The WTO, Intellectual Property Rights, and the Access to Medicines Controversy

The WTO, Intellectual Property Rights, and the Access to Medicines Controversy

Order Code RS21609
Updated December 12, 2005
CRS Report for Congress
Received through the CRS Web
The WTO, Intellectual Property Rights, and
the Access to Medicines Controversy
Ian F. Fergusson
Analyst in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
On August 30, 2003, World Trade Organization (WTO) negotiators agreed to
enable developing and least developed countries to access medicines to fight public
health epidemics such as HIV/AIDS, tuberculosis, malaria, and other infectious diseases
within the context of the Trade-Related Aspects of Intellectual Property (TRIPS)
Agreement. In December 2005, WTO members agreed to a permanent amendment to
TRIPS to incorporate this decision. The WTO Decision will allow poor developing
countries to issue a compulsory license to a third-country producer to manufacture
generic drugs at an affordable price. The accord reflects contentious issues in the
negotiations including the scope of diseases, country eligibility, and diversion
safeguards. Some have questioned the economic utility of issuing compulsory licenses.
This report will be updated as necessary.
Issue
In August 2003, the WTO reached an agreement on the use of compulsory licenses
by developing countries without manufacturing capacity to access life-sustaining
medicines. This agreement was incorporated as an amendment to TRIPS on the eve of the
Hong Kong Ministerial in December 2005. The issue of access to affordable medicines
is one of great concern to developing countries whose health-care systems are often
overwhelmed by HIV/AIDS and other infectious diseases. Some developing countries
have viewed the TRIPS agreement as an impediment in their attempts to combat such
public health emergencies by restricting drug availability and by transferring scarce
resources from developing countries to developed country manufacturers. For the
developing world, the issue of compulsory licenses is an important test as to whether the
WTO can meet the development needs of its members, and conversely, whether the
developing world can influence the actions of the world trading system.
Developed country pharmaceutical industries view the TRIPS agreement as essential
to encourage innovation in the pharmaceutical sector by assuring international
compensation for their intellectual property. Without such protection, industry claims it
Congressional Research Service ˜ The Library of Congress

CRS-2
could not recoup the high costs of developing new medicines.1 Producers have
unilaterally undertaken to reduce prices for certain HIV/AIDS medicines, but these efforts
at differential pricing have not been systematic.2 The United States has been forceful in
defending the interest of the U.S. pharmaceutical industry in the negotiations. In
December 2002, the United States blocked a compromise on the compulsory licensing
issue to which all other nations had agreed; however, other countries with pharmaceutical
industries such as the European Union, Switzerland, and Japan have also advanced
positions consistent with the views of their pharmaceutical concerns.
Background
TRIPS is a component of Uruguay Round Agreements which created the WTO in
1995. It sets minimum standards of protection for patents, copyrights, trademarks and
other forms of intellectual property based on three core commitments of the WTO:
minimum standards, national treatment, and most-favored-nation treatment. Adherence
to TRIPS is a prerequisite for membership of the WTO, and provisions of the agreement
can be enforced through the WTO’s Dispute Settlement Understanding mechanism.
The Doha Declaration. In agreeing to launch a new round of trade negotiations,
trade ministers adopted a “Declaration on the TRIPS Agreement and Public Health” on
November 14, 2001.3 The Declaration sought to alleviate developing country
dissatisfaction with the TRIPS regime. It delayed the implementation of patent system
provisions for pharmaceutical products for least developed countries (LDC) until 2016.
The declaration committed member states to interpret and implement the agreement to
support public health and to promote access to medicines for all. It also affirmed the
right of WTO members to use the flexibilities in the TRIPS agreement to promote these
goals. The declaration reiterated that each member has the right to grant compulsory
licenses and to determine the terms and circumstances in which they are issued. Each
country also has the right to determine what constitutes a national emergency or
circumstances of extreme urgency, defining these terms to include public health crises
such as “HIV/AIDS, malaria, and tuberculosis and other epidemics.”
Paragraph 6 of the Declaration directed the WTO’s Council on TRIPS to formulate
a solution to the use of compulsory licensing by countries with insufficient or inadequate
manufacturing capability by December 2002. Compulsory licenses are issued by
governments to authorize the use or production of a patented item by a domestic party
other than a patent holder. They are authorized by Article 31 of TRIPS, which limits their
issuance to cases in which the government has made efforts to obtain authorization on
reasonable commercial terms or in a circumstance of extreme urgency or national
emergency. In addition, the production or use of the invention covered by the patent is
1 Pharmaceutical Research and Manufacturers of America , Intellectual Property website,
[http://www.phrma.org/issues/intprop].
2 Integrating Intellectual Property and Development Policy, UK Commission on Intellectual
Property (CIPR), September 2002, p. 41.
3 Declaration on the TRIPS Agreement and Public Health, WTO Document
WT/MIN(01)/DEC/2, November 14, 2001, available at [http://www.wto.org/english/thewto_e/
minist_e/min01_e/mindecl_trips_e.htm].

CRS-3
limited in scope and duration to address the circumstances in which the license is
authorized, the right holder is granted adequate remuneration for use of the patent, and
such production is predominantly authorized for the domestic market. It is this last
provision that was the focus of the Paragraph 6 negotiations because it conveys the right
of compulsory licensing only to countries with the capability to manufacture a given
product.
The Agreement
The Decision4 reached on August 30, 2003 adopts the text drafted by a previous
TRIPS Council Chairman Eduardo Perez Motta in 2002. That text previously was
approved by all WTO members save the United States, which blocked its passage in
December 2002 due to concerns of the U.S. pharmaceutical industry about potential abuse
of the system. The Decision does not amend the Motta text, but adds a chairman’s
statement to clarify certain aspects of it . The Decision permits a waiver of Article 31(f)
of the 1994 TRIPS agreement, which provides that compulsory licenses are to be used
predominantly for the supply of the domestic market. The Decision waives 31(f) for
exports of pharmaceutical products to least developed countries (LDC) and countries with
insufficient manufacturing capacity. The accompanying Chairman’s statement, which
does not have the status of a binding legal document, reflects what it terms “several key
shared understandings” of Members concerning the interpretation and implementation of
the agreement. Disagreements persisted over how to permanently incorporate the
Decision and the Chairman’s statement into the TRIPS agreement until the eve of the
Hong Kong Ministerial in December 2005. On December 6, WTO members agreed to
incorporate the 2003 Decision as an amendment and an annex to TRIPS. The chairman’s
statement was reread, but it was not incorporated into the text of the agreement, which
was seen as a concession by the United States.5 The change will enter into force after
being ratified by 2/3 of the member states; the waiver will continue in effect until then.
Disease Coverage. One key issue of the debate was disagreement on the
language defining a grave public health threat. The Decision allows compulsory licensing
for medicines based on the scope of the language in the Doha ministerial declaration:
“HIV/AIDS, malaria, tuberculosis and other epidemics.” During the December 2002
debate, developing countries accepted this wording as reflecting the intent of the Doha
Ministerial declaration, although they had sought even less restrictive language.
However, the U.S. considered this position too broad, and countered with more restrictive
language: “HIV/AIDS, malaria, tuberculosis or other infectious epidemics of comparable
gravity or scale, including those that may arise in the future.”6 This language was too
restrictive for the developing countries, and debate over this language subsequently
caused the United States to reject the Motta text. Developing countries were adamant
4 Council for TRIPS, “Implementation of Paragraph 6 of the Doha Declaration on the TRIPS
Agreement and Public Health,” (IP/C/W/405), August 30, 2003, and accompanying Chairman’s
statement available at [http://www.wto.org/english/news_e/pres03_e/pr350_e.htm].
5 “Proposal for a Decision on an Amendment to the TRIPS Agreement,” (IP/C/41), December 6,
2005. [http://www.wto.org/english/news_e/news05_e/trips_decision_e.doc]
6 “U.S. Sticks to Hard Line on TRIPS, as Supachai Tries to Broker Deal,” Inside U.S. Trade,
December 20, 2002.

CRS-4
that the language in the Ministerial Declaration on the scope of diseases should form the
basis for the agreement, and during negotiations in the spring and summer of 2003, the
U.S. position seemingly shifted from limiting the scope of diseases to restricting country
eligibility.7
Eligible Countries. The scope of developing country eligibility to use the
compulsory license mechanism has also proven controversial in the negotiations. The
term ‘developing country’ in the WTO runs the gamut from the poorest, least developed
countries to middle-income countries like South Korea and Brazil who have their own
manufacturing capacity. As stated above, TRIPS grants each nation the ability to assign
compulsory licenses to their domestic manufacturers. However, there is a broad range of
technical sophistication among the pharmaceutical industries of the developing countries.
A country that can make aspirin may not be able to reengineer or reformulate
sophisticated drugs in order to utilize the existing compulsory license language of the
agreement. The question became whether a country that has some manufacturing
capability, but not necessarily a specialized expertise, would be able to use a Paragraph
6 mechanism to issue a compulsory license to a more sophisticated industry in another
country to produce a medicine.
The Decision adopted on August 30 set out certain criteria for determining whether
a country lacks domestic manufacturing capacity, but essentially countries would self-
declare their eligibility by notification to the TRIPS council. It reflects the position of
some developing countries to reject any restrictions on their ability to self-determine
eligibility. It clarified that eligibility notification would include information on the
manner in which a country determined it had no manufacturing capability. However, no
formal reviewing mechanism to assess the self-determination of eligibility by developing
countries, as the United States proposed, was incorporated into the statement.8 The
Chairman’s statement also contained language that the system not be used as an
instrument to pursue industrial or commercial policy objectives. This statement reflects
industry concerns that the system could serve to aid the expansion of generic
pharmaceutical industries in developing nations.
In addition, several groups also indicated they would not avail themselves of using
the new compulsory license system. The Decision referred to 23 developed countries that
would refrain from using the system as an importer. The chairman’s statement reported
that the 10 nations joining the European Union will also opt out of using the mechanism
as importers from the date of their accession. Until that time, they pledge to use the
mechanism only “in situations of national emergency or other circumstances of extreme
urgency.” In addition, several other nations announced that they would only use the
system as importers under this same formulation including Hong Kong, Israel, Korea,
Kuwait, Macao China, Mexico, Qatar, Singapore, Taiwan, Turkey, and the United Arab
7 “U.S. Government, Industry Wrestle with New Approach to TRIPS and Health,” Inside U.S.
Trade, June 27, 2003.
8 “U.S. Pushes for System to Review TRIPS Compulsory License Requests,” Inside U.S. Trade,
August 8, 2003.

CRS-5
Emirates. This list reflects U.S. efforts in the negotiations to seek to persuade more
advanced developing countries to refrain using the waiver.9
Safeguards. Another concern was the issue of the use of safeguards to prevent
diversion of these generically manufactured drugs from poor developed countries to
developed country markets. The Decision calls for the drugs to be specially marketed or
packaged with identifiable characteristics, such as distinguishable colors or shapes
“provided that such distinction is feasible and does not have a significant impact on
price.”10 It also declared that importing countries should take measures “within their
means” to prevent trade diversion to prevent reexportation of products imported into their
countries.11
The Chairman’s statement reaffirmed the importance of protecting the system from
diversion of pharmaceuticals to rich country markets. It clarified that specialized marking
and characteristics should apply to active ingredients and final products, not just to
formulated pharmaceuticals. It also adopted a U.S. suggestion explicitly to state that
using special packaging or distinguishing characteristics is feasible and would not affect
drug prices.12 The statement listed several best practices for protecting against diversion
in an annex. However, the statement did not incorporate a U.S. proposal to limit
distribution of these generic drugs to humanitarian public health programs, either run by
the government or by charitable organizations.13
Policy Implications
The issuance of compulsory licenses has been advanced as a way for developing
countries without domestic manufacturing capability to obtain affordable medicines to
treat their populations afflicted with HIV/AIDS and other epidemics. However, a system
of compulsory licensing may have a relatively modest effect on the availability of
medicines in the developing world. According to then-EU trade negotiator Pascal Lamy,
“we have solved about 10% of the problem of access to medicines by developing
countries,” and cited other issues such as poor distribution systems for medicines in poor
countries and the lack of trained personnel to administer the drugs may hinder the
effectiveness of the new policy.14
Compulsory licenses have rarely been used by developing countries. This situation
can be attributed to lack of patent protection in many countries. Developing countries
were not required to enforce a TRIPS compliant patent system before 2005, and the
9 “WTO Chair Menon Pushes to Finalize Agreement on TRIPS- Essential Drugs,” International
Trade Reporter, August 21, 2003.
10 Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public
Health, Note from the Chairman, Paragraph 2(b)(ii), December 16, 2002.
11 Ibid, Paragraph 4.
12 Inside U.S. Trade, August 22, 2003.
13 Inside U.S. Trade, August 1, 2003; “U.S. Sets New Condition for TRIPS Deal While Showing
Flexibility,” Inside U.S. Trade, August 22, 2003.
14 “WTO Drug Pact Lifts Trade Talks,” Wall Street Journal, September 2, 2003.

CRS-6
compliance date for LDCs was extended until 2016 by the Doha Ministerial Declaration.
However, some developing countries do have patent regimes that cover some
pharmaceuticals. In these countries, the threat of compulsory licensing can be used to
negotiate better prices from developed world pharmaceutical manufacturers. Brazil, a
country with a relatively sophisticated pharmaceutical industry with the ability to reverse
engineer and innovate new drugs, has threatened to use compulsory licensing and
manufacture generic HIV/AIDS drugs domestically to extract price concessions from
patentholders and is currently in negotiations with several U.S. firms.15
Subsequent to the conclusion of the agreement, several nations have announced that
they will utilize this mechanism. In Brazil, a Presidential decree issued September 5,
2003, granted the government the authority to import generic medicines without the
consent of the patent holder in cases of national emergency or public interest.
Mozambique, Zambia, Indonesia, and Malaysia have announced the granting of
compulsory licenses for AIDS drugs.16 In addition, several countries are considering
legislation to provide patent waivers to allow their generic pharmaceutical companies to
manufacture drugs for compulsory license under the WTO system. Canada, Norway and
India have passed legislation amending their patent laws, while Switzerland, France,
Korea, and the European Union have also proposed regulations or legislation to comply
with the agreement.
There may be little economic incentive for a supplier to manufacture the product in
the case of an LDC issuing a compulsory license. Under the system contemplated by the
Decision of August 30, 2003, a developing country with no manufacturing capability may
use a compulsory license to obtain a product for a generic manufacturer in another
country. However, the generic manufacturer in the second country may have no incentive
to do so, especially in limited quantities to poor countries. In addition, under many of the
proposals the product would have to use special packaging or distinctive shapes to avoid
diversion. Under such restrictions, it is not certain that a generic producer would
undertake the development and formulation costs for such a limited market.17 Thus, even
though a compulsory license was issued, the drugs may never be manufactured.
According to some non-governmental organizations (NGOs) and AIDS activists, this
is precisely the result being sought. One activist claimed that restrictions advocated by the
U.S. create “a watertight system so that no generic drugs ever get through to the patients
in developing countries who desperately need them.”18 U.S. officials maintain
restrictions such as specialized packaging to prevent diversion serves the interest of
recipient nations by providing additional safeguards that the medicines will be used by the
intended recipients.19
15 “Brazil Steps Up Pressure on U.S. Companies Over AIDS Drug Prices,” FDA Week, September
2, 2005.
16 “Brazil to Issue Compulsory License on U.S. AIDS Drugs,” Inside U.S. Trade, July 1, 2005.
17 CIPR, pp. 45-46.
18 Medecins Sans Frontieres News Release, August 25, 2003. available at [http://www.msf.org/
content/page.cfm?articleid=E05CFA2B-B49D-4CED-8EA32C8A0588D147].
19 Press Conference by Ambassador Peter Allgeier, Geneva, June 20, 2003.
crsphpgw