This record is a partial extract of the original cable. The full text of the original cable is not available.

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. 
 
VIRDEN