[Ip-health] Comments on the Malaysia compulsory license

[James Love]

Quite a few elements on the story below are wrong.  The August 30 WTO
decision on paragraph 6 of the Doha Declaration is not being used for
the Malaysia license, because there are no patents in the exporting
country (India).  And, it is not true that the August 30 WTO decision is
limited in any way to "public health crisis."  Nor are there any current
WTO limitations on sourcing cheap generics from foreign markets.  The
August 30 decision by the WTO simply relaxes one export restrictions
(Article 31.f of TRIPS) if one follows some burdensome proceedural and
substantive rules.  There is no need for Malyasia to use the August 30,
WTO decision on paragraph 6, if it imports from countries that (a) have
no patent, or (b) have a patent but issue a CL and export a
non-predominate share of production or (c) issue a CL as a remedy to
anticompetitive practice(31.k).

The discussions regarding compensation are also misleading.  For
government use, the relevant compensation provisions in the TRIPS are as
follows:

(h)	the right holder shall be paid adequate remuneration in the
circumstances of each case, taking into account the economic value of
the authorization;

Countries are free to interpret this under their domestic law, and have
lots of leeway.  If you look at the US compulsory licensing statues for
civilian atomic energy  (reasonable royalty fee) or clean air (such
reasonable terms and conditions), they both refer to a reasonable
royalty.  Japan has guidelines for reasonable royalities.  Each of these
and other national laws "takes into account" the economic value of the
authorization," but does not require that the royalty is the maxium
value to society for using the invention.  Indeed, as pointed out by FM
Scherer last year at the World Bank seminar on compensation for
compulsory licenses, one of the main reasons for using a compulsory
license is to lower the prices over that the patent owners charges in a
free market.

There are lots of ways to set royalties, but the appropriate royalty for
a compulsory license in general is *not* the "value of each life which
would have been lost in case the drug was not supplied." That is simply
the maxium amount that anyone would ever pay.  If that was the actually
the rule for pricing medicine, the EU or Canada would never place price
controls on medicine, and indeed Abbott and every over manufacturer of
AIDS drugs would immediately push through step price hikes for AIDS
drugs in high income countries.

The most elegant way to set royalties would be to have some sense of the
share of GDP that should be devoted to compensating innovators for
medicines, and allocate that to innovators in accordance with the
incremental therapeutic benefits of new medicines.  That way the
compensation to the innovators is rationally related to the task of
bring new medicines to the market.  But for most deveoping countries,
the short term task should be to develop guidelines for reasonable
royalties.  The WHO should also look at this issue, in the new IPR
commission, including such important issues as the need for more
transparency of R&D flows, realistic and appropriate norms for national
support for R&D, methods of calculating the incremental medical value of
new drugs, and also consider some novel suggestions on how the
compensation can be managed (such as the 2001 WHO Harare proposal that
royalties are invested in R&D in the developing country that pays the
royalty).

   Jamie

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Wednesday February 25, 11:57 PM
Business Standard
http://in.biz.yahoo.com/040225/26/2boa9.html

Cipla gets Malaysian nod for AIDS drugs

By Our Bureau New Delhi, 25 February

In a trailblazing move, Malaysia has issued a compulsory licence to
Mumbai-based Cipla (CIPL.BO, news) for the supply of anti-retroviral
medicines used in the treatment of Acquired Immuno Deficiency Syndrome
(AIDS).

This is the first compulsory licence issued by any government after the
August 30, 2003, decision on Para 6 of World Trade Organisation's (WTO)
Trips agreement, which allows countries to waive patent claims and
source medicine from low-cost non-patent producers in case of a public
health crisis.

The details of the compensation to Bristol-Myers Squibb and
GlaxoSmithKline are yet to be worked out by the Malaysian government.

Senior government officials said that according to the decision at the
Trips Council, the compensation would be based on the economic value.

The economic value would be worked out on the basis of per capita income
in Malaysia and the value of each life which would have been lost in
case the drug was not supplied by waiving patent rights.

They added that orders for more medicines, particularly to combat AIDS
in Africa, were in the offing and the ministry of external affairs and
finance were working out the details for a line of credit for
pharmaceutical exporters.

While the corpus of the fund could be over $1 billion, the details are
yet to be finalised, an official said. Exim Bank would be the nodal
agency for extending the lines of credit.

Commenting on the development, Indian Pharmaceuticals Alliance secretary
general DG Shah said, It could provide an interesting test case to
assess whether the August 30 decision is workable or needs modification.=

Cipla's designated spokesperson, joint managing director Amar Lulla,
could not be reached for comments.

However, other pharmaceutical companies said that this could pave the
way for other countries to issue similar licences to low-cost drugmakers
in India.

Cipla has been at the forefront of the campaign to provide
anti-retroviral medicines to developing countries at a fraction of the
cost of companies which innovated these drugs.

The campaign received a significant shot in the arm last year when the
Bill Clinton Foundation announced that it would source medicine for the
treatment of AIDS in Africa from three Indian companies =97 Cipla,
Ranbaxy and Matrix and a South African company.


--
James Love, Director, Consumer Project on Technology
http://www.cptech.org, mailto:james.love@cptech.org
tel. +1.202.387.8030, mobile +1.202.361.3040