Reproduced with permission from WTO Reporter, "United States Drops WTO Case Against Brazil Over HIV/AIDS Patent Law" (June 26, 2001). Copyright 2001 by The Bureau of National Affairs, Inc. (800-372-1033)

Bureau of National Affairs

United States Drops WTO Case Against Brazil Over HIV/AIDS Patent Law

The United States has decided to drop a complaint it had filed with the World Trade Organization contending that a provision of Brazil's patent law dealing with the manufacture of pharmaceutical products, including those aimed at combatting HIV/AIDS, violates WTO rules, U.S. Trade Representative Robert B. Zoellick said June 25.

Zoellick said that the dispute will be handled instead through a newly created U.S.-Brazil Consultative Mechanism, which will also seek to find "creative solutions" to other bilateral trade- and investment-related disputes.

"The Bush administration wants to resolve trade disputes by seeking constructive solutions to problems that arise," he said. "I stand four-square behind strong enforcement of the WTO rules on intellectual property. However, litigating this dispute before a WTO dispute panel has not been the most constructive way to address our differences, especially since Brazil has never actually used the provision at issue."

Zoellick said that the understanding reached with Brazil over the issue represents another step forward in the Bush administration's "flexible approach" to health and intellectual property issues.

The first meeting of the Consultative Mechanism is set to take place in Rio De Janeiro July 20, when U.S. and Brazilian officials are set to hold important talks on how to carry out the goal of creating a Free Trade Area of the Americas by 2005, according to Brazilian sources.

Speaking to reporters in Geneva, Brazil's undersecretary for trade Jose Alfredo Graca Lima described the agreement between his country and the United States as a "victory for both sides. I think it's a victory of common sense. We can work together in order to leave space for public policies to be made with a view to provide less expensive pharmaceutical products which are necessary for the population."

Graca Lima added that Brazil would continue with its efforts to achieve the objective of lowering prices of pharmaceutical products which are of special interest to developing countries like Brazil. Brazil has warned the Swiss pharmaceutical company Roche that it must drop prices for its patented AIDS medication Nelfinavir by the end of July or risk seeing the patent lifted in favor of generic production. A similar threat against U.S.-based Merck resulted in a steep price drop for its patented AIDS drug Efavirenz in Brazil.

Not Interested in WTO Proceedings

In response to the U.S. WTO complaint, Brazil initiated a tit-for-tat complaint against U.S. patent legislation which it said discriminated against foreign producers. The Brazilian counter-complaint focuses on Articles 204 and 209 of Title 35 of the U.S. patent code.

Graca Lima said the Brazilian complaint, which was in the consultation phase of WTO dispute settlement proceedings, will not be put on ice as a result of the U.S.-Brazil agreement. "It's not our intention to pursue these proceedings in the WTO," he declared.

The dispute with Brazil has centered on a narrow provision of Brazil's patent law designed to pressure patent holders to manufacture their inventions in Brazil--namely Article 68(1)(I), which provides that if a patented product is not manufactured in Brazil within three years of the issuance of the patent, the Brazilian government can compel the patent holder to license a competitor.

Zoellick said that, under the terms of the bilateral agreement announced June 25, Brazil has agreed to provide advance notice to the United States if it plans to utilize the provision. But the U.S. trade representative said that the United States continues to reserve its rights in the WTO with respect to the matter.

A written statement issued by Zoellick's office said that the United States continues to question the consistency of the provision with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (the so-called TRIPS Agreement), which prohibits conditions being placed on patent use based on whether products are imported or produced locally.

"The United States continues to view local manufacturing requirements as being inimical to the principles of free trade and inconsistent with various WTO rules, including the TRIPS Agreement," the statement said. "The U.S. government will aggressively engage other countries that impose or maintain such requirements and, if appropriate, pursue WTO dispute settlement."

The statement said that resolving the dispute with Brazil will facilitate efforts by the two countries to work together toward addressing issues related to intellectual property rights in various fora, including in the context of the proposed Free Trade Area of the Americas (FTAA), and to address related patent issues bilaterally.

Zoellick said that the United States has been supportive of Brazil's "bold and effective" program to fight HIV/AIDS, and that the agreement announced June 25 will enable both countries to harness their common energy "toward our shared goal of combating the spread of this dangerous virus."

The Bush administration announced last February that it would not be rescinding a Clinton administration policy aimed at easing access to HIV/AIDS drugs in sub-Saharan Africa and elsewhere in the world.

Zoellick said June 25 that the United States has informed other WTO member countries that as they take steps to address major health crises, such as HIV/AIDS, the United States would raise no objection if they "availed themselves of the flexibility afforded by the WTO TRIPS Agreement."

The WTO dispute with Brazil focused on Article 68 of Brazil's 1996 industrial property law (Law no. 9.279/96). Article 68 obliges the holder of a patent in Brazil to ensure that the subject matter of a patent is "worked" in Brazil, either by producing the patented good in the country or allowing the patented process to be used in Brazil. If this requirement is not met within three years of the issuance of the patent, the government can issue a compulsory license allowing others to utilize the patent against the patent holder's wishes.

Article 68 also states that if patent owners choose to utilize the patent through importation rather than the local working of the patent, then others besides the patent holder will be allowed to import the patented product or products obtained from the patented process.

The United States charged that the provision violated Articles 27.1 and 28.1 of TRIPS ensuring non-discrimination in the protection of patent rights and the exclusive rights to be enjoyed by patent holders by discriminating against U.S. owners of Brazilian patents whose products are imported into Brazil but not locally produced and curtailing the rights of these owners to utilize the patents.

Panel Could be 'Politically Disastrous.'

On Feb. 1 the WTO acceded to a U.S. request for the establishment of a WTO panel to rule on its complaint against the Brazilian patent legislation. But the United States refrained from seeking the appointment of the three panelists in what was widely viewed as U.S. reluctance to pursue the case in the wake of fierce criticisms from non-governmental organizations.

The Nobel prize-winning group Medecins Sans Frontieres (Doctors Without Borders) warned that the U.S. challenge "might handicap the successful Brazilian AIDS program, which is largely based on Brazil's ability to manufacture affordable treatment... The Brazilian patent policy has been key to the success of the strategies to offer universal access to HIV/AIDS medication in Brazil."

Brazil's ambassador to the WTO Celso Amorim warned when the panel was established that the U.S. complaint "is not only legally unfounded. It may prove politically disastrous."

In a joint statement made available in Geneva, the two countries said that "Without prejudice of the U.S. and Brazil's different interpretations of the consistency of Article 68 with the TRIPS Agreement, the U.S. Government will withdraw the WTO panel against Brazil concerning the issue, and the Brazilian government will agree, in the event it deems necessary to apply Article 68 to grant compulsory license on patents held by U.S. companies, to hold prior talks on the matter with the U.S. These talks would be held within the scope of the U.S.-Brazil Consultative Mechanism, in a special session scheduled to discuss the subject."

Brazil claimed that Article 204 requires small business firms and universities which claim a patent on an invention backed by government subsidies to "manufacture substantially" their invention in the United States, while Article 209 requires goods covered by federally-owned patents (those of U.S. government agencies) to be "substantially produced" in the United States in order to ensure patent protection. Both these provisions, Brazil argued, are also in violation of the non-discrimination principle under Articles 27.1 and 28.1 of TRIPS.

By Gary G. Yerkey and Daniel Pruzin

Copyright 2001 by The Bureau of National Affairs, Inc., Washington D.C.

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