Public Health Safeguards in the TRIPS Agreement
The historical account of patent law presented in Chapter 1 showed how the patent system was created as a legal tool to achieve social objectives, and has been adjusted in response to the level of technological development and societal needs. Theories of patents have highlighted that balancing between stimulating innovation and access to resulting knowledge is crucial in a patent system. Particularly when the subject matters for patents are necessities which people rely on for their lives, the need to make patent systems responsive to social needs becomes paramount. This chapter takes a close look at ways in which TRIPS can be interpreted and implemented in order to benefit public health.
TRIPS entered into force with the establishment of the WTO in 1995. TRIPS established a set of minimum standards for the protection of intellectual property rights and extended patent protection to all fields of technology, including pharmaceutical products. Pharmaceutical patents are likely to increase the price of medicines because the exclusive right of the patent holders enables them to set the highest prices that a market can bear. Therefore, the introduction of patent protection for pharmaceutical products can have a consequence of limiting access to patented medicines in the absence of measures that can alleviate such effects. Nonetheless, even under TRIPS, Member counties retain a degree of policy space over the implementation of TRIPS, provided they meet the minimum standards mandated by TRIPS. States may define criteria for evaluating patentability, create limited exceptions to patent rights, issue compulsory licences and undertake government use, and adopt the international exhaustion principle to facilitate parallel imports.
This chapter discusses such flexibilities in TRIPS, which can be used to increase access to affordable medicines. The objectives and principles of TRIPS pursue a balance between the promotion of technological innovation and the transfer and dissemination of technology, and the Doha Declaration on the TRIPS Agreement and Public Health reaffirms the right of States to adopt measures to promote public health. The first section considers the interpretive role of the objectives of TRIPS and of the Doha Declaration. The next section focuses on compulsory licensing (Art. 31), one of the most important flexibilities that can facilitate promoting the affordability of medicines. Since the extent to which compulsory licences can achieve the desired effects may be significantly affected by, among other things, the level of remuneration payable to the patent holder,1 it examines the meaning of ‘adequate remuneration’ under Article 31(h) of TRIPS, focusing on a situation where a compulsory licence is authorised on the ground of promoting access to medicines. It deepens an analysis of the potential of compulsory licensing for addressing public health needs through a case study of Thailand’s compulsory licensing between 2006 and 2008. It also traces the development within TRIPS in addressing the issue of countries with few manufacturing capacities. The final section briefly touches upon other flexibilities in TRIPS, such as standards for patentability (Art. 27.1), exceptions to patent rights (Art. 30), and parallel importing (Art. 6).
Interpretation of TRIPS in Accordance with the Vienna Convention on the Law of Treaties
In accordance with customary international law, TRIPS must be interpreted in good faith using the ordinary meaning of its terms in context and in light of the treaty’s object and purpose. This methodology of treaty interpretation is affirmed by the WTO’s Understanding on Rules and Procedures Governing the Settlement of Disputes (referred to as DSU), which requires the Dispute Settlement Body to clarify WTO provisions ‘in accordance with the customary principles of treaty interpretation’.2 These customary principles of treaty interpretation, which the WTO Dispute Settlement Body has to follow in interpreting WTO Agreements, including TRIPS, are embodied and codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties (hereinafter VCLT)3 as confirmed in the jurisprudence of the WTO Panel and Appellate Body.4
Objectives and Principles of TRIPS: Articles 7 and 8
In accordance with Article 31.1 of the VCLT, text, context, and object and purpose, as well as good faith are elements for treaty interpretation5 and these elements ‘are to be viewed as one holistic rule of interpretation rather than a sequence of separate tests to be applied in a hierarchical order’.6 This approach echoes the view of the International Law Commission, the drafters of the VCLT, on Article 31.1 that ‘[t]he article, when read as a whole, cannot properly be regarded as laying down a legal hierarchy of norms for the interpretation of treaties’.7 Therefore, the interpretation of TRIPS must be conducted in such a way that the ordinary meaning be sought in the context of the provision and also be determined taking into account the objectives and principles of TRIPS, which are embodied in Articles 7 and 8 of the text. Therefore, Articles 7 and 8 should be considered for the analysis of public health measures permitted in TRIPS.
7. The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.
Article 7 recognises different interests involved in the protection of intellectual property and requires a balance of different interests in the interpretation of TRIPS. It sets out ‘next to the overarching goal of facilitating social and economic welfare, three sets of (competing) interests which need to be properly balanced in order to achieve that overarching aim’.8 First, two distinctive objectives, the promotion of technological innovation on one hand and the transfer and dissemination of technology on the other, must be balanced. Secondly, the interests of users of technological knowledge, as well as its producers, must be mutually promoted. Lastly, a balance of rights and obligations must be pursued in the protection and enforcement of intellectual property rights. The wording of Article 7 presents clear evidence that Member States are required to promote a balanced approach towards distinctive societal values/interests in building and enforcing intellectual property, unlike the view of some who assert that TRIPS should exclusively aim at strengthening and harmonising the protection of intellectual property rights throughout the world.9 For the present purpose, Article 7 suggests that the provision of incentives to medical innovation and access to medicines should be properly balanced in the implementation of TRIPS.
While Article 7 sets forth the objectives of intellectual property protection, Article 8 confirms the Members’ discretion to take measures in order to satisfy public needs in relation to the protection of intellectual property.10
8.1 Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.
8.2 Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.
Article 8.1 makes clear that measures may be taken for the purpose of (a) protecting ‘public health and nutrition’ and (b) promoting ‘the public interest in sectors of vital importance to their socio-economic and technological development’. Article 8.2 secures countries’ freedom to adopt measures in order to prevent (a) ‘the abuse of intellectual property rights by rights holders’, (b) ‘practices which unreasonably restrain trade’ and (c) ‘practices which adversely affect the international transfer of technology’. The condition for all cases is the consistency of the measures with the provisions of TRIPS. Carlos Correa comments that the test of consistency should be assessed in the light of Article 7, which mandates a balanced approach to rights and obligations and promotes social and economic welfare as an overarching objective.11 The ‘measures necessary to protect public health and nutrition’ consistent with TRIPS may include exceptions to exclusive rights (Art. 30) and compulsory licences (Art. 31). The relevance of Articles 7 and 8.1 to the interpretation of the provisions of TRIPS is acknowledged in Canada – Patent Protection for Pharmaceutical Product, where the Panel stated that ‘[b]oth the goals and the limitations stated in Articles 7 and 8.1 must obviously be borne in mind when doing so [examining the words of the conditions upon Article 30] as well as those of other provisions of TRIPS which indicate its object and purposes’.12 With regard to public health measures pertaining to TRIPS, the European Communities and their Member States, in their communication to the Council for TRIPS, have acknowledged that ‘they [Articles 7 and 8] are important for interpreting other provisions of the Agreement, including where measures are taken by Members to meet health objectives’.13
The Doha Declaration on the TRIPS Agreement and Public Health
In the context of access to patented medicines, the Doha Declaration14 constitutes an important part of the interpretive process. Paragraph 5(a) of the Declaration confirms the need to interpret each provision of TRIPS in light of the object and purpose of the Agreement set out in Articles 7 and 8 of the text.
5(a) In applying the customary rules of interpretation of public international law, each provision of TRIPS shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.
4. We agree that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all.
In this connection, we reaffirm the right of WTO members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.
The first sentence of paragraph 4 implies that the protection of intellectual property rights should not be an obstacle to the promotion of public health.15 The second sentence indicates that States may adopt measures to limit patent rights with a view to guaranteeing access to affordable medicines.16 The Declaration confirms the right of countries under TRIPS to make full use of flexibilities in the Agreement to protect public health and promote access to medicines for all. Paragraph 5 of the Declaration17 indicates policy measures to protect public health within TRIPS, such as compulsory licensing for pharmaceutical products (Art. 31) and the discretion of States with regard to parallel importation of medicines (Art. 6). The measures permitted in TRIPS that countries may adopt to promote public health are analysed later in this chapter.
The Declaration is part of ‘any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions’ under Article 31.3(a) of the VCLT.18 The Declaration was adopted notably in the form of an agreement19 by the Ministerial Conference, which has ‘the authority to take decisions on all matters under any of the Multilateral Trade Agreements’.20 Therefore, it can be considered a ‘decision’ of the Members under Article IX:1 of the WTO Agreement.21 On the other hand, the Declaration does not technically amount to ‘interpretations’ within the meaning of Article IX:2 of the WTO Agreement,22 which are legally binding upon all Members, because the Declaration is not based on a recommendation by the General Council.23 Nevertheless, commentators note that ‘a decision that states a meaning of the Agreement may be considered as a very close approximation of an interpretation and, from a functional standpoint, may be indistinguishable’.24 In any event, the Declaration should be taken into account as a ‘subsequent agreement’, together with the context, in accordance with Article 31.3(a) of the Vienna Convention.
In short, the objectives of TRIPS (Art. 7) make it clear that the Agreement should be interpreted and implemented in a balanced manner conducive to the transfer and dissemination of technology, as well as the promotion of technological innovation. The principles of TRIPS (Art. 8) recognise Member countries’ rights to adopt measures to protect public health. In accordance with Article 31.1 of the VCLT, each provision of TRIPS must be interpreted in light of Articles 7 and 8, which set out the objectives and principles of the Agreement. In the Doha Declaration, Ministers of WTO Members reiterated the interpretive role of Articles 7 and 8. Also, the Doha Declaration clarifies that ‘the Agreement can and should be interpreted and implemented in a manner supportive of WTO members’ right to protect public health and, in particular, to promote access to medicines for all’.25 The rest of this chapter examines some of the flexibilities in TRIPS that can be used to promote access to medicines.
Compulsory Licensing (Non-voluntary Licensing)26
Compulsory licensing usually refers to an act by a government authorising others to use the patented inventions without the consent of the patent owner. Where the patented inventions are used by the government itself without the consent of the patent owner, it is called ‘government use’ (or ‘Crown use’ under the legislation of the Commonwealth countries). In this analysis, compulsory licences are used to refer to both practices, except where ‘government use’ needs to be given specific attention.
Compulsory licences have long been considered a safeguard against the adverse effects that may arise from patents granting exclusive rights,27 and an important tool for lowering prices and thus to strike a balance between the interests of the patent holders and those of the users in the diffusion of knowledge and the access to the outcomes of innovation. Particularly in the field of pharmaceuticals, compulsory licences can be used to serve public health goals where the pricing by the patent holder, among other factors, is considered to aggravate the unaffordability of medicines.
Although TRIPS does not use the term ‘compulsory licensing’ in its text, Article 31 on ‘other use without the authorization of the right holder’ stipulates a set of conditions for issuing such licences:
31. Where the law of a Member allows for other use of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the government, the following provisions shall be respected …
Grounds for Compulsory Licences
Article 31 of TRIPS does not limit the grounds for which compulsory licences may be issued.28 Although Article 31 mentions some of the possible grounds for compulsory licences, including ‘a national emergency’, ‘other circumstances of extreme urgency’, ‘public non-commercial use’, ‘anti-competitive practices’ and ‘dependent patents’, this list of grounds is by no means exhaustive.29 Rozek and Rainey argue that ‘Article 31 establishes well-defined limits on considering use of compulsory licensing’ referring to such grounds stated above.30 But, the text does not support this restrictive view since there is no specific provision that limits the grounds for compulsory licensing.31 Such grounds as national emergency, other circumstances of extreme urgency, or public non-commercial use are mentioned in Article 31(b)32 so as to waive certain requirements for a Member State in those circumstances. Furthermore, the Doha Declaration confirms that Article 31 does not limit the grounds for the grant of compulsory licences, providing that:
5(b) Each member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.33
Paragraph 5(c) of the Doha Declaration also added clarity with regard to the discretion of each Member to determine the circumstances constituting ‘national emergency’ or ‘other circumstances of extreme urgency’.34 The same paragraph in the Declaration expressly recognises that public health crises can represent a national emergency or other circumstances of extreme urgency, and thus justify the grant of compulsory licences when provided under national legislation, without the obligation of prior negotiation with the patent holder:35
5(c) Each member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency.
According to Article 31(b) of TRIPS, ‘public non-commercial use’ is another possible ground for a compulsory licence to address public health needs, and is also one of such situations that do not require prior negotiation with the patent holder.36 ‘Public non-commercial use’ is often equated with ‘government use’, whereby the government authorises a government department or a contractor to use a patented invention without the consent of the patent owner, for a non-commercial purpose.37 A question may arise as to whether ‘public non-commercial use’ covers a licence granted to a commercial enterprise to exploit the patented product. No precise meaning of ‘public, non-commercial use’ is defined in TRIPS so there is broad room for interpretation of this term. Notably, Article 31(b), the fourth sentence, explicitly refers to ‘the government or contractor’ in the context of public, non-commercial use. It indicates that public non-commercial use does not prevent the government from appointing a private entity to use the patent on behalf of the government. State practice also supports this reading that public non-commercial use may cover the use of a patent by a private entity to the extent that it acts on behalf of the government for the benefit of the public.38 For instance, in the US, under 28 U.S.C. § 1498 (2000),39 a commercial contractor for the government may be authorised to use the patent on behalf of the government without the consent of the patent holder, subject only to subsequent payment. In the context of medicines, when a government authority uses or authorises its contractors to use a patented drug for the purpose of providing medicines as part of a public health programme, such use may be considered to fall within the scope of ‘public, non-commercial use’.40 In such circumstances, public non-commercial use may enable public health authorities to procure affordable drugs in the provision of public services.
Conditions on the Grant of Compulsory Licences
Article 31 of TRIPS sets forth a series of requirements for the grant of compulsory licences. Such conditions include:
• Each grant of a compulsory licence must be considered on a case-by-case basis (Art. 31(a)).
• The proposed user must first make efforts to obtain a voluntary licence (Prior negotiation: Art. 31(b)).
• The scope and duration of such use must be limited to the purpose for the authorisation of a licence (Art. 31(c)).
• The licence must be non-exclusive (Art. 31(d)) and non-assignable (Art. 31(e)).
• Production must be predominantly for the domestic market (Art. 31(f)).
• Adequate remuneration must be paid to the patent holder (Art. 31(h)).
• Review by a judicial or distinct higher authority must be available to any decisions related to the compulsory licence (Art. 31(i)).
Some key interpretive points should be made with regard to the above conditions, bearing in mind the context of compulsory licences for addressing public health needs.
Article 31(a) states that ‘authorization of such use shall be considered on its individual merits …’.
This provision requires the grant of a licence to be decided considering the individual merits of an individual case, as to whether it meets the criteria established for that purpose. The ordinary meaning of the wording prevents a Member State from granting compulsory licences on the basis of types of subject matter or title-holder.41 However, as commentators note, this provision does not bar national legislation from establishing specific contexts that trigger the consideration of compulsory licences, such as where a patented medicine is not adequately supplied on the local market at an affordable price.42
Article 31(b) states:
such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time. This requirement may be waived by a Member in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. In situations of national emergency or other circumstances of extreme urgency, the right holder shall, nevertheless, be notified as soon as reasonably practicable. In the case of public non-commercial use, where the government or contractor, without making a patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government, the right holder shall be informed promptly.
Under this provision, the proposed licensee has to have made ‘efforts to obtain authorization from the right holder on reasonable commercial terms and conditions’ prior to the grant of the licence. Only after these efforts have failed ‘within a reasonable period of time’ may a compulsory licence be authorised. In other words, a prior negotiation with the patent holder is obligatory generally in the granting of a compulsory licence, although the terms ‘reasonable commercial terms and conditions’ and ‘a reasonable period of time’ leave room for interpretation.
Article 31(b) and (k) allows this requirement of prior negotiation to be waived in the case of a national emergency; other circumstances of extreme urgency; public, non-commercial use; or licences to remedy anti-competitive practices. As mentioned earlier, public health exigencies can represent national emergency or other circumstances of extreme urgency. Furthermore, when a government authorises its agency or contractor to use a patented drug to ensure access to the medicine within the public health service, the government can also waive a prior negotiation with the patent owner before authorising or proceeding with such government use.43 However, it should be noted that even if the obligation of prior negotiation is waived, there remains an obligation on the government to notify the patent holder of the grant of the compulsory licence and to pay adequate remuneration in accordance with Article 31(b) and (h) respectively.
Scope and duration
Article 31(c) states that ‘the scope and duration of such use shall be limited to the purpose for which it was authorized …’.
This provision implies that the purpose must be specified in the individual authorisation of a licence.
Article 31(d) states that ‘such use shall be non-exclusive’.
Under compulsory licences, a licensee cannot be granted an exclusive right to exploit a patented product in a particular territory. In other words, a patented product for which a compulsory licence has been granted may be marketed by the patent holder or other licensees as well in the same territory.
Article 31(e) states that ‘such use shall be non-assignable, except with that part of the enterprise or goodwill which enjoys such use’.
This provision prevents the sale or transfer of a compulsory licence. However, the latter part of the provision indicates that it is permitted to assign and transfer the enterprise which has obtained the compulsory licence.44
Predominantly for the domestic market
Article 31(f) states that ‘any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use’.
From a public health point of view, one of the most controversial conditions on a compulsory licence was Article 31(f) since this limitation may imply that a compulsory licence may not be authorised principally for export. If this is the case, countries with insufficient manufacturing capacities in pharmaceuticals could encounter a barrier to acquiring affordable medicines through importation. This limitation was eased by Article 31 bis,45 the first amendment to TRIPS which followed the adoption of paragraph 6 of the Doha Declaration, and was made by the WTO Decision of 30 August 2003. The section below entitled ‘Compulsory Licensing: Countries with Few Manufacturing Capacities in the Pharmaceutical Sector’ discusses in more detail how countries lacking manufacturing capacities in pharmaceuticals can utilise compulsory licences to ensure access to affordable medicines.
Termination of a compulsory licence
Article 31(g) states:
[A]uthorization for such use shall be liable, subject to adequate protection of the legitimate interests of the persons so authorized, to be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. The competent authority shall have the authority to review, upon motivated request, the continued existence of these circumstances.
When there is a request that the circumstances which have triggered the grant of a compulsory licence cease to exist and are unlikely to recur, the provision stipulates that the competent authority must review the circumstances. However, even with the absence of the circumstances which a licence purports to address, the termination of the compulsory licence is subject to ‘adequate protection of the legitimate interests’ of the licensee. This proviso is important since if a licence could be terminated at any time, few would take the risk of undertaking the substantial investment needed in producing and marketing the product that is required if the compulsory licence is to be successful.46
Article 31(h) states that ‘the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization’.
When granting a compulsory licence, adequate remuneration must be paid to the patent holder as one of the conditions.47 The key question in this regard is what level of remuneration is ‘adequate’. When a compulsory licence is pursued to promote access to medicines, the level of remuneration payable to the patent holder may affect the effectiveness of compulsory licences as a means for the stated aim. It is worthwhile examining separately this issue of adequate remuneration payable to the patent holder in a case of compulsory licensing for access to medicines. This will be done in the section entitled ‘Adequate Remuneration for Compulsory Licences in the Context of Access to Medicines’ below.
Review by judicial or other distinct higher authority
Article 31(i) states that ‘the legal validity of any decision relating to the authorization of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member’.
Article 31(j) states that ‘any decision relating to the remuneration provided in respect of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member’.
In accordance with the above provisions, a Member State has to provide the patent holder with the possibility of review by either judicial or other ‘distinct higher authority’ of the legal validity of any decision relating to the authorisation of a compulsory licence, as well as relating to the remuneration provided to the patent holder. These provisions have to be interpreted together with Article 44.2 of TRIPS regarding injunctions, which provides that, in the case of government use, remedies may be limited to ‘payment of remuneration in accordance with sub-paragraph (h) of Article 31’. In other words, as long as a government-use licence is issued in a manner consistent with the requirements set out in Article 31 of TRIPS, it should not be subject to injunctive remedies.48
Adequate Remuneration for Compulsory Licences in the Context of Access to Medicines
As noted above under ‘Adequate remuneration’, one of the conditions for compulsory licences laid down by TRIPS is the payment of ‘adequate remuneration’ to the patent holder. The level of remuneration under compulsory licences generates considerable interests for all the parties involved: the patent holder, the third party or the government agency that are authorised to use the patented invention, as well as those who are intended to benefit from such use. Particularly when a compulsory licence is authorised as part of an effort to ensure access to affordable medicines for all, the level of remuneration payable to the patent holder can significantly impact on whether such an effort will achieve the desired result. The following section analyses the meaning of ‘adequate remuneration’ under Article 31(h)49 of TRIPS in the context of a compulsory licence granted on the ground of promoting access to medicines.
General reading of Article 31(h) of TRIPS
According to Article 31(h), the adequacy of remuneration must be determined according to ‘the circumstances of each case’, and ‘the economic value of the authorization’ is another element of consideration. What level of remuneration can be considered ‘adequate’ in the circumstances of each case? What does ‘the economic value of the authorization’ mean and how much weight should be given to it? The ordinary meaning of the terms in the context of this provision should be sought for interpreting these requirements.
According to the Oxford English Dictionary, ‘adequate’ means ‘satisfactory or acceptable in quality or quantity’.50 The literal meaning of ‘adequate’, on its own, does not seem to give much guidance on the question as to when the level of remuneration is to be deemed consistent with TRIPS. ‘[A]dequate remuneration in the circumstances of each case’ suggests that the adequate level of remuneration should be decided on a case-by-case basis. The circumstances of each case would consist of a range of factors, such as the purpose of a compulsory licence,51 the duration and scope of the licence, the circumstances of the licensing country and of the licensee, if it is authorised to the third party.52
‘[T]he economic value of the authorization’ (emphasis added) also has to be taken into account in determining ‘adequate remuneration’. The economic value referred to by the provision is contingent on ‘the actual scope and purpose of the authorization’.53 In order to clarify the meaning of ‘the economic value of the authorization’, consideration must be given to the context in which a compulsory licence is authorised, in accordance with the VCLT.54 To be consistent with TRIPS, as discussed under ‘Conditions on the Grant of Compulsory Licences’, an authorisation of either a compulsory licence or government use must meet a set of conditions: it, inter alia, (i) must be ‘limited to the purpose for which it is authorised’ in terms of its scope and duration;55 (ii) shall be non-exclusive56 and (iii) non-assignable;57 (iv) must be predominantly for the domestic market58 unless it is in accordance with the Article 31 bis procedure.59 This means, among other things, that even in a case where a compulsory licence is granted for a patented product, the patent holder can continue to sell the patented product and economic loss incurred by the patent holder need not be significant,60 depending on the factual situation surrounding the authorisation. As Taubman suggests, the value of the TRIPS-consistent authorisation of a compulsory licence is distinct from ‘the full market value of the patent’ and should be evaluated through considering the purpose, scope and duration of the authorisation.61 In the end, ‘the circumstances of each case’ is significant, both in evaluating the economic value of the non-voluntary licence and ultimately in determining the level of adequate remuneration.
The ordinary meaning of the terms in Article 31(h) indicates that the adequacy of the remuneration to the patent holder should be assessed on a case-by-case basis. In other words, there is no absolute standard for determining an adequate level of remuneration applicable to every case. The adequate level of remuneration can vary depending on circumstances, including the economic value of authorisation. The purpose of the authorisation of compulsory licences necessarily constitutes the circumstances that need to be considered. The terms of Article 31(h) indicate that it is the licensing government that determines ‘adequacy’ of the remuneration to the patent holder, balancing societal objectives enshrined in Article 7.62 Thus, broad discretion is permitted to WTO Member States in determining the level of remuneration, taking into account the circumstances that give rise to the need for compulsory licences and the economic value of the authorisation,63 although the decision may be subject to review by a judicial or distinct higher authority of the country, as well as under the WTO Dispute Settlement procedure.64
Article 31(h) in the context of access to patented medicines
The following analysis of ‘adequate remuneration’ focuses on the context of compulsory licences that are granted for the purpose of increasing the availability of affordable medicines. As mentioned above, one of the factors defining ‘the circumstances of each case’ is the ground for compulsory licences. In this context, one of the key questions is how much weight the purpose of compulsory licences carries in determining the level of remuneration. In other words, should the level of remuneration in the case of compulsory licensing to address public health needs be different from when a compulsory licence is granted for purely economic purposes, for instance to allow domestic companies access to patented technology on more favourable terms? In order to answer this question, it is necessary to consider each factor that should be taken into account in determining the level of remuneration.
Economic value of the authorisation The meaning of ‘the economic value of the authorisation’ under Article 31(h) can be understood in different ways, for instance the market value of the licence, i.e. a royalty rate that the patentee and the licensee would agree in a voluntary licence, the cost of research and development of a drug, and the medical benefit of a drug.
One approach would estimate ‘the economic value of the authorisation’ based on the market value of the licence, i.e. a royalty rate that the patentee and the licensee would agree in a voluntary licence. In estimating the market value of a particular licence, the scope and non-exclusive character of the licence, among other things, has to be considered. In accordance with the conditions for compulsory licensing set out in Article 31 of TRIPS, a compulsory licence does not exclude the patent holder from manufacturing and selling the patented item to a national market,65 which indicates the existence of competitors. The size of the market for the licence is also another important factor in estimating the market value of the licence. For example, we can envisage a country where, despite significant needs for a particular drug, the demand for the drug is small because of a lack of purchasing power. Or we might find a country where there is vast income inequality among the population, and the drug produced under the compulsory licence is only made available to those who would not be able to access the drug otherwise, thus leaving the current commercial market for the patented drug intact. Therefore, the characteristics of the market for the licence are crucial in estimating the market value of the licence.
Some might estimate the economic value of the authorisation primarily based on research and development costs incurred by the patent holder, but also considering other relevant factors, such as the extent of the government funding (including tax benefits) used in the development of the medicine in question and the average revenue flowing from the medicine.66 A significant challenge for this analysis arises from a methodological difficulty in obtaining all specific data necessary for it. The patent holder could be required to provide relevant data, although the provided information would need to be verified.
Alternatively, the economic value of the authorisation may be deduced from the benefits of new medicines. The benefits of new medicines can be measured in terms of their contribution to preventing premature death or improving the quality of life. Measuring ‘the economic value of the authorisation’ based on the benefits of medicines is not free from a general difficulty with valuing the benefits of medicines, e.g. the effect of new medicines on premature death or quality of life in monetary terms. Nevertheless, such cost-benefit analysis of new medicines has been increasingly adopted by the governments of high-income countries as a useful decision-making tool ‘to guide decisions about accepting such [pharmaceutical] products for reimbursement under their public programme, or to inform negotiations about pricing’.67
So far, different approaches to the meaning of ‘the economic value of the authorisation’ have been examined. This does not suggest that each approach is exclusive. A country may estimate ‘the economic value of the authorisation’ based on multiple factors, such as the market value of the licence, i.e. a royalty rate that the patentee and the licensee would agree in a voluntary licence, the cost of research and development of a drug, and the medical benefit of a drug. The text of TRIPS does not seem to favour one interpretation, leaving broad latitude to the WTO Member States in interpreting ‘the economic value of the authorisation’. In any event, it has to be borne in mind that the economic value of the authorisation need only be ‘taken into account’; it is not the sole factor in assessing adequate remuneration.
The circumstances of each case The wording of Article 31(h) indicates that the level of remuneration deemed adequate may vary depending on the circumstances of each case. The economic value of the authorisation discussed above constitutes part of the circumstances of each case. Other factors that deserve consideration include the purpose of the compulsory licence, and the circumstances of the country where such non-voluntary use is authorised.
The WHO recommends a non-exhaustive list of factors that may be considered in determining the level of remuneration as follows:
therapeutic value of the medicine, including the extent to which it represents an advance over other available products; the ability of the public to pay for the medicine; actual, documented expenditures on development of the medicine; the extent to which the invention benefited from publicly funded research; the need to respond to public health exigencies; the importance of the patented invention to the final product; cumulative global revenues and profitability of the invention; the need to remedy anti-competitive practices.68
This list reflects the economic value of the authorisation which can be represented by such factors as the benefits of the medicine in question, the costs of R&D, and the size of the particular market relative to the global one. But also it recommends that due regard be given to the ability to pay and to the public health needs existing in the licensing country. Although not every factor needs to be considered in any given situation, in general this formula suggests that while the costs of R&D for needed medicines should be shared via paying the remuneration to the patent holder, the level of remuneration should be adjusted to account for the income level of the licensing country and the relative burden of disease in the country.
Weight of public health needs and the ability to pay This raises the question, how much weight should be given to such factors as the income level of the country and public health needs? A clue is provided by the Doha Declaration confirming that ‘the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health and, in particular, to promote access to medicines for all’.69 Therefore, the remuneration payable to the patent holder has to be set at a level which does not undermine access to essential medicines. The WHO remuneration guidelines pronounce that ‘the policy objective of promoting access to medicines is central to the decision regarding the general level of remuneration and proposals for royalties that undermine access goals should be rejected’.70 In other words, where access to medicines is restricted by the price and a compulsory licence is used to address pressing public health needs, ‘the government could justify the payment of a minimal royalty on grounds that the public interest in the circumstances of the case warrants a reduced royalty’.71
In addition, the ‘adequacy’ of remuneration should vary in accordance with the income level of countries, in a manner conducive to an equitable sharing of the costs of R&D. As mentioned earlier, this factor should also be reflected in considering ‘the economic value of the authorisation’ since low-income countries are likely to represent a small percentage of the global market of the patented medicine and a voluntary licensee has little chance to make much profit in low-income countries. It is inconceivable that the level of remuneration is determined with no account of the income level of countries.
This reading of Article 31(h) places significant weight on the public health ground for compulsory licences, as well as the relative ability to pay, among other factors in determining the level of remuneration. Conversely, in cases where a compulsory licence is issued to achieve an industrial policy objective, ‘the economic value of the authorisation’ might carry more weight than in the case of a public health purpose-compulsory licence.72
There are a number of remuneration guidelines on compulsory licensing.73 The 2001 UNDP Human Development Report suggests that a base royalty rate be set at 4 per cent of the price of the product under the licence and be increased or decreased by as much as up to two percentage points, depending on factors such as the particular therapeutic value of the product and the role of public funds in research and development.74 The 2005 Canadian government royalty guidelines for compulsory licences for international humanitarian purposes provide a sliding scale of 0.02 per cent to 4 per cent of the price of the product under the licence, based on the ranking of importing countries on the UN Human Development Index.75 The Tiered Royalty Method (TRM) proposes a standard royalty rate of 4 per cent based on the price of the patented product in high-income countries, and that this base royalty be adjusted for each country upwards or downwards, considering ‘relative per capita income or, where there is an unusually high incidence of a disease, the relative national income per person needing treatment’.76 All the above guidelines take account of the ability of the public to pay in a particular country, regardless of different methods employed for this purpose. The differences among the above guidelines lie in whether and to what degree each formula considers factors such as the therapeutic value of the medicine, the degree of burden of diseases for the country, the role of public funds in R&D for the medicine, and the importance of the patented invention to the final product.
The actual practice undertaken within national jurisdictions can also provide some indications over how ‘adequate remuneration’ under Article 31(h) is interpreted and implemented.77 Recent State practice of compulsory licensing on HIV/AIDS drugs shows that the royalty rates range between 0.5 per cent (Indonesia and Thailand), 1.5 per cent (Brazil), 2 per cent (Mozambique), 2.5 per cent (Zambia) and 4 per cent (Malaysia).78 When exporting HIV/AIDS drugs to Rwanda, Canada set the royalty at 2 per cent.79 For compulsory licensing on several cancer drugs, Thailand set the royalties at 3–5 per cent.80 There was no reported protest by other States at these decisions of the licensing countries, nor complaint under the WTO procedure. It suggests that varying levels of ‘adequate’ remuneration payable to the patent holder across countries, taking into account the income level of the country and the public health grounds, are generally validated.
Striking a fair balance between the private interests of the patent holder and the unmet health needs of the public is crucial in determining the level of ‘adequate remuneration’. Interpretive insights in the balancing exercise can be sought from Articles 7 and 8.1 of TRIPS, and the Doha Declaration. It is clear from the text of TRIPS that this balancing exercise has to take place at the national level. In this sense, wide discretion is given to national authorities in determining remuneration payable to the patent holder when issuing a compulsory licence, although it is subject to potential review by means of the WTO Dispute Settlement mechanism. The WTO Secretariat also notes that ‘the authority in the country concerned’ ‘decides whether the payment is “adequate”’, subject to the right to appeal of the patent owner in that country.81
In a circumstance where a compulsory licence is issued for the purpose of increasing access to affordable medicines, the national authority should exercise discretion in determining the level of remuneration in a manner that facilitates fulfilling the purpose of the licence. Therefore, in this context, public health needs and the ability of the public to pay for the medicine should be regarded as the most important factors for determining the level of remuneration payable to the patent holder.
A Case Study: The Grant of Compulsory Licence (Government Use) in Thailand
According to a 2012 study, there were 24 attempts to issue compulsory licences to increase access to medicines by WTO Member States from 2001 to 6 June 2011.82 The large majority brought about price reduction of the relevant pharmaceutical product for the State in question, whether by means of resultant compulsory licence, negotiated voluntary licence or discount. Those countries that issued compulsory licences include Brazil, Egypt, Malaysia, Zimbabwe, Zambia, Ghana, Indonesia, Thailand and Ecuador.83 While most countries issued their compulsory licences for drugs for treating HIV/AIDS, Thailand took a more broad approach by authorising compulsory licences on not only HIV/AIDS treatments, but also drugs for heart disease and cancers.84 Thailand’s broad use of compulsory licences carries significant importance in promoting public health in developing countries, given a major epidemiological transition that has taken place in low- and middle-income countries. Recent data show that non-communicable or chronic diseases, such as cardiovascular disease, diabetes, cancer, and mental and neurological conditions, account for almost as large a share of the burden of diseases in developing countries as do communicable diseases and maternal, perinatal and nutritional conditions, exposing developing countries to the double burden of disease.85 While efforts have to be made to encourage health behaviours that prevent chronic diseases, the importance of treatment using medicines cannot be underestimated.86 However, the price of medicines for chronic diseases often places a barrier to access to such medicines in developing countries due to ‘the constraints on public funds available for pharmaceutical therapies for chronic diseases and the limited purchasing power of consumers’.87 It is widely known that patents play a critical role in the pricing of medicines. In this context, the examination of Thailand’s experiences can shed light on the extent of opportunities to enhance access to medicines that compulsory licences under TRIPS can provide.88
Access to medicines in Thailand
According to the World Bank’s criteria, Thailand is a lower middle-income country with a GNI (Gross National Income) per capita of US $3,670 in 2008.89 In 2001, the Thai government introduced health care reforms, including the ‘30 Baht treat all’ scheme (later, the Universal Health Coverage Scheme) under which registered members pay 30 Baht (£0.50, $0.86) each time they access health care services.90 As a result of this health care reform, the coverage of health care insurance extended from about 40 per cent of the population (25 million people) in 2001 to 95.5 per cent (59.8 million) by 2004.91 Ensuring universal access to health care is mandated by the Thai Constitution, which provides that ‘[a] person shall enjoy an equal right to receive standard public health service, and the indigent shall have the right to receive free medical treatment from the State’s infirmary’.92 Furthermore, section 5 of the National Health Security Act of 2002 states that ‘[t]he Thai population shall be entitled to a health service with such standards and efficiency as prescribed in this Act’93 and stipulates such entitlements in the subsequent sections of the Act. The Thai government states that Thai citizens are entitled to access to essential medicines by way of being covered by one of the public health insurance schemes, i.e. the Civil Servant Medical Benefit Scheme, the Social Security Scheme, and the Universal Health Coverage Scheme (formerly referred to as the ‘30 Baht Scheme’).94
In accordance with the constitutional right and the related provision in the National Health Security Act, every Thai citizen is entitled to access to all medications on the national essential medicines list.95 In 2003, the Thai government also pledged to expand the provision of antiretroviral treatments (ARVs) to all eligible Thai people living with HIV/AIDS. This is the origin of the National Access to Antiretroviral Program for People living with HIV/AIDS (NAPHA).96 The 2005 review, conducted by the WHO jointly with the Ministry of Public Health, noted that ‘[t]he per capita health budget allocation increased from 700 baht [£14.12] in 2001 to 1,396 Baht [£28.17] in 2005, [and] will rise further to 1,650 Baht in 2006’.97 The Thai government in 2007 stated that the public health budget increased from about ‘4 per cent of the overall national budget in the 1980s to 7 per cent in the 1990s and now to more than 10 per cent’.98 The budget for the universal access to ARVs also saw more than a tenfold increase in six years, from around US$10 million in 2001 to more than US$100 million in 2007.99 Thailand’s NAPHA enabled more than 80,000 people to access ARVs by the end of 2006, and the speed with which the provision of ARVs was scaled up was considered remarkable.100
However, the high costs of medicines placed an obstacle in the way of the government’s efforts.101 One prominent issue concerned the provision of second-line ARV treatment, for those who have started to develop resistance to first-line treatments. According to the Thai government, around 10 per cent of the 500,000 people living with HIV/AIDS are expected to develop drug resistance.102 A World Bank study, undertaken jointly with the Thai Ministry of Public Health, estimated that the potential financial burden that would result from the inclusion of second-line, as well as first-line, ARV treatment would be substantial: ‘[t]he total cost of NAPHA [National Access to Antiretroviral Programs for People living with HIV/AIDS] with second-line therapy reaches a ceiling at US$500 million (B 20 billion) per year in 2008. Beginning in 2010, expenditures on second-line therapy account for more than one-half of total ART spending’.103 The World Bank study suggested a few policy options for the Thai government: one way to reduce the fiscal burden is to limit the NAPHA to first-line treatment only; another option is ‘to grant compulsory licenses for the manufacture of patented second-line pharmaceutical products’.104 By the grant of compulsory licences, the World Bank estimated that the cost of second-line treatment would be reduced by 90 per cent.105
Compulsory licensing of patented medicines
From 2006 to 2008, the Thai government authorised government use of seven patented medicines, i.e. two HIV/AIDS drugs, one anti-platelet medicine, and four cancer drugs, in accordance with section 51 of the Thai Patent Act. The rationale for the government use is to fulfil the mandate to achieve universal access to essential medicines for all Thai people under the Thai Constitution and the National Health Security Act 2002.106 Section 51 of Thailand’s Patent Act permits the government use of patents to ‘carry out any service for public consumption or which is of vital importance to the defence of the country or for the preservation or realization of natural resources or the environment or to prevent or relieve a severe shortage of food, drugs or other consumption items or for any other public service’.107 The government use can be exercised by ‘any ministry, bureau or department of the Government, by themselves or through others’.108
There existed a demand for compulsory licensing of patented medicines as early as 1999. In December 1999, Thai people living with HIV/AIDS (PLWHA) and NGOs took part in a massive demonstration to demand that the Thai Ministry of Public Health issue a compulsory licence on an ARV drug, Didanosine (ddl), the tablet form of which is patented by British Myer Squibb (BMS).109 However, no compulsory licence was issued on any patented medicines by the Thai government until 2006.
In November 2006, the government authorised a government-use licence to the Government Pharmaceutical Organization (GPO) on a first-line antiretroviral drug, Efavirenz, which is patented and sold by Merck under the brand name Stocrin.110 The government explained that Efavirenz is an ARV with very low side-effects, but, due to its high price induced by patent protection, the government could not afford to provide all eligible patients with Efavirenz.111 The government use would ‘significantly make the drug more accessible under the national health insurance schemes’, according to a government statement.112 In January 2007, the government announced that it authorised a government-use licence on a combined formulation of Lopinavir and Ritonavir, patented and sold by Abbott under the brand name Kaletra.113 This drug is a second-line ARV drug for patients who develop resistance to basic formulations of ARVs. According to the Thai government, at least 50,000 of the 500,000 people living with HIV/AIDS in Thailand would need second-line ARVs in the near future.114 The government justified its government-use licence on the ground that the high cost of Kaletra restricted access to this medicine under the National Health Security Schemes, and domestic production or importing of the medicine under the government use would increase access to this drug so as to allow the treatment of 8,000 more people within the same budget.115 At the same time, a government-use licence was issued for Clopiodogrel, an anti-platelet drug useful for treating heart disease, which is marketed in Thailand by Sanofi-Aventis under the brand name Plavix.116 According to the licence, heart disease is one of the top three causes of death in Thailand, but the high price of this medicine resulted in limited access within the National Health Security Schemes.117 High incidence of heart disease among Thai people requires medicines for treatment, as well as preventive measures for heart disease, the government argued.118
In January 2008, government-use licences were issued on four cancer drugs: Docetexel (trade name Taxotere), a drug for treating lung and breast cancer; Letrozole (trade name Femara), used against breast cancer; a lung cancer drug, Erlotinib (trade name Tarceva); and imatinib (trade name Glivec) for treating leukaemia and gastrointestinal cancer.119 The government stated that the ground for the government use is ‘to allow universal access to essential medicines by all the beneficiaries of the National Health Security System, which are all publicly financed schemes’.120 According to the government, cancer is one of the leading causes of death among Thai people.121 In particular, lung and breast cancers are the most common types of cancer in Thailand. But most new cancer drugs are patented and, due to the high price of those medicines, they were not covered by the National Health Security System. Consequently, many people, not only the poor, were not able to access those cancer drugs. Moreover, people who pay the cost out of pocket would be likely to experience serious financial difficulties. The government argued that compulsory licensing of the four cancer drugs would make these essential drugs available ‘at prices ranging from 4 to more than 30 times lower than the patented products’, and thus enable the National Health Security Schemes to provide the drugs to all who need them.122 In the case of imatinib (trade name Glivec), as a result of continued negotiations, the patent holder, Novartis, agreed to provide free access to Glivec to patients under the Universal Health Coverage Scheme (formerly, the 30 Baht Scheme), one of the National Health Security Schemes that covers about three-quarters of the Thai population.123
While Thailand’s compulsory licences met criticisms from pharmaceutical companies124 and pressure from the United States Trade Representative (USTR) and the European Commission,125 no legal dispute in this respect was brought to the WTO dispute mechanism. Instead, the US placed Thailand on the Priority Watch List, referring to ‘an overall deterioration in the protection and enforcement of intellectual property rights’.126 The USTR explicitly acknowledged ‘a country’s ability to issue such licenses in accordance with WTO rules’ in the 2007 Special 301 report.127 Nevertheless, the report claimed that ‘the lack of transparency and due process exhibited in Thailand represents a serious concern’. In July 2007, Peter Mandelson, the European Trade Commissioner, sent a letter to Thailand’s Minister of Commerce, Krirk-krai Jirapaet, stating that ‘[n]either TRIPS nor the Doha Declaration appear to justify a systematic policy of applying compulsory licenses wherever medicines exceed certain prices’ referring to the government use on Clopiodogrel (an anti-platelet drug, trade name Plavix).128 In a letter dated 21 February 2008, Mandelson expressed concerns over the decision to authorise the government-use licences on cancer drugs, and urged the Thai government to review this policy.129 In contrast, in July 2007, the European Parliament passed a resolution on TRIPS and Access to Medicines that ‘[e]ncourages the developing countries to use all means available to them under TRIPS, such as compulsory licences …’.130
Are the criticisms of Thailand’s compulsory licences grounded in TRIPS? Article 31, the provision on compulsory licences, has been discussed in earlier sections. It is worthwhile examining the compliance of Thailand’s compulsory licences with Article 31.
Grounds for compulsory licences Thailand’s compulsory licences were issued in accordance with section 51 of the Thai Patent Act, which permits the government use of patents for public non-commercial use. ‘Public non-commercial use’ is explicitly acknowledged as an example of grounds for compulsory licences in Article 31 of TRIPS. The government stated that the decisions to authorise the government use of the patented medicines are to help achieve universal access to essential medicines for all Thai people through its National Health Security Schemes.131 Under the licences, the Ministry of Public Health authorised the GPO to exercise the public use of the aforementioned patented medicines.132 The GPO is entrusted to procure all the medicines under the government-use provision and to supply them to hospitals contracted with the National Health Security System.133 Neither TRIPS nor section 51 of the Thai Patent Act requires the existence of an emergency situation as a prerequisite for a compulsory licence.134
Subject matter Another question may be whether compulsory licences have to be restricted to particular diseases. In other words, are Thailand’s compulsory licences on an anti-platelet drug or four anti-cancer drugs in breach of TRIPS? No restriction on the subject matter for compulsory licences is found in the text. Abbott and Reichman note that ‘[t]he suggestion that treatments for heart disease exceed a state’s right to grant a compulsory license conflicts directly with TRIPS, the Doha Declaration and the August 30 Decision [2003 WTO Decision]’.135