Compulsory licensing discourages partnerships: PhRMA official

Anju Ghangurde

THE Pharmaceutical Research and Manufacturers of America (PhRMA) represents leading US R&D-based pharma and biotech companies (they invested over $30 billion in 2001 in discovering / developing new drugs). PhRMA assistant vice president (intellectual property and Middle East/Africa affairs),
Susan Kling Finston, spoke to The Financial Express on a host of issues including what triggered the withdrawal of the suit in AIDS-ravaged South Africa by the MNCs and how compulsory licensing distorts the system. The PhRMA is also examining the option of a cooperative effort with the Indian Pharmaceutical Alliance (IPA). Excerpts:

What is PhRMA’s reaction to the Indian government’s recent move allowing 100 per cent FDI in the pharmaceuticals sector?
Susan Kling Finston: We see it as a positive, confidence building measure, particularly in the light of the current process of reform underway with regard to the second patent amendment. When we have all these factors together, then it creates an environment of encouraging investment by members of PhRMA. Liberalising FDI alone won’t change everything, obviously patent protection is a key element. But still it is a positive indication.

What actually triggered the withdrawal of the suit by the 39 MNCs and the Pharmaceutical Manufacturers’ Association of South Africa in Pretoria?
SKF: The suit was withdrawn by mutual settlement and over a period of three years there were numerous attempts to reach a settlement. Prior to July 2000, there were ongoing settlement discussions which broke off. But as a result of the litigation in March, there were intense pressures both on the government and pharma side (although of a different nature). What you may not realise is that there was a run on FDI and it was considered potentially very damaging to the government,economic development. Because there was a perception by MNC’s (generally speaking) that it’s not safe to invest in South Africa with regard to intellectual property. So there was a corresponding benefit to the South African government as to the companies. Sometimes when there is external pressure it forces a much better result.

What are the key elements of the settlement?
SKF: In return for withdrawal of the suit, the government not only recommunicated, in writing, that it will meet its TRIPS obligation but also agreed that it will work in partnership with industry on developing regulation or sub-legislation because that is, in effect, where the potential violation of TRIPS obligations could come out. There was nothing exquisitely in the legislation that can’t be clarified by the sub-legislation and that is why it was possible to reach a settlement. The companies, on their side, withdrew the suit, engaging in new partnerships. It really had nothing to do with access to medicines, because offers on access are still outstanding and its a question of the capability and ability of the government to benefit from them.

But will the South African government invoke compulsory licensing, which means many Indian companies stand to gain?
SKF: Actually, the government did not take that position. That was what the activists were saying. The government has stated that it has no intention of declaring a state of emergency or invoking compulsory licences. But any government that is a signatory to TRIPS is entitled to use the safeguards in the agreement and so it’s no different in South Africa. As far as intent, its a sovereign government and has spoken its intent and I think the activists have to respect the decision of the government. There’s been little lack of respect of the sovereignty, by some statements by activists in South Africa and elsewhere, on what governments must/should do in very harsh terms.

So, PhRMA is not in favour of compulsory licensing?
SKF: The problem is when governments use the provision to go beyond what is permitted in TRIPS. When you have strong levels of intellectual property protection, you may have an anti-Trust proceedings, which is one of the conditions under TRIPS where you need to impose a compulsory licence as a remedy.

You can have other exceptional circumstances based on national emergencies that are short in duration or limited scale. By and large, what we are talking about in the case of compulsory licensing is the failure of the market to provide access to an essential product in exigent circumstances. And why we are not generally in not in favour is that is a very difficult circumstance to identify. Even in S Africa where there was a difficult political situation, the companies were very anxious to enter into commercial deals, because you don’t get anywhere by suing your biggest customer.

Although the activists have a motivation —they want compulsory licensing —it’s not because of HIV AIDS or because it’s good for governments/consumers. That’s their interest. It’s actually been noted that even after prices came down, they are still calling for compulsory licensing. It’s an agenda item for some pressure groups. So, if there isn’t any exigent need, we believe that compulsory licensing distorts the system, discourages partnerships and makes its difficult to work together towards the goal of improving access to medicines.

Then why did the MNCs fail to respond to Cipla’s offer, suggesting a royalty to the patent holder for allowing it to manufacture AIDS drugs? Would they rather prefer government action?
SKF: Of course not. This isn’t a government talking/recommending an action. This is a company that is trying to negotiate and it was a situation when Cipla wasn’t negotiating. It’s not really a bonafide business transaction when you are publishing on the Internet, letters that you are sending confidentially to companies.
Furthermore, in the TRIPS agreement Article 31 states that remuneration is a commercial model and not a token royalty. What Cipla was offering was not based on any calculation of an economic benefit of remuneration. Besides, it was already well known that they were trying to sell into these markets without approval. In no way is it an arms length, fair attempt at a transaction.

Had they pursued it the way that the Jordanians are trying to pursue it (where the Jordanian companies are meeting with PhRMA members at a very quiet level, confidentially), striking deals on basis of mutual benefit on an economic playing filed then possibly there might have been a basis.