Intellectual Property and Access to Medicines: Implications of NAFTA Renegotiations

Clinic: Georgetown University Law, Spring 2018

Beneficiary: Oxfam America

Executive Summary

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Mexico is considered a developing country, but its medicine prices tell a different story. Medicine prices in Mexico are some of the highest in the world. For example, the price for a pack of 30 Cataflam painkillers in Mexico in 2014 was $30.77, while in Ireland it was $2.12. At the same time, many households in Mexico do not have health insurance and must pay for medicine out of pocket. High prices accompanied by inadequate health insurance coverage and high rates of obesity with attendant health complications have resulted in a public health crisis.

Mexico pays twenty times more than other Latin American countries for medicines, yet was one of the first countries in the world to sign a free trade agreement with an intellectual property chapter and continues to sign on to trade agreements with strong intellectual property (IP) chapters. Its peers like Chile and Brazil have resisted strong intellectual property chapters and fought for flexibilities in their IP regimes. They also happen to have the cheapest prices medicines in South America. In spite of this evidence that stricter IP regimes may be hurting access to medicines for most Mexican citizens, Mexico has agreed to NAFTA renegotiations, including a renegotiation of the IP chapter. Mexico wants to remain part of NAFTA to eliminate tariffs, increasing trade with the United States and Canada. However, it should be wary of a renegotiated IP chapter, which will likely enhance IP protection at the expense of public health, decreasing access to medicines.

The North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico, which came into force in 1994, was the first free trade agreement (FTA) to address IP rights. One year after NAFTA, the 1995 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) of the World Trade Organization (WTO) became the most comprehensive multilateral agreement on IP. Since NAFTA was concluded, a number of FTAs have been negotiated that include IP protections. The U.S. position on IP has become more comprehensive over time, causing many U.S. stakeholders to view NAFTA as outdated and overdue for renegotiation. Official NAFTA renegotiations, or “NAFTA 2.0”, began on August 16, 2017. The negotiations are comprehensive and cover all NAFTA chapters, but the U.S. Trade Representative (USTR) has highlighted increased IP protection as a particular negotiating objective.

As the U.S. position on IP has strengthened, a number of other stakeholders have challenged the inclusion of stronger IP protections in trade agreements. Strong objections to stricter IP provisions arose in the context of the Trans-Pacific Partnership (TPP) trade agreement, for example, due to the increasing difficulty many countries are facing ensuring access to medicines. The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) was amended to reflect these concerns, and the IP language was scaled back to include more flexible IP provisions.

Although the TPP has transitioned to the CPTPP with new, more flexible IP provisions, the IP discussions under the original TPP negotiations highlight how NAFTA renegotiation might progress. It is likely that the U.S. will press for IP text in the NAFTA similar to the text it had negotiated in the TPP before withdrawing from the agreement, because the TPP text aligns with the USTR’s goals of expanded IP coverage and stronger protection for patent holders. The positions of Canada and Mexico following U.S. withdrawal from the TPP are also telling. Because the United States was the strongest advocate for an enhanced IP chapter in the TPP, most IP provisions were suspended after its withdrawal. Canada, for example, wanted most of the IP chapter suspended after the United States left negotiations and may reject TPP-like provisions in NAFTA, even though it was already substantially in compliance with most of the proposed TPP IP chapter. Mexico may go along with Canada in the NAFTA renegotiations as it did in TPP negotiations.

Since the U.S. will press for increased IP protection in the renegotiated NAFTA, it is helpful to examine the costs and benefits of potential changes to NAFTA. This paper draws upon past models, including the TPP, as an example of heightened IP standards. It then evaluates the effect these provisions will have on access to medicines in Canada, Mexico, and the U.S. Overall, this analysis shows that an enhanced NAFTA IP chapter would threaten public health and access to medicines, create significant costs for national governments, and limit the actions that governments may take to protect public health.

While an enhanced IP chapter in NAFTA 2.0 is likely, it is not necessary or desirable. An IP chapter valuing increased access to medicines over increased protection for drug companies would make medicine more affordable, foster innovation, and give countries greater regulatory leeway. In order to improve access to medicines, several considerations should factor into the NAFTA renegotiation:

1. Longer periods of data exclusivity delay market entry of generics, keeping prices high for consumers and slowing innovation.

Data exclusivity protects the confidentiality of clinical data submitted to regulatory authorities to obtain market approval of a pharmaceutical product. This provision effectively delays entry of generic medicines onto the market, forcing consumers to pay brand-name drug prices for longer. The only alternative for generic producers in the face of long data exclusivity periods is to repeat clinical trials to prove the safety and efficacy of their drugs. Repeating clinical trials wastes time and money. It also raises ethical concerns by putting at risk the health of patients in clinical trials. In the case of biologic medicines, each unit of which often costs thousands of dollars, delayed market entry means a delay in public accessibility to life saving drugs. For biologics that treat cancer or other deadly illnesses, even minimal delays in affordable alternatives may mean the difference between life and death.

To increase access to medicines, NAFTA 2.0 should not include any provisions expanding data exclusivity. If NAFTA 2.0 includes a data exclusivity provision, it should be limited to drugs and not include biologics. Because TRIPS does not include a data exclusivity provision, biologic producers would be able to use the originator’s studies immediately. This would decrease the amount of time spent getting approval, allowing faster market entry for generics and biosimilars, which reduces prices for consumers.

2. Lower thresholds for patentability criteria delay generic market entry by making it easier to get secondary patent protection and would limit the diversity of medicines available.

In order to receive a patent, inventions must be new, useful, and non-obvious, vague categories that countries define as they see fit. It is likely that the U.S. government will propose a lower threshold for patentability in NAFTA 2.0. A low threshold for what is “non-obvious” or “useful” could allow new mixtures of the same drug to be patented, extending patent protection well beyond the original twenty years. A low threshold for “new” could also allow for the patenting of traditional medicines, even though such medicines have been known within certain communities for centuries. By allowing the patenting of traditional medicine and the extension of patent protection for essentially the same drugs, a low threshold of patentability criteria would limit the diversity of medicines available and create significant challenges for accessing medicines in the market.

3. Defining IP rights as “investments” allows pharmaceutical companies to challenge democratic legislation enacted for public health and welfare.

The original NAFTA text defines intellectual property as a right, not an investment. An enhanced IP chapter would broaden the definition of “investments” to include intellectual property. This would allow any company with a patent to bring an action through Investor State Dispute Settlement (ISDS). Unlike domestic courts, ISDS allows companies to sue for violations of their legitimate expectations, leading to expensive litigation in courts that are not bound by national precedent. This means that countries could be liable for a variety of actions traditionally within their power. A rush of expensive litigation could follow and intimidate countries from passing legislation or making actions that investors, including IP companies, don’t like, for fear that a suit will be brought against them. To keep IP litigation in domestic courts, NAFTA renegotiations should either limit the definition of legitimate expectations to specific circumstances or remove ISDS entirely.

4. Adding a “safe harbor” Bolar exemption would allow generic companies to conduct research without fear of patent infringement suits and would hasten the entry of generics into the market.

Bolar exemptions are exceptions to patent infringement that allow a drug producer to use a patented drug for research and testing in order to obtain regulatory approval of a generic version. This means that generic drug makers will not have to replicate studies already done by patent holders, saving money, resources, and unnecessary human testing. This exemption allows manufacturers to get through the regulatory approval process for generics quickly so that they are ready for market entry upon patent expiration. NAFTA 2.0 should add a Bolar exemption similar to the exemption read into TRIPS as a result of a case brought before the WTO dispute settlement body.

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