financing of drug
prescriptions (whether they are reimbursed, directly supplied or paid by out-of-
pocket expenses), regulation of drug prescribing and dispensing, control of
pharmaceutical marketing, characteristics of distribution systems and sectoral
taxation and fees.

Expected changes following enforcement of TRIPS provisions

A major implication of TRIPS relating to drug prices will be the constraints

placed on introducing generic copies of innovative products, which would help
contain prices by means of greater competition. This includes not only countries
that have local production capacity to generate generic versions but also countries
that rely mainly on importation. TRIPS provisions allow countries to adopt some

8
An accessible graphical explanation can be found in Scherer & Watal (2001).
9
Such pricing behavior discriminating markets according to demand elasticity is also referred
to as “Ramsey Pricing”.

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 Chapter 5

mechanisms in their IP legislation that may permit improved market competition

from products similar to patented ones, such as International Exhaustion of
Rights10 (which accounts for parallel importation), Compulsory Licensing, and
Early Work Exception11 (also known as “Bolar Provision”). However, it is not certain
whether developing and least developed countries are consistently introducing
those provisions into their national legislation. Oliveira et al. (2004), studied a
representative group of Latin American and Caribbean countries and found that
they are not fully incorporating TRIPS flexibilities into their legislation in order
to obtain better public health results.

Additionally, there is great concern about whether those countries will

have the sufficient political and technical capacity to use such provisions, even
if they have been properly addressed by national legislation. Last but not least,
there is concern over whether it is economically feasible for generic producers
(local or foreigners) to enter their respective markets, considering scale, access
to distribution channels, the necessary marketing effort to face innovator
competition12, the grounds under which the patent holder will be financially
compensated for a compulsory license and the contingent provision of public
policy incentives for producers/importers to supersede these barriers to enter
the market.

Through the use of econometric models, there is a small but growing

number of studies addressing the impact of introducting patent regimes to
lower and middle income developing countries, those which already have
significant pharmaceutical industries. The derived estimates indicate a potential
increase in prices, ranging from 12% to over 200%, depending on the assumptions
on which the models are based (CIPR, 2002:37; Scherer & Watal, 2001).

10
This principle considers that the patent owner rights are exhausted with the first sale of the
product in the international market. Therefore, one can import the product from a country
where its price is lower without infringing patent rights.
11
Through this provision a generic producer can have access to the documentation used for
the registration of the innovative product in order to prepare all necessary procedures to
obtain marketing authorization, and in order to launch its product immediately following
patent expiration.
12
Refers to the previous discussion on complementary capabilities and assets for the
successful commercialization of an innovation.

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Reis, Bermudez & Oliveira

Nevertheless, the specific situations resulting from the introduction of

new products with different innovative profiles should also be considered, as
their effects on the efficiency of pharmaceutical expenditures may vary, distinctly
affecting health systems. For instance, one can take the case of the three patented
antiretroviral drugs (indinavir, efavirenz, and nelfinavir) which are included in
the treatment guidelines of the Brazilian AIDS program due to their effectiveness
in HIV infection therapy. These antiretrovirals consume a great amount of the
medicines budget. The Ministry of Health has been able to negotiate lower
prices for these patented drugs by using the threat of production under a
compulsory license, resulting in price reductions ranging from 40% to 65%
(Bermudez & Oliveira, 2002; ‘t Hoen, 2002). These achievements were possible
due to visibility of the AIDS problem, public demand, as well as political will to
assure program sustainability, and technical capability to produce generic copies
of these medicines.

On the other hand, one can consider the case of new non-steroidal
anti-inflammatory drugs (NSAIDs), selective inhibitors of the ciclooxigenase-2
(COX-2) enzyme. In Australia there was a large-scale diffusion of such products
shortly following its approval, threatening the Pharmaceutical Benefits Scheme
(PBS) sustainability by means of an increase in expenses from $76 million by the
end of December 2000 to more than $160 million by the end of June 2001
(Dowden, 2003). Evidence shows that celecoxib and rofecoxib have been used
beyond the approved indications, often as the first therapeutic option and for
patients aged less than 65 years, although COX-2 selective NSAIDs are no more
effective than conventional NSAIDs and only those patients with a great risk of
developing serious NSAIDs-induced gastrointestinal (GI) complications are likely
to benefit from their reduced relative risk (Kerr et al., 2003; National Prescribing
Service, 2001). Speculations into the reasons of such prescribing behavior pointed
to the influence of pharmaceutical marketing strategies. They sought to reinforce
the perception that these medicines had reduced side effects, which was also
favoured by the absence of a timely access to independent information. (Dowden,
2003). Although exerting a 50% relative risk reduction of GI complications, the
absolute risk of this effect with conventional NSAIDs is as low as 1.4% in the
general population and 5% to 0.4% with high- and low-risk patients respectively
(National Prescribing Service, 2001).

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In Brazil, where these medicines are generally bought by out-of-pocket

expenses, sales data show that COX-2 selective NSAIDs have increased their
revenues market share in the group of oral NSAIDs from 5% in 1999 to 24% in
2002, undermining the reduction in expenditures achieved by the introduction
of generic drugs since 2000. Generic NSAIDs accounted for a revenues market
share of 7.85% in 2002 and for a units market share of 14% against 13% for COX-
2 selective NSAIDs (Reis & Bermudez, unpublished results).

The above situations highlight the importance of assessing the different

scenarios related to the introduction of new patented medicines and how they
may represent distinct options for public policies to deal with their effects on
health systems. In the case of the new COX-2 selective NSAIDs, for example, it
would clearly not be feasible to grant compulsory licenses to reduce prices by
means of generic competition, since there are other therapeutic options available.
On the other hand, such a situation could be better addressed by policies related
to the rational use of drugs, once there is evidence that the diffusion of those
products has been driven by a biased perception of their safety and efficacy.

Prices and pharmaceutical expenses: monitoring the effects of patented

medicines
As stated from the previous discussion, the effects of patented medicines
on health care systems will depend on the therapeutic improvement in
association with their respective price level and diffusion pattern, i.e. the amount
of pharmaceutical expenses they may represent and their respective efficiency.
Therefore, an assessment of such effects can only be properly performed by
means of analyzing the specific market segments where these products are
being introduced, accounting for the characteristics of available technologies,
demand, sales, prices and market share of firms.

The identification of the products pertaining to such market segments

should be guided by the possibility of substitution among them, in a similar way
as in the definition of the relevant product market in antitrust regulation (IE/
UFRJ, 2002), in order to address competition, including market power and the
dynamics of innovation. Identifying the actual competitors in the pharmaceutical
market may be challenging, once it means to consider many possibilities of

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Reis, Bermudez & Oliveira

intersections among products and therapeutic indications. Notwithstanding, one

can assume that there are specific areas of competition among products used
in the same treatment situations13. These markets may be larger than the ones
formed by products with a particular active principle or by different drugs showing
similar mechanisms of action. On the other hand, they may be narrower than
the ones formed by a whole therapeutic class.

Conclusion
This article demonstrates that drug prices are mainly determined by
demand factors such as the perception of innovative profile, in terms of clinical
improvements, competition in the same market segment and price variation
among different classes of buyers.

In any given national market, many of these factors are already in place,
irrespective of patent recognition status. However, restraints on introducing
generics to the market due to exclusivity rights are likely to reinforce “first
movers” advantages of innovative producers, contributing to consolidate
innovative firms’ market power and hence the ability to determine prices. From
a public health perspective, it is useful to understand the patterns of competition,
product diffusion and pricing in the pharmaceutical market segments where
new, patented medicines are being launched. This will favour the definition of
better policy options needed to manage the effects of drug pricing on health
care, in order to achieve cost-effective resource allocation and increased access
to essential medicines.

13
As is the case of oral NSAIDs, which include traditional and COX-2 selective NSAIDs, since
they have equivalent efficacy as anti-inflammatory agents.

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 Chapter 5

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de la jungla. Fármacos 1 (2): 18-31. 07 April 2004 <http://www.boletinfarmacos.org/
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BARREIRO, E. J. B. & FRAGA, C. A. M., 2001. Química Medicinal – As Bases Moleculares
da Ação dos Fármacos. Porto Alegre: Artmed.
BERMUDEZ, J. A. Z.; REIS, A. L. A; MOLINA-SALAZAR, R. E. & RIVAS-VILCHIS, J. F., 2001.
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BERMUDEZ, J. A. Z. & OLIVEIRA, M. A., 2002. Essential Medicines and AIDS care in
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DANZON, P. M., 1997. Trade and Price Differentials for Pharmaceuticals: Policy Options.
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DiMASI, J. A.; HANSEN, R. W.; GRABOWSKI, H. G. & LASAGNA, L., 1991. Cost of innovation
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ELLISON, S. F., COCKBURN, I., GRILICHES, Z. & HAUSMAN, J., 1997. Characteristics of
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OLIVEIRA, M. A.; BERMUDEZ, J. A. Z.; CHAVES, G. C. & VELÁSQUEZ, G., 2004. Has the
implementation of the TRIPS Agreement in Latin America and the Caribbean
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SCHERER, F.M., 1993. Pricing, profits, and technological progress in the pharmaceutical
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Chapter 6
WTO TRIPS Agreement
Implementationin Latin America
and the Caribbean

Gabriela Costa Chaves & Maria Auxiliadora Oliveira

In this chapter, a brief overview of the literature that analyzes the TRIPS
Agrement implementation processes in developing countries will be presented.
Also included is an analysis of the industrial property legislation of some Latin
American and Caribbean countries from a public health perspective.

The implementation of the TRIPS Agreement by WTO Member countries

almost always requires national intellectual property legislation reform because,
without these changes in the legislation, TRIPS has no effect at the national
level. Correa (2000) pointed out some fundamental issues that should be
considered in the reform of the patent system, which are:

(1) Protection of the environment;

(2) Protection of public health;

(3) Promoting competition;

(4) Promoting technology transfer

(5) Protection of consumers

(6) Support of small local producers; and

(7) Respect of the inventor’s rights to be compensated for their contribution

to scientific progess

A national patent system that includes the “protection of public health”

must be based upon health-sensitive industrial property legislation, that is, the
legislation must include all the TRIPS Agreement flexibilities and safeguards
that enable governments to efficiently act in the public health sector (Correa,
2000). As mentioned in Chapter 1, the following elements should be incorporated

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Chaves & Oliveira

for health-sensitve patent legislation: adequate transition period, experimental

use, parallel importation, compulsory licensing and the Bolar exception.

Bermudez et al. (2000) analyzed the recent changes in Brazilian

legislation (Industrial Property Law #9.279/96) regarding patent claims and
focused specifically on the provisions related to the pharmaceutical and
biotechnology sectors, using the number of patent claims from these sectors as
the main variable. Notwithstanding the fact that the study only covered a period
of two years, the results demonstrated that the main beneficiaries of the recent
changes in Brazilian legislation were not Brazilian institutions or companies.
Rather, it was the transnational companies who benefited, resulting in their
hegemony in the Brazilian market. Chapter 9 contains updated data from 1999-
2002.

Thorpe (2001) conducted a descriptive study using data from three

important intellectual property regional systems: the African Region Industrial
Property Organization (ARIPO), the African Organization of Intellectual Property
(OAPI) and the Andean Community. The author analyzed legislation from 70
developing and least developed countries. The objective was to identify the
TRIPS Agreement flexibilities and safeguards within the national and regional
legislation.

The author found that only three of the 30 least developed countries in
Africa are using the transition period to grant patents for products and
pharmaceutical processes, as established in the Doha Ministerial Declaration1.
Also, few developing countries are implementing all of the TRIPS Agreement
flexibilities. The analysis shows that all countries included some form of
compulsory licensing in their legislation to prevent abuse of industrial
property rights.

Keyla (2003) examined industrial property legislation from India,

Indonesia, Sri Lanka and Thailand. The study focuses on safeguards that enable
governments to take measures to protect public health and describes the health
situations of these countries, as well as the political context and the pharmaceutical
industry profile.

1
The Ministerial Doha Declaration on TRIPS Agreement and Public Health (WTO, 2001)
established in paragraph 7 that least developed countries could extend the transition period
for pharmaceutical products and processes until 01/01/2016.

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 Chapter 6

The results show that there are many public health problems and that
government resources are limited to meet health needs, especially in the context
of the WTO TRIPS Agreement. The author up holds the importance of using
compulsory licensing to take measures that could favor access to medicines,
specially if there exist abuse of patent holder rights, anti-competitive practices,
and failure to obtain a voluntary license. The author also highlights the importance
of improved relationship between health policy, pharmaceutical policy and patent
legislation.

Oliveira et al. (2004) analyzed industrial property legislation from 11

countries in Latin America and the Caribbean: Argentina, Brazil, Bolivia, Colombia,
Equador, Honduras, Mexico, Panama, Peru, the Dominican Republic and
Venezuela. The concept of health-sensitive industrial property law, as established
by Correa (2000) was used in the analysis. The study focused on the identification
of patentable subject matter, patent term, transition periods, reversal of the
burden of proof, exhaustion of rights, compulsory licensing and the “Bolar
exception”. The TRIPS Agreement flexibilities and safeguards and their impact
on access to medicines policy are described. Most countries did not fully
incorporate these safeguards and flexibilites.

Industrial property legislation reform in Latin American and

Caribbean countries

The methodology used by Oliveira et al. (2004) was adapted to study

industrial property legislation in other Latin America and Caribbean countries.
National legislation for each country was obtained from the WTO website (WTO,
2003).

Until May 2004, the Bahamas, Chile and El Salvador had still not adapted
their legislation to the TRIPS Agreement standards. It was not possible to obtain
the legislation from the following countries: Antigua, Bermuda, Cuba, Dominica,
Grenada, Guyana, Haiti, Jamaica, St. Kitts/Nevis, St. Lucia, St. Vincent/the
Grenadines and Suriname. Legislation from Barbados, Belize, Costa Rica,
Guatemala, Nicaragua, Paraguay, Trinidad and Tobago and Uruguay were analyzed.

The following TRIPS Agreement flexibilities and safeguards were

considered (1) transition period to grant patents for pharmaceutical products

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Chaves & Oliveira

and processes, (2) compulsory licensing, (3 ) experiemental use, (4)

exhaustion of rights, (5) early working ( Bolar exception) (6) patent term, and
(7) grounds to issue a compulsory license. The definitions of these terms are
described in Box 1.

BOX 1: Brief description of the TRIPS Agreement terms, flexibilities and

safeguards

PROVISIONS AND DESCRIPTION

MECHANISMS
TERM OF PROTECTION A minimum term of 20 years for all product and process patents,
measured from the date on which the patent application was
(The lifetime of a patent)
filed. (Art. 33)

PATENTABLE SUBJECT Patents shall be available for any inventions, whether products
MATTER or processes, in all fields of technology, provided that they are
new, involve an inventive step and are capable of industrial
application (Art 27)
TRANSITION PERIODS One-year (until 1996) for developed countries
Five years (until 2000) for developing countries
Eleven years (until 2006) for least developed countries
(Art.
(A t 65
65and d66)
66)
TRANSITION PERIODS Ten years (until 2005) is allowed for developing countries to
FOR grant patent protection to fields of technology not protected
PHARMACEUTICALS before January, 1995 (Art. 65.4). The Declaration on TRIPS
Agreement and Public Health, 2001 establishes an additional
period (until 2016) for LDC countries
EXPERIMENTAL USE The patent shall not prevent experimental use of the invention
by third parties for scientific purposes or for commercial
purposes that do not unreasonably conflict with a normal
exploitation of the patent and that do not unreasonably prejudice
the legitimate interests of the patent owner, taking into account
the legitimate interests of such third parties (Correa 2000)
EXHAUSTION OF According to the theory of exhaustion of intellectual property
INTELLECTUAL rights, the exclusive right of the patent holder to import the
PROPERTY RIGHTS protected product is exhausted, and thus ends, when the product
is first launched on the market. When a State or group of States
applies this principle of exhaustion of intellectual property rights
within a given territory, parallel importation is authorized to all
residents in the State in question (Article 6)
PARALLEL IMPORTS Products imported into a country without the authorization of the
right holder in that country, which have been put on the market in
another country by that person or with his consent (Article 6)
COMPULSORY The authorization given by a judicial or administrative authority to
LICENSING a third party for the use of a patented invention, without the
consent of the patente holder (Velasquez & Boulet 1999)
,
EARLY WORKING
This exception allows a country to complete all of the procedures
EXCEPTION
and tests that are necessary to register a generic product before
( BOLAR EXCEPTION ) the original patent expires (Article 30)

Source: Oliveira et al (2004).

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Box 2 shows the WTO entry date and the year of industrial property
legislation reform. Of all countries examined, none of them included references
regarding the use of the transition period to grant patents in the pharmaceutical
sector. As stated in article 65, developing countries have until January 2005 to
grant patents on fields of technology not protected before TRIPS. For a more
precise analysis of this issue, it is necessary to examine the legislation established
and in force before TRIPS.

BOX 2: WTO Entry Date and Patent Legislation Reform

Country WTO Entry Date IPR Reform (year)
Barbados 1º January 1995 Patent Act Nº 18/2001
Belize 1º January 1995 Patent Act Chapter 253 /2000
Costa Rica 1º January 1995 Patent Law Nº 7979/2000
Guatemala 21 July 1995 Decree 57/2000
Nicaragua 3 September 1995 Patent Law Nº 354/2001
Paraguay 1º January 1995 Patent Law N° 1.630/2000
Trinidad and
1º March 1995 Patent Act (Consolidation), 1996 (2000), Nº
Tobago
21 ( Nº 18)
Uruguay 1º January 1995 Patant Law Nº 17 164 /1999

BOX 3: Implementation of TRIPS Flexibilities and Safeguards in National

Legislation

Compulsory Parallel Early Working Experimental

Country Licensing Imports (Bolar Use
exception)
Barbados + - - +
Belize + - - +
Costa Rica + + + +
Guatemala + + - +
Nicaragua + + - +
Paraguay + + + +
Trinidad and
+ - - +
Tobago
Uruguay + + + +

Label: + yes; - no.

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BOX 4: Levels of Exhaustion of Rights

National
International Exhaustion Do not have this provision
Exhaustion
Costa Rica
Guatemala
Trinidad and Barbados
Nicaragua
Tobago Belize
Paraguay
Uruguay

BOX 5: Grounds to Issue a Compulsory License

Failure to
Failure to Remedy for Obtain
Public National Dependent
Exploit Anti- License
Country Interest Emergency Patents
Patent Competitive under
Practices Reasonable
Terms
+
Barbados +* +* +* + +
Belize + +* +* +* +* +
Costa Rica + + + + - +
Guatemala - + + + + +
Nicaragua - + + + + +
Paraguay + + + + + +
Trinidad and
+ +* +* +* +* -
Tobago
Uruguay + + + + + +

Label: + yes; - no
* Government use

Box 2 shows that, with the exception of Uruguay, all countries used the
full transition period of legislation reform.

Box 3 shows the flexibilities and safeguards incorporated into each

country’s legislation. Costa Rica, Paraguay and Uruguay have fully incorporated
all safeguards and flexibilities. Also, these countries included all possible conditions
to issue a compulsory license (Box 5). The Bolar exception was the least
implemented flexibility, found only in the legislation of Costa Rica, Paraguay
and Uruguay.

Compulsory licensing and experimental use were implemented in all

countries. International exhaustion of rights is found in Costa Rica, Guatemala,
Nicaragua, Paraguay and Uruguay. The legislation of Trinidad and Tobago only
includes national exhaustion of rights, while in Belize and Barbados there is no

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specification whether exhaustion of rights should be national, regional or

international (Box 4).

Box 5 presents the different grounds from which to issue a compulsory

license and which of them were implemented in each country. Barbados, Belize,
Paraguay and Uruguay incorporated all conditions. Costa Rica, Guatemala,
Nicaragua and Trinidad and Tobago incorporated all grounds except for each
one.

In conclusion, three of the eight countries- Costa Rica, Uruguay and

Paraguay- have public health sensitive legislation since they have implemented
all TRIPS safeguards and flexibilities, as well as all of the grounds to issue a
compulsory license. The legislation of Trindad and Tobago is in the other extreme,
because it only includes the compulsory licensing safeguard. The other countries
are in between and have room to improve their legislation by implementing
the other flexibilities and safeguards.

Although this study demonstrates that some countries have health-

sensitive patent legislation, it is important to point out that the recent bilateral
and regional trade agreements or trade relationships between countries have
been creating more restrictive patent rules and medicines regulations (TRIPS-
plus provisions). For example, due to pressure from United States, Guatemala
has changed its IPR legislation (MSF, 2003). In April 2003, the Decree # 9/2003
established five years of protection for data submitted to obtain pharmaceutical
product market approval (Guatemala, 2003). This provision, like patent protection,
hinders competition, because it creates a type of monopoly for medicines even
if they are not protected by patents (Jorge, 2004).

Unfortunately, the Guatemala is not an isolated case. Bilateral agreements

have been negotiated and signed between United States and most developing
countries worldwide. In this context, policy makers from the health sector have
been facing IPR standards beyond those agreed on TRIPS in 1994, which means
more obstacles to overcome for implementing access to medicines policies.

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Bibliographic References

VELÁSQUEZ, G. & BOULET, P., 1999. Globalization and Access to Drugs – Perspectives
on the WTO/TRIPS Agreement. Geneva:WHO. WHO/DAP/98.9 Revised

BERMUDEZ, J. A. Z.; EPSZTEJN, R.; OLIVEIRA, M. A. & HASENCLEVER, L., 2000. O Acordo
TRIPS da OMC e a Proteção Patentária no Brasil: mudanças recentes e implicações
para a produção local e o acesso da população aos medicamentos. Rio de Janeiro:
FIOCRUZ/ENSP.

CORREA, M. C., 2000. Integrating Public Health Concerns Into Patent Legislation In
Developing Countries. Geneva: South Centre. 30 Jan 2004 <http://
www.southcentre.org/publications/publichealth/publichealth.pdf>

DRAHOS, P, 2001. Bilateralism in Intellectual Property. OXFAM Policy Papers, Dec 01. 13
Nov 2003 <http://www.oxfam.org.uk/policy/papers/bilateral/bilateral.html>

GUATEMALA, 2003. Decreto nº 9 de abril de 2003. Reforma a la ley de Propiedad

Industrial, Decreto Numero 57-2000 del Congreso de la República y sus Reformas.

JORGE, M. F., 2004. TRIPS-plus provisions in trade agreements and their potential
adverse effects on public health. Journal of Generic Medicines, Vol I, nº 3, pp199-
211.

KEYLA, B. K., 2003. Review of National Patent Legislations of India, Indonesia, Sria
Lanka & Thailand. New Delhi: National Working Group on Patent Laws.

MSF (Médecins Sans Frontières), 2003. Guatemala. 28 Jan 2004 <http://

www.doctorswithoutborders.org/publications/ar/i2003/guatemala.shtml>

OLIVEIRA, M. A; BERMUDEZ, J. A. Z.; CHAVES, G. C. & VELASQUEZ, G., 2004. Has the
implementation of the TRIPS Agreement in Latin America and the Caribbean
produced industrial property legislation that favors public health policy? The
Bulletin of the World Health Organization (in press).

THORPE, P., 2001. Study on the Implementation of the TRIPS Agreement by Developing
Countries. Study Paper No 7. London: CIPR.

WTO (World Trade Organization), 2001. Declaration on the TRIPS Agreement and
Public Health. 20 Jan 2004 <http://www.wto.org/english/thewto_e/minist_e/
min01_e/mindecl_trips_e.pdf>

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WTO (World Trade Organization), 2003. Homepage of the WTO. 05 Aug 2003
<www.wto.org>

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Part II – Intellectual Property

Rights and Brazil

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Chapter 7
Expanding Access to
Essential Medicines in Brazil:
Recent Regulation
and Public Policies

Jorge A.Z. Bermudez, Maria Auxiliadora Oliveira

& Egleubia Andrade de Oliveira

Brazil has been implementing a broad range of initiatives to expand

access to medicines, which can provide examples for other developing countries.
Of special interest is the universal access to anti-retroviral drugs program that
the Ministry of Health established in recent years, which will be discussed below.
These initiatives must be considered not as isolated actions but as a sequence
of steps that have enabled Brazil’s national health system to make advances
(Bermudez et al., 2000; Bermudez, 2001; 2002, 2003).

This chapter will briefly describe and analyze the most important
government policy initiatives of the pharmaceutical industry and access to
medicines.

The Central Agency for Medicines (Central de Medicamentos –

CEME)
Among other initiatives in the Brazilian health sector, the most
important was the creation of the Central Medicines Agency (CEME) under
the Office of the President, in 1971. Its functions were defined as regulating
the production and distribution of drugs by the pharmaceutical laboratories
subordinated or linked to the various government ministries (CEME, 1988;
Bermudez, 1992, 1995).

The plan for the Central Medicines Agency included jointly functioning
sub-systems: information, production, distribution, research, and evaluation and
control. The most relevant measure implemented by CEME during its existence

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was to coordinate the official government production system. However, as

mentioned in previous studies (Bermudez, 1992, 1995, Bermudez et al., 2000,
Bermudez, 2002, 2003), CEME catalyzed the conflicts between the public sector
and the domestic private sector in pharmaceutical production. The differences
between the sectors became increasingly clear in the centralized purchase of
medicines by CEME.

CEME was decommissioned in 1997, in the midst of a crisis involving

alleged corruption and non-observance of its initial objectives, having become
during the years a mere purchaser and distributor of medicines. Its activities
had dwindled mainly to the buying of large quantities of medicines from the
private sector, while its involvement in research, technological development
and the coordination of a national quality assurance system had declined. After
being decommissioned, CEME’S activities were reallocated to different
departments of the Ministry of Health. This action created the need for an
explicit national medicines policy in the Ministry of Health, and was a first step
towards establishing the current priorities regarding access to medicines (Wilken
& Bermudez, 1999).

Brazilian National Medicine Policy

In the beginning of 1997, a working group was established by the
Brazilian Ministry of Health to coordinate the process of a national drug policy,
resulting in the first an explicit drug policy consistent with World Health
Organization guidelines (OMS, 1998).

After 20 months of negotiations involving different actors, which included

health professional representatives, organized society, the pharmaceutical industry,
health system managers and international organizations, the Ministry of Health,
through MS Ruling # 3.916/98, issued the document entitled “National Drug
Policy”. This document established the basis and guidelines for activities in this
sector, calling attention to the need to link intersectoral actions (MS, 1999a;
Yunes, 1999).

The following are the essential guidelines and priorities of the recently
formulated National Drug Policy.

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Guidelines:

(a) Adoption of a list of essential medicines (EDL);

(b) Health-related regulation of medicines;

(c) Reorientation of pharmaceutical services;

(d) Promotion of rational use of Drugs;

(e) Scientific and technological development;

(f) Promotion of production of pharmaceuticals;

(g) Safety, efficacy, and quality assurance; and

(h) Development and training of human resources.

Priorities:

(a) Permanent review of the National List of Essential Medicines

(Rename);

(b) Pharmaceutical services

(c) Promotion of rational medicine use; and

(d) Organization of medicines-related health surveillance activities.

Review of the National List of Essential Medicines (Rename)

Following the approval of the National Drug Policy, the National List of
Essential Medicines was reviewed – the last updating had been in 1982. The
revision was based mainly on the WHO’s Model List for Essential Medicines and
on evidence-based, a broad revision of publications on meta-analysis and clinical
trials1. It was officially adopted as Ministry of Health Ruling # 597/99, and has
been distributed throughout the health system. States and municipalities are
being encouraged to use similar lists at their own level.

1
The classification of all the medicines on the list was made in accordance with the WHO
Model List in order to make it easier to use by health system professionals, including
general guidelines for disease treatment as well as the medicines used for treatment of
systemic organic diseases

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Bermudez, Oliveira & Egleubia Oliveira

In 2001, the Ministry of Health set up a national commission that is

responsible for the standing revision of the National List of Essential Medicines2.
The current essential medicines list in Brazil is composed of 312 items and 561
presentations. Of these, 43.1% are injectables (including all the vaccines and
serum), and 24.6% of all the medicines are intended for hospital use.

Following the National List of Essential Medicines, a therapeutic formulary,

including guidelines and evidence-based information for essential medicines,
was also developed. It is meant to be a guide for rational prescribing within the
health services, and not to be restricted to the public sector (MS/ANVISA, 2002).

The Basic Pharmacy Program

The Basic Pharmacy Program (PFB) was established in 1997 to initially
provide access to lower-income population groups from poorer areas of Brazil
to 40 essential medicines, thus complying with the Constitutional measure
ensuring the right to health for all citizens (MS, 1997).

The program was based on the identification of one of Brazil’s most

serious public health problems, i.e., treatment non-compliance, dropout, and
lack of continuity of treatment, due to the fact that patients cannot afford to
purchase prescribed medicines. This, leads to the recurrence and aggravation of
diseases that could be cured or controlled by prophylactic measures (Folha de
Manguinhos, 1997).

The Basic Pharmacy Program consisted of a standard kit of medicines of

more general use and was distributed evenly among selected municipalities
(counties) of Brazil. Items, in amounts calculated to cover the needs of 3,000
individuals, were distributed for a mean period of three months. Specific drugs
were selected for the program to facilitate effective, lower-cost treatment of
the most common diseases affecting the Brazilian population, based on prior
experience with CEME and the pharmaceutical care programs in the states of
Paraná, São Paulo, and Minas Gerais. The drugs were also selected based on the
possibility of production by government laboratories. Quantitative estimates of
the drugs were performed using mean-consumption-per-treatment criterion,

2
A second revision was finalized in 2002.

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based on standard treatment protocols used for the most common out-patient
situations (MS, 1997).

Due to financial limitations, counties with fewer than 21,000 inhabitants

were selected, and the plan was to serve 4,199 counties, covering a population
of 35,511,679 individuals, at an annual cost for purchase and distribution of the
medicines estimated at R$111,288,592.00 (R$3.1339/person/year)(Cosendey,
2000).

The Basic Pharmacy Program was centrally planned, with a fixed range
of drugs and did not provide for replenishment of stocks or adjustment of
demand for given drugs, with no regard for potential regional specificities or a
well-defined role for the State administrative level. Since the selection criterion
was number of inhabitants, a certain problems arose in its implementation. The
program received criticism from counties that failed to receive the drugs, despite
their health conditions being virtually identical to those that were benefited by
the program.

Although the Basic Pharmacy Program was conceived to rationalize the

distribution of a range of medicines to treat the country´s most prevalent diseases,
in practice there were flaws in the links with the State health departments. In
addition, at least in its initial stage, no provision was made for strengthening or
consolidating the local health services that received the medicines, i.e., with a
view towards more rational use. It is important to apply indicators for drug
prescribing, dispensing, and use in the various health care units as a basis for
evaluating pharmaceutical care policies.

The implementation of the Basic Pharmacy Program by the Ministry of

Health highlighted the need for essential drug programs to be operationally
linked, and for each State to have a program or plan involving its respective
counties, linked politically at the various management levels. In the Brazilian
case, these are the so-called Bipartisan Inter-Administrative Commissions. In the
current stage of the Brazilian health care system, characterized by a
decentralization process, it is necessary to consolidate the State levels in order
for them to be capable of implementing clear policies, involving all of their
respective counties.

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Decentralization of Basic Pharmaceutical Services

Ministry of Health Ruling # 176/99 sets criteria and prerequisites for
counties and States to qualify for Basic Pharmaceutical Services, in addition to
setting values for Federal government resources. The Ruling also defines the
minimum values to be allocated as counterpart contributions at the State and
county level.

As part of this current decentralization process involving resources for

basic pharmaceutical care in Brazil, some States have opted to totally or partially
maintain a centralized administration of State programs, with a fixed list of
drugs to be supplied to the counties, based on population criteria. Some counties
(or municipalities), especially those with larger populations and which are
operating their health systems with the so-called “full management” approach3,
may choose to receive the funds to make their own pharmaceutical purchases.

The issues leading to the decentralization process have been discussed

since 1997, covering various aspects relating to drug supply by the Unified
Health System (SUS), the demand for drugs by the Ministry of Health, and the
consequences of the decommissioning of the Central Medecines Agency (Conass,
1999).

An important report was approved by the Conass (National Council of

State Health Secretaries)Assembly in Brasília on March 27, 1998 and was
subsequently supported by the Tripartite Inter-Administrative Commission,
entitled, “Towards a Decentralized Pharmaceutical Services Program: a proposal
by the Conass based on experiences at the State level”. This report is the first
real step towards defining minimum requirements for establishing a decentralized
model capable of promoting access to medicines for basic health care. The
report is in accordance with Basic Operational Norm # NOB SUS 01/96, the
National Drug Policy and other legislation related to pharmaceutical services.

3
An accreditation system for municipal (county) health departments according to health
system management conditions as defined by the Ministry of Health’s Basic Operational
Norm # NOB/96 (MS, 1997)

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The National Health Surveillance Agency

The National Health Surveillance Agency (ANVISA) was created through
Act # 9.782/99 in January 26, 1999. Its main purpose is to foster protection of
the health of the population by exercising sanitary control over production and
marketing of products and services subject to sanitary surveillance. The Agency
is part of the Ministry of Health but has administrative and financial autonomy.
This means it is an independently administered, financially-autonomous regulatory
agency, with guarantee of tenure for its directors during the period of their
mandates. ANVISA is managed by a Collegiate Board of Directors, composed of
five members. It was created along the lines of the American Food and Drug
Administration, for regulating health-related products and services, replacing
the previous body in the Ministry of Health that had that responsibility (Bermudez
et al., 2000; ANVISA, 2004a).

The agency has incorporated additional responsibilities, such as

coordination of the National Sanitary Surveillance System (SNVS), the National
Program of Blood and Blood Products and the National Program of Prevention
and Control of Hospital Infections. ANVISA also: monitors drug prices and prices
of medical devices; is responsible for issues pertaining to regulation, controls
and inspection of tobacco products; provides technical support to the National
Institute of Industrial Property in granting patents for the pharmaceutical industry
(ANVISA, 2004a). The Agency also has control over ports, airports and borders as
well as liaisons with the Brazilian Ministry of Foreign Affairs and foreign
institutions over matters concerning international aspects of sanitary surveillance.

Therefore, Act # 9.782/99 marked the beginning of the implementation

of a new regulatory system for medicines, foods, sanitary products, cosmetics
and other areas of sanitary surveillance. With this Act, the federal government
reorganized the national surveillance system, which was previously considered
inefficient and corrupt. The creation of ANVISA resulted in the implementation
of a series of administrative, technical and financial changes. New taxes and
mechanisms were created to make sanitary surveillance self-sufficient (Gemal,
2004).

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The Generics Act

Despite several previously unsuccessful attempts at implementation,
the Executive Branch enacted Act # 9.787/99, amending Act # 6.360/76, which
dealt with various facets of licensing and inspecting products and services,
establishing the basic concepts and effectively introducing generic drugs in
Brazil. Supplementary measures, especially Decree # 3.181/99 and Resolution #
391/99 of ANVISA, regulated various aspects in the implementation of generic
drug policy in Brazil, such as establishing technical standards and norms and
defining the concepts of bioavailability and bioequivalence for generic, innovative,
reference, and similar medicines. ANVISA also set the criteria and conditions for
licensing and controlling generic drugs in the Brazilian pharmaceutical market.

The regulation of generic drugs sparked a controversy with widespread

media coverage, in light of the break with established hegemonies in the Brazilian
market. The implementation of the generic Act in Brazil met resistance from
the Brazilian transnational pharmaceutical companies association (ABIFARMA).
Aiming to undermine the reliability of generics, ABIFARMA developed campaigns
directed towards both to consumers and physicians. The reason was the expansion
of sales by domestic manufacturers of generic medicines, which led to
transnational market share loses (Fritsch, 1999).

The Act # 9.787/99, known as the “Generics Act” defines what is

considered a generic medicine and under which conditions generic names may
be used for pharmaceutical products in Brazil (Brazil, 1999). A generic medicine
is defined as a product similar to the reference or innovator4 product, and is
expected to be interchangeable5 with the latter. Generics are usually produced
after the expiration or waiver of patent protection or any other exclusive rights.
Safety, quality and efficacy must be proven according to Brazilian Non-Proprietary
Name (DCB) standards, or in the absence of DCB approval, by International Non-
Proprietary Name (INN) standards. To obtain commercial licensing, these
medicines must be approved for safety, efficacy and quality and must be

4
Reference drug product - innovator product registered at the federal agency in charge of
sanitary surveillance and marketed in the country. Effectiveness, safety and quality have been
scientifically proven to the federal agency, upon registration.
5
Interchangeable Pharmaceutical Product - therapeutic equivalent to a reference drug Product,
the same effectiveness and safety standards are essentially proven.

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interchangeable to the reference medicine. This means that comparative tests

to prove pharmaceutical equivalence and bioequivalence6 are mandatory.

The Generics Law created a new category of copies of commercialized

medicines in Brazil, called similar medicines, which until May 2003, were
registered only using the criteria of similarity. In other words, proving
interchangeability was not required. Similar medicines contain the same: active
ingredients, concentration, dosage form, routes of administration, dose regimen,
therapeutic indication-preventive or diagnostic-of the reference medicine. They
are registered in the ANVISA, however, most of them are not considered
interchangeable to the reference drug, because they are not submitted to
comparative tests of bioequivalence. Similar medicines can only be marketed
by brand name. In summary, Brazil has three categories of medicines in circulation:
the innovative, which have brand names, and may be patented or not; generic
versions that use DCB or INN standards and are interchangeable with their
respective reference medicines; similar medicines, that also have brand names
and are similar to the reference drug, but are not submitted to tests of
bioequivalence. ANVISA rules # 133/03 and 134/03 (ANVISA, 2004b, 2004c)
establish new requirements to obtain market approval for similar medicines,
which include the need to perform “relative bioequivalence” tests to compare
with a reference drug. This means that during the next five years all
similar medicines commercialized in Brazil will have to be submitted to
bioequivalence testing.

One of the objectives of Brazilian generic policy is to promote

competition between medicines, in their different relevant markets, aiming to
reduce prices especially for medicines for chronic conditions.

The implementation of generic policy has enabled the strengthening

of the local pharmaceutical industry. According to data from the Association of
the Brazilian Generic Medicines Industry – (Pró-Genéricos, 2004), in the last
three years, the generic industry invested close to R$ 1 billion in the construction
and modernization of Brazilian industrial plants. Currently, 80% of the medicines
units marketed in the country are locally produced and Brazilian companies

6
Bioequivalence - the demonstration of pharmaceutical equivalence between products
presented in the same dosage form, containing identical composition of drug(s), and that
have comparable bioavailability when studied under the same experimental design (Act #
9.787/99).

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Bermudez, Oliveira & Egleubia Oliveira

account for 74.6% of the total value of sales. It is important to note that large
international generic industries are building their capacity for local production.
This is reflected in their increasing market share participation. Indian companies
are responsible for 10.3% of the generic market share, followed by German
4.7%, Swiss 4.6%, American (US) 3.8% and Canadian 2%. Today, the four biggest
companies in this sector are supported by national capital, as shown in Table 1.

TABLE 1. Top ten local manufacturers of generic medicines by volume of sales

and participation in the market.Brazil, 2004

VOLUME OF SALES PERCENTAGE OF GENERIC

COMPANY
(0#of
(# packages)
ofpackages) MARKET SHARE

MEDLEY 1.79 Million 24.11%

EMS SIGMA PHARMA 1.78 Million 21.00%
BIOSINTÉTICA 1.12 Million 14.58%
EUROFARMA 907 Thousand 10 54%
.
RAMBAXY 435 Thousand MIL 10.04%
APOTEX 267 Thousand MIL 4 56%
MERCK 206 Thousand MIL 3.07%
NOVARTIS 170 Thousand MIL 4 30%

HEXAL 104 Thousand MIL 1.88%

MEPHA 100 Thousand MIL 0 04%

Source: Pró-genéricos, 2004

The first generic drug approvals in Brazil were issued in February 2000.
Four years later, 1140 approvals were issued for 270 active ingredients,
corresponding to 4,448 dosage forms. These medicines are manufactured by
53 pharmaceutical companies, of which 27 are national and 26 are international,
as described in Table 2 (Bermudez et al., 2000, Bermudez, 2001, ANVISA, 2004d).
In Brazil, licensed generic products pertain to 57 pharmacological groups of
medicines, including those for in-patients and out-patient use. ANVISA is also
aware of the differences in price of new products coming into the Brazilian
market, since it is not acceptable to introduce more expensive drugs. For this
reason, generic products must be nearly 40 per cent cheaper than the reference
products, which are mostly branded products from big transnational companies
whose patent protection has expired.

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TABLE 2: Pharmaceutical Companies by Origin of Capital and Number of

Generic Medicines Registered by ANVISA, Brazil, 2004
PHARMACEUTICAL LABORATORY ORIGIN OF CAPITAL # OF
REGISTERED
MEDICINES
EMS NATIONAL 166
EUROFARMA NATIONAL 121
MEDLEY NATIONAL 108
RAMBAXY FOREIGN 89
PRATI-DONADUZZI NATIONAL 66
TEUTO NATIONAL 61
BIOSINTÉTICA NATIONAL 48
APOTEX FOREIGN 44
NOVARTIS FOREIGN 37
NEOQUÍMICA NATIONAL 36
MEPHA FOREIGN 35
CRISTÁLIA NATIONAL 34
BRAINFARMA FOREIGN 33
HEXAL FOREIGN 33
ABBOTT FOREIGN 32
NATURES´S PLUS FTCA NATIONAL 28
MERCK FOREIGN 21
UNIÃO QUÍMICA NATIONAL 17
ATIVUS FOREIGN 11
ABFARMO FOREIGN 10
CINFA FOREIGN 10
GREEN PHARMA NATIONAL 10
ALCON FOREIGN 09
PRODOTTI FOREIGN 08
ASTA MEDICA FOREIGN 07
DUCTO NATIONAL 06
HIPOLABOR NATIONAL 06
ARROW FOREIGN 05
HYPOFARMA NATIONAL 05
HALEX ISTAR NATIONAL 05
BRISTOL FOREIGN 04
IPCA FOREIGN 04
SANVAL FOREIGN 04
KINDER FOREIGN 03
THEODORO F SOBRAL NATIONAL 03
ALLERGAN FOREIGN 02
BIOLAB SANUS FOREIGN 02
LUPER FOREIGN 02
ALTANA FARMA FOREIGN 01
BIOBRAS FOREIGN 01
BUNKER NATIONAL 01
CELLOFARM FOREIGN 01
EQUIPLEX NATIONAL 01
ESTERLINA NATIONAL 01
GENON NATIONAL 01
KNOLL FOREIGN 01
JP NATIONAL 01
LAFEPE NATIONAL 01
LIBBS FOREIGN 01
NOVAFARMA NATIONAL 01
VITAPAN NATIONAL 01
RIOQUÍMICA NATIONAL 01
ZAMBON FOREIGN 01
TOTAL 1140

Source: ANVISA, 2004d.”

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Bermudez, Oliveira & Egleubia Oliveira

No strict price controls on generic medicines are being implemented,

but the Ministry of Health has proposed two lists of priority products that are be
strongly encouraged to have generic versions. These lists are based on the
WHO’s Model List for Essential Drugs, the Brazilian Essential Drugs List, basic
health care lists of drugs in the Brazilian health system and on considerations of
the market share of medicines. These two lists have had positive reactions from
manufacturers, and requests to license generic drugs have been granted
(Bermudez et al., 2000; Bermudez, 2001; Bermudez, 2002). The market share
of generic medicines is around 10% of the total medicines market in number of
units sold, and 5% of the value(ANVISA, 2004e). Generic industry expectations
are to achieve a 30% market share of the number of units sold by the year 2007
(Pro-genéricos, 2004).

State-owned pharmaceutical manufacturers

An important characteristic of the Brazilian pharmaceutical industry is

the existence of a network of public laboratories which produce medicines and
biologicals to supply the public health system at the three levels of government
(federal, state and municipal levels).

This network is composed of 18 laboratories, established in different public

administration entities such as the Ministry of Health, the Armed Forces, state
governments and universities. Existing production capacity is estimated at 11
billion pharmaceutical units per year. Laboratory distribution by region is organized
in the following way (ALFOB, 2003)7:

Northeast Region

State Pharmaceutical Laboratory of Pernambuco –L AFEPE

Pharmaceutical Laboratory of Alagoas – LIFAL

State Pharmaceutical Laboratory of Paraíba – LIFESA

Center for Research on Food and Medicines (RN)– NUPLAN

7
A laboratory linked to the Federal University of Amazonas, in the Northern region of the
country, is in its final stages of installation (MS, 2003).

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College of Pharmacy, Dentistry and Nursing – UFC – FFOE

Pharmaceutical Technology Laboratory – UFPB – LTF

Southeast Region

Institute of Technology in Medicines – FARMANGUINHOS

Ezequiel Dias Foundation – FUNED

Foundation for Popular Medicines – FURP

Vital Brazil Institute – IVB

Air Force Chemical and Pharmaceutical Laboratory – LAQFA

Navy Pharmaceutical Laboratory – LFM

Army Chemical and Pharmaceutical Laboratory – LQFE

Southern Region

Pharmaceutical Laboratory of Rio Grande do Sul – LAFERGS

Pharmaceutical Laboratory of Sta. Catarina – LAFESC

Laboratory of Teaching and Research in Medicines and Cosmetics –

LEPEMC

Medicines Production Laboratory – LPM

West-Central Region

State Chemical Company of Goiás – IQUEGO

The production of these public laboratories represents close to 3%

of national production in monetary value and 10% in unit numbers, corresponding
to almost 10% of total medicine purchases by the Ministry of Health (MS, 2003).

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TABLE 3: Public Laboratory Production/Pharmaceutical Units/2003

LABORATORY PRODUCTION VOLUME

FURP 3,903,840,000
LIFAL 1,728,144,000
LAFEPE 1,345,680,000
FARMANGUINHOS 1,289,067,280
FUNED 692,340.000
IQUEGO 618,000,000
LAFERGS 375,800,000
LAQFA 242,352,000
LQFE 209,419,590
LTF 193,080,000
LFM 120,800,000
LPM 96,000,000
LIFESA 80,000,000
LAFESC 38,400,000
LEPEMC 21,000,000
IVB 10,680,000
FFOE 7,200,000
NUPLAM 876,320
TOTAL 10,972,679,190

Source: ALFOB, 2003

Previous studies (Bermudez,1992;1995)highlighted that

strengthening and consolidating production can be an effective instrument
in supporting government health policies, which can provide subsidies to
regulate prices within the government market. This has occurred in the
recent negotiations of antiretroviral (ARV) prices between the Ministry of
Health and patent holding transnational laboratories, that threatened to
jeopardize the continuity of Brazil’s universal access to treatment program
for People Living with HIV/AIDS (PLWHA)(as stated in chapter 1).

These price negotiations involved the Brazilian government and

three transnational laboratories, Merck, Roche and Abbott. The Institute of
Technology in Medicines (Farmanguinhos/Fundação Oswaldo Cruz/Ministério
da Saúde) supplied the Ministry of Health with reference information to
establish acceptable prices. This was possible because of the Institute´s
reverse engineering capability, which enabled the government to threaten
with compulsory licensing in the case of a negotiation stalemate (Oliveira
et al., 2004).

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Medicines produced by the public laboratory network contribute to

the financial sustainability of strategic Ministry of Health programs. Another
aspect to be considered is the role these laboratories have in research,
development and medicine production for diseases prevalent in poor
countries, also knows as neglected diseases (Trouiller et al., 2002).

Considering that the amount of private investment into the R&D

sector in Brazil is small, the technological development initiatives developed
by some of the public laboratories, despite being limited, has presented
promising results, especially for ARVs.

In the past three years, due to the importance of the public

laboratory network for the viability of strategic Ministry of Health programs,
the federal government has invested close to US$20 million to modernize
and amplify the industrial production plants (MS, 2003).

Universal Access to Medicines for People Living with HIV/AIDS

Universal access to ARVs in Brazil cannot be analyzed in an isolated
fashion. It must be seen as one of the key elements of an integrated program
that has been implemented on a step-by-step basis over the years. From 1980
to December 2003, some 277,154 cases of AIDS were reported to the Ministry
of Health, leading to the estimate that 597,000 Brazilians were infected with
HIV (MS, 2003). As of January 2003, 125,000 PLWHA were receiving ARV treatment,
which correspond to 100% of those in need (MS, 2004).

The Brazilian Ministry of Health’s policy and guidelines for care of PLWHA
has legal support. In addition to the regulations of the Constitution and the
health system, Act # 9.113/96, passed in 1996, guarantees every patient free
access to all medicines required for treatment (Brazil, 1996). Standard treatment
guidelines are set forth and reviewed at least once a year under the sponsorship
of the Ministry of Health (MS, 2001; Oliveira et al., 2002; Bermudez 2003)

The Brazilian health services network for providing treatment for PLWHA,
including ARVs, is composed of a total of 2,015 units: 1,126 STI outpatient services,
381 other outpatient units, 54 homecare services, 79 day care health services
and 375 accredited hospitals. Medicines are dispensed in all states in a total of
424 pharmacies, most located in the health services network. Laboratory support

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Bermudez, Oliveira & Egleubia Oliveira

for diagnosis of the infection and monitoring treatment is carried out by 73

laboratories, which have the capability to measure viral loads, and 65 have the
capability to do CD4/CD8 counts. In addition, twelve laboratories are responsible
for viral resistance surveillance (MS, 2002).

From 1991 to 1995, the provision of ARV treatment in Brazil had a

limited range because of the insufficient supply and availability of medicines in
the public health network. In 1996, intensive media coverage of new
technologies, availability of efficacious protease inhibitors and the ability to
combine medicines into “cocktails”, led to a more comprehensive approach
and the creation of Ministry of Health guidelines (Oliveira, 2001). From 1996
onward, the Ministry of Health ensured an increased supply of drugs, and the
first Brazilian consensus on the use of ARV therapy and Technical Advisory Groups
was established. A logistic system for purchase and distribution of medicines
was developed as well.

According to the Ministry of Health (MS, 2000), the principles of

universal, integral and equal access to care ensure that 100 per cent of patients
with HIV/AIDS receive the necessary treatment. The results are dramatic, and
respectively include 48% and 49% reductions in the death rate of patients in
two studies carried out in São Paulo and Rio de Janeiro. There has been a
considerable reduction in hospital admissions since 1997. It has been estimated
that approximately 234,000 AIDS-related hospital admissions were prevented in
the period 1997–2000, representing an overall savings of US$ 677 million for
the health system (MS, 2001).

Currently, the Ministry of Health is responsible for supplying 16 ARVs,

including six nucleoside analogue reverse transcriptase inhibitors, two non-
nucleoside analogue reverse transcriptase inhibitors, one nucleotide analogue
reverse transcriptase inhibitor, and seven protease inhibitors. State governments
are responsible for providing medicines for treatment of HIV-associated
opportunistic infections (Oliveira et al., 2002).

There exist seven public manufacturers of ARVs in Brazil. Besides Far-

Manguinhos, which is a federal manufacturer linked to the Ministry of Health,
other state manufacturers producing ARVs include the: Foundation for Popular
Medicines; State Pharmaceutical Laboratory of Pernambuco; Pharmaceutical
Laboratory of Alagoas; State Chemical Company of Goiás; Ezequiel Dias Foundation
and the Vital Brazil Institute. The federal manufacturer, Far-Manguinhos, is

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responsible for developing the manufacturing process for the final products,
and supplies nearly 30% of all AIDS medicines used in Brazil. Far-Manguinhos is
also responsible for developing reverse-engineering technology for
pharmaceutical ingredients which strategically support policies of the Ministry
of Health (Boechat, 2003).

ARV prices in Brazil have fallen in recent years due to negotiations and
centralized procurement with international pharmaceutical companies and the
promotion of state manufacturing. According to data from the Ministry of Health,
domestic production has reduced ARV prices 78% in average. Negotiation with
transnational companies has reduced prices of locally produced ARVs 70%, and
of imported products 25% in average (MS, 2001). As demonstrated by a study
performed by Oliveira et al. (2000), the price of Zidovudine has dramatically
fallen during the 10 year period from 1988 to 1999. Government centralized
purchases of ARVs was the most important factor that contributed to zidovudine
price decrease, as verified by the authors. A cost-benefit analysis has found that,
when considering the resources spent on ARV therapy, the savings in
hospitalization, welfare and years of life gained are clear. Government support
for the AIDS treatment program has been sustained by pressure from a coalition
of social forces, the quality of the program and the global importance of the
AIDS pandemic (MS, 2000a).

A decrease in the frequency of the most common opportunistic infections

has also been reported in Brazil – at a mean rate of 60 to 80% reduction,
including Cryptococcus infection (- 60%), CMV infection (- 54%) and Kaposi’s
Sarcoma (- 38%) – in major centers that receive severely immuno
deficient patients. New cases of tuberculosis in HIV+ patients also have
decreased (MS, 2001).

Further evidence of the positive aspects of providing universal access

to ARVs is provided by the partial immunological reconstruction that is being
promoted by treatment. This has been shown by the progressive rise of the
main TCD4+ count after 18 months of treatment. This improvement seems to
reduce the frequency and severity of opportunistic infections and provides a
better quality of life. All of this evidence is a response to the criticism that has
frequently been made regarding the poor quality of domestic state production
in Brazil publicized at recent forums (Bermudez, 2003).

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 TABLE 4: Estimated Funds Allocated for Drug Purchases for Ministry of Health Programs . Brazil, 1999-2003. (in R$
1,000)

PROGRAMS 1999 2000 2001 2002 2003

Incentives for basic pharmaceutical services (decentralized to 163,947 164,200 168,300 168,300 171,162
the state and county levels)
High cost drugs 296,357 316,000 449,000 489,539 603,800
Essential drugs for treating mental conditions (decentralized 22,178 26,800 24,400 26,800 29,400
to the State level)
Strategic Ministry of Health programs (leprosy, tuberculosis, 908,500 806,047 804,537 997,179 1,008,716
Bermudez, Oliveira & Egleubia Oliveira

AIDS, diabetes,
) blood products, and endemic diseases
control

146
TOTAL 1,390,982 1,313,047 1,446,24 1681,82 1,813,078

Source: MS (Brazilian Ministry of Health), 1999b, 2000, 2001a.

 Chapter 7

Federal Allocations for Medicine Purchases

The Ministry of Health’s annual budget total for 2002 was R$ 24.7 billion.
Of this total, more than 10% (around R$ 3 billion) was spent on medicine
purchases, including those used during hospitalization (MS, 2002; Cardenas,
2002; MS, 2002). Since the decommissioning of the CEME, in 1997, new
pharmaceutical service programs, for basic pharmaceutical services, high cost
drugs, essential drugs for treating mental conditions and other strategic programs
have been receiving a substantial amount of funds, as described in table 4.

It is important to point out that in addition to the funds allocated at the

Federal level or through Ministry of Health transfers, both the states and counties
also allocate their own funds either to meet specific demands from their health
care systems or to match or supplement funds received from the Federal
government.

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alfob. 30 Nov 2003 <www.alfob.com.br>

ANVISA, 2004a. Medicamentos Genéricos – Sumário Geral. 19 May 2004 <http//

:www.anvisa.gov.br/hotsite/genéricos/estatistica/laboratorio.pdf>

ANVISA, 2004b. Resolução RDC nº 133, de 29 de maio de 2003. Dispõe sobre o registro
de Medicamento Similar e dá outras providências. 20 May 2004 <http://e-
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ANVISA, 2004c. Resolução RDC nº 134, de 29 de maio de 2003. Dispõe sobre a adequação
dos medicamentos já registrados. 20 May 2004 <http://e-legis.bvs.br/leisref/
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ANVISA, 2004d. Gerencia de Regulação de Mercado. 19 May 2004 <www.anvisa.gov.br>

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BERMUDEZ, J. A. Z., 1992. Remédios: Saúde ou Indústria? A produção de medicamentos

no Brasil. Rio de Janeiro: Relume-Dumará.

BERMUDEZ, J. A. Z., 1995. Indústria farmacêutica, Estado e Sociedade. Crítica da política

de medicamentos no Brasil. São Paulo: Hucitec/ Sobravime.

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BERMUDEZ, J. A. Z., 2001. Ao Brésil, le triomphe dês génériques, Biofutur, 210:40–

42.

BERMUDEZ, J. A. Z.; EPSZTEJN, R.; OLIVEIRA, M. A. & HASENCLEVER, L., 2000. O Acordo
TRIPS da OMC e a Proteção Patentária no Brasil: mudanças recentes e implicações
para a produção local e o acesso da população aos medicamentos. Rio de Janeiro:
FIOCRUZ/ENSP.

BERMUDEZ, J. A. Z., 2002, Expanding Access to Essential Medicines in Brazil: Recent

Economic Regulation, Policy- Making and Lessons Learnt. In: Granville, E.: The
Economics of Essential Medicines.London:Royal Institute of Internationak Affairs

BERMUDEZ, J. A. Z., 2003 A Globalização o Mercado Farmacêutico e suas Distorções.

In:Bayma, F. & Kasznar, I. Saúde e Previdência Social. Rio de Janeiro:Pearson
Education

BOECHAT, N., 2003. Desenvolvimento Tecnológico e Produção Local de Antiretrovirais

(ARVs) no Brasil. Satellite Meeting on Financing Care in Latin America and the
Caribbean: Options for Large Scale Programs. In: 2nd Forum on HIV/AIDS and STI
of Latin America and the Caribbean, Havana, 08 April 2003.

BRASIL, 1996. Lei nº 9313 de 13 de novembro de 1996. Dispõe sobre a distribuição

gratuita de medicamentos aos portadores do HIV e doentes de Aids. 27 Dec 2000
<http://www.aids.gov.br/assistencia/lei9313.htm>

BRASIL, 1999. Decreto nº 3.201, de 6 de outubro de 1999. Dispõe sobre a concessão,

de oficio, de licença compulsória nos casos de emergência nacional e de interesse
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Diário Oficial [da] República Federativa do Brasil, 7 de outubro de 1999.

CEME (Central de Medicamentos), 1988. Legislação. Documento Ceme-107 revisto e

atualizado. Brasília: Ministério da Saúde, Central de Medicamentos.

CONASS (Conselho Nacional dos Secretários de Saúde), 1999. Os Estados na

Construção do SUS. Cadernos Conass, 2(4).

COSENDEY, M. A. E., 2000. Análise da implantação do Programa Farmácia Básica: um

estudo multicêntrico em cinco estados do Brasil. Tese de Doutorado, Rio de
Janeiro: Ensp/Fiocruz.

FOLHA DE MANGUINHOS, 1997. Farmácias básicas atendem a 1586 municípios. Folha

de Manguinos, VII (27): 5.

FRITSCH, P., 1999. Generics Break Brand Names‘ Hold on Brazil – Companies Fear The
Adverse Side Effect on Drug Sales. The Wall Street Journal Europe, 9 Nov.,
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GEMAL, A.L., 2004. Situação Atual do Sistema Nacional de Vigilância Sanitária e a

Política De Medicamentos Genéricos no Brasil. In Bermudez, Oliveira & Esher,
2004 Accesso a Medicamentos: Derecho Fundamental, Papel del Estado. Rio de
Janeiro:ENSP:OPAS:OMS (in press)

MS (Ministério da Saúde), 1997. Farmácia Básica: Programa 1997/98. Brasília: Ministério

da Saúde.

MS (Ministério da Saúde), 1999a. Política Nacional de Medicamentos . Brasília:

Ministério da Saúde.

MS (Ministério da Saúde), 1999b. Statement by the Ministry of Health José Serra to

the Parliamentary Commission on Investigation of Medicines enforced to
investigate raises in prices of drugs, hospitalar material and laboratory reagents
in the Brasil. Brasília: Ministério da Saúde (revised transcription).

MS (Ministério da Saúde), 2000. Programa Brasileiro de DST e AIDS. Brasília: Ministério

da Saúde.

MS (Ministério da Saúde), 2000a. The Brazilian Response to HIV–AIDS: Best Practices.

Brasília: Ministério da Saúde. 25 Jan 2004 <www.aids.gov.br>

MS (Ministério da Saúde), 2001. Política Nacional de HIV/AIDS. Brasília: Ministério da

Saúde.

MS (Ministério da Saúde), 2001a. Assistência Farmacêutica. Brasília: Secretaria Executiva,

Ministério da Saúde.

MS (Ministério da Saúde), 2002. Política Brasileira de Aids: Principais Resultados e

Avanços 1994 – 2002. 20 Dec 2003 <http://www.aids.gov.br/final/biblioteca/
politica_94_02.pdf>

MS (Ministério da Saúde), 2003. TABELA I - Casos de aids e taxas de incidência (por

100000 hab.), segundo ano de diagnóstico e local de residência. Brasil, 1980-
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tabela1.htm>

MS (Ministério da Saúde), 2004. Programa National de DST/AIDS. 01 Jun 2004 <http:/

/www.aids.gov.br>

MS/ANVISA (Ministério da Saúde/ Agência Nacional de Vigilância Sanitária), 2002.

Fundamentos Farmacológico-clínicos dos medicamentos de uso c orrente. 20
Mar2004<http://www.opas.org.br/medicamentos/
index.cfm?ent=2&carregar=4&cat=3#>

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OLIVEIRA, M. A., 2001. Tecnociência, Ativismo e a Política do Tratamento da Aids. Tese

de Doutorado, Rio de Janeiro: Programa de Engenharia de Produção/COPPE/
Universidade Federal do Rio de Janeiro.

OLIVEIRA, M. A.; ESHER, A. F. S. C.; SANTOS, E. M. & BERMUDEZ, J. A. Z., 2000. Evolução
dos Preços da Zidovudina no Período de 1988 a 1999. In: VI Congresso Brasileiro
de Saúde Coletiva, Resumos, v. 5. p. 404. Salvador: ABRASCO

OLIVEIRA, M. A.; ESHER, A. F. S. C.; SANTOS, E. M. ; COSENDEY, M.A. E.; LUIZA, V. L. &
BERMUDEZ, J. A. Z. , 2002. Avaliação da assistência farmacêutica às pessoas vivendo
com HIV/AIDS no Município do Rio de Janeiro.Cadernos de Saúde Pública, 17(4):863-
875.

OLIVEIRA, M. A; BERMUDEZ, J. A. Z.; CHAVES, G. C. & VELASQUEZ, G. 2004. Has the

implementation of the TRIPS Agreement in Latin America and the Caribbean
produced industrial property legislation that favors public health policy? The
Bulletin of the World Health Organization (in press).

OMS (Organización Mundial de la Salud), 1998. Uso de medicamentos esenciales.

Octavo informe del Comité de Expertos de la OMS, Serie de Informes Técnicos no.
882. Ginebra: OMS.

PRÓ-GENÉRICOS, 2004. Site do Pró-Genéricos. 25 Jan 2004 <www.progenericos.org.br>

TROUILLIER, P.; OLLIARO, P.; TORREELE, E.; ORBINSKI, J.; LAING, R. & FORD, N., 2002a.
Drug development for neglected diseases: a deficient market and a public-health
policy failure. The Lancet, june 22, 359(9324):2188-94.

WILKEN, P. R. C. & BERMUDEZ, J. A. Z., 1999. A Farmácia no Hospital: como avaliar?

Estudo de caso nos hospitais federais do Rio de Janeiro. Rio de Janeiro: Editora
Ágora da Ilha.

YUNES, J., 1999. Promoting essential drugs, rational drug use and generics: Brazil’s
National Drug Policy leads the way. Essential Drugs Monitor, 27:22-23.

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Chapter 8

Brazilian Intellectual
Property Legislation

Maria Auxiliadora Oliveira,

Gabriela Costa Chaves
& Ruth Epsztejn

This chapter briefly presents the history of the Brazilian intellectual property
rights (IPR) legislation encompassing the period from 1808 to the current days.
It also discusses the TRIPS Agreement implementation focusing on recent
changes of legislation related to public health protection. Concepts regarding
IPR and Public health are not in the scope of this chapter because they are
discussed in chapter one.

Background
The first Brazilian Industrial Property legislation was enacted, after the
Portuguese Crown was transferred to Brazil, in 1808, in the wake of the
Napoleonic Wars in Europe. Previously, Portugal’s policy had been to exploit
Brazil’s natural resources and block any activities in the colony that might
jeopardize the Crown’s economic, financial, and political interests (Barbosa, 1983).
Brazil was the fourth country in the world and the first in Latin America to
protect the rights of inventors, by granting patent protection for an invention’s
novelty and use. This was established by the Royal Portuguese Government,
and later charted by the Prince Regent of Portugal and Brazil, in January 28th,
1809. However, even before the Charter was passed, patents had already been
granted by the Royal Government (Ben-Ami, 1983).

In 1883, Brazil was one of the 16 countries that signed the Paris Convention,
which established the three pilars of the current patent system, which are:
independence of patents and trademarks, equal treatment of nationals and

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foreigners and priority rights. The Convention, which has articles still in force
today, allowed countries to utilize the patent system as an instrument of economic
and technological development. Consequently, each country could establish
their own IP regime in a way that would favor national policies. The Paris
Convention went through many modifications, and in Brazil, the Stockholm version
(1967) is currently in force (as stated in chapter 1).

Brazilian Industrial Property Code was based on the experience of late

19th-century Europe, when there was limited employee migration from one
company to another and little scientific progress in the fields of chemistry and
physics (INPI, 1996).

Before 1945, Brazilian Industrial Property legislation granted patent

protection for pharmaceutical products and processes. In that year, the legislation
was modified to exclude protection of inventions related to: foodstuffs, medicines,
materials and substances obtained by chemical means or processes. In 1969, a
change in the Brazilian Industrial Property Code completely eliminated patenting
in the pharmaceutical sector, until the current Industrial Property Law # 9.279/
96 (Brasil, 1996) was enacted on May 14th, 1996.

Recent IPR legislation reform (1995-2003)

The first wave of reform: 1995 to 1998

The current international intellectual property rights system was built during
the Uruguay Round, which was held between 1986 and 1994, within the General
Agreement on Tariffs and Trade (GATT). Due to pressure from developed countries,
a specific agreement on availability and enforcement of such rights became
part of the Round: Agreement on Trade Related Aspects of Intellectual Property
Rights (TRIPS Agreement). It was signed by 123 countries, in April 1994, in
Marrakech. This Agreement sets minimum standards for IPR protection that all
WTO Member countries must abide (Correa, 2000).

This was the first time that same intellectual property standards were
applied to countries of different social and economic levels. However, in order
to enforce these standards, many countries were required to reform their national
legislation to comply with the Agreement.

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In Brazil, a presidential decree # 1.335/94 institutionalized the TRIPS

Agreement during December of 1994 (Brasil, 1994). Less than two years later,
the new Industrial Property Law (Law # 9.279/96) was passed on May 14, 1996.
Even though, the deadline was set for January 2000.

Unfortunately, the new Brazilian industrial property law did not implement
all of the TRIPS Agreement flexibilities and safeguards, which favor health policy
(Oliveira et al., 2004). For example, the first version of Law # 9.279/96 only
included some of the flexibilities and safeguards, such as compulsory licensing,
experimental use and limited use of parallel imports.

Brazil was subject to strong international pressures, especially from the

United States, to reform its Industrial Property Law in order to grant patents for
pharmaceutical products and processes. For example, the US instated trade
sanctions on 100% of all Brazilian exports in other sectors, such as paper, chemical
and electrical products until Brazil drafted industrial property legislation with
the required changes (Tachinardi, 1993).

Law # 9.279/96 introduced major changes, including patent protection for

pharmaceutical products and processes, consistent with Article 27 of the TRIPS
Agreement. Brazil did not use the full transition period - until January 2005 - to
grant patents in this sector, as established in Article 65. Instead, Brazil began
granting patents in the pharmaceutical industry in May 1997.

The law also included Pipeline protection (articles 229, 230 and 231), as
specified in Article 70.8 of TRIPS. This article requires countries to have an
adequate infrastructure for receiving and filing patent applications from the
date of enforcement of the Agreement.

According to Velasquez and Boulet (1999):

“Pipeline protection is a kind of retroactive protection, to the effect

that pharmaceuticals already patented in other countries but not yet
patented in the “pipeline” country (because its legislation did not grant
patents for pharmaceuticals), nor marketed in that country, may be
claimed for protection as soon as the Agreement comes into force.
However, the TRIPS Agreement imposes protection only on inventions
still meeting the criteria for patentability (notably because they have
not yet been disclosed) on the date of entry into force of the
Agreement”.

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Oliveira, Chaves & Epsztejn

Developed countries, such as the United States, England, Germany, Japan,

and France, benefited most from the use of Pipeline protection. For example,
45% of the total number of Pipeline patent claims were from the United States
and only 1.4% were from Brazil (Bermudez et al., 2000).

The flexibility of parallel imports is consistent with the concept of international

exhaustion of rights. The patent holder’s rights are exhausted when the licensee
places the product on the foreign market. Thus, any person may import a patented
product, even for commercial purposes, as long as it has been placed on the
foreign market by the patent holder or with third-party consent. (Bermudez et
al., 2000; Oliveira et al., 2004). Additionally, in Article 43(IV) of Brazilian legislation,
national exhaustion of rights is permitted. This means that it is not possible to
import a patented product that has previously been commercialized by the
patent holder or an authorized third party in another country at a lower price.

Compulsory licensing permits the use of a patented product or process

without prior authorization of the patent owner under several conditions. Article
31 of the TRIPS Agreement and Chapter VIII, Section III, articles 68-74 of Law #
9.279/96 describe these conditions. In Brazilian law, a compulsory license can
be issued for the following grounds: failure to exploit patent; public interest;
national emergency; remedy for anti-competitive practices; failure to produce
locally and dependent patents (Oliveira et al., 2004).

Experimental use is a flexibility related to research, allowing use of the

invention without compensation for the patent holder. As stated by Correa (2000):
“An experimental use exception may foster technological progress based on
‘inventing around’ or improving a protected invention, as well as permit evaluation
of an invention in order to request a license, or for other legitimate purposes,
such as to test whether the patent is valid”.

The second wave of reform: 1999 to 2003

During the 1990s, patent legislation reform was done with little
participation from health sector professionals. Their contribution could have
resulted in the development of a more public health-sensitive legislation. In
1999, for example, Decree # 3.201 was established to address compulsory
licensing in cases of national emergency and public interest, further described

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in Art. 71 (Law # 9.279/96). This article established that, “In cases of national
emergency or public interest declared by the Federal Government, temporary
and non-exclusive compulsory license can be issued if the patent holder or
licensee is not sufficiently exploiting the patent, without infringing upon the
holder’s rights”. Nevertheless, this Decree restricts the full use of Compulsory
Licensing in these cases because it contains additional procedures not included
in article 71, which create implementation obstacles. An example of this problem
is found in article 10 of the Decree, which establishes that any product issued a
compulsory license can only be imported from a country where it was marketed
by the patent holder or by authorized third parties. This means that countries
not granting patents in the pharmaceutical industry were not able to export
cheaper generic medicines to Brazil. One example of this situation is India. It
opted to use the full transition period to grant patents in the pharmaceutical
sector until the year 2005 and currently has a large generic production capacity.

In 2001, in order to reduce ARV prices to sustain the Brazilian Program

of universal and free access to treatment for People Living with HIV/AIDS (PLWHA),
the Brazilian government held negotiations with three multinational
pharmaceutical companies. These negotiations demonstrated some weaknesses
regarding protection of public health in Law # 9.279/96. These negotiations
demonstrated some weaknesses regarding protection of public health in Law #
9.279/96, especially concerning the lack of the Bolar exception and the absence
of involvement by the Brazilian National Health Surveillance Agency (ANVISA) in
the process of granting patents in the pharmaceutical industry. As result, in
order to address public health interests, Law # 10.196/2001 was enacted as an
amendment that modified articles 43 and 229 of Law # 9.279/96.

Article 43, which describes the limits of rights conferred to the patent
holder (Exception to Rights Conferred), was altered to include the Bolar exception
(early working). This flexibility allows a company to complete all of the procedures
and tests that are necessary to register a generic product before the original
patent expires (Article 30) (Correa, 2000). Therefore, the Bolar exception allows
immediate marketing of generics after patent expiration, thus promoting
competition with the innovator medicine, which can lower prices.

The amendment of Law # 9.279/96 also modified articles 229, 229-A,

229-B and 229-C. Article 229-C establishes that the ANVISA must be consulted
before a patent can be granted for pharmaceutical products and processes. In

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other words, ANVISA is responsible for determining if the novelty requirement

is truly satisfied.

It is common practice for the pharmaceutical industry to make small

changes to patented products, even though this does not qualify as a novelty.
Usually, the validity of these new patent claims is null and deserves a more
critical analysis by an institution like ANVISA to avoid extending monopolies
without justification. This practice includes patent claims for pharmaceutical
forms, analogue processes, combinations of known products, optical isomers,
active metabolites, pro-drugs, new salts, and second use (Correa, 2001).

In 2003, during another round of ARV price negotiations, further

weaknesses were identified in Brazilian industrial property legislation. As
mentioned before, some articles of Decree # 3.201/99 represented additional
obstacles in order to issue compulsory licenses for medicines, particularly when
considering importation.

In September 2003, some articles from this Decree were modified by

Decree # 4.830/03 (Brasil, 2003). A new version of article 10 allows importation
of the object under compulsory license also from countries where the product
is not patented. Therefore, Brazil has the right to import products from any
country including those still using the transition period for pharmaceuticals, like
India.

In the ARV price negotiations described previously, Brazil was able to

threaten to issue a compulsory license because of the recent changes made in
the IPR legislation (Law # 10.196/2001 and Decree # 4.830/03). In January
2004, an agreement was reached between the pharmaceutical companies
involved, and as a result, the Ministry of Health was able to save R$ 299 million,
representing 37% of the total ARV budget. The savings obtained through this
agreement enabled 20,000 new patients to enroll into the AIDS program and
also allowed for two additional ARVs to be included: Tenofovir (Gilead) and
Atazanavir (Bristol) (MS, 2004).

Despite the above described public health sensitive changes,

implemented into Brazilian IPR legislation during this period, a step back occurred
with the enactment of Law # 10.603 on December 17, 2002, This Law allowed
for the protection of undisclosed data submitted by pharmaceutical companies
to national regulatory authorities in order to obtain marketing approval for

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veterinary pharmaceutical products, fertilizers as well as agrotoxics and their

components (Brasil, 2002). As discussed in previous chapters (2 and 6), this
provision has been included in recent bilateral agreements between US and
several developing countries worldwide. In fact, these agreements constitute
part of the US strategy to create more restrictive IPR regimes than those previously
established by TRIPS Agreement (Jorge, 2004).

The Law establishes different terms for data protection, which are
dependent on product and information characteristics. Data protection is
guaranteed for a ten year period after the approval if the product includes a
new molecular entity, either chemical or biological, and if no product information
has been disclosed in any country. A five year period of data protection is
granted when the product does not contain a new molecular entity and if no
information has been disclosed.

As mentioned in chapter 6, this provision, like patent protection, hinders

competition. It creates a type of monopoly for medicines, even when they are
not under patent protection. The following boxed text briefly describes the historical
trends in Brazilian industrial property legislation (Epsztejn, 1998; INPI, 1996;
Cerqueira, 1982).

a) Ruling # 28/01/1809: constitutes the initial framework for the development

of industrial property rights in Brazil.
b) Imperial Constitution, March 25, 1824: ensures inventors’ ownership rights
over their discoveries and production.
c) Law of August 28, 1830, regulates the Imperial Constitutional norm and
implements legal protection for inventors’ rights.
d) Decree # 2.712/60: clarifies instructions for enforcement of the Law of August
28, 1830 and declares that the term of patent protection should begin on the
date the patent is granted, not the date it is applied for.
e) Announcement of January 22, 1881: provides further instructions for
enforcement of the Law of August 28, 1830 and requires the examination of
inventions after granting a patent.
f) Law # 3.129/82: Privileges Act, appended by Decree # 8.820, December 30,
1882, aimed primarily at adapting Brazilian legislation to the resolutions of
the Paris International Congress on Industrial Property in 1880, as well as
conclusions from previous congresses convened in Vienna in 1873 and Paris
in 1878.

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Oliveira, Chaves & Epsztejn

g) Decree # 16.264/23: regulates Industrial Property, creates the General Indus-

trial Property Directorate, and amends previous legislation.
h) Decree # 24.507/34: appends Industrial Property legislation and introduces
provisions pertaining to industrial designs and models, trade names, and
unfair competition.
i) Decree/Law # 7.903/45: passes Industrial Property Code, consolidating In-
dustrial Property legislation. Relevant changes in this legislation included
the novelty concept, exclusion of patentability for foodstuffs or medicines
inventions obtained by chemical means or processes.
j) Decree/Law # 254/67: creates new Industrial Property Code, focusing on
exclusion of the utility model.
k) Decree/Law # 1.005/69: establishes new Industrial Property Code, which adds
foods, chemicals, and pharmaceutical products, materials and medicines to
the list of non-patentable materials.
l) Law # 5.772/71: establishes new Industrial Property Code, maintaining
patentability exclusion for foods, chemicals, pharmaceutical products,
materials, mixtures, and medicines of any kind, as well as the processes for
obtaining or modifying them.
m) Law # 9.279/96: establishes new Industrial Property Code, resulting in relevant
changes to the previous Code, highlighting patentability of products and
processes from the pharmaceutical and biotechnology industries, introducing
the pipeline mechanism. This Law was developed in order for Brazilian In-
dustrial property legislation to comply with the TRIPS Agreement
n) Law # 10.196/01: Modifies and adds clauses to Law# n° 9.279/96, including
the Bolar exception flexibility (article 43), and establishes patent pending
approval to the National Agency of Health Surveillance (ANVISA) to expedite
patents for products and pharmaceutical processes.
o) Decree # 3.201/99 establishes grounds for issuing compulsory licenses in
cases of public interest and national emergencies
p) Law #10.603/02 – establishes protection of undisclosed data submitted by
the pharmaceutical industry to national regulatory authorities for obtaining
market approval for veterinary pharmaceutical products, fertilizers as well as
agrotoxics and their components.
q) Decree # 4.830/2003 modifies articles 10, 20, 50, 90 and 100 of Decree 3.201/
99.

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 Chapter 8

Bibliographic References

BARBOSA, A. L., 1983. Patentes: Crítica à Racionalidade. In:. Programa de Formação de

Técnicos em Patentes, Curso de Propriedade Industrial I. PUC (Pontifícia
Universidade Católica), Rio de Janeiro: PUC.
BEN-AMI, P., 1983. Manual de Propriedade Industrial. São Paulo: Promocet.
BERMUDEZ, J. A. Z., EPSZTEJN, R., OLIVEIRA, M. A. & HASENCLEVER, L., 2000. Propriedade
Intelectual e Propriedade Industrial. In: O Acordo TRIPS da OMC e a Proteção
Patentária no Brasil: mudanças recentes e implicações para a produção local e o
acesso da população aos medicamentos, pp. 51-63, Rio de Janeiro: FIOCRUZ/
ENSP.
BRASIL, 1994. Decreto nº 1.335, de 30 de dezembro de 1994. Promulga a ata final que
incorpora os resultados da Rodada Uruguai de Negociações Comerciais
Multilaterais do GATT. Brasília, DF: Diário Oficial [da] República Federativa do
Brasil, 30 de dezembro de 1994.
BRASIL, 1996. Lei nº 9.279, de 14 de maio de 1996. Regula direitos e obrigações relativos
a propriedade industrial. Brasília, DF: Diário Oficial [da] República Federativa do
Brasil,15 de maio 1996.
BRASIL, 2002. Lei nº 10.603, de 17 de dezembro de 2002. Dispõe sobre a proteção de
informação não divulgada submetida para aprovação da comercialização de
produtos e dá outras providências. Brasília, DF: Diário Oficial [da] República
Federativa do Brasil, 17 de dezembro 2002.
BRASIL, 2003. Decreto nº 4.830 de 4 de setembro de 2003. Dá nova redação aos
artigos 1,2,5,9 e 10 do Decreto 3.201, de 6 de outubro de 1999, que dispõe sobre
a concessão, de oficio, de licença compulsória nos casos de emergência nacional
e de interesse publico de que trata o artigo 71 da lei 9.279, de 14 de maio de 1996.
Brasília, DF: Diário Oficial [da] República Federativa do Brasil, 5 de setembro de
2003.
CERQUEIRA, J.G., 1982. Tratado de Propriedade Industrial, volume 1. São Paulo: Editora
Paulista de Tribunais.
CORREA, C., 2000. Intellectual Property Rights, the WTO and Developing Countries.
The TRIPS Agreement and Policy Options. London and New York: ZED Books and
Penang:Third World Network..
CORREA, C., 2001. Tendências en el Patentamiento Farmacêutico. Estudio de Casos.
Buenos Aires:Ediciones Corregidor.
EPSZTEJN, R., 1998. Primeiros efeitos da nova Lei brasileira de Propriedade Industrial
(maio/1996) sobre a dinâmica de desenvolvimento dos setores farmacêutico e de
biotecnologia. Tese de Doutorado, Rio de Janeiro: COPPE/UFRJ.

159
Oliveira, Chaves & Epsztejn

INPI (Instituto Nacional de Propriedade Industrial), 1996. Patentes. In: Workshop

Sebaetib de Propriedade Industrial. Rio de Janeiro: INPI.
JORGE, M. F., 2004. TRIPS-plus provisions in trade agreements and their potential
adverse effects on public health. Journal of Generic Medicines, Vol I(3): 99-211.

MS (Ministério da Saúde), 2004. Saúde fecha acordo com laboratórios de anti-

retrovirais. 25 Jan 2004 <www.aids.gov.br>

OLIVEIRA, M. A, BERMUDEZ, J. A. Z., CHAVES, G. C. & VELASQUEZ, G. 2004. Has the

implementation of the TRIPS Agreement in Latin America and the Caribbean
produced industrial property legislation that favors public health policy? The
Bulletin of the World Health Organization (in press).

TACHINARDI, M. H., 1993. A Guerra das Patentes. Rio de Janeiro: Editora Paz e Terra.

VELÁSQUEZ, G. & BOULET, P., 1999. Globalization and Access to Drugs – Perspectives
on the WTO/TRIPS Agreement. Geneva:WHO. WHO/DAP/98.9 Revised

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Chapter 9
Pharmaceutical Patent
Protection in Brazil:
who is benefiting?

Maria Auxiliadora Oliveira, Jorge A. Z. Bermudez,

Ruth Epsztejn, Gabriela Costa Chaves,
Rogério Luiz Ferreira
& Maria Telma Oliveira

The international system of intellectual property was implemented in

1883, when the Paris Declaration was signed. This system went through many
revisions and adaptations to meet the trade demands of each period.

Until the 1950s no major focus was placed upon property rights for
pharmaceutical products. In the beginning of the 1950s, the pharmaceutical
industry came to play an important role in the economy. Consolidation and
growth of transnational companies intensified, largely due to technical dominance
of chemical synthesis, which occurred in the previous decade. During the
Golden Age of the pharmaceutical industry, between 1950 and 1970, thousands
of new medicines were developed. At the end of this period the theme of
patents for pharmaceutical products gained much visibility. This happened
because countries that had invested in technological development and expansion
of their national industries needed to protect their production from internal and
external competition. Thus, these countries, in addition to implementing national
systems of patent protection also began to demand that other countries with
less technological capacity should do so as well. Their justification stemmed
from the belief that countries which did not protect patents would subsequently
promote anticompetitive practices and market copies of their innovator products.
It became evident that patents were a powerful instrument of market control,
because they guaranteed the exclusive rights of commercialization and also
limited possibilities for competition. This system thereby ful filled the economic
interests of patent holders to appropriate their scientific knowledge and
invention technology.

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Oliveira, Bermudez, Epsztejn, Chaves, Ferreira & Telma Oliveira

This scenario gave rise to transnational industry interests, headquartered

in developed countries, summarized by the following arguments:

(1) patents are a necessary incentive for the technological innovation of drugs;
this system has generated important health goods on a global scale;

(2) patents guarantee financial return for the large investments in research
and development made by the private sector, which has stimulated
development in science and technology;

(3) patents accelerate the transfer of technology from the developed world to
the developing world, ensuring a relatively equal distribution of gains from
this policy change (Bale, 2002; Branstetter et al.,2002, IFPMA & RDPAC,
2003; IFPMA, 2003).

Developing countries, on the other hand, may not benefit from this
system. Penrose (apud Tachinardi, 1993) questions the benefits obtained for the
importing country, which concedes property rights to foreign inventors. According
to the author, the monopoly conferred by a patent produces three effects: (1)
increase in price of the imported product, (2) increase in the rate of innovation
for the exporting country, and (3) increase in the availability of technological
information of patented inventions. Penrose also analyzes the cost/benefit ratio
of issuing patents to foreigners, and concludes that the costs are high and that
the benefits are dubious for the majority of developing countries. The costs of
patented products are assumed by the importers and the benefits revert almost
exclusively to the exporter, “an international patent regime attends more to the
interests of large industrial groups, established in industrialized countries, which
have ample industrial infrastructure and also a high rate of innovation. For
lesser and non industrialized countries the gains are null (ibid.:79).”

Different opinions were expressed among the actors involved in the

discussion about patents and the pharmaceutical industry during the Uruguay
Round, which ended in April 1994. In this arena, the pharmaceutical industry
finally was able to impose its longstanding wish to grant patent protection for its
products in all WTO Member States, as established in the TRIPS Agreement.

The negotiations about intellectual property within this Round were

initiated by developed country governments, particularly those who harbor
headquarters of large transnational pharmaceutical companies. These

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governments were able to include in the TRIPS Agreement stringent patent

protection standards to be adopted by all WTO Members. These standards were,
notwithstanding, stricter than the ones originally recognized by their own countries
at the time.

TRIPS harmonized IP standards worldwide. It also requires patent

protection in all technological fields including medicines. One criticism of this
system is that it does not allow WTO Member countries to adopt the best
possible patent protection regime in order to facilitate social and economic
development (Gontijo, 2003; as stated in chapter 1).

This chapter analyzes some aspects of the TRIPS Agreement

implementation and the recent changes in Brazilian intellectual property
legislation concerning the pharmaceutical industry. The analysis is based on the
number and type of patent claims filed by the pharmaceutical industry and
technology transfer contracts registered in the National Institute for Industrial
Property (INPI), the Brazilian government agency in charge of Intellectual Property.
We reviewed the first five years of the new Industrial Property Law, enacted on
May 14, 1996 (Brasil, 1996). The study aimed to answer the following questions:

1. Did the number of patent claims in the pharmaceutical industry increase?

2. From what countries are all of the patent claims coming from?

3. What is the percentage of patent claims filed by Brazilian institutions or

individuals?

4. Did the number of technology transfer contracts in the pharmaceutical

industry increase?

5. Can the kind of technology transferred potentially improve the

technological capabilities in the local pharmaceutical industry?

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Oliveira, Bermudez, Epsztejn, Chaves, Ferreira & Telma Oliveira

Methodology
In order to better analyze the implications of recent changes in Brazilian
patent legislation for the local pharmaceutical industry in particular, patent claims
records were divided according to the nature of production, classifying them
initially as chemical or biotechnological1 claims.
According to the technological level, biotechnology may be classified
as traditional or new. This distinction arose with the discovery and development
of recombinant DNA technology in 1974, providing the basis for new
biotechnology and substantially changing the nature of this science. In this
work we adopt this same classification of biotechnology patents.
We also classified patent claims in the Brazilian pharmaceutical industry
from August 1992 to December 2002 by number and country of origin. Despite
the fact that the Industrial Property Act, in force before the current one, did not
allow patenting in the pharmaceutical industry, patent claims were nevertheless
filed at the National Institute for Industrial Property (INPI).
Data was gathered over a ten-year period from 1992 to 2002. Note that
a patent claim may include more than one individual or corporation as filers.
Consequently, the number of countries of origin is always greater than or equal
to the number of claims.
To demarcate the fields under study, we adopted the following
definitions:
(a) pharmaceutical: includes all pharmaceutical products of chemical (synthetic)
or natural origin, technically prepared or obtained and used prophylaxis,
diagnosis or cure of medical of veterinary conditions, except:
– diet products for persons with special physiological needs, weight-loss
products, and contraceptives;
– cosmetics in general (except products for dermatological purposes)
shampoos, herbicides, insecticides, fungicides, and fertilizers.
(b) Chemical entities with pharmacological and therapeutic activity.
(c) Biotechnology: includes all primary and secondary products of traditional or
modern biotechnological origin.

1
Biotechnology is defined as any technology that uses living beings or functional parts
isolated from them in the production of goods and services.

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To better identify patent claims in the pharmaceutical industry meetings

were held with the technical staff of the National Institute for Industrial Property
(INPI), using the International Classification of Patents, 6th Edition, 1994. The
relevant sub-classes were defined for the pharmaceutical industry: chemical,
traditional biotechnology, and new biotechnology.

The data presented are from patent applications filed with the INPI,
and published in the Industrial Property Magazine (RPI) by the same agency.

Technology transfer (TT) contracts in the Brazilian pharmaceutical industry

were analyzed in order to infer whether new IPR legislation complying with the
TRIPS Agreement contributed towards expanding local R&D in this field. This
analysis evaluated these contracts quantitatively and qualitatively from 1992 to
2001.

Results
Annual Number of Patent Claims Filed

Figure 1 shows the trend in the number of chemical patent claims

filed by the pharmaceutical industry from August 1992 to December 2002,
emphasizing that on May 14, 1996, the Industrial Property Code was approved
under Act # 9.279/96 and enforced in 1997.

FIGURE 1: Chemical Patent Claims filed by the Pharmaceutical Industry, Brazil,

Aug. 1992 to Dec. 2002
2000 1778
1800 1640
1600 1364
1400
Patent Claims

1200 947
1000
800
600 488
349
400 200
200 28 88 69 79

0
Aug- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Dec/92
Year

Source: Elaborated from patent file data published in RPI/INPI.

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Oliveira, Bermudez, Epsztejn, Chaves, Ferreira & Telma Oliveira

From August 1992 to December 2002, a total of 7,030 chemical product

patent claims were filed by the pharmaceutical industry. In 1996 and 1997,
claims more than doubled as compared to the previous years. However, this
same increase was not observed in 1998. In the following years, particularly in
1999 and 2000, the number of claims increased sharply. The trend continued(more
than 1,000) in 2001 and 2002.

The number of claims filed in 1996 was quite large due to the fact that
although the new Industrial Property Act was only passed in May of that year,
the Federal government had been discussing changes in the legislation since
1990, hence generating expectations in early 1996 that the new Act would soon
enter into force.

The total number of claims filed from August 1992 to December 1995
was 264, only 32% more than the total for the year 1996 alone (200 claims). A
total of 488 claims were filed in 1997, an increase of over 144%. In the year
1998, 349 claims were filed, a slight decrease of 28.5%. In 1999, the number of
patent claims almost tripled (947) comparing to 1998, reporting an increase of
271%. In the year 2000, the number of patent claims filed had reached 1778,
187% higher than the previous year. In 2001 and 2002 the number of patent
claims filed were more than 1,300.

Patent Claims Filed by Country of Origin

The total study period, from August 1992 to December 2002, was split
into two periods in order to detect any change in behavior by the countries with
patent claims in the pharmaceutical industry before and after the new Brazilian
Industrial Property Code entered into force.

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FIGURE 2: Chemical Patent Claims in the Pharmaceutical Industry by Country

of Origin, Brazil, Periods Aug/1992-Dec/95 and Jan/96 to Dec/
2002
2854
3000
92 - 95
2500
96-02
Patent Claims

2000

1500

1000 854
627
535
500 384 352 283
221 136 158
132 127 127 69
140

45 24 2
24

4
37

12
14

14
10

0
2

0
2

3
0

A
S

JP

AU
FR

C
SE

ES
B

s
H

U
IT

er
N
U

M
C

H
G

th
Country

O
Source: Elaborated from patent file data published in RPI/INPI.

From August 1992 to December 1995, the country with the most patent
claims in the pharmaceutical sector in Brazil was the United States (US), with
140 claims filed, or 52% of the total. This number was nearly four times that of
the second country, Switzerland (CH), which filed 37 claims. During this period,
there was no record of Brazil (BR) having filed for a patent pertaining to a
chemical product in the country.

Figure 2 analyzes the chemical product claims filed from 1996 to 2002
by country of origin in the pharmaceutical industry in Brazil; the total number of
claims was 6,934. The United States (US) continued to lead with 2,854, with
over twenty times the number of applications it filed from August 1992 to
December 1995. On the other hand, the United States’ proportional share of all
claims during this period dropped to 41%, which reflects the fact that other
countries increased their claims for patent protection in Brazil during this period.

Beginning in 1996, many countries stepped up their patent applications

in this field. Examples include Germany(DE), which increased its share from
8.9% to 12.2%, and Great Britain (GB), from 3.7% to 7.7%. Other countries
began filing claims, like Canada (CA) and Sweden (SE), with 127 and 283 claims,
respectively.

Brazil only filed 221 claims, a very small number. Since 1996, Brazil’s
share has only been 3.1% of the industry’s total.

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Oliveira, Bermudez, Epsztejn, Chaves, Ferreira & Telma Oliveira

Trends in Biotechnology Patent Claims

FIGURE 3: Patent Claims Filed for Traditional Biotechnology in the Pharmaceutical

Industry, Brazil, Period from Aug/92 to Dec/2002
120
107

100
85
79 79

80

62
Patent Claims

60
50

40 32

20 13 11
9
3

0
Aug- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Dec/92 Year
Year

Source: Elaborated from patent file data published in RPI/INPI.

Despite the few claims filed for traditional biotechnology in the

pharmaceutical sector (as compared to chemical claims), totaling 530 applications,
from 1997 onwards, there is an increase in the number of claims filed, with a
peak of 107 in the year 2000.
Figure 4 shows the trend in patent claims filed for traditional
biotechnology in the pharmaceutical industry by country of origin in the period
before and after the change in Brazil’s Industrial Property legislation.

FIGURE 4: Patent Claims Filed for Traditional Biotecnology in the Pharmaceutical

Industry by Country of Origin Brazil, Periods 1992-1995 and 1996-
2002
180 166
160 92 - 95
96-02
120
120 112
Patent Claims

100
80
60 53
36
40 30 27 23
20

15 12
20 7 6
8
2

4
2
0

0
0

0
rs
US BR FR DE CH NL GB DK JP IL he
Ot
Country
Source: Elaborated from patent file data published in RPI/INPI.

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 Chapter 9

From August 1992 to December 1995, the United States (US) filed
most patent claims, 20 out of 36, thus accounting for 56% of the total. Brazil
filed only 2 claims, accounting for 6% of the total.

The country with the most claims for traditional biotechnology in the
pharmaceutical industry after the new Act was passed was the United States
(US), with 166 claims, or 34% of the total. Brazil (BR) was second, with 53 claims,
or 10.8% of the total.

Figure 5 shows the quantitative trend in claims pertaining to new

biotechnology in the pharmaceutical industry.

FIGURE 5: Patent Claims Filed for New Biotechnology in the Pharmaceutical

Industry, Brazil, 1979 to 2002.

350
301
300

250
210
Patent Claims

173 187
200

150
97
88
100 62
36
50

1979-1995 1996 1997 1998 1999 2000 2001 2002

Year

Source: Elaborated from patent file data published in RPI/INPI.

The amount of claims filed from 1997 onward has increased, with a
peak of 301 claims in the year 2000.

Country-of-origin data pertaining to claims for new biotechnology in

the pharmaceutical industry from 1996 to 1998 are shown in Figure 6.

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Oliveira, Bermudez, Epsztejn, Chaves, Ferreira & Telma Oliveira

FIGURE 6: Patent Claims Filed for New Biotechnology in the Pharmaceutical

Industry, by Country of Origin, Brazil,1996-2002
500 458
450

400
Patent Claims

350

300

250
192
200

150 97 89
100 71 52
38 34 22 17
50
7
0

JP
S

FR

s
L

er
N
U

K
G

th
O
Country

Source: Elaborated from patent file data published in RPI/INPI.

The country with the most claims was the United States (US), with 458
patent applications, or 42% of the 1077 claims filed. Second, came Germany
(DE) with 97 applications. Brazil (BR) was the sixth, with a total of 38 claims filed,
or 3.5% of the total.

Patent Protection and Balance of Trade in Brazil

In analyzing Brazil’s total balance of trade (Figure 7), 1982 showed a

negative balance. However, the balance was positive from 1983 to1994, and
became negative again from 1995 to 1998. Note that in 1998 the balance was
21% below that of 1997. Imports declined 6% in 1998 compared to 1997, and
although exports also dropped, the decline was only 3% compared to the
previous year.

In the following three years (1999-2001) there has been a balance

between imports and exports, and in the year 2002, imports were 22% lower
than total exports.

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 Chapter 9

FIGURE 7: Brazil’s Total Balance of Trade, 1982 to 2002

70000

60000
Value (millions US$ FOB)

50000

40000

30000 Exports
Imports
20000

10000

0
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Year
Source: Anuário Estatístico do Brasil - FIBGE and SECEX/MDIC

Figure 8 shows the trend in imports and exports of pharmaceutical

products in monetary values, for the period from 1982 to 2002.

FIGURE 8: Brazil’s Balance of Trade in the Pharmaceutical Industry, from 1982

to 2002
1800

1600

1400
Value (millions US$ FOB)

1200

1000

800 Exports
600 Imports

400

200

0
82

83

85

86

88

89

91

92

94

95

97

98

00

01
84

87

90

93

96

99

02
19

19

19

19

19

19

19

19

19

19

19

19

19

19

19

20

20

20
19

19

19

Year

Source: Anuário Estatístico do Brasil - FIBGE and SECEX/MDIC

Comparing imports of pharmaceutical products with Brazil’s total imports

for the period 1982-2002, Brazil’s total imports increased by 224%, while those
for pharmaceutical products grew by 6,112%. Exports of pharmaceutical products
during the same period grew by 1,104%, while total Brazilian exports increased
by only 299,4%.

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Oliveira, Bermudez, Epsztejn, Chaves, Ferreira & Telma Oliveira

Over the course of this period, the balance for pharmaceutical products
was consistently negative, except for the years 1983 and 1984. The total number
of pharmaceutical products imported by Brazil grew sharply, except for the year
1998, when there was a slight decline. The share of exports stayed at modest
levels, while in the year 1998 there was a slight increase as compared to the
previous year; nevertheless, one must keep in mind that total Brazilian exports
were lower in 1998 than in 1997 (figure 7).

Technology Transfer Contracts of the Brazilian Pharmaceutical Industry

The Brazilian Patent Act # 9.279/96 states in Art. 211 – that “INPI will
register contracts for technology transfers, franchise contracts and other similar
arrangements that will effect third parties.” Summaries of the registered contracts
are published in the Industrial Property Magazine of INPI under the following
categories: license for brand name use (BNU); franchising (FRA); technology
supply (TS); patent exploitation (PE); cost sharing of research and development
(R&D); technical assistance services (TAS).

Table 1 shows the distribution of Technology Transfer Contracts in the

pharmaceutical industry in Brazil during the period from 1992 to 2001, by type
of contract.

172
 TABLE 1: Technology Transfer Contracts in the Pharmaceutical Industry, Brazil, 1992 – 2001

TYPE/ BNU FRA TS PE R&D TAS Other TOTAL % BNU % TAS % TS

YEAR

1992 104 - - - - 2 4 110 94.55 1.81

1993 90 - - 1 - 7 - 98 91 84 7.14
1994 66 - 4 - - 8 1 79 83.54 10.13 5.06
1995 50 - - 1 - 8 3 62 80.65 12.9
1996 49 - 3 1 2 11 1 67 73.13 16.42 4.47

173
1997 39 - 1 - 3 9 - 52 75 17.31 1.92

1998 14 3 5 - - 11 - 33 42.42 33.33 15.15

1999 34 3 7 2 - 10 - 56 60.71 17.86 12.5

2000 22 2 6 1 - 15 - 46 47.83 32.61 13.04

2001 16 - 2 2 - 14 - 34 47.06 41.18 5.88

Source: Elaborated from data published in RPI/INPI

Type of Contract: BNU – License for Brand Name Use- FRA – Franchising- TS – Technology Supply- PE – Patent Exploitation- R&D – Research and
Development- TAS –Technical Assistance Services
Chapter 9
Oliveira, Bermudez, Epsztejn, Chaves, Ferreira & Telma Oliveira

A considerable decrease (69.1%) was observed in the total number of

technology transfer contracts in the pharmaceutical industry of Brazil during the
time period studied. The total number of registered contracts in INPI went from
110 in 1992 to 34 in 2001, continuing to drop after law 9276/96 entered into
force. This result contradicts the argument that strengthening IP systems
accelerates technology transfer from developed to developing countries.

Second, it is important to highlight that the majority of Technology

Transfer contracts were for Brand Name Use and Technical Assistance. The figures
for contracts on Technology Supply (around 5%) and on cost sharing R&D (almost
0%) indicate that the type of technology being transferred does not contribute
to the improvement and technological development of the local pharmaceutical
industry.

The data shown in Figure 8 corroborates this statement, because there

have been large increases in pharmaceutical industry imports without similar
increases in exports; this indicates a high level of technological dependence in
this sector.

Conclusions
Since the adoption of the current Brazilian Industrial property law in May
1996, there has been an important trend of increased growth in the number of
patent claims filed by the pharmaceutical industry in Brazil. When considering
the country of origin for patent claims, developed countries are responsible for
more than 95% of the total. This may indicate that countries, such as Brazil, with
less R&D investment and infrastructure capacity are unable to take further
advantage of the benefits conferred by patents. Additionally, the figures
presented show a considerable increase in importation by the pharmaceutical
industry, providing evidence of the growing trend in Brazil towards external
technological dependency. In the context of the TRIPS Agreement, this type of
dependency may increase since the pharmaceutical industry has concentrated
research, development and production in developed countries.

Thus, when Brazil grants a patent to the pharmaceutical industry, it is in

fact protecting foreign company patent holders from internal and external
competition. The lack of local production of the patented product or process

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means that Brazil loses the opportunity to use and to learn from invention
disclosure, which happens when a patent is granted. Analyses of technology
transfer contracts corroborate this unfavorable scientific and technological
development scenario.
In conclusion, all of the parameters analyzed in this chapter have made
it clear that the greatest beneficiaries from the recent changes in Brazilian
industrial property legislation are not Brazilian companies or institutions, but
rather, transnational corporations, who maintain hegemony of the Brazilian
market. Therefore, efforts are needed to establish alternatives and strategies in
order to effectively implement public policies committed to Brazilian
technological development.

Bibliographic References
BALE, H.E. 2002. Patents, Patients and Developing Countries: Access, Innovation and
Political Dimensions of Trade Policy. In: The Economics of Essential Medicines
(Graville, B., ed.), p.100-112, London: The Royal Institute of International Affairs.
BRANSTETTER, L. G.; FISMAN, R. & FOLEY, C. F., 2002. Do Stronger Intellectual Property
Rights Increase International Technology Transfer? Empirical Evidence from U.S.
Firm (mimeo)
BRASIL, 1996. Lei nº 9.279, de 14 de maio de 1996. Regula direitos e obrigações relativos
a propriedade industrial. Brasília, DF: Diário Oficial [da] República Federativa
do Brasil,15 de maio 1996.
GONTIJO, C. I. F., 2003. Propriedade Industrial no Século XXI – Direitos Desiguais.
INESC, REBRIP, Comércio com Justiça, OXFAM.
IFPMA (International Federation of Pharmaceutical Manufecturers Associations) &
RDPAC (Research & Development Based Pharmaceutical Asociation in China),
2003. Accelerating Innovative Pharmaceutical Research and Development in
China: A Case Study. Geneva:FIIM IFPMA.
IFPMA (International Federation of Pharmaceutical Manufecturers Associations), 2003.
Encouraging Pharmaceutical Research and Development in Developing
Countries. Geneva:FIIM IFPMA.

TACHINARDI, M. H., 1993. A Guerra das Patentes. Rio de Janeiro: Editora Paz e Terra.

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