Médecins Sans Frontières assessment of the impact on public of Investor State Dispute Settlement clauses in trade agreements

A submission to the Senate Foreign Affairs, Defence, and Trade Legislation Committee inquiry into the Trade and Foreign Investment (Protecting the Public Interest) Act 2014

Submission prepared by: Médecins Sans Frontières Australia & Médecins Sans Frontières’ Campaign for Access to Essential – Geneva

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Table of Contents

1 - Intention and scope of this submission ...... pg.3

2 - Médecins Sans Frontières &The Campaign for Access to Essential Medicines ...... pg.3

3 - MSF experience of the impact of rules on ...... pg.4

4 - What is at stake in the negotiation of the Trans Pacific Partnership Agreement and other trade agreements which include ISDS clauses? ...... pg.5

5 - ISDS clauses as a tool to undermine flexibilities for public health – The Eli Lilly example ...... pg.5

6 - Are existing safeguards enough to protect public health? ...... pg.7

7 - The global health significance of an Australian ban on ISDS clauses in Australia trade agreements ...... pg.8

8 - Conclusion and Recommendations ...... pg.9

9 – End notes ...... pg.10

ANNEX - Trading Away Health - How the U.S.’s Intellectual Property Demands for the Trans- Pacific Partnership Agreement Threaten Access to Medicines- MSF Access - 2012

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1. Intention and scope of this submission 1.1 Médecins Sans Frontières (MSF) is a global medical humanitarian Non- Governmental Organisation that treats over 8 million patients in more than 60 countries with a workforce of 34,000 and an annual budget of over $1.4 billion. Our engagement with trade issues is limited to the extent to which they impinge on our ability to exercise our medical/humanitarian mission and set standards which affect the global health objectives to which we, along with many other health organisations are striving. 1.2 Consequently, this submission will focus on the impact and potential impact of Investor-State-Dispute-Settlement (ISDS) clauses on public health as assessed by MSF and concludes that ISDS clauses pose an unnecessary risk to public health objectives – which includes the serious concern that these clauses’ affect the ability of governments to ensure access to affordable medicines. 1.3 This submission will not comment on the wider impact of ISDS in the context of trade except to its potential impacts on the ability of governments to manage prices through the use of legal safeguards guaranteed under global intellectual property rules.

2. Médecins Sans Frontières &The Campaign for Access to Essential Medicines 2.1 MSF has been responding to medical and humanitarian needs of populations in distress through conflicts, natural or man-made disasters or medical emergencies for over four decades. MSF observes neutrality and impartiality and the right to humanitarian assistance and claims full and unhindered freedom in the exercise of its functions. 2.2 In the pursuit of this mission MSF undertakes significant procurement of medicines and medical devices which are used to treat our patients free of charge around the world. 2.3 In addition MSF has over 40 years experience of interacting with local health systems in (mainly) low income countries and have developed an intimate understanding of the challenges faced in terms of the price and availability of medicines and medical devices. 2.4 MSF’s volunteer medical and logistical staff and national staff are witnesses to the human impact (including loss of life) that results from failures to ensure accessibility and affordability of essential medicines and medical devices. 2.5 MSF’s Campaign for Access to Essential Medicine was established with the financial element of the Nobel Peace Prize awarded to MSF in 1999. The campaign was established in response to a growing awareness that trade and intellectual property rules were key barriers to ensuring accessibility and affordability of essential medicines, and diagnostics. The Access

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Campaign therefore uses MSF’s experiences in the field works as examples to influence reform the legal and regulatory barriers of access to medical tools, the inadequacy of the current medical innovation system and to ensure trade and intellectual property laws and regulations do not jeopardize public health.

3. MSF experience of the impact of Intellectual Property rules on public health. 3.1 In 2001 MSF began working to respond to the HIV emergency, especially in . This ongoing medical emergency has killed over 34 million people since 1990 i the overwhelming majority of these deaths have occurred in Sub- Saharan Africa where still in 2012 around 1.2 million HIV-AIDS related deaths were recorded. 3.2 The invention and production of Anti-Retroviral drugs (ARVs) in the 1990s represented a lifesaving breakthrough for HIV positive patients. Unfortunately, for the HIV patients treated by MSF their access to these new drugs was severely limited due to the very high prices charged by the drug companies with for these ARVs.ii During this period, MSF staff members were witness to the unnecessary deaths of many thousands of people because of a lack of access to affordable ARVs. These deaths were some of the millions who died during the period between ARVs being approved by the FDA in the USA (1996) and the availability of non- generic versions in Africa (2001) and the years it took to scale up the treatment for patients. It was not until 2007 that AIDS related deaths began to decrease in Sub-Saharan Africa as a direct result of the more widespread availability of affordable ARVs. 3.3 ARVs (as well as other drugs) were priced out of reach despite the public health emergency of the HIV and AIDS crisis because they were subject to patent protection (creating a for the inventor for a set period) of a minimum of 20 years according to the Agreement of Trade Related Aspects of Intellectual Property Rights (TRIPS) signed by WTO members in 1994. This trade agreement dramatically expanded and extended patent protection (therefore locking in high prices) for pharmaceuticals as a global standard for the first time. Up until this agreement many developing countries did not recognise pharmaceutical product patents and were able to purchase or produce generic copies of those drugs at much lower prices. 3.4 The AIDS crisis brought into focus the need for governments to ensure access to low-cost generic medicines to protect public health. In 2001 the WTO Doha Declaration on TRIPS and Public Health clarified flexibilities within the TRIPS agreement to ensure that countries had the right to access generic versions of patented drugs to protect public health. Despite this guarantee, rich countries have ignored the mandate of Doha and have pressured developing countries to either not use basic flexibilities to ensure affordable medicine prices, or have pushed for strict IP rules that exceed

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minimum obligations under TRIPS. This has meant that the lack of access to essential medicines including ARVs continues to be a problem that MSF witnesses in the communities where we work and through our own procurement challenges. 3.5 The experiences of MSF on ARVs also demonstrated that rigorous generic is essential in sustainably reducing prices of medicines, which can be achieved when countries use TRIPS flexibilities to facilitate their public health needs, and encourage broader generic competition of quality-assured medicines for the patients in needs. 4. What is at stake in the negotiation of the Trans Pacific Partnership Agreement and other trade agreements which include ISDS clauses. 4.1 This bill is put forward during the ongoing negotiations of the Trans Pacific Partnership Agreement (TPPA). This trade agreement, including its investment chapter and ISDS clauses, according to leaked text, threatens to undermine the flexibilities set out in the TRIPS Agreement, which were reaffirmed under the 2001 Doha Declaration on TRIPS and Public Health. The measures proposed by the US Trade Representative include measures on Intellectual Property and pharmaceuticals which go beyond those detailed in TRIPS making this a ‘TRIPS+’ agreement. These measures would be more stringent than those agreed in the Australia-USA Free Trade Agreement (AUSFTA) and so have been described as ‘TRIPS++’. These measures include patent term extensions, up to a 12 year period of data exclusivity and broad, expanded patentability criteria. All of these measures could extend the capacity for patent holders to prolong their market monopoly in order to continue charging unaffordable prices without generic competitors entering the market.iii 4.2 The impact of a plurilateral trade agreement including a higher level of protection of intellectual property rights in relation to medicines goes well beyond the public health status of the populations in the countries who sign up to the TPPA. The TPPA has been describediv as setting a new global standard and as such represents a threat to access to essential medicines worldwide to the extent that it becomes a catalyst agreement which influences the content of other trade agreements (for example the EU-US TTIP, South African Investment Act). 5. ISDS clauses as a tool to undermine Doha Declaration flexibilities for public health – Eli Lilly example. 5.1 The ISDS clauses in the leaked text of the TPPA follow a standard seen in numerous trade agreements including the North American Free Trade Agreement (NAFTA), Peru-US Free Trade Agreement, and more recent (2013) Korea-Australia Free Trade Agreement (KAFTA). These clauses extend and define Intellectual Property (including pharmaceutical patents or

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essential medicines) as assets, and provide rights to sue if governments take actions which are ‘tantamount to expropriation’ of these assets. 5.2 In addition the investment chapters of these trade agreements give the right for investors to enjoy “treatment in accordance with , including fair and equitable treatment and full protection and security”v in relation to their investments. This definition of fair and equitable treatment in accordance with international law is not a clear and obvious standard, and critically for public health, does not necessarily encompass the objectives of the Doha Declaration on Public Health. 5.3 This opens up the possibility of investors suing governments who opt to use the TRIPS flexibilities (e.g. define strict patentability standard to scrutinize and exclude patents for trivial changes of known medicines, or issuing a for the production or import of a generic version of an essential medicine) arguing that this breaches the standard of fair and equitable treatment or may amount to expropriation of an asset. 5.4 In 2012 for the first time a patent-holding pharmaceutical company filed an investor state challenge based on IP under a FTA. Eli Lilly challenged the Canadian Government after the federal court system invalidated the secondary patents on two drugs - Strattera (ADHD) & Zyprexa (schizophrenia) - after the validity of the patents had been challenged in national courts. This was possibly due to the North American Free Trade Agreement (NAFTA) investment chapter provisions. Eli Lilly is challenging two things: 1) The decision to invalidate its’ patent, and 2) The requirement under Canadian patent law to demonstrate utility (or to demonstrate the promise of “usefulness”). 5.5 Canadian law requirements for patentability require that the application demonstrate novelty (be the first in the world), that it is Inventive ingenuity (non-obviousness to someone skilled in art) and that is has utility (be functional and operative ie. useful) vi. The invention must be “useful” for the purpose for which it was designed as specified in the patent application. An applicant may be required to show that the promised utility was demonstrated or soundly predicted at the application filing date.

5.6 In the case of Strattera, Eli Lilly’s application rests on a 3 week long double blind, placebo cross-over study involving 21 persons that showed a 30 % reduction of ADHD in 11 out of 21 trial subjects. The Canadian court did not consider this sufficient evidence to predict that Strattera would be an effective long term treatment of chronic ADHD. The Zyprexa application relies on 1 clinical trial study on 10 patients. and one study on dogs that “did not show any rise in cholesterol levels” but Zyprexa did not have any cholesterol effect on humans. vii

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5.7 The utility doctrine applied by Canada falls short of full use of the TRIPS flexibilities included under the TRIPS Agreement and the Doha Declaration and yet Eli Lilly still found a basis to sue the Canadian government based on its rights established in the investment chapter of NAFTA and the ISDS mechanism there. The notice of arbitration outlines their argument:

“Canada’s “promise utility doctrine,” applied by Canadian courts to invalidate the Strattera and Zyprexa patents, is contrary to Canada’s treaty obligations to protect patent rights and has resulted in the unlawful expropriation of Lilly’s intellectual property. The retroactive, arbitrary, and discriminatory application of the promise utility doctrine to Lilly’s patents also contravenes the minimum standard of treatment owed to Lilly as an investor in Canada”.viii

5.8 Eli Lilly is seeking $500 million Canadian dollars in compensation.

5.9 The Eli Lilly case is an example of how ISDS can be used to challenge and undermine the legitimate use and exercise of a national patent law for pharmaceutical patenting. The case is harmful for countries that wish to freely exercise their discretion under international law to define the legal doctrines according to the public policy needs, including those essentially concerning public health.

6. Are existing safeguards in ISDS clauses enough to protect public health?

6.1 In direct reply to concerns raised by civil society in Australia the Minister for Trade has stated that “Contemporary ISDS agreements with their explicit safeguards make clear that government's capacity to pass laws and regulations in the public interest in areas like health and the environment is not diminished.” The safeguards referred to here are contained in the following wording used in the KAFTA:

"Except in rare circumstances non-discriminatory regulatory actions by a party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety and the environment, do not constitute indirect expropriations"

6.2 Legal opinion is far from unanimous on whether this wording is strong enough to ensure public health protection.ix The qualifying clause ‘except in rare circumstances’ is thoughtx to give too much scope for lawyers to devise ways to circumvent this proposed safeguard.

6.3 In the case brought by Eli Lilly in Canada under the NAFTA this safeguard would not appear to be relevant because the matter contested relates to definitions of patent law and not public health regulations per se, although the

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ruling on the patentability criteria test might have a public health impact. Thus, a narrowly defined approach to safeguards would not prevent ISDS from being used in attacking legislative and regulatory measures that have a direct or indirect impact on health.

6.4 These so called safeguards do not ensure that public health measures will be free from contestation by pharmaceutical companies. Even if the settlement process is thought unlikely to be successful the mere threat of a lengthy and costly settlement process could be enough to dissuade governments, particularly those in low and middle income countries with significant resource constraints, from enacting public health measures like those facilitated by the Doha Declaration.

7. The global health significance of an Australian ban on ISDS clauses.

7.1 ISDS is a process that is contested and a growing number of countries are pulling out of ISDS. Recently Indonesia signaled that it was pulling out of all 67 Bilateral Investment Treaties(BIT).

7.2 The ban on ISDS clauses by Australia could prove critical in removing that section from the TPPA and in turn reinforcing opposition to ISDS as the global norm, and thereby reasserting the right of national governments to make laws in the public interest of their citizens without the threat of legal action by foreign investors.

7.3 The removal of ISDS clauses from future trade treaties would ensure that these processes cannot be used to undermine the flexibilities for governments to regulation in the interests of public health enshrined in the TRIPS Agreement and Doha Declaration.

7.4 MSF has been advocating, at least for Intellectual Property to be removed from the investment chapters of trade agreements like the TPPA to preserve the efficacy of the TRIPS flexibilities. For example moves to issue compulsory licenses, invalidate trivial patents, or clarify the definition of patentability, whilst protected by the Doha Declaration under the WTO rules could nevertheless be the basis for ISDS proceedings. Arbitrators operating under ISDS frameworks are provided too much discretion and flexibility to choose between competing frameworks. There is no clear hierarchy in case of conflict between treaties and so public health criteria could be trumped by appeals to investor rights.

7.5 Currently, over 80% of all ARVs bought by the Global Fund to Fight Aids and (GFATM) and the USA’s President’s Emergency Plan for Aids Relief (PEPFAR) which supply the majority of drugs for HIV sufferers in low income countries, are generics sourced in . These

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generic drugs are able to be supplied outside of patents because of flexibilities in the TRIPS agreement – this has saved millions of lives.

7.6 Unfortunately, the future of HIV treatment will see increasing numbers of patients needing new drugs and second or third line treatments (as first line resistance grows). These drugs are still be under patent and consequently are up to 14 times more expensive than first line drugs. This public health challenge will require the use of compulsory licensing or other TRIPS flexibilities to ensure that governments in low and middle income countries can provide accessible and affordable treatment or that global funds like GFATM or PEPFAR will be able to fill the gap. If ISDS clauses are allowed to boost investor rights in trade agreements these life saving measures could be undermined. This would threaten hundreds of thousands of lives for patients whose would be priced out of reach.

8. Conclusions and recommendations

8.1 It is the view of MSF that ISDS clauses pose an unnecessary risk to public health objectives – and in particular ensuring access to affordable medicines. ISDS allows investors to challenge the legitimate use of TRIPS flexibilities in challenging pharmaceutical patents. As past experiences show, excessive patenting of medicines has resulted in the high price of medicines that are beyond the reach of patients living in resource limited settings. Restricting countries legitimate rights to use TRIPS flexibilities through ISDS is a potential threat to addressing the issue of accessibility and affordability of medicines in developing countries. We therefore recommend:

8.2 That the bill to ban the inclusion of ISDS clauses in trade agreements The Trade and Foreign Investment (Protecting the Public Interest) Bill 2014 is enacted. 8.3 That pharmaceutical companies should not be given any additional avenues to challenge governments on policies and laws that promote access to medicines. 8.4 That at a minimum IP should be excluded from the definition of “Investment” in any trade agreements. 8.5 Australia should ensure that all measures taken that are within the discretion of national governments and the national law under TRIPS including patentability criteria, examination procedures and other key safeguards, are protected

i UN AIDS Global Report Data 2013

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ii The Global Politics of Pharmaceutical Monopoly Power – Hoen, 2009. iii See annex 1. Trading Away Health: How the U.S.’s Intellectual Property Demands for the Trans-Pacific Partnership Agreement Threaten Access to Medicines. MSF Access Campaign 2012. iv http://www.aei.org/article/economics/international-economy/the-trans-pacific- partnership/ v NAFTA Investment Chapter, Article 1105: Minimum Standard of Treatment vi http://infojustice.org/wp-content/uploads/2013/09/Eli-Lilly-Notice-of-Arbitration- September-12-2013.pdf vii Federal Court of Canada invalidates the olanzapine (zyprexa) patent - http://www.lexology.com/library/detail.aspx?g=cc5c976e-512c-4b1a-8595- 445cd32b8e89 viii http://infojustice.org/archives/30694 ix Muse-Fisher, CAFTA-DR and the Iterative Process of BIT Making:Towards a United Statges Takings Framework for Analyzing International Expropriation Claims’ 2007. Pacific McGeorge Global Business and Development Law Journal 495 at 518-19 x Rachel Edsall,”Indirect Expropriation Under NAFTA adnd DR-CAFTA: Potential Inconsistencies in the Treatment of State Public Welfare Regulations’ 2006 – Boston University Law Review 931.

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