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Healthy IPRs A forward look at pharmaceutical intellectual property


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The Stockholm Network The Stockholm Network is the leading pan-European think tank and market-oriented network. Our unique resource of over 120 market-oriented think tanks in Europe and farther

Healthy IPRs A forward look at pharmaceutical intellectual property

afield provides unparalleled access to the best European policy thinking, the opportunity to lead debates, to change the climate of ideas in Europe, and to meet the key players in shaping the policy debates of tomorrow. The Stockholm Network is funded by subscriptions from companies, think tanks and individuals.

Manuel Campolini, Conal Clynch, Joseph Cook, Trevor Cook, Cathy Garner, Jacques Gorlin, James Killick, Douglas Lippoldt, Matt Lowe, Pedro Velasco Martins, David Monk, Peter Pitts, Emily Bishko Radel, Patrick Ravillard, Richard Rozek, Stefan Szymanski, Nikolaus Thumm, Eskil Ullberg, Jayashree Watal, Tommaso Valletti, Hiroko Yamane Introduction by Meir P. Pugatch Edited by Meir P. Pugatch and Anne Jensen


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Contents First published in Great Britain in 2007 by The Stockholm Network 35 Britannia Row London N1 8QH

About the contributors


Introduction: Why pharmaceutical IPRs?


by Meir P. Pugatch

in association with Profile Books Ltd The Stockholm Network is the leading pan-European think tank and market-oriented network. The views represented here are those of the authors and do not necessarily represent the corporate view of the Stockholm Network or its member think tanks.

List of acronyms

part 1 Economic aspects of pharmaceutical IPRs

The moral right of the authors has been asserted. All rights reserved. Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the publisher of this book. A CIP catalogue record for this book is available from the British Library.

Printed and bound in Great Britain by Hobbs the Printers



Douglas Lippoldt

2 Parallel imports of patented medicines


Stefan Szymanski and Tommaso Valletti

3 Strategic use of IPRs by pharmaceutical SMEs in developing countries


Cathy Garner

4 Antitrust and patent settlement investigations

5 A new approach to trade-related pharmaceutical


Joseph Cook and David Monk IPRs: IPRs as tradeable goods

ISBN-10: 1-906194-00-9 ISBN-13: 978-1-906194-00-0 Designed by Sue Lamble Typeset in Stone Serif by MacGuru Ltd


1 IPRs, pharmaceuticals and Foreign Direct Investment

Copyright Š The Stockholm Network 2007



Eskil Ullberg

part 2 Pharmaceutical IPRs in the international arena



6 The WTO, IPRs and access to medicines Jayashree Watal

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7 Pharmaceutical IPRs and the TRIPs Agreement: past, present and future


the case of combination products in Europe

Jacques Gorlin


Manuel Campolini

8 The WTO Decision of 6 December 2005 on the amendment of the TRIPs Agreement

16 IPRs and the support for biomedical innovation:


17 Supplementary Protection Certificates (SPCs)


Conal Clynch

Patrick Ravillard


9 The WHO Commission’s Report on Intellectual


Property Rights, Innovation and Public Health: a missed opportunity


James Killick

10 The EU’s approach to the enforcement of pharmaceutical IPRs: multilateral, bilateral and domestic perspectives


Pedro Velasco Martins

11 The threat of counterfeit medicines: a new approach to policy


Peter Pitts

part 3 Contemporary topical issues


12 The Convention on Biodiversity (CBD) and Intellectual Property Rights


Hiroko Yamane

13 A statutory research exemption for patents


Nikolaus Thumm

14 Patenting biotechnology


Trevor Cook

15 Patent wars and authorised generics in the USA: assessing the issues


Emily Bishko Radel, J. Matthew Lowe and Richard P. Rozek


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About the contributors

About the contributors

role involved dealing with policy matters relating to Supplementary Protection Certificates (SPCs) and included meetings with stakeholders and the EU Commission on issues relating to SPC legislation. He joined the EU Commission in January 2007 as a seconded national expert, dealing with intellectual property policy and legislation. Joseph Cook is the vice president of NERA Economic Consulting and specialises in antitrust, complex commercial

Manuel Campolini has been a member of the Brussels Bar

disputes, intellectual property, and auctions and market design.

since 1989 and has worked at national, European and inter-

He has testified on economic and econometric issues relating

national levels in the areas of commercial/unfair competition

to market design, intellectual property, contract damages,

law and IPRs, including patent/SPC, trademarks and data exclu-

and merger-related competitive effects. In the pharmaceutical

sivity. Within the law firm Stibbe, he is a member of the Intel-

industry, he has written and consulted on off-label promotion,

lectual Property and Life Science Department, with a practice

life-cycle management, patent settlements and generic entry,

that focuses on legal assistance, strategic advice and litigation

authorised generics, pricing and reimbursement, price-fixing,

related to pharmaceutical issues (IP, regulatory and registration

and the competitive effects of mergers. He has also worked

matters, pricing and reimbursement, clinical trials, parallel

on intellectual property litigation and class actions relating

trade etc.). Between 1997 and 2001 he was the manager of the

to medical devices. He has published in the Journal of Political

legal department at the European Federation of Pharmaceutical

Economy, the Journal of Economic Behavior and Organization and

Industries and Associations (EFPIA). He was more particularly

Antitrust Law Journal, among other journals, and has also served

involved in TRIPs-WTO issues and ran the EFPIA WTO Priority

as an academic journal referee.

Action Team. Trevor Cook is a partner at Bird & Bird, which he joined in Conal George Clynch is a legal adviser at the EU Commis-

1974 with a degree in chemistry from Southampton University.

sion. He studied engineering at Brunel University from 1994

He was admitted as a solicitor in 1977 and joined the intellec-

to 1998 and joined the UK Patent Office as a patent examiner

tual property department in 1981. His practice covers all aspects

in 1999. He moved to the Intellectual Property and Innova-

of intellectual property, technology and regulatory law. He is

tion Directorate (IPID) in 2005 and became policy adviser on

treasurer of the UK Group of the AIPPI (The International Asso-

biotechnological and pharmaceutical legislation. Part of this

ciation for the Protection of Industrial Property), a member of




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About the contributors

Healthy IPRs

the Council of the Intellectual Property Institute and secretary

the 2003 (fifth) and 2005 (sixth) ministerial conferences of the

to the British Copyright Council Standing Committee on

World Trade Organization held, respectively, in Cancun and

Copyright and Technology.

Hong Kong.

Cathy Garner is the chief executive of Manchester: Knowledge

James R. M. Killick is a litigator with a broad range of

Capital. She has a background in university–business links and

European law experience, notably in competition law and

technology transfer, and extensive experience of urban regener-

pharmaceuticals. He has been involved in pleading a number

ation, education and knowledge-based business development.

of leading cases in the European courts, including Microsoft

She is a trustee of the UK registered charity, MIHR (The Centre

v. Commission (abuse of dominant position − compulsory

for the Management of Intellectual Property in Health Research

licensing, treatment of trade secrets); Hanner (Swedish retail

and Development), based in Oxford, and was its founding CEO

monopoly on pharmaceuticals); Forum 187 v. Commission (fiscal

until 2004. She established and ran the Research and Enter-

state aids); Pfizer v. Council (precautionary principle applied to

prise Office at the University of Glasgow in Scotland, led the

pharmaceuticals); IMS Health (compulsory licensing); Nintendo

establishment of the Scottish Institute for Enterprise and was

v. Commission (fining policy); Servier v. Commission (banning of

a founder director of the Scottish North American Business

pharmaceutical products); Cheil Jedang v. Commission (fining

Council. She is a member of the Association of University

policy); and Du Pont v. Commission (GSP). He has taken a

Technology Managers (AUTM) in the USA and served as their

particular interest in cases which establish where the boundary

inaugural vice president for International Relations.

should lie between intellectual property and competition law. He is a partner at the legal firm White & Case.

Jacques J. Gorlin is president of The Gorlin Group and a recognised expert on the nexus between intellectual property

Douglas Lippoldt has been an international economist with

and trade policy. He has been a consultant to the research-

the Organisation for Economic Co-operation and Develop-

based pharmaceutical industry for over twenty years. He is vice-

ment (OECD) in Paris since 1992. His current assignment in

chair of the Industry Trade Advisory Committee on Intellectual

the Trade and Agriculture Directorate gives particular emphasis

Property Rights (ITAC 15), a private sector group that advises

to the so-called BRIC countries (Brazil, Russia, India and China)

the secretary of commerce and the US trade representative on

and a variety of cross-cutting trade and development issues

trade policy, and is a member of the Commission on Intellec-

such as trade-related IPRs. During the 1990s, he managed a

tual Property of the International Chamber of Commerce. He

number of projects related to economic transition in Russia and

also serves as president of the American BioIndustry Alliance

Eastern Europe, producing a series of publications on adjust-

(ABIA). He was an industry adviser to the US delegations to both

ment-related topics. He has also been a contributing author to



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About the contributors

Healthy IPRs

a series of labour market studies of OECD member countries.

three years, between 1993 and 1996. After becoming a member

Prior to coming to the OECD, he worked for ten years for the

of the Lisbon Bar Association, he was a partner in the law firm

US government as an international economist on trade policy,

Macedo Vitorino & Associados.

labour market and economic development issues.  David Monk is vice president of NERA Economic Consulting J. Matthew Lowe is an analyst for NERA Economic Consulting

and has conducted economic research and analysis primarily in

and has co-authored numerous valuation studies for tax, litiga-

the areas of antitrust, contract disputes, and the measurement

tion, and business planning purposes. He has extensive experi-

of damages. He has presented his work to the US Federal Trade

ence in valuing tangible and intangible property for transfer

Commission and Department of Justice and has submitted

pricing studies across a variety of industries including phar-

expert testimony in New York State Court. He has developed a

maceuticals, agricultural chemicals and automobiles. For these

model to analyse patient origin data to help identify relevant

transfer pricing studies, he has used accounting, financial,

geographic markets in the healthcare industry and has analysed

statistical and econometric analyses to identify arm’s-length

a variety of other healthcare issues concerning pharmaceuti-

prices consistent with US and foreign tax guidelines. He

cals, health insurance, hospital services, physician privileges,

appeared before the Internal Revenue Service to discuss his

home healthcare services, rising medical costs, and medical

statistical models for an intangible property transfer pricing

equipment. In addition, he has analysed mergers involving

study of which he was a co-author. He has prepared quanti-

acute care hospitals, physician groups, long-term care hospitals,

tative pharmaceutical market research for litigation matters

medical diagnostic equipment manufacturers, and health

involving patent validity.


Pedro Velasco Martins is a principal administrator in the

Peter Pitts is president of The Center for Medicine in the

Directorate General for Trade at the European Commission.

Public Interest and senior vice president, director for global

He is responsible for the IPR enforcement strategy for third

health affairs for Manning Selvage & Lee. From 2002 to 2004

countries, as well as for IPR-related bilateral and multilateral

he was the US Food & Drug Administration’s (FDA’s) associate

relations with North and South America, the ASEAN countries,

commissioner for external relations, serving the senior commu-

and the G8 and OECD countries. He is the Commission negoti-

nications adviser to the Commissioner. He provided executive-

ator for the IPR chapter in ongoing trade negotiations between

level policy and programme direction for the FDA’s interactions,

the EU and third countries. Previously, he worked in the area of

information exchanges and liaison activities with the agency’s

trade defence instruments (anti-dumping) for six years. Before

stakeholders and other external audiences. He supervised the

entering the European Commission, he practised as a lawyer for

FDA’s Office of Public Affairs, Office of the Ombudsman, Office




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About the contributors

Healthy IPRs

of Special Health Issues, Office of Executive Secretariat, and

lectual Property Organization and the World Trade Organiza-

Advisory Committee Oversight and Management, and served

tion. Prior to joining the European Commission, he served as

on the agency’s obesity working group and counterfeit drug

an inspector at the legal department of the French Directorate

taskforce. His comments and commentaries on healthcare

General of Customs and Excise, at the Ministry of Finance in

policy issues appear regularly in the media.

Paris, from 1986 to 1992. He is a doctor in law and received a diplôme d’études approfondies (DEA) in Community and European

Emily Bishko Radel is a consultant at NERA Economic

Law from the University of Paris I Panthéon-Sorbonne.

Consulting and specialises in transfer pricing and other matters relating to antitrust and intellectual property across a variety

Richard Rozek is senior vice president at NERA Economic

of industries. Since joining NERA, she has published articles

Consulting and works on projects involving intellectual

and given presentations on transfer pricing and other matters

property, antitrust, and transfer pricing across a variety of

relating to the pharmaceutical and healthcare industries. She

industries. Prior to joining NERA, he held senior positions in

has co-authored numerous reports for clients under Section 482

the Bureau of Economics at the US Federal Trade Commission,

and OECD guidelines relating to transfer prices for intangible

where he served as deputy assistant director for antitrust, and

and tangible property, manufacturing services, and research and

at the Pharmaceutical Manufacturers Association (now called

development functions. She has also prepared expert reports in

the Pharmaceutical Research and Manufacturers of America).

a variety of litigation matters. She has conducted public policy

He was also an assistant professor of economics at the Univer-

studies in healthcare industries and has prepared reports for

sity of Pittsburgh. He has written over 45 articles for profes-

submission to regulatory agencies and trade associations.

sional journals, such as the American Economist, Contemporary Policy Issues, Electricity Journal, Energy Journal, Economics Letters,

Patrick Ravillard is a principal administrator in the

Journal of Economic Integration, Journal of Economics, Journal of

Directorate General for Trade at the European Commission,

Research in Pharmaceutical Economics, Journal of World Intellectual

having joined the unit responsible for intellectual property in

Property, Mathematical Modelling, Research Policy, and Tax Notes

September 2004. His responsibilities include multilateral nego-


tiations on IP matters (TRIPS), in particular public health and biodiversity, as well as bilateral relations with China. Prior to

Stefan Szymanski is professor of economics at Tanaka

his current post, he served as a counsellor at the Delegation of

Business School, Imperial College London, and has specialised

the European Commission to the international organisations

in studying the economics and business of sport. He completed

in Geneva. In this position, he was in charge of negotiations

his PhD at Birkbeck College, London, in 1988 before working at

related to IP and government procurement in the World Intel-

London Business School’s Centre for Business Strategy for five




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Healthy IPRs

About the contributors

years. He then joined the Tanaka Business School at Imperial

Eskil Ullberg is a management consultant and research

College London. He has published over 50 academic articles,

scholar with twenty years’ experience, of which the past ten

two edited books and three authored books, including the

have been in senior consulting positions, working with top

recently published National Pastime: How Americans play Baseball

management and decision-makers in international organisa-

and the Rest of the World Plays Soccer, co-authored with Andrew

tions, government agencies and corporations. For the last

Zimbalist. He has consulted for a wide range of commercial

seven years he has been researching the management of risk

and government organisations, including the UK Treasury

and uncertainty in relation to intellectual property, in partic-

Department, the Department for Culture, Media and Sport, the

ular patents, and its strategic use by companies and economies

Department of Trade and Industry, the Office of Fair Trading,

to create competitive advantages, turning inventions into

Ofcom, and the Fédération Internationale de l’Automobile.

economics and growth. He is also a research scholar, currently at the Interdisciplinary Centre for Economic Research, ICES, at

Nikolaus Thumm is senior economic counsellor at the Swiss

George Mason University (2007). The focus of his research is on

Federal Institute of Intellectual Property and represents the

investigating new markets for trading IPRs such as patents.

institute in different expert groups with the European Commission, the Organisation for Economic Co-operation and Devel-

Tommaso Valletti is a professor of economics at the Univer-

opment, the World Intellectual Property Organization and the

sity of Rome and Imperial College London, a research fellow at

European Patent Office. He is an evaluator of European research

the Centre for Economic Policy Research and a research affiliate

projects and is involved in research exploitation and tech-

of the Global Consortium for Telecommunications (London

nology transfer activities in Switzerland and with the European

Business School). He is an expert on industrial economics, regu-

Commission. He was chairman of the United Nations Advisory

lation and telecommunications economics, and is an economic

Group on the Protection and Implementation of Intellectual

adviser to Ofcom, the UK communications regulator. He has

Property Rights for Investment. Previously, he worked for the

advised numerous bodies, including the European Commis-

European Commission in Spain and spent time as a researcher

sion (economic expert on remedies in mobile telephony − 2003;

at the European University Institute in Florence, and with

economic expert on market definition − 2006), the Organisation

Europa Kolleg in Hamburg. He is an industrial engineer by

for Economic Co-operation and Development and the World

training and holds a PhD in economics from Hamburg Univer-

Bank, on topics such as network interconnection, mobile termi-

sity. He has published extensively in international journals and

nation and spectrum auctions. He gained a magna cum laude

is a frequent speaker at international workshops and confer-

degree in engineering from Turin University in 1990 and holds

ences in the field.

an MSc (1994) and a PhD (1998) in economics from the London School of Economics, where he also taught until 2000.




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Healthy IPRs

Jayashree Watal is a counsellor at the World Trade Organization and has more than 22 years of experience in government in India, of which 10 were devoted to policy, diplomacy, research and administration on Intellectual Property Rights. She worked in the Ministry of Commerce as director, Trade Policy Division,

Introduction Why pharmaceutical IPRs?

New Delhi (1995−1998) and represented India at a crucial stage

Meir P. Pugatch

in the Uruguay Round TRIPS negotiations from 1989−1990.

Director of Research, Stockholm Network

She has researched and published articles on issues related to IPRs. She was a visiting scholar at the Center for International Development at Harvard University, and at the Institute for International Economics in Washington, DC and at the George Washington University Law School.


oth Intellectual Property Rights (IPRs) and phar-

Hiroko Yamane is a professor at the National Graduate

maceuticals are intrinsic to human history and

Institute for Policy Studies (Japan) and teaches international

progress. IPRs characterise the shift in human productivity

economic law, competition and intellectual property rights at

from agrarian to industrial production − placing the individual

the National Graduate Institute for Policy Studies in Tokyo,

at the heart of human innovation and creativity. Indeed, the

Japan. She has written widely about competition and regula-

patent system has its roots in ancient Greece and was first intro-

tions, TRIPS implementation in developing countries, biotech-

duced in 1474 in Venice. Pharmaceuticals have revolutionised

nology invention and public health. She was a member of

healthcare, enabling treatments or cures for otherwise unstop-

the World Health Organization’s Commission on Intellec-

pable diseases, harnessing chemistry, biology and mass produc-

tual Property, Innovation and Public Health. She gained her

tion technologies in the quest for the discovery, research, and

BA at Tokyo University and her MPhil at Yale University and

development of new medicines.

completed her diplôme d’études approfondies (DEA) at the University of Paris.

The combination of IPRs and pharmaceuticals has become one of the most important tools in modern society. One could identify the granting of US patent number 64407 to Felix Hoffmann on 6 March 1889 − a patent for the wonder drug Aspirin − as the most notable starting point of this partnership between pharmaceuticals and intellectual property. Since then, pharmaceutical IPRs have been discussed and




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Why pharmaceutical IPRs?

Healthy IPRs

debated in academic, professional, political and societal

three sections. The sections which deal with the economic

circles. Such discussions were (and still are) as emotional as

aspects of pharmaceutical IPRs and with pharmaceutical IPRs

they are rational. Are pharmaceutical IPRs a barrier to access to

in the international arena provide a broader view of the field,

medicines or are they essential to it? Do pharmaceutical patents

while the section dealing with contemporary topical issues

prevent or enhance pharmaceutical research and development?

focuses more closely on some of the specific aspects that are

Are compulsory licences a legitimate tool for price negotiations

currently being discussed.

or are they a predatory mechanism aimed at circumventing the

We hope you will enjoy the compendium and find it to be

rights of drug developers? Is there any hope at all for multilat-

a useful tool in understanding the complex issues now at the

eral IP negotiations, and for whom? Are pharmaceutical IPRs a

heart of the health-related IPR debate.

zero-sum game or can they lead to win–win results? These are but a few of the questions being debated today. The field of pharmaceutical IPRs is complex and multi­ dimensional. It encompasses significant challenges, including the issue of access to medicines. Indeed, the debate over IPRs and access to medicines in developing and least developed countries is one of the most sensitive and complicated issues to be discussed under the auspices of the World Trade Organization. Healthy IPRs does not ignore the various challenges currently faced by the field of pharmaceutical IPRs. Yet without den­igrating the importance of the IPR debate in general, and the issue of access to medicines in particular, it is essential to keep the big picture in mind: Pharmaceutical IPRs work. They are part of the solution and not part of the problem. By providing a more comprehensive and realistic overview of the many aspects of pharmaceutical IPRs, this compendium seeks to underline this message. Healthy IPRs includes concise and informative contributions from seventeen distinguished experts, including academics, policymakers and practitioners. It is structurally divided into




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Newly Industrialising Countries


Organisation for Economic Co-operation and Development


Public–Private Partnerships


Research and Development


Small- and Medium-sized Enterprises


Supplementary Protection Certificate


Traditional Knowledge


Trade-Related Aspects of Intellectual Property Rights


Abbreviated New Drug Applications


Adverse Drug Reaction


Active Pharmaceutical Ingredient


World Health Organization


Convention on Biodiversity


World Intellectual Property Organization


WHO Commission on Intellectual Property Rights,


World Trade Organization

UNCTAD United Nations Conference on Trade and Development

Innovation and Public Health DSB

Dispute Settlement Body


European Community


European Patent Convention


European Patent Office


European Union


US Food & Drug Administration


Foreign Direct Investment


Free Trade Agreements


US Federal Trade Commission


General Agreement on Tariffs and Trade


Intellectual Property Rights


Least Developed Country (or Countries)


Most Favoured Nation


New Drug Applications


New Chemical Entities




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part 1

Economic aspects of pharmaceutical IPRs


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1 IPRs, pharmaceuticals and Foreign Direct Investment Douglas Lippoldt


n response to the challenges and opportunities of globalisation, the pharmaceutical sector has evolved

to become one of the most dynamic and rapidly internationalising sectors in the world.1, 2 One key dimension of globalisation for the sector has been the development of enhanced rules under the multilateral trading system, enabling pharmaceutical firms to better capitalise on their intellectual property. These rules have expanded the range of economic opportunities for firms in the sector by opening markets and providing improved protection for intellectual property. Many firms appear to have moved to adjust their investment strategies to take advantage of the improved environment for Intellectual Property Rights (IPRs).

Recent intellectual property developments Particular impetus to the strengthening of IPRs arose from the advent of the World Trade Organization’s (WTO) Agreement


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IPRs, pharmaceuticals and Foreign Direct Investment

Healthy IPRs

on Trade-Related Aspects of Intellectual Property (TRIPS 16,000

Agreement), which entered into force in 1995 (Park and Lippoldt, 2005). The TRIPS Agreement covers the main types of intellec3


inclusive − international minimum standards of protection for IPRs than had existed previously. The Agreement specifies WTO member obligations to enforce IPRs. And through the WTO framework for trade policy reviews, dialogue and dispute settlement, the TRIPS Agreement also provides pathways for redress among WTO members in cases of non-compliance by governments. Additional strengthening of IPRs in recent years has come under initiatives of the World Intellectual Property

US$, millions, PPP exchange rates

tual property,4 establishing more effective − and geographically 12,000 10,000 8,000 6,000 4,000 2,000

Organization (WIPO), various regional trade and investment accords, and unilateral actions. Supporters have endorsed the various efforts to strengthen IPRs, underscoring the incentives this offers for innovation and subsequent ‘real-world’ application of new ideas.5, 6

0 1970












United Kingdom



United States




The potential relationship of IPRs to investment The preamble to the TRIPS Agreement recognises the developmental and technological objectives of national systems for the protection of intellectual property. One way that this can

Figure 1 Pharmaceutical sector expenditure on R&D, selected OECD countries Source: OECD Health Division, OECD Research and Development Expenditure in Industry database. Note: The data refer to manufacture of pharmaceutical, medicinal chemicals and botanical products. They cover R&D activities undertaken by the corporate sector in order to develop new compounds to correct somatic or physic dysfunction or to improve an individual’s state of health, irrespective of the source of funding.

operate is by encouraging foreign holders of intellectual property to trade and invest. A country that enhances its IPR regime

Likewise, improved protection of IPRs in foreign markets may

may attract additional knowledge-intensive product imports

provide a given country’s investors and traders with improved

otherwise unavailable on the domestic market, or it may attract

opportunities to enter those markets while shielding their intel-

inflows of Foreign Direct Investment (FDI); in either case, inter-

lectual property from undue imitation.

national technology transfer is likely to flow as a consequence.


The pharmaceutical sector is a particularly high technology

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IPRs, pharmaceuticals and Foreign Direct Investment

Healthy IPRs

sector as evidenced by its rate of investment in Research and Development (R&D). When viewed in relation to either production or value added, pharmaceutical sector R&D expenditures are more than three times as high as those for manufacturing as a whole.7 Moreover, the absolute volume of R&D expenditure in the sector has risen significantly in recent years (Figure 1). Given the scale of investment, it is clear that the industry has a lot at stake with respect to the intellectual property generated through R&D. The ability of innovators in the sector to ensure a return on their R&D investment depends in part on their ability to defend and capitalise on the resulting intellectual property.

Table 1 Direct investment in the pharmaceutical, medicinal chemical and botanical products sector (US$, millions)







Czech Republic














A. Inflows Belgium

France Hungary Mexico USA







B. Outflows

Foreign Direct Investment and the pharmaceutical sector


FDI refers to cross-border investments made with the objective


of establishing a lasting interest in an entity that is resident in a


Czech Republic France

–16.0 n.a. –752.9

371.6 3 1,503.6

4,813.0 1.9 1,003.8







market other than the investor’s home market.8 The investment may consist of equity capital, reinvested earnings and other capital contributions. Flows of FDI have exhibited impressive growth in recent years, particularly since 1990, but with signifi-

Source: OECD (2006) International Direct Investment Statistics, Paris. Notes: 1) Inflows can turn negative because of net repatriation of investment by foreign owners; outflows can turn negative because of a net repatriation of investment by domestic owners. 2) n. a. = not available.

cant year-to-year variation. OECD countries attract the bulk of the inflows, but China has grown in importance and has been

the restructuring in the sector that was quite pronounced in

a top destination in recent years (accounting for about 10% of

the 1990s and partly motivated by the high and rising costs of

global net inflows in 2002).

drug development.9 FDI flows related to merger and acquisition

Table 1 presents FDI inflows and outflows with respect to

activity account for a large share of the total. An OECD study

the pharmaceutical sector in several OECD economies. The

found that all of the top 15 pharmaceutical companies were

size and variability of the flows (including reversals) is quite

involved in merger and acquisition transactions during the

striking. These data provide an indication of a continuation of

1990s.10 Mergers and acquisitions have become an ­increasingly


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IPRs, pharmaceuticals and Foreign Direct Investment

Healthy IPRs

important strategy for lowering the high cost of R&D and

local IPR system. In some cases, factors such as market scale

achieving economies of scale.

(i.e. access to a large market) or strategic positioning prove to

Most of the pharmaceutical sector R&D takes place in the

be dominant factors motivating investment.14 These factors, for

most advanced economies, but there is an increasing volume of

example, may help to account for the large number of pharma-

R&D activity in developing countries that have created a favour-

ceutical FDI projects in China (which has had a mixed perform-

able regulatory environment, including with respect to IPRs.

ance on IPR enforcement, despite joining the WTO in 2001).15

This is an important development for these countries because

Moreover, variation in IPR strength may influence not

multinational pharmaceutical firms can play a significant role

only the volume of FDI but also the nature of the project

in technology transfer through the interaction of the parent

(e.g. for distribution, production and/or R&D). For example,

firm and affiliates, which can in turn have positive effects on

Smarzynska conducted an analysis using firm-level data from

the national economy (e.g. via productivity-enhancing applica-

a worldwide survey of companies conducted by the European

tion of new technologies). Several countries have implemented

Bank of Reconstruction and Development (EBRD) in 1995

national strategies to encourage pharmaceutical and biotech-

concerning FDI undertaken in Eastern Europe and the republics

nological FDI with a view to promoting further technology

of the former Soviet Union.16 She found that weak IPR regimes

transfer to their economies through spillovers or local partner-

tended to discourage foreign investors in technology-intensive

ships.11 Where they have been successful in the pharmaceutical

sectors that rely heavily on IPRs. In all sectors, weak IPR regimes

sector, such strategies have tended to include strengthening

tended to deter investors from undertaking local production

the IPR regimes. Singapore, for example, has implemented a

and rather focus on distribution of imported products. In an

successful strategy to attract and develop biotech and pharma-

earlier study of intellectual property managers from 94 major US

ceutical R&D activities, one with an explicit element of IPR

firms, including several pharmaceutical companies, Mansfield17


and Lee and Mansfield18 presented empirical analysis revealing


Business decisions to invest are complex and based on

that IPRs mattered less for protecting sales and distribution

a variety of considerations, with higher level considerations

outlets than for protecting production and R&D facilities. The

sometimes trumping lower level concerns.13 While an effective

proportion of FDI invested in production and R&D facilities was

IPR regime alone may not be sufficient to attract pharmaceu-

positively and significantly related to the perceived strength of

tical FDI, an inadequate IPR regime can be, in some cases, a deal-

IPRs. In addition, they found that the firms regarded strong

breaker for a technology firm that is looking to invest. On the

IPRs as being more important for decisions concerning transfer

other hand, depending on the technology concerned, it may be

of advanced technology than for FDI decisions as a whole.

that a strategy of trade secrecy can adequately protect the firm’s

Using regression analysis, Park and Lippoldt19 considered the

intellectual property, even in the face of some weakness in the

relationship of an index of the strength of patent rights during


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IPRs, pharmaceuticals and Foreign Direct Investment

Healthy IPRs

Table 2 Estimates of the relationship of FDI and imports to strength of patent protection, 1990–2000 Economic indicator Country of and sector of origin destination

Coefficient estimate

II. Imports All industries Pharmaceuticals


as a whole. The authors suggest that one possible explanation may be related to variation in the propensity to invest abroad according to the nature of the investment. Given that the pharmaceutical sector is R&D-intensive and

I. US outward FDI All industries All countries Pharmaceuticals


ceutical sector are somewhat smaller than those for industry




Developing countries




All countries




Developing countries




that proximity to the home office has in the past been a factor in R&D locational decisions, it may have been the case that there was a certain lack of responsiveness in pharmaceutical R&D investment to improved IPRs in foreign markets.22 On the other hand, for other types of investment by the pharmaceutical industry (e.g. distribution) there may have been less ‘sticki-

All countries




ness’ in investment decisions and better responsiveness to local

Developing countries




changes in the regulatory environment including IPRs. Such

All countries




a segmentation of investment strategy by type of investment

Developing countries




may account (at least partly) for the smaller, but still significant coefficients found with respect to patent strength and FDI in

Source: Derived from Park and Lippoldt (2003), Tables 7 and 8. Notes: The coefficient estimates measure the relationship of the economic indicators to the destination country’s strength of patent rights, controlling for various factors such as other economic influences (e.g. level of GDP per capita) and unobserved country-specific factors. The coefficients were calculated using regression analysis and a pooled sample of observations across countries. They can be viewed as indicating in percentage terms the average change in the respective sector’s outward-FDI-stock-to-GDP ratio or imports-to-GDP ratio per 1% change in an index of patent rights for the destination country. Asterisks indicate statistical significance with moderate degree of confidence; daggers indicate a high degree of confidence. N denotes the number of observations and R2 the fraction of the variation in the data explained by the model.

the sector. In the same study, Park and Lippoldt also assessed the rel­ationship between imports and the strength of patent rights (Table 2). Here as well, they found a positive relationship, with the coefficients for pharmaceutical products being somewhat higher than those for industrial goods as a whole. The positive relationship is in line with the notion that as IPRs were strengthened during the 1990s, firms were better able to appropriate a

the 1990s to FDI and trade. Overall, their analysis revealed a

return on their technological investments and therefore had

positive relationship.21 For pharmaceuticals, they found that

greater incentive to export into these markets.


a 1% increase in the indicator for patent rights in the destin­ ation market was associated with about a 0.24% increase in the stock of US outward FDI in the market (Table 2). The results are perhaps a bit surprising in that the coefficients for the pharma-



Conclusion The pharmaceutical sector is facing a changing economic


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environment characterised by the deepening of globalisation for OECD countries and the increasing integration of many developing countries into the mainstream of the international economy. One dimension of this changed environment is an international strengthening of IPRs. Given the critical role that technical innovation plays in the sector and the role that IPRs play in the ability of the pharmaceutical sector to capitalise on that innovation, it is not surprising to find a positive relation-

2 Parallel imports of patented medicines Stefan Szymanski and Tommaso Valletti

ship between IPRs and FDI in the sector. The strength of IPR protection appears to be one important factor – among others – influencing trade and investment decisions in the sector. Moreover, as IPR standards in some developing countries begin to approximate those in OECD countries, one could reasonably anticipate further geographic diversification in pharmaceutical sector investment, including with respect to R&D.


arallel trade is both a contentious and confusing issue in international trade. However, the under-

lying economic principles are relatively straightforward. In this chapter we seek to set out the basic issues in a simple and nontechnical manner. To understand parallel trade, it is first necessary to understand some basics associated with ordinary trade. Trade involves the exchange of goods and services where something (e.g. clothing, electrical goods, or a pharmaceutical product) is usually exchanged for money. In exchange for the payment the buyer becomes the owner of the good, free to dispose of it as he or she wishes. In particular, if a buyer paid US$1 for the good, but then discovered that someone else was now willing to purchase the same good from her for US$2, then in general he or she would be free to resell it. Certainly, one does not imagine that the original seller would still have any right to dictate the terms of the resale. This is, in part, what we mean by free trade, and this is now generally upheld by national and international




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law throughout the world, and in particular by competition

With enough arbitrage, the law of one price will hold, and the

law. The existence of free trade also implies something that

price will settle somewhere between US$1 and US$2. Moreover,

economists call ‘the law of one price’. This states that if a good

if the original seller is aware that arbitrage is possible, he will fix

is freely traded, then its price in the market must be the same

the original price at this intermediate level.

everywhere (possibly allowing for differences arising out of

This is essentially the story of parallel trade. Suppose a

transport costs for bulky items and for differences in national

seller in country A exports to country B. Absent free trade,

taxation). For example, the price of gold this second is exactly

and suppose the price in country A is higher than the price in

the same in London, New York and Tokyo. If it were not, there

country B because of price discrimination. Buyers in the low

would exist a profitable opportunity to buy gold where it is

price country will want to resell – so the product will move

cheap and sell gold where it is expensive. This would be an

back in the opposite direction (overall, the product flows from

easy way to profit – what economists would call an arbitrage

A to B and back to A). This is the sense of the word ‘parallel’

profit – and such profits seldom exist, precisely because free

as used here. Note that the goods in question are the genuine

markets mean that such opportunities are instantly exploited

product of the original manufacturers and are not being traded

by traders.

as anything else – hence they are not counterfeit or otherwise

The important point to note about this is that the original

black market goods. However, they are often called ‘grey market’

seller is not likely to gain from free trade. If one buyer is prepared

goods. This may be a somewhat unfair label. Parallel trade is

to pay US$2 and another US$1, then the original seller would

either legal or illegal, depending on the product, the country

like to trade directly with each, rather than allowing arbitrage.

and the precise origin and destination of the trade. While a lot

For example, if buyers were located in different countries, and

of money has gone into legal battles, the legal position seems

economic conditions were such that the most profitable retail

relatively clear.

price was US$2 in country A and US$1 in country B, then the seller would like to charge different prices in each country or indirectly, to resell what they buy at US$1 to customers of

Parallel trade, IPRs and pharmaceutical products – the legal situation

country A. This is what economists call price discrimination.

By and large, parallel trade is a lawful activity. The principal

Arbitrage, if there is enough of it, puts a stop to price discrimi-

exception to this relates to goods protected by trademark and

nation. If enough buyers in country B are willing to resell at a

by patent. When it comes to pharmaceuticals, most of the cases

price lower than US$2 in country A, then the price in country

concern parallel trade of patented products.

while ensuring that buyers in country B were not able, directly

A must fall. At the same time, the ability to profit from reselling

Clearly, pharmaceuticals sell for very different prices in

will create demand in country B and push up the price there.

different countries due to the complexities of national health




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systems where governments and/or insurers tend to be the

the USA has upheld ‘first sale doctrine’ – meaning that all rights

main purchasers of the goods. Of course, once a patent expires,

to control property are surrendered when it is sold.

anyone can produce a generic version and price variations often

However, when it comes to pharmaceuticals, parallel trade

have to do with the extent of such activities. Some countries,

can be prevented by the manufacturers thanks to the regulations

notably India and Brazil, have developed a strong generic phar-

of the US Food & Drug Administration (FDA). These regulations

maceutical industry partly by ignoring patent rights. However,

require that any parallel trader obtain permission to re-import

under the TRIPS (Trade-Related Aspects of Intellectual Property

into the USA from the original pharmaceutical manufacturer.

Rights) Agreement at the World Trade Organization (WTO),

Not surprisingly, such permission is seldom granted, since US

recognition of patent rights was agreed internationally. Hence,

manufacturers prefer to control domestic supply themselves.

if prices of pharmaceuticals under patent vary internationally,

Hence, when US citizens cross the border into Canada to buy

this is largely because producers are selling at different prices to

patented prescription drugs at low prices and then take them

different countries.

back into the USA, or when Internet traders buy consignments

Why, then, would arbitrage be illegal? This goes back to the roots of patent law, which is essentially a national right

from Canada and resell them in the USA at discounted prices, they are usually breaking the law.

(inventors must take out patents in all countries where they

A slightly different situation emerged in the EU. While the

want protection). A patent grants a monopoly in a particular

EU recognises the right of a patent-holder to prevent parallel

territory (e.g. the UK) and prohibits all rival sellers of the

trade, the free movement of goods within the EU overrides

product in that territory. A legal decision in the English courts

this. The proprietor of industrial property ‘exhausts’ its right

in the nineteenth century established that this right extended

to object to the marketing of its product anywhere in the EU

to the re-importation of legally exported consignments of the

once it has consented to the marketing of its product in one of

product – hence parallel trade of goods under patent became

the European Economic Area (EEA) states. The principle applies


whether or not the intellectual property right is protected in

This peculiarity of patent law has come in for widespread

the first or second EU state of importation. Hence, a UK phar-

challenge, most obviously from buyers in countries where the

maceutical company can prohibit the resale of pharmaceuticals

patent owner is trying to sell at above average prices. They tried

in the UK that it has exported to Russia, but not the resale in

to persuade courts that this was contrary to competition law,

the UK of products it has exported to Poland.

since it enabled a monopolist to maintain an artificially high

Pharmaceutical companies have relied on trademark rights

price, or even an infringement of human rights, since it limited

to prevent repackaging by parallel traders in the country of

the freedom of the buyer to dispose of her property as she saw

import. In response, the European Court of Justice (ECJ)

fit. Some countries did not adopt such a ruling. Most notably

has ruled that the essential function of the trademarks is to



Parallel imports of patented medicines


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guarantee to the consumer the identity of the product’s origin

an economic perspective, price discrimination can be a good

by enabling the consumer to distinguish it without any risk

thing if it extends the market enough, but is a bad thing if it is

of confusion from products of a different origin. Essentially,

simply causing rich consumers to be charged high prices. This

repackaging cannot be opposed by a trademark owner if: the use

analysis then extends to parallel trade. Parallel trade (which

of the trademark would contribute to artificially partitioning

prevents price discrimination) is a good thing if it simply

national markets; the repackaging does not adversely affect the

enables more consumers to enjoy low prices. However, it can

original condition of the product, is not liable to damage the

be bad thing if preventing price discrimination causes some

reputation of the trademark, and clearly identifies the manufac-

customers to be priced out of the market.


turer and importer; and the trademark owner is notified before the repackaged product is marketed.

To decide whether parallel trade is good or bad, therefore, requires some consideration of the specific case. If US citizens

Thus, the ECJ’s case law has severely limited the ability of

get cheaper drugs from Canada, what will be the consequences?

pharmaceutical companies to rely on their intellectual property

At one extreme, US pharmaceutical companies might refuse

rights to prevent parallel trade. As a result, pharmaceutical

to supply Canada, denying all Canadians the benefits of the

companies are increasingly seeking recourse to other commer-

drugs, or obliging them to travel to the USA, where they would

cial practices, some of which may come into conflict with com-

now have to pay the high price.

petition law.

Critics object that such a threat is not credible, since the Canadian government could issue a compulsory licence within

Economic considerations

the rules laid down by the WTO if the US companies refused

Price discrimination is largely seen by the public as a negative

charge the same price in Canada and the USA, and Canadians

phenomenon, especially by those forced to pay the higher

would pay higher prices on average. The Canadians them-

prices. One important and obvious consequence is that it raises

selves have now recognised this threat, and some have started

profitability, by enabling the seller to charge a high price to

to advocate rules prohibiting parallel trade. Pharmaceutical

those who can pay more (efficient exploitation). However, price

companies argue that Canada only receives low prices in the

discrimination can also extend the market to a larger audience

first place because trade is negotiated with the central govern-

among those less able or willing to pay (efficient distribution).

ment, which uses its bargaining power to impose low prices.

The first effect is largely negative because it distorts the market.

Similar arguments are made about legal parallel trade in the EU.

However, the second effect is generally good for everyone

The consequence of this is a tendency for prices to fall to a level

because extending the market can reduce prices, even for the

consistent with the bargaining power of the strongest player.

high price bracket, if it brings down average costs. Hence, from

The pharmaceutical companies point out that their profits are



to supply. More likely, the pharmaceutical companies would


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required to recover high Research and Development (R&D) costs, and hence parallel trade will end up reducing the amount of R&D and therefore pharmaceutical innovation. However, the impact of parallel trade between relatively rich countries is, in general, likely to be limited. More extreme effects are likely to be found in relation to trade between the very rich and very poor nations. Most sensitive has been the trade in Aids-related drugs to Africa, where pharmaceutical companies have been under pressure to reduce prices, which are in the region of US$10,000–$20,000 for an individual in

3 Strategic use of IPRs by pharmaceutical SMEs in developing countries Cathy Garner

a developed country. A significant difficulty has been the fear that consignments of these drugs will be parallel traded – and, indeed, cases of such trade already exist. For critics, this merely indicates the inappropriateness of the patent system for dealing







involved in the production of pharmaceuticals in

with medicine and such critics advocate alternative ways to

developing countries need to be aware of the complexity and

support investment, generally through the state. Supporters of

scale of the process which is required to deliver successful new

the patent system argue instead for greater protection against

medicines in today’s context. With a very long timescale for

parallel trade, and some steps have been taken at the WTO to

development and estimated costs in excess of US$800 million,

limit potential for such trade.

it is a game for large companies with deep financial pockets. As

While the policy analysis may be a little more complicated,

these large companies have adopted strategies to mitigate their

the essential issue is whether one considers it right for customers

risk, opportunities have opened up for SMEs to play important

in different countries to pay different prices for the same goods

and rewarding roles in the process of drug development. In

(price discrimination). If you think this is wrong, then you are

developing countries there are some specific factors which

in favour of parallel trade; if you think price discrimination

provide opportunities for SMEs to engage profitably. The over-

serves some positive purpose, then you will be less favourably

riding caveat to successful engagement is, however, the SME’s

disposed towards it.

ability to manage intellectual property appropriately. This paper sets out to describe these opportunities and the considerations which need to be given by SMEs to IP management.




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Intellectual property as a business development tool

Table 3 Multiple players in the stages of drug development

The pharmaceutical industry places greater importance on that some 65% of new drugs would not have been produced had no patents been in place. This compares with 30% of new chemical products and 4% of electrical products.1 The invest-


patent protection than other industries. Mansfield estimated

ment risk is high with an estimated level of attrition of 99 out

Target identification

Drug discovery

Discovery of the biological mechanisms implicated in the cause of a disease

Use of enabling technologies to screen millions of potential drug candidates or rationale design to produce new therapeutics

of 100 new compounds failing to be developed into products.2 A clear demonstration of the importance of patents for success in global markets in the pharmaceutical industry has been companies that have grown large through the production of generic medicines. Following the implementation of the TRIPS3 Agreement in 2005, the Indian generic manufacturers quickly became increasingly focused on global markets and patented technologies.4 Robust intellectual property protection and management are essential for SMEs that wish to create value in their companies in the pharmaceutical sector. The pharmaceutical industry’s reliance on strong patent protection is also a consequence of the nature of the drug development process where many players are involved in a chain of relationships that need to be governed by contractual obliga-

Organisations and technologies involved

observed in the rapid change of behaviour by those Indian

security and the ability to contract. The need for strong patent protection in the pharmaceutical industry has developed as a corollary of the research and development (R&D) paradigm, which has emerged with the ever increasing complexity of science and the need for specialist contractors in different parts



In support

tions, mutual trust and shared risk. The patent system provides

Universities Hospitals Large pharma Biotech companies Bioinformatics

Drug Drug development (1) development (2)

The creation of a pharmacologically effective means of formulating and delivering the new therapeutic agent to its site of action Universities Drug delivery Large pharma Large pharma Biotech Biotech companies companies Contract analysis GMP

Demonstrations of efficacy and safety to gain regulatory approval

Contract manufacture Chemical synthesis Animal models

Animal models

Phase II trials


Phase III trials

Large pharma Hospitals GMP Biostatistics


Packaging companies Bioinformatics Phamacokinetics Regulatory bodies (e.g. FDA) CROs Consulting organisations Phase I trials Patent agents, lawyers, business support agencies, NGOs

Source: By permission of IPR Ltd, 2003


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of the process. Table 3 summarises the wide array of players and stages of the process involved in the development of new

Strategic use of IPRs by pharmaceutical SMEs in developing countries


medicines. In addition to the many organisations and the complex web of inter-relationships which comprise this process, it must also be recognised that contractual relationships must pertain over


Regulatory approval Lead discovery

IPM DECISIONS ➤ patent or not to patent ➤ license – to whom, where and for which use(s) ➤ consideration of public good access needs

a period of many years. On average, a new drug takes 8–10 years from potential lead compound to entering the market. The time frame for vaccines is dramatically higher: an average of 35 years. The reality is, therefore, that either the entire process has to be held within the same company and governed by corporate responsibility (and/or trade secrets) or by strong contractual and proprietary rights.

Strategic decision points on IP for small- and medium-sized pharmaceutical companies


Clinical: Phase I

➤ co-development agreements ➤ data protection rights ➤ new patents

Phase 2

Phase 3

Regulatory approval Marketing



➤ licensing for marketing ➤ licensing in unused technologies with use in the treatment of neglected diseases

➤ access for public health benefit ➤ control over appropriate use by authorised distributors


1 Consideration of the future impact of current IP management decisions 2 Maintaining control over IP to ensure that the intended benefit to the company and/or public health is achieved 3 Greater potential for new health products and technologies to reach their intended market as a result of good licensing and IP management practices 4 Potential for subcontracts from major product developers to increase supply

From this elaboration of the drug development process it is clear that SMEs need to make strategic decisions with regard to IP management. The diagram in Figure 2 shows where the key stages of IP management decisions need to be taken in relation to the drug development process. Important contractual situa-

Figure 2 Key IP considerations in the drug development process and their implications for access to medicines by the poorest

tions where high-quality IP management is of vital importance include: ➤ The acquisition of ‘drug candidates’ for further development; ➤ The in-licensing of products to manufacture under license;

➤ The onward-licensing or assignment of ‘promising drug candidates’ to ‘big pharma’ or alternative drug development agencies for testing on a large scale and registration with the appropriate regulatory body.

➤ The protection of intellectual property developed in the process of development, be that data or new active ingredients; 24



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Strategic use of IPRs by pharmaceutical SMEs in developing countries

The acquisition of ‘drug candidates’

depending on their focus, SMEs may wish to consider seeking

SMEs can be sub-divided into two groups in relation to the

licenses to natural products or traditional medicines. This can

acquisition of new pharmaceutical materials for development:

be an important strategy in developing countries.

the imitative and the innovative. The former is focused primarily

Contractual agreements to in-license materials include the

on the development of generic forms of existing drugs whereas

protection of commercially sensitive information and materials

the latter include those which are truly part of the global drug

under ‘Non-Disclosure’ and ‘Materials Transfer Agreements’, in

discovery and development paradigm.

addition to agreements which involve clauses for the future

For imitative SMEs which have traditionally been involved

filing and prosecution of patent applications.6

in the production of generic drugs, using either ‘off-patent’

Companies have traditionally looked to ‘own’ their materials

formulations or reverse engineering either under the ‘Bolar’

(under assignment) rather than license, because this has often

exemption5 or through non-patenting in their territory, the

been a requirement of obtaining risk finance. However, univer-

implementation of the TRIPS Agreement makes it increasingly

sities and public research institutions are being encouraged as

difficult to obtain either a new molecular entity or an Active

‘good practice’7 to license rather than to assign their discoveries,

Pharmaceutical Ingredient (API) which is not subject to patent

in order to control and determine the ‘public good element’.

protection. For example, in India, where SMEs have been able

This is especially important when the potential drug is for use

to work on APIs to create generics, there are now some indica-

in the developing world.

tions that the sector is beginning to suffer. This illustrates not only the importance of a strategic approach to IP management

The ‘in-licensing’ of products for local production

but also its urgency.

A strategically important route for SMEs in developing countries

Few innovative SMEs have the resources to undertake the

is to show that they have the ability to work with large pharma-

complex and high volume biochemistry required to isolate

ceutical companies ‘under licence’ to produce a local version

potential new molecular entities or new active substances. It is

of a drug at either a lower cost or because the company wishes

therefore likely that these will be obtained under licence from

to establish a local facility for a future lucrative market (for

another entity which has undertaken the basic ‘discovery’

example, in India or China). Companies that can demonstrate

research. Innovative SMEs have to be adept at business deals and

a high level of competence, including in their management of

contracts with those undertaking research, be it with univer-

IP, can secure important contracts.

sities worldwide, public research establishments such as the

There are also many Public–Private Partnerships (PPPs)

Indian Council for Medical Research or R&D companies, which

which are developing medicines to tackle neglected diseases

may be willing to out-license compounds for further develop-

and are seeking local partners to undertake the drug develop-

ment due to market focus or political pressure. In addition,

ment.8 The product-development PPPs are an important new




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Strategic use of IPRs by pharmaceutical SMEs in developing countries

they have missions which frequently incorporate ‘public-good

The onward-licensing or assignment for clinical testing and production

provisions’ for health and economic development.

Many SMEs that have been built around the development of

source of potential licences for SMEs in developing countries as

one specific therapeutic agent in the biotechnology sector are

The protection of findings during the development process

subject to a trade-sale to the larger pharmaceutical companies,

SMEs can gain valuable intellectual property rights during the

which are seeking to feed their pipeline of innovative leads. The

process of their work if they develop the capacity to identify

trade-sale is effectively a purchase of the IP of that company,

opportunities for its disclosure, its protection and its value in

be it formal IP-like patents or the know-how of its employees.

the market place.

‘Big pharma’ will, however, be scrupulous in their due-diligence

There are three key areas which should be considered: 1 Data collected as part of any clinical trials. This has

become an area of contention in relation to the extension of data exclusivity by pharmaceutical companies against the production of generic medicines. However, SMEs in developing countries which acquire any data on toxicity and other trials should note the potential value of these data and the potential for their protection. 2 Process IP that is developed during the testing of

drug candidates. This might be of value to others and could be protected through the use of ‘utility models’ rather than through the patent system. 3 Development of APIs from natural products or

of that IP and deals will only proceed if the IP is ‘clean’. The standard of past IP management may make or break the deal. For imitative SMEs and those that want to grow, it will still be necessary to out-license their drug candidates to large companies or to one of the product-development PPPs. The terms and conditions of that licence can make or break the SME.

Specific conditions pertaining to health products for developing countries There has been some false expectation that SMEs in developing countries might focus on diseases specific to, or relatively prevalent in, the developing world.10 However, although SMEs in developing countries operate in the same marketplace

traditional medicine. These should be protected and

as those in the developed world, there are still some specific

may be valuable for company growth and development.

areas where SMEs in developing countries can find comparative advantage from having a business focus on endemic diseases.

Information on approaches to the protection and manage-

First, the markets are local and often small by definition,

ment of IP such as the above are available from many sources,

which means that the larger pharmaceutical companies will be

including the MIHR Handbook and through the World Intel-

less interested either in direct provision or widespread patenting

lectual Property Organization (WIPO).9

– thus offering a gap in the market.




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Second, SMEs in developing countries may be able to get preferential support from public sector agencies that are concerned to address local health problems whilst supporting general economic development. SMEs that can offer local employment as well as health benefits make a double-bottom-line contribution and are valuable in this context. Finally, with the millions of dollars of investment being channelled into the development of medicines for neglected

4 Antitrust and patent settlement investigations Joseph Cook and David Monk

diseases and for the provision of medicines to the poorest in developing countries, there is a significant opportunity to gain resources, skills and experience.



he policies of antitrust and intellectual property are, in a sense, at odds. The owners of intellectual

Strategic IP management by pharmaceutical SMEs in devel-

property are generally given the right to exclude others from

oping countries is an essential part of their business develop-

the use of that property, or at least attempt to exclude others, in

ment. Following the implementation of the TRIPS Agreement

the hope that such endowments will foster competitive benefits

in all but the least developed countries (LDCs), there is little

in the form of increased numbers of innovative new products

alternative but for these companies to embrace the system and

and services. However, these rights do not last forever. Eventu-

to use it in their business development.

ally, the innovations should pass into the public domain. In

This chapter has provided an overview of some of the most

essence, intellectual property is a compromise.

important areas and opportunities for SMEs in IP management.

Another compromise was apparently made in 1984, when

Guidelines on the practicalities of IP management are becoming

the US Congress passed the Drug Price Competition and Patent

increasingly available through WIPO and through non-govern-

Term Restoration Act (Hatch-Waxman Act). Branded pharma-

mental organisations such as MIHR. Yet, implementation by

ceutical companies complained that the drug approval process

SMEs is the remaining imperative.

overseen by the US Food & Drug Administration (FDA) took too long. By the time a new drug was actually able to clear the regulatory process and reach the market its patent was close to expiration. When these patents expire, generic firms enter with lower-priced products and sales shift from the branded to




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Healthy IPRs

the generic product. This relatively short period of ’exclusivity‘

Other states clarify that the pharmacist can elect to make this

was particularly problematic for branded firms, as they rely on

substitution, and even encourage it. If the physician wishes to

being able to maintain whatever competitive advantage they

prevent substitution, he must write that the prescription is to

may gain with their patented innovations for long enough to

be ‘dispensed as written’.

pay for the costs of bringing their product to market.

marketplace. There is competition, typically among different

hindering generic entry and the low-price alternatives it

branded drugs, for the prescription, and this competition

offered the consumer. Perhaps in order to offset this hindrance,

seeks to inform the physician of the medical benefits of one

the Hatch-Waxman Act offered generic firms an additional

chemical compound over another. There is also competition

incentive, while allowing the branded firm to maintain its

at the dispensing level, typically among different generic drugs

exclusivity. The first generic firm able to successfully file its

vying to be used to actually fill the prescription.

application with the FDA, for a generic version of an existing

When a branded product is ‘genericised’, there are a few likely

branded product and without infringing the branded firms’

effects. To begin with, the branded product’s position at the

patents, would get an added bonus. That firm’s application

dispensing level has changed. Prior to the entry of the generic,

would be the only one granted, so as to allow entry for six

all prescriptions for that drug were filled with the branded

months. In this way, the first generic could be said to have a

product. After generic entry, and especially in mandatory substi-

‘180-day window of exclusivity’.

tution jurisdictions, the situation is reversed and all prescrip-

Why is generic entry such an important issue in pharma-

tions will be filled with a generic. This reduces or eliminates

ceuticals? At least part of the answer lies in the institutional

the incentive of the branded firm to promote its product at the

and regulatory structures of pharmaceutical markets. These are

prescribing level, as any success the branded firm may have in

different relative to other markets in that the attributes of the

encouraging physicians to write prescriptions for its product

consumer are divided: the patient that actually uses the product

will be undermined by substitution at the pharmacy.

is typically not the one who chose it, nor the one that directly

The loss of the branded drug’s position at the dispensing level

paid for it – if the patient is insured. Rather, the physician is

leaves little incentive to promote the product at the prescribing

the driving force behind the choice of therapy. In the case of

level. Neither investments in marketing nor price cuts make

generic drugs, at least in the USA, it is typically the pharma-

much sense as these would likely only lead to increased sales

cist that will decide among the various generic alternatives,

for the generic firm. Nor is there a clear means to reward invest-

choosing which manufacturer’s product is selected. Many states

ments in developing additional on-label indications for the

have mandatory substitution laws that require the pharmacist

branded drug, as the sales associated with these uses would also

to dispense a generic version of a branded product prescribed.

largely fall to the generic firms. Thus innovation, at least with



All of this leads to competition on different levels in the

Responding to the complaint, however, would have meant


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respect to the genericised drug, is stymied. In addition, while

negotiated entry date that is before the expiration of the patent,

the average price of the genericised drug falls (averaging the

though not immediate, and is accompanied by an ancillary

branded and the generic), the net competitive effect in these

agreement by the branded manufacturer to pay the generic

markets can be a complex issue.

manufacturer some amount of money. The FTC is concerned

All of this helps to create an interesting backdrop from which to consider the implications of settlement agreements for

tive effects.

alleged infringement of pharmaceutical patents. Most civil liti-

Many of these investigations have resulted in consent agree-

gation settles, and patent infringement cases are no exception.

ments with the FTC. In May 2000, Abbott Labs settled with

However, the settlement agreements reached by branded and

the FTC over the drug Hytrin.2 In May 2001, Hoescht Marion

generic pharmaceutical companies over the last several years

Roussel settled with the FTC over the drug Cardizem CD.3 In

have contributed to a rather high-profile policy debate.

April 2003, Bristol-Myers Squibb settled with the FTC over three

On 26 June 2006, the US Supreme Court denied a request

different drugs, BuSpar, Taxol and Platinol.4

by the US Federal Trade Commission (FTC) to review a case

The K-Dur case was different, however and perhaps not least

against drug companies involved in settlements of patent

because it was litigated to the fullest extent. The FTC filed suit

infringement suits.1 The underlying patent suits, brought by

on 2 April 2001, alleging that the parties’ agreements to settle

Schering-Plough against two generic firms, Upsher-Smith and

these suits, which included an agreed date of entry somewhere

ESI Lederle, involved Schering’s potassium chloride product,

midway between the time of the dispute and the expiration of

K-Dur. The basic facts in these patent suits were not unusual.

the patent, ‘were agreements not to compete that unreasonably

Neither, perhaps, was the basic structure of the settlements

restrained commerce’.5

between the parties. However, concerns at the FTC have led

The case went to trial and was heard by an administrative

to investigations of several settlements of patent infringement

law judge (ALJ) at the FTC, who decided the case in favour


of the pharmaceutical company. The ALJ found that the FTC

In general, these patent settlement cases begin with a

staff’s claims required ‘a presumption that [the patent] was not

branded drug manufacturer filing suit against generic manufac-

valid or that Upsher-Smith’s and ESI’s products did not infringe

turers that are seeking FDA approval to market a generic version

[the patent]’.6 The court found that there was ‘no basis in law

of the branded drug. The generic manufacturers argue that no

or fact to make that presumption’.7 Moreover, the court also

valid patents are infringed by their entry, and, therefore, they

found that the FTC staff had not met its burden of ‘proving the

should be granted FDA approval before the expiration of the

relevant product market or that Schering had maintained an


illegal monopoly’. 8

Generally, the FTC is concerned by settlements that include a



that such settlement agreements are likely to have anticompeti-

A refusal to accept presumptions of validity and non-


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infringement meant that, at least according to the ALJ, such

power’.15 In the end, the court based its decision, at least in

cases would require the FTC staff to try to prove such asser-

part, on policy, saying that ‘given the costs of lawsuits to the


tions and look at the merits of the underlying patent litigation.

parties, the public problems associated with overcrowded court

The Commissioners would disagree with the ALJ on this point

dockets, and the correlative public and private benefits of settle-

when the case was brought to them on appeal by the FTC staff.

ments, we fear and reject a rule of law that would automatically

The Commission found that the ALJ had erred in finding that

invalidate any agreement where a patent-holding pharmaceu-

the underlying patent litigation had to be examined in order

tical manufacturer settles an infringement case by negotiating

to determine whether the agreements were anticompetitive.

the generic’s entry date, and, in an ancillary transaction, pays

More particularly, the Commission found that the payments

for other products licensed by the generic’.16

from the patent-holder to the alleged infringers that were

As noted at the outset, the Supreme Court has refused to

included in those agreements ‘were likely to have anticom-

review this decision by the 11th Circuit. In so doing, it has let

petitive effects because they delayed generic entry beyond the

stand an opinion that is a rejection of a presumption against

dates that would have been agreed upon in the absence of the

patent-holders who may elect to settle infringement suits with

payments’.10 The Commission also found that the method of

negotiated entry dates and ancillary payments. Prior to its

evaluating the likelihood of anticompetitive effects argued for

refusal to hear this case, the Supreme Court held in Independent

by the ALJ, including the definition of a relevant market, was

Ink that there would no longer be a presumption of market

‘not the most appropriate way to proceed … where more direct

power for patents in antitrust cases.17 Perhaps taken together

evidence of competitive effects is available’.11

these decisions reflect a desire by the Supreme Court to move

The defendants then appealed the case to the 11th Circuit

away from overly simplistic rules that side-step a more careful

Court of Appeals, which set aside the Commission’s opinion.12

analysis of all the relevant facts and circumstances – particu-

The 11th Circuit seemed to interpret the Commission as having

larly in the intersection of the law and policies of intellectual

effectively adopted a per se prohibition on ‘settlements under

property and antitrust.

which the generic receives anything of value and agrees to defer

The area is likely to remain contentious, at least in the

its own research, development, production or sales activities.’13

immediate future. Pressures on the branded and the generic

The 11th Circuit stated that ‘the proper analysis of antitrust

firms can create a high-stakes situation. For a branded firm, an

liability requires an examination of: (1) the scope of the exclu-

innovative drug can represent a substantial profit stream in a

sionary potential of the patent; (2) the extent to which the

market with few close competitors. The branded firms can rely

agreements exceeded that scope; and (3) the resulting anticom-

on profit streams such as these to pay not only for the innovator

petitive effects.’

The 11th Circuit then went on to find ‘the

drug’s development but also to offset less successful efforts and

terms of the settlement to be within the patent’s exclusionary

help make the firm profitable as a whole. Generic firms are in a





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race to be the first firm to be ready to enter the market and gain the ‘first-mover’ advantages offered by the Hatch-Waxman Act. Having made these investments in the race to market, generic firms, particularly those with few products, can recognise early entry as the clearest means of recouping these investments in a timely way. Compounding these tensions is the possibility that the revenues of the generic firm may not be enough to compensate the branded firm if the entry was later found to be infringing. The combination of these factors is likely to continue to

5 A new approach to traderelated pharmaceutical IPRs: IPRs as tradeable goods Eskil Ullberg

encourage branded and generic firms to reach settlement agreements that attract the scrutiny of the FTC, notwithstanding the decisions of the 11th Circuit and Supreme Court.


ntellectual Property Rights (IPRs) give the owner the right to exclude others from using an idea or

invention. The excluding part of the right provides the legal basis for the transferring part, which might also be known as the market part. Many studies have been done in the area of exclusion of others from doing what is protected under the right, but less attention has been given to the trade-related aspect of IPRs from a market perspective. By trade-related we mean the strategic possibility of a firm to transfer the right to use the IPR to another party, earning profits from that transaction or series of transactions related to the use by others, rather than using it themselves. The issue is thus not primarily the invention process, the manufacturing process or the using process, but the transferring process in a market context of the IPR. This transfer is increasingly being carried out through licensing contracts. It opens up opportunities for specialisation between different actors: inventors, producers, intermediary traders and investors. Specialisation may lead to




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increased productivity, which then ultimately increases the

competing producer firms (from different fields), extracting the

gains from trade and also, by extension, social welfare.

maximum gains from trade by allowing the invented asset to be

This chapter will apply an institutionalised market perspec-

used by the company which can extract its highest value. This

tive to the tradeability of IPRs in order to potentially increase

is a very good example of the trade aspect of patents, which

social welfare. It will also discuss possible ways of finding exper-

brings together often highly specialised companies with the

imental facts about this trade and outline relevant policy issues

common goal of producing (new) drugs.

in relation to the issue.

The biotech example of early trade may be relatively new,

Today, many large pharmaceutical companies are experi-

but in fact a boom of specialised inventors appeared, trading

encing increasing problems with the performance of their new

their IPRs with producers using the help of specialised patent

drug delivery and are no longer turning out blockbusters at

attorneys, as far back as the time of the first modern US patent

the speed they used to. Finding new substrates with potential

law in 1836.1

healing effects has proven to be an increasingly difficult, expensive and risky investment. For the past decade, a new impetus has been provided by specialised research companies and in particular biotech companies, who are using biotech

Successfully developing and trading technology in this raw

engineering skills to develop new substrates. These substrates

format is a question of finding the best way to deal with risks

form the basis for further development of drugs to be used

and uncertainty. Firstly, risk and uncertainty from investments

by humans, thus providing an important source of inventive

in research move from the large pharmaceutical companies,

input for those companies that are good at developing, clini-

which focus more on marketing and sales, to the new high-tech

cally testing and marketing the final drugs.

bioengineering companies, which often focus more on research

The biotech companies make use of the patentability and

and development (R&D). The producers therefore have a way of

tradeability features (including licensing) of the patent rights

getting ideas from inventors without having to hire them. The

to create a new business model, which does not rely on their

risk-bearing for the invention process is done by the specialised

own production to extract the value of the IPR invented

companies, and the risk-bearing for the marketing and sales

and protected. Instead, the model functions by selling ‘raw

falls to the producing companies. This is a good solution for

materials’ for potential new drugs to be developed by the

producers, who can choose from different competing sources of

pharmaceutical companies. To increase the success rate of the

raw ideas. There is also less of a moral hazard as the returns from

potential future drugs there may be additional agreements

inventions may be more closely connected to the inventors in

made for joint development projects. The model allows, in

the research-focused company. Competition gives incentives to

principle, for an inventor firm to trade with competing or non-

innovators to meet real users’ needs.



Risk – and the market’s way of dealing with it


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But the specialised inventors, who typically do not have all the complementary production assets of the larger pharma-

different preferences on location and exclusivity for certain fields of use (from claims).

ceutical companies, can be blocked or held up by a producer

A market also has another very powerful feature: it consoli-

if there is not a competitive market for their ideas. There is

dates all information about the potential value of an idea and

therefore a market-access risk for the inventors to overcome.

puts that value in the bids, leading to a clearing price of the

Their problem is how to sell their inventions at a competitive

market in ideas.3 We thus see that a formalised market provides

price, which maximises social welfare – in other words, which

an important tool to help further the development of new drugs

maximises benefits for all economic actors. These are typical

based on the trade aspect of pharmaceutical IPRs. The market

market issues dealt with through trading rules and, if deemed

institution is used to manage the business risks by reallocating

of public interest, government regulations in formal market

the risk-bearing to the most appropriate actor, whether this is


the inventor, producer or trader. The actors attain this competi-

Recent surveys by the US/Canadian Licensing Executive

tive advantage in risk-bearing through specialisation, investing

Society, including data from the health industry, provide some

their time and money (or other resources for that matter) in

input on hindrance to licensing.2 The 2003 and 2004 surveys

knowledge and systems (information) to manage their special-


ised risks.4

➤ Difficulties in finding buyers (sellers); ➤ Difficulties in getting internal approval to sell (sellers); ➤ Difficulties in agreeing on financial terms, terms of

Another new and interesting market is the information market, which allows participants to trade in the probability of certain future events. An example of this could be the validity of a patent.

geography, exclusivity, milestones, etc.

example the New York Stock Exchange, typically solves by

Hindrances to a market in ideas in pharmaceutical IPRs

means of suitable rules of trade and commodity contracts. A

There are many questions that need to be addressed in order to

marketplace allows buyers and sellers to meet at the same time.

develop a market in ideas in pharmaceutical IPRs, and particu-

Thus, instead of having bilateral negotiations, all sellers and

larly in the transaction markets. These include the tradeability

buyers meet simultaneously and negotiate contracts under

of the patents, what rules give the right incentive to invent,

agreed rules through prices. The rules of a marketplace decide

and whether there should be one or several such institutions

how the traded IP assets are allocated. Typically, these nego-

for different technology areas. Traditionally, patents have

tiations are in auction format. Buyers and sellers may have

been obtained with the sole purpose of blocking others. This

These are all problems that an institutionalised market, for




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is the basis for trade (that you can exclude and thereby sell the

patent-granting process and to establishing what information

excluding right for further exclusion), but the question of how

on economic use is present. In patent terminology, the ‘capable

to structure the idea in different patents, and particularly when

of industrial application’ or ‘useful’ criteria may need to incor-

writing the patent’s claims for tradeability, may be a new issue

porate some new meaning when patents are primarily used first

for many.

to trade and then used as ‘capable of industrial trade’/’useful

The purpose should be to divide the invention(s) embodied

for trade’. In the pharmaceutical setting this may mean that

in the patent application into claims which are as separate as

larger sets of claims may be necessary (the current discussion

possible, allowing for potential trade in different fields of use,

and trend from the patent offices being to have fewer claims

and for maximum blocking within each patent claim or set

for each patent). A special study of these possible implications

of claims. The strategic issue of separation of invention and

from the increased trade-use may be needed by legal scholars

production mentioned initially may then have more impact

in conjunction with (micro) economists, trade specialists and

on the way claims are written. For example, the claims could

others disciplines to examine what can be done through the

be written as independent fields of use or by building on a

patent system to facilitate the trade-related aspects of pharma-

common, more general claim and then specialising. The latter

ceutical IPRs.

would necessitate a non-exclusive right to everyone licensing a more specialised field, so creating a standard for an industry the specialised claim. This approach has traditionally been used

Experimental economics as a test bed for achieving markets in pharmaceutical IPRs

with interdependent technologies both in basic versus applied

So, how can one test for these rules, commodities and features

technology, and first- and second-generation technology.

of patent rights? Over the past 40 years a new discipline in

where several use the same basic claims and then compete on

Another area of concern is to separate the right to use in

economics has developed, called experimental economics.

production (or non-production, i.e. blocking) from the right

Experimental economics is the study of what people do. An

to do further research, licensing the different rights to different

experimental economic environment is set up in a laboratory


where real people interact with each other, typically through a

The point is that a trade-focused strategy by the users of

computer-based market of some sort.5 Experimental economics

the patent system puts more emphasis on the value of the

can thus be used to study the market conditions under which

used right in a globally specialised commercial setting. Patent

trade in pharmaceutical IPRs can be achieved and the gains

offices, however, may not always make this distinction between

made, thus leading to maximised social welfare.

economic use and technical knowledge when granting the

The experimental lab provides a way to control envi-

patents. The issue may boil down to a critical survey of the

ronmental factors and so provides a means of repeating the




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A new approach to trade-related pharmaceutical IPRs

足experiment under identical conditions. Lessons can then be

to benefit most from this exchange. From this follow questions

learned from the experimental economy outcomes, which

regarding the tradeability of patents. The outcome may prove

share essential, but often simplified, characteristics with trade

valuable to maximise gains from trade in IPR-based instru-

in the more complex, real world. The issue here is to use this

ments, increasing social welfare or, in our case, the potential

elaborate tool to study the problematic aspects of formalised

flow of new medicines and treatments.

markets in pharmaceutical ideas. Some studies have been done

Lastly, experimental studies and data may provide powerful

relating to the invention process (patent races) prior to getting

ways of testing outcomes of market-oriented policies, including

and using the IP right,6 but not on the use.

in the area of pharmaceutical IPRs.

In particular, the rules under which trade leads to socially desired outcomes can be studied. In markets the institution matters because the rules matter, and the rules matter because incentives matter. The potential here is to create the incentives for specialised trade in pharmaceutical IPRs, rules that overcome some of the more important hindrances discussed, and an institutional framework which can transform the current initial trade of bilateral licensing into a multilateral dimension.

Conclusion The market in pharmaceutical IPRs, particularly patents, has in recent years developed a more specialised approach to research and delivery of drugs using the trade-related aspect of the patent right more extensively. This development mimics the developments of the modern US patent system in the early days of the industrial era. Private market institutions may provide an important tool for companies to manage the further risk and opportunity in this industry (both in transactions and in information markets). They can use the institution as a risk transfer mechanism, allowing both inventors and producers in pharmaceutical IPRs




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part 2

Pharmaceutical IPRs in the international arena


20/3/07 15:35:05

6 The WTO, IPRs and access to medicines Jayashree Watal1


his chapter describes the relevant provisions of the Agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS Agreement) and the subsequent instruments adopted in the World Trade Organization (WTO) with respect to access to medicines. The focus of this paper is on the provisions that are relevant for pharmaceutical inventions, focusing in particular on the patent protection standards. To set this discussion in context, it is useful to recall three basic features of the TRIPS Agreement: ➤ that, together with some 25 other legal texts, it is an integral part of the Agreement Establishing the WTO (and therefore subject to the WTO dispute settlement system); ➤ that it covers not only patents but all the other main areas of Intellectual Property Rights (IPRs); and ➤ that it lays down not only the minimum substantive standards of protection that should be provided for in each of these areas of intellectual property, but also the



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procedures and remedies that should be available to enable

(Article 7) and ‘Principles’ (Article 8), several of the flexibilities

rights-holders to enforce their rights effectively.

in the provisions relevant for pharmaceutical inventions, such as those relating to patents and test data, were influenced by

Finding a balance in the protection of intellectual property

developing-country negotiators.

between the short-term interest of maximising access and the long-term interest of promoting creativity and innovation is more difficult at the international level than at the national on account of differing levels of economic, technological and social development. Perhaps nowhere do these issues excite

Although many aspects of the TRIPS Agreement could poten-

stronger feelings than in regard to pharmaceutical patents,

tially bear on access to medicines, such as trademarks, copyright,

where tension between the need to provide incentives for

industrial design and enforcement of IPRs,3 the focus here is

research and development (R&D) into new medicines and the

on the sections on patents and the protection of undisclosed

need to make existing medicines as available as possible can be



The TRIPS Agreement requires member countries to make

The negotiators of the TRIPS Agreement attempted to

patents available for all inventions, whether products or

find an appropriate balance both within the Agreement and

processes, in all fields of technology, subject to the normal tests

within the single undertaking that incorporated the results

of novelty, inventiveness, and industrial applicability. It also

of the Uruguay Round. Even if not all developing countries

requires that patents be available and patent rights enjoyable

participated in these negotiations in equal measure, it would

without discrimination as to the place of invention, field of tech-

be fair to say that the developing countries’ perspective was

nology or whether products are imported or locally produced

represented. As is widely acknowledged, the TRIPS Agreement,

(Article 27.1). Thus, no longer is it possible for members to

in an effort to strike a proper balance between the differing

exclude entire sectors of technology, such as pharmaceuticals

interests of the participating countries, provides for significant

or chemicals, from the grant of patents nor to discriminate

flexibility in the protection to be given. This flexibility, which

against such patents once these are granted.

went considerably further than some of the demandeurs in the

There are three permissible exclusions from patent grant

negotiations would have liked (and indeed were achieving in

even where the inventions meet the criteria for patentability.

bilateral agreements at the time), resulted from a compromise

One is for inventions contrary to ordre public or morality; which

achieved through negotiation by developing countries acting

explicitly includes inventions that are dangerous to human,

collectively and making issue-based alliances in a multilateral

animal, and plant life or health, or that are seriously prejudicial

context.2 In addition to the provisions entitled ‘Objectives’

to the environment. The use of this exclusion is subject to the



Provisions of the TRIPS Agreement relevant to public health


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Healthy IPRs

conditions that the commercial exploitation of the invention

tion in the application of the regime and excludes this subject

must also be prevented and that this prevention must be

from the WTO dispute settlement processes.

necessary for the protection of ordre public or morality (Article

Members may provide limited exceptions to the exclusive

27.2). This means that if a member country decides to exclude

rights conferred by a patent, provided that such exceptions

certain types of inventions from patent grant, for example,

do not unreasonably conflict with a normal exploitation of

processes of human cloning, it cannot then allow the commer-

the patent and do not unreasonably prejudice the legitimate

cial exploitation of these inventions in its territory.

interests of the patent-owner, taking into account the legiti-

The second exclusion is for inventions that are diagnostic,

mate interests of third parties (Article 30). This provision has

therapeutic, and surgical methods for the treatment of humans

been the subject of a dispute settlement decision in the WTO

or animals (Article 27.3(a)). For example, an eye surgeon who

wherein the act of using the patented pharmaceutical invention

invents a novel, more effective method of removing a cataract

to obtain regulatory approvals for marketing was considered

may not be granted a patent if a country opts to incorporate

to be a permissible exception.4 Finally, the term of protection

this option in its law.

available shall be a period of at least twenty years counted from

The final exclusion is for inventions that are plants and animals (other than micro-organisms) and essentially biological

Members shall require that an applicant for a patent disclose

processes for the production of plants or animals (other than

the invention in a manner sufficiently clear and complete for

non-biological and microbiological processes). However, any

the invention to be carried out by a person skilled in the art.

country excluding plant varieties from patent protection must

Members may require the applicant to indicate the best mode

provide an effective sui generis system of protection. Moreover,

for carrying out the invention known to the inventor at the

the whole provision was made subject to review four years after

filing date or, where priority is claimed, at the priority date of

the Agreement came into force (Article 27.3(b)).

the application (Article 29.1).

A product patent must confer the following exclusive rights

Compulsory licensing and government use without the

on the right-holder: making, using, offering for sale, selling,

authorisation of the right-holder are allowed, but they are

and importing the patented product. Process patent protection

subject to conditions aimed at protecting the legitimate

must give exclusive rights not only over the use of the process

interests of the right-holder. Mainly contained in Article 31,

but also over products obtained directly by the process. Patent-

these conditions include the obligation, as a general rule, not

owners shall also have the right to assign, or transfer by succes-

to grant such licences unless an unsuccessful attempt has been

sion, the patent and to conclude licensing contracts (Article 28).

made to acquire a voluntary licence on reasonable terms and

The exclusive right of importation must be read with Article 6

­conditions within a reasonable period of time. The requirement

on the exhaustion of IPRs, which obliges only non-discrimina-

to pay remuneration that is adequate in the circumstances of



the filing date (Article 33).


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each case, taking into account the economic value of the licence,

implement Article 39.3 was through market exclusivity, while

must also be observed, as must a requirement that decisions be

others disputed this.5

subject to judicial or other independent reviews by a distinct higher authority. Another important condition is that such use Some of these conditions are relaxed in the case of public non-

Clarifications and flexibilities regarding TRIPS and public health

commercial use and when compulsory licenses are employed to

On the issue of TRIPS and public health (including access to

remedy practices that have been established as anticompetitive

patented medicines), the WTO has adopted three instruments:

must be made predominantly to supply the domestic market.

by a legal process or in cases of emergency. The Agreement also contains provisions to protect undisclosed information. It requires that a person lawfully in control of such information must have the possibility of preventing it from being disclosed to, acquired by, or used by others without his or her consent in a manner contrary to honest commercial practices (Article 39.2).

1 The Doha Declaration on the TRIPS Agreement and Public

Health, November 2001; 2 The Decision on the Implementation of Paragraph 6 of

the Doha Declaration on the TRIPS Agreement and Public Health, Geneva, August 2003; 3 A Protocol amending the TRIPS Agreement, December 2005.

In addition, undisclosed test data and other data that governments require to be submitted as a condition of approving products that use New Chemical Entities (NCEs) must be

1. The Doha Declaration on the TRIPS Agreement and Public Health

protected against unfair commercial use where the generation

The Doha Declaration on the TRIPS Agreement and Public

of such data has involved considerable effort. Members must

Health6 responded to concerns about the possible implications

protect such data against disclosure, except where necessary

of the TRIPS Agreement for public health, in particular with

to protect the public or unless steps are taken to ensure that

regard to access to patented medicines. As mentioned earlier,

the data are protected against unfair commercial use (Article

the TRIPS Agreement allows countries to take various kinds of

39.3). While market exclusivity for the originator of such test

measures to qualify or limit IPRs, including for public health

data is not explicitly required, members cannot meet their

purposes. However, some doubts had arisen as to whether the

obligation to protect such data against unfair commercial use

flexibility in the TRIPS Agreement was sufficient to ensure that

simply by protecting it against disclosure. In the run-up to the

it supported public health. It was unclear whether it promoted

Doha Ministerial meeting in 2001, some members expressed

affordable access to existing medicines while supporting R&D

their view in the TRIPS Council that the most effective way to

into new ones.

the marketing of pharmaceutical or agricultural chemical




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The WTO, IPRs and access to medicines

The Declaration responds to these concerns in a number

effect through decisions of the TRIPS Council and the General

of ways. First, it emphasises that the TRIPS Agreement does

Council.7 In November 2005, the TRIPS Council extended the

not and should not prevent members from taking measures to

time given for these countries to implement other provisions of

protect public health. Second, it makes it clear that the TRIPS

the TRIPS Agreement to July 2013.8

Agreement should be interpreted and implemented in a way and, in particular, to promote access to medicines for all. Third,

2. The implementation of Paragraph 6 of the Doha Declaration

it clarifies some of the flexibilities contained in the TRIPS

As explained in Chapter 8 by Patrick Ravillard, the Doha

Agreement. The Declaration makes it clear that each member

Declaration recognised the problem of countries with insuf-

is free to determine the grounds upon which compulsory

ficient or no manufacturing capacities in the pharmaceutical

licences are granted and also clarifies that each member has the

sector in making effective use of compulsory licensing. The

right to determine what constitutes a national emergency or

WTO General Council therefore adopted, on 30 August 2003,

other circumstances of extreme urgency. It declares that public

a Decision9 that waives, in certain circumstances, Article 31(f)

health crises, including those relating to HIV/Aids, tubercu-

and (h) of the TRIPS Agreement. This Decision was adopted

losis, malaria, and other epidemics, can represent such circum-

in the light of a Chairman’s statement10 that sets out several


key shared understandings of members on how the Decision

that supports WTO members’ rights to protect public health

With regard to the exhaustion of IPRs and a member’s right

would be interpreted and implemented. The Decision covers

to permit parallel imports, the TRIPS Agreement states that a

any patented pharmaceutical products, or pharmaceutical

member’s practices in this area cannot be challenged under the

products manufactured through a patented process, needed

WTO dispute settlement system. While emphasising the flex-

to address public health problems recognised in Paragraph 1

ibility in the TRIPS Agreement to take measures to promote

of the Doha Declaration on the TRIPS Agreement and Public

access to medicines, the Declaration also recognises the impor-

Health, including active ingredients necessary for their manu-

tance of IP protection for developing new medicines and

facture and diagnostic kits needed for their use.

reaffirms the commitments of WTO members in the TRIPS Agreement.

ingly, there have been no notifications made to the WTO to use

With regard to the Least Developed Countries (LDCs) of the

the system.11 There are a number of reasons of a transitional

WTO, the Declaration agrees to provide them with an extension

nature which can explain the lack of use of the system so far.

of their transition period until January 2016 for protecting

One is that WTO members, especially the ones exporting under

and enforcing patents and rights in undisclosed information

the system, usually have to amend primary legislation in order

with respect to pharmaceutical products. This was given legal

to be able to use the additional flexibility. This inevitably takes



The Decision went into effect on 30 August 2003. Interest-


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Healthy IPRs

time and, as of July 2006, members have modified their laws/ regulations to enable exports under their legislation. A second


reason is that there is no need to use the system to import drugs

The WTO is often portrayed by its detractors as a club for rich

from non-patent sources. Most important drugs currently on

countries meant to perpetuate their world dominance. The

the market are still available from such sources, since some

TRIPS Agreement, particularly with its obligation to provide

countries that are significant suppliers of generic drugs, such

patents for pharmaceuticals, is often cited as an example of

as India, only started providing product patent protection for

this. However, a plain reading of the Agreement, and of the

pharmaceutical products from the beginning of 2005. A third

subsequent WTO instruments relating to public health, shows

point is that, as is well known, a compulsory licensing system

that a balance has been sought between the interests of right-

can have a great effect in influencing prices, even if the system

holders and those of users of IPRs, including patents. It is up to

is never used.

members to use the flexibilities offered to them in the TRIPS Agreement and the subsequent instruments to obtain more

3. A Protocol amending the TRIPS Agreement

affordable access to patented medicines, and those choosing

Paragraph 11 of the August 2003 Decision called for the TRIPS

to do so need not fear any challenge under the WTO dispute

Council to prepare an amendment, based, where appropriate,

settlement mechanism.

on the Decision that would replace its provisions. Agreement on such an amendment was reached on 6 December 2005, when the General Council adopted a Protocol amending the TRIPS Agreement and submitted it to WTO members for acceptance. In substance, the amendment tracks the August 2003 text. The Decision on the amendment was also taken in the light of a rereading by the General Council Chairman of the statement of August 2003. The Protocol will enter into force upon acceptance by two-thirds of the members. To date, the USA, Switzerland and El Salvador have accepted the amendment.12 The waiver provisions of the August 2003 Decision remain applicable until the date on which the amendment takes effect for a member.




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Pharmaceutical IPRs and the TRIPS Agreement


The pharmaceutical industry and TRIPS

Pharmaceutical IPRs and the TRIPS Agreement: past, present and future

The principal enforcement tool available to the industry twenty

Jacques Gorlin

any substantive patent obligations. Nor did it have any dispute


standards-setting exercise, the pharmaceutical industry had

years ago, i.e. the lonely fight of patent lawyers in the courts of the infringing countries, bordered on the futile in the face of almost non-existent laws or enforcement. In addition, the only inter­ national patent treaty at the time – the World Intellectual Property Organization’s (WIPO) Paris Convention – did not contain settlement provisions to adjudicate differences among countries. In seeking the launch of a multilateral, intellectual property

he pharmaceutical industry, being research based,

a very limited geographic focus: it sought to gain improved

has a business model which relies heavily on the

protection for its intellectual property not in all developing

incentives provided by the limited market exclusivity resulting

countries, regardless of their level of economic development,

from intellectual property protection. This permits it to recoup

but in the more advanced developing countries, the so-called

its upfront investment in Research and Development (R&D) of

Newly Industrialising Countries (NICs). While the research-

innovative drugs. It should, therefore, come as no surprise that

based pharmaceutical companies had adequate and effective

the industry was at the forefront of the international push that

intellectual property protection and enforcement in the

resulted in the negotiation of the Agreement on Trade-Related

developed countries, they did not have similar protection in

Aspects of Intellectual Property Rights (TRIPS Agreement) in

the NICs, which were the home of the copiers of their pharma-

the GATT (General Agreement on Tariffs and Trade) Uruguay

ceutical products. To gain such protection – that is, to get these

Round of multilateral trade negotiations.

countries to enact national intellectual property legislation


This chapter will seek to draw some broad conclusions about

along the lines found in the developed countries – the pharma-

the implementation of the TRIPS Agreement in the light of the

ceutical industry sought a multilateral venue where improved

pharmaceutical industry’s original objectives and expectations

intellectual property protection in the NICs could be traded off

in seeking the negotiation of an intellectual property agreement

for access to the markets of the developed countries for NIC

in the GATT. To understand where we are today, and where we

exports. The obvious candidate for this venue was the GATT,

are going, it is important to recall where we were.

which in 1986 was in the process of launching a new round of multilateral trade negotiations.




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Pharmaceutical IPRs and the TRIPS Agreement

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The initial focus of the pharmaceutical industry was on the

term was set at twenty years from the date of patent applica-

development of internationally recognised standards of protec-

tion. The Agreement also included an obligation to provide

tion and enforcement for patents, specifically with respect to

data exclusivity.

patent protection for pharmaceutical products; limitations on

To understand the impact of the TRIPS Agreement on

the issuance of compulsory licences; and adequate patent term.

the protection of those Intellectual Property Rights (IPRs) of

Only later, once the negotiations had been launched, did the

concern to the pharmaceutical industry, one needs to take into

pharmaceutical industry seek the protection of the proprietary

account what TRIPS was and was not.

information provided to regulatory authorities to demon-

First, it is critical to recall that the TRIPS Agreement was a

strate the safety and efficacy of its products, which came to

snapshot in time. It was essentially completed in December

be included in Article 39 of the TRIPS Agreement (‘Data Exclu-

1991 and dealt with those IPR-related issues facing the pharma-


ceutical and other intellectual property-dependent industries that were identified in the late 1980s and early 1990s. It was

The TRIPS Agreement

never intended to be a static document.4

The TRIPS Agreement, which came into effect on 1 January

tiators to establish an international patent law harmonisation

1995, is viewed as one of the major achievements of the

treaty by agreeing to specific or detailed language that had

Uruguay Round and is considered by some to be the most signif-

to be incorporated verbatim into national laws.5 Rather, they

icant intellectual property accord of the twentieth century.2

negotiated an agreement that contained minimum standards

It was the first international agreement to provide both for

of protection and enforcement and, where possible, used recog-

minimum standards of protection for intellectual property and

nised terms of art and abbreviated language. The TRIPS nego-

for minimum standards of how countries were to enforce those

tiators left national implementation to the determination of

substantive obligations. In addition, the TRIPS Agreement

the individual WTO members so long as the measures met the

provided for international dispute settlement to determine

TRIPS obligations.6

whether a World Trade Organization (WTO) member’s intellectual property system met these international standards.

While the TRIPS negotiators wanted to give the developing and Least Developed Country (LDC)7 members of the

Although it had some lacunae,3 the TRIPS Agreement essen-

WTO additional time to move their national laws to the TRIPS

tially met the goals of the pharmaceutical industry. WTO

standards, the so-called ‘transition provisions’ that they crafted

members were required to provide product patent protection

were essentially fixed delays in TRIPS implementation. They

to pharmaceutical products and to follow established proce-

did not provide for any gradual transition from weak intellec-

dures when issuing compulsory licences. The minimum patent

tual property systems to TRIPS-compatible systems akin to the



Furthermore, it was never the intention of the TRIPS nego-


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Pharmaceutical IPRs and the TRIPS Agreement

Healthy IPRs

transition provisions ending the quotas under the Multi-Fiber

It was, therefore, surprised by the failure of many developing

Textile Agreement that were negotiated at the same time. Thus,

countries – including the very NICs that were the industry’s

a developing country did not face any sanctions if it had the

principal targets in seeking a TRIPS Agreement – to implement

same TRIPS-incompatible protection on 31 December 1999

key TRIPS provisions. These failures also rendered ineffec-

that it had had on 1 January 1995, but it did face sanctions if it

tive the TRIPS dispute settlement process, which was not at

failed to have TRIPS-compatible protection the next morning,

all suited for challenges to the core of a country’s intellectual

on 1 January 2000. As a result, many WTO developing country

property system.

members, notwithstanding the threat of possible sanctions, did not have in place TRIPS-compatible regimes at the end of the TRIPS ‘transition periods’.

TRIPS implementation and industry expectations After more than ten years’ experience of TRIPS implementation we can now see that some of the original expectations that the pharmaceutical industry had for TRIPS were not realised. From the very outset of the negotiations, the industry had believed that stronger intellectual property protection was a ‘win–win’ situation: while providing greater commercial certainty to the developed world, it would also provide economic benefits to the developing countries, especially the NICs, which had the necessary infrastructure and generic pharmaceutical manufacturing capacity in place to take advantage of the incentives contained in the TRIPS Agreement. In 1995, the industry had expected that the TRIPS provisions would be faithfully implemented by all countries according to the transition schedules set out in the agreement and that the TRIPS dispute settlement provisions would be used to fill in any isolated gaps when countries converted their TRIPS obligations into national law.



This failure to meet the industry’s original expectations was, in part, due to a number of factors: ➤ Yesterday’s minimum standards became today’s maximum standards. The view that the TRIPS negotiators had of TRIPS as an agreement containing minimum standards is in stark contrast to today’s view of TRIPS as a set of maximum standards, beyond which even bilateral agreements should not go. This perception of TRIPS as a set of maximum standards is encapsulated in the term ‘TRIPS-plus’, which many developing countries and supportive NGOs have used derogatorily to oppose calls for strong intellectual property protection and which the pharmaceutical industry, on the other hand, argues is consistent with, and the logical extension of, TRIPS Article 1. ➤ Routinisation of intellectual property. The convergence among the four principal developed countries – the USA, Canada, Japan and the EC – in support of intellectual property during the TRIPS negotiations failed to carry over into the implementation stage. Intellectual property had been accepted as the last issue on the Uruguay Round agenda and the TRIPS Agreement had been successfully negotiated due to the wide acceptance


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Healthy IPRs

of the view that weak intellectual property protection

meetings. The ‘Paragraph 6’ issue on compulsory export

constituted a trade barrier. These countries, also known

licences had its origins in the theoretical problem raised

as the Quad, used political chits and made critical trade-

by the inability of WTO members that lacked a domestic

offs to gain the Agreement. But the political convergence

generic pharmaceutical capacity to take advantage of the

quickly dissipated and the only developed country

TRIPS compulsory licence provisions, which were, after all,

willing to use the WTO dispute settlement process to

only exceptions to the patent right.

gain TRIPS implementation was the USA. The other three


➤ WTO’s inability to differentiate among developing

country groupings failed to keep pace and serious TRIPS

countries. Developed and Least Developed Countries8

implementation, both with original WTO developing

are recognised by the WTO as distinct country groupings.

country members and key acceding candidates, therefore

All other countries are grouped as developing countries,

became the sole preserve of the USA.

whether they are middle-income countries ranked just

➤ Takeover by the lawyers. The impact of the


Pharmaceutical IPRs and the TRIPS Agreement

below the OECD countries or low-income countries ranked

strengthened GATT dispute settlement procedures that

just above the least developed. This inability to differentiate

were negotiated in the Uruguay Round went beyond

within the WTO between, for example, China, Brazil or

the process itself. Coupled with the lack of political will

Argentina on the one hand, and Papua New Guinea or

among some of the Quad countries to seek the expected

Kenya on the other, made it difficult for the industry to

implementation of the TRIPS Agreement, the new Dispute

structure WTO implementation strategies specifically for

Settlement Mechanism, with its Dispute Settlement

the advanced developing countries.

and Appeals Bodies, created an environment in which

➤ The Aids crisis in southern Africa. The impact of

legal arguments gained prominence in the debate over

the Aids crisis in southern Africa on the debate over

TRIPS implementation. Minimum standards were no

TRIPS implementation in all developing countries cannot

longer a shorthand for the type of protection expected

be overestimated. It permitted countries like Brazil,

at the national level. Rather, the TRIPS obligations were

which had the infrastructure and resources to cope with

scrutinised as if they were treaty language. The vocabulary

the crisis, to avoid meeting their TRIPS obligations by

of the debate also changed. ‘Exceptions’ found in the

exploiting the heart-wrenching scenes from the southern

TRIPS Agreement became ‘flexibilities’ that countries were

African countries, which had neither the resources nor

permitted to turn into legal norms of intellectual property

the infrastructure to deal with the pandemic. The access-

protection when enacting their domestic legislation.

to-medicines debate that the Aids crisis in southern

Theoretical arguments on the meaning of TRIPS provisions

Africa engendered, when coupled with the takeover by

took over the debate at Ministerial and TRIPS Council

the lawyers of the TRIPS implementation process and


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Pharmaceutical IPRs and the TRIPS Agreement

Healthy IPRs

the WTO’s inability to differentiate among developing

intellectual property challenges require the industry to move

countries, led to a qualitative change in the very legitimate

beyond the WTO.

debate over whether the NICs were meeting their

The industry has thus come full circle. While it will continue

pharmaceutical-related TRIPS obligations. These individual

to support multilateral efforts to ensure that the TRIPS

strands came together in the 2001 Doha Declaration on

Agreement is properly implemented, the current stalemate in

TRIPS and Public Health, which legally did not change

the WTO, caused by the confluence of the forces described in

any of the TRIPS obligations, but nevertheless represented

this chapter, has led the industry to focus on bilateral measures,

a political watershed in the implementation of the

such as Free Trade Agreements (FTAs), as the current preferred

pharmaceutical-related provisions of the Agreement. In

mechanism for gaining the strong intellectual property protec-

that Declaration, which had its origins in the institutional

tion that it continues to need. While admittedly less efficient

desire of WTO trade ministers to demonstrate that they

than a multilateral mechanism, FTAs have the advantage that

were contributing to the fight against Aids in southern

they are freely entered into by the parties and, as a result,

Africa, the trade ministers signalled to all developing

provide the negotiating leverage to gain the requisite levels of

country members of the WTO that the WTO dispute


settlement mechanism would no longer be used against them to enforce the TRIPS Agreement.

While current protection of pharmaceutical IPRs is firmly rooted in the achievements of the TRIPS Agreement and the multilateral process that it engendered, the future protection of

Conclusion: the future of pharmaceutical IPRs

pharmaceutical IPRs will incrementally build on that foundation step-by-step in individual countries.

The pharmaceutical industry’s business model has essentially not changed over the last twenty years and the industry will thus continue to be dependent on strong intellectual property protection. The history of the last twenty years demonstrates that the industry’s search for improved intellectual property protection is a dynamic process. Twenty years ago, the search led the industry to the GATT and the negotiation of what became the TRIPS Agreement in the WTO. While the TRIPS Agreement represented a major milestone in that search, and will continue to set the standard for the basic level of intellectual property protection that the industry seeks,8 today’s




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The WTO decision of 6 December 2005

8 The WTO Decision of 6 December 2005 on the amend­ment of the TRIPS Agreement Patrick Ravillard


The Doha Declaration on TRIPS and Public Health On 14 November 2001, in Doha, the WTO ministerial conference adopted the Declaration on the TRIPS Agreement and Public Health. The ministers had instructed the TRIPS Council to find an expeditious solution to the problem faced by members with insufficient or no manufacturing capacities in the pharmaceutical sector, who also could not import the medicines they needed.1 An amendment was needed because the original TRIPS Agreement provided that compulsory licences2 could only be authorised to supply the domestic market.

fter more than two years of intensive debate about how to transpose a provisional decision, origi-

nally adopted on 30 August 2003, the World Trade Organiza-

The Waiver Decision of 30 August 2003

tion (WTO) members agreed on 6 December 2005 to amend

On 30 August 2003, the WTO General Council adopted the

the Agreement on Trade-Related Aspects of Intellectual

provisional Decision allowing WTO members to export patented

Property Rights (TRIPS Agreement). This allowed the granting

medicines to third countries with insufficient or no manufac-

of compulsory licences for the purposes of manufacturing

turing capacities in the pharmaceutical sector, by making use of

pharmaceutical products for export to countries facing public

compulsory licences. To give comfort to the USA, this Decision

health problems.

was accompanied by a Statement made by the chair of the WTO

The WTO General Council submitted the proposed

General Council, describing members’ ‘shared understanding’

amendment to the WTO members for acceptance. Once

of how the decision was to be interpreted and implemented.

accepted and in force, the amendment completed a process

The Decision was a provisional waiver,3 which was replaced by

that began in 2001 with the ministerial Declaration on the

a permanent amendment to the TRIPS Agreement in 2004.

TRIPS Agreement and Public Health. It represents the first time that a core WTO agreement has been amended.

Following the adoption of the Waiver Decision, the European Commission proposed a Regulation on compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems. The objective was to create a legal basis, at the European Union




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The WTO decision of 6 December 2005

Healthy IPRs

(EU) level, to enable the member states to grant compulsory

adopted a ‘pick-and-choose’ approach, as their proposal failed

licences for the production of pharmaceuticals and their export

to address several provisions of the Waiver Decision, while

to eligible importing countries. The Regulation was adopted on

redrafting others. The rationale was that a number of the Deci-

17 May 2006.4

sion’s provisions would be either redundant in the context of an amendment or otherwise served by existing TRIPS provi-

The negotiations on the amendment

sions on compulsory licences and enforcement.

The negotiations on the amendment were more difficult

proposal as a good basis for further discussion. Their main

than expected and WTO members were unable to respect the

concern was the status of the Statement, which they did not

deadline scheduled in the Waiver Decision. Indeed, certain

want to involve in the amendment process at all.

members attempted to re-open discussions on substantive

The USA, while agreeing on the technical approach,

issues. The debate focused on the legal form and content of the

sought to incorporate (or refer to) the Statement in the TRIPS

future amendment.

Agreement. In particular, they suggested that a reference to the

From the outset, the European Community (EC) took the

Statement could be made in a footnote of the Agreement. In

view that the nature of the amendment process should remain

March 2005, they circulated a submission7 asking to preserve

essentially technical in order to avoid having to re-open the

an explicit reference to the Statement in the amendment or the

discussions on substantive issues. The amendment should

principles included therein, while arguing that they did not

reflect what had been agreed in the Waiver Decision, because

seek to elevate the legal status of the Statement.


it was the result of a delicate balance that had been difficult to

Due to a lack of real progress, the EC informally circulated

strike. In any event, the fact that the TRIPS Agreement should

a paper in the WTO in September 2005 outlining its ideas on

be amended meant for the EC that textual changes would have

how the Waiver Decision should be incorporated into the

to be made to the Agreement itself, in order to translate the

TRIPS Agreement. The initiative injected new momentum into

relevant paragraphs of the decision into TRIPS language. As to

the discussion. Technically, the amendment should consist of

the WTO General Council Statement, the EC held that while the

an exception to Article 31(f), allowing WTO Members to issue

relationship between the Waiver Decision and the Statement

compulsory licences for export under the conditions agreed in

should be preserved, the legal status of the Statement should

August 2003. These conditions would be inserted in an annex

not be upgraded.

to the TRIPS Agreement, so as not to overload the body text of

The African Group saw an opportunity in the amendment

the Agreement. As to the Statement, the EC proposed it should

exercise to re-open the discussions on substantive issues and

be reiterated by the Chairman of the General Council at the

tabled a proposal for an amendment in December 2004.6 They

time of adopting the amendment.



Other developing countries generally welcomed the African


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The WTO decision of 6 December 2005

Healthy IPRs

While the EC proposal was not formally submitted to the

closely as possible and is composed of three parts. First, there

TRIPS Council, it served as a basis for further consultations

are five paragraphs under Article 31bis of the TRIPS Agreement

conducted by the Chairman of the Council. Consultations also

(i.e. an additional article after Article 31), including the one

took place between the EC, the African Group and the USA

which allows pharmaceutical products made under compul-

in order to narrow down differences between the respective

sory licence to be exported to developing countries in need.

approaches. The positions of the EC and the African Group

Other paragraphs deal with avoiding double remuneration to

with regard to the amendment were actually very similar and

the patent owner, regional trade agreements involving Least

both wished to find a solution to clear the ground before the

Developed Countries (LDCs), non-violation and situation

Hong Kong Ministerial Conference scheduled for December

complaints, and retaining all existing flexibilities under the


TRIPS Agreement.

The Decision of 6 December 2005

annex to the TRIPS Agreement, which set out terms and condi-

Work intensified in the run-up to the Hong Kong Ministe-

deals with assessing the lack of manufacturing capacities in the

rial Conference and the WTO members finally reached an

importing country. This was originally an annex to the Waiver

agreement on 6 December 2005. The new rules were formally


A further seven paragraphs have been included in a new tions for using the system. Finally, an appendix to the annex

incorporated into the TRIPS Agreement and allow any WTO

In order to preserve the legal meaning and weight, and the

member to export medicines made under compulsory licence

relationship between the Statement and the new rules, the

for the purpose of supplying developing countries in need.

Statement has not been incorporated in the amendment but

The amendment takes effect for the WTO members that have

was reiterated by the Chairman of the WTO General Council

accepted it when two-thirds of the WTO members accept the

prior to the adoption of the proposal for an amendment. This

amendment and thereafter for each other member upon accep-

reflects the approach of the EC during the negotiations.

tance. The members have set themselves until 1 December

Later, a group of developed countries and the EC announced

2007 to do this. The Waiver Decision remains in force for

that they would not use the system to import. High-income

each member until the amendment becomes effective for that

developing countries announced separately that if they used


the system as importers, it would be for emergency situations


only.10 All WTO members have the right to act as exporters.

The contents of the amendment The amendment is designed to stick to the Waiver Decision as




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Healthy IPRs

Acceptance of the amendment by the EC The EC played an important role in the negotiations on the amendment. As the EC is competent to conclude agreements in the field of commercial aspects of intellectual property,11 the amendment had to be accepted on behalf of the EC. On 27 April 2006, the European Commission presented a proposal for a Council Decision accepting, on behalf of the EC, the amendment. This new initiative, together with the newly adopted Regulation on compulsory licences of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems, demonstrates the commitment of the EC to the WTO process and confirms

9 The WHO Commission’s Report on Intellectual Property Rights, Innovation and Public Health: a missed opportunity James Killick1

its willingness to truly facilitate access to medicines for poor countries.

Introduction In February 2004, a World Health Organization (WHO) Commission on Intellectual Property Rights, Innovation and Public Health began ‘an analysis of intellectual property rights, innovation, and public health, including the question of appropriate funding and incentive mechanisms for the creation of new medicines and other products against diseases that disproportionately affect developing countries’. Its members were politicians, academics and officials – but, surprisingly, only one had practical experience of private sector research in the pharmaceutical industry. The Commission reviewed over 50 expert submissions, organised several workshops and an open forum in Geneva, held consultations with stakeholders in eight cities worldwide and commissioned 22 studies. Its final report, which runs to over 200 pages, was published in April 2006. The




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report’s findings, which are summarised below, have been the subject of significant – and justified – criticism.

The WHO Commission’s Report on IPRs, Innovation and Public Health

Section 3 analyses the way drugs are developed, pointing out that it is likely to cost less than the industry average to develop products to treat diseases that mainly affect developing

The report’s findings


Section 1 of the report notes the relative lack of research into

latory procedures in developing countries, which could then

Type III diseases, such as African river blindness, which occur

evaluate products using their own risk-benefit standards, which

almost entirely in developing countries whose governments

might differ from those in the developed world. It cites a US

and patients lack purchasing power. Patents and similar market

decision to withdraw a rotavirus vaccine because of a 1 in

incentives do not stimulate research and development (R&D)

10,000 risk of an obstruction in the bowel – odds which devel-

into new drugs to treat such diseases, since developing countries

oping countries, where 600,000 children die every year from

generally have neither the scientific infrastructure nor a private

severe rotavirus diarrhoea, might be willing to tolerate.2

sector capable of innovation. And the huge cost of developing

The report finds no evidence that implementing the TRIPS

new drugs makes it difficult to market them at affordable prices

requirement for all WTO members to introduce patent regimes

for developing countries.

would significantly boost R&D for Type III diseases, as the real

Section 2 analyses the process of discovering new drugs. The

problem is insufficient market incentives. It suggests that an

report suggests the WHO should establish a permanent forum

open source approach, similar to the software industry, might

of governments, companies, academics and patients to enable

be useful for tackling biomedical research problems in devel-

organised sharing of information and greater coordination.

oping countries.

More controversially, it proposes that the WHO should act to

Section 4 examines the problems of delivering medicines to

make companies’ libraries more accessible, with a view to iden-

patients in developing countries, notably inadequate health

tifying compounds for use against diseases that affect devel-

infrastructures and emigration of healthcare workers. It suggests

oping countries. (Of course, as the report itself notes, these

making greater use of traditional medicine practitioners in

libraries are a key factor in competition between companies,

developing countries.

which may be reluctant to accept this suggestion.) It suggests

The report gives the startling estimate that up to 25% of

that the WHO and World Intellectual Property Organization

medicines taken in the developing world are counterfeit or

(WIPO) encourage patent pools and promote research, notably

substandard,3 and proposes tackling this problem through

through research exemptions in patent legislation and compul-

good manufacturing practices and supply chain management.

sory licences under the Agreement on Trade-Related Aspects of

It calls on the pharmaceutical industry to maintain transparent

Intellectual Property Rights (TRIPS Agreement).

and consistent pricing policies, arguing that prices of patented



The report calls for work to improve clinical trials and regu-


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Healthy IPRs

products and generics should be reduced for all low- and

patent protection, thus delaying generic entry).8 It proposes

middle-income developing countries, not only those in sub-

government action to avoid barriers to legitimate generic

Saharan Africa.

competition, and gives the example of the Indian Patent Act

Regarding IPRs, the report suggests that companies should ‘adopt patent and enforcement policies that facilitate greater

2005, which only allows patents on variants of a known drug if they have greater efficacy.

access to medicines needed in developing countries’, i.e. they

Section 5 recommends improving innovative capacity

should not file for patents in developing countries or should

in developing countries. It calls for technology transfers to

grant voluntary licences.4 Developing countries should provide

increase production, and for more clinical trials, provided their

for compulsory licences under the TRIPS Agreement and the

regulatory framework is improved.

Doha Declaration, while governments should adopt price

The report also notes the trend of reverse pharmacology,

controls and promote generic competition, ‘given the leverage

taking advantage of known therapeutic methods in traditional

to determine prices that patents confer’.5 The report considers

medicine to accelerate the process of discovery. It suggests that

that because developing countries have limited innovative

digital libraries of traditional medicinal knowledge should be

capacity and ability to pay, there are unlikely to be public health

incorporated into the minimum search documentation lists

justifications for them to provide more than the minimum

of patent offices, so that such knowledge is considered when

protection established under the TRIPS Agreement for regula-

patent applications are made. Holders of Traditional Knowledge

tory data protection. It states that Free Trade Agreements (FTAs)

(TK) should benefit from any commercial exploitation of the

should not incorporate ‘TRIPS-plus’ protection (see Chapter 7).

information in these digital libraries.

The report goes on to argue that developing countries should

Section 6 sets out the report’s recommendations. It notes

implement competition laws to balance intellectual property

that in developed countries, incentives for R&D in the private

and competition policy, and should apply the pro-competitive

sector are generated by the market for healthcare products and

measures allowed by TRIPS.6 All countries should take measures

by public and private demand. Private sector innovation is also

to promote generic entry as soon as a patent expires. The report

supported by research in publicly funded universities, while

also advises measures to promote greater competition between

intellectual property protection ensures private companies are

generics, regulate prices and replace brand-name drugs by

financially rewarded for their innovation. Owing to lack of


demand, this innovation cycle usually does not exist in devel-

The report discusses whether new products are necessarily

oping countries at present, leaving them dependent on products

better than existing medicines, and examines so called ‘ever-

designed to meet healthcare needs in developed countries. The

greening’ practices (the name given to the scenario where a

possibility of a patent may not stimulate innovation when the

patent-holder uses a minor improvement to seek additional

market is too small, or scientific and technological capability is



The WHO Commission’s Report on IPRs, Innovation and Public Health


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The WHO Commission’s Report on IPRs, Innovation and Public Health

Healthy IPRs

lacking. The report concludes that the monopoly costs relating

In contrast, however, the report discusses a number of issues

to patents make patented products too expensive for most

that are of limited importance to developing countries. For

patients in low-income countries, and calls on the WHO to

example, the issue of ‘evergreening’, the use of competition

develop a ‘Global Plan of Action’ to overcome this problem.

laws against patent-holders (compulsory licensing) and the use

The plan of action must ensure more and sustainable funding

of laws to promote generic entry. None of these issues seems

to develop and make available medicines to treat the diseases

particularly relevant to developing countries, given that it is

that particularly affect developing countries.

relatively rare for pharmaceutical companies to seek patent protection in developing countries. They tend not to file for

Analysis of the report

patents there for the simple reason that the market is too small

The most significant criticism of the report seems to be that it

of the three issues was discussed at length.

to justify the effort (a fact acknowledged in the report). Yet each

failed to address the right issues. For example, it barely discusses

Put bluntly, the report overlooks key issues for developing

two of the most important questions with regards to IPRs and

countries and instead weighs into the debates currently taking

developing countries – the elephants in the room, as it were.

place in those countries which already have effective health-

First, how relevant are IPRs to developing countries where so many people die due to lack of access to basic medicines

their healthcare budgets.

that went off patent long ago? It is submitted that patents

The report’s proposals for action to improve the situation

are not the biggest issue for people who fall sick in developing

reflect its focus on the wrong issues, as well as the Commis-

countries. Getting access to any type of medicine, in particular

sion members’ lack of practical experience. In fact, the only

generic medicines, is the real issue.

member with hands-on industry experience made a number of


Second, the report notes that 25% of all drugs consumed in developing countries are counterfeit. This is a horrendous statistic: it suggests that 25% of all expenditure on drugs in developing countries is wasted. Solving this problem would bring about an immediate improvement in public health at next to no cost (based on the reasonable assumption that governments/patients pay the same price for counterfeits as for genuine drugs). This is clearly an IP issue of immediate importance, which should have been given high profile in the report. Yet it is discussed in less than one page.



care systems, but which are trying to find methods to reduce

dissenting comments, as follows: ➤ Introducing competition law regimes in developing countries to use against patent-holders would entail major investments, notably in training specialists to enforce the regime, especially as the interface with intellectual property is one of the most complex areas of competition law. It would surely be better to use the money to treat patients. ➤ Creating digital libraries of therapeutic methods in traditional medicines for use in prior art searches before


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Healthy IPRs

patents are granted could actually be counter-productive.

The WHO Commission’s Report on IPRs, Innovation and Public Health

If a search showed that no patent could be granted,


pharmaceutical companies would not invest the hundreds

The WHO Commission’s Report on Intellectual Property Rights,

of millions of dollars needed to get a drug approved and no

Innovation and Public Health has achieved the important goal

new medicine would emerge.

of focusing the world’s attention on the problem of the lack of

➤ Equally counter-productive could be the idea contained

drugs to treat diseases that primarily affect developing countries.

in the Indian Patent Act 2005, namely that patents would

However, its analysis contains a number of serious flaws. As a

only be granted on variants of a known drug if they have

result, the report often fails to address the real problems faced

greater efficacy. As the report admits, this test is wholly

by developing countries – such as counterfeit medicines – and

impractical: clinical trials will not have taken place when

instead addresses issues like competition law, generic entry

the patent application is filed, so it will be impossible to

and evergreening, which are of limited (if any) relevance to

demonstrate superior efficacy. And the risk is that no trials

developing countries. Because of this lack of focus, a number of

would ever be carried out in such an uncertain regulatory

the solutions proposed by the report are not relevant or would


be counter-productive. It is a pity that so much well-meaning

➤ Open source software (OSS) is backed by some of the world’s largest computer firms, which offer consulting

effort has led to such a disappointing result. This was indeed a missed opportunity.

services relating to OSS (e.g. IBM) or sell hardware incorporating it (e.g. HP). Without government support on a similar scale to that given by HP, IBM and others, open source methods are unlikely to succeed in the pharmaceutical industry. ➤ The recommendations for price controls and compulsory licensing make the mistake of assuming that a patent gives the holder power to set prices. Patented products normally compete with other patented products and generic drugs that produce a similar therapeutic effect. Only in the relatively small number of cases where there is no alternative product does a patent give monopoly pricing power.




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The EU’s approach to the enforcement of pharmaceutical IPRs


The current situation

The EU’s approach to the enforcement of pharmaceutical IPRs: multilateral, bilateral and domestic perspectives

Few products have as much potential to cause serious damage

Pedro Velasco Martins1

third countries, particularly in the developing world.


According to the authors of an article published in The Lancet,2

as fake medicines: counterfeit blood plasma, retro-virals or antipaludism tablets can have ravaging effects in terms of public health. Victims of such products reach thousands each year and the poorest people in the Least Developed Countries (LDCs) of the world are particularly affected. Most of the 800,000 pharmaceutical products seized on the borders of the European Union (EU) in 2004 – a twofold volume increase over the previous year – were only in transit and were ultimately destined to reach Reports of the seriousness of the situation are overwhelming.

n the eyes of the public, counterfeiting is often still

fake medicines were recognised as responsible for the deaths of

seen as something innocent and harmless. Everyone

192,000 people in China alone in 2001. The Chinese govern-

enjoys a bargain. But it is far too easy, and also wrong, to write

ment subsequently closed down 1,300 factories and investi-

off counterfeiting as harmless. Production of and trade in fake

gated 480,000 cases involving products with an estimated value

products are big business for criminal organisations and they

of US$57 million. In August 2006, Shanghai police disman-

undermine entire sectors, including the most creative and

tled a criminal network dedicated to selling a false version of a

competitive, of the economy. And when pirates move into fake

popular anti-flu vaccine over the Internet. More than 400kg of

medicines, we move from rip-offs to potential tragedy.

tablets ready to be shipped worldwide were seized.

The purpose of this chapter is to give a description of the tools available in European countries to protect citizens against right-holders against the infringement of their intellectual

A general legal framework for a specific problem


In view of this worrying situation, it is perhaps surprising to

the consumption of counterfeit pharmaceutical products and

find that there are very few rules in the legal framework of Intellectual Property Rights (IPRs) enforcement specifically made to address counterfeiting of pharmaceutical products. Looking at




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Healthy IPRs

The EU’s approach to the enforcement of pharmaceutical IPRs

the most comprehensive set of IPR rules in force at the multilat-

to a very high standard. The most ‘operational’ responsibili-

eral level, the Agreement on Trade-Related Aspects of Intellec-

ties and the majority of the means and resources available to

tual Property (TRIPS Agreement), we find that the mechanisms

fight against piracy and counterfeiting are the competences

foreseen in its Enforcement chapter (Part III) for administrative,

of the individual Member States. Therefore, the most visible

civil, criminal and customs proceedings apply in general to any

and immediate results in this fight will always be achieved by

infringements of copyright or trademarks.

the national customs authorities, police, courts, and adminis-

The same is the case for the legal instruments available to

trations, and regulated by the different national legislations.

combat infringements of IPRs in the EU, as well as the sets of

This is why the level of enforcement within the European

rules included in bilateral agreements between the EU and third

Community is different among Member States, and also why

countries. Therefore, from a strict point of view, counterfeiting

some countries still need to do more to improve the present

a pair of sports shoes will be subject to the same mechanisms as

situation by cutting down the remaining production and sale

faking a pharmaceutical product.

of pirated or counterfeit goods.

Pharmaceuticals are different, however, because of the

Before describing in more detail the laws that have already

potential gravity of the effects of counterfeiting on the user.

been harmonised, it is important to note that Europe is far

This means that in many situations the producers and distribu-

from being one of the regions most affected by the traffic of

tors of a fake medicine will actually be involved in criminal

counterfeit pharmaceuticals.3 To a large extent, this is due

practices that extend well beyond those of counterfeiting, such

to the health systems predominant in EU countries, where

as homicide, physical offences, corruption of medical products,

the distribution and sale of most pharmaceutical products is

poisoning and others. These crimes are covered by their own

tightly regulated and monitored by public authorities. Further-

legal regimes and sanctions foreseen for their practice are in

more, contributions by public health schemes to the price of

many cases much harsher than those applicable to the more

medicines provide little incentive for consumers to buy cheap

‘simple’ infringement of an IPR. In some countries where the

products through unofficial channels. But the risk is present for

distribution of fake pharmaceuticals leads to loss of human life,

certain products for which the price participations are harder

the pirates may in fact incur the death penalty.

to obtain or are in risk of shortage (pharmaceuticals like Viagra; or Tamiflu, in the wake of the avian flu reports of 2005). There

Legislation and enforcement mechanisms in the EU

is also, as mentioned above, a considerable traffic of fake phar-

Generally speaking, the European Union (EU) and its Member

America, making the journey through Europe and occasionally

States are acknowledged for protecting and enforcing IPRs

being successfully seized here.



maceutical products originating in Asia and destined to reach developing and least developed countries in Africa and South


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Healthy IPRs

The EU’s approach to the enforcement of pharmaceutical IPRs

It is worth presenting an overview of the intellectual property

include, among others, injunctions to halt the sale of coun-

regime applicable in the EU to IPR infringements in general and

terfeit or pirated goods, provisional measures such as precau-

to counterfeit pharmaceuticals in particular.

tionary seizures of suspected offenders’ bank accounts, evidence-gathering powers for judicial authorities, and powers

a) Enforcement at the external border

to force offenders to pay damages to right-holders to compen-

Coming back to the IPR enforcement rules applicable at EU level,

sate for lost income. To a large extent, the measures foreseen

the EU adopted the ‘Customs Regulation’ in 1984, setting out

provide a higher level of protection than that given by the TRIPS

the conditions under which customs authorities may intervene

Agreement. However, because some aspects of the criminal law

in cases where goods suspected of infringing IPRs reach the

still remain a competence of each Member State, the Enforce-

external borders of the EU. The law applies to infringements

ment Directive does not contain any measures relating to

of all IPRs and regardless of whether they are being imported,

enforcement by penal means.

exported or are in transit. It also sets out the steps to be taken by

Since then, the EU has been working on a proposal to

the authorities when goods are found to be illegal. This Regula-

harmonise Member States’ national legislations insofar as

tion was revised and improved in 2003.4

criminal sanctions on counterfeiting and piracy are concerned.6

It is one of the most effective instruments available against

The text currently being discussed foresees that offences must

IPR infringements at the external EU border. Seizures in 2004

incur a maximum term of at least four years’ imprisonment

increased by almost 1,000% compared to 1998. Customs now

when they are committed under the aegis of a criminal organi-

seize more than 100 million articles per year, and the number

sation. The same applies where the offences carry a health or

of customs operations involving fakes more than doubled to

safety risk. For legal entities the penalties include criminal and

22,000 from 2003 to 2004. Most important of all, the Regula-

non-criminal fines up to a maximum of 100,000 euros. Fines

tion foresees simple and cost-free mechanisms of cooperation

will be raised up to a maximum of 300,000 euros for offences

between legitimate right-holders and customs authorities.

carried out by a criminal organisation and/or offences which carry a health or safety risk.

b) Enforcement within the EU Another key legal tool is the ‘Enforcement Directive’,5 adopted

c) Enforcement in third countries

in 2004. This Directive covers infringements of all IPRs (both

IPR infringements occurring outside the territory of the EU,

copyright and industrial property, such as trademarks or

and thus outside the scope of EU laws, are obviously a major

designs), which have been harmonised within the EU under

source of concern. This is why enforcement initiatives at the

European law. The Directive is based on best practices in the

international level have gained considerable momentum in

Member States, which are extended throughout the EU and

recent years, and not only from Europe but also from countries




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The EU’s approach to the enforcement of pharmaceutical IPRs

Healthy IPRs

such as the USA, Japan and some of the most important inter-

the topic, and they often go beyond the minimum standards

national and multilateral organisations.

required by the TRIPS Agreement. The EU announced in

Europe’s basic approach was set out at the end of 2004, in the

September 20069 that it was entering into a new era of ambitious

‘Strategy for the Enforcement of IPR in Third Countries’.7 Since

bilateral agreements with partners such as India, ASEAN and

then, the EU has substantially increased its work in this field,

Korea, and that it intended to include stronger provisions for

creating specific dialogues with some of the key players such

IPRs, modelled on those in place within the EU (such as the

as China, Russia and the Ukraine (one of the first dialogues

2004 Enforcement Directive).

with China was dedicated to the pharmaceutical sector). The EU has also addressed the issue at the World Trade Organization

d) Access to affordable medicines

(WTO)/TRIPS Council, shifted technical assistance resources

It is worth making reference in this regard to an instrument that

to enforcement, and established reinforced cooperation with

regulates the flow of pharmaceutical products between Europe

countries sharing its concerns, such as the USA and Japan. Like

and certain third countries, known as ‘The Tiered Price Regula-

Europe, these countries identified the evolution and growth

tion’.10 This Regulation is intended to enable producers of key

in piracy and counterfeiting in the global economy as a top

medicines to significantly increase their supplies at lower, so-

political priority.

called ‘tiered’ prices, to 76 poor countries, while keeping higher

In October 2006, the EU announced additional steps related

prices for the same items in Europe. While the purpose of the

to enforcement. Based on an extensive survey of European busi-

Regulation is not to deal with counterfeit pharmaceuticals, it

nesses about their experience with IPR enforcement around the

contains a series of measures destined to prevent the traffic of

world, the EU established a list of priority countries and regions

these low-priced products back into the EU. Products sold to

on which to focus activity and resources in the fight against

beneficiary countries must be marked with a logo and manu-

piracy and counterfeiting. They identified China as the main

facturers should also make them look different from those sold

priority, but also singled out Russia, the Ukraine, Turkey, Chile

in developed markets (for instance by using different colours,

and Korea, and the ASEAN and MERCOSUR trading blocks.

sizes or shapes).

The results of the Enforcement Survey are publicly available8 and contain detailed information about counterfeiting in over 40 countries, including reports about infringements relating to pharmaceutical products. Bilateral trade agreements are increasingly becoming another weapon in the war against piracy and counterfeiting. There is a shift towards the inclusion of detailed sections dedicated to



Multilateral enforcement initiatives At the multilateral level, the topic of counterfeit pharmaceuticals is attracting considerable attention at the highest political stages. During the Russian presidency of the G8, the G8 leaders


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Healthy IPRs

approved a statement on the enforcement of IPRs at the St Petersburg Summit. They committed themselves to substan-

The EU’s approach to the enforcement of pharmaceutical IPRs


tially reduce global trade in pirated and counterfeit goods and

Combating counterfeit medicines does not necessarily require

to combat the trans-national networks supporting this trade.

IPR enforcement rules tailor-made for the purpose. Instead,

The G8 members also agreed to cooperate among themselves

given that drug counterfeiting is a phenomenon whose conse-

in areas such as customs controls, antipiracy crime strategies,

quences largely transcend the negative effects of ‘ordinary’

public awareness-raising, and assistance to third countries

counterfeiting, it needs to be tackled by laws and implementa-

through sharing of best practices, training and technical assist-

tion mechanisms extending beyond the intellectual property


framework. A strong regulatory system for the authorisation

For its part, the Organisation for Economic Co-operation

of new medicines and clear rules for their licensing, manu-

and Development (OECD) has decided to conduct an extensive

facturing and distribution is required. Then, if or when these

study to assess the impact of piracy and counterfeiting on the

regulations are infringed, there is a need to educate patients

global economy. There are few credible overall assessments of

and healthcare workers, execute effective action and coordina-

the impact of counterfeiting on the world economy and the

tion between different law enforcement agencies, and impose

OECD is certainly the institution best placed to do this. One

sanctions proportionate to the crime. For those countries

of the sectors to be analysed in detail is the pharmaceutical

lacking the means to put such a system in place on their own,

sector, and a particular emphasis will be placed on the risks to

urgent assistance will be needed.

consumers. Last, but not least, an International Medical Products AntiCounterfeiting Taskforce (IMPACT) has been created by the World Health Organization (WHO) following an international conference in February 2006. It consists of governmental, nongovernmental and international institutions, and aims to raise awareness about the problem, establish cooperation, promote exchange of information among the entities concerned, and offer legislative, administrative and technical solutions to combat counterfeit drugs.




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The threat of counterfeit medicines: a new approach to policy


has warned that an increase in the risks of counterfeits entering the EU supply chain is ‘obvious’.4

The threat of counterfeit medicines: a new approach to policy Peter Pitts

The Center for Medicine in the Public Interest estimates that, globally, counterfeit drug commerce will grow 13% annually through 2010. That means counterfeit drug sales will grow at nearly twice the rate of legitimate pharmaceutical commerce. In 2010 this illegal business will generate US$75 billion in revenues – a 92% increase from 2005.5 The profits are high and the risks are low. And that is a deadly combination. A large proportion of the world’s counterfeit medicines originate in Asia and end up in the USA and EU. In the EU,


between 1998 and 2004, there has been a 1,000% increase in hat is a counterfeit drug? According to the

seizures of counterfeit prescription drugs.6

World Health Organization (WHO), a counter-

China, in particular, is a production centre. In 2001 it was

feit drug is ‘a product that is deliberately and fraudulently

reported that Chinese authorities closed 1,300 factories while

mislabelled with respect to identity and/or source. Coun-

investigating 480,000 cases of counterfeit drugs worth US$57

terfeiting can apply to both branded and generic products

million. It is estimated that in China between 200,000 and

and counterfeit medicines may include products with the

300,000 people die each year due to counterfeit or substandard

correct ingredients but fake packaging, with the wrong ingre-

medicine.7 And these are reported cases: the true number is

dients, without active ingredients or with insufficient active

likely to be far higher. And while the West has not experienced


such dramatic numbers, there is no question that the problems


of Asia and Africa are on our doorstep.

The scale of the problem The WHO estimates that 8–10% of the global medicine supply chain is counterfeit – rising to 25% or higher in some countries.2 The largest counterfeit market with close proximity to the EU free trade zone is Russia, where the generally accepted estimate is that 12% of drugs are counterfeit.3 Now that the Baltic nations of Latvia, Lithuania and Estonia have joined the EU, the WHO



Other data suggest that: ➤ Counterfeit medicines constitute between 40 and 50% of total supply in Nigeria and Pakistan.8 ➤ In China, authorities have found that some products have a counterfeit prevalence ranging between 50 and 85%.9 ➤ In Thailand and Nigeria, 36.5% of antibiotics and antimalarials on the WHO essential drugs list are substandard.10


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Healthy IPRs

A recent survey by the WHO of seven African countries found

➤ Corruption of courts and of regulatory authorities.

that between 20 and 90% of all anti-malarials failed quality

In some countries law enforcement can also be corrupt,

testing. These included chloroquine-based syrup and tablets,

allowing criminals to pay corrupt law enforcement agents

whose failure rate ranged from 23 to 38%; and sulphadoxine/

to turn a blind eye to their activities. If a case does make

pyrimethamine tablets, up to 90% of which were found to be

it to court, the gangs may be able to pay off the judge and

below standard.11

thereby induce a favorable judgement.

Underlying cultural and systemic failures leading to counterfeiting One could outline three underlying causes of counterfeiting in the Least Developed Countries (LDCs):12 ➤ Absent or defective IP protection. One way to prevent the sale of unauthorised copies of medicines is to enable companies to register and enforce trademarks. These enable vendors to signal the quality of their product to potential purchasers. Trademark owners have strong incentives to ensure that the quality of their product is maintained because their reputation and hence future profitability depend upon it. In those countries where trademarks cannot be enforced, cheaply produced poor quality copies will typically crowd out good-quality drugs. ➤ Lack of adequate civil liability. Civil law protects the consumer against mis-sold or defective goods. By enabling consumers (at home or abroad) to obtain redress from the manufacturer or supplier of a harmful product, such liability both compensates those who are harmed and discourages manufacturers and suppliers from selling counterfeits.



The threat of counterfeit medicines: a new approach to policy

Corruption within the police force exacerbates this problem, so that the enforcement of regulations is seen as an opportunity to collect bribes. Governments on both sides of the Atlantic have taken significant preliminary steps to address this growing problem. A problem which, in many respects, can be considered nothing short of international healthcare terrorism. Only recently Jeffrey Gren, Director of the US Commerce Department’s Office of Health and Consumer Goods, announced in a speech that the US government is working on stopping the illicit flow of Active Pharmaceutical Ingredient (API), which can be used in counterfeit medicines.13 Gren said that the Commerce Department is focusing efforts on China and India. China maintains that it cannot be responsible for the API used outside the country. The production and trading of an active pharmaceutical ingredient in bulk form needs to fall under the same rules that govern the production and trading of manufactured pharmaceuticals. According to the Council of Europe (CoE) survey report entitled Harmonised Provisions for Legislative and Administrative Procedures Applicable to Counterfeit Medicines in the Council of Europe Member States, dated January 2006, the predominant themes behind counterfeit medicines and ­pharmaceutical crime


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Healthy IPRs

are those of ’invisibility’, ‘biohazard’ and ‘system failure’.14

Europe by an unsuspecting public is thus difficult to determine

These are discussed in more detail below.

based on known and currently available data. While it is

When focusing on the scope of the problem in Europe, the

extremely unlikely that inadvertent consumption of counter-

CoE report states that there is ‘undoubtedly a large “invis-

feit medicines in Europe is related to major mortality (unlike

ibility” factor that masks the real extent of the presence of

the situation that exists in some countries in Asia and Africa),

counterfeit medicines in Europe’. This is due to a number of

it is possible, if not probable, that counterfeit medicines make

factors, such as the very nature of medicinal products (coun-

a not insignificant contribution to morbidity (for example, via

terfeit medicines are invariably harder to detect compared to

ineffectiveness, inappropriate labelling and/or mis-labelling

other types of counterfeit products), the lack of a commonly

and the absence of any possibility for batch recall).

agreed and employed definition of counterfeit medicines by

According to Jonathan Harper,16 developed countries are at

European states and a lack of awareness (in the case of several

risk from counterfeit medicines due to a number of inter-related

relevant authorities as well as the general public) of the threat

factors that can amount to a system failure:

that counterfeit medicines poses, even if they exist at all. Lack of sufficient information on the biohazards associated with counterfeit medicines also poses a significant problem. As reported in Coincidence or Crisis,15 the types of Adverse Drug Reaction (ADR) associated with the inadvertent use of

➤ Lack of awareness and perception of the problem at many authority/stakeholder levels; ➤ Regulatory gaps (particularly with regard to API, and to packaging and distribution chain regulation);

counterfeit medicines can relate to one or more of a number

➤ Weak export/transit regulations;

of problems depending on the type of counterfeiting practice

➤ Lack of coordination and inconsistency of approach

employed. Counterfeit medicine-associated ADRs may be due

between relevant authorities both nationally, regionally

to, but not limited to, inappropriate API dose (absent, insuffi-

and internationally;

cient or excess dose) and quality problems (product contamination, excipient problems). Under-reporting of possible counterfeit medicine-related ADRs is likely to be significant when one takes into account the

➤ Inefficient cooperation between stakeholders (within the supply chain and between the supply chain and the authorities).

well-known problem of ADR under-reporting, even for author-

Finally, one of the most serious impediments to an allied

ised medicinal products. A weakness in the existing European

transatlantic war against prescription drug counterfeiters is

pharmacovigilance system is that it is not explicitly geared to

parallel trade or parallel importation – the legal trade in products

detection of ‘drug ineffectiveness’. The direct impact of the

which are priced differently in different countries, and where

inadvertent use of counterfeit medicines on public health in

sellers make a profit on this price differential. Currently, nearly



The threat of counterfeit medicines: a new approach to policy


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The threat of counterfeit medicines: a new approach to policy

Healthy IPRs

140 million individual drug packages are parallel-imported throughout the EU – and a wholesaler repackages each and every one of these. This means that, literally, parallel traders

The Internet has the very real potential of becoming the inter-

open 140 million packets of drugs, remove their contents and

national drug cartel of the 21st century. When the ‘learned

repackage them. But these parallel profiteers are in the money-

intermediary’ – a doctor or pharmacist – is replaced by a greedy

making business, not the safety business, and mistakes happen.

intermediary (such as an unregulated Internet site), there is

For example, new labels incorrectly state the dosage strength; a

significant danger to public health. Profiteers masquerading as

new label says the box contains tablets, but inside are capsules;

pharmacists are an ominous sign in terms of both safety and

the expiration date and batch numbers on the medicine boxes

effectiveness of medicines. ‘Buyer Beware’ is bad healthcare

do not match the actual batch and dates of expiration of the

practice and even worse healthcare policy. When patients go

medicines inside; and patient information materials are often

outside of any given national regulatory system and enter into

in the wrong language or are out of date.

the Internet’s grey zone, they assist those who put profits before

As David Taylor, Professor of Pharmaceutical and Public

patient health, but may also come into contact with outright

Health Policy at the School of Pharmacy, University of London,

criminals who have no scruples about actively feeding counter-


feit drugs into the marketplace.

An even more difficult message to communicate to policymaking and other audiences would be that the counterfeit drugs issue – although a genuinely serious cause for concern – might in some instances be best regarded as an indicator of the existence of more important, long-term, threats to European public interests … it would be incorrect to allege that licensed parallel import medicine traders are directly responsible for facilitating the introduction of counterfeit medicines into the EU, or that generic medicines licensed in Europe are bio-medically inferior to their branded counterparts. But equally it would be wrong to deny that the growth of complex patterns of trading in medicines in Europe has extended medicine supply chains in ways that increase opportunities for criminals to introduce fake products. 104


The problem of the Internet


The US Food & Drug Administration (FDA) has developed a framework for a 21st-century pharmaceutical supply chain that would be more secure against modern counterfeit threats.18 The FDA’s specific approach to protect US citizens from counterfeit drugs includes the following eight elements: 1 Implementation of new technologies to better protect the

US drug supply; 2 Adoption of electronic track and trace technology; 3 Adoption and enforcement of strong, proven anti-

counterfeiting laws and regulations by individual US states; 4 Increased criminal penalties to deter counterfeiting and

more adequately punish those convicted; 5 Adoption of secure business practices by all participants in

the drug supply chain; 105

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Healthy IPRs

6 Development of a system that helps ensure effective

reporting of counterfeit drugs to the FDA and that strengthens the agency’s rapid response to such reports; 7 Education of consumers and health professionals about the

risks of counterfeit drugs and how to protect against them; 8 Collaboration with foreign stakeholders to develop

part 3

strategies to deter and detect counterfeit drugs globally. Recommendation 8 is particularly important because, as the Chinese proverb says: ‘An ant may well destroy a whole dam.’ Counterfeit drugs are a challenge to all nations, and criminal counterfeiting operations are increasingly being carried out across national borders. The FDA has stated that it intends to

Contemporary topical issues

work with the WHO, Interpol, and other international public health and law enforcement organisations to develop and implement worldwide strategies to combat counterfeit drugs.

Conclusion Should we worry about counterfeit prescription medicines? Is it really that much of a problem? The answer is a resounding ‘yes’. The problem is so severe and serious that the treatment should start from the root. The focus should not be on the counterfeit end product alone. Rather, the fight against counterfeiting must address both cultural and systemic factors that underline this problem. The scope of the problem is much more serious than it appears and now is the time to aggressively address and defeat this very real public health hazard.



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12 The Convention on Biodiversity (CBD) and Intellectual Property Rights Hiroko Yamane


he Convention on Biodiversity (CBD) attempts to link the conservation of biodiversity to the economic

goals of sustainable development. In line with this purpose, Article 1 establishes the principle of fair and equitable sharing of the benefits arising from the use of genetic resources. The CBD delineates other objectives and principles, such as protection of the ‘traditional knowledge [TK] of indigenous and local communities’ (Article 8(j)) and ‘sovereign rights of Contracting Parties over their genetic resources’ (Art. 15(1)). The CBD was negotiated under the auspices of the United Nations Environment Programme (UNEP), adopted at the UN Conference on Environment and Development in 1992 (Rio Earth Summit), and came into force on 29 December 1993. A large number of countries – 187 countries and the European Community as of April 2006 – are signatories to the Convention, with the notable exception of the USA, which has not ratified it.1 The CBD provides a framework of goals, policies and obligations, and leaves Contracting Parties to determine the specific



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measures to be applied within their borders. At the interna-

and Folklore in 2000 to discuss possible ways to protect TK and

tional level, the CBD allows the Conference of the Parties (COP),


which consists of all governments and regional organisations

The CBD does not explicitly refer to Intellectual Property

that have ratified the treaty, to adopt those approaches, as

Rights (IPRs), except in Article 16.5,3 which stipulates the

appropriate, and as far as possible, in the vast fields of relevance

obligation for Contracting Parties to cooperate, so that ‘such

covered by the CBD. Among the topics addressed by the COP

rights are supportive of and do not run counter to its objec-

are access to genetic resources, prior informed consent (PIC)

tives’. The Bonn Guidelines adopted by the COP only suggest

as a condition for access, and access and benefit-sharing (ABS)

that countries with users of genetic resources could consider

in the case of genetic resources. For example, the Bonn Guide-

‘measures to encourage the disclosure of the country of origin

lines2 concerning ABS were adopted at COP 6 in 2002, and in

of the genetic resources and of the origin of TK, innovations

2006, at COP 8, a 2010 target to negotiate an international

and practices of indigenous and local communities in applica-

regime was set.

tions for intellectual property rights’.4

There are, however, many provisions in the CBD whose

Many resource-rich developing countries rely on the CBD5 to

scope is not clearly delineated. For example, Article 2 stipulates

bargain access against royalties, research data and technology

that ‘biological resources’ include genetic resources, organisms

transfer, and to benefit from future economic returns arising

or parts thereof, populations, or any other biotic component of

from biodiversity.6 These countries have advanced the idea of

ecosystems with actual or potential use or value for humanity.

indicating the origins of genetic resources in the patent specifi-

The Bonn Guidelines made it clear that human genes are not

cation when patent filings are made.

included in its scope.

Certain developing countries have taken the initiative in

Various other international organisations have developed

examining the relationship between the CBD and the TRIPS

projects which cover issues related to the CBD. For example,

Agreement at different regional or international meetings.

the Food and Agricultural Organization (FAO) revised the

For example, in 1999, in New Delhi, there was a proposal to

1983 International Undertaking on Plant Genetic Resources

modify Article 27.3(b) of TRIPS,7 to strengthen Articles 22 and

in harmony with the CBD, and expanded the International

23 concerning geographical indications, and to add to Article

Treaty on Plant Genetic Resources for Food and Agriculture

29 the obligation to disclose the origin of genetic resources in

(ITPGRFA), which went into effect in June 2004. The latter

patent specifications, so that CBD objectives could be promoted

addressed the ex situ collections and farmers’ rights issues that

by national patent laws.

are not addressed in the CBD. Similarly, the World Intellectual

In 2001, the Doha Ministerial Conference of the World

Property Organization (WIPO) created the Intergovernmental

Trade Organization (WTO) instructed the TRIPS Council, in

Committee on Intellectual Property and Genetic Resources, TK

Paragraph 19, to examine the relationship between the TRIPS



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Agreement and the CBD, and the protection of TK and folklore,

and equitable benefit-sharing based on the use of biological

while pursuing its work programme under the review of Article

resources. In fact, little economic study has been undertaken


concerning different proposals for benefit-sharing, as well as

Recently, developing countries have made proposals at the WTO to add Article 29 to the Agreement on Trade-Related

disclosure requirements with concomitant penalties, with a view to exploring what rules would be preferable.

Aspects of Intellectual Property Rights (TRIPS Agreement)

First of all, the number of players and their relations on

with a view to obliging patent applicants to disclose the

the market, as well as the ways in which biological resources

country providing the resources and/or associated traditional

contribute to innovation, vary radically in different fields of

knowledge, if the subject matter of the patent is derived from

technology, such as seeds, food, cosmetics, or medicines. The

or developed with biological resources.8 The disclosure obliga-

different processes by which biological resources contribute

tion is conceived of as a condition to granting a patent, with

to the marketing of final products also give rise to different

an additional provision stating that patents will be revoked or

bargaining positions of providers of those biological resources

made unenforceable in the event of a failure to comply.

vis-Ă -vis commercial players in the market for the final product.

It is certainly necessary to prevent the plundering of biolog-

Similarly, the value-added accruing to genetic resources differs

ical resources or of ideas couched in TK from developing

widely, depending on whether the product is in the industrial

countries without appropriate reward. Patents are related to TK,

or agricultural sector.

in as much as they are granted by virtue of novelty, inventive

One of the important factors in discussing rules concerning

step and industrial applicability. If biological resources and/or

IPRs and benefit-sharing in the seed sector has been transac-

related TK constitute prior art for the invention for which the

tion costs. For seeds, the costs of establishing contracts between

patent is sought, examiners should take this into account and

hundreds or thousands of farmers and breeders, as well as

avoid granting erroneous patents. For this purpose, it is helpful

among breeders, often outweigh the cost of limiting the scope

for TK to be documented.

of breeders’ IPRs.10

One possible solution would be the creation of an interna-

For the food or cosmetic industries, and the pharmaceu-

tional database of TK.9 Applicants could also indicate in their

tical industry, other considerations are relevant in the search

patent filing documents whether access conditions for biolog-

for rules related to benefit-sharing. Owners of biological

ical resources are fulfilled under the national laws concerned.

resources, for example, may be able to find commercial players

However, patent filings may not be the best means for

who would act as partners in food or cosmetic industry fields

ensuring benefit-sharing. Patent laws regulate only patent

with relative ease. The strong bargaining power of resource-

grant, validity and enforcement. Care should be exercised

owners in these sectors comes from the fact that there are many

to determine economically rational ways to ensure fair

commercial players, and the technological value-added for



The Convention on Biodiversity (CBD) and Intellectual Property Rights


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足commercialisation abroad may not be so high. The owners may

such technologies will never become profit-earning. The riskier

also have some idea of the true value of their resources because

the pursuit of such success, the weaker the bargaining position

their use in food/cosmetics/industrial production is relatively

of the resource-owner.

similar to the traditional use.

The CBD sets out important principles for the use of biolog-

In the pharmaceutical sector, by contrast, it may be more

ical resources which favour developing countries. These princi-

difficult to design a satisfactory contract between resource-

ples should certainly guide companies and researchers to respect

owners and users. Owners of genetic resources may not be able

the contribution of the biological resources of such countries

to assert strong bargaining power in relation to a small number

in their research and commercial activities. Rather than using

of market players who invest heavily in science and technology.

patent filings as a means to assure benefit-sharing, it would be

In addition, the low probability of pharmaceutical commercial

more rational to regulate ex ante the access conditions with the

success by virtue of biological resources makes it difficult for

principle of benefit-sharing. One could leave it up to the partners

resource-owners to reap the benefit of their resources within a

of each research or commercial project to determine at what stage

short period of time. In these conditions, resource-owners have

this should happen in the process leading up to commercialisa-

no independent means to calculate the value of their resources.

tion, and how much should be paid in return to the providers

In addition, information asymmetry often leads the owners to

of biological resources. This mechanism should be elaborated

believe their resources to have a higher value than claimed by

within the framework of the CBD, with a view to maximising

the users.

the opportunities for developing countries to contribute to local

Furthermore, biological or genetic materials can increas-

R&D and to the economic development of their own countries.

ingly be substituted in drug research and development (R&D).

National laws or regulations providing for the conditions of

Although natural products have contributed to significant drug

access to genetic resources, TK of local communities or indig-

discoveries in the past (such as aspirin from willow trees, peni-

enous populations, or disclosure requirements in patent filing

cillin or statins from blue mould), this is no longer the case.

already exist.11 Accordingly, the experiences gained from imple-

This further diminishes the value of biological resources.

menting such legislation, as well as the studies elucidating the

For pharmaceutical companies, it may be more difficult

mechanisms for introducing innovations based on the use of

than for other industries to agree to heavy obligations through

genetic or biological resources, should be used to determine the

disclosure of biological origins of unclear scope, with concom-

best methods for contributing to economic development and

itant penalties based on patent law. During the long and

innovation, both in the local communities and globally. This

complex process leading from research to marketing, develop-

would be a far better approach than trying to agree on a single

ment and approval of drug discoveries, numerous patents are

international rule on benefit-sharing among the complexities

sought at a relatively early stage, with a high probability that

of international economic activities.



The Convention on Biodiversity (CBD) and Intellectual Property Rights


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A statutory research exemption for patents

13 A statutory research exemption for patents Nikolaus Thumm

and innovation and, as such, they are an important element for innovation and economic growth. However, studies also find that too much patenting may deter research, development and innovation.2 In the fields of biotechnology and pharmaceuticals, patents are often criticised for being too broad with respect to potential follow-up research on patented inventions. Concerns have been expressed regarding cases where the necessary knowledge to conduct further research on a problem is covered by a large number of patents from different firms, and where too many dense and overlapping rights might limit the access to patented inven-


tions. Such ‘patent thickets’ create situations where companies

inding the right balance between a reasonable level

must find their way through a dense web of overlapping IPRs

of patent protection and innovation is a difficult

to actually commercialise a new technology.3 This can increase

task for policymakers. In cases where protection is prohibiting

transaction costs to a very high level. The huge number of

research on patented inventions, research exemptions could

patents issued today and the tendency to apply for multiple

provide the right policy mix for national innovation systems

patents to cover one invention can induce hold-up problems

and systems of Intellectual Property Rights (IPRs). The goal of a

where a single product can potentially infringe many different

research exemption is to enable fundamental and commercial

patent rights. The general problem is therefore to find the right

research. Its scope, however, is unclear, and there is no common

balance between incentives for research and access to patented

standard. The various forms of a research exemption and the

research at the same time.

question of its definition in order to reach a socially optimal

A careful balance has to be struck between the incentives to

level of innovation are discussed here both on the national and

commercialise a first patent and the follow-up inventions that

international levels.1

could potentially create even further benefits to society. The theory of patenting focuses on the inventor who is commer-

More or less patent protection?

cialising the invention himself. The patent system provides an

A patent is a policy instrument, whose objective is to spur inno-

ment (R&D). He has the exclusive right to commercialise the

vation to a maximum beneficial level for society. Economic

invention with the help of patents. This view, however, does

theory postulates patents to facilitate diffusion of knowledge

not consider cases where the societal use of an invention is more



incentive to the innovator to invest in research and develop-


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A statutory research exemption for patents

Healthy IPRs

important than the benefit to the individual inventor. In such

greater the possibility that important research will not be carried

cases, the individual use of patented research could prohibit

out. The general uncertainty of R&D demands for clear rules

further research on the patented inventions because a license

on licensing of patent rights and for access to patented inven-

is not provided, or because licensing fees themselves already

tions. These rules must also consider the danger of under-using

build a barrier for the potential further use of this invention.

‘scientific commons’ relative to a social optimum. An effective

Such cases are not only damaging to the follow-up inventor but

research exemption must be limited, it should not unreason-

also to society as a whole.

ably conflict with the normal exploitation of the patent, and it should not unreasonably prejudice the legitimate interest of

The idea behind a research exemption

the patent user.

Too little protection of inventions can lead to free-riding and

What it could look like

causes underinvestment in R&D because of the loss of incentives for these investments. A statutory research exemption is

The example of Switzerland illustrates the different interests

therefore suitable to clarify problems of access to patent search.

and issues to be taken into consideration when establishing

But its establishment requires the careful consideration of

the right form of a statutory research exemption. It has been

different interests.

common practice in Switzerland that acts of research do not

Finding the right way to include a research exemption in

constitute infringements on patent-holders’ rights. Switzerland

the patent system is difficult and its implementation can vary

has neither a statutory research exemption, nor are there any

from country to country. Other ways of facilitating access

court decisions on the issue. So in response to the concerns

to inventions for research purposes is through competition

over research hold-ups and as a precautionary measure in

policy or by using networks of open standards and ‘creative

order to serve the interests of researchers in Switzerland, a new


statutory research exemption has been included into the Swiss

The ideal research exemption should provide access to

It had already become clear at the first public consultation

to invest in R&D. Its aim should be to provide greater clarity

on the revised patent law in 2002 that the research exemption

for research and to avoid unnecessary rigidity. It should neither

was not commonly known in research circles. The necessity

unreasonably impede scientific development nor prohibit

for an explicit legal regulation also became evident. Further-

investment in research. Nor does a research exemption mean a

more, a survey of the Swiss biotechnology industry confirmed

substantial shift in the understanding and application of patent

concerns over access problems, especially in research related to

law. The higher the transaction costs to set up research, the

DNA patents and patents on methods for genetic testing.4



draft version of the new patent law.

patented inventions for research while not limiting incentives


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A statutory research exemption for patents

Healthy IPRs

As a consequence, in the ongoing patent law reform in Swit-

chain reaction is an essential procedure of gene technology that

zerland and the current draft version of the patent law, policy-

allows small amounts of nucleotide sequences to increase. It

makers are considering a statutory research exemption under

also allows for better approval and analysis of material and is

the general exemptions to patenting contained in Article 9.

therefore an important tool for research in many laboratories.

The general purpose of the regulation is to serve research and

In this case, the free use of the procedure could not be justified

innovation and avoid negative influences of patenting on basic

under the new research exemption. The procedure is subject

research. Its provisions foresee several general exemptions, as

to patent protection and its use requires the agreement of the



➤ Private use and non-commercial purposes; ➤ Use of the invention for teaching purposes; ➤ Use of biological material for the purpose of breeding or of developing a plant variety;

from other statutory exemptions in that it guarantees access to research tools through legal ‘non-reach-through’ licences.6 If the parties cannot reach an arrangement, the fees for such

➤ Biological material produced randomly or which is

licences should be fixed by a court. It is, however, expected that

technically unavoidable in the agriculture sector;

the intervention of courts will not be necessary in practice and

➤ Research and trials in which the invention is the object of research.5

will constitute a negotiation baseline that facilitates market solutions. Even if the invention is commercially oriented, the research

The latter is at the core of the statutory research exemption

on the object of the invention can be exempted. What matters is

and is regulated in Article 9.1(b) of the draft revision of the

whether the research serves to reveal new knowledge about the

law. The regulation concerns non-commercial research and

patented invention. This means, for example for genetic inven-

commercial research aimed at gaining new knowledge about

tions, that patented gene sequences can be used for research to

the subject matter of the invention. It also applies to the use

reveal further technical uses of the sequence, independent of

of patented inventions with the view of securing a marketing

the purpose (commercial or non-commercial) of the research.

authorisation for pharmaceutical products.

Hence, it could be revealed that the patented gene sequence

The exemption only covers research on patented inven-

for insulin codifies for further proteins than the synthesis of

tions where the patented invention itself is the object of the

insulin in order to treat diabetics. These other proteins can

research. The use of patented inventions as an instrument or

cover further potential uses that could be subject to addi-

tool of research (research tools), on the other hand, such as

tional patent protection. Science confirms that in many cases

the polymerase chain reaction, is not covered. The polymerase

a gene might codify for more than one protein. This makes the



Although there is no statutory exemption for research undertaken with patented research tools, the Swiss proposal differs


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A statutory research exemption for patents

Healthy IPRs

importance of a clearly defined research exemption for genetic

the biotechnological and pharmaceutical industries. Too many

research evident.

patents, or patents which are too strong, may sometimes lead

In order to avoid monopolistic use of research tools and to

to hold-up situations, royalty stacking and other problems. In

provide access to patented research tools, another regulation

such cases, the societal benefit of patents for innovation and

in the new Swiss draft patent law (Article 9(a)) gives patented

economic growth may be greatly reduced. Too much patenting,

inventions a non-exclusive licence. The right to a legal licence

or patenting which is too broad, in particular with genetic

provides a tool to avoid the abusive use of Material Transfer

information, is an additional risk. A properly designed research

Agreements wherever they limit the access to and the use of

exemption is therefore a useful tool to balance the IPR system.

biological material (reach-through licence). Article 9(a) provides

The main difficulty in implementing legal exemptions for

the right to claim such a licence before a court. This does not

research use of patented inventions lies in the definition of

consider, however, general contractual and competition regula-

the scope of the exemption. Allowing research ‘on’ a patented


invention versus research ‘with’ it is a general way of defining

The general understanding of the research exemption is that

a research exemption. Nevertheless, specific industries, such as

it includes clinical trials proving the effectiveness and effects

the biotechnology and pharmaceutical sectors, are expressing

of protected substances in drugs on humans. This includes

concerns over accessing patented material for research purposes

trials with the purpose of getting approval from the responsible

that may not have been explicitly addressed by national patent

agencies of certain drugs (the so-called ‘Bolar’ exemption). The


commercial orientation of these activities does not prohibit

Finding the right balance between incentives for research

the research, and the production and storage of a patented

and access to patented research at the same time is a difficult

substance are allowed as long as they serve the purpose of

policy task. Good intellectual property policy is not the same

clinical trials and the drug approval process of Switzerland.

as maximal IPRs. The patent system as it stands today does

Whenever the production goes beyond a level that would

not need overall re-organisation but rather continued fine-

be justified for clinical trials or drug approval, it is no longer

tuning on the basis of existing regulations. Finding the correct

covered by the research exemption. Production and storage

compromise between the interests of different stakeholders and

of substances before the expiry of the patent (stockpiling) is

the overall benefit for society is a sensitive issue. To provide

understood to be prohibited under this research exemption.

a clearly defined statutory research exemption is one way to guarantee the widest possible spread of publicly beneficial


scientific knowledge.

Patents are important factors for innovation and especially in




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Patenting biotechnology


are relevant. This is primarily because the therapeutic medicinal

Patenting biotechnology

or because biotechnology has identified the target on which a

product is in itself produced by biotechnological techniques,

Trevor Cook

small molecule therapeutic operates. In the last few years artificial therapeutic proteins (such as monoclonal antibodies) or modified proteins (such as longlasting or fast-acting versions of insulin) have come to represent an increasing share of new drug introductions. These proteins (and thus the genes which code for them) are artificial creations that, in contrast to the first generation of therapeutic proteins, have no existence in any form in nature. The first genera-


tion proteins were natural products, which the techniques hen Europeans hear of patenting biotechnology,

of biotechnology allowed to be produced in quantities that

their first thought is of the ethical concerns that

permitted them, often for the first time given the tiny amounts

are expressed over patenting naturally occurring genes, or more

available in nature, to be used as therapeutics. The patent rights

generally DNA1 or genetically modified higher life forms. Such

over these first generation proteins, applied for in the 1980s,

ethical concerns are largely restricted to Europe, and do not

are now starting to expire. In contrast to the first generation

feature much, for example, in the USA, where the concerns

proteins, the new ones raise no unique issues of patent law and

associated with patenting biotechnology are rather different

traditional patent law concepts, applicable to small therapeutic

and relate to the economic effects of such patenting.

molecules, can be valid.


Products and processes that relate to gene patents and genet-

Another economically significant aspect of biotechnology

ically modified animals are only a part of the biotechnology

patenting involves the therapeutic targets on which pharma-

landscape. Yet such patents have attracted more than their

ceuticals act and the research tools that are used in pharmaceu-

fair share of attention, not only from academics and religious

ticals research. The latter includes a wide variety of patented

organisations, but also from European legislators, who drafted

products and techniques, such as naturally occurring genes

the Biotechnology Directive in the 1990s.3 Actually, much of

and genetically modified animals (such as that which was the

the investment in biotechnology and the majority of its sales

subject of the ‘Oncomouse’ case).4 Yet it is not the patents on

derive from therapeutic medicinal products. Typically, these

these that are the most economically significant to the pharma-

are large biological molecules, such as proteins (rather than the

ceutical industry. Instead, biotechnology patents on the thera-

genes which code for them), to which biotechnology patents

peutic targets on which pharmaceuticals act, typically receptors




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Healthy IPRs

in the body (which are often proteins, but only rarely genes),

morality of ‘patenting life’ in the first wave of public policy

are the most commercially important research tool patents.

challenges to biotechnology patents. These challenges were

Thus, in May 2006, a Federal District Court Jury in Boston

also reflected in the controversy during the 1990s over the

ordered Eli Lilly to pay Ariad Pharmaceuticals US$65 million

Biotechnology Directive, which eventually became law in 1998.

for infringing Ariad’s US patent on methods of modulating the

The legal basis for the controversies is a particular provision of

nuclear factor kappa B group of proteins. The Lilly products in

the European Patent Convention (EPC), which excludes from

question were two small molecule therapeutics useful in the

patentability ‘inventions the commercial exploitation of which

treatment of sepsis. In other cases, the patented target has been

would be contrary to ordre public or morality’.6 This apparently

used in the research which led to the discovery of a therapeutic

innocuous provision was not included in the international

medicinal product. Such a patent can therefore allow its owner

convention in order to establish ethical standards, but rather

to secure rights over, or at least an interest in, the drug itself as

to ensure that no supranational body, such as the EPO, could

the downstream product of such research. In these cases, the

impose external ethical standards on national jurisdictions.

relief granted against the infringer of a research tool patent may

However, it was subverted by the Biotechnology Directive so as

‘reach through’ to sales of the final product. In other words, the

to impose such standards in the field of biotechnology. Article

licensing of the patent involves an element of reach-through

6 of the Directive sets out a non-exhaustive list of exclusions,

royalty calculated as a percentage of sales of the therapeutic

namely processes for cloning human beings or for modifying

product that is the ultimate product of such research.

the germ line genetic identity of human beings, uses of human


embryos for industrial or commercial purposes, and ‘processes

Ethical concerns in Europe

for modifying the genetic identity of animals which are likely

Against such ‘real-life’ concerns associated with biotech-

benefit to man or animal, and also animals resulting from such

nology patenting, the ethical issues that bedevil biotechnology


patenting in Europe may seem to be little more than a regional

Hopes that this provision might resolve matters have proven

curiosity. The concerns are born out of certain public policies

ill-founded. Controversy has now erupted over stem cell patents

in European patent law as well as by the availability to activists

and in particular the extent to which patents over stem cells

of the relatively cheap European Patent Office (EPO) opposition

that derive from human embryos fall within the scope of the

procedure. This has been used, for example, in the Oncomouse

Article 6 exclusion for ‘uses of human embryos for industrial or

case, as a proxy for ethical objections not so much to the patents

commercial purposes’.7 So yet again there is a dispute in Europe

themselves but to the underlying activities of such patents.

over patentability as a proxy for a more fundamental dispute

As a result, Europe experienced controversies over the



to cause them suffering without any substantial medical

over the ethics of stem cell research, which has also featured


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Patenting biotechnology

Healthy IPRs

in controversy over the funding of such research from the EU

Some of these recommendations are indeed specific to the

research budget. In contrast, one may criticise the approach

situation in the USA. It is no secret that the USA has a less

of the US government to the funding of such research, but at

rigorous approach to inventive step or obviousness than that

least the controversy there is wholly separate from the patent

being applied in Europe, resulting in many more patents being


granted to gene sequences.10 The system also lacks the proper experimental use defence employed in Europe, which allows

Concerns about biotechnology patents and enhancing human health

research into improving or validating diagnostic tests to be

Continued focus in Europe on matters such as the ethics of

patent system as a proxy for disputes about the ethics of certain

patenting stem cells is a distraction from the more fundamental

types of biotechnological research, there will be few European

discussion about the effect of biotechnology patents on medical

contributions to the real debate about biotechnology patents

research. It takes focus away from the potential impact on the

and their role in public health.

undertaken without fear of infringing patents on such tests. But as long as Europe continues to focus its attention on the

development of new therapeutic medicinal products (as in the Ariad case discussed above) and on many other ‘real-life’ topics of importance to public health, such as the development and use of diagnostic tests. Although there are some worthy exceptions in Europe,8 most of these discussions are now taking place in the USA and in international fora such as the Organisation for Economic Co-operation and Development (OECD). One example of a ‘real-life’ discussion on biotechnology patents is the 2006 publication of the US National Research Council’s Reaping the Benefits of Genomic and Proteomic Research: Intellectual Property Rights, Innovation and Public Health.9 The publication identifies differing types of biotechnology patents and sets out a number of specific recommendations aimed at striking a proper balance between, on the one hand, open dissemination and access to scientific discoveries, and, on the other, the protection of inventors’ rights with a view to enhancing scientific progress and human health.




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Patent wars and authorised generics in the USA: assessing the issues


offer generic products (i.e. generic versions of their own brands

Patent wars and authorised generics in the usa: assessing the issues

Likewise, imitator companies may engage in R&D and sell brand

Emily Bishko Radel, Matthew Lowe and

Incentives for an imitator to enter still exist with authorised generics

Richard Rozek


products.3 Our focus is on the effects of an innovator company offering a generic version of its brand product either through its own affiliate or by licensing the rights to another company. We refer to such a product as an authorised generic.4

Profit opportunities: Paragraph I, II, III, and IV certifications

n the USA, pharmaceutical manufacturers are often

In 1984, Congress passed the Drug Price Competition and

characterised as innovators or imitators. Innovators

Patent Term Restoration Act (Hatch-Waxman Act – see

conduct research and development (R&D) activities; submit

Chapter 4) to both accelerate generic entry by imitators and

New Drug Applications (NDAs) to the US Food & Drug Adminis-

restore a period of exclusivity to innovative companies for

tration (FDA); disseminate information about medical problems

time lost while developing the brand product and waiting for

and treatments to patients, physicians, pharmacists, and payers;

regulatory approval. Under this Act, the ANDA process was

and sell brand pharmaceutical products. Imitators, on the other

established so that imitator companies could obtain approval

hand, submit Abbreviated New Drug Applications (ANDAs) to

by establishing bioequivalence to a reference product, i.e.

the FDA for generic versions of products when the exclusivity

the brand product. Imitators are able to obtain approvals

for the brand products expire, and sell products, often through

of generic versions of products in a shorter period of time

telephone contact with wholesalers and pharmacies. Some

and at lower costs. They can therefore begin to prepare the

companies are both innovators and imitators. According to Rory

regulatory materials when the reference brand product is still

O’Riordan, President of the European Generics Association and

subject to exclusivity.

COO of Clonmel Healthcare, ‘big pharma is getting into generics

The profit incentive for generic entry continues to exist even

and generic houses are getting into drug discovery. Novartis, for

with the availability of authorised generics. There are two paths

example, does everything – prescription originals, biopharma-

an imitator company can take when filing an ANDA to enter

ceuticals and generics. Fixed definitions don’t work anymore.

the marketplace with a generic version of an existing brand

They’re all pharma companies.’1 Innovator companies may

product. It can:



and/or generic versions of brands sold by other companies).2


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1 wait until the patent or other forms of exclusivity for the

assumptions may be overstated, the total profits to the ANDA filer remain positive. The availability of profits

brand product expire; or 2 challenge the validity of the patent covering the brand

product or claim that its generic version does not infringe

suggests that entry will not be discouraged. ➤ When Apotex Corporation (Apotex) launched paroxetine (the generic version of Paxil®) in September

the patent. 5

2003, it competed against an authorised generic that In the former case, multiple generic sellers may enter the

Companies, Inc. (Par).8 Apotex was still able to earn

versions of the brand product may become available simultane-

revenues of US$150 million for paroxetine.9 These revenues

ously, each generic seller has an incentive to submit an ANDA.

represent 750% of the cost assumptions in a hypothetical

Authorised generics do not deter imitator companies from

example presented in the GPhA Study (i.e. US$20 million

launching their products.

to enter, litigate, and begin production) and 1,500% of

In the latter case, some policymakers are concerned that the

the upper bound cost estimate presented by Johnson

incentive for imitator companies to challenge patents covering

& Johnson (i.e. litigation costs for the ANDA filer in a

brand products are reduced due to competition from an author-

Paragraph IV matter is in the range US$5–10 million).10

ised generic entering the marketplace during the 180-day period

➤ The availability of authorised generics has not discouraged

associated with a successful patent challenge. Such an effect is unlikely. Imitator companies continue to have profit incentives to submit ANDAs with Paragraph IV certifications and sell the associated products along with the authorised generics. It is clearly beneficial for them to do so, as the following examples show:

companies from filing ANDAs. From 2 March 2004 through 14 September 2006, over 200 ANDAs have been submitted to the FDA with a Paragraph IV certification.11 ➤ Imitator companies pursue many products simultaneously, filing multiple ANDAs with the FDA. For example, ‘as of 2 August 2006, Teva Pharmaceutical Industries Ltd [Teva]

➤ One commentator recently estimated that ‘branded

had 148 ANDAs filed with the FDA, representing over

products coming off patent are valued at over US$27 billion

US$84 billion annually in brand value. Teva believes that

in 2007 and US$29 billion in 2008.’

46 ANDAs, with a brand value of over US$35 billion, have


➤ A study commissioned by the Generic Pharmaceutical Association (GPhA) presents a hypothetical example of the reduction in total profits to the ANDA filer from an authorised generic.7 Even though the GPhA cost



GlaxoSmithKline had licensed to Par Pharmaceutical

marketplace at the same time. Even though multiple generic

first-to-file status, which permits an initial 180 days of marketing exclusivity.’12 The risk of entry by an authorised generic has not kept Teva from filing over 30% of its ANDAs through Paragraph IV certifications.


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Table 4 Comparison of the median and mean returns on net sales for 10 innovator and 10 imitator pharmaceutical companies in 2005 Innovator companies GlaxoSmithKline PLC Merck & Co. Inc. Johnson & Johnson AstraZeneca PLC Novartis AG Bristol-Myers Squibb Co. Pfizer Inc Roche Holding AG Abbott Laboratories sanofi-aventis Median Mean Imitator companies Barr Pharmaceuticals Inc.1 Biovail Corp Alpharma Inc. Forest Laboratories Inc. 2 Teva Pharmaceuticals Industries Ltd. Mylan Laboratories Inc. 2 IVAX Corp 3 Merck KGaA Watson Pharmaceuticals Inc. Andrx Corp Median Mean

Return on net sales (%) 22 21 21 20 19 16 16 16 15 8 18 17 Return on net sales (%) 26 25 24 24 20 15 11 11 8 6 18 17

➤ Innovators and imitators are profitable. Using data from Bloomberg Professional, we calculated the ratios of net income to sales for ten leading innovator companies and ten leading imitator companies for 2005. The medians of the return on sales for both groups are equal.13 See Table 4.

New entrants are emerging The availability of authorised generics has led to new entrants emerging in the pharmaceutical industry. Companies are identifying profit opportunities in the generic market segment and responding. For example, Prasco adopted a business model focused on becoming the seller of authorised generics. Its current product list indicates that it sells authorised generic versions of seven brand products.14 This type of entrepreneurial effort is pro-competitive.

Established companies are seeking licenses to sell authorised generics Established generic manufacturers such as Mylan, Barr Pharmaceuticals, Inc. (Barr), Par, Watson Pharmaceuticals, Inc. (Watson), Teva,15 and Andrx Corporation have become sellers of authorised generics under licenses from the innovators.16 These companies find it in their interests to file ANDAs for some products and sell authorised generics of others. The US Court of Appeals for the Second Circuit denied a consumer group’s request for a rehearing in a case in which

Note: innovator companies represent companies who largely sell brand products; imitator companies represent companies who largely sell generic products. 1  Represents fiscal year ending 30 June 2006. 2  Represents fiscal year ending 31 March 2006. 3  Represents 2004 data. Data for 2005 are not available due to IVAX being acquired by Teva Pharmaceutical Industries Ltd. Source: Bloomberg Professional



the innovator (AstraZeneca Pharmaceuticals LP) licensed an imitator company (Barr) to sell an authorised generic version of its brand drug, Nolvadex® (tamoxifen citrate).17 Bruce L. Downey, Chairman and CEO of Barr, said, ‘we are pleased that


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our patent challenge settlement related to tamoxifen itrate has

million.23 One study found that only 3 of every 10 approved

been upheld as being pro-consumer and pro-competitive’.18

pharmaceutical products had sales that exceeded the average after-tax development costs of a new product.24 making investments in pharmaceutical and biomedical R&D,

Lower prices

lectual property system (i.e. laws regarding patents, copyrights,

In the absence of an authorised generic, the first entrant

trademarks, and trade secrets). It is this system that allows

typically sets a price for its generic product at about 90–95%

an innovator to actively manage a pharmaceutical product’s

of the price of the brand product. As subsequent generic entry

life cycle (even after patent expiration), which is integral to

occurs, the price for generic products is reduced further as

preserving the incentives for the innovator to invest in R&D.

public policy in the USA must continue to preserve the intel-

the imitator companies compete for market share.19 The FDA

Likewise, imitator companies embrace authorised generics

reported that ‘the entry of the second generic competitor [is]

as a means of protecting the intellectual property resulting

associated with the largest price reduction’ as it decreases the

from their own innovative activities. Barr recently launched

average generic price from 94% to 52% of the brand price. The

an authorised generic version of its brand oral contraceptive

availability of two generic entrants (i.e. the ANDA filer and the

product, Seasonale®, after another company launched a generic

authorised generic) lowers the price of generic products to cash

version of the product.25 Barr’s Bruce L. Downey said, ‘it is our

patients and other payers (private or public insurers).

obligation to preserve our rightful interests in this product’.26

Access to new and improved pharmaceutical products tical products to fund R&D for new products to meet unmet

Multiple participants in the pharmaceutical industry

medical needs. In general, development of pharmaceutical

Policymakers have been concerned over the costs for health-

products is a long and costly effort. Investing in pharmaceu-

related expenditure including pharmaceutical products.27 In

tical R&D projects is risky, time-consuming, and expensive.

assessing the expected economic impact of proposed changes

On average, only 5 of every 5,000 compounds evaluated in the

in policy, it is important to consider all of the participants in

basic research phase enter into clinical trials, and only 1 of these

the US healthcare system. The vertical structure of the market-

5 products ultimately receives FDA approval for marketing in

place for selling pharmaceutical products includes the following

the USA. The development process for New Chemical Entities



Innovators use retained earnings from successful pharmaceu-


(NCEs) takes 10 to 15 years,22 and costs an average of US$802



To encourage innovators to continue bearing the risks and

Patients and payers benefit from authorised generics

➤ manufacturers (innovators/imitators); 137

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➤ wholesalers or distributors (local, regional, and national);

authorised generics (relative to brand prices), this discount is

➤ retailers (e.g. chain and independent pharmacies),

reduced at the retail level. This result is consistent with other pricing analyses conducted

hospitals, and federal facilities;

in the pharmaceutical industry. For example, in analysing

➤ third-party payers (private and public);

albuterol metered-dose inhalers (an asthma medicine), we found

➤ physicians;

that retailers’ mark-ups on acquisition cost for brand albuterol

➤ patients.

inhalers to cash payers, Medicaid payers and insurance payers were, on average, 28.8%, 28.8% and 14.4% respectively. In

When you consider this complex structure, it becomes clear

contrast, retailers’ mark-ups on generic albuterol metered-dose

that addressing reform efforts at the activities of manufacturers

inhalers to cash payers, Medicaid payers, and insurance payers

alone may not reduce costs to patients and the healthcare

were, on average, 363.3%, 234.5%, and 234.5% respectively.

system generally.

While manufacturers charge lower prices for generic products

The Pharmaceutical Research and Manufacturers of America

relative to brand products, the subsequent mark-ups on generic

(PhRMA) and GPhA commissioned studies to assess the impact

products are much higher and reduce the benefit to patients

of authorised generics on pharmaceutical prices. The PhRMA

and the healthcare system generally.32

Study concluded that ‘at the outlet level [price to a pharmacy,

Payers and policymakers concerned about pharmaceutical

clinic, etc.] the generic discount to brand [during the 180-day

prices should focus on all participants in the vertical distribution

exclusivity period] is about 16 percentage points greater than

chain if they want to control costs. Regulating retailers’ mark-

comparable examples without an authorised generic’.


ups is not necessarily the appropriate policy response. Relying

GPhA Study ‘used exactly the same set of drugs as in the PhRMA

on competition among retailers will likely erode margins. For

study, in order to maintain consistency and for comparison

example, Wal-Mart recently announced a pilot programme

purposes’.29 Additionally, the GPhA Study relied on ‘retail level

to sell generic prescription pharmaceutical products for US$4

prices from IMS National Prescription Audit, i.e. consumer prices

per prescription (up to a 30-day supply).33 Similarly, Kmart is

rather than wholesale prices used in the PhRMA study … ’30 The

offering a 90-day supply of generic prescription pharmaceutical

GPhA Study found that ‘using the PhRMA approach, discounts

products for US$15 per prescription.34 As companies compete for

from retail prices averaged 15% in the no-AG sample, and 20%

revenues, patients should be informed of differential pricing at

in the AG sample, with a difference of about 5% – much lower

the retail level (i.e. as with other purchases, they should ‘shop’ to

than the 15.8% figure arrived in the PhRMA study’.31 These

find the lowest prices for prescription pharmaceutical products).

studies reveal an interesting fact about the price of pharma-

Competitive initiatives such as the Wal-Mart and Kmart

ceutical products. While the wholesale prices are lower with

programmes will contribute to controlling healthcare costs.





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Conclusion Currently, some policymakers in the USA are suggesting the activities of the innovative companies to prohibit them from entering into the generic market segment should be constrained, claiming that this practice undermines competition and raises prices for patients. Based on this analysis, we conclude that the use of authorised generics is not anti-competitive: substantial profit incentives for generic entry still exist. Authorised generics create entry opportunities for new companies and create licensing opportunities for existing imitator companies. Moreover, authorised generics generate substantial benefits for the healthcare system as they reduce costs to patients and payers, and provide resources for innovative companies to

16 IPRs and the support for biomedical innovation: the case of combination products in Europe Manuel Campolini


t is a well-recognised fact that Intellectual Property Rights (IPRs) are the main catalysts in furthering the

invest in R&D, resulting in the availability of new and improved

development of most – if not all – new pharmaceutical products.

pharmaceutical products. Payers and policymakers concerned

The product market exclusivity deriving from the combined

about healthcare costs should expand their focus to the activi-

effect of patents, Supplementary Protection Certificates (SPCs)

ties of all participants involved in creating, selling and distrib-

which extend the basic patent term, and the protection of

uting pharmaceutical products, i.e. wholesalers and pharmacies

confidential test data (data exclusivity) are essential incen-

as well as manufacturers, to identify potential cost savings.

tives to develop new medicines. This is because of the unique features of pharmaceutical products, which are the result of processes that are long, risky and costly, but nonetheless easy to copy. Incentives to drug development must therefore ensure an effective exclusivity which is long enough both to enable the remuneration of the innovator and to allow it to fund new research and to compensate for the cost of failed research. In most cases, a pharmaceutical product includes one substance that is active in treating a disease. However, there are an increasing number of pharmaceutical products already available to patients or under development that combine




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two – or more – substances. Their combination into a single

example. The Massachusetts Institute of Technology (MIT) is

product could result in an improved or even completely new

the holder of a European patent covering a substance called

therapeutic effect. These ‘cocktail drugs’, which often require

polifeprosan, which was developed to provide a biodegrad-

extensive research and clinical trials, are routinely defined as

able matrix for use in biomedical applications, in particular

‘combination products’.

for the controlled release of active substances in vivo. Gliadel

Even if the relevant patent or SPC protection and data exclu-

7.7mg Implant is a medicinal product that integrates this MIT

sivity have expired for the individual substances included in

technology. It is a new formulation of the off-patent active

a combination product, the SPC and the data exclusivity may

ingredient carmustine, combined with polifeprosan, which is

be available for the combination itself. This seems relatively

indicated for the treatment of recurrent brain cancers.

obvious for the combination of two active substances when

Carmustine was used in other pharmaceutical products previ-

each of them has its own therapeutic effect. Yet, recent devel-

ously approved in the EU. However, despite the fact that on its

opments have questioned the scope of protection in borderline

own polifeprosan has no therapeutic effect, its combination

situations and led to the conclusion that innovative devel-

with carmustine allows the controlled release of the latter active

opments, which are often crucial to patients, are not always

ingredient at higher but still constant doses. Gliadel therefore

adequately protected. This chapter will briefly examine this

substantially improves the therapeutic effect of carmustine,

issue in relation to combination products.

and consequently the life expectancy of patients.

The Supplementary Protection Certificate (SPC)

It should be noted that due precisely to a long development

The SPC is an IPR which allows for the extension of a patent

may therefore constitute a key feature of such product develop-

protection for a pharmaceutical product of a maximum period


Gliadel has been registered in the UK, France and Germany.

sivity for Gliadel, i.e. around 8 years. An additional 5 years SPC

of 5 years and was introduced in the EU by Regulation No.

No SPC can be granted to carmustine as it is an off-patent

1768/92. It aims to compensate for the time lost (8 to 12 years)

molecule. But could an SPC be granted to the patented new

between the initial patent filing and the marketing approval of


the substance as a medicinal product. This situation deprives

Put simply, a SPC may be granted to a product protected

innovators of the benefit of a 20-year period of effective exclu-

by a basic patent that has been subject to a first marketing

sivity. It is therefore an important legal tool that promotes

authorisation as a medicinal product. Regulation No. 1768/92

biomedical research in the European Union (EU).

defines a product as the ‘active ingredient or combination of

The importance of the SPC can be illustrated by the following



time, the MIT patent provided a short period of effective exclu-

active ingredients‘, and a medicinal product as ‘any substance


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or combination of substances’ produced for the treatment or

was favourable to granting an SPC for Gliadel. More specifically

prevention of disease in human beings or animals. The concept

he considered that ‘it is … the necessity of the excipient to

of ‘active ingredient’ is not defined in the Regulation.

the therapeutic efficacy of the active ingredient that must be

The MIT applied to the UK, French and German patent offices

the determining factor in ascertaining whether a combination

for SPC. While the UK and French patent offices granted the

of these two substances is covered by ‘combination of active

SPC, the German patent office decided that the SPC could not

ingredients of a medicinal product’. However, the ECJ rejected

be granted for Gliadel because the combination of carmustine

this interpretation and considered that no SPC could be granted

and polifeprosan could not be considered as a product within

as Regulation No. 1768/92 implicitly requires the combination

the meaning of Regulation No. 1768/92 (since polifeprosan is

of two active substances.

not an active substance having its own therapeutic effects).

This decision raises the issue of the validity of several SPCs

The MIT lodged an appeal against this decision, arguing that

already granted by national patent offices in similar circum-

polifeprosan is neither an excipient (non-active substance) nor

stances. More importantly, the decision may have unfortu-

a mere auxiliary component, but an essential component of

nate negative implications – mainly for patients – in terms of


biomedical R&D. But does this mean that such products are left

Finally, the competent German Court asked the European Court of Justice (ECJ) for a preliminary ruling on the issue.

without SPC and with only a limited period of patent protection? And what about data exclusivity?

The Advocate General then referred to the objectives of Regulation No. 1768/92, which notably addresses the importance of continuing improvement of public health, and requires sufficient legal protection to be granted to innovations that

Data exclusivity is the protection granted to the scientific dossier

also provide an increased therapeutic efficacy or a reduction of

submitted by an innovative company to obtain a marketing

side effects, and more generally the significant enhancement

approval for its new product. This dossier aims to demonstrate

of existing active substances. He stated that ‘the combination

the quality, safety and efficacy of the new product. It includes,

at stake represents a major innovation, resulting from long,

amongst other things, the results of costly clinical trials which

costly research, which the regulation is precisely seeking to

take several years to be completed. Data exclusivity means that

protect’. The absence of an SPC ‘would be likely to discourage

during a specific period of time (ten years in the EU) the generic

research centres located in the Member States from investing in

companies cannot market their copy products by relying on

the development of medicinal combinations such as the one

the dossier of the innovative company. Because of the substan-

at stake’.

tial costs and delays involved in the process, generic companies

Based on these policy considerations, the Advocate General



Data exclusivity

simply wait for the expiry of the relevant ­ protection period


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and then refer to the originator’s full dossier. This means they

from data exclusivity on improvements proposed on its own

can enter the market after the expiry of the ten-year period.

original products. However, the granting of data exclusivity

Therefore, data exclusivity indirectly results in a protection

does not seem to be excluded when such a development is

granted to the innovator’s product.

proposed by a company that is not the holder of the original

In practice, data exclusivity plays a crucial role in protecting

product. That being said, the rationale for such a disparate

medicinal products for which patent/SPC protection is not

and unsatisfactory treatment would require a further in-depth

available, is weak or is too short due to lengthy development


periods. It should be remembered that data exclusivity was introduced in the late 1980s when the protection of biotech inventions (and research) was not completely secured in the EU.


It was therefore construed as a general safety net. The under-

The standard explanation for the shortcomings of current SPC

lying rationale is the promotion of biomedical research and

legislation is that the EU law on the matter is general and cannot

the benefit to the patient through the granting of an effective

take into account the details of every situation. However, this

protection to valuable – and sometimes life-saving – medicines

type of issue also largely reflects the general restrictive approach

that would otherwise not be developed. In the case of combina-

of the EU authorities when medicinal products are at stake.

tion products, such as Gliadel, data exclusivity may at first sight

There is very little doubt that, if accepted, the sound proposal

be an appropriate tool to ensure a more acceptable period of

of the Advocate General would certainly not have been at odds

market protection.

with the general case law of the ECJ. The proposal was based

The new EU legislation does not include an explicit provision

on the objectives of the SPC Regulation No. 1768/92, i.e. the

dealing with the granting of data exclusivity to combination

promotion of research and development (R&D), and was ulti-

products, but the European Commission position is that a new

mately the interest of European patients. It would certainly not

‘combination’ medicinal product should have an independent

have been the first time the Court had imposed the fulfilment

period of data exclusivity. There is, however, little doubt that

of the clear objectives surrounding legislation on a narrow

the Commission has in mind a fixed combination of two active

interpretation. Similar comments could apply to the implica-

substances. Does this mean that combination products such

tions for data exclusivity.

as Gliadel cannot benefit from data exclusivity? The answer is not clear. The revised EU pharmaceutical legislation has introduced a new concept of Global Marketing Authorisation, which generally prevents a pharmaceutical company from benefiting




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Supplementary Protection Certificates (SPCs)


to recoup their extensive research and development (R&D)

Supplementary Protection Certificates (SPCs)

patent should be extended.

Conal Clynch

16-year normal term), but could be as long as 10 years. The

investments, the industry has long argued that the life of the In the UK, ‘Prolongation for inadequate remuneration’ was a feature provided by section 23 of the 1949 Patents Act. Extensions were normally for up to 5 years (in addition to the then European Patent Convention (EPC), on the other hand, which introduced the European Patent, had no such provision and hence patents governed by the EPC could only last for 20 years. So when the UK Patents Act of 1977 implemented the provi-


upplementary Protection Certificates (SPCs) have

sions of the EPC this special feature of prolongation for inadequate remuneration was no longer part of UK patent law.

been part of the European pharmaceutical legisla-

The USA reacted to the concerns of the pharmaceutical

tive regime for over thirteen years. It would therefore seem to

industry by introducing the Drug Price Competition and

be an appropriate time to review how they are operating. This

Patent Term Restoration Act of 1984 (the ‘Restoration Act’),

chapter sets out the history and development of SPCs and looks

which allowed for a maximum extension of five years. Japan

at current issues relating to their implementation.

followed suit in 1988 and hence there was pressure on Europe to introduce similar legislation. Indeed, because of the delays


in agreeing on a European system, France and Italy introduced

The subject of SPCs is closely linked to the idea of patent life


their own systems prior to the European one being estab-

extension. The problem with pharmaceutical patents is that delays in marketing authorisation, including the required clinical trials, can lead to the product not being marketed until a substantial portion of the patent term has elapsed. Marketing

Council Regulation (EEC) No. 1768/92 of 18 June 1992

(regulatory) approval, including clinical trials, usually takes

concerning the creation of a SPC for medicinal products (the

between 8–12 years to obtain, but there are cases where the

SPC Regulation) entered into force on 2 January 1993. The

entire term of the patent has elapsed before marketing approval

rationale behind its creation was to harmonise EU law in the

has been granted. As pharmaceutical companies rely on patents

area. Under the SPC Regulation an SPC may be granted to an



The Regulation


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Healthy IPRs

eligible pharmaceutical product that is subject to patent protection. In other words, the subject matter of an SPC is the patent-

➤ the marketing authorisation is the first in the Member State.

protected product. This differs from the US Restoration Act and similar practice in Japan, where it is the patent itself which is

The SPC system seeks to strike a balance between all parties

extended. Some of the problems related to SPCs are in fact due

concerned. The Regulation in Recital 9, for example, makes it

to this difference, as well as to practical considerations where

clear that this includes not only the pharmaceutical industry

the patent is owned by one company and the SPC by another

but also public health concerns:

(this is dealt with in more detail in the section on implementation problems below). Although the European system has led to some complications, it is nevertheless the fairer of the two. This is because an SPC is related to the marketing approval process of the product itself, which is the raison d’être for the extension. Therefore, it is more equitable to increase the term of exclusivity of the product than that of the whole patent (which may cover a lot more than the product that has been approved). SPCs have to be applied for separately in each Member State

Whereas all the interests at stake, including those of public health, in a sector as complex and sensitive as the pharmaceutical sector must nevertheless be taken into account; whereas, for this purpose, the certificate cannot be granted for a period exceeding five years; whereas the protection granted should furthermore be strictly confined to the product which obtained authorisation to be placed on the market as a medicinal product.

of the European Economic Area (EEA) in which protection is

Article 13 of the Regulation defines a formula to establish

required and their effects are limited to the territories of the

the term of any certificate that an applicant may be entitled to.

Member States in which they are granted. This is necessary

Effectively, an SPC is available when the marketing approval

because SPCs cannot exist independently of the patents on

is granted five or more years after the filing date of the patent,

which they are based, and all such patents have an intrinsically

and its duration is for a period of time corresponding to how

territorial nature.

long after that five-year point the approval was granted, up to a

The Regulation stipulates the conditions which must be fulfilled for an SPC to be granted, as well as the effects and term of such certificates. SPCs can be granted if: ➤ the product is protected by a basic patent in force; ➤ a valid authorisation has been granted to place the product on the market as a medicinal product;

maximum of five years. The Regulation has been subject to a number of amendments, especially as new Member States have joined the EC. Regulation (EC) No. 1610/96 of 23 July 1996, which entered into force on 8 February 1997, created a similar SPC right for plant protection products (such as pesticides and herbicides) which also are required to undergo similar approval.

➤ the product is not already the subject of a SPC;




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The paediatric medicines Regulation

will inevitably lead to differences in its interpretation between

The European Parliament recently agreed a Regulation on

different countries.

paediatric medicines which will affect the duration of some

Secondly, when the Regulation was first enacted, the legisla-

SPCs. The Regulation entered into force on 26 January 2007

tors had in mind a relatively simple linear model of the phar-

and will extend SPCs available for paediatric medicines by

maceutical industry, with the patent-holder being both the

six months. The reason for introducing this legislation was

manufacturer and seller of the pharmaceutical product and

to make sure tests are carried out to guarantee the suit-

thus also the holder of the SPC. However, the real situation has

ability of medicines for children. Traditionally, pharmaceu-

proved much more complex. For example, licensing agreements

tical companies have been reluctant to do this work as they

can exist between different companies for the same product,

consider the size of the paediatric medicines market to be too

and these can differ in different countries. Moreover, multiple

small to justify the expenses involved. The new Regulation,

patents belonging to a number of separate patent-holders may

however, obliges them to undertake the necessary testing and

relate to the same active ingredient. Patent pendency periods

grants them, as compensation, a six-month extension to the

and delays in issuing marketing approvals have in some cases

relevant SPC(s).

proved to be far longer than the original legislators anticipated.

This Regulation is similar to legislation introduced in the

Some of these issues were resolved through subsequent legisla-

USA in 1997 and 1998, and aims to ensure that Europe will

tion when the Plant Protection Regulation was enacted, but for

remain competitive and has comparable standards and research

others, the interpretation of the Regulation depends on case

on paediatric medicines.


Implementation problems

economic importance, a further amendment of the Regulation

Despite some problems (some of which have resulted in refer-

pharmaceutical sector might be of benefit. However, this would

ences to the ECJ), it seems the SPC legislation is generally

require a new proposal from the Commission.

Given the transnational nature of the Regulation and its

perceived to be working effectively across Europe.

One example of differences in interpretation of the Directive

Most issues have arisen from two distinct factors. First,

concerns a recent ECJ judgement in Case C-431/04 (Massa-

whilst Regulation No. 1768/92 seeks to provide a common legal

chusetts Institute of Technology). This ruling clarified that

framework across the EC, it depends on national intellectual

SPC Regulation No. 1768/92 does not apply to products which

property offices to administer it. Since the Regulation cannot

combine an off-patent active substance with a substance that

cover all eventualities, it has to rely upon the procedural provi-

has no therapeutic effect on its own (usually referred to as an

sions of national law corresponding to the basic patent. This

‘excipient’). This judgement relates to the interpretation of



to reflect the decisions of the ECJ and the current state of the


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Healthy IPRs

Article 1(b) of the Regulation, which defines a product as ’the active ingredient or combination of active ingredients‘. The


article was interpreted differently by the Member States and the judgement was notable in that the opinion of the Advocate General (and the Commission) was not followed by the court. The result is a situation where patents for these inventions will be granted but no corresponding SPCs will be available. As SPCs are intended to promote and reward pharmaceutical research, there is concern that this important area of research will be neglected. Revision of Article 1(b) of the Regulation could therefore be considered, so as to allow for the combination of an active ingredient and an inactive so-called carrier ingredient.

Conclusion SPCs serve to foster innovation in Europe’s pharmaceutical sector by compensating companies for losses suffered due to delays in receiving marketing approval. In doing so, they ensure that Europe remains competitive vis-à-vis other innovative economies such as the USA and Japan. Similarly, the introduction of paediatric medicines legislation aims to ensure that much-needed research takes place into the effects of medicines

Chapter 1 IPRs, pharmaceuticals and Foreign Direct Investment 1 The views expressed are those of the author and do not necessarily reflect those of the Organisation for Economic Cooperation and Development (OECD) or its Member Countries. The author thanks OECD colleagues Valérie Paris, Sébastien Miroudot and Christina Sampogna for their suggestions and Mounira Nakaa for her assistance in accessing certain FDI data. 2 For example, in the OECD area from 1994 to 2003 the pharmaceutical sector had the highest growth rate of any sector with respect to manufacturing trade (13.5% annual growth versus an average of 5.8% for manufacturing as a whole − OECD (2005), Science, Technology and Industry

on children. The extension of SPCs will serve to incentivise this

Scoreboard, Paris). Manufacturing trade refers to exports plus



Although there have been some problems relating to the implementation of the Regulations, the system works well in general. It is nevertheless in need of updating to maintain the correct balance between the different stakeholders and to further encourage innovations in the pharmaceutical and plant

3 Park, W., and D. Lippoldt (2005), ‘International Licensing and The Strengthening of Intellectual Property Rights in Developing Countries During The 1990s’, OECD Economic Studies, Vol. 40, Paris.

protection areas.




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4 These include copyright and related rights, trademarks, geographical indications of origin, industrial designs, patents, layout-designs of integrated circuits, and protection of undisclosed information. 5 See WTO ‘TRIPS and Pharmaceutical Patents’, Fact Sheet, Geneva, September 2006, available at: english/tratop_e/trips_e/factsheet_pharm00_e.htm for more on TRIPS and pharmaceutical patents.

Develop a New Prescription Drug’, press release, 13 May 2003; and Psychiatric News, 1 August 2003, Vol. 38 No. 5. 10 OECD (2006) Innovation in Pharmaceutical Biotechnology: Comparing National Innovation Systems at the Sectoral Level, Paris. 11 A World Bank assessment found that government policies to promote technology transfer via FDI have a greater likelihood of success if they focus on boosting incentives to source

6 Balance is required in IPR policy since overly stringent

locally (e.g., by helping local suppliers to adapt) rather than

protection could in theory confer excess market power

through regulation directly mandating technology transfer.

(e.g. from patents that are too broad), thereby diminishing

World Bank (2006) Global Integration & Technology Transfer,

competition and encouraging some IPR holders to continue

B. Hoekman and B. Smarzynska Javorcik (eds.), Washington,

exploiting existing innovations while postponing new


innovation efforts. 7 For example, pharmaceutical expenditure on R&D is the

12 In Singapore during 2005, GlaxoSmithKline announced a US$100 million facility expansion and Pfizer opened

equivalent of about 22% of value added, whereas the figure

a US$350 million plant – Pharmabiz, ‘New policies spur

for manufacturing as a whole is 7% − OECD (2005).

pharma, biotech growth in Singapore’, 14 April 2005, posted

8 A ‘lasting interest’ is defined as investment to obtain a share of 10% or more of the voting power in the foreign enterprise

on-line at 13 As Carlos A. Primo Braga and C. Fink point out in ‘The

− OECD (2006), International Investment Perspectives, Paris,

Relationship Between Intellectual Property Rights and

p. 20.

Foreign Direct Investment’, Duke Journal of Comparative

9 One US study found that the average total cost for development of a new drug in the late 1990s was US$897 million and that the average development costs had increased 5.8 times in constant dollars between the 1970s and the 1990s. The increase in costs was attributed in part to R&D expenses and, in particular, clinical testing costs (which the study estimated as rising 8.6 times during this period). Tufts Center for the Study of Drug Development, ‘Total Cost to

and International Law, Vol. 9, pp. 163ff, 1998 (http://www., the choice of whether and where to invest depends on locational advantages (including IPR protection) of the home and foreign markets and the profitability of internalising production or selling or licensing the technology to another firm that is active in the market. 14 In a 2003 survey on investment issues affecting the world’s largest 1,000 firms, the consulting firm A. T. Kearney asked




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business leaders to characterise the most critical risks to their

20 Trade and FDI were measured as a % of GDP in each

corporations as they invest abroad. At the top of the list were

destination market. The index of patent rights strength

government regulations, country financial risk, currency

considered membership in relevant international treaties,

risk, and risk of political and social disturbances (each of

restrictions on IPRs, available means of enforcement,

which were cited by 60% or more of respondents). Theft of

duration of protection and sectoral coverage of patent rights.

intellectual property was cited by 17% of the respondents and

See also Lippoldt, D. (2006), ‘Can Stronger Intellectual

ranked 12th on the list of concerns.

Property Rights Boost Trade, Foreign Direct Investment

15 An article in FDI Magazine (‘Pharma pulls in $15bn’, 12 April 2005, on-line) lists the top ten locations for pharmaceutical FDI projects during January 2002 to February 2005: USA (52 projects), China (44), India (30), Ireland (29), Spain (27), Canada (27), UK (23), Singapore (23), Brazil (22) and Germany (18). 16 Smarzynska, B. (2002), Composition of Foreign Direct Investment

And Licensing In Developing Countries?’ in The Intellectual Property Debate: Perspectives from Law, Economics and Political Economy , M. Pugatch (ed.), Edward Elgar Publishing, UK. 21 The estimates were not statistically significant for the LDCs for the sectors shown. 22 Mansfield singles out the chemical industry as whole, noting that ‘chemical firms are reluctant to transfer relatively

and Protection of Intellectual Property Rights: Evidence from

new or advanced technology to other than wholly owned

Transition Economies, The World Bank, Working Paper Series

subsidiaries’. See note 17, p. 10.

No. 2786, pdf 17 Mansfield, E. (1994), ‘Intellectual Property Protection, Foreign Direct Investment, and Technology Transfer’, International Finance Corporation Discussion Paper No. 19. 18 Lee, J.-Y. and E. Mansfield (1996), ‘Intellectual Property Protection, Foreign Direct Investment and Technology Transfer’, Review of Economics and Statistics, Vol. 78, pp. 181−6. 19 Park, W. and D. Lippoldt (2003). ‘The Impact of Trade-Related Intellectual Property Rights on Trade and Foreign Direct Investment in Developing Countries’, OECD Papers, Vol. 3, No. 11, paper 294, a draft of which is available at: http://



Chapter 2 Parallel imports of patented medicines 1 Betts v. Willmott (1871) L.R. 6 Ch. App. 239, 245. 2 See the Commission’s Communication on parallel imports of proprietary medicinal products for which marketing authorisations have already been granted, COM (2003) 839, 30 December 2003.

Further reading for Chapter 2 Abbott, F. M. (1998), ‘First Report (Final) to the Committee on International Trade Law of the International Law Association on the Subject of Parallel Importation’, Journal of International Economic Law, Vol. 1, No. 4, pp. 607−36.


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Danzon, P. M. and A. Towse (2003), ‘Differential pricing for pharmaceuticals: reconciling access, R&D and patents’, International Journal of Health Care Finance and Economics, Vol. 3, pp. 185−205. Kanavos, P., Costa-I-Font, J., Merkur, S., and M. Gemill (2004), ‘The Economic Impact of Pharmaceutical Parallel Trade in European Union Member States: A Stakeholder Analysis’, Special Research Paper, LSE Health and Social Care. Malueg, D. and M. Schwartz (1994), ‘Parallel Imports, Demand Dispersion and International Price Discrimination’, Journal of International Economics, Vol. 37, pp. 167−95. OECD (2002) ‘Synthesis Report on Parallel Imports’, Paris. Szymanski, S. and T. M. Valletti (2005), ‘Parallel trade, price

copies of drugs which are still on patent, to enable the process to be completed in time for when the patent expires – thus reducing the delay in the production of generic medicines. 6 Details of these approaches can be found in the Handbook of Best Practices for Management of Intellectual Property in Health Research and Development, 7 8 Numerous PPPs have been funded by governments and by philanthropic foundations such as the Rockefeller and Gates Foundations to tackle the so-called neglected diseases of the developing world. The Commission for Intellectual Property Rights, Innovation and Public Health (CIPIH), Geneva, April

Vol. 20, pp. 705−49.

2006, gives details of these PPPs.

1 Mansfield, E., ‘Patents and Innovation: An Empirical Study’, Management Science, February 1986. 2 Kettler, H., White, K. and S. Jordon (2003), ‘Valuing Industry Contributions to Public-Private Partnerships for Health Product Development’, Initiative on Public-Private Partnerships for Health (IPPPH), Global Forum for Health Research, Geneva. 3 The World Trade Organization’s (WHO) Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) came into force in January 2005, for all but the least developed countries.


5 A provision which allows companies to begin to produce

discrimination, investment and price caps’, Economic Policy,

Chapter 3 Strategic use of IPRs by pharmaceutical SMEs in developing countries


4 Eiss et al., ‘Living with TRIPS’, at

9 MIHR (op. cit); 10 Timmermans, K., (2006), Negotiating Health, Intellectual Property and Access to Medicines, ICTSD.

Chapter 4 Antitrust and patent settlement investigations 1 FTC v. Schering-Plough Corp., 528 US ___, No. 05−273 (26 June 2006) (cert. denied). 2 ‘Overview of FTC Antitrust Actions in Pharmaceutical Services and Product’, Health Care Services and Products Division, Bureau of Competition, Federal Trade Commission, April 2006, pp. 8−9. 3 Ibid., p. 8. 4 Ibid., p. 3.


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5 ‘FTC Charges Schering-Plough over Allegedly Anticompetitive Agreements with Two Other Drug Manufacturers: Complaint

Trade Commission, Opinion of the Commission, 8 December

Alleges Illegal Payments to Delay Entry of Generic Products

2003, pp. 6−7.

into the US Market’, US Federal Trade Commission, Press Release, 2 April 2001; and ‘In the Matter of Schering-Plough Corp., Upsher-Smith Corp., and American Home Products

12 Schering-Plough Corp. v. FTC, http://www.ca11.uscourts. gov/opinions/ops/200410688.pdf (402 F.3d 1056 [11th Cir.

June 2002, p. 2.


Corp., and American Home Products Corp.’, US Federal Trade Commission, Initial Decision, 27 June 2002, p. 4. 7 Ibid. 8 Ibid. 9 Two recent court decisions help illustrate the unsurprising fact that a presumption that a branded manufacturer’s patent is invalid will not always be consistent with the results of court rulings. On 1 August 2006, a US District Court ruled in favour of Daiichi Pharmaceutical, finding its patent for Floxin Otic was not invalid; on 2 August 2006, the US Court of Appeals for the Federal Circuit upheld an earlier decision affirming the validity of one of the patents on Pfizer’s drug Lipitor. Daiichi Pharmaceutical Co., LTC and Daiichi Pharmaceutical Corporation v. Apotex, Inc. and Apotex Corp., Civ. No. 03−937, United States District Court for the District of New Jersey, Opinion, 1 August 2006; Pfizer, Inc., Pfizer Ireland Pharmaceuticals, Warner-Lambert Company, Warner Lambert Company LLC, and Warner Lambert Export, LTD v. Ranbaxy Laboratories Limited and Ranbaxy Pharmaceuticals, Incorporated, No. 06−1179 United States Court of Appeals for the Federal Circuit, decided 2 August 2006.


11 Ibid., p. 8.

Corp.’, US Federal Trade Commission, Initial Decision, 27

6 ‘In the Matter of Schering-Plough Corp., Upsher-Smith


10 ‘In the Matter of Schering-Plough Corp. et al.’, US Federal

13 Ibid., p. 11. 14 Ibid. 15 Schering-Plough Corp. v. FTC, p. 34. 16 Ibid., p. 43. 17 Illinois Tool Works, Inc. et al. v. Independent Ink, Inc, 547 US ___ (2006).

Chapter 5 A new approach to trade-related pharmaceutical IPRs – IPRs as tradeable goods 1 Lamoreaux, N. R. and K. L. Sokoloff (2001), ‘Market Trade in Patents and the Rise of a Class of Specialized Inventors in the 19th-Century United States,’ The American Economic Review, Vol. 91, No. 2 (Papers and Proceedings of the Hundred Thirteenth Annual Meeting of the American Economic Association), pp. 39−44. 2 Razgaitis, R. (2003, 2004), ‘US/Canadian Licensing In 2003: Survey Results’, les Nouvelles. See also Gambardella, A., Giurib, P. et al. (2006), ‘The Market for Patents in Europe’, LEM Working Paper Series, Laboratory of Economics and Management, Sant’Anna School of Advanced Studies.


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3 Hayek (1937), ‘Economics and Knowledge’, Economica, Vol. 4, No. 13, pp. 33−54. Hayek (1945), ‘The Use of Knowledge in Society’, The American Economic Review, Vol. 35, No. 4, pp. 519−30. 4 Ullberg, E. (2006), ‘World Trade in Intellectual Property − Managing Risk and Uncertainty in the Knowledge Economy’, Meredith Memorial Lectures Series, McGill. 5 Prof. Vernon Smith, Nobel Prize laureate in Economics in 2002, pioneered this field. See his ‘An Experimental Study of Competitive Market Behavior’, The Journal of Political Economy, Vol. 70, No. 3, pp. 322−3, 1962; and ‘Microeconomic Systems as an Experimental Science’, The American Economic Review, Vol. 72, No. 5, pp. 923−55. 6 Harris, C. and J. Vickers (1987), ‘Racing with Uncertainty’, The Review of Economic Studies, Vol. 54, No.1, pp. 1−21.

in the market should be at the heart of the debate on public health. 4 Canada − Patent Protection for Pharmaceutical Products (WT/ DS114/R). 5 Some of these views are reflected in document IP/C/M/31, which reproduces members’ statements in the TRIPS Council made on 20 June 2001 in the special discussion on intellectual property and access to medicines. 6 Document WT/MIN(01)/DEC/2. 7 Document IP/C/25 − June 2002; Document WT/L/478 – July 2002. 8 Document IP/C/40. 9 Documents WT/L/540 and Corr.1. 10 Contained in paragraph 29 of document WT/GC/M/82.

Chapter 6 The WTO, IPRs and access to medicines 1 The chapter is based on material available in the Intellectual Property Division of the World Trade Organization (WTO). The views expressed do not reflect those of the WTO, its Secretariat or its members. 2 See Chapter II of Watal, J. (2001), Intellectual Property Rights in the WTO and Developing Countries, Kluwer Law International. 3 For instance, the brand name of the medicine (either originator or generic) could be protected under trademarks;

11 Notifications about the use of the system will be accessible through a dedicated webpage on the WTO website: http:// 12 The latest list can be obtained from english/tratop_e/trips_e/amendment_e.htm

Chapter 7 Pharmaceutical IPRs and the TRIPS Agreement – past, present and future 1 See Gorlin, Jacques J. (1999), An Analysis of the Pharmaceutical-

the inserts that accompany the medicine could contain

Related Provisions of the WTO TRIPS (Intellectual Property)

copyrighted material, and the packaging could be the

Agreement, Intellectual Property Institute, London.

subject of industrial design protection. Similarly, the issue of enforcement of IPRs so as to eliminate counterfeit medicines




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2 See, for example, Choate, P. (2005), Hot Property: the Stealing of Ideas in an Age of Globalization, Alfred A. Knopf, New York, p. 232. 3 For example, the TRIPS Agreement did not ban parallel imports nor did it provide for patent-term extension. 4 In fact, TRIPS Article 70.2 contains a mechanism for amending TRIPS for the ‘purpose of adjusting to higher levels of protection of intellectual property rights … ’ 5 The best example is Article 39.3, which only requires protection of undisclosed information ‘against unfair commercial use’, which was understood at the time to include data exclusivity. See Gorlin, J., The GATT Uruguay Round: A Negotiating History (1986−1992) (1993), Vols 1 and 2, pp. 43−50, Kluwer Law and Taxation Publishers,Boston. 6 TRIPS Article 1. 7 Least Developed Countries (LDCs) are countries which, according to the UN, exhibit the lowest indicators of socioeconomic development of all countries in the world. There are currently 50 LDCs. 8 Gaining TRIPS-level intellectual property protection in WTO

holder. 3 In the meaning of Article 9.3 of the WTO Agreement. 4 OJ No. L 157 of 9.6.2006, p. 1. 5 IP/C/W/416 of 21 November 2003. 6 IP/C/W/437 of 10 December 2004. A revised version was circulated in March 2005 which took into account a communication from Rwanda, on behalf of the African Group, on legal arguments to support the African Group proposal IP/C/W/440 of 1 March 2005. Subsequently, the African Group circulated the statement made by Rwanda on behalf of the Group during the TRIPS Council meeting held on 31 March 2005, IP/C/W/445. 7 IP/C/W/444 of 18 March 2005. 8 This was clearly expressed by the Africans at the meeting of the African Union’s Ministers for Trade, held in Arusha (Tanzania) on 23−24 November 2005. 9 Paragraph 3 of Article X of the WTO Agreement. 10 These countries are the following: Hong Kong; Israel; Korea;

accession countries will provide significant benefits to the

Kuwait; Macao China; Mexico; Qatar; Singapore; Chinese


Taipei; Turkey and the United Arab Emirates.

Chapter 8 The WTO Decision of 6 December 2005 on the amendment of the TRIPS Agreement

11 Paragraph 5 of Article 133 of the EC Treaty.

1 Paragraph 6 of the Doha Declaration.

Chapter 9 The WHO Commission’s Report on IPRs, Innovation and Public Health: a missed opportunity

2 A compulsory licence is an authorisation granted by

1 The opinions expressed herein are personal and should not

government to an economic operator to use a patent-



protected technology, without the consent of the right-

be attributed to White & Case or to any of its clients.


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2 The WHO Commission’s Report on IPRs, Innovation and Public Health, p. 98.

6 Proposal for a Directive on Criminal Measures aimed at ensuring the Enforcement of IPRs, COM (2006) 186, of 26 April 2006.

3 Ibid., p. 124.  4 Ibid., Recommendation 4.17, p. 140. 5 Ibid., Recommendation 4.10, p. 134. 6 Ibid., pp. 146−47. 7 Ibid., pp. 147−48. 8 Defined in the Report (p. 149) as strategies used by patent-

7 Commission Communication 2005/129/03, of 26 May 2005. 8 See survey2006_en.htm 9 Commission Communication ‘Global Europe: competing in the world’, of 4 October 2006. 10 Council Regulation (EC) 953/2003, of 3 June 2003.

holders to extend the length of their exclusivity beyond twenty years, without any apparent therapeutic benefit. 9 Most of the 312 medicines on the WHO’s list of Essential Drugs are now off patent. See publications/essentialmedicines/en/

Chapter 10 The EU’s approach to the enforcement of pharmaceutical IPRs: multilateral, bilateral and domestic perspectives 1 The views expressed in this article are those of the author and cannot be attributed to the European Commission. 2 The Lancet, ‘Infectious Diseases’, 21 August 2006. 3 Number of cases of counterfeit medicines occurring in the EU between 2001 and 2005:

27 cases in legitimate supply chain

170 cases in illegitimate supply chain

4 Council Regulation (EC) No. 1383/2003, of 22 July 2003. 5 Directive 2004/48/EC, of 29 April 2004, harmonising the enforcement of IPRs within the Community.



Chapter 11 The threat of counterfeit medicines – a new approach to policy 1 See impact/TheNewEstimatesCounterfeit.pdf 2 Ibid. 3 Ibid. 4 See pr09/en/ 5 See 8&contenttypeid=3 6 Schwartz, B. and V. Wong, ‘Counterfeit Cures’, Insight Magazine, Shanghai Chamber of Commerce, March 2006. 7 See part10.pdf 8 Gibson, L., ‘Drug regulators study global treaty to tackle counterfeit drugs’, British Medical Journal, Vol. 328, No. 486, 28 February 2004.


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9 European Federation of Pharmaceutical Industries and

2 ‘Bonn Guidelines on Access to Genetic Resources and Fair

Associations, ‘Counterfeit medicines’, available at http://

and Equitable Sharing of The Benefits Arising out of their

Utilization’, UN Doc. UNED/CBD/COP/6/2C (27 May 2002).

10 Shakoor et al. (1997), ‘Assessment of the incidence of

3 CBD 16(5): ‘The Contracting Parties, recognising that patents

substandard drugs in developing countries’ in Tropical

and other IPRs may have an influence on the implementation

Medicine and International Health, Vol. 2, pp. 839−45.

of this Convention, shall cooperate in this regard subject to

11 See PAR_2003.4.pdf 12 Pitts, Peter J. (2006), Coincidence or Crisis? Prescription Counterfeit Medicine, Stockholm Network, London, pp. 79−92. 13 Remarks in front of the Counterfeit Drugs and Supply Chain Security Conference, Washington, DC, 2006. 14 See Washington_09-05.pdf 15 Pitts, op. cit., pp. 1−36. 16 Ibid. 17 Ibid., p. 40. 18 See 04.html

national legislation and international law in order to ensure that such rights are supportive of and do not run counter to its objectives.’ 4 Bonn Guidelines, Annex 16(d)(ii). 5 Those CBD provisions relating to intellectual property are: Article 8(j)[ In-situ Conservation] ‘Subject to its national legislation, respect, preserve and maintain knowledge, innovations and practices of indigenous and local communities embodying traditional lifestyles relevant for the conservation and sustainable use of biological diversity and promote their wider application with the approval and involvement of the holders of such knowledge, innovations and practices and encourage the equitable sharing of the benefits arising from the utilisation of such knowledge, innovations and practices’; Article 10(c) Article 10: [Sustainable Use of Components of

Chapter 12 The Convention on Biodiversity (CBD) and Intellectual Property Rights 1 On the US declaration, see ‘Report of the Intergovernmental Negotiating Committee for a Convention on Biological Diversity’, UNEP/Bio.Div/N7ING5/4 (1992).

Biological Diversity] Each Contracting Party shall, as far as possible and as appropriate: (c) ‘Protect and encourage customary use of biological resources in accordance with traditional cultural practices that are compatible with conservation or sustainable use requirements;




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Article 16(2): ‘[…] In the case of technology subject to patents

from patentability ‘plants and animals other than micro-

and other IPRs, such access and transfer shall be provided on

organisms, and essentially biological processes for the

terms which recognise and are consistent with the adequate

production of plants or animals other than non-biological

and effective protection of IPRs.’

and microbiological processes’.

Article 19(2) [Handling of Biotechnology and Distribution of its Benefits]: ‘Each Contracting Party shall take all practicable measures to promote and advance priority access on a fair and equitable basis by Contracting Parties, especially developing countries, to the results and benefits arising from

9 WIPO/GRTKF/IC/9/13, 20 April 2006. 10 Article 12.3(d) of the ITPGRFA provides: ‘Recipients shall not claim any intellectual property or other rights that limit the

those Contracting Parties. Such access shall be on mutually

facilitated access to the plant genetic resources for food and

agreed terms.’

agriculture, or their genetic parts or components, in the form

Delhi, January 1999

received from the multilateral system.’ 11 Examples of access requirements protecting local

The report affirms that the TRIPS Agreement fails to

communities or indigenous populations are: Philippines

adequately address the objectives of the CBD and proposes

Presidential Executive Order No. 247 (1995); India

the following: either remove the word ‘effective’ from

Biodiversity Act (2003); Brazilian Executive Power

Article 27.3(b) in the context of sui generis systems of plant

(Provisional Measure No. 2.126−11, (2001); Decision 391 of

variety protection, or define it such that national priority

the Andean Group (1996) (Article 7).

is paramount in the interpretation of the term, including (i) Conservation and sustainable use of biodiversity; (ii) Promotion of traditional lifestyles; (iii) Promotion of food security and health security; (iv) Ensuring equitable benefitsharing; (v) Invoking the precautionary principle; (vi) Respect of the principles of equity and ethics; UNEP Conference on the TRIPS and the CBD (Nairobi, February 1999 http://www.; the South Asian Network on Food, Ecology and Culture (February 1999 http://www.grain. org/bio-ipr/?id=272). 7 Article 27 of the TRIPS Agreement defines what is patentable subject matter and 27.3(b) provides members may exclude



biotechnologies based upon genetic resources provided by

6 For example, ‘Non-Aligned and Developing Countries’ (New


8 WT/GC/W/564/Rev.2, TN/C/W/41/Rev.2/IP/C/W/474, 5 July

Examples of legislations relating to disclosure of genetic resources are: EC Biotech Directive 98/44/EC recital 27 (voluntary); Norway, Denmark, Sweden (with penalties but no consequence on patent validity); Brazil Provisional Measure 2186−16 (2001)Article 31: India Patent (Amendment) Act (2005), Section 10(4)(d)(ii)[A−D] (with consequences on patent grant and validity).

Further reading for Chapter 12 Drahos, P. and M. Blakeney, (eds.) (2001), IP in Biodiversity and Agriculture: Regulating the Biosphere, Sweet & Maxwell, London.


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Charest, M. G., Lerner, C. D., Brubaker, J. D., Siegel, A. D. and R. Myers, Science, Vol. 308, No. 395, 2005. Miyazaki, M., ‘Economic Value of microbial resources’ in Microbiological Culture Collection, June 2006, pp. 15−19.

Chapter 13 A statutory research exemption for patents 1 The issue was the topic of a recent Organisation for Economic Co-operation and Development (OECD) conference on research use of patented inventions. See http://www.oecd.

are DNA sequences some of which can be extremely long, called introns, that are not genes, do not code for proteins, and the function of which is at present unknown. For a discussion of the issues associated with patents on genes and DNA, see Cook, T. M. (2006), ‘Patenting Genes’, in The Intellectual Property Debate – Perspectives from Law, Economics and Political Economy, M. Pugatch (ed.), Edward Elgar Publishing, UK. 2 Canada has also considered the ethical issues in some depth −


see ‘Patenting of Higher Life Forms and Related Issues’, Report


to the Government of Canada, Biotechnology Ministerial

2 See, for example, Thumm, N. (2005), ‘Patents for genetic inventions: a tool to promote technological advance or a limitation to upstream inventions’, Technovation, The

Coordinating Committee, Canadian Biotechnology Advisory Committee, June 2002. 3 Directive 98/44/EC of the European Parliament and of

International Journal of Technological Innovation and

the Council on the legal protection of biotechnological

Entrepreneurship, Vol. 25, No. 12, pp. 1410−17.

inventions − OJEC L 213, 30.7.98, p. 13.

3 Cf. Shapiro, C. (2001), ‘Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting’ in Innovation Policy and the Economy, Vol. 1, MIT Press, www.faculty.haas. 4 See 5 Swiss patent law revision, information under http://www.ige. ch/E/jurinfo/j100.shtm#a03 6 Regulated in Article 9(a) of the revised patent law.

4 EPO Decision T 0315/03 Transgenic animals / HARVARD of 6 July 2004 – OJEPO 2006, p. 15. 5 In Europe, use of a research tool for its patented purpose would not fall within the scope of the defence found in the patent laws of most European countries, as to ‘use for experimental purposes relating to the subject matter of the invention’. No such defence exists in the USA. However, the effect of the 2005 Supreme Court Judgment in Integra Lifesciences 1, Ltd v. Merck KGaA − 545 US 193, 125 S. Ct. 2372 − despite ostensibly not addressing research tools, is to

Chapter 14 Patenting biotechnology 1 A gene is a DNA sequence that codes for a protein. In multicelled organisms only a small proportion of DNA codes for proteins, as between genes, and also within most genes, there



deprive certain research tools of value even when used for their patented purposes. See Cook, T. M. (2006), ‘A European Perspective as to the Extent to which Experimental Use, and Certain other Defences to Patent Infringement, apply to


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Differing Types of Research’, Intellectual Property Institute, London. 6 Article 53(a) EPC as amended by Article 16, EPC Revision Act of 2000 (not yet in force). Since most such controversy originally concerned genetically modified animals, it also involved consideration of another express exception from patentability, namely that under Article 53(b) EPC, for ‘plant and animal varieties or essentially biological processes for the production of plants or animals … ’ the primary purpose of which had been to avoid overlap with the plant variety protection system. However, it has now been established that although this restricts the nature of how genetically modified plants and animals can be claimed in a patent, it does not prevent patent claims being drafted which can encompass plant or animal varieties. See EPO Decision G 1/98 Transgenic plant / NOVARTIS of 20 December 1999, OJEPO 2000, p. 111, and also the Biotechnology Directive Article 4. 7 See Plomer A. et al. (2006), ‘Stem Cell Patents: European Patent Law and Ethics Report’ at http://www.nottingham. for an extensive discussion of this controversy. 8 Such as ‘Research and Patenting in Biotechnology: A Survey in Switzerland’, Swiss Federal Institute of Intellectual Property 2003 at; and ‘Patents for Genetic Sequences: The Competitiveness of Current UK Law and Practice’, Intellectual Property Institute study for the UK Department of Trade and Industry, 2004. 9 Published by National Academies Press at http://www.nap. edu/catalog/11487.html

10 See Stott, M. and J. Valentine (2004), ‘Gene Patenting and Medical Research: a View from a Pharmaceutical Company’, Nature Reviews Drug Discovery, Vol. 3, pp. 364−8 for data as to the limited extent of gene patenting in Europe.

Chapter 15 Patent wars and authorised generics in the USA: assessing the issues 1 IIR’s Global Generic Strategies Conference, Barcelona, Spain, Spring 2004. See web/content/0,3148,64576068_63872702_70261000_ 71026728,00.html 2 Pfizer Inc. and Schering-Plough Corp. sell generic products through their affiliates, Greenstone Ltd and Warrick Pharmaceuticals respectively. 3 For example, Mylan Laboratories Inc. (Mylan) developed the brand product Maxzide®. 4 ‘Senators Take Aim At Authorized Generics,’ IP Law 360, 21 July 2006. Innovators consider a variety of strategies when managing a brand pharmaceutical product throughout its life cycle. Some of these strategies have given rise to scrutiny by policymakers, including innovators raising questions in Citizen Petitions during the FDA approval process for ANDAs submitted by imitator companies; introducing new and improved products; settling patent infringement cases; or launching, either directly or through licensing, authorised generic versions of their brand products. We address the last strategy in this chapter. 5 In the former case, the company files a Paragraph I, Paragraph II, or Paragraph III certification as part of its ANDA. Paragraph I certification applies when the FDA has not been informed




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that a patent applies to the compound at issue. Paragraph II

Lecture, Washington, DC, 14 September 2006; and GPhA

certification applies when the patent covering the compound

Study, p. 20, footnote 39.

has expired. Paragraph III certification applies effective on the date the patent will expire. See ‘Title 21 − Food and Drugs, Department of Health and Human Services − Continued, Part 314 − Applications for FDA Approval to Market a New Drug,

12 Seligman, P., ‘Teva’s Generic Advantage’, Business Week Online, 29 August 2006, at

CDER/ogd/paragraph4.htm. In the latter case, the company


an authorised generic, imitator companies that are successful with Paragraph IV certifications receive 180 days of marketing exclusivity. 6 Tim Gilbert on behalf of Gilbert’s LLP ‘Hatch-Waxman: Upsetting the Balance’, presented at The Intellectual Property, Healthcare and Federal Civil Enforcement Committees of the American Bar Association’s Antitrust Section’s ‘Whose Drug is it Anyway?’ Lecture, Washington, DC, 14 September 2006. 7 Hollis, A. and Bryan A. Liang, ‘An Assessment of the Effect

13 Similarly, the means of the return on sales for both groups are equal. See Table 4. 14 ‘Authorized Generics, Prasco Product Profile’, Prasco, at ProductProfile_Web_05.14.12_FINAL.pdf 15 Teva completed its acquisition of Ivax Corporation on 26 January 2006. See 16 IMS Consulting, ‘Assessment of Authorised Generics in the US’, prepared for the Pharmaceutical Research and

of Authorised Generics on Consumer Prices’, 31 July 2006

Manufacturers of America (PhRMA), Spring 2006 (‘PhRMA

(‘GPhA Study’), p. 20, footnote 39.

Study’), p. 4.

8 Par is ‘the fifth largest manufacturer and distributor of

17 Daly, E. M., ‘In Win For Barr, Court Denies Tamoxifen

generic pharmaceuticals in the USA’: see ‘About Generic

Rehearing’, IP Law 360, 18 September 2006; and http://www.

Pharmaceuticals’, at

generics.jsp 9 See note 6. 10 Jerome A. Swindell on behalf of Johnson & Johnson, ‘Authorised Generics: Good for Everyone (Even Generics)’, presented at The Intellectual Property, Healthcare and Federal Civil Enforcement Committees of the American Bar Association’s Antitrust Section’s ‘Whose Drug is it Anyway?’



Subpart C − Abbreviated Applications’ at files a Paragraph IV certification as part of its ANDA. Without


11 ‘Paragraph IV Patent Certifications as of 14 September 2006’,

18 Ibid. 19 Frank, Richard G. and David S. Salkever, ‘Generic Entry and the Pricing of Pharmaceuticals’, Journal of Economics & Management Strategy, Vol. 6, No. 1, Spring 1997, p. 84. 20 ‘Generic Competition and Drug Prices’, at http://www.fda. gov/cder/ogd/generic_competition.htm#P5_1100


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Healthy IPRs

21 ‘The Drug Development and Approval Process’, in Medicines

on Albuterol’, The Journal of World Intellectual Property, Vol. 6,

in Development for Heart Disease and Stroke, 2005, PhRMA, p. 19.

No. 6, November 2003. 33 ‘Wal-Mart to Sell Generic Drugs for $4’, National Public

22 Ibid. The US$802 million represents the total capitalised cost

Radio, 21 September 2006, at

and is stated in 2000 dollars. Average out-of-pocket costs

story/story.php?storyId=6119292&ft=1&f=1001; and ‘Wal-

were estimated to equal US$403 million. DiMasi, Joseph A.,

Mart Cuts Generic Prescription Medicines to $4’, at http://

Hansen, Ronald W. and Henry G. Grabowski (2003), ‘The

Price of Innovation: New Estimates of Drug Development Costs’ in Journal of Health Economics, Vol. 22, pp. 151−85.

34 ‘Kmart Says Its 90-Day Deal on Generic Drugs is Better than Wal-Mart’s 30-Day’, 22 September 2006, at http://www.

24 Grabowski, H. and J. Vernon, ‘A New Look at the Returns and

Risks to Pharmaceutical R&D’ in Management Science, Vol. 16,


No. 7, July 1990, pp. 804−21. 25 Henson, S., ‘Barr Tries to Cut Generic Market by Entering It’, IP Law 360, 8 September 2006.

Chapter 17 Supplementary Protection Certificates (SPCs) 1 Public Law No. 98−417, 98 Stat. 1585 (1984).

26 Ibid.

Further reading for Chapter 17

27 For example, the Federal Trade Commission (FTC) is

UK Patent Office, Supplementary Protection Certificates for Medicinal

conducting a study to analyse the short- and long-term

Products and Plant Protection Products − A Guide for Applicants

competitive effects of authorised generics. ‘FTC Proposes

(revised January 1997). See

Study of Competitive Impacts of Authorised Generic Drugs’,


FTC, 29 March 2006, at authgenerics.htm

UK Patent Office, UK Patent Office response to the Gower’s Review, June 2006. See

28 PhRMA Study (see note 16), pp. 1−2. 29 GPhA Study (see note 7), p. 9.

30 Ibid., p. 11. 31 Ibid., p. 14. 32 Rozek, Richard P. and Bishko, Emily R., ‘Investment Incentives Created by the Montreal Protocol and FDA Policy




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Joining the Stockholm Network

Other titles published by the Stockholm Network are listed on the following pages

Would you or your organisation like to join the Stockholm Network? We have varying levels of membership, depending on your needs and interests. For further information, please contact our Managing Director, Shane Frith (

Subscribe to the mailing list Fancy getting a taste of what we do and what think tanks are doing right across Europe? The Stockholm Network’s weekly e-newsletter rounds up the latest activities of Europe’s leading think tanks and thinkers and provides a valuable summary of current policy trends across the EU. To sign up, contact Simon Moore (, or visit our website:


20/3/07 15:35:15

Impatient for Change

An Apology for Capitalism?

European attitudes to healthcare reform

Matthew Bishop, Vincent Cable, Clive Crook, Howard Davies, Bill Durodié, Stephen Godfrey-Isaacs, Julia Hailes, David Henderson, Steve Hilton, Benjamin Hunt, John Kay, Philippe Legrain, Johan Norberg, Neil Sherlock, Stephen Tindale

Helen Disney, Karen Horn, Pavel Hrobon, Johan Hjertqvist, Alastair Kilmarnock, Andreas Mihm, Alberto Mingardi, Cécile Philippe, David Smith, Eline van den Broek, Gerrold Verhoeks

Do Europe’s politicians really understand what voters want from their healthcare systems? How can they square the circle of rising demand, rising costs and shrinking tax funding? To find out, the Stockholm Network and Populus commissioned a major study of the European public’s attitudes on the state of their health systems now and what they expect from them in future. Leading healthcare experts from across Europe analyse the data, putting it into its national and pan-European context. The results are startling. Europeans are becoming ever more concerned about what will happen to their health provision in future if reform is not carried out urgently. They demonstrate a large gap between what patients want and what their political elite is delivering. And they suggest that information and gaining the support of the medical profession are crucial to securing the reform that Europe’s ailing health systems need. Europe’s health consumers are already waiting and impatient for change. Published in association with Populus ISBN: 0-9547663-0-X £12.00


Edited by Helen Disney

Should companies be cheerleaders for capitalism or is the growth of corporate and social responsibility evidence of a new way of doing business and doing it better? Is it time for policymakers and business leaders to be more aggressive in dealing with business failure? A backlash is emerging too among those who think companies are becoming too timid and apologetic. Too much of this risk aversion could be damaging not just to profits but to faith in capitalism itself. With books critical of global corporations topping best-seller lists across the world, how can cor­porations answer their critics – and should they even try? An Apology for Capitalism? assembles leading thinkers and policy experts to debate the limits of corporate and social responsibility. It questions whether corporations deserve the flak and asks if it is now time for them to embrace the business of saying sorry. ISBN: 0-9547663-1-8 £10.00

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A Sick Business

Poles Apart?

Counterfeit medicines and organised crime

Eastern European attitudes to healthcare reform

Graham Satchwell Foreword by Lord Mackenzie of Framwellgate

Helen Disney, David Hill, Pavel Hrobon, Adam Kruszewski, Henrieta Madarová, Rick Nye, Martin Stefunko

Conducted by a former policeman, this investigation into

How have eastern European countries fared since the fall of

the trade in fake medicines and its links with organised crime uncovers a horrifying story. Across Europe, counterfeiters have discovered a range of easy routes for selling fake and substandard products into the legitimate distribution chain. A Sick Business shows how, to the uninitiated eye, this crime is invisible. Most patients and consumers are unaware of just how many public safety problems counterfeit medicines may cause. It reveals that this illegal business is conducted by unscrupulous people whose actions have already cost thousands of lives and may even be linked to terrorist activity – yet almost nothing is being done to stop it. It should be read by anyone with an interest in keeping Europe safe. ISBN 0-9547663-2-6 £10.00


the Berlin Wall, and what do their attitudes tell us about the prospects for healthcare reform today? Poles Apart? sets out to examine whether the perception of a superior western European healthcare system is really true by asking the opinions of 3,000 central and eastern Europeans and comparing them with their counterparts in the rest of the EU. Despite differences in access to care, due to significantly lower levels of funding, and a sometimes unfounded admiration of western Europe, the challenges facing healthcare systems and the way people view them are remarkably similar across the board. More striking still, the new Europe’s attitude suggests that the east is on the cusp of providing valuable inspiration and experience for reformers in western Europe in shaping the modern health systems of tomorrow. Published in association with Populus ISBN: 0-9547663-3-4 £10.00

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Does the West Know Best?

Intellectual Property Frontiers

Martin Bruncko, Gabriel Calzada, Christofer Fjellner, Andrei Grecu, Johan Hjertqvist, Pavel Hrobon, Philippe Manière, Miroslav Mikolasik, Dan Mitchell, Johnny Munkhammar, Stephen O’Connor, Matus Petrik, Ugnius Trumpa

Expanding the borders of discussion

Edited by Terence O’Dwyer

Edited by Dr Meir Pugatch and Anne K. Jensen

The first book to be published by the Stockholm Network’s Intellectual Property and Competition programme, Intellec-

Accession of the central and eastern European states has

tual Property Frontiers draws on the expertise of eighteen distin-

provided impetus for a fundamental re-evaluation of Europe’s

guished scholars, policymakers and practitioners. It aims to

economic and social model. New member states have chal-

familiarise readers with the diversity of themes and debates

lenged the orthodoxy of western European systems. With the

currently taking place in the field of IP.

west now facing the impending crises of an ageing population and unsustainable healthcare systems, and the prospect of sustained weak economic growth, the questions are: Should the

The publication is divided into four sections: • The role of intellectual property in the business arena;

new member states be emulating western Europe? Or should

• Intellectual property dilemmas;

‘old Europe’ mimic the reforms of its newest partners? Indeed,

• Global issues;

does ‘old Europe’ have any choice but to reform?

• The European perspective.

Does the West Know Best? assembles leading European thinkers to examine social and economic reform, such as flat taxation,


the privatisation of social security and moves towards more market-oriented health systems. It questions the sustainability of the European economic and social model, while seeking solutions to its endemic problems. ISBN: 0-9547663-4-2 £8.00


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Europe Needs Saving

Coincidence or Crisis?

Defusing the pensions timebomb

Prescription medicine counterfeiting

Matthew Bishop, Liam Halligan, Kamil Kajetanowicz, Edward Palmer, Giuseppe Pennisi, Wilfried Prewo, L. Jacobo Rodríguez, Ian Vásquez

Jonathan Harper, Julian Morris, Graham Satchwell, Philip Stevens, David Taylor, Michael Tremblay

Edited by Terence O’Dwyer

Edited by Peter J. Pitts

We are facing a demographic time bomb: by 2050, there will be two workers to every retired person in most European countries. In some countries, that ratio will be 1:1. Current pay-as-yougo pension systems are quite simply financially, economically and socially unsustainable – without reform, pensioners will bankrupt the welfare state. In Europe Needs Saving, several internationally renowned experts on pensions attempt to answer some of the most difficult questions facing us today: Should pay-as-you-go systems be tweaked only slightly? Is there a role for the market in providing pensions? If so, how extensive should that role be? What are the benefits to the citizen – and to the government? What can be learned from countries that have already reformed? Is the Chilean model suitable for the ailing systems

The business of creating, distributing and selling counterfeit pharmaceutical products is an unregulated, criminal and growing part of the global economy. Evidence of this criminal activity is mounting: according to a 1997 World Health Organization report, 10%–20% of drugs tested in developing countries are either counterfeit or have not been handled according to the manufacturers’ specifications. In Europe, profiteers masquerading as pharmacists are selling a nightmarish cornucopia of unsafe, unregulated, mislabelled, repackaged and co-mingled drugs to unsuspecting consumers. Coincidence or Crisis? brings together some of the world’s leading experts to discuss the growth of counterfeit pharmaceuticals. It provides a comprehensive analysis of the core issues,

in Europe? Or is the Swedish approach to reform more appro-

while delimiting key strategies to tackle the problem.


ISBN-10: 0-9547663-8-5 ISBN-13: 978-0-9547663-8-2 £10.00

ISBN-10: 0-9547663-7-7 ISBN-13: 978-0-9547663-7-5 £10.00


Introductions by Bill Newton Dunn and Mark E. Souder

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Unlocking Ideas Essays from the Amigo Society Arne Björnberg, Manuel Campolini, Pat Cox, Brian Crowley, Duncan Curley, Johan Hjertqvist, Pavel Hrobon, Mark Leonard, Johnny Munkhammar, Peter Pitts, Jan Remans, Anders Sandberg Edited by Francesca Ficai Introduction by Jacob Arfwedson

Europe faces massive challenges in the years ahead. Healthcare systems are struggling to keep up with new, innovative, but expensive advances in medical technologies, while patients are no longer passive recipients, but active consumers of their treatments. The Amigo Society conferences, held in Brussels, were set up in 2004 to bring together public policy experts, media representatives and members of civil society to debate these and other issues of importance to an enlarged Europe. Held at the Amigo Hotel, a former prison, their aim was to release new ideas and fresh thinking into the Belgian – and wider European – public debate. Taking concrete examples from Europe and North America, this collection examines the broad motivations behind, influences on, and opportunities for future health and welfare policy reform. It also looks to the future, drawing in new fields of policymaking expected to drastically alter Europe’s healthcare landscape. The final set of essays examines consumer empowerment as the major factor which will push forward reform of Europe’s health and welfare systems. ISBN-10: 0-9547663-9-3 ISBN-13: 978-0-9547663-9-9 £8.00


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Healthy IPRs