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Executive Summary

Lilly is losing about $15 mil. per year in Taiwan to marketers of generic cephalexin, cefamandole, tobramycin and vincrinstine due to the absence of adequate patent law protection in that country, according to a memorandum submitted by the Pharmaceutical Mfrs. Assn. (PMA) to the Office of the U.S. Trade Representative. PMA President Gerald Mossinghoff submitted the memo as part of testimony June 24 before a hearing at the Trade Representative's Office. The hearing was held to assist the Trade Representative's Office in developing recommendations to the President for possible changes in the govt.'s Generalized System of Preferences Program (GSP). As a result of these recommendations, the govt. will either lower, raise or maintain the trade benefits of some products from certain countries. The President is expected to review the recommendations by January 1987. Any changes to the current GSP program would go into effect July 1, 1987. Mossinghoff submitted the Lilly figures at a June 24 hearing of the Trade Representative Office and testified in support of the assn.'s position that intellectual property protection be a condition of trade concessions to a foreign country. Although Lilly has process patents covering the drugs, the firm has been unable to enforce them because of a provision in Taiwanese law requiring the patent-holder to prove that a defendant "knowingly" infringed on a patent, PMA said. Since the generics are manufactured in Italy and sold through a Taiwanese importer, it is virtually impossible to prove the local marketer knew the Lilly process was being infringed upon, the assn. explained. Although Lilly is currently in civil court regarding the cefamandole and cephalexin patents, it "has little hope of success given the history of unsuccessful pharmaceutical patent litigation in Taiwan," PMA maintained. Mossinghoff specified the intellectual property deficiencies in Argentina, Mexico, Brazil, Korea, Taiwan and Yugoslavia, which he said "account for over 50% of GSP benefits." The PMA exec stated that "the GSP program is a creative instrument to advance development in the participating countries by permitting them easier access to the world's largest market." However, he added, "with this access and their consequent economic development, these countries must accept certain responsibilities. We believe that an adequate regime for the protection of intellectual property is one of these responsibilities. Countries ignore the intellectual property rights of U.S innovators in several ways, Mossinghoff declared. He maintained that the "worst situation" exists in countries such as Brazil and Mexico where patent protection for pharmaceuticals and the processes for making them has been eliminated. In Korea, Taiwan, Argentina and Yugoslavia there is process patent protection, but it results in little or no actual protection, Mossinghoff stated. "In most cases. . .process protection is virtually worthless becauses the patent owner is burdened with the often impossible task of proving that the product was made by the patented process," Mossinghoff maintained. "Even where the proof is available, corrective action is extremely protracted if pursued at all." PMA cited several other companies with sales losses on their brand name products, including Bristol-Myers, Pfizer, Janssen, Merck, SmithKline, American Home Products and American Cyanamid. Asserting that the economic impact of the patent policy of Brazil, Mexico, Argentina, Korea, and Taiwan is significant, Mossinghoff said these countries accounted for more than 15% of the non-U.S./Europe/Japan market in 1984. "Worldwide pharmaceutical sales in 1984 were $87.1 bil., with $57 bil. of that occurring in the U.S., Western Europe and Japan," he stated. Of the remaining $30 bil., Mexico accounted for $1.1 bil., Brazil $1.3 bil., Argentina $1.1 bil., Korea $1 bil. and Taiwan $230 mil."

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