Pharmaceutical Industry Profits of US Cos. vs. Millions of Lives

THE United States government and the US pharmaceutical industry are fighting hard to prevent the compulsory licensing of essential drugs, particularly AIDS drugs, in developing countries. Already pressure has been brought to bear on the governments of Thailand and South Africa to safeguard the profits of US pharmaceutical interests against the needs of the affected people.

The problem for developing countries is not whether compulsory licensing of pharmaceutical is legal, because it clearly is legal. The WTO agreement on intellectual property (TRIPS), allows compulsory licensing aimed at combating public health emergencies. But developing nations wishing to invoke compulsory licensing to combat diseases like AIDS, that are real medical emergencies in many places, face sanctions from the United States government, for doing things that they have a legal right to do, but which the United States government does not like. With the rate of HIV (AIDS) infection slowing in the United States and Western Europe, pharmaceutical and biotech companies with anti-HIV products, may be expected to turn to the South to expand markets, worth billions of dollars.

Certain drugs hinder the ability of HIV to multiply inside the body and thus help to keep HIV-positive people from developing full-blown AIDS. Sales of these (called anti-retrovirals) drugs total U$3 billion a year. Several such drugs were developed by the US government (with public funds), which has given exclusive licenses to various US companies to make and sell them. For instance, the US governments’ National Institute of Health financed, researched and patented Didanosine (DDL), a drug used in triple-therapies, but gave an exclusive licence to the US pharmaceutical company, Bristol-Myers Squibb, to manufacture and market DDL in return for a royalty of five to six percent of net sales. Thus, Bristol-Myers Squib, which has not paid for the research and development of the drug, is permitted to maintain its monopoly on DDL, and permitted to charge high prices, while poor patients are unable to purchase the drug, and may die.

The drugs cost about $1,000 a month per patient. Less than one per cent of AIDS drugs are sold in sub-Saharan African countries. To get over this price barrier, compulsory licensing could be the answer. The price of most AIDS-related drugs could be reduced 50-90 percent if countries in which AIDS has effectively become a national health emergency could produce generic or non-brand name versions of patented drugs via a compulsory licence, a well-established practice in the patent field.


A compulsory licence is given to one or more companies by a national government to use a patent, copyright, or other form of intellectual property within the country, without the authorization of the patent holder, but in return for some compensation to the latter, usually 1-10% of sales. Many compulsory licences are issued in the US for public interest reasons, or to promote more competition in business. The US government has issued compulsory licences to the army on satellite technology and night-vision glasses; to various companies on technologies to reduce air-pollution; on nuclear technology; for music and television programming; and in the biotech industry to other biotech and pharmaceutical companies.

In cases involving anti-competitive practices, US courts award compulsory licences without any compensation to the IPR holder. Recently about a score of states in the US have petitioned the Federal Government to allow compulsory licensing of the widely used computer software – Windows – the rights for which are held by Microsoft (owned by Bill Gates). Thus, while US domestic laws allow compulsory licences, both on the grounds of safeguarding national interests and as an anti-monopoly measure, the US has steadfastly stood against the use of this provision on these very same grounds, in the rest of the world.


When the Thai Govt. wanted to invoke the Compulsory Licensing provision to produce DDL as an anti AIDS drug at cheaper costs, the US government persuaded the Thai government not only to drop its plans for compulsory licensing of DDL, but also to change its patent and trade laws to outlaw compulsory licensing altogether. It threatened to reduce Thailand’s access to the US market for its jewellery exports, one of Thailand’s major sources of foreign exchange, while at the same time offering to cut tariffs on Thai jewellery and wood products entering the US market.

The US government also employed a similar tactic in South Africa – pressured by the pharmaceutical lobby. In South Africa, it is estimated that 20% of pregnant women have HIV/AIDS and that 100,000 children were orphaned by the virus in 1998 alone. The price of anti-HIV drug treatment as set by companies such as Bristol-Myeres Squibb, would amount to almost 40% of an average worker’s salary. In 1997, South Africa amended its national legislation to allow compulsory licensing of patented AIDS drugs so that local companies could make and sell cheaper generic versions. South Africa also passed a law, in 1997, that would permit parallel importing – the practice of buying brand-name drugs from a third party in another country rather than directly from pharmaceutical companies, since sometimes lower prices are charged in one country than in another.

Implementation of the legislation had however, to be suspended when some 40 drug companies challenged the proposed legislation in the South African courts. In the meantime, the US put a wide range of trade sanctions on South Africa, including denying it tariff relief on certain exports. As a response to this AIDS activists in the US disrupted Vice President Al Gore’s presidential campaign with a series of protests over his support for U.S. policy on pharmaceutical patents. Demonstrations, organized by the advocacy group ACT-UP and the national coalition AIDS Drugs for Africa, saw activists waving banners dubbing the Gore 2000 campaign “Apartheid 2000” and declaring that “Gore’s Greed Kills.”

As co-chair of the US-South Africa Binational Commission, Gore had threatened to impose trade sanctions against the African country unless its President, Thabo Mbeki, retreated from his insistence on the domestic production of patented AIDS drugs. Ironically, though Britain and the Netherlands get 8-10 percent of their drugs through parallel imports, the United States is not threatening them with trade sanctions.

Faced with sustained protests within its shores, the United States had to withdraw its threat of sanctions in South Africa. But it continues to try similar methods of coercion in other countries to stop compulsory licensing of life-saving and essential drugs – thus ensuring extremely high prices of drugs in developing countries. Here it may be pointed out that pharmaceutical expenditure accounts for a substantial part of the health budgets of most developing countries

Meanwhile it may be pointed that economic globalization has contributed to the resurgence of many infectious diseases and the emergence of new ones. Today’s medical research is highly skewed in favour of heart diseases and cancer as compared to other diseases like malaria, cholera, dengue fever and AIDs, which kill many more people. Just four per cent of drug research money is devoted to developing new pharmaceuticals specifically for diseases endemic in the developing countries.

To put it another way, less than 10% of the $56 billion spent each year globally on medical research is aimed at the health problems affecting 90% of the world’s population. Even with extended and enforced patent protection in the countries of the South, it is unlikely that Western companies will devote much effort to research which might benefit “financially non-solvent populations”. Some drugs developed in the 1950s and 1960s to treat tropical diseases, on the other hand, have begun to disappear from the market altogether because they are seldom or never used in the developed world.


The multilateral system is supposed to be a strength for the weaker members, mainly through its subsystem of rule-based dispute settlement. But if India’s experience were to be reviewed, our gains have been minuscule. The USA is reported to have withdrawn their case against us in respect of our not very significant exports of woollen blouses and shirts. But we received a stinging adverse finding in the US case against us in regard to the non-provision of EMR and mailing box for product patents, in our Patents Act. The panel decreed that the government of India must ensure a proper amendment to patent law, and that it cannot take recourse to mere executive arrangements to discharge its obligations, notwithstanding any different opinion the government may hold on this issue. This amounts to laying down the legislative business for the sovereign Parliament!

The Appellate body of the World Trade Organization had also issued a Report ( August 23, 1999), rejecting legal issues raised upholding a dispute settlement panel ruling against India over its quantitative restrictions maintained on grounds of balance-of-payments. In the BOP case, India after some protracted talks in the BOP committee, had agreed to ‘phase-out’ its BOP restrictions over a 5-7 year period, with restrictions kept on a few ‘very sensitive’ items till the end. While this was ultimately accepted by other industrialized nations, the US did not, and blocked any decision at the BOP Committee, challenged the Indian restrictions through a dispute, seeking their immediate withdrawal.

The background to this is that the IMF, whose views about adequacy of reserves and BOP is to be accepted, had said that India had sufficient reserves to remove quantitative restrictions quickly. Secondly it add that if India adopted a different macro-economic policy, and supplemented it with structural changes of ending reservation of production for some products in the small-scale sector, and agrarian reforms (meaning more market agriculture), the need for BOP restrictions would be obviated.

In simple language, the ruling has finally buried the only substantive right conferred on developing countries by GATT 47. The process of dilution of this right, which started in the Tokyo Round of negotiations way back in the seventies, has thus been taken to its logical end by formally extinguishing our claim to exercise autonomy in managing the external trade regime so as to safeguard our external financial position. Also, in one fell blow, the safeguards that India had claimed in the Uruguay Round negotiations for its agriculture against the cheap imports of agricultural products from the heavily subsidized agribusiness of the USA and EU, have been demolished.

The rulings of the Dispute Settlement body in WTO reflects not merely a bias against the weaker members – it is a positive bias in favour of the USA. Whether it is punitive missile and air strikes iagainst Iraq, Sudan or Yugoslavia, or whether it is the unilateral withdrawal of trade concessions, the logic is the same. The strong will not always wait for the multilateral, rule-based bodies to deliberate and decide the fine points of law, or the basic issues of justice and equity within the framework of the comity of sovereign nations. They will go ahead using their might, and the multilateral bodies will be expected to write the fine print in due course.

Significantly, the WTO dispute settlement panel has ruled that the US trade sanctions law (Sections 301-310), is not violative of WTO trade! This comes in the background of the fact that more than half of the world’s population in 75 countries is subject to unilateral coercive economic measures or ‘sanctions’ by the United States of America – according to a recent report by the United Nations. The report states,

“Unilateral economic measures as a means of political and economic coercion against developing countries” (A/54/486), was considered by the UN General Assembly as part of the macroeconomic policy questions related to trade and development. During the past 80 years, sanctions by the US have been imposed on various countries on 120 occasions, 104 of them since the Second World War. Such unilateral measures were used against 75 countries accounting for 52% of the world’s population during 1998.”

In the WTO context, it could hardly have been otherwise. While negotiating the approval of the Final Act of the Uruguay Round Negotiations with its legislature, the US Administration had given an explicit understanding that if three successive findings of the dispute settlement mechanism of the WTO goes against it, the USA would pull out of WTO. With this sword of Damocles hanging over their heads, it is naive to expect that the panels of WTO would dare invite the wrath of the USA in any major dispute affecting her interests.