New FTA Template Alters Brand-Name Drug Protections

Inside US Trade
May 11, 2007

The conceptual agreement for free trade agreements worked out between House Ways and Means Committee Chairman Charles Rangel (D-NY) and the Bush Administration would alter three key intellectual property protection provisions in pending FTAs in ways that would make it easier for generic drugs to win marketing approval.

Critics of current FTAs have charged that they favor the rights of U.S. brand name drug makers in overseas markets at the expense of generic drug companies.

The FTA changes are seen as a blow to U.S. drug companies, although the Pharmaceutical Research and Manufacturers of America said in a May 11 statement it is still evaluating the agreement reached this week. However, the statement did say PhRMA members have been “extremely concerned” that core American intellectual property rights must be protected in FTAs.

The first change agreed to by congressional Democrats and the Bush Administration would help generic drug manufacturers enter foreign markets more quickly by shortening the time of data exclusivity in foreign markets. Data exclusivity refers to the period of time in which a generic drug manufacturer is prohibited from using the clinical test data generated by a brand name drug company in seeking the approval of generic version of the drug.

Under the agreement announced on May 10, a foreign country would only have to provide data exclusivity for drugs already approved in the United States until the U.S. period of data exclusivity expires. But this concurrent data exclusivity arrangement only applies if a trading partner issued a marketing approval within six months of a request by a U.S. company, he said.

This is a considerable change from the current texts, which require a U.S. FTA partner to grant a full five years of data exclusivity once a brand name company receives marketing approval in that country. Current FTAs therefore allow a U.S. company to have five years of data exclusivity in the U.S., followed by an additional five years overseas if the company sought marketing approval overseas at the end of the five-year period in the U.S.

The agreement between the administration and Congress would also eliminate the mandatory requirement in some previous FTAs that a foreign country’s health regulators cannot issue a marketing approval for a generic drug until they certify there is no patent infringement. Supporters of access for generic drugs have said this so-called “linkage arrangement” favors brand name drug makers because health regulators have no patent expertise and might tend to refrain from issuing marketing approvals for generic drugs for fear they could infringe patents.

Instead of mandatory linkage, the agreement would require an FTA partner to put in place “procedures and remedies” for expeditiously adjudicating any patent dispute between brand name and generic manufacturers, the official said. There are a number of options for doing so, including maintaining a linkage arrangement, he said.

Another option available under the new agreement is for the foreign FTA signatory to establish a procedure to notify the brand name manufacturer when a generic company applies for marketing approval, he said. This would be coupled with the ability to seek preliminary injunctions or remedies that are just as effective under the legal system to block marketing approval in a case of a patent dispute, he said.

The notification arrangement should give patent holders sufficient time and opportunity to effectively enforce their rights, other sources said. An example of that would be to post a marketing approval application on a government website so a patent holder could discover applications that might infringe their rights, they said.

The third major IPR change would lift the requirement that countries must provide extensions for patents if the original patent approval was delayed, the USTR official said in a May 11 teleconference.

Specifically, the new agreement would make optional patent extensions for pharmaceuticals if patents or marketing approvals were delayed, the USTR official said. This is coupled with an across-the-board requirements applying to all fields of technology that countries will make their “best reasonable efforts” to ensure expeditious patent approval, the official said.

This would mean FTA language would stipulate parties “may” compensate patent holders for unreasonable delays in patent approvals, instead of the language in current FTAs that says they “shall” do so, according to a Democratic summary of the deal.

The official said USTR is hoping to convert the conceptual agreement reached this week into legal text “within a couple of days.” The text would then be reviewed in an interagency process, and cleared with Ways and Means Democratic and Republican staff to see if it accurately reflects the conceptual agreement, he said. It would then be presented to trading partners, he said.

He pointed out that the issue of changing the existing FTAs with Panama and Korea would have to done soon to ensure they are signed before fast track expires on July 1. When asked if fast track deadlines applied to this situation, he said it would “cleaner” if they did.

The USTR official agreed that these trading partners could reject the U.S. request for “legally binding” changes to the FTA as sovereign nations, but emphasized that this would mean that the prospects for congressional passage of a given FTA would “diminish significantly.”

He also emphasized that the agreement with Rangel only stipulates that the new commitments would be “legally binding” on FTA signatories, a point also made by members of Congress at the initial announcement. The USTR official said there are multiple ways of doing so, and they do not “necessarily always mean” the reopening of the FTA texts.

But Rep. Sander Levin (D-MI) said on May 10, he does not see how there could be binding commitments that are not in the texts of the FTAs.

The USTR official emphasized that the U.S. has kept trading partners abreast of the negotiations with House Democrats in recent months, a point also made by USTR Susan Schwab in a May 10 press conference with House Speaker Nancy Pelosi (D-CA).

Pelosi said she did not see “much problem” in foreign governments going back to their legislatures for approving the changes since senior officials in some of the affected countries have signaled they can accommodate the changes envisioned by Democrats.

The template as worked out would apply to the four pending FTAs with Peru, Colombia, Korea and Panama, but would only clear the way to congressional passage for Peru and Panama. For Colombia and Korea, other issues would have to be addressed before they can move forward in Congress (Inside U.S. Trade, May 11, p. 1).

The USTR official would not say when he expected Peru and Panama to be considered by Congress.

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