US embassy cable - 05LIMA3794

UNCLAS SECTION 01 OF 02 LIMA 003794 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR WHA/AND, EB/IPE SWILSON 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
DOC FOR J. BOGER 
USTR FOR B. WILSON, B. HARMAN 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, KIPR, PE 
SUBJECT: ELI LILLY STRUGGLING WITH PATENT PIRACY 
 
 
1.  (SBU) Summary.  Eli Lilly, one of the ten pharmaceutical 
companies that hold patents in Peru, continues to combat the 
piracy of one of its best selling products, Zyprexa. 
According to Eli Lilly representatives, two local 
distributors, Ozone and PharmaIndustria, are selling copies 
of Zyprexa on the local market.  One pirated version, sold 
by Ozone, is a slight modification of Lilly's molecule; the 
other version is structurally identical.  Indecopi, Peru's 
IPR administrator, has yet to take action on these cases, 
claiming that Eli Lilly must prove that Ozone and Farma 
Industria are selling pirated copies of Zyprexa.  Eli Lilly 
has lost over $2.4 million in sales.  We are investigating 
whether Indecopi's actions violate Article 28 of the TRIPS 
agreement, which states the rights of patent holders, and 
Article 34, which places the burden of proof on the alleged 
infringer.  End Summary. 
 
Two Copies of Zyprexa Available 
------------------------------- 
 
2.  (SBU) We met with Edgard Olaizola, General Manager of 
Eli Lilly Peru, on August 31 to discuss violations of 
intellectual property rights in the pharmaceutical arena. 
Olaizola informed us that Eli Lilly, which holds five 
pharmaceutical patents in Peru, is facing two patent 
violations.  Both violations involve Eli Lilly's Zyprexa 
drug (olanzapine), which is Lilly's top selling product for 
schizophrenia and bipolar disorder.  Lilly sells olanzapine 
worldwide and holds a patent for this product in countries 
where the product is sold.  Eli Lilly also holds exclusivity 
rights for the formulation and several processes of 
olanzapine.  Eli Lilly sells Zyprexa primarily to Peruvian 
government health institutions, including EsSalud and police 
and military hospitals. 
 
3.  (SBU) In January 2005, local distributor Ozone began 
selling a copy of Zyprexa, manufactured by Microlab in 
India.  According to Eli Lilly lab analysis, the Ozone drug 
is a slight modification of olanzapine.  In February, 
Indecopi, at Eli Lilly's request, issued a precautionary 
measure against Ozone based on the possible infringement of 
Lilly's process patent.  The precautionary measure 
prohibited Ozone from selling the product.  Indecopi, 
however, lifted the precautionary measure on May 31, several 
weeks before the GOP launched its annual procurement bid for 
medications. 
 
4.  (SBU) In June 2005, Farma Industria, one of Peru's 
largest pharmaceutical companies and producers of generic 
drugs, introduced another copy of Zyprexa to the market. 
Cipla, also based in India, manufactures this copy of 
Zyprexa.  Although Farma Industria claims that it sells a 
different form of olanzapine, Eli Lilly studies show that 
the drug is in fact an exact copy of Lilly's patented 
olanzapine. 
 
Indecopi Fails to Act 
--------------------- 
 
5.  (SBU) Eli Lilly officials met several times with 
Indecopi officials, who have yet to take any action.  Nestor 
Escovero, Director of Indecopi's patent office, informed Eli 
Lilly that the company needed to prove that the new drugs 
were pirated copies.  According to Olaizola, Indecopi's 
patent office staff work closely with Peruvian 
pharmaceutical distributors, advising them on generic drug 
production.  One patent examiner, claims Olaizola, is now 
the head of Ozone's regulatory department.  Olaizola asserts 
that Indecopi tends to favor local distributors over foreign 
companies and doubts that it will do anything to stop the 
sale of pirated drugs.  (Note and Comment: Indecopi is also 
targeting other multinationals.  In a recent unannounced 
visit to the Swissotel, now an American company, Indecopi 
officials demanded to see all software licenses.  Officials 
were disappointed when the hotel produced the necessary 
documents.  This is an example of Indecopi's lack of 
understanding and deliberate targeting of foreign companies. 
It also underscores the cost of doing business in Peru.  End 
Note and Comment.) 
 
6.  (SBU)  Eli Lilly, as a result of Indecopi's inaction and 
the lifting of the precautionary measure in June, has lost 
market share and estimates damages at $2.4 million in lost 
sales.  The GOP held eight procurement bids totaling 
$300,000 each for pharmaceutical supplies to EsSalud and 
military/police hospitals in June-August; Eli Lilly won none 
of these bids, despite holding previous contracts with the 
GOP.  Instead, Ozone and Farma Industria earned GOP 
contracts.  Eli Lilly appealed the procurement process. 
 
Possible Violation of TRIPS? 
---------------------------- 
 
7.  (SBU)  Despite Eli Lilly's claims that both Ozone and 
Farma Industria are selling pirated copies of Zyprexa, 
Indecopi has placed the burden of proof on Eli Lilly instead 
of the Peruvian companies.  Article 28 of the WTO TRIPS 
Agreement grants certain rights to patent holders.  Article 
34 clearly states that in cases of copyright infringement, 
the burden of proof should be placed on the alleged 
infringer, not the patent holder.  Indecopi's failure to 
fully investigate Eli Lilly's claims may be a direct 
violation of Peru's obligations under the TRIPS agreement. 
 
Comment 
------- 
 
8.  (SBU)  Eli Lilly is not the first pharmaceutical company 
to face patent problems in Peru.  Although the GOP is a 
member of the WTO, signatory to the TRIPS agreement and is 
in the process of negotiating a Free Trade Agreement with 
the United States, government officials do not always act in 
accordance with international regulations.  We will arrange 
a conference call with Eli Lilly and the Department of 
Commerce to discuss the facts of this case and the possible 
TRIPS violations.  We will also bring this case to the 
attention of the Peruvian FTA negotiators, stressing the 
importance of upholding intellectual property rights, 
particularly during negotiations. 
 
STRUBLE