Comments for the Working Group On Intellectual Property Rights, Third Trade Ministerial and Americas Business Forum, Belo Horizonte, Brazil, May 13-16, 1997

A Free Trade Area For The Americas: A Consumer Perspective On Proposals As They Relate To Rules Regarding Intellectual Property

Comments for the Working Group On Intellectual Property Rights, Third Trade Ministerial and Americas Business Forum, Belo Horizonte, Brazil, May 13-16, 1997

James Packard Love
Center for Study of Responsive Law
P.O. Box 19367, Washington, DC 20036

Table of Contents

  • Introduction
  • Intellectual Property Protections are Controversial In the United States
  • Examples Of Compulsory Licenses In The United States
  • The United States and Intellectual Property Rules In International Trade Agreements
  • Special Issues Relating To Healthcare
  • Trademarks and Smoking
  • Trademarks and Infant Formula Marketing
  • Healthcare Inventions
  • Ceredase and the Pricing New Medical Technologies
  • Taxol and Health Registration Data
  • Trips, MAI and Compulsory Licensing Of Healthcare Inventions
  • Price Controls vrs Compulsory Licensing
  • Healthcare Inventions Present Vexing Ethical Dilemmas
  • Mechanisms to Fund Healthcare Research And Development
  • Assignment of Private Rights In Healthcare R&D
  • Government Funded R&D Mandatory Reinvestment
  • Selected Recommendations For Healthcare and IP


My name is James Love. I am an economist, working at the Center for Study of Responsive Law (CSRL) in Washington, DC. The CSRL was created by Ralph Nader in 1968, as an independent research and advocacy organization, which advances the interests of consumers and citizens on a wide range of topics. Our comments at the Americas Business Forum will focus on aspects of the proposed Free Trade Area for the Americas (FTAA) that relate to intellectual property.

The regulation of intellectual property is a complex task for governments. It is difficult to decide what should be protected, and what form that protection should take. In addition, policy makers are faced with enormous pressures from commercial entities seeking ever-broader protections. We are concerned that United States foreign trade officials are advocating international rules for intellectual property that are inappropriate for both less developed and more developed countries, including the United States itself.


Within the United States, the scope and level of protection for intellectual property are controversial. For example, in 1996, the United States Congress enacted legislation to eliminate enforcement of patents for surgical procedures, following expressions of outrage by the U.S. medical establishment over the ethical consequences of forbidding the use of life-saving surgical procedures without authorization from patent owners.1 There are also many disputes over the public’s right to fair use of copyrighted materials. Some of these might surprise members of the Working Group.

For example, in January 1996, the American Society of Composers, Authors and Performers (ASCAP) asked for and received a license from the American Camping Association. The license required payments of $257 from each of two hundred eighty-eight Girl Scout and other summer camps, as compensation for the performance of copyrighted songs. ASCAP also contacted about 8,000 other summer camps, threatening to sue if they did not pay similar fees. The specter of Girl Scouts having to pay royalties to ASCAP to sing songs around the campfire was widely criticized, the ASCAP subsequently issued a statement “clarifying” its position. The “clarification” included a decision to exempt the Girl Scout camps (but not similarly situated camps) from the fees.2 In early 1997, 12 members of the United States Senate, and 107 members of the United States House of Representatives sponsored the “Fairness In Music Licensing Act” (S. 28, HR 789), which would exempt certain music uses from copyright, including performances at children’s camps and agriculture fairs, as well as the playing of music on radio or television in bars and restaurants.

There are many disputes over software copyright policies. For example, a May 1996 U.S. Federal Trade Commission staff report, Competition Policy in the New High-Tech, Global Marketplace, described concerns regarding overbroad software copyright as follows:3

Some participants expressed concern that overbroad copyright scope might either create disincentives for, or erect roadblocks against, follow-on innovation. One computer industry representative found overbroad copyright scope “harmful to progress because software, more than anything, is a series of inventions piled on top of each other.”[77]4 Another emphasized that broad copyright scope can create a risk of “overcompensation” in the sense that “[a]n author or inventor with too broad a monopoly over a work can seek compensation from authors of inventors of [interoperable] works, driving up the cost of such works, [and ultimately] resulting in fewer works being produced.”[78]5 Others suggested that broad scope could thwart efforts to enhance interoperability, which would in turn impact the growth of computer networks, the anticipated source of substantial innovation in the near term.[79]6 Some suggested that the owner of a software copyright should be prevented from enforcing its copyright as to the interface, especially once that interface has become a standard,[80]7 or they advocated compulsory licensing of interface standards that dominate the market.[81]8

There are also bitter disputes over the patenting of software,9 as well as growing alarm over the use of software patents to create monopolies for common business practices. For example, U.S. Patent No. 4,839,804, “Method and apparatus for the funding of a future liability of uncertain cost,” which, among other claims, gave a New Jersey savings bank a national monopoly on the practice of tying interest rates for certificates of deposits to expected tuition increases.10 Consider also United States Patent No.5,206,803, for a “System for enhanced management of pension- backed credit,” which was granted to Franco Modigliani, a previous winner of the Nobel prize in economic science, and co-inventor Francis Vitagliano. According to the patent abstract:

The present invention balances credit access with long term pension requirements. The charges associated with the credit accessed are paid back to the pensioner, thereby retaining certain tax deferred privileges while permitting access to the accumulated funds.

The Modigliani/Vitagliano invention is for the practice of issuing credit cards which “borrow” money from a person’s own pension fund, permitting the consumer to have access to savings that are sheltered from income taxes under U.S. pension laws. If the U.S. government permits such credit cards to be marketed, Franco Modigiliani and Francis Vitagliano will have a legal monopoly on this potentially popular (due to tax anomalies) business practice. One can imagine a proliferation of such patents, as accountants or lawyers discover clever ways of avoiding taxes or exploiting regulatory loopholes. And, indeed, there is an amazing rate of growth in such patent applications. The U.S. Patent and Trademark Office (USPTO) justifies such business practices patents with the dubious claim that the use of a computer, software, telecommunications or other device transforms a business practice into a patentable use of a machine or software. Since there are a huge number of business transactions that cannot be accomplished without the use of computers, software or telecommunications devices, one can only speculate on how far the patent bar in the United States can push these concepts. Several consumer groups are now seeking to end such patents, mostly on the ground that these business practice innovations would occur without patents, and that consumers are harmed by the liberal granting of business practice monopolies. It is also clear that the USPTO has no competence in evaluating prior art for business practices, a field hardly documented in academic or professional journals.

The U.S. Federal Trade Commission’s Anticipating the 21st Century report also addressed several aspects of U.S. patent policy, and explored areas where compulsory licensing would be beneficial. This is just one excerpt:11

According to hearings testimony, the scope[50]12 of patents issued has become increasingly broad, with some patent claims apparently designed to cover an entire area of research or even basic research, particularly in the biotechnology industry.[51]13 One professor cites two patents that cover enormous areas of technology — one for all transgenic mice and one for ex vivo gene therapy — and noted that they are not atypical of patents issued today.[52]14 Another prominent example is a patent issued to Agracetus, a biotechnology company, for genetically engineered cotton.[53]15 The patent scope, which essentially covered an entire plant species, caused a public outcry. In discussing this patent, news articles stated that academic and U.S. Department of Agriculture researchers, among others, were concerned that “broad [biotechnology] patents could hinder the development and commercialization of technology and hurt competition by requiring licenses and the payment of licensing fees or royalties.”[54]16

The hearings testimony stressed that the issuance of broad patents covering basic research in biotechnology may intensify two problems related to incremental and follow-on research. First, inventors face increasing liability for infringement, which in turn reduces incentives for, and the feasibility of, incremental and follow-on research. To avoid such liability, inventors must negotiate license and royalty agreements with the holders of the relevant patents, which can be difficult.[55]17 Second, anticompetitive patent pooling may occur. See supra Section III.A.1.
Participants note that either patent, compulsory licensing, or other antitrust remedies could be used to increase incentives for follow-on and incremental research and to deter anticompetitive cross licensing schemes.[56]18 They preferred an increased use of the experimental use exemption for non-patent holders,[57]19 and the utility[58]20 and enablement[59]21 doctrines for patent applicants. These witnesses also urged the PTO to focus more vigorously on fundamental patentability questions related to novelty and nonobviousness, and to take greater care to limit patent claims actually proved.[60]22 Other recommendations were to give follow- on inventors the right to obtain a compulsory license under an established set of conditions[61]23 or to use antitrust law to preserve incentives for follow-on innovation.[62]24

Examples of Compulsory Licenses in the United States

West Publishing

The United States is involved in compulsory licensing of patents, copyrights, and other intellectual property rights in a wide range of commerce. Disputes over compulsory licensing are often addressed during the U.S. government’s review of corporate mergers.

For example, in 1996 the U.S. Department of Justice ordered West Publishing, a legal publisher, to issue a compulsory license for citations to federal and state court opinions, to which West asserts that it holds a copyright.25 This compulsory license was a condition attached to a merger between the U.S.-owned West Publishing Company, and the Canadian-owned publishing giant Thomson. The Department of Justice negotiated the fees for the compulsory license and then published a notice in the U.S. Federal Register, asking for public comment on the proposed license. After receiving comments from the public, the Department of Justice lowered the price of the licenses by 35 percent, and made several other modifications to accommodate criticism of the license terms.26 The West compulsory license is an automatic license, in that it must be available to any and all firms. (However, the terms of the license limit the ways the citations can be used. For example, West is not required to issue licenses to entities that disseminate opinions to the public on the Internet for free). As a condition to the merger, West was also required to license certain software, trademarks and databases used in its Autocite legal research service.27


A recent example of a compulsory license for intellectual property is the U.S. Federal Trade Commission’s (FTC) March 24, 1997 Decision and Order concerning the merger between Ciba-Geigy and Sandoz into Novartis. 28 Ciba-Geigy Ltd. and Sandoz Ltd. are non-U.S. firms, with headquarters in Basel, Switzerland. The combined entity would also control Chiron, the biotechnology company. The FTC concluded that the merger would violate U.S. antitrust laws, because the merged companies are current or potential competitors for several products. The FTC required divestiture of several products, and ordered compulsory licenses of intellectual property rights for a number of other healthcare inventions. For example, Ciba-Geigy, Sandoz and Chiron were required to license a large portfolio of patents, data and know-how relating to HSV-tk products, hemophilia gene rights and other products to Rh“ne-Poulenc Rorer. The new merged entity and Chiron were also required to grant non-exclusive licenses to all requesters for patent and other rights to Cytrokine products.

In the case of the non-exclusive Cytokine licenses (which involve gene therapy), and the Anderson gene therapy patent, the FTC specified the terms under which the licenses would be offered. For the Cytokine licensed products, the royalties can be no greater than three percent (3%) of the net sales price.29 The Anderson gene therapy patent is licensed at one percent above the royalties paid by the company to the U.S. National Institutes of Health (NIH). 30


When the Dow Chemical Company acquired shares of Rugby-Darby Group Companies, Inc., the FTC was concerned the merger would lessen competition for dicyclomine products. The agency required Dow to license to a potential entrant intangible dicyclomine assets, including “all formulations, patents, trade secrets, technology, know-how, specifications, designs, drawings, processes, quality control data, research materials, technical information, management information systems, software, the Drug Master File, and all information relating to the United States Food and Drug Administration Approvals” that are not part of the acquired company’s physical facilities or other tangible assets. Moreover, during a transition period, while the new entrant sought FDA approvals of its own, the FTC required Dow to manufacture and deliver dicyclomine tablets and capsules to the new entrant at a price that did not exceed 48 percent of the average wholesale price of the acquired company’s dicyclomine tablets as of July 2, 1993. 31

Upjohn/Pharmacia Aktiebolag

Similarly, when FTC reviewed the merger between the Upjohn Company and Pharmacia Aktiebolag, Upjohn was required to divest certain intellectual property (including patents), or the FTC would appoint a trustee to issue an exclusive United States license and a non-exclusive rest-of-the-world license for Pharmacia’s research and development assets related to 9- AC. These requirements would protect consumers from reduced competition and higher prices for topisomerase I inhibitors, which are important for the treatment of colorectal cancer.

Bayh-Dole Act

The United States has legislation regarding compulsory licensing of inventions which are developed by non-profit institutions or small businesses that receive federal research funding. The U.S. government’s “march-in” rights are based upon the Bayh-Dole Act.32 U.S. laws seek to “protect the public against non-use or unreasonable use of inventions.” Among other remedies, the government can grant non-exclusive, partly exclusive, or exclusive licenses to patents to third parties if the patent owner is dilatory in developing the invention, or if the “action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees. 33” These rights are quite broad and important, because the United States taxpayers subsidize tens of billions of dollars in research each year, much of which is subject to the Bayh-Dole Act.

Consumer groups and some members of Congress are asking the U.S. government to exercise these compulsory licensing rights to address unreasonable pricing for pharmaceutical drugs.34 One current dispute concerns certain patents developed at public expense at Johns Hopkins University. Johns Hopkins licensed its patents to the large biotechnology firm Becton Dickinson, which is seeking to market the technology with Baxter International, another large biotechnology firm.


Cellpro, a relatively small biotechnology company, developed a medical device (CEPRATE SC stem cell concentrator) that is used to treat breast cancer, multiple myeloma and lymphoma patients, as well as organ transplant patients, and a number of other serious illnesses. The Cellpro product uses an an antibody developed independently at the Fred Hutchinson Cancer Research Center,35 an NIH funded cancer research center. The Hutchison antibodies were similar to those covered by the Johns Hopkins’ patents. After several years of litigation the Becton Dickinson/Baxter group obtained a legal judgment against CellPro for infringement of the Johns Hopkins patents. According to CellPro, the Becton Dickinson/Baxter group is seeking such high payments to use the Johns Hopkins patents that CellPro would have to take its highly regarded product off the market, and stop a number of FDA approved clinical trials. Several medical researchers and physicians say this would adversely impact patents, and lead predictably to losses of life. Baxter International reportedly is seeking to obtain U.S. marketing approval for a device which would compete with the CellPro product. CellPro is asking the U.S. Department of Health and Human Services to issue compulsory licenses to the Johns Hopkins patents under the Bayh-Dole Act,36 on the grounds that the terms under which the Becton Dickinson/Baxter group have offered to license the patents are unreasonable. We support the CellPro request.

This is just one of many disputes in the United States over the pricing of pharmaceutical drugs that were first developed by the government, or which were subsidized by government funded research.37 A proposal before the U.S. Congress by Representative Bernard Sanders (I-VT) would authorize price controls on pharmaceuticals developed with government support, and would also establish minimum requirements for reinvestments in healthcare research that would apply to revenues from the sale of pharmaceutical drugs.38 The mandatory reinvestment approach or R&D royalty has also been advocated in combination with non-exclusive compulsory licenses for healthcare technologies. The supporters of this approach believe the government can avoid unreasonable prices for new healthcare technologies, while ensuring sufficient levels of healthcare R&D.39

Sui Generis Database Protection

The United States is also engaged in controversies over proposals to create sui generis protection for databases. Critics described legislation introduced in the U.S. Congress last year (HR 3531, 104th) as the most anticompetitive property rights ever devised for intellectual property.40 As part of an effort to provide West Publishing with stronger protections for its compilations of court opinions, Congress was asked to create an entirely new property right for factual information. Many people are generally sympathetic to the idea that emerging digital technologies require a different approach to protect investments in databases. But even supporters of changes in the law see this as a task fraught with profound drafting difficulties and enormous risks of restricting information flows. The small group of publishers pushing for sui generis database proposal crafted a proposal that would have created endless monopolies on important information. For example, stock exchanges would have obtained practical control over the use of share price data. Medical researchers are concerned about the impact of the legislation on research on gene therapy and many other important fields. Software developers were concerned about the impact of the proposal on the Internet routing infrastructure.41 Perhaps most devastating to the supporters of the sui generis database proposal was the opposition from sports enthusiasts and publishers. The database proposal would have required daily newspapers to obtain licenses from the major sporting leagues before publishing regular accounts of individual sports statistics such as baseball batting or earned run averages, basketball or hockey assists, or yards gained rushing or passing in U.S. football.42

Indeed, the entire digital agenda for copyright and neighboring rights is highly controversial in the United States. Many people fear that excessively restrictive enforcement policies will lead to loss of personal privacy, restricted development of new information technologies, and elimination of the public rights under the U.S.’s

Fair Use doctrines.

In addition, there are countless disputes in the United States concerning trademark protections. Many citizen and consumer groups that support some forms of trademark rights to protect consumers are dismayed at attempts to use trademarks in anticompetitive ways, or to silence legitimate criticism of trademark owners.43 For example, K-Mart, a large U.S. retailing chain, has sought to eliminate an Internet Web page entitled “K-Mart Sucks.”44 Toys-R-Us has sought to keep an entire generation of “..R-Us” Web sites off the Internet, with names such as “Roadkills-R-Us” and “Torts-R-Us.”45

Parker Brothers, the owner of Monopoly, a popular board game in the United States, owns the trademark for the word “Monopoly.” The company sued a firm trying to market a game called Anti-Monopoly, which sought to promote trust busting over monopolization.46

These are just a few examples of the plethora of controversies regarding intellectual property rights that we monitor in the United States. The point is simply that rules about intellectual property are controversial in the United States, and there is no simple “more is better” consensus. Many law professors, consumer groups and businesses are concerned that overly broad and restrictive intellectual property regulations harm the public interest.


Over the past 15 years, the United States has sought more effective mechanisms for the worldwide enforcement of intellectual property rules. On the face of it, this seems appropriate. Intellectual property is becoming increasingly important in commerce and wealth accumulations worldwide. However, consumer groups and others are concerned that international rules for intellectual property are biased toward the interests of a handful of large firms capable of lobbying national and international governments. The United States trade negotiators are focused on a very narrow mission – to aid the interests of a handful of corporations that sell intellectual property in foreign markets. It is worth noting that the United States Trade Representative has an advisory board (IFAC-3) that does not include a single consumer representative.47 The U.S. Department of State’s Advisory Committee on International Communications and Information Policy and other similar bodies focus entirely on the perspectives of the largest industry stakeholders.48

With the end of the Cold War, the U.S. foreign policy establishment is seeking to re-invent its mission. In the Clinton Administration the mission is increasingly defined in terms of the interests of large U.S. export industries. In 1994, I went to Argentina to discuss disputes between the United States and Argentina over pharmaceutical patent policy.49 U.S. State Department officials told me that they were receiving nearly all their information regarding the dispute from the Pharmaceutical Research and Manufacturing Association (PhrMA). These officials were unaware of proposals by members of the U.S. Senate to use compulsory licenses to control excessive prices for pharmaceutical drugs in the U.S. Furthermore, they were so aggressive in their efforts to ban parallel imports in South America (a practice permitted in several EU countries) that one State Department official said they wanted Argentina to be “more Catholic than the Pope” with respect to intellectual property policies.

We now appreciate the degree to which the U.S. government’s foreign policy bureaucracy is seeking to set internal rules and norms for intellectual property that will have an adverse impact on consumers in the United States. A dramatic example of these adverse impacts was the 1996 Diplomatic Conference in Geneva hosted by the World Intellectual Property Organization (WIPO), which focused on the so-called “digital agenda” for copyright and neighboring rights. The United States was embroiled in a domestic dispute over proposed changes in copyright laws for digital works. Legislation had been introduced in the United States Congress, but it had been stalled. United States trade officials did not wait for a domestic resolution of the dispute. Instead, they lobbied aggressively for approval of three treaties at the December 1996 meetings, two of which concerned copyright of digital works; the third was the previously mentioned sui generis database proposal. The positions advanced by the United States were radical. The initial proposals for the Internet copyright treaties would have held Internet Service Providers (ISPs) liable for infringements by their customers, leading to surveillance of Internet content. The new Internet copyright rules would have also defined tools such as the Netscape Web browser as illegal devices. It would have also limited the public’s Fair Use rights.50 The sui generis database proposal was so controversial in the United States that the U.S. delegation was forced to disavow its support for the treaty before the Conference concluded. Fortunately, the sui generis proposal was not adopted, and the two Internet copyright treaties were significantly modified before they were approved. What was so startling about the December 1996 WIPO meeting was the fact that the treaties involved a number of issues of first impression. This United Nations body was asked to act as an International Parliament on controversial proposals that had not yet been adopted in any of the member countries.


Of particular concern are aspects of negotiations over intellectual property which concern matters of the public’s health. The areas where trade agreements address healthcare concerns are several.

Trademarks and Smoking

Until President Clinton reversed U.S. government policy, trade negotiators used the trademark provisions of NAFTA and GATT to oppose a variety of national programs aimed at discouraging smoking. President Bush’s United States Trade Representative (USTR) Carla A. Hills and her deputy Julius L. Katz, recently represented firms such as R.J.Reynolds and Philip Morris in a dispute involving Canada’s plan replacing distinctive packaging for cigarettes with generic white packaging with black lettering, in an effort to discourage smoking, particularly among young people.

In a May 10, 1994 parliamentary committee in Ottawa, Katz warned lawmakers that “Investors will lose highly valuable assets as a result of plain packaging, since by its very nature such a requirement prevents the use of essential design, color and lettering that are used to create a distinctive product package.” Carla Hills wrote a legal opinion for R.J.Reynolds and Philip Morris that claimed the plain packaging was “a blatant violation” of the terms of NAFTA, GATT and the Paris Convention for the Protection of Industrial Property, that cigarette packaging qualifies as a trademark, and that the companies could have to be compensated if those trademarks were infringed. “The proposal would seriously diminish the integrity of the trademark and substantially degrade the value of the distinctive packaging, or trade dress, in which the companies have invested heavily over the years.” The suggestion was that if the Canadian government carried out the program, it would face hundreds of millions of dollars in trade sanctions or fines from the U.S.51

Trademarks and Infant Formula Marketing

A similarly disturbing public health issue concerns the recent dispute in Guatemala over the marketing of infant formula. Guatemala adopted the International Code of Marketing of Breast Milk Substitutes by law in 1983. The Guatemala law made it illegal to use pictures of babies on baby foods for children under two years old. UNICEF legal advisor Leah Margulies said the law and the code were needed to counter the aggressive and often criticized marketing by baby food companies, who encourage illiterate mothers to abandon beast feeding for commercial breast milk substitutes.

A dispute arose over the insistence by Gerber that it be permitted to market its infant formula with pictures of the healthy, fat Gerber baby. According to Margulies: “Breast milk protects infants from a wide range of diseases and is more nutritious than any man-made replacement. A fat, chubby, blue-eyed westernized baby is an absolutely winning marketing strategy for Gerber. It seduces the mother into using baby food early. The idea behind the law prohibiting this kind of marketing is to minimize the corporate seduction of the mother. The law specifically bans images that idealize the products.”52 Beginning in 1990, the Guatemala Ministry of Health attempted to have Gerber obey the infant health law. Gerber refused. Even though Gerber was owned by the Swiss domiciled Sandoz (now the Novartis group), it threatened actions by the U.S. government against Guatemala under actions pursued via GATT, the Caribbean Basin Initiative, or bilateral actions by the United States. Gerber claimed the Guatemala infant health law was a trade restriction placed on U.S. goods by the government of Guatemala, which denied the firm the use of its distinctive trademark. To the dismay of public health experts, in early 1996, the Guatemala supreme courts ruled that the infant health law would not apply to imported products, and thus Gerber could use the Gerber baby trademark on infant formula.

Healthcare Inventions

Consumer groups are also concerned about trade policies that limit consumer access to new healthcare inventions. The fundamental issues are both ethical and economic. As a society we want to encourage investment in healthcare R&D. The TRIPS emphasizes a property rights approach. Governments assign property rights to inventions, and permit private “owners” of the inventions to restrict access, based upon commercial considerations. The ethical issues are obvious. Higher prices for pharmaceuticals and other healthcare technologies prevent lower income consumers from obtaining important therapies, including life saving therapies.

This isn’t just a problem for the poorest countries. Pharmaceutical and biotechnology companies are very aggressive about pricing new healthcare technologies, causing enormous problems for consumers in the United States. This will be illustrated first with two non- patented medicines developed by the NIH, and marketed by private firms which benefit from non-patent monopolies.

Ceredase and the Pricing New Medical Technologies

Ceredase is the brand name for alglucerase, a drug used in the treatment of Gaucher’s disease, an inherited metabolic disorder effecting the production of a critical bodily enzyme. Gaucher’s disease is severely debilitating disease that causes hematologic disorders, enlargement of the liver and spleen, bone erosion and pain. The U.S. taxpayers financed the invention of Ceredase. After the drug was successful in early human use clinical trials, the government-funded researchers closed down a Tufts University research center and transferred its NIH contracts for testing alglucerase to a newly created for-profit private corporation named Genzyme. This private corporation completed the remaining clinical trials, and brought the drug to market. Even though Ceredase wasn’t a patented drug, Genzyme enjoyed a seven year marketing monopoly in the United States, under the U.S. Orphan Drug Act.53 Genzyme estimates the number of potential patients for Ceredase to be only 5,000 worldwide, and they report they are only treating one third that number. In 1996, Genzyme reported Ceredase Sales of $264.6 million. The average cost of one year of treatment was more than $150,000 per patient in 1996. The first year of treatment is the most expensive — running more than $500,000 for some patients, followed by annual maintenance doses. During the period when Genzyme enjoys the seven year marketing monopoly under the U.S. Orphan Drug, the company hopes to obtain patents on a number of incremental modifications in drugs (or the manufacturing processes) which will deter new entrants. The high prices for Ceredase are controversial in the United States and elsewhere. While Ceredase is an expensive drug to produce, it is priced far above its manufacturing costs. The company is extremely aggressive in seeking reimbursements from third parties, including private insurance companies and government public assistance programs, but many patients who suffer from Gaucher’s disease are uninsured, or face hardships in maintaining insurance.54 The following are excerpts from the testimony of Karen Guth before the U.S. Congress:

. . . once a person who has lived with a debilitating chronic illness starts to feel better, through dependency upon Ceredase, their drug, we will sacrifice anything and everything to continue to get our treatment. Like a junkie, we will use up our health insurance, we will quit our jobs, we will divorce our spouses so that we may declare ourselves legally indigent to receive Medicaid. All the while, companies like Genzyme are collecting unprecedented revenues. . . . The Genzyme Corp. and their cohorts at the NIH have perpetrated the worst kind of crime against humanity, one that robs people of their dignity, one that robs people of their ability to be free, independent, and productive members of society; a crime which in the end, I believe, will rob us all of a piece of our humanity.55

Taxol and Health Registration Data

Taxol is the world’s largest selling cancer drug. The NIH invented Taxol and sponsored all the clinical trials used for FDA marketing approval of the drug. The government hired a private contractor to produce the drug for the NIH. Before the NIH completed its human use clinical trials, it chose Bristol-Myers Squibb (BMS)56 to be the private sector firm that would commercialize the drug. The drug was not patented, but the government gave BMS the exclusive rights to use the governments data from clinical trials to obtain marketing approval from the FDA and foreign drug regulators. BMS’s only obligation was to provide the NIH approximately $5 million of Taxol, which BMS purchased from the NIH’s former contractor.57

BMS was originally able to obtain Taxol from the contractor for about $.25 per milligram, and now says its production costs have fallen. However, BMS charges more than $6 per milligram for the drug, a mark-up of more than 2,300 percent. A completed course of Taxol treatments can cost more than $50,000. In Washington, DC, the capitol of the United States, some hospitals will not provide Taxol to indigent patients. Many Health Maintenance Organizations (HMOs) limit access to Taxol in cases where the physicians would have prescribed the drug if it was less expensive. BMS reports worldwide sales of Taxol of $813 million in 1996. Analysts are predicting sales of more than $1 billion in 1997. Much of the growth in Taxol sales are occurring overseas, including Latin America. Since Taxol is not patented, BMS has relied upon its monopoly on the NIH scientific data that was used to obtain regulatory approval to market the drug. In the United States, the FDA gives a special monopoly on health registration data that is used in the drug approval process. For five years, the FDA will not permit another company to rely upon this data to gain marketing approval. As a result, firms that can manufacture Taxol could not sell the drug in the United States without presenting independent clinical data to support efficacy and safety claims. Since it takes years to replicate this data, this is an effective barrier to entry.

The regulatory treatment of health registration data varies from country to country. Many OEDC countries now provide similar or even greater periods of exclusivity for health registration data. Some countries do not. The U.S. is currently in a dispute with Argentina on this topic. Argentina “protects” health registration data by making it confidential. The United States does not object to the Argentine confidentiality policies, but others do, on public health grounds. A recent issue of the International Journal of Risk & Safety in Medicine is devoted to the problems caused by secrecy in drug regulation.58 The journal includes a useful statement on freedom of information relating to drug regulation, entitled the “Statement of the International Working Group on transparency and accountability in drug regulation.” This working group was sponsored by Health Action International and the Dag Hammarskj”ld Foundation.

What the U.S. objected to is that Argentina permits firms to “rely upon” decisions by the U.S. FDA or similar agencies to demonstrate that a drug is safe and effective. The U.S. claims the Argentine policy violates Article 39.3 of the TRIPS, which requires nations to protect such data from “unfair commercial use.” The U.S. trade officials say it is “unfair” for foreign regulators to make permissions to market drugs on public information regarding decisions by the U.S. FDA or other regulators. Specifically, during the first 5 years or more of a drug’s introduction into its market, the United States wants a firm to produce its own clinical trials and research data before it can obtain marketing approval. This creates a large entry barrier, because a new entrant will have to duplicate scientific research that has already been done — a very wasteful, costly and time consuming burden. The United States recently imposed trade sanctions on Argentina, in part over this dispute.59 We believe the U.S. action was designed to protect BMS’s sales of unpatented Taxol in Latin America and other countries. If the U.S. is successful in raising entry barriers for the sale of Taxol, many cancer patients in Latin America will be unable to obtain Taxol.60

TRIPS, MAI and Compulsory Licensing of Healthcare Inventions

The better known disputes regarding healthcare and intellectual property rights concern pharmaceuticals patents. The United States is pushing hard in several forums to ban or severely limit compulsory licensing of pharmaceuticals patents or related property rights. The Trade Related Aspects of Intellectual Property (TRIPS) addresses this in some detail. Compulsory licensing of patents are severely constrained by the TRIPS, but not flatly ruled out. In Article 31, the TRIPS sets out a long check list of procedures a nation must follow. These are sufficiently ambiguous that future jurisprudence before the World Trade Organization (WTO) will be important in defining the limited rights retained by national governments. We have suggested in several forums that nations be permitted to use non-exclusive compulsory licenses based upon a fixed royalty as an alternative to national price controls, possibly where the patent holder could choose between the alternatives.61

Ultimately, this or other approaches will be resolved through the WTO dispute resolution mechanisms. 62 The aggressive vpositions taken by the United States in bilateral negotiations, including recent 301 Actions, show the hard line the U.S. is taking to protect the interests of the large transitional pharmaceutical companies. Perhaps less well appreciated are the more sweeping proposals regarding compulsory licensing in the proposed Multilateral Agreement on Investment (MAI). The U.S. and several developed countries are seeking adoption of a MAI in a number of forums. The most advanced negotiations are taking place within Organization for Economic Cooperation and Development (OECD), and there is a separate effort through the WTO. The Multinational Monitor recently published a January 13, 1997 draft of the OEDC’s proposal for a MAI. 63 It contains the following provisions:

Paragraph 1
No Contracting Party may impose, enforce or maintain any of the following requirements, or enforce any commitment or undertaking, in connection with the establishment, acquisition, expansion, management, operation, or conduct of an investment of an investor of a Contracting Party or of a non-Contracting Party in its territory[22] 64:

(f) to transfer technology, a production process or other proprietary knowledge to a natural or legal person in its territory (except when the requirement is imposed or the commitment or undertaking is enforced by a court, administrative tribunal or competition authority to remedy an alleged violation of competition laws or to act in a manner not inconsistent with other provisions of the Agreement)[24]65;

These provisions are far more restrictive with respect to compulsory licensing of patents than are GATT/TRIPS provisions.

Price Controls vrs Compulsory Licensing

GATT, NAFTA and the proposed MAI have severe restrictions on compulsory licensing, but they generally permit price controls. In some sense, compulsory licensing and price controls can achieve the same result — lower prices for healthcare inventions. Why then is there such a large dispute over compulsory licensing of healthcare inventions? In part the answer is that the large pharmaceutical companies believe price controls are less effective in reducing company profits than compulsory licensing. Without seeking perfection or theoretical optimal policies, compulsory licensing is easier for countries to administer. It is easier to set a compulsory royalty than it is to choose a price. This is mostly because price controls require some basis for the price, such as costs of developing, manufacturing and marketing, or prices of therapeutic substitutes, while the mandatory license can just be a percent of net sales — a relatively simple figure to choose.

There are several other reasons why compulsory licensing is appealing. Compulsory licensing can benefit a domestic generic drug industry by providing additional economies of scope. This is a good result from a public health perspective, because a strong domestic generic drug industry is generally associated with greater competition and lower consumer prices. It can also lead to a socially desirable transfers of technology to less developed countries. 66 Another advantage of compulsory licensing (to consumers) is that price controls will not work when companies refuse to import drugs, or when the invention is not a product by itself, but rather an input to a more complex product. As noted earlier, in the United States, there is much interest in compulsory licensing of certain biotechnology, software or telecommunications network patents, when the inventions will be inputs into yet other inventions. Finally, there is another serious problem regarding price discrimination. Earlier it was common for pharmaceutical companies to engage in price discrimination. Pharmaceutical companies sought higher prices in higher income countries, and lower prices in countries with lower incomes. Today several countries that use price controls first look at foreign prices. These price comparisons present dilemmas for pharmaceutical companies. They can sell more drugs at lower prices in less affluent countries, but they risk an adverse impact on the prices they obtain in the higher income countries that employ price controls. Today we often see “roll-out” prices for drugs that are roughly the same worldwide. This is very bad for countries with below average incomes. For example, in a recent survey, we found the AIDS drug Crixivan to be more expensive in South Africa than in the United States.

There are, however, cases where compulsory licensing will not be effective. For example, if the drug is expensive and difficult to manufacture, and has a small client population, like Ceredase, it may not be practical to have more than one firm in the market.

Healthcare Inventions Present Vexing Ethical Dilemmas

Disputes concerning intellectual property and healthcare raise particularly vexing ethical issues. Is it appropriate to limit access to important medicines when we know how to cure patients, particularly when the costs of manufacturing and distributing medicines are far below the prices charged by private firms under exclusive marketing arrangements? Some say no. In a May 1981 World Health Organization (WHO) conference in Geneva, Mrs. Indira Gandhi reportedly said “My idea of a better ordered world is one in which medical discoveries would be free of patents and there would be no profiteering from life or death.” This is a popular view in India, a country of 931 million inhabitants, and per capita gross domestic product (GDP) of only $311 per year, about one quarter the price of a single injection of Taxol.67 The United States and other developed countries are aggressively trying to get India and all other developing countries to adopt strong forms of patent protections on pharmaceuticals. Professor Noam Chomsky from MIT has described the dispute with India in stark terms:

Take India for instance. India has a big pharmaceutical industry. They can produce drugs at a fraction of the cost of what Merck wants to sell them for. In fact drug prices are way lower in India than in Pakistan next door because India happened to develop its own pharmaceutical industry. The American corporations don’t like that. They want more children to die in India. It’s not whether they care whether children die. They want more profit, which means more children die in India. They want to make sure India doesn’t produce drugs at less than the cost of American drugs.68

Many researchers from less developed countries have expressed concerns about the impact of the TRIPS or other trade measures on healthcare in less developed countries,69 as have researchers from Harvard University’s Takemi Program in International Health, which has examined issues concerning intellectual property rights in the context of treatments for tropical diseases in Africa and other poor countries.70

There are, obviously, natural conflicts between an intellectual property system which is based upon the right to exclude use, and ethical and public health goals which seek to make care universally available. To the degree that exclusionary policies are a necessary evil in promoting research and development, we must struggle with the ethical quandary, and search for mechanisms to mitigate the worst consequences. To the degree that governments have workable alternatives for promoting healthcare research and development, exclusionary policies are morally repugnant.

Mechanisms to Fund Healthcare Research and Development

NAFTA and GATT both emphasize the role of assigning property rights in research as a device for encouraging R&D. This is of course but one of several mechanisms to promote R&D. We are particularly interested in two other approaches. Countries can fund R&D directly, as the United States does through its National Institutes of Health (NIH) and other federal agencies. Countries could also require firms to invest a target percent of sales into new R&D, wholly independent of patent, price control or other IP policies. Of course, countries can (should) choose hybrid solutions which incorporate combinations of all three mechanisms.

I will very briefly comment on the three approaches.

Assignment of Private Rights in Healthcare R&D

As discussed above, the governments can devise a number ways to assign private rights in healthcare R&D, including patents, orphan drug protection, exclusive rights to use health registration data, or various proposals for sui generis protections of other research data.

Private investors will be motivated by the potential rewards that flow from such property rights, and this will include significant flows of private sector investment to healthcare R&D. Of course, as discussed earlier, it is also well known that such protections should be limited in scope and term, and that owners of IP rights will act strategically to promote anticompetitive goals. If one ignores the problems of overbroad protection, excessive terms, or various forms of anticompetitive actions, there are still more fundamental shortcomings in a property rights approach.

One of those basic problems is that a substantial amount of healthcare research doesn’t produce a marketable product. Typical examples of this might include research on diets, environment health, adverse drug impacts (a negative impact on marketable products), surgical techniques, low technology (such as the use of household bleach in rural child birth), or countless other items. Much of what we call “basic research” is considered so difficult to appropriate that it too would fall in the category of non-funded research projects. There is of course the problems relating to unequal income distribution. Diseases which afflict the poor, such as Chaga’s disease, do not attract investors. This is important, not only for the poor, but for everyone. In recent years infectious disease specialists at the Centers for Disease Control and several medical schools have raised alarms about the prospect of serious global viral and bacteriological epidemics, sometimes begun in where communities where the environment has been changed by industry or development projects.

There is also the question of how efficient investor sponsored research projects are, even by market standards. One of the largest complains in the United States is that firms spend too much money on “me too” drugs, and too little money on truly innovative therapies. This is because the investors who develop a “me too” drug that is roughly equivalent to an existing therapy can expect a share of a known market. Often it is easier to develop a second, third or fourth therapy for an already treatable illness, than the first therapy for an untreated illness. However, if the new drug is simply replacing some portion of the incumbent sales, without significantly improving upon the therapy, there is little gain in terms of public heath goals. The “pecuniary” returns far exceed the social returns.

Of course, as was discussed extensively, high prices for healthcare technologies that enjoy marketing monopolies can lead to socially undesirable exclusions, and a failure to achieve basic universal healthcare goals.

These comments are not exhaustive, in terms of the market failure literature. Nor are they offered to unduly diminish the importance of commercially motivated research. Commercially motivated research based upon property rights for research has many advantages as well, not the least of which is that it provides opportunities for entrepreneurs to quickly shift research priorities, to pursue independent research visions, and to identify market demands. Certainly this is an important mechanism to support research.

Government Funded R&D

Governments pay for much to today’s healthcare R&D. This is particularly true in the United States, where in recent years, the NIH has estimated that 40 to 50 percent of all U.S. expenditures on healthcare R&D. Even this may understate the government’s role. Data on government expenditures comes from hard, audible figures, such as the budget of the NIH or the Centers for Disease Control. Less is known about private sector R&D expenditures. Virtually all current estimates of drug development costs are based upon unaudited and controversial data controlled by PhRMA members and their consultants. There are good reasons to be skeptical of the PhRMA figures. Consider, for example, the January 13, 1997 study published in the Marketletter.

Using data from the tax returns of Pharmaceutical companies, and 93 Orphan Drug approvals from 1983 to 1993, we were able to determine that private sector firms were reporting less than $3 million per approved drug in expenditures on human use clinical trails — far less than commonly used numbers for drug development costs.
We also looked at data from 58 NIH sponsored human use clinical trials, which had an average expected cost71 of $16.1 million per approved drug. After adjustment for inflation, the NIH expenditures were still roughly 5 times the expenditures reported by pharmaceutical companies on their tax returns for the Orphan Drugs.72 It is also interesting to note that industry consultants (who were used to estimate drug development costs for several official agencies, including the lengthy but data deficient 1993 Office of Technology Assessment report73 and subsequent rehashings) claimed average expected clinical trial costs of $54 million74 — more than 16 times the cost based upon tax returns for the Orphan Drug approvals, and more than 3 time the costs based upon the 58 NIH funded clinical trials. Based upon this research, it would seem as though private sector expenditures on healthcare R&D are exaggerated, and that the government’s role in the development of drugs for severe illnesses is more extensive than is commonly appreciated.75 Earlier research concerning the governments role in the development of cancer drugs and FDA priority drugs also emphasized the importance of public sector research in the development of new drugs, particularly as it related to the development of therapies which treated severe illnesses, or which represented the greatest gain in therapeutic efficacy.76

Mandatory Reinvestment

There have been several proposals in the United States for mechanisms involving mandatory reinvestment of healthcare R&D. An early proposal was made by a pharmaceutical company seeking a non-exclusive license to market cisplatin, an important cancer drug.77 Cisplatin was discovered at Michigan State University on a government grant. The University licensed the drug to BMS on an exclusive basis for 5 years. When the exclusive license expired in 1983, cisplatin was the best selling cancer drug in the world, and several companies wanted to obtain non-exclusive licenses to manufacture and sell the drug. BMS, which did not invent cisplatin, complained that competition would eliminate profits needed to fund future R&D on cancer drugs. Andrulis Research Corporation approached the government with a simple way to solve the R&D problem. Andrulis suggested that the government fix a royalty that would be used solely for R&D. Andrulis suggested that the money be given to NIH or a special foundation set up to receive the money.78 The Andrulis proposal provided an important insight — it was possible to uncouple the exclusive marketing rights from incentives to fund R&D.

Subsequently, a bipartisan group of U.S. Senators proposed a similiar reinvestment mechanism. They wanted a small percent of overall U.S. healthcare expenditures be placed into an R&D fund, to offset the impact of managed care on R&D funding. In a somewhat different context, Senator of Labor Robert Reich had proposed mandatory minimum reinvestments in employee training. More recently, Representative Sanders has introduced legislation to give the U.S. government the right to set a minimum percentage for reinvestment in healthcare R&D from sales of pharmaceuticals.79 The Sanders proposal would permit the pharmaceutical companies to choose their investment projects, subject only to limits on qualifying expenditures. Each of these proposals involved different ways for governments to insure macro levels of investments, with a great deal of flexibility in micro management of the investments.

The supporters of this approach believe it is an important tool if the government seeks to resolve thorny dilemmas regarding the need to avoid unreasonable prices for new healthcare technologies (and universal access), while ensuring sufficient levels of private sector healthcare R&D. We have recommended this system in combination with compulsory licensing of pharmaceutical patents. It would also work in the complete absence of patents.

Selected Recommendations for Healthcare and IP

The following are a set selected recommendations for healthcare and Intellectual Property for consideration at this conference. They are similar to proposals we have made earlier to the United States Trade Representative.80

1. Intellectual property regimes for healthcare should seek to achieve public health goals. It is not appropriate to treat healthcare is a matter of commerce only.

2. In the area of healthcare, the focus of trade agreements on intellectual property should be the equitable and reasonable sharing of the costs of research and development, rather than the particular mechanisms for R&D support, such as patent or other exclusive rights.

3. Equitable sharing should be based upon per capita expenditures on healthcare R&D. Countries with higher per capita incomes should assume higher burdens for R&D expenditures.

4. Countries should have discretion to chose the mechanisms for achieving per capita healthcare expenditures. Expenditures by governments, commercial or non-profit entities would satisfy targets, as would payments to royalty owners, or profits from unlicensed inventions (subject to corrections for double counting).

5. Qualifying R&D expenditures would include research on the development of new pharmaceuticals and other therapies and devices, as well as other items that are less likely to attract private investment. For example, research on adverse reactions to pharmaceuticals, dietary practices, appropriate technologies for rural healthcare, or epidemiology research would satisfy effort targets. It should be recognized that public health goals will reflect research priorities which differ in important respects from investor priorities.

6. Countries should have discretion to limit or eliminate patent protections for areas of public interest, such as healthcare or life forms.

7. Countries should have discretion to use compulsory licenses to achieve public interest goals.

8. Countries should have discretion to require minimum levels of reinvestment in healthcare R&D.

9. Countries should avoid overbroad patents and other rights which discourage innovation and lead to anitcompetitive practices.

10. Protection of Trademark should not be interpreted a limitation on a government’s ability to regulate marketing of products or services. In the area of healthcare, governments clearly have the power to require plain paper packaging of cigarettes, bar billboard ads for cigarettes or alcoholic beverages, require standardized packaging of infant formula, and other matters which protect the public’s health.

11. A blanket five year period of exclusivity for Health Registration is not justified. If a limited period of protection is used for unpatented “sweat of the brow” research, the protection should be subject to compulsory licenses, where fees are related to the costs (and risks) of the unpatented research. Health registration data should be disclosed to the public., following the principles presented by the International Working Group on transparency and accountability in drug regulation.

1 Public Law 104-208. See: SEC. 616, “Limitation On Patent Infringements Relating To A Medical Practitioner’s Performance Of A Medical Activity.”

2 August 28, 1996, Ken Ringle, “ASCAP Changes Its Tune; Never Intended to Collect Fees for Scouts’ Campfire Songs, Group Says,” Washington Post. Ken Sunshine and Peter LoFrumento, “ASCAP Clarifies Position on Music in Girl Scout Camps,” August 26, 1996, Press Release, Sunshine Consultants on behalf of ASCAP.

3 Anticipating the 21st Century: Competition Policy in the New High-Tech, Global Marketplace, a Report by the Federal Trade Commission Staff, Vol. 1. May 1996, chapter 8, pages 18-19. The Entire report is on the Web at:

4 Footnote 77 referred to testimony of Ester Dyson.

5 Footnote 78 referred to testimony of Robert H. Kohn, of Borland International.

6 Footnote 79 referred to a Statement of Michael Morris, from Sun Microsystems, and testimony from Professor F.M. Scherer from Harvard University, Edward Black, from the Computer and Communications Industry Association (CCIA), and Robert Kohn, Borland International.

7 Footnote 80 referred to testimony of Kohn and Black.

8 Footnote 81 referred to testimony of Kohn (royalty-free “use” license” and Scherer (automatic licenses for modest royalty).

9 See discussion in the FTC’s Anticipating the 21st Century, supra.

10 An “innovation” that was already used by several other lenders.

11 Anticipating the 21st Century, Chapter 8, pages 13-15. On the Web at

12 Footnote 50: The term “scope” refers to the boundaries or limits of the subject matter protected by a particular grant of intellectual property.

13 Footnote 51 refers to testimony of Professor John Barton, from Stanford University, as well as several journal articles. Cites against overbroad protections were Robert P. Mergers and Richard R. Nelson, “On the Complex Economics of Patent Scope,” 90 Colum. L. Rev. 839 (1990); Suszanne Scotchmer, “Standing on the Shoulders of Giants: Cumulative Research and the Patent Law,” 5 J. Econ. Persp. 29 (1991). Cites of counter views were Carmen Matutes et al., “Optimal Patent Design and the Diffusion of Innovations,” 27 Rand. J Econ, 60 (1996); Howard F. Change, “Patent Scope, Antitrust Policy, and Cumulative Innovation,” 26 Rand. J. Econ. 34 (1995).

14 Footnote 52 refers to testimony of Professor Barton.

15 Footnote 53: Ann Thayer, “Scope of agricultural biotechnology patents sparks debate,” Chemical & Engineering News, August 21, 1995, at 12-13; “Patent Medicine,” 98 Technology Rev., Nov./Dec. 1995, at 28, 31.

16 Footnote 54: Thayer, “Scope of agricultural biotechnology patents sparks debate,” Chemical & Engineering News, August 21, 1995, at 12.

17 Footnote 55: Testimony of Barton.

18 Footnote 56: Testimony of Barton, Scherer.

19 Footnote 57: Testimony of Barton, regarding an experimental use exemption that “allows a non-patent holder to avoid liability for patent infringement for her research efforts, so long as she does not commeircalize the results.” Also cited was Earl W. Kinter & Jack L. Lahr, An Intellectual Property Law Primer 87-88 (1982).

20 Footnote 58 refers to testimony of Barton and Scherer, and cites to U.S. legal authorities regarding definitions of beneficial use.

21 Footnote 59 refers to testimony of Barton and Scherer, regarding the “enablement doctrine.”

22 Footnote 60 refers to testimony of Scherer and Russell Wayman, from Storage Technology Corporation, and the following quote from Scherer: “[W]hat is the quality of the inventive act that needs to be achieved in order to gain a patent?” To answer this question, one must recognize that two types of follow-on innovation are possible: first, where innovation occurs along a natural technological trajectory (such as Moore’s law for semiconductors), and second, where there is not a natural progression but a second innovator could take the fundamental invention in a totally new direction.”

23 Footnote 61 refers to testimony of Barton, plus the following comment: “For example, the inventor would have to provide evidence that the second invention was an extremely important invention. One participant cited the French dependency licensing concept, where a follow-on inventor could obtain a compulsory license and the initial inventor also could receive a license from the follow-on inventor to practice any improvements that the follow-on inventor developed.”

24 Footnote 62 refers to testimony of Barton.

25 West’s assertions that it can copyright legal citations is controversial, and there are currently two U.S. federal court cases challenging the West copyright. In addition, the United States Judicial Conference is considering the adoption of a technology neutral citation based upon paragraph numbing, that would be in the public domain.. In anticipation of losing the two copyright cases, West Publishing is seeking broad rights under sui generis database protection legislation and treaties. See, and (no period).

26 The Center for Study of Responsive Law was among those who were not satisfied the reasonableness of the license terms, even after the changes were made.

27 A number of documents relating the merger are available from the Hyperlaw web site ( Hyperlaw has asked the court to reject the proposed consent order, on the grounds that it does not cure the anticompetitive aspects of the merger.

28 Docket No. C-3725, on the Internet at (no period). For a discussion of the proposed consent order, see Federal Trade Commission, “Analysis to Aid Public Comment,” Federal Register, January 3, 1997, Vol. 62, No. 2.

29 Adjustments to the 3 percent rate are made in certain special cases.

30 U.S. Patent No. 5,399,346.

31 See, Federal Trade Commission, “Proposed Consent Agreement with Analysis to Aid Public Comment,” Federal Register, July 6, 1994.

32 PL 96-517, as amended by PL 98-620.

33 The last quote is from 35 USC Section 202 (b).

34 James Love, “Comments on the Need for Better Federal Government Oversight of Taxpayer Supported Research and Development,” testimony before the Subcommittee on Regulation, Business Opportunities and Technology of the Committee on Small Business, U.S. House of Representatives. July 11, 1994. ( For estimates of the U.S. government’s role in funding medical R&D, see Samuel C. Sliverstein, Howard H. Garrison and Stephen J. Heinig, “A Few Basic Economic Facts About Research in the Medical and Related Life Sciences,” The FASEB Journal, July 1995, vol. 9. (The Federation of American Societies for Experimental Biology). The authors report that the U.S. spent $33 billion in biomedical and related health care research in 1994, of which 56 percent came from the private sector, and 44 percent from the government.


36 See March 4, 1997 press release, CELLPRO Seeks Bayh-Dole Licenses For CEPRATEr SC Cell Concentration System ( and April 21, Press Release ( Carol Smith, “Cellpro Chief Fights For Life On Two Fronts: Murdock Beats Cancer To Face Patent Challenge,” Seattle Post- Intelligencer, April 23, 1997 (

37 See, for example: James Love, “Pricing of Drugs Developed with Public Funds,” Comments Presented to the Second NIH CRADA Forum, September 8, 1994, ( Ralph Nader and James Love, “Federally Funded Pharmaceutical Inventions,” February 24, 1993 testimony before the Special Committee on the Aging of the United States Senate ( Ralph Nader and James Love: “Don’t Give Away U.S.-Funded Research,” The Journal of NIH Research, August 1993, Vol. 5. James Love, “The Other Drug War, How Industry Exploits Pharm Subsidies,” The American Prospect, Summer 1993, No. 14.

38 The version introduced in the 104th Congress is HR 4270. It is available on the Internet at (no period).

39 Under this approach, the government can make the aggregate level of R&D spending a controllable policy variable, so that R&D cannot be held hostage if a government seeks to protect consumers from excessive prices.

40 See, for example, J.H. Reichman and Pamela Samuelson, Intellectual Property Rights in Data? 50 Vanderbilt Law Review (January, 1997), pages 51-166.

41 See: “Software Developers Comments on the WIPO Database Treaty,” available at: (no period).

42 James Love, “Government Proposes New Regulation of Sports Statistics and other “facts,” INFO-POLICY-NOTES, November 10, 1996. On the Web at: (no period). See also the comments of Sports Team Analysis And Tracking Systems, Inc. (STATS, Inc) to the U.S. Patent and Trademark Office on November 22, 1996. Available on the Web at (no period).

43 There are now Web sites that exist simply to monitor these disputes, such as one recently created by Misha Glouberman. (

44 For a humorous account of this controversy, see: (no period)

45 (no period).

46 for an account of this dispute.

47 IFAC 3 is formally called the Industry Functional Advisory Committee for Trade Policy Matters: Intellectual Property Rights. In 1996 its members represented the following entities: International Intellectual Property Alliance, The Gorlin Group, Monsanto, General Mills, Inc., Apple Computer, Jenkins and Gilchrist, IBM Corp., Generic Pharmaceutical Industry Association, Schwab Goldberg Price and Dannay, Computer and Communications Industry Association, 3M, Voice Capture, Inc., Palumbo and Cerrell, BGE, Ltd., Time Warner, E.I. Du Pont; American Crop Protection Association, B.F. Goodrich, International Recording Industry Association, Intellectual Property Owners, Eastman Kodak Company, K & F Industries, Inc.

48 In 1996, the U.S. State Department Advisory Committee on International Communications and Information Policy members represented the following entities: COMSAT, American Electronics Association, Computer & Communications Industry Association, Oracle, MCI Communications Corp., Lucent Technologies, U.S. West Inc., SBC Communications, Telecommunications Industry Association, , Dell Computers, Digital, Black Entertainment Television, Discovery Communications, Netcom Solutions International, BellSouth, Motorola, Corning Incorporated, IBM, Sloan Communications and EDS, plus two persons with industry ties who are also affiliated with the Markle Foundation and Harvard University.

49 James Packard Love, “Pharmaceutical Drugs, Intellectual Property Rights and Public Health: A Consumer Perspective from the United States, Presented at XV Asamblea General de la Asociai¢n Latinoamericana de Industrias Farmac‚uticas, San Carlos de Bariloche – R¡o Negro – Argentina, 11 al 13 de mayo de 1994, Remarks delivered on May 12, 1994. (

50 See the December 18, 1996 “Open Letter to the Delegates of the WIPO Diplomatic Conference.”

51 This account is taken liberally from Steve Farnsworth: “Tobacco Puffery,” June 1994, Multinational Monitor. (On the Web at:

52 The Margulies quote as well as other facts about the Guatemala/Gerber dispute are reported in Russell Mokhiber, “Gerber Uses Threat Of GATT Sanctions To Gain Exemption From Guatemalan Infant Health Law,” Corporate Crime Reporter, Volume 10, Number 14, April 8, 1996. (

53 The U.S. Orphan Drug Act was originally created to encourage the development of marginally economic therapies, but its role was radically changed when the pharmaceutical and biotechnology firms obtained modifications in the law in 1984 which eliminated the original “means” test. See: James Love, “The Orphan Drug Act and Government Sponsored Monopolies for Marketing Pharmaceutical Drugs,” Comments Submitted to the Subcommittee on Antitrust, Monopolies and Business Rights of the Committee on the Judiciary, U.S. Senate. January 21, 1992.

54 For example, the total costs of the treatment will sometimes exhaust umbrella limits on benefits, leaving entire families without medical insurance for other aliments. Some patients divorce spouses to quality for public assistance. Patients who have insurance from employers are severely constrained in their abilities to seek other employment opportunities, and potential employers who are aware that a family member suffers from Gaucher’s disease are reluctant to hire.

55 Testimony of Karen Guth, Pricing of Drugs Codeveloped by Federal Laboratories and Private Companies, Hearings before the Subcommittee on Regulation, Business Opportunities, and Technology, Committee on Small Business, U.S. House of Representatives, January 25, 1993. Serial No. 103-2.

56 The contact with the NIH was negotiated before Bristol- Myers merged with Squibb.

57 The BMS/NIH contract for Taxol included a reasonable pricing clause , but the contract terms were loosely written, and the NIH made no effort to limit prices to any reasonable multiple of the company’s costs. See Nader and Love (1994), supra. (

58 Special Issue, Secrecy in Drug Regulation, The International Journal of Risk & Safety in Medicine, Vol. 9, No. 3, 1996.

59 For more on this dispute, see the February 4, 1997 letter from Ralph Nader, James Love and Robert Weissman to President Clinton on Argentine Trade Sanctions Regarding Health Registration. (

60 BMS loses its U.S. FDA exclusivity protections September 1997. However, the U.S. is seeking five years or more of health registration data exclusivity from the date of marketing approval in each country. Thus, for those countries which are just granting marketing approval for Taxol in 1997, BMS would have exclusive rights to use the data until 2002.

61 See: James Love, “Comments on Trade and Pharmaceutical Policies: A Perspective from the U.S. Consumer Movement,” Comments at HAI Seminar: World Trade Organization/GATT, Pharmaceutical Policies and Essential Drugs Bielefeld, Germany. October 4, 1996. (

62 Robert Weissman, “A long strange TRIPS: the Pharmaceutical Industry Drive to Harmonize Property Rules, and the Remaining WTO Legal Alternatives Available to Third World Countries,” University of Pennsylvania Journal of International Economic Law, .Vol. 17, No. 4, Winter 1996.”

63 Multilateral Agreement on Investment, Draft, Distributed January 13, 1997. Cancels and replaces the same document: sent on OLIS 08-Jan-1997. (

64 Note 22 from the draft states: The place of the term “in its territory” is still to be determined in the National Treatment and Most Favoured Nation Treatment provisions [see DAFFE/MAI(96) 16/REV1].

65 Note 24 from the draft says: Norway reserves its position on the first part of subparagraph (f). France and Japan are concerned with the breadth of the derogation implied by the square bracketed text. Canada can accept subparagraph (f) only in its complete form. It was explained by those delegations favouring the full text that, as in the WTO “TRIPS” Agreement and NAFTA, the purpose of the exception for competition enforcement contained in the brackets is to clarify that normal administration of competition laws sometimes calls for limited licensing (or divestiture) of patents or “know-how” to remedy situations of monopoly or abuse, and that such individual applications of law do not constitute mandatory technology transfer. This exception is not likely to be used frequently. Delegations should further consult their competition authorities on this matter to determine its relevance to their own “antitrust” laws. Other delegations are of the view that further consideration needs to be given to the means of ensuring consistency with IPR provisions in existing international agreements (WIPO, TRIPS, ….) since these may allow certain compulsory performance requirements under certain conditions.

66 Assuming as we do that society is better off with greater equality in development throughout the world.

67 Population and per capita GDP from United Nations World Statistics Pocketbook 1995.

68 From a series of questions addressed to professor Noam Chomsky following a lecture he delivered at the University of Illinois at Chicago on October 17, 1994. (

69 For example, see Bas va der Heide, Jyotsna A. Gupta and Zafar Mirza, Power, Patents and Pills: An Examination of GATT/WTO and Essential Drug Policies, Health Action International, Amsterdam, the Netherlands, 1997; Dr. K. Balasubraminiam, Pharmaceutical Advisor, Consumers International, “Heads – TNCs Win: Tails – South Loses, Or, The GATT/WTO/TRIPS Agreement,” paper presented to HAI Seminar, World Trade Organization/GATT, Pharmaceutical Policies and Essential Drugs, October 4, 1996, Bielefeld, Germany; “The Uruguay Round Intellectual Property Rights Regime: Implications for Developing Countries,” South Centre, Geneva, October 1995; Forum of Parliamentarians on Intellectual Property and National Working Group on Patent Laws, Conference Papers: International Conference on New Patent system, Foreign Investment and Emerging Issues in W.T.O., November 14-15, 1996; New Delhi, India; Dr. Y. K. Hamied, “Patents and the Pharmaceutical Industry: A Review,” paper at International Conference on Patent Regime Proposed for Uruguay Round, New Delhi, India 1993, VR Krishna Iyer, O Chinnappa Reddy, DA Desai, and Rajinder Sachar, Peopels’s Commission on GATT: On the Constitutional Implications of the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, Center for Study of Global Trade System and Development, New Delhi, India, 1996.

70 See, for example: Michael R. Reich, Ramesh Govindaraj, Karin Dumbaugh, Bong-min Yang, Agness Brinkmann, and Sameh El-Saharty, “International Strategies for Tropical Disease Treatments: Experiences with Praziquantel,” available on the Web at (no period). According to the report abstract, “This report identifies national and international policies that have facilitated or hindered the availability of praziquantel, the drug of choice for all forms of schistosomiasis occurring in humans. The report gives particular attention to questions of access for people in the world’s poorest countries in Africa where schistosomiasis is endemic..” The report discusses the importance of intellectual property rules for poor countries, in determining the access to the drug. “The development of an alternative (and improved) process for producing praziquantel by Shin Poong was achieved at minimal investment (less than $13,000 of corporate funds), and resulted from Korea’s national policy and legal environment that encouraged the development and protection of new processes but did not recognize or protect product patents. Multinational corporations consider this practice to be free- riding on their development costs, an infringement on their intellectual property rights, and a form of patent piracy, while many developing countries have considered this practice a fair strategy in their national efforts to catch up in the race for technology development. The recent TRIPS agreement (trade-related aspects of intellectual property) under the Uruguay Round of the GATT international trade negotiations is intended to restrict this practice by compelling national patent laws in developing countries to comply with the international patent regime. In the future, this policy could delay the delivery of benefits of new products for tropical diseases to poor people in poor countries.”

71 Expected costs adjust for risks associated with the failure to obtain FDA approval.

72 Over the last five years of the US Orphan Drug Tax Credit, pharmaceutical companies reported spending only $3.2 million (in 1995 dollars) on human-use clinical trials, per Orphan Drug approved for marketing.

73 Pharmaceutical R&D: Costs, Risks, and Rewards, OTA-H-522, on the Web at: (no period).

74 The $54 million represents the inflation adjusted costs for out of pocket expenses on human use clinical trials, adjusted for risks associated with failure to obtain FDA approval (but not adjusted for opportunity costs of capital).

75 James Love, “Call for More Reliable Costs Data on Clinical Trials,” Marketletter, January 13, 1997, pages 24-5. The article is on the Web at: (no coma), as is the response by PhRMA, at (no period).

76 See footnote 37, supra.

77 A discussion of this is found in James Love, “The Orphan Drug Act and Government Sponsored Monopolies for Marketing Pharmaceutical Drugs,” Comments Submitted to the Subcommittee on Antitrust, Monopolies and Business Rights of the Committee on the Judiciary, U.S. Senate. January 21, 1992.

78 Instead, however, the U.S. government allowed BMS to extend its exclusive license, on the condition that the company lower its prices by 30 percent, and fund $35 million in cancer research, which was carried out under the direction of the NIH.

79 Discussed earlier.

80 For correspondence and meeting notes with USTR, see: (no period).