Background
Beginning in 1985, the United States government (USG) diplomatic and trade officials have engaged in wide ranging activities aimed at changing global norms for the protection of intellectual property rights, with a particular emphasis on the IPR protections for pharmaceutical products.
This note reports on U.S. Department of State cables sent in 1986 and 1987, that discussed the U.S. government efforts to change policies in Brazil on the intellectual property protection for pharmaceutical products. The cables have been obtained by KEI with a FOIA request.
The U.S. Department of State, working with the White House and other U.S. government agencies, worked with U.S. pharmaceutical companies to promote stronger patent protection in Brazil. For the broader picture, see also the entires in the high level timeline for IPR and trade policy.
The colorful officials signing these DoS cables included:
- George Schultz was then the Secretary of State. Shultz is currently the chairman of the JP Morgan Chase bank’s International Advisory Council, and formerly served on the board of directors for the Bechtel Corporation, Charles Schwab Corporation, and was a member of the board of directors of Gilead Sciences from January 1996 to December 2005.
- Henry W. Shlaudeman was the US Ambassador to Brazil. Shlaudeman was a long time career State Department official, who had held important positions regarding the Dominican Republic during the period leading up the the US invasion in 1965. He served in Chile from 1969 to 1973, the period leading to a U.S. backed coup there. Shlaudeman also payed a key role in the period of expansion of the U.S. miltary actions in Central America, at one point serving as Ronald Reagan’s Special Envoy for Central America.
- Alexander Fletcher Watson was stationed in the Dominican Republic with Shlaudeman in 1964. Watson later served as an intelligence intelligence analyst at the State Department’s Bureau of Intelligence and Research, and later as the Deputy Chief of Mission in three American embassies: La Paz, Bolivia (1979-1981); Bogotá, Colombia (1981-1984) and Brasilia, Brazil (1984-1986). In 1986, Watson became the U.S. Ambassador to Peru, serving until 1989, when he became Deputy Permanent U.S. Representative to the United Nations. In 1993, Watson was appointed Assistant Secretary of State for Inter-American Affairs by President Bill Clinton.
- Michael H. Armacost was Under Secretary of State for Political Affairs from 1984-1989. Armacost also served as Ambassador to the Philippines from 1982 to 1984, the designated survivor at President Bush’s inauguration in 1989, and as Acting Secretary of State from January 20-January 25, 1989, and Ambassador to Japan from 1989 to 1993. From 1995 and 2002, Armacost served as president of the Brookings Institution. His brother, Samuel Armacost, is the former president of the Bank of America.
- Alfonso Arenales ,was consul general at the US Embassy in Rio de Janeiro, and a career US diplomat from 1957 to 1988. Alfonso Arenales served in the U. S. Army from 1944 to 1947. He is a graduate of Columbia University and the U. S. National War College. This is his account of his arrival in Mozambique. Arenales also served on the U. S. delegation to the UN in New York. On May 3, 1992, Arenales published a letter in the New York Times, describing the U.S. military intervention in the Dominican Republic as a major success, “When Inter-American Force Succeeded.”
- Stephen F. Dachi was Consul General of U.S. mission in São Paulo, Brazil. He served as a diplomat in the U.S. Foreign Service in Asia, Central Europe and Latin America from 1967 to 1996, including service at State as Deputy U.S. Permanent Representative to the Organization of American States, and Director for Latin America and the Caribbean. Dachi was Chair for South Asian Area Studies (India, Pakistan, Afghanistan and Bangladesh) at the Foreign Service Institute of the Department of State, and Lecturer at The Elliott School of International Affairs at George Washington University where he teaches Political Islam.
- John C. Whitehead was the Co-Chairman and Co-Senior Partner in Goldman Sachs until he retired in 1984. From 1985 to 1989, Whitehead was the Deputy Secretary of State under George Shultz. Among many other things, Whitehead is Chairman Emeritus of The Brookings Institution.
- Alan Holmer was General Counsel at USTR from 1985 to 1987, and Deputy USTR from 1987 to 1987. Earlier Holmer had served as Chief of Staff for Senator Bob Packwood, and as a member of the Reagan White House Staff. After leaving USTR in 1989, Holmer became a partner at Sidey Austin, a firm the represented several large pharmaceutical firms, and from 1996 to 2005, president and CEO of PhRMA.
- James Ferrer, Jr. From 1986 until 1990, Dr. Ferrer was the Deputy U.S. Ambassador and Acting Ambassador in Brazil. He was Director of Economic Affairs at the U.S. Embassy in Lisbon from 1975 to 1979, and from 1979 to 1983 was director of the Office of Aviation and Communication Affairs. Dr. Ferrer also directed the economic/commercial section at the U.S. consulate in Rio de Janeiro, served in the economic sections of the U.S. embassies in Buenos Aires and Santiago, directed the “Brazil Desk” at the State Department, worked in the Intelligence and Research Bureau of the State Department, and served in the administrative offices of the Latin American Bureau. At present, Ferrer is Research Professor of Business and International Affairs and Director, Center for Latin American Issues, at the Elliott School of International Affairs at George Washington University.
Definitions
USG: United States Government
GOB: Government of Brazil
REFTEL: Reference Telegram
SEPTEL: Separate Telegram
The cables
Notes from the cables
Date: March 10, 1986
From: Alexander Fletcher Watson [Bio]
Subject: Proposed Consultations on Pharmaceuticals
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On March 10, 1986, Alexander Fletcher Watson in the US Embassy in Brasilia sent a widely circulated cable with the subject line, “Proposed Consultations on Pharmaceuticals.” The cable reported the Embassy had delivered a diplomatic note requesting at “the earliest possible opportunity” a consultation with the Government of Brazil (GOB) “regarding the impact of Brazilian laws, degrees, regulations, policies and practices as they affect U.S. trade and investment in the pharmaceutical and fine chemical areas. . . . The areas of concern the United States …. include:
— the lack of adequate patent protection;
— the regulation of foreign investment;
— pricing policies and price controls; and
— registration of new products.”
In delivering the request, the US Economic Counselor noted GOB officials has objected that an 1985 informatics Section 301 had not not been proceeded by bilateral discussions, and now “USG welcomes opportunity to test process suggested by GOB in dealing with a bilateral trade problem of major concern to USG.”
Date: March 26, 1986
From: Alexander Fletcher Watson [Bio]
Subject: Cooperation on Drug Registration: Request for Washington Views
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On March 26, 1986, Watson sent a 5 page cable with the title, “Cooperation on Drug Registration: Request for Washington Views.” Watson asked Washington if the U.S. mission in Brasilia could propose to the Brazil government an agreement to register drugs approved by the US FDA.
Date: April 3, 1986
From: George Schultz, Secretary of State [Bio]
Drafted by C. Lund, USTR, Approved by J Rosenbaum, USTR A. Holmer
Subject: Proposed Consultations on Pharmaceuticals
/wp-content/uploads/DoS_Brazil_3Apr1986_0220Z_Shultz.pdf
On April 3, 1986, Secretary of State George Schultz sent a 7 page cable to the American Embassy in Brasilia, with the title: Proposed Consultations on Pharmaceuticals.” Among other things, Shultz refers to a “DOC Strike Force Report on Latin American Pharmaceuticals” that had identified “options” to advance the commercial interest of U.S. pharmaceutical companies. Shutlz described discussions with the PMA and its leading members over such topics as a 301 case against Brazil on the topic of patent protection for pharmaceutical products. Shutlz expressed concern that U.S. companies reported that return on investment in Brazil had fallen from 31 percent in 1983 to 12.2 percent in 1984, due in part to “government pricing policies.” According to Shultz, “USG agencies asked PMA member if they had considered initiating a 301 petition on their own. PMA has not yet ruled out this option,” but the PMA preferred a “self initiated case brought by the U.S. government.
Date: May 27, 1986
From: Alfonso Arenales [Bio]
Subject: Industrial Property Protection in Brazil: Part I, Historical Overview and Role of INPI
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On May 27, 1986, Alfonso Arenales, from US Embassy in Rio de Janeiro, wrote an eight page memo titled “Industrial Property Protection in Brazil: Part I, Historical Overview and Role of INPI.” Arenales reports that “the Brazilian view of industrial property protection is determined by its goals of technological development and economic growth. This orientation leads to frequent conflict with U.S. Commercial Interests and, occasionally, with international accords.”
Arenales highlighted concerns over Brazilian legal regulations regarding technology transfer, and the Article 33 compulsory licensing provisions in the Brazil patent act, but notes “INPI has invoked Article 33 only once, in the Monsanto case. . . ”
According to Arenales, in 1985, INPI received 10,000 patent applications, of which just 51 were from Brazilian firms or individuals. Arenales said the courts were considered an effective and “important recourse for foreign firms” when the INPI acts outside of its legislative mandate.
Date: July 2, 1986
From: Stephen F. Dachi [Bio]
Subject: Impact of Lack of Patent Protection: Survey of U.S. Pharmaceutical Firms
/wp-content/uploads/DoS_Brazil_1986jul2_Dachi.pdf
July 2, 1986 Stephen F. Dachi sent a cable from the US Embassy in Sao Paulo, to other Department of State offices, as well as the Department of Commerce and USTR. The title was “Impact of Lack of Patent Protection: Survey of U.S. Pharmaceutical Firms.” The cable starts out by saying “In response to USG concerns, the association of 25 mostly U.S. pharmaceutical firms operating in Brazil (LAWG) canvassed its members on their loses due to patent piracy.” With 16 firms responding the survey requested by the US government, the ten year cumulative loses were estimated at $402 million, or $1 billion if all U.S. firms and all “opportunity costs” were included. Dachi reports:
Despite this, only one firm counts patent protection among its principal concerns. While often admitting big losses, most of the other seem to regard piracy as an acceptable price for doing business in Brazil. The feel that pushing for change might bring them only additional headaches.”
The companies also reported by the US based PMA was conducting its own summary of loses, for purposes of a 301 case against Brazil.
The cable quotes executives from U.S. owned pharmaceutical companies on the negative impact of the lack of patent protection on the domestic R&D industry, as well as this exchange with a local journalist who provided a different prespective:
“MNC’s don’t want to conduct research in Brazil” and that patent protection has very little to do with that sentiment. As proof, he claimed that “even before the loss of patent protection (in 1969), MNC’s conducted no drug research in Brazil.” {Comment: We find this charge plausible; After all, with the possible exception of certain tropical diseases Brazil appears to lack any comparative advantage in or attractiveness to pharmaceutical research. . . .
Dachi concludes with these observations:
11. In the face of the seemingly enormous loses suffered by his fellow members (if not his own company), the laid-back attitude of Abbott’s local top executive (the current head of LAWG) seems surprising. His explanation:
“with the partial exception of ACHE, the local companies are small, under-capitalized, have no technology and never will have any. The only way they can maintain their 10 percent share of the market and eke out an existence is through copying. If you look at Latin America, you will find that Brazil has the weakest national drug industry, and the lowest drug prices. I think those two facts are causally related Without local companies to lobby on our collective behalf, the GOB would treat the pharmaceutical industry even worse than it does now. This is the price we pay for doing business in this country. We would all be better off if the local companies were stronger, and one way the NMC’s can help them out is to turn a blind eye to their pirate activities.”
12. Other company reps voiced similar sentiments. One said he viewed piracy as a sort of “local tax” on operations which had to be paid. “Sure the tax is high,” he said, “but it’s affordable. Besides, if we were to make an issue of piracy, we would push the locals into a life or death struggle against us. They would intrigue against us with the government and in general make our lives miserable.”
Date: July 9, 1986
On July 9, 1986, Fola de Sao Paulo reported on a draft of Presidential decree on the development of the national pharmaceutical and chemical industry.
Date: July 18, 1986
From: Alexander Fletcher Watson [Bio]
Subject: Pharmaceuticals: Smoke but still no fire
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On July 18, 1986, Alexander Fletcher Watson wrote a cable sent from the U.S. Embassy in Brasilia to the Secretary of State, copied to others at State, as well as DOC and USTR. The title of the cable is: “Pharmaceuticals: Smoke but still no fire.”
Watson reported that “Embassy Sources continue to deny that any pharmaceuticals/fine chemicals measure is pending before the President.” Watson also reported that inquires from OECD country colleagues had also failed to confirm the existence of such a measure, concluding that “little seems likely to happen soon.”
Date: July 25, 1986
From: Alexander Fletcher Watson [Bio]
Subject: GATT/MNT: Standstill and Rollback
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On July 25, 1986, Watson sent a cable with the subject title “GATT/MNT: Standstill and Rollback” This cable deals with the Brazil proposals for the upcoming GATT Ministerial meeting that will be held in Punta del Este, Uruguay. Watson makes suggestions about using the GATT negotiations to push back against Brazil subsidies, preferences and incentives designed to promote the Brazil domestic informatics and pharmaceutical sectors.
Date: July 25, 1986
From: Stephen F. Dachi [Bio]
Subject: Translation of Draft Decree Regulating Pharmaceuticals/Fine Chemicals
/wp-content/uploads/DoS_Brazil_25july1986_Dachi.pdf
On July 25, 1986, Dachi sent a 13 page cable to the Secretary of State, with the Subject line: Translation of Draft Decree Regulating Pharmaceuticals/Fine Chemicals.” This cable provides a translation into English of the draft Presidential Decree concerning measures to promote the domestic Brazilian Pharmaceuticals and Fine Chemicals sectors.
Set out in 17 articles, the decree provides policy guidance for a wide range of measures concerning the pharmaceutical industry, including policies to limit imports of raw materials or in finished products when there are domestic sources, procurement preferences for products that utilize domestically produced chemicals and other raw materials, and the elimination of drug registrations for products “with a high risk/benefit ratio, or no definitely proven therapeutic value, or which do not represent a relevant therapeutic advantage over those medicines which utilize specialty chemicals produced in the country.
Date: October 16, 1986
From: Michael H. Armacost, Under Secretary of State for Political Affairs [Bio]
Subject: Intellectual Property Protection for Brazil.
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On October 16, 1986,Armacost sent a cable to the Embassies in Brazil about intellectual property for Brazil. The cable by drafted by C Field at USTR, and approved by Alan F. Holmer at USTR, and R. Bowie at USPTO.
One focus of the cable are the enumerations of non-patentable inventions, in Article 9 of the Brazil patent law. These include, for example, “food and chemical-pharmaceutical substances, matter admixtures or products and mediciaments of any kind, as well as the respect process for obtaining or modifying them,” or the discovery of varieties or species of microorganisms, plus other exceptions.
The term of a patent in Brazil was 15 years from the date of filing for a utility patent, with a typical 24 to 42 months required for formalities, providing an effective patent life of 11.5 to 13 years.
The Brazil patent law requires domestic working the patent, and a failure to domestically manufacture a patented invention could lead to the issuance of a compulsory license or the lapse of the patent. There is also the possibility of a public interest compulsory license.
Brazil’s regulations on the licensing of patents, trademarks and know-how include requirements to disclose the terms of the licenses to the state, and some standards for the terms, in part to address tax avoidance by companies.
In the area of copyright, “the major areas of concern are lack of copyright protection for computer software and screen time and inventory requirements relating to motion pictures and video cassettes. Both of these issues have been addressed in the context of either ongoing section 301 investigations or possible candidates for self-initiative of a section 301 investigation.”
The cable notes the “maximum royalty” for copyright that the Central bank will approve is 16-18 percent of sales. A Brazilian court recently held that renting video cassettes without authorization from copyright owner is an infringement.
Date: November 7, 1986
From: Ambassador Henry W. Shlaudeman [BIO]
Subject: Pharmaceutical Consultations: Some thoughts on the Issues
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On November 7, 1986, the US Ambassador to Brazil, Henry W. Shlaudeman, wrote a 17 page cable to the Secretary of State, other offices at State, and to USTR and the Department of Commerce. The subject was “Pharmaceutical Consultations: Some thoughts on the Issues.”
The US and Brazil were scheduled to hold November 20, 1986 bilateral consultations on the pharmaceutical issues. Shlaudeman notes Brazil will be holding an election on November 15, and dealing with a host of other economic problems. Shlaudeman writes “we have indicated we wish the consultations to focus on patent protection, profitability (prices), registration and future policy,” and notes “the GOB will find movement on patent protection difficult.”
Shlaudeman notes that DIMED’s Sueli Rozenfeld and others in Brazil are concerned that concessions to the US will reduce the market share of the domestic Brazilian pharmaceutical firms.
Shlaudeman reports that the U.S. pharmaceutical companies
“allege that CEM, and its registration authority, DIMED, are controlled by ultra-leftists, directing policies according to their personal ideologies. The oppose the participation of for-profit private drug companies in the Brazilian market and advocate that basic medical care be freely and equally administered through a nationalized health system. As argued by spokespersons such as the IMED Director Sueli Rozenfeld, the number of medications available in Brazil should be limited to the World Health Organization’s list of 700-odd essential drugs, which should be produced in state-owned labs. Her vision may be as much behind the slowdown in registration as the well-documented lack of staff and expertise. Less radical Brazilians, such as the planners that elaborated the Draft Policy Decree published last July (REF A), foresee a role for the private sector in pharmaceuticals, but want the major impetus to come from the NCCs.
The first substantive issue discussed in detail by Shaudeman is patent protection:
At the top of our agenda in the pharmaceutical consultations will be the legal denial, codified in Article 9 of Law 5772 of December 21, 1971, of patent protection for pharmaceutical and chemic products. . . .
9. Progress on the patent protection issue will be very difficult because many of Brazil’s 490 national capital pharmaceutical companies (NCCs) believe patent protection would threaten their very survival. . . . We must be aware that patent protection at least in the medium-term,would reduce the NCC’s current 20 percent share of the pharmaceutical market. In addition, progress will be difficult because patent protectionist runs contrary to the interests of the federal medical center (CEME). The new head of CEME, Marta Nobrega Martinez, was quoted in the October 16 press as admitting, “The program of nationalizing essential medicines is possible only because a patent regime does not exist in Brazil.”
. . . A time-honored GOB defense is that the lack of patent protection for pharmaceutical products is not inconsistent with international agreements signed by the GOB. . .
. . . We would also recommend the U.S. , in the context of our global concerns about inadequate protection of intellectual property rights, challenge the lack of patent protection for pharmaceuticals/fine chemicals in multilateral fora such as GATT and WIPO. While admittedly a long term effort, this multilateral pressure will encourage other countries to examine the GOB’s policies.
If changing global norms for patent protection was considered a long term project, influencing prices was a short or medium term goal that seemed achievable, and of considerable interest to U.S. pharmaceutical companies. The immediate problem was a February 28, 1986 general price freeze, that applied to pharmaceutical products like all other goods.
The GOB said that while special treatment for pharmaceutical products as “out of the question. . . the prize freeze will not, however, last forever.” Moreover, Finance Minister Funaro agreed to “examine alleviating the industry’s problems by reducing or exempting” several taxes or tariffs on the pharmaceutical sector.
The U.S. government planed to ask for pharmaceutical price adjustments to be among the largest and the first price changes in the Cruzado plan price modifications, which would take place after the November 15, 1986 elections.
Shlaudeman asked:
“Would pharmaceutical companies and the GOB consider the partial decontrol of prices for medicines destined largely for middle-class consumption in exchange for a commitment to provide essential medicines for low-income groups at cost? This idea was explored by the companies with the GOB several years ago. “
Shlaudeman wrote about the need for:
“a clear commitment from the GOB that the post-Cruzado pricing mechanism will be transparent and that adequate profits are necessary . . . it would also be useful to document the costs of inadequate profits in terms of product lines withdrawn from the market, companies that have left Brazil over the past several years, and lost jobs.”
On the subject of drug registration, Shlaudeman described the small staffing of the Brazilian drug regulation authority, and again asked if the FDA could cooperate with DIMED on registration issues.
Shlaudeman discussed the importance of coordinating trade pressures on pharmaceuticals with Germany, the UK, Holland, Switzerland and France.
Date: November 19, 1986
From: George Schultz, Secretary of State [Bio]
Subject: 1986 National Trade Estimate Report: Brazil
/wp-content/uploads/DoS_Brazil_19nov1986_Shultz.pdf
On November 19, 1986, Secretary of State Shultz forwared the USTR’s “1986 National Trade Estimate Report: Brazil” to the US missions in Brasilia, Geneva and Paris. The report had been drafted by F. Davidson at USTR, and approved by D. Phillips. The report covered a wide range of issues, including those relating to the software, motion picture, and pharmaceutical industries, where Brazil’s policies to promote domestic firms and to increase Brazilian value-added content were described as barriers to trade. This included in addition to the intellectual property protection issues, a number of other taxation, procurement and regulatory issues.
Date: March 26, 1987
From: Henry W. Shlaudeman, US Ambassador to Brazil [Bio]
/wp-content/uploads/DoS_Brazil_1987mar26_Shlaudeman.pdf
Date: April 2, 1987
From: Henry W. Shlaudeman, US Ambassador to Brazil [Bio]
/wp-content/uploads/DoS_Brazil_1987apr2_Shlaudeman.pdf
Date: April 15, 1987
From: Henry W. Shlaudeman, US Ambassador to Brazil [Bio]
Subject Recent Pharmaceutical Developments
/wp-content/uploads/DOSCable_Brazil_1987Apr_151902.pdf
On April 15, 1987, the American Embassy in Brasilia sent a 4 page cable titled “Recent Pharmaceutical Developments”. The cable was signed by Henry W. Shlaudeman, then the US Ambassador to Brazil.
Shlaudeman begins with memo with the observation that “recent developments in the pharmaceutical sector provide a clear indication that the GOB wants to avoid section 301 action on pharmaceuticals.” Shlaudeman says that if the GOB accepts further discussions on the pharmaceutical patent issue, “the PMA would be well advised to withhold a section 301 filing.”
The cable reports that the GOB tried to address US concerns on regarding new product registration and pricing in the pharmaceutical sector. Brazil’s President Sarney established the National Health Council (CSN), which shifted drug licensing authority away from DIMED. The GOB granted several price increases that gave the pharmaceutical industry price increases that “at least matched the inflation rate.”
Shlaudeman warned that a Section 301 action in pharmaceuticals might block further progress in the pharmaceutical area, and adversely affect the overall atmosphere for US-Brazil trade relations.
Date: April 15, 1987
From: Ambassador Henry W. Shlaudeman [BIO]
Subject Pharmaceuticals: 301 Case
/wp-content/uploads/DOSCable_Brazil_1987Apr_152131.pdf
Shortly after the 1st April 15, 1987 cable, the American Embassy in Brasilia sent another cable titled “Pharmaceuticals: 301 Case”. In this cable, the embassy reported on a phone call from Paulo Taso, expressing the personal concerns of President Sarney regarding reports that a 301 case was supposed to be filed the next week.
The Embassy said that Sarney had taken a personal interest in the pharmaceuticals issue, – and had significant action on licensing and pricing of pharmaceuticals, two areas of of major interest for the subsidiaries of the US drug companies in Brazil.
Date: April 21, 1987
From: George Schultz, Secretary of State [Bio]
Drafted by T White, Approved by D Lamb
Subject: EB Assistant Secretary McMinn’s Meeting With Brazilian Ambassador Moreira: Pharmaceuticals, 4/16/87
/wp-content/uploads/DOSCable_Brazil_1987Apr_212213.pdf
On April 21, 1987, Secretary Schultz sent a 5 page cable titled “EB Assistant Secretary McMinn’s Meeting with Brazilian Ambassador Moreira: Pharmaceuticals, 4/16/87”. This cable described the meeting between Brazilian Ambassador Moreira and EB Assistant Secretary McMinn to discuss the Section 301 petition on pharmaceutical patent protection.
Moreira said that the impending 301 Petition concerned Brazil for 3 three reasons:
“First, the GOB is aware of industry complaints and has taken important steps to improve the situation. Second, the petition, which purports to address an unfair trade practice, is itself unfair since Brazil has taken positive action. Third, a 301 petition would complicate bilateral relations, given the general economic and political environment, at a time when Brazil is involved in the process of writing a new constitution.”
Moreira then outlined GOB actions on various aspects of the pharmaceutical issues, covering market reserve, pricing and new drug registration. He then claimed the GOB aim was to ensure industry profitability while avoiding hyperinflation.
Regarding pharmaceutical patents, Moreira stated that “perhaps we need more time”. He then argued that foreign participation in the Brazilian pharmaceutical industry had increased in the period since Brazil eliminated product and process patents.
Moreira finally stated that a 301 Petition would be very detrimental because it would inhibit Brazilian efforts to improve industry conditions and would become a political issue at a time of intense constitutional activity.
McMinn responded by stating the pharmaceutical patent issues had been very visible to the US, and that it would be very unfortunate to have a situation where the patent issues could not be successfully resolved.
Date: May 21, 1987
From: Henry W. Shlaudeman, US Ambassador to Brazil [Bio]
Subject: Pharmaceuticals: Thoughts About the June 8 Consultations
/wp-content/uploads/DOSCable_Brazil_1987May_212022.pdf
On May 21, 1987, the American Embassy in Brasilia sent a 3 page cable titled “Pharmaceuticals: Thoughts About the June 8 Consulations”. The author believed that directly involving the PMA would help avoid profitability and registration issues.
The author believed that the movement on patent protection depended on the creation of the necessary political understanding because there was no Brazilian political consensus for patent protection legislation.
The PMA’s cooperation with the GOB was looked to be essential in resolving the patent issue. The author specifically suggested directly involving the PMA in the process by giving them an advisory role in the process.
Date: May 28, 1987
From: James Ferrer, Jr. [Bio], quoting Dachi [Bio]
Subject: Recent Developments In The Brazilian Pharmaceuticals Sector
/wp-content/uploads/DOSCable_Brazil_1987May_06146.pdf
On May 28, 1987, the US diplomatic mission in Brasilia sent a 11 page cable titled the “Recent Developments in the Brazilian Pharmaceutical Sector” to the Secretary of State in Washington DC. The memo discusses the ECONOFF analysis of the Brazil debate on drug pricing, patenting of medicines, and a possible 301 complaint against Brazil by the PMA.
The ECONOFF reported on arguments within Brazil that Brazil is not yet ready to provide patent protection on biomedical inventions, given its stage of development in that sector. There were also concerns about the prices of products.
The cable reports that “huge price increases” in drug stores had lead to serve access problems by low income persons.
(9). The industry fears that consumer resistance – and resentment – to the huge increases at the drug store that have already been granted might compel the GOB to revert to its old price depressing policies. There are signs suggesting that such a public reaction might already be occurring. The May 19th edition of “O Estado de Sao Paulo” carried an article headlined “Medicines, Only for the Privileged.” Through interviews with managers or pharmacies in poorer Sao Paulo neighborhoods, the author makes a point that in wake of the latest price increase many working class individuals can no longer afford essential medicines.
(10).One example cited in this article should suffice to grasp its tone: “In Santo Amaro, at the Largo 13 de Maio, a spot through which a large part of Sao Paulo’s lower income population passes, the Nossa Senhora Aparecida Drugstore is already feeling the effects of the price adjustments. Giroti, the manager of the pharmacy, reports that his sales have fallen 30 percent in volume in the last month. ‘The middle and upper middle classes continue to buy, but the lower income groups have few alternatives’, he said. Such articles have an undeniable emotional impact which could affect future GOB pricing decisions.” (10)
The Embassy also reported on drug shortages, which it says are related to import quotas on raw materials for drugs, motivated by shortage of foreign exchange.
Date: June 5, 1987
From: Stephen F. Dachi [Bio]
Subject: Brazilian Pharmaceuticals: Latest GOB Thinking on Patents
/wp-content/uploads/DOSCable_Brazil_1987Jun_01472.pdf
In June of 1987, the American Counsul in Sao Paulo sent a 11 page cable titled “Brazilian Pharmaceuticals: Latest GOB Thinking on Patents”. This cable lists some of the more prominent arguments and rebuttals against pharmaceutical patents that the author had either recently read or heard from GOB officials.
Argument A: Brazil has the right to adopt patents at the appropriate time just like every other country
This argument pointed to the history of other developed countries who had only extended patent protection when their native drug industry was strong and had captured a significant share of the domestic market. It was argued that it is reasonable for Brazil to adopt the same approach as these countries
- Rebutting this, the author argued that the US, the most developed pharmaceutical industry of them all, grew and prospered under a regime of patent recognition.
- Additionally, it was argued that thinking the development of Brazil’s native drug industry is inevitable is not guaranteed because evidence has showed that Brazil’s local industry had actually regressed.
Argument B: Why change a winning team?
This argument suggested that because investment in the pharmaceuticals sector had been very high in the past two decades, it was a vote of confidence in the GOB’s policies in the sector. Because of this, why change a winning team?
- Rebutting this, it was argued that any GOB official with direct experience in the health sector will say that the New Republic is working very hard to correct serious deficiencies in Brazil’s traditional health care system, including medicines development/production.
- It was also argued that the pharmaceuticals sector is anything but a winning team, as GOB organs with responsibilities in medicines supply suffer from serious shortages of both human and financial resources
Argument C: Pharmaceuticals is a strategic industry
This argument suggested that non-recognition of patents for drugs was appropriate because medicine is a strategic industry and the government cannot cede a monopoly to a foreign entity, since doing so could have left the nation vulnerable to embargos or other supply disruptions that would have been detrimental to the Brazilian population
- It was argued that if the GOB adopted a patent regime for drugs, any number of external factors could cause medicine to become unavailable- and the result would be widespread suffering
- The author argued that this scenario was actually the reality for Brazil throughout the latter half of 1986 and into 1987, and that even though Brazil did not go to war with anyone and did not adopt patent protection, the scenario of widespread medicines shortages had become a reality anyway.
Argument D: Biotechnology
This argument suggests that the primary reason for GOB opposition to pharmaceutical patents is that “the eventual patenting of pharmaceutical products may be extended to biotechnology as a whole, where Brazil’s technological backwardness in comparison with the US is today much wider than in the traditional pharmaceuticals field.”
- Rebutting this, the author finds the logic of this argument elusive. The “backwardness” alluded to above is the result of the Brazilian regime’s lack of pharmaceuticals patent protection. The US is recognized as the world leader in biotechnology and if, say a Brazilian man discovered a useful medicine he would look to travel to the US or Europe because Brazil lacked patent protection.
Argument E: Adoption of patents will wipe out the local industry
The author believed that this was a big misconception and mentioned how national firms in general were not surviving from the copying of patented drugs. Of countries like the US and Japan’s total therapy regime, a very small percentage were on-patent. As such, the author believed that the extension of patent protection to medicines could have put a single national company out of business.
Next, two articles in the Sao Paulo Business Daily “Gazeta Mercantil” of May 22, 1987 outlined the thinking within the GOB toward pharmaceuticals patent protection and discussed a June 8, 1987 Washington consultation on this issue.
Pharmaceutical Patents—Brazil-US Meeting
In this article, the author did not expect Brazil to modify its industrial code to protect pharmaceutical patents so the US government was expected to put an emphasis on the pricing policy for medicines, launching new products and for foreign investments in Brazil.
The President Will Decide
This article stated that it will be up to the President of Brazil to decide which attitude Brazil will adopt in response to the US requests to change some items of the Industrial Property Code of 1971, to guarantee a more significant protection of industrial patents, particularly pharmaceutical products developed in Brazil by foreign companies
- The MCT felt that Brazil’s role should have been to listen what the US had to say regarding industrial patents
- A government sources accompanying the talks with the US said that the US government should exert pressure for a solution to the problem outside of the scope of the industrial country code
Date: August 17, 1987
From: Henry W. Shlaudeman, US Ambassador to Brazil [Bio]
Subject: Pharmaceuticals: Proposed Strategy for Section 301 Case on Pharmaceuticals
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On August 17, 1987, Ambassador Shlaudeman wrote a 20 paragraph cable titled “Pharmaceuticals: Proposed Strategy for Section 301 Case on Pharmaceuticals.” According to the Ambassador,
“In the short run the strategy should focus on preventing the erosion of recent progress on registration and pricing issues and on avoiding the enshrinement of non-recognition of patent protection in the Brazilian Constitution.”
On August 17, 1987, the US diplomatic mission in Brasilia sent a 11 page cable titled “Pharmaceuticals: Proposed Strategy for Section 301 Case on Pharmaceuticals”. According to the author:
“Conducting the Section 301 pharmaceuticals case is two phased. In the short run the strategy should focus on preventing the erosion of recent progress on registration and pricing issues and on avoiding the enshrinement of non-recognition of patent protection in the Brazilian Constitution. The second phase, which would begin after the constituent assembly finishes its work, would stress efforts which would: Assure the GOB that low income groups would not suffer from the introduction of more serious national companies to support patent re-introduction; and educate medical associations to the benefits of several competitive treatments for a particular disease.”
The author thought that the US government should press the GOB for progress in the Section 301 action because they believed that the momentum that was built quickly dissipated and that talks about establishing a transparent semi-automatic pricing system had halted.
It was then suggested that groups with “an ideological orientation in favor of an enhanced participation in the health sectors” could use USG pharmaceutical public hearings and public statements as evidence of U.S. pressures against Brazil’s constituent assembly. He further suggested that in government to government dialogue the USG should emphasize quality standards- believing that rigorous quality standards and scrutiny of data used to justify pirated products could have resulted in long delays of registration requests for pirated items.
Until the GOB could be persuaded that the national pharmaceutical industry would survive and have reasonable prospects for growth, prices would not be prohibitive (especially for low income groups), and the GOB could prevent abuse of a strong market position, the author did not believe that the GOB would change its position on patent protection.
Finally, the author believed that a failure to obtain patent protection in this case could set a very negative example in the global campaign to strengthen intellectual property rights. He thought that a considerable effort should have been exerted to develop a package of incentives that might have change the GOB’s firm conviction that patents were not in Brazil’s interest.
Date: September 10, 1987
From: Gerald D. Laudach, President, Pfizer
Letter to Christina M. Lund, Director of Brazil and Southern Cone Affairs, USTR
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Laudach quoted from President Reagan’s Presidential Commission on Industrial Competitiveness (PCIC) 1984 special report on Intellectual Property, noting he also served as a member of the PCIC. Laudach also mentioned the 1984 legislative amendments that allowed the PMA to file a 301 case against Brazil. The letter to Lund took a bitter and emotional tone:
The pharmaceutical industry is willing to take strong action against any pirate of our technology. Brazil is, however, a particularly significant case. As an established member of the international trade community through its participation in the Agreement on Tariffs and Trade (GATT), and as a leader among newly industrialized countries, Brazil has a certain degree of responsibility–and accountability–for its actions. Brazil recognizes the benefits resulting from international trade. Yet, with a policy that permits and even encourages misappropriation of pharmaceutical technology, Brazil tells the world that it is unwilling to fulfill obligations expected from responsible trading nations. By denying patent protection for pharmaceutic, Brazil also tells the world that it has no respect for innovation and R&D in a vital area of health care from which it derives benefits. The provision and effective enforcement of adequate protection of intellectual property rights, including product and process patent protection for pharmaceuticals, forms that basis for internationally-accepted obligations. Other leading NICs like South Korea and Taiwan have recently made changes to their laws to provide product patent protection for pharmaceuticals. It is imperative that Brazil accept and enact the required rules of international trade.
Date: September 24, 1987
From: Henry W. Shlaudeman, US Ambassador to Brazil [Bio]
Subject: Brazilian Pharmaceuticals: U.S. Firms Developing Strategy for Obtaining Patent Protection
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On September 24, 1987, the US diplomatic mission in Brasilia sent a 4 page cable titled “Brazilian Pharmaceuticals: U.S. Firms Developing Strategy for Obtaining Patent Protection.” The cable reports on a September 3, 1987 meeting with the U.S. Chamber of Commerce’s Executive Committee. The meeting was hosted by the Consul General. The Pharmaceutical Industry’s Latin American Working Group (LAWG) made a presentation, “asking for the support of the Chamber in the Industry’s struggle to obtain patent protection for its products.”
“The pharmaceutical industry’s Latin America Working Group (LAWG) developed a strategy to gain patent protection. Part of that strategy involved convincing politically influential groups to work behind the scenes to win over top Brazilian officials. Another part of that strategy was to try to convince at least some Brazilians pharmaceutical firms to support patent protection. One US firm brought up the idea of offering joint market arrangements to Brazilian firms in return for support on patent protection.” (1)
The industry believed that the best way to win its case was to have influential groups lobby behind the scenes to convince the top government officials of the value of patent protection. LAWG leaders thought that the decision on patent protection would be made at high levels and would be determined by political considerations.
LAWG also tried to enlist the cooperation of local pharmaceutical firms who had opposed patent protection. They entertained offering them joint marketing ventures in return, calling this “sanctioned piracy.”
Date: September 28, 1987
From: John C. Whitehead, Deputy Secretary of State [Bio]
Subject: Brazil Pharmaceuticals 301 Investigation: Public Hearings
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On September 28, 1987, Deputy Secretary of State John Whitehead sent an 11 paragraph cable providing a report of the September 14, 1987 hearing on the PMA’s 301 complaint against Brazil.
The PMA noted that Brazil “is seen as a leader among newly-industrialized countries and the G-77 and action taken by or against Brazil would be seen as an important precedent.” (para 6).
The PMA testified that it had lobbied Congress in 1984 to have intellectual property included in the 301 process, and as a criteria for GSP benefits, and the 301 filing was “fully consistent with the U.S. IPR objectives in the GATT new round.” (para 7).
When asked “what the PMA expected to accomplish through the 301 action” the PMA emphasized the following:
- (A) Patent protection for new active ingredients,
- (B) Product by process protection,
- (C) Reversal of the burden of proof in patent infringement cases,
- (D) No compulsory licenses,
- (E) Longer patent validities, and
- (F) better patent enforcement.
Date: October 8, 1987
From: Henry W. Shlaudeman, US Ambassador to Brazil [Bio]
Subject: Brazilian Pharmaceuticals: An Update
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On October 8, 1987, the US diplomatic mission in Brasilia sent a 10 page cable titled “Brazilian Pharmaceuticals: An Update”.
In this cable pharmaceutical firms in Brazil dealt with huge price-cost disparities and an almost complete lack of new drug registration. The author claimed that these firms were pressing the government for price increases and faster approval of new drugs by withdrawing products from the market, and, in some cases, thinking of calling it quits. He claimed that multinational executives were also trying to find time to deal with the patent protection issue- these executives argued that patent protection is essential, but that some compromises would be necessary in order to obtain it.
The ECONOFF reported that the Pharmaceutical Industry in Brazil is in serious trouble. The Pharmaceutical Industry had complained that the government-set prices for pharmaceuticals were ridiculously low.
The Pharmaceutical Industry faced pricing and registration problems. These problems included industry executive replacing “old” products with “new” ones that were not actually new, as well as the fact that DIMED, the government organ charged with registering new drugs, had not done its job.
In response to these pricing and registration problems, multinational and local firms stopped new investments, laid off workers, and otherwise cut costs. Firms were trying to move unprofitable product lines while at the same time supplying critical drugs
The situation deteriorated to a point where many Brazilian firms considered moving out of Brazil or filing for bankruptcy. With all of the problems involved in trying to stay afloat in Brazil the patent protection issue had not been the only issue executives have had to deal with. One executive noted that “Patents are important, but they have not been something we’ve talked about on a daily basis.”
Additionally, multinationals have argued that this issue was between the two governments and that multinationals should stick to quiet lobbying efforts. It was said that they were not pushing the issue too hard because it would hurt to be seen as working with the USG.
The issue of compromise on the patent protection issue was also discussed, with ECONOFF saying compromise was essential since the Brazilian government would not have accepted a patent protection law without gaining something in return.
Date: November 13, 1987
From: Henry W. Shlaudeman, US Ambassador to Brazil [Bio]
Subject: Brazil Pharmaceuticals: More on Patents
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ON November 13, 1987, the US diplomatic mission in Brasilia sent a 6 page cable titled “Brazil Pharmaceuticals: More on Patents”. This cable describes a discussion ECONOFF had with the president of the Brazilian subsidiary of a major US pharmaceutical firm to discuss patent protection.
ECONOFF noted that conversation with other industry representatives seemed to indicate that patent protection had been playing second fiddle to the battle for higher prices. The president claimed that it was his “colleagues” who mistakenly had this view.
The company president claimed that he and a few other multinational executives were working nearly full time education campaign designed to gather support for patent protection. Specifically, these executives hired a full-time public relations firm carry out the executives’ efforts to promote patent protection.
Despite these efforts, the president felt that more needed to be done- specifically having US parent firms and the PMA press their Brazilian subsidiaries to devote greater effort to the public education campaign. He also said that the PMA itself should have contributed more money, time and effort to the project in Brazil, as he felt local firms did not have the resources to do everything that needed to be done.