[Guest Column]Fighting the Brazilian patent wars

Drugs offer incredible medical benefits. Everyone wants to take them.

Drugs cost a lot to develop. No one wants to pay for them, as Brazil has demonstrated in preparing to steal several pharmaceutical patents.

The tension between access to existing medicines and creation of new ones is particularly stark in poor nations. Activists routinely vilify pharmaceutical companies, but only extensive firm research & development generates the products that keep tens of millions of people alive. Leading companies widely discount and donate their drugs throughout the Third World.

However, even residents of rich countries don`t want to pay for life-saving medicines. Most industrialized states impose price controls on drugs, blatantly free-riding on American scientific creativity.

Other states make even less pretense of respecting the property rights of U.S. drugmakers.

Brazil has the largest economy in Latin America, ranking 11th in the world. Yet Brasilia believes that other nations - or, more accurately, companies from other nations - owe it a medical free lunch.

International rules allow use of compulsory licensing of patents in public health emergencies. Brasilia, however, has never let juridical niceties stand in the way of forcing down drug prices.

In 2001 Brazil prepared to issue a compulsory license for Viracept (nelfinavir), an AIDS drug. Hoffman-La Roche accepted a 40 percent cut on its already discounted price.

Two years later Brazil demanded price cuts from Roche, again, as well as Bristol-Myers Squibb and Merck. Brasilia prepared a formal decree authorizing importation of "any generic medication in case of a national emergency or in the interest of public health." Even more ominously, Health Minister Humberto Costa indicated that Brazil would provide discounted AIDS medications to its neighbors.

The companies gave in.

Brasilia was not broke. It simply wanted to save money. Explained Dr. Paulo Roberto Teixeira, director of the Brazilian National STD/AIDS Programme: "In previous negotiations, we managed to get the prices of these drugs reduced, but now we want to lower the costs even further."

Brazil is playing the extortion game again. Brazilian officials are demanding that Abbott Laboratories, Gilead Sciences, and Merck turn over their R&D through "voluntary licensing," allowing Brazil to produce generic copies. The lower house has voted to suspend patents on AIDS drugs.

At the end of June the government announced that it was going to appropriate Abbott`s Kaletra. The company has two weeks to make a counter-offer. Gilead Sciences and Merck are next on the target list.

Again, money is the issue. "Even with recent price reductions that we obtained from drug producers, the total cost of retroviral drugs is growing in an unbearable way," claimed Jarbas Barbosa, a health ministry official.

Washington generally has no duty to protect the profits of American firms operating overseas. But it must penalize Brazil if the latter steals drug patents.

The consequences are potentially dire, and not just for U.S. firms. Antiretrovirals exist only because profit-minded drugmakers spend tens of billions of dollars annually on R&D.

That investment must cover not only the successes, but also the failures, which are many. Even larger outlays will be necessary to develop a vaccine for HIV/AIDS, as well as cures for a multitude of other serious diseases.

It would be bad enough if Brazil stole American medicines for its domestic market. But if Brasilia begins exporting generic substitutes, it could destroy pharmaceutical innovation worldwide.

Washington first should help educate Brasilia. India was once a celebrated patent-breaker, but now sees pharmaceuticals as an emerging industry and has instituted a legal regime to protect intellectual property.

The United States also should indicate that Brazil`s behavior risks disqualifying it from joining any free trade system including America. If Brasilia misuses patent provisions intended to meet a health care emergency, Washington should file a complaint before the WTO.

The United States should consider direct sanctions as well. Brazil certainly would not deserve preferential access to the American market under the Generalized System of Preferences program. The U.S. Trade Representative already is reviewing Brasilia`s participation while assessing the effectiveness of Brazil`s new system to combat copyright privacy. The Bush administration also could use a Special 301 investigation to penalize Brazilian exports.

Moreover, Congress could empower the USTR to suspend recognition of intellectual property rights for companies headquartered in countries that violate American copyrights and patents. Obviously, a trade war is in no one`s interest. But if Brazil hopes to become a significant economic power, it should stop free-riding on American pharmaceutical innovation.

If people won`t pay for their medicines, drugs won`t be created. Washington must protect the intellectual property that is creating a medical boon for the entire world.





Doug Bandow is a senior fellow at the Cato Institute. He served as a special assistant to President Reagan. - Ed.