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You’re Ruining It for the Rest of Us: Ecuador and Intellectual Property

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It appears that the global club of those who do not adequately appreciate intellectual property (IP) has gotten a new member: Ecuador. In the past few years the IP environment inside that small South American nation has deteriorated quite significantly, especially with regard to the protection of pharmaceuticals and biologics. And as the situation continues to worsen, those of us around the world paying attention are probably all thinking the same thing: You’re ruining it for everyone else.

Indeed, Ecuador’s weakening life sciences IP situation is just one of a long line of countries doing so around the world, including Canada, India, Nigeria, the Philippines, and South Africa. Ecuador’s decision to weaken its environment for life sciences IP risks perpetuating this global contagion effect. For example, since 2010 the nation’s main IP agency (responsible for ensuring IP rights, including enforcement and promotion) the Ecuadorian Intellectual Property Institute, has granted nine compulsory licenses (CLs) with 12 applications still pending. Six of those nine CLs were issued in 2014 alone, including one for Pfizer’s kidney and gastrointestinal cancer medication, Sutent. According to the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, a CL should only be granted when the applicant has tried to apply for a voluntary license first and was not successful within a reasonable amount of time, or the need for such a license has been clearly demonstrated via a public health emergency. Furthermore, many of these petitions have been made by Ecuador’s public pharmaceutical firm, Enfarma—demonstrating yet again that even when you think something is about global health, it’s usually about making money. These CLs gives Enfarma the ability to sell these drugs around the world without having to put the research and investment into developing the drug in the first place. Considering that it takes, on average, 14.6 years and $1.2 billion to develop a drug, that’s highway robbery.

On a similar note, though it seems like Ecuador has taken steps to revise the Ecuadorian Intellectual Property Act to provide protection for undisclosed test data, the actual protection provided is grossly inadequate in practice. Ecuadorian law prohibits the release of undisclosed test data (except to protect the public interest), but reliance on such data by generic manufacturers seeking marketing approval for a similar drug is not considered an act of unfair competition. This renders regulatory data protection in Ecuador not only ineffective but also inconsistent with Ecuador’s obligations under TRIPS Article 39.3:

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 a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.

A generic drug utilizing a company’s undisclosed test data to produce its own version of a pharmaceutical product would seem to be the definition of unfair commercial use. Again, this is about Ecuadorian companies making money at foreign companies’ expense, and it’s not only unfair, it’s downright illegal according the TRIPs agreement.

Moreover, in 2014, Ecuador issued Decree 522, which appears to limit the use of trademarks for any medicine once patents have expired. Trademark protection is a critical form of IP that ensures that customers can distinguish one set of products from another set of products. In the case of medications—how many people instinctively reach for Motrin (instead of ibuprofen) because it is “Motrin”? Or for that matter, Tylenol (instead of acetaminophen)? A trademark for a medicine helps doctors and patients identify the quality, safety, and intrinsic effectiveness of a given product—reputational capital that manufacturers strive to build over time. Brand loyalty matters, and should not be taken lightly. In other words, just because the generic isn’t the brand, doesn’t mean you should penalize the brand.

In addition, since October 2012, fees for patents have drastically increased in Ecuador, particularly with regard to maintenance fees. Around the world, all patent owners are charged for the patent’s maintenance but in Ecuador the accumulated maintenance fees amount to almost $140,000 for 20 years. For reference, the patent maintenance fees in the United States are around $12,600.  And for comparison in South America, this amount is nearly 24 times higher than Colombia, and 12 times higher than Brazil. Beyond making it excessively costly to have a patent (and therefore decreasing the desire to have one), Ecuador is again, it appears, more concerned with making money than about participating in a globally innovative ecosystem.

Finally, and perhaps worst of all, in 2014, Ecuador’s criminal laws were amended to effectively decriminalize all IP violations through the elimination of relevant enforcement and sanction provisions. This removes important enforcement tools to protect against counterfeit goods, including medicines, and worsens Ecuador’s already low levels of IP enforcement. In practice, it means that IP infringement is only a civil crime. Does this also mean that if I rob your house tomorrow, it’s also only a civil crime? Just because something valuable is not tangible does not mean stealing it isn’t a criminal offense. Stealing IP is no different than stealing cars, books, jewelry or shoes. It is actually probably worse—the effort and money needed to produce this intangible piece of capital is astronomical.

The IP environment in Ecuador is not only deteriorating, it’s actually shameful. As a 2010 OECD study shows, a one percent change in the strength of a country’s patent rights environment is associated with a 2.8 percent increase in FDI inflows. According to the Global Intellectual Property Center’s IP Index, economies with state of the art IP environments produce 50 percent more innovative output compared with those environments that require significant strengthening. By choosing short-term welfare over long-term innovation, Ecuador is hampering its future growth potential. At this point, that story is so old (and so demonstrably detrimental), one has to wonder why they too haven’t realized they’re ruining it for themselves, let alone everyone else.

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About the author

Michelle Wein is a Trade Policy Analyst at ITIF, specializing in the connections between international trade, innovation, intellectual property and economic productivity.