Pharmaceutical TNCs beat a tactical retreat

by Chakravarthi Raghavan

Geneva, 20 Apr 2001 - - In withdrawing unconditionally their three-year old court challenge to the South African government and the law enabling import or local manufacture of generic drugs, the transnational pharmaceutical companies have staged a tactical retreat, but neither they nor their home countries seem to have abandoned their pursuit of excessive profits and rentier incomes through international monopoly rights set by the WTO trading system and international organizations.

But while they, and the governments backing them, have staged a tactical retreat in South Africa, and in relation to AIDS drugs in Africa, they have not given up but are pressing ahead with challenges against national legislation elsewhere, including in Brazil.

In Geneva, the international pharmaceutical manufacturers’ association claimed that the case had been withdrawn on assurances from the South African government that it respects the WTO commitments.

And very promptly, in Geneva, the World Health Organization and the World Trade Organization issued statements welcoming the resolution of the case and the settlement.

The WTO statement, in the name of Director-General Mike Moore, said the ‘settlement’ showed that WTO agreements like TRIPS contained the necessary flexibility to accommodate health needs of developing countries.

The WHO statement hoped that the “resolution” of the case would be a step forward in developing a common understanding of how the WTO agreements could be implemented in ways which could help promote public health goals. The statement also spoke of the WHO having worked with South Africa in developing its National Drug Policy, and called for shifting the focus (of the government and NGOs) to concrete actions to expand equitable access to essential medicines, and for viral HIV-related medicines to those who need them.

The unwary might get the impression from these statements that the two organizations had been squarely on the side of public interest in this battle between the poor and even middle income developing countries not able to afford the price of medicines and health care, and the pharmaceutical TNCs trying to ensure their patent monopoly and pursuing these rights, in local courts as in South Africa, or at the WTO, through their governments - as the US is doing against Brazil, and the dispute is before a panel - or against Argentina (now at the stage of consultations prior to a panel request).

The WHO’s involvement in developing health legislation in South Africa, resulting in its Medicines Act in 1997 took place, during Nakajima stewardship. After initial silence (as the rest of the UN system) during the Uruguay Round when these agreements to extend the space and rights of transnational corporations were being forged, and forced on the developing world, the WHO and Nakajima initiated studies on the costs to public health of TRIPS, and a report was produced.  The US and pharmaceutical companies reacted strongly; and when Mrs. Brundtland took over in 1998, she began by talking of  WHO and WTO working together.

During the three years that this challenge by the pharmaceutical companies has wended its way in South African courts to its hearing stage, the two organizations, and the UN system,  had in fact taken a low profile and had not come out publicly in support of the South African law or in support of Brazil against the US challenge.

When the news of the case and the impending hearing first hit newspaper headlines a few weeks ago, the spokesman of the WHO was asked about its stand. The spokesman first said that the WHO supported the South African government, but within two hours this was retracted.

And the WTO said it could not comment or clarify what the TRIPS agreement stipulated in these matters.

Though the pharmaceutical companies, and their lobbies everywhere, have attempted to portray the outcome of the South African court case as a “settlement” (a ‘win-win situation’ for all  as Mr. Moore portrays it), it seems clear from all accounts, that the pharmaceutical companies (and their backers - the US, UK, Japan and some European governments) have been quite rattled by the mounting global campaign against the pharmaceutical TNCs, their unconscionably high prices and monopoly profits, and the basic challenges this has unleashed against the TRIPS and IPR regimes, and the WTO where these have been lodged.

In Pretoria High Court Thursday, lawyers for the 39 TNCs told the court that they were withdrawing their case, and would pay the costs of the government in defending the case so far.

It seemed apparent from various reports that the TNCs chose to withdraw rather than face judicial scrutiny and pronouncements, and  public challenges elsewhere from activists, over the TNCs’ claims about the costs of  developing the drugs (justifying the high prices), and wider claims about the need for an international monopoly patent regime for promoting innovation and research and development.

It is not very clear from the initial reports of the High Court order, recording the withdrawal of the case -  whether the High Court in Pretoria agreed to the withdrawal request or, as it would have normally done (under Anglo-Saxon law and practice), recorded that the case had been ‘dismissed with prejudice’   so that the companies could not reopen and fight the case in future.

In similar cases in India (over patent rights and parallel imports, relating to penicillin) over four decades ago, under a patent law regime in India dating back to the British colonial era and the British Patent Act extended to India in 1858, the High Court in Madras dismissed the case ‘with prejudice’. The TNC in that case too had tried to ‘settle’ the case by seeking compromise and willingness to pay costs, but the defendant trader (who had imported the drug for a charitable hospital, from Italy hospital which had no patents on chemicals and pharmaceuticals) declined to compromise and wanted the case to be adjudicated; and when the company tried to withdraw its petition to the court, the court dismissed the case with prejudice. That case led to a Commission of Inquiry under a Judge, and the 1970 Indian patent Act reform on his recommendation, a law that has now to be changed as a result of the WTO and its TRIPS regime.

It would appear that the drug companies in South Africa decided to withdraw, both because of the public campaigns, and even more in the light of the views of the Pretoria High Court Judge. At an earlier hearing he not only refused to give the companies more time, but told them to file their responses to the affidavits before the court, not only from the government, but the briefs of various NGOs, including in particular from the Treatment Action Group (TAC) and other NGOs who had cited from public records to challenge the claim of the companies that they had incurred huge costs for research and development. The NGOs had brought out before the Court that all the research work and costs had been by publicly funded cancer and other health research institutions in the US and UK,  and that the costs claimed by the companies were really ‘marketing’ costs.

The Judge had directed the companies to file a point by point reply, and had said that any point from the TAC and others which are not specifically responded to would be deemed by the Court to have been conceded.

Patents and other statutory rights of intellectual property, have been a response of advanced industrial economies, to deal with a ‘market failure’ that otherwise ensues in terms of innovation - the costs and funding for research and development that an entrepreneur incurs in introducing a new product, and the costless ‘free riding’ for others imitating it, and the ultimate outcome of no entrepreneur spending money on R&D.

But the manner in which the WTO, WIPO. WHO and the UN economic divisions go on talking about how this is the only way to ensure innovation in such public interest and public health areas, or of patent monopolies as the only way to reward innovation is to ignore facts and practice.

As the Oxfam recent report ‘Cut the Cost’ on the prices of essential medicines brought out, much of the ‘innovation’ in the area of public health - in research and development, takes place through public funding and publicly funded institutions. And as the TAC petition to the Court in South Africa, against the companies, has brought out all the AIDS retrovirals were developed by public funding in the US and UK.

The WTO itself (in its subsidy agreement) enables the governments, but only the governments of the rich countries can afford to do so, to fund and ‘subsidize’ upto 80%, the research costs of the corporations.

And whether they directly fund public research that results in such drugs as the AIDS anti-virals, or when they enable the companies to write off their R&D expenses, it is public finance that operates.

True, in the mercantalist and neo-mercantalist philosophy under which the highly advanced industrialized countries run their ‘market system’, the countries promote the cause of their corporations so that they can garner profits abroad, and within their own countries - with either private health insurance (as in the US), or public health schemes (as in Europe), picking up the costs of the medicines upto 80-90 percent.

In fact in the Uruguay Round talks on TRIPS, and the entire course of negotiations, and repeatedly at every stage, the GATT secretariat (in various compromises floated by then GATT Director-General and his officials, first on the mid-term review deadlock of 1989, and later in the post-Brussels deadlock in TRIPS negotiations) sided with the corporate interests against the developing world. The TRIPS agenda was driven by two forces - the pharmaceutical lobby of the US and Europe, and the US computer software and audio-visual industry of the US, who wanted an international regime to assure them of the rentier incomes abroad for their products.

But an outcome of this method, of national patent monopolies for pharmaceutical firms balanced by public interest needs of the advanced industrial economies, being extended globally, has been that the companies expend money on R&D and develop medicines that ‘alleviate’ pain or keep the illness under ‘control’, or on minor modifications to increase life of patents. They don’t undertake R&D for drugs to eliminate or eradicate disease. The former course ensures that sales and profits keep growing, while the latter would enhance public health, but won’t ensure rentier incomes.

This, if any thing, is a clear case of ‘market failure’, generated or abetted by state actions, and international regimes created by the dominant states to benefit their corporations in the name of free trade.

Until the powerful lobby of AIDS patients in the United States took it up, the US government was riding hard on developing nations everywhere on the TRIPS; in bilateral and regional free trade agreements, and in negotiations for accession to the WTO (including with China), the US has been pushing for a Trips plus regime - for even more monopoly rights than provided by TRIPS, and seeking to foreclose the limited rights under TRIPS for compulsory licensing and parallel imports.

When the problem of the AIDS pandemic in Africa came up as a health, and then an economic and development issue, the US government (under president Bill Clinton and Vice President Gore), tried to pressure South Africa against generic drugs and compulsory licensing. It was only later, after the public outcry, from the AIDS lobby and the Gay movement and other groups that supported the Democrats, that the administration beat a retreat.

First, money was offered (as loan) by the Ex-Im bank, and the World Bank to finance these imports by poor countries. And the pharmaceutical companies talked, but did not act, about cutting prices or donating drugs.Only when all this was exposed as a fraud, did the US come out and say that it would not take up at the WTO complaints against African nations over violation of TRIPS for providing AIDS drugs.

A news analyst, Andrew Pollack,  in the New York Times of April 20, has pointed out that the big pharmaceutical companies  till now “have been marching to a steady chant that patent protection is essential for innovation” and with the US government pressing other nations to honour patents. But the industry may now have ‘overplayed’ its hand, and the industry has ‘fuelled the backlash by staunchly defending its intellectual property in the face of a pandemic that could claim more lives than the Black Death of the Middle Ages.”

The uproar over AIDS drugs, the analysis points out, is now threatening “more globalization” promoted by WTO/TRIPS, and the activists against FTAA are campaigning against it saying the US wants more patent protection than even TRIPS.

And a trade group representing Canadian generic companies is quoted as saying that TRIPS agreement was the greatest political economic achievement of the pharmaceutical industry, but “now it’s coming home to roost... Can the world afford it? Is it ethical?”

But more, a person who ran health care under former President George Bush, Gail Wilensky, is quoted in the New York Times analysis, as advocating ‘shortening the life of drug patents’ to let competition lower drug prices, as an alternative to regulatory options (like fixing price of drugs).

“We have moved more towards increasing market power of pharmaceutical companies than we wished to,” Dr. Wilensky is also quoted as saying.

Also, the US National Institute for Health Care Management Foundation, an organization supported by health insurers, has pointed out that the effective patent life for some drugs had grown from 8 years in the early 1980s to 14-15 years now.

Interestingly, the elaborate paper prepared by the WTO secretariat for the recent meeting in Norway on essential drugs at affordable prices for developing countries, did not even flag the idea of reducing the life of the patents for medicines or of strengthening the right of countries for compulsory licensing, but of how to ensure corporate profits through measures to prevent parallel imports.

No wonder, the public interest NGOs, are gearing themselves for a ‘shrink or sink’ campaign against the WTO on the eve of Doha, with the aim of directing their guns at the TRIPS, TRIMS and other issues not related directly to trade, and the heavy subsidies provided to the major agri-business corporations of the North under the agricultural subsidy schemes - all in the name of protecting the poor small farmers and rural life. – SUNS4880

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

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