THE 300 billion dollar-a-year pharmaceutical industry suffered a serious setback when the developing countries, displaying rare unity and preparedness, won a major deal on November 14 at the fourth ministerial meeting of the World Trade Organization held at Doha that allows them to skirt WTO rules on patents to produce or buy generic drugs in case a country is suffering from devastating pandemics like AIDS or a national health emergency.

The accord, hailed by the health activists as “a victory for the patients over patents” may mean a major drop in the industry’s profits in the years ahead in certain sectors. But it swallowed the bitter pill to put up a human face and shed its image of “an enterprise of greed”. The industry had suffered from an unusual image crisis six months ago when 39 pharmaceutical firms filed a lawsuit against South African government to stop it from importing or producing cheaper generic copies of the essential patented drugs for treatment of AIDS which has infected more than 24 million people in the African continent, most of whom can’t afford costly drugs marketed by the multinationals.

South Africa had actually passed a law, the Medicines Act, in 1997 which provided for making available generic drugs to AIDS patients but had not put it into effect. The industry did not react at the time. When Pretoria decided to invoke it in April this year, the drug lords smelled a serious threat to their doctrine of “patents over patients” and sued it in a Johannesburg court. Washington also threatened trade sanctions if South Africa went ahead. However, the firms withdraw the case, amid a series of international protests, after a month. It was the first major setback for the industry and the first major victory for health campaigners.

Another humiliation that the industry had to undergo was when the United States last year challenged through WTO a Brazilian move to establish the right under domestic law to compel the pharmaceutical firms to license local companies to produce cheaper versions of the patented AIDS drugs. There erupted a storm of criticism from AIDS campaigners throughout the world over the Washington move. The US later decided to drop the case .

At Doha, the global debate over drug patents had already become contentious when the US and Canada tried to obtain and stockpile Cipro the same way as had been done by South Africa and Brazil in case of AIDS drugs, thanks to anthrax scare in the United States. As demand for Cipro — formally known as Ciproflaxin — soared and shortages occurred, the need for its quick and cheaper availability thrust it to the centre of an already charged worldwide debate over patents enforcement. The advocates for the developing nations’ cause referred to this happening while arguing during the WTO bargain talks. They said that the manner in which the US and Canada have obtained stocks of Cipro indicates a clear double standard practised by rich nations and the pharmaceutical industry.

The agreement formally approved by trade ministers of the 142-nation WTO after six days of gruelling negotiations says, “we recognize gravity of public health problems afflicting many developing and least developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics,” and that the member countries have the right to “protect public health and in particular to promote access to medicines by all.” The deal gives the world’s 48 least developed countries a 15-year grace period to implement WTO rules on drug patents and allows them the right to seek further extensions after that.

The United States, Canada and Switzerland, and the drug firms themselves, insisted during negotiations that patent protection was vital to ensure the revenue that is used to finance research on new medicines. The drug companies, it is interesting to note, usually exaggerate the costs of developing new drugs. They try to hide the fact that governments often finance the key research and development of important new drugs. In case of AIDS, for example, the two leading drugs are AZT and DDL, both of which were developed at the National Institute of Health at US taxpayers’ expense. Both drugs have generated huge profits for the drug companies already.

The drug patent accord is, however, seen by the industry as a step that may weaken the 1994 TRIPS accord (drafted in large part by the industry itself) and that its ramifications could be wider and even threaten long-term profit expectations. A spokesman of the industry in Europe described the agreement as a “political” declaration confirming existing flexibility of the TRIPS accord which had always allowed governments to override patents in emergencies. There is a view that the wording of the declaration is ambiguous and that how far it may go to benefit the AIDS-stricken countries would largely depend on the interpretation of how serious the emergency is.

But the climate has changed profoundly following controversy over AIDS drugs in Africa, recent rows over anthrax in North America and a desire by certain US politicians to build bridges with the developing world after September 11. The drug industry, some critics say, has learnt its lessons and will avoid another public relations debacle. But the way Bayer’s patent rights were undermined by the US and Canada is unbelievable. There were threats to license a Canadian firm to make its generic version. In the US, Bayer slashed their asking price for Cipro to 95 cents, down from the original retail price of approximately 4.50 dollars a tablet, to forestall the generic threat. (It was still to make huge profits on such a low price). Canada later agreed to exhaust Cipro stocks before turning to generic tablets.

The TRIPS allows governments to bypass patents in national health emergencies. It was this provision which both Ottawa and Washington cited in their negotiations with Bayer. It is ironic to note that when South Africa had invoked the same provision to cope with the emergency situation created by the AIDS, the industry opted to go to court claiming TRIPS agreement was being violated.

Meanwhile, seven campaigning groups including Medicines Sans Frontiers (Doctors Without Borders), Oxfam and Third World Network have, in a joint statement, hailed the drug patent agreement saying the document shows the WTO members recognized the “lethal side-effects” of the TRIP agreement and had given teeth “to the measures that countries can use to counteract them. Now if the drug companies price drugs beyond the reach of the people who need them, government can override patents without the threat of retribution.”

The drug companies had, during the negotiations, constantly argued that the agreement would open the way to wholesale piracy of drugs and medicines. However, the secretary-general of the Geneva-based International Federation of Pharmaceutical Manufacturers, Harvey Bale, later described it as a “balanced package.”

However, most of the health activists believe the wording is strong enough to protect nations which want to use “compulsory licensing” measures permitted under TRIPS to produce cheap drugs. But some activists remain unhappy about export limits placed on drugs produced under the “compulsory licensing” clause. Since the poorest countries do not have the capacity to produce the drugs themselves, they will have to import them from such nations which have invoked the emergency measures. The ministerial conference did not offer any solution for situations like this but health groups are confident that this issue will be resolved next year in the TRIPS council.

Brazil, which helped broker the deal, played a pivotal role in a coalition of developing countries which won the deal. Last year, Brazil had won international recognition for its AIDS fight, its distribution of a free anti-AIDS drug cocktail to sufferers and tough price negotiation with drug firms. Brazil produces eight of the 12 drugs used in the AIDS cocktail.

Countries such as India, Argentina, Brazil and Turkey had maintained loose intellectual property laws and, as a result, developed strong national generic drug companies which produce low-price drugs. But their ability to do so was affected in 1995 with ratification of GATT agreements. Then came TRIPS. It required countries to adopt US-style patent rules, and constrained their options to lower drug prices. A few developing countries turned their attention to two TRIPS legal policy tools: compulsory licensing and parallel importing.

Compulsory licensing enables countries to instruct a patent or other exclusive rights holder to license the right to use its patent to another party. Parallel imports involve imports of a product from one country and resell, without authorization, in another. Multinational pharmaceutical companies are opposed to both compulsory licensing and parallel importing because these limit their absolute control over drug prices.