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Healthy IPRs A forward look at pharmaceutical intellectual property
Manuel Campolini, Conal Clynch, Joseph Cook, Trevor Cook,
Cathy Garner, Jacques Gorlin, James Killick, Douglas Lippoldt,
Matt Lowe, Pedro Velasco Martins, David Monk, Peter Pitts,
Emily Bishko Radel, Patrick Ravillard, Richard Rozek,
Stefan Szymanski, Nikolaus Thumm, Eskil Ullberg,
Jayashree Watal, Tommaso Valletti, Hiroko Yamane
Introduction by Meir P. Pugatch
Edited by Meir P. Pugatch and Anne Jensen
The Stockholm Network
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First published in Great Britain in 2007 byThe Stockholm Network35 Britannia RowLondon N1 8QHwww.stockholm-network.org
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Contents
About the contributors viii
Introduction: Why pharmaceutical IPRs? xix
by Meir P. Pugatch
List of acronyms xxii
part 1 Economic aspects of pharmaceutical IPRs 1
1 IPRs, pharmaceuticals and Foreign Direct
Investment 3
Douglas Lippoldt
2 Parallel imports of patented medicines 13
Stefan Szymanski and Tommaso Valletti
3 Strategic use of IPRs by pharmaceutical SMEs in
developing countries 21
Cathy Garner
4 Antitrust and patent settlement investigations 31
Joseph Cook and David Monk
5 A new approach to trade-related pharmaceutical
IPRs: IPRs as tradeable goods 39
Eskil Ullberg
part 2 Pharmaceutical IPRs in the international arena 49
6 The WTO, IPRs and access to medicines 51
Jayashree Watal
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7 Pharmaceutical IPRs and the TRIPs Agreement:
past, present and future 62
Jacques Gorlin
8 The WTO Decision of 6 December 2005 on the
amendment of the TRIPs Agreement 72
Patrick Ravillard
9 The WHO Commission’s Report on Intellectual
Property Rights, Innovation and Public Health: a
missed opportunity 79
James Killick
10 The EU’s approach to the enforcement of
pharmaceutical IPRs: multilateral, bilateral and
domestic perspectives 88
Pedro Velasco Martins
11 The threat of counterfeit medicines: a new
approach to policy 98
Peter Pitts
part 3 Contemporary topical issues 107
12 The Convention on Biodiversity (CBD) and
Intellectual Property Rights 109
Hiroko Yamane
13 A statutory research exemption for patents 116
Nikolaus Thumm
14 Patenting biotechnology 124
Trevor Cook
15 Patent wars and authorised generics in the USA:
assessing the issues 130
Emily Bishko Radel, J. Matthew Lowe and
Richard P. Rozek
16 IPRs and the support for biomedical innovation:
the case of combination products in Europe 141
Manuel Campolini
17 Supplementary Protection Certificates (SPCs) 148
Conal Clynch
Notes 155
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viii ix
About the contributors
Manuel Campolini has been a member of the Brussels Bar
since 1989 and has worked at national, European and inter-
national levels in the areas of commercial/unfair competition
law and IPRs, including patent/SPC, trademarks and data exclu-
sivity. Within the law firm Stibbe, he is a member of the Intel-
lectual Property and Life Science Department, with a practice
that focuses on legal assistance, strategic advice and litigation
related to pharmaceutical issues (IP, regulatory and registration
matters, pricing and reimbursement, clinical trials, parallel
trade etc.). Between 1997 and 2001 he was the manager of the
legal department at the European Federation of Pharmaceutical
Industries and Associations (EFPIA). He was more particularly
involved in TRIPs-WTO issues and ran the EFPIA WTO Priority
Action Team.
Conal George Clynch is a legal adviser at the EU Commis-
sion. He studied engineering at Brunel University from 1994
to 1998 and joined the UK Patent Office as a patent examiner
in 1999. He moved to the Intellectual Property and Innova-
tion Directorate (IPID) in 2005 and became policy adviser on
biotechnological and pharmaceutical legislation. Part of this
About the contributors role involved dealing with policy matters relating to Supple-
mentary Protection Certificates (SPCs) and included meetings
with stakeholders and the EU Commission on issues relating
to SPC legislation. He joined the EU Commission in January
2007 as a seconded national expert, dealing with intellectual
property policy and legislation.
Joseph Cook is the vice president of NERA Economic
Consulting and specialises in antitrust, complex commercial
disputes, intellectual property, and auctions and market design.
He has testified on economic and econometric issues relating
to market design, intellectual property, contract damages,
and merger-related competitive effects. In the pharmaceutical
industry, he has written and consulted on off-label promotion,
life-cycle management, patent settlements and generic entry,
authorised generics, pricing and reimbursement, price-fixing,
and the competitive effects of mergers. He has also worked
on intellectual property litigation and class actions relating
to medical devices. He has published in the Journal of Political
Economy, the Journal of Economic Behavior and Organization and
Antitrust Law Journal, among other journals, and has also served
as an academic journal referee.
Trevor Cook is a partner at Bird & Bird, which he joined in
1974 with a degree in chemistry from Southampton University.
He was admitted as a solicitor in 1977 and joined the intellec-
tual property department in 1981. His practice covers all aspects
of intellectual property, technology and regulatory law. He is
treasurer of the UK Group of the AIPPI (The International Asso-
ciation for the Protection of Industrial Property), a member of
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About the contributors
the Council of the Intellectual Property Institute and secretary
to the British Copyright Council Standing Committee on
Copyright and Technology.
Cathy Garner is the chief executive of Manchester: Knowledge
Capital. She has a background in university–business links and
technology transfer, and extensive experience of urban regener-
ation, education and knowledge-based business development.
She is a trustee of the UK registered charity, MIHR (The Centre
for the Management of Intellectual Property in Health Research
and Development), based in Oxford, and was its founding CEO
until 2004. She established and ran the Research and Enter-
prise Office at the University of Glasgow in Scotland, led the
establishment of the Scottish Institute for Enterprise and was
a founder director of the Scottish North American Business
Council. She is a member of the Association of University
Technology Managers (AUTM) in the USA and served as their
inaugural vice president for International Relations.
Jacques J. Gorlin is president of The Gorlin Group and a
recognised expert on the nexus between intellectual property
and trade policy. He has been a consultant to the research-
based pharmaceutical industry for over twenty years. He is vice-
chair of the Industry Trade Advisory Committee on Intellectual
Property Rights (ITAC 15), a private sector group that advises
the secretary of commerce and the US trade representative on
trade policy, and is a member of the Commission on Intellec-
tual Property of the International Chamber of Commerce. He
also serves as president of the American BioIndustry Alliance
(ABIA). He was an industry adviser to the US delegations to both
the 2003 (fifth) and 2005 (sixth) ministerial conferences of the
World Trade Organization held, respectively, in Cancun and
Hong Kong.
James R. M. Killick is a litigator with a broad range of
European law experience, notably in competition law and
pharmaceuticals. He has been involved in pleading a number
of leading cases in the European courts, including Microsoft
v. Commission (abuse of dominant position − compulsory
licensing, treatment of trade secrets); Hanner (Swedish retail
monopoly on pharmaceuticals); Forum 187 v. Commission (fiscal
state aids); Pfizer v. Council (precautionary principle applied to
pharmaceuticals); IMS Health (compulsory licensing); Nintendo
v. Commission (fining policy); Servier v. Commission (banning of
pharmaceutical products); Cheil Jedang v. Commission (fining
policy); and Du Pont v. Commission (GSP). He has taken a
particular interest in cases which establish where the boundary
should lie between intellectual property and competition law.
He is a partner at the legal firm White & Case.
Douglas Lippoldt has been an international economist with
the Organisation for Economic Co-operation and Develop-
ment (OECD) in Paris since 1992. His current assignment in
the Trade and Agriculture Directorate gives particular emphasis
to the so-called BRIC countries (Brazil, Russia, India and China)
and a variety of cross-cutting trade and development issues
such as trade-related IPRs. During the 1990s, he managed a
number of projects related to economic transition in Russia and
Eastern Europe, producing a series of publications on adjust-
ment-related topics. He has also been a contributing author to
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About the contributors
a series of labour market studies of OECD member countries.
Prior to coming to the OECD, he worked for ten years for the
US government as an international economist on trade policy,
labour market and economic development issues.
J. Matthew Lowe is an analyst for NERA Economic Consulting
and has co-authored numerous valuation studies for tax, litiga-
tion, and business planning purposes. He has extensive experi-
ence in valuing tangible and intangible property for transfer
pricing studies across a variety of industries including phar-
maceuticals, agricultural chemicals and automobiles. For these
transfer pricing studies, he has used accounting, financial,
statistical and econometric analyses to identify arm’s-length
prices consistent with US and foreign tax guidelines. He
appeared before the Internal Revenue Service to discuss his
statistical models for an intangible property transfer pricing
study of which he was a co-author. He has prepared quanti-
tative pharmaceutical market research for litigation matters
involving patent validity.
Pedro Velasco Martins is a principal administrator in the
Directorate General for Trade at the European Commission.
He is responsible for the IPR enforcement strategy for third
countries, as well as for IPR-related bilateral and multilateral
relations with North and South America, the ASEAN countries,
and the G8 and OECD countries. He is the Commission negoti-
ator for the IPR chapter in ongoing trade negotiations between
the EU and third countries. Previously, he worked in the area of
trade defence instruments (anti-dumping) for six years. Before
entering the European Commission, he practised as a lawyer for
three years, between 1993 and 1996. After becoming a member
of the Lisbon Bar Association, he was a partner in the law firm
Macedo Vitorino & Associados.
David Monk is vice president of NERA Economic Consulting
and has conducted economic research and analysis primarily in
the areas of antitrust, contract disputes, and the measurement
of damages. He has presented his work to the US Federal Trade
Commission and Department of Justice and has submitted
expert testimony in New York State Court. He has developed a
model to analyse patient origin data to help identify relevant
geographic markets in the healthcare industry and has analysed
a variety of other healthcare issues concerning pharmaceuti-
cals, health insurance, hospital services, physician privileges,
home healthcare services, rising medical costs, and medical
equipment. In addition, he has analysed mergers involving
acute care hospitals, physician groups, long-term care hospitals,
medical diagnostic equipment manufacturers, and health
insurers.
Peter Pitts is president of The Center for Medicine in the
Public Interest and senior vice president, director for global
health affairs for Manning Selvage & Lee. From 2002 to 2004
he was the US Food & Drug Administration’s (FDA’s) associate
commissioner for external relations, serving the senior commu-
nications adviser to the Commissioner. He provided executive-
level policy and programme direction for the FDA’s interactions,
information exchanges and liaison activities with the agency’s
stakeholders and other external audiences. He supervised the
FDA’s Office of Public Affairs, Office of the Ombudsman, Office
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About the contributors
of Special Health Issues, Office of Executive Secretariat, and
Advisory Committee Oversight and Management, and served
on the agency’s obesity working group and counterfeit drug
taskforce. His comments and commentaries on healthcare
policy issues appear regularly in the media.
Emily Bishko Radel is a consultant at NERA Economic
Consulting and specialises in transfer pricing and other matters
relating to antitrust and intellectual property across a variety
of industries. Since joining NERA, she has published articles
and given presentations on transfer pricing and other matters
relating to the pharmaceutical and healthcare industries. She
has co-authored numerous reports for clients under Section 482
and OECD guidelines relating to transfer prices for intangible
and tangible property, manufacturing services, and research and
development functions. She has also prepared expert reports in
a variety of litigation matters. She has conducted public policy
studies in healthcare industries and has prepared reports for
submission to regulatory agencies and trade associations.
Patrick Ravillard is a principal administrator in the
Directorate General for Trade at the European Commission,
having joined the unit responsible for intellectual property in
September 2004. His responsibilities include multilateral nego-
tiations on IP matters (TRIPS), in particular public health and
biodiversity, as well as bilateral relations with China. Prior to
his current post, he served as a counsellor at the Delegation of
the European Commission to the international organisations
in Geneva. In this position, he was in charge of negotiations
related to IP and government procurement in the World Intel-
lectual Property Organization and the World Trade Organiza-
tion. Prior to joining the European Commission, he served as
an inspector at the legal department of the French Directorate
General of Customs and Excise, at the Ministry of Finance in
Paris, from 1986 to 1992. He is a doctor in law and received a
diplôme d’études approfondies (DEA) in Community and European
Law from the University of Paris I Panthéon-Sorbonne.
Richard Rozek is senior vice president at NERA Economic
Consulting and works on projects involving intellectual
property, antitrust, and transfer pricing across a variety of
industries. Prior to joining NERA, he held senior positions in
the Bureau of Economics at the US Federal Trade Commission,
where he served as deputy assistant director for antitrust, and
at the Pharmaceutical Manufacturers Association (now called
the Pharmaceutical Research and Manufacturers of America).
He was also an assistant professor of economics at the Univer-
sity of Pittsburgh. He has written over 45 articles for profes-
sional journals, such as the American Economist, Contemporary
Policy Issues, Electricity Journal, Energy Journal, Economics Letters,
Journal of Economic Integration, Journal of Economics, Journal of
Research in Pharmaceutical Economics, Journal of World Intellectual
Property, Mathematical Modelling, Research Policy, and Tax Notes
International.
Stefan Szymanski is professor of economics at Tanaka
Business School, Imperial College London, and has specialised
in studying the economics and business of sport. He completed
his PhD at Birkbeck College, London, in 1988 before working at
London Business School’s Centre for Business Strategy for five
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About the contributors
years. He then joined the Tanaka Business School at Imperial
College London. He has published over 50 academic articles,
two edited books and three authored books, including the
recently published National Pastime: How Americans play Baseball
and the Rest of the World Plays Soccer, co-authored with Andrew
Zimbalist. He has consulted for a wide range of commercial
and government organisations, including the UK Treasury
Department, the Department for Culture, Media and Sport, the
Department of Trade and Industry, the Office of Fair Trading,
Ofcom, and the Fédération Internationale de l’Automobile.
Nikolaus Thumm is senior economic counsellor at the Swiss
Federal Institute of Intellectual Property and represents the
institute in different expert groups with the European Commis-
sion, the Organisation for Economic Co-operation and Devel-
opment, the World Intellectual Property Organization and the
European Patent Office. He is an evaluator of European research
projects and is involved in research exploitation and tech-
nology transfer activities in Switzerland and with the European
Commission. He was chairman of the United Nations Advisory
Group on the Protection and Implementation of Intellectual
Property Rights for Investment. Previously, he worked for the
European Commission in Spain and spent time as a researcher
at the European University Institute in Florence, and with
Europa Kolleg in Hamburg. He is an industrial engineer by
training and holds a PhD in economics from Hamburg Univer-
sity. He has published extensively in international journals and
is a frequent speaker at international workshops and confer-
ences in the field.
Eskil Ullberg is a management consultant and research
scholar with twenty years’ experience, of which the past ten
have been in senior consulting positions, working with top
management and decision-makers in international organisa-
tions, government agencies and corporations. For the last
seven years he has been researching the management of risk
and uncertainty in relation to intellectual property, in partic-
ular patents, and its strategic use by companies and economies
to create competitive advantages, turning inventions into
economics and growth. He is also a research scholar, currently
at the Interdisciplinary Centre for Economic Research, ICES, at
George Mason University (2007). The focus of his research is on
investigating new markets for trading IPRs such as patents.
Tommaso Valletti is a professor of economics at the Univer-
sity of Rome and Imperial College London, a research fellow at
the Centre for Economic Policy Research and a research affiliate
of the Global Consortium for Telecommunications (London
Business School). He is an expert on industrial economics, regu-
lation and telecommunications economics, and is an economic
adviser to Ofcom, the UK communications regulator. He has
advised numerous bodies, including the European Commis-
sion (economic expert on remedies in mobile telephony − 2003;
economic expert on market definition − 2006), the Organisation
for Economic Co-operation and Development and the World
Bank, on topics such as network interconnection, mobile termi-
nation and spectrum auctions. He gained a magna cum laude
degree in engineering from Turin University in 1990 and holds
an MSc (1994) and a PhD (1998) in economics from the London
School of Economics, where he also taught until 2000.
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Jayashree Watal is a counsellor at the World Trade Organiza-
tion and has more than 22 years of experience in government in
India, of which 10 were devoted to policy, diplomacy, research
and administration on Intellectual Property Rights. She worked
in the Ministry of Commerce as director, Trade Policy Division,
New Delhi (1995−1998) and represented India at a crucial stage
in the Uruguay Round TRIPS negotiations from 1989−1990.
She has researched and published articles on issues related to
IPRs. She was a visiting scholar at the Center for International
Development at Harvard University, and at the Institute for
International Economics in Washington, DC and at the George
Washington University Law School.
Hiroko Yamane is a professor at the National Graduate
Institute for Policy Studies (Japan) and teaches international
economic law, competition and intellectual property rights at
the National Graduate Institute for Policy Studies in Tokyo,
Japan. She has written widely about competition and regula-
tions, TRIPS implementation in developing countries, biotech-
nology invention and public health. She was a member of
the World Health Organization’s Commission on Intellec-
tual Property, Innovation and Public Health. She gained her
BA at Tokyo University and her MPhil at Yale University and
completed her diplôme d’études approfondies (DEA) at the Univer-
sity of Paris.
Both Intellectual Property Rights (IPRs) and phar-
maceuticals are intrinsic to human history and
progress. IPRs characterise the shift in human productivity
from agrarian to industrial production − placing the individual
at the heart of human innovation and creativity. Indeed, the
patent system has its roots in ancient Greece and was first intro-
duced in 1474 in Venice. Pharmaceuticals have revolutionised
healthcare, enabling treatments or cures for otherwise unstop-
pable diseases, harnessing chemistry, biology and mass produc-
tion technologies in the quest for the discovery, research, and
development of new medicines.
The combination of IPRs and pharmaceuticals has become
one of the most important tools in modern society. One could
identify the granting of US patent number 64407 to Felix
Hoffmann on 6 March 1889 − a patent for the wonder drug
Aspirin − as the most notable starting point of this partnership
between pharmaceuticals and intellectual property.
Since then, pharmaceutical IPRs have been discussed and
Introduction
Why pharmaceutical IPRs?Meir P. PugatchDirector of Research, Stockholm Network
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Healthy IPRs Why pharmaceutical IPRs?
xxi
debated in academic, professional, political and societal
circles. Such discussions were (and still are) as emotional as
they are rational. Are pharmaceutical IPRs a barrier to access to
medicines or are they essential to it? Do pharmaceutical patents
prevent or enhance pharmaceutical research and development?
Are compulsory licences a legitimate tool for price negotiations
or are they a predatory mechanism aimed at circumventing the
rights of drug developers? Is there any hope at all for multilat-
eral IP negotiations, and for whom? Are pharmaceutical IPRs a
zero-sum game or can they lead to win–win results? These are
but a few of the questions being debated today.
The field of pharmaceutical IPRs is complex and multi-
dimensional. It encompasses significant challenges, including
the issue of access to medicines. Indeed, the debate over IPRs
and access to medicines in developing and least developed
countries is one of the most sensitive and complicated issues to
be discussed under the auspices of the World Trade Organiza-
tion.
Healthy IPRs does not ignore the various challenges
currently faced by the field of pharmaceutical IPRs. Yet without
denigrating the importance of the IPR debate in general, and
the issue of access to medicines in particular, it is essential to
keep the big picture in mind: Pharmaceutical IPRs work. They
are part of the solution and not part of the problem.
By providing a more comprehensive and realistic overview
of the many aspects of pharmaceutical IPRs, this compendium
seeks to underline this message.
Healthy IPRs includes concise and informative contributions
from seventeen distinguished experts, including academics,
policymakers and practitioners. It is structurally divided into
three sections. The sections which deal with the economic
aspects of pharmaceutical IPRs and with pharmaceutical IPRs
in the international arena provide a broader view of the field,
while the section dealing with contemporary topical issues
focuses more closely on some of the specific aspects that are
currently being discussed.
We hope you will enjoy the compendium and find it to be
a useful tool in understanding the complex issues now at the
heart of the health-related IPR debate.
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Acronyms
ANDAs Abbreviated New Drug Applications
ADR Adverse Drug Reaction
API Active Pharmaceutical Ingredient
CBD Convention on Biodiversity
CIPIH WHO Commission on Intellectual Property Rights,
Innovation and Public Health
DSB Dispute Settlement Body
EC European Community
EPC European Patent Convention
EPO European Patent Office
EU European Union
FDA US Food & Drug Administration
FDI Foreign Direct Investment
FTAs Free Trade Agreements
FTC US Federal Trade Commission
GATT General Agreement on Tariffs and Trade
IPRs Intellectual Property Rights
LDC Least Developed Country (or Countries)
MFN Most Favoured Nation
NDAs New Drug Applications
NCEs New Chemical Entities
Acronyms NICs Newly Industrialising Countries
OECD Organisation for Economic Co-operation and
Development
PPPs Public–Private Partnerships
R&D Research and Development
SMEs Small- and Medium-sized Enterprises
SPC Supplementary Protection Certificate
TK Traditional Knowledge
TRIPS Trade-Related Aspects of Intellectual Property Rights
UNCTAD United Nations Conference on Trade and
Development
WHO World Health Organization
WIPO World Intellectual Property Organization
WTO World Trade Organization
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�
In response to the challenges and opportunities of
globalisation, the pharmaceutical sector has evolved
to become one of the most dynamic and rapidly internation-
alising sectors in the world.1, 2 One key dimension of globalisa-
tion for the sector has been the development of enhanced rules
under the multilateral trading system, enabling pharmaceutical
firms to better capitalise on their intellectual property. These
rules have expanded the range of economic opportunities for
firms in the sector by opening markets and providing improved
protection for intellectual property. Many firms appear to have
moved to adjust their investment strategies to take advantage
of the improved environment for Intellectual Property Rights
(IPRs).
Recent intellectual property developmentsParticular impetus to the strengthening of IPRs arose from the
advent of the World Trade Organization’s (WTO) Agreement
1
IPRs, pharmaceuticals and Foreign Direct InvestmentDouglas Lippoldt
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IPRs, pharmaceuticals and Foreign Direct Investment
on Trade-Related Aspects of Intellectual Property (TRIPS
Agreement), which entered into force in 1995 (Park and Lippoldt,
2005). 3 The TRIPS Agreement covers the main types of intellec-
tual property,4 establishing more effective − and geographically
inclusive − international minimum standards of protection
for IPRs than had existed previously. The Agreement specifies
WTO member obligations to enforce IPRs. And through the
WTO framework for trade policy reviews, dialogue and dispute
settlement, the TRIPS Agreement also provides pathways for
redress among WTO members in cases of non-compliance by
governments. Additional strengthening of IPRs in recent years
has come under initiatives of the World Intellectual Property
Organization (WIPO), various regional trade and investment
accords, and unilateral actions. Supporters have endorsed the
various efforts to strengthen IPRs, underscoring the incentives
this offers for innovation and subsequent ‘real-world’ applica-
tion of new ideas.5, 6
The potential relationship of IPRs to investmentThe preamble to the TRIPS Agreement recognises the devel-
opmental and technological objectives of national systems for
the protection of intellectual property. One way that this can
operate is by encouraging foreign holders of intellectual property
to trade and invest. A country that enhances its IPR regime
may attract additional knowledge-intensive product imports
otherwise unavailable on the domestic market, or it may attract
inflows of Foreign Direct Investment (FDI); in either case, inter-
national technology transfer is likely to flow as a consequence.
Likewise, improved protection of IPRs in foreign markets may
provide a given country’s investors and traders with improved
opportunities to enter those markets while shielding their intel-
lectual property from undue imitation.
The pharmaceutical sector is a particularly high technology
Figure 1 Pharmaceutical sector expenditure on R&D, selectedOECD countries
Source: OECD Health Division, OECD Research and Development Expenditure in Industry database.Note: The data refer to manufacture of pharmaceutical, medicinal chemicals and botanical products.They cover R&D activities undertaken by the corporate sector in order to develop new compoundsto correct somatic or physic dysfunction or to improve an individual’s state of health, irrespectiveof the source of funding.
1970 1974 1978 1982 1986 1990 1994 1998 2002
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
US$,
mill
ions
, PPP
exc
hang
e ra
tes
Australia
Belgium
Canada
Denmark
France
Germany
Netherlands
Sweden
United Kingdom
United States
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Healthy IPRs
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IPRs, pharmaceuticals and Foreign Direct Investment
sector as evidenced by its rate of investment in Research and
Development (R&D). When viewed in relation to either produc-
tion or value added, pharmaceutical sector R&D expenditures
are more than three times as high as those for manufacturing as
a whole.7 Moreover, the absolute volume of R&D expenditure
in the sector has risen significantly in recent years (Figure 1).
Given the scale of investment, it is clear that the industry has a
lot at stake with respect to the intellectual property generated
through R&D. The ability of innovators in the sector to ensure
a return on their R&D investment depends in part on their
ability to defend and capitalise on the resulting intellectual
property.
Foreign Direct Investment and the pharmaceutical sectorFDI refers to cross-border investments made with the objective
of establishing a lasting interest in an entity that is resident in a
market other than the investor’s home market.8 The investment
may consist of equity capital, reinvested earnings and other
capital contributions. Flows of FDI have exhibited impressive
growth in recent years, particularly since 1990, but with signifi-
cant year-to-year variation. OECD countries attract the bulk of
the inflows, but China has grown in importance and has been
a top destination in recent years (accounting for about 10% of
global net inflows in 2002).
Table 1 presents FDI inflows and outflows with respect to
the pharmaceutical sector in several OECD economies. The
size and variability of the flows (including reversals) is quite
striking. These data provide an indication of a continuation of
the restructuring in the sector that was quite pronounced in
the 1990s and partly motivated by the high and rising costs of
drug development.9 FDI flows related to merger and acquisition
activity account for a large share of the total. An OECD study
found that all of the top 15 pharmaceutical companies were
involved in merger and acquisition transactions during the
1990s.10 Mergers and acquisitions have become an increasingly
Table 1 Direct investment in the pharmaceutical, medicinal chemical and botanical products sector (US$, millions)
2002 2003 2004
A. Inflows
Belgium 110.2 527.5 385.1
Czech Republic n.a. –105.3 159.4
Finland n.a. –124.2 -86.9
France 2,459.7 910.5 –515.5
Hungary n.a. 21.3 –32.4
Mexico n.a. n.a. 327.3
USA –4,132.0 7,917.0 1,566.0
B. Outflows
Belgium –16.0 371.6 4,813.0
Czech Republic n.a. 3 1.9
France –752.9 1,503.6 1,003.8
Hungary n.a. 3.5 20.6
USA 4,411.0 4,403.0 5,969.0
Source: OECD (2006) International Direct Investment Statistics, Paris. Notes: 1) Inflows can turn negative because of net repatriation of investment by foreign owners; outflows can turn negative because of a net repatriation of investment by domestic owners. 2) n. a. = not available.
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IPRs, pharmaceuticals and Foreign Direct Investment
important strategy for lowering the high cost of R&D and
achieving economies of scale.
Most of the pharmaceutical sector R&D takes place in the
most advanced economies, but there is an increasing volume of
R&D activity in developing countries that have created a favour-
able regulatory environment, including with respect to IPRs.
This is an important development for these countries because
multinational pharmaceutical firms can play a significant role
in technology transfer through the interaction of the parent
firm and affiliates, which can in turn have positive effects on
the national economy (e.g. via productivity-enhancing applica-
tion of new technologies). Several countries have implemented
national strategies to encourage pharmaceutical and biotech-
nological FDI with a view to promoting further technology
transfer to their economies through spillovers or local partner-
ships.11 Where they have been successful in the pharmaceutical
sector, such strategies have tended to include strengthening
the IPR regimes. Singapore, for example, has implemented a
successful strategy to attract and develop biotech and pharma-
ceutical R&D activities, one with an explicit element of IPR
protection.12
Business decisions to invest are complex and based on
a variety of considerations, with higher level considerations
sometimes trumping lower level concerns.13 While an effective
IPR regime alone may not be sufficient to attract pharmaceu-
tical FDI, an inadequate IPR regime can be, in some cases, a deal-
breaker for a technology firm that is looking to invest. On the
other hand, depending on the technology concerned, it may be
that a strategy of trade secrecy can adequately protect the firm’s
intellectual property, even in the face of some weakness in the
local IPR system. In some cases, factors such as market scale
(i.e. access to a large market) or strategic positioning prove to
be dominant factors motivating investment.14 These factors, for
example, may help to account for the large number of pharma-
ceutical FDI projects in China (which has had a mixed perform-
ance on IPR enforcement, despite joining the WTO in 2001).15
Moreover, variation in IPR strength may influence not
only the volume of FDI but also the nature of the project
(e.g. for distribution, production and/or R&D). For example,
Smarzynska conducted an analysis using firm-level data from
a worldwide survey of companies conducted by the European
Bank of Reconstruction and Development (EBRD) in 1995
concerning FDI undertaken in Eastern Europe and the republics
of the former Soviet Union.16 She found that weak IPR regimes
tended to discourage foreign investors in technology-intensive
sectors that rely heavily on IPRs. In all sectors, weak IPR regimes
tended to deter investors from undertaking local production
and rather focus on distribution of imported products. In an
earlier study of intellectual property managers from 94 major US
firms, including several pharmaceutical companies, Mansfield17
and Lee and Mansfield18 presented empirical analysis revealing
that IPRs mattered less for protecting sales and distribution
outlets than for protecting production and R&D facilities. The
proportion of FDI invested in production and R&D facilities was
positively and significantly related to the perceived strength of
IPRs. In addition, they found that the firms regarded strong
IPRs as being more important for decisions concerning transfer
of advanced technology than for FDI decisions as a whole.
Using regression analysis, Park and Lippoldt19 considered the
relationship of an index of the strength of patent rights during
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IPRs, pharmaceuticals and Foreign Direct Investment
the 1990s to FDI and trade.20 Overall, their analysis revealed a
positive relationship.21 For pharmaceuticals, they found that
a 1% increase in the indicator for patent rights in the destin-
ation market was associated with about a 0.24% increase in the
stock of US outward FDI in the market (Table 2). The results are
perhaps a bit surprising in that the coefficients for the pharma-
ceutical sector are somewhat smaller than those for industry
as a whole. The authors suggest that one possible explanation
may be related to variation in the propensity to invest abroad
according to the nature of the investment.
Given that the pharmaceutical sector is R&D-intensive and
that proximity to the home office has in the past been a factor
in R&D locational decisions, it may have been the case that
there was a certain lack of responsiveness in pharmaceutical
R&D investment to improved IPRs in foreign markets.22 On the
other hand, for other types of investment by the pharmaceu-
tical industry (e.g. distribution) there may have been less ‘sticki-
ness’ in investment decisions and better responsiveness to local
changes in the regulatory environment including IPRs. Such
a segmentation of investment strategy by type of investment
may account (at least partly) for the smaller, but still significant
coefficients found with respect to patent strength and FDI in
the sector.
In the same study, Park and Lippoldt also assessed the
relationship between imports and the strength of patent rights
(Table 2). Here as well, they found a positive relationship, with
the coefficients for pharmaceutical products being somewhat
higher than those for industrial goods as a whole. The positive
relationship is in line with the notion that as IPRs were strength-
ened during the 1990s, firms were better able to appropriate a
return on their technological investments and therefore had
greater incentive to export into these markets.
ConclusionThe pharmaceutical sector is facing a changing economic
Table 2 Estimates of the relationship of FDI and imports to strength of patent protection, 1990–2000
Economicindicatorandsectoroforigin
Countryofdestination
Coefficientestimate
N R2
I. US outward FDIAll industries All countries
Developing countries
0.568*
0.708*
224
127
0.13
0.12
Pharmaceuticals All countries
Developing countries
0.242*
0.361*
153
77
0.12
0.16
II. ImportsAll industries All countries
Developing countries
0.315†
0.243*
154
83
0.46
0.55
Pharmaceuticals All countries
Developing countries
0.436†
0.372*
154
83
0.44
0.56
Source: Derived from Park and Lippoldt (2003), Tables 7 and 8. Notes: The coefficient estimates measure the relationship of the economic indicators to the destination country’s strength of patent rights, controlling for various factors such as other economic influences (e.g. level of GDP per capita) and unobserved country-specific factors. The coefficients were calculated using regression analysis and a pooled sample of observations across countries. They can be viewed as indicating in percentage terms the average change in the respective sector’s outward-FDI-stock-to-GDP ratio or imports-to-GDP ratio per 1% change in an index of patent rights for the destination country. Asterisks indicate statistical significance with moderate degree of confidence; daggers indicate a high degree of confidence. N denotes the number of observations and R2 the fraction of the variation in the data explained by the model.
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environment characterised by the deepening of globalisation
for OECD countries and the increasing integration of many
developing countries into the mainstream of the international
economy. One dimension of this changed environment is an
international strengthening of IPRs. Given the critical role that
technical innovation plays in the sector and the role that IPRs
play in the ability of the pharmaceutical sector to capitalise on
that innovation, it is not surprising to find a positive relation-
ship between IPRs and FDI in the sector. The strength of IPR
protection appears to be one important factor – among others
– influencing trade and investment decisions in the sector.
Moreover, as IPR standards in some developing countries begin
to approximate those in OECD countries, one could reasonably
anticipate further geographic diversification in pharmaceutical
sector investment, including with respect to R&D.
Parallel trade is both a contentious and confusing
issue in international trade. However, the under-
lying economic principles are relatively straightforward. In this
chapter we seek to set out the basic issues in a simple and non-
technical manner.
To understand parallel trade, it is first necessary to under-
stand some basics associated with ordinary trade. Trade
involves the exchange of goods and services where something
(e.g. clothing, electrical goods, or a pharmaceutical product)
is usually exchanged for money. In exchange for the payment
the buyer becomes the owner of the good, free to dispose of it
as he or she wishes. In particular, if a buyer paid US$1 for the
good, but then discovered that someone else was now willing to
purchase the same good from her for US$2, then in general he
or she would be free to resell it. Certainly, one does not imagine
that the original seller would still have any right to dictate the
terms of the resale. This is, in part, what we mean by free trade,
and this is now generally upheld by national and international
2
Parallel imports of patented medicinesStefan Szymanski and Tommaso Valletti
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Parallel imports of patented medicines
law throughout the world, and in particular by competition
law. The existence of free trade also implies something that
economists call ‘the law of one price’. This states that if a good
is freely traded, then its price in the market must be the same
everywhere (possibly allowing for differences arising out of
transport costs for bulky items and for differences in national
taxation). For example, the price of gold this second is exactly
the same in London, New York and Tokyo. If it were not, there
would exist a profitable opportunity to buy gold where it is
cheap and sell gold where it is expensive. This would be an
easy way to profit – what economists would call an arbitrage
profit – and such profits seldom exist, precisely because free
markets mean that such opportunities are instantly exploited
by traders.
The important point to note about this is that the original
seller is not likely to gain from free trade. If one buyer is prepared
to pay US$2 and another US$1, then the original seller would
like to trade directly with each, rather than allowing arbitrage.
For example, if buyers were located in different countries, and
economic conditions were such that the most profitable retail
price was US$2 in country A and US$1 in country B, then the
seller would like to charge different prices in each country
while ensuring that buyers in country B were not able, directly
or indirectly, to resell what they buy at US$1 to customers of
country A. This is what economists call price discrimination.
Arbitrage, if there is enough of it, puts a stop to price discrimi-
nation. If enough buyers in country B are willing to resell at a
price lower than US$2 in country A, then the price in country
A must fall. At the same time, the ability to profit from reselling
will create demand in country B and push up the price there.
With enough arbitrage, the law of one price will hold, and the
price will settle somewhere between US$1 and US$2. Moreover,
if the original seller is aware that arbitrage is possible, he will fix
the original price at this intermediate level.
This is essentially the story of parallel trade. Suppose a
seller in country A exports to country B. Absent free trade,
and suppose the price in country A is higher than the price in
country B because of price discrimination. Buyers in the low
price country will want to resell – so the product will move
back in the opposite direction (overall, the product flows from
A to B and back to A). This is the sense of the word ‘parallel’
as used here. Note that the goods in question are the genuine
product of the original manufacturers and are not being traded
as anything else – hence they are not counterfeit or otherwise
black market goods. However, they are often called ‘grey market’
goods. This may be a somewhat unfair label. Parallel trade is
either legal or illegal, depending on the product, the country
and the precise origin and destination of the trade. While a lot
of money has gone into legal battles, the legal position seems
relatively clear.
Parallel trade, IPRs and pharmaceutical products – the legal situationBy and large, parallel trade is a lawful activity. The principal
exception to this relates to goods protected by trademark and
by patent. When it comes to pharmaceuticals, most of the cases
concern parallel trade of patented products.
Clearly, pharmaceuticals sell for very different prices in
different countries due to the complexities of national health
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Parallel imports of patented medicines
systems where governments and/or insurers tend to be the
main purchasers of the goods. Of course, once a patent expires,
anyone can produce a generic version and price variations often
have to do with the extent of such activities. Some countries,
notably India and Brazil, have developed a strong generic phar-
maceutical industry partly by ignoring patent rights. However,
under the TRIPS (Trade-Related Aspects of Intellectual Property
Rights) Agreement at the World Trade Organization (WTO),
recognition of patent rights was agreed internationally. Hence,
if prices of pharmaceuticals under patent vary internationally,
this is largely because producers are selling at different prices to
different countries.
Why, then, would arbitrage be illegal? This goes back to
the roots of patent law, which is essentially a national right
(inventors must take out patents in all countries where they
want protection). A patent grants a monopoly in a particular
territory (e.g. the UK) and prohibits all rival sellers of the
product in that territory. A legal decision in the English courts
in the nineteenth century established that this right extended
to the re-importation of legally exported consignments of the
product – hence parallel trade of goods under patent became
illegal.1
This peculiarity of patent law has come in for widespread
challenge, most obviously from buyers in countries where the
patent owner is trying to sell at above average prices. They tried
to persuade courts that this was contrary to competition law,
since it enabled a monopolist to maintain an artificially high
price, or even an infringement of human rights, since it limited
the freedom of the buyer to dispose of her property as she saw
fit. Some countries did not adopt such a ruling. Most notably
the USA has upheld ‘first sale doctrine’ – meaning that all rights
to control property are surrendered when it is sold.
However, when it comes to pharmaceuticals, parallel trade
can be prevented by the manufacturers thanks to the regulations
of the US Food & Drug Administration (FDA). These regulations
require that any parallel trader obtain permission to re-import
into the USA from the original pharmaceutical manufacturer.
Not surprisingly, such permission is seldom granted, since US
manufacturers prefer to control domestic supply themselves.
Hence, when US citizens cross the border into Canada to buy
patented prescription drugs at low prices and then take them
back into the USA, or when Internet traders buy consignments
from Canada and resell them in the USA at discounted prices,
they are usually breaking the law.
A slightly different situation emerged in the EU. While the
EU recognises the right of a patent-holder to prevent parallel
trade, the free movement of goods within the EU overrides
this. The proprietor of industrial property ‘exhausts’ its right
to object to the marketing of its product anywhere in the EU
once it has consented to the marketing of its product in one of
the European Economic Area (EEA) states. The principle applies
whether or not the intellectual property right is protected in
the first or second EU state of importation. Hence, a UK phar-
maceutical company can prohibit the resale of pharmaceuticals
in the UK that it has exported to Russia, but not the resale in
the UK of products it has exported to Poland.
Pharmaceutical companies have relied on trademark rights
to prevent repackaging by parallel traders in the country of
import. In response, the European Court of Justice (ECJ)
has ruled that the essential function of the trademarks is to
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Parallel imports of patented medicines
guarantee to the consumer the identity of the product’s origin
by enabling the consumer to distinguish it without any risk
of confusion from products of a different origin.2 Essentially,
repackaging cannot be opposed by a trademark owner if: the use
of the trademark would contribute to artificially partitioning
national markets; the repackaging does not adversely affect the
original condition of the product, is not liable to damage the
reputation of the trademark, and clearly identifies the manufac-
turer and importer; and the trademark owner is notified before
the repackaged product is marketed.
Thus, the ECJ’s case law has severely limited the ability of
pharmaceutical companies to rely on their intellectual property
rights to prevent parallel trade. As a result, pharmaceutical
companies are increasingly seeking recourse to other commer-
cial practices, some of which may come into conflict with com-
petition law.
Economic considerationsPrice discrimination is largely seen by the public as a negative
phenomenon, especially by those forced to pay the higher
prices. One important and obvious consequence is that it raises
profitability, by enabling the seller to charge a high price to
those who can pay more (efficient exploitation). However, price
discrimination can also extend the market to a larger audience
among those less able or willing to pay (efficient distribution).
The first effect is largely negative because it distorts the market.
However, the second effect is generally good for everyone
because extending the market can reduce prices, even for the
high price bracket, if it brings down average costs. Hence, from
an economic perspective, price discrimination can be a good
thing if it extends the market enough, but is a bad thing if it is
simply causing rich consumers to be charged high prices. This
analysis then extends to parallel trade. Parallel trade (which
prevents price discrimination) is a good thing if it simply
enables more consumers to enjoy low prices. However, it can
be bad thing if preventing price discrimination causes some
customers to be priced out of the market.
To decide whether parallel trade is good or bad, therefore,
requires some consideration of the specific case. If US citizens
get cheaper drugs from Canada, what will be the consequences?
At one extreme, US pharmaceutical companies might refuse
to supply Canada, denying all Canadians the benefits of the
drugs, or obliging them to travel to the USA, where they would
now have to pay the high price.
Critics object that such a threat is not credible, since the
Canadian government could issue a compulsory licence within
the rules laid down by the WTO if the US companies refused
to supply. More likely, the pharmaceutical companies would
charge the same price in Canada and the USA, and Canadians
would pay higher prices on average. The Canadians them-
selves have now recognised this threat, and some have started
to advocate rules prohibiting parallel trade. Pharmaceutical
companies argue that Canada only receives low prices in the
first place because trade is negotiated with the central govern-
ment, which uses its bargaining power to impose low prices.
Similar arguments are made about legal parallel trade in the EU.
The consequence of this is a tendency for prices to fall to a level
consistent with the bargaining power of the strongest player.
The pharmaceutical companies point out that their profits are
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21
required to recover high Research and Development (R&D)
costs, and hence parallel trade will end up reducing the amount
of R&D and therefore pharmaceutical innovation.
However, the impact of parallel trade between relatively
rich countries is, in general, likely to be limited. More extreme
effects are likely to be found in relation to trade between the
very rich and very poor nations. Most sensitive has been the
trade in Aids-related drugs to Africa, where pharmaceutical
companies have been under pressure to reduce prices, which
are in the region of US$10,000–$20,000 for an individual in
a developed country. A significant difficulty has been the fear
that consignments of these drugs will be parallel traded – and,
indeed, cases of such trade already exist. For critics, this merely
indicates the inappropriateness of the patent system for dealing
with medicine and such critics advocate alternative ways to
support investment, generally through the state. Supporters of
the patent system argue instead for greater protection against
parallel trade, and some steps have been taken at the WTO to
limit potential for such trade.
While the policy analysis may be a little more complicated,
the essential issue is whether one considers it right for customers
in different countries to pay different prices for the same goods
(price discrimination). If you think this is wrong, then you are
in favour of parallel trade; if you think price discrimination
serves some positive purpose, then you will be less favourably
disposed towards it.
Small- and Medium-sized Enterprises (SMEs)
involved in the production of pharmaceuticals in
developing countries need to be aware of the complexity and
scale of the process which is required to deliver successful new
medicines in today’s context. With a very long timescale for
development and estimated costs in excess of US$800 million,
it is a game for large companies with deep financial pockets. As
these large companies have adopted strategies to mitigate their
risk, opportunities have opened up for SMEs to play important
and rewarding roles in the process of drug development. In
developing countries there are some specific factors which
provide opportunities for SMEs to engage profitably. The over-
riding caveat to successful engagement is, however, the SME’s
ability to manage intellectual property appropriately. This paper
sets out to describe these opportunities and the considerations
which need to be given by SMEs to IP management.
�
Strategic use of IPRs by pharmaceutical SMEs in developing countriesCathy Garner
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Strategic use of IPRs by pharmaceutical SMEs in developing countries
Intellectual property as a business development toolThe pharmaceutical industry places greater importance on
patent protection than other industries. Mansfield estimated
that some 65% of new drugs would not have been produced
had no patents been in place. This compares with 30% of new
chemical products and 4% of electrical products.1 The invest-
ment risk is high with an estimated level of attrition of 99 out
of 100 new compounds failing to be developed into products.2
A clear demonstration of the importance of patents for success
in global markets in the pharmaceutical industry has been
observed in the rapid change of behaviour by those Indian
companies that have grown large through the production of
generic medicines. Following the implementation of the TRIPS3
Agreement in 2005, the Indian generic manufacturers quickly
became increasingly focused on global markets and patented
technologies.4 Robust intellectual property protection and
management are essential for SMEs that wish to create value in
their companies in the pharmaceutical sector.
The pharmaceutical industry’s reliance on strong patent
protection is also a consequence of the nature of the drug devel-
opment process where many players are involved in a chain of
relationships that need to be governed by contractual obliga-
tions, mutual trust and shared risk. The patent system provides
security and the ability to contract. The need for strong patent
protection in the pharmaceutical industry has developed as a
corollary of the research and development (R&D) paradigm,
which has emerged with the ever increasing complexity of
science and the need for specialist contractors in different parts
Table 3 Multiple players in the stages of drug development
Proc
ess
Targetidentification
Drugdiscovery Drugdevelopment(1)
Drugdevelopment(2)
Discoveryofthebiologicalmechanismsimplicatedinthecauseofadisease
Useofenablingtechnologiestoscreenmillionsofpotentialdrugcandidatesorrationaledesigntoproducenewtherapeutics
Thecreationofapharmacologicallyeffectivemeansofformulatinganddeliveringthenewtherapeuticagenttoitssiteofaction
Demonstrationsofefficacyandsafetytogainregulatoryapproval
Org
anis
atio
ns a
nd te
chno
logi
es in
volv
ed
Universities Universities Drug delivery Large pharmaHospitals Large pharma Large pharma HospitalsLarge pharma Biotech
companiesBiotech companies
GMP
Biotech companies
Contract analysis GMP Biostatistics
Bioinformatics Contract manufacture
Animal models Phase II trials
Chemical synthesis
Biostatistics Phase III trials
Animal models Toxicology Packaging companies
Bioinformatics Phamacokinetics Regulatory bodies (e.g. FDA)
CROs Consulting organisations
Phase I trialsIn
sup
port Patent agents, lawyers, business
support agencies, NGOs
Source: By permission of IPR Ltd, 2003
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Strategic use of IPRs by pharmaceutical SMEs in developing countries
of the process. Table 3 summarises the wide array of players
and stages of the process involved in the development of new
medicines.
In addition to the many organisations and the complex web
of inter-relationships which comprise this process, it must also
be recognised that contractual relationships must pertain over
a period of many years. On average, a new drug takes 8–10
years from potential lead compound to entering the market.
The time frame for vaccines is dramatically higher: an average
of 35 years. The reality is, therefore, that either the entire
process has to be held within the same company and governed
by corporate responsibility (and/or trade secrets) or by strong
contractual and proprietary rights.
Strategic decision points on IP for small- and medium-sized pharmaceutical companiesFrom this elaboration of the drug development process it is
clear that SMEs need to make strategic decisions with regard to
IP management. The diagram in Figure 2 shows where the key
stages of IP management decisions need to be taken in relation
to the drug development process. Important contractual situa-
tions where high-quality IP management is of vital importance
include:
➤ The acquisition of ‘drug candidates’ for further
development;
➤ The in-licensing of products to manufacture under license;
➤ The protection of intellectual property developed in
the process of development, be that data or new active
ingredients;
➤ The onward-licensing or assignment of ‘promising
drug candidates’ to ‘big pharma’ or alternative drug
development agencies for testing on a large scale and
registration with the appropriate regulatory body.
Figure 2 Key IP considerations in the drug developmentprocess and their implications for access to medicinesby the poorest
Regulatoryapproval
Leaddiscovery
Pre-clinical
Clinical:Phase I
Phase 2
Phase 3
Regulatoryapproval
Marketing
LAUNCH
PROCESSDEVELOPMENT
CONCEPTTESTING
IDEASCREENING ➤ patent or not to patent
➤ license – to whom,where and for whichuse(s)
➤ consideration of publicgood access needs
➤ co-developmentagreements
➤ data protection rights➤ new patents
➤ licensing for marketing➤ licensing in unused
technologies with use inthe treatment ofneglected diseases
➤ access for public healthbenefit
➤ control over appropriateuse by authoriseddistributors
1 Consideration of thefuture impact of currentIP managementdecisions
2 Maintaining controlover IP to ensure thatthe intended benefit tothe company and/orpublic health isachieved
3 Greater potential fornew health productsand technologies toreach their intendedmarket as a result ofgood licensing and IPmanagement practices
4 Potential for sub-contracts from majorproduct developers toincrease supply
DRUG DEVELOPMENT PROCESS IPM DECISIONS IMPLICATIONS FOR ACCESS TOESSENTIAL HEALTH PRODUCTS
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Strategic use of IPRs by pharmaceutical SMEs in developing countries
The acquisition of ‘drug candidates’SMEs can be sub-divided into two groups in relation to the
acquisition of new pharmaceutical materials for development:
the imitative and the innovative. The former is focused primarily
on the development of generic forms of existing drugs whereas
the latter include those which are truly part of the global drug
discovery and development paradigm.
For imitative SMEs which have traditionally been involved
in the production of generic drugs, using either ‘off-patent’
formulations or reverse engineering either under the ‘Bolar’
exemption5 or through non-patenting in their territory, the
implementation of the TRIPS Agreement makes it increasingly
difficult to obtain either a new molecular entity or an Active
Pharmaceutical Ingredient (API) which is not subject to patent
protection. For example, in India, where SMEs have been able
to work on APIs to create generics, there are now some indica-
tions that the sector is beginning to suffer. This illustrates not
only the importance of a strategic approach to IP management
but also its urgency.
Few innovative SMEs have the resources to undertake the
complex and high volume biochemistry required to isolate
potential new molecular entities or new active substances. It is
therefore likely that these will be obtained under licence from
another entity which has undertaken the basic ‘discovery’
research. Innovative SMEs have to be adept at business deals and
contracts with those undertaking research, be it with univer-
sities worldwide, public research establishments such as the
Indian Council for Medical Research or R&D companies, which
may be willing to out-license compounds for further develop-
ment due to market focus or political pressure. In addition,
depending on their focus, SMEs may wish to consider seeking
licenses to natural products or traditional medicines. This can
be an important strategy in developing countries.
Contractual agreements to in-license materials include the
protection of commercially sensitive information and materials
under ‘Non-Disclosure’ and ‘Materials Transfer Agreements’, in
addition to agreements which involve clauses for the future
filing and prosecution of patent applications.6
Companies have traditionally looked to ‘own’ their materials
(under assignment) rather than license, because this has often
been a requirement of obtaining risk finance. However, univer-
sities and public research institutions are being encouraged as
‘good practice’7 to license rather than to assign their discoveries,
in order to control and determine the ‘public good element’.
This is especially important when the potential drug is for use
in the developing world.
The ‘in-licensing’ of products for local productionA strategically important route for SMEs in developing countries
is to show that they have the ability to work with large pharma-
ceutical companies ‘under licence’ to produce a local version
of a drug at either a lower cost or because the company wishes
to establish a local facility for a future lucrative market (for
example, in India or China). Companies that can demonstrate
a high level of competence, including in their management of
IP, can secure important contracts.
There are also many Public–Private Partnerships (PPPs)
which are developing medicines to tackle neglected diseases
and are seeking local partners to undertake the drug develop-
ment.8 The product-development PPPs are an important new
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Strategic use of IPRs by pharmaceutical SMEs in developing countries
source of potential licences for SMEs in developing countries as
they have missions which frequently incorporate ‘public-good
provisions’ for health and economic development.
The protection of findings during the development processSMEs can gain valuable intellectual property rights during the
process of their work if they develop the capacity to identify
opportunities for its disclosure, its protection and its value in
the market place.
There are three key areas which should be considered:
1 Data collected as part of any clinical trials. This has
become an area of contention in relation to the extension
of data exclusivity by pharmaceutical companies against
the production of generic medicines. However, SMEs in
developing countries which acquire any data on toxicity
and other trials should note the potential value of these
data and the potential for their protection.
2 Process IP that is developed during the testing of
drug candidates. This might be of value to others and
could be protected through the use of ‘utility models’ rather
than through the patent system.
3 Development of APIs from natural products or
traditional medicine. These should be protected and
may be valuable for company growth and development.
Information on approaches to the protection and manage-
ment of IP such as the above are available from many sources,
including the MIHR Handbook and through the World Intel-
lectual Property Organization (WIPO).9
The onward-licensing or assignment for clinical testing and productionMany SMEs that have been built around the development of
one specific therapeutic agent in the biotechnology sector are
subject to a trade-sale to the larger pharmaceutical companies,
which are seeking to feed their pipeline of innovative leads. The
trade-sale is effectively a purchase of the IP of that company,
be it formal IP-like patents or the know-how of its employees.
‘Big pharma’ will, however, be scrupulous in their due-diligence
of that IP and deals will only proceed if the IP is ‘clean’. The
standard of past IP management may make or break the deal.
For imitative SMEs and those that want to grow, it will still be
necessary to out-license their drug candidates to large companies
or to one of the product-development PPPs. The terms and
conditions of that licence can make or break the SME.
Specific conditions pertaining to health products for developing countriesThere has been some false expectation that SMEs in devel-
oping countries might focus on diseases specific to, or rela-
tively prevalent in, the developing world.10 However, although
SMEs in developing countries operate in the same marketplace
as those in the developed world, there are still some specific
areas where SMEs in developing countries can find comparative
advantage from having a business focus on endemic diseases.
First, the markets are local and often small by definition,
which means that the larger pharmaceutical companies will be
less interested either in direct provision or widespread patenting
– thus offering a gap in the market.
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Second, SMEs in developing countries may be able to get pref-
erential support from public sector agencies that are concerned
to address local health problems whilst supporting general
economic development. SMEs that can offer local employment
as well as health benefits make a double-bottom-line contribu-
tion and are valuable in this context.
Finally, with the millions of dollars of investment being
channelled into the development of medicines for neglected
diseases and for the provision of medicines to the poorest in
developing countries, there is a significant opportunity to gain
resources, skills and experience.
ConclusionStrategic IP management by pharmaceutical SMEs in devel-
oping countries is an essential part of their business develop-
ment. Following the implementation of the TRIPS Agreement
in all but the least developed countries (LDCs), there is little
alternative but for these companies to embrace the system and
to use it in their business development.
This chapter has provided an overview of some of the most
important areas and opportunities for SMEs in IP management.
Guidelines on the practicalities of IP management are becoming
increasingly available through WIPO and through non-govern-
mental organisations such as MIHR. Yet, implementation by
SMEs is the remaining imperative.
The policies of antitrust and intellectual property
are, in a sense, at odds. The owners of intellectual
property are generally given the right to exclude others from
the use of that property, or at least attempt to exclude others, in
the hope that such endowments will foster competitive benefits
in the form of increased numbers of innovative new products
and services. However, these rights do not last forever. Eventu-
ally, the innovations should pass into the public domain. In
essence, intellectual property is a compromise.
Another compromise was apparently made in 1984, when
the US Congress passed the Drug Price Competition and Patent
Term Restoration Act (Hatch-Waxman Act). Branded pharma-
ceutical companies complained that the drug approval process
overseen by the US Food & Drug Administration (FDA) took
too long. By the time a new drug was actually able to clear the
regulatory process and reach the market its patent was close
to expiration. When these patents expire, generic firms enter
with lower-priced products and sales shift from the branded to
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Antitrust and patent settlement investigations Joseph Cook and David Monk
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Antitrust and patent settlement investigations
the generic product. This relatively short period of ’exclusivity‘
was particularly problematic for branded firms, as they rely on
being able to maintain whatever competitive advantage they
may gain with their patented innovations for long enough to
pay for the costs of bringing their product to market.
Responding to the complaint, however, would have meant
hindering generic entry and the low-price alternatives it
offered the consumer. Perhaps in order to offset this hindrance,
the Hatch-Waxman Act offered generic firms an additional
incentive, while allowing the branded firm to maintain its
exclusivity. The first generic firm able to successfully file its
application with the FDA, for a generic version of an existing
branded product and without infringing the branded firms’
patents, would get an added bonus. That firm’s application
would be the only one granted, so as to allow entry for six
months. In this way, the first generic could be said to have a
‘180-day window of exclusivity’.
Why is generic entry such an important issue in pharma-
ceuticals? At least part of the answer lies in the institutional
and regulatory structures of pharmaceutical markets. These are
different relative to other markets in that the attributes of the
consumer are divided: the patient that actually uses the product
is typically not the one who chose it, nor the one that directly
paid for it – if the patient is insured. Rather, the physician is
the driving force behind the choice of therapy. In the case of
generic drugs, at least in the USA, it is typically the pharma-
cist that will decide among the various generic alternatives,
choosing which manufacturer’s product is selected. Many states
have mandatory substitution laws that require the pharmacist
to dispense a generic version of a branded product prescribed.
Other states clarify that the pharmacist can elect to make this
substitution, and even encourage it. If the physician wishes to
prevent substitution, he must write that the prescription is to
be ‘dispensed as written’.
All of this leads to competition on different levels in the
marketplace. There is competition, typically among different
branded drugs, for the prescription, and this competition
seeks to inform the physician of the medical benefits of one
chemical compound over another. There is also competition
at the dispensing level, typically among different generic drugs
vying to be used to actually fill the prescription.
When a branded product is ‘genericised’, there are a few likely
effects. To begin with, the branded product’s position at the
dispensing level has changed. Prior to the entry of the generic,
all prescriptions for that drug were filled with the branded
product. After generic entry, and especially in mandatory substi-
tution jurisdictions, the situation is reversed and all prescrip-
tions will be filled with a generic. This reduces or eliminates
the incentive of the branded firm to promote its product at the
prescribing level, as any success the branded firm may have in
encouraging physicians to write prescriptions for its product
will be undermined by substitution at the pharmacy.
The loss of the branded drug’s position at the dispensing level
leaves little incentive to promote the product at the prescribing
level. Neither investments in marketing nor price cuts make
much sense as these would likely only lead to increased sales
for the generic firm. Nor is there a clear means to reward invest-
ments in developing additional on-label indications for the
branded drug, as the sales associated with these uses would also
largely fall to the generic firms. Thus innovation, at least with
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respect to the genericised drug, is stymied. In addition, while
the average price of the genericised drug falls (averaging the
branded and the generic), the net competitive effect in these
markets can be a complex issue.
All of this helps to create an interesting backdrop from which
to consider the implications of settlement agreements for
alleged infringement of pharmaceutical patents. Most civil liti-
gation settles, and patent infringement cases are no exception.
However, the settlement agreements reached by branded and
generic pharmaceutical companies over the last several years
have contributed to a rather high-profile policy debate.
On 26 June 2006, the US Supreme Court denied a request
by the US Federal Trade Commission (FTC) to review a case
against drug companies involved in settlements of patent
infringement suits.1 The underlying patent suits, brought by
Schering-Plough against two generic firms, Upsher-Smith and
ESI Lederle, involved Schering’s potassium chloride product,
K-Dur. The basic facts in these patent suits were not unusual.
Neither, perhaps, was the basic structure of the settlements
between the parties. However, concerns at the FTC have led
to investigations of several settlements of patent infringement
suits.
In general, these patent settlement cases begin with a
branded drug manufacturer filing suit against generic manufac-
turers that are seeking FDA approval to market a generic version
of the branded drug. The generic manufacturers argue that no
valid patents are infringed by their entry, and, therefore, they
should be granted FDA approval before the expiration of the
patent(s).
Generally, the FTC is concerned by settlements that include a
negotiated entry date that is before the expiration of the patent,
though not immediate, and is accompanied by an ancillary
agreement by the branded manufacturer to pay the generic
manufacturer some amount of money. The FTC is concerned
that such settlement agreements are likely to have anticompeti-
tive effects.
Many of these investigations have resulted in consent agree-
ments with the FTC. In May 2000, Abbott Labs settled with
the FTC over the drug Hytrin.2 In May 2001, Hoescht Marion
Roussel settled with the FTC over the drug Cardizem CD.3 In
April 2003, Bristol-Myers Squibb settled with the FTC over three
different drugs, BuSpar, Taxol and Platinol.4
The K-Dur case was different, however and perhaps not least
because it was litigated to the fullest extent. The FTC filed suit
on 2 April 2001, alleging that the parties’ agreements to settle
these suits, which included an agreed date of entry somewhere
midway between the time of the dispute and the expiration of
the patent, ‘were agreements not to compete that unreasonably
restrained commerce’.5
The case went to trial and was heard by an administrative
law judge (ALJ) at the FTC, who decided the case in favour
of the pharmaceutical company. The ALJ found that the FTC
staff’s claims required ‘a presumption that [the patent] was not
valid or that Upsher-Smith’s and ESI’s products did not infringe
[the patent]’.6 The court found that there was ‘no basis in law
or fact to make that presumption’.7 Moreover, the court also
found that the FTC staff had not met its burden of ‘proving the
relevant product market or that Schering had maintained an
illegal monopoly’. 8
A refusal to accept presumptions of validity and non-
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infringement meant that, at least according to the ALJ, such
cases would require the FTC staff to try to prove such asser-
tions and look at the merits of the underlying patent litigation.9
The Commissioners would disagree with the ALJ on this point
when the case was brought to them on appeal by the FTC staff.
The Commission found that the ALJ had erred in finding that
the underlying patent litigation had to be examined in order
to determine whether the agreements were anticompetitive.
More particularly, the Commission found that the payments
from the patent-holder to the alleged infringers that were
included in those agreements ‘were likely to have anticom-
petitive effects because they delayed generic entry beyond the
dates that would have been agreed upon in the absence of the
payments’.10 The Commission also found that the method of
evaluating the likelihood of anticompetitive effects argued for
by the ALJ, including the definition of a relevant market, was
‘not the most appropriate way to proceed … where more direct
evidence of competitive effects is available’.11
The defendants then appealed the case to the 11th Circuit
Court of Appeals, which set aside the Commission’s opinion.12
The 11th Circuit seemed to interpret the Commission as having
effectively adopted a per se prohibition on ‘settlements under
which the generic receives anything of value and agrees to defer
its own research, development, production or sales activities.’13
The 11th Circuit stated that ‘the proper analysis of antitrust
liability requires an examination of: (1) the scope of the exclu-
sionary potential of the patent; (2) the extent to which the
agreements exceeded that scope; and (3) the resulting anticom-
petitive effects.’14 The 11th Circuit then went on to find ‘the
terms of the settlement to be within the patent’s exclusionary
power’.15 In the end, the court based its decision, at least in
part, on policy, saying that ‘given the costs of lawsuits to the
parties, the public problems associated with overcrowded court
dockets, and the correlative public and private benefits of settle-
ments, we fear and reject a rule of law that would automatically
invalidate any agreement where a patent-holding pharmaceu-
tical manufacturer settles an infringement case by negotiating
the generic’s entry date, and, in an ancillary transaction, pays
for other products licensed by the generic’.16
As noted at the outset, the Supreme Court has refused to
review this decision by the 11th Circuit. In so doing, it has let
stand an opinion that is a rejection of a presumption against
patent-holders who may elect to settle infringement suits with
negotiated entry dates and ancillary payments. Prior to its
refusal to hear this case, the Supreme Court held in Independent
Ink that there would no longer be a presumption of market
power for patents in antitrust cases.17 Perhaps taken together
these decisions reflect a desire by the Supreme Court to move
away from overly simplistic rules that side-step a more careful
analysis of all the relevant facts and circumstances – particu-
larly in the intersection of the law and policies of intellectual
property and antitrust.
The area is likely to remain contentious, at least in the
immediate future. Pressures on the branded and the generic
firms can create a high-stakes situation. For a branded firm, an
innovative drug can represent a substantial profit stream in a
market with few close competitors. The branded firms can rely
on profit streams such as these to pay not only for the innovator
drug’s development but also to offset less successful efforts and
help make the firm profitable as a whole. Generic firms are in a
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race to be the first firm to be ready to enter the market and gain
the ‘first-mover’ advantages offered by the Hatch-Waxman Act.
Having made these investments in the race to market, generic
firms, particularly those with few products, can recognise early
entry as the clearest means of recouping these investments in
a timely way. Compounding these tensions is the possibility
that the revenues of the generic firm may not be enough to
compensate the branded firm if the entry was later found to be
infringing.
The combination of these factors is likely to continue to
encourage branded and generic firms to reach settlement agree-
ments that attract the scrutiny of the FTC, notwithstanding the
decisions of the 11th Circuit and Supreme Court. Intellectual Property Rights (IPRs) give the owner
the right to exclude others from using an idea or
invention. The excluding part of the right provides the legal
basis for the transferring part, which might also be known as
the market part. Many studies have been done in the area of
exclusion of others from doing what is protected under the
right, but less attention has been given to the trade-related
aspect of IPRs from a market perspective.
By trade-related we mean the strategic possibility of a firm to
transfer the right to use the IPR to another party, earning profits
from that transaction or series of transactions related to the
use by others, rather than using it themselves. The issue is thus
not primarily the invention process, the manufacturing process
or the using process, but the transferring process in a market
context of the IPR. This transfer is increasingly being carried
out through licensing contracts. It opens up opportunities for
specialisation between different actors: inventors, producers,
intermediary traders and investors. Specialisation may lead to
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A new approach to trade-related pharmaceutical IPRs: IPRs as tradeable goodsEskil Ullberg
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A new approach to trade-related pharmaceutical IPRs
increased productivity, which then ultimately increases the
gains from trade and also, by extension, social welfare.
This chapter will apply an institutionalised market perspec-
tive to the tradeability of IPRs in order to potentially increase
social welfare. It will also discuss possible ways of finding exper-
imental facts about this trade and outline relevant policy issues
in relation to the issue.
Today, many large pharmaceutical companies are experi-
encing increasing problems with the performance of their new
drug delivery and are no longer turning out blockbusters at
the speed they used to. Finding new substrates with potential
healing effects has proven to be an increasingly difficult,
expensive and risky investment. For the past decade, a new
impetus has been provided by specialised research companies
and in particular biotech companies, who are using biotech
engineering skills to develop new substrates. These substrates
form the basis for further development of drugs to be used
by humans, thus providing an important source of inventive
input for those companies that are good at developing, clini-
cally testing and marketing the final drugs.
The biotech companies make use of the patentability and
tradeability features (including licensing) of the patent rights
to create a new business model, which does not rely on their
own production to extract the value of the IPR invented
and protected. Instead, the model functions by selling ‘raw
materials’ for potential new drugs to be developed by the
pharmaceutical companies. To increase the success rate of the
potential future drugs there may be additional agreements
made for joint development projects. The model allows, in
principle, for an inventor firm to trade with competing or non-
competing producer firms (from different fields), extracting the
maximum gains from trade by allowing the invented asset to be
used by the company which can extract its highest value. This
is a very good example of the trade aspect of patents, which
brings together often highly specialised companies with the
common goal of producing (new) drugs.
The biotech example of early trade may be relatively new,
but in fact a boom of specialised inventors appeared, trading
their IPRs with producers using the help of specialised patent
attorneys, as far back as the time of the first modern US patent
law in 1836.1
Risk – and the market’s way of dealing with itSuccessfully developing and trading technology in this raw
format is a question of finding the best way to deal with risks
and uncertainty. Firstly, risk and uncertainty from investments
in research move from the large pharmaceutical companies,
which focus more on marketing and sales, to the new high-tech
bioengineering companies, which often focus more on research
and development (R&D). The producers therefore have a way of
getting ideas from inventors without having to hire them. The
risk-bearing for the invention process is done by the specialised
companies, and the risk-bearing for the marketing and sales
falls to the producing companies. This is a good solution for
producers, who can choose from different competing sources of
raw ideas. There is also less of a moral hazard as the returns from
inventions may be more closely connected to the inventors in
the research-focused company. Competition gives incentives to
innovators to meet real users’ needs.
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A new approach to trade-related pharmaceutical IPRs
But the specialised inventors, who typically do not have all
the complementary production assets of the larger pharma-
ceutical companies, can be blocked or held up by a producer
if there is not a competitive market for their ideas. There is
therefore a market-access risk for the inventors to overcome.
Their problem is how to sell their inventions at a competitive
price, which maximises social welfare – in other words, which
maximises benefits for all economic actors. These are typical
market issues dealt with through trading rules and, if deemed
of public interest, government regulations in formal market
institutions.
Recent surveys by the US/Canadian Licensing Executive
Society, including data from the health industry, provide some
input on hindrance to licensing.2 The 2003 and 2004 surveys
identify:
➤ Difficulties in finding buyers (sellers);
➤ Difficulties in getting internal approval to sell (sellers);
➤ Difficulties in agreeing on financial terms, terms of
geography, exclusivity, milestones, etc.
These are all problems that an institutionalised market, for
example the New York Stock Exchange, typically solves by
means of suitable rules of trade and commodity contracts. A
marketplace allows buyers and sellers to meet at the same time.
Thus, instead of having bilateral negotiations, all sellers and
buyers meet simultaneously and negotiate contracts under
agreed rules through prices. The rules of a marketplace decide
how the traded IP assets are allocated. Typically, these nego-
tiations are in auction format. Buyers and sellers may have
different preferences on location and exclusivity for certain
fields of use (from claims).
A market also has another very powerful feature: it consoli-
dates all information about the potential value of an idea and
puts that value in the bids, leading to a clearing price of the
market in ideas.3 We thus see that a formalised market provides
an important tool to help further the development of new drugs
based on the trade aspect of pharmaceutical IPRs. The market
institution is used to manage the business risks by reallocating
the risk-bearing to the most appropriate actor, whether this is
the inventor, producer or trader. The actors attain this competi-
tive advantage in risk-bearing through specialisation, investing
their time and money (or other resources for that matter) in
knowledge and systems (information) to manage their special-
ised risks.4
Another new and interesting market is the information
market, which allows participants to trade in the probability of
certain future events. An example of this could be the validity
of a patent.
Hindrances to a market in ideas in pharmaceutical IPRsThere are many questions that need to be addressed in order to
develop a market in ideas in pharmaceutical IPRs, and particu-
larly in the transaction markets. These include the tradeability
of the patents, what rules give the right incentive to invent,
and whether there should be one or several such institutions
for different technology areas. Traditionally, patents have
been obtained with the sole purpose of blocking others. This
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is the basis for trade (that you can exclude and thereby sell the
excluding right for further exclusion), but the question of how
to structure the idea in different patents, and particularly when
writing the patent’s claims for tradeability, may be a new issue
for many.
The purpose should be to divide the invention(s) embodied
in the patent application into claims which are as separate as
possible, allowing for potential trade in different fields of use,
and for maximum blocking within each patent claim or set
of claims. The strategic issue of separation of invention and
production mentioned initially may then have more impact
on the way claims are written. For example, the claims could
be written as independent fields of use or by building on a
common, more general claim and then specialising. The latter
would necessitate a non-exclusive right to everyone licensing
a more specialised field, so creating a standard for an industry
where several use the same basic claims and then compete on
the specialised claim. This approach has traditionally been used
with interdependent technologies both in basic versus applied
technology, and first- and second-generation technology.
Another area of concern is to separate the right to use in
production (or non-production, i.e. blocking) from the right
to do further research, licensing the different rights to different
actors.
The point is that a trade-focused strategy by the users of
the patent system puts more emphasis on the value of the
used right in a globally specialised commercial setting. Patent
offices, however, may not always make this distinction between
economic use and technical knowledge when granting the
patents. The issue may boil down to a critical survey of the
patent-granting process and to establishing what information
on economic use is present. In patent terminology, the ‘capable
of industrial application’ or ‘useful’ criteria may need to incor-
porate some new meaning when patents are primarily used first
to trade and then used as ‘capable of industrial trade’/’useful
for trade’. In the pharmaceutical setting this may mean that
larger sets of claims may be necessary (the current discussion
and trend from the patent offices being to have fewer claims
for each patent). A special study of these possible implications
from the increased trade-use may be needed by legal scholars
in conjunction with (micro) economists, trade specialists and
others disciplines to examine what can be done through the
patent system to facilitate the trade-related aspects of pharma-
ceutical IPRs.
Experimental economics as a test bed for achieving markets in pharmaceutical IPRsSo, how can one test for these rules, commodities and features
of patent rights? Over the past 40 years a new discipline in
economics has developed, called experimental economics.
Experimental economics is the study of what people do. An
experimental economic environment is set up in a laboratory
where real people interact with each other, typically through a
computer-based market of some sort.5 Experimental economics
can thus be used to study the market conditions under which
trade in pharmaceutical IPRs can be achieved and the gains
made, thus leading to maximised social welfare.
The experimental lab provides a way to control envi-
ronmental factors and so provides a means of repeating the
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experiment under identical conditions. Lessons can then be
learned from the experimental economy outcomes, which
share essential, but often simplified, characteristics with trade
in the more complex, real world. The issue here is to use this
elaborate tool to study the problematic aspects of formalised
markets in pharmaceutical ideas. Some studies have been done
relating to the invention process (patent races) prior to getting
and using the IP right,6 but not on the use.
In particular, the rules under which trade leads to socially
desired outcomes can be studied. In markets the institution
matters because the rules matter, and the rules matter because
incentives matter. The potential here is to create the incentives
for specialised trade in pharmaceutical IPRs, rules that overcome
some of the more important hindrances discussed, and an insti-
tutional framework which can transform the current initial
trade of bilateral licensing into a multilateral dimension.
ConclusionThe market in pharmaceutical IPRs, particularly patents, has in
recent years developed a more specialised approach to research
and delivery of drugs using the trade-related aspect of the
patent right more extensively. This development mimics the
developments of the modern US patent system in the early days
of the industrial era.
Private market institutions may provide an important tool
for companies to manage the further risk and opportunity in
this industry (both in transactions and in information markets).
They can use the institution as a risk transfer mechanism,
allowing both inventors and producers in pharmaceutical IPRs
to benefit most from this exchange. From this follow questions
regarding the tradeability of patents. The outcome may prove
valuable to maximise gains from trade in IPR-based instru-
ments, increasing social welfare or, in our case, the potential
flow of new medicines and treatments.
Lastly, experimental studies and data may provide powerful
ways of testing outcomes of market-oriented policies, including
in the area of pharmaceutical IPRs.
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This chapter describes the relevant provisions of the
Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS Agreement) and the subsequent instru-
ments adopted in the World Trade Organization (WTO) with
respect to access to medicines. The focus of this paper is on
the provisions that are relevant for pharmaceutical inventions,
focusing in particular on the patent protection standards. To
set this discussion in context, it is useful to recall three basic
features of the TRIPS Agreement:
➤ that, together with some 25 other legal texts, it is an
integral part of the Agreement Establishing the WTO (and
therefore subject to the WTO dispute settlement system);
➤ that it covers not only patents but all the other main areas
of Intellectual Property Rights (IPRs); and
➤ that it lays down not only the minimum substantive
standards of protection that should be provided for in
each of these areas of intellectual property, but also the
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The WTO, IPRs and access to medicinesJayashree Watal1
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(Article 7) and ‘Principles’ (Article 8), several of the flexibilities
in the provisions relevant for pharmaceutical inventions, such
as those relating to patents and test data, were influenced by
developing-country negotiators.
Provisions of the TRIPS Agreement relevant to public healthAlthough many aspects of the TRIPS Agreement could poten-
tially bear on access to medicines, such as trademarks, copyright,
industrial design and enforcement of IPRs,3 the focus here is
on the sections on patents and the protection of undisclosed
information.
The TRIPS Agreement requires member countries to make
patents available for all inventions, whether products or
processes, in all fields of technology, subject to the normal tests
of novelty, inventiveness, and industrial applicability. It also
requires that patents be available and patent rights enjoyable
without discrimination as to the place of invention, field of tech-
nology or whether products are imported or locally produced
(Article 27.1). Thus, no longer is it possible for members to
exclude entire sectors of technology, such as pharmaceuticals
or chemicals, from the grant of patents nor to discriminate
against such patents once these are granted.
There are three permissible exclusions from patent grant
even where the inventions meet the criteria for patentability.
One is for inventions contrary to ordre public or morality; which
explicitly includes inventions that are dangerous to human,
animal, and plant life or health, or that are seriously prejudicial
to the environment. The use of this exclusion is subject to the
procedures and remedies that should be available to enable
rights-holders to enforce their rights effectively.
Finding a balance in the protection of intellectual property
between the short-term interest of maximising access and the
long-term interest of promoting creativity and innovation is
more difficult at the international level than at the national
on account of differing levels of economic, technological and
social development. Perhaps nowhere do these issues excite
stronger feelings than in regard to pharmaceutical patents,
where tension between the need to provide incentives for
research and development (R&D) into new medicines and the
need to make existing medicines as available as possible can be
acute.
The negotiators of the TRIPS Agreement attempted to
find an appropriate balance both within the Agreement and
within the single undertaking that incorporated the results
of the Uruguay Round. Even if not all developing countries
participated in these negotiations in equal measure, it would
be fair to say that the developing countries’ perspective was
represented. As is widely acknowledged, the TRIPS Agreement,
in an effort to strike a proper balance between the differing
interests of the participating countries, provides for significant
flexibility in the protection to be given. This flexibility, which
went considerably further than some of the demandeurs in the
negotiations would have liked (and indeed were achieving in
bilateral agreements at the time), resulted from a compromise
achieved through negotiation by developing countries acting
collectively and making issue-based alliances in a multilateral
context.2 In addition to the provisions entitled ‘Objectives’
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tion in the application of the regime and excludes this subject
from the WTO dispute settlement processes.
Members may provide limited exceptions to the exclusive
rights conferred by a patent, provided that such exceptions
do not unreasonably conflict with a normal exploitation of
the patent and do not unreasonably prejudice the legitimate
interests of the patent-owner, taking into account the legiti-
mate interests of third parties (Article 30). This provision has
been the subject of a dispute settlement decision in the WTO
wherein the act of using the patented pharmaceutical invention
to obtain regulatory approvals for marketing was considered
to be a permissible exception.4 Finally, the term of protection
available shall be a period of at least twenty years counted from
the filing date (Article 33).
Members shall require that an applicant for a patent disclose
the invention in a manner sufficiently clear and complete for
the invention to be carried out by a person skilled in the art.
Members may require the applicant to indicate the best mode
for carrying out the invention known to the inventor at the
filing date or, where priority is claimed, at the priority date of
the application (Article 29.1).
Compulsory licensing and government use without the
authorisation of the right-holder are allowed, but they are
subject to conditions aimed at protecting the legitimate
interests of the right-holder. Mainly contained in Article 31,
these conditions include the obligation, as a general rule, not
to grant such licences unless an unsuccessful attempt has been
made to acquire a voluntary licence on reasonable terms and
conditions within a reasonable period of time. The requirement
to pay remuneration that is adequate in the circumstances of
conditions that the commercial exploitation of the invention
must also be prevented and that this prevention must be
necessary for the protection of ordre public or morality (Article
27.2). This means that if a member country decides to exclude
certain types of inventions from patent grant, for example,
processes of human cloning, it cannot then allow the commer-
cial exploitation of these inventions in its territory.
The second exclusion is for inventions that are diagnostic,
therapeutic, and surgical methods for the treatment of humans
or animals (Article 27.3(a)). For example, an eye surgeon who
invents a novel, more effective method of removing a cataract
may not be granted a patent if a country opts to incorporate
this option in its law.
The final exclusion is for inventions that are plants and
animals (other than micro-organisms) and essentially biological
processes for the production of plants or animals (other than
non-biological and microbiological processes). However, any
country excluding plant varieties from patent protection must
provide an effective sui generis system of protection. Moreover,
the whole provision was made subject to review four years after
the Agreement came into force (Article 27.3(b)).
A product patent must confer the following exclusive rights
on the right-holder: making, using, offering for sale, selling,
and importing the patented product. Process patent protection
must give exclusive rights not only over the use of the process
but also over products obtained directly by the process. Patent-
owners shall also have the right to assign, or transfer by succes-
sion, the patent and to conclude licensing contracts (Article 28).
The exclusive right of importation must be read with Article 6
on the exhaustion of IPRs, which obliges only non-discrimina-
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implement Article 39.3 was through market exclusivity, while
others disputed this.5
Clarifications and flexibilities regarding TRIPS and public healthOn the issue of TRIPS and public health (including access to
patented medicines), the WTO has adopted three instruments:
1 The Doha Declaration on the TRIPS Agreement and Public
Health, November 2001;
2 The Decision on the Implementation of Paragraph 6 of
the Doha Declaration on the TRIPS Agreement and Public
Health, Geneva, August 2003;
3 A Protocol amending the TRIPS Agreement, December 2005.
1. The Doha Declaration on the TRIPS Agreement and Public HealthThe Doha Declaration on the TRIPS Agreement and Public
Health6 responded to concerns about the possible implications
of the TRIPS Agreement for public health, in particular with
regard to access to patented medicines. As mentioned earlier,
the TRIPS Agreement allows countries to take various kinds of
measures to qualify or limit IPRs, including for public health
purposes. However, some doubts had arisen as to whether the
flexibility in the TRIPS Agreement was sufficient to ensure that
it supported public health. It was unclear whether it promoted
affordable access to existing medicines while supporting R&D
into new ones.
each case, taking into account the economic value of the licence,
must also be observed, as must a requirement that decisions be
subject to judicial or other independent reviews by a distinct
higher authority. Another important condition is that such use
must be made predominantly to supply the domestic market.
Some of these conditions are relaxed in the case of public non-
commercial use and when compulsory licenses are employed to
remedy practices that have been established as anticompetitive
by a legal process or in cases of emergency.
The Agreement also contains provisions to protect undis-
closed information. It requires that a person lawfully in control
of such information must have the possibility of preventing it
from being disclosed to, acquired by, or used by others without
his or her consent in a manner contrary to honest commercial
practices (Article 39.2).
In addition, undisclosed test data and other data that govern-
ments require to be submitted as a condition of approving
the marketing of pharmaceutical or agricultural chemical
products that use New Chemical Entities (NCEs) must be
protected against unfair commercial use where the generation
of such data has involved considerable effort. Members must
protect such data against disclosure, except where necessary
to protect the public or unless steps are taken to ensure that
the data are protected against unfair commercial use (Article
39.3). While market exclusivity for the originator of such test
data is not explicitly required, members cannot meet their
obligation to protect such data against unfair commercial use
simply by protecting it against disclosure. In the run-up to the
Doha Ministerial meeting in 2001, some members expressed
their view in the TRIPS Council that the most effective way to
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effect through decisions of the TRIPS Council and the General
Council.7 In November 2005, the TRIPS Council extended the
time given for these countries to implement other provisions of
the TRIPS Agreement to July 2013.8
2. The implementation of Paragraph � of the Doha DeclarationAs explained in Chapter 8 by Patrick Ravillard, the Doha
Declaration recognised the problem of countries with insuf-
ficient or no manufacturing capacities in the pharmaceutical
sector in making effective use of compulsory licensing. The
WTO General Council therefore adopted, on 30 August 2003,
a Decision9 that waives, in certain circumstances, Article 31(f)
and (h) of the TRIPS Agreement. This Decision was adopted
in the light of a Chairman’s statement10 that sets out several
key shared understandings of members on how the Decision
would be interpreted and implemented. The Decision covers
any patented pharmaceutical products, or pharmaceutical
products manufactured through a patented process, needed
to address public health problems recognised in Paragraph 1
of the Doha Declaration on the TRIPS Agreement and Public
Health, including active ingredients necessary for their manu-
facture and diagnostic kits needed for their use.
The Decision went into effect on 30 August 2003. Interest-
ingly, there have been no notifications made to the WTO to use
the system.11 There are a number of reasons of a transitional
nature which can explain the lack of use of the system so far.
One is that WTO members, especially the ones exporting under
the system, usually have to amend primary legislation in order
to be able to use the additional flexibility. This inevitably takes
The Declaration responds to these concerns in a number
of ways. First, it emphasises that the TRIPS Agreement does
not and should not prevent members from taking measures to
protect public health. Second, it makes it clear that the TRIPS
Agreement should be interpreted and implemented in a way
that supports WTO members’ rights to protect public health
and, in particular, to promote access to medicines for all. Third,
it clarifies some of the flexibilities contained in the TRIPS
Agreement. The Declaration makes it clear that each member
is free to determine the grounds upon which compulsory
licences are granted and also clarifies that each member has the
right to determine what constitutes a national emergency or
other circumstances of extreme urgency. It declares that public
health crises, including those relating to HIV/Aids, tubercu-
losis, malaria, and other epidemics, can represent such circum-
stances.
With regard to the exhaustion of IPRs and a member’s right
to permit parallel imports, the TRIPS Agreement states that a
member’s practices in this area cannot be challenged under the
WTO dispute settlement system. While emphasising the flex-
ibility in the TRIPS Agreement to take measures to promote
access to medicines, the Declaration also recognises the impor-
tance of IP protection for developing new medicines and
reaffirms the commitments of WTO members in the TRIPS
Agreement.
With regard to the Least Developed Countries (LDCs) of the
WTO, the Declaration agrees to provide them with an extension
of their transition period until January 2016 for protecting
and enforcing patents and rights in undisclosed information
with respect to pharmaceutical products. This was given legal
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ConclusionThe WTO is often portrayed by its detractors as a club for rich
countries meant to perpetuate their world dominance. The
TRIPS Agreement, particularly with its obligation to provide
patents for pharmaceuticals, is often cited as an example of
this. However, a plain reading of the Agreement, and of the
subsequent WTO instruments relating to public health, shows
that a balance has been sought between the interests of right-
holders and those of users of IPRs, including patents. It is up to
members to use the flexibilities offered to them in the TRIPS
Agreement and the subsequent instruments to obtain more
affordable access to patented medicines, and those choosing
to do so need not fear any challenge under the WTO dispute
settlement mechanism.
time and, as of July 2006, members have modified their laws/
regulations to enable exports under their legislation. A second
reason is that there is no need to use the system to import drugs
from non-patent sources. Most important drugs currently on
the market are still available from such sources, since some
countries that are significant suppliers of generic drugs, such
as India, only started providing product patent protection for
pharmaceutical products from the beginning of 2005. A third
point is that, as is well known, a compulsory licensing system
can have a great effect in influencing prices, even if the system
is never used.
�. A Protocol amending the TRIPS AgreementParagraph 11 of the August 2003 Decision called for the TRIPS
Council to prepare an amendment, based, where appropriate,
on the Decision that would replace its provisions. Agreement on
such an amendment was reached on 6 December 2005, when
the General Council adopted a Protocol amending the TRIPS
Agreement and submitted it to WTO members for acceptance.
In substance, the amendment tracks the August 2003 text. The
Decision on the amendment was also taken in the light of a re-
reading by the General Council Chairman of the statement of
August 2003. The Protocol will enter into force upon acceptance
by two-thirds of the members. To date, the USA, Switzerland
and El Salvador have accepted the amendment.12 The waiver
provisions of the August 2003 Decision remain applicable until
the date on which the amendment takes effect for a member.
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Pharmaceutical IPRs and the TRIPS Agreement
The pharmaceutical industry and TRIPS The principal enforcement tool available to the industry twenty
years ago, i.e. the lonely fight of patent lawyers in the courts of the
infringing countries, bordered on the futile in the face of almost
non-existent laws or enforcement. In addition, the only inter-
national patent treaty at the time – the World Intellectual Prop-
erty Organization’s (WIPO) Paris Convention – did not contain
any substantive patent obligations. Nor did it have any dispute
settlement provisions to adjudicate differences among countries.
In seeking the launch of a multilateral, intellectual property
standards-setting exercise, the pharmaceutical industry had
a very limited geographic focus: it sought to gain improved
protection for its intellectual property not in all developing
countries, regardless of their level of economic development,
but in the more advanced developing countries, the so-called
Newly Industrialising Countries (NICs). While the research-
based pharmaceutical companies had adequate and effective
intellectual property protection and enforcement in the
developed countries, they did not have similar protection in
the NICs, which were the home of the copiers of their pharma-
ceutical products. To gain such protection – that is, to get these
countries to enact national intellectual property legislation
along the lines found in the developed countries – the pharma-
ceutical industry sought a multilateral venue where improved
intellectual property protection in the NICs could be traded off
for access to the markets of the developed countries for NIC
exports. The obvious candidate for this venue was the GATT,
which in 1986 was in the process of launching a new round of
multilateral trade negotiations.
The pharmaceutical industry, being research based,
has a business model which relies heavily on the
incentives provided by the limited market exclusivity resulting
from intellectual property protection. This permits it to recoup
its upfront investment in Research and Development (R&D) of
innovative drugs. It should, therefore, come as no surprise that
the industry was at the forefront of the international push that
resulted in the negotiation of the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS Agreement) in
the GATT (General Agreement on Tariffs and Trade) Uruguay
Round of multilateral trade negotiations.1
This chapter will seek to draw some broad conclusions about
the implementation of the TRIPS Agreement in the light of the
pharmaceutical industry’s original objectives and expectations
in seeking the negotiation of an intellectual property agreement
in the GATT. To understand where we are today, and where we
are going, it is important to recall where we were.
�
Pharmaceutical IPRs and the TRIPS Agreement: past, present and future Jacques Gorlin
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Pharmaceutical IPRs and the TRIPS Agreement
term was set at twenty years from the date of patent applica-
tion. The Agreement also included an obligation to provide
data exclusivity.
To understand the impact of the TRIPS Agreement on
the protection of those Intellectual Property Rights (IPRs) of
concern to the pharmaceutical industry, one needs to take into
account what TRIPS was and was not.
First, it is critical to recall that the TRIPS Agreement was a
snapshot in time. It was essentially completed in December
1991 and dealt with those IPR-related issues facing the pharma-
ceutical and other intellectual property-dependent industries
that were identified in the late 1980s and early 1990s. It was
never intended to be a static document.4
Furthermore, it was never the intention of the TRIPS nego-
tiators to establish an international patent law harmonisation
treaty by agreeing to specific or detailed language that had
to be incorporated verbatim into national laws.5 Rather, they
negotiated an agreement that contained minimum standards
of protection and enforcement and, where possible, used recog-
nised terms of art and abbreviated language. The TRIPS nego-
tiators left national implementation to the determination of
the individual WTO members so long as the measures met the
TRIPS obligations.6
While the TRIPS negotiators wanted to give the devel-
oping and Least Developed Country (LDC)7 members of the
WTO additional time to move their national laws to the TRIPS
standards, the so-called ‘transition provisions’ that they crafted
were essentially fixed delays in TRIPS implementation. They
did not provide for any gradual transition from weak intellec-
tual property systems to TRIPS-compatible systems akin to the
The initial focus of the pharmaceutical industry was on the
development of internationally recognised standards of protec-
tion and enforcement for patents, specifically with respect to
patent protection for pharmaceutical products; limitations on
the issuance of compulsory licences; and adequate patent term.
Only later, once the negotiations had been launched, did the
pharmaceutical industry seek the protection of the proprietary
information provided to regulatory authorities to demon-
strate the safety and efficacy of its products, which came to
be included in Article 39 of the TRIPS Agreement (‘Data Exclu-
sivity’).
The TRIPS AgreementThe TRIPS Agreement, which came into effect on 1 January
1995, is viewed as one of the major achievements of the
Uruguay Round and is considered by some to be the most signif-
icant intellectual property accord of the twentieth century.2
It was the first international agreement to provide both for
minimum standards of protection for intellectual property and
for minimum standards of how countries were to enforce those
substantive obligations. In addition, the TRIPS Agreement
provided for international dispute settlement to determine
whether a World Trade Organization (WTO) member’s intellec-
tual property system met these international standards.
Although it had some lacunae,3 the TRIPS Agreement essen-
tially met the goals of the pharmaceutical industry. WTO
members were required to provide product patent protection
to pharmaceutical products and to follow established proce-
dures when issuing compulsory licences. The minimum patent
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Pharmaceutical IPRs and the TRIPS Agreement
It was, therefore, surprised by the failure of many developing
countries – including the very NICs that were the industry’s
principal targets in seeking a TRIPS Agreement – to implement
key TRIPS provisions. These failures also rendered ineffec-
tive the TRIPS dispute settlement process, which was not at
all suited for challenges to the core of a country’s intellectual
property system.
This failure to meet the industry’s original expectations was,
in part, due to a number of factors:
➤ Yesterday’s minimum standards became today’s
maximum standards. The view that the TRIPS
negotiators had of TRIPS as an agreement containing
minimum standards is in stark contrast to today’s view
of TRIPS as a set of maximum standards, beyond which
even bilateral agreements should not go. This perception
of TRIPS as a set of maximum standards is encapsulated in
the term ‘TRIPS-plus’, which many developing countries
and supportive NGOs have used derogatorily to oppose
calls for strong intellectual property protection and which
the pharmaceutical industry, on the other hand, argues is
consistent with, and the logical extension of, TRIPS Article 1.
➤ Routinisation of intellectual property. The
convergence among the four principal developed countries
– the USA, Canada, Japan and the EC – in support of
intellectual property during the TRIPS negotiations failed
to carry over into the implementation stage. Intellectual
property had been accepted as the last issue on the
Uruguay Round agenda and the TRIPS Agreement had
been successfully negotiated due to the wide acceptance
transition provisions ending the quotas under the Multi-Fiber
Textile Agreement that were negotiated at the same time. Thus,
a developing country did not face any sanctions if it had the
same TRIPS-incompatible protection on 31 December 1999
that it had had on 1 January 1995, but it did face sanctions if it
failed to have TRIPS-compatible protection the next morning,
on 1 January 2000. As a result, many WTO developing country
members, notwithstanding the threat of possible sanctions, did
not have in place TRIPS-compatible regimes at the end of the
TRIPS ‘transition periods’.
TRIPS implementation and industry expectationsAfter more than ten years’ experience of TRIPS implementation
we can now see that some of the original expectations that the
pharmaceutical industry had for TRIPS were not realised. From
the very outset of the negotiations, the industry had believed
that stronger intellectual property protection was a ‘win–win’
situation: while providing greater commercial certainty to the
developed world, it would also provide economic benefits to
the developing countries, especially the NICs, which had the
necessary infrastructure and generic pharmaceutical manu-
facturing capacity in place to take advantage of the incentives
contained in the TRIPS Agreement. In 1995, the industry had
expected that the TRIPS provisions would be faithfully imple-
mented by all countries according to the transition schedules
set out in the agreement and that the TRIPS dispute settlement
provisions would be used to fill in any isolated gaps when
countries converted their TRIPS obligations into national law.
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Pharmaceutical IPRs and the TRIPS Agreement
meetings. The ‘Paragraph 6’ issue on compulsory export
licences had its origins in the theoretical problem raised
by the inability of WTO members that lacked a domestic
generic pharmaceutical capacity to take advantage of the
TRIPS compulsory licence provisions, which were, after all,
only exceptions to the patent right.
➤ WTO’s inability to differentiate among developing
countries. Developed and Least Developed Countries8
are recognised by the WTO as distinct country groupings.
All other countries are grouped as developing countries,
whether they are middle-income countries ranked just
below the OECD countries or low-income countries ranked
just above the least developed. This inability to differentiate
within the WTO between, for example, China, Brazil or
Argentina on the one hand, and Papua New Guinea or
Kenya on the other, made it difficult for the industry to
structure WTO implementation strategies specifically for
the advanced developing countries.
➤ The Aids crisis in southern Africa. The impact of
the Aids crisis in southern Africa on the debate over
TRIPS implementation in all developing countries cannot
be overestimated. It permitted countries like Brazil,
which had the infrastructure and resources to cope with
the crisis, to avoid meeting their TRIPS obligations by
exploiting the heart-wrenching scenes from the southern
African countries, which had neither the resources nor
the infrastructure to deal with the pandemic. The access-
to-medicines debate that the Aids crisis in southern
Africa engendered, when coupled with the takeover by
the lawyers of the TRIPS implementation process and
of the view that weak intellectual property protection
constituted a trade barrier. These countries, also known
as the Quad, used political chits and made critical trade-
offs to gain the Agreement. But the political convergence
quickly dissipated and the only developed country
willing to use the WTO dispute settlement process to
gain TRIPS implementation was the USA. The other three
country groupings failed to keep pace and serious TRIPS
implementation, both with original WTO developing
country members and key acceding candidates, therefore
became the sole preserve of the USA.
➤ Takeover by the lawyers. The impact of the
strengthened GATT dispute settlement procedures that
were negotiated in the Uruguay Round went beyond
the process itself. Coupled with the lack of political will
among some of the Quad countries to seek the expected
implementation of the TRIPS Agreement, the new Dispute
Settlement Mechanism, with its Dispute Settlement
and Appeals Bodies, created an environment in which
legal arguments gained prominence in the debate over
TRIPS implementation. Minimum standards were no
longer a shorthand for the type of protection expected
at the national level. Rather, the TRIPS obligations were
scrutinised as if they were treaty language. The vocabulary
of the debate also changed. ‘Exceptions’ found in the
TRIPS Agreement became ‘flexibilities’ that countries were
permitted to turn into legal norms of intellectual property
protection when enacting their domestic legislation.
Theoretical arguments on the meaning of TRIPS provisions
took over the debate at Ministerial and TRIPS Council
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Pharmaceutical IPRs and the TRIPS Agreement
intellectual property challenges require the industry to move
beyond the WTO.
The industry has thus come full circle. While it will continue
to support multilateral efforts to ensure that the TRIPS
Agreement is properly implemented, the current stalemate in
the WTO, caused by the confluence of the forces described in
this chapter, has led the industry to focus on bilateral measures,
such as Free Trade Agreements (FTAs), as the current preferred
mechanism for gaining the strong intellectual property protec-
tion that it continues to need. While admittedly less efficient
than a multilateral mechanism, FTAs have the advantage that
they are freely entered into by the parties and, as a result,
provide the negotiating leverage to gain the requisite levels of
protection.
While current protection of pharmaceutical IPRs is firmly
rooted in the achievements of the TRIPS Agreement and the
multilateral process that it engendered, the future protection of
pharmaceutical IPRs will incrementally build on that founda-
tion step-by-step in individual countries.
the WTO’s inability to differentiate among developing
countries, led to a qualitative change in the very legitimate
debate over whether the NICs were meeting their
pharmaceutical-related TRIPS obligations. These individual
strands came together in the 2001 Doha Declaration on
TRIPS and Public Health, which legally did not change
any of the TRIPS obligations, but nevertheless represented
a political watershed in the implementation of the
pharmaceutical-related provisions of the Agreement. In
that Declaration, which had its origins in the institutional
desire of WTO trade ministers to demonstrate that they
were contributing to the fight against Aids in southern
Africa, the trade ministers signalled to all developing
country members of the WTO that the WTO dispute
settlement mechanism would no longer be used against
them to enforce the TRIPS Agreement.
Conclusion: the future of pharmaceutical IPRsThe pharmaceutical industry’s business model has essentially
not changed over the last twenty years and the industry will
thus continue to be dependent on strong intellectual property
protection. The history of the last twenty years demonstrates
that the industry’s search for improved intellectual property
protection is a dynamic process. Twenty years ago, the search
led the industry to the GATT and the negotiation of what
became the TRIPS Agreement in the WTO. While the TRIPS
Agreement represented a major milestone in that search, and
will continue to set the standard for the basic level of intel-
lectual property protection that the industry seeks,8 today’s
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The WTO decision of 6 December 2005
The Doha Declaration on TRIPS and Public HealthOn 14 November 2001, in Doha, the WTO ministerial confer-
ence adopted the Declaration on the TRIPS Agreement and
Public Health. The ministers had instructed the TRIPS Council
to find an expeditious solution to the problem faced by members
with insufficient or no manufacturing capacities in the phar-
maceutical sector, who also could not import the medicines
they needed.1 An amendment was needed because the original
TRIPS Agreement provided that compulsory licences2 could
only be authorised to supply the domestic market.
The Waiver Decision of 30 August 2003On 30 August 2003, the WTO General Council adopted the
provisional Decision allowing WTO members to export patented
medicines to third countries with insufficient or no manufac-
turing capacities in the pharmaceutical sector, by making use of
compulsory licences. To give comfort to the USA, this Decision
was accompanied by a Statement made by the chair of the WTO
General Council, describing members’ ‘shared understanding’
of how the decision was to be interpreted and implemented.
The Decision was a provisional waiver,3 which was replaced by
a permanent amendment to the TRIPS Agreement in 2004.
Following the adoption of the Waiver Decision, the European
Commission proposed a Regulation on compulsory licensing
of patents relating to the manufacture of pharmaceutical
products for export to countries with public health problems.
The objective was to create a legal basis, at the European Union
After more than two years of intensive debate about
how to transpose a provisional decision, origi-
nally adopted on 30 August 2003, the World Trade Organiza-
tion (WTO) members agreed on 6 December 2005 to amend
the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS Agreement). This allowed the granting
of compulsory licences for the purposes of manufacturing
pharmaceutical products for export to countries facing public
health problems.
The WTO General Council submitted the proposed
amendment to the WTO members for acceptance. Once
accepted and in force, the amendment completed a process
that began in 2001 with the ministerial Declaration on the
TRIPS Agreement and Public Health. It represents the first time
that a core WTO agreement has been amended.
�
The WTO Decision of � December 200� on the amendment of the TRIPS AgreementPatrick Ravillard
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The WTO decision of 6 December 2005
adopted a ‘pick-and-choose’ approach, as their proposal failed
to address several provisions of the Waiver Decision, while
redrafting others. The rationale was that a number of the Deci-
sion’s provisions would be either redundant in the context of
an amendment or otherwise served by existing TRIPS provi-
sions on compulsory licences and enforcement.
Other developing countries generally welcomed the African
proposal as a good basis for further discussion. Their main
concern was the status of the Statement, which they did not
want to involve in the amendment process at all.
The USA, while agreeing on the technical approach,
sought to incorporate (or refer to) the Statement in the TRIPS
Agreement. In particular, they suggested that a reference to the
Statement could be made in a footnote of the Agreement. In
March 2005, they circulated a submission7 asking to preserve
an explicit reference to the Statement in the amendment or the
principles included therein, while arguing that they did not
seek to elevate the legal status of the Statement.
Due to a lack of real progress, the EC informally circulated
a paper in the WTO in September 2005 outlining its ideas on
how the Waiver Decision should be incorporated into the
TRIPS Agreement. The initiative injected new momentum into
the discussion. Technically, the amendment should consist of
an exception to Article 31(f), allowing WTO Members to issue
compulsory licences for export under the conditions agreed in
August 2003. These conditions would be inserted in an annex
to the TRIPS Agreement, so as not to overload the body text of
the Agreement. As to the Statement, the EC proposed it should
be reiterated by the Chairman of the General Council at the
time of adopting the amendment.
(EU) level, to enable the member states to grant compulsory
licences for the production of pharmaceuticals and their export
to eligible importing countries. The Regulation was adopted on
17 May 2006.4
The negotiations on the amendmentThe negotiations on the amendment were more difficult
than expected and WTO members were unable to respect the
deadline scheduled in the Waiver Decision. Indeed, certain
members attempted to re-open discussions on substantive
issues. The debate focused on the legal form and content of the
future amendment.
From the outset, the European Community (EC) took the
view that the nature of the amendment process should remain
essentially technical in order to avoid having to re-open the
discussions on substantive issues.5 The amendment should
reflect what had been agreed in the Waiver Decision, because
it was the result of a delicate balance that had been difficult to
strike. In any event, the fact that the TRIPS Agreement should
be amended meant for the EC that textual changes would have
to be made to the Agreement itself, in order to translate the
relevant paragraphs of the decision into TRIPS language. As to
the WTO General Council Statement, the EC held that while the
relationship between the Waiver Decision and the Statement
should be preserved, the legal status of the Statement should
not be upgraded.
The African Group saw an opportunity in the amendment
exercise to re-open the discussions on substantive issues and
tabled a proposal for an amendment in December 2004.6 They
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The WTO decision of 6 December 2005
closely as possible and is composed of three parts. First, there
are five paragraphs under Article 31bis of the TRIPS Agreement
(i.e. an additional article after Article 31), including the one
which allows pharmaceutical products made under compul-
sory licence to be exported to developing countries in need.
Other paragraphs deal with avoiding double remuneration to
the patent owner, regional trade agreements involving Least
Developed Countries (LDCs), non-violation and situation
complaints, and retaining all existing flexibilities under the
TRIPS Agreement.
A further seven paragraphs have been included in a new
annex to the TRIPS Agreement, which set out terms and condi-
tions for using the system. Finally, an appendix to the annex
deals with assessing the lack of manufacturing capacities in the
importing country. This was originally an annex to the Waiver
Decision.
In order to preserve the legal meaning and weight, and the
relationship between the Statement and the new rules, the
Statement has not been incorporated in the amendment but
was reiterated by the Chairman of the WTO General Council
prior to the adoption of the proposal for an amendment. This
reflects the approach of the EC during the negotiations.
Later, a group of developed countries and the EC announced
that they would not use the system to import. High-income
developing countries announced separately that if they used
the system as importers, it would be for emergency situations
only.10 All WTO members have the right to act as exporters.
While the EC proposal was not formally submitted to the
TRIPS Council, it served as a basis for further consultations
conducted by the Chairman of the Council. Consultations also
took place between the EC, the African Group and the USA
in order to narrow down differences between the respective
approaches. The positions of the EC and the African Group
with regard to the amendment were actually very similar and
both wished to find a solution to clear the ground before the
Hong Kong Ministerial Conference scheduled for December
2005.8
The Decision of 6 December 2005Work intensified in the run-up to the Hong Kong Ministe-
rial Conference and the WTO members finally reached an
agreement on 6 December 2005. The new rules were formally
incorporated into the TRIPS Agreement and allow any WTO
member to export medicines made under compulsory licence
for the purpose of supplying developing countries in need.
The amendment takes effect for the WTO members that have
accepted it when two-thirds of the WTO members accept the
amendment and thereafter for each other member upon accep-
tance.9 The members have set themselves until 1 December
2007 to do this. The Waiver Decision remains in force for
each member until the amendment becomes effective for that
member.
The contents of the amendmentThe amendment is designed to stick to the Waiver Decision as
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Introduction In February 2004, a World Health Organization (WHO)
Commission on Intellectual Property Rights, Innovation and
Public Health began ‘an analysis of intellectual property rights,
innovation, and public health, including the question of appro-
priate funding and incentive mechanisms for the creation of
new medicines and other products against diseases that dispro-
portionately affect developing countries’. Its members were
politicians, academics and officials – but, surprisingly, only
one had practical experience of private sector research in the
pharmaceutical industry. The Commission reviewed over 50
expert submissions, organised several workshops and an open
forum in Geneva, held consultations with stakeholders in eight
cities worldwide and commissioned 22 studies. Its final report,
which runs to over 200 pages, was published in April 2006. The
�
The WHO Commission’s Report on Intellectual Property Rights, Innovation and Public Health: a missed opportunityJames Killick1
Acceptance of the amendment by the ECThe EC played an important role in the negotiations on the
amendment. As the EC is competent to conclude agreements
in the field of commercial aspects of intellectual property,11
the amendment had to be accepted on behalf of the EC.
On 27 April 2006, the European Commission presented a
proposal for a Council Decision accepting, on behalf of the
EC, the amendment. This new initiative, together with the
newly adopted Regulation on compulsory licences of patents
relating to the manufacture of pharmaceutical products for
export to countries with public health problems, demonstrates
the commitment of the EC to the WTO process and confirms
its willingness to truly facilitate access to medicines for poor
countries.
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Section 3 analyses the way drugs are developed, pointing
out that it is likely to cost less than the industry average to
develop products to treat diseases that mainly affect developing
countries.
The report calls for work to improve clinical trials and regu-
latory procedures in developing countries, which could then
evaluate products using their own risk-benefit standards, which
might differ from those in the developed world. It cites a US
decision to withdraw a rotavirus vaccine because of a 1 in
10,000 risk of an obstruction in the bowel – odds which devel-
oping countries, where 600,000 children die every year from
severe rotavirus diarrhoea, might be willing to tolerate.2
The report finds no evidence that implementing the TRIPS
requirement for all WTO members to introduce patent regimes
would significantly boost R&D for Type III diseases, as the real
problem is insufficient market incentives. It suggests that an
open source approach, similar to the software industry, might
be useful for tackling biomedical research problems in devel-
oping countries.
Section 4 examines the problems of delivering medicines to
patients in developing countries, notably inadequate health
infrastructures and emigration of healthcare workers. It suggests
making greater use of traditional medicine practitioners in
developing countries.
The report gives the startling estimate that up to 25% of
medicines taken in the developing world are counterfeit or
substandard,3 and proposes tackling this problem through
good manufacturing practices and supply chain management.
It calls on the pharmaceutical industry to maintain transparent
and consistent pricing policies, arguing that prices of patented
report’s findings, which are summarised below, have been the
subject of significant – and justified – criticism.
The report’s findingsSection 1 of the report notes the relative lack of research into
Type III diseases, such as African river blindness, which occur
almost entirely in developing countries whose governments
and patients lack purchasing power. Patents and similar market
incentives do not stimulate research and development (R&D)
into new drugs to treat such diseases, since developing countries
generally have neither the scientific infrastructure nor a private
sector capable of innovation. And the huge cost of developing
new drugs makes it difficult to market them at affordable prices
for developing countries.
Section 2 analyses the process of discovering new drugs. The
report suggests the WHO should establish a permanent forum
of governments, companies, academics and patients to enable
organised sharing of information and greater coordination.
More controversially, it proposes that the WHO should act to
make companies’ libraries more accessible, with a view to iden-
tifying compounds for use against diseases that affect devel-
oping countries. (Of course, as the report itself notes, these
libraries are a key factor in competition between companies,
which may be reluctant to accept this suggestion.) It suggests
that the WHO and World Intellectual Property Organization
(WIPO) encourage patent pools and promote research, notably
through research exemptions in patent legislation and compul-
sory licences under the Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS Agreement).
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patent protection, thus delaying generic entry).8 It proposes
government action to avoid barriers to legitimate generic
competition, and gives the example of the Indian Patent Act
2005, which only allows patents on variants of a known drug if
they have greater efficacy.
Section 5 recommends improving innovative capacity
in developing countries. It calls for technology transfers to
increase production, and for more clinical trials, provided their
regulatory framework is improved.
The report also notes the trend of reverse pharmacology,
taking advantage of known therapeutic methods in traditional
medicine to accelerate the process of discovery. It suggests that
digital libraries of traditional medicinal knowledge should be
incorporated into the minimum search documentation lists
of patent offices, so that such knowledge is considered when
patent applications are made. Holders of Traditional Knowledge
(TK) should benefit from any commercial exploitation of the
information in these digital libraries.
Section 6 sets out the report’s recommendations. It notes
that in developed countries, incentives for R&D in the private
sector are generated by the market for healthcare products and
by public and private demand. Private sector innovation is also
supported by research in publicly funded universities, while
intellectual property protection ensures private companies are
financially rewarded for their innovation. Owing to lack of
demand, this innovation cycle usually does not exist in devel-
oping countries at present, leaving them dependent on products
designed to meet healthcare needs in developed countries. The
possibility of a patent may not stimulate innovation when the
market is too small, or scientific and technological capability is
products and generics should be reduced for all low- and
middle-income developing countries, not only those in sub-
Saharan Africa.
Regarding IPRs, the report suggests that companies should
‘adopt patent and enforcement policies that facilitate greater
access to medicines needed in developing countries’, i.e. they
should not file for patents in developing countries or should
grant voluntary licences.4 Developing countries should provide
for compulsory licences under the TRIPS Agreement and the
Doha Declaration, while governments should adopt price
controls and promote generic competition, ‘given the leverage
to determine prices that patents confer’.5 The report considers
that because developing countries have limited innovative
capacity and ability to pay, there are unlikely to be public health
justifications for them to provide more than the minimum
protection established under the TRIPS Agreement for regula-
tory data protection. It states that Free Trade Agreements (FTAs)
should not incorporate ‘TRIPS-plus’ protection (see Chapter 7).
The report goes on to argue that developing countries should
implement competition laws to balance intellectual property
and competition policy, and should apply the pro-competitive
measures allowed by TRIPS.6 All countries should take measures
to promote generic entry as soon as a patent expires. The report
also advises measures to promote greater competition between
generics, regulate prices and replace brand-name drugs by
generics.7
The report discusses whether new products are necessarily
better than existing medicines, and examines so called ‘ever-
greening’ practices (the name given to the scenario where a
patent-holder uses a minor improvement to seek additional
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In contrast, however, the report discusses a number of issues
that are of limited importance to developing countries. For
example, the issue of ‘evergreening’, the use of competition
laws against patent-holders (compulsory licensing) and the use
of laws to promote generic entry. None of these issues seems
particularly relevant to developing countries, given that it is
relatively rare for pharmaceutical companies to seek patent
protection in developing countries. They tend not to file for
patents there for the simple reason that the market is too small
to justify the effort (a fact acknowledged in the report). Yet each
of the three issues was discussed at length.
Put bluntly, the report overlooks key issues for developing
countries and instead weighs into the debates currently taking
place in those countries which already have effective health-
care systems, but which are trying to find methods to reduce
their healthcare budgets.
The report’s proposals for action to improve the situation
reflect its focus on the wrong issues, as well as the Commis-
sion members’ lack of practical experience. In fact, the only
member with hands-on industry experience made a number of
dissenting comments, as follows:
➤ Introducing competition law regimes in developing
countries to use against patent-holders would entail major
investments, notably in training specialists to enforce the
regime, especially as the interface with intellectual property
is one of the most complex areas of competition law. It
would surely be better to use the money to treat patients.
➤ Creating digital libraries of therapeutic methods in
traditional medicines for use in prior art searches before
lacking. The report concludes that the monopoly costs relating
to patents make patented products too expensive for most
patients in low-income countries, and calls on the WHO to
develop a ‘Global Plan of Action’ to overcome this problem.
The plan of action must ensure more and sustainable funding
to develop and make available medicines to treat the diseases
that particularly affect developing countries.
Analysis of the reportThe most significant criticism of the report seems to be that it
failed to address the right issues. For example, it barely discusses
two of the most important questions with regards to IPRs and
developing countries – the elephants in the room, as it were.
First, how relevant are IPRs to developing countries where
so many people die due to lack of access to basic medicines
that went off patent long ago?9 It is submitted that patents
are not the biggest issue for people who fall sick in developing
countries. Getting access to any type of medicine, in particular
generic medicines, is the real issue.
Second, the report notes that 25% of all drugs consumed
in developing countries are counterfeit. This is a horrendous
statistic: it suggests that 25% of all expenditure on drugs in
developing countries is wasted. Solving this problem would
bring about an immediate improvement in public health at
next to no cost (based on the reasonable assumption that
governments/patients pay the same price for counterfeits as for
genuine drugs). This is clearly an IP issue of immediate impor-
tance, which should have been given high profile in the report.
Yet it is discussed in less than one page.
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ConclusionThe WHO Commission’s Report on Intellectual Property Rights,
Innovation and Public Health has achieved the important goal
of focusing the world’s attention on the problem of the lack of
drugs to treat diseases that primarily affect developing countries.
However, its analysis contains a number of serious flaws. As a
result, the report often fails to address the real problems faced
by developing countries – such as counterfeit medicines – and
instead addresses issues like competition law, generic entry
and evergreening, which are of limited (if any) relevance to
developing countries. Because of this lack of focus, a number of
the solutions proposed by the report are not relevant or would
be counter-productive. It is a pity that so much well-meaning
effort has led to such a disappointing result. This was indeed a
missed opportunity.
patents are granted could actually be counter-productive.
If a search showed that no patent could be granted,
pharmaceutical companies would not invest the hundreds
of millions of dollars needed to get a drug approved and no
new medicine would emerge.
➤ Equally counter-productive could be the idea contained
in the Indian Patent Act 2005, namely that patents would
only be granted on variants of a known drug if they have
greater efficacy. As the report admits, this test is wholly
impractical: clinical trials will not have taken place when
the patent application is filed, so it will be impossible to
demonstrate superior efficacy. And the risk is that no trials
would ever be carried out in such an uncertain regulatory
environment.
➤ Open source software (OSS) is backed by some of the
world’s largest computer firms, which offer consulting
services relating to OSS (e.g. IBM) or sell hardware
incorporating it (e.g. HP). Without government support
on a similar scale to that given by HP, IBM and others,
open source methods are unlikely to succeed in the
pharmaceutical industry.
➤ The recommendations for price controls and compulsory
licensing make the mistake of assuming that a patent
gives the holder power to set prices. Patented products
normally compete with other patented products and
generic drugs that produce a similar therapeutic effect.
Only in the relatively small number of cases where there is
no alternative product does a patent give monopoly pricing
power.
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The EU’s approach to the enforcement of pharmaceutical IPRs
The current situationFew products have as much potential to cause serious damage
as fake medicines: counterfeit blood plasma, retro-virals or anti-
paludism tablets can have ravaging effects in terms of public
health. Victims of such products reach thousands each year and
the poorest people in the Least Developed Countries (LDCs) of
the world are particularly affected. Most of the 800,000 pharma-
ceutical products seized on the borders of the European Union
(EU) in 2004 – a twofold volume increase over the previous year
– were only in transit and were ultimately destined to reach
third countries, particularly in the developing world.
Reports of the seriousness of the situation are overwhelming.
According to the authors of an article published in The Lancet,2
fake medicines were recognised as responsible for the deaths of
192,000 people in China alone in 2001. The Chinese govern-
ment subsequently closed down 1,300 factories and investi-
gated 480,000 cases involving products with an estimated value
of US$57 million. In August 2006, Shanghai police disman-
tled a criminal network dedicated to selling a false version of a
popular anti-flu vaccine over the Internet. More than 400kg of
tablets ready to be shipped worldwide were seized.
A general legal framework for a specific problemIn view of this worrying situation, it is perhaps surprising to
find that there are very few rules in the legal framework of Intel-
lectual Property Rights (IPRs) enforcement specifically made to
address counterfeiting of pharmaceutical products. Looking at
In the eyes of the public, counterfeiting is often still
seen as something innocent and harmless. Everyone
enjoys a bargain. But it is far too easy, and also wrong, to write
off counterfeiting as harmless. Production of and trade in fake
products are big business for criminal organisations and they
undermine entire sectors, including the most creative and
competitive, of the economy. And when pirates move into fake
medicines, we move from rip-offs to potential tragedy.
The purpose of this chapter is to give a description of the
tools available in European countries to protect citizens against
the consumption of counterfeit pharmaceutical products and
right-holders against the infringement of their intellectual
property.
10
The EU’s approach to the enforcement of pharmaceutical IPRs: multilateral, bilateral and domestic perspectivesPedro Velasco Martins1
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to a very high standard. The most ‘operational’ responsibili-
ties and the majority of the means and resources available to
fight against piracy and counterfeiting are the competences
of the individual Member States. Therefore, the most visible
and immediate results in this fight will always be achieved by
the national customs authorities, police, courts, and adminis-
trations, and regulated by the different national legislations.
This is why the level of enforcement within the European
Community is different among Member States, and also why
some countries still need to do more to improve the present
situation by cutting down the remaining production and sale
of pirated or counterfeit goods.
Before describing in more detail the laws that have already
been harmonised, it is important to note that Europe is far
from being one of the regions most affected by the traffic of
counterfeit pharmaceuticals.3 To a large extent, this is due
to the health systems predominant in EU countries, where
the distribution and sale of most pharmaceutical products is
tightly regulated and monitored by public authorities. Further-
more, contributions by public health schemes to the price of
medicines provide little incentive for consumers to buy cheap
products through unofficial channels. But the risk is present for
certain products for which the price participations are harder
to obtain or are in risk of shortage (pharmaceuticals like Viagra;
or Tamiflu, in the wake of the avian flu reports of 2005). There
is also, as mentioned above, a considerable traffic of fake phar-
maceutical products originating in Asia and destined to reach
developing and least developed countries in Africa and South
America, making the journey through Europe and occasionally
being successfully seized here.
the most comprehensive set of IPR rules in force at the multilat-
eral level, the Agreement on Trade-Related Aspects of Intellec-
tual Property (TRIPS Agreement), we find that the mechanisms
foreseen in its Enforcement chapter (Part III) for administrative,
civil, criminal and customs proceedings apply in general to any
infringements of copyright or trademarks.
The same is the case for the legal instruments available to
combat infringements of IPRs in the EU, as well as the sets of
rules included in bilateral agreements between the EU and third
countries. Therefore, from a strict point of view, counterfeiting
a pair of sports shoes will be subject to the same mechanisms as
faking a pharmaceutical product.
Pharmaceuticals are different, however, because of the
potential gravity of the effects of counterfeiting on the user.
This means that in many situations the producers and distribu-
tors of a fake medicine will actually be involved in criminal
practices that extend well beyond those of counterfeiting, such
as homicide, physical offences, corruption of medical products,
poisoning and others. These crimes are covered by their own
legal regimes and sanctions foreseen for their practice are in
many cases much harsher than those applicable to the more
‘simple’ infringement of an IPR. In some countries where the
distribution of fake pharmaceuticals leads to loss of human life,
the pirates may in fact incur the death penalty.
Legislation and enforcement mechanisms in the EUGenerally speaking, the European Union (EU) and its Member
States are acknowledged for protecting and enforcing IPRs
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The EU’s approach to the enforcement of pharmaceutical IPRs
include, among others, injunctions to halt the sale of coun-
terfeit or pirated goods, provisional measures such as precau-
tionary seizures of suspected offenders’ bank accounts,
evidence-gathering powers for judicial authorities, and powers
to force offenders to pay damages to right-holders to compen-
sate for lost income. To a large extent, the measures foreseen
provide a higher level of protection than that given by the TRIPS
Agreement. However, because some aspects of the criminal law
still remain a competence of each Member State, the Enforce-
ment Directive does not contain any measures relating to
enforcement by penal means.
Since then, the EU has been working on a proposal to
harmonise Member States’ national legislations insofar as
criminal sanctions on counterfeiting and piracy are concerned.6
The text currently being discussed foresees that offences must
incur a maximum term of at least four years’ imprisonment
when they are committed under the aegis of a criminal organi-
sation. The same applies where the offences carry a health or
safety risk. For legal entities the penalties include criminal and
non-criminal fines up to a maximum of 100,000 euros. Fines
will be raised up to a maximum of 300,000 euros for offences
carried out by a criminal organisation and/or offences which
carry a health or safety risk.
c) Enforcement in third countriesIPR infringements occurring outside the territory of the EU,
and thus outside the scope of EU laws, are obviously a major
source of concern. This is why enforcement initiatives at the
international level have gained considerable momentum in
recent years, and not only from Europe but also from countries
It is worth presenting an overview of the intellectual property
regime applicable in the EU to IPR infringements in general and
to counterfeit pharmaceuticals in particular.
a) Enforcement at the external borderComing back to the IPR enforcement rules applicable at EU level,
the EU adopted the ‘Customs Regulation’ in 1984, setting out
the conditions under which customs authorities may intervene
in cases where goods suspected of infringing IPRs reach the
external borders of the EU. The law applies to infringements
of all IPRs and regardless of whether they are being imported,
exported or are in transit. It also sets out the steps to be taken by
the authorities when goods are found to be illegal. This Regula-
tion was revised and improved in 2003.4
It is one of the most effective instruments available against
IPR infringements at the external EU border. Seizures in 2004
increased by almost 1,000% compared to 1998. Customs now
seize more than 100 million articles per year, and the number
of customs operations involving fakes more than doubled to
22,000 from 2003 to 2004. Most important of all, the Regula-
tion foresees simple and cost-free mechanisms of cooperation
between legitimate right-holders and customs authorities.
b) Enforcement within the EUAnother key legal tool is the ‘Enforcement Directive’,5 adopted
in 2004. This Directive covers infringements of all IPRs (both
copyright and industrial property, such as trademarks or
designs), which have been harmonised within the EU under
European law. The Directive is based on best practices in the
Member States, which are extended throughout the EU and
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the topic, and they often go beyond the minimum standards
required by the TRIPS Agreement. The EU announced in
September 20069 that it was entering into a new era of ambitious
bilateral agreements with partners such as India, ASEAN and
Korea, and that it intended to include stronger provisions for
IPRs, modelled on those in place within the EU (such as the
2004 Enforcement Directive).
d) Access to affordable medicinesIt is worth making reference in this regard to an instrument that
regulates the flow of pharmaceutical products between Europe
and certain third countries, known as ‘The Tiered Price Regula-
tion’.10 This Regulation is intended to enable producers of key
medicines to significantly increase their supplies at lower, so-
called ‘tiered’ prices, to 76 poor countries, while keeping higher
prices for the same items in Europe. While the purpose of the
Regulation is not to deal with counterfeit pharmaceuticals, it
contains a series of measures destined to prevent the traffic of
these low-priced products back into the EU. Products sold to
beneficiary countries must be marked with a logo and manu-
facturers should also make them look different from those sold
in developed markets (for instance by using different colours,
sizes or shapes).
Multilateral enforcement initiativesAt the multilateral level, the topic of counterfeit pharmaceuti-
cals is attracting considerable attention at the highest political
stages.
During the Russian presidency of the G8, the G8 leaders
such as the USA, Japan and some of the most important inter-
national and multilateral organisations.
Europe’s basic approach was set out at the end of 2004, in the
‘Strategy for the Enforcement of IPR in Third Countries’.7 Since
then, the EU has substantially increased its work in this field,
creating specific dialogues with some of the key players such
as China, Russia and the Ukraine (one of the first dialogues
with China was dedicated to the pharmaceutical sector). The
EU has also addressed the issue at the World Trade Organization
(WTO)/TRIPS Council, shifted technical assistance resources
to enforcement, and established reinforced cooperation with
countries sharing its concerns, such as the USA and Japan. Like
Europe, these countries identified the evolution and growth
in piracy and counterfeiting in the global economy as a top
political priority.
In October 2006, the EU announced additional steps related
to enforcement. Based on an extensive survey of European busi-
nesses about their experience with IPR enforcement around the
world, the EU established a list of priority countries and regions
on which to focus activity and resources in the fight against
piracy and counterfeiting. They identified China as the main
priority, but also singled out Russia, the Ukraine, Turkey, Chile
and Korea, and the ASEAN and MERCOSUR trading blocks.
The results of the Enforcement Survey are publicly available8
and contain detailed information about counterfeiting in over
40 countries, including reports about infringements relating to
pharmaceutical products.
Bilateral trade agreements are increasingly becoming another
weapon in the war against piracy and counterfeiting. There is
a shift towards the inclusion of detailed sections dedicated to
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The EU’s approach to the enforcement of pharmaceutical IPRs
ConclusionCombating counterfeit medicines does not necessarily require
IPR enforcement rules tailor-made for the purpose. Instead,
given that drug counterfeiting is a phenomenon whose conse-
quences largely transcend the negative effects of ‘ordinary’
counterfeiting, it needs to be tackled by laws and implementa-
tion mechanisms extending beyond the intellectual property
framework. A strong regulatory system for the authorisation
of new medicines and clear rules for their licensing, manu-
facturing and distribution is required. Then, if or when these
regulations are infringed, there is a need to educate patients
and healthcare workers, execute effective action and coordina-
tion between different law enforcement agencies, and impose
sanctions proportionate to the crime. For those countries
lacking the means to put such a system in place on their own,
urgent assistance will be needed.
approved a statement on the enforcement of IPRs at the St
Petersburg Summit. They committed themselves to substan-
tially reduce global trade in pirated and counterfeit goods and
to combat the trans-national networks supporting this trade.
The G8 members also agreed to cooperate among themselves
in areas such as customs controls, antipiracy crime strategies,
public awareness-raising, and assistance to third countries
through sharing of best practices, training and technical assist-
ance.
For its part, the Organisation for Economic Co-operation
and Development (OECD) has decided to conduct an extensive
study to assess the impact of piracy and counterfeiting on the
global economy. There are few credible overall assessments of
the impact of counterfeiting on the world economy and the
OECD is certainly the institution best placed to do this. One
of the sectors to be analysed in detail is the pharmaceutical
sector, and a particular emphasis will be placed on the risks to
consumers.
Last, but not least, an International Medical Products Anti-
Counterfeiting Taskforce (IMPACT) has been created by the
World Health Organization (WHO) following an international
conference in February 2006. It consists of governmental, non-
governmental and international institutions, and aims to raise
awareness about the problem, establish cooperation, promote
exchange of information among the entities concerned, and
offer legislative, administrative and technical solutions to
combat counterfeit drugs.
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has warned that an increase in the risks of counterfeits entering
the EU supply chain is ‘obvious’.4
The Center for Medicine in the Public Interest estimates that,
globally, counterfeit drug commerce will grow 13% annually
through 2010. That means counterfeit drug sales will grow at
nearly twice the rate of legitimate pharmaceutical commerce.
In 2010 this illegal business will generate US$75 billion in
revenues – a 92% increase from 2005.5 The profits are high and
the risks are low. And that is a deadly combination.
A large proportion of the world’s counterfeit medicines
originate in Asia and end up in the USA and EU. In the EU,
between 1998 and 2004, there has been a 1,000% increase in
seizures of counterfeit prescription drugs.6
China, in particular, is a production centre. In 2001 it was
reported that Chinese authorities closed 1,300 factories while
investigating 480,000 cases of counterfeit drugs worth US$57
million. It is estimated that in China between 200,000 and
300,000 people die each year due to counterfeit or substandard
medicine.7 And these are reported cases: the true number is
likely to be far higher. And while the West has not experienced
such dramatic numbers, there is no question that the problems
of Asia and Africa are on our doorstep.
Other data suggest that:
➤ Counterfeit medicines constitute between 40 and 50% of
total supply in Nigeria and Pakistan.8
➤ In China, authorities have found that some products have a
counterfeit prevalence ranging between 50 and 85%.9
➤ In Thailand and Nigeria, 36.5% of antibiotics and anti-
malarials on the WHO essential drugs list are substandard.10
What is a counterfeit drug? According to the
World Health Organization (WHO), a counter-
feit drug is ‘a product that is deliberately and fraudulently
mislabelled with respect to identity and/or source. Coun-
terfeiting can apply to both branded and generic products
and counterfeit medicines may include products with the
correct ingredients but fake packaging, with the wrong ingre-
dients, without active ingredients or with insufficient active
ingredients’.1
The scale of the problemThe WHO estimates that 8–10% of the global medicine supply
chain is counterfeit – rising to 25% or higher in some countries.2
The largest counterfeit market with close proximity to the EU
free trade zone is Russia, where the generally accepted estimate
is that 12% of drugs are counterfeit.3 Now that the Baltic nations
of Latvia, Lithuania and Estonia have joined the EU, the WHO
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➤Corruption of courts and of regulatory authorities.
In some countries law enforcement can also be corrupt,
allowing criminals to pay corrupt law enforcement agents
to turn a blind eye to their activities. If a case does make
it to court, the gangs may be able to pay off the judge and
thereby induce a favorable judgement.
Corruption within the police force exacerbates this problem, so
that the enforcement of regulations is seen as an opportunity
to collect bribes.
Governments on both sides of the Atlantic have taken
significant preliminary steps to address this growing problem.
A problem which, in many respects, can be considered nothing
short of international healthcare terrorism.
Only recently Jeffrey Gren, Director of the US Commerce
Department’s Office of Health and Consumer Goods,
announced in a speech that the US government is working on
stopping the illicit flow of Active Pharmaceutical Ingredient
(API), which can be used in counterfeit medicines.13 Gren said
that the Commerce Department is focusing efforts on China
and India. China maintains that it cannot be responsible for
the API used outside the country. The production and trading of
an active pharmaceutical ingredient in bulk form needs to fall
under the same rules that govern the production and trading of
manufactured pharmaceuticals.
According to the Council of Europe (CoE) survey report
entitled Harmonised Provisions for Legislative and Administra-
tive Procedures Applicable to Counterfeit Medicines in the Council
of Europe Member States, dated January 2006, the predominant
themes behind counterfeit medicines and pharmaceutical crime
A recent survey by the WHO of seven African countries found
that between 20 and 90% of all anti-malarials failed quality
testing. These included chloroquine-based syrup and tablets,
whose failure rate ranged from 23 to 38%; and sulphadoxine/
pyrimethamine tablets, up to 90% of which were found to be
below standard.11
Underlying cultural and systemic failures leading to counterfeitingOne could outline three underlying causes of counterfeiting in
the Least Developed Countries (LDCs):12
➤Absent or defective IP protection. One way to prevent
the sale of unauthorised copies of medicines is to enable
companies to register and enforce trademarks. These enable
vendors to signal the quality of their product to potential
purchasers. Trademark owners have strong incentives to
ensure that the quality of their product is maintained
because their reputation and hence future profitability
depend upon it. In those countries where trademarks
cannot be enforced, cheaply produced poor quality copies
will typically crowd out good-quality drugs.
➤Lack of adequate civil liability. Civil law protects
the consumer against mis-sold or defective goods. By
enabling consumers (at home or abroad) to obtain redress
from the manufacturer or supplier of a harmful product,
such liability both compensates those who are harmed
and discourages manufacturers and suppliers from selling
counterfeits.
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The threat of counterfeit medicines: a new approach to policy
Europe by an unsuspecting public is thus difficult to determine
based on known and currently available data. While it is
extremely unlikely that inadvertent consumption of counter-
feit medicines in Europe is related to major mortality (unlike
the situation that exists in some countries in Asia and Africa),
it is possible, if not probable, that counterfeit medicines make
a not insignificant contribution to morbidity (for example, via
ineffectiveness, inappropriate labelling and/or mis-labelling
and the absence of any possibility for batch recall).
According to Jonathan Harper,16 developed countries are at
risk from counterfeit medicines due to a number of inter-related
factors that can amount to a system failure:
➤ Lack of awareness and perception of the problem at many
authority/stakeholder levels;
➤ Regulatory gaps (particularly with regard to API, and to
packaging and distribution chain regulation);
➤ Weak export/transit regulations;
➤ Lack of coordination and inconsistency of approach
between relevant authorities both nationally, regionally
and internationally;
➤ Inefficient cooperation between stakeholders (within
the supply chain and between the supply chain and the
authorities).
Finally, one of the most serious impediments to an allied
transatlantic war against prescription drug counterfeiters is
parallel trade or parallel importation – the legal trade in products
which are priced differently in different countries, and where
sellers make a profit on this price differential. Currently, nearly
are those of ’invisibility’, ‘biohazard’ and ‘system failure’.14
These are discussed in more detail below.
When focusing on the scope of the problem in Europe, the
CoE report states that there is ‘undoubtedly a large “invis-
ibility” factor that masks the real extent of the presence of
counterfeit medicines in Europe’. This is due to a number of
factors, such as the very nature of medicinal products (coun-
terfeit medicines are invariably harder to detect compared to
other types of counterfeit products), the lack of a commonly
agreed and employed definition of counterfeit medicines by
European states and a lack of awareness (in the case of several
relevant authorities as well as the general public) of the threat
that counterfeit medicines poses, even if they exist at all.
Lack of sufficient information on the biohazards associated
with counterfeit medicines also poses a significant problem.
As reported in Coincidence or Crisis,15 the types of Adverse
Drug Reaction (ADR) associated with the inadvertent use of
counterfeit medicines can relate to one or more of a number
of problems depending on the type of counterfeiting practice
employed. Counterfeit medicine-associated ADRs may be due
to, but not limited to, inappropriate API dose (absent, insuffi-
cient or excess dose) and quality problems (product contamina-
tion, excipient problems).
Under-reporting of possible counterfeit medicine-related
ADRs is likely to be significant when one takes into account the
well-known problem of ADR under-reporting, even for author-
ised medicinal products. A weakness in the existing European
pharmacovigilance system is that it is not explicitly geared to
detection of ‘drug ineffectiveness’. The direct impact of the
inadvertent use of counterfeit medicines on public health in
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The threat of counterfeit medicines: a new approach to policy
The problem of the InternetThe Internet has the very real potential of becoming the inter-
national drug cartel of the 21st century. When the ‘learned
intermediary’ – a doctor or pharmacist – is replaced by a greedy
intermediary (such as an unregulated Internet site), there is
significant danger to public health. Profiteers masquerading as
pharmacists are an ominous sign in terms of both safety and
effectiveness of medicines. ‘Buyer Beware’ is bad healthcare
practice and even worse healthcare policy. When patients go
outside of any given national regulatory system and enter into
the Internet’s grey zone, they assist those who put profits before
patient health, but may also come into contact with outright
criminals who have no scruples about actively feeding counter-
feit drugs into the marketplace.
The US Food & Drug Administration (FDA) has developed a
framework for a 21st-century pharmaceutical supply chain that
would be more secure against modern counterfeit threats.18
The FDA’s specific approach to protect US citizens from
counterfeit drugs includes the following eight elements:
1 Implementation of new technologies to better protect the
US drug supply;
2 Adoption of electronic track and trace technology;
3 Adoption and enforcement of strong, proven anti-
counterfeiting laws and regulations by individual US states;
4 Increased criminal penalties to deter counterfeiting and
more adequately punish those convicted;
5 Adoption of secure business practices by all participants in
the drug supply chain;
140 million individual drug packages are parallel-imported
throughout the EU – and a wholesaler repackages each and
every one of these. This means that, literally, parallel traders
open 140 million packets of drugs, remove their contents and
repackage them. But these parallel profiteers are in the money-
making business, not the safety business, and mistakes happen.
For example, new labels incorrectly state the dosage strength; a
new label says the box contains tablets, but inside are capsules;
the expiration date and batch numbers on the medicine boxes
do not match the actual batch and dates of expiration of the
medicines inside; and patient information materials are often
in the wrong language or are out of date.
As David Taylor, Professor of Pharmaceutical and Public
Health Policy at the School of Pharmacy, University of London,
writes:
An even more difficult message to communicate to
policymaking and other audiences would be that the
counterfeit drugs issue – although a genuinely serious
cause for concern – might in some instances be best
regarded as an indicator of the existence of more
important, long-term, threats to European public
interests … it would be incorrect to allege that licensed
parallel import medicine traders are directly responsible
for facilitating the introduction of counterfeit medicines
into the EU, or that generic medicines licensed in Europe
are bio-medically inferior to their branded counterparts.
But equally it would be wrong to deny that the growth of
complex patterns of trading in medicines in Europe has
extended medicine supply chains in ways that increase
opportunities for criminals to introduce fake products.17
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6 Development of a system that helps ensure effective
reporting of counterfeit drugs to the FDA and that
strengthens the agency’s rapid response to such reports;
7 Education of consumers and health professionals about the
risks of counterfeit drugs and how to protect against them;
8 Collaboration with foreign stakeholders to develop
strategies to deter and detect counterfeit drugs globally.
Recommendation 8 is particularly important because, as the
Chinese proverb says: ‘An ant may well destroy a whole dam.’
Counterfeit drugs are a challenge to all nations, and criminal
counterfeiting operations are increasingly being carried out
across national borders. The FDA has stated that it intends to
work with the WHO, Interpol, and other international public
health and law enforcement organisations to develop and
implement worldwide strategies to combat counterfeit drugs.
ConclusionShould we worry about counterfeit prescription medicines? Is it
really that much of a problem? The answer is a resounding ‘yes’.
The problem is so severe and serious that the treatment should
start from the root. The focus should not be on the counter-
feit end product alone. Rather, the fight against counterfeiting
must address both cultural and systemic factors that underline
this problem. The scope of the problem is much more serious
than it appears and now is the time to aggressively address and
defeat this very real public health hazard.
part 3
Contemporary topical issues
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The Convention on Biodiversity (CBD) attempts to
link the conservation of biodiversity to the economic
goals of sustainable development. In line with this purpose,
Article 1 establishes the principle of fair and equitable sharing
of the benefits arising from the use of genetic resources. The
CBD delineates other objectives and principles, such as protec-
tion of the ‘traditional knowledge [TK] of indigenous and local
communities’ (Article 8(j)) and ‘sovereign rights of Contracting
Parties over their genetic resources’ (Art. 15(1)). The CBD was
negotiated under the auspices of the United Nations Environ-
ment Programme (UNEP), adopted at the UN Conference on
Environment and Development in 1992 (Rio Earth Summit),
and came into force on 29 December 1993. A large number of
countries – 187 countries and the European Community as of
April 2006 – are signatories to the Convention, with the notable
exception of the USA, which has not ratified it.1
The CBD provides a framework of goals, policies and obliga-
tions, and leaves Contracting Parties to determine the specific
12
The Convention on Biodiversity (CBD) and Intellectual Property RightsHiroko Yamane
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The Convention on Biodiversity (CBD) and Intellectual Property Rights
and Folklore in 2000 to discuss possible ways to protect TK and
folklore.
The CBD does not explicitly refer to Intellectual Property
Rights (IPRs), except in Article 16.5,3 which stipulates the
obligation for Contracting Parties to cooperate, so that ‘such
rights are supportive of and do not run counter to its objec-
tives’. The Bonn Guidelines adopted by the COP only suggest
that countries with users of genetic resources could consider
‘measures to encourage the disclosure of the country of origin
of the genetic resources and of the origin of TK, innovations
and practices of indigenous and local communities in applica-
tions for intellectual property rights’.4
Many resource-rich developing countries rely on the CBD5 to
bargain access against royalties, research data and technology
transfer, and to benefit from future economic returns arising
from biodiversity.6 These countries have advanced the idea of
indicating the origins of genetic resources in the patent specifi-
cation when patent filings are made.
Certain developing countries have taken the initiative in
examining the relationship between the CBD and the TRIPS
Agreement at different regional or international meetings.
For example, in 1999, in New Delhi, there was a proposal to
modify Article 27.3(b) of TRIPS,7 to strengthen Articles 22 and
23 concerning geographical indications, and to add to Article
29 the obligation to disclose the origin of genetic resources in
patent specifications, so that CBD objectives could be promoted
by national patent laws.
In 2001, the Doha Ministerial Conference of the World
Trade Organization (WTO) instructed the TRIPS Council, in
Paragraph 19, to examine the relationship between the TRIPS
measures to be applied within their borders. At the interna-
tional level, the CBD allows the Conference of the Parties (COP),
which consists of all governments and regional organisations
that have ratified the treaty, to adopt those approaches, as
appropriate, and as far as possible, in the vast fields of relevance
covered by the CBD. Among the topics addressed by the COP
are access to genetic resources, prior informed consent (PIC)
as a condition for access, and access and benefit-sharing (ABS)
in the case of genetic resources. For example, the Bonn Guide-
lines2 concerning ABS were adopted at COP 6 in 2002, and in
2006, at COP 8, a 2010 target to negotiate an international
regime was set.
There are, however, many provisions in the CBD whose
scope is not clearly delineated. For example, Article 2 stipulates
that ‘biological resources’ include genetic resources, organisms
or parts thereof, populations, or any other biotic component of
ecosystems with actual or potential use or value for humanity.
The Bonn Guidelines made it clear that human genes are not
included in its scope.
Various other international organisations have developed
projects which cover issues related to the CBD. For example,
the Food and Agricultural Organization (FAO) revised the
1983 International Undertaking on Plant Genetic Resources
in harmony with the CBD, and expanded the International
Treaty on Plant Genetic Resources for Food and Agriculture
(ITPGRFA), which went into effect in June 2004. The latter
addressed the ex situ collections and farmers’ rights issues that
are not addressed in the CBD. Similarly, the World Intellectual
Property Organization (WIPO) created the Intergovernmental
Committee on Intellectual Property and Genetic Resources, TK
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The Convention on Biodiversity (CBD) and Intellectual Property Rights
and equitable benefit-sharing based on the use of biological
resources. In fact, little economic study has been undertaken
concerning different proposals for benefit-sharing, as well as
disclosure requirements with concomitant penalties, with a
view to exploring what rules would be preferable.
First of all, the number of players and their relations on
the market, as well as the ways in which biological resources
contribute to innovation, vary radically in different fields of
technology, such as seeds, food, cosmetics, or medicines. The
different processes by which biological resources contribute
to the marketing of final products also give rise to different
bargaining positions of providers of those biological resources
vis-à-vis commercial players in the market for the final product.
Similarly, the value-added accruing to genetic resources differs
widely, depending on whether the product is in the industrial
or agricultural sector.
One of the important factors in discussing rules concerning
IPRs and benefit-sharing in the seed sector has been transac-
tion costs. For seeds, the costs of establishing contracts between
hundreds or thousands of farmers and breeders, as well as
among breeders, often outweigh the cost of limiting the scope
of breeders’ IPRs.10
For the food or cosmetic industries, and the pharmaceu-
tical industry, other considerations are relevant in the search
for rules related to benefit-sharing. Owners of biological
resources, for example, may be able to find commercial players
who would act as partners in food or cosmetic industry fields
with relative ease. The strong bargaining power of resource-
owners in these sectors comes from the fact that there are many
commercial players, and the technological value-added for
Agreement and the CBD, and the protection of TK and folklore,
while pursuing its work programme under the review of Article
27.3(b).
Recently, developing countries have made proposals at the
WTO to add Article 29 to the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS Agreement)
with a view to obliging patent applicants to disclose the
country providing the resources and/or associated traditional
knowledge, if the subject matter of the patent is derived from
or developed with biological resources.8 The disclosure obliga-
tion is conceived of as a condition to granting a patent, with
an additional provision stating that patents will be revoked or
made unenforceable in the event of a failure to comply.
It is certainly necessary to prevent the plundering of biolog-
ical resources or of ideas couched in TK from developing
countries without appropriate reward. Patents are related to TK,
in as much as they are granted by virtue of novelty, inventive
step and industrial applicability. If biological resources and/or
related TK constitute prior art for the invention for which the
patent is sought, examiners should take this into account and
avoid granting erroneous patents. For this purpose, it is helpful
for TK to be documented.
One possible solution would be the creation of an interna-
tional database of TK.9 Applicants could also indicate in their
patent filing documents whether access conditions for biolog-
ical resources are fulfilled under the national laws concerned.
However, patent filings may not be the best means for
ensuring benefit-sharing. Patent laws regulate only patent
grant, validity and enforcement. Care should be exercised
to determine economically rational ways to ensure fair
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The Convention on Biodiversity (CBD) and Intellectual Property Rights
such technologies will never become profit-earning. The riskier
the pursuit of such success, the weaker the bargaining position
of the resource-owner.
The CBD sets out important principles for the use of biolog-
ical resources which favour developing countries. These princi-
ples should certainly guide companies and researchers to respect
the contribution of the biological resources of such countries
in their research and commercial activities. Rather than using
patent filings as a means to assure benefit-sharing, it would be
more rational to regulate ex ante the access conditions with the
principle of benefit-sharing. One could leave it up to the partners
of each research or commercial project to determine at what stage
this should happen in the process leading up to commercialisa-
tion, and how much should be paid in return to the providers
of biological resources. This mechanism should be elaborated
within the framework of the CBD, with a view to maximising
the opportunities for developing countries to contribute to local
R&D and to the economic development of their own countries.
National laws or regulations providing for the conditions of
access to genetic resources, TK of local communities or indig-
enous populations, or disclosure requirements in patent filing
already exist.11 Accordingly, the experiences gained from imple-
menting such legislation, as well as the studies elucidating the
mechanisms for introducing innovations based on the use of
genetic or biological resources, should be used to determine the
best methods for contributing to economic development and
innovation, both in the local communities and globally. This
would be a far better approach than trying to agree on a single
international rule on benefit-sharing among the complexities
of international economic activities.
commercialisation abroad may not be so high. The owners may
also have some idea of the true value of their resources because
their use in food/cosmetics/industrial production is relatively
similar to the traditional use.
In the pharmaceutical sector, by contrast, it may be more
difficult to design a satisfactory contract between resource-
owners and users. Owners of genetic resources may not be able
to assert strong bargaining power in relation to a small number
of market players who invest heavily in science and technology.
In addition, the low probability of pharmaceutical commercial
success by virtue of biological resources makes it difficult for
resource-owners to reap the benefit of their resources within a
short period of time. In these conditions, resource-owners have
no independent means to calculate the value of their resources.
In addition, information asymmetry often leads the owners to
believe their resources to have a higher value than claimed by
the users.
Furthermore, biological or genetic materials can increas-
ingly be substituted in drug research and development (R&D).
Although natural products have contributed to significant drug
discoveries in the past (such as aspirin from willow trees, peni-
cillin or statins from blue mould), this is no longer the case.
This further diminishes the value of biological resources.
For pharmaceutical companies, it may be more difficult
than for other industries to agree to heavy obligations through
disclosure of biological origins of unclear scope, with concom-
itant penalties based on patent law. During the long and
complex process leading from research to marketing, develop-
ment and approval of drug discoveries, numerous patents are
sought at a relatively early stage, with a high probability that
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A statutory research exemption for patents
and innovation and, as such, they are an important element for
innovation and economic growth.
However, studies also find that too much patenting may
deter research, development and innovation.2 In the fields of
biotechnology and pharmaceuticals, patents are often criti-
cised for being too broad with respect to potential follow-up
research on patented inventions. Concerns have been expressed
regarding cases where the necessary knowledge to conduct
further research on a problem is covered by a large number of
patents from different firms, and where too many dense and
overlapping rights might limit the access to patented inven-
tions. Such ‘patent thickets’ create situations where companies
must find their way through a dense web of overlapping IPRs
to actually commercialise a new technology.3 This can increase
transaction costs to a very high level. The huge number of
patents issued today and the tendency to apply for multiple
patents to cover one invention can induce hold-up problems
where a single product can potentially infringe many different
patent rights. The general problem is therefore to find the right
balance between incentives for research and access to patented
research at the same time.
A careful balance has to be struck between the incentives to
commercialise a first patent and the follow-up inventions that
could potentially create even further benefits to society. The
theory of patenting focuses on the inventor who is commer-
cialising the invention himself. The patent system provides an
incentive to the innovator to invest in research and develop-
ment (R&D). He has the exclusive right to commercialise the
invention with the help of patents. This view, however, does
not consider cases where the societal use of an invention is more
Finding the right balance between a reasonable level
of patent protection and innovation is a difficult
task for policymakers. In cases where protection is prohibiting
research on patented inventions, research exemptions could
provide the right policy mix for national innovation systems
and systems of Intellectual Property Rights (IPRs). The goal of a
research exemption is to enable fundamental and commercial
research. Its scope, however, is unclear, and there is no common
standard. The various forms of a research exemption and the
question of its definition in order to reach a socially optimal
level of innovation are discussed here both on the national and
international levels.1
More or less patent protection?A patent is a policy instrument, whose objective is to spur inno-
vation to a maximum beneficial level for society. Economic
theory postulates patents to facilitate diffusion of knowledge
1�
A statutory research exemption for patentsNikolaus Thumm
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A statutory research exemption for patents
greater the possibility that important research will not be carried
out. The general uncertainty of R&D demands for clear rules
on licensing of patent rights and for access to patented inven-
tions. These rules must also consider the danger of under-using
‘scientific commons’ relative to a social optimum. An effective
research exemption must be limited, it should not unreason-
ably conflict with the normal exploitation of the patent, and
it should not unreasonably prejudice the legitimate interest of
the patent user.
What it could look likeThe example of Switzerland illustrates the different interests
and issues to be taken into consideration when establishing
the right form of a statutory research exemption. It has been
common practice in Switzerland that acts of research do not
constitute infringements on patent-holders’ rights. Switzerland
has neither a statutory research exemption, nor are there any
court decisions on the issue. So in response to the concerns
over research hold-ups and as a precautionary measure in
order to serve the interests of researchers in Switzerland, a new
statutory research exemption has been included into the Swiss
draft version of the new patent law.
It had already become clear at the first public consultation
on the revised patent law in 2002 that the research exemption
was not commonly known in research circles. The necessity
for an explicit legal regulation also became evident. Further-
more, a survey of the Swiss biotechnology industry confirmed
concerns over access problems, especially in research related to
DNA patents and patents on methods for genetic testing.4
important than the benefit to the individual inventor. In such
cases, the individual use of patented research could prohibit
further research on the patented inventions because a license
is not provided, or because licensing fees themselves already
build a barrier for the potential further use of this invention.
Such cases are not only damaging to the follow-up inventor but
also to society as a whole.
The idea behind a research exemptionToo little protection of inventions can lead to free-riding and
causes underinvestment in R&D because of the loss of incen-
tives for these investments. A statutory research exemption is
therefore suitable to clarify problems of access to patent search.
But its establishment requires the careful consideration of
different interests.
Finding the right way to include a research exemption in
the patent system is difficult and its implementation can vary
from country to country. Other ways of facilitating access
to inventions for research purposes is through competition
policy or by using networks of open standards and ‘creative
commons’.
The ideal research exemption should provide access to
patented inventions for research while not limiting incentives
to invest in R&D. Its aim should be to provide greater clarity
for research and to avoid unnecessary rigidity. It should neither
unreasonably impede scientific development nor prohibit
investment in research. Nor does a research exemption mean a
substantial shift in the understanding and application of patent
law. The higher the transaction costs to set up research, the
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A statutory research exemption for patents
chain reaction is an essential procedure of gene technology that
allows small amounts of nucleotide sequences to increase. It
also allows for better approval and analysis of material and is
therefore an important tool for research in many laboratories.
In this case, the free use of the procedure could not be justified
under the new research exemption. The procedure is subject
to patent protection and its use requires the agreement of the
patent-holder.
Although there is no statutory exemption for research under-
taken with patented research tools, the Swiss proposal differs
from other statutory exemptions in that it guarantees access
to research tools through legal ‘non-reach-through’ licences.6
If the parties cannot reach an arrangement, the fees for such
licences should be fixed by a court. It is, however, expected that
the intervention of courts will not be necessary in practice and
will constitute a negotiation baseline that facilitates market
solutions.
Even if the invention is commercially oriented, the research
on the object of the invention can be exempted. What matters is
whether the research serves to reveal new knowledge about the
patented invention. This means, for example for genetic inven-
tions, that patented gene sequences can be used for research to
reveal further technical uses of the sequence, independent of
the purpose (commercial or non-commercial) of the research.
Hence, it could be revealed that the patented gene sequence
for insulin codifies for further proteins than the synthesis of
insulin in order to treat diabetics. These other proteins can
cover further potential uses that could be subject to addi-
tional patent protection. Science confirms that in many cases
a gene might codify for more than one protein. This makes the
As a consequence, in the ongoing patent law reform in Swit-
zerland and the current draft version of the patent law, policy-
makers are considering a statutory research exemption under
the general exemptions to patenting contained in Article 9.
The general purpose of the regulation is to serve research and
innovation and avoid negative influences of patenting on basic
research. Its provisions foresee several general exemptions, as
follows:
➤ Private use and non-commercial purposes;
➤ Use of the invention for teaching purposes;
➤ Use of biological material for the purpose of breeding or of
developing a plant variety;
➤ Biological material produced randomly or which is
technically unavoidable in the agriculture sector;
➤ Research and trials in which the invention is the object of
research.5
The latter is at the core of the statutory research exemption
and is regulated in Article 9.1(b) of the draft revision of the
law. The regulation concerns non-commercial research and
commercial research aimed at gaining new knowledge about
the subject matter of the invention. It also applies to the use
of patented inventions with the view of securing a marketing
authorisation for pharmaceutical products.
The exemption only covers research on patented inven-
tions where the patented invention itself is the object of the
research. The use of patented inventions as an instrument or
tool of research (research tools), on the other hand, such as
the polymerase chain reaction, is not covered. The polymerase
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A statutory research exemption for patents
the biotechnological and pharmaceutical industries. Too many
patents, or patents which are too strong, may sometimes lead
to hold-up situations, royalty stacking and other problems. In
such cases, the societal benefit of patents for innovation and
economic growth may be greatly reduced. Too much patenting,
or patenting which is too broad, in particular with genetic
information, is an additional risk. A properly designed research
exemption is therefore a useful tool to balance the IPR system.
The main difficulty in implementing legal exemptions for
research use of patented inventions lies in the definition of
the scope of the exemption. Allowing research ‘on’ a patented
invention versus research ‘with’ it is a general way of defining
a research exemption. Nevertheless, specific industries, such as
the biotechnology and pharmaceutical sectors, are expressing
concerns over accessing patented material for research purposes
that may not have been explicitly addressed by national patent
regimes.
Finding the right balance between incentives for research
and access to patented research at the same time is a difficult
policy task. Good intellectual property policy is not the same
as maximal IPRs. The patent system as it stands today does
not need overall re-organisation but rather continued fine-
tuning on the basis of existing regulations. Finding the correct
compromise between the interests of different stakeholders and
the overall benefit for society is a sensitive issue. To provide
a clearly defined statutory research exemption is one way to
guarantee the widest possible spread of publicly beneficial
scientific knowledge.
importance of a clearly defined research exemption for genetic
research evident.
In order to avoid monopolistic use of research tools and to
provide access to patented research tools, another regulation
in the new Swiss draft patent law (Article 9(a)) gives patented
inventions a non-exclusive licence. The right to a legal licence
provides a tool to avoid the abusive use of Material Transfer
Agreements wherever they limit the access to and the use of
biological material (reach-through licence). Article 9(a) provides
the right to claim such a licence before a court. This does not
consider, however, general contractual and competition regula-
tions.
The general understanding of the research exemption is that
it includes clinical trials proving the effectiveness and effects
of protected substances in drugs on humans. This includes
trials with the purpose of getting approval from the responsible
agencies of certain drugs (the so-called ‘Bolar’ exemption). The
commercial orientation of these activities does not prohibit
the research, and the production and storage of a patented
substance are allowed as long as they serve the purpose of
clinical trials and the drug approval process of Switzerland.
Whenever the production goes beyond a level that would
be justified for clinical trials or drug approval, it is no longer
covered by the research exemption. Production and storage
of substances before the expiry of the patent (stockpiling) is
understood to be prohibited under this research exemption.
ConclusionsPatents are important factors for innovation and especially in
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Patenting biotechnology
12�
When Europeans hear of patenting biotechnology,
their first thought is of the ethical concerns that
are expressed over patenting naturally occurring genes, or more
generally DNA1 or genetically modified higher life forms. Such
ethical concerns are largely restricted to Europe,2 and do not
feature much, for example, in the USA, where the concerns
associated with patenting biotechnology are rather different
and relate to the economic effects of such patenting.
Products and processes that relate to gene patents and genet-
ically modified animals are only a part of the biotechnology
landscape. Yet such patents have attracted more than their
fair share of attention, not only from academics and religious
organisations, but also from European legislators, who drafted
the Biotechnology Directive in the 1990s.3 Actually, much of
the investment in biotechnology and the majority of its sales
derive from therapeutic medicinal products. Typically, these
are large biological molecules, such as proteins (rather than the
genes which code for them), to which biotechnology patents
1�
Patenting biotechnologyTrevor Cook
are relevant. This is primarily because the therapeutic medicinal
product is in itself produced by biotechnological techniques,
or because biotechnology has identified the target on which a
small molecule therapeutic operates.
In the last few years artificial therapeutic proteins (such as
monoclonal antibodies) or modified proteins (such as long-
lasting or fast-acting versions of insulin) have come to represent
an increasing share of new drug introductions. These proteins
(and thus the genes which code for them) are artificial creations
that, in contrast to the first generation of therapeutic proteins,
have no existence in any form in nature. The first genera-
tion proteins were natural products, which the techniques
of biotechnology allowed to be produced in quantities that
permitted them, often for the first time given the tiny amounts
available in nature, to be used as therapeutics. The patent rights
over these first generation proteins, applied for in the 1980s,
are now starting to expire. In contrast to the first generation
proteins, the new ones raise no unique issues of patent law and
traditional patent law concepts, applicable to small therapeutic
molecules, can be valid.
Another economically significant aspect of biotechnology
patenting involves the therapeutic targets on which pharma-
ceuticals act and the research tools that are used in pharmaceu-
ticals research. The latter includes a wide variety of patented
products and techniques, such as naturally occurring genes
and genetically modified animals (such as that which was the
subject of the ‘Oncomouse’ case).4 Yet it is not the patents on
these that are the most economically significant to the pharma-
ceutical industry. Instead, biotechnology patents on the thera-
peutic targets on which pharmaceuticals act, typically receptors
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Healthy IPRs Patenting biotechnology
12�
in the body (which are often proteins, but only rarely genes),
are the most commercially important research tool patents.
Thus, in May 2006, a Federal District Court Jury in Boston
ordered Eli Lilly to pay Ariad Pharmaceuticals US$65 million
for infringing Ariad’s US patent on methods of modulating the
nuclear factor kappa B group of proteins. The Lilly products in
question were two small molecule therapeutics useful in the
treatment of sepsis. In other cases, the patented target has been
used in the research which led to the discovery of a therapeutic
medicinal product. Such a patent can therefore allow its owner
to secure rights over, or at least an interest in, the drug itself as
the downstream product of such research. In these cases, the
relief granted against the infringer of a research tool patent may
‘reach through’ to sales of the final product. In other words, the
licensing of the patent involves an element of reach-through
royalty calculated as a percentage of sales of the therapeutic
product that is the ultimate product of such research.5
Ethical concerns in EuropeAgainst such ‘real-life’ concerns associated with biotech-
nology patenting, the ethical issues that bedevil biotechnology
patenting in Europe may seem to be little more than a regional
curiosity. The concerns are born out of certain public policies
in European patent law as well as by the availability to activists
of the relatively cheap European Patent Office (EPO) opposition
procedure. This has been used, for example, in the Oncomouse
case, as a proxy for ethical objections not so much to the patents
themselves but to the underlying activities of such patents.
As a result, Europe experienced controversies over the
morality of ‘patenting life’ in the first wave of public policy
challenges to biotechnology patents. These challenges were
also reflected in the controversy during the 1990s over the
Biotechnology Directive, which eventually became law in 1998.
The legal basis for the controversies is a particular provision of
the European Patent Convention (EPC), which excludes from
patentability ‘inventions the commercial exploitation of which
would be contrary to ordre public or morality’.6 This apparently
innocuous provision was not included in the international
convention in order to establish ethical standards, but rather
to ensure that no supranational body, such as the EPO, could
impose external ethical standards on national jurisdictions.
However, it was subverted by the Biotechnology Directive so as
to impose such standards in the field of biotechnology. Article
6 of the Directive sets out a non-exhaustive list of exclusions,
namely processes for cloning human beings or for modifying
the germ line genetic identity of human beings, uses of human
embryos for industrial or commercial purposes, and ‘processes
for modifying the genetic identity of animals which are likely
to cause them suffering without any substantial medical
benefit to man or animal, and also animals resulting from such
processes’.
Hopes that this provision might resolve matters have proven
ill-founded. Controversy has now erupted over stem cell patents
and in particular the extent to which patents over stem cells
that derive from human embryos fall within the scope of the
Article 6 exclusion for ‘uses of human embryos for industrial or
commercial purposes’.7 So yet again there is a dispute in Europe
over patentability as a proxy for a more fundamental dispute
over the ethics of stem cell research, which has also featured
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Healthy IPRs Patenting biotechnology
12�
in controversy over the funding of such research from the EU
research budget. In contrast, one may criticise the approach
of the US government to the funding of such research, but at
least the controversy there is wholly separate from the patent
system.
Concerns about biotechnology patents and enhancing human health Continued focus in Europe on matters such as the ethics of
patenting stem cells is a distraction from the more fundamental
discussion about the effect of biotechnology patents on medical
research. It takes focus away from the potential impact on the
development of new therapeutic medicinal products (as in the
Ariad case discussed above) and on many other ‘real-life’ topics
of importance to public health, such as the development and
use of diagnostic tests. Although there are some worthy excep-
tions in Europe,8 most of these discussions are now taking place
in the USA and in international fora such as the Organisation
for Economic Co-operation and Development (OECD).
One example of a ‘real-life’ discussion on biotechnology
patents is the 2006 publication of the US National Research
Council’s Reaping the Benefits of Genomic and Proteomic Research:
Intellectual Property Rights, Innovation and Public Health.9 The
publication identifies differing types of biotechnology patents
and sets out a number of specific recommendations aimed
at striking a proper balance between, on the one hand, open
dissemination and access to scientific discoveries, and, on
the other, the protection of inventors’ rights with a view to
enhancing scientific progress and human health.
Some of these recommendations are indeed specific to the
situation in the USA. It is no secret that the USA has a less
rigorous approach to inventive step or obviousness than that
being applied in Europe, resulting in many more patents being
granted to gene sequences.10 The system also lacks the proper
experimental use defence employed in Europe, which allows
research into improving or validating diagnostic tests to be
undertaken without fear of infringing patents on such tests.
But as long as Europe continues to focus its attention on the
patent system as a proxy for disputes about the ethics of certain
types of biotechnological research, there will be few European
contributions to the real debate about biotechnology patents
and their role in public health.
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1�0 1�1
Patent wars and authorised generics in the USA: assessing the issues
In the USA, pharmaceutical manufacturers are often
characterised as innovators or imitators. Innovators
conduct research and development (R&D) activities; submit
New Drug Applications (NDAs) to the US Food & Drug Adminis-
tration (FDA); disseminate information about medical problems
and treatments to patients, physicians, pharmacists, and payers;
and sell brand pharmaceutical products. Imitators, on the other
hand, submit Abbreviated New Drug Applications (ANDAs) to
the FDA for generic versions of products when the exclusivity
for the brand products expire, and sell products, often through
telephone contact with wholesalers and pharmacies. Some
companies are both innovators and imitators. According to Rory
O’Riordan, President of the European Generics Association and
COO of Clonmel Healthcare, ‘big pharma is getting into generics
and generic houses are getting into drug discovery. Novartis, for
example, does everything – prescription originals, biopharma-
ceuticals and generics. Fixed definitions don’t work anymore.
They’re all pharma companies.’1 Innovator companies may
1�
Patent wars and authorised generics in the USA: assessing the issuesEmily Bishko Radel, Matthew Lowe and
Richard Rozek
offer generic products (i.e. generic versions of their own brands
and/or generic versions of brands sold by other companies).2
Likewise, imitator companies may engage in R&D and sell brand
products.3 Our focus is on the effects of an innovator company
offering a generic version of its brand product either through its
own affiliate or by licensing the rights to another company. We
refer to such a product as an authorised generic.4
Incentives for an imitator to enter still exist with authorised genericsProfit opportunities: Paragraph I, II, III, and IV certificationsIn 1984, Congress passed the Drug Price Competition and
Patent Term Restoration Act (Hatch-Waxman Act – see
Chapter 4) to both accelerate generic entry by imitators and
restore a period of exclusivity to innovative companies for
time lost while developing the brand product and waiting for
regulatory approval. Under this Act, the ANDA process was
established so that imitator companies could obtain approval
by establishing bioequivalence to a reference product, i.e.
the brand product. Imitators are able to obtain approvals
of generic versions of products in a shorter period of time
and at lower costs. They can therefore begin to prepare the
regulatory materials when the reference brand product is still
subject to exclusivity.
The profit incentive for generic entry continues to exist even
with the availability of authorised generics. There are two paths
an imitator company can take when filing an ANDA to enter
the marketplace with a generic version of an existing brand
product. It can:
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Patent wars and authorised generics in the USA: assessing the issues
1 wait until the patent or other forms of exclusivity for the
brand product expire; or
2 challenge the validity of the patent covering the brand
product or claim that its generic version does not infringe
the patent. 5
In the former case, multiple generic sellers may enter the
marketplace at the same time. Even though multiple generic
versions of the brand product may become available simultane-
ously, each generic seller has an incentive to submit an ANDA.
Authorised generics do not deter imitator companies from
launching their products.
In the latter case, some policymakers are concerned that the
incentive for imitator companies to challenge patents covering
brand products are reduced due to competition from an author-
ised generic entering the marketplace during the 180-day period
associated with a successful patent challenge. Such an effect is
unlikely. Imitator companies continue to have profit incentives
to submit ANDAs with Paragraph IV certifications and sell the
associated products along with the authorised generics. It is
clearly beneficial for them to do so, as the following examples
show:
➤ One commentator recently estimated that ‘branded
products coming off patent are valued at over US$27 billion
in 2007 and US$29 billion in 2008.’6
➤ A study commissioned by the Generic Pharmaceutical
Association (GPhA) presents a hypothetical example
of the reduction in total profits to the ANDA filer from
an authorised generic.7 Even though the GPhA cost
assumptions may be overstated, the total profits to the
ANDA filer remain positive. The availability of profits
suggests that entry will not be discouraged.
➤ When Apotex Corporation (Apotex) launched
paroxetine (the generic version of Paxil®) in September
2003, it competed against an authorised generic that
GlaxoSmithKline had licensed to Par Pharmaceutical
Companies, Inc. (Par).8 Apotex was still able to earn
revenues of US$150 million for paroxetine.9 These revenues
represent 750% of the cost assumptions in a hypothetical
example presented in the GPhA Study (i.e. US$20 million
to enter, litigate, and begin production) and 1,500% of
the upper bound cost estimate presented by Johnson
& Johnson (i.e. litigation costs for the ANDA filer in a
Paragraph IV matter is in the range US$5–10 million).10
➤ The availability of authorised generics has not discouraged
companies from filing ANDAs. From 2 March 2004 through
14 September 2006, over 200 ANDAs have been submitted
to the FDA with a Paragraph IV certification.11
➤ Imitator companies pursue many products simultaneously,
filing multiple ANDAs with the FDA. For example, ‘as of
2 August 2006, Teva Pharmaceutical Industries Ltd [Teva]
had 148 ANDAs filed with the FDA, representing over
US$84 billion annually in brand value. Teva believes that
46 ANDAs, with a brand value of over US$35 billion, have
first-to-file status, which permits an initial 180 days of
marketing exclusivity.’12 The risk of entry by an authorised
generic has not kept Teva from filing over 30% of its ANDAs
through Paragraph IV certifications.
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Patent wars and authorised generics in the USA: assessing the issues
Table 4 Comparison of the median and mean returns on net sales for 10 innovator and 10 imitator pharmaceutical companies in 2005
Innovatorcompanies Returnonnetsales(%)
GlaxoSmithKline PLC 22Merck & Co. Inc. 21Johnson & Johnson 21AstraZeneca PLC 20Novartis AG 19Bristol-Myers Squibb Co. 16Pfizer Inc 16Roche Holding AG 16Abbott Laboratories 15sanofi-aventis 8Median 1�Mean 1�
Imitatorcompanies Returnonnetsales(%)
Barr Pharmaceuticals Inc.1 26Biovail Corp 25Alpharma Inc. 24Forest Laboratories Inc. 2 24Teva Pharmaceuticals Industries Ltd. 20Mylan Laboratories Inc. 2 15IVAX Corp 3 11Merck KGaA 11Watson Pharmaceuticals Inc. 8Andrx Corp 6Median 1�Mean 1�
Note: innovator companies represent companies who largely sell brand products; imitator companies represent companies who largely sell generic products. 1 Represents fiscal year ending �0 June 200�. 2 Represents fiscal year ending �1 March 200�. � Represents 200� data. Data for 200� are not available due to IVAX being acquired by Teva Pharmaceutical Industries Ltd. Source: Bloomberg Professional
➤ Innovators and imitators are profitable. Using data from
Bloomberg Professional, we calculated the ratios of net
income to sales for ten leading innovator companies and
ten leading imitator companies for 2005. The medians of
the return on sales for both groups are equal.13 See Table 4.
New entrants are emergingThe availability of authorised generics has led to new entrants
emerging in the pharmaceutical industry. Companies are iden-
tifying profit opportunities in the generic market segment and
responding. For example, Prasco adopted a business model
focused on becoming the seller of authorised generics. Its
current product list indicates that it sells authorised generic
versions of seven brand products.14 This type of entrepreneurial
effort is pro-competitive.
Established companies are seeking licenses to sell authorised genericsEstablished generic manufacturers such as Mylan, Barr Phar-
maceuticals, Inc. (Barr), Par, Watson Pharmaceuticals, Inc.
(Watson), Teva,15 and Andrx Corporation have become sellers
of authorised generics under licenses from the innovators.16
These companies find it in their interests to file ANDAs for
some products and sell authorised generics of others.
The US Court of Appeals for the Second Circuit denied a
consumer group’s request for a rehearing in a case in which
the innovator (AstraZeneca Pharmaceuticals LP) licensed an
imitator company (Barr) to sell an authorised generic version
of its brand drug, Nolvadex® (tamoxifen citrate).17 Bruce L.
Downey, Chairman and CEO of Barr, said, ‘we are pleased that
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Patent wars and authorised generics in the USA: assessing the issues
our patent challenge settlement related to tamoxifen itrate has
been upheld as being pro-consumer and pro-competitive’.18
Patients and payers benefit from authorised genericsLower pricesIn the absence of an authorised generic, the first entrant
typically sets a price for its generic product at about 90–95%
of the price of the brand product. As subsequent generic entry
occurs, the price for generic products is reduced further as
the imitator companies compete for market share.19 The FDA
reported that ‘the entry of the second generic competitor [is]
associated with the largest price reduction’ as it decreases the
average generic price from 94% to 52% of the brand price.20 The
availability of two generic entrants (i.e. the ANDA filer and the
authorised generic) lowers the price of generic products to cash
patients and other payers (private or public insurers).
Access to new and improved pharmaceutical productsInnovators use retained earnings from successful pharmaceu-
tical products to fund R&D for new products to meet unmet
medical needs. In general, development of pharmaceutical
products is a long and costly effort. Investing in pharmaceu-
tical R&D projects is risky, time-consuming, and expensive.
On average, only 5 of every 5,000 compounds evaluated in the
basic research phase enter into clinical trials, and only 1 of these
5 products ultimately receives FDA approval for marketing in
the USA.21 The development process for New Chemical Entities
(NCEs) takes 10 to 15 years,22 and costs an average of US$802
million.23 One study found that only 3 of every 10 approved
pharmaceutical products had sales that exceeded the average
after-tax development costs of a new product.24
To encourage innovators to continue bearing the risks and
making investments in pharmaceutical and biomedical R&D,
public policy in the USA must continue to preserve the intel-
lectual property system (i.e. laws regarding patents, copyrights,
trademarks, and trade secrets). It is this system that allows
an innovator to actively manage a pharmaceutical product’s
life cycle (even after patent expiration), which is integral to
preserving the incentives for the innovator to invest in R&D.
Likewise, imitator companies embrace authorised generics
as a means of protecting the intellectual property resulting
from their own innovative activities. Barr recently launched
an authorised generic version of its brand oral contraceptive
product, Seasonale®, after another company launched a generic
version of the product.25 Barr’s Bruce L. Downey said, ‘it is our
obligation to preserve our rightful interests in this product’.26
Multiple participants in the pharmaceutical industryPolicymakers have been concerned over the costs for health-
related expenditure including pharmaceutical products.27 In
assessing the expected economic impact of proposed changes
in policy, it is important to consider all of the participants in
the US healthcare system. The vertical structure of the market-
place for selling pharmaceutical products includes the following
participants:
➤ manufacturers (innovators/imitators);
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Patent wars and authorised generics in the USA: assessing the issues
➤ wholesalers or distributors (local, regional, and national);
➤ retailers (e.g. chain and independent pharmacies),
hospitals, and federal facilities;
➤ third-party payers (private and public);
➤ physicians;
➤ patients.
When you consider this complex structure, it becomes clear
that addressing reform efforts at the activities of manufacturers
alone may not reduce costs to patients and the healthcare
system generally.
The Pharmaceutical Research and Manufacturers of America
(PhRMA) and GPhA commissioned studies to assess the impact
of authorised generics on pharmaceutical prices. The PhRMA
Study concluded that ‘at the outlet level [price to a pharmacy,
clinic, etc.] the generic discount to brand [during the 180-day
exclusivity period] is about 16 percentage points greater than
comparable examples without an authorised generic’.28 The
GPhA Study ‘used exactly the same set of drugs as in the PhRMA
study, in order to maintain consistency and for comparison
purposes’.29 Additionally, the GPhA Study relied on ‘retail level
prices from IMS National Prescription Audit, i.e. consumer prices
rather than wholesale prices used in the PhRMA study … ’30 The
GPhA Study found that ‘using the PhRMA approach, discounts
from retail prices averaged 15% in the no-AG sample, and 20%
in the AG sample, with a difference of about 5% – much lower
than the 15.8% figure arrived in the PhRMA study’.31 These
studies reveal an interesting fact about the price of pharma-
ceutical products. While the wholesale prices are lower with
authorised generics (relative to brand prices), this discount is
reduced at the retail level.
This result is consistent with other pricing analyses conducted
in the pharmaceutical industry. For example, in analysing
albuterol metered-dose inhalers (an asthma medicine), we found
that retailers’ mark-ups on acquisition cost for brand albuterol
inhalers to cash payers, Medicaid payers and insurance payers
were, on average, 28.8%, 28.8% and 14.4% respectively. In
contrast, retailers’ mark-ups on generic albuterol metered-dose
inhalers to cash payers, Medicaid payers, and insurance payers
were, on average, 363.3%, 234.5%, and 234.5% respectively.
While manufacturers charge lower prices for generic products
relative to brand products, the subsequent mark-ups on generic
products are much higher and reduce the benefit to patients
and the healthcare system generally.32
Payers and policymakers concerned about pharmaceutical
prices should focus on all participants in the vertical distribution
chain if they want to control costs. Regulating retailers’ mark-
ups is not necessarily the appropriate policy response. Relying
on competition among retailers will likely erode margins. For
example, Wal-Mart recently announced a pilot programme
to sell generic prescription pharmaceutical products for US$4
per prescription (up to a 30-day supply).33 Similarly, Kmart is
offering a 90-day supply of generic prescription pharmaceutical
products for US$15 per prescription.34 As companies compete for
revenues, patients should be informed of differential pricing at
the retail level (i.e. as with other purchases, they should ‘shop’ to
find the lowest prices for prescription pharmaceutical products).
Competitive initiatives such as the Wal-Mart and Kmart
programmes will contribute to controlling healthcare costs.
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1�1
Conclusion Currently, some policymakers in the USA are suggesting the
activities of the innovative companies to prohibit them from
entering into the generic market segment should be constrained,
claiming that this practice undermines competition and raises
prices for patients. Based on this analysis, we conclude that
the use of authorised generics is not anti-competitive: substan-
tial profit incentives for generic entry still exist. Authorised
generics create entry opportunities for new companies and
create licensing opportunities for existing imitator companies.
Moreover, authorised generics generate substantial benefits
for the healthcare system as they reduce costs to patients and
payers, and provide resources for innovative companies to
invest in R&D, resulting in the availability of new and improved
pharmaceutical products. Payers and policymakers concerned
about healthcare costs should expand their focus to the activi-
ties of all participants involved in creating, selling and distrib-
uting pharmaceutical products, i.e. wholesalers and pharmacies
as well as manufacturers, to identify potential cost savings.
It is a well-recognised fact that Intellectual Property
Rights (IPRs) are the main catalysts in furthering the
development of most – if not all – new pharmaceutical products.
The product market exclusivity deriving from the combined
effect of patents, Supplementary Protection Certificates (SPCs)
which extend the basic patent term, and the protection of
confidential test data (data exclusivity) are essential incen-
tives to develop new medicines. This is because of the unique
features of pharmaceutical products, which are the result of
processes that are long, risky and costly, but nonetheless easy
to copy. Incentives to drug development must therefore ensure
an effective exclusivity which is long enough both to enable
the remuneration of the innovator and to allow it to fund new
research and to compensate for the cost of failed research.
In most cases, a pharmaceutical product includes one
substance that is active in treating a disease. However, there
are an increasing number of pharmaceutical products already
available to patients or under development that combine
1�
IPRs and the support for biomedical innovation: the case of combination products in EuropeManuel Campolini
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IPRs and the support for biomedical innovation
two – or more – substances. Their combination into a single
product could result in an improved or even completely new
therapeutic effect. These ‘cocktail drugs’, which often require
extensive research and clinical trials, are routinely defined as
‘combination products’.
Even if the relevant patent or SPC protection and data exclu-
sivity have expired for the individual substances included in
a combination product, the SPC and the data exclusivity may
be available for the combination itself. This seems relatively
obvious for the combination of two active substances when
each of them has its own therapeutic effect. Yet, recent devel-
opments have questioned the scope of protection in borderline
situations and led to the conclusion that innovative devel-
opments, which are often crucial to patients, are not always
adequately protected. This chapter will briefly examine this
issue in relation to combination products.
The Supplementary Protection Certificate (SPC)The SPC is an IPR which allows for the extension of a patent
protection for a pharmaceutical product of a maximum period
of 5 years and was introduced in the EU by Regulation No.
1768/92. It aims to compensate for the time lost (8 to 12 years)
between the initial patent filing and the marketing approval of
the substance as a medicinal product. This situation deprives
innovators of the benefit of a 20-year period of effective exclu-
sivity. It is therefore an important legal tool that promotes
biomedical research in the European Union (EU).
The importance of the SPC can be illustrated by the following
example. The Massachusetts Institute of Technology (MIT) is
the holder of a European patent covering a substance called
polifeprosan, which was developed to provide a biodegrad-
able matrix for use in biomedical applications, in particular
for the controlled release of active substances in vivo. Gliadel
7.7mg Implant is a medicinal product that integrates this MIT
technology. It is a new formulation of the off-patent active
ingredient carmustine, combined with polifeprosan, which is
indicated for the treatment of recurrent brain cancers.
Carmustine was used in other pharmaceutical products previ-
ously approved in the EU. However, despite the fact that on its
own polifeprosan has no therapeutic effect, its combination
with carmustine allows the controlled release of the latter active
ingredient at higher but still constant doses. Gliadel therefore
substantially improves the therapeutic effect of carmustine,
and consequently the life expectancy of patients.
Gliadel has been registered in the UK, France and Germany.
It should be noted that due precisely to a long development
time, the MIT patent provided a short period of effective exclu-
sivity for Gliadel, i.e. around 8 years. An additional 5 years SPC
may therefore constitute a key feature of such product develop-
ment.
No SPC can be granted to carmustine as it is an off-patent
molecule. But could an SPC be granted to the patented new
formulation?
Put simply, a SPC may be granted to a product protected
by a basic patent that has been subject to a first marketing
authorisation as a medicinal product. Regulation No. 1768/92
defines a product as the ‘active ingredient or combination of
active ingredients‘, and a medicinal product as ‘any substance
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IPRs and the support for biomedical innovation
or combination of substances’ produced for the treatment or
prevention of disease in human beings or animals. The concept
of ‘active ingredient’ is not defined in the Regulation.
The MIT applied to the UK, French and German patent offices
for SPC. While the UK and French patent offices granted the
SPC, the German patent office decided that the SPC could not
be granted for Gliadel because the combination of carmustine
and polifeprosan could not be considered as a product within
the meaning of Regulation No. 1768/92 (since polifeprosan is
not an active substance having its own therapeutic effects).
The MIT lodged an appeal against this decision, arguing that
polifeprosan is neither an excipient (non-active substance) nor
a mere auxiliary component, but an essential component of
Gliadel.
Finally, the competent German Court asked the European
Court of Justice (ECJ) for a preliminary ruling on the issue.
The Advocate General then referred to the objectives of Regu-
lation No. 1768/92, which notably addresses the importance
of continuing improvement of public health, and requires
sufficient legal protection to be granted to innovations that
also provide an increased therapeutic efficacy or a reduction of
side effects, and more generally the significant enhancement
of existing active substances. He stated that ‘the combination
at stake represents a major innovation, resulting from long,
costly research, which the regulation is precisely seeking to
protect’. The absence of an SPC ‘would be likely to discourage
research centres located in the Member States from investing in
the development of medicinal combinations such as the one
at stake’.
Based on these policy considerations, the Advocate General
was favourable to granting an SPC for Gliadel. More specifically
he considered that ‘it is … the necessity of the excipient to
the therapeutic efficacy of the active ingredient that must be
the determining factor in ascertaining whether a combination
of these two substances is covered by ‘combination of active
ingredients of a medicinal product’. However, the ECJ rejected
this interpretation and considered that no SPC could be granted
as Regulation No. 1768/92 implicitly requires the combination
of two active substances.
This decision raises the issue of the validity of several SPCs
already granted by national patent offices in similar circum-
stances. More importantly, the decision may have unfortu-
nate negative implications – mainly for patients – in terms of
biomedical R&D. But does this mean that such products are left
without SPC and with only a limited period of patent protec-
tion? And what about data exclusivity?
Data exclusivityData exclusivity is the protection granted to the scientific dossier
submitted by an innovative company to obtain a marketing
approval for its new product. This dossier aims to demonstrate
the quality, safety and efficacy of the new product. It includes,
amongst other things, the results of costly clinical trials which
take several years to be completed. Data exclusivity means that
during a specific period of time (ten years in the EU) the generic
companies cannot market their copy products by relying on
the dossier of the innovative company. Because of the substan-
tial costs and delays involved in the process, generic companies
simply wait for the expiry of the relevant protection period
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IPRs and the support for biomedical innovation
and then refer to the originator’s full dossier. This means they
can enter the market after the expiry of the ten-year period.
Therefore, data exclusivity indirectly results in a protection
granted to the innovator’s product.
In practice, data exclusivity plays a crucial role in protecting
medicinal products for which patent/SPC protection is not
available, is weak or is too short due to lengthy development
periods. It should be remembered that data exclusivity was
introduced in the late 1980s when the protection of biotech
inventions (and research) was not completely secured in the EU.
It was therefore construed as a general safety net. The under-
lying rationale is the promotion of biomedical research and
the benefit to the patient through the granting of an effective
protection to valuable – and sometimes life-saving – medicines
that would otherwise not be developed. In the case of combina-
tion products, such as Gliadel, data exclusivity may at first sight
be an appropriate tool to ensure a more acceptable period of
market protection.
The new EU legislation does not include an explicit provision
dealing with the granting of data exclusivity to combination
products, but the European Commission position is that a new
‘combination’ medicinal product should have an independent
period of data exclusivity. There is, however, little doubt that
the Commission has in mind a fixed combination of two active
substances. Does this mean that combination products such
as Gliadel cannot benefit from data exclusivity? The answer is
not clear.
The revised EU pharmaceutical legislation has introduced
a new concept of Global Marketing Authorisation, which
generally prevents a pharmaceutical company from benefiting
from data exclusivity on improvements proposed on its own
original products. However, the granting of data exclusivity
does not seem to be excluded when such a development is
proposed by a company that is not the holder of the original
product. That being said, the rationale for such a disparate
and unsatisfactory treatment would require a further in-depth
analysis.
ConclusionThe standard explanation for the shortcomings of current SPC
legislation is that the EU law on the matter is general and cannot
take into account the details of every situation. However, this
type of issue also largely reflects the general restrictive approach
of the EU authorities when medicinal products are at stake.
There is very little doubt that, if accepted, the sound proposal
of the Advocate General would certainly not have been at odds
with the general case law of the ECJ. The proposal was based
on the objectives of the SPC Regulation No. 1768/92, i.e. the
promotion of research and development (R&D), and was ulti-
mately the interest of European patients. It would certainly not
have been the first time the Court had imposed the fulfilment
of the clear objectives surrounding legislation on a narrow
interpretation. Similar comments could apply to the implica-
tions for data exclusivity.
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Supplementary Protection Certificates (SPCs)
Supplementary Protection Certificates (SPCs) have
been part of the European pharmaceutical legisla-
tive regime for over thirteen years. It would therefore seem to
be an appropriate time to review how they are operating. This
chapter sets out the history and development of SPCs and looks
at current issues relating to their implementation.
HistoryThe subject of SPCs is closely linked to the idea of patent life
extension. The problem with pharmaceutical patents is that
delays in marketing authorisation, including the required
clinical trials, can lead to the product not being marketed until
a substantial portion of the patent term has elapsed. Marketing
(regulatory) approval, including clinical trials, usually takes
between 8–12 years to obtain, but there are cases where the
entire term of the patent has elapsed before marketing approval
has been granted. As pharmaceutical companies rely on patents
1�
Supplementary Protection Certificates (SPCs)Conal Clynch
to recoup their extensive research and development (R&D)
investments, the industry has long argued that the life of the
patent should be extended.
In the UK, ‘Prolongation for inadequate remuneration’ was
a feature provided by section 23 of the 1949 Patents Act. Exten-
sions were normally for up to 5 years (in addition to the then
16-year normal term), but could be as long as 10 years. The
European Patent Convention (EPC), on the other hand, which
introduced the European Patent, had no such provision and
hence patents governed by the EPC could only last for 20 years.
So when the UK Patents Act of 1977 implemented the provi-
sions of the EPC this special feature of prolongation for inad-
equate remuneration was no longer part of UK patent law.
The USA reacted to the concerns of the pharmaceutical
industry by introducing the Drug Price Competition and
Patent Term Restoration Act of 1984 (the ‘Restoration Act’),
which allowed for a maximum extension of five years. Japan
followed suit in 1988 and hence there was pressure on Europe
to introduce similar legislation. Indeed, because of the delays
in agreeing on a European system, France and Italy introduced
their own systems prior to the European one being estab-
lished.
The RegulationCouncil Regulation (EEC) No. 1768/92 of 18 June 1992
concerning the creation of a SPC for medicinal products (the
SPC Regulation) entered into force on 2 January 1993. The
rationale behind its creation was to harmonise EU law in the
area. Under the SPC Regulation an SPC may be granted to an
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Supplementary Protection Certificates (SPCs)
eligible pharmaceutical product that is subject to patent protec-
tion. In other words, the subject matter of an SPC is the patent-
protected product. This differs from the US Restoration Act and
similar practice in Japan, where it is the patent itself which is
extended. Some of the problems related to SPCs are in fact due
to this difference, as well as to practical considerations where
the patent is owned by one company and the SPC by another
(this is dealt with in more detail in the section on implementa-
tion problems below). Although the European system has led to
some complications, it is nevertheless the fairer of the two. This
is because an SPC is related to the marketing approval process
of the product itself, which is the raison d’être for the extension.
Therefore, it is more equitable to increase the term of exclu-
sivity of the product than that of the whole patent (which may
cover a lot more than the product that has been approved).
SPCs have to be applied for separately in each Member State
of the European Economic Area (EEA) in which protection is
required and their effects are limited to the territories of the
Member States in which they are granted. This is necessary
because SPCs cannot exist independently of the patents on
which they are based, and all such patents have an intrinsically
territorial nature.
The Regulation stipulates the conditions which must be
fulfilled for an SPC to be granted, as well as the effects and term
of such certificates. SPCs can be granted if:
➤ the product is protected by a basic patent in force;
➤ a valid authorisation has been granted to place the product
on the market as a medicinal product;
➤ the product is not already the subject of a SPC;
➤ the marketing authorisation is the first in the Member
State.
The SPC system seeks to strike a balance between all parties
concerned. The Regulation in Recital 9, for example, makes it
clear that this includes not only the pharmaceutical industry
but also public health concerns:
Whereas all the interests at stake, including those of
public health, in a sector as complex and sensitive as the
pharmaceutical sector must nevertheless be taken into
account; whereas, for this purpose, the certificate cannot
be granted for a period exceeding five years; whereas
the protection granted should furthermore be strictly
confined to the product which obtained authorisation
to be placed on the market as a medicinal product.
Article 13 of the Regulation defines a formula to establish
the term of any certificate that an applicant may be entitled to.
Effectively, an SPC is available when the marketing approval
is granted five or more years after the filing date of the patent,
and its duration is for a period of time corresponding to how
long after that five-year point the approval was granted, up to a
maximum of five years.
The Regulation has been subject to a number of amend-
ments, especially as new Member States have joined the EC.
Regulation (EC) No. 1610/96 of 23 July 1996, which entered
into force on 8 February 1997, created a similar SPC right for
plant protection products (such as pesticides and herbicides)
which also are required to undergo similar approval.
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Supplementary Protection Certificates (SPCs)
The paediatric medicines RegulationThe European Parliament recently agreed a Regulation on
paediatric medicines which will affect the duration of some
SPCs. The Regulation entered into force on 26 January 2007
and will extend SPCs available for paediatric medicines by
six months. The reason for introducing this legislation was
to make sure tests are carried out to guarantee the suit-
ability of medicines for children. Traditionally, pharmaceu-
tical companies have been reluctant to do this work as they
consider the size of the paediatric medicines market to be too
small to justify the expenses involved. The new Regulation,
however, obliges them to undertake the necessary testing and
grants them, as compensation, a six-month extension to the
relevant SPC(s).
This Regulation is similar to legislation introduced in the
USA in 1997 and 1998, and aims to ensure that Europe will
remain competitive and has comparable standards and research
on paediatric medicines.
Implementation problemsDespite some problems (some of which have resulted in refer-
ences to the ECJ), it seems the SPC legislation is generally
perceived to be working effectively across Europe.
Most issues have arisen from two distinct factors. First,
whilst Regulation No. 1768/92 seeks to provide a common legal
framework across the EC, it depends on national intellectual
property offices to administer it. Since the Regulation cannot
cover all eventualities, it has to rely upon the procedural provi-
sions of national law corresponding to the basic patent. This
will inevitably lead to differences in its interpretation between
different countries.
Secondly, when the Regulation was first enacted, the legisla-
tors had in mind a relatively simple linear model of the phar-
maceutical industry, with the patent-holder being both the
manufacturer and seller of the pharmaceutical product and
thus also the holder of the SPC. However, the real situation has
proved much more complex. For example, licensing agreements
can exist between different companies for the same product,
and these can differ in different countries. Moreover, multiple
patents belonging to a number of separate patent-holders may
relate to the same active ingredient. Patent pendency periods
and delays in issuing marketing approvals have in some cases
proved to be far longer than the original legislators anticipated.
Some of these issues were resolved through subsequent legisla-
tion when the Plant Protection Regulation was enacted, but for
others, the interpretation of the Regulation depends on case
law.
Given the transnational nature of the Regulation and its
economic importance, a further amendment of the Regulation
to reflect the decisions of the ECJ and the current state of the
pharmaceutical sector might be of benefit. However, this would
require a new proposal from the Commission.
One example of differences in interpretation of the Directive
concerns a recent ECJ judgement in Case C-431/04 (Massa-
chusetts Institute of Technology). This ruling clarified that
SPC Regulation No. 1768/92 does not apply to products which
combine an off-patent active substance with a substance that
has no therapeutic effect on its own (usually referred to as an
‘excipient’). This judgement relates to the interpretation of
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Article 1(b) of the Regulation, which defines a product as ’the
active ingredient or combination of active ingredients‘. The
article was interpreted differently by the Member States and
the judgement was notable in that the opinion of the Advocate
General (and the Commission) was not followed by the court.
The result is a situation where patents for these inventions will
be granted but no corresponding SPCs will be available. As SPCs
are intended to promote and reward pharmaceutical research,
there is concern that this important area of research will be
neglected. Revision of Article 1(b) of the Regulation could
therefore be considered, so as to allow for the combination of an
active ingredient and an inactive so-called carrier ingredient.
ConclusionSPCs serve to foster innovation in Europe’s pharmaceutical
sector by compensating companies for losses suffered due
to delays in receiving marketing approval. In doing so, they
ensure that Europe remains competitive vis-à-vis other innova-
tive economies such as the USA and Japan. Similarly, the intro-
duction of paediatric medicines legislation aims to ensure that
much-needed research takes place into the effects of medicines
on children. The extension of SPCs will serve to incentivise this
work.
Although there have been some problems relating to the
implementation of the Regulations, the system works well
in general. It is nevertheless in need of updating to maintain
the correct balance between the different stakeholders and to
further encourage innovations in the pharmaceutical and plant
protection areas.
Chapter 1 IPRs, pharmaceuticals and Foreign Direct Investment 1 The views expressed are those of the author and do not
necessarily reflect those of the Organisation for Economic
Cooperation and Development (OECD) or its Member
Countries. The author thanks OECD colleagues Valérie
Paris, Sébastien Miroudot and Christina Sampogna for
their suggestions and Mounira Nakaa for her assistance in
accessing certain FDI data.
2 For example, in the OECD area from 1994 to 2003 the
pharmaceutical sector had the highest growth rate of any
sector with respect to manufacturing trade (13.5% annual
growth versus an average of 5.8% for manufacturing as a
whole − OECD (2005), Science, Technology and Industry
Scoreboard, Paris). Manufacturing trade refers to exports plus
imports.
3 Park, W., and D. Lippoldt (2005), ‘International Licensing
and The Strengthening of Intellectual Property Rights in
Developing Countries During The 1990s’, OECD Economic
Studies, Vol. 40, Paris.
Notes
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Notes
4 These include copyright and related rights, trademarks,
geographical indications of origin, industrial designs, patents,
layout-designs of integrated circuits, and protection of
undisclosed information.
5 See WTO ‘TRIPS and Pharmaceutical Patents’, Fact Sheet,
Geneva, September 2006, available at: http://www.wto.org/
english/tratop_e/trips_e/factsheet_pharm00_e.htm for more
on TRIPS and pharmaceutical patents.
6 Balance is required in IPR policy since overly stringent
protection could in theory confer excess market power
(e.g. from patents that are too broad), thereby diminishing
competition and encouraging some IPR holders to continue
exploiting existing innovations while postponing new
innovation efforts.
7 For example, pharmaceutical expenditure on R&D is the
equivalent of about 22% of value added, whereas the figure
for manufacturing as a whole is 7% − OECD (2005).
8 A ‘lasting interest’ is defined as investment to obtain a share
of 10% or more of the voting power in the foreign enterprise
− OECD (2006), International Investment Perspectives, Paris,
p. 20.
9 One US study found that the average total cost for
development of a new drug in the late 1990s was US$897
million and that the average development costs had increased
5.8 times in constant dollars between the 1970s and the
1990s. The increase in costs was attributed in part to R&D
expenses and, in particular, clinical testing costs (which the
study estimated as rising 8.6 times during this period). Tufts
Center for the Study of Drug Development, ‘Total Cost to
Develop a New Prescription Drug’, press release, 13 May 2003;
and Psychiatric News, 1 August 2003, Vol. 38 No. 5.
10 OECD (2006) Innovation in Pharmaceutical Biotechnology:
Comparing National Innovation Systems at the Sectoral Level,
Paris.
11 A World Bank assessment found that government policies to
promote technology transfer via FDI have a greater likelihood
of success if they focus on boosting incentives to source
locally (e.g., by helping local suppliers to adapt) rather than
through regulation directly mandating technology transfer.
World Bank (2006) Global Integration & Technology Transfer,
B. Hoekman and B. Smarzynska Javorcik (eds.), Washington,
DC.
12 In Singapore during 2005, GlaxoSmithKline announced
a US$100 million facility expansion and Pfizer opened
a US$350 million plant – Pharmabiz, ‘New policies spur
pharma, biotech growth in Singapore’, 14 April 2005, posted
on-line at www.pharmabiz.com
13 As Carlos A. Primo Braga and C. Fink point out in ‘The
Relationship Between Intellectual Property Rights and
Foreign Direct Investment’, Duke Journal of Comparative
and International Law, Vol. 9, pp. 163ff, 1998 (http://www.
law.duke.edu/journals/djcil/articles/djcil9p163.htm),
the choice of whether and where to invest depends on
locational advantages (including IPR protection) of the home
and foreign markets and the profitability of internalising
production or selling or licensing the technology to another
firm that is active in the market.
14 In a 2003 survey on investment issues affecting the world’s
largest 1,000 firms, the consulting firm A. T. Kearney asked
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Notes
business leaders to characterise the most critical risks to their
corporations as they invest abroad. At the top of the list were
government regulations, country financial risk, currency
risk, and risk of political and social disturbances (each of
which were cited by 60% or more of respondents). Theft of
intellectual property was cited by 17% of the respondents and
ranked 12th on the list of concerns.
15 An article in FDI Magazine (‘Pharma pulls in $15bn’, 12 April
2005, on-line) lists the top ten locations for pharmaceutical
FDI projects during January 2002 to February 2005: USA
(52 projects), China (44), India (30), Ireland (29), Spain
(27), Canada (27), UK (23), Singapore (23), Brazil (22) and
Germany (18).
16 Smarzynska, B. (2002), Composition of Foreign Direct Investment
and Protection of Intellectual Property Rights: Evidence from
Transition Economies, The World Bank, Working Paper Series
No. 2786, http://econ.worldbank.org/files/12031_wps2786.
17 Mansfield, E. (1994), ‘Intellectual Property Protection, Foreign
Direct Investment, and Technology Transfer’, International
Finance Corporation Discussion Paper No. 19.
18 Lee, J.-Y. and E. Mansfield (1996), ‘Intellectual Property
Protection, Foreign Direct Investment and Technology
Transfer’, Review of Economics and Statistics, Vol. 78, pp. 181−6.
19 Park, W. and D. Lippoldt (2003). ‘The Impact of Trade-Related
Intellectual Property Rights on Trade and Foreign Direct
Investment in Developing Countries’, OECD Papers, Vol. 3,
No. 11, paper 294, a draft of which is available at: http://
www.oecd.org/dataoecd/59/46/2960051.pdf
20 Trade and FDI were measured as a % of GDP in each
destination market. The index of patent rights strength
considered membership in relevant international treaties,
restrictions on IPRs, available means of enforcement,
duration of protection and sectoral coverage of patent rights.
See also Lippoldt, D. (2006), ‘Can Stronger Intellectual
Property Rights Boost Trade, Foreign Direct Investment
And Licensing In Developing Countries?’ in The Intellectual
Property Debate: Perspectives from Law, Economics and Political
Economy , M. Pugatch (ed.), Edward Elgar Publishing, UK.
21 The estimates were not statistically significant for the LDCs
for the sectors shown.
22 Mansfield singles out the chemical industry as whole, noting
that ‘chemical firms are reluctant to transfer relatively
new or advanced technology to other than wholly owned
subsidiaries’. See note 17, p. 10.
Chapter 2 Parallel imports of patented medicines 1 Betts v. Willmott (1871) L.R. 6 Ch. App. 239, 245.
2 See the Commission’s Communication on parallel imports
of proprietary medicinal products for which marketing
authorisations have already been granted, COM (2003) 839,
30 December 2003.
Further reading for Chapter 2 Abbott, F. M. (1998), ‘First Report (Final) to the Committee on
International Trade Law of the International Law Association
on the Subject of Parallel Importation’, Journal of International
Economic Law, Vol. 1, No. 4, pp. 607−36.
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Notes
Danzon, P. M. and A. Towse (2003), ‘Differential pricing for
pharmaceuticals: reconciling access, R&D and patents’,
International Journal of Health Care Finance and Economics, Vol.
3, pp. 185−205.
Kanavos, P., Costa-I-Font, J., Merkur, S., and M. Gemill (2004),
‘The Economic Impact of Pharmaceutical Parallel Trade in
European Union Member States: A Stakeholder Analysis’,
Special Research Paper, LSE Health and Social Care.
Malueg, D. and M. Schwartz (1994), ‘Parallel Imports, Demand
Dispersion and International Price Discrimination’, Journal of
International Economics, Vol. 37, pp. 167−95.
OECD (2002) ‘Synthesis Report on Parallel Imports’, Paris.
Szymanski, S. and T. M. Valletti (2005), ‘Parallel trade, price
discrimination, investment and price caps’, Economic Policy,
Vol. 20, pp. 705−49.
Chapter � Strategic use of IPRs by pharmaceutical SMEs in developing countries 1 Mansfield, E., ‘Patents and Innovation: An Empirical Study’,
Management Science, February 1986.
2 Kettler, H., White, K. and S. Jordon (2003), ‘Valuing
Industry Contributions to Public-Private Partnerships for
Health Product Development’, Initiative on Public-Private
Partnerships for Health (IPPPH), Global Forum for Health
Research, Geneva.
3 The World Trade Organization’s (WHO) Agreement on
Trade-Related Aspects of Intellectual Property (TRIPS) came
into force in January 2005, for all but the least developed
countries.
4 Eiss et al., ‘Living with TRIPS’, at www.mihr.org
5 A provision which allows companies to begin to produce
copies of drugs which are still on patent, to enable the process
to be completed in time for when the patent expires – thus
reducing the delay in the production of generic medicines.
6 Details of these approaches can be found in the Handbook of
Best Practices for Management of Intellectual Property in Health
Research and Development, www.mihr.org
7 www.mihr.org
8 Numerous PPPs have been funded by governments and by
philanthropic foundations such as the Rockefeller and Gates
Foundations to tackle the so-called neglected diseases of the
developing world. The Commission for Intellectual Property
Rights, Innovation and Public Health (CIPIH), Geneva, April
2006, gives details of these PPPs.
9 MIHR (op. cit); www.wipo.org
10 Timmermans, K., (2006), Negotiating Health, Intellectual
Property and Access to Medicines, ICTSD.
Chapter � Antitrust and patent settlement investigations 1 FTC v. Schering-Plough Corp., 528 US ___, No. 05−273 (26 June
2006) (cert. denied).
2 ‘Overview of FTC Antitrust Actions in Pharmaceutical
Services and Product’, Health Care Services and Products
Division, Bureau of Competition, Federal Trade Commission,
April 2006, pp. 8−9.
3 Ibid., p. 8.
4 Ibid., p. 3.
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Notes
5 ‘FTC Charges Schering-Plough over Allegedly Anticompetitive
Agreements with Two Other Drug Manufacturers: Complaint
Alleges Illegal Payments to Delay Entry of Generic Products
into the US Market’, US Federal Trade Commission, Press
Release, 2 April 2001; and ‘In the Matter of Schering-Plough
Corp., Upsher-Smith Corp., and American Home Products
Corp.’, US Federal Trade Commission, Initial Decision, 27
June 2002, p. 2.
6 ‘In the Matter of Schering-Plough Corp., Upsher-Smith
Corp., and American Home Products Corp.’, US Federal Trade
Commission, Initial Decision, 27 June 2002, p. 4.
7 Ibid.
8 Ibid.
9 Two recent court decisions help illustrate the unsurprising
fact that a presumption that a branded manufacturer’s patent
is invalid will not always be consistent with the results of
court rulings. On 1 August 2006, a US District Court ruled
in favour of Daiichi Pharmaceutical, finding its patent for
Floxin Otic was not invalid; on 2 August 2006, the US Court
of Appeals for the Federal Circuit upheld an earlier decision
affirming the validity of one of the patents on Pfizer’s
drug Lipitor. Daiichi Pharmaceutical Co., LTC and Daiichi
Pharmaceutical Corporation v. Apotex, Inc. and Apotex Corp., Civ.
No. 03−937, United States District Court for the District of
New Jersey, Opinion, 1 August 2006; Pfizer, Inc., Pfizer Ireland
Pharmaceuticals, Warner-Lambert Company, Warner Lambert
Company LLC, and Warner Lambert Export, LTD v. Ranbaxy
Laboratories Limited and Ranbaxy Pharmaceuticals, Incorporated,
No. 06−1179 United States Court of Appeals for the Federal
Circuit, decided 2 August 2006.
10 ‘In the Matter of Schering-Plough Corp. et al.’, US Federal
Trade Commission, Opinion of the Commission, 8 December
2003, pp. 6−7.
11 Ibid., p. 8.
12 Schering-Plough Corp. v. FTC, http://www.ca11.uscourts.
gov/opinions/ops/200410688.pdf (402 F.3d 1056 [11th Cir.
2005]).
13 Ibid., p. 11.
14 Ibid.
15 Schering-Plough Corp. v. FTC, p. 34.
16 Ibid., p. 43.
17 Illinois Tool Works, Inc. et al. v. Independent Ink, Inc, 547 US ___
(2006).
Chapter � A new approach to trade-related pharmaceutical IPRs – IPRs as tradeable goods 1 Lamoreaux, N. R. and K. L. Sokoloff (2001), ‘Market Trade
in Patents and the Rise of a Class of Specialized Inventors
in the 19th-Century United States,’ The American Economic
Review, Vol. 91, No. 2 (Papers and Proceedings of the Hundred
Thirteenth Annual Meeting of the American Economic
Association), pp. 39−44.
2 Razgaitis, R. (2003, 2004), ‘US/Canadian Licensing In 2003:
Survey Results’, les Nouvelles. See also Gambardella, A.,
Giurib, P. et al. (2006), ‘The Market for Patents in Europe’,
LEM Working Paper Series, Laboratory of Economics and
Management, Sant’Anna School of Advanced Studies.
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Notes
3 Hayek (1937), ‘Economics and Knowledge’, Economica, Vol.
4, No. 13, pp. 33−54. Hayek (1945), ‘The Use of Knowledge
in Society’, The American Economic Review, Vol. 35, No. 4, pp.
519−30.
4 Ullberg, E. (2006), ‘World Trade in Intellectual Property −
Managing Risk and Uncertainty in the Knowledge Economy’,
Meredith Memorial Lectures Series, McGill.
5 Prof. Vernon Smith, Nobel Prize laureate in Economics
in 2002, pioneered this field. See his ‘An Experimental
Study of Competitive Market Behavior’, The Journal of
Political Economy, Vol. 70, No. 3, pp. 322−3, 1962; and
‘Microeconomic Systems as an Experimental Science’, The
American Economic Review, Vol. 72, No. 5, pp. 923−55.
6 Harris, C. and J. Vickers (1987), ‘Racing with Uncertainty’,
The Review of Economic Studies, Vol. 54, No.1, pp. 1−21.
Chapter � The WTO, IPRs and access to medicines 1 The chapter is based on material available in the Intellectual
Property Division of the World Trade Organization (WTO).
The views expressed do not reflect those of the WTO, its
Secretariat or its members.
2 See Chapter II of Watal, J. (2001), Intellectual Property Rights in
the WTO and Developing Countries, Kluwer Law International.
3 For instance, the brand name of the medicine (either
originator or generic) could be protected under trademarks;
the inserts that accompany the medicine could contain
copyrighted material, and the packaging could be the
subject of industrial design protection. Similarly, the issue of
enforcement of IPRs so as to eliminate counterfeit medicines
in the market should be at the heart of the debate on public
health.
4 Canada − Patent Protection for Pharmaceutical Products (WT/
DS114/R).
5 Some of these views are reflected in document IP/C/M/31,
which reproduces members’ statements in the TRIPS
Council made on 20 June 2001 in the special discussion on
intellectual property and access to medicines.
6 Document WT/MIN(01)/DEC/2.
7 Document IP/C/25 − June 2002; Document WT/L/478 – July
2002.
8 Document IP/C/40.
9 Documents WT/L/540 and Corr.1.
10 Contained in paragraph 29 of document WT/GC/M/82.
11 Notifications about the use of the system will be accessible
through a dedicated webpage on the WTO website: http://
www.wto.org/english/tratop_e/trips_e/public_health_e.htm
12 The latest list can be obtained from http://www.wto.org/
english/tratop_e/trips_e/amendment_e.htm
Chapter � Pharmaceutical IPRs and the TRIPS Agreement – past, present and future 1 See Gorlin, Jacques J. (1999), An Analysis of the Pharmaceutical-
Related Provisions of the WTO TRIPS (Intellectual Property)
Agreement, Intellectual Property Institute, London.
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Notes
2 See, for example, Choate, P. (2005), Hot Property: the Stealing
of Ideas in an Age of Globalization, Alfred A. Knopf, New York,
p. 232.
3 For example, the TRIPS Agreement did not ban parallel
imports nor did it provide for patent-term extension.
4 In fact, TRIPS Article 70.2 contains a mechanism for
amending TRIPS for the ‘purpose of adjusting to higher levels
of protection of intellectual property rights … ’
5 The best example is Article 39.3, which only requires
protection of undisclosed information ‘against unfair
commercial use’, which was understood at the time to
include data exclusivity. See Gorlin, J., The GATT Uruguay
Round: A Negotiating History (1986−1992) (1993), Vols 1 and 2,
pp. 43−50, Kluwer Law and Taxation Publishers,Boston.
6 TRIPS Article 1.
7 Least Developed Countries (LDCs) are countries which,
according to the UN, exhibit the lowest indicators of socio-
economic development of all countries in the world. There
are currently 50 LDCs.
8 Gaining TRIPS-level intellectual property protection in WTO
accession countries will provide significant benefits to the
industry.
Chapter � The WTO Decision of � December 200� on the amendment of the TRIPS Agreement 1 Paragraph 6 of the Doha Declaration.
2 A compulsory licence is an authorisation granted by
government to an economic operator to use a patent-
protected technology, without the consent of the right-
holder.
3 In the meaning of Article 9.3 of the WTO Agreement.
4 OJ No. L 157 of 9.6.2006, p. 1.
5 IP/C/W/416 of 21 November 2003.
6 IP/C/W/437 of 10 December 2004. A revised version
was circulated in March 2005 which took into account a
communication from Rwanda, on behalf of the African
Group, on legal arguments to support the African Group
proposal IP/C/W/440 of 1 March 2005. Subsequently, the
African Group circulated the statement made by Rwanda on
behalf of the Group during the TRIPS Council meeting held
on 31 March 2005, IP/C/W/445.
7 IP/C/W/444 of 18 March 2005.
8 This was clearly expressed by the Africans at the meeting
of the African Union’s Ministers for Trade, held in Arusha
(Tanzania) on 23−24 November 2005.
9 Paragraph 3 of Article X of the WTO Agreement.
10 These countries are the following: Hong Kong; Israel; Korea;
Kuwait; Macao China; Mexico; Qatar; Singapore; Chinese
Taipei; Turkey and the United Arab Emirates.
11 Paragraph 5 of Article 133 of the EC Treaty.
Chapter � The WHO Commission’s Report on IPRs, Innovation and Public Health: a missed opportunity 1 The opinions expressed herein are personal and should not
be attributed to White & Case or to any of its clients.
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Notes
2 The WHO Commission’s Report on IPRs, Innovation and
Public Health, p. 98.
3 Ibid., p. 124.
4 Ibid., Recommendation 4.17, p. 140.
5 Ibid., Recommendation 4.10, p. 134.
6 Ibid., pp. 146−47.
7 Ibid., pp. 147−48.
8 Defined in the Report (p. 149) as strategies used by patent-
holders to extend the length of their exclusivity beyond
twenty years, without any apparent therapeutic benefit.
9 Most of the 312 medicines on the WHO’s list of Essential
Drugs are now off patent. See http://www.who.int/medicines/
publications/essentialmedicines/en/
Chapter 10 The EU’s approach to the enforcement of pharmaceutical IPRs: multilateral, bilateral and domestic perspectives 1 The views expressed in this article are those of the author and
cannot be attributed to the European Commission.
2 The Lancet, ‘Infectious Diseases’, 21 August 2006.
3 Number of cases of counterfeit medicines occurring in the EU
between 2001 and 2005:
➤ 27 cases in legitimate supply chain
➤ 170 cases in illegitimate supply chain
4 Council Regulation (EC) No. 1383/2003, of 22 July 2003.
5 Directive 2004/48/EC, of 29 April 2004, harmonising the
enforcement of IPRs within the Community.
6 Proposal for a Directive on Criminal Measures aimed at
ensuring the Enforcement of IPRs, COM (2006) 186, of 26
April 2006.
7 Commission Communication 2005/129/03, of 26 May 2005.
8 See http://ec.europa.eu/trade/issues/sectoral/intell_property/
survey2006_en.htm
9 Commission Communication ‘Global Europe: competing in
the world’, of 4 October 2006.
10 Council Regulation (EC) 953/2003, of 3 June 2003.
Chapter 11 The threat of counterfeit medicines – a new approach to policy 1 See http://www.who.int/medicines/services/counterfeit/
impact/TheNewEstimatesCounterfeit.pdf
2 Ibid.
3 Ibid.
4 See http://www.who.int/mediacentre/news/releases/2006/
pr09/en/
5 See http://www.cmpi.org/viewstddoccontent.asp?detailid=17
8&contenttypeid=3
6 Schwartz, B. and V. Wong, ‘Counterfeit Cures’, Insight
Magazine, Shanghai Chamber of Commerce, March 2006.
7 See http://whqlibdoc.who.int/publications/2003/a86263_
part10.pdf
8 Gibson, L., ‘Drug regulators study global treaty to tackle
counterfeit drugs’, British Medical Journal, Vol. 328, No. 486,
28 February 2004.
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1�1
Notes
9 European Federation of Pharmaceutical Industries and
Associations, ‘Counterfeit medicines’, available at http://
www.efpia.org/2_indust/counterfeitdrugs.pdf
10 Shakoor et al. (1997), ‘Assessment of the incidence of
substandard drugs in developing countries’ in Tropical
Medicine and International Health, Vol. 2, pp. 839−45.
11 See http://www.whqlibdoc.who.int/hq/2003/WHO_EDM_
PAR_2003.4.pdf
12 Pitts, Peter J. (2006), Coincidence or Crisis? Prescription
Counterfeit Medicine, Stockholm Network, London, pp. 79−92.
13 Remarks in front of the Counterfeit Drugs and Supply Chain
Security Conference, Washington, DC, 2006.
14 See http://www.pacificresearch.org/pub/sab/health/2005/JH_
Washington_09-05.pdf
15 Pitts, op. cit., pp. 1−36.
16 Ibid.
17 Ibid., p. 40.
18 See http://www.fda.gov/oc/initiatives/counterfeit/report02_
04.html
Chapter 12 The Convention on Biodiversity (CBD) and Intellectual Property Rights 1 On the US declaration, see ‘Report of the Intergovernmental
Negotiating Committee for a Convention on Biological
Diversity’, UNEP/Bio.Div/N7ING5/4 (1992).
2 ‘Bonn Guidelines on Access to Genetic Resources and Fair
and Equitable Sharing of The Benefits Arising out of their
Utilization’, UN Doc. UNED/CBD/COP/6/2C (27 May 2002).
3 CBD 16(5): ‘The Contracting Parties, recognising that patents
and other IPRs may have an influence on the implementation
of this Convention, shall cooperate in this regard subject to
national legislation and international law in order to ensure
that such rights are supportive of and do not run counter to
its objectives.’
4 Bonn Guidelines, Annex 16(d)(ii).
5 Those CBD provisions relating to intellectual property are:
Article 8(j)[ In-situ Conservation] ‘Subject to its national
legislation, respect, preserve and maintain knowledge,
innovations and practices of indigenous and local
communities embodying traditional lifestyles relevant for
the conservation and sustainable use of biological diversity
and promote their wider application with the approval and
involvement of the holders of such knowledge, innovations
and practices and encourage the equitable sharing of the
benefits arising from the utilisation of such knowledge,
innovations and practices’;
Article 10(c) Article 10: [Sustainable Use of Components of
Biological Diversity]
Each Contracting Party shall, as far as possible and as
appropriate:
(c) ‘Protect and encourage customary use of biological
resources in accordance with traditional cultural practices
that are compatible with conservation or sustainable use
requirements;
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1��
Notes
Article 16(2): ‘[…] In the case of technology subject to patents
and other IPRs, such access and transfer shall be provided on
terms which recognise and are consistent with the adequate
and effective protection of IPRs.’
Article 19(2) [Handling of Biotechnology and Distribution of
its Benefits]: ‘Each Contracting Party shall take all practicable
measures to promote and advance priority access on a
fair and equitable basis by Contracting Parties, especially
developing countries, to the results and benefits arising from
biotechnologies based upon genetic resources provided by
those Contracting Parties. Such access shall be on mutually
agreed terms.’
6 For example, ‘Non-Aligned and Developing Countries’ (New
Delhi, January 1999 http://www.grain.org/bio-ipr/?id=317).
The report affirms that the TRIPS Agreement fails to
adequately address the objectives of the CBD and proposes
the following: either remove the word ‘effective’ from
Article 27.3(b) in the context of sui generis systems of plant
variety protection, or define it such that national priority
is paramount in the interpretation of the term, including
(i) Conservation and sustainable use of biodiversity; (ii)
Promotion of traditional lifestyles; (iii) Promotion of food
security and health security; (iv) Ensuring equitable benefit-
sharing; (v) Invoking the precautionary principle; (vi) Respect
of the principles of equity and ethics; UNEP Conference on
the TRIPS and the CBD (Nairobi, February 1999 http://www.
grain.org/bio-ipr/?id=316); the South Asian Network on
Food, Ecology and Culture (February 1999 http://www.grain.
org/bio-ipr/?id=272).
7 Article 27 of the TRIPS Agreement defines what is patentable
subject matter and 27.3(b) provides members may exclude
from patentability ‘plants and animals other than micro-
organisms, and essentially biological processes for the
production of plants or animals other than non-biological
and microbiological processes’.
8 WT/GC/W/564/Rev.2, TN/C/W/41/Rev.2/IP/C/W/474, 5 July
2006.
9 WIPO/GRTKF/IC/9/13, 20 April 2006.
10 Article 12.3(d) of the ITPGRFA provides: ‘Recipients shall not
claim any intellectual property or other rights that limit the
facilitated access to the plant genetic resources for food and
agriculture, or their genetic parts or components, in the form
received from the multilateral system.’
11 Examples of access requirements protecting local
communities or indigenous populations are: Philippines
Presidential Executive Order No. 247 (1995); India
Biodiversity Act (2003); Brazilian Executive Power
(Provisional Measure No. 2.126−11, (2001); Decision 391 of
the Andean Group (1996) (Article 7).
Examples of legislations relating to disclosure of genetic
resources are: EC Biotech Directive 98/44/EC recital 27
(voluntary); Norway, Denmark, Sweden (with penalties
but no consequence on patent validity); Brazil Provisional
Measure 2186−16 (2001)Article 31: India Patent
(Amendment) Act (2005), Section 10(4)(d)(ii)[A−D] (with
consequences on patent grant and validity).
Further reading for Chapter 12 Drahos, P. and M. Blakeney, (eds.) (2001), IP in Biodiversity
and Agriculture: Regulating the Biosphere, Sweet & Maxwell,
London.
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1��
Notes
Charest, M. G., Lerner, C. D., Brubaker, J. D., Siegel, A. D. and R.
Myers, Science, Vol. 308, No. 395, 2005.
Miyazaki, M., ‘Economic Value of microbial resources’ in
Microbiological Culture Collection, June 2006, pp. 15−19.
Chapter 1� A statutory research exemption for patents 1 The issue was the topic of a recent Organisation for Economic
Co-operation and Development (OECD) conference on
research use of patented inventions. See http://www.oecd.
org/document/46/0,2340,en_2649_34797_36060462_1_1_1_
1,00.html
2 See, for example, Thumm, N. (2005), ‘Patents for genetic
inventions: a tool to promote technological advance or
a limitation to upstream inventions’, Technovation, The
International Journal of Technological Innovation and
Entrepreneurship, Vol. 25, No. 12, pp. 1410−17.
3 Cf. Shapiro, C. (2001), ‘Navigating the Patent Thicket: Cross
Licenses, Patent Pools, and Standard-Setting’ in Innovation
Policy and the Economy, Vol. 1, MIT Press, www.faculty.haas.
berkeley.edu
4 See http://www.ige.ch/E/jurinfo/documents/j10005e.pdf
5 Swiss patent law revision, information under http://www.ige.
ch/E/jurinfo/j100.shtm#a03
6 Regulated in Article 9(a) of the revised patent law.
Chapter 1� Patenting biotechnology 1 A gene is a DNA sequence that codes for a protein. In multi-
celled organisms only a small proportion of DNA codes for
proteins, as between genes, and also within most genes, there
are DNA sequences some of which can be extremely long,
called introns, that are not genes, do not code for proteins,
and the function of which is at present unknown. For a
discussion of the issues associated with patents on genes
and DNA, see Cook, T. M. (2006), ‘Patenting Genes’, in The
Intellectual Property Debate – Perspectives from Law, Economics
and Political Economy, M. Pugatch (ed.), Edward Elgar
Publishing, UK.
2 Canada has also considered the ethical issues in some depth −
see ‘Patenting of Higher Life Forms and Related Issues’, Report
to the Government of Canada, Biotechnology Ministerial
Coordinating Committee, Canadian Biotechnology Advisory
Committee, June 2002.
3 Directive 98/44/EC of the European Parliament and of
the Council on the legal protection of biotechnological
inventions − OJEC L 213, 30.7.98, p. 13.
4 EPO Decision T 0315/03 Transgenic animals / HARVARD of 6
July 2004 – OJEPO 2006, p. 15.
5 In Europe, use of a research tool for its patented purpose
would not fall within the scope of the defence found in
the patent laws of most European countries, as to ‘use for
experimental purposes relating to the subject matter of the
invention’. No such defence exists in the USA. However,
the effect of the 2005 Supreme Court Judgment in Integra
Lifesciences 1, Ltd v. Merck KGaA − 545 US 193, 125 S. Ct.
2372 − despite ostensibly not addressing research tools, is to
deprive certain research tools of value even when used for
their patented purposes. See Cook, T. M. (2006), ‘A European
Perspective as to the Extent to which Experimental Use, and
Certain other Defences to Patent Infringement, apply to
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1��
Notes
Differing Types of Research’, Intellectual Property Institute,
London.
6 Article 53(a) EPC as amended by Article 16, EPC Revision
Act of 2000 (not yet in force). Since most such controversy
originally concerned genetically modified animals, it also
involved consideration of another express exception from
patentability, namely that under Article 53(b) EPC, for ‘plant
and animal varieties or essentially biological processes for
the production of plants or animals … ’ the primary purpose
of which had been to avoid overlap with the plant variety
protection system. However, it has now been established that
although this restricts the nature of how genetically modified
plants and animals can be claimed in a patent, it does not
prevent patent claims being drafted which can encompass
plant or animal varieties. See EPO Decision G 1/98 Transgenic
plant / NOVARTIS of 20 December 1999, OJEPO 2000, p. 111,
and also the Biotechnology Directive Article 4.
7 See Plomer A. et al. (2006), ‘Stem Cell Patents: European
Patent Law and Ethics Report’ at http://www.nottingham.
ac.uk/law/StemCellProject/project.report.pdf for an extensive
discussion of this controversy.
8 Such as ‘Research and Patenting in Biotechnology: A Survey
in Switzerland’, Swiss Federal Institute of Intellectual Property
2003 at http://www.ige.ch/E/jurinfo/documents/j10005e.pdf;
and ‘Patents for Genetic Sequences: The Competitiveness of
Current UK Law and Practice’, Intellectual Property Institute
study for the UK Department of Trade and Industry, 2004.
9 Published by National Academies Press at http://www.nap.
edu/catalog/11487.html
10 See Stott, M. and J. Valentine (2004), ‘Gene Patenting and
Medical Research: a View from a Pharmaceutical Company’,
Nature Reviews Drug Discovery, Vol. 3, pp. 364−8 for data as to
the limited extent of gene patenting in Europe.
Chapter 1� Patent wars and authorised generics in the USA: assessing the issues 1 IIR’s Global Generic Strategies Conference, Barcelona,
Spain, Spring 2004. See http://www.imshealth.com/
web/content/0,3148,64576068_63872702_70261000_
71026728,00.html
2 Pfizer Inc. and Schering-Plough Corp. sell generic products
through their affiliates, Greenstone Ltd and Warrick
Pharmaceuticals respectively.
3 For example, Mylan Laboratories Inc. (Mylan) developed the
brand product Maxzide®.
4 ‘Senators Take Aim At Authorized Generics,’ IP Law 360, 21
July 2006. Innovators consider a variety of strategies when
managing a brand pharmaceutical product throughout its
life cycle. Some of these strategies have given rise to scrutiny
by policymakers, including innovators raising questions in
Citizen Petitions during the FDA approval process for ANDAs
submitted by imitator companies; introducing new and
improved products; settling patent infringement cases; or
launching, either directly or through licensing, authorised
generic versions of their brand products. We address the last
strategy in this chapter.
5 In the former case, the company files a Paragraph I, Paragraph
II, or Paragraph III certification as part of its ANDA. Paragraph
I certification applies when the FDA has not been informed
176-177 20/3/07 15:35:15
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1��
Notes
that a patent applies to the compound at issue. Paragraph II
certification applies when the patent covering the compound
has expired. Paragraph III certification applies effective on the
date the patent will expire. See ‘Title 21 − Food and Drugs,
Department of Health and Human Services − Continued, Part
314 − Applications for FDA Approval to Market a New Drug,
Subpart C − Abbreviated Applications’ at http://www.fda.gov/
CDER/ogd/paragraph4.htm. In the latter case, the company
files a Paragraph IV certification as part of its ANDA. Without
an authorised generic, imitator companies that are successful
with Paragraph IV certifications receive 180 days of marketing
exclusivity.
6 Tim Gilbert on behalf of Gilbert’s LLP ‘Hatch-Waxman:
Upsetting the Balance’, presented at The Intellectual Property,
Healthcare and Federal Civil Enforcement Committees of the
American Bar Association’s Antitrust Section’s ‘Whose Drug is
it Anyway?’ Lecture, Washington, DC, 14 September 2006.
7 Hollis, A. and Bryan A. Liang, ‘An Assessment of the Effect
of Authorised Generics on Consumer Prices’, 31 July 2006
(‘GPhA Study’), p. 20, footnote 39.
8 Par is ‘the fifth largest manufacturer and distributor of
generic pharmaceuticals in the USA’: see ‘About Generic
Pharmaceuticals’, at http://www.parpharm.com/about/
generics.jsp
9 See note 6.
10 Jerome A. Swindell on behalf of Johnson & Johnson,
‘Authorised Generics: Good for Everyone (Even Generics)’,
presented at The Intellectual Property, Healthcare and
Federal Civil Enforcement Committees of the American Bar
Association’s Antitrust Section’s ‘Whose Drug is it Anyway?’
Lecture, Washington, DC, 14 September 2006; and GPhA
Study, p. 20, footnote 39.
11 ‘Paragraph IV Patent Certifications as of 14 September 2006’,
at http://www.fda.gov/CDER/ogd/ppiv.htm
12 Seligman, P., ‘Teva’s Generic Advantage’, Business Week Online,
29 August 2006, at http://www.businessweek.com/print/
investor/content/aug2006/pi20060829_967054.htm
13 Similarly, the means of the return on sales for both groups are
equal. See Table 4.
14 ‘Authorized Generics, Prasco Product Profile’, Prasco, at
http://www.prasco.com/files/Branded_Site_Products/AG_
ProductProfile_Web_05.14.12_FINAL.pdf
15 Teva completed its acquisition of Ivax Corporation on 26
January 2006. See http://www.teva.co.il/pr/2006/pr_576.asp
16 IMS Consulting, ‘Assessment of Authorised Generics in
the US’, prepared for the Pharmaceutical Research and
Manufacturers of America (PhRMA), Spring 2006 (‘PhRMA
Study’), p. 4.
17 Daly, E. M., ‘In Win For Barr, Court Denies Tamoxifen
Rehearing’, IP Law 360, 18 September 2006; and http://www.
nolvadex.com.
18 Ibid.
19 Frank, Richard G. and David S. Salkever, ‘Generic Entry
and the Pricing of Pharmaceuticals’, Journal of Economics &
Management Strategy, Vol. 6, No. 1, Spring 1997, p. 84.
20 ‘Generic Competition and Drug Prices’, at http://www.fda.
gov/cder/ogd/generic_competition.htm#P5_1100
178-179 20/3/07 15:35:15
1�0
Healthy IPRs
1�1
Notes
21 ‘The Drug Development and Approval Process’, in Medicines
in Development for Heart Disease and Stroke, 2005, PhRMA, p.
19.
22 Ibid. The US$802 million represents the total capitalised cost
and is stated in 2000 dollars. Average out-of-pocket costs
were estimated to equal US$403 million. DiMasi, Joseph A.,
Hansen, Ronald W. and Henry G. Grabowski (2003), ‘The
Price of Innovation: New Estimates of Drug Development
Costs’ in Journal of Health Economics, Vol. 22, pp. 151−85.
24 Grabowski, H. and J. Vernon, ‘A New Look at the Returns and
Risks to Pharmaceutical R&D’ in Management Science, Vol. 16,
No. 7, July 1990, pp. 804−21.
25 Henson, S., ‘Barr Tries to Cut Generic Market by Entering It’,
IP Law 360, 8 September 2006.
26 Ibid.
27 For example, the Federal Trade Commission (FTC) is
conducting a study to analyse the short- and long-term
competitive effects of authorised generics. ‘FTC Proposes
Study of Competitive Impacts of Authorised Generic Drugs’,
FTC, 29 March 2006, at http://www.ftc.gov/opa/2006/03/
authgenerics.htm
28 PhRMA Study (see note 16), pp. 1−2.
29 GPhA Study (see note 7), p. 9.
30 Ibid., p. 11.
31 Ibid., p. 14.
32 Rozek, Richard P. and Bishko, Emily R., ‘Investment
Incentives Created by the Montreal Protocol and FDA Policy
on Albuterol’, The Journal of World Intellectual Property, Vol. 6,
No. 6, November 2003.
33 ‘Wal-Mart to Sell Generic Drugs for $4’, National Public
Radio, 21 September 2006, at http://www.npr.org/templates/
story/story.php?storyId=6119292&ft=1&f=1001; and ‘Wal-
Mart Cuts Generic Prescription Medicines to $4’, at http://
www.walmartfacts.com/articles/4464.aspx
34 ‘Kmart Says Its 90-Day Deal on Generic Drugs is Better than
Wal-Mart’s 30-Day’, 22 September 2006, at http://www.
seniorjournal.com/NEWS/MedicareDrugCards/6-09-22-
KmartSaysIts.htm
Chapter 1� Supplementary Protection Certificates (SPCs) 1 Public Law No. 98−417, 98 Stat. 1585 (1984).
Further reading for Chapter 17 UK Patent Office, Supplementary Protection Certificates for Medicinal
Products and Plant Protection Products − A Guide for Applicants
(revised January 1997). See http://www.patent.gov.uk/spctext.
UK Patent Office, UK Patent Office response to the Gower’s Review,
June 2006. See http://www.patent.gov.uk/policy-issues-
gowers-evidence.pdf
180-181 20/3/07 15:35:15
Joining the Stockholm NetworkWould you or your organisation like to join the Stockholm
Network? We have varying levels of membership, depending
on your needs and interests. For further information, please
contact our Managing Director, Shane Frith (shane@stockholm-
network.org).
Subscribe to the mailing listFancy getting a taste of what we do and what think tanks are
doing right across Europe? The Stockholm Network’s weekly
e-newsletter rounds up the latest activities of Europe’s leading
think tanks and thinkers and provides a valuable summary of
current policy trends across the EU. To sign up, contact Simon
Moore (simon@stockholm-network.org), or visit our website:
www.stockholm-network.org.
Other titles published by the Stockholm Network are listed on the following pages
182-183 20/3/07 15:35:15
Impatient for Change European attitudes to healthcare reform
Helen Disney, Karen Horn, Pavel Hrobon, Johan Hjertqvist, Alastair Kilmarnock, Andreas Mihm, Alberto Mingardi, Cécile Philippe, David Smith, Eline van den Broek, Gerrold Verhoeks
Do Europe’s politicians really understand what voters want
from their healthcare systems? How can they square the circle
of rising demand, rising costs and shrinking tax funding?
To find out, the Stockholm Network and Populus commis-
sioned a major study of the European public’s attitudes on the
state of their health systems now and what they expect from
them in future. Leading healthcare experts from across Europe
analyse the data, putting it into its national and pan-European
context.
The results are startling. Europeans are becoming ever more
concerned about what will happen to their health provision
in future if reform is not carried out urgently. They demon-
strate a large gap between what patients want and what their
political elite is delivering. And they suggest that information
and gaining the support of the medical profession are crucial to
securing the reform that Europe’s ailing health systems need.
Europe’s health consumers are already waiting and impatient
for change.
Published in association with PopulusISBN: 0-9547663-0-X£12.00
An Apology for Capitalism?Matthew Bishop, Vincent Cable, Clive Crook, Howard Davies, Bill Durodié, Stephen Godfrey-Isaacs, Julia Hailes, David Henderson, Steve Hilton, Benjamin Hunt, John Kay, Philippe Legrain, Johan Norberg, Neil Sherlock, Stephen Tindale
Edited by Helen Disney
Should companies be cheerleaders for capitalism or is the
growth of corporate and social responsibility evidence of a new
way of doing business and doing it better? Is it time for policy-
makers and business leaders to be more aggressive in dealing
with business failure?
A backlash is emerging too among those who think
companies are becoming too timid and apologetic. Too much
of this risk aversion could be damaging not just to profits
but to faith in capitalism itself. With books critical of global
corporations topping best-seller lists across the world, how can
corporations answer their critics – and should they even try?
An Apology for Capitalism? assembles leading thinkers and
policy experts to debate the limits of corporate and social
responsibility. It questions whether corporations deserve the
flak and asks if it is now time for them to embrace the business
of saying sorry.
ISBN: 0-9547663-1-8£10.00
184-185 20/3/07 15:35:16
A Sick BusinessCounterfeit medicines and organised crime
Graham Satchwell
Foreword by Lord Mackenzie of Framwellgate
Conducted by a former policeman, this investigation into
the trade in fake medicines and its links with organised crime
uncovers a horrifying story. Across Europe, counterfeiters
have discovered a range of easy routes for selling fake and sub-
standard products into the legitimate distribution chain.
A Sick Business shows how, to the uninitiated eye, this crime is
invisible. Most patients and consumers are unaware of just how
many public safety problems counterfeit medicines may cause.
It reveals that this illegal business is conducted by unscrupulous
people whose actions have already cost thousands of lives and
may even be linked to terrorist activity – yet almost nothing is
being done to stop it.
It should be read by anyone with an interest in keeping
Europe safe.
ISBN 0-9547663-2-6£10.00
Poles Apart?Eastern European attitudes to healthcare reform
Helen Disney, David Hill, Pavel Hrobon, Adam Kruszewski, Henrieta Madarová, Rick Nye, Martin Stefunko
How have eastern European countries fared since the fall of
the Berlin Wall, and what do their attitudes tell us about the
prospects for healthcare reform today?
Poles Apart? sets out to examine whether the perception of a
superior western European healthcare system is really true by
asking the opinions of 3,000 central and eastern Europeans and
comparing them with their counterparts in the rest of the EU.
Despite differences in access to care, due to significantly lower
levels of funding, and a sometimes unfounded admiration of
western Europe, the challenges facing healthcare systems and
the way people view them are remarkably similar across the
board. More striking still, the new Europe’s attitude suggests
that the east is on the cusp of providing valuable inspiration
and experience for reformers in western Europe in shaping the
modern health systems of tomorrow.
Published in association with PopulusISBN: 0-9547663-3-4£10.00
186-187 20/3/07 15:35:16
Does the West Know Best?Martin Bruncko, Gabriel Calzada, Christofer Fjellner, Andrei Grecu, Johan Hjertqvist, Pavel Hrobon, Philippe Manière, Miroslav Mikolasik, Dan Mitchell, Johnny Munkhammar, Stephen O’Connor, Matus Petrik, Ugnius Trumpa
Edited by Terence O’Dwyer
Accession of the central and eastern European states has
provided impetus for a fundamental re-evaluation of Europe’s
economic and social model. New member states have chal-
lenged the orthodoxy of western European systems. With the
west now facing the impending crises of an ageing population
and unsustainable healthcare systems, and the prospect of
sustained weak economic growth, the questions are: Should the
new member states be emulating western Europe? Or should
‘old Europe’ mimic the reforms of its newest partners? Indeed,
does ‘old Europe’ have any choice but to reform?
Does the West Know Best? assembles leading European thinkers
to examine social and economic reform, such as flat taxation,
the privatisation of social security and moves towards more
market-oriented health systems. It questions the sustainability
of the European economic and social model, while seeking
solutions to its endemic problems.
ISBN: 0-9547663-4-2
£8.00
Intellectual Property FrontiersExpanding the borders of discussion
Edited by Dr Meir Pugatch and Anne K. Jensen
The first book to be published by the Stockholm Network’s
Intellectual Property and Competition programme, Intellec-
tual Property Frontiers draws on the expertise of eighteen distin-
guished scholars, policymakers and practitioners. It aims to
familiarise readers with the diversity of themes and debates
currently taking place in the field of IP.
The publication is divided into four sections:
• The role of intellectual property in the business arena;
• Intellectual property dilemmas;
• Global issues;
• The European perspective.
£8.00
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Europe Needs SavingDefusing the pensions timebomb
Matthew Bishop, Liam Halligan, Kamil Kajetanowicz, Edward Palmer, Giuseppe Pennisi, Wilfried Prewo, L. Jacobo Rodríguez, Ian Vásquez
Edited by Terence O’Dwyer
We are facing a demographic time bomb: by 2050, there will be
two workers to every retired person in most European countries.
In some countries, that ratio will be 1:1. Current pay-as-you-
go pension systems are quite simply financially, economically
and socially unsustainable – without reform, pensioners will
bankrupt the welfare state.
In Europe Needs Saving, several internationally renowned
experts on pensions attempt to answer some of the most
difficult questions facing us today: Should pay-as-you-go
systems be tweaked only slightly? Is there a role for the market
in providing pensions? If so, how extensive should that role
be? What are the benefits to the citizen – and to the govern-
ment? What can be learned from countries that have already
reformed? Is the Chilean model suitable for the ailing systems
in Europe? Or is the Swedish approach to reform more appro-
priate?
ISBN-10: 0-9547663-7-7ISBN-13: 978-0-9547663-7-5£10.00
Coincidence or Crisis?Prescription medicine counterfeiting
Jonathan Harper, Julian Morris, Graham Satchwell, Philip Stevens, David Taylor, Michael Tremblay
Edited by Peter J. Pitts
Introductions by Bill Newton Dunn and Mark E. Souder
The business of creating, distributing and selling counter-
feit pharmaceutical products is an unregulated, criminal and
growing part of the global economy. Evidence of this criminal
activity is mounting: according to a 1997 World Health Organi-
zation report, 10%–20% of drugs tested in developing countries
are either counterfeit or have not been handled according to
the manufacturers’ specifications.
In Europe, profiteers masquerading as pharmacists are selling
a nightmarish cornucopia of unsafe, unregulated, mislabelled,
repackaged and co-mingled drugs to unsuspecting consumers.
Coincidence or Crisis? brings together some of the world’s
leading experts to discuss the growth of counterfeit pharmaceu-
ticals. It provides a comprehensive analysis of the core issues,
while delimiting key strategies to tackle the problem.
ISBN-10: 0-9547663-8-5ISBN-13: 978-0-9547663-8-2£10.00
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Unlocking IdeasEssays from the Amigo Society
Arne Björnberg, Manuel Campolini, Pat Cox, Brian Crowley, Duncan Curley, Johan Hjertqvist, Pavel Hrobon, Mark Leonard, Johnny Munk-hammar, Peter Pitts, Jan Remans, Anders Sandberg
Edited by Francesca Ficai
Introduction by Jacob Arfwedson
Europe faces massive challenges in the years ahead. Healthcare
systems are struggling to keep up with new, innovative, but
expensive advances in medical technologies, while patients
are no longer passive recipients, but active consumers of their
treatments.
The Amigo Society conferences, held in Brussels, were set up
in 2004 to bring together public policy experts, media repre-
sentatives and members of civil society to debate these and
other issues of importance to an enlarged Europe. Held at the
Amigo Hotel, a former prison, their aim was to release new
ideas and fresh thinking into the Belgian – and wider European
– public debate.
Taking concrete examples from Europe and North America,
this collection examines the broad motivations behind, influ-
ences on, and opportunities for future health and welfare policy
reform. It also looks to the future, drawing in new fields of
policymaking expected to drastically alter Europe’s healthcare
landscape. The final set of essays examines consumer empow-
erment as the major factor which will push forward reform of
Europe’s health and welfare systems.
ISBN-10: 0-9547663-9-3ISBN-13: 978-0-9547663-9-9£8.00
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