Lies, Distortions, and False Promises: The U.S. Position on Compulsory Licenses in the 2018 Special 301 Report

By Brook Baker, Senior Policy Analyst, Health GAP

Every year since the late 1980s, the U.S. has published a Special 301 Watchlist targeting countries that U.S. intellectual property-based industries, like Big Pharma, complain about. Once again the U.S. is unbelievably duplicitous in its 2018 Special 301 Report on permissible uses of compulsory and government-use licenses by its trading partners, including most recently Colombia and Malaysia where it is announcing out-of-cycle reviews.

On the one hand, the United States Trade Representative (USTR) pays lip service to the Doha Declaration on the TRIPS Agreement and Public Health, saying that “the United States respects a trading partner’s right to protect public health and, in particular, to promote access to medicines for all” (p. 33) and that it supports use of the so-called Paragraph 6 compulsory licensing system (p. 34), which has only been used once in 15 years.  However, it has withdrawn a statement in its 2017 Special 301 Report that “the United States respects its trading partners’ rights to grant compulsory licenses in a manner consistent with the provisions of the TRIPS Agreement and the Doha Declaration…”.

On the other hand, the U.S. issued a broadside assault on the actual issuance of, and even discussion of, compulsory licenses in a Report replete with lies, distortions, and false promises (p. 14). Here are three lies and one distortion/ false promise in the 2018 Special 301 Report that those who are concerned about affordable medicines for all should know about:

LIE #1
“[A]ctions by trading partners to unfairly issue, threaten to issue, or encourage others to issue, compulsory licenses raise serious concerns. Such actions can undermine a patent holder’s intellectual property, [and] reduce incentives to invest in research and development for new treatments and cures … ”

The only entities seriously concerned by resort to or advocacy for compulsory licenses are profit-bloated pharmaceutical multinationals that want untrammeled freedom to impose monopoly prices wherever they can.  These companies fear the largely symbolic impact of involuntary measures on their iron-fisted efforts to prevent lawful competition. Compulsory licenses do not in fact undermine a patent holder’s intellectual property (IP) rights as patents are granted subject to compulsory licensing and government use rights, which have been lawful under international law for nearly 125 years and have been issued for medicines by multiple countries, including the U.S. in the 1960s and 70s.

Moreover, the relatively small number of compulsory licenses ever issued by developing countries have had exactly zero impact on research and development incentives.  It is preposterous to suggest that Big Pharma companies that earned nearly $250 billion in 2017 net sales in the U.S. alone recalibrated their research and development (R&D) investments because of a few licenses on individual medicines in a handful of relatively small markets.

It is particularly egregious for the U.S. to suggest that countries do not have the right to advocate for use of lawful compulsory licenses.  The U.S. has multiple federal statutes directly authorizing compulsory and government use licenses and has regularly issued such licenses in the past.  If the U.S. and its industry have the “right” to argue against use of compulsory licenses, surely equally sovereign countries and generic companies have the same right to argue for their use.

LIE #2
To maintain the integrity and predictability of intellectual property systems, governments should use compulsory licenses only in extremely limited circumstances and after making every effort to obtain authorization from the patent owner on reasonable commercial terms and conditions. Such licenses should not be used as a tool to implement industrial policy, including providing advantages to domestic companies, or as undue leverage in pricing negotiations between governments and right holders. It is also critical that foreign governments ensure transparency and due process in any actions related to compulsory licenses.

International law, including the WTO TRIPS Agreement and the Doha Declaration on the TRIPS Agreement and Public Health give U.S. trading partners total discretion to decide the grounds upon which compulsory licenses might be issued and total sovereignty about when to do so.  Compulsory licenses are not available “only in extremely limited circumstances” – they can in fact be issued because of failure to supply the market, unreasonably high prices, to encourage local production and to secure alternative sources of supply, or for any other public interest or public health purpose.  Similarly, governments are not restricted to issue compulsory licenses only “after making every effort to obtain authorization from the patent holder.” Countries can clearly issue licenses without prior negotiation for government use, to address emergencies or matters of extreme urgency, or to redress competition violations.  In all other instances, brief negotiations to obtain a voluntary license on commercially reasonable terms is required, but drug company recalcitrance to act voluntarily can and should result in permissible issuance of an involuntary license. In each known instance where a challenged compulsory license has been issued, the patent holder had notice and proper procedures were followed after drug companies refused to grant a voluntary license or to promise adequate price reductions.  Due process does not mean that drug companies always win!

LIE #3
“The United States will continue to monitor developments and to engage, as appropriate, with trading partners, including Chile, Colombia, El Salvador, India, and Malaysia.”

TRUTH #3  
The U.S. will not merely “monitor” development and “engage” with trading partners – it will result to threats, coercion, and even sanctions.  It has already threatened to reduce funding to Colombia for its long-delayed peace process and to block Colombia’s accession to the The Organization for Economic Co-operation and Development (OEDC) because Colombia threatened to issue a compulsory license on a Novartis cancer medicine and again more recently on obscenely overpriced priced hepatitis C medicines.  Despite the U.S.’s alleged concerns about India’s broad criteria for issuing compulsory licenses and “threats” to do so (p. 49), India has issued only one compulsory license in its entire history and the U.S. has been complaining about it and threatening reprisals for the past 12 years. Malaysia issued government use licenses on three antiretroviral medicines in 2003 and another one on a Gilead hepatitis C medicine, sofosbuvir, in September of 2017 – as a result it faces an out-of-cycle review.  At present, neither Chile nor El Salvador, the other two mentioned countries, have issued compulsory licenses, though the Chilean Congress has passed a resolution recommending licenses on cost-prohibitive hepatitis C medicines. There is no public record of El Salvador having made any moves towards issuance of a compulsory license. Elsewhere in the 2018 Report, the U.S. also complained about Indonesia’s grounds and procedures for issuing compulsory licenses (p. 49).

The Pharmaceutical Research and Manufacturers of America (PhRMA) has welcomed the Special 301 Report’s attack on compulsory licenses and other measures to control Big Pharma’s highway robbery on drug prices, suggesting U.S. efforts “will drive down costs for U.S. patients.”  Nothing could be further from the truth. The handful of issued or threatened compulsory licenses complained about above may impact a few million dollars in sales on sales that would not otherwise be made at such bloated prices. Those licenses have nothing to do with Pharma’s extortionate pricing at home.  Colombia, Malaysia, and other countries remain totally justified in using lawful compulsory licensing rules and procedures to introduce real competition to make priority medicines more affordable and equitably available in their countries. The U.S. could and should do the same.

“[Such compulsory license-related actions] unfairly shift the burden for funding such research and development to American patients and those in other markets that properly respect IP, and discourage the introduction of important new medicines into affected markets.”

It is a total sham to argue that American patients face higher prices because foreign payers pay less.  Big Pharma companies soak U.S. patients and payers for whatever they can get away with because the U.S. government lets them do so.  There is not one documented case of a U.S. drug company dropping a U.S. price because of a price increase in another country, nor one case of a price increase linked to a compulsory license issued anywhere in the world.