PRIORITY FOREIGN COUNTRIES

South Africa

Intellectual Property Protection

Until November 23, 1997, South Africa had a relatively modern patent law, providing full product patent protection for pharmaceuticals. Regrettably, on November 23, the Government adopted a new law, the "Medicines and Related Substances Control Act Amendments," that seriously undermine the terms of intellectual property and patent protection for pharmaceuticals in South Africa. Specifically, Article 15C of the new law states that:

That the Ministry of Health may notwithstanding anything to the contrary contained in the Patents Act, 1978 (Act No. 57 of 1978), determine that the rights with regard to any medicine under a patent granted in the Republic shall not extend to acts in respect of such medicine which has been put onto the market by the owner of the medicine, or with his or her consent;

The authority provided under this clause appears to permit the Minister of Health to find that a foreign sale of pharmaceutical product exhausts the patent owner's rights in the product. Such an authority, if invoked and applied, would conflict with the obligations of South Africa under the TRIPS Agreement. It would do so by violating the principle of independence of patents that results from the incorporation of the Paris Convention into the TRIPS Agreement, and by eliminating the exclusive rights of the patent owner to prevent others from importing the patented invention, as defined in Article 28 of the Agreement. The authority also conflicts with South Africa's internal legal regime, which has incorporated and applied the TRIPS Agreement, as well as its obligations under the TRIPS Agreement. The new law thus presents a serious threat to the viability of American pharmaceutical investment in South Africa.

Given the seriousness of the attack on patent rights and the apparent intransigence of the Government, the South African pharmaceutical industry, with the support of their American and European counterparts, has filed a legal challenge to the Act in South Africa's Constitutional Court. Plaintiffs include the local trade association, and 40 individual companies. The suit was filed in February 1998 and as a result the Act has not taken effect.

After the lawsuit was filed and pending in the Court, the South African Ministry of Health introduced new legislation (i.e., the South African Medicines and Medical Device Regulatory Act (SAMMDRA)) that repealed the contentious clauses of the former Act, including section 15C. During the parliamentary process and after public hearings were completed, the South African government re-introduced the controversial provisions as part of the SAMMDRA bill, alleging that their initial deletion had been accidental. This development negated claims by the Government that they needed simply to find a graceful exit from their stance on patent abrogation.

Recent Developments

President Mandela signed the SAMMDRA bill into law on 11 December 1998 - the day after the local industry met with the Health Minister to continue to explore possibilities for a negotiated settlement. In January 1999, the South African Health Attaché in Geneva delivered a highly controversial address to the World Health Organization (WHO) Executive Board following the adoption of the Revised Drug Strategy Resolution by the Board. The South African delegate, who indicated that she was speaking on behalf of the Non Aligned Member Countries, made a number of disturbing comments.

She confirmed that Section 15C would be used to permit parallel importation of patented pharmaceutical products, as well as to justify the granting of compulsory licenses - something the Government has consistently denied for the past 18 months.

• She stressed her Government's view that the TRIPS agreement could not be interpreted to preclude parallel trade in patented pharmaceutical products, or to rely on a policy of aggressive use of compulsory licenses to permit third parties to manufacture, distribute or sell the patented pharmaceutical product.
• She stressed that it is the intention of the South African Government and other Governments in the "Non-Aligned Countries" block to use every possible means and loophole in TRIPs to escape their obligations to provide patent protection for pharmaceuticals, which reflects the Government's position in the South African litigation of refusing to answer affidavits on the question of whether any form of patent protection will be considered appropriate for pharmaceuticals; and
• She emphasized her Government's "unwavering" commitment against effective patent protection for pharmaceuticals.

The South African delegation also welcomed the resolution as a re-affirmation and vindication of their stance. Their description of the resolution as a "strengthened version" of the original RDS resolution - tabled last February - is particularly misleading. The original resolution, declaring commercial interests and public health to be at odds and calling on members to ignore their obligations under TRIPs and other international Trade accords, was rejected by the WHO General Assembly. The present resolution was the result of a compromise accepted by all except the South Africans, who sought, in fact, to overturn the resolution on procedural grounds, last October.

The recent posture of the South African Government makes it clear that South African intends to pursue a policy of weakening essential protection for patented pharmaceutical products. The threats posed by the original legislation that led to litigation in South Africa are accentuated by the recent developments in South Africa and in Geneva. From the recent remarks and actions, the apparent intent of the Government of South Africa is to not only defend its diminishment of the effectiveness of patent protection in South Africa, but to urge other countries to similarly weaken patent protection for pharmaceutical products. Such a posture is plainly antagonistic to the concept of effective patent protection for pharmaceuticals, and is likely to give rise to a substantial diminishment of the effectiveness in protection not only in South Africa but elsewhere.

Data Exclusivity

South Africa, like numerous other countries listed in this submission, does not provide adequate protection against unfair competition in the use of proprietary registration data submitted by companies to the Health Ministry as part of the registration and marketing approval process for pharmaceutical products. At least one important product of an American pharmaceutical company has had generic competitors registered in South Africa on the basis of a reference by the competitors to the originator's registration file. South Africa is obliged by TRIPs Article 39.3 to protect registration against unfair commercial use, and its failure to do so conflicts with its obligations under the TRIPS Agreement.

Potential Exports/Foreign Sales

As the new law has just been enacted, it is not possible to estimate the losses to American investors and exporters. Numerous PhRMA member companies have, however, already indicated that new investments in South Africa, in some cases valued at more than $50 million, have been suspended as a result of the new legislation. Coupled with the posture of the South African Government in promoting global diminishment of patent standards, the potential harm from these recent developments can be expected to reach into many other developing countries.

For all the aforementioned reasons, PhRMA believes that South Africa should be listed as a Priority Foreign Country under Special 301 in 1999.