Learning from practice: compulsory licensing cases and access to medicines
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1 For reprint orders, please contact Learning from practice: compulsory licensing cases and access to medicines Beatrice Stirner*1 & Harry Thangaraj2 Compulsory license is one of the safeguards that international IP law provides to address the undesired effects of pharmaceutical patents on access to important medicines. This article looks into three important case examples to analyze the mechanism s effectiveness and feasibility: the first uses of the newer compulsory license regime established in 2003 under the WTO legislative framework to export medicines to third countries, which lack pharmaceutical manufacturing capacities; and further, the first compulsory license grant in India in March The case analyses are based on the historical, factual and legal background. They reveal the main challenges of the 2003 WTO regime, including the lack of economic incentives for the generic pharmaceutical companies participation. In the case of India s compulsory license grant, the article takes as in depth look into possible reasons for the reluctance to use the safeguard until recently, and the important aspects and implications of the Indian authorization to manufacture and sell a generic version of a patented cancer drug. Compulsory license for export of pharmaceutical products: Future Article 31 bis TRIPS Brazil successfully employed the threat of compulsory license as a negotiation tool to receive substantial price reductions on patented pharmaceutical products, or access to these, for the treatment of a larger population group [1]. This success depends on certain important factors that are difficult to be reproduced in other least developed and developing countries (DCs). Brazil is a relatively affluent developing nation, capable of prioritizing healthcare for its population, and to establish mainly domestically financed programs, such as the national HIV/AIDS Progam with free medicines available to all citizens in need. Moreover, the country has private and public sector reverse engineering capacities to manufacture antiretrovirals (ARVs) and other medicines. This factor strongly increases not only the sustainability of their public (HIV/AIDS) health programs, but also the negotiation position of Brazil to enforce price discounts from pharmaceutical companies, where necessary under the threat of compulsory license. Not many DCs can act under comparable conditions. Often they cannot afford to create and sustain similar public healthcare programs without international support. In addition, they lack not only an adequate administrative and legal infrastructure to use and operate compulsory licenses, but also a domestic technological, productive and regulatory capacity to reverse engineer and manufacture the pharmaceutical product without the assistance of the patent owner. If a DC does not have a public pharmaceutical manufacturer to supply its government health programs, it will have to rely on the (domestic) private-sector pharmaceutical industry. For a potential private-sector producer, the market in the DC may be too small to justify the investments in the drug manufacture and the potential payments of an adequate remuneration to the patent holder /PPA Pharm. Pat. Analyst (2013) 2(2), Institute of Health Law, University of Neuchâtel, Avenue du 1er Mars 26, 2000 Neuchâtel, Switzerland 2 Access to Pharmaceuticals Project, Infections & Immunity Research Centre, Division of Clinical Sciences, St. George s University London, London SW17 0RE, UK *Author for correspondence: beatrice.stirner@unine.ch ISSN
2 Stirner & Thangaraj Consequently, many DCs lack the credibility in price negotiations with the patent holding firms, and the use of compulsory license as negotiation-supporting instrument remains inefficient. In addition, Article 31 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) [2] states that drugs produced under a nonvoluntary license shall be predominately for the supply of the domestic market, thus, practically preventing or widely limiting the export of generic medicines to countries that are lacking pharmaceutical manufacturing capacities. The majority of DCs will continues to rely on the import of needed pharma ceutical products. In most cases, these are more affordable generic copies from pharmaceutical manufacturers in other DCs with appropriate production capacities and where the drug is not patented, such as India or China. Due to the introduction of product patents for pharmaceuticals in these nations in 2005 (Articles 65 paragraph 4, and 70 paragraphs 8 and 9 of TRIPS) it is expected that the supply of lower priced generic reproductions of new drugs by will be gradually reduced, and generic substitutions will increasingly be limited to older off-patent drugs. Losing generic manufacture sources, DCs that are dependent on importations of pharmaceutical products, may be confronted with the patent-holding pharmaceutical company or its licensee as only suppliers of needed medicines. For them the access to newer patented medicines will become more difficult as they may lack the financial power to purchase the original drugs. Recognizing that: WTO members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS agreement the WTO TRIPS Council was mandated to develop an expeditious solution to the problem faced by DCs. With the WTO General Council Decision on the Implementation of paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health from 30 August 2003 (the Decision) [3] a new flexibility has been established to regulate the conditions under which WTO members may issue a compulsory license with a view to exporting patented medicines to countries with no or insufficient manufacturing capacity in the pharmaceutical sector. This interim decision will be formally incorporated into the TRIPS Agreement as Article 31 bis TRIPS [4]. Scope of the decision The Decision is applicable for pharmaceutical products defined as any patented product, or product manufactured through a patented process of the pharmaceutical sector, including active ingredients and diagnostic kits 196 (paragraph 1 (a) of the Decision/paragraph 1 (a) of the Annex to the TRIPS Agreement). While not explicitly mentioned, it is understood that vaccines are also included. The scope of diseases comprises the public health problems as recognized in paragraph 1 of the WTO Declaration of the TRIPS Agreement and Public Health (Doha Declaration) [5], including public health issues afflicting many developing and leastdeveloped countries, especially those resulting from HIV/ AIDS, tuberculosis, malaria and other epidemics. The discussion surrounding the diseases scope that already marked the negotiations of the Doha Declaration was re-opened. Opponents of a broad definition attempted to limit the solution to a specific list of diseases and the number of patented technologies that could be subject to compulsory license for export in order to reduce the risks of a wide application on revenue income of patent holding companies and the impact on R&D investments. Proponents emphasized the need that (a paragraph 6 solution) should cover their present and future public health needs in order to be a comprehensive answer. With the reference to paragraph 1 of the Doha Declaration, the scope of diseases in the Decision is flexible, and comprises not only epidemics as major health problem, but also any other public health issues of similar significance that may arise [6]. It can be expected that the broad scope of the Decision will grow in importance in the future. The need for lowpriced generic medicines in DCs may not only apply to HIV/AIDS, malaria, tuberculosis and other infectious diseases. Noncommunicable disorders, such as diabetes, cancer, or cardiovascular diseases are a major cause of morbidity and mortality in DCs, and their prevalence in these nations is predicted to increase. Requirements of the decision The system set out in the Decision can be used by DCs for the importation of pharmaceutical products under a compulsory license. The compulsory license can be based on the grounds stated in Article 31 TRIPS, or any grounds that are included in the respective national laws (Article 31 TRIPs in conjunction with the Doha Declaration). It principally provides a waiver of the obligations set out in Article 31 (f) and (h) TRIPS: the obligation that nonvoluntary licenses shall be predominately for supply of the domestic market, and the obligation for the importing country to pay remuneration to the right holder. In order for the waiver to apply, a particular mechanism has been established that provides requirements for exporting and importing countries. Importing Member states have to notify the TRIPS Council about the intention to use the system as eligible importing country. The notification has to identify the
3 Learning from practice: compulsory licensing cases & access to medicines needed product, to specific the expected quantity, and to establish the lack of, or insufficient, manufacturing capacity for the particular pharmaceutical product. Least developed nations are exempt from the last requirement. The importing country must also confirm the grant of, or the intention to grant, a compulsory license in its territory where a pharmaceutical product is patented. It is further required to take reasonable antidiversion measures within its means in order to prevent re-exportation of products imported under the system. However, a least developed State may re-export pharmaceutical products imported or produced under the system to other DCs, or if the nations are parties to a regional trade agreement composed of at least 50% least-developed members, and the countries share the same health problem at issue (paragraph 6 (ii) of the Decision/Future Article 31 bis paragraph 3 TRIPS). Exporting Member states need to grant a compulsory license for the production and export with however, only of the amount necessary to meet the needs of the importing country. The entirety of this production must be exported to the respective state. The exporting country must make a notification of the compulsory license grant to the TRIPS Council. Prior to the authorization, the interested supplier needs to request a voluntary license from the patent holder (Article 31 (b) TRIPS). If such negotiations have been unsuccessful after a reasonable period of time, the supplier may apply for a nonvoluntary license according to the national procedure. Some literature suggests that the exporting country may invoke a health emergency in a foreign country in order to waive the requirement of prior negotiations with the patent holder [7]. To prevent market diversion the supplier is required to identify the generic products through specific labeling or marking; moreover, the product information must be posted on a website. Adequate remuneration has to be paid to the patent holding company in the exporting country, taking into account the economic value of the license in the importing state. Members are free to determine what is adequate [8]. Both the notifications by importing and exporting Members are declaratory in nature and need no approval by the WTO or its Member states. The Decision was adopted by the WTO General Council in consideration of the General Council Chairperson s statement indicating that the system must be used in good faith in order to address public health problems, and not to pursue industrial or commercial policy objectives. While economic policies should not be the primary goal of the use of the system, the objectives to foster the development of pharmaceutical capacities all in all are not excluded therein [7].This can be read in the light of the wording in Article 6 in conjunction with Article 7 of the Decision. Paragraph 6 aspires to harness economies of scale for the purpose of enhancing purchasing power for, and facilitating the local production of, pharmaceutical products, in the environment of certain regional trade agreements. Paragraph 7 of the Decision recognizes the desirability of promoting the transfer of technology and capacity building in the pharmaceutical sector in order to overcome the problem identified in paragraph 6 of the Declaration for WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector. The Decision has been criticized for being too complex in its administration for providing an expeditious solution as envisaged in paragraph 6 of the Doha Declaration. Importing countries may be required to grant a compulsory license if the needed pharmaceutical product is patented in their territory. For many DCs this exercise may turn out too complicated. This includes determination of whether the relevant patents are in force. The same patents are not necessarily identical in all countries, since the scope and claims of the approved patent may vary from country to country. The patents in the importing country may differ from those in the exporting one [7]. In addition, the conditions of determining the insufficient manufacturing capacity for the purpose of meeting own needs are not further clarified. Some low-income countries, such as Ghana, have the technical capacity to replicate medicines if the necessary active ingredients can be imported, but they may lack the economic viability for the production [9]. It is unclear whether the lack of economic efficiency will fulfill the requirement of insufficient manufacturing capacity, as suggested by some literature [10]. Furthermore, the obligation to notify the TRIPS Council about the intention to use the system might evoke concern in DCs of risking political and economic consequences, with view on the international reaction on the compulsory licenses granted in Brazil or Thailand [1]. For potential exporting companies the case-by-case, drug-by-drug and country-by-country approach for the grant of nonvoluntary license could provide a disincentive to make use of the mechanism of the Decision. The production and supply of a quantity required only by one DC provides low economy of scale opportunities. Even if generic companies do not expect to gain respectable profits by using the Decision s system, they may at least want to recover their investments. National implementations of the decision The Decision s system has been adopted into several national and regional legislations; for example in Canada [11] ; the EU [12] ; Switzerland [13] ; Norway [14] ; The Netherlands [15] ; India [16] ; China [17] ; or South Korea [18]. The national implementations vary and Pharm. Pat. Analyst (2013) 2(2) 197
4 Stirner & Thangaraj some of them limit the scope and flexibilities negotiated and included Schedule 1 Canadian Patent Act: in the original text. Significant difthe predefined list of (patented) ferences can be found, for example, pharmaceutical products, which in the requirements concerning the are eligible for compulsory licenses under the Canadian definition of eligible pharmaceutical Access to Medicines Regime; products to be exported. The legislaincluding all products on the tions in Canada and China include WHO model list of essential a predefined list of eligible drugs medicines that are subject to a that are eligible for export; China, patent in Canada. additionally, limits the scope of the national regime to infectious diseases (HIV/AIDS, tuberculosis, malaria and other infectious diseases) that have led to public health problems. Other jurisdictions refer, in more general terms, to pharmaceutical products to address public health problems, some using the broad definition provided in paragraph 1(a) of the Decision. Most legislations include the duty of a compulsory license applicant to seek a voluntary license from the patent holder. This condition is explicitly waived in emergency situations in the EU, Switzerland, Norway and The Netherlands, without further specifying the location of emergency. The Canadian and Korean laws do not provide for a similar exemption. The duration of the compulsory license is limited in Canada to 2 years, with the possibility of renewal for an additional 2-year period. Other jurisdictions refer to a finite period, without specifying the upper and lower limits, for example, the EU Regulation 816/2006. Although not expressively required in the Decision, the Canadian and Swiss legislations include the obligation of a regulatory review of the products to be exported under the system of the Decision in order to ensure their high quality. In the EU, the review is voluntary and in other countries not further required. The good faith clause of the Chairman s statement to the Decision has been adopted in Canada under a specific measure. If the average price of the licensed medicine is 25% or more of the average price of the equivalent patented brand named drug, the patent holder has the right to challenge a compulsory license in court on the grounds that the essence of the license is of commercial nature. In other jurisdictions the Chairman s statement or its principles have not received comparable importance, but have been included as reference in the preamble (EU) or in explanatory notes (The Netherlands). Key term Uses of the decision s system Canada The Apotex-case The Canadian Access to Medicines Regime (CAMR) was adopted in 2005, implementing the Decision s system into Canadian law. It introduced multiple conditions into the Canadian Patent Act, the Food 198 and Drugs Act, the Food and Drug Regulations or the Good Manufacturing Practices Guidelines. Canada was one of the first countries to implement the Decision. Notably, the country s legislation creates additional standards and limitations that are not required in its international counterpart, and have neither been included in other jurisdictions (see National implementations of the Decision/Future Article 31 bis TRIPS); for example, a predefined list of eligible drugs for compulsory license, a regulatory review requirement, the unwaiveable duty to negotiate for a voluntary license from the patent holder, and the limited duration of the compulsory license for 2 years. The first application of the CAMR in Canada and Rwanda revealed some of the shortcomings and complexity of the Canadian legislation, as well as the system in general, as set out in the Decision. The Apotex-case is the only completed application of the compulsory license regime for exporting drugs to a third country. As such, it will be discussed in more details below. Apotex Inc., a privately-held generic pharmaceutical manufacturer became the first user of the Canadian regime on compulsory license for export of medicines. In September 2008 and 2009, the company delivered a fixed-dose combination of the three HIV/AIDS drugs zidovudine, lamivudine and nevirapine to Rwanda for the treatment of 21,000 patients for 1 year [201]. The manufacture of the drug required the working of nine patents of three different patent proprietors [ ]. The process from manufacturing the drug, fulfilling the CAMR conditions up to the first shipment took the company approximately 4 years. Originally, the CAMR procedure was initiated by the nongovernmental organization Médicins Sans Frontières in Médicins Sans Frontières withdrew its participation in December 2007 because of the long duration of the process and the significant financial resources and time invested up to that point. The nongovernmental organization purchased the combination therapy for its access programs from an Indian generic company that had received WHO prequalification at a price of US$0.36/tablet [19]. Apotex s motivation for getting involved to research and develop the fixed-dose combination was based on humanitarian grounds. The company planned to provide the drug at no cost [20]. Apotex experienced issues and delays at several stages of the CAMR process Figure 1. Originally, the triple-combination treatment was not on the predefined list of products eligible for compulsory license. The company first had to apply for an amendment of Schedule 1 Canadian Patent Act to add the drug. The amendment required the approval of the Canadian Cabinet, a process that took several months [18].
5 Learning from practice: compulsory licensing cases & access to medicines Compulsory license application under CAMR MSF initiates CAMR process; collaboration with Apotex Regulatory approval for HIV/AIDS combination therapy Prototype of HIV/AIDS combination therapy developed 2006 Mandatory negotiation with patent holders 2007 Combination therapy included into pre-defined drug list (Schedule 1) MSF withdraws participation in CAMR process First shipment of drugs 2008 Notification of Rwanda to the WTO 2009 Apotex wins drug tender in Rwanda Second shipment of drugs Grant of compulsory license under CAMR Search for a recipient country Figure 1. Timeline for the Apotex case. CAMR: Canadian Access to Medicines Regime; MSF: Médicins Sans Frontières. Parallel to that, the firm initiated the mandatory regulatory review. At the time, there was no approved reference product in Canada. Furthermore, the molecule nevirapine was not under use in the country. In order to manage this case, and potential other compulsory license cases, the regulatory authority Health Canada created a sui generis process for the approval of products related to the CAMR and a fast-track procedure. Apotex received regulatory approval for the combination drug in June 2006, and WHO prequalification in August of the same year [202]. The search for a DC that would make use of the system and send the required notification to the WTO turned out to be a major hurdle in the application of the CAMR [21]. Eventually, with the help of the Clinton Foundation, Rwanda became the first DC to notify the WTO of its intention to use the Decision s compulsory license system in July 2007 [22]. In the notification, Apotex was identified as the supplier of 260,000 packs of the HIV/AIDS fixed-dose combination. The country reserved the right to modify the estimate on the needed quantity of the product as necessary or appropriate, because it was not possible to predict with certainty the extent of the country s public health needs [23]. Instead of issuing a compulsory license, Rwanda used the transition period provided in the TRIPS Agreement that releases least developed countries from the obligation to enforce pharmaceutical patent rights that might be affected in its territory. Furthermore, in July 2007, Apotex entered into mandatory negotiations with the three patent holding companies. One patent holder consented to the use of his patents. Another did not object to the grant of a compulsory license for the manufacture and export to Rwanda. The third patent owner provided a counter offer. Apotex considered the terms of the offered license as unacceptable [24]. In early September, the generic manufacturer applied for a compulsory license for export at the Canadian IP Office [203], declaring that the efforts of negotiating an authorization with the patentee had not been successful. The compulsory license was granted within 2 weeks by the Canadian IP Office, on September 19, The duration of the license was limited to 2 years, and to the product quantity of 15,600,000 tablets. To complete the procedure that operates the CAMR/Decision s system, the Canadian office notified the WTO of the issued authorization. Following its national rules for public drug procurement, Rwanda issued a tender calling for bids from potential suppliers for the required HIV/AIDS drug. Apotex won the tender in May The company had reduced its initial product price of $0.39 per tablet to $ This price reduction was possible due to increased volume of products to be manufactured, which reduced the price for raw material and the support of the Clinton Foundation to source cheaper active pharmaceutical ingredients [25]. The drug was delivered in September 2008 and 2009 to Rwanda. In order to ensure the second shipment, Apotex filed an application for a renewal of the compulsory license in September 2009, which was granted several days later by the Canadian Patent Commissioner. Pharm. Pat. Analyst (2013) 2(2) 199
6 Stirner & Thangaraj Apotex invested several millions for the R&D and manufacture of the triple combination HIV/AIDS drug, and the legal cost for the negotiations with the patent holding pharmaceutical firms. According to Apotex s statement, it made no profits in the process but they did it for humanitarian reasons because it was the right thing to do [204]. Based on its experiences, the company renounced from any further use of the CAMR to manufacture and export medicine to DCs if the CAMR is not changed to simplify the process [204]. The regime imposes unnecessary obstacles to the effective use of compulsory licensing according to representatives from the firm. In its critics, Apotex referred particularly to the requirements of including the importing country into the application for the compulsory license and the duty to request a voluntary license from the patent holders and the limitations of the compulsory license with respect to quantities and duration. The first condition shifts the entire burden of initiating and advancing the process on the shoulders of the DCs [205]. DCs, however, felt that the CAMR process was bureaucratic and too complicated. Investing financial and human resources to analyze and make use of the mechanism is not at the disposition of many DCs with limited resources [19]. In some cases, individual DCs did not clearly understand the process to qualify as an eligible importing country. In other instances the individual country did not want to be identified until the grant of the compulsory license in the exporting nation and the assurance that that the needed pharmaceutical product can be exported [206]. Reasons for this precautious approach were the threat of negative reactions from multinational pharma ceutical companies and trade sanctions from some industrialized countries; a concern that was reinforced by the experiences of the compulsory license uses in Thailand in the years [26]. The condition to request a voluntary license from the patent proprietor delays the process and increases its costs. The requirement can be waived under Article 31 TRIPS, in the cases of national emergency, other circumstances of extreme urgency, or in cases of public noncommercial use. However, the CAMR does not include this waiver. Unlike other national implementations of the Decision [27], the Canadian legislator did not accept the reference to foreign situations of national crisis or public use in the importing country as basis to waive the rule of prior negotiations. The license term of 2 years and the need to renew the authorization after expiry of the time limit, as well as the predefined quantities of the products to be exported were also points of critics. A compulsory license for export under CAMR is valid only for years. A renewal can only be requested in order to complete the supply process for the in the nonvoluntary license predetermined amount of the medicine. It is not possible to use the renewal to deliver additional quantities. Moreover, the parties are required to declare the maximum quantity to be manufactured instead of the expected quantities as stated in the Decision. The compulsory license would have to be amended when the importing country identified additional need of the requested pharmaceutical product. A corresponding simplified and accelerated amendment process is lacking in the CAMR. Consequently, if an importing country identifies additional need of the requested pharmaceutical product, both the generic company and the importing country would have to initiate a new CAMR process, including steps such as notifying the WTO regarding the intention to use the system, or the mandatory negotiations with the patent holding companies for a voluntary license. This creates additional hurdles for the actors in the CAMR procedure. In the case of Apotex, Rwanda wanted to double the order. However, the company was not able to deliver because of the described limiting structure of the legislation [24]. The limitation of quantities of drugs to be manufactured and exported under a CAMR compulsory license is also major constraint to reach economy of scale for producing generic companies. The export of a specific number of drugs to one country for a limited time makes it difficult to recoup investments for R&D, legal costs and expenditures to administer the CAMR process [205]. A last point of criticism was the incompability of the CAMR procedure, and the Decision s system respectively, with the drug procurement practice in DCs. This usually requires a government to define the scope of the tender, to collect bids from interested pharmaceutical companies, to review the offers, to decide on the bid that best matches the requirements of the tender and to finalizing the contract. The CAMR/Decision s regime is not adapted to this process. To receive the legal authority, the compulsory license, to supply a pharmaceutical product to a DC if selected by the importing country during the tender process, a generic manufacturer has to identify in advance the specific country and the supply quantity, although it has not yet won the tender. Amendment proposals to the Canadian Access to Medicines Regime The first real-life test of the CAMR and the system set out in the Decision, although in the end completed, prompted two legislative initiatives (Bills C-393 and S-232) proposing changes to the initial regulation [207,208]. The bills address the difficulties and criticisms
7 Learning from practice: compulsory licensing cases & access to medicines encountered with the CAMR, and intend to simplify the process of compulsory licensing. Any patented pharmaceutical product in Canada would be eligible to be exported to any eligible country as specified in the legislation. Among the most important changes is the proposal to include a single process and license solution that avoids the country-by-country and order-by-order approach as currently regulated in the CAMR. In addition, the licenses would not be limited in time and to a specified quantity. The Decision does not contain the condition of maximum quantities as provided in the CAMR, but regulates that an importing country notifies the WTO of expected quantities of the generic product (paragraph 1 (b), 2 (a) (i)), and that an exporting country ensures that only the amount necessary to meet the needs of the importing country is manufactured and the entirety of this production is exported to the requester [28]. Through the proposed amendments, a generic manufacturer or compulsory licensee would be put into the position that allows him to bid to multiple countries and to supply them with the generic medicine without quantity restrictions under the use of one authorization, thus creating a better business perspective, and increasing the incentive for the CAMR use. The single license is condition to royalty payments of the licensee to the patent holding company based on the sales of the generic product in the importing DC(s). One amendment proposal also suggests allowing the grant of a compulsory license before the identification of a specific importing country. According to the proponents, the TRIPS Decision does not explicitly require the prior identification. The notification condition falls under the responsibility of the importing country without requiring Canada to enforce this provision through Canadian law. In order to ensure that exports under compulsory license only occur after the WTO notification of a recipient country, Canada could implement the requirement into its legislation that forbids the export of any pharmaceutical product manufactured under the nonvoluntary authorization until a country has actually filed the notification [28]. The two amendment initiatives to the CAMR died on the Order Paper and have not been reintroduced to the Canadian Parliament. The Canadian government opposed the Private Member s bill that proposes for legislative changes, being convinced that the CAMR would work in its present form and administrative procedure [29]. India The second attempt to use national compulsory license legislation for exporting pharmaceutical products to DCs involved the Indian generic pharmaceutical company, NatcoPharma Ltd. In 2007, the company applied for an authorization to manufacture and export a generic version of two patented cancer medicines, erlotinip (lung cancer) and sunitinib (kidney cancer type renal cell carcinoma), to Nepal. The application was pursued under the Section 92 (A) of the Indian Patent Act [209] and the Patent Rules 1970 (as amended) implementing the WTO Decision that reads as follows: A compulsory license shall be available for manufacture and export of pharmaceutical products to any country without manufacturing capacities for the concerned product to address public health problems, provided compulsory license has been granted by the country, or the country has, by notification or otherwise, allowed for importation of the patented product from India. Based on an import license issued by Nepal, Natco intended to produce 30,000 tablets of the one drugs and 15,000 of the other, respectively. It offered the patent holding companies a 5% royalty [210]. The generic company withdrew its compulsory license applications during the process due to lack of a formal WTO notification from Nepal declaring the public need of the cancer products. Attempts by Natco to convince the least developed State to initiate this process remained unsuccessful. The reasons for Nepal s reluctance are not documented. The letter from the government of Nepal, including a drug regulatory clearance to import fixed quantities of drugs (import license), was not recognized by the Indian Patent Office as fulfilling the legal requirement of a country s permission to import a needed product from India as set out in the Indian patent law [211]. The first nonvoluntary license case under Section 92 A of the Indian Patent Act provoked some discussion in India about the conditions under which such an authorization may be granted. Indian patent law does not further determine the rules for issuing a compulsory license for export. The language of the legislation is, in contrast with the comprehensive rules of the CAMR, rather vague and leave wide leeway for interpretation. In addition, unlike the CAMR, Indian law does not include conditions, such as prior negotiation with the patent holder, time limits on the duration of the compulsory license, or a price limitation for the generic product of 25% of the price of the original drug. One point of discussion concerned the question on what qualifies as notification or other permission for importation by the importing country according to the Indian legislation and the WTO Decision. The ambiguity in the language of the Indian patent law requiring a notification or another permission of the importing country may have contributed to some confusion. The import license provided by Nepal apparently did not fulfill the nonvoluntary license application requirements. Pharm. Pat. Analyst (2013) 2(2) 201
8 Stirner & Thangaraj Furthermore, questions on what constitutes a public health problem as stated in the Indian law, and who determines the respective situation in a country may cause further issues. Natco applied for compulsory licenses for two cancer drugs. While the Doha Declaration on Public Health clearly confirms the right of WTO Members to determine what constitutes a public health issue, the same right is not attributed to a pharma ceutical company that intends to use a compulsory license for the supply of medicines to the importing country. The intention of a generic manufacturer to make use of the system, whether for reasons of business considerations, or even with a humanitarian motivation, as stated for example by Apotex Inc., will not be enough. The application of the nonvoluntary licensing system for export, as it is currently designed, is dependent on the indication of demand by an importing country. It is noteworthy that Nepal s burden of disease was dominated by communicable diseases (including HIV/AIDS), maternal, perinatal and nutrition-related disorders. While noncommunicable diseases emerged fast within the last decade, cancer contributed to only 0.8% of all reported death in the country in the year 2010 [30]. It is questionable if Nepal would have considered cancer as an emergency case relevant enough to use the flexibilities provided under the TRIPS Agreement. The second important issue in the Natco case was the question of granting a hearing to the patent holder before the issue of a compulsory license. Paragraph (2) of Section 92 A states that the Patent Controller shall grant an authorization solely for manufacture and export of concerned pharmaceutical product(s) to a needy country under such terms and conditions as may be specified and published by the Controller. Using his discretion to set the Section 92 A conditions, the Controller ordered a hearing seeking the opinion of the patent holding companies on the issue during the compulsory license application process of Natco. The Indian patent law includes the principle of audi alteram partem in the case of a nonvoluntary license for domestic supply. This right to be heard can be waived by the Controller; for example, in the situation of a public-health crisis with respect to a broadly defined spectrum of diseases, including HIV/AIDS, malaria, tuberculosis or other epidemics (Section 87 (4), Section 92 (2) and (3), Section 84 Indian Patent Act). In an interlocutory petition before the patent Controller, Natco opposed the hearing of the patentees before the grant of the compulsory license arguing that such condition could neither be found in the Patent Act, nor in the WTO Decision. The Controller, however, found that the law did not prohibit him from allowing the patent holders to present their case before the decision to issue a compulsory license on their patents. The decision was 202 taken in order to impart the principles of justice and fairness towards the parties whose interests could be hurt. The Patent Office felt that the arguments of patent holders are helpful in deciding the terms and conditions for granting a nonvoluntary license and may also be helpful in avoiding the abuse of the provisions of Section 92 (A). A related Delhi High Court ruling on the legality of the hearing of the patent holders during the compulsory license process was also not decided in favor of the petitioner Natco [31,212,213]. Ecnomic incentives for generic manufacturers The future success of a compulsory license system for export of pharmaceutical products will strongly depend on its economic viability for potential generic manufacturer. The transaction under a nonvoluntary license will likely be between a for-profit generic manufacturer and a DC with considerable public health issues and limited, or very low, financial capacities. The transaction will be concluded if it satisfies both sides. As for-profit organizations, generic companies will have to bear and recoup, among others, their considerable R&D costs for the generic product (e.g., reverse engineering), the costs for the antidiversion measurements (e.g., special packaging and coloring or shaping of the products), the expenditures for proceeding the legal requirements of the national legislation implementing the Decision, and shipment cost. These investments are coupled with the perspectives of low returns and little or no profits after recoupment of expenditures. Thus, generic manufacturers that would like to use the Decision system will have to carefully assess the economic viability of applying for a compulsory license for export. The system as it is designed or interpreted to date follows a drug-by-drug, country-by-country and case-by-case that forces generic companies to produce only limited quantities under each nonvoluntary license. The order of a single DC for the supply of certain medicines under compulsory license is unlikely to provide a big enough incentive to generic firms to get involved, unless for philanthropic or reputational reasons. In order to address this issue of small market size, some scholars propose a pooled procurement where a number of purchasing countries would coordinate their orders [32]. A generic producer could use a single compulsory license for the manufacture and export of a higher quantity to several countries. Canadian generic companies, and presumably also firms in other higher cost industrialized nations, additionally face strong competition from generic producers from countries, for example India or China, with a sophisticated work force, but much lower production and manufacturing costs, and less stringent nonvoluntary licensing legislation. Some literature proposes the limited global competitiveness of Apotex in comparison
9 Learning from practice: compulsory licensing cases & access to medicines to other competitors in industrialized countries and emerging countries, such as India, as a major reason for the company s withdrawal from the export business of HIV/AIDS drugs to Africa [33]. Apotex admitted that manufacturing and selling the HIV/AIDS product at no profit for $0.39/tablet, as initially intended, was uncompetitive in comparison with prices charged by manufacturers in other countries. Only after reducing the costs by 50% the contract with Rwanda could be completed. Consequently, generic manufacturers in industrialized countries might need to be motivated by additional incentives in order to consider the use of the Decision system, and in order to make the mechanism work for the benefit of public health in DCs. It would be important to consider modifications in national legislations that implemented the Decision in order to streamline the compulsory license process and limit the costs of its operation and administration. This would particularly include changes that allow manufacturers to produce higher quantities and to export to more than one DC. Furthermore, industrialized countries could consider providing some financial incentives that reduce the investments in order to make the decision system more attractive. Proposals include grants, tax reductions for generic companies that engage in manufacturing for the export to DCs under a compulsory license, or accelerated regulatory processes with fee reductions. It is generally expected that potential suppliers under the Decision will be based in low-cost countries rather than in industrialized countries. However, a study including the 103 top Indian pharmaceutical companies conducted between 2004 and 2005 revealed that the great majority of firms do not consider that Section 92 A of the Indian Patent Act on compulsory license for export constituted an economically viable incentive for the manufacturing of products for export [34]. Although several of the study participating firms supply to African countries, the survey result demonstrates that the inclination to continue to supply under the provision has declined. A key reason that companies stated was that the increased procedural effort associated with the Decision system would not be worthwhile in view of the expected low economic revenues. Moreover, the companies product portfolio may vary strongly from those requested by the DCs under a compulsory license. Thus, investments in the acquisition of active pharmaceutical ingredients that vary from those normally used and in other forms of technological requirements may not be profitable if linked only to a specific nonvoluntary license. However, the study concluded that larger Indian companies (active in generics production and innovative R&D) and medium-sized firms (pure generic suppliers) will most likely continue to use compulsory license for the manufacture and supply to DCs those generic drugs that they were producing before In this case, the required significant investments have already been made. In the case of newly patented medicines, manufactured in 2005 or later, the firms may consider to supply generic versions to other DCs under a nonvoluntary license as long as viable commercial incentives are put in place. The future production and export of generics of newly patented medicines may require additional parallel arrangements. Suggestions include, as already mentioned above, the pooling of product demands from DCs with no significant manufacturing capacities [34]. Synthesis & learning lessons from the two compulsory license cases under the decision s regime After more than 7 years of existence, the Decision/Amendment has been successfully used in only one case for the supply of pharmaceutical products to a DC, while in two further cases the transaction under the compulsory license system have not been finalized. The three cases provide some foundation for preliminary observations and conclusions: In all three cases the initiator of the system process was not the potential importing country; The compulsory license applicants faced difficulties in convincing the DCs to notify the WTO of their needs. The suggested reasons for this reluctance are the perceived complexity or a lack of understanding of the system, as well as the concerns of risking negative reactions from industrialized countries and the pharmaceutical industry; Decision-plus provisions, as included in the CAMR, for example, can inhibit and prolong unnecessarily the administration of nonvoluntary licenses; The national legislations implementing the Decision may not be well adapted to the often mandatory drug procurement practices in DCs; Generic companies in industrialized countries are exposed to competition from lower cost countries, such as India or China. Additional (financial) incentives to stimulate the use of the system may be required; The production of generic medicines for merely one importing country under the compulsory license system is considered an economic barrier by manufacturers in industrialized and developing countries; While the CAMR nonvoluntary license process has been described as onerous and cumbersome because of its comprehensive rules, the rather vague Indian legislation has also proven difficult to administer. Pharm. Pat. Analyst (2013) 2(2) 203
10 Stirner & Thangaraj This section has analyzed the three case examples of the use of the The Paris Convention: First major Decision system. Some of the initial international treaty (1883) criticism of the new compulsory lidesigned to help the people of cense mechanism seems confirmed. one country obtain protection in other countries for their These first findings propose a rather intellectual creations in the form reduced value as an access-improvof IP rights. Now largely ing and price-leveraging instrument superseded by Trade-Related for DCs with inadequate pharaspects of Intellectual Property maceutical manufacturing capacirights. ties [34 36]. The limited economic feasibility for generic producers in both industrialized and developing countries may be the most significant barrier to the use of the August system. While Apotex (private held) had declared humanitarian considerations as motivations to make use of the measure, it cannot be expected that generic pharmaceutical companies (mostly publicly traded) are generally inclined to operate under this condition. The international community and the individual nations will have to find ways to address this issue in order to stimulate the participation of for-profit entities in the arrangements. One instrument that has been proposed several times is the encouragement of a pooled procurement (Box 1). This option should be further analyzed. Literature, however, suggests significant technical and political challenges that limit the creation of efficient pharmaceutical procurement systems, requiring, for example, the harmonization of the procurement systems of the Francophone and the Anglophone countries of Africa, and sufficient political will to sustain such a system for the benefit of the Member states, the standardization of labeling, treatment guidelines, prescribing practices and the permissible chemical composition of medicines. The effectiveness of the mechanism is also reduced by procedural barriers that governments in the concerned countries need to tackle by appropriate changes [37]. Key term Other nations may learn from the Canadian and Indian experiences and revise or design their national legislations accordingly, particularly refraining from Decision-plus regulations that unnecessarily delay and complicate the compulsory license process. This includes refraining from the adoption of a predefined list of eligible drugs; leaving it in the discretion of the importing country of whether to use the regulatory approval process of the exporting country or the WHO prequalification system; providing a waiver from the negotiations with the patent holder in the cases of national crisis or public noncommercial uses; avoiding an arbitrary time limit on the compulsory license; and finally, providing a simplified procedure to renew the compulsory license in cases of increased drug quantity needs in the importing country. There will be no perfect solution; nevertheless, the legislations should comply with the intent of the WTO Decision for providing a more actor adapted response to public health urgencies in DCs. In this respect, the proposed changes in the Canadian legislation may represent steps in the right direction that should be consideredat international and national levels. They can help to better address the needs of the main stakeholders in the compulsory license process, namely, the DC public health needs and the economic interests of the generic producer. In addition, this may provide an important signal to DCs and other industrialized countries in demonstrating the political will and determined interest of an industrialized nation to provide a mechanism capable of providing supplies of lower cost medicines to DCs with inadequate manufacturing capacities. Lastly, DCs lacking knowledge and understanding of the Decision instrument should be encouraged to seek technical assistance and training to better understand the Decision procedure and its function. Box 1. Proposal for pooled drug procurement. There are several ways on how to pool the procurement of drugs. The proposal of Abbott and Reichman (2007) [32] considers a large regional model for pooled procurement and a smaller model with participation of few developing countries. The regional model would be based on the facilitations provided under the Decision/ future Article 31 bis paragraph 3 TRIPS that allow product imported to one developing country that is member of a regional trade agreement with at least half of the members being least developed nations, to re-export the drug to other members without further compulsory licenses. Countries could form such a qualifying loose trade association with the goal of organizing the procurement of pharmaceutical products. Such strategy would provide incentives for generic companies due to larger markets; to multinational pharmaceutical firms (originators) that could become low bidders; create opportunities for the procuring authority to stimulate direct investment in local production by inviting foreign generic producers to establish production facilities in the region (favorable because of transition period for least developed nations that does not require protection and enforcement of pharmaceutical patents until 2016). The smaller model would offer an opportunity for countries with shared needs to cooperate and by this increasing the market and their negotiation power. This model could be interesting for South American countries that are not least developed countries and with common public health needs. The cooperation between several countries could also contribute to increased negotiation power
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