Developing countries have right to enact compulsory-licensing laws, says UN report

The United Nations Development Programme (UNDP) has, in its latest Human Development Report, called on developing countries to enact compulsory-licensing laws which will permit local companies to produce cheaper generic copies of patented drugs. Such licensing laws are not a violation of the WTO TRIPS Agreement.

by Marwaan Macan-Markar

IN a direct challenge to the world’s pharmaceutical industry, the authors of a new UN report call on developing countries to strengthen their national laws in order to enable local production of cheaper, life-saving AIDS drugs.

Such an option can be pursued legitimately under compulsory licensing, a principle in international commerce that permits countries to ‘use patents without permission of the patent holder in return for a reasonable royalty on sale’, says the Human Development Report 2001, released on 10 July by the United Nations Development Programme (UNDP).

The international agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) includes provisions for compulsory licensing, the report notes, adding, ‘The agreement allows countries to include in national legislation safeguards against patent monopolies that might harm extraordinary cases of public interest.’

What is more, the report argues, developing countries that opt to produce AIDS drugs under compulsory licensing to combat the deadly pandemic have a strong case against drug industry giants intent on protecting their patents. ‘In some circumstances, such as for national emergencies, public non-commercial use and antitrust measures, the agreement allows governments to issue compulsory licences to domestic or overseas producers of generic drugs,’ the report says.

There is a ‘popular misconception’ that compulsory licensing violates the rules of TRIPS, says Kate Raworth, co-author of the report. ‘It is not so. Developing countries enjoy the right to enact such measures through national strategies to help their people.’

Used in North...

In fact, the report states that industrialised countries have been enjoying this right for over a century, ever since intellectual property legislation was introduced in Britain in 1883. Among the countries that have benefited from the right of compulsory licensing are Australia, Britain, Canada, Germany, Italy, New Zealand and the United States.

‘Until joining the North American Free Trade Agreement (NAFTA), Canada routinely issued compulsory licences for pharmaceuticals, paying a 4% royalty rate on the net sales price,’ the report says. ‘Between 1969 and 1992 such licences were granted in 613 cases for importing or manufacturing generic medicines.’ Consequently, Canadian consumers saved millions of dollars in drug costs. In 1991-1992 alone, such savings were estimated at more than $170 million.

Moreover, according to the report, since the adoption of the TRIPS agreement, compulsory licences have been used in Britain, Canada, Japan and the US for products ranging from drugs to computers, tow trucks, software and biotechnology. The licences served as ‘antitrust measures to prevent reduced competition and higher prices.’

‘In the US, compulsory licensing has been used as a remedy in more than 100 antitrust case settlements, including cases involving antibiotics, synthetic steroids and several basic biotechnology patents,’ the report adds.

...but not in South

On the other side of the ledger, however, the report reveals a glaring discrepancy when it comes to compulsory licensing in the developing world. ‘Not one compulsory licence has been issued south of the equator,’ it states.

The reason? ‘Pressure from Europe and the United States makes many developing countries fear that they will lose foreign direct investment if they legislate for or use compulsory licences,’ according to the report. In addition, developing countries have also faced the threat of ‘long, expensive litigation’ brought by pharmaceutical companies.

Such a reality does little to help those afflicted with HIV/AIDS in poor countries, the report argues. The UN estimates that, of the 36 million people living with HIV/AIDS, an estimated 70% are in sub-Saharan Africa, with countries like Botswana, Zimbabwe, South Africa and Kenya the worst affected.

Even when leading pharmaceutical companies have intervened, by offering drastically reduced prices of their anti-AIDS drugs to select African countries, the results have not impressed the authors of the report. In their view, it is a process that has fallen short of its initial promise.

‘Slow negotiations (between the drug companies and countries in need) run counter to the urgency of the AIDS crisis and, with terms of agreements kept a secret, some critics suspect that price cuts are conditional on introducing even tighter intellectual property legislation,’ the report says.

For Raworth, drug industry discounts on anti-AIDS drugs are welcome but are no substitute for a strong policy to serve the afflicted in the developing world. ‘We welcome price reductions, but we want sound policies, not charity,’ she says.

Creating competition

James Love, director of the Consumer Project on Technology, a Washington-based non-governmental organisation, says the Human Development Report’s strategy to enable easier access to anti-AIDS drugs through compulsory licensing will give developing countries ‘more bargaining power.’

‘It will create competition in the market once they push to manufacture these drugs, and will also help them to bargain with the pharmaceutical (corporations) on the price of the drugs,’ he adds.

The impact of competition, in fact, has been evident since manufacturers of generic anti-AIDS drugs in Brazil, Cuba, India and Thailand have offered their products at prices far lower than what the drug industry was offering. ‘The price breakthrough made possible by generics has dramatically opened up treatment possibilities in the developing countries,’ says the report.

For the strategy to achieve optimum results, however, the report underscores the need for legal structures to be created that best suit developing countries. These should include five features: ‘an administrative approach that can be streamlined and procedural’; an option for governments to have broad powers where ‘no developing country should have public use provisions weaker than German, Irish, UK or US law on such practice’; laws that permit ‘production for export when the lack of competition in a class of drugs has given the producer global market power that impedes access for alternative drugs’; easy-to-administer rules on compensation for royalties; and dispute settlement mechanisms under which ‘the onus should fall on the patent holder to back up the claims that the royalty rate is inadequate.’

‘This is a necessary intervention,’ says Tracy Swan, director of the Access Project at the AIDS Treatment Data Network, a New York-based NGO. ‘While we do not want pharmaceutical companies to stop their research, we cannot let people die due to a lack of access to AIDS drugs. Poverty is not equal to a death sentence.’ - IPS