Wall Street Journal - March 6, 2001
Robert Block

PRETORIA, South Africa -- Under fire internationally for their drug-pricing policies, the world's biggest pharmaceutical companies said a lawsuit they filed against the South African government is aimed only at protecting their "constitutional rights" and is not about the growing scourge of AIDS or the high price of the companies' powerful drugs.

The lawsuit hearing before the Pretoria High Court, which began Monday and is expected to last a week, is being widely viewed as a major test case by human-rights campaigners and AIDS activists around the world. They say the suit's outcome may determine whether drug makers will be allowed to protect their patent rights even when the government of a poor nation ravaged by AIDS is seeking to overturn those patent rights in order to provide more affordable drugs to treat the disease.

But Stephanus Cilliers, a lawyer representing the 39 drug makers who filed the suit, said in the opening session before a packed courtroom that "those are not the issues of this case." The drug makers and their trade group, the South African Pharmaceutical Manufacturers Association, are challenging a 1997 South African law that, if implemented, would allow the government or others in the country to import drugs at cheaper prices than offered by the giant drug makers.

'Unconstitutional Powers' Opposed

Mr. Cilliers said the suit isn't being brought to prevent South Africa from seeking inexpensive versions of the drug companies' medicine but that it was brought simply to oppose sweeping "unconstitutional" powers the law would give South Africa's health ministry. His statement left many heads in the courtroom shaking in disbelief and anger.

"This legal challenge is a warning to other developing countries that many within the world's pharmaceutical industry will use any tactic to defend their patents, whatever the cost in human suffering," the aid organizations Oxfam and Doctors Without Borders said in a statement before the trial started.

The suit has provoked protests here and abroad. Here in South Africa, about 2,000 people danced in protest outside the court building of this capital city before marching on the U.S. embassy a few miles away. They called on the U.S. to pressure the companies to drop their case. In New York, despite wretched weather, 200 protestors marched outside the Park Avenue headquarters of Bristol-Myers Squibb Co., and in front of a nearby office of British drug maker GlaxoSmithKline PLC. Both companies are part of the lawsuit, along with many others, including Merck & Co. and Eli Lilly & Co.

South Africa's Medicines and Related Substances Control Amendment Act of 1997 was designed to encourage the use of generic drugs inside the country and to allow for the purchase of lower-priced drugs made outside the country. Although the law wasn't designed to disregard patents, the drug industry is concerned the language of the law might someday allow the government to buy generic copies of drugs that are protected by patents.

Following industry lobbying, the Clinton administration put South Africa on a "watch list" of nations declared patent pirates. The U.S. also backed the drug companies' lawsuit when it was filed three years ago. The companies claimed that it breached international World Trade Organization pacts.

Since then, the South African government has argued that the law is in compliance with WTO agreements. And after activist demonstrations during then vice-president Al Gore's presidential-election campaign, the U.S. dropped South Africa from the watch list. The Bush administration recently said it also doesn't oppose the legislation. Similarly, the European Union initially condemned the law as illegal but has since changed its mind.

Sensing the shifting tides, the drug companies appear now to be fighting their case on a myriad of complex technicalities over powers the act gives the country's minister of health to contravene drug companies' patent rights for the sake of cheaper medicines.

Apart from a handful of pilot schemes, South Africa provides no free drugs against HIV and AIDS in its public hospitals, citing cost and uncertainty about effectiveness. Even at sharply reduced prices, the AIDS drugs, which must be administered in combinations of three and four medicines, would be a costly burden to South Africa.

A group of five drug makers last year agreed to offer African nations drugs at 80% to 90% off the prices charged in the U.S. and Europe. But few countries have taken up the offer, saying the drugs are still too costly. Activists have hoped to encourage the countries to buy generics produced in India. Indeed, the international protests against the court case are widely seen as an effort to use public pressure to get drug makers to reduce their prices or agree not to block the importation of cheaper generics to South Africa and other poor nations.

One indication of the industry's growing concern about its public image is that its lawyers spent most of the early part of the hearing Monday opposing an application by a South African human-rights group, the Treatment Action Campaign, to join the case in support of the government. Mr. Cilliers said he believed the group would add nothing to the government's case. The judge, Bernard Ngoepe, said he thought the group would add an important dimension to the case, and allowed them to remain pending his final decision when the case resumes Tuesday.

Meanwhile, the government is keen to end the case and implement the law but at the same time assure foreign companies that it respects intellectual property. The health minister and other officials said South Africa doesn't want to use the law to manufacture pirate drugs. "What we have been talking about is only importing legitimate medicine more cheaply from lawful suppliers in other countries," an aide to the health minister said.

Ironically, the court case depicts Health Minister Manto Tshabalala-Msimang and South African President Thabo Mbeki as the champions of affordable drugs for poor nations. A year ago the health minister and Mr. Mbeki incurred the wrath of AIDS activists by dismissing the drugs as "poison" and questioning the link between HIV and AIDS. Toby Kasper, a local activist, said the South African government's new support for drugs to treat AIDS patients was an important development. "It's a good step," he said.

Write to Robert Block at bobby.block@wsj.com¹

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