American Journal of Law & Medicine

Ending drug registration apartheid: taming data exclusivity and patent/registration linkage.


The pharmaceutical industry's dependence on intellectual property rights (IPRs), especially patents, to exclude competitors and thereby recoup past expenditures, (1) incentivize future investments in research and development (R&D), and maximize profits (2) is well known. Although initially content to solidify patent rights in the rich-country markets of North America, Europe, and Japan, in the last quarter of the 20th century the industry has increasingly turned its attention to emerging markets in Latin America, Asia, and even Africa as sites of future market expansion. Big middle-income countries like Brazil, India, China, and Indonesia have growing middle classes that increasingly favor allopathic medicine over the more traditional medicines of their elders. Obtaining monopoly rights in these growing markets could help the pharmaceutical industry weather the storm of increased consumer, business, and government blow-back against supra-competitive drug prices charged in rich country markets.

Although patents are powerful weapons in the industry's IPR arsenal, they are an imperfect solution for its attempt to secure durable monopoly protections on a global scale. From the industry's perspective, the problems with patent-related monopolies are four-fold. First, the most innovative, truly revolutionary products involving new chemical entities ordinarily take a very long time to come to market because of extensive pre-marketing product development and clinical trials. (3) Patent term extensions designed to compensate for product-development and regulatory delays (4) help companies recapture some of their rights to exclude, but extension provisions are subject to stringent upper limits, (5) meaning that patent terms are often too short to secure market exclusivity during the entire period of the medicine's therapeutic advantage. Second, evergreening strategies (6)--efforts to extend the period of patent protections through incremental modifications to the product--may help maintain monopolies, but many of these modifications may not meet patent criteria even under the lenient standards of novelty, nonobviousness, and utility applied in the U.S. Although overworked patent examiners might initially accept such patents, they are highly vulnerable to legal challenge from generic competitors eager to enter lucrative First World markets. Third, because patent applications on new chemical entities are usually filed very early in the process of drug candidate selection (and deselection) to ensure meeting novelty requirements and to establish priority, the patent holder must file multiple patents, many of them soon-to-be-doomed, early-stage prospects, and it must do so in each and every country where it wants patent protections. Since patent applications are costly in terms of legal, filing, and maintenance fees, and because patent specification and language requirements vary country-to-country, patent-holders must make shrewd cost-benefit assessments that typically involve deciding against filing patent applications in small-country and poor-country markets. (7) Accordingly, patent claims are ordinarily perfected and maintained only in rich countries and big middle-income countries and in countries that have pharmaceutical manufacturing capacity. (8) Fourth, bio-tech products are not always patentable, given permissible exceptions from patenting life forms in some countries. (9) For these products, data exclusivity is the only way to ensure market exclusivity.

Historically, pharmaceutical patent holders in the United States did not have to rely on patents alone to exclude competition. Until 1984, drug companies could treat undisclosed clinical trial and other data that that they submitted to the Food and Drug Administration [FDA] as trade secrets. (10) The FDA in turn treated this information as confidential and refused to allow generic producers to rely on, or reference the information in order to obtain marketing approval for their therapeutically equivalent products. (11) Although generic companies were free to conduct expensive, time-consuming, and duplicative clinical trials on their own, very few did so because of the costs and delays involved, (12) because of ethical concerns about repeating clinical trials on human subjects where outcomes were already essentially known, (13) and because of the improbability of recouping R&D and regulatory costs in the low-margin, highly competitive, post-patent markets. (14) In essence, during this pre-1984 golden era, the research-based pharmaceutical industry (Big Pharma) had durable trade secret rights to control the use of undisclosed data submitted to the FDA--drug companies' regulatory data simply could not be used by manufacturers of follow-on generic products to gain regulatory approval for marketing.

The Hatch-Waxman Act drew the curtain on this golden era, allowing speedier introduction of generic competition in exchange for limited, but ironclad, periods of data protection, increased rights for drug companies to recoup patent terms that had been shortened by clinical trials and regulatory delays, and a linkage system conditioning registration of generic equivalents to the absence of patent claims. (15) Generic companies gained because they could now seek FDA approval of a bioequivalent product through abbreviated new drug application procedures that no longer required duplication of clinical trials. (16) Instead, if they proved that their generic version had the same potency and bioavailability in the human body--bioequivalence--as the original product, and that it was manufactured according to Good Manufacturing Practice (GMP), (17) they could sail through the regulatory process. Not only were they relieved of the costly burden of duplicative clinical trials, they were also permitted to develop the product and to file for regulatory approval during the patent term pursuant to the early working provisions of the Hatch-Waxman Act. (18) Finally, the first generic entrant, if successful in challenging patent right claims, was entitled to a six-month period of market exclusivity during which it could capture market share and charge its own supra-competitive prices. (19)

The pharmaceutical industry, on the other hand, gained two different kinds of data exclusivity on top of the seven-year orphan drug market exclusivity it had won one year earlier. (20) For new chemical entities never previously approved by the FDA, the registrant acquires a full five years of data exclusivity barring a follow-on application for the registration of a generic equivalent, even if the underlying product was unpatented or off-patent. (21) The five year bar against follow-on applications is shortened to four years if the generic company is claiming patent invalidity or noninfringement, but registration will still not be effective until the passage of five years. (22) A shorter, three-year period of data exclusivity is granted whenever a New Drug Application has been filed for a new indication of an existing medicine, for a new formulation or delivery system, or for a new combination, but only when the applicant submits at least one new clinical investigation that is essential to regulatory approval. (23) Under this system for evergreening data-exclusivity, a product can obtain overlapping and successive periods of three-year exclusivity if the innovator acts strategically in seeking new indications or in introducing product variations. However, unlike five-year data exclusivity, a second applicant can seek tentative approval at the FDA during the period of exclusivity, even though final approval would not be granted until the three-year term had elapsed. (24)

In addition to securing data exclusivity and patent term extensions to compensate for regulatory delays (25) via the Hatch-Waxman Act, the industry also succeeded in turning the FDA into a patent enforcement agency through the creation of the Orange Book patent/registration linkage system. (26) Under this new linkage system, owners of registered medicines could file patent claims in the FDA's Orange Book once their medicine had received marketing approval. Thereafter, if a generic producer wants to register a generic equivalent, it would have to certify that that there were no competing patents, that all patents had expired, that the registration would not become final until patent expiration, or that the alleged patent was invalid or would not be infringed. (27) When there are claims of invalidity or non-infringement, the patent holder is notified and given forty-five days in which to file an infringement action which results in a thirty-month stay. (28)

Although Europe had no comparable system of patent/registration linkage or allowance of early working, in 1987 it established periods of data exclusivity even longer than those in the United States. For drugs approved through the European Medicines Agency (EMEA), ten-years of data exclusivity was provided while Member States were permitted to have terms of exclusivity ranging from six to ten years for their internal registration processes. (29) The European Union substantially revised its laws on data exclusivity via revised Directive 2004/27/EC, effective October 5, 2005. (30) The Directive introduced a non-retroactive, 8+2+l+early-working formula that now grants absolute data exclusivity for eight years. (31) During this period of exclusivity, the generic company can engage in testing and pre-registration activities, but it can only apply for marketing approval after the passage of eight years. (32) Even though approval could be sought prematurely during this two year window, the approval would only be effective after ten years had passed. (33) In addition to this now uniform ten-year period of data exclusivity, there is an additional one-year extension for new therapeutic indications filed within the first eight years, but only if the medicine provides significant clinical benefits compared to exiting therapies. (34)

In contrast to patents, registration-related rights that vest when a proven drug first enters a particular market are highly valuable both in developed and developing countries. Through data exclusivity, drug candidates that are proven to be safe, efficacious, and of good quality are entitled to what are essentially exclusive marketing rights from the moment of regulatory approval. Relying on these rights, drug companies can choose the timing and sequence of market approvals with total confidence that their monopoly rights will not be affected. Data exclusivity is not subject to patent-style novelty requirements and is not lost, in most countries, simply because of delays in seeking regulatory approval for the marketing of a new medicine. Similarly, patent/registration linkage provides yet another layer of protection for drug companies, turning drug regulatory authorities into patent enforcement agencies. For registered products, the drug regulatory authority polices registration of follow-on products, delaying their registration until patent-related claims abate no matter how weak the underlying patent. It is because data exclusivity and linkage are plastic and impermeable that Big Pharma has sought their protections so assiduously. (35) For these same reasons, data exclusivity and linkage are uniquely dangerous for developing countries.

Because poor-quality medicines can have such serious consequences for health, all developed countries and most developing countries have adopted quality, safety, and efficacy standards that require prior regulatory approval before a medicine can be distributed within domestic markets. (36) Despite the formal adoption of such standards most developing countries are seriously constrained in their ability to process drug registration requests. (37) Although some countries cooperate in regional registration agreements, (38) and others rely on proof of foreign registration (39) or on WHO pre-qualification, (40) many countries still require submission of safety/efficacy data as a pre-condition to domestic registration.

The same features that make registration-related data exclusivity and patent/registration linkage attractive for Big Pharma make it unattractive for developing countries. From the perspective of access to medicines, the global and national architecture for registering medicines is already extraordinarily complex and fraught with inefficiencies, duplications, delay, (41) and in some instances corruption. (42) Registration-related problems arise because of mismatches in economic incentives for both innovator and generic producers, and because of regulatory torpor and unaccountability at the national and international level. Registration-related barriers include:

* Lack of incentive mechanisms or regulatory systems that compel innovating companies to promptly register their medicines for use in smaller and poorer countries with resulting excessive delay in access to newer medicines; (43)

* Lack of sufficient incentive mechanisms, technical assistance, or other measures to encourage generic companies to promptly register their therapeutic equivalents for use in smaller and poorer countries; (44)

* Absence of fast-track registration procedures in most countries designed to expedite registration of medicines that have been accepted by the WHO Prequalification Project or registered by a stringent regulatory authority in another country; (45)

* Absence of efficient special authorization procedures that allow emergency access to important medicines while the formal registration process is being completed. (46)

* Lack of capacity, inefficiency, high costs, (47) regulatory variations, (48) and occasional corruption in national drug regulatory authorities that create delays and disincentives to both innovators and producers of generic equivalents. (49)

To this already formidable list, we can now add data exclusivity and registration/patent linkage rules, which in their most absolute form can prevent registration of follow-on generic products even when those products are needed to respond to compelling public health needs like HIV/AIDS. Even though developing countries can do little to force drug companies to bring essential new medicines to market, when those medicines are eventually marketed, U.S.-style data exclusivity and linkage rights would virtually guarantee higher prices and certainly block access to presumptively cheaper generic equivalents. (50)

Since the vast majority of developing countries did not historically provide for data exclusivity or patent/registration linkage and instead allowed their drug regulators to rely on the clinical test data submitted by the first applicant or alternatively to rely on the fact of prior registration or commercialization, (51) the United States and Big Pharma have made a major push to erect monopoly empires on the foundation of registration-related rights. (52) To fully understand the impact of data exclusivity and linkage on the fractured global architecture for securing marketing approval or registration of medicines, one must first understand the broader context within which Big Pharma and its United States Trade Representative (USTR) allies fought to establish worldwide intellectual property protections via the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (53) (the TRIPS Agreement). This context is provided in section II, below. Although the Pharma/USTR team was largely successful in imposing the patent protections it wanted, it was less successful in negotiating unambiguous language that would allow data required by drug regulatory authorities to be sequestered so completely that data protection would operate as a second and inviolate barrier to the marketing of more affordable generic products. In addition to this setback, the U.S. faced overwhelming demand from developing countries that public health needs must be reprioritized, resulting in the 2001 passage of the Doha Declaration on the TRIPS Agreement and Public Health (the Doha Declaration). (54)

Despite its inability to win clear language on data exclusivity and its setback at Doha, the USTR has persisted in twisting the language of minimalist data protection to maximalist data exclusivity. As discussed in Section III, the U.S. pursues this TRIPS-plus form of data exclusivity in each and every one of its bilateral and regional trade agreements, and it routinely uses trade threats under its Special 301 Watch List powers to coerce data exclusivity reforms. In its most absolute form, U.S.-style data exclusivity would prevent a drug regulatory authority from establishing the safety and efficacy of a follow-on product by referencing or relying in any way on data previously supplied by the data owner or by relying on the fact of data-based registration either domestically or anywhere else in the world, even if a country utilized TRIPS-compliant flexibilities to issue compulsory licenses. Fortunately, as discussed in Section IV, the high tide of registration-related rights is now ebbing, at least temporarily, because of resistance by developing countries and expanded policy space opened by a New Trade Policy (55) recently announced by Congress. Despite these partial gains, there are numerous additional steps that both developing countries and Congress should take to ensure expanded and expedited access to fully registered, life-saving generic medicines.


The TRIPS Agreement, adopted in 1994, established a minimum standard of intellectual property protection for patents, copyrights, trade marks, and trade secrets. The TRIPS Agreement was the culmination of a fifteen-year campaign led by Big Pharma (56) and the computer software, publishing, and entertainment industries in the United States to secure a global system of intellectual property protections that could be enforced through state-to-state and eventually investor-to-state trade sanctions. (57) Having failed over many years to standardize intellectual property protections in the multilateral World Intellectual Property Organization, (58) the U.S. IPR coalition first lobbied the USTR and then convinced industry leaders in Europe and Japan to enlist their trade representatives to seek IPR protections within the General Agreement on Tariffs and Trade (GATT). (59) Although developing countries opposed using GATT to globalize IPR monopolies, the United States used unilateral, IPR-related trade threats to fracture the developing country alliance. (60) Eventually, the U.S. and its key industry groups achieved the minimum standards that they wanted in exchange for promised, but long-delayed market access for developing country textiles and agricultural products, some limited exclusions and exceptions to IPRs, and transition periods that delayed the day of IPR reckoning.

The TRIPS Agreement covers basic principles, standards, and procedures for recognizing and enforcing intellectual property rights. Under TRIPS, major pharmaceutical producers secured enforceable rights to exclude others from "making, using, offering for sale, selling, or importing" patented pharmaceutical products or products made with a patented process. (61) Member Countries are required to provide such patent protection for a minimum of twenty years from the filing date of a patent application, (62) for any invention, including a pharmaceutical product or process, that fulfilled the criteria of novelty, inventive step and usefulness. (63) Although nearly fifty percent of developed and developing countries had previously denied patent protection for medicines, (64) the TRIPS Agreement expressly outlawed discriminating against a field of technology. (65) Similarly, it was no longer easy to impose local working rules that favor locally produced goods and discriminate against imports. (66) As a result, major pharmaceutical companies could disinvest in scattered small-scale manufacturing in multiple developing countries and instead consolidate manufacturing where they enjoyed tax advantages, a skilled workforce, and efficient economies-of-scale.

In addition to protecting patents, Article 39.3 of the TRIPS Agreement also provided limited protection for data that is submitted to a regulatory agency for the purpose of obtaining marketing approval:

   Members, when requiring, as a condition of approving the marketing 
   of pharmaceutical or of agricultural chemical products which 
   utilize new chemical entities, the submission of undisclosed test 
   or other data, the origination of which involves considerable 
   effort, shall protect such data against unfair commercial use. In 
   addition, Members shall protect such data against disclosure except 
   were necessary to protect the public, or unless steps are taken to 
   ensure that the data are protected against unfair commercial use. 

Article 39.3 contains several terms that would seem to defeat a claim that it mandates broad-stroke data exclusivity. First, it only applies when countries require the submission of data as a condition of marketing approval; if a country does not require such data or, for example, relies on the fact of registration elsewhere, Article 39.3 does not apply. (68) Second, protection is limited to "new chemical entities," which at the very least means a chemical entity that has not previously received regulatory approval in the Member State, and may even mean a chemical never previously registered anywhere in the world. (69) Third, the data must be undisclosed, meaning that if the information already exists in the public domain, data protection need not be provided. (70) Finally, there is a requirement that there be "considerable effort"--presumably effort and investment--in collecting the data. (71)

Although each of these requirements gives rise to some regulatory ambiguity, by far the most disputed element is the prohibition against allowing "unfair commercial use.'' (72) Here, the main controversy is whether drug regulatory authorities can rely on an earlier registrant's data or the fact of prior registration to assess and certify the safety and efficacy of an equivalent generic product. The negotiating history of Article 39.3, during which proposals from the U.S. and E.C. for data exclusivity were repeatedly rejected, "proves that negotiators did not agree upon an unalloyed obligation to ensure data exclusivity under any of the proposed terms." (73) Despite this defeat, however, both the U.S. and the E.C. have continued to assert that Article 39.3 "requires" data exclusivity, (74) and certain academies have argued in support of this position as well. (75) Developing countries, on the other hand, have strongly argued against data exclusivity and in support of a milder form of protecting data against disclosure and punishing what amounts to commercial espionage. (76) An intermediate, or perhaps more politically pragmatic, interpretation would establish a liability rule requiring compensation for reference use of regulatory data. (77) Without recounting the arguments at length, the most compelling argument is that the "unfair commercial use" term prevents dishonest commercial practices but not governmental performance of its duty to ensure safety and efficacy of follow-on products. (78)

Fortunately, despite these patent and data rules, there are important and explicit flexibilities in the TRIPS Agreement. Patent-related flexibilities include exceptions to (79) and eased standards of (80) patentability, parallel importation, (81) involuntary use (compulsory licenses and government use), (82) and limited exceptions, (83) each of which at least partially counterbalances the patent holder's right to exclude competitors. The data protection clause, on the other hand, permits only anemic exceptions to trade secret protection; exceptions are permitted only when "necessary to protect public health" or "when steps are taken to ensure that the data are protected against unfair commercial use." (84) Despite these flexibilities, the passage of the TRIPS Agreement was an unadulterated victory for Big Pharma, helping it to secure new markets for its patent and data protected products and shifting billions of dollars from the Global South to the Global North. (85)

Even after codifying higher standards of patent and data protections globally and reluctantly agreeing to flexibilities, the U.S. continued its pre-TRIPS, Big Pharma trade policy by threatening developing countries such as Thailand, (86) South Africa, (87) India, (88) Argentina, (89) and Brazil (90) with trade sanctions in the 1995-2001 timeframe, either because they refused to adopt TRIPS-plus IPRs or because they proposed using TRIPS-compliant flexibilities to access more affordable medicines. …

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