Identifier
Created
Classification
Origin
03BRASILIA3122
2003-09-26 19:37:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Brasilia
Cable title:  

NEW DECREE TO FACILITATE IMPORTATION OF COPIED DRUGS

Tags:  KIPR ETRD PGOV ECON EINV SOCI BR 
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UNCLAS SECTION 01 OF 05 BRASILIA 003122 

SIPDIS

SENSITIVE

STATE FOR EB/TPP/MTA/IPC SWILSON

STATE PASS TO USTR FOR SCRONIN

USDOC FOR 4322/ITA/IEP/WH/OLAC-SC

USDOC ALSO FOR 3134/ITA/USCS/OIO/WH/RD/CREATORE

NCS FOR JOANNA WALLACE

AID FOR CAROL DABBS, LAC/RSD

AID ALSO FOR PAUL DELAY, G/PHN/HN/HIV/AIDS

E.O. 12958: N/A
TAGS: KIPR ETRD PGOV ECON EINV SOCI BR
SUBJECT: NEW DECREE TO FACILITATE IMPORTATION OF COPIED DRUGS
THROUGH COMPULSORY LICENSING

REF: SAO PAULO 1467

UNCLAS SECTION 01 OF 05 BRASILIA 003122

SIPDIS

SENSITIVE

STATE FOR EB/TPP/MTA/IPC SWILSON

STATE PASS TO USTR FOR SCRONIN

USDOC FOR 4322/ITA/IEP/WH/OLAC-SC

USDOC ALSO FOR 3134/ITA/USCS/OIO/WH/RD/CREATORE

NCS FOR JOANNA WALLACE

AID FOR CAROL DABBS, LAC/RSD

AID ALSO FOR PAUL DELAY, G/PHN/HN/HIV/AIDS

E.O. 12958: N/A
TAGS: KIPR ETRD PGOV ECON EINV SOCI BR
SUBJECT: NEW DECREE TO FACILITATE IMPORTATION OF COPIED DRUGS
THROUGH COMPULSORY LICENSING

REF: SAO PAULO 1467


1. (U) SUMMARY: The GoB has taken its latest step in laying
the legal groundwork necessary to import copied versions of
patented pharmaceuticals. President Lula signed a decree on
September 4 revising the implementation of Article 71 of
Brazil's 1996 patent law, which governs the granting of
compulsory licenses in cases of national emergency or public
interest. This decree ratchets up the Ministry of Health's
bargaining power in its continuing negotiations with three drug
companies over the prices of their AIDS antiretroviral
medicines (reftel). The decree quickly followed the conclusion
of the WTO agreement on access to medicines. While it is
unclear whether the revisions to Article 71 implementation
legislation are TRIPS-compliant or even consistent with
Brazil's own Constitution, the GoB believes it now has
considerably more room to maneuver in cases of public urgency.
The decree and the Health Ministry's dwindling stocks of the
drugs in question indicate to us that the GoB is prepared to
issue compulsory licenses and import if price negotiations are
not concluded to its satisfaction. Translated text of the
decree from the State Department Translation Service is
provided below (paragraph 16). END SUMMARY.

The Revisions and What They Mean
--------------


2. (U) The most significant revision, in Article 10 of the
decree, allows for the importation of the object of the
compulsory license when it is not possible to address national
emergency or public interest situations with a product on the
domestic market, or when production by the State or a third
party is not feasible. The previous language of Article 10
allowed for this circumstance "provided that the product has
been placed on the market directly by the owner or by consent

of the owner," implying that consent by the patent owner was
necessary before such (presumably parallel) importation could
occur. The replacement language of the new decree does not
specify that any action by the patent holder is required.
Pharmaceutical companies interpret this fact as giving the
green light for imports without the patent holder's consent,
permitting entry of knock-offs from countries where there is no
patent.


3. (U) An additional paragraph under Article 10 states that
the Union is obliged to acquire the product placed on the
market by the owner or with the owner's consent (e.g. parallel
imports),as long as that procedure does not frustrate the
purposes of the license. In essence, it would seem that the
State can now choose the desired product source by merely
alleging the patent owner is thwarting the purpose of the
compulsory license, e.g., by not lowering prices.


4. (U) The new decree also deletes language in the previous
version regarding the public bid process that was to govern the
contracting of third parties to work compulsory licenses. The
public bid procedures outlined in a 1993 law are no longer to
apply. A new paragraph states that patents under compulsory
license shall be worked by third parties in compliance with the
principles of Article 37 of the Constitution and other
applicable legal standards. Article 37 of the Constitution
deals with public administration in general, and would impose
more relaxed standards on the public bid process than those
outlined in the 1993 law.


5. (U) Revisions of Article 5 clarify that the patent holder
may be obliged to provide sufficient information to enable the
reproduction of the object of the compulsory license. The
significant alteration in this article under the new decree is
the threat of nullification of the patent should the transfer
of know-how not be forthcoming.


6. (SBU) The Ministry of Health, in its announcement of the
decree, characterized the measure as a legal instrument by
which the Brazilian government can import copies in cases of
national emergency or public interest without the necessity of
the patent holder's consent. In particular, the decree would
allow importation of copies of the three AIDS anti-retrovirals
that are currently the subject of price negotiations, should
the government pursue compulsory licenses. While MoH officials
from the International Affairs office declined to comment on
the ongoing negotiations with the three pharmaceutical
companies (reftel) in a September 4 meeting with Econoffs, they
portrayed the issue as a question of life and death for AIDS
patients and thus also a political requirement for the GoB.


7. (U) Although the MoH's budget allocation decisions did not
enter into the conversation with Econoffs, press accounts of
the negotiations with pharmaceutical firms typically cite the
Ministry's overburdened budget. While seeking to lower costs
of medicines in its AIDS program, the Ministry reportedly plans
to increase spending on state-run pharmaceutical production
facilities. Local press reports of September 1 highlighted
Health Minister Costa's announcement that 36 million reais
(approximately $12.4 million USD) from the Ministry's 2003
budget, formerly sequestered, are finally to be released to
finance capacity building at state-owned laboratories. The
2004 budget draft increases that amount to 80 million reais.

Industry Concern Deepens with New Decree in Place
-------------- --------------


8. (SBU) In a September 19 telcon with Embassy Econoff, Merck
Communications Director Joao Sanches expressed his concern over
what he characterized as growing anti-patent sentiment in
Brazil. He said the recent decree and several bills currently
before Congress all seek to limit patent holder rights. Citing
assessments of the decree from Brazilian intellectual property
lawyers, Sanches said that its constitutionality is
questionable, as federal government actions are not supposed to
impose additional requirements beyond the limits set by the
law. More optimistically, he stated that lower-level MoH
contacts have told him the GoB does not want to employ the new
decree, preferring a negotiated solution to the imposition of
compulsory licensing.


9. (SBU) In a separate September 19 meeting with Sao Paulo
econoff, FCS principal commercial officer and Brazilian
Research-based Pharmaceutical Manufacturers' Association
(Interfarma) President Flavio Vormittag, Sanches expanded on
the above concerns, highlighting what he characterized as the
MoH's lack of response to industry overtures in the area of
price reductions and the absence of open dialogue between the
companies and the MoH during the negotiation process.
According to Sanches, recent proposals by both Abbott and Roche
were again refused by the MoH as unsatisfactory. (Note:
Sanches was disillusioned that the MoH has at no time during
current negotiations recognized the significant price
reductions the companies instituted over the past few years in
support of Brazil's AIDS program. Only two years ago, Merck
received plaudits in the press and from the former head of
Brazil's National AIDS program for the price cuts they
delivered. Roche also cut its price for Nelfinavir in almost
half that same year. End note.) Sanches revealed that Merck
had formally requested a 60-day extension (beyond the original
August 31 deadline) from the MoH negotiating team so as to
review the price reduction demands for Efavirenz in the context
of Merck's global pricing policy. Sanches emphasized that any
changes to pricing levels in the Brazilian market would require
buy-in from Merck's executive body. The MoH had not formally
responded to the extension request, but Sanches believed the
MoH intended to send a formal communique this week in essence
denying their appeal for an extended negotiating timeline.
Sanches further stated that Merck's formal requests for a
meeting with Minister Costa have gone unanswered. According to
Sanches, Costa has yet to receive representatives from any of
the three companies since negotiations began.


10. (SBU) Sanches reiterated Merck's position that the prices
demanded by the MoH are below cost and even lower than those
Merck has granted to least-developed countries in Africa. He
stated that they amount to a 45 percent reduction for Merck and
an 84 percent reduction for Abbott (reftel). Sanches mentioned
that Merck has a contract with the GOB valid through the end of
this year. Despite the hard stance taken by the GoB, Sanches
did not seem to think that the GoB would risk breaking the
pricing contracts at this time and still sees some hope for
negotiation on the pricing issue. (Note: Sanches also stated
that the price currently demanded by the GoB is lower even than
that which can be obtained through importation of the drugs
from India or China, and suggested that this supports the view
that the GoB would prefer a negotiated solution to employing
the new decree. End note.)


11. (SBU) While the GoB claims its revisions to Article 71
implementation legislation are TRIPS-compliant, both Sanches
and Vormittag disagree. Interfarma has contracted a team of
lawyers to review the two documents to determine whether or not
the GoB would be violating TRIPS through the issuance of a
compulsory license under the new decree.


12. (SBU) Both Vormittag and Sanches predicted that if a
compulsory license were issued for anti-retrovirals, the GoB
might decide to expand such action to other medications (i.e.
vaccines, cancer, malaria, and tuberculosis),and even to other
sectors (e.g. software). They were fast to point out that the
decree is not AIDS-drug-specific. Vormittag opined that the
GoB started with anti-retrovirals because AIDS is a high-
profile issue, backed by a well-organized group in Brazil;
universal access to medication for all AIDS patients is also
written into Brazilian law, providing a more formidable basis
for issuing compulsory licenses in the name of the public
interest.

Merck Contemplates Its Options
--------------


13. (SBU) Sanches admitted that at this time the least painful
road for Merck to take would be to negotiate a smaller price
reduction or agree to voluntary licensing. Merck is currently
working with a team from Fiocruz to analyze the technical
requirements for manufacturing under a voluntary license. The
company has yet to make a final decision. (Note: This is a
change in stance from previous conversations with Sanches in
that he now believes the MoH may accept one or the other
demand, no longer obliging the patent-owners to comply with
both requirements -- price reduction and voluntary licensing --
included in the original MoH Administrative Rule governing the
negotiations. End note.)
Meanwhile, More Social-Policy Pressure
--------------


14. (U) The first National Conference on Medicines and
Pharmaceutical Assistance took place in Brasilia September 15-
18, ending with consensus that the country needs to guarantee
public access to free, quality pharmaceuticals. The Minister
of Health opened the conference, which brought together
academics, bureaucrats and business representatives to propose
recommendations to be incorporated in the Ministry's
pharmaceutical policy. One of the conference resolutions
suggested revision of Brazil's patent law to allow for local
production or importation of expensive medicines in cases of
"relevant social interest."

Comment
--------------


15. (SBU) While we cannot guess at the outcome of the current
price negotiations, we do judge that the GoB will not let
Brazilian HIV/AIDS patients go without these vital medicines,
nor will it be willing to divert significant additional
budgetary resources to meet increasing demand for the latest
generation of drugs. The global adulation of the GoB's AIDS
program, plus the emergency status that the WTO has conferred
upon the AIDS epidemic, make it likely that the GoB will employ
compulsory licensing to assure the supply of AIDS drugs unless
the desired price reductions are negotiated. Importation of
knock-offs would likely be a temporary measure until the state-
owned lab can begin internal production. Whether Brazil can
actually startup production of these pharmaceuticals as cheaply
as Brazilian officials seemingly assume is not a foregone
conclusion. END COMMENT.

Text of Decree
--------------


16. (U) Decree No. 4,830 of September 4, 2003

Redrafting Articles 1, 2, 5, 9, and 10 of Decree No. 3,201
of October 6, 1999, which provides for automatic issuance of
compulsory licenses in national emergencies or when in the
public interest, as defined in Article 71, Law No. 9,279 of
May 14, 1996.

The President of the Republic, by virtue of the authority
conferred by Article 84(IV) of the Constitution, and under
the provisions of Article 5(XXV) and (XXIX),and Article 71
of Law No. 9,279 of May 14, 1996, Hereby Decrees:

Article 1. Articles 1, 2, 5, 9, and 10 of Decree No. 3,201
of October 6, 1999, enter into force with the following
wording:

"Article 1. Automatic issuance of compulsory licenses
during national emergencies or when in the public interest,
and in the latter case only for non-commercial public use as
defined in Article 71, Law No. 9,279 of May 14, 1996, shall
take place as stipulated in this Decree." (NR)

"Article 2. A compulsory patent license may be issued
automatically when the State declares a national emergency
or when in the public interest, and in the latter case only
for non-commercial public use, when it is determined that
the patent owner is not addressing those needs either
directly or through a licensee." (NR)
"Article 5. Issuance of the compulsory license shall
establish the following conditions, among others:
I - The period of validity of the license and the
possibility of extending it; and
II - The conditions imposed by the State, particularly with
regard to reimbursement of the patent owner.

1. Issuance of the compulsory license may also include a
requirement for the patent owner to furnish enough
information to effectively reproduce the object of
protection and other technical aspects applicable to the
specific case; the provisions of Article 24 and of Title I,
Chapter VI, of Law No. 9,279 of 1996 shall apply should such
information not be forthcoming.

2. In calculating appropriate compensation for the patent
owner, relevant economic and market circumstances shall be
taken into account, as shall the prices of similar products
and the economic value of the authorization."
"Article 9. Patents licensed according to this Decree may
be worked directly by the State or by third parties under
contract or agreement, and the object of the patent for any
other purpose may not be reproduced under penalty of being
deemed illegal.
Single paragraph. Patents under compulsory license shall be
worked by third parties in compliance with the principles of
Article 37 of the Constitution and other applicable legal
standards."
"Article 10. When it is impossible to address national
emergency or public interest situations with a product on
the domestic market, or when production of the patented
article by third parties or by the State is not feasible,
the patented product may be imported.
"Single paragraph. For cases foreseen in the main body of
this Article, the State shall be given preference in the
acquisition of the product placed on the market directly by
the owner or by consent of the owner, as long as that
procedure does not thwart the purposes of the license."
(NR)
"Article 2. This Decree shall enter into force on the date
of its publication."
"Article 3. Article 11, Decree No. 3,201 of October 6,
1999, is hereby revoked."
Brasilia, September 4, 2003.
Luiz Incio Lula da Silva
Humberto Sergio Costa Lima
Luiz Fernando Furlan

This text does not replace the text published in the Official
Gazette on 9/5/2003
End Text.



17. This cable was coordinated with AmConsulate Sao Paulo.

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