PHARMACEUTICAL INDUSTRY IN EUROPE
6. TRIPs and pharmaceuticals
6.4 TRIPS BUILT-IN FLAWS
IP institutions, such as WIPO. Established on the basic WTO principles of national treatment and most-favoured-nation treatment, the TRIPs agreement specifies the minimum standards of IP protection required by member states.
It incorporates previous IP treaties and, using its own provisions, provides a detailed technical guide for IP protection. It also set clear implementation dates for developed (1996) developing (2000) and least-developed countries (2006).
TRIPsʼ mechanisms for dispute settlement and enforcement greatly enhance its operational capacity. The former allows WTO members to use the DSU process:
indeed, the US and the EU have actively used the DSU in order to resolve TRIPs- related disputes. The latter requires WTO members to adopt civil, judicial and criminal procedures, including tools such as specific injunctions, damages for injuries, destruction of infringed goods and border control measures, which allow for the effective enforcement of IPRs.
The Council for TRIPs is the main body responsible for the administration, operation and timely implementation of the TRIPs agreement. In order to monitor membersʼ compliance with TRIPs obligations, the Council uses a special system of notification, which requires members to notify it of the legislative changes undertaken in order to align membersʼ domestic IP laws with the TRIPs agreement. The Council is also responsible for facilitating discussions and negotiations occurring under TRIPs built-in agenda. Members are required to consider the extent to which the TRIPs agreement needs to be modified as a whole, and to evaluate specific provisions concerning the five-year moratorium on non-violation disputes, the IP protection on geographical indications, and the granting of patent protection to technologies and techniques based on gene manipulation (biotechnological inventions).
cross-licensing agreements), the creation of an advantage outside the market where the innovation took place (tying arrangements and exclusive dealings), the purchase and selling of technologies for reduced or excess prices, restrictions on the use of licensed technologies, and so on.53 IP holders can also adopt strategies aimed at expanding the scope and duration of their market monopolies.
According to Machlup, patentees may choose to engage in the ʻsuccessive patenting of strategic improvements (either by timing or delaying their R&D efforts) which make the unimproved inventions commercially unusable after the expiration of the original patentʼ.54 Moreover, as mentioned in Chapter 3, patent owners tend to disclose partial and incomplete information to the patent office thereby forcing competitors to invest additional resources in order to obtain essential know-how capabilities.
Despite the above, it is very difficult, if not impossible, to make a distinction between abusive practices embedded in the international IP system, particularly due to its monopolistic and restrictive features, and abusive practices occurring beyond the system. Penrose had already made this point with regard to patents back in the 1950s: ʻThe term “abuse of the monopoly” is extraordinarily misleading. For the most part the so-called “abusesʼ are merely some of the costs that are inherent in the patent system and are only rarely connected with any malpractices on the part of the patentees.ʼ55 Furthermore, some practices, such as corporate mergers, which are not directly related to the field of IPRs, may have a profound effect on the state of competition in a given IP area. For instance, the Ciba-Geigy/Sandos merger (now Novartis) raised serious questions about the overall competitive and innovative structure of the market for gene therapy in Europe.56 The merger was approved only after both companies, which at the time were the dominant IP players in that field, agreed to certain compulsory licence conditions.57
Facing the risk of abusive behaviour on the one hand, and the difficulty of identifying such phenomena on the other, the TRIPs agreement lacks the practical ability to prevent anti-competitive practices. Art. 8.2 provides a general, albeit vague, statement on this issue: ʻAppropriate measures, provided that they are consistent with the provisions of this agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect international transfer of technology.ʼ What makes Art. 8.2 ineffective is the absence of specific provisions that describe, in greater detail, various practices that may be considered abusive under a regime of IPRs. One exception is TRIPsʼ reference to anti-competitive practices in contractual licensing. TRIPs states that some licensing practices or conditions pertaining to IPRs ʻmay have adverse effect on trade and may impede the transfer and the dissemination of technologyʼ (Art. 40). Though not elaborating which contractual practices may be considered abusive, Art. 40.2 does allow for WTO members to make such
specifications under their own domestic laws. The article also provides a few examples of abusive contractual practices: (1) exclusive grantback conditions – when a licensor forces a licensee to grant him or her the exclusive use of any improvement to the licensed technology; (2) conditions which prevent the licensee from challenging the validity of a patent, and (3) coercive package licensing which forces a licensee to acquire from the licensor technologies in excess of those required by the former.58
6.4.2 Insufficient Assistance to Countries with Low IP Capabilities WTO members with low IP capabilities, mostly LDCs but also developing countries, are bound to face considerable obstacles in the process of TRIPs implementation. Many of these countries have incompatible, and in some cases non-existent, IP mechanisms both at the legislative and operational levels.59 For LDCs in particular, the combination of low-technological basis, non- industrialized economy, and insufficient public IP awareness, would make it very difficult to establish an IP environment suitable for the TRIPs agreement.60 In these countries, the costs expected from the increase in IP protection also include administrative costs. In Bangladesh, where partial IP mechanisms existed prior to TRIPs, the expected costs of judicial work concerning the agreement were estimated at more than $1 million annually over the 10-year implementation period, plus $US 250 000 one-time costs for legislative drafting.61 Estimates did not include recruitment and training of new staff and the establishment of adequate institutions for the enforcement of IPRs in that country.
Hence, there is strong linkage between the level of assistance provided to countries with low IP capabilities and their ability to implement the TRIPs agreement. In fact, three different articles in TRIPs require that developed countries provide technological, technical and financial assistance to countries with low IP capabilities, particularly to LDCs. Referring to technology transfer in general, Art.7 states that
the protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social economic welfare and to a balance of rights and obligations.
More specifically, Art. 66.2 requires that developed countries provide incentives to enterprises and institutions in their territories in order to promote technology transfer to LDCs. According to Art. 67, developed countries should provide technical and financial assistance to developing countries and LDCs.
Despite such requirements, the current state of play (2000) suggests that IP-intensive countries (that is developed countries) do not provide adequate
assistance to countries with low IP capabilities. Maskus argues that lack of active technology-transfer initiatives from developed countries generates ʻconcerns that technology exporters do not intend to employ TRIPs in a manner that would be seen as internationally equitable by technology importersʼ.62
Moreover, lack of clear mechanisms and specifications regarding the transfer of technologies, and assistance in general, to countries with low IP capabilities makes this aspect of TRIPs even more problematic and incomplete. UNCTAD, in its Least Developed Countries 1998 Report, noted that although ʻthe promotion of technological innovation of transfer of technology is one of the objectives of the TRIPs Agreement, there are hardly any operational provisions to put it into effectʼ.63 A number of LDCs, such as Haiti, asked the Council for TRIPs to put the issue of technological assistance (Article 66.2) on top of its agenda, as they were uncertain about the ways in which developed countries carried out their obligations.64
During preparations for the Seattle Ministerial Conference in 1999, several LDCs and developing countries emphasized the weakness of the TRIPs agreement with regard to technological and technical assistance. Colombia, for instance, proposed to amend Art. 7 – the transfer and dissemination of technologies – in order to give it ʻteethʼ. It argued that ʻso far no specific mechanisms have been implemented to attain this objectiveʼ.65 The ʻAfrican Groupʼ, represented by Kenya, proposed to improve Art. 66.2 – incentives to LDCs – in order to make it much more effective and operational.66
It should be noted, however, that some progress has been made in the area of technical assistance, particularly by inter-governmental agencies. International organizations and institutions, such as WIPO, the World Bank, and the WTO itself, provide technical, educational, and to some extent technological, assistance to LDCs in order to promote TRIPs benefits in these countries.67 In this regard, Primo-Braga and Fink identified four main areas of assistance to developing and least developed countries:68
1. Supporting the IP reform process – whereby inter-governmental organizations could serve as ʻhonest brokersʼ in raising awareness to the pros and cons of IPRs.69
2. Implementing reforms and building IP institutions – using bilateral and multilateral assistance (training patent examiners, promoting the use of modern information and communication technologies in the area of patents and trademarks, and so on) that could lead to cost-effective IP administration and also promote international cooperation.
3. Enhancing the environment under which IPRs operate – developed countries and non-governmental agencies should assist countries with low IP capabilities to develop ʻbenignʼ IP policies, such as those focusing on competition rules, access to biological materials and the protection of
traditional knowledge. Assistance should also focus on technical elements, such as licensing and material transfer agreements.
4. The final aspect focuses on improving and increasing the understanding of the social and economic effects of IP protection. Here, Primo-Braga and Fink argue that international organizations and agencies could sponsor more research focusing on the role of IPRs in the economic development process, using country-specific and sector-specific data.70
Thus, while the TRIPs agreement is a priori biased in favour of the interests of IP intensive countries, it also presumes to restrict potential abusive acts undertaken by IP owners, as well as creating a system of incentives for countries with low IP capabilities. The TRIPs agreement is ineffective in both aspects.
In the case of the former, and in spite of a wide range of non-competitive and abusive practices that are linked to IPRs, it is very difficult to make a distinction between practices embedded in the international IP system and practices undertaken beyond it. That, combined with the fact that Art. 8.2 in TRIPs is too general, reduces the ability of the TRIPs agreement to establish adequate mechanisms that would limit the potential and actual IP anti-competitive and abusive practices.
The TRIPs agreement is also highly problematic with respect to the technological, technical and financial assistance provided to countries with low IP capabilities, particularly LDCs. TRIPs provisions offer little information about the ways, methods, timetables and the level of assistance that should flow from developed countries to developing countries and LDCs. Inadequate assistance to these countries is particularly acute in light of the considerable short-term and medium-term costs that countries with low IP capabilities should expect from implementing a strong IP regime such as TRIPs.