Good morning, ladies and gentlemen. My name is Joy Spencer and I represent the Consumer Project on Technology (CPTech). I would like to thank Secretary Marilyn Abbott and the United States International Trade Commission for the opportunity to present testimony here today.

CPTech was created in 1995. Our work focuses on access to medicine, access to knowledge, and on intellectual property rules and new business models for financing global public goods.

Today I will comment on the intellectual property (IP) sections of the proposed Central America Free Trade Agreement (CAFTA).

There are many provisions in the CAFTA which are designed to increase the monopoly power exercised in the sale of medicines, including for example mandatory patent extensions, requirements that health registration bodies enforce poor quality or non-infringing patents, new sui generis rights in health registration data, and reduced national discretion on the scope and standards for patent protection. Like many groups, we oppose these provisions because they will predictably lead to higher prices, and harm the poor. We note that Pfizer’s Xalatan, a medicine for glaucoma, is priced nearly twice as high in Nicaragua as it is in Canada, and that in the Dominican Republic, BMS/Sanofi has opposed compulsory licenses for patents on Plavix, a heart disease drug that is priced at 60 percent of the income of unskilled workers. I am leaving the ITC with a video titled “Dying for Drugs,” and request the persons who negotiate these trade agreements to watch the final segment, which films the final days of a young child who suffers from AIDS related thrush, and whose parents could not afford fluconazole, a Pfizer product that was priced at $27 per pill in Honduras, but which costs pennies to make. Watch this film with your children, and then explain why the US needs the IP provisions on medicines in the CAFTA.

My testimony will begin with a discussion of the most controversial aspect of the CAFTA -- the creation of new sui generis rights in data used to register medicines. We will propose an implementation of unfair competition rules for health registration that addresses the core concerns of many poor persons and patient advocates.

As you know, the WTO TRIPS agreement already requires every member except the least developed countries to adopt 20-year patents on medicines, while allowing countries to overcome access barriers by issuing compulsory licenses on patents.

The United States is now proposing in the CAFTA and elsewhere, a universal sui generis right in data that would give exclusive rights in the data used to register products for sale to the public. If there are no mechanisms to issue something like a compulsory license to the data, there will be no generic products during the period of protection. Thus, generic products will be blocked, even where there are no patents, or where the government has issued a compulsory license to patents. This needs to be changed, or the poor will predictably suffer.

We propose an implementation of unfair competition rules for data that acknowledge the need for rules that provide reasonable protections for the investment by the innovator, but we oppose the exclusive rights model.

Quite simply, we propose the US agree to a form of protection that is described by the World Intellectual Property Organization (WIPO) as compensatory liability. Generic firms would be free to rely upon third party evidence of the safety and efficacy of products, but they would have to pay reasonable compensation to the owners of that data. This approach is based upon the US law for data used to register some agriculture chemicals. The US Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) provides mechanisms whereby generic manufacturers of chemicals used to treat or protect livestock and plants can register products after they share costs. The cost sharing is often based upon the generic firm’s expected share of the market.

It would be reasonable and acceptable to CPTech if, during the first 5-years of the registration of a medicine, the US government required generic producers to pay a reasonable share of the cost of the tests used for the registration of the product. There are several well-known economic models that would produce reasonable results. For example, if the global market for a drug is $1 billion, and generic sales in a country are expected to be $1 million, the generic firm would be liable for .1 percent of the (appropriately defined) cost of tests. If the domestic generic sales were $100,000, the contribution would be .01 percent. One could also set a bottom limit; such as if the generic sales were less than .1 (or some other number) of global sales, the contribution would be zero.

The appropriately defined costs would be the actual costs, supported by records of real outlays by the innovator, as is required under the FIFRA, with appropriate adjustments for risks. It would not be based upon studies of “industry averages” that have little independent review, or that are not supported by evidence of actual costs.

There could be additional safeguards, to ensure that cost sharing does not lead to unaffordable prices. But in the end, we believe it is reasonable to have some form of cost sharing.

To summarize on this point, CPTech opposes exclusive rights in data, but we would accept a regime of compensatory liability.

To make this more concrete, consider the following. There are now vaccines in development that are expected to be more than 99 percent effective in the treatment of the primary cause of cervical cancer. These new vaccines must be taken before a child is sexually active. Under the exclusive rights rules, no developing country could effectively break the monopoly on this product for a minimum of 5-years. Under the compensatory liability approach, the monopoly could be broken, in return for fair compensation.

This will be the case for every new medicine. It will be morally repugnant to choose the exclusive rights model over the compensatory liability model.

Finally, I will close with points relevant to future trade agreements.

1. The US government should stop putting anti-parallel trade provisions into trade agreements, as are in the Singapore, Australian and Morocco trade agreements. This is an important tool that some countries will need to exercise to address anticompetitive practices. It is also an affront to the many members of the US Congress that are seeking to lower barriers to parallel trade between the US and other high income countries.
2. CPTech would support new trade rules that limit parallel trade and reference pricing between high, middle and low-income countries.
3. The European Union now references the November 2001 WTO Doha Declaration on TRIPS and Public Health in bilateral trade agreements. The United States should do the same for all new FTAs. CPTech notes in particular that the US government agreed that the WTO TRIPS agreement “can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all.” This was an important agreement, and should not be undermined by US bilateral trade agreements.
4. We oppose any restrictions on the grounds for issuing compulsory licenses, and urge trade officials to review the growing academic literature on the problems of patent thickets and the need to protect follow-on innovation.
5. It is time to switch the trade paradigm from TRIPS plus to R&D plus. We do not need higher and higher IP standards. Instead, we need to begin work on new trade frameworks for global sharing of R&D costs, and a more intelligent framework for dealing with the trade related aspects of R&D, including public sector R&D, global public goods like medicines for malaria, vaccines, or public domain databases, and technology transfer.