Brand-Name Drug Industry Alarmed At IPR Precedent Of FTA Template

Inside US Trade
May 18, 2007

The brand-name pharmaceutical drug industry is arguing that the intellectual property rights provisions in a bipartisan compromise for handling free trade agreements scales back protections for brand-name drugs and could set a much lower standard for IPR protection in developing country markets.

The agreement contains three main provisions: a reduced period of time in which generic companies are restricted from using brand-name test data to approve generic drugs, an end to the requirement that a foreign health regulator would have to certify that a generic drug does not violate a patent before extending marketing approval, and language giving countries the option of extending patent duration if a patent approval does not happen on a timely basis.

These elements apply only to FTAs negotiated with Peru, Panama and Colombia as developing countries, but do not apply to the FTA with Korea as an industrialized country.

Partly for this reason, health advocacy and generic drug industry sources this week charged that the pharmaceutical industry was not harmed in any substantive way by the conceptual agreement announced May 10. Health advocacy sources also pointed out that under the conceptual agreement, the brand-name pharmaceutical industry is still receiving strong IPR protections.

But brand-name drug industry sources this week countered that the conceptual agreement could have large implications if it is used as a precedent for handling trade-related IPR issues. These sources said they fear that the U.S. Trade Representative's office will no longer insist on tough data exclusivity, patent linkage, and patent extension provisions in developing countries, especially in China, India, or Southeast Asia.

A U.S. trade official this week downplayed the precedent-setting nature of the agreement by saying it is "about the four FTAs that are pending congressional approval." The official said he could not comment on whether the U.S. would now negotiate the new IPR provisions in future FTAs, but did not explicitly rule out this possibility. "This was not a part of our discussion with Congress, and that is just a bridge we haven't crossed yet," he said.

The official also said it was unclear if the new IPR provisions would reduce the leverage of the U.S. in demanding tough IPR protections in developing countries more generally. In the so-called Special 301 process, for example, the U.S. pressures trading partners to change those IPR policies and practices it considers objectionable.

"We are not getting too far in front of ourselves in terms of potential effects of other aspects of trade policy," he said. "We'll have to see; I think we are not jumping to any conclusions."

Sources on all sides of the debate agreed that the reaction of the pharmaceutical industry to the conceptual agreement has been muted thus far. In particular, sources noted the cautious response of the Pharmaceutical Research and Manufacturers of America (PhRMA), which in a May 11 statement said it is still evaluating the agreement. The statement did say PhRMA members have been "extremely concerned" that core American intellectual property rights remain protected in FTAs.

However, brand-name industry sources explained that the cautious reaction reflects the fact that the brand-name industry recognized that the emerging deal was based around negotiations on labor provisions and could not be stopped over industry objections on the IPR provisions. Without a chance of winning this fight, it is important not to "burn any bridges" and work constructively with all players so that the IPR provisions in the conceptual agreement do not become a precedent, they said.

One source also highlighted that pharmaceuticals are an export-oriented industry, and so it is hard to lobby against FTAs, and pointed out that even under the conceptual agreement the brand-name industry still receives IPR protections, although they are weaker than what would have otherwise been the case. Another source indicated the muted response could reflect the fact that the pharmaceutical industry is pleased at the efforts of the Bush administration to achieve its domestic priorities, such as stopping the imports of Canadian drugs into the U.S. in legislation considered by the Senate this month.

Under the conceptual agreement, Peru, Panama and Colombia will be asked to make five changes to the IPR provisions contained in their respective FTAs related to provisions on data exclusivity, patent linkage, and patent extensions. In addition, these countries are obligated to include a new provision providing for access to medicines in critical circumstances, and also incorporate an existing side letter on public health into the text of their FTAs.

The first change would help generic drug manufacturers enter foreign markets more quickly by shortening the time of data exclusivity in foreign markets in certain circumstances. Specifically, a foreign country would only have to provide data exclusivity for drugs already approved in the U.S. until the U.S. period of data exclusivity expires.

However, this concurrent data exclusivity arrangement only applies if a trading partner issued a marketing approval within six months of a receiving the application for marketing approval from a U.S. company. That timeline can only be met if the trading partner relies on the U.S. marketing approval and does not perform its own complete investigation.

This change helps address the fear that under recently negotiated FTAs such as the Central America Free Trade Agreement, a pharmaceutical company could benefit from five years of data exclusivity in the U.S. and then seek five additional years of exclusivity in an FTA partner country once the U.S. exclusivity period was almost expired.

Sources on all sides of the debate agreed that this change provides an incentive for brand-name manufacturers to more quickly seek marketing approval in the FTA partner countries after obtaining approval in the U.S., as that would ensure that most of the five-year data exclusivity granted in the U.S. is preserved in the FTA partner market.

However, these sources also agreed that the five-year data exclusivity period in FTA partner countries would likely only be reduced by a matter of months as a result of this change. This is one reason why health advocacy sources argued this was only a minor improvement.

In addition, health advocacy sources questioned whether Peru, Panama and Colombia rely on U.S. marketing approvals for their own approval processes, as the data exclusivity provision applies only in these scenarios. The U.S. trade official and brand name drug sources said these countries generally do rely on U.S. approvals, but could not specify further.

Sources agreed that the six-month marketing approval window is a realistic timeframe under which FTA partner countries could process marketing approvals only if they relied on U.S. approvals.

The conceptual agreement would also eliminate the mandatory requirement in FTAs that a FTA partner's health regulators cannot issue a marketing approval for a generic drug until they certify there is no patent infringement. While an FTA partner could still choose to have a so-called patent linkage system, it is not required to do so.

If a country chooses not to have a linkage system, it must establish a mechanism to alert patent holders of generic marketing approval requests that may be patent-infringing, and must also establish procedures to adjudicate any patent infringement dispute. This would be coupled with the ability to seek preliminary injunctions or remedies that are just as effective under the legal system to block marketing approval in a case of a patent dispute, according to a USTR official.

The notification arrangement should give patent holders sufficient time and opportunity to effectively enforce their rights, according to a Democratic fact sheet describing the change. An example of that would be posting a marketing approval application on a government website so a patent holder could discover applications that might be infringing, it said.

Regardless of whether countries choose to adopt a linkage system, the FTA partner country would also have to provide for an expeditious procedure for generic drug companies to challenge the validity or applicability of a patent, according to a U.S. trade official.

Health advocacy and generic drug sources were generally supportive of this change, but brand name pharmaceutical sources said they are worried about the consequences of shifting the burden for determining patent infringement to court procedures in developing countries. One source argued this would more easily allow patent-infringing generic drugs to get on the market.

Health advocacy sources also supported the agreement for lifting the requirement that countries must provide extensions for patents if the original patent approval was delayed.

Specifically, the new agreement would make optional patent extensions for pharmaceuticals if patents or marketing approvals were delayed. This is coupled with an across-the-board requirement applying to all fields of technology that countries will make their "best reasonable efforts" to ensure expeditious patent approval, according to a USTR official.

This would mean FTA language would stipulate parties "may" compensate patent holders for unreasonable delays in patent approvals, instead of the language in current FTAs that says they "shall" do so, according to a Democratic summary of the deal. Health advocacy sources were unequivocally supportive of this change.

Also under the agreement, Colombia, Peru, Panama and Korea will be asked to incorporate new language into their FTAs making it clear that they would provide an exception to data exclusivity rules in those agreements if necessary to protect public health. Specifically, it will be made clear that these countries are allowed in certain circumstances to issue a compulsory license that would supersede data exclusivity rules in the FTA, according to a U.S. trade official.

Korea, Peru, Panama and Colombia would also be asked to incorporate an existing side letter on public health into the text of their FTAs, which state generally that the intellectual property chapter does not prevent an FTA partner country from taking the necessary measures to protect public health.