USA: Unbeatable States of Anxiety

The US’ policies on Zoloft anti-anxiety medication do not violate international law, according to an award released yesterday of a three-person tribunal constituted under NAFTA.

This is the US’ ninth and tenth triumph in an investor-state case, just in time for Independence Day. These wins top off an incredible winning streak for the US and its defense team at the State Department: they have never lost a case. You can read the whole case here.

The latest claims were brought against the US by Apotex, a Canadian generics pharmaceutical producer that hoped to introduce competitors to Zoloft (the anti-anxiety medication) and Pravachol (an anti-cholesterol drug). The company had maintained that  a series of US court decisions had damaged its rights under NAFTA. There was real money on the line with this case: Zoloft is one of the most popular prescription drugs in the US, and the US is the world’s leading market for anti-depression medication.

A bit of background: in the US, regulatory approval for the marketing of drugs takes a long time to get. A series of amendments to the FDA approval process in the last few decades (one of them known as Hatch-Waxman, after its congressional sponsors) was intended to speed up this process, so generics could come to market sooner after the brand-name patent actually expired.

US courts play a significant role in Hatch-Waxman, in that they decide whether the first generics company to file for marketing approval will get exclusive “generic” marketing rights for an 180 period. This and related provisions were put in the bill to give an extra incentive for the introduction of generic competition. Apotex alleged that the courts’ conduct with respect to the two drugs violated NAFTA.

The three-person tribunal did not rule on the merits of the case, but argued that Apotex didn’t qualify for protection under NAFTA. In sum, it did most of its work in Canada and then hoped to service the US market as an exporter, who are not typically protected by NAFTA’s investment provisions.

Much of the tribunal’s deliberation revolved around whether the fact that the US regulated the generics industry turned Apotex’s activities (such as its preparation of regulatory submissions) into a protected investment. The tribunal rules that it did not (para. 192), even if the generics application paperwork might constitute “property” under domestic law (para. 207) that companies buy and sell (para. 220-221). This is one of the clearer statements under investment law that “property” under domestic law is a distinct concept from “investment” under international law (para. 224).

Not only did the tribunal side with the US, but it also made Apotex pay the US’ arbitral and legal expenses – a rare move in investor-state proceedings (para. 357).

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This NAFTA loss for the generics industry comes just a week after its major win, when the US Supreme Court ruled that the industry had limited liability for the safety of its drugs. (See that case here.) And just a bit earlier, the Court ruled that the government is limited in its ability to prosecute anti-competitive collusion between brand name and generics drugmakers in and around the Hatch-Waxman process. (See an extensive analysis of that case here.) This is a partial win for all drugmakers. Consumers… not so much.

This set of cases illustrates a theme I commented on nearly a year ago, when launching this blog. The development of “two ceilings” (which I defined essentially as a two-track judiciary between the international and domestic) gives powerful interests a set of diverse channels they can use to accomplish their objectives. While international investment arbitration is more novel, and therefore often more inconsistent and chaotic in its constraints on national policy-making, it is not automatically more constraining than anti-regulation courts at the national level.

In these NAFTA cases, drug manufacturers fared better in the domestic US context than under international law. In other contexts, international law may give corporations more options than domestic law, as I noted here.

Having both options – and being able to play in both – is a key identifier of “power”, whether or not one loses in a given “battle.” This echoes was political scientist Steven Lukes wrote decades ago:

Consider first what we may call the issue-scope of power. This I shall take to refer to the number of different issues over which I can determine the outcome. Suppose that you and I are both ministers in some government. I may be able to push through a policy to which I am fully committed but be unable to win on any other issue, whereas you may be capable of winning on several different issues. …(other things being equal), the wider the scope within which one can bring about significant outcomes, the more power one has. Single-issue power can be extremely important (consider the power of pressure groups, such as Greenpeace) but broadening the scope means (again, other things being equal) increasing the ability to bring about significant outcome. This distinction bears on an analogy sometimes drawn between power and money (see Parsons 1963). To have single-issue power is to lack liquidity – what you can buy with it is highly restricted – whereas multi-issue power is fungible and can be spent in several alternative ways.

Second, consider what we may call the contextual range of power. In which circumstances is it assumed to be operative? Does ‘power’ identify what an agent can bring about only under the conditions that actually obtain or under various alternative conditions? If the first, you are powerful if you can produce the appropriate outcomes only if present circumstances enable you to do so (for example, a particular configuration of given voting preferences enables your vote to decide the outcome); if the second, you can do it in a range of possible circumstances. The first identifies what one is able to do in a specific place and time, given the conditions that obtain there and then; the second the ability that one can deploy across a range of (standard) contexts. Peter Morriss calls the first ‘ableness’ and the second ‘ability’, though I shall not follow that rather artificial usage here.9 I shall call the first ‘context-bound’ and the second ‘context-transcending’ ability. The distinction throws an interesting light on the relation between power and resistance – and, more generally, between power and obstacles of all kinds.10 For my context-bound ability here and now is maximized if the resistance or obstacles to my power are minimized, whereas my context-transcending ability is the greater, the greater is the resistance or the number and magnitude of the obstacles I can (given my existing capacities and resources) overcome.

We’ll have other opportunities to see what kind of power the pharmaceutical companies (both generic and brand name) have in international law when the NAFTA cases brought by Eli Lilly against Canada and Apotex (again) against the US are decided.

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