By Alastair Stewart

Wall Street Journal

May 5, 2007

SAO PAULO — Brazilian President Luiz Inacio Lula da Silva Friday signed a compulsory license, breaking the patent on an anti-retroviral AIDS drug made by the U.S. pharmaceutical giant Merck & Co.

Brazil’s government issued the groundbreaking decree after rejecting a Merck offer to sell the drug at $1.10 per pill, the equivalent of a 30% discount.

Brazil claims the price is unjust considering it can acquire the drug for $0.45 from generic manufacturers, the president said in a statement. "Between our trade and our health [interests], we chose to protect our health," said President Lula in Brasilia at a ceremony marking the signing of the decree.

Jose Gomes Temporao, Brazil’s health minister, said: "We had eight meetings with Merck and at none of them did they present a satisfactory proposal. At best, they proposed a 30% discount. We told them we needed a 60% discount."

Merck said in a statement that it is "profoundly disappointed" by Brazil’s decision to break the patent.

A compulsory license allows a country to manufacture or buy generic versions of patented drugs while paying the patent holder only a small royalty. Brazilian law and rules established under the World Trade Organization allow for compulsory licenses in a health emergency or if the pharmaceutical industry uses abusive pricing.

This is the first time Brazil has overridden a drug patent after threatening to do so on various occasions in the past.

After Thailand moved to override patents on three anti-AIDS drugs, including those made by Abbott Laboratories and Merck, the U.S. placed Thailand on a list of copyright violators.

During the signing ceremony, Mr. Lula warned that Brazil could break other patents, if prices weren’t affordable. "People shouldn’t be able to get rich through the misfortune of others," he said.

The U.S.-Brazil Business Council expressed alarm at Brazil’s decision. "Just days after Brazil was recognized for improving its enforcement of intellectual property rights, this is a major step backward for the country’s development. Brazil is working to attract investment in innovative industries that rely on IP, and this move will likely cause investments to go elsewhere," the council said in a statement.

Brazil provides free AIDS drugs to anyone who needs them and manufactures generic versions of several drugs that were in production before Brazil enacted an intellectual property law in 1997 to join the WTO.