EC-CANADA PATENT RULING RAISES MORE QUESTIONS OVER DSU

by Chakravarthi Raghavan

Geneva 25 Apr 2000 -- The WTO dispute panel ruling on the EC-Canada patent dispute over generic drugs, adopted by the Dispute Settlement Body early this month, has again raised some troubling questions about the dispute settlement system and the way panels appear to be functioning.

Two key questions of public policy (societal public interest vs private rights) were involved in the dispute. These were permissible exceptions, under Articles 30 and 31 of TRIPS, to the use of patented products or processes, without permission of the patent-owner whose rights are spelt out in Article 28.1 and 29, and the objectives and principles of the TRIPS, set out in Articles 7 and 8 (over and above those in the preamble).

Two provisions of the Canadian Patent law -- The Regulatory Review Exception and The Stockpiling Exception -- were challenged by the European Communities.

The Regulatory Review Exception, in Sec 55.2 (1) of the Canadian law, permits generic manufacturers (in this case of chemicals and pharmaceuticals), without authorization of the patent owner, to develop the product and submit it to regulatory authorities for market approval so that they could market the product when the patent expires.

The Stockpiling Exception in Sec, 55.2 (2) of the Canadian law permits generic manufacturers to produce and stockpile generic products for which marketing approval has been obtained, during a six-month period before expiry of the patent, and market the generic products as soon as the patent has expired.

The first exception to patent rights has been held legal, but the second has been found to be illegal.

As in some earlier disputes, secretariat notes and informal texts have been used as 'negotiating history' in the panel process, to narrow down the options of governments to safeguard public interest and expand rights of private corporations.

But the case goes beyond that. As Brazil argued before the panel, it involved the way trade commitments and public concerns would be reconciled and balanced.

The 'legitimacy' of the WTO system, and thus its survival, would ultimately be judged by public perceptions of this.

For developing countries, except for the least developed, the rigors of the TRIPS agreement became effective on 1 January 2000, and as they frame laws exercising options open to them, the panel process may be invoked to 'interpret' and reduce their options.

And unless actions are taken to limit the role of panels in reducing the rights of countries and increasing their obligations, it will strengthen social movements in developing world against the process of globalization and expansion of corporate rights.

Besides the two parties (EC and Canada), eleven countries intervened as interested third parties in the dispute: Australia, Brazil, Colombia, Cuba, India, Israel, Japan, Poland, Switzerland, Thailand and the USA.

According to the panel (which cites uncontested Canadian information), for a new patented pharmaceutical, a period of 8-12 years elapses between the development of a drug and getting regulatory approval for marketing. This provides the patentee 12-8 years of monopoly marketing rights to recoup investment and profits, and establish a marketing lead (through trade-marks, brand-names etc).

For a generic producer (developing a drug from published patent information), a time-lag of 3 to 6-1/2 years elapses between the development and regulatory approval (about 2-4 years for development and one to 2-1/2 years for regulatory approval).

This means that without the prior regulatory exception, a generic drug can be marketed only after a 3 to 6-1/2 year period after the patent expires or the patentee's monopoly will extend beyond the patent life by a similar period.

There is nothing in the panel report about the further period of time a generic producer would need, after obtaining regulatory approval, to get into the market in competition with the established patentee. But this could range from 6-18 months -- depending on the generic producer's marketing network, and the infrastructure of the country.

Without the 'stock-piling' exception, the patentee would enjoy monopoly and market lead for another 6-18 months (after the patent has expired) over the generic producer. And generic production would be concentrated in the hands of equally big corporations based in the advanced countries.

In effect, the panel has ruled that the regulatory exception to the patentee's monopoly rights so as to enable a generic producer to be ready to enter the market and compete is permissible, but not the stock-piling exception to enable the generic to enter the market immediately.

Without any explanation, the panel first judged the 'stock-piling exception' as WTO-illegal, and then looked into the 'regulatory exception' to hold it legal.

If it had judged the two issues raised seriatim, we could have had a clue as to why a 3 to 6-1/2 year's extension of patent monopoly rights would not be a reasonable one, but a six to 18 months would be.

The 'experimental' use of a patented process or product to gain market approval from regulatory authorities, is allowed in the US, under the so-called 'Bolar' exception - a provision written into US patent law in 1984 by Congress, to get around the court ruling in Roche products vs Bolar Pharmaceuticals, denying Bolar the right to develop and submit a generic product for regulatory approval before the expiry of the patent.

The US law does not seem to provide for the prior production and stock-piling, as in the second Canadian provision.

However, the US guidelines from the Federal Drug Administration for prior regulatory approval (under the Bolar exception) requires generic producers to fully scale-up the manufacturing facility from product development stage and make at least three full production runs on a commercial scale.

But there is nothing in the report to indicate as to what happens to these full commercial scale trial production. Are the products of these "full production runs on a commercial scale" destroyed or do they remain with the producer and, if latter, does it constitute 'stock-piling'?

The chairman of the dispute panel, Prof. Robert Hudec (of the US), and the two other members were named by the WTO Director-General when the parties could not agree on the panellists. Hudec, a former GATT secretariat official and now a US academic, is one of the 4 or 5 individuals who have been on panels more than once.

The ruling gives rise to concerns over the way the panel has interpreted and clarified the provisions of the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS), by recourse to "supplementary means of interpretation."

To do this, the panel appears to have short-circuited the requirements of looking at the 'ordinary meaning' of the provisions in the context of the text of the TRIPS agreement, and jumped several steps to use "supplementary means of interpretation", using the WTO secretariat files and notes of 'negotiating history'.

This is irrespective of the weight attached by the panel to individual parts of the secretariat note.

Canada, as a defendant, had no doubt invoked the 'supplementary means of interpretation' to buttress its defence, and had cited (according to footnote 74 of the report) 'unpublished' speaking notes of the Chairman (of the Negotiating Group on TRIPS) at a (10+10) meeting, a restricted meeting of invitees, on 16 December 1991.

But it is not clear how the panel, in terms of its obligations (under Article 3.2 of the DSU) to follow "the customary rules of interpretation of public international law", could have recourse to information in secretariat notes and files for 'supplementary means of interpretation' in negotiating history.

The secretariat version of the negotiating history has been reproduced in Annex 6 to the panel report -- as a note prepared by the secretariat for the panel. There is an appendix attached to the annex on the parallel work at WIPO. The contents of the note and the appendix are based on unpublished informal papers before the TRIPS negotiators, and secretariat notes of oral reports said to have been provided to the Uruguay Round TRIPS negotiators by the World Intellectual Property Organization (WIPO) about the then ongoing discussions at WIPO in a 'committee of experts' on a draft patent harmonization treaty.

The 'customary principles of interpretation of public international law' are codified in Articles 31 and 32 of the Vienna Law of Treaties:

Article 31:

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of the object and purposes.

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:

(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;

(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.

3. There shall be taken into account, together with the context:

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

(b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;

(c) any relevant rules of international law applicable in the relation between the parties.

4. A special meaning shall be given to a term if it is established that the parties so intended.

Article 32:

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning, when the interpretation according to article 31:

(a) leaves the meaning ambiguous or obscure, or

(b) leads to a result which is manifestly absurd or unreasonable."

Unlike in the case of Uruguay Round texts, which were negotiated by trade officials in informal, and often 'secret', talks among a few delegations and sometimes outside the GATT premises, and drawn up and settled using non-legal language, the Vienna Law of Treaties was the outcome of years of open deliberations in the International Law Commission, and then the sixth (legal) committee of the UN General Assembly, and then adopted. It is clear from the wording of its Articles 31 and 32, that the 'supplementary means of interpretation' comes into play only after those in Art. 31 are exhausted and the meaning is still not clear. And by no means can the secretariat notes or files qualify as 'preparatory work of the treaty and circumstances of its conclusion.' Only the formal papers, proposals and texts, that were derestricted and published at Marrakesh in 1994, could legally qualify as 'supplementary means of information'

The Hudec panel has summed up in paras 7.1 to 7.12 the measures at issue, claims of parties, and the legal issues raised by the differences in interpretation of TRIPS provisions (in Articles 27.1, 30 and 33). It then refers to the rules of interpretation in the Vienna Law of Treaties - Article 31.1, Art. 31.3 (b) and Art. 32 - used in the arguments of parties.

After setting out in para 7.13, the principles of interpretation - in Art 31.1, 31.3(b) and Art. 32 of the Vienna Law of Treaties, and without giving any further arguments or reasons, the panel says (in 7.14 and 7.15) on its approach to the interpretation:

"7.14. The Panel noted that, in the framework of the TRIPS Agreement, which incorporates certain provisions of the major pre-existing international instruments on intellectual property, the context to which the panel may have recourse for purposes of interpretation of specific TRIPS provisions, in this case Articles 27 and 28, is not restricted to the text, Preamble and Annexes of the TRIPS Agreement itself, but also includes the provisions of the international instruments on intellectual property incorporated into the TRIPS Agreement, as well as any agreement between the parties relating to these agreements, within the meaning of Article 31(2) of the Vienna Convention on the Law of Treaties. Thus, as the Panel will have occasion to elaborate further below, Article 9(2) of the Berne Convention for Protection of Literary and Artistic Works (1971) (hereinafter referred to as the Berne Convention) is an important contextual element for the interpretations of Article 30 of the TRIPS Agreement.

"7.15. As a consequence of the extended context that has to be taken into account when interpreting the provisions of the TRIPS Agreement, the panel in considering the negotiating history of the TRIPS Agreement, concluded that interpretation may go beyond the negotiating history of the TRIPS Agreement proper and also inquire into that of the incorporated international instruments on intellectual property."

We are left to guess why the panel had to have recourse to the "extended context". The panel has not explained why the 'ordinary meaning' of the relevant TRIPS provisions -- Art. 28 of TRIPS on patent rights and the exceptions to rights set out in Art. 30, read with Articles 7 and 8 -- is ambiguous or unclear, thus forcing the panel to have recourse to 'supplementary means'.

Nor does the panel explain under what WTO/DSU rule or the Vienna Law of Treaties, unpublished informal texts and GATT secretariat notes could provide such 'supplementary means'.

In the weeks before the April 1994 Marrakesh Ministerial meeting, the pros and cons of preparing and presenting a negotiating history, as was done at the conclusion of the Tokyo Round, was weighed by the GATT secretariat, and a decision was taken against presenting a negotiating history. It was feared that the secretariat version would be challenged.

As a result, at Marrakesh, the plenipotentiaries from countries that had participated in the Uruguay Round negotiations were only invited, and agreed to 'derestrict' all the formal papers -- proposals and texts of the Uruguay Round Negotiations -- and these were published. And these alone can qualify as 'negotiating history'.

And if there is ambiguity in the wording of agreements that cannot be resolved by either the ordinary meaning of the words used or the formal texts and papers, the only way open for a panel is to invite the Ministerial Conference or the General Council (the legislative bodies of the system) to exercise the 'exclusive authority' vested in them to provide the authoritative interpretation, or amend the agreements to provide clarity.

But the panels (guided by the WTO secretariat) have been drawing upon secretariat notes and files to create new rights and obligations, thus disregarding the WTO, the DSU and rules of international law and practice. (SUNS4654)

[The above is the first of a two-part analysis. The second part will be in SUNS #4655]

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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