U.S. International Trade Commission’s Anticipated Impact of the TPP—Focus on Pharmaceuticals and Biologics

In May 2016, the U.S. International Trade Commission ("ITC") released its report ("ITC report" or "report") on the Trans-Pacific Partnership ("TPP") Agreement,[1] concluding that the TPP Agreement would likely benefit U.S. industries that rely on intellectual property rights by requiring: 

• Five to eight years of market exclusivity for new biologic products;
• Transparency from parties regarding regulatory bodies and procedures; and
• Commitments related to patents and data protection to decrease infringement losses.

The report provided summaries and analysis of each of these TPP provisions.

Market Exclusivity

Chapter 4 of the ITC report discusses TPP Article 18.52, which is directed to the protection of a new pharmaceutical product that "is or contains biologics." It requires at least eight years of protection from the date of first marketing approval of a new pharmaceutical product, or at least five years of protection in addition to other measures to deliver a comparable outcome in the market. According to the report, this provision is important to the pharmaceutical sector as it determines the length of the term of protection for new biologic products.

The report clarifies that the protections afforded under this provision have been met with mixed opinions. On one hand, according to the report, non-governmental organization representatives state that early competition between generic and innovator companies reduces prices, making the products more accessible to patients in developed and developing countries. On the other hand, representatives of innovator companies state that the TPP provides less protection than under current U.S. laws. Overall, the ITC anticipates a positive impact as the TPP Agreement provides stronger protections abroad, despite the relative weakness of those protections when compared to law in the United States.

Some sources, however, are skeptical of the ITC’s modeling exercises and note that "the USITC’s modeling exercises in the past have not been good predictors of the outcomes of trade deals."[2] For example, The Center for Economic and Policy Research, an economic policy think tank, recently analyzed ITC’s projections regarding winning and losing sectors from a trade agreement with Korea, and it found no relationship between the projected and actual outcomes of the trade deal.

Transparency

Chapter 6 of the ITC report discusses TPP Article 8, which covers technical barriers to trade and contains product-specific annexes. Annex 8-C of the TPP lays out requirements intended to promote transparency in the pharmaceutical sector, which the ITC expects to benefit U.S. exporters. The ITC report discusses several of the requirements. One requirement is that the parties define which regulatory bodies have the authority to regulate products in their territory. Another requirement is that the parties must consider relevant scientific and technical guidance when developing regulations, grant marketing authorizations based on specified and publicly available criteria, give reasons for rejecting applications, and establish due process procedures that allow for appeals.

Decrease Infringement Losses

Chapter 6 of the ITC report also discusses TPP Articles 18.37-18.54, which include commitments related to patent disputes, data protection, and other measures for regulated products. The ITC expects these commitments to reduce losses from infringement and increase exports of services and goods that rely heavily on intellectual property protection. The ITC provides the following list of key TPP commitments related to patents:

1. Patents must be available in all fields of technology when the invention is new, involves an inventive step, and is capable of industrial application, subject to limited exceptions;
2. Patents must be available for new uses for a known product, or new methods or processes for using a known product;
3. Parties must allow a grace period of 12 months during which certain public disclosures about the invention will not invalidate the patent;
4. Parties are required to limit reasons for patent revocations to certain identified grounds;
5. Best efforts must be made to publish patent applications within 18 months from filing or priority date; and
6. Patent terms are required to be adjusted to account for unreasonable delays at the patent office.[3]

The ITC also provides the following list of key TPP commitments related to data protection and other measures for regulated products:

1. A 10-year period of protection for safety and efficacy data generated for approval of new agricultural chemical products is required;
2. Parties must compensate for the unreasonable curtailment of the patent terms as a result of the marketing approval process for pharmaceutical products;
3. A five-year period of protection for safety or efficacy data supporting new pharmaceutical products is required;
4. A three-year period of protection for new clinical information supporting approval of new indications, formulations, or methods of administration is required;
5. At least eight years of protection, or at least five years of protection plus other measures to deliver a comparable outcome, are required for a new pharmaceutical product that is or contains a biologic;
6. Parties are permitted to take measures to protect public health in accordance with the Declaration on Trade-Related Aspects of Intellectual Property Rights and Public Health;
7. A system is established for addressing patent disputes expeditiously in connection with applications to market pharmaceutical products; and
8. Consultation on biologics data protections is required at least 10 years from entry into force.[4]

Economic Analysis

Chapter 6 of the ITC report summarizes the ITC’s economic analysis of the patent protections offered in the TPP Agreement. The ITC anticipates a positive economic impact stemming from the TPP Agreement’s strengthening of patent protections. The ITC uses the "Park Index," which is an index of patent protection covering 122 countries. It measures changes in each country’s level of legislative patent protection at five-year intervals from 1960 to 2010. The Park Index scores countries’ laws based on equally weighted categories that generally track requirements in five areas: scope of patent coverage, membership in international treaties, duration of coverage, enforcement mechanisms, and restrictions on patent rights. According to the ITC, the average Park Index value across all 122 countries rose 32 percent during 1995 to 2010, which indicates that patent protections in these countries increased in this time period. The ITC’s intellectual property rights model links increased patent protections in TPP countries with increased U.S. intellectual property receipts.[5]

Statements of Interested Parties

Appendix D of the ITC report contains summaries of the views of interested parties. One of these summaries was provided by Leading Biosciences, a California-based company focused on intestinal mucosal barriers and their role in a variety of medical conditions. Leading Biosciences stated that the TPP Agreement would allow for strengthened intellectual property protection and global expansion. Method patents are a big part of the Leading Biosciences portfolio. However, method patents are not currently recognized in all countries, and some countries do not allow a patent to be filed once there has been a public disclosure, preventing pharmaceutical companies from realizing the profits from years of research and investments. Leading Biosciences stated that, along with other similar companies, it depends on trade agreements to level the playing field for American businesses. The company contends that the TPP Agreement will provide significant benefits to the United States, particularly in supporting innovative scientific industries and bringing the next generation of medicines to the global marketplace.[6]

Other interested parties also provided written submissions regarding the TPP and are quoted in the ITC’s report. For example, the report includes comments by the Biotechnology Innovation Organization ("BIO")—a trade organization that serves and represents the biotechnology industry in the United States and around the world; the Industry Trade Advisory Committee for Chemicals, Pharmaceuticals, Health/Science Products and Services ("ITAC-3")—an advisory committee to the President, Congress, and the U.S. Trade Representative on the TPP; and Pharmaceutical Research and Manufacturers of America ("PhRMA")—an advocacy group that aims to represent the country’s leading biopharmaceutical researchers and biotechnology companies.

BIO and PhRMA stated that the term of data protection for biologics is too short under the TPP, which will reduce innovation cycles that lead to new products, while simultaneously allowing earlier market entry for biosimilars. Specifically, BIO, in a written submission to the ITC on February 17, 2016, stated that the shorter period will likely allow "foreign competitors to appropriate U.S. technology more quickly, effectively free-riding on U.S. research and development costs."[7] BIO also predicted a negative impact on U.S. jobs and U.S. biologic exports to TPP countries, currently valued at $2 billion.[8] While some interested parties asserted that the TPP will limit generic competition, ITAC-3 relayed that its members in the generic pharmaceuticals sector generally support the agreement, whereas innovator pharmaceutical companies have expressed some concerns regarding its data protection provisions.