wipo national seminar on intellectual property and the protection of pharmaceutical products...

WIPO NATIONAL SEMINARON INTELLECTUAL PROPERTY AND THE PROTECTION OF

PHARMACEUTICAL PRODUCTSDamascus, April 25 and 26, 2005

Intellectual Property and Access to Essential Products

WIPO Secretariat

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IP and access to essential products

1. Introduction2. IP in the global economy3. The WTO response: the relative

value of IP4. Flexibilities in the TRIPS Agreement5. Final note

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1. Introduction

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IP is about differences and uniqueness.

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Intellectual property is a set of principles and rules that regulate the acquisition, the use, the enforcement and the loss of rights and interests in differentiating intangible assets that are susceptible of being used in commerce.

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Intellectual property does not cover all intangible assets, but only those that serve as elements of differentiation among competitors.

(For example, the rights of credit and other personal obligations are intangible assets, and yet they are not intellectual property.)

It is because it covers those differentiating elements that aspects like novelty, originality and distinctiveness are so crucial for intellectual property.

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On the other hand, intellectual property does not protect only the results of creativity and ingenuity.

(Indications of source, the merchants’ reputation and trademarks are elements of intellectual property that are not the product of creativity — they are, nonetheless, important as differentiation elements.)

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The social (economic, legal) function of intellectual property:

because its subject matter is differences and uniqueness in trade, IP protects society against free riding in all its forms (parasitism, counterfeiting, unfair competition) in order to ensure a more efficient use of scarce resources.

(for example: to encourage investment in R&D on products that are on demand; to avoid redundancy and waste of resources in R&D on products already invented; to avoid redundancy in consumers’ search)

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Because IP is about differences and uniqueness, its goals only are achieved in a free-market, competitive environment:

a) the market must be reasonably free from government interference (if the market is shaped by the government, why should private entrepreneurs take the risks of seeking to extract rents from consumers?)

b) there must be a competitive environment (if there is no competition, there is nothing to differentiate; the reversal is also true: if there are no protected differentials, firms have no incentive to compete).

In short: IP and competition policy should go hand in hand.

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What does the word “flexibilities” mean?

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Under the Paris Convention, countries are required to grant to other countries’ citizens the same treatment they grant to their own nationals

Under TRIPS, WTO Members are required to grant to other Members’ citizens at least the same treatment they grant to their own nationals

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Therefore, the Paris Convention allows for a great extent of asymmetries in national law, under which Paris Union Members could adopt standards modeled to the national level of development and perceived public interests.

The TRIPS Agreement has reduced such extent (but it has not eliminated it completely)

“Flexibilities” is a new name for “asymmetries”: both concern the broader or narrower margin of legislative capacity in so as to adapt national levels of IP protection to accommodate perceived economic interests and yet without infringing international obligations

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2. IP in the global economy

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Why is IP being “globalized”?

a) the increase in international trade and the need for reducing distortions and the barriers resulting from the lack of or insufficient protection of ip (non-tariff barriers) - IP as an element of market access

b) transplantation of manufacturing units from developed countries to DCs implies the transplantation of the legal institutions (including rules on IP) from those same countries - IP as an element of access to foreign direct investment

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Those two factors led to a stronger harmonization of international IP, namely by changing the national treatment principle and by introducing the most-favoured nation treatment principle.

Therefore, the TRIPS Agreement reduced (but did not eliminate) the asymmetries (=flexibilities) that the Paris Convention allowed for.

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The current international debate on IP can be summarized with two questions:

a) why should the (poor) peoples of DCs share the costs of R&D of goods and services (including R&D of pharmaceutical products) that is carried out in developed countries; those costs, shouldn’t they be born exclusively by the citizens of those developed countries?

b) why should the functionality of IP be examined in an (harmonized) international perspective and not in a national one, that could take into account considerations of national industrial policy (that is, the asymmetries)?

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Responses:

a) the WTO response: the relative value of IP; IP is good as far as it promotes free trade and eliminates distortions and barriers; asymmetries, therefore, are reduced (but not entirely eliminated)

b) the WIPO response: the absolute value of IP; WIPO Members see IP as a positive element of good governance which promotes economic development; WIPO Members, therefore, use IP as a macroeconomic tool for promoting economic development

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3. The WTO response: the relative value of IP

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1. One inventor resides in country A, a free-market

oriented economy. He spends a large amount of money to develop a new product. He needs to recoup the investment from consumers — he will thus internalize the sunken costs of R&D into prices. If the invention is commercially successful, it is probable that in another country (country B) where it is not protected by a patent, a local manufacturer will reverse-engineer the process and will “copy” the product. Because the copier will not have R&D costs to recover, the copied product, if all other factors are equal, will be cheaper in B.

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2. Later, the inventor decides to export the product to country B, where he will face the competition of the local copier and his lower prices. Therefore, he will not be able to export his invention to country B. The lack of patent protection in country B operates as a non-tariff barrier to trade originated in country A.

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3. In an international trade rationale, the government of country A may decide that, if country B does not eliminate that non-tariff barrier (i.e. if it does not adopt patent protection), country A will not eliminate barriers (such as tariffs, or subsidies) against trade from country B in other sectors, such as agriculture and textiles.

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4. Country B, therefore, eliminates non-tariff barriers

(i.e. it adopts patent protection) as a condition for having access to the market of country A.

5. IP acquires a relative value: it is of relevance if it helps in promoting access to other markets; but where it does not, IP can follow lower standards (authors’ moral rights, geographical indications) or even be eliminated (if so approved in the context of the WTO Dispute Settlement Mechanism)

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Flexibilities in the TRIPS Agreement

a) Flexibilities as to the form (method of implementing obligations; examples, Articles 1.1, 22.2, 41.5)

b) Flexibilities as to the substance (standards of protection)

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A few examples of flexibilities in the TRIPS Agreement as to the

substance

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First flexibility:

Members may adopt in their law more extensive protection than is required by the TRIPS Agreement (provided such protection does not contravene the Agreement) (TRIPS, Article 1.1).

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Second flexibility:

IP rights are recognized as private property rights (Preamble, §4); thus they must be protected as such, that is, they may be diminished but only when public interest so determines and provided IP owners are compensated (i.e. no taking without compensation)

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As a result, IP rights may be (unless expressly prohibited by the Agreement):

expropriated (against remuneration)subject to compulsory licenses (against

remuneration)subject to exceptions (if reasonable)subject to limitations (where justifiable or

necessary)

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Article 8.1. Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.

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Article 8.2. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect

the international transfer of technology.

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Article 20. The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings. […]

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Article 27.1. Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application. […]

(Examples: second uses of new substances and natural materials, even if isolated from nature, can be excluded from patentability either because they are not inventions, but discoveries, or if they are inventions, they are not sufficiently inventive)

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Doha Declaration on the TRIPS Agreement and Public Health, Nov. 14, 2001

“Each Member has the right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted.”

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(n.b. this does not mean that all grounds will be accepted because the TRIPS Agreement has established some limits to those grounds; after all the TRIPS Agreement recognizes that IP rights are private rights, and therefore they may be diminished only when public interest considerations so determine; what the Doha Declaration really means is that, within the TRIPS limits, Members are free to identify those public interest considerations.)

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The waiver from the obligations under Article 31(f) and (h), as established by the Decision of the General Council on the Implementation of Paragraph 6 of the Doha Declaration (August 30, 2003)

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(f) any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use;

Decision, §2: “The obligations of an exporting Member under Article 31(f) of the TRIPS Agreement shall be waived with respect to the grant by it of a compulsory licence to the extent necessary for the purposes of production of a pharmaceutical product(s) and its export to an eligible importing Member(s) in accordance with the terms set out below in this paragraph: […].”

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(h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization

Decision, §3: “[…] Where a compulsory licence is granted for the same products in the eligible importing Member, the obligation of that Member under Article 31(h) shall be waived in respect of those products for which remuneration […] is paid in the exporting Member.”

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5. Concluding note

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The current international debate on access to pharmaceuticals generally takes into account the role of IP in the context of access to existing products. In this context, IP performs the same role as the walls of a supermarket, as far as food staples are concerned, or the safety of a bank, as far as money is concerned. In other words, IP is inserted in a rationale of a capitalistic society.

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But the current international debate has the tendency to overlook the role of IP in promoting access to non-existing products, which still must be invented, tested and distributed to consumers. Without IP, those products may never be accessible, because they may never be created.

(n.b. and this brings us back to square one: who is going to invent and who is going to pay for the inventions?)

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Thank you.

Nuno Pires de CarvalhoActing Director-Advisor

Industrial Property Legislation for Development

WIPO

If you have any questions regarding this presentation do not hesitate to contact me at

[email protected]

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