A U.S. Double Standard at the WTO?

Do you think that developing countries will be able to make long-term use of this new precedent in pharmaceutical patent rights?

November 12, 2001

Do you think that developing countries will be able to make long-term use of this new precedent in pharmaceutical patent rights?

The longstanding and determined advocacy by the U.S. government on behalf of the large drug companies underwent a brief — but radical and far-reaching — change recently. It all happened when the United States found itself exposed to the dangers of an anthrax epidemic.

When anthrax spores were first discovered in the mail in Florida, New York and Washington, U.S. officials quickly discovered that the United States was essentially at the mercy of a single drug company, Bayer AG of Germany. The company makes the antibiotic Cipro, the most effective such drug against anthrax.

But rather than make the drug available to the United States at rock-bottom bargain prices, Bayer executives initially played hardball — insisting on a relatively high price for their medication.

Shocked U.S. policymakers and government officials quickly put the company on notice that they were considering breaking Bayer’s U.S. patent by having domestic companies produce cheap, generic versions of Cipro.

Amazingly, the real long-term impact of the company’s stubbornness is less the damage to its own image. However one may view Bayer’s behavior, the real loser in all this probably is not the company — but the U.S. government.

Rather, Bayer has inadvertently triggered a chain of events that, in the end, will help developing countries. Poor countries can now use the U.S. precedent to make a strong case for obtaining cheaper drugs, which they need to fight AIDS and other pandemics in the third world. This is something they have long asked for.

What exactly happened? When Bayer stood its ground during the anthrax crisis, prominent parts of the U.S. political establishment, led by New York Senator Charles Schumer, attacked the company strongly. Schumer suggested that, if Bayer could not or would not produce the desired drug at a reasonable price, the United States should simply open up the gate to generic drug makers to start up their production lines — regardless of the status of Bayer’s patent.

Health and Human Services Secretary Tommy Thompson even ominously referred to resolving the dispute via the U.S. Congress, evidently by passing legislation that would have broken Bayer’s drug patent.

While the whole issue was ultimately resolved without taking this step, the intent was clear — and, perhaps even more important, very popular. No drug company, Americans believed, should stand in the way of their country’s immediate public health concerns.

All of that is understandable, but the U.S. pharmaceutical industry is now desperately wishing it could turn back the clock — and make the recent sequence of events disappear. The industry must be furious at its German cousin for having created a tremendous long-term problem.

How so? The reaction of the U.S. political establishment to Bayer’s insistence on its intellectual property rights means that the U.S. pharmaceutical industry has effectively lost its most valuable asset in international trade negotiations. That is the strong shield of intellectual property right preservation maintained by the U.S. government on behalf of U.S. companies around the world.

Without a doubt, the term “double standard” will from now on become the key defense raised against any charges of patent violations brought by U.S. pharmaceutical companies. With the U.S. public scared about anthrax, it is apparently all right to threaten to take away the patent rights of a company that does not cooperate.

But when Brazil, India, or South Africa worry about AIDS, which in some countries is wiping out not just a few people, but 20% or more of their populations, allowing the production of generic drugs is out of the question. If there ever was a double standard, this is it.

Equally important, the impact of the U.S. government’s run-in with Bayer will be magnified by the importance of precedent in the U.S. political and legal systems. Having now established that the intellectual property of drug companies should be subordinate to a government’s public health needs, it will be harder to argue the opposite in other cases — including cases abroad.

What is truly amazing is that, until September 11, the United States was pushing hard to prevent developing countries from doing precisely the same thing that Americans wanted done to Bayer. Following a losing battle with South Africa over patent rights for AIDS drugs, the U.S. government’s efforts have focused on using the WTO talks in Doha to shore up the patent rights of drug companies.

Under strong pressure from developing countries the United States agreed to a “compromise” that stated the WTO’s agreement on intellectual property rights should not prevent WTO members from taking steps to protect the public’s health.

Still, this was not the unambiguous agreement that developing countries sought. And U.S. officials know it. It seems that the United States is fighting hard to keep more advanced emerging economies from doing the same thing it did.

But, one has to wonder why that same rule did not apply to the United States — which, after all, is the richest country in the world and could have easily afforded to buy Cipro at full price. It’s still a glaring double standard that will be hard to sell to much of the rest of the world. And that is also why U.S. efforts to split the opposition among the developing and emerging countries will not work.

There is simply no way in which the U.S. negotiating position in the WTO trade talks can be squared with its position towards Bayer. Something will have to give. And, with the U.S. public understandably nervous over anthrax, it will not be the tough stance towards Bayer. While the administration continues to move ahead with its plans to strengthen the patent rights of drug companies, such a position is clearly unpopular in the United States today.

Meanwhile, for the Brazils, Indias and South Africas of this world, there now is a precedent in the so-called first world of threatening to break a pharmaceutical patent. That this threat came from the U.S. government must be considered almost too sweet to believe by all the governments and activists around the world engaged in the fight over reasonable cost access to medications against many diseases, including AIDS.