[Ip-health] Excerpts from HIF: compulsory licensing

[James Love]

http://www.keionline.org/blogs/2008/11/18/excerpts-from-hif-compulsory-lice=
nsing/

Excerpts from HIF: compulsory licensing

In their recent book on the Helath Impact Fund,* Aidan Hollis and Thomas
Pogge discuss a number of issues. This is what they say about compulsory
licensing of patents.

Page 53-54

    Strengthened intellectual property protections in the less developed
countries burden the poor immediately by pricing vital medicines out of
their reach. Yet, such protections may benefit only future poor people,
starting in 2025, when patents on medicines that owe their existence to
such protections expire. Appealing to this time difference, one might
then propose to resolve the dilemma in favor of Pre-TRIPS on the ground
that it is morally impermissible to cause severe harms, including death,
to poor people now for the sake of protecting millions of poor people
from similarly severe harms later on. Many endorse such a principled
stance. Yet, one can not be satisfied with such an outcome in view of
all the harm that stimulating new drug development could avert from so
many future lives.

    It may seem as though compulsory licenses =E2=80=94 as envisioned in th=
e
TRIPS Agreement and reaffirmed in the 2001 Doha Declaration =E2=80=94 are a
practical solution to this dilemma. By issuing a compulsory license, a
government can force down the price of a patented invention by
compelling the patent holder to license it to other producers for a set
percentage (typically below 10 percent) of the latter=E2=80=99s sales reven=
ues.
Yet, compulsory licenses cannot fully solve the dilemma because, insofar
as governments actually use them to improve access by the poor to
patented medicines, compulsory licenses weaken the innovation incentives
that were supposed to result from the extension of strong intellectual
property rights into the less developed countries. Pharmaceutical
companies will understandably discount any such incentive if they are
uncertain whether and to what extent they will actually be allowed to
reap the fi nancial reward from inventing a new medicine.

Page 99-100

    Compulsory Licensing

    Compulsory licensing is a mechanism for enabling competitive
production of a patented product by mandating a license at a set royalty
rate for a patented innovation, and is in effect an overturning of the
normal patent right to the exclusive use of the claimed invention. By
issuing a compulsory license, a government authorizes the production and
marketing of a cheaper generic version of a patented medicine on
condition that the authorized generic firm pays a small license fee to
the patent holder. Such a license, and even the mere threat of one, will
typically cause the price of the relevant medicine to fall substantially
in the relevant country. In Canada, compulsory

    licensing applied to pharmaceutical patents from 1923 until 1993.
Thailand and Brazil have recently imposed compulsory licenses on a
number of medicines. Compulsory licensing was expressly envisaged in the
TRIPS Agreement and again prominently endorsed in the 2001 Doha
Declaration, which stated that "the TRIPS agreement does not and should
not prevent members from taking measures to protect public health" (WTO
2001). Since Doha, compulsory licensing has become popular among many
NGOs, who see it as an effective mechanism for improving access to
essential medicines. However, compulsory licensing has important
limitations.

    First, the scope for increasing access to existing medicines is
limited. Compulsory licensing is normally only allowed for domestic
consumption. This does not help the many countries that lack domestic
generic drug manufacturing capacity, which include almost all developing
countries other than Brazil, India, and China. According to a 2003 WTO
General Council decision, exceptions exist for issuing compulsory
licenses to countries lacking domestic production capacity, but the cost
of the compulsory license must be borne by the exporting country (WTO
2003). Even when the will to export under a compulsory license exists,
the process is oft en so complex and "riddled with restrictions,
safeguards, practical hurdles, and red tape that it is
unworkable" (Johnston and Wasunna 2007, S18).1

    Second, the use of compulsory licenses is limited by the fierce
opposition of the pharmaceutical industry, which has attempted to
suppress the use of compulsory licenses or to confine it narrowly to
cases of acute crisis. For this reason, developing countries are often
reluctant or uncertain about whether to engage in compulsory licensing,
lest they provoke political retaliation.

    Third, while systems of compulsory licensing may provide an
expedient solution to short-term health problems, they discourage
investment in R&D for diseases whose remedies may become targets for
compulsory licenses. The welcome relief from the problem of high prices
compulsory licenses bring thus aggravates the neglect of diseases
concentrated among the poor. Pharmaceutical companies spend less on the
quest for vital medicines =E2=80=94 especially ones needed mainly by the po=
or =E2=80=94
when the uncertainties of development, testing, and regulatory approval
are compounded by the additional unpredictability of whether and to what
extent successful innovators will be allowed to recoup their investments
through undisturbed use of their monopoly pricing powers. Compulsory
licensing may thereby even exacerbate the health crisis facing
developing countries over the medium and long terms (Pogge 2008b, 240).

=E2=80=94=E2=80=94=E2=80=94
* Aidan Hollis and Thomas Pogge, The Health Impact Fund, Making New
Medicines Accessible for All, A Report of Incentives for Global Health,
2008
--
James Love, Director, Knowledge Ecology International
http://www.keionline.org | mailto:james.love at keionline.org
Wk: +1.202.332.2671 | US Mobile +1.202.361.3040 | Geneva Mobile +41.76.413.=
6584