Compulsory licensing and the legal framework

A compulsory licence provides that the owner of a patent licenses the use of their rights in return for payment either set by law or determined through some form of arbitration.  The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) sets out specific provisions that shall be followed if a compulsory licence is issued, and the requirements of such licences.  All significant patent systems comply with the requirements of TRIPS.  Specific situations in which compulsory licences may be issued are set out in the legislation of each patent system and vary between systems.  TRIPS provides that the requirements for a compulsory licence may be waived in certain situations, in particular cases of national emergency or extreme urgency or in cases of public non-commercial use.  Article 31(f) of TRIPS requires that compulsory licences be used "predominantly" for local markets, a requirement that complicates the ability of countries to import pharmaceutical products manufactured overseas.

This issue of compulsory licensing of pharmaceuticals treating serious diseases was addressed by the Doha Declaration.  In May 2006 the European Commission's official journal published Regulation 816/2006 which brought into force the provisions of the Doha Declaration, having legal effect in the European Union, and allowing compulsory licences to be issued in developed countries for the manufacture of patented drugs, provided they are exported to certain countries (principally, those on the United Nation's list of least-developed countries and certain other countries having per-capita incomes of less than US$745 a year).

The situation in India

For many decades India did not recognise pharmaceutical patents, but the patent law has been overhauled to comply with the requirements of the World Trade Organisation (WTO) which India joined in 1995.  In 2005, India’s legislators revised the patent law to protect innovative molecules discovered after 1995.

In many countries around the world, compulsory licences can only be issued by national government authorities.  However, in India the situation is somewhat different and generic companies can themselves request such licences from the independent patent controller.  In March 2012, India granted its first compulsory licence to the Indian generic drug manufacturer Natco Pharma Ltd for Sorafenib tosylate (Nexavar), an anti-cancer drug patented and marketed by Bayer.  Although non-governmental groups reportedly welcomed the decision, western innovative pharmaceutical companies viewed the decision with caution and unease.

Under the terms of the compulsory licence, Natco shall provide the drug for free to at least 600 patients requiring treatment per year and sell the drug at no more than 8,880 Indian rupees (about US$178) for a pack of 120 tablets to other patients.  Natco is also prohibited from outsourcing the manufacturing of the medicine.  In March 2013, India's Intellectual Property Appellate Board (IPAB) dismissed Bayer's appeal against the compulsory licence.  However, the IPAB has raised the royalty payable to Bayer by Natco from 6% to 7%.  At the time of writing (August 2013), Bayer has stated that it will pursue the case at High Court in Mumbai.

India’s controversial patent law also possesses a contentious clause aimed at preventing the ‘ever-greening’ of patents when minor changes to a molecule or drug formulation are used to extend or renew key patents.  It is of concern for many companies that India will serve as a catalyst for emerging markets to amend their intellectual property laws in order to make it more difficult to register or extend patents, or that other countries may follow India’s example and issue compulsory licences.

The situation in China 

When the revised version of the Measures for Compulsory Licensing Implementation, issued by the State Intellectual Property Office (SIPO) came into effect in May 2012, many media sources declared that compulsory licences would now be used in China and that the country had ‘broken the patent barrier on drugs’.  Indeed, many commentators linked events in India with the changes to the Chinese legislation and speculation was rife that China was following in India’s footsteps.  Such headlines were not, however, truly accurate.  The revised legislation simply strengthened the compulsory licensing framework and implemented detailed procedures regarding application and defence against applications and expanded the scope for compulsory licensing to include ‘any matters of public health’.  Even prior to the new measures, a compulsory licence could have been granted under Chinese patent law if a company or entity was unable to obtain a licence within a reasonable timeframe on reasonable terms and conditions.

Whilst both markets hold huge potential for western pharmaceutical companies, it is clear that China and India are at very different stage of economic development.  The Chinese authorities have made much of their desire and intent to protect their international reputation concerning intellectual property and to create and foster an environment conducive to research and innovation.  There have been many proclamations concerning the importance of upholding intellectual property rights and the future growth of the economy, and several important revisions to Chinese intellectual property legislation have taken place. 

China has never granted a compulsory licence, not even during the SARS outbreak.  Indeed, in a well publicised example from 2003, a Chinese company applied for a compulsory licence to produce a version of Roche’s Tamiflu, but the application was refused.  Several commentators have observed that they do not envisage China issuing any compulsory licences in the next five years, save in the situation of a national pandemic or emergency.

Looking to the future 

While the research-based pharmaceutical industry is clearly supportive of the objective of improving access to innovative medicines, compulsory licensing will not solve larger problems regarding access to medicines and healthcare.  The challenge for courts in the developing world is to balance intellectual property rights against the need for affordable medicines for an ever increasing number of patients.  Although there is no clear sign that they will do so, if developing countries begin to routinely use compulsory licences, we may witness a ‘race to the bottom’ in which governments in the developing world fail to support research and innovation in public health and science.  In the absence of the investment made by innovative industries, and the resulting R&D, there would be no generic medicines for the world’s patients.  It can be argued that the responsibility to promote the development of new drugs lies with all countries, not solely those in the west.