Generic drug manufacturers can pose major financial threats to those companies that invent and develop the copied drugs both domestically and internationally. Even after a drug company is granted patent protection on its products, there are other concerns about generics that Big Pharma face from abroad. In particular, one of many agreements negotiated by the World Trade Organization (WTO), the Trade-Related Aspects of Intellectual Property Rights Agreement, or TRIPS, is something of patent owners must absolutely be aware.
The WTO is an international organization tasked with reviewing the rules of trade between nations, including goods, services and IP. Most of the organization’s responsibilities under TRIPS stem from the Uruguay Round and the General Agreement on Tariffs and Trade (GATT) of 1986-94 and its newest negotiations arise from the Doha Development Agenda of 2001. As of July 29, 2016, there are 164 member countries in the WTO.
A basic principle for the WTO is to finesse countries with trade barriers to open markets for trade. It further facilitates a trade flow as free as possible to encourage economic development and well-being, while avoiding undesirable results. In some instances, this could be achieved by removing obstacles, while in others, it means making rules predictable. For IP, TRIPS implements a uniform set of protections among the member countries which allows for improved stability in international economic relations.
Intellectual property, which consists largely of ideas and knowledge, is a vital element of trade. Since the economic value of pharmaceuticals is based on the innovation, R&D and testing required, a more congruent system of IP rights globally was required to create order and solve disputes methodically. Much of this was achieved by the Uruguay Round, but there were some gaps remaining. The Uruguay Round objectives were to reduce distortions and impediments to international trade, promote effective and adequate protections of intellectual property rights, and ensure that measures and procedures to enforce intellectual property rights did not themselves become barriers to legitimate trade. TRIPS was negotiated in an attempt to bridge these holes and create common international rules. This Agreement introduced intellectual property rules into the multilateral trading system, which had never been done before. More recently, additional amendments to TRIPS were agreed upon under the Doha Declaration to allow for more flexibility, particularly the ability of poor countries to obtain certain drugs for their patients.
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Before TRIPS, most of the world’s developing countries had very weak patent protections, especially for pharmaceuticals. These weaknesses included — but were not limited to — shorter patent terms ranging from 4 to 7 years, narrowly defined patents which allowed for imitations, and greatly reduced monopoly rights of the patent owner by the permissive use of compulsory licenses. This divergence demonstrates a disconnect between the above mentioned weaknesses and the strong protections of industrial countries with their 20-year patent terms and almost unlimited monopoly rights.
Of the many sectors TRIPS was designed to impact, pharmaceuticals and the access to medicine were heavily affected. TRIPS allows for patent rights which are not absolute, but rather subject to four categories of limitations or exceptions: regulatory exceptions, compulsory licensing, anti-competitive practices, and parallel imports (exhaustion).
The regulatory exceptions, sometimes referred to as the “Bolar” provision, are for research purposes with the intent to understand the invention in order to make advances in the science and technology. Here, that could be the chemical formula, or the mechanism by which the medication is administered or performs in the body. These limited exceptions are allowed to be made by Member countries, only if they do not reasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner while taking into account the valid interest of third parties. Some countries allow generic companies to use the patented drug to obtain marketing approval, such as from a public health authority, without the patent owner’s permission and before patent expiration. This way generics can be produced as soon as the patent expires, instead of having to wait for all the various approvals.
Compulsory licenses circumvent the patent holder’s rights when a government is given the authority to license to another party the patented invention without the holder’s consent. However, the licensee is required to make reasonable efforts to get a voluntary license from the owner, unless there is a “national emergency”. If a license is refused, one may be granted by the government. When a license is granted, it allows generic drug manufacturers to produce the patented formula and sell it at a fraction of the cost since they are only incurring manufacturing costs and none of the hefty expenses of R&D. Before the Doha Declaration, the drugs could only be manufactured by the licensee predominantly for the supply of the domestic market of the member country authorizing the use. This created a problem because if the member was a developing nation, it would be required to manufacture in-country when often there was little infrastructure which could support such a sophisticated industry. Now, poor countries can import generic drugs.
Anti-competitive practices can be implemented by Member countries to prevent patent owners from abusing their rights in ways that unreasonably restrict trade, or hinder the international transfer of technology. Employing these practices provides more flexible and relaxed conditions for compulsory licenses in situations where anti-competitive processes are encountered.
Parallel importing refers to products marketed by the patent owner or with the owner’s permission in one country and imported into another, without the owner’s approval. It provides a mechanism for countries to import drugs based on differential pricing in various countries; if a patented drug is being sold for less in one country other than the Member, the Member can import it at the lower price without the authorization of the patent holder in the Member country. The principle is the legal principle of exhaustion, where the holder’s exclusive IP rights end in the context of re-sale. None of the TRIPS provisions, except those dealing with non-discrimination — “national treatment” or “most-favored nation treatment” — can be raised in a dispute between countries where one thinks the other’s parallel importing violates the TRIPS agreement. This allows the member country to decide the best way to handle exhaustion in the way that best fits its domestic policy objectives.
For pharmaceutical patent owners, these TRIPS amendments try to harmonize the worldwide rights afforded to them by balancing the interests of the rights holder and those of consumers. However, their monopoly is not as strong as it would be domestically, especially since generics can be made under more exceptions.