CPT's June 29, 1999 letter to the Congressional Black Caucus regarding African/AIDS/patent trade dispute

                 Consumer Project on Technology
              P.O. Box 19367, Washington, DC 200036
              voice 202.387.8030 - fax 202.234.5176

June 29, 1999

The Honorable James E. Clyburn
Chairman, Congressional Black Caucus
U.S. House of Representatives
Washington, DC 20036

via fax 202.225.2313

Dear Representative Clyburn,

The Vice President's June 25, 1999 letter to James E. Clyburn, as
Chair of the Congressional Black Caucus, appears to signal a
welcome and important change in US policy on the issue of US
trade policy and access to essential medicines.  Most notable was
the Vice President's statement that he supports:

     South Africa's efforts to enhance health care for its
     people   including efforts to engage in compulsory
     licensing and parallel importing of pharmaceuticals --
     so long as they are done in a way consistent with
     international agreements.

On its face, this is a clear statement in support of compulsory
licensing and parallel imports as mechanisms to broaden access to
essential medicines in Africa, and one assumes, other developing
countries.  However, our enthusiasm is restrained by the way that
this support is qualified.  Specifically, the words "in a way
consistent with international trade agreements" has been subject
to highly controversial interpretations by the staff of the US
Trade Representative (USTR), the US Patent and Trademark Office
(USPTO) and the US Department of State, as expressed in numerous
Consider the relatively straightforward case of parallel imports. 
Parallel imports involve cross border trade in goods, without the
consent of the manufacturer.  This may occur where a drug company
charge different prices in different countries.  For example,
Claritin, a popular anti allergy drug, has a wholesale price of
$218 in the United States, and $61 in Canada.  And Cipro, a
prescription drug to treat infections, is priced at $399 in the
US, and $161 in Canada.  If the US government permitted parallel
imports of pharmaceuticals, US consumers could buy Claritin from
Canadian suppliers, or from suppliers in Spain, France or other
countries where the prices are lower.  This is what the
government of South Africa wants to permit.  South Africa wants
to buy drugs at the best world price.  This is important for
South Africa, where local markets are not particularly
competitive.  For example, according to a March 29, 1998 article
in the New York Times, South Africa could save 84 percent on
Chloroquine, an antimalarial drug, 92 percent on Amoxicillin, and
86 percent on Mebendazole (a drug to treat worm infections),
through parallel imports.

US trade officials have claimed in numerous forums that Article
28 of the World Trade Organization's TRIPS accord on intellectual
property makes this practice illegal for patented drugs, because
it gives the patent owner the exclusive rights to import a
product into a country.  However, this isn't an accurate
statement about what Article 28 does.  Article 28 also says this
right is "subject to the provisions of Article 6" of the TRIPS
agreement.  What does Article 6 say?  It says that if countries
determine, under their own laws, that patent rights are
"exhausted" when goods are first sold (the so called "first sale
doctrine"), the decision will not be subject to WTO sanctions
under dispute resolution mechanisms.  Trade experts know that
Article 6 of the TRIPS is the relevant provision on parallel
imports, and that it was put in the TRIPS to ensure that there
was no ambiguity about the legality of parallel imports. 
Parallel imports are indeed legal under the WTO/TRIPS, they are
legal under US patent law, and parallel imports of
pharmaceuticals are common in many European countries.  US trade
officials have engaged in tortured attempts to portray parallel
imports as somehow illegal but not prohibited by the TRIPS, in
attempts to cloak US trade sanctions as something more noble than
superpower bilateral bullying.

Likewise, US trade officials have offered highly stylized and
inaccurate interpretations of Article 31 the WTO/TRIPS, which
sets standards for compulsory licensing of patents.  As you may
know, under Article 31, countries can issue licenses to patents
to third parties.  In most cases, this will involve government
set royalties to patent owners, a condition that South Africa and
other African countries will gladly honor.  Article 31 of the
TRIPS also requires countries to provide a number of legal
safeguards to protect patent owners.  That said, the WTO rules
permit countries very broad discretion. As noted by the World
Health Organization:

     Member states are not limited in regard to the grounds
     on which they may decide to grant a license without the
     authorization of the patent holder.  They are in
     practice only limited in regard to the procedure to be

At a meeting in Geneva on March 26, 1999, Lois Boland of the US
Patent and Trademark Office said the US government's position was
that as a matter of policy, compulsory licensing should be
limited to only those cases where "the market fails, i.e., there
is a violation of competition laws" or where "a declared national
emergency" exists, so that its use is limited to "exceptional
circumstances." Then, when turning to legal issues, Ms Boland
asserted that:

     a compulsory licensing provision in a given law that
     would affect certain categories of inventions, such as
     pharmaceuticals, would not be consistent with Article
     (a) of Article 31, which requires that "authorization
     ... shall be considered on its individual merits."  

In other forums US government officials have claimed that
compulsory licensing laws that specifically deal with medicines
would run afoul of Article 27 of the TRIPS, which states that
"patents shall be available and patent rights enjoyable without
discrimination as to . . . the field of technology."  Neither of
these interpretations are given weight by experts on the TRIPS,
and officials from the World Trade Organization, the World
Intellectual Property Organization and the World Health
Organization have all rejected this view.  Moreover, many
European and US compulsory licensing statutes would run afoul of
such a reading of the TRIPS, including the compulsory licensing
provisions in the US Clean Air Act (42 USC Sec 7608) and for
nuclear power (42 USC Sec 2183).

South Africa and other developing countries have very practical
reasons to focus on pharmaceutical drugs for compulsory
licensing.  More than 20 percent of young adults in South Africa
are infected with HIV/AIDS and will die without access to
treatment, and there are widespread problems with malaria,
tuberculous and other illnesses.  Compulsory licensing, when
combined with good procurement policies, can be used to drive
drug prices closer to manufacturing costs, with significant
reductions in prices.  Last year Thailand removed exclusivity
protections for Fluconazole, a drug used to treat cryptococcal
meningitis, a deadly disease associated with HIV/AIDS, and new
competition led to a reduction in price of 95 percent, making the
drug now affordable to poor patients in Thailand.  In South
Africa, however, Fluconazole is still protected by patent (South
Africa has yet to issue any compulsory licenses on
pharmaceuticals).  Because of its high price, public health
authorities in the South African Provence of Kwazulu-Natal have
recently stopped making Fluconazole available.   And it goes
without saying that more South African HIV/AIDS patients could
afford HIV/AIDS drugs if the government would issue compulsory
licensing to firms such as CILPA, the Indian firm that currently
sell government funded HIV/AIDS inventions such as AZT, ddI and
3TC at a fraction of the prices charged by Glaxo and Bristol-
Myers Squibb.
Therefore, to better evaluate the Vice-President's letter, it
would be useful to have additional clarification regarding the
legal issues.  For example, does the Vice President believe the
South Africa government would violate any international law by
permitting parallel imports of pharmaceutical drugs?  And, if
not, why has the US government been waging a two year war against
parallel imports in South Africa?

Also, does the Vice President believe the South African
government is violating any international agreement by simply
having broad legal authority to issue compulsory licenses, so
long as its actual practice follows WTO rules regarding
procedures?  Does the Vice-President believe it is illegal under
the WTO to have a compulsory licensing statute that singles out
medicines?  If not, why has the US government brought trade
pressures against South Africa for considering compulsory
licensing of essential medicines? 

There are, of course, many other issues that might be raised with
the Vice President.  For example, to the degree that the Vice
President's letter signals a departure from current US policy,
what if anything will be done to communicate this new view to the
people working at the USTR, USPTO and the Department of State who
are presently pressuring South African and other countries over
pharmaceutical polices.  How will the US government resolve the
current 301 "out of cycle" review of South Africa that is
scheduled to be concluded in September.  Will the US government
change its positions in other bilateral negotiations, such as
those involving Israel or Thailand?  

Also, how will the US government respond to requests from public
health groups to give the World Health Organization permission to
use U.S. government rights in taxpayer funded pharmaceutical
inventions?  These intellectual property rights, which may be
shared with the WHO for public health purposes, include such
important HIV/AIDS drugs like d4T, 3TC, ddI, ddC and Ritonavir. 
Also, will the Vice President's support for compulsory licensing
and parallel imports in South Africa apply to other African
countries, or to other poor countries, such as Thailand, which
has an estimated one million HIV/AIDS patients?

Thank you very much for considering these issues.


James Love
Consumer Project on Technology