Notes from March 16th 2007 U.S. Capitol Briefing on Thailand’s Compulsory Licenses


On Friday, March 16, KEI organized a briefing in the U.S. Capitol on Thailand’s recent compulsory licenses on three drugs; two for HIV/AIDS (Merck’s efavirenz (Stocrin) and Abbott’s lopinavir + ritonavir (Kaletra)) and one for heart disease (Sanofi’s clopidogrel (Plavix)).  The briefing was sponsored by Senator Sherrod Brown and Congressman Tom Allen.  Rep. Allen’s legislative assistant Todd Stein moderated a panel that included James Love of KEI, Robert Weissman of Essential Action, Dr. Buddhima Lokuge of MSF/Doctors Without Borders, Richard Kjeldgaard of PhRMA, and Ronald Cass, the President of Cass & Associates.  Three members of the Thai embassy to the United States were also in attendance, and Minister-Counsellor Songsak Saicheua was also given the opportunity to make a statement. 


Statement of Dr. Buddhima Lokuge of MSF

The first statement was delivered by Dr. Lokuge, who described a crisis in access to second line HIV/AIDS drugs in developing countries.  Dr. Lokuge noted that in Thailand, which has been a global leader among developing countries in treatment and prevention of HIV/AIDS, production of generic first line drugs has allowed the expansion of treatment from 3000 to 100,000 Thais with HIV/AIDS.  However, in the developed and developing world alike, Dr. Lokuge noted that long term treatment with first line drugs eventually leads to resistance and requires a switch to second line therapies.  Due to a lack of generic competition, second line drugs for HIV/AIDS are over 20 times more expensive than first line therapies in Thailand.


Regarding Abbott’s recent decision to withdraw pending drug registrations in Thailand, Dr. Lokuge provided the following context:  “In August last year, Abbott announced a price for Kaletra of US$ 500 per patient per year for Africa and least-developed countries. The company also announced a price of US$ 2,200 per patient per year in low-income and low-middle income countries, such as Thailand, which, must be noted, far exceeds what most people there can afford. Since then, Abbott has failed to provide any information in response to MSF's repeated requests for a registration status update. So without registration, these discounted prices only exist on the paper from their press releases. [Note:  in some press reports, Abbott’s price for Kaletra in Thailand was 11,000 baht per month, or $3,771 per year.]  And by withdrawing registration in Thailand in an appalling tit-for-tat retaliation for the country utilizing legally recognized compulsory licenses, patients will ultimately pay the price.”

Dr. Lokuge praised Thailand’s compulsory licenses as an appropriate public health response to monopoly pricing aimed at only the richest few percent of developing country populations.  He concluded by asking, “What good are the flexibilities built into world trade law if countries will be penalized for using them?”


Statement of Ronald Cass of Cass & Associates

The next speaker was Ronald Cass, a former Reagan and H.W. Bush Administration trade official and former Dean of Boston University Law School.    Cass is the President of Cass & Associates,  (http://cassassociates.net/ ), a legal consultancy specializing in strategic advising for companies and law firms on matters concerning international trade and intellectual property, which offers services that include writing products ranging from op-eds to white papers.   Cass is also the Chairman of the non-profit Center for the Rule of Law , a group concerned about “ International piracy and violations of intellectual property rights.”

Cass stressed that recent advances in health are the result of investment in R&D and that compulsory licensing undermines the incentive to invest in this R&D.  Cass asserted that Thailand’s compulsory licenses were not only bad policy, but also illegal.  He claimed that Thailand had was required to engage in prior negotiations with the patent holders, and he claimed the TRIPS agreement allows compulsory licenses only under limited circumstances.  Cass acknowledged that TRIPS allows for exceptions to the requirement for prior negotiations but argued that neither the emergency exception nor the exception for public non-commercial use applies in this case.  He argued that heart disease does not constitute an emergency, and that Thailand has a relatively low prevalence of HIV/AIDS.  [Note, this was an surprising assertion, given the fact that at 1.5%, Thailand has the second highest prevalence in Asia behind Cambodia (2.6%).  At 580,000, Thailand has the third highest population with HIV/AIDS in Asia, behind India (5,700,000) and China (650,000)].  Cass also suggested that Thailand is not really a poor country, but rather one of the leading economies in the world.   [Note: in fact, average Thai incomes are about 6 percent of U.S. incomes]   Nor, according to Cass, do the compulsory licenses qualify as public non-commercial use, because licenses for generic production will be granted GPO, Thailand’s profit-generating publicly owned pharmaceutical manufacturer.

Cass accused Thailand’s government of conspiring to use compulsory licenses to mask a reorientation of spending priorities.  The licenses were issued, according to Cass, to allow Thailand to cut the budget for public health while devoting the savings to increased military spending and a pay raise for government officials.


Statement of Robert Weissman of Essential Action

Robert Weissman, a graduate of Harvard Law School and an advisor to the WHO on intellectual property issues, was the third speaker.

Robert Weissman  said Thailand’s compulsory license were legal, commendable, and consistent with U.S. interests.  “It is clear”, said Weissman, that Thailand’s compulsory licenses were legal under international norms.  He pointed out that TRIPS places no restrictions on the grounds for which countries may issue compulsory licenses, a point reiterated by the Doha declaration on TRIPS and Public Health.   Weissman noted that Article 31(b) of the TRIPS agreement clearly states that prior negotiations with patent holders are not required when patents are licensed for public non-commercial use.  Responding to Cass, Weissman explained that that technology subject to compulsory licensing for non-commercial use may and typically is implemented by a for-profit contractor on the public’s behalf.  Weissman cited the example of U.S. government use licenses of patented military technology.  When the U.S. forces a patent owner to license its missile patent for public use, it doesn’t mean that the resulting missiles must be manufactured within the walls of the Pentagon.  That would be impractical and defeat the purpose of the license.  Instead, the U.S. contracts the work to a for-profit company like Boeing.  Similarly, in Thailand, profit generating drug companies have been contracted to manufacture drugs for the Thai government’s non-commercial use.

Weissman’s then argued that Thailand’s compulsory licenses were to be applauded as a measure to expand access to treatment.  Contrary to Cass’ claims, Weissman pointed to a Thai white paper that explains that Thailand will spend more on treatment as a result of the licenses, not less – as public funding will now be devoted to previously unaffordable drugs.
Weissman’s final point was that Thailand’s compulsory licenses are in America’s national interest.  The U.S. is the number one purchaser of AIDS drugs in developing countries through publicly funded programs like PEPFAR.  PEPFAR relies on cheap generic drugs to achieve its treatment objectives, and the Thai licenses stand to further lower generic drug prices by expanding economies of scale, particularly for second line AIDS drugs.  Without such cheaper second line drugs, either U.S. taxpayers will bear the burden of rapidly increasing costs or PEPFAR will be forced to scale back its treatment objectives.

Statement of Richard Kjeldgaard of PhRMA

The next speaker was Richard Kjeldgaard, formerly with WIPO, and now working for PhRMA, the main trade association for the pharmaceutical industry.

Kjeldgaard began by stating that he would not focus on the legal technicalities of compulsory licensing, but rather his view that the debate on the licenses had been unnecessarily contentious and a disservice to patients in poor countries.  He claimed patients are the pharmaceutical industry’s first concern, and that there is a need for both innovation and access to medicines.  Kjeldgaard touted drug donations from pharmaceutical companies, which he valued at $4 billion, and said there are currently 300 drugs in the pipeline for tropical diseases.  He said that the R&D for these drugs is funded by revenue from drug patents and argued that compulsory licenses destroy both the incentives for drug development access to drugs overall.  Kjeldgaurd concluded with an analogy to a farmer who toils in his fields to produce a harvest, only to have the harvest confiscated with little remuneration.  The farmer, Kjeldgaurd suggests, would have little incentive to work hard for a harvest the next year.


Statement of James Love of Knowledge Ecology International

James Love, the last panelist, began by noting the hypocrisy of much of the commentary about the Thailand compulsory licenses. Citing 28 USC 1498, he noted that under U.S. law, “any U.S. government agency can use any U.S. patent without the permission of the patent holder.”  Moreover, as Weissman noted, this is clearly extended to for-profit firms that provide services to the U.S. government.   Pointing to the briefing handout “Legal framework for Compulsory Licenses on Drugs,” he read from 28 U.S.C. 1498:

For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.

Love also noted that the new European rules for exports of medicines to developing countries under a compulsory license also waive prior negotiations in cases of government use, and that no country’s laws, including the U.S. limit the scope of diseases for compulsory licenses, or even limit compulsory licenses to cases involving medicines.  He went on to explain that the TRIPS agreement is indeed quite flexible in terms of compulsory licensing, and the United States and every member of the WTO had signed this agreement, and the Doha Declaration, and it was not appropriate to brand Thailand as a rule breaker when it was in fact following the rules.  

Love criticized those who have portrayed Thailand’s three compulsory licenses as a shocking anti-business development while ignoring the five compulsory licenses issued by the U.S. government since June 2006, including compulsory licenses on satellite television, automatic transmissions, Microsoft’s Windows and Office Software, a medical device marketed by Johnson and Johnson, and computer memory chips.  

Love said the $3,800 per patient per year price for Kaletra in Thailand (compared to a price of $150 for an entire first line treatment) at the time the compulsory license was issued was far beyond the ability of the Thailand government to pay, and it would have undermined the sustainability of treatment in Thailand.  He noted that in 2005, Thailand had a GNI of $2,750, compared to $43,000 in the U.S., a far larger difference than was reflected in the pre-CL prices for any of the products that had been subject to the compulsory license.  Love said Abbott’s decision to retaliate by withdrawing new drug approvals in Thailand was shocking, and predicted that the World Health Assembly would condemn the action, and discuss mechanisms to address similar threats to developing countries.

Love also noted that Thailand recognizes the importance of R&D , and cited Thailand’s leadership at the World Health Organization in supporting a treaty to promote innovation in a manner compatible with access to medicines. The treaty would require all countries, including developing countries, to contribute to the costs of priority medical R&D. “They can and should contribute to R&D costs” but not necessarily through high prices that only the richest in Thailand can afford.  

Love concluded by suggesting that U.S. legislators would not tolerate a situation in which life saving drugs were too expensive for 90% of their constituents to afford.  Faced with that situation, Love argued, U.S. lawmakers would take the same steps that Thailand has.  


Statement of Sangsak Saicheua of the Royal Thai Embassy

Following the panelists’ statements, Sangsak Saicheua, Minister-Counsellor at the Thai embassy, stated that Thailand recognizes a need for balance in the use of compulsory licenses, but argued that the three compulsory licenses issued were clearly TRIPS compliant.  He stressed that generic drugs resulting from the compulsory licenses would be available to Thais covered by the government health plan who previously had no access to the medicines.  Patent holders would see no loss in revenue because those upper income Thais who could previously afford the drugs are not covered by the health plan and would continue to purchase brand name drugs.  Saicheua said that the claim that there had been no negotiations with the patent holders prior to issuing the compulsory licenses “isn’t true at all.”  He claimed that Thailand had negotiated on pricing for at least two years and only received meaningful offers for price reductions after issuing the compulsory licenses.  According to Saicheua, Thailand is engaged in ongoing dialogue with the patent holders.  Responding to charges that Thailand was reorienting its spending priorities, Saicheua noted that the top three public budget items are health, education, and defense, in that order.

Question & Answer Session

 In the Q&A, James Love responded first to a question about the legality of compulsory licenses for non-AIDS drugs, such as Thailand’s compulsory license for Plavix.  Love responded that heart disease is one of the biggest killers worldwide, and the prevalence in developing countries is similar to that  in the developed world.  Plavix was priced at $2 per day, and at least 80 percent of Thai patients could not afford the drug.   He noted that the negotiations over the implementation of paragraph 6 of the Doha Declaration focused on efforts by United States and European trade negotiators to place limits on the scope of diseases eligible for compulsory licenses.  But those efforts were rejected, largely because they were so offensive morally, and they were not supported by any objective analysis of the actual burden of diseases in developing countries. The United States and every WTO member eventually agreed that they would not impose any limitations on the scope of diseases, as evidenced by the definition of products covered by the May 2006 European Commission regulation on this topic, which covers all prescription drugs.

Finally, Love cited a recent example in the United States in which a compulsory license was issued for a Boston Scientific patent on stents used in the treatment of heart disease.  Cass said that when the United States required licensing or authorized third parties to use patents, it was “different” than what Thailand did, to which Love replied, “yes, all of these cases are different from each other, and they all reflect different country’s decisions about how best to implement TRIPS flexibilities.”

The next questioner asked for clarification on whether Thailand engaged in prior negotiations with patent holders and asks why prior negotiations wouldn’t simply be preferable, even if it were legal to forgo them.  Richard Kjeldgaard and James Love agreed that there are differences over what constitutes “negotiations.”  Love noted that U.S. law does not require prior negotiations for government use of patents, and Kjeldgaurd said that the U.S. law uses different rules for compensation for the patent holder.  Kjeldgaurd was critical of Thailand’s decision to provide patent holders with a .5% royalty.  Love replied that the TRIPS requires patent owners be paid “adequate” remuneration, and that he agreed that the .5% royalty rate was too low.  However, he said the .5% rate was intended as an offer to begin a negotiation, though the  pharmaceutical companies appeared to be more interested in playing politics than in negotiaing over the royalty.

Jason VanPelt, a representative from Merck, commented that Merck had offered Thailand a good price on efavirenz prior to the compulsory license but that Thailand did not respond and issued the compulsory license without warning.  Songsak Saicheua responds that Thailand is presently engaged in negotiations with Merck.  Love explained that it is one thing for countries to engage in prior negotiations on drug pricing and another thing for countries to telegraph the fact that they are considering issuing a compulsory license.  Countries are reasonably reluctant to do this, according to Love, because they accurately believe the companies will lobby for the U.S. government to apply pressure, putting a developing country in an even tougher position if they decide to issue the license.

Heather Langdon, a legislate aid for Senator Schumer, concluded the Q&A by asking Cass and Kjeldgaurd whether there were any compulsory licenses on drugs that they did not oppose.  Both declined to comment on other compulsory licenses, stating that their present focus was on Thailand.

 

     -prepared by Benjamin Krohmal