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15 March 2017AmericasKevin Noonan

TPP abandonment: the fallout for biotech and pharma

As one of the first acts of his presidency, Donald Trump informed the heads of 11 Pacific Rim countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) that the US would not ratify the Trans-Pacific Partnership (TPP) treaty.

This action fulfilled a pledge that was part of his Presidential campaign speech and a large part of his appeal to his supporters, based on an apparent disdain for international trade agreements and their effects on the job market in the US.

Trump’s stated reasons for reneging on US support for the treaty, reiterated many times last year, was that the treaty was bad for American workers and part of a pattern of trade agreements that had taken jobs from them and encouraged businesses to place capital and production capacity offshore in favour of countries where labour was cheaper than in the US.

The TPP was the latest in a series of multinational international agreements aimed at reducing trade barriers and promoting global free trade. Most of these agreements are “regional”—such as the North American Free Trade Agreement (NAFTA) between the US, Canada, and Mexico—but others have global scope (eg, the GATT/TRIPS agreements that created the World Trade Organization [WTO]).

Main specifications

The TPP’s principal provisions included lowering tariffs and other trade barriers, providing a mechanism for disputes between investors and member states, and a variety of harmonisation provisions to IP law.

The IP provisions had broad scope, encompassing copyright, trademarks, patents, and trade secrets. These provisions were aimed at establishing a minimum level of protection among the member states and to harmonise such protections where possible.

The patent provisions defined eligible subject matter broadly, as “any invention, whether a product or process, in all fields of technology, provided that the invention is new, involves an inventive step and is capable of industrial application”.

Exclusivity provisions regarding agricultural products were granted at least ten years’ market exclusivity under the agreement. Regulated pharmaceutical products were entitled to at least five years of market exclusivity and signatories were to provide a legal framework for the pharmaceutical licence holder to challenge approval and marketing of any generic version of a patented drug.

Biologic drugs were afforded at least eight years of market exclusivity, or at least five years combined with other regulations in a signatory country that would result in at least eight years of exclusivity. All these provisions are subject to further review by the signatories after ten years, to provide the ability to adapt the exclusivity term based on experience.

These exclusivity terms—which are shorter than those available to biologic drug innovators in the US (12 years) or Europe (ten years)—are longer than the terms (ie, no exclusivity term) available in many of the signatory states. These provisions provided signatory countries the prospect that patent protection would be supported by regulatory regimes that encourage investment in creating distribution and professional networks to bring patented pharmaceuticals to these populations that might otherwise be unattractive for such investment.

Paradoxically for those who believed the treaty would preclude access to life-saving medicines in developing countries, having this framework might actually have increased the likelihood that such drugs become more generally available in those countries.


The agreement also contained enforcement provisions for protecting IP rights, aimed at permitting “effective action against any act of infringement of intellectual property rights covered by this chapter, including expeditious remedies to prevent infringements and remedies that constitute a deterrent to future infringements”, available in equal measure for patent, copyright, or trademark infringement.

In addition to damages and the possibility of an injunction against future infringement, the agreement empowered signatories to destroy infringing articles, particularly counterfeit goods, and there were particular provisions relating to counterfeit articles identified at a signatory’s borders.

The TPP further provided, for the first time in an international trade agreement, criminal penalties for trade secret theft, as well as criminal enforcement provisions for wilful trademark or copyright infringement including counterfeiting, intercepting or transmitting without authorisation an encrypted program-carrying cable signal, and provisions relating to internet service providers with regard to preventing unauthorised use of copyrighted materials.

The TPP was estimated to reduce or eliminate immediately on ratification about 18,000 tariffs, including those on all US-manufactured goods and almost all US farm products. These provisions would have benefited the US as an exporter, where for example high tariffs on American automobiles and other products have keep those items out of foreign markets to the country’s detriment.

According to the US Trade Representative, the TPP would benefit the country by opening foreign markets while protecting the “nearly 40 million American jobs that were estimated to be directly or indirectly attributable to ‘IP-intensive’ industries in 2012”.

Possible outcomes

Trump’s decision effectively ended any reasonable possibility that the treaty will be ratified by a sufficient number of the other negotiating states for it to come into force. This consequence may be particularly pernicious for the pharmaceutical and biotechnology industries. Pharmaceutical companies act from a global perspective, so events happening abroad influence their strategies worldwide.

There are two possible outcomes for the TPP, now that the US has withdrawn. The first is that the remaining countries fail to ratify the agreement (or that the number that do ratify falls below the requirement that says signatories must make up 34% of global GDP) and the status quo remains. But under that status quo there is no market exclusivity for biologic drugs in many of these countries. Accordingly, US biopharma companies will need to rely on patent protection and country-by-country enforcement to protect their investment in providing drugs to these countries.

This is a much more expensive proposition than the regulatory exclusivity (a minimum of eight years of market exclusivity) provided under the TPP. Without this protection, provided by signatory governments preventing biosimilar drugs to be marketed until the exclusivity term expired, biosimilar competition will be immediate, or as soon as possible. Biosimilar companies can be expected to enter the biosimilar market as soon as their development pathway will allow.

Alternatively, the remaining countries may ratify the treaty; in that case the benefits to biopharma companies in those countries would still accrue. But if the TPP is ratified in these countries, it may behoove US biologic drug companies to partner with indigenous companies or send their biologic drug production to an affiliate in a TPP country in order to reap the eight-year market exclusivity benefits under the treaty.

This will not improve prospects for jobs in the US or bring jobs home; indeed, it will reduce the need to produce in the US these drugs for sale in the TPP countries.

Another possibility is that China (which has voiced an interest in being involved in the agreement) may enter into trade agreements with some or all of these Pacific Rim countries. In America’s absence it will be the Chinese, not Americans, who will be the dominant power in this area (which has the fastest-growing economies in the world). This is unlikely to be to our benefit, and while consistent with a broad retrenchment into a more isolationist “America first” stance, such an outcome will mean that Chinese (or Indian, or Russian, or Brazilian) interests rather than American interests will be at the global forefront.

The fact is that economic realities are behind American job losses over the past 30 years. This happened for reasons that know no national borders, such as automation, which has taken jobs from automobile and other factory workers worldwide. There are also national and regional effects, such as the cheaper costs of manual labour, factors against which Americans are unlikely to be prepared to directly compete.

American influence, such as the pressure put on companies like Apple and Nike over labour practices in certain Pacific Rim countries, can have some effect in ameliorating the extent to which such practices are used. But this influence is diminished, not strengthened, by an American abandonment of its leadership role in the world.

Global economics preclude the kind of general repatriation of jobs to the US that is the basis for the President’s policies. There are other solutions to those problems, such as providing opportunities for training Americans for jobs that can’t go abroad (the trades are an example).  But these solutions cannot be implemented by a simple swipe of a pen and need a more consistent commitment to systemic approaches that will only happen in the longer term.

America’s advantage with regard to the rest of the world rests on the stability of our institutions and the creativity of our people. The TPP promoted our creative advantage, but the isolationist policies behind our withdrawal do nothing to expand American competitiveness and influence in the world.

Kevin Noonan is a partner at  McDonnell Boehnen Hulbert & Berghoff. He can be contacted at: and

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