ASKED & ANSWERED

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Compiled by Amber Lepage-Monette

Subject:
International patents, World Trade Organization (WTO) (Geneva, Switzerland) regulations, the Doha Declaration on Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement, and WTO members’ right to protect public health and, in particular, to promote access to medicines for all.

Background:
The Bristol Myers Squibb Co. (BMS) (New York, NY) case in Thailand over the BMS-patented anti-retroviral drug didanosine (DDI) (brand name Videx®) is an example of how drug multinationals attempt to use patents with minor modifications to extend the period of patent protection. In October 2002, the Thai Central Intellectual Property and International Trade Court (CIPITC) ruled against BMS, resulting in the revocation of invalid claims with regard to drug dosages made by BMS in its patent application, against which a Thai patent had been granted in 1998.
One of the main reasons for the DDI controversy was the high price of DDI in Thailand, which put the drug beyond the reach of Thai HIV/AIDS patients.

This month’s question was provided by students of the University of Saskatchewan’s Biotechnology Management MBA program.

Question:
What are the strategic legal and IP implications to big pharma and bio-pharma working on public health diseases such as HIV/AIDS, of the Doha Declaration of November 2001 and the overriding social welfare caveats of TRIPs in arriving at the ruling?

ANSWER:
Due to cost, access to drugs such as DDI in the developing world is severely limited. In response to a challenge regarding the validity of BMS’s DDI patent by certain interest groups, Thailand’s CIPITC found that BMS’s patent claims extended beyond the invention disclosed and ordered a narrowing amendment, restricting the claims to a quantity of five to 100 milligrams per dosing unit. If implemented, the effect of the decision would permit generic versions of the drug to be manufactured and sold in dose forms outside the claimed limits, at a significantly lower price.
The specific effects of the DDI case may be minimal, as the Thai court’s actual written decision was based on a technical concept of patent law that is fairly universal: patent claims cannot go beyond the scope of the invention as disclosed in the application as filed. However, the surrounding issues of the case do illustrate the challenges that pharmaceutical companies face in developing certain drugs, especially those used to treat conditions prevalent in the developing world.
On the one hand, the development of new drugs and treatments is very expensive. Pharmaceutical companies rely on the patent system to ensure that they can get a return on their investment and research efforts before they face market competition by generic companies. Generic companies can bring drugs to market for much less — the development costs of bringing a previously approved drug to market is about $1 million US, compared to about $800+ million US for an innovator drug. On the other hand, there are also very important social and economic benefits for ensuring new drugs are immediately accessible to those most in need, such as the impoverished HIV-infected populations of the developing world, where deaths due to HIV/AIDS have had a devastating impact.
TRIPs, the 2001 Doha Declaration and the subsequent 2003 WTO decision attempt to address this balance.
Under Article 31 of the TRIPs Agreement, WTO members are authorized to issue compulsory licences for patented drugs. A compulsory licence is a licence to a third party authorized by the government without the patent holder’s consent. However, in the normal course, such licences can only be granted if: (a) the proposed licensee made efforts to obtain authorization from the patent-right holder on reasonable commercial terms; and (b) adequate remuneration is paid to the right holder. In the event of a “national emergency” or “other matters of extreme urgency,” “public non-commercial use” or “anti-competitive practices,” Article 31 permits members to forgo the requirement in “(a)” above and issue a licence without prior consultation or negotiation with the patent holder — adequate remuneration, however, must still be paid.
The Doha Declaration of 2001 breathed additional life into Article 31 by affirming the right of each WTO member to determine what constitutes a “national emergency” or “matters of extreme urgency.” Doha specifically mentions HIV/AIDS, tuberculosis, malaria and other epidemics as examples. In other words, members are free to determine the grounds on which compulsory licences may be issued without consultation or negotiation with the patent holder. In addition to this, an Aug. 30, 2003 decision of the WTO General Council permitted members to issue compulsory licences for export, meaning that countries that do not have the capacity to manufacture generic pharmaceuticals may now import them from countries that (a) do have such capacity, and (b) either do not provide domestic patent protection for the drug or have chosen to issue a compulsory licence for the drug. It is anticipated that developing countries, whose citizens and governments are generally less able to afford patented drugs, will be most likely to make use of these provisions in order to secure supplies of less expensive generic pharmaceuticals.
One criticism of the modifications introduced by the Doha Declaration is that they will reduce the incentive for pharmaceutical companies to engage in R&D with a view to developing drugs targeted toward conditions that are most prevalent or isolated to developing countries. As such, other government incentives may be required to ensure that this does not occur and that drug development continues.
Another criticism of the Doha Declaration and subsequent 2003 WTO decision is that they may close off certain alternative measures to provide access to drugs at reasonable prices, without sacrificing the incentives afforded by patent protection. Although TRIPs states that adequate remuneration must be provided to a patent holder under a compulsory licence, it is uncertain what is meant by “adequate.” One potential alternative approach to address the balance is through price discrimination, which involves drug companies charging a higher price for a certain drug in more affluent markets, while charging a lower price in other markets to allow consumers who would be priced out of the market to still obtain the drug. This has the advantage of improving access to essential medicines while actually increasing profits to drug producers, thus maintaining or enhancing the incentive to discover and produce useful drugs. However, price discrimination strategies are easily undercut by a phenomenon known as parallel imports. Essentially, a parallel importer exploits price discrimination by purchasing a drug in the low-price region and reselling at cut rates in the high-price region, undercutting the drug producer’s profit margins. The Doha Declaration and subsequent WTO decision authorizes WTO members to establish their own regime for something known as the exhaustion of patent rights, which refers to the concept that once the first sale of the product is made, the producer loses its rights to the product such that it has no control over resale. The effect of this provision is that it leaves control over parallel imports in the hands of national governments, casting doubt as to the efficacy of any price discrimination strategy on the part of pharmaceutical companies.
Unfortunately, striking the right balance between innovation-promotion incentives to ensure drugs are actually available for certain conditions, versus the immediate needs of a population once the drugs are available, is difficult. There are obvious public relations and ethical issues for companies that are already in the HIV/AIDS space. Certainly pharma companies will consider the effects of TRIPs and the Doha Declaration in their business development and IP strategy, first when deciding which drugs and indications are economically viable for them to pursue (or pursue first), and second, when deciding in which countries to pursue patent protection.

Anita Nador is a partner in McCarthy
Tétrault’s Toronto office. Michael
Fishbein is a law student currently articling with McCarthy.