Brazil’s
Statutory Compulsory License For Lack of Local Manufacturing
Marcos
L. Freitas Levy and Otto B. Licks
This article is the English Version of a Chapter of the book “O Novo Direito Internacional”, published by Editora Renovar in 2005.
Introduction
On February 1, 2001, the
Dispute Settlement Body of the World Trade Organization (WTO) had established a
panel (WT/DS199) to evaluate an aspect of Brazilian patent statute (Law 9279,
of May 14, 1996). Since then, a number of inaccuracies and hasty considerations
regarding the exact purpose of this panel have been reported in the media. Statements from Brazilian government agencies
that are not responsible for representing the nation before the WTO - a task
that pertains to the Ministry of Foreign Affairs (“Ministério das Relações Exteriores” – MRE) - have proven to have
been just as hasty as the media.
In July 2001, the United States
Government issued a statement that it will seek a bilateral resolution of the
dispute instead of pursuing action
through the WTO.
Initially, it is important
to note that the scope of the WTO panel limited solely to only one out of the
seven statutory bases for the granting of compulsory patent licenses under Law
9279/96. The seven grounds under which
compulsory licenses can be granted are set forth in the Brazilian Patent Law as
follows:
1 Art. 68. A patent owner shall be subject
to compulsory licensing of the patent if the owner exercises its rights in an
abusive manner.
2 Art. 68. A patent owner shall be subject
to compulsory licensing of its patent if the patent owners uses the patent in
an anti-competitive manner.
3 Art.
68, § 1, I: The failure to work the patent (each independent claim)
within the Brazilian territory, defined as a lack of local manufacturing,
incomplete manufacturing of the product, or lack of full use of the
patented process.
4 Art.
68, § 1, II: A compulsory license shall be granted if the patent owner
fails commercialize the patent to meet the needs of the market.
5 Art.
70, I: If a patent (such as an improvement patent) is dependent upon
another, a compulsory license shall be granted.
6. Art.
71: A compulsory license may be granted ex
officio in cases of national emergency.
7. Art.
71: A compulsory license may be granted ex
officio in cases of public interest.
The WTO panel’s inquiry was
to be limited to item 3 (article 68, § 1, I), known worldwide as “local
working”. None of the other bases for
compulsory licensing are subject to any question as far as consistency with
Brazil’s international commitments.
The WTO Panel Would Not Review Compulsory
Licensing Based Upon Public Interest and National Emergency
Contrary to what some
Government agencies and newspapers had reported, the compulsory licensing of a
patent due to public interest or national emergency, both set
forth in article 71 of Law 9279/96, were not the subject matter of the
panel set up by the WTO. These grounds of compulsory licensing were not being questioned.
Decree 3201, of October 6,
1999, implements the grant, ex officio,
of compulsory licenses in cases of national emergency or public interest as set
forth under article 71 of Law 9279/96.
According to the statute, a “national emergency case” is defined as the
imminent public danger. Under the same
statute, any facts related to public health are considered as “public
interest”.
Therefore, one must conclude
that the WTO panel could not be considered as a threat to the compulsory
licensing concept. The panel would
analyze only one of seven grounds of compulsory licensing, known as the
requirement of complete and simultaneous local manufacturing of each independent
patent claim in the Brazilian territory, or according to the non-technical term
used by the media, the “local working requirement.” Clearly, this requirement does not affect the
public use of patents by the Government in cases of public interest or national
emergency.
Even though the Government
has been always aware of the limited purpose of the WTO panel, it had
erroneously alleged that the panel could jeopardize the future of government
programs recognized as effective and appealing to the public, such as the
Brazilian anti-AIDS program. This was
not a true statement.
Official documents
substantiating the objective of the WTO panel are available at the
organization’s website: http://www.wto.org.
The Brazilian Patent System, the Pharmaceutical
Industry and Public Policies
Although the WTO panel’s
inquiry did not deal specifically with the pharmaceutical industry matter, the
panel’s inquiry is of interest to anyone who is investing in research. Patent protection and the WTO panel is
particularly important to the pharmaceutical industry because it needs to
maintain its ability to invest in research of new drugs. For this reason, the pharmaceutical industry
has analyzed the issue and came out against the local manufacturing requirement
long before Law 9279 was passed in 1996.
As shown below, to the
detriment of Brazilian society, inventors of new drugs have been discriminated
against for many years, as they were excluded from patent protection. As summarized by Prof. Martin J. Adelman, one
of the most known international patent experts, consumers cannot benefit from
limitations artificially imposed over the return of investments in
pharmaceutical research. According to
Prof. Adelman, a lack of patent protection jeopardizes the development of new drugs
for the population.
In the specific
context of the pharmaceutical industry, for example, the dilemma for
free-riders is that they leave the cost of the development of new drugs “to the
developed world” and hope that the failure to participate will not stunt so
many drugs’ development that the strategy backfires. Moreover, technological
development to meet the free-riding country’s special needs, such as cures for
locally endemic diseases, may not be forthcoming if these needs are not shared
by countries with patent systems that encourage investment in research and
development.
In Brazil, the situation
described by Prof. Adelman has already been studied by Professor Heinz Redwood,
whose conclusions were published in 1995, under the title “Brazil: The Future Impact of Pharmaceutical Patents”. In his paper, Prof. Redwood points out that
there had been no patent protection for pharmaceutical products in Brazil since
1945 and for pharmaceutical processes since 1969. This situation changed only in 1996, with the
enactment of Law 9279 on May 14, 1996.
According to Redwood, the
purpose of eliminating patent protection for pharmaceutical products in Brazil
was to protect national interests by permitting access to new drugs protected
by patent rights. Another goal was to
encourage industrial development and foster research by allowing the legalized
copying of drugs that were the subject of patent protection.
Prof. Redwood teaches that
the Brazilian Government expected that national companies would take advantage
of the opportunity to copy not only through imports, but also by investing in
the local manufacturing of the most promising active chemical substances. Once strengthened, a local industry would
become capable of developing exports and of conducting advanced research.
Contrary to the Government’s
expectations, the prohibition of patent protection for pharmaceutical products
in Brazil had led to other results.
During the 14-year period
that Prof. Redwood studied, the Brazilian companies’ share of the domestic
market increased only two-percent. According to Prof. Redwood’s observations, it
is hard to see any actual benefit that Brazil obtained by eliminating
pharmaceutical patent protection: i) no substantial increase in production or
value added; ii) no significant improvement in the competitive position of the
national pharmaceutical industry; iii) no reversal of the trade deficit; and
iv) no encouragement to research.
Prof. Redwood concluded that
the lack of patent protection for drugs until 1995 did not help in the
increasing of the Brazilian copying industry market share.
Consistent with Prof.
Redwood’s conclusion, Mauro Arruda, former commissioner of the INPI [Brazilian
Patent and Trademark Office], testified in a hearing before a Joint
Congressional Committee that even without
the obstruction of patent rights, the pharmaceutical sector did not develop in
a significant way.
The evidence show it is
wrong to conclude that patent legislation in Brazil has any connection with the
access to medicines in the country, as even with no patents for drugs since
1945, the market share of the industry that does not invest in research has
remained unchanged.
Far from achieving the
Government expectations, the lack of patent protection for drugs had
regrettable consequences, explained through the following example: in 1994, the
same year that the GATT Uruguay Round was promulgated in Brazil, (pursuant to
Decree 1355) reintroducing the patentability of an innovative drug, the country
had, approximately, “a contingent of 4 to 5 million people suffering from
Chagas’ disease in Brazil, most of them over 20 years old.”
According to the same report
published by the INPI, from which the quote was taken, “treatment of Chagas’
disease has become difficult due to the non-existence of effective drugs for
fighting the disease. The possibility of
introducing substances in the blood which might prevent its onset in the new
host has been contemplated for over forty years.”
Given the scenario described
by the INPI, how can scientists be encouraged and investors be convinced of
committing themselves, with their will and funds, to the research of drugs for
Chagas’ disease?
Researching new drugs – for
fighting the HIV virus, Chagas’ disease or any other illness – is a
time-consuming, risky and very expensive task.
To that end, the pharmaceutical industry invested, in 2000 alone, more
than 26 billion dollars. The pharmaceutical industry invests 20.3% of
its sales in the research and development of new drugs. For comparison purposes only, the information
technology and computer software industry invest only 9.3%, and the
telecommunications industry even less, only 5.7%.
The average cost of
researching and developing the drugs that were being marketed in the 90s
exceeded five hundred million dollars (US$ 500,000,000.00) per product. In addition to being very expensive, the
development of a new drug is a risky task for any company, since only three out
of every 10 new drugs have a return, during sales, on the investment made in
research and development.
Only 20% of drugs are
responsible for a 70% return on sales by pharmaceutical labs. In other words, a small group of drugs that
achieve commercial success is accountable for maintaining research, development
and sales of several drugs that would not be in the market without this subsidy
afforded by successful products.
It is such high costs for
developing the products of the pharmaceutical industry that probably caused
Brazilian Prof. Kurt Politzer to recommend, in his deposition at the Joint
Congressional Committee, a pricing policy that might make investing in the
development of processes and products possible, following the example set by
the policies adopted in France and the United Kingdom.
Similar to the music
recording industry, where big-hit artists fund the maintenance of a catalogue
of lower-selling recordings for a very small public, the pharmaceutical
industry also funds with a few products the maintenance of drugs that either
incur a loss or sell very little.
Prof. Adib Jatene, of INCOR
[National Heart Institute], in his deposition at the 21st Hearing of
the same already mentioned Joint Congressional Committee, attested the need to
ensure funds for investment in research and development. The Professor cited as
an example the Brazilian technological experience of a given medical device.
According to Adib Jatene, the product was sold to patients in Brazil at a price
much lower than that of the international market. But this impaired the technological upgrading
because, with such a low price, funds were not generated to continue investing
in research and development.
The requirement of the complete working of a
patent in the Brazilian territory
Article 68, § 1, I, of Law
9279/96 provides that the non-working of the object of a patent within the Brazilian
territory due to the lack of manufacturing of the object of a patent, or
to the incomplete manufacturing of the product, or a failure to fully use a
patented process shall give rise to compulsory licensing.
The provision is applied in
three very different manners. The first
one is the actual application for a compulsory license before the INPI, which
has already taken place with PI8704197-9. The second one is the use of the cited
provision in order to upset any balance in a negotiation between a potential
licensee and the patent owner. As
acknowledged by the report of an NGO on this second manner, “the mere
availability of a local working requirement strengthens the ability to
negotiate.”
The third manner is the use
of article 68 of the Law 9.279/96 for defense purposes in a patent infringement
lawsuit. Article 68, § 1, I, I this case, is used as a means of coercion and
threat in order to dissuade the patent owner to use its rights to prevent from
a condemnation.
All of the three manners cited
above have already been used in Brazil. This fact proves the evident damage
caused to the patent owners through the application of the provision discussed.
Thus, one cannot affirm that there is no damage or use.
The requirement of local
manufacturing of a patent within the national territory is described by the
late distinguished Prof. Beier, of the Max Planck Institute in Munich, as the
most protectionist doctrine of the international patent system. Such doctrine is outdated and unfair to
anyone investing in development, technology and new products.
In a posthumous article
published by the International Review of Industrial Property and Copyright Law
(IIC), Prof. Beier discusses, impartially, the emptiness and decadence of the
obligation to locally work a patent, as this concept is contrary to the patent
system and economic principles:
It soon became clear that the national
obligation to work a patent, the protectionist nature of which is evident, was
contrary to the concept of international patent protection and reasonable
economic principles.
Compelling a patent holder to produce each
protected product in every country, irrespective of the dimensions of the
market concerned and the existence of the remaining framework conditions for
economically sensible manufacture or licensed manufacture, would be utterly
contrary to economic reason and to the principle of the international division
of labor.
In an age of increasing globalization of
manufacture and distribution, an institution such as the national obligation to
work a patent is more than nonsensical.
Where the patent holder does not act unreasonably, but according to
economic principles by producing at minimum expense at the best location, then
he is not acting abusively: “Failure to
work a patent is not an abuse to the extent that the patent is worked at all
and insofar as the needs of the market are satisfied by imports.
As taught by Prof. Beier,
failure to locally work the object of a patent must not be deemed as an abusive
use of the right to exclude third parties, or as an abuse of economic
power. The decisions issued by CADE
[Administrative Council for Economic Defense] show that abuse of rights or
abuse of economic power may occur even when products are manufactured in the
national territory, which shows the absolute non-existence of a relationship
between local work, abuse of a patent right or use of a patent in an
anti-competitive manner.
Likewise, if the selling of
a patented product does not satisfy the needs of the market, whether it be
imported or produced in Brazil, a compulsory license may be granted under the
provisions of article 68, § 1, II.
It becomes clear that there
is no subordinate relationship between the first two possibilities of granting
a compulsory license listed in article 68 (abusive exercise of rights and
anti-competitive use of patent rights) and the other possibilities under §1 of
the same article, such as a compulsory license due to a failure to completely
manufacture in Brazil all independent claims of a patent.
Any interpretation
contemplating a subordinate relationship between the provisions under article
68, §1, such as failure to locally manufacture the patent, and the first two
grounds found in article 68, is overlooking the rules of interpretation and construction
under Brazilian law.
Everyone knows that the
compulsory licensing system in effect until January 1995, created by Law
5772/71, the Industrial Property Code, contained a legislative technique
identical to the one now being challenged.
Article 33, of Law 5772/71
provides that the holder of such privilege who did not effectively manufactured
the patent in Brazil would be obligated to grant a third party a license to
work such patent. However, the same article,
under §1, set forth additionally that, due to public interest purposes, a
compulsory license might also be granted. If the rule of interpretation
defended by some were to prevail nowadays, we would have a situation where the
license due to a public interest would depend on whether the object of the
patent was being produced in the national territory or not.
It is interesting that the
same people who nowadays sustain the dependency relationship of the first two
grounds of article 68 and its paragraphs used to maintain that the first
paragraph under article 33 of law 5772/71 was not subordinated to the article
68. Such is, in other words, an interpretation of convenience.
It is important to remind
that the Law 95/88, a specific statute which provides rules for interpreting
national legislation, contains provisions in a section of which the heading was
entirely vetoed, just as the second section under article 2, the heading of
which was vetoed. In other words, in our
legal system, even the specific law on interpreting legislation has sections
with no heading. If the proposed case
for subordination were true or correct, examples like this simply could not
occur.
Moreover, it is always good
to bear in mind that the language of the first paragraph under art. 68 provides
that: “likewise the following shall also result in a compulsory license”
this clearly shows that there are additional possibilities besides the two
listed in the beginning of article 68.
The requirement of complete work of the object
of a patent in the national territory: an injustice detrimental to Brazilian
consumers
A lot has been written about
the requirement of complete working of the object of a patent within the
national territory without an actual knowledge of what such a statutory
obligation mean. Mistakenly, many sustain the requirement to manufacture “the
product” locally without understanding that, most of the time, there is no
direct relationship between a product in the market and a specific patent.
First of all, the
requirement contained in art. 68, § 1, I of Law 9279/96, compels the holder of
patent in Brazil to manufacture, within the national territory, simultaneously,
any products potentially infringing all elements of each independent
claim of a patent. No matter how many claims the patent may
contain. This is much more than requiring the local manufacture of a specific
product.
The INPI has affirmed such
interpretation in a few more than four hundred decisions regarding forfeiture
cases, all of them prior to implementation of the Uruguay Round. The interpretation
repeatedly expressed by the INPI regarding the requirement for “actual working”
of the object of a patent within the national territory under art. 33, §3 of
the former Industrial Property Code (Law 5772/71), was that the owner of a
patent about to be forfeited should work the patent to its fullest
extent. In other words, the legal
obligation was the same, however, whereas under Law 5772/71 the penalty was the
forfeiture of the patent, and nowadays the penalty imposed is a compulsory
license in the manner provided by art. 68, § 1, I of Law 9279/96.
As an example, one might
mention an opinion for the forfeiture of patent PI 6677387 (RPI 1693, of
1/13/1984), due to non-working of only one among several independent
claims. In such opinion, the head of
DIQUOR mentioned that the “[i]nvention must be used as described in the
specifications and claims, and work must be related to the entire claim chart.”
As the opinion points out,
patent PI 6677387 was granted to protect compositions (Claims 1 through 4);
process for obtaining (Claim 5); and a process for controlling a system (Claim
6). The patent owner proved, as provided
by art. 33 § 3 of Law 5772/71, its actual use of the patent, with the exception
of a single claim. In other words, out
of six claims, five were worked in the national territory by means of local and
simultaneous work. Only one was not
being worked in Brazil.
Seeking to avoid the
forfeiture due to non-work of a single claim, the patent owner alleged a reason
of force majeure grounded on the
“difficulty of locally working the process due to the need for highly complex
plants requiring such large investments and execution time as would be
incapable of being solved in the short time period established by article 49
(a) of Law 5772/71.”
Nonetheless, such argument
was rejected by the INPI. Due to the lack of evidence that the patent had been
actually worked with respect to claim 5, the INPI declared the
forfeiture of patent PI 6677387 in its entirety, and concluded that “[t]he
holder was required to use the patent as to its fullest extent.” There are several other examples that are
just as draconian as the one described herein.
Perhaps the most important
and illustrative example is the decision of the Court of Appeals for the
Federal Circuit (nowadays the Superior Court of Justice), which affirmed that
the requirement of working all independent claims of a patent in order to avoid
forfeiture also applied to compulsorily licensing patents.
In an elegantly-drafted
appellee’s brief (at pp. 359-368 of the court files), grounded on an opinion by
its President’s advisor at the time, Nelida Jassen (at pp. 107-113), the INPI
sustained that:
A patent will
always be one and indivisible, in the legal sense, and there is no requirement
of unity of the working process (...)
If some times it
is possible – technically and physically – for a patent to be worked in a
fragmented way, its partial work is never possible legally, to the extent that
such would entail an illegal use of the monopoly granted (...)
In fact, as
clearly provided in the Industrial Property Code, partial use is not in any
event actual use, whether for forfeiture or for licensing purposes.
The INPI acted
properly, in a lawful and legal manner, upon granting the license. The Honorable Judge a quo was quite correct in upholding the granting act (...)
As for the
uncanny case for granting a compulsory license only for the non-used portion,
legal rules do not at any time admit such an event.
In the pharmaceutical
industry, a patent application must be drafted and filed long before any
clinical studies are begun, or a better formulation and use of a “promising
molecule” are defined for a pharmaceutical product. Patents are filed and granted almost 10 years
prior to the release of any product in the market. Several independent claims are perhaps not
being “worked within the Brazilian territory” because of a lack of conclusive
safety and efficacy studies. On the
other hand, other claims are perhaps not being “worked” precisely because of
the existence of studies produced after the patent was granted, which show
additional and as yet unsolved technical problems.
Almost all pharmaceutical
products that have patent protection are produced after having a market
approval duly issued by ANVISA. Since in order to ascertain a product’s
safety and efficacy, ANVISA requires testing that takes approximately 10 years
to be ready, no patent meets the legal requirements for complete working of its
subject in Brazil within this deadline.
This is just one of the
reasons why patent owners are outraged, as they see such statutory requirement
as unfair and potentially detrimental to Brazilian consumers.
Additionally, independent
claims in the same patent can be produced in Brazil, but not simultaneously.
Accordingly, if a certain
patent for a pharmaceutical product contains a claim for an ethical product,
and another claim for an over-the-counter (OTC) product, the legal requirement
of art. 68, § 1, I, would be met only if the patent owner had two products in
the market at the same time, and were working all claimed elements in the
national territory.
This statutory requirement
is so difficult to be met that not even the patent of the well-known
sterilization system and product (PI8302255) invented by Brazilian genius
Alintor Fiorenzano Jr., and sold under the trademark Sterilair, would be
capable of reaching what the law requires, since it would not have all
independent claims produced continually and simultaneous within the established
deadlines.
According to the definition
contained in art. 68 , §1, I, the work, import and distribution , albeit almost
in the totality of the patented object, are insufficient to meet the statutory
requirement. Manufacturing a large part
of the patented product also does not satisfy what the statute requires
according to the INPI’s practice and the Courts’ decisions.
It is interesting to note
that such requirement of art. 68, § 1, I, diverges from all legislation
regarding rules of origin, which provides the percentage ratio of a product
that must be produced in Brazil in order for it to be deemed a national or
Mercosul product.
The requirement of art. 68 §
1, I, puts an end to any possibility of using the drawback system to ensure a
greater competitiveness for Brazilian high-value-added products which are under
the protection of a patent. The risk to the competitiveness of Brazilian
exports is obvious.
Considering that the work of
each “element” of a claim may represent a cost increase – due to currency
reasons, a scale economy, or electric power shortage – the requirement is
potentially detrimental to exporters and foreign exchange as well as to the end
consumer, whose product will be priced higher in order to cover higher
production costs.
Apparently, such damages for
the nation were pointed out by the Ministry of Foreign Affairs in the early
90s, long before the Uruguay Round was concluded. After all, art. 73, § 2 of Bill of Law # 824,
arisen from Presidential Message No. 192, of April 30, 1991, which contained a
bill of law “regulating industrial property rights and obligations,” already
provides that imports should be deemed as a form of actual work. Bill of Law 824 was publicly supported by the
Brazilian ambassador to the GATT at the time, Rubens Ricupero.
To sum up, if a patent owner
that has ten independent claims produces only nine of them within the Brazilian
territory, the patent is subject to a compulsory license due to a failure of
local working of only one such claim.
According to the practices adopted by the INPI, all 10 claims would be
licensed, i.e., the nine claims being worked plus the only one that was not, as
the INPI does not grant any partial licenses.
On the other hand, if a
compulsory license is granted for failure to produce one of the claims locally,
the “compulsory” licensee might not have the same obligation as the patent
owner to locally work all claims. This
is due to the fact that, under art. 68, § 2 of Law 9279, the licensee is
required only “to carry out an efficient work of the object of a patent.”
This unequal treatment
standard of legislation is another reason why patent owners are outraged, since
they see such legal requirement as unfair and potentially detrimental to
foreign investment.
Language of the articles and the controversy
As already shown, one of the
seven possibilities for a compulsory patent license under Law 9279/96 is the
“failure to exploit the object of a patent within the Brazilian territory for lack of working or incomplete working of
the product of the product, or lack of
full use of the patented process.”
As required by the statute,
any work that is not a complete work of the object of a patent makes the patent
owner subject to a compulsory license.
Art. 5A(2) of the Paris
Convention, an old and still effective treaty, provides the right to grant
compulsory licenses due to a failure to work the patent.
In Brazil, it has been
sustained by some that the Paris Convention provides that the complete work of
the object of a patent in the national territory is required. This is incorrect.
The Paris Convention
provides that a country may require such work. There is not a single article in the treaty
setting forth that only local production must be deemed as work. Working a patent is not necessarily the complete
production of its object.
The requirement of the
complete work of the object of a patent exists under Law 9279/96, but it does
not exist under any provision of the Paris Convention.
Rodenhausen, the Paris
Convention’s most famous commentator, believes that “the member States are also
free to define what they understand by failure to work.”
The difference
between the right granted by art. 5A(2) of the Paris Convention and art. 68, §
1, I of Law 9279/96 is obvious, inasmuch as national legislation sets
forth only one manner whereby a patent may be worked.
Even though there are some
who believe that a non-literal interpretation of the Paris Convention allows
“work” to be defined as a complete manufacture of the object of a patent, this
is not written in such treaty.
Furthermore, art. 5A(2) does not deal with an obligation, but with a
right.
The difference between
manufacture and work is so obvious and indisputable that art. 33, § 2 of Law
5772/71 had to define the term “work” strictly: “Manufacture that is replaced
with or supplemented by importing shall not be deemed actual work.”
In light of the above, TRIPS
art. 27(1) provides that “patent rights [shall be] enjoyable without
discrimination ... as to […] whether
products are imported or locally produced.”
Thus, a country – which is a member of
the Paris Convention and the WTO – still keeps the right granted by art. 5A(2),
provided that, in its definition of what it is “to work a patent”, such country
does not discriminate as to whether the patented products are imported or
produced locally. Such work must be
through local production or importation.
Requirement for local work in a free-trade
agreement: an inconsistency
Before analyzing the aim of
the WTO panel, we must ask ourselves what is the main purpose of the WTO, and
which are its objectives.
We must not forget that the
preamble of the main WTO agreement, to which the TRIPS is subordinated (Annex
1C), provides that the primary objectives of such Organization are the
expansion of international trade and the optimal use of the world’s resources.
Thus, upon analyzing
Brazil’s obligations and rights, we must bear in mind the objectives that
justify the WTO’s existence.
Seeking to develop the free
trade of goods and services, the TRIPS has incorporated standards higher than
those of the Paris Convention. The
inconsistency of the requirement of local work becomes self-evident when
analyzed in light of a system aiming at the international circulation of goods
and services.
Thus, as international trade
is the key to the development of the world’s nations, its progress must not be
defended through a suggestion to withdraw any products protected by patent
rights. As explained by the report on
the TRIPS published by UNCTAD, “[t]he patentee’s bundle of exclusive rights
must include the right to supply the market with imports of the patented
products.”
Otherwise, how can an
international effort toward developing trade and lowering tariff and non-tariff
barriers be compatible with a requirement that is contrary to international
trade itself, that penalizes patent owners?
Nuno Pires de Carvalho,
consultant to the Intellectual Property Division of the World Trade
Organization at the time, and presently a member of the World Intellectual
Property Organization (WIPO), with the authority of someone who is also a
specialized patent lawyer in Brazil, has warned about the need to analyze the
requirement for local work in light of the WTO’s more general dictums and
postulations:
“Discriminating
as to whether products are imported or produced locally is an issue that has
been dealt in a fiery way in Brazil (...)
As far as this
matter is concerned, it should be made clear that the WTO Agreement and its
annexes must be looked upon as a whole, since they were negotiated and accepted
by WTO members as a “package,” i.e., an indivisible and harmonious set of
principles and rules. Thus, in order for
the extent of the TRIPS provisions to be understood, one must take into account
rules which are found in other WTO agreements that help clarify their meaning.
Actually, the big
difference that exists between the TRIPS Agreement and other WIPO-administered
treaties resides in the fact that the TRIPS Agreement is, just as any other
agreement within the WTO, a mechanism resulting in the access to markets for
products and services. Unfortunately,
there is a certain trend for overlooking this point, which is key to
understanding the TRIPS’ true meaning.
The general
perception is that the TRIPS only accomplished one stage toward raising the bar
for intellectual property. This is not
true. The truth is that upon
accomplishing this stage, the TRIPS have integrated intellectual property into
the rules pertaining to the free trade of goods and services.
The issue of
local work is one of the points where the function of facilitating access to
markets, which the TRIPS have accomplished, becomes more evident.
The first
paragraph of art. 27 does, indeed, involve the principle of national treatment,
but not the national treatment applied to individuals under the Paris and Bern
Conventions, but that which is applied to goods under art. III, paragraph 4, of
the 1994 GATT Agreement, which states that:
“Products from
the territory of every contracting party, which are imported into the territory
of any other contracting party, must not receive a less favorable treatment
than that which is given to similar products of domestic origin, insofar as any
law, regulation or statute of limitations affecting the sale, offering for
sale, purchase, transportation, distribution and use of such products in the
domestic market.”
In other words,
those WTO members imposing the burden to work patents must not give imported
products a less favorable treatment than the one given to locally-manufactured
products for purposes of using them as proof of work.”
Therefore, bearing in mind the WTO’s
objectives, we can conclude that the requirement for local work is
inconsistent, as it is, in itself, adverse to free trade.
The world’s undisputed interpretation
TRIPS art. 27(1)
categorically provides that patents are available and patent rights enjoyable
without discriminating as to the place of invention, as to their technology
sector, and as to whether the goods are imported or produced locally. One can see, therefore, that at least
apparently there is a conflict between TRIPS art. 27(1) and art. 68 § 1 I of
Law 9279/96. And it is precisely such
inconsistency of the national Patents Act with the TRIPS that caused a panel to
be set up at the WTO’s Dispute Settlement Agency.
There are several technical
and unbiased papers either commenting on or interpreting the TRIPS. Those papers show the more acceptable reading
and expectations of the international community.
Of all such publications,
Lars Anell, chairman of the TRIPS negotiating group during the Uruguay Round,
pointed out a paper by Prof. Daniel Gervais titled The TRIPS Agreement: Drafting History and Analysis as a guide for
future negotiations and for decision-making by WTO panels. Now, Prof. Gervais, in his paper on the
TRIPS, ponders that art. 27(1) limits the rights granted by art. 5A(2) of the
Paris Convention, precisely as the WTO panel has maintained, in the following
words:
In determining
the ... enjoyment of patent rights Article 27(1) also prohibits discrimination
based on whether the invention is locally produced or imported, ... This
concerns working requirements and possible compulsory licenses which, before
the TRIPS Agreement, were regulated only by the narrowly-drafted Article 5A of
the Paris Convention, which ... left contracting States free to impose
compulsory licenses for failure to work after a prescribed delay.
One can see that Prof.
Gervais understands that TRIPS art. 27(1) limits the right granted by art.
5A(2) of the Paris Convention, by prohibiting the requirement of local work in
order for the rights of a patent owner to be upheld.
Prof. Gervais’ opinion is
not an isolated opinion. Almost all of
the papers published worldwide on the TRIPS agree with the English professor’s
judgment. The vast majority of opinions
found in the international community disallow the concept that the right
granted by art. 5A(2) of the Paris Convention ought to be upheld. This concept
seems to be made by those who suggest upholding the challenged provision in
Brazil.
In the United States, Prof.
J. H. Reichman, department head at the Law School of the Vanderbilt University,
a renowned expert on international intellectual property, describes in an
article published by International Lawyer,
one of the most traditional journals of international law, how the right to
require local work under art. 5A(2) of the Paris Convention has been
derogated. Prof. Reichman emphatically
proclaims that: “[t]he patentees’ bundle of exclusive rights must include the
right to supply the market with imports of the patented products. Logically, the obligation to work patents
locally under article 5A of the Paris Convention appears overridden by the
right to supply imports.”
The opinion of Prof. Ruth L.
Gana, a doctor from the renowned Law School of Harvard University, professor at
the University of Oklahoma, and visiting researcher at the Max Planck Institute
of Munich, is not different from Prof. Gervais’ opinion. Prof. Ruth Gana demonstrates that the
relationship existing between the Paris Convention and the TRIPS is not one of
co-existence, but instead one of derogating the provisions of the Paris
Convention which are in conflict with the TRIPS. Prof. Ruth Gana’s teachings clearly establish
the prohibition of the requirement to produce locally by the TRIPS, with the
right granted by art. 5A(2) of the Paris Convention being derogated:
At first
glance, the TRIPS Agreement seems to rely substantially on the Paris
Convention. Indeed, some scholars have
concluded that the two agreements may successfully, if not happily,
coexist: Closer examination, however,
shows that the Paris Convention simply provides a context for the TRIPS
Agreement and not a standard. The
Agreement, in reality, derogates from the effects of the Paris Convention.
The bite of
Article 31 appears to be the curtailment of working requirements which, in the
opinion of developed countries, undermine a patentee’s right. The TRIPS Agreement eliminates the use of
working requirements as a condition to granting a patent.
It must be noted that,
though subject to debate in Brazil, the proper interpretation of the TRIPS and
the derogation of the right to require local work were never subject to any
doubt, even by those who sustained the opposite case. Prof. Gervais, for instance, teaches in his
work about the TRIPS that article 2.2, when determines that nothing shall
derogate from existing obligations that Members may have to each other, due to
the Paris Convention, it must be interpretedand applied in a quite different
manner from the one suggested solely in Brazil:
Article 2(2)
thus confirms the fact that TRIPS is a “Paris-plus” agreement… It is important
to emphasize that Article 2(2) refers to obligations of Members, not to all
provisions that have been incorporated into TRIPS. A number of those provisions
allow contracting Parties either to limit the scope of a right or to impose
formalities. These provisions do not create obligations for those Parties and
may be derogated from in TRIPS.
Prof. Gervais, like many
other unbiased Professors, attests the mistake of the Brazilian theory in order
to interpret the Treaty.
On the other side of the
world, quite far from the United States, Prof. Michelle McGrath from the
University of Sidney, Australia, expressed her disappointment upon
acknowledging the concept that prevailed in the final language of the TRIPS,
respecting its provisions: “[H]owever, the major disappointment in this area is
that under the combined effect of Articles 27 and 31, local working of the patent
by the owner is not required so long as importation of patented products
‘sufficient to meet local need’ is provided.”
Likewise, Prof. Michael
Blakeney, Director of the Law School of Murdock University, in Perth,
Australia, also acknowledges that the right entertained by art. 5A(2) of the
Paris Convention is not available to TRIPS members, by virtue of articles 27(1)
and 31:
A contentious
issue, which had been unresolved during the negotiations on the revision of
Article 5A, was whether the importation of patented products could be
considered to be a sufficient working of a patent. The Paris Convention in Article 5A(1) had
disallowed the forfeiture of patents on the ground of importation by a
patentee. Article 27 of the TRIPS
Agreement attempts to resolve this issue by its insistence that ‘patents shall
be available and patent rights enjoyable without discrimination as to the place
of invention ... and whether products are imported or locally produced.
It is interesting to note
that some concepts being made in an attempt to justify the legality of the
requirement to produce locally in accordance with the commitments undertaken by
Brazil, in sovereign manner, at the time of TRIPS and the WTO, suggest that the
right granted by the non-literal interpretation of a provision of the Paris
Convention is an unchangeable rule that must prevail over any other, albeit an
express and subsequent one.
However, the UNCTAD
representative at TRIPS negotiations, Abdulqawi A. Yusuf, clarifies that the
modification of international commitments undertaken in a treaty by another
international treaty is commonplace in intellectual property. According to Yusuf:
It is not
unusual of international agreements of a technical character to be often
amended or revised. As stated earlier,
the Paris Convention and the Bern Convention themselves have been revised on
several occasions, each revision resulting in a new version of the original
convention, which continued to exist.
The states parties to the new version, or as it is called the most
recent act of such a convention, are sometimes different from those that had
subscribed to the original convention or to earlier versions.
What is unusual
about the TRIPS Agreement is that not only one but several multilateral
conventions are modified through the conclusion of a new treaty. Apparently, a basic objective of the
proponents of a TRIPS Agreement was to avoid the time-consuming amendment
procedure of individual IPR conventions, and to work instead toward a
comprehensive new agreement that would supplement and modify existing
conventions. This has resulted in the
conclusion of the most wide ranging international agreement for the protection
of intellectual property rights.
To the same effect is the
opinion of the director of the Intellectual Property Division of the World
Trade Organization, Adrian Otten, highest-ranking staff member in the WTO
hierarchy, with technical responsibilities regarding this topic:
The TRIPS
Agreement adds a substantial number of additional obligations with respect to
matters where the preexisting conventions were silent or were perceived as
being inadequate. The TRIPS Agreement is
thus sometimes referred to as a Bern and Paris-plus agreement. While the TRIPS adds new obligations, it also
aims to make more effective the application of the main preexisting
conventions.
Hannu Wager, co-author of
the paper quoted above, and likewise a high-ranking WTO technician, is of the
same opinion. The two World Trade
Organization technicians, unbiased and experts in this matter, are the ones who
prescribed, ever since 1996, the genuine and impartial construction of art.
27(1):
Compulsory
licensing and government use without the authorization of the right holder are
allowed, but are made subject to fifteen conditions aimed at protecting the
legitimate interests of the right holder.
These conditions include the ... prohibition of discrimination in
compulsory licensing as to the field of technology, the place of invention, and whether
products are imported or locally produced.
During a specific
presentation about some implications of the TRIPS over the pharmaceutical
industry, Adrian Otten was even more incisive, when affirmed that “[f]ailure to
meet the reasonable needs of the market can remain a ground for the grant of a
compulsory license. But the compulsory licensing system must not provide for
differential treatment according to whether the patent owner supplies the
market through imports or local production”.
This is the genuine
interpretation, free and clear, of the World Trade Organization’s most
important experts, regarding the interpretation of the obligations of TRIPS’
member countries. There is no doubt
left, according to the writings of Adrian Otten and Hannu Wager, that the
requirement to produce locally, as set forth by art. 68, § 1, I of Law 9279,
violates the international obligations contracted for, in a sovereign and
voluntary manner, by Brazil with the international community.
Derogation of the right
under art. 5A(2) of the Paris Convention by TRIPS art. 27(1) came as no
surprise even to those authors known to be committed to interests that have
historically profited from the ineffectiveness of the international system for
protection of intellectual property.
Even Carlos Correa,
Argentine negotiator during the Uruguay Round and one of the most radical
opponents of the international system for protection of intellectual rights,
admitted the current position of Brazilian law as isolationist, upon finding in
our legislation the single and lone clause for a post-TRIPS local production
requirement. Recognizing a conflict as
imminent, the author showed favor to the WTO panel now subject to discussion:
As commented
above, article 27(1) of the Agreement (in accordance with which ‘patent rights
shall be enjoyable without discrimination ... whether the products are imported
or locally produced),’ has been interpreted as a prohibition of obligations
requiring the industrial execution of the invention. Hence exploitation of the patent could be
satisfied through importation.
The
interpretation of this clause is debatable.
Though Article 27(1) has been understood as prohibiting any obligation
to execute a patented invention locally, this interpretation is not unanimous. Thus, the Brazilian Patent Law (1996) has
included an obligation to exploit patented inventions locally. The interpretation of this article is likely
to be finally settled under WTO procedures if a dispute thereon arises between
WTO members.
It is important to emphasize
that the international community and Brazil already knew about the undisputed
interpretation of TRIPS art. 27(1), and about the limitation of the local
production requirement by the national system of a WTO member State.
In 1995, the World Bank
itself, through a specific publication from the expert in charge of matters
relating to intellectual property, ironically a Brazilian, USP [University of
São Paulo] Prof. Carlos A. Primo Braga, indicated the proper interpretation of
art. 27(1). The World Bank’s text
indicates that importation should be considered as working a patent, which can
no longer be conditioned on local production: “[i]n other words, importation
should be accepted as meeting the obligation to work a patent. Accordingly, working obligations that require
domestic execution of the invention – a common practice in developing countries
– will not provide grounds for granting compulsory licenses anymore.”
It is thus clear, according
to the most reputable, impartial and unbiased international experts, that art.
5A(2) of the Paris Convention has been derogated by TRIPS art. 27(1),
disallowing the maintenance of the requirement for complete work of the object
of a patent in the national legislations of WTO member States and,
consequently, establishing the unlawfulness of art. 68, § 1, I of Law 9279/96
in light of the WTO system.
The Guide to the Uruguay Round Agreements, an official publication of
the WTO Secretariat, widely used all over the world, properly sums up the
topic: “[c]ompulsory licensing must also not discriminate between imports and
local products.” Summing up, that is it.
The proper interpretation in Brazil
Although the authors
heretofore quoted are, in their majority, from countries that adopt a Common
Law system, an identical conclusion was reached by Alberto Cerviño, in Spain. In other words, if the more classical
teachings of continental and Brazilian legal scholars are applied, we would
reach the same result of the analysis of this conflict between legal
provisions.
According to Hildebrando
Accioly, “[i]n the event of incompatibility between two collective treaties, of
which the signatories are the same, or whenever the second such treaty contains
other signatories, in addition to all signatories of the first treaty,
naturally the second one shall prevail.” (no highlighting in the original).
For this reason, one might
say that the legislative advisors to the Federal Senate understood quite well
the extent of the obligations under TRIPS articles 27(1) and 31, as expressed
by one them, Cicero Ivan Ferreira Gontijo, in an article published in Revista de Informação Legislativa
[Legislative Information Review]: “[w]ith respect to any substantial points,
the GATT stipulates the following: ... g) prevents member States from requiring
from patent holders the obligation of local production, by considering imports
as sufficient to satisfy actual working (art. 27(1)).’”
A proper interpretation, and
the resulting infringement of international obligations undertaken by Brazil in
a free and sovereign fashion, were also emphasized by Nuno Carvalho in 1999,
during the annual ABPI Seminar, with the official participation of the
Brazilian Patent and Trademark Office – INPI.
Nuno Carvalho, technical consultant to the WTO at the time, presently a
lawyer with the WIPO, is quite clear in his conclusions:
There has been
some doubt as to how art. 27, paragraph 1, of TRIPS Agreement might coexist
with the Paris Convention, due to the incorporation of its articles by
reference.
The answer is
simple: the Paris Convention will be applied by WTO members such as adopted in
Stockholm, in 1967, with the legislative advancements adopted by TRIPS. Thus, to WTO members, the working of a patent
as referred to in article 5, second paragraph, clause A, of the Paris Convention
may be proven by making imported products available to consumers.
It should be
noted that this was not the only course adjustment in the provisions of the
Paris Convention by TRIPS. Art. 21 of
TRIPS, for instance, clarifies that the owner of a trademark may assign it with
or without transferring the establishment to which the trademark belongs. The TRIPS have thereby modified the
authorization, which is implicit in art. 6 quater
of the Paris Convention, for its members to require that assignment take place
only pursuant to a transfer of the establishment or goodwill to which the
trademark belongs.
It is worth bearing in mind
that the United Nations Committee on International Law has already adopted the
following language on the law of treaties:
1 – A bilateral
or multilateral treaty, or any provision of a treaty, is null and void if its
enforcement involves breaking an obligation of a treaty previously assumed by
one or more of the parties thereto …
2 – The rule
formulated in paragraphs 1 and 2 does not apply to subsequent multilateral
treaties, which share in a degree of generality, which imparts to them the
character of legislative acts, and reach properly speaking all members of the
international community, or should be deemed to have been concluded in the
international interest. Nor does it
apply to any treaties that revise multilateral conventions in accordance with
their provisions or, in the absence of such provisions, pursuant to a
substantial majority of the parties to the revised convention.
Therefore, it must also be
understood that because it did not expressly accept in its language the concept
of compulsory license due to a failure “to produce locally,” TRIPS prohibits
it. Such an understanding is also
supported by the fact that the draft discussed prior to the final form of the
treaty, of 1991, titled “Brussels Draft,” contained under art. 34(o) language
allowing a compulsory license if after four years from the filing of the patent
application, or three from the grant of such privilege, the object of the
patent has not been worked. Since the final draft of December 1991 did
not harbor such proposal, by eliminating art. 34(o), it must be understood that
the members did not accept such institution.
In light of so many unbiased and well-balanced
opinions, the case being made that the legislation of a WTO member State might
contain a requirement for the complete work of the object of a patent in the
national territory, subject to the grant of a compulsory license, obviously
breaches commitments that were undertaken, in a free and sovereign manner, with
the international community.
Conclusion
The WTO panel (WT/DS199) set
up on February 1, 2001 would analyze the violation of TRIPS by art. 68, § 1, I
of Law 9279/96, which requires the local complete and simultaneous local
manufacturing of all independent claims of a Brazilian patent.
The panel would not analyze
any of the other six possibilities for compulsory licensing under Brazilian
statutes. Among these six possibilities, are those listed in article 71 – a
national emergency and the public interest.
Thus, there is no risk to any government program in the health area.
The requirement of local
complete and simultaneous manufacturing of each independent patent claim has
already been applied approximately four hundred times by the INPI. None of the
times when it was applied in the past did it occur in connection with a drug
patent, which shows that the matter is not specific to the pharmaceutical
industry.
The scope of the WTO panel
was a requirement potentially damaging to consumers, inasmuch as it increases
production costs; and also to the country, inasmuch as it decreases the
competitiveness of its products and diminishes the market for Brazilian
products, if adopted by the MERCOSUL nations, by cutting off the flow of direct
foreign investments in manufacturing plants for high value-added products.
The challenged provision can
be used by three quite different means.
The first one is the actual application for a compulsory license before
the INPI, due to a failure to produce completely the object of a patent, which
has already occurred to PI8704197-9. The
second one is the use of the cited provision in order to upset any balance in a
negotiation between a potential licensee and the patent owner. The third manner is the use of the cited
provision for defense purposes in a patent infringement lawsuit. All of the
three manners have already been used in Brazil.
The interpretation, as
unanimous as it is unbiased and free, by experts and renowned specialists
proves the illegality of art. 68, § 1, I of Law 9279 in light of international
commitments undertaken by Brazil in a sovereign manner, such as TRIPS art.
27(1). Brazilian experts and specialists
have already expressed the same opinion.
According to Regis Percy
Arslanian, from the Ministry of Foreign Affairs:
The bundle of
results from the Uruguay Round are very positive to Brazil, for which reason
the option not to participate in the WTO surely would not be desirable to the
country. Brazil has gained concrete and
palpable advantages in different sectors, such access to markets, agriculture
and textiles. Evidently, we have not
obtained everything we desired, but in that regard we are no different from
other countries.
It is important to recall
the fact that Brazil was the first country to use the Dispute Settlement Body
of the WTO, in which it was victorious, upon requesting the creation of a panel
against the United States of America.”
For the foregoing reasons,
Brazil awaits a bill of law repealing sub-section I of article 68, § 1 of Law
9279/96, so that efforts to promote foreign investments and increase exports
are not impaired by political decisions that are either unreasonable or aimed
at capturing votes in any forthcoming election.