Is compulsory licensing a real threat to pharmaceutical companies?

Authors: Birute Dauderiene, Patent Consultant at METIDADr. Jacekas AntulisAssociated Partner, Head of Patent Division at METIDA


On 17th May, 2006 the European Parliament and the Council adopted the Regulations on ‘compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems’ aiming to solve public health problems of the least developed and developing countries and to set a reasonable price for the good and safe medicine. In fact, the compulsory licensing is a distinctive feature of the patent’s protection and is included into the Agreement of the World Trade Organisation (WTO) on Trade Related Aspects of Intellectual Property Rights.

Compulsory licensing enables others to use patented pharmaceutical products without their holders’ permission. Yet, this does not suggest that holder’s rights of a patent are somewhat restricted. On the contrary, they have the full rights of their patented invention, thus they also receive the payment from patent users allowing them to realise a patented invention. The conditions or reasons of when and why the compulsory licensing should be granted to other persons are not defined. Since the proprietor’s rights are the most important here, negotiating a voluntary license first is indeed advisable. Only if such negotiations are fruitless, the compulsory licencing is authorized. In this case, the proprietor of a patent must receive a payment determined by a fixed economical value of a pharmaceutical product. Every country must independently decide on the size of the sum that needs to be paid for the holder, yet, the latter is entitled to protest against any decision of such matter. Under some circumstances, such as urgent situations, a voluntary licensing is even not considered. In addition, the compulsory licensing cannot be exclusively granted to one licensee.

The use of the system of compulsory licensing should be trustworthy and lawful, since its purpose is to solve public health problems. Therefore, the copies of pharmaceutical goods are primarily produced for the country’s internal market, rather than for the export. Due to this, potential exporting countries have been forced to tweak their own law adopting the sections of the WTO’s Agreement on the compulsory licensing in internal market of a country. Nonetheless, on 14 November, 2001, Doha Declaration was adopted, which reaffirmed WTO’s member states a better access to essential medicines if such countries produced an insufficient amount of pharmaceuticals. Also, according to the amendments on 30 August, 2003, pharmaceutical products granted with compulsory licenses can be exported to the less developed countries which lack manufacturing capacity. Such provisions of the declaration were practised by Canada, when the country supplied HIV antiretroviral ‘Apo-TriAvi’ to Rwanda. Yet, the operation was financially unsuccessful and took too much time, thus other countries started to avoid similar initiatives for some time.

As for the least developed countries, the situation there is somewhat different. Such countries are allowed to defer the protection of pharmaceutical patents until 2016. Due to the fact that medicines are not patented there, compulsory licensing is not obligatory for the import to such country. However, exporting countries must get a compulsory license for the patented medicine.

Apparently, the WTO Agreement aims to support less developed countries by ensuring that they would get easy and cheap access to essential medicine and preventing them from various epidemics of transmissible diseases. Nonetheless, it also encourages pharmaceutical corporations to avoid compulsory licensing. Different research lends support to the idea that the majority of compulsory licensing ends up becoming a voluntary license. Pharmaceutical companies pay enormously high single fees or even cease to supply medicines, yet they tend to sidestep from compulsory licensing. Thus, compulsory licensing promotes to offer price cuts for medicines and to seek for voluntary licenses. This has enhanced the treatment of transmissible diseases in the least developed countries. In 2006, a pharmaceutical company Gilead Sciences started to supply generic tenofovir to India on the basis of voluntary licensing conditions. UNITAID supplied this medicine to 70 least developed countries offering them a lower price than to rich countries.

Mumbai Patent Office has gained a lot of media attention as it decided to grant a Nexavar, which is a drug for the treatment of cancer and had already been protected by a patent with compulsory licensing despite the protest of Bayer. Bayer argued that such medicine had already been supplied to India under the name of Cipla. The company also declared that they were ready to reduce the prices of such remedy. Meanwhile, India’s representatives of Natco Pharma Ltd claimed that Bayer intended to slow down the improvement of public health by hindering the provision of essential medicines. Natco Pharma Ltd has gained the permission to produce and distribute this drug. It seems that India tends to come up with decisions that are disadvantageous to patents’ holders. For example, the country has recently banned the patent of drug Pegasys which was for the treatment of hepatitis C and which belonged to Roche. This phenomena is not surprising, as India itself produces generic drugs against HIV and distributes them to 170 000 patients in Africa.

India is not the only country that disagrees in this matter. Similarly, in 2007 Thailand granted a drug for the treatment of HIV with compulsory licensing too, although Merk Sharp & Dohme had promised to reduce the price by a factor of two thirds. Such countries as Uganda, Ethopia and Kong and Tanzania also follow their examples. China is going to promote the compulsory licensing too, as on the 1st of May, 2012 the country’s government adopted famous amendments of the patent law. In precision, the law now states that compulsory licensing has to be granted to generic drugs even if they have been already patented. This has raised pharmaceutical companies’ concerns.

According to statistical research, from 2001 to 2010 there were 24 incidents related to compulsory licensing. Nine of them were solved resulting in price cuts of a certain drug, three of them led to the grant of voluntary licenses, two of them were closed and 13 incidents ended by up by forming compulsory licensing. The latter scheme had been mostly implemented before 2006. Since this period, the number of such instances has decreased. It is understandable as the countries aiming to attract more investments to themselves are driven to balance between public health and patent protection.

Unfortunately, transmissible diseases have become a problem not only to the least developed countries, but also to the developing and rich ones. Thus, ensuring that patients could get essential medicine is a matter of life and death. Therefore, pharmaceutical corporations should focus on the lives of the patients rather than on the profit of a company.

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