The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system

LLM IPR FEB 2010-2011 AMIT SUDARSAN

Table of Contents

The contemporary issues of Intellectual Property: Rationalizing the pharmaceutical

patent system

GENERICS A NEW STAND

Introduction –
The patent system was designed to foster the research, development and cater the need of the
society by using it for the public welfare. The members of the WTO have to follow the
minimum standards of the intellectual property protection laid by the Agreement on Trade-
Related Aspects of Intellectual Property Rights (TRIPS). The WTO-TRIPS try to create a
common platform for countries of different economic caliber to have a common trading
platform. The idea is to provide all the essential products like drugs to be made available at
an affordable price.
The first part of the paper deals with efforts of WTO-TRIPS to achieve the above purpose
and the pharmaceutical lobby to curtail it. The latter part will also discuss the policy
considerations and reforms to make the pharmaceutical patent system a more effective and
strong structure by creating a striking balance between the interests of the brand drug
pharmaceutical companies on one side and the public interest on the other side.

Generics-

They can be defined as the drugs that are being sold by their chemical name rather than the
brand name. These are generally the drugs for which the patents have expired. These drugs
are easily accessible as they are cheap. It is a very common misconception that only the
developing or least developed countries need the generics. In truth it puts strains even on the
most advanced economies and health system as the United Kingdom’s. This simple truth can
be proposed by the fact that more than 55 per cent of all prescriptions for NHS patients in
England are now written generically. This compares with 35 percent in the mid-1980s. In
The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system
LLM IPR FEB 2010-2011 AMIT SUDARSAN

some GP surgeries, generic prescribing is more than 90 per cent1. In UK generics comprise of
65% of the drug volume and 25 % of sales. The generic market competition saves NHS 7
Billion per annum2. In spite of that the NHS plans to use more generic drugs to save more
than £20 million a year.

The NHS is to increase its use of cheap, generic drugs in a bid to save more than £20 million
a year. 3 This exemplifies the fact that how much strain it can put on an economy. The generics
are popular because they are cheap as they do not have to do clinical trials, this makes them
accessible. It is also effective as they are bioequivalent4 of the previously patented drug.

Issues Regarding WTO-TRIPS Policy and Pharmaceutical Lobbying-

This part will deal with how the WTO-TRIPS know that there are countries which need
certain leeway in the provisions to maintain and monitor the basic standards of healthy living.
They provide this by letting them to import drugs by parallel imports or by compulsory
licensing. The WTO-TRIPS try to balance the act by safeguarding the interests of both the
Pharmaceutical Companies and the less developed or developing countries. But still the
lobbying is so strong that it always comes on top.

Provisions for the Pharmaceuticals-

Data exclusivity5 was introduced 1987 to protect the interests of the Pharmaceutical company
and to strengthen the inadequate patent protection in the countries where it was needed. It
has nothing to do with the data protection but only with the market monopoly over a product
by not allowing the authorities to process an application for marketing authorization. This

1
SOURCE The Association of the British Pharmaceutical Industry

2
Data provided by BRITISH GENERIC MANUFACTURERS ASSOCIATION
3
“The NHS is to increase its use of cheap, generic drugs in a bid to save more than £20 million a year”. By Kate Devlin,
Medical Correspondent. Published: 1:12PM GMT 05 Jan 2010.

4
The same amount of the same active substance(s), in the same dosage form, for the same route of administration and
meeting the same or comparable standards.
5
TRIPS Article 39.3
The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system
LLM IPR FEB 2010-2011 AMIT SUDARSAN

can be used as a weapon by the pharmaceutical lobby like 6 years Data Exclusivity6 period
for China when it was made a member of the WTO-TRIPS is a prime example. To balance
the act the regulatory exceptions were introduced. There regulatory exceptions7 like
‘BOLAR’ provision in Canada, its equivalent of the 271(e)(1) exemption or Hatch-Waxman
exemption in US and its EU equivalent exemptions are allowed under the terms of EC
Directives 2001/82/EC 8 9.

The efforts would have paid dividends, but it was stopped by “Ever-greening of Patents”10.
The ever-greening can be achieved by patenting additional features of the drug or introducing
the purified form11. This stops generics entering the market. The other unlawful tactics that
may be used to stop the generics from entering the market are Litigation, Reformulation, New
isomeric forms, Change in manufacturing process, own generics and cosy voluntary licensing.

Provision for better accessibility and availability of drugs-

Parallel Imports or the gray-market imports - the WTO-TRIPS also opened the area for
parallel imports for the counties which cannot manufacture their own drugs in a reasonable
price. It could also be implemented in case of price controls, compulsory licensing or other
reasons. However, countries may be pressured unilaterally or through bilateral FTAs to
effectively stop parallel importation. Parallel imports, are goods produced genuinely under
protection of a trademark, patent, or copyright, placed into circulation in one market, and
then imported into a second market without the authorization of the local owner of the

6
United States: 5 Years (7 years for orphan drugs, +6 months for pediatric drugs), European Union: 10 Years (+ 1 year for new indication),
Japan: 6 Years, China: 6 Years
7
This type of exception is permitted by Article 30 of the WTO's TRIPs Agreement
8
This exemption allows generic manufacturers to prepare generic drugs in advance of the patent expiration.
9
As amended by Directive 2004/28/EC) and 2001/83/EC (as amended by Directives 2002/98/EC, 2003/63/EC, 2004/24/EC and
2004/27/EC).

10
These are the patent strategies, the originator manufacturer simply keeps adding patents to the product (whether legitimate or not),
essentially forcing the generic manufacturer to choose between waiting for all the patents to expire and applying for marketing
authorisation anyway, running the risks of litigation and the associated costs and delays.
11
The purified form of drugs means the drug manipulated to either to reduce side effects and dangerous interactions or to enhance
effectiveness. A purified version may be eligible for a patent of its own.
The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system
LLM IPR FEB 2010-2011 AMIT SUDARSAN

intellectual property right.12 Usually it takes place if the drug is cheaper in another country
rather than manufacturing in their country.

Article 6 and Doha declaration 5(d) favours parallel imports by just talking about the non
discrimination ( “most favoured nation treatment” or “national treatment”) even if a country
allows parallel imports in a way that another country might think violates the TRIPS
Agreement, this cannot be raised as a dispute in the WTO unless fundamental principles of
non-discrimination are involved. Imports can also be made under compulsory licenses13. This
import is not easy as there are local laws and even the Paris Convention on the Protection of
Industrial Property incorporates ‘‘independence’’14 of patents as a core principle.
Compulsory license – it is a provision provided to the countries to the countries for buying or
producing the generics for government use, national emergency or circumstances of extreme
urgency, and to correct practices found to be anti-competitive provided the right holder is
adequately compensated. Article 31(f) of the TRIPS Agreement says products made under
compulsory licensing15 must be “predominantly for the supply of the domestic market”. This
applies to countries that can manufacture drugs — it limits the amount they can export when
the drug is made under compulsory license. But it has an impact on countries unable to make
medicines and therefore wanting to import generics. They find it difficult to find countries
that can supply them with drugs made under compulsory licensing16. This is because of the

12
This owner is typically a licensed local dealer. For example, it is permissible for a trading firm to purchase quantities of prescription
drugs in Spain and import them into Sweden or Germany without the approval of the local distributor owning licensed patent rights.
Indeed, rules of the internal market in the European Union permit parallel trade among those countries in virtually all
goods. Note that these goods are authorized for original sale, not counterfeited or pirated merchandise. Thus, parallel
imports are identical to legitimate products except that they may be packaged differently and may not carry the original
manufacturer’s warranty. The ability of a right-holder to exclude PI legally from a particular market depends on the
importing nation’s treatment of exhaustion of intellectual property rights (IPR). As discussed further below, a regime of
national exhaustion awards the right to prevent parallel imports, while one of international exhaustion makes such imports
legal.
13
Paragraph 6 of the TRIPS
14
This means that a country has freedom to act territorially and consult it own laws to determine infringement.
15
Some examples of situations in which a compulsory license may be granted include lack of working over an extended
period in the territory of the patent, inventions funded by the government, failure or inability of a patentee to meet a
demand for a patented product and where the refusal to grant a license leads to the inability to exploit an important
technological advance, or to exploit a further patent

16
The Paris Convention of 1883 provides that each contracting State may take legislative measures for the grant of
compulsory licences. Article 5A.(2) of the Paris Convention reads:"Each country of the Union shall have the right to take
The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system
LLM IPR FEB 2010-2011 AMIT SUDARSAN

pharmaceutical lobbying that avoids investment in such countries and have to face other
repercussions even for providing the compulsory license17. The fact that the generic drug
companies have to manufacture it cheaply is restricted by the amount of the drug that can be
produced.

Even if they do find a country to make them the drugs, they have a problem with the transit.
The most recent example that can be cited is the Dutch customs case in December 2008 at
Schiphol airport of a shipment of Losartan, a blood pressure medication, in transit from India
to Brazil. The drug was neither patented in Brazil or India but was patented in Netherland. It
was only released when Indian Manufacturers agreed to destroy it. It conflicts with the GATT
art 5 that prohibits unreasonable requirements on goods in transit (Freedom of transit).

Here we see the pharmaceutical lobby stops the generics from entering the market by any
means possible so that they can maintain their profit and monopoly and thus actually making
the drugs inaccessible to the normal consumers. They justify this act by saying that these help
in generating the revenues for the research and development. They in fact take it a step
forward by delaying the generics, so if a country is not self-sufficient in production of the drug
then they must find a country to import the drugs. The countries usually do not agree as it
upsets the pharmaceutical lobby and dries up the investment. Even if they do find a country,
they have a transit problem. If they manufacture or import it is still not cheap anymore
because the limited number of the drugs that can be produced. The drugs which are
manufactured after the patent expires are not cheap because they have to perform their own
clinical trials18. Here we can see the control of the lobby in the international pharma trade by
increasing the manufacturing cost and decreasing accessibility.

legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred
by the patent, for example, failure to work." (See also Article 5A. (3) to (5) of the Paris Convention.)

17
Thailand has issued a number of compulsory licences for antiretroviral drugs including Merck & Co.’s Sustiva® (efavirenz) in 2006 and
Abbott’s Kaletra® (a combination of lopinavir & ritonavir) in 2007. Abbott – which is the tenth largest pharmaceutical company in the
world - was angered that Thailand had ‘ignor[ed] the patent system’ and retaliated by announcing that it would not be applying for
licences to sell seven of its newest products in Thailand (one of which was a new once-a-day heat resistant form of Kaletra® which would
have been extremely useful in the hot Thai climate). Thailand was also placed on a US Trade Representative 'priority watch list' of
countries seen to be committing intellectual property piracy.3

18 Over 50% of R&D spending is used for clinical testing (DiMasi, Hansen, and Grabowski, 2003).
The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system
LLM IPR FEB 2010-2011 AMIT SUDARSAN

A NEW REWARD SYSTEM FOR THE PATENT

Aim of the reforms

1. The rewards for innovation in pharmaceuticals should be proportional to the social

value of the innovation.
2. The prices should be near average cost of production.
3. Alleviate the gap between the patent system and the market.

Why do we need a new reward system?

The patent system for the pharmaceuticals does not stimulate the innovation. The figures
shown by the FDA (1998-2002)19 for 415 drugs being patented, it classified 77% as not
innovative, 14% as the modified existing product and 9% as the truly innovative. Thus, it can
be concluded that the people are innovating just to get patent and probably block other patents
i.e. to block freedom to operate. To promote innovation in the pharmaceutical sector the
patent system needs new reforms. Then the question for accessibility for medicines that is
often associated with the price of the drug. The current patent regime seems to increase the
cost of production of the medicine thus decreasing accessibility. The consumers are not
directly involved in buying. The patients have no say on what drugs to buy as the doctor
prescribes it. The chemist on the high street has to give the same drugs as prescribed by the
doctor i.e. if brand name is mentioned then only the patented drug and if chemical name is
provided then he can only dispense the generic drug. This system is not full proof as the
customers are liable to the doctor’s prejudice as he can be influenced by the advertising and
marketing.

What are these reforms?

The reforms should be such that

19
This data though old has been taken to show the effect after formation of TRIPS on Pharmaceutical Patents.
The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system
LLM IPR FEB 2010-2011 AMIT SUDARSAN

 The reward should be paid proportional to the class of innovation i.e. innovative,
modified and truly innovative. This should be evaluated on the parameters of the
therapeutic value.
 It should then be evaluated on the parameters of success of the innovation.i.e. number
of the drugs sold per year.
 The rewards should also be given to the people showing the court invalidity in all
remaining patent. This will save the litigation costs of the court.

How should it be implemented?

The reward is a large sum of money being funded by the government and distributed in
accordance of the fulfillment of the certain conditions. The reward will be given yearly with
initial amount for the first year being fixed. The term of reward will be 20 years as in patents
given yearly according to the sales. The drugs will be licensed compulsorily. The money can
be collected by the government by saving money on the purchases of the patented drugs. The
primarily involvement of the government will be determining the incremental value of the
drugs and giving the rewards rather than being actively involved in the market for price
control. This system is only for the drugs with therapeutic value not for nonessential drugs.

1. Drugs that improve health would get reward = Incremental value of QALYi × Dollar value
of QALY (Quality Adjusted Life Years)20. This will be determined on the therapeutic value
determinant of the drugs. Better the therapeutic value more the reward. This put simply means
that the pleasure drug like Viagra would enjoy less reward than the life saving essential drug.

2. Cost reducing innovations should be given the points that have been achieved by using the
patented technology = Average price of the medicine set by all sellers using patented
innovations – Average price not using the patented innovation × number of pills sold. This

20
Drugs which advance health should be given points reflecting the gain in average therapeutic value less costs of treatment over that of
the next best pre-existing treatment. It will determine the net benefit of a drug, and then compare it to the net benefit of the next most
effective pre-existing therapy, and award points based on the improvement. These points would be awarded to the registrant for each year
in which the registrant’s patents would, in the absence of compulsory licensing, be sufficient to prevent other firms from producing bio-
equivalent products.
The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system
LLM IPR FEB 2010-2011 AMIT SUDARSAN

can be a parameter for the successful invention as the number of drugs sold will generate more
revenue and this parameter can be used for determining successful invention.

3. Third reward for a person showing the court invalidity in all remaining patent on a drug
will have a share of 10% from the previous year’s reward for that drug. This will save cost of
litigation and will form incentive for firms to eliminate invalid or incomplete patents.

What are the benefits of implementing the proposal?

1. It will stop the misdirected invention i.e. for greater reward people will excel for the
drugs with more therapeutic value or greater inventiveness; it will also reduce the
stagnation of ideas as more fields will be explored.

2. It will eliminate the production of counterfeit drugs as the drugs sold will be cheap as
the generic so there will be no profit in producing them.

3. It will introduce the price control as it will be controlled by the government. The high
drug prices are a constant problem even for government as they have to use authority
to bargain, buy at any price or jeopardize the right of the manufacturer.

4. It will stop excessive marketing. The companies now spend huge sum of money to
promote drugs with little therapeutic value. This is beneficial for the firm but not for
the customers.

Problems with the Reforms:

 The system is based on QALY, but the problem is different people respond to the drugs
in a different manner, so QALY cannot be perfectly quantified. This means that
evaluating the therapeutic value is not accurate.
 Then there is issue of financing the reward system and questions like how much is
enough? How much money should be given in first year?
The contemporary issues of Intellectual Property: -Rationalizing the pharmaceutical patent system
LLM IPR FEB 2010-2011 AMIT SUDARSAN

 Then there is a question of bureaucratic control. Who is going to head the commission
which is financing.

Conclusion- the patent monopoly system does not serve the purpose it leads to misdirected
innovation, to counterfeit drugs, to price controls, and arguably to excessive marketing. The
proposed solution is not full proof, but it is much better than the existing one as it propagates
the development of essential drugs and reduces the price of the drugs. There are certain areas
which need to be sort and the crisis of the turmoil. This system can work wonders for the
pharmaceutical patents.

i
Quality-adjusted life year (QALY) is a measure of disease burden, including both the quality and the quantity of life lived. It is used in
assessing the value for money of a medical intervention. The QALY is based on the number of years of life that would be added by the
intervention. Each year in perfect health is assigned the value of 1.0 down to a value of 0.0 for death. If the extra years would not be lived
in full health, for example if the patient would lose a limb, or be blind or have to use a wheelchair, then the extra life-years are given a
value between 0 and 1 to account for this. In a worst possible health state it will be from 0 to negative value.