Today, the Office of the United States Trade Representative hosted the hearing for the annual Special 301 Review. The review process includes a solicitation of written comments and hearing testimony, and results in the publication of the Special 301 Report. The report is a list of countries that the USTR identifies as bad actors on intellectual property rights protections and enforcement, and is used to pressure foreign countries to change their domestic laws and policies towards US interests.
KEI was one of three non-industry, non-government groups to testify at the hearing. KEI’s testimony at the hearing follows below.The full docket of written submissions is available here.
Comments of Knowledge Ecology International at US Special 301 Hearing
February 26, 2020.
Re: 2020 Special 301 Review: Identification of Countries Under Section 182 of the Trade Act of 1974: Request for Public Comment and Announcement of Public Hearing
The Pharmaceutical Research and Manufacturers of America (PhRMA), the Biotechnology Innovation Organization (BIO), the US Chamber of Commerce, the National Association of Manufacturers (NAM), the Alliance for Fair Trade with India, and a few other organizations, are asking the U.S. government to take measures to expand and extend monopolies, and otherwise raise prices for medical inventions in foreign countries.
The scope of the demands is broad. The Office of the US Trade Representative (USTR) is being asked to discipline the breaking of global norms, the use of exceptions that exist in those norms, even thinking of using those exceptions, and finally, to discipline attempts to influence those norms in ways not favored by big drug companies.1
(Footnote 1. See, for example, page 12 of the PhRMA submission, Charts 1 and 2 in the NAM submission, page 2829 of the US Chamber Submission, pages 29 and 30 of the IP submission.)
The drug company-backed asks are framed in terms of the U.S. having an interest in promoting biomedical innovation and U.S. jobs in this sector. This argument holds some water, but it also leaves out a lot.
The measures proposed by the drug companies also present obvious conflicts with policies to curb anti-competitive practice and to promote health, affordability and more equal access.
Also worth noting, measures that will raise foreign prices on drugs to treat cancer and other illnesses are unpopular in the foreign countries that are targeted. When the U.S. pressures countries to raise drug prices, the U.S. incurs costs, both politically and economically.
When our trade policy favors one particular sector of the economy at the expense of others, there is a cost to the other sectors. That’s something to put on the table.
The U.S. can’t ask every country to do everything one industry sector wants since, every time the US makes a demand, there is an opportunity cost.
Alternatives to address innovation
The pharma industry has an insatiable appetite for new rent-seeking norms and actions. But governments can, should, and need to consider alternatives that don’t pit affordability, access and equality against innovation.
For several years, drug companies have lobbied against efforts by the World Health Organization (WHO) to set global norms for funding research and development (R&D). More recently, drug companies have lobbied against global norms on the transparency of pharmaceutical markets, and most aggressively, against transparency of R&D costs.
It is in our interest, the interest of the United States, that foreign governments expand public sector financing of biomedical research. The U.S. government does a laudable job of funding billions of dollars in biomedical research as a public good, and spends billions every year to subsidize clinical trial costs. The U.S. could push other countries to raise the level of their biomedical R&D spending and clinical trial subsidies, as this could have a more pronounced positive impact on innovation than higher prices for drugs, vaccines and gene and cell therapies.
For the past two decades, PhRMA has opposed all efforts to pivot from IPR to R&D, regarding the focus of trade policy. To be sure, the pharma sector wants to claim that its policies are designed to enhance R&D spending, but when proposals have been made to create even soft norms on R&D funding, or to address the lack of transparency in R&D spending, pharma has mobilized opposition.
The large biomedical companies understand, perhaps better than some government officials, that a focus on R&D, rather than IPR, could undermine policies that protect price gouging, and eliminate their biggest price gouging defense. While it is true that price gouging can spur innovation, so can lots of other cheaper, and less harmful measures, such as expanded R&D subsidies, enhanced government direct funding of research, or incentives like market entry rewards that are delinked from prices or monopolies.
One reason the U.S. government needs to rethink its strategy on the cross-border funding of biomedical R&D is that the U.S. is consistently the biggest victim of excessive pricing and anticompetitive practices, and is facing a significant aging of our population over the next 15 years, which will add more fiscal stress to our already costly and globally most costly health care system.
Delinking R&D incentives from prices
Among the many reforms being considered to address the crisis in affordability of medicines are those that would delink R&D costs, and in particular the incentives to invest, from the prices of products or services. More generally, this is about delinking R&D incentives from the use of temporary monopolies on products, services or inventions, including by using market entry rewards, as the incentive to invest in new treatments.
Delinkage has many advantages, including the ability to more directly reward improvements in health outcomes and by eliminating considerable waste in marketing and non-outcomes-improving or scientifically questionable medical research. Delinkage also can dramatically move prices closer to marginal costs, thereby eliminating price based rationing and fiscal toxicity, and of course, reduce the inequalities of access and outcomes. Why wouldn’t governments want to at least conduct feasibility studies? Yet, pharma companies and the U.S. government have lobbied to block such studies at the WHO and elsewhere.
During the George W. Bush Administration, the USTR actually convened a meeting to discuss these issues. This needs to be revisited.
U.S. has an aging population
The U.S. Census projects the number of Americans ages 65 and older to nearly double from 52 million in 2018 to 95 million by 2060. The percent of the U.S. population over 65, which is now 16 percent, is projected to exceed 23 percent2. If policy makers are not taking this into account, they are ignoring where we are headed.
(Footnote 2. 2017 Census projections for 2060. Total US Population: 404.83 million, population 65+: 94.676 million. Percent of US population 65+: 23.4%. https://www.census.gov/data/tables/2017/demo/popproj/2017-summary-tables.html)
Foreign owners/suppliers of treatments
The United States is not the only country that supplies new medical inventions, and often, we are paying foreign companies for new drugs, cell or gene therapies. Novartis, a Swiss firm, now owns the first CAR T therapy, as well as the Luxturna gene therapy. Roche, another Swiss firm, has reaped tens of billions of dollars from U.S. cancer patients, including the treatment my wife takes, which is invoiced at more than $470,000 per year.
Korea, Japan and Singapore have extensive biotech programs, and China is investing heavily in new treatments, including cell and gene therapies.
ClinicalTrials.Gov currently lists 470 clinical studies mentioning “”Chimeric antigen receptor”. Of these, 204 are taking place in the United States, while 208 are taking place in China.
Patent thickets in the United States on CAR T, gene therapy and CRISPR, and the high costs of licensing patents, are creating barriers to entry in the United States. We have to consider the use of compulsory licensing or expanded exceptions for patents used in the treatment of humans, to overcome these problems.
Technology transfer/local working
It is also worth reflecting on some other issues relevant to the industry 301 submissions that complain about local working or technology transfer obligations. It is the United States government that is now expressing concern over the lack of national capacity to manufacture pharmaceutical APIs or finished products domestically, including in the context of a potential coronavirus pandemic. KEI also expects the U.S. Congress to examine the need to mandate technology transfer for biologic drugs, vaccines and cell and gene therapies, in order to overcome the current lack of competition or to address safety concerns for biosimilars or biogenerics.
I will also submit for the record an attachment that provides estimates of the distribution of income for 96 countries, including data on per capita income, by country and within counties. (Link).
Many of the countries targeted for trade sanctions by PhRMA, NAM, the publisher lobby, and others, have significant populations that live with far lower incomes than in the United States. These countries are often trying to adopt intellectual property laws that are both fair, and have sufficient legitimacy to justify enforcement. If you want countries to enforce intellectual property laws, you should not insist on laws that have the practical impact of blocking access to life saving medicines or important educational materials.
On the copyright side, we note that the BSA is seeking broader global protections for fair use (and other exceptions) as it concerns text and data mining, in the context of “non-consumptive” reproductions that are necessary for the development of AI-related technologies. In its submission, the BSA urges the U.S. government to continue such exceptions, to foster innovation and creativity, and to maintain U.S. technology leadership in AI and opening foreign markets to innovative US companies. KEI agrees with the BSA.
KEI notes that regarding education materials, many of the issues raised regarding policies in countries in Africa and Asia have a larger impact on European publishers than on U.S. publishers. Giant firms like Pearson and Elsevier, Springer-Nature and Hachette are based in Europe, not the United States.