Negotiating with the USTR

Roman Macaya,  Executive Director, Costa Rican National Chamber of Generic Products, Costa Rica

Should it be impossible to exclude the issue of intellectual property from a bilateral negotiation with the USTR, much care should be taken in setting the terms of negotiation.

Negotiating Intellectual Property Rights (IPRs) with the United States Trade Representative (USTR) is somewhat like negotiating a banana with a hungry 300 kilogram gorilla: you can try it, but you are not going to get too far. The USTR will use the full weight of its power to determine the market access that the negotiating partner will have in the United States, the largest market in the world for just about anything, in order to obtain painful concessions. Therefore, the best strategy is not to negotiate. The USTR adopts this strategy when it comes to discussing agricultural subsidies by simply stating that this issue is only to be discussed in the World Trade Organisation (WTO). This ensures that nothing will happen, at least for many decades. By eliminating farm subsidies from the scope of the negotiation, the USTR also ensures that it will not have to ‘pay’ a significant bargaining chip in order to keep its subsidies. Certain countries, such as Brazil, have adopted this strategy with intellectual property rights by stating that they will not negotiate IPRs unless farm subsidies are also within the scope of the negotiation. This essentially stalled the Free Trade Agreement of the Americas (FTAA), which then prompted the United States to seek bilateral negotiations on its own terms with countries that have less conviction on the issue of intellectual property.

Should it be impossible to exclude the issue of intellectual property from a bilateral negotiation with the USTR, much care should be taken in setting the negotiating terms. A negotiation based on valid arguments should be a basic criterion, although one should not assume that this will actually be practiced during the negotiation, as we will see further ahead. A second premise should be that the intellectual property terms sought would not exceed the US law (this condition assumes it has not been possible to keep the terms within TRIPS guidelines). Third, the negotiating text should be publicly accessible by the civil society. Negotiating parties usually try to keep the negotiating draft confidential, under the premise that revealing the text compromises some secret negotiating strategy. However, an open text puts pressure on the non-US negotiating party to demonstrate concrete results from the negotiation, not just an acceptance of the original US proposal. Finally, for the non-US party, a non-agreement must also be an acceptable outcome in order to avoid the common trap of believing that there has to be an agreement, regardless of the terms. This final condition requires political willpower and clarity of negotiation objectives. If the objectives have not been met, there should be no agreement.

US - plus terms

It is clear that the USTR seeks “TRIPSPlus” terms to strengthen the monopoly power of the multinational pharmaceutical and agrochemical companies through bilateral trade agreements since the US has been unable to impose these terms in multilateral negotiations. However, what is surprising is that the USTR imposes terms that go beyond even US law. This occurs because the trade advisory committees called ISAC-3 and ITAC-15, respectfully, define the USTR’s position on chemical products and intellectual property. The US exports a policy on intellectual property that is not balanced by the diversity of interests that exists within the United States. The result is that in almost all bilateral Free Trade Agreements, the USTR has imposed all the IPR protection clauses, but left out the clauses that attempt to balance property rights with the greater social good. For example:

Patent extensions

The USTR attempts to impose patent extensions beyond the twenty-year period for administrative delays in the issuance of the patent, or the approval of a pharmaceutical product, with no upper limit on those extensions. Patent legislation in the United States allows for patent extensions for excessive delays in patent issuance or product registration, but such patent extensions cannot exceed five years and under no circumstances can the exclusive rights granted by a patent exceed fourteen years from the date of product registration with the Food and Drug Administration. The USTR does not include such limitations in their proposal.

Patent-registration “linkage”

The USTR introduces the obligation of the regulatory authorities to prevent the registration and marketing of a generic pharmaceutical when a patent that covers the product exists. This provision converts the health authorities into “patent police”. However, this is not how the regulatory authorities of the United States and Europe work. In the US and Europe, the FDA and EMEA, respectively, notify a patent owner of a registration submission of a product covered by such a patent. Only active ingredient patents apply. Given that roughly half of all patent invalidation proceedings in the US that reach a verdict result in the patent being revoked , the mentioned provision adopts an exaggerated presumption of validity of patents and will result in the creation of gratuitous drug monopolies, besides placing the legal responsibility and cost of defending private patent rights on the State rather than the patent owner.

Exclusive use of test data

One of the key barriers to generic competition in both pharmaceutical and agrochemical products is not the production of such products, but the registration of these products. Since both types of products are highly regulated substances and require registration prior to commercialization, any barrier to registration of generic products constitutes an effective barrier to the competition of generics. This is the reason for “exclusive use” of test data being pushed so aggressively by the pharmaceutical and agrochemical lobbies. The TRIPS agreement only mandated the protection of undisclosed information (Article 39.3 of TRIPS does not require the protection of disclosed information) against unfair competition, as described in the Paris Convention. According to the Paris Convention, gaining a competitive advantage per se is not considered dishonest unless it is illegal. The USTR also attempts to eliminate the condition that information be “undisclosed” in order for protection to apply. In addition, the USTR pretends to grant exclusive use of test data, which will guarantee drug monopolies for at least five years and ten years from the date of registration in the respective country for drugs and agrochemicals, respectively.

Questionable arguments

The USTR does not always give adequate reasons as to why it wishes to impose new rules. The reasons given usually have to do with protecting the creative effort of inventors. However, it is always a good idea to question the reasons given, because sometimes they are absolutely wrong.

For example, during the negotiations of the Free Trade Agreement between Central America, the Dominican Republic and the United States (CAFTA-DR), the USTR required 5 years of test data protection for pharmaceuticals, and 10 year for test data related to agrochemicals. The trade group representing the generic agrochemical manufacturers of Costa Rica requested an explanation from the Costa Rican negotiators as to why agrochemicals deserved twice as long of a protection period as pharmaceuticals. Since they did not have an answer (nor had they bothered to question this), they made a request for an explanation from the USTR. After about four months, the USTR came back with the following answer to this simple question:

This statement is unfounded for two reasons. First, IPRs are there to protect innovation, not investments. The above statement justifies greater protection on the basis of a greater investment, which would logically mean that the more expensive it is to develop an innovation, the greater its protection should be. This is not the foundation of an intellectual property system since it does not consider the greater profits these innovations can also generate during the protection period. Second, the statement is completely false. Two industry studies, cited or financed by the multinational agrochemical and pharmaceutical lobbies, contradict the statement. A study funded by CropLife concluded that developing a New Chemical Entity (NCE) in the agrochemical industry costs an average of US$184 million and takes on average 9.1 years , while a study often cited by PhRMA states that a NCE in the pharmaceutical industry costs on average US$897 million and takes 10-15 years. This is exactly the opposite of the USTR’s statement. However, when these studies were presented to the USTR, there was no change of position, nor any new arguments. It became a simple imposition of arbitrary protection terms. Therefore, impositions of terms based on arbitrary or
contradictory arguments should be ruled out at the very beginning of the negotiation, when negotiating rules are discussed.

Not all FTAs are equal

Finally, one should not conclude that there is nothing one can do when facing the USTR in a negotiation. After all, not all Free Trade Agreements (FTAs) are signed under the same terms. For example, there are variations in recent FTAs signed by the USTR in terms relating to the definition of ‘new product’, when the clock starts on the data protection term, whether there is a ‘waiting period’ available for the original product to seek registration in the country after the first registration, exclusion of patentable material, etc. Therefore, before starting a negotiation, it is crucial to study the terms agreed to in previous FTAs on a variety of issues in order to attempt to negotiate an optimal and acceptable outcome. Some FTAs are truly different from the rest. The following is the entire “chapter” (really a paragraph) in the Israel-US FTA. This FTA is the result of a clear position of the State of Israel, and demonstrates that not all FTAs are equal.

Article 4
Intellectual Property
The Parties reaffirm their obligations under bilateral and multilateral agreements relating to intellectual property rights, including industrial property rights, in effect between the Parties. Accordingly, nationals and companies of each Party shall continue to be accorded national and most favoured nation treatment with respect to obtaining, maintaining and enforcing patents of invention, with respect to obtaining and enforcing copyrights, and with respect to rights in trademarks, service marks, trade names, trade labels, and industrial property of all kinds .

Author Bio

Roman Macaya