Global Insight Perspective | |
Significance | The USTR is to add Chile to its “Priority Watch List”, which includes all trade partners judged to be infringing the rights of U.S. patent holders in the most severe manner. |
Implications | The decision follows lobbying by the U.S. Research and Development (R&D)-based pharmaceutical industry, which has protested against Chile’s failure to adequately enforce key provisions on term adjustments, data exclusivity and patent linkage. |
Outlook | There is little direct scope for action in the short term, as Chile’s downgrading marks the next step in what could turn out to be a convoluted dispute resolution process. The fracas is embarrassing, as it comes at a time when the U.S. Bush administration is seeking approval for other trade agreements in the region, partly on the basis of the success of the U.S.-Chilean Free Trade Agreement (FTA). |
Dow Jones reports that the Office of the U.S. Trade Representative (USTR) is to add Chile to its ”Priority Watch” list of countries found to be infringing the rights of U.S. patent holders. The move will follow an out-of-cycle review initiated in April 2006, which indicates that the Bachelet administration has not achieved further progress on an issue that is close to the heart of the U.S. research and development (R&D)-based pharmaceutical sector. The U.S. government has now announced that it will continue to seek ”constructive engagement” with Chile over the issue.
Chilean Authorities Refuse to Give Ground
Serious concerns over the protection of pharmaceutical patents emerged shortly after the implementation of Chile’s Free Trade Agreement (FTA) with the United States in 2004, after a number of alleged launches of copies of pharmaceutical products developed by U.S. manufacturers. One high-profile case involved Merck & Co. and Schering-Plough’s combination cardiovascular therapy Vytorin (ezetimibe/simvastatin), although local industry association ASILFA denies that any copy product has been launched. Nevertheless, ”half a dozen” U.S. firms are understood to be involved in infringement actions, and the local media has reported incidents involving the Swiss manufacturer Novartis and French drug giant Sanofi-Aventis, although the latter was recently reported to have successfully defended its patent for Plavix (clopidogrel). What is clear is that even high-level consultations with outgoing president Ricardo Lagos in late 2005, and subsequent discussions with the successor administration of President Michelle Bachelet, have failed to bring about positive progress on the issue.
Existing Mechanisms Unable To Prevent Copying
The most recent USTR submission by the U.S. industry lobby Pharmaceutical Research and Manufacturers of America (PhRMA) highlights a number of legal mechanisms and loopholes that seem to foster illicit copying in Chile. Among many other issues, the report decries a lack of legislation accompanying the FTA’s introduction of data exclusivity, which forbids regulators from using a manufacturer’s confidential data when evaluating the approval of a competitor product. This is especially relevant as—in practical terms at least—sanitary registrations and marketing approvals are roughly equivalent in Chilean law.
Another thorny aspect of the data exclusivity issue is that any data to be protected must ”not be generally known”, a fact that is—on the basis of common sense—virtually impossible to prove. There are also concerns that Chile’s market competition laws may have undue influence in the patenting process, given that data exclusivity may be denied wherever ”practices contrary to free competition” are identified. The status of any pharmaceutical patent as a natural monopoly means that this definition is of obvious concern for patent owners. Finally, a lack of adequate formal ”linkage” between the health regulator and the national patent office, and poor record-keeping on notifiable cases of infringement are further concerns for PhRMA.
Another mechanism, Supreme Decree 1876, appears to widen the scope for the revocation or refusal of a patent in Chile. Both failure to commercialise a product and existing protection in another ”recognised” market may be interpreted as grounds to deny a local patent. This has led to suspicions that patent holders are faced with a “damned if you do, damned if you don’t” decision when evaluating whether to commercialise a pharmaceutical product in Chile, as failure to market a product may invalidate its patent while marketing it carries its own unique risks. Not least of these risks is the fact that delays in obtaining marketing approval can be as long as three years, allowing generic firms ample time to proceed expeditiously with a copy. Firms are then faced with the unpalatable prospect of mounting a legal injunction to prevent the launch of a copy product at their own expense, and face an uphill battle to receive any compensation for delays in the patenting and registration process.
What Now?
Although there are strong grounds for the move, the USTR’s decision is unlikely to yield results in the short term. The downgrade will not automatically trigger retaliation, and the United States has already expressed reservations over the possibility of a protracted dispute resolution process at the World Trade Organization. Furthermore, as Chile is outside the U.S. Generalised System of Preferences for trade benefits, that particular leverage is out of reach. A more satisfactory option would be to resolve the issue bilaterally under FTA mechanisms. In this regard, one comment by U.S. officials could be a ray of light, as it is claimed that the necessary change ”could also be met through regulations”. This seems to imply that problematic mechanisms could be corrected by decree rather than via a whole raft of new legislation that would have to make it through Chile’s Congress.
However, this depends on the willingness of the Chilean authorities to co-operate in the first place. A number of other interests, apart from those of good relations with the United States, are in play. Chile’s domestic pharmaceutical industry is a regional success story, and dominates a local market that boasts almost no direct manufacturing presence by international R&D-based firms. Moreover, providing affordable healthcare is a mantra for the Bachelet administration as it attempts to progressively expand service coverage. Meanwhile, for the United States, any sign that the Chilean FTA is anything less than a glittering success will impact perceptions of other regional trade deals, such as the pending Trade Promotion Agreement with Colombia. Chilean manufacturers are currently eyeing the Colombian market with interest.
Outlook and Implications
Global Insight expects this long-standing issue to be resolved bilaterally, given the two countries’ mutual interest in amicable trade relations. While the opposition parties can be expected to make political capital out of Chile’s newfound “pariah” status in intellectual property, much depends on the kind of pressure that all interested parties are willing to exert. With PhRMA members reporting copy-related losses in Chile at around the US$100 million mark, the issue of pharmaceutical patents in the country is not entirely minor. However, the future of Chile’s successful homegrown generic industry is even more important.