Global Trends by Martin Khor

Monday 26 April 2004


There is public concern worldwide that patented drugs are priced too high, making them out of reach of patients with serious ailments.  However, governments can take (and are taking) measures like compulsory licensing to get cheaper generic versions of the drugs.   Formulating the right national laws and policies to do so is now an urgent task, since millions of lives are at stake.


Making medicines more affordable to sick people is one of the most important things citizens hope and expect that their government will do.

In any family, one or more of its members will have need of medicines for treating cancer, heart ailment, HIV-AIDS, asthma, Parkinsons’s disease and other major ailments.

Unfortunately, the prices of medicines, especially for treating serious ailments, are usually high, and often shooting up.

One reason is that many medicines are now patented.  This became more prevalent after the Trade-related Intellectual Property Rights (TRIPS) Agreement was created in the World Trade Organisation in 1995.  That agreement made it compulsory for WTO members to include medicines in their patent regime.  

A few years ago, there was a public outcry on how the monopoly granted by patents enabled the drug companies to charge excessive prices for HIV-AIDS drugs.

Buying the patented HIV-AIDS drugs would cost a patient US$10,000-15,000 in a year. Discounts from that level are offered in some developing countries, but even so the levels are out of the reach of most HIV-AIDS patients.

However, some drug producers in developing countries like India are supplying generic versions of these drugs for US$300 per patient per year or lower.  

If developing countries can make or import generic drugs, many more people can be treated.  And the nation can cut its health budget by many millions, or even billions, of dollars. 

But if the branded drugs are already patented, the countries will have to cross some hurdles before cheap generic versions can be supplied.

The TRIPS Agreement does allow governments to override patents (and the patent holders’ monopoly) under some conditions.  For example, if patented drugs cost too much, the authorities can take issue a compulsory license to a government agency or a company to manufacture or import a cheaper generic version of that patented drug. 

Issuing compulsory licenses for various products is quite common in the rich countries. But it has seldom been done in developing countries.

Partly, they don’t fully know the procedures.  But many developing countries are also afraid they will be attacked by companies or governments of the rich countries, especially the United States, if they were to exercise their rights to issue a compulsory license.

Western drug companies a few years ago sued the South African government for its compulsory license law, and the US government threatened to take a WTO case against Brazil for the same.  But in both cases, the legal action was withdrawn, following public protests.  

Responding to the public concerns, the WTO Ministers adopted a Doha Declaration on the TRIPS Agreement and Public Health in 2001.  It proclaimed:  “We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health.

“We affirm that the Agreement can and should be interpreted in a manner supportive of WTO Members’ right to protect public health and in particular, to promote access to medicines for all.”  

It also spells out the measures WTO members can use to the full, such as the right to grant compulsory licenses and the freedom to determine the grounds for these.

To benefit patients of AIDS and other ailments, governments now need to have appropriate provisions in their national patent legislation by using “to the full” the flexibilities in the TRIPS Agreement. 

They also need to implement national policies aimed at providing access to medicines for all.  If such laws and policies are not introduced, there will be no actual benefits for patients.

Policy makers are now confronted with the task of choosing the right policies, backed by the right legal provisions, that can make cheap generic drugs available.   They can be assisted by a   “Manual on Good Practices in Public-Health-Senstive Policy Measures and Patent Laws”, recently published by the Penang-based Third World Network.

The Manual, which is the result of meetings among legal experts, government diplomats and health groups, describes options for countries to import, produce and export affordable medicines through measures that are consistent with the TRIPS Agreement. 

These measures include compulsory licensing, “government use” procedures, and parallel importation of drugs that are patented in these countries, thus enabling the use of cheaper generic versions of the patented branded drugs, and also cheaper versions of the same branded products. 

The Manual also provides model legal provisions for national patent laws, that are oriented to  public health concerns, and are also consistent with the TRIPS Agreement.   Examples are given of “good practices” in national laws from around the world.  

The Manual also proposses an administrative framework to implement the proposed patent laws and policy measures, including guidelines for for compensating the patent holder.

As the Manual points out, there are three basic ways to facilitate the import of generic versions of drugs that have been patented in a country.

It can import a generic version of the patented product by issuing a compulsory license to a company or agency to import the drug, and the government has the freedom to determine the grounds upon which such licenses are given. 

The imported drug can be from a country in which the drug is not patented, or in which the drug is patented (in which case the exporting country has also to issue a compulsory license).  The applicant has to firstly negotiate to obtain a voluntary license from the patent holder, and if that fails, then a compulsory license can be granted.  Adequate compensation has to be paid to the patent holder.

Import of a generic version of the patented drug can also be imported for “public, non-commercial use” by the government.  Under this “government use” procedure, the prior consent of or negotiations with the patent holder is not required, but adequate compensation has to be paid.  This method is suitable if the imported drug is to be used  by the government.

There can also be “parallel importation” of a patented product (i.e. not the generic version) from another country, where the same patented product is being sold at a lower price than in the importing country.  This is allowed under Article 6 of the TRIPS agreement. There is no need for an importer to obtain a compulsory license, nor to pay compensation to the patent holder.  

Instead of importing generic drugs, they can also be locally manufactured by a company or agency that has been granted a compulsory license by the government.

The company wanting a compulsory license has first to negotiate with the patent holder for a voluntary license and failed to obtain such a license, before applying for a compulsory license. 

This requirement however does not apply if the compulsory license is issued on grounds of public non-commercial use, for national emergency or situations of extreme urgency and to remedy anti-competitive practices. 

The government can also assign to a public or private agency the right to locally manufacture a patented product without the patent holder’s permission, provided it is used for a public non-commercial purpose.  Again, this “government use” measure is suitable when the drug is to be used in government clinics and hospitals.

In both of the above cases, compensation should be paid to the patent holder.

Besides producing for the local market, the compulsory licensee generic can also export part of its output.  However Article 31(f) of the TRIPS agreement requires that this production shall be “predominantly for the supply of the domestic market” and thus there is a limit to the amount that can be exported. This restriction does not apply when the compulsory license is granted to correct anti-competitive practices.

The restriction on export quantity has posed a problem for developing countries without  drug manufacturing capacities, as they may find it difficult to source enough amounts of the medicines. 

In August 2003, the WTO agreed to an interim waiver to the Article 31(f) restriction.  Thus, countries producing generic versions of patented products under compulsory licenses can export the products to eligible importing countries, without having to limit the exported amount. 

However, those who want to use this waiver must take several measures and fulfill several conditions, which are difficult to comply with.   

The policy options above must be backed up with appropriate provisions in the national patent laws.  The Manual provides model provisions for parallel importation, compulsory licensing and government use.

Also discussed in the Manual is the question of how “adequate remuneration” or compensation to the patent holder can be fixed.  The experience of various countries is examined, and the rates suggested by various organizations, are provided.  A report of the United Nations Development Programme suggests an average rate of 4 percent of the generic price.

As can be seen, there are several ways for a country to get get supplies of cheap generic drugs, even if there are patents over the branded products.

Patients with serious ailments everywhere must be hoping that their governments will take the measures available to make the cheaper medicines available, if the patented products are too expensive.

Patents can and often do affect the access of patients (especially the poor) to medicines. But it is possible to overcome the effects of these patents through the measures allowed by the WTO rules, which have also been recently clarified.

As millions of lives are at stake, the task is urgent.