The concept and the international legal framework of compulsory licensing
Access to the article with full footnotes can be found here. Or you can contact the author at van-anh.le@law.ox.ac.uk for the full paper.
If patents are generally accepted as a means to encourage inventions thanks to the monopoly given to the right owners, compulsory licensing is viewed as a limitation to patent rights. A compulsory licence or a non-voluntary licence is a licence granted by a competent national authority which requires the patent holder to license the patented invention to a third party during the protection term, namely 20 years, regardless of the right owner’s wish. As nicely put by Brennan, a compulsory licence “plots a midway course between an exclusive right and a free exception, so that within the scope of the licence an exclusive right is converted into a right to remuneration”.18 Such authorization can be granted to a private entity or to a government agency or to a third party authorized to act on behalf of the government, in which case such authorization is referred to as ‘government use’.19
Under the TRIPS Agreement, compulsory licensing is regulated by Article 31 which sets out a set of conditions that a WTO member must follow if it wishes to issue a compulsory licence. These conditions in brief are:20
- The application for compulsory licensing must be assessed.
- The compulsory licence applicant must negotiate with the patent owner for a voluntary licence on reasonable terms and conditions within a reasonable period before applying for a compulsory licence. However, prior negotiation is skipped in cased of “national emergency”, “other circumstances of extreme urgency” or “public non-commercial uses”.
- The scope and duration of the compulsory licence shall be limited to the purpose for which it was authorised.
- A compulsory licence must be non-exclusive, and non-assignable.
- The patented article that is manufactured under the compulsory licence must be predominantly supplied within the domestic.
- The compulsory licence must be terminated if the events that led to it “cease to exist and are unlikely to reoccur”.
- The patent owner shall be entitled to an “adequate remuneration” that takes into account the “economic value of the authorisation”.
- The decisions in relation to a compulsory licence grant and the remuneration thereof must be subject either to judicial review or to any independent review by a higher authority.
In 2001, WTO member states adopted a special Ministerial Declaration the Doha Declaration on the TRIPS Agreement and Public Health (the Doha Declaration) to clarify ambiguities regarding countries’ freedom to use TRIPS flexibilities including compulsory licensing. The Doha Declaration contains 7 paragraphs. Most importantly, paragraph 6 recognises the difficulties of WTO members with insufficient or no pharmaceutical manufacturing capacities. These manufacturing constraints prevent them from using compulsory licensing regardless of whether they are allowed to issue such licences. As a result of the Doha Declaration, a new compulsory licensing regime was adopted and is now regulated by Article 31bis under TRIPS.
For this reason, Article 31bis is also known as the “Paragraph 6 system”. This provision waives three obligations arising from Article 31 in respect of medicines. Firstly, it allows abovesaid countries to issue compulsory licences for public health reasons by importing the drugs from other countries. This practice is prohibited under Article 31(f) which regulates the ordinary compulsory licensing regime. Secondly, the importing country does not have to pay royalties to the right holder, a requirement ruled by Article 31(h). Finally, re-export of the imported pharmaceuticals among members of a regional trade agreement where at least 50% of the members are Least-Developed Countries (LDC) is permitted. It is important to stress that Article 31 and Article 31bis are two separate compulsory licensing mechanisms and they therefore co-exist.
In 2007, Rwanda was the first country in the world to test the new system by notifying the WTO of its intention to import the generic HIV/AIDS drug – Apo TriAvir from Apotex, a generic Canadian manufacturer.21 However, the process under Article 31bis was found to be excessively burdensome, expensive and lengthy. It took more than a year from the time Rwanda notified the WTO until the time the country actually received the drugs from Canada.22 From Apotex’s side, it took the company 3.5 years to develop the drug, identify a recipient country, secure a supply contract and then manufacture it.23 Financially, Apotex spent US$3 million in the process, not including legal fees.24 Such hurdles are obvious reasons why no country has ever used Article 31bis after Rwanda until 2021 when Bolivia, and Antigua and Barbuda announced to the WTO of their intention to invoke this legal mechanism.
The use of compulsory licensing is very critical to developing countries because it prompts the market entry of generics, which could have been delayed if patent monopolies had been in force. In general, this legal remedy produces significant effects on society. In the short- term, compulsory licences diminish the monopoly of patent-holding companies, driving down the price of medicines, thereby increasing the number of patients in treatment. It is estimated that competition generated by generic medicines has allowed the price reduction of AIDS medicines for developing countries by more than 95%.25 In the example of Rwanda, Apotex’s price was just US$0.195 per dose whereas the equivalent patented medicine cost US$6.
Critics of compulsory licensing assert that extensive use of this legal mechanism is synonymous with weak patent protection. Pharmaceutical companies have criticised compulsory licensing, arguing that it will disincentivise R&D activities.26 One of the most vocal authors is Rozek who, in his series of articles, sharply criticises compulsory licensing for a variety of reasons while strongly supporting patent protection.27 In one article, Rozek and his co-author – Berkowitz, found that IP had little, if any, impact on the price of drugs.28 In another paper, he established that while there was a growth in employment and R&D in countries that enacted patent law, the opposite occurred where a weak IP regime existed.29 He also found an enormous increase in R&D in the pharmaceuticals sector when the automatic compulsory licensing regime for medicines was revoked.30
Others argue that patents have an insignificant impact on developing countries, because most revenue is generated in wealthy/developed countries, such as the US and some European countries, and not from developing countries.31 Ho maintained that, as long as the developed nations do not grant any compulsory licences for medicines, there should be no adverse impact on pharmaceutical innovations.32 In the same vein, Outterson favours the copying of innovative medicines in low-income countries where the need is great, and the loss is small.33
Such reasoning is also echoed by Stirner, who observed that while the practice of compulsory licensing in developing countries like Brazil and Thailand poses a threat to pharmaceutical companies and their host countries, the use of compulsory licensing by LDCs, such as Zimbabwe, Zambia, and Mozambique, did not provoke negative reactions from the patent-holding companies or pharmaceutical industry associations.34 This indicates a higher acceptance of compulsory licensing when used by countries with small markets and limited technological capacities than when practised in middle-income countries with substantial pharmaceutical markets and significant pharmaceutical industry.35
Moser and Voena,36 and Baten et al.37 tested the hypothesis that compulsory licensing discouraged innovations under the US Trading with the Enemy Act (1917). These authors reached a tentative conclusion that this legal measure encouraged innovation, as it increased the threat of competition for incumbent inventors and motivated them to invest more in R&D. Nevertheless, this can only happen if the governments make a credible commitment to using compulsory licensing only in exceptional cases of emergency. Where compulsory licensing occurs repeatedly, companies may invest less in R&D. In other words, if this legal measure is used at random and unpredictably, it is likely to weaken innovation.
Global debates over pro-and anti-compulsory patent licensing have been tense in recent years. This dichotomy manifests the conflict of interests between the North and the South during the writing of TRIPS, as well as the interface between patents and access to medicine when TRIPS entered the implementation phase. Whenever a compulsory patent licence is granted for a particular medicine, both the granting countries and the patent holders are involved in emotional and political public relations battles, where the former wins a pyrrhic victory, and the latter is usually a loser. Nevertheless, while the access to medicine activities led to the increase in aid funding and the decrease in medicine prices, “the IP infrastructure is left largely intact”.38
The cross between patent rights and patient rights leaves us to consider whether compulsory licensing should be perceived as a “one-size-fits-all” solution for public health issues in developing countries, and also to consider, in cases where a compulsory licence is inevitable, how to limit the damage inflicted on both sides.
- Image Dayne Topkin on Unsplash
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excellent post! very informative!
Thanks! I am glad that you find it useful!