COMPULSORY LICENSES AND THEIR EFFECTS, ESPECIALLY ON VACCINES AND OTHER DRUGS DURING THE COVID-19 PANDEMIC (By- Gopikrishnan A B)
COMPULSORY
LICENSES AND THEIR EFFECTS, ESPECIALLY ON VACCINES AND OTHER DRUGS DURING THE
COVID-19 PANDEMIC
Authored By- Gopikrishnan A B
INTRODUCTION
In the present-day world of
innovation and rapid technological advancement, individuals and companies have
taken to the act of patenting their products and the production methods to
protect their investments and other interests. A patent is a time-limited
exclusive right granted for an innovative invention in exchange for a
comprehensive disclosure of the invention. This process has acted as an
incentive for companies to invest in R&D and in the innovation of newer
products, which ensures that the companies maintain a competitive spirit and
push each other to put out newer products. Some companies also allow other
companies to sell or produce their products or use their production method in
return for royalties which can act as a source of revenue for the patent
holder. However, there are also drawbacks. [1]
While patenting a product, the
company or individual has to make certain technical information about the
product or process publicly available. Getting a patent is also a
time-consuming process, and by the time the patent is acquired, there may be a
possibility for the market to change or for technology to overtake the
invention[2].
The cost to obtain a patent and defend against anyone infringing upon it can be
expensive, taking a chunk out of the company's annual profit. While these are
disadvantages that the patent holder can face, there are certain drawbacks that
other companies and consumers face.
Patenting a product or a process will
prevent other companies from selling or producing the product or using the
patented process. This will make the competitors miss out on the profits that
could have been earned from the manufacture or sale of the product or from
using the patented process. Lesser companies producing the products mean lower
accessibility, availability, and affordability
with respect to the consumers. This
especially becomes a problem in the case of vaccines and other drugs.
Accessibility, availability, and affordability of life-saving pharmaceutical
medicines are crucial aspects that should not be avoided. Making
pharmaceuticals readily available at affordable prices is key, especially
during these trying times of the Covid-19 pandemic.[3]
One way that is available to tackle this problem, among many, is the process of
compulsory licensing. Compulsory licenses refer to the clearance given by the
authorized official to a third party to make use or sell a particular product
or to use a specific process of manufacturing that has been patented earlier,
and this authorization means the permission of the patent owner is not
required. This concept is accepted at national and international levels and is
part of the Indian Patent Act, 1970, and the TRIPS Agreement. This paper looks
into the effects of compulsory licenses on both the patent-holding companies
and the consumers, specifically vaccines and other drug manufacturing
companies, especially on price control and innovation, during the Covid-19
pandemic, and the available legislation regarding compulsory licenses and drug
price control in India and internationally.
Effects Of
Compulsory Licensing
Granting a compulsory license allows
the third party to sell or manufacture a patented product or make use of a
patented process without the express permission of the patent holder.
The process of granting a compulsory
license is most often seen in developing or underdeveloped countries to allow
their domestic industries to produce or sell the patented product or use the
patented process. This is done to help their economy grow, and their domestic
industries develop and provide products to their citizens at affordable prices.
In these countries, almost all the patent holders are foreign companies, which
means that their domestic industries cannot produce or sell the product or use
the specific process that has been patented.
This causes the indigenous industries
to stagnate and not develop, which lowers the country's rate of economic
development. Compulsory licensing also has the benefit of offering more job
opportunities for the citizens of the country granting the license, as the
company holding the patent being the sole competitor in the market means job
opportunities are scarce. In the case of pharmaceutical drugs, granting a compulsory
license helps increase the accessibility and
availability of the drugs and control
their price.[4] The
patent holder being the sole provider of the drug means that they can set the
price as high as possible, making it unaffordable for all the citizens.
Compulsory licensing allows other third-party players to enter the market,
lower the cost, and solve drugs' inaccessibility, unavailability, and
unaffordability. This can be a massive help during the Covid-19 pandemic, as it
helps in making vaccines readily available and affordable, as cases have
emerged of vaccine shortage in various parts of the world.
However, compulsory licensing also
has adverse effects. It can lead to foreign companies being hesitant to invest
in countries that grant compulsory licenses. This also has the ability to
affect the economy of the country and lower job opportunities. Innovating and
creating a new product is a costly, time-consuming process. The companies
obtain a patent to earn the monopoly rights and profits that come with it to
cover the cost and increase their revenue. Compulsory licensing will take away
this benefit and discourages companies from innovating and investing in new
products.
Countries should not grant compulsory
licenses blindly and instead has to weigh the pros and cons and consider what
would be best in the specific scenario. Therefore, the grant of compulsory
licenses is governed by laws set up in the countries and has to meet certain
conditions before it can be granted.
Legislations
Regarding Compulsory License And Drug Price Control
International Perspective
·
Trips Agreement on Compulsory Licensing
The WTO Agreement on Trade Related Aspects of Intellectual
Property Rights (TRIPs) is a comprehensive multilateral agreement on
intellectual property. It specifies minimum protection standards for
intellectual property, enforcement procedures, remedies, and dispute resolution
procedures. Under TRIPs, member governments have certain obligations on
pharmaceutical patents.
The term "compulsory licensing" does not appear in
the TRIPs Agreement. Instead, the phrase "other use without authorization
of the right holder" is used in the title of Article 31. The term
"other use" includes compulsory licensing and government use of
patents without user authorization in specific situations. The TRIPs Agreement
specifies guidelines where such "other use" is possible. Article 31b
says that a person or company applying for a compulsory license should have
attempted unsuccessfully to obtain a voluntary license from the patent holder
on reasonable commercial terms. Article 31h says that adequate remuneration
must still be paid to the patent holder even if a compulsory license is issued.
Article 31b further states that an initial attempt for a voluntary license is
not required in certain situations, namely- "national emergencies,"
"other circumstances of extreme urgency," "public non-commercial
use," "government use," or "anti-competitive
practices."[5] Other
requirements for compulsory licenses include not giving exclusively to
licensees; the patent holder can continue to produce; it must be granted mainly
to supply the domestic market.
The Doha Ministerial Declaration of 2001 stressed that it is
essential to implement and interpret the TRIPs Agreement to support public
health by promoting access to existing medicines and the creation of new
medicines.
Individual countries have the right to use the flexibilities
that are part of the TRIPs Agreement, including compulsory licensing and
parallel importing. Article 31(f) of the TRIPs Agreement says, "products
made under compulsory licensing must be predominantly for the supply of the domestic
market."
Drug Price Control
There is minimal international
consensus on the optimal balance between protecting industry innovation and
ensuring adequate access to effective treatments. However, there is general
agreement that advances in medical science are of immense value to society, and
that access to high-quality medicine and healthcare is vital to improving lives
worldwide. This forms one of the targets in the UN Sustainable Development
Goals. The WHO has acknowledged that a coherent national pricing policy that
takes into account the requirements of the country's population has a
significant impact on public health by improving access to healthcare. The WHO
feels that "strategies for measuring, monitoring, and managing prices are
essential for promoting access to medicines."
·
USA
The US doesn't directly regulate drug prices, and the
companies can fix prices as they deem fit. This results in different prices for
different buyers of the same drug. Medicaid, the federal programme which
subsidizes low-income individuals, received a compulsory discount, but
Medicare, which provides insurance for Americans over 65 years and is the
pharma industry's single biggest consumer,[6]
does not receive a similar discount. The private insurance system, which covers
those individuals who Medicaid or Medicare does not cover,cannot negotiate
steep discounts.
·
UK
The UK's primary drug price control mechanism is a voluntary
system called PPRS (Pharmaceutical Price Regulation Scheme). The PPRS is a
non-contractual agreement between the UK Department of Health and the Association
of British Pharmaceutical Industry (ABPI) members and is reviewed every five
years. It uses a value-based pricing mechanism and limits profits that pharma
companies can make from drug sales to the NHS. The National Institute of Health
and Care Excellence (NICE) evaluates the cost-effectiveness of drugs based on
quality-adjusted life years (QALY), which measures the ability of a treatment
to both extend and improve a patient's life. This value-based approach to drug
pricing has been criticized in some quarters because it does not support
innovation, and patients have to wait longer for newer treatments.[7]
Indian Perspective
·
Indian Patents Act, 1970[8]
In India, compulsory licenses are issued under
the authority of the Controller General under the Indian Patents Act, 1970. The
prerequisite conditions are mentioned under Sections 84-92, and these need to
be fulfilled for the grant of compulsory license.
As per Section 84, a compulsory license
application may be filed by anyone after three years of expiry of the grant of a
patent, providing any of the following conditions are fulfilled-
o The patented invention
has not satisfied the reasonable requirements of the public.
o The price of the patented
invention is not reasonably affordable for the public.
o The patented invention is
not manufactured in India.
Under Section 92 of the Indian Patent Act, 1970[9],
compulsory licenses can be issued suo moto by the Controller following a
notification issued by the Central Government in situations of "national
emergency" or "extreme urgency" or in cases of "public
non-commercial use." The factors considered by the Controller include-
o Nature of the invention.
o The applicant's
capability to use the product for public benefit.
o The reasonability of the
request.
The ultimate decision lies with the Controller.
The patent owner retains rights over the patent
even after granting of compulsory license- including the right to remuneration
for copies of products made under a compulsory license.
Drug Price Control
India
is known for its hard-line stance on regulating drug prices and encouraging
generic competition. Strict price controls and encouragement for the
development of generic versions of branded drugs for the domestic market,
sometimes within a products patent period, have alienated big pharma companies
and international trade partners to some extent but have transformed India's
generics industry into one of the world's leading producers of low-cost
medicines.[10]
India's stance is understandable since most of the country's population does
not have health insurance, and the cost of healthcare traps many. The Indian
Department of Pharmaceuticals is drafting a new pharmaceutical policy by which
the National Pharmaceutical Pricing Authority (NPPA) would lose some of its discretionary
power over drug prices as the government brings it under its control. The
policy also recommends banning the sale of branded generics.[11]
Case Laws
Regarding Compulsory License And Drug Price Control
There
have been many instances of companies applying for compulsory licenses and the
patent-holding company fighting against it. The following is a case law
pertaining to the same and drug price control.[12]
Bayer was granted a patent in 2008 for SorafenivTosylate (NEXAVAR),
which is a crucial
drug for kidney
and liver cancer. NEXAVAR was sold at Rs. 2,84,000 per patient per month was
unaffordable to most Indian patients. Consequently, the Patent Controller
granted India's first-ever compulsory license to Natco to market a more
affordable, generic version of SorafenivTosylate (marketed as Sorafenat), which
costs Rs. 8,800 per person per year. Natco was also exporting independently of
the compulsory license, the active pharmaceutical ingredient (API) of SorafenivTosylate,
to China to facilitate bio-equivalence and bio-availability studies for
regulatory approval by the Chinese authorities. Bayer filed a writ challenging
this export because if the studies conducted with the exported material
resulted in approval for the drug in China, the generic version would be ready
for marketing as soon as the patent expired in China, ensuring quick access to
an affordable version of the drug. In May 2014, as an interim relief, the Delhi
High Court allowed Natco to export only 15 grams of the API of
SorafenivTosylate. In November 2014, a single bench allowed Natco's application
to export 1 kg of SorafenivTosylate. Bayer challenged this order claiming that
the export by Natco was for commercial purposes. The division bench stayed
further exports till the final disposal of the writ and remanded it back to a
single bench which held that Natco's export of the patented product for
submission of data to the Chinese regulatory authority was within the scope of
Sec. 107A and did not infringe Bayer's patent. Bayer appealed against the order
of the single bench. Natco argued that the patentee's rights were not infringed
as Natco was not selling the API for commercial purposes but was exporting it
only for data submission to the Chinese regulatory authority, an act which is
covered under Sec. 107A of the Patents Act, 1970, was also independent of the
grant of compulsory license. The division bench held that Sec. 107A was a
special provision that dealt with the rights of the patented invention for
research purposes. The court also clarified that a third party holding a
compulsory license for a patented product was not barred by the terms of the
license from exporting the patented product under Sec. 107A. The quantity that
could be exported for research or data submission could be determined on a case-to-case basis. The exporter would need to
seek a declaration from the court that the export was for research and the
purposes under Sec. 107A.
In this case, a pharma company called Lee Pharma filed for
compulsory licensing for producing and selling a patented drug called Saxagliptin,
for which AstraZeneca had the patent. The Controller denied the request for the
following reasons:
o
As
per Sec. 84(4) of the Patents Act, 1970, the application for a compulsory
license should be filed within six months after the first request to the
patent-holding company. Lee Pharma applied 13 months after the first request.
o
There
are sufficient similar drugs on the market, and there is no requirement for a
new one.
o
Lee
Pharma was not able to show that the patented invention could be made available
at a lower price.
o
As
per Sec. 84 (1)(c), one of the reasons for a compulsory license is if the drug
is not previously available in India. Lee Pharma could not show that Saxagliptin
was not previously available in India.
These case laws show that compulsory
licensing reduces the price of life-saving drugs to an affordable level so that
everyone is able to afford them and that it helps in drug price control. It
also proves that it stops pharma companies from trying to commercialize the
sale of drugs.[15]
CONCLUSION
The granting of a
compulsory license is a process that has its fair share of pros and cons. It is
the duty of the respective governments to weigh them and decide whether to
grant one or not. The effect of patenting a drug and its manufacturing process
and granting a compulsory license to the same is a much-debated topic with many
arguments and counter-arguments but no concrete solution. Thus, further debate
and research are needed to solve drugs' accessibility, availability, and
affordability.
[1]Arthor et. al, Compulsory
Licensing of Pharmaceutical Patents, ECONOMIC AND POLITICAL REVIEW, vol.
45, no. 39, 2010, pp. 8–9, http://www.jstor.org/stable/25742108 Accessed 4 May 2022.
[2]Reik, R. (1946), Compulsory
Licensing of Patients, THE AMERICAN ECONOMIC REVIEW, 36(5), 813–832.
http://www.jstor.org/stable/1801800
[3]Federico, P. J. (1948), Compulsory
Licensing in Other Countries, LAW AND CONTEMPORARY PROBLEMS, 13(2),
295–319. https://doi.org/10.2307/1190000
[4]Moser, P., &Voena, A.
(2012), Compulsory Licensing: Evidence from the Trading with the Enemy Act, THE
AMERICAN ECONOMIC REVIEW, 102(1), 396–427. http://www.jstor.org/stable/41408779
[5]Schechter, F. I. (1936), Would
Compulsory Licensing of Patents Be Unconstitutional?, VIRGINIA LAW REVIEW, 22(3),
287–314. https://doi.org/10.2307/1066551
[6]Epstein, R. A., &Kieff,
F. S. ,(2011), Questioning the Frequency and Wisdom of Compulsory Licensing
for Pharmaceutical Patents, THE UNIVERSITY OF CHICAGO LAW REVIEW, 78(1),
71–93. http://www.jstor.org/stable/41552850.
[7]Fisch, A. M. (1994), Compulsory
licensing of pharmaceutical patents: An unreasonable solution to an unfortunate
problem, JURIMETRIX, 34(3), 295–315. http://www.jstor.org/stable/29762343.
[8] INDIAN PATENTS ACT, ACT NO. 39
OF 1970.
[9] INDIAN PATENTS ACT, ACT NO. 39
OF 1970.
[10]Subramanian, A. (1990), Compulsory
Licensing in Patent Legislation: Superfluous and Misleading, ECONOMIC AND
POLITICAL REVIEW, 25(34), 1880–1881. http://www.jstor.org/stable/4396673
[11]Subramanian, A. (1990), Compulsory
Licensing in Patent Legislation: Superfluous and Misleading, ECONOMIC AND
POLITICAL REVIEW, 25(34), 1880–1881. http://www.jstor.org/stable/4396673.
[12]Janodia, M. D., Rao, J. V.,
& Udupa, N. (2006), Compulsory licensing – To what extent is it
practicable?, CURRENT SCIENCE, 91(8), 998–999, http://www.jstor.org/stable/24093968
[13]Natco Pharma Ltd. v. Bayer
Corporation, Order No. 45/2013 (Intellectual Property Appellate Board,
Chennai), available at http://www.ipab.tn.nic.in/045-2013.htm (Last visited on
May 12, 2013).
[15]McRae, J. J., Tapon, F.,
Gorecki, P. K., &Hartle, D. G, (1984), Compulsory Licensing of Drug
Patents: Three Comments, CANADIAN PUBLIC POLICY / ANALYSEDEPOLITIQUES,
10(1), 74–87. https://doi.org/10.2307/3551309