Week 9 Compulsory Licensing of Medicine in Developing Countries

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Compulsory licensing of drug products ! The Author(s) 2013


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in developing countries DOI: 10.1177/1741134313503827
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Satish Saroha, Deepak Kaushik and Arun Nanda

Abstract
Compulsory licensing of drug products is a very hot issue in today’s pharmaceutical world. Compulsory
licensing of a drug product allows the government to issue the license of manufacturing the drug to a
third person. The third person has to give some 5–10% royalty to the patent holder (the quantum of royalty
is decided by the government and not by the patentee). The issue emerged after developing nations were given
TRIPS flexibilities to implement the system when lives of large population are at stake. Compulsory licenses
have been given in many countries like Thailand, Brazil, Mozambique, Zimbabwe, Zambia, Rwanda, Malaysia,
Indonesia and recently India. India issued compulsory license over Bayer’s anticancer drug Naxaver
(Sorafenib) to generic company Natco Pharma Ltd. United States has criticized the Indian decision. United
States has also put Thailand on watch list after Thailand has issued compulsory licenses to three antiretro-
viral drugs. Compulsory licensing of drug products is very beneficial for the patients but is considered a big
threat for the pharmaceutical companies. The branded drug makers spend billion dollars to patent a drug
product. It is claimed by the pharmaceutical majors that the royalty of 5–10% given by generic drug makers to
these companies is not enough to recoup their loss. The present article explores the utilization of
‘‘Compulsory Licensing’’ by several countries, exemplified by India and Brazil in particular, and highlights
the patentees’ concerns of losing profits. The authors have attempted to negate the concern of the patentees
over the use of compulsory licensing.

Keywords
Patents, compulsory licensing, generics

Introduction
The goal of the TRIPS Agreement is to standardize
A compulsory license provides a national government the manner in which intellectual property rights are
with the authority to practise an invention covered by a protected around the world.2
patent, or authorizes another party to do so, without Although the TRIPS Agreement neither defines
permission from the patent holder. The practice of ‘compulsory license’ nor specifies when exactly a com-
issuing compulsory licenses is an exception to the gen- pulsory license can be granted, Article 31 of the TRIPS
eral rule that patent holders have an exclusive right Agreement does authorize any WTO Member to issue
over their invention. In this situation authorization is a compulsory license after several ambiguous proced-
given to exploit an invention without the patent ures are met. Taking into consideration the inter-
holder’s consent. The purpose of a compulsory license national and domestic law on this issue, an inevitable
is to increase access to essential goods by providing a question arises; how will the current practice of com-
wider use of the invention than the patent holder pulsory licensing affect the future of the pharmaceut-
intended. As a result, the patent holder is forced to ical industry?3 As a major force in the international
give up a large part of his property right for the pur-
ported benefit of the public. The practice of compul-
sory licensing is addressed in the World Trade Department of Pharmaceutical Sciences, Maharshi Dayanand
Organization’s agreement on Trade Related Aspects University, Rohtak 124001, Haryana, India
of Intellectual Property Rights. The TRIPS
Corresponding author:
Agreement was negotiated at the 1986–1994 Satish Saroha, Department of Pharmaceutical Sciences, Maharshi
Uruguay Round and is to date the most comprehen- Dayanand University, Rohtak 124001, Haryana, India.
sive multilateral agreement on intellectual property.1 Email: satish.lovesatish.saroha@gmail.com

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economy, pharmaceutical companies allocate billions AIDS medication on the grounds of a national emer-
of dollars each year into research and development in gency. These nations locally produced antiretrovirals
order to provide the world with life-saving drugs; yet, pursuant to article 31(f) of the TRIPS agreement. In
any member of the WTO has the authority to essen- 2004, Malaysia and Indonesia issued compulsory
tially override the investment-backed patent a pharma- licenses for HIV/AIDS medications.4 These nations
ceutical company holds. The issuance of a compulsory imported generic HIV/AIDS medications from India,
license comes at a high price in the world of pharma- and became the first middle-income nations to issue a
ceutical products. The patent holder’s investment- compulsory license for importation of HIV/AIDS anti-
backed expectation of earning a profit from the retrovirals. Both Malaysia and Indonesia justified the
patented medicine is disrupted when his exclusive issuance of a compulsory license on the grounds that it
right over his patented product disappears. was for public non-commercial use. In 2005, Eritrea
In the recent past, the extent of intellectual property and Ghana also imported HIV/AIDS medications for
protection afforded by national governments varied public non-commercial use. Starting in 2006,
widely across the globe. As the importance of intellec- Thailand, a middle-income country joined the group
tual property rights became increasingly central to of nations issuing compulsory licenses for HIV/AIDS
international trade, economic tension between coun- medications. Thailand imported and domestically
tries arose due to the various levels of intellectual prop- manufactured the drug Efavirenz.4 In 2007, Brazil,
erty protections. The members of the WTO sought to also a middle-income nation, issued a compulsory
ease this growing tension by establishing globally recog- license for HIV/AIDS medications. Finally, and most
nized minimum levels of protection for intellectual recently, in 2008, Rwanda issued a compulsory license
property rights.3 On 1 January 1995, the WTO achieved on the HIV/AIDS medication Apo-TriAvir. The
this goal by negotiating the TRIPS Agreement, which nations of Thailand, Brazil, and Rwanda have all
‘‘standardized the protection of intellectual property recently issued compulsory licenses, each nation
rights throughout the world by establishing minimum making groundbreaking international news. Although
levels of protection that each WTO Member country compulsory licenses are designed to achieve beneficial
must provide for the intellectual property of other outcomes, it is likely that the practice of issuing com-
WTO members’’. Pharmaceutical products were pulsory licenses will further be abused which will lead
among the many inventions required to have a min- to global misfortune. In this research, examples of
imum level of protection under the TRIPS agreement. Compulsory Licensing provisions by India and Brazil
The overall purpose of the agreement was to reduce have been explored, as hereunder.5
obstructions in international trade while promoting
intellectual property protection.3
Compulsory licensing situation in India
Nations that have issued compulsory Background of Indian patent system
licenses
Before 1947, when India gained its independence, pre-
High-, middle-, and low-income nations have all independent patent laws were in effect. India’s first
issued health-related compulsory licenses. Examples patent act was instituted in 1856. The patent act
of high-income countries which have issued compul- included patents for both process and product and
sory licenses are the United States, Canada, Germany, lasted 14 years, with extensions allowed by the
Italy, and Israel. Governor General. Even after independence, of all
The United States was in a dilemma of whether to the pharmaceutical industries in India, 80% were
issue a compulsory license on Bayer’s Ciprofloxacin, operated by foreign companies owning 80–90% of
an anthrax antibiotic or not, following the 11 the patents, with 90% of the profit being sent overseas.
September 2001 attacks. The United States wanted In order to identify the resulting rise in cost of medi-
enough antibiotics to treat 10 million people in the cines, two committees were set up in 1970: The Bakshi
event of a mass anthrax attack. Eventually, the Tek Chand Committee and the Ayyangar Committee.
United States government and Bayer, the German- According to the Ayyangar committee, ‘‘The patent
based manufacturer, came to an agreement in which law of an underdeveloped country like India should
the United States had the ability to treat 12 million be so designed as to enable the country to achieve
people infected with the anthrax virus.5 Following rapid industrialization to attain, as quickly as possible,
the Doha Declaration, large-scale use of compulsory a fairly advanced level of technology giving inventors
licenses began. In 2002, after facing high rates of HIV/ and investors sufficient inducement and protection by
AIDS infections, Mozambique, Zambia, and patent grants and at the same time safeguarding its
Zimbabwe authorized compulsory licenses for HIV/ national economic and social interest’’.6

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Saroha et al. 3

These recommendations resulted in an important decision said.8,9 Nexavar, which Bayer developed with
amendment of the Indian Patent Act (IPA) in 1970. Onyx Pharmaceuticals, a California biotechnology
Other safeguards were also included in the act, such as company, is used to treat advanced kidney cancer
a shortened life of the patent from 14 to seven years, and liver cancer and has been shown to extend lives
the curtailing of product patents on medicine and the by a median of about three months. Fewer than 200
establishment of automatic licensing. With the passing Indians used the drug, a tablet, in 2011. Advocates for
of the 1970 IPA, it was clear that the policy of the cheaper generic medicines cheered the decision, which
Indian government was geared towards the protection they said could provide a model for developing
of public health and the expansion of the Indian gen- countries.10
eric manufacturing industry.6 The Patent Act of 1970 In his decision, the Patent Controller, P. H. Kurian,
provided only for process patent and no product said the paltry use of Nexavar in India clearly showed
patent. The Act had a number of safeguards to prevent that the drug was unaffordable. He said a compulsory
abuse of any kind. These included a much shorter license was needed to be granted because Bayer had
duration of the rights granted (seven instead of 14 not manufactured the drug in India and was treating
years), the prohibition of product patents on all medi- only a tiny portion of Indians with liver or kidney
cines and a strong compulsory licensing regime. cancer. He said the drug was afforded by only 2% of
Among other things, the 1970 IPA prohibited patent the patients with kidney and liver cancer. Bayer argued
protection on pharmaceuticals/food/agrochemical that the reasonableness of the price should reflect the
products, reduced validity periods of process patents development costs, not only the public’s buying power.
from 20 years to seven years and introduced ‘‘auto- It also said a compulsory license was not necessary
matic licensing.’’ As a result of this new patent because an inexpensive version of Nexavar was already
regime, India became one of the cheapest drug produ- being sold in India by another generic company that
cing countries after 1970.6,7 In 1995, India joined the has said it does not need to recognize Bayer’s patent.
World Trade Organization (WTO) and automatically Bayer has sued that company, Cipla, which is based in
became a signatory to the Agreement on Trade- Mumbai, claiming patent infringement in a separate
Related Aspects of Intellectual Property Rights case that is pending.11 Mr. Kurian rejected that argu-
(TRIPS). As per the requirements under TRIPS, ment, writing that Bayer was engaged in ‘‘two-
India needed to amend its patent law by 1 January facedness’’ by trying to fight Cipla’s drug while using
2005. India was required to extend patents to micro- it as a defense against Natco. Global sales of the drug in
organisms, introduce TRIPS-compliant compulsory 2011 were 725 million Euros, or about $950 million.12
license (CL) provisions, product patents, extend the According to the authors, issue of a compulsory
term of protection to 20 years, and remove discrimin- license in the present case should not be portrayed as
ation between local production and importation.7 a gross violation of the patentee’s rights, and should
not be viewed as a jolt to the profitability of the paten-
Naxaver case: India’s first compulsory tee (Bayer). The patentee is free to realize its profits in
other (richer) countries, where the ‘‘compulsory
license license’’ granted by India does not extend. It is clear
India’s government on 12 March 2012 authorized a that the Indian government has very judiciously dis-
drug manufacturer to make and sell a generic copy charged its obligation of providing the life-saving drugs
of a patented Bayer cancer drug, claiming that Bayer available to poor patients at a reasonable cost, by uti-
charged a price that was unaffordable to most of the lizing the compulsory licensing in the present case.12
nation. The decision by the Controller General of
Patents, Designs and Trademarks was the first time a
so-called ‘‘compulsory license’’ of a patented drug had Compulsory licensing situation in Brazil
been granted in India.8 Legal specialists and patient
advocates said it could open the door to a flood of
Background
other compulsory licenses in India and possibly in In 1996, the Ministry of Health pledged to make anti-
other developing countries, creating a new supply of retroviral drugs available to all Brazilians who needed
cheap generic drugs. According to the decision, Bayer them. The cost of such drugs was manageable when
must license the drug Nexavar, or Sorafenib, to Natco just a few drugs were available and HIV treatment was
Pharma, an Indian company. In exchange, Natco must only recommended once patients developed full blown
pay Bayer a 6% royalty on its net sales and must sell AIDS, but as more drugs were introduced and doctors
the drug for 8800 rupees ($176) a month, about 3% of began to prescribe antiretrovirals to asymptomatic
the 280,000 rupees ($5600) that Bayer charges for it in HIV-positive people, the national AIDS budget rose
India. Natco’s drug will be for use only in India, the to more than $300 million a year in 2000 (Ministry

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4 Journal of Generic Medicines 0(0)

of Health, 2008). The government responded by limit- introduced into Brazil. This issuance of a compulsory
ing the variety of drugs imported for the national pro- license has had a negative impact on Brazil’s reputa-
gram. In addition to rationing, the government began tion as an industrialized country seeking to attract for-
investing in national laboratories to produce generic eign investment.16
drugs locally and began negotiations for reduced
prices and/or the right to produce patented drugs
under licenses from multinational pharmaceutical
Efavirenz case
companies. Negotiations broke down when the gov- In 1986, Brazil established its National STD and
ernment was unable to secure the discounts it desired AIDS Committee (CNAIDS). Only Zidovudine was
from Abbott Laboratories for its powerful new prote- available to treat HIV/AIDS in Brazil. The pill form
ase inhibitor Kaletra in 2005.13 President Lula da Silva of antiretroviral Didanosine (25 and 100 mg) was first
declared a public health emergency and the nation’s available in 1993. Brazil first began using an antiretro-
intent to begin producing the drugs under compulsory viral cocktail therapy in 1996.17 Brazil first offered
licensing. Under the WTO’s TRIPS agreement, antiretroviral Zalcitabine (0.75 mg pill) in May. The
nations set their own standards for defining public injectable form of Zidovudine, Lamivudine (150 mg
health emergencies and have the right to violate pill), Saquinavir (200 mg capsule), and Ritonavir
patents in such cases. They are required to pay a (100 mg capsule) were also made available in June,
token amount to the patent holder as a result. While September, December and December, respectively.
controversial, Lula da Silva’s decision seems legal and On 14 May 1996, Brazil passed National Legislation
can be explained by several of the key justifications for for its Intellectual Property Law, which allows for
government intervention in private markets cited in compulsory licensing. In 1998, Brazil began producing
the public finance literature, including equity con- Zidovudine locally. Brazil also began distributing the
cerns, a patent-induced market failure that leads to antiretroviral through the National Health System.
under provision of drugs, and the existence of positive Brazil publicly considered issuing compulsory licenses
externalities of HIV drug treatment that benefit society for Nelfinavir and Efavirenz in 2001.17 The US Trade
beyond just people with HIV.13,14 Representative filed a complaint in the WTO Dispute
President Luiz Inacio Lula da Silva of Brazil agreed Settlement Body, concerning article 68 of Brazil’s
on 4 May 2007, to issue a compulsory license on patent law, which allowed for compulsory licensing
Efavirenez, an HIV/AIDS drug owned by Merck. when patent holders do not manufacture their prod-
Before the license was issued, Merck offered to lower ucts locally. US Trade Representative Officials labeled
the drug price by 30%, but because Brazil justified this complaint as the ‘‘Merck’’ case. On 29 March
their issuance of the license under the ‘‘public non- 2001, Merck agreed on price discounts of 59% for
commercial use’’ category of the TRIPS Agreement, Efavirenz and 65% for Indinavir, as long as Brazil’s
Brazil was not required to negotiate with Merck what- government did not issue compulsory licenses for gen-
soever. Brazil claimed that importing a generic form of eric production. Efavirenz would sell for 84 cents
Efavirenz from India would save the nation’s anti- instead of $2.06 for a 200 mg dose, and Indinavir
AIDS program $30 million dollars annually. Brazil would sell for 47 cents instead of $1.33 for a 400 mg
received the generic import for $0.45 a pill, compared dose. On 5 September 2003, despite its negotiations
to Merck’s offer of $1.11 per pill. Merck, disappointed with pharmaceutical companies for a 40% discount on
with Brazil’s actions, has stated that Brazil’s decision is antiretrovirals, Brazil was only offered a maximum
a major step backward and sets bad policy for two reduction of 6.7%. Brazil issued a public decree allow-
reasons.15 First of all, Brazil’s actions set bad prece- ing for local production or import of generic antiretro-
dent in the sense that it will encourage overuse of the virals without patent holders’ consent. In particular,
compulsory license provision. Brazil is an upper- the decree applied to Lopinavir, Efavirenz and
middle income country with the 12th largest economy Nelfinavir. On 14 March 2005, Brazil asked pharma-
in the world. Moreover, Brazil has a relatively low rate ceutical companies Merck, Gilead and Abbott
of HIV/AIDS infection, and has a well-established Laboratories, to voluntarily license the generic produc-
AIDS program which has been successful in control- tion of their respective antiretrovirals for Brazil’s
ling the national spread of HIV/AIDS. Therefore, National STD/AID Program. Those antiretrovirals
Brazil has more of an opportunity to pay for HIV/ included Merk’s Efavirenz, Gilead’s Tenofovir, and
AIDS medications than countries that have less Abbott’s Lopinavir and Ritonavir.17
money and that are hit harder with the epidemic. After a series of unsuccessful meetings with Merck
The second reason Merck condemns Brazil’s practice Sharp and Dohme, starting in 2006, Brazilian
is because future foreign investment will be discour- President Luiz Inácio Lula Da Silva announced
aged, which will ultimately result in less drugs being Brazil’s issuance of a compulsory license for Merck’s

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Saroha et al. 5

Efavirenz, on national television on 4 May 2007. After is the percentage of sale of its drug in India, as com-
the grant of compulsory license for the drug Efavirenz, pared to its sales worldwide, where compulsory licen-
the price of the drug has been reduced from US$1.59 sing was not invoked). Similarly, none of the patentee
to US$0.43/tb. The drug has been used by more than companies have proved as to how use of compulsory
75,000 AIDS patients in Brazil.18 license provision by one country has encouraged
another country to follow suit. Each country has a
responsible government, and it must be left to the indi-
Conclusion vidual country as to how and when the compulsory
The authors are of the view that issue of compulsory licensing provisions must be utilized, in the best inter-
licensing for drug products is very beneficial for the ests of its patients. Thus, the authors appreciate the
public in developing and low developed countries use of compulsory licensing by several countries (India
where people cannot afford branded drugs for diseases and Brazil in particular) and criticize the patentee
like AIDS and cancer. For example, in the case of companies, over the fears generated regarding the
compulsory license in India over liver and kidney use of compulsory licensing.
cancer drug, Bayer charges 280,000 rupees ($5600)
for one month while Natco charges only 8800 rupees
Acknowledgements
($176) for a month. This amount is just 3% of the
I sincerely thank my thesis supervisor, Mr. Deepak Kaushik,
amount charged by Bayer’s drug. United States has
Assistant Professor in Pharmaceutics, Faculty of
opposed the decision. The countries like Brazil and
Pharmaceutical Sciences, MD University, Rohtak and
Thailand have also given compulsory licenses for Prof. Arun Nanda, Dean, Faculty of Pharmaceutical
AIDS drugs. The common patients in these countries Sciences, MD University, Rohtak for their guidance, help
have definitely been benefitted to get the treatment and motivation. This work could not have attained its pre-
after the decision. The use of compulsory licensing sent form without their active interest, direction and help.
provisions by countries like India and Brazil is con- They have been always there with me in providing many
sidered a severe threat by the multinational patentee helpful comments. I think this research article would not
firms, who claim compulsory licensing provisions have have been possible without the confidence, endurance and
the following disadvantages: support of my family. My family has always been a source of
inspiration and encouragement. My sincere gratitude also
1. Compulsory licensing does not allow the patentee goes to all those who instructed and taught me through the
years. Last but not the least I would like to thank God for
company to recover the cost of development of a
everything.
new drug (which should also cover the cost of all
unsuccessful drug candidates the patentee company
has worked upon). References
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