Test Data Protection: Different Approaches and Implementation in Pharmaceuticals.

• Author: Armouti, Wael

1. Introduction II. Different Protection Approaches A. Bans on Misappropriation B. Compensatory regime or cost-sharing approach to registration data 1. Overview of Cost-Sharing Approach 2. Compliance with Article 39.3 3. Advantages of Cost-Sharing Approach 4. Problems with Cost-Sharing Approach 5. Issues with Calculating Costs Under this Approach a. The Simple Division Royalties Model b. The Readjustable Royalties Model 6. How U.S. Utilizes Cost-Sharing Approach 7. Cost-Sharing approach & Developing Countries C. Data Exclusivity Approach 1. Data Exclusivity versus Patent 2. Effect of Data Exclusivity on Compulsory License D. Public Health Variants of the Data-Exclusivity Approach III. Test Data Protection Implementation in Different Countries A. United States B. Canada C. The European Union D. India E. Egypt IV. Conclusion I. Introduction

   Binding on all members of the World Trade Organization ("WTO"), the Agreement on Trade-Related Aspects of Intellectual Property Rights ('TRIPS") (1) aimed to create a standard of international property protection. (2) In particular, Article 39.3 of TRIPS requires WTO members to protect the secret test data that originator pharmaceutical companies submit for regulatory approval of New Chemical Entities (NCE) against "disclosure" and "unfair commercial use." (3) Notably, however, Article 39.3 goes no further in defining these constitutive terms, a deliberate maneuver designed to give WTO members the freedom to interpret the parameters of the Article's prohibition against disclosure and unfair commercial use. In effect, this latitude allows members to set their own rules and to implement the Article by adopting an approach that takes account of national individuality.

   The importance of the interpretive freedom that Article 39.3 allows WTO members is reflected in the varied approaches to test data protection adopted by member countries: test data protection approaches differ along the lines of how the "unfair commercial use" obligation found in Article 39.3 is construed. Some of these approaches are considered public health-friendly more than data exclusivity. (4) In practice, the permissive language of Article 39.3 permits a government to authorize a generic product based on an earlier grant of regulatory approval for the original product without running afoul of the Article's prohibition on disclosing test data submitted by the original company. (5)

   This article discusses different protection approaches. The first approach bans any policy that ultimately allows direct entry of generic products (i.e. misappropriation). The second approach is a cost-sharing mechanism that ensures higher political acceptance and still meets the obligations of Article 39.3 of the TRIPS agreement to prevent unfair commercial use. The third approach is protecting clinical pharmaceutical test data submitted to regulatory agencies from generic drug manufacturing application (i.e. data exclusivity). Under the data exclusivity approach, a comparison to patents and their relation to compulsory license are discussed. The fourth approach allows releasing the data exclusively protected in certain public health variants, which mitigate the effect of data exclusivity.

   After discussing these distinct approaches to test data protection, I will then consider the implementation of test data protection in the United States, Canada, and the European Union. I will conclude by comparing these approaches with the demonstrably less restrictive approaches to test data protection employed by both India and Egypt.

2. Different Protection Approaches

   1. Bans on Misappropriation

      Taking maximum advantage of the flexibilities afforded by the broad language of the TRIPS Agreement, this first approach is considered to facilitate the early entry of a generic product directly after the original product is approved. (6) Operationally, the ban-on-misappropriation approach prohibits government officials from disclosing an originator's submitted test data to a third party, but it empowers them to rely on these data to grant marketing approval of a generic product. (7) This approach finds legitimacy in several areas. Initially, the predicate interpretation of "unfair commercial use" utilized is consistent with the text of Article 39.3. Here, unfairness is limited to the means of access to the data by the competitor, not by the regulators. (8) Furthermore, according to Article 39.3 of the TRIPS agreement, it is required to protect test data in accordance with domestic laws of unfair competition. (9) Thus, the originator's test data will be protected against that which the relevant national law defines as unfair use of the data. (10) Under this scenario, reliance on original test data when assessing the bioequivalence study of a generic company will not be considered to be an unfair use.

      In general, the ban-on-misappropriation approach is considered to be a valuable alternative to the data exclusivity approach for developing countries; (11) some countries--Argentina, for example--recognized the advantages of test data protection and consequently went on to implement the approach. (12) Two such advantages include (1), the generic product will reach the market as quickly as possible, with no need to repeat the clinical test data; and (2), it is a simple approach to implement, because no regulatory burdens are imposed on the government. (13)

      Conversely, numerous arguments have been leveled against this approach. First, the ban-on-misappropriation approach will undermine originator companies' investments in Research & Development (R&D). Second, this strategy will deny fair return to originator companies by allowing generic companies to unfairly free ride on their investment. (14) However, both of these alleged failings of the ban-on-misappropriation approach may be of limited applicability in the milieu of a developing country. (15) In such countries, the originator already has a large incentive to conduct R&D under a patent system. Also, developing countries have a small share of the global pharmaceutical market, so their policies will not affect the R&D investment decisions of the originator companies. (16)

      Additionally, implementing a strong intellectual property system does not affect the decision of the originator companies to invest more in those countries. (17) On the contrary, we can see that originator companies have made many investments in Egypt, which offers limited IP protection but have not made such investments in Jordan, which has adopted an expansive IP protection program. (18)

      Model language for the misappropriation approach is "[g]overnment authorities shall prohibit misappropriation of test or other data submitted to obtain marketing approval for pharmaceutical or agricultural chemical products which utilize new chemical entities, except where necessary to protect the public; government authorities shall not disclose such data." (19)

   2. Compensatory regime or cost-sharing approach to registration data

      1. Overview of Cost-Sharing Approach

         According to this cost-sharing approach to data protection, a generic company may rely on the originator's submitted test data in its bid to attain regulatory approval if, and only if, the generic company offers fair compensation for the data to the originator company. (20) The key elements of this approach are: the cost of generating data must be documented; (21) the generic company will pay a share of the costs apportioned to each national market; (22) and avoiding overcompensation for originator data by taking into account the following criteria: (23) if the originator product is covered by a patent, then no compensation will be paid. (24)

         If the sales of the originator product earn multiple (20 times) its cost in generating test data, then no compensation from generic companies. (25)

         The right to compensation expires five years after the originator product obtained marketing approval. (26) The generic company will pay for the period they will be using the data during the course of the five years. (27)

      2. Compliance with Article 39.3

         The cost-sharing approach meets Article 39.3 obligations to prevent unfair commercial use.

      3. Advantages of Cost-Sharing Approach

         The cost-sharing approaches has numerous advantages. (28)

         It will avoid the free-rider problem, (29) as it requires the generic companies to share the cost of the clinical trials done by the originator company. (30)

         It will encourage the originator to invest more in developing new products. (31)

         It adds value to abandoned drugs; an originator company can benefit from its abandoned products because it will receive a percentage of the gross sales from the competitor who wishes to proceed in this drug. (32)

         It will reduce the costs of drug development, since the cost-sharing system compensates a company for research that otherwise would have generated zero income for it. As a result of this compensation, the company will in turn charge a lower price for the drug, (33) with the aggregate effect of this causal relationship being industry-wide cost reductions.

         It will benefit the scientific community because this approach mandates the disclosure of the test data; consequently, knowledge will be increased, resources are conserved and more drugs will be produced. (34)

      4. Problems with Cost-Sharing Approach

         The principal problem with this regime is that this fair compensation requirement may exceed generic companies' financial capacity. There are disadvantages of the cost sharing approach. (35)

         The system is complicated or difficult to administer. (36) However, any such administrative difficulties are lessened when the cost-sharing system at issue allows a generic producer to establish an automatic

         right to rely on originators' data; in this scenario, the only dispute or administrative difficulty will concern the amount of compensation. Even on this potential administrative morass, the U.S.'s approach to handling the amount of...