This is the second article in our general election series on Labour’s “Medicines for the Many” policy. To view the first article, click here.

Although UK drug prices are, on the whole, cheaper than in many other jurisdictions, the expense of certain life-saving treatments has attracted significant attention in recent months. Orkambi, a cystic fibrosis treatment produced by American biopharma company Vertex, is one such product. The high list price (£104,000 per year, per patient) led to a dispute between Vertex and the NHS, during which time there was a public campaign for the government to invoke its Crown use licensing rights to ensure Orkambi was made available to children with the disease. Although the NHS recently came to an agreement with Vertex, the debate was live when the Medicines for the Many policy was published at the Labour Party Conference, and it forms the backdrop to many of the proposals contained within it.

What are Crown use licences?

Crown use licences are provided for by sections 55 to 59 of the Patents Act 1977 (the Act). They can be used by any government department (or its authorised representatives) to do acts in the service of the Crown which would otherwise amount to patent infringement. This includes the manufacture and supply of medicines.

In Medicines for the Many, the Labour Party describes the Crown use licence as one which, “effectively enables a government to issue a licence to another manufacturer to produce a generic version of a patented drug at a lower price”. The Party's current position is that the requirement a patentee be compensated is ambiguous and has not been tested in the Courts.

Could Labour impose Crown use licences immediately?

Sections 55(4) and 57A of the Act require the beneficiary of a Crown use licence to pay the rights holder compensation for any loss which results from the Crown use licence. The effect of s.57A could even be to increase the compensation payable, beyond the sales price of the product. This is because the Act requires the compensation to be based on both the profit that would have been made by the sales, and the extent to which any manufacturing capacity was underused as a result.

In Medicines for the Many, Labour argues it is reasonable to interpret s.57A as a right which extends only to those with a reasonable expectation of profit. This is not supported by the drafting of the Act as currently enacted. As a result, any imposition of a Crown use licence on such terms is likely to result in litigation even if Labour's preferred construction were ultimately accepted by the courts. If successful on construction, the government would then need to demonstrate the rights holder had no reasonable expectation of profit, which could prove difficult in practice. Relying on Crown use licences could also have a knock-on impact for the UK’s ability to meet its international treaty obligations, which we discuss further below.

In support of its position, Labour had argued that Vertex, which had been in negotiations with the NHS for some time in relation to Orkambi, would not be able to claim that the NHS would have bought from them (and therefore would not suffer any “lost” profit). Although Vertex has now signed a deal with the NHS, in our view it would be unusual if even Vertex's involvement in negotiations was not found to support an expectation of sales to the NHS at a price which exceeds the cost of production.

Labour’s fallback position, and the only way it could successfully use Crown use licences to reduce the cost of drugs, is a claim that s.57A has not been tested in the courts. Assuming it had a sufficient majority, Labour could (and says it would) review and revise the drafting of that section “to ensure it does not block the originally intended use of the Crown provisions”, i.e. to reduce the fees payable to rights holders. The policy does not address s.55(4), which also grants the patentee the right to receive a payment in respect of Crown use, but a Labour-led government could also seek to revoke this provision.

International dimensions to compulsory licensing

Although reliance on Crown use without compensation would be deeply unpopular within the pharmaceutical industry, the principle of parliamentary sovereignty makes it unlikely revisions to the Patents Act would be open to judicial review. More problematic would be adhering to the requirements of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which sets minimum standards for the protection of intellectual property and is binding on all members of the World Trade Organisation. Article 31(h) of TRIPS requires that, in the case of government-use licences, “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”.

Labour has argued that certain “TRIPS flexibilities” could be employed to allow the use of Crown use licensing, relying heavily on the work of Ellen ‘t Hoen in doing so[1]. While it is correct that, through the Doha Declaration, compulsory licensing and other measures have been used in some countries (particularly the world’s least developed countries) to access vital medicines more affordably, it is not realistic to suggest the UK could do so without souring international relationships. ‘T Hoen’s own work recognises this, recalling the “harsh” international pressure applied by the United States, European Union and Switzerland among others when middle-income countries such as Brazil, Colombia, India and Thailand sought to employ compulsory licensing.

Conclusions

While Crown use licences could be used to reduce drug prices, legislative change would be required to realise this. In the immediate term, the Patents Act requires adequate rights-holder compensation, which may even exceed the loss of profit incurred as a result of a Crown use licence. Although a Labour-majority government could achieve national legislative amendments, there would almost certainly be implications for relations with key trading partners, including the US and EU member states.

The next article in this series will consider how conditions on public funding could secure better value for UK taxpayers and the centralised medical research agency already established in the United States.