Thailand Law Journal 2012 Fall Issue 1 Volume 15

Compulsory Licensing: Background

The Venice Patent Law of 1474 was the foremost patent law which was itself subject to state compulsory licenses. The first international patent agreement was established in the Paris Convention of 1883. Compulsory licensing replaced forfeiture as the mode of addressing abuse of patent rights by the right-holder in the 1925 Revision Conference of the Hague Convention. Article 5 of the Hague Convention required patentees to “work” their patented inventions. It was discovered that Article 5A of the Paris Convention governing compulsory licenses was hardly worked considering the four year waiting period. TRIPS, allows compulsory licensing if the party had earlier negotiated terms and conditions from the patent-holder through an application. The requirement to have exhausted the application stage occurs only when it is identified that there might be a ‘national emergency’ or any other situation of ‘extreme urgency’. The second waiver is for public non-commercial use – this provision does not even require notification to the patent holder until after the use of the invention.

Compulsory licensing practices tend to identify a particular country as being a potentially unsafe harbour for investment for a pharmaceutical company. Companies hence, tend to be extremely wary about granting such license. However, the countries devise other methods by which to balance public health considerations with the intellectual property rights of the companies. In the United States, depending on State funding in the research funding, there are identified ‘March In’ rights especially after the Bayh-Dole Act of 1980. The NIH has so far been extremely reluctant to exercise its rights of ‘walk-in’ saying that price control is not a sufficient reason to use the ‘march-in’ provisions. It might be possible to establish a said route which governments tend to take, prior to actually exercising the compulsory license route. For example, while dealing with Cipro, during the anthrax attacks of 2001, the U.S. Government despite having low stockpiles and being pressurised to force cost reductions only decided to negotiate a price reduction with Bayer prior to issuing a compulsory license. 

Article 31(b) states that a particular party interested in seeking out a license must first attempt to obtain the voluntary license from the patent holder on reasonable commercial terms and conditions. The concern which can be raised in this case is, whether there exists a set of conditions which need to be exhausted in the negotiating arrangement between eh patent holder and the potential license holder prior to the state coming forth to grant the compulsory license. So far, it has been seen, from the Brazil experience, particularly, that the threat of issuing a compulsory license has frequently caused pharmaceutical companies to decide to reduce prices drastically to the point of them functioning at no profit. Further, in the Indian experience, particularly in light of the 2009 occurrence and the Roche-Hetero sublicense arrangement, it is a concern as to whether the options to make the investment environment predictable, and certain to the patent-holder could sometimes weight more, particularly, in developing countries than enabling freer access to the drug in itself. Developed countries expressed concern as to how there could be possible misuse of the August 30,2003 decision to promulgate access of medicines to countries without manufacturing capacity. The same was to be addressed by ensuring that there would be no “trade diversion” to countries other than the “eligible importing member” . The Doha Declaration specifically notes that a public health crisis can fall under the ambit of the clause “national emergency”. The Para. 6 problem was countered by the August 30, 2003 decision which outlined what conditions were required to satisfy the norms for being an “eligible importing member” . Article 27.1 of the TRIPS Agreement also termed as the most compromising facet of the entire system which developing countries entered into states that there shall be no discrimination based on ‘fields of technology’. The EU-Canada Pharmaceutical Patents case specifically upheld the Regulatory Review exemption while deciding against the stockpiling option in Section 55.2(1) and 55.2(2) of the Canadian Patents Act.

It has been identified that it was only after the Doha Declaration in 2002 that countries started to actually employ use of compulsory licensing in order to counter major health concerns. African countries facing high incidence of HIV/AIDS such as Mozambique, Zambia and Zimbabwe issued compulsory licenses and have also succeeded in building manufacturing capacity in these fields. Brazil has traditionally engaged in employing the threat of compulsory licensing in order to negotiate major price reductions – in the year 2001, Merck and Roche brought down the prices of the patented HIV/AIDS drugs Nelfinavir and Efavirenz.

The TRIPS Agreement in Article 31(f) connotes that compulsory licensing essentially be limited for domestic supply thereby engendering Least Developed Countries with low, or little manufacturing capacity. Having gained cognizance of the situation, and responding to pressure from the interest groups outside the Doha round saw a settlement which is popularly known as Article 31bis. Article 31bis allows for the grant of compulsory licenses for the purpose of export to another country. Para 6 of the Doha Declaration was instrumental in declaring the health concerns of the different states and it dealt with the problem enshrined in Article 31(f).

The Thailand Experience – Government Use for Patents

Thailand’s use of breaking the patent has been impugned on the grounds that Thailand is a lower-middle income country, as under the World Bank classification, and further that the drugs for which Thailand did issue compulsory licenses for were not ‘essential’ drugs in the sense demonstrated by the Doha Declaration or the August 30,2003 decision which seem to qualify the application of these ameliorative provisions to either life-threatening or communicable diseases. Further, an important criticism is that of the Thai Government not having engaged in prior negotiations with the patent-holder as under Article 31(b) of the TRIPS Agreement, despite, as the Thai Government has repeatedly confirmed, in case of ‘public non-commercial use’ there is no need for ‘prior negotiation’. Nevertheless, the Thai government had further demonstrated the futility of engaging in prior negotiations in certain cases, and the essence of their argument lay in the concept of a ‘price differential’ which is the ration of the price of the originator drug and the generic drug.

The Thailand Government had interpreted TRIPS flexibilities in its favour despite demonstrating some hitherto unexpected uses of the provisions for chronic diseases, and utilising the flexibilities in granting Government Use for those drugs which did have replacements available in the market, as also for second-line drugs. The Thai Government made a significant observation on the functionality of the compulsory licensing provision considering that only very few patented drugs could find successful application in compulsory licensing considering they do not meet the criteria (an example provided was drugs for baldness, Erectile Dysfunction Syndrome, “me-too” drugs which do not possess a functionality). Still it has been identified that a large number of non-patented drugs remain monopolised owing to the complexities of production.

Expanding the scope of an ‘Essential Drug’
1. Efavirenz- A Drug for which a replacement was readily available
In an attempt to justify Government Use of a patent for a drug, where a replacement was already available on the grounds of toxicity and possible detriment to the users, the example of Efavirenz becomes relevant. Efavirenz was identified as a first line ARV, less toxic than Nevirapine, which might have created adverse drug reactions, which could be life-threatening .

2. Kaletra- A second line drug
The Thai Government has identified the possibility of a group, or a cluster of people identifying ‘resistance’ to a particular first-line drug, thereby necessitating the patenting of a second-line drug such as Kaletra (Lopinavir + Ritonavir). The study conducted by the Department of Disease Control in Thailand had identified that 10% of the population in Thailand affected with a particular virus, will develop resistance to the first line drug . This would be an argument for procuring Relenza, which is the second-line drug for countering influenza in a pandemic situation, whilst the first-line drug is Oseltamivir Phosphate.

3. Narrow-spectrum drugs
Narrow-spectrum functions of certain drugs are identified to justify a patent on them, though this is applied in conjunction with the affordability, and the dosage requirement of the said drug. For example, Clopidogrel was identified as being probably the only drug which could treat coronary artery stent .

It is essential to fully imbibe the responses given by the world economy with respect to Government Usage by Thailand considering it has been extensively applied, on a wide variety of fronts. Brazil has traditionally used compulsory licensing only as a threat. Further, the drugs identified by Thailand could have implications for ensuring access to medicines in other countries. It has been identified that even the United States and other high-income countries have threatened to use compulsory licenses for securing access to medicines for its populace. India, as identified by Brent Savoie is home to the largest number of people suffering from diabetes, which is a condition for which many people in the world need long-term treatment . However, diabetes, unless declared as constituting a national emergency, will not qualify for the traditionally intended conventional application of Article 31 of the TRIPS agreement. A country which has repeatedly used the compulsory licensing provisions in chronic diseases, which are not essentially communicable, or life-threatening, is Thailand. The measures of the Thai Government were well received by the WHO, and the US Trade Representative, various interest groups world over and the civil population . Four essential anti-cancer drugs were to be made available at prices as low as 30 times lower than the patented products in order to prevent untimely death and catastrophic illnesses among Thai people.

The letter expressing support from the William J. Clinton Foundation identified that rights flowing from a ‘national emergency’ also applied to those countries which are middle income countries, like Thailand, which might be home to more than half the HIV-positive people in the developing world. The letter further noted that Lopinavir/ritonavir were available to Thai  people at four times the price it was available to African nations .

 The Thai Government had launched a policy of universal access to anti-retrovirals since 1st October 2003. Since 2001, every Thai citizen is covered under one of the three main national public health insurance schemes which are (i) the Civil Servant Medical Benefit Scheme, which is paid for from the general tax revenue; (ii) The Social Security Scheme, which is contributed to by the employers, the employees and the State; (iii) The Universal Coverage Scheme, which covers around 48.5 million people, financed from the general tax revenue. The providers are paid by the contract capitation system. It was further noted that around 20 percent of Thai pay out of their own pocket when receiving out-patient services from private health-care providers. The Thai government, further on attempting to increase the health –care budget, further identified that Government Use of Patents would be an effective manner to get lower price generics on grasping the actual high prices of the drugs and the commitment to facilitate access to ARVs (Anti-retrovirals) to the citizens of Thailand.

The criteria identified by the Thai Government in order to issue a Government Use of patent includes drugs and medical supplies which are (i) listed in the National Essential Drug List (ii) necessary to solve important public health problems (iii) necessary in emergency or extreme urgency or (iv) necessary for the prevention and control of outbreaks/epidemics/pandemics or (v) necessary for life-saving. The royalty fees payable have been set at between .5 to 2 per cent of the sale value.