Intellectual Property

US reports on countries' progress in enforcing IP rights

The US says it intends to keep China, Russia and many other countries under close scrutiny to ensure that they protect intellectual property rights adequately and effectively. Counterfeiting, pharmaceutical data exclusivity and patent protection are high on the agenda.

In its 2006 “Special 301 Report”, the US Trade Representative (USTR) says that while many countries have made positive progress in protecting and enforcing intellectual property (IP) rights, “rampant counterfeiting and piracy problems continue to plague both China and Russia”, indicating the need for stronger IP protection in both countries¹. Both will therefore remain on the USTR's “Priority Watch List”, as will a number of others including Argentina, Brazil, India, Israel, Ukraine and Venezuela. Countries on this list are the focus of “increased bilateral attention concerning the problem areas”, the report says.

The USTR concedes that many developing countries and newly acceding members of the World Trade Organization (WTO) have improved their protection of IP. Some are therefore being removed from the watch list, including the Slovak Republic, which has implemented data protection provisions. The USTR also notes the recently concluded free trade agreements with countries such as Bahrain, Oman, Peru and Colombia, and the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR). Other FTAs are under discussion with Panama, Thailand, the Southern Africa Customs Union, Ecuador and the United Arab Emirates, as is the proposed Free Trade Area of the Americas.

It says it welcomes the TRIPS (Trade-Related Intellectual Property Rights) agreement and the recent “TRIPS/health solution” whereby patented products can be exported under compulsory licence to countries that do not have the facilities to manufacture the products themselves. It says it intends to ensure that no free trade agreements impede the implementation of the TRIPS/health solution.

Counterfeits and piracy rife

Nonetheless, the annual review paints a rather bleak picture of the extent of “global IP rights theft and trade in fakes and pirated materials”, with counterfeiting having developed into a “massive, sophisticated global business” involving the manufacturing and sale of a vast array of products, including medicines and healthcare products. The manufacture and distribution of counterfeit pharmaceuticals is an increasing problem that causes special concerns because of the potential safety risks.

The US is concerned in particular about the proliferation of counterfeit pharmaceutical marketing in China and Russia and the sale and distribution of counterfeits in many countries. “The economic damage caused by counterfeiting to the legitimate companies whose products are counterfeited is enormous.” The problem is compounded by the increasing use of the internet and the greater availability of broadband connections, which together serve as “an extremely efficient global distribution network for pirated products”.

The report also highlights barriers to market access for pharmaceuticals in many countries, such as reference pricing, approval delays, procedural barriers to approvals, restrictions on dispensing and prescribing, and unfair reimbursement policies. “Such measures have the potential to be non-transparent, as the criteria and rationale for certain pharmaceutical prices or reimbursement amounts are often not fully disclosed even to the pharmaceutical companies seeking to market their drugs,” the report says, adding that this reduces the returns on investment and so discourages innovation.

A task force has been set up by the USTR and the departments of health and human services, commerce and state to talk with the US's trading partners on how to promote better access and thereby sustain continued innovation. Progress on these issues has been made in some countries, such as the Republic of Korea and Japan. The US and Germany have exchanged views on how best to balance healthcare spending with other priorities, with the US raising specific concerns about Germany's reference pricing system and the transparency of the government's pharmaceutical price decision-making procedure. The US continued to urge China to price drugs in a way that values innovation and to add drugs to its national formulary. During the coming year the US will seek to establish similar talks with Poland, Italy, France, Canada and other countries.

Priority Watch List

The USTR's report lists the countries that it intends to keep on its “Priority Watch List”. Prominent among them this year are China and Russia. Despite anti-piracy campaigns and an increasing number of IP rights cases in China, overall piracy and counterfeiting levels remained “unacceptably high” in 2005, with IP infringement continuing to affect a wide range of products, brands and technologies, including pharmaceuticals, chemicals and industrial goods. Progress has, however, been made in some areas, with the Chinese government agreeing to discuss Chinese production of active pharmaceutical ingredients. The US industry, says the report, is concerned that the uneven application of Chinese regulatory requirements could facilitate the production of counterfeit medicines.

While China's patent laws are largely compliant with the TRIPS agreement, “a lack of clarity in laws involving generic drug patent infringement is contributing to the continued growth of counterfeit drugs, with corresponding health and safety problems”. The US is also concerned about the extent to which China provides meaningful pharmaceutical data protection. As for Russia, the USTR's concerns mainly relate to optical disc pirating, although it says that the country still needs to agree to provide adequate pharmaceutical data protection.

Many other countries remain on the Priority Watch List. For pharmaceuticals, the problem is generally insufficient data or patent protection, although the USTR also highlights what it says is a lack of coordination between the health and patent authorities to prevent marketing approvals being issued for unauthorised patent-infringing copies of pharmaceutical products. The latter issue - called “patent linkage” - has generated controversy among the worldwide generics industry, which says that marketing authorisations and patents are separate issues. Patent questions are the responsibility of patent offices, while marketing authorisations are the province of regulatory agencies, and it is up to pharmaceutical firms, not regulators, to defend their patents, generics companies say.

The USTR says Argentina has made some improvements in IP protection, including new fast-track procedures for patent applications and the hiring of a significant number of patent examiners, but the USTR says the country still falls short on pharmaceutical data protection and patent linkage. Belize is to be put on the Priority Watch List in 2006 as piracy and counterfeiting are widespread and concerns remain about the ability and willingness of the authorities to conduct inspections and seize counterfeit and pirated goods. Data protection is also an issue in Brazil, as is the fact that the country has not significantly reduced its backlog of pending patent applications, which is partly due to a requirement that “the health regulatory agency issue its approval before pharmaceutical patents are granted by the Brazilian patent office”.

Other countries where data protection and/or patent linkage issues remain unresolved include Egypt, India, Israel, Lebanon, Turkey and Venezuela. The USTR is especially worried by Israel's decision in March 2005 to pass legislation weakening data protection and its passing of legislation in December 2005 that significantly reduced the pharmaceutical patent extension term. “In addition, the US continues to urge Israel to strengthen its data protection regime in order to promote increased bilateral trade and investment in the field of pharmaceuticals and other knowledge-based sectors.” And while India has improved its patent protection regime by passing new product patent legislation in early 2005, “the new legislation has important omissions that detract from India's patent regime”, the report declares.

Watch List

A number of countries remain on the Watch List, which is reserved for those where there are specific issues to be resolved but with less urgency than the Special Watch List. Among them is Canada, which is expected to enact data protection legislation and improve its IP rights enforcement system so that it can take effective action against counterfeits and pirated products as well as curb the number of infringing products trans-shipped and transiting through Canada. Bulgaria is criticised for the lack of injunctive relief in patent infringement cases; Chile, Croatia, Ecuador, Hungary, Malaysia and Mexico for failings in patent linkage; and Costa Rica, the Dominican Republic, Ecuador, Guatemala, Malaysia, Mexico and Poland for inadequate data protection.

The USTR says that some countries have made substantial progress. Kuwait is to be downgraded from the Priority Watch List to the Watch List in 2006 after making significant improvements in its IP protection regime over the past year. Nonetheless, the US is concerned that Kuwait has yet to enact several key pieces of legislation that have been pending for many years, including amendments relating to patents, data protection and enforcement. Pakistan has established a system that will stop the approval of unauthorised copies of products protected by a patent, and has agreed to move forward with the implementation of legislation on data protection for pharmaceuticals.

Peru has agreed to effective protection of copyrights, trade marks and patents, enforcement against counterfeits and piracy, and effective pharmaceutical data protection, although it still falls short on patent linkage, the report says. Taiwan is commended for passing amendments to its pharmaceutical law in 2005 to offer five years of data protection, while the USTR says it looks forward to Vietnam successfully implementing recently passed legislation on data protection.

References

1. USTR 2006 Special 301 Report, www.ustr.gov/assets/Document_Library/Reports_Publications/2006/2006_Special_301_Review/asset_upload_file473_9336.pdf