This year marks the 15th anniversary of the U.S.-Chile Free Trade Agreement. And there is progress to celebrate. The value of bilateral trade is up more than 275 percent since the deal entered into force. But, like the updating of the NAFTA agreement, there’s plenty of room for improvement, too.
Successive governments in Chile have failed to meet their commitments in the critical field of intellectual property. President Sebastian Pinera, who took office in March, has a chance to change that. But legislators in Chile’s National Congress are pressing for a dangerous step in the wrong direction that effectively would nullify patents protecting American inventions.
And the Trump administration has rightly put them on notice.
In 2003, in exchange for eliminating tariffs on their products coming into the U.S., Chile agreed to provide baseline protections for the intellectual property of American companies. They have failed to keep their promises. As a result, for over a decade the U.S. has placed Chile on the “Priority Watch List” for failure to protect IP — the worst possible ranking short of trade sanctions.
As if that wasn’t bad enough, last year the lower house of the Chilean National Congress passed a resolution calling for a “compulsory license” — stripping away the patent protection from American innovators and allowing copycats to manufacture and sell the same invention in Chile. In March, the outgoing health minister used her last day in office to trigger a procedure that opens the door a compulsory license against patent protection on a Hepatitis-C treatment. The matter is now in President Pinera’s hands.
Patents promote advancements by giving innovators an opportunity to recoup their investment. Applying for a patent requires disclosing the invention to the public, which means others can innovate based on the knowledge that has been made available. In this way, patents create a cycle of competitive innovation into the future.
In the context of Hepatitis-C, that pro-innovation cycle has led to the development of several different treatments. The result is healthy, fair competition in the marketplace, giving patients and doctors more choices.
In contrast, a compulsory license is government intrusion into the marketplace. It wipes out patent rights and promotes unfair competition by allowing those who spent nothing on research and development to compete directly with the innovator. And in the field of Hepatitis-C, there is already competition. So it becomes clear that, contrary the claims of those who push for compulsory licenses, they can hurt competition more than they help it.
Compulsory licenses also have other long-term harms. The undermining of patent rights today hampers future innovation and is bad for patients. For all its shortcomings, Chile is one of the better countries in Latin America for health-related businesses. As a result, Chilean patients enjoy greater access to clinical trials on a per-capita basis than their fellow South Americans. If Chile becomes hostile to innovators, innovative companies will be increasingly reluctant to risk developing their cutting-edge developments in that market. The president of Chile must also weigh the risk of losing that advantage before considering this drastic step.
America doesn’t have a trade deficit with Chile, which perhaps is why the administration hasn’t been as focused on the country so far. That should change. President Trump has been crystal clear that he will not tolerate theft of American IP abroad. There can be little doubt that our trade with Chile would be more favorable if they were buying more American IP instead of stealing it. And IP theft often infects an entire region. If Chilean IP criminals are selling to Argentinian and Peruvian consumers, we’re losing trade in those countries, too.
The U.S. Trade Representative has stated publicly that they “will continue to monitor” the compulsory license issue in Chile, and will “engage, as appropriate.” It seems like now is the time to engage.
Steven Tepp is president & CEO of Sentinel Worldwide and professorial lecturer in law at George Washington University Law School.
