(for a longer treatment on the availability of unilateral measures under TRIPS, I recommend Chapter 6 of my PhD Climate Change, Technology Transfer and Intellectual Property: Options for Action at the UNFCCC, Maastricht University, October 2014. Available at: https://dalishabalala.wordpress.com/book-climate-change-technology-transfer-and-intellectual-property/ )
Generally, under the TRIPS Agreement legal production without the authorization of the right holder i.e. compulsory licenses take place under Article 31. There has been no WTO dispute related to compulsory licensing under the TRIPS Agreement to date. However, the issue of compulsory licensing was at the core of the debate that led to the adoption of the Doha Declaration on the TRIPS Agreement and Public Health.[1]
There are generally two categories of compulsory license that can be taken into account, only one category of which is significantly limited by the TRIPS Agreement. To the extent that compulsory licenses are issued in the course of addressing anti-competitive practices and abuses of patents, countries remain free to determine when and how such licenses should be issued in terms of Article 31(k) and Article 40.[2] There is no requirement that there be remuneration to the right holder in such cases. In the US, such licenses are issued by judges on a frequent basis for software, merger reviews, and other anti-competition remedies.[3] These kinds of licenses are also primarily concerned with ensuring that the system operates the way that it is meant to: ensuring enough competitive room for innovation in the near and long-term. Again, this may be a justification for unilateral action under COVID. This is, however, limited to correcting competitive imbalances rather than public health needs in an emergency, as such. Both Article 8.2 and Article 40.2 come with the caveat that any measures taken to address restrictive practices must be consistent with the provisions of the TRIPS Agreement. Since the most common measures to address anti-competitive practices are compulsory licenses, or other involuntary measures, this includes Article 30 and 31. Thus, licenses to address anti-competitive practices must still comply with all provisions except Article 31(k), which exempts such compulsory licenses from the requirements of: Article 31(b) (on the need for prior negotiations with the rightholder); Article 31(f) (limiting production primarily for supply of the domestic market; Article 31(h), modifying the obligation on remuneration to allow for providing little or no remuneration. It can justify India in imposing a compulsory license for its domestic market but not for enabling and justifying exporting to other countries. This is also true for developed countries. Thus the LDCs would not have practical recourse to this where they have no domestic manufacturing capacity and the other countries could not use this mechanism, as it now exists, to enable exporting to other countries.
The kind of licences that have caused the most difficulty and have been the basis of significant controversy are compulsory licenses for reasons other than addressing competitive practices, including such examples as public health emergencies. In such cases, the behaviour of the State is regulated by TRIPS Article 31 which foresees the use of such compulsory licenses as a way to address significant shortages, distribution problems and pricing issues addressed at either meeting short term demand for goods and products or at enabling public (government) non-commercial use for any reason.
This would seem perfect suited for the COVID situation. It is important to note that the TRIPS Agreement actually places no limitations on the grounds for issuance of compulsory licenses but only regulates the process by which such licenses are to be granted. In all the instances of compulsory licenses for non-competition purposes, adequate remuneration based on local market conditions is required.[4] Generally, good faith negotiation with patent holders is required, except if there is national emergency or other situation of extreme urgency, in which case government may proceed without first carrying out good faith negotiations. Again, that would seem ideal in the COVID19 situation. It is easy to conclude that compulsory licensing is legally available under the TRIPS for any purposes. The problem with Article 31 is primarily practical. Under TRIPS these licences are limited primarily to domestic use and NOT for export. TRIPS Article 31(f). While this clearly contemplates that some portion of the supply will be exported, the wording suggests that a majority of the production should still go to the domestic market. If we consider the role that middle-income countries must play in ensuring distribution of vaccines to other developing countries that do not have production capacity, this limitation ensures that these countries will not be able to use compulsory licensing effectively to achieve that goal. This points to the largest problem with Article 31, which is that, for those countries with limited or no production capacity, compulsory licensing is not an option, since there will be no domestic actors to whom such licenses could be granted and who could thus produce for the domestic market. Article 31 does not contemplate that a member could grant a compulsory license to an actor outside its territory for the purposes of that actor exclusively producing for supply of that country’s domestic market.
The Declaration on the TRIPS Agreement and Public Health sought to address this issue with respect to pharmaceuticals which were seen as particularly crucial sector for small developing countries. Paragraph 6 of the Declaration recognized that the use of compulsory licenses was a problem for those countries with insufficient or no manufacturing capacity in the pharmaceutical industry and instructs the TRIPS Council to find a solution. The solution proposed by the TRIPS Council was adopted as a General Council Decision in August 2003 (The August 2003 Waiver)[5] and this led in 2005 to the adoption of an amendment (Article 31bis) to the TRIPS Agreement in the form of a protocol attached to a General Council Decision.[6] The amendment took effect on 23 January 2017 and replaced the 2003 waiver for members who have accepted the amendment. The text (and the accompanying Annex[7]) essentially restated the conditions outlined in the waiver. Members may not bring a dispute settlement case as long as both the exporting and importing member country agree. This requires first, agreement between the two countries both issuing compulsory licenses, notification to the WTO by the importing member and then a series of requirements including:
- only limited to amount ordered by importing member and the entirety of it for export
- entirely separate packaging, coloring, and/or shaping to distinguish it from regular production;
- special processes in place in the importing member to prevent leakage or diversion of the products
Use of the system has significant transaction costs for the importing country, requires direct cooperation with the government of the exporting member, as well as direct cooperation with the exporting firm/licensee. Although there is some attempt within the article to enable economies of scale by encouraging ‘regional’ licensing, the transactions costs of using the system are very high and do not really present viable economic models to provide firms with incentives to take part in the system. The system presumes a pre-existing firm with current production lines being willing to produce the vaccine and to take one of its packaging and distribution lines and take on the additional costs of sourcing different packaging, different coloring, product segregation, all for one single order from one country with no prospect of a future market.
Another limitation that Article 31 imposes that is an issue for complex technologies such as mRNA vaccines is that it is not really designed to really work with them. The primary limitation is the one requiring that patents be addressed on a case by case basis.[8] This limits the granting of public interest licenses to an evaluation for each and every patent that must meet the rest of the requirements of Article 31. Where the technologies to be addressed are complex technologies that constitute not just a single patent but a complex of patents, the application of compulsory licenses can become a slow and cumbersome process as each patent in the family will require a separate compulsory license. We no longer live in the world of simple New Chemical Entities (NCEs).
Since the Waiver was made effective in August 2003, only one importing member (Rwanda) has used it to access drugs (from Canada).[9] Despite the fact that the product in question was not actually patented in Rwanda, the process proved so cumbersome that the company that was granted the exporting license under Canadian law declared that the system was economically unsustainable.[10] The transactions costs and lack of a viable business model make the waiver/amendment system largely useless for addressing the current problems being faced under COVID19. We need a relatively seamless system for ramping up production, access to know-how and production for export in the short term. The proposed Waiver[11] by South Africa and other countries under discussion at the WTO addresses this need and acknowledges the fundamental failure of the existing systems under TRIPS. Of particular note, the proposal is a temporary suspension of all obligations on patent rights, trade secrets, industrial designs etc but would encompass Article 30 and 31 AND by having a definite timeline of the emergency provides certainty for business models to be put in place around meeting the needs.
[1] Declaration on the TRIPS Agreement and Public Health, WT/MIN(01)/DEC/2 (2001)
[2] Article 40.2 states “Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.
[3] For more examples see: http://keionline.org/content/view/41/1 (last visited 15 August 2014).
[4] Article 31(h) TRIPS
[5] “Decision on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health” WT/L/540 and Corr.1 adopted August 30, 2003.
[6] Amendment of the TRIPS Agreement WT/L/641 Adopted 6 December 2005.
[7] https://www.wto.org/english/docs_e/legal_e/31bis_trips_annex_e.htm
[8] TRIPS Article 31(a).
[9] https://www.wto.org/english/tratop_e/trips_e/tripsfacsheet_e.htm
[10] Apotex Inc. “Submission to the Standing Committee on Industry, Science and Technology Bill C-393, An Act to amend the Patent Act (drugs for international humanitarian purposes) and to make a consequential amendment to another Act” (October 26, 2010). Available at: http://www.apotex.com/global/docs/submission_order_en.pdf (last visited 15 August 2014).
[11] https://www.wto.org/english/news_e/news20_e/trip_10dec20_e.htm
Technology, Sustainability & Human Rights 