Kara M. Bombach
excerpted from: Kara M. Bombach, Can South Africa
Fight Aids? Reconciling the South African Medicines And Related
Substances Act with the Trips Agreement, 19 Boston University
International Law Journal 273-306, 276-280, 288-295 (Fall 2001)(166
II. Analysis of the South African Medicines and Related Substances
Control Amendment Bill.
A. The Purpose of the Bill
In response to the plague-like proportions of the HIV and AIDS
epidemic in Africa, the South African government drafted The Medicines
and Related Substances Bill of 1997. The
Bill provides for several methods to improve access to HIV/AIDS drugs.
The Bill's preamble sets forth the Bill's aim ". . .to provide for
measures for the supply of more affordable medicines in certain
circumstances . . ." Specifically,
the Bill enunciates the Minister of Health's authority to issue
compulsory licenses and to allow parallel imports.
The Health Department has stated that by adopting the Bill, "the
government aimed to provide a transparent and legal framework that would
enable it to pursue its obligation to ensure access to affordable
medicines while at the same time respecting its international
obligations to honour intellectual property rights."
1. Compulsory Licensing
Section 15C of the Bill provides for compulsory licensing.
Compulsory licensing is a method to override existing intellectual
property protection by compelling the holder of a patent to grant
licenses to local manufacturers who will in turn charge lower prices.
Compulsory licensing would allow South Africa to manufacture its own
AIDS drugs and to distribute them within South Africa at affordable
prices. Through the use of compulsory licensing it is possible to reduce
the price of a drug by ninety percent.
This would be a substantial step forward for South Africa, the country
subject to the highest-priced pharmaceuticals in the world.
The WHO has stated, "compulsory licenses are the easiest and most
effective way to increase the supply of products . . ."
2. Parallel Imports
Under Section 15(C)(b) the Minister of Health can prescribe parallel
imports on medicines already registered in South Africa.
Parallel importation is the importation of pharmaceuticals from third
parties not authorized by the patent-holding companies. It allows South
Africa to import a drug manufactured and sold at a lower cost elsewhere.
In turn, the government is able to fulfill the supply that cannot be met
under current pricing schemes. For example, if the South African
government were to purchase Fluconazole
(Diflucan) from the patent-holding
pharmaceutical company it would cost approximately $4.10 per dose.
On the other hand, the South African government could purchase the same
drug from generic drug manufacturers in Thailand for $0.60 per dose.
In a situation like this where prices vary greatly from country to
country, parallel imports allow South Africa to lower drug prices,
permitting more consumers to afford the medication they need to survive.
Parallel importation is closely linked to the principle of
international exhaustion. The principle of exhaustion limits the patent
holder's ability to recoup profits on a patented pharmaceutical to the
first sale of that product. If a company sells a drug at a lower price
to Thailand than to South Africa, Thailand can resell the drug to South
Africa at that lower price. Because the patent holder's exclusive rights
have been exhausted in the sale to Thailand, its interests would not be
damaged. This can be a helpful tool for a developing nation's health
policy. The government can decide to allow importation of the
lower-priced products into its national market in order to increase
access to drugs by providing them at more affordable prices.
B. The Bill and its Effect on Patent Rights in South Africa
The Bill gives the Minister of Health broad power. It essentially
grants the Minister of Health authority to act outside the boundaries of
existing South African patent law.
For example, the existing law precludes parallel importation.
The Bill seemingly reverses this provision by stating that
"notwithstanding anything to the contrary contained in the Patents
Act, 1978 . . . a medicine, which is imported by a person other than the
person who is the holder of the registration certificate . . . may be
Moreover, the allowance for parallel imports eliminates the
requirement that a medicine be separately registered. Essentially, a
competing drug produced by a generic manufacturer in another country can
enter the South African market without going through the South African
patent registration system. In other words, a medicine may be imported
from another country and sold in competition with a locally registered
product. The language of this provision is broad and could conceivably
allow importation that would otherwise violate South African patent law.
Drug manufacturers whose drugs comprise the parallel imports may reap
the benefits of competing in the South African market without having to
apply for patent registration there.
In spite of the apparent preemption of some provisions of South
African patent law, it will be shown in Part IV that the Bill does not,
as demonstrated, violate any international intellectual property
commitments under the TRIPS Agreement or under customary international
C. The Current Status of the
In May 1997 the South African Parliament tabled the Bill. This
occurred shortly after the South African Pharmaceutical Manufacturers
Association and forty-one pharmaceutical companies, including South
African companies as well as subsidiaries of European and United States
companies filed a suit against the South African government in the
Pretoria High Court. After the suit was
filed, the government passed the South African Medicines and Medical
Devices Regulated Authority Act ("SAMMDRA").
The lawsuit was stayed after the government passed SAMMDRA.
SAMMDRA repealed the disputed language of Section 15C of the
Medicines and Related Substances Bill. SAMMDRA has since been rescinded
on the basis of being "unworkable" under the auspices of
former President Nelson Mandela. The
South African courts have ruled Mandela exceeded his authority in
rescinding SAMMDRA. Additionally, parts
of the law itself were criticized by the Constitutional Court, which
sent the law back to the Health Department for revision. In addition to
resurrecting the Bill by dismissing SAMMDRA, the South African
government is examining the Patent Act of 1978 as a replacement for
section 15C of the Bill. The Patent Act permits compulsory licensing
under certain circumstances. Whether the
provision for compulsory licensing comes under the Bill or the Patent
Act, however, does not affect South Africa's international obligations.
Although the pharmaceutical industry
appears to favor the Patent Act in place of Section 15(C),
the ramifications of compulsory licensing are identical under TRIPS.
TRIPS allows compulsory licensing under certain circumstances,
regardless of either South African legislative embodiment.
(Pages 280-287 omitted)
IV. The Bill and its Extraterritorial Effects
A. The TRIPS Agreement of the World Trade Organization Uruguay Round
TRIPS embodies an effort to harmonize globally the intellectual
property systems of WTO Member
States. Some critics argue that, because TRIPS provides for worldwide
patent protection, drugs become more expensive in developing countries.
At present there are 142 Member States of the WTO.
Of the 142 WTO member states, approximately 100 are considered
developing countries. Many of these countries did not provide patent
protection for pharmaceuticals prior to accession to the WTO and
adoption of TRIPS. Some developing
countries, most notably India, provided protection only covering drug
production processes while not covering protection of pharmaceutical
products. Both of these approaches
allowed developing countries to keep drug prices low.
TRIPS requires protection of pharmaceutical products as well as
processes. It contains several provisions available to all Member
States, which developing countries may utilize in order to obtain less
expensive pharmaceuticals. Article XXXI allows member countries to
participate in compulsory licensing.
This licensing will be permitted only if the proposed user makes
reasonable efforts to obtain authorization from the right holder of the
patent. The proposed user must satisfy several other conditions,
including making a showing that the authorization will only be used to
supply the country's domestic market.
Article VI allows Member States to engage in parallel importation by specifically
abstaining from the issue of exhaustion, thus allowing them to adopt
whatever national policy on the issue of exhaustion they deem
appropriate. By permitting Member States
to adopt the principle of international exhaustion of patent rights,
Member States' governments could allow parallel imports.
1. National Emergency or Extreme Urgency
The Article XXXI requirement for gaining right holder authorization
may be waived "in the case of a national emergency or . . . extreme
urgency." South Africa has not
officially declared the AIDS crisis a national emergency.
It is not evident, however, that TRIPS requires a legal declaration of a
"state of national emergency." Specifically, TRIPS provides
for waiver "in the case of a national emergency or . . . extreme
urgency." Moreover, this waiver
need only be invoked if the country does not make "efforts to
obtain authorization from the right holder on reasonable commercial
terms" and that such efforts are
not "successful within a reasonable period of time."
South Africa could participate in negotiations with the patent-holding
pharmaceutical companies, which, up until this point, it has been
hesitant to do. If no terms can be agreed upon, the South African
government may still invoke Article XXXI in the absence of a declaration
of national emergency.
The pandemic in South Africa may constitute a national emergency for
purposes of TRIPS. The South African national economy will continue to
shrink by one percent each year due to a
disintegrating workforce. The life expectancy will drop from what would
have been 70 years to below 50 years by 2010.
These threats to the economy and population growth may even satisfy the
threat to "peace and order" requirements
for purposes of South African law.
If "national emergency" for purposes of TRIPS requires that
the Member State declare a state of national emergency, then this case
could at least qualify for the broader "circumstance of extreme
urgency" language of Article XXXI. The rapid rate of infection and
death in South Africa is recognized internationally as a case of extreme
2. Pharmaceuticals and TRIPS
Interestingly, the pharmaceutical industry played a large role in the
drafting of TRIPS. In this regard, the intellectual property and policy
concerns and perspectives of Member States were not necessarily
accurately reflected in TRIPS. However, in the larger scheme, developing
countries may have been willing to concede to these provisions, taking
into account the benefits they hoped to garner from WTO membership.
On the other hand, TRIPS more closely approximates the stringent
United States patent system. For
instance, pharmaceutical processes and products were patentable in the
United States prior to the TRIPS Agreement. The United States, under its
more rigid patent regime, actually engages in practices such as
compulsory licensing. In this sense, it
is less likely that allowing these practices was a United States
concession, since the United States already engages in these practices.
However, in general, the United States would prefer a stricter set of
rules in the WTO and may have conceded to lower standards. In fact, the
WTO even proclaims that TRIPS is merely a "minimum standard"
for intellectual property protection.
TRIPS leaves a Member State free to set its national patent protection
standards higher than the standards announced in TRIPS, and to enforce
those standards in its territory. TRIPS does not, however, provide for
States to demand higher national standards from other States, as the
United States has done in this case.
3. Analysis of "Adequate Remuneration" under TRIPS
Article XXXI(f) of the TRIPS Agreement provides "the right
holder of a patent shall be paid adequate remuneration in the
circumstances of each case [such as compulsory licensing or parallel
importing], taking into account the economic value of the
authorization." The determination
of remuneration will be subject to "judicial review or other
independent review by a distinct higher authority
in [the country engaged in compulsory licensing or parallel
importing]." This language is
One proposal for calculating adequate remuneration to be paid to the
patent holder would be to determine the profits from a particular drug
in South Africa that the company makes in a given year. This would
reflect the normal amount of business done in South Africa. The South
African government could then implement a system of compulsory licensing
and parallel importing and pay the pharmaceutical companies their
pre-system profits from sales in South Africa. In fact, South Africa
currently faces the highest priced pharmaceuticals in the world.
Therefore, it is conceivable that the government could actually pay less
than the pre-system profits particularly in light of the fact that South
Africa comprises two percent of the global profits but only one percent
of the global market. Perhaps the
remuneration could reflect South Africa's market standing at one percent
of the global market as opposed to two percent, in effect, giving South
Africa a fifty percent reduction.
B. Treaty Interpretation of TRIPS
The Vienna Convention on the Law of Treaties establishes that
"[a] treaty shall be interpreted in good faith in accordance with
the ordinary meaning to be given to the terms of the treaty in their
context and in the light of its
object and purpose." Therefore, in
interpreting the TRIPS agreement, it is relevant to examine the text,
the context and the object and purpose of the agreement.
1. The Text
The text of TRIPS Article VI explains that the agreement does not
address the issue of exhaustion.
Consequently, the text of TRIPS does not specifically address parallel
importation. Rather, it leaves Member States to formulate their own
national laws regarding exhaustion principles, and hence, parallel
The text of TRIPS Articles XXX and XXXI explicitly allows for
exceptions to patent rights, provided that "such exceptions do not
unreasonably conflict with a normal exploitation of the patent and do
not unreasonably prejudice the legitimate interests of the patent owner
. . . ."
2. The Context
The context of TRIPS includes other WTO agreements, such as the
General Agreement on Tariffs and Trade ("GATT"), which
provides the legal framework for removing barriers to international
commerce in goods and services.
The anti-protectionist measures of GATT do not directly apply to
South Africa's effort to increase access to HIV/AIDS medicines. South
Africa is not attempting to put
tariffs on, or limit imports of, foreign-produced pharmaceuticals. In
fact, the government would like to be able to import less expensive
generics from countries like India. South Africa would actually like to
increase imports of these drugs. Even if South Africa were to begin
domestic production of generic equivalents of drugs, it is not clear
that such production would hinder the importation of foreign-produced
drugs. This is simply because there is currently very little
importation. Since very few South African citizens can afford the
foreign-produced drugs at the current high prices, overall demand for
the foreign drugs is not likely to change.
As context for TRIPS, however, GATT includes language, which lends
credibility to South Africa's attempt to implement the Bill to increase
access to essential medicines. The relevant provisions would undermine
any arguments by other countries or the pharmaceutical companies that
South Africa is acting inconsistently with the provisions of GATT.
Article XX provides for General Exceptions to the Agreement.
Article XX(b) states that nothing in GATT "shall be construed to
prevent the adoption or enforcement by any contracting party of
measures: necessary to protect human, animal or plant life or
health." Additionally, Article
XX(j) states that nothing in GATT "shall be construed to prevent
the adoption or enforcement by any contracting party of measures:
essential to the acquisition or distribution of products in general or
local short supply . . . ."
Additionally, the GATT Preamble reads: "Recognizing that their
relations in the field of trade and economic endeavour should be
conducted with a view to raising standards of living, ensuring full
employment and a large and steadily growing volume of real income and
effective demand, developing the full use of the resources of the world
and expanding the production and exchange of goods . . . ."
This language demonstrates the intention of GATT drafters to discourage
protectionist behavior in order to maximize efficiency in the
international marketplace. The twenty-year patent rights regime covering
HIV/AIDS drugs looks more and more like an incidental protectionist
mechanism. It is preventing public benefit of the drugs. At the same
time, it is not clear that patent monopoly protection is actually
driving the incentive for development within pharmaceutical companies,
as the intellectual property system justification would require.
3. The Object and Purpose
Article VII and Article VIII of TRIPS enunciate the objectives and
principles of the TRIPS agreement. The objectives outlined in Article
VII call for the protection and enforcement of intellectual property
rights to contribute to the "promotion of technological innovation
. . . to the mutual advantage of producers and users . . . and in a
manner conducive to social and economic welfare, and to a balance of
rights and obligations." The Bill
can be viewed as a mechanism to
ensure intellectual property rights are protected and enforced in a
manner conducive to social and economic welfare. Article VIII explains
that Member States "may . . . adopt measures necessary to protect
public health and nutrition . . . provided that such measures are
consistent with the provisions of this Agreement."
The Bill also represents a measure necessary to protect public health,
in light of South Africa's public health crisis. Article VIII also
highlights the potential need for appropriate measures, consistent with
TRIPS, "to prevent the abuse of intellectual property rights by
right holders." It is not
impossible, given the present epidemic conditions in South Africa, that
pharmaceutical company patent rights holders may be abusing their
intellectual property rights in South Africa. The limited supply of
drugs produced or imported into South Africa, and the exorbitant South
African prices on HIV/AIDS drugs demonstrate abuse of intellectual
property rights under present conditions.
C. Additional Problems with the United States Treatment of South
Africa's Bill under Norms of Customary International Law
The United States position against South Africa, additionally, has no
foundation in customary international law. Customary international law
norms are generally inferred from state practice together with opinio
juris, a state's sense of legal
obligation. It is possible to infer from the collective state practice
of interested states, accompanied by their sense of legal obligation
that a customary international law norm has emerged. Moreover, treaties
can play a role in the development of customary international law.
Ratification of, or accession to, a treaty may be accepted as state
practice. Finding opinio juris in such cases may be the more difficult
The International Court of Justice has recognized three ways in which
multilateral treaties can contribute to the development of customary
international law norms. First, a
treaty may codify already existing customary international law norms.
Next, the treaty negotiation process itself may "crystallize"
an emerging rule that has not yet attained the status of customary
international law norm. Finally, states' behavior after conclusion of
the treaty may evince state practice out of a sense of legal obligation.
Both the United States and South Africa are Member States of the WTO.
Both countries were party to the treaty negotiations underlying TRIPS.
Therefore, both states will be seen as bound by the terms of the treaty
in the absence of treaty reservations or persistent objection.
Similarly, the acts of both countries may shed light on the perceived
legal obligations of WTO Member States.
A WTO Member State, the United States itself regularly issues
Other countries have uncontroversial codified provisions allowing for
compulsory licenses. The United States
has not objected to such statutes in other WTO Member States such as
France. This may evince United States acceptance of the practice. Also,
the Paris Convention, which is incorporated by reference into TRIPS,
provides: "Each country of the Union shall have the right to take
legislative measures providing for the grant of compulsory licenses to
prevent the abuses which might result from the exercise of the exclusive
rights conferred by the patent . . . ."
The incorporation of the Paris Convention may demonstrate that TRIPS is
a codification of this preexisting customary international law norm. On
the other hand, if, at the time of the Paris Convention, the rule was
just emerging, state practice subsequent to the Paris Convention and
prior to TRIPS along with negotiation of TRIPS may demonstrate the
"crystallization" of this customary international law norm.
Another international organization, the WHO, a source of
international consensus on public health issues, promotes compulsory
licensing and the production of generic equivalents in the case of
Likewise, the U.K. and other E.U. countries have extensive trade in
parallel imports, a practice that is affirmed by the European Court of
Justice. The United States and European
countries, home to the largest
pharmaceutical firms, are likely the WTO Member States with the greatest
interest in protecting pharmaceutical profits.
The United States protest against compulsory licensing and parallel
imports is not supported by past United States behavior, which has
heretofore accepted these practices. Compulsory licensing and parallel
importation in certain circumstances appear to have emerged as customary
international law norms. For this reason, the United States cannot argue
that these practices violate South Africa's customary international law