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Microsoft word - the_wto_decision_on_compulsory_licensing.doc

The WTO Decision on
Does it enable import of medicines for developing countries with grave public The National Board of Trade
The National Board of Trade is a governmental agency and the central administrative body in Sweden dealing with foreign trade and trade policy. The Board provides the Government with analyses and recommendations. Within the framework of the European Union, the Board works for an effective internal market, open trade policy in the EU and a strengthened multilateral trading system within the WTO. The Board also acts as ombudsman for free trade and free movement within the EU as partners of the Solvit network. EXECUTIVE SUMMARY. 5
1. INTRODUCTION. 15
1.2 PURPOSE AND SCOPE . 16 1.3 METHOD AND MATERIALS . 16 1.4 DISPOSITION AND MAIN FINDINGS . 16 2. BACKGROUND . 17
2.1 COMPULSORY LICENCES. 17 2.1.1 Compulsory licences in the TRIPS agreement. 18 2.2 THE ECONOMICS OF ACCESS TO MEDICINES . 19 2.2.1 The economics of compulsory licensing . 20 2.3 THE ROAD TO THE DECISION . 21 2.3.1 The problem of compulsory licensing being limited "to supply the domestic market" . 21 2.3.2 The Doha Declaration on TRIPS and public health . 22 2.3.3 Negotiating paragraph 6 of the Doha declaration . 22 2.3.4 The Decision of 30 August 2003 . 23 2.3.5 Amending the TRIPS. 23 2.4 THE NEW SYSTEM. 24 2.4.1 When to use it . 24 2.4.2 How to use it. 24 3. HOW HAS THE DECISION BEEN USED?. 27
3.1 NATIONAL IMPLEMENTATION. 27 3.1.1 Exporting countries . 27 3.1.2 Importing countries . 28 3.2 ATTEMPTS TO MAKE USE OF THE SYSTEM. 29 3.2.1 The case of Médecins Sans Frontières . 29 3.2.2 The case of Ghana . 29 3.2.3 The case of Rwanda. 30 3.2.4 Lessons to be drawn from the attempts. 30 3.3 INDIRECT EFFECTS. 31 3.4 CONCLUSION – LIMITED USE SO FAR. 32 4. IS THERE A NEED FOR THE SYSTEM ESTABLISHED BY THE DECISION? . 33
4.1 COMPULSORY LICENSING – A CONTROVERSIAL INSTRUMENT. 33 4.1.1 Cases of compulsory licences . 33 4.1.2 Empirical studies of compulsory licences. 34 4.1.3 Some pros and cons of compulsory licences. 36 4.1.4 Conclusion. 38 4.2 PATENTED MEDICINES – NEEDS AND ACCESS. 38 4.2.1 Patents, prices and access . 39 4.2.2 Patented medicines needed. 39 4.2.3 The special case of India . 42 4.2.4 Access through donations or differential pricing . 43 4.2.5 Conclusion. 44 4.3 CONCLUSION – A GROWING NEED FOR THE DECISION . 44 5. PREREQUISITES FOR THE DECISION TO FULFIL ITS PURPOSE. 46
5.1 ECONOMIC PREREQUISITES. 46 5.1.1 The difference between the Decision and regular compulsory licensing. 46 5.1.2 Factors affecting price. 46 5.1.3 The view of potential producers . 50 5.1.4 Conclusion. 51 5.2 LEGAL PREREQUISITES – THE ISSUE OF TRIPS-PLUS . 52 5.2.1 Provisions in regional trade agreements. 52 5.2.2 The Special 301 mechanism. 55 5.2.3 Conclusion. 56 5.3 POLITICAL PREREQUISITES . 56 5.4 CONCLUSION – LIMITED POSSIBILITIES . 58 6. CAN USE OF THE DECISION BE FACILITATED?. 59
6.1 ENLARGING THE MARKET BY POOLING DEMAND . 59 6.1.1 Pooling through the RTA exception in the Decision. 60 6.1.2 Pooling through other regional groupings. 61 6.1.3 Options under exporters' legislations. 62 6.1.4 Conclusion. 62 6.2 IMPROVING ADMINISTRATIVE CAPACITY . 62 6.2.1 Determining patent status of a medicine . 62 6.2.2 Administrative capability to issue CLs . 63 6.2.3 Prevention of re-export. 64 6.2.4 Conclusion. 65 6.3 INTERPRETING THE CONDITIONS IN THE DECISION AND THE CHAIRMAN'S STATEMENT . 65 6.3.1 Who may use the system and when . 66 6.3.2 Product quantity . 66 6.3.3 Labelling the products . 67 6.3.4 Remuneration to the patent holder . 67 6.3.5 Conclusion. 68 6.4 TECHNICAL AND FINANCIAL ASSISTANCE. 68 6.4.1 The role of IP-related assistance for implementing the TRIPS . 68 6.4.2 The role of IP-related assistance for facilitating use of the Decision. 72 6.5 CONCLUSION – CERTAIN MEASURES MAY FACILITATE USE. 72 7. FINAL CONCLUSIONS . 74
LIST OF ABBREVIATIONS AND ACRONYMS. 76
LITERATURE AND SOURCES. 77
ANNEXES . 91
ANNEX 1: TRIPS ARTICLE 31 . 91 ANNEX 2: THE DOHA DECLARATION ON TRIPS AND PUBLIC HEALTH . 93 ANNEX 3: IMPLEMENTATION OF PARAGRAPH 6 OF THE DOHA DECLARATION ON THE TRIPS AGREEMENT AND PUBLIC HEALTH. DECISION OF 30 AUGUST 2003 . 95 ANNEX 4: THE CHAIRMAN'S STATEMENT . 99 Executive summary

Introduction – what is the problem?
One person out of three on Earth has no access to essential medicines. One basic reason is of
course poverty – many developing country consumers do not have enough purchasing power.
Other important factors are inadequate national health infrastructures and financing systems.
Prices of medicines also play an important role, because many people in developing countries
have to pay for their own medicines, as there are no general health insurance systems.
In certain cases patent rules contribute to high medicine prices. A patent is an exclusive right
to an invention with the purpose of stimulating research and development of new products.
The exclusivity lasts for 20 years. During this time nobody may use the invention without the
prior approval of the patent holder. If there are no like products on the market the patent will
result in a legal monopoly which the patent holder can exploit to best advantage.
Medicines are expensive to develop but comparatively cheap to produce. The owners are
therefore dependent on patent protection to be able to set prices that can recoup the
investment made in research and development. The research-based industry can to some
extent control prices and availability worldwide – partly because most companies are very
large and partly because more and more countries have introduced patent protection for
medicines in the last decade.
It makes sense economically for companies to adjust prices to different markets depending on
their purchasing power: higher prices in high income countries and lower prices in developing
countries. Such price differentiation allows production of larger volumes which leads to
economies of scale. It benefits the companies at the same time as it provides better access to
the product for consumers.
However, the theoretical model does not always work in real life. There are sometimes large
price differentials between equally poor countries and occasionally prices are even higher
than in high income countries.
The explanation for this paradox is that the ability of companies to adjust prices according to
purchasing power is circumscribed for two reasons. Firstly, because there is a risk that
medicines sold at lower prices in developing countries are re-exported to high income
markets. Secondly, there may be an indirect influence. Many high income countries, including
Sweden, regulate medicine prices on a national level. There is a risk that these countries use
prices in developing countries as benchmarks (external reference pricing). In both cases,
prices are undermined in the most important markets which makes it more difficult for
companies to use prices in high income countries to cover research costs for new medicines.
About this study
On August 30, 2003, the World Trade Organization, WTO, accepted a set of new rules
intended to improve access to medicines in developing countries. Developing countries with
grave public health problems were given the possibility to import patented medicines through
so-called "compulsory licensing". The new rules led to a change in the WTO agreement on
trade-related intellectual property rights, the TRIPS. It was a response to criticism that WTO
rules were part of the obstacles to increased access to essential medicines. It was the first and so far the only time that a WTO agreement had been amended and the event received a lot of attention. In this study, the National Board of Trade analyses whether this new set of rules can enable import of patented medicines to developing countries. There is a yearly review of the new rules in the Council for TRIPS in the WTO but so far it has not been a substantive review of the new system as such. The TRIPS agreement

The agreement on trade-related aspects of intellectual property rights, TRIPS, is one of
the WTO agreements. It came into force in 1995. The agreement contains rules on patents
to protect inventions, copyrights to protect artistic works and trademarks. Intellectual
property rights confer an exclusive right to the creator of the invention, work or mark with
the purpose of stimulating technical, cultural and commercial advancements. Through the
the TRIPS agreement, all WTO member states have committed to maintain a certain level
of protection for intellectual property rights.
Developing countries had until 2000 to implement the TRIPS into national legislation, but
could delay introduction of product patents for medicines until 2005. The least developed
countries are still in a transition period. They must implement the agreement no later than
2013, except in regards to medicines where it can be delayed to 2016.

Can compulsory licensing be a solution?
In what way could a compulsory licence and the new WTO rules improve access to
medicines? There are two potential scenarios where a compulsory licence may result in lower
prices.
In the first scenario, compulsory licences would result in lower prices due to lower
development costs for the new producer. Unlike the patent holder, the new producer has no
research costs to cover, only costs for starting a production. The new producer only has a
licence to sell the product in the market where the compulsory licence is granted, and thus
does not need to be concerned about any influence on prices in high income markets. In the
second scenario, the compulsory licence is not actually put into use. Its mere existence
improves the negotiating position of the importer towards the patent holder, enabling the latter
to reduce its own prices.
The compulsory licence cannot guarantee lower prices, since prices are affected by a number
of factors apart from the patent situation and costs of production.
Compulsory licences

Patent holders may allow others to exploit their inventions by granting voluntary licences.
A compulsory licence is a special situation where permission to exploit an invention is
given without the patent holders permission. The purpose is to provide a safeguard against
lack of use of a patent or misuse of the patent holder's monopoly rights. Article 31 in the
TRIPS agreement allows the granting of compulsory licences, as long as certain
procedures are followed and certain terms fulfilled. A compulsory licence shall be
considered on its individual merits and be possible to appeal. The patent holder is entitled
to economic compensation.
Compulsory licences are common in patent systems, even if they are not often put to use.
They may constitute a strategic tool for improving the negotiating position of the general
public towards the patent holder in order to improve access to a particular invention. There
is, however, a risk that compulsory licences reduce innovation and investment by
diminishing the value of a patent. The Doha Declaration on TRIPS and Public Health,
which was adopted by the WTO in 2001, clarifies that all member states have the right to
grant compulsory licences to protect public health and improve access to medicines.

Research on general use of compulsory licences in Canada, the US, Thailand, Malaysia,
Zimbabwe and Brazil shows that while systematic use of compulsory licences might harm
innovation and investments, sporadic use showed no such effects. An important factor to
consider is how important the market in question is for investment decisions. The compulsory
licences did result in certain downward pressure on prices, although not always in a
significant way. The problem is that, despite lower costs for developing the medicines, the
new producer generally cannot achieve equally effective production as the patent holder.
Importers achieved the most significant price reductions when they used the threat of
compulsory licensing to compel patent holders to lower their own prices. In such cases, prices
were sometimes lowered by as much as 50 percent.
These experiences do not necessarily apply to low income or small countries. The threat of
compulsory licensing is only effective if it is credible and the market is important to the patent
holder. The conclusion is therefore that compulsory licences may be useful tools in certain
cases but are also associated with risks and limitations. Also, they cannot improve other
deficiencies in the health care systems, such as lack of trained personnel.
How did the WTO address the problem?
Medicine production is concentrated to high income countries and some large developing
countries. Many countries have no production capacity at all. The reason the TRIPS rules
from 1995 had to be changed was that they only allowed compulsory licences for the
domestic market. Countries without domestic production capacity of medicines could
therefore not use them. Nor was it allowed for countries with production capacity to grant
compulsory licences for export to countries without such capacity.
The Doha Declaration on TRIPS and Public Health of 2001 acknowledged this problem, and
two years of high profile negotiations to define the solution followed.
The new rules were adopted in 2003. They allow WTO members to grant compulsory
licences for medicines to be exported to developing countries with grave public health
problems and insufficient domestic production capacity. Both developing and high income countries may be exporters. A number of steps must be taken by both importer and exporter. There are several safeguards intended to prevent re-exportation of the medicines, as this would undermine prices on other markets. Importers shall only use the new rules when the medicine is patented in the exporting country (the location of the new producer) – see the table below. When the medicine is patented in the importing country, but not in the exporting country, the importer may instead use a "regular" compulsory licence. Thailand and Brazil used this option in 2006 and 2007. The exporting country in their cases was India, where there were no patents on the products in question. Importing
Product patented Product not patented Exporting
The new rules are used The new rules are used Both countries grant compulsory Only exporting country grants a compulsory licence. The new rules are not used The new rules are not used The importing country grants a Regular import from any "regular" compulsory licence for manufacturer import. (The option used by Thailand and Brazil) The negotiations were difficult and received a lot of attention. However, the new rules only touch on a small part of the interface of intellectual property rights and public health. The rules are only to be used in certain specific cases, namely when there is a good reason to use a compulsory licence, no domestic production capacity, and a patent on the medicine in the exporting country.
The analysis began with several questions. Firstly, how have the new rules been used so far?
Can any conclusions be drawn from this use? Secondly, what are the prerequisites that the
new rules will enable import of patented medicines to developing countries?
How have the new rules been used so far?
The new rules must be implemented in national legislation before they can be utilized.
Implementation is furthermore fully voluntary. On the exporter side, only Canada, Norway,
India and the EU have implemented the rules so far. China and Korea have also made
changes, but not formally notified their new laws to the WTO. There is little information on
the legal situation in most potential importing countries. Many of them can probably use the
new rules on the basis of existing laws and regulations on compulsory licences.
No attempt to import under the new rules has been completed in the four years that have
passed since they were adopted. The organisation Médecins Sans Frontières/Doctors without
borders applied for a compulsory licence in Canada for export of an AIDS medicine on behalf
of an unnamed developing country. Two years later, the process had still not been completed.
The organisation abandoned the attempt when two Indian companies began marketing copies
of the same medicine at a certified quality. These companies did not need to apply for a
compulsory licence since the medicine was not patented in India.
As the first member state to do so, Rwanda notified the WTO in July 2007 of its intention to
use the new rules. A Canadian company applied for a compulsory licence to export to
Rwanda. The licence was granted and the patent holders have agreed to forgo compensation
on certain conditions. It is, however, still unclear whether Rwanda will complete the process.
The medicine in question is the same as in the case of Médecins Sans Frontières which means
that it is also for sale in India. The Indian price appears to be lower than the Canadian price.
All in all, there appears to be a general lack of interest in using the new rules, even though the
negotiations appeared to be so important to many parties. It is possible that the rules have had
indirect effects even though they have not been used. The new possibility for compulsory
licences can improve importers' negotiating positions, and the mere adoption of the new rules
could therefore result in lower prices. However, it is not easy to discover such systematic
price effects during the short period that has elapsed.
Why has there been such limited use?
What is the reason for the limited use of the new rules – is it that they are unworkable, as for
example argued by Médecins Sans Frontières? It cannot be answered based on the cases
reviewed above only. The Canadian law is the only one that has been used and it is not
representative of the rules adopted by the WTO. Canada has added limitations and extra
requirements, and reduced the original flexibility. These changes accounted for a significant
part of the complications in the attempt by the Médecins Sans Frontières. It can also be
mentioned that the organisation did not disclose the country that would import the medicines.
This is not compatible with the requirements for transparency in the new rules.
In order to understand why there has been such a limited use of the new rules, the need for
medicines that are patented in all important exporting countries must be assessed. It is only in
this situation that the new rules are to be used. If the medicines are not patented in the
exporting country the importer may use other methods, as described in the table above.
An analysis of the situation for medicines to treat HIV/AIDS shows that while the need for
the new rules has been limited so far, they are likely going to become much more important in
the future. HIV is a highly changeable virus and patients need to switch and update their
medicines regularly. Some types of AIDS medicines were launched before the TRIPS rules on
patent protection for medicines were introduced in developing countries, and they could
therefore be freely copied and sold in these countries. This has resulted in vigorous price
competition for many of the older medicines used as the standard "first line" treatment, even
though most of them are still patented in high income countries. With many suppliers to
choose from, there has been no need to use the Decision for these medicines.
The situation changed in 2005 when the transition periods for implementing TRIPS expired
for all members except the least developed ones. It became possible to patent medicines in all
countries with significant manufacturing capacity, including India which is an important
producer of low-cost medicines. So far, this has not significantly affected the Indian
production of existing medicines, but neither India nor other countries outside the least
developed ones will henceforth be able to produce copies of new medicines, introduced and
patented after 2005.
This means that the situation in regards to competition and price is different for the second or
third line AIDS medicines, i.e. medicines that patients will need when they have developed
resistance to the first line medicines. The same holds for new, more effective substitutes for
first line medicines. All of these are patented in many countries and the prices are much
higher than for older medicines. This is becoming a grave concern for the countries and
international agencies that offer treatment. Patients need to switch to the second line
medicines within a couple of years after starting treatment and these medicines may cost up to
12 times as much.
Donations and differential pricing can improve access to some patented medicines but cannot
be the full solution for each and every country or for every product. As mentioned above, the
current voluntary system for differential pricing does not result systematic adjustments of
price to purchasing power in different markets. As well, there is naturally less pressure on
companies to offer lower prices if there is no competition or credible risk of compulsory
licensing.
The new rules may therefore quite likely become much more important in the future. When
all transition periods have expired, all WTO members must have TRIPS-compliant patent
laws. The new rules will be one of very few legal opportunities to put more pressure e.g. on
owners of patents for new AIDS medicines during the 20 years when patents are protected.
Can the new rules enable import of patented medicines?
If compulsory licensing for export will be more important in the future, it is naturally crucial
that they represent a credible option that can actually be put into use. The attempts made so
far do not provide enough empirical evidence to assess whether this will be the case. The
analysis therefore reviews the potential for the new rules to enable import of patented
medicines to developing countries. Are the necessary prerequisites in place? The analysis
shows that the potential is limited and that market size is a decisive factor.

Economic prerequisites
A compulsory licence is a business transaction between the importer and the new producer.
The compulsory licence will only attract a regular for-profit company if it can expect
reasonable returns on the investment. The importer, on the other hand, will only conclude a
deal if the new producer can offer a price below the patent holder's price. What is the
likelihood that these prerequisites will be fulfilled?
Medicine prices are lowered when a new producer enters the market, but they will not
approach lowest possible price (the marginal cost) unless there is competitive pressure from a
larger number of producers. Such pressure will be difficult to achieve under the new rules.
For several reasons the new rules are not easily combined with procurement procedures that
allow several potential producers to bid on one contract, creating a downward pressure on
prices.
It may be difficult for the new producer to offer a price that is acceptable to the importer. The
manufacturing costs of the new producer will probably be high in comparison with
compulsory licences in developing countries where the medicine was not patented in the
exporting country (see the table above). The Rwandan case is one example of this. The price
in the company that already produces the medicine in India is lower than the price offered by
the Canadian producer that was granted the compulsory licence. When the medicine in
question is patented in the exporting country, the new producer does not have ongoing
manufacturing and the costs for starting up can be substantial. The new producer will not
necessarily get access to the most effective method of production, but can only rely on the
information in the patent application of the medicine in question. It may take a couple of
years before production can commence. The compulsory licence also entails risks, such as the
risk of litigation from the patent holder.
The conclusion is that economic prerequisites can only be present if the importing market is
large enough to cover production costs and provide a margin for risks and reasonable returns
to investments. Comments from the generic industry indicates that the rules provide only
limited incentives but some Indian companies may consider exporting under the new rules if
the export market is large enough. However, most developing country markets are small.
High income countries represent the majority of the medicine market – more than 87 percent
of total sales in 2006. It is therefore likely that apart from the more advanced among the
developing countries, the new rules will only be useful if importers can use donor money to
buy medicines under compulsory licences. However, donor rules do not always allow money
to be spent in this way.
It is therefore likely that the economic prerequisites will be difficult to fulfil. The patent
holder will often be able to offer the lowest price as well as the quickest delivery. The value
of compulsory licensing therefore lies in the possibilities to strengthen the negotiating
position of the importer towards the patent holder. However, again, this effect will probably
be limited if the value of the market is limited. Such an importer does not possess much
negotiating power with or without a compulsory licence.
Legal prerequisites
The new rules can only be used if they are legally implemented and not contradicted by other
international commitments. It may become impossible to use the new rules if the countries in
question have implemented provisions that go beyond the TRIPS (so-called "TRIPS-plus").
TRIPS-plus provisions in the area of medicines are primarily promoted by the US in its
regional free trade agreements and relations with other countries. This type of provisions
enables the patent holder to exercise more control over the use of data from clinical trials of a
new medicine than mandated in the TRIPS. Even though the provisions do not always address
compulsory licences directly, they may still make such licences impossible to use effectively.
Patent holders submit data from clinical trials to regulatory authorities when applying for
marketing permission of new medicines. If the producer with the compulsory licence is not
allowed to rely on these data when developing their copy of the medicine, all clinical trials
would have to be redone. This would increase costs and delays to such an extent that the
compulsory licence would not be able to contribute to lower prices. TRIPS-plus provisions
can sometimes also make use of the new rules impossible by being difficult to interpret or
self-contradictory. Importing countries may hesitate to use compulsory licensing in such an
unclear legal environment. At present, 16 countries in Asia and Latin America have
concluded agreements with the US with this kind of provisions.
Political prerequisites
Compulsory licences are controversial instruments. There are conflicting social interests at
stake: how to stimulate new research while also improving access to existing inventions.
Compulsory licences are strongly criticised by some and strongly advocated by others. The
WTO negotiations for the new rules were long and difficult and the result was a compromise
that reflected this situation. Thus, there is a political "climate" that may influence use of the
new rules.
There are no reports of countries being warned off from using the new rules – on the contrary,
there have been several very positive official reactions to Rwanda, which belongs to the group
of least developed countries. However, at times developing country use of regular
compulsory licences (according to the original article 31) or other exceptions to patent rights
in the TRIPS have met with criticism from high income countries, or even threats of trade
sanctions. Such practices have mainly been directed at the more advanced developing
countries. There is a risk that this negative climate around compulsory licences in general will
affect use of the new rules as well.
Another issue is that the importer country cannot use the new rules independently. The
importer is dependent on the exporting country to allow and grant compulsory licences for
export. The political climate surrounding compulsory licences can influence the likelihood
that the exporter will take these steps. Furthermore, research-based companies are often very
critical to compulsory licences. The potential exporting country may therefore conclude that
granting a compulsory licence for export will send wrong signals to future investors. Some
countries may hesitate or refuse to act as exporters under the new rules in order not to
jeopardize inward investments. The importer cannot control this situation.
Finally, it may be noted that there will probably be few situations when all prerequisites are
fulfilled – economic, legal as well as political. For example, it is likely that companies based
in developing countries would be able to set a lower prices than companies based in high
income countries due to differences in production costs. At the same time, developing country
authorities may be more hesitant to grant compulsory licences on the grounds of safeguarding
foreign investment. Developing countries have more to "prove" in regards to the quality of
their national intellectual property rights system than high income countries and also more
sensitive to losses of investment. Another example is that, from an economic perspective,
using the new rules will be easier the larger the market; politically, it may instead become
more difficult. There is a risk that an importer that is large enough to attract potential new
producers also is large enough to raise concerns among patent holders and their governments.
If these actors voice criticism or even employ threats of trade sanctions, any importer might
hesitate using a compulsory licence.
Can use of the new rules for developing countries be facilitated?
There are a number of ways to facilitate use of the new rules. Small markets may improve
their negotiation positions by procuring medicines together. The new rules allow multiple
recipients of medicines produced under a compulsory licence. Firstly, there is a special rule
for regional trade agreements where at least half of the members belong to the least developed
countries. A member of such an agreement may import medicines under the new rules and
export them to the other member states, as long as they all share the same health problem.
Several regional trade agreements in Africa fulfil these criteria. Secondly, other groups of
countries may also pool their demand into one single compulsory licence even if they cannot
re-export the product among them. There are already several regional and global institutions
that coordinate and pool medicine demand of many countries. In theory, these institutions and
the African trade agreements would be possible to use under the new rules.
The problem is that probably none of these organisations could manage compulsory licences
for import at present. Nobody has so far combined a compulsory licence with pooled
procurement. Substantial institutional development and capacity building would be necessary
to make it feasible. Measures to strengthen regional capacity could facilitate use of the new
rules for import. National laws may also have to be further amended. Another problem is that
most of the few exporting countries that have implemented the new rules chose not to allow
multiple recipients.
As a result of the difficult negotiations, the new rules contain a number of undefined terms
and conditions. They concern who may use the rules and when, how the product shall be
marked and how much compensation shall be paid to the patent holder. The way these vague
terms and conditions are interpreted may influence use of the new rules.
The new rules require that the importer fulfils a number of administrative tasks. The importer
must determine the patent status of the medicine in question, grant and manage a compulsory
licence and prevent the medicines from being re-exported after entering the country. These
tasks may be problematic, because the countries most in need of cheaper medicines generally
also have low administrative capacity. However, the requirements are worded in rather
flexible ways, which may facilitate matters. The least developed countries may furthermore
get around some of the administration by using their transition period for TRIPS which is in
force until 2016 in regards to medicines. Finally, the administrative tasks may be facilitated
by technical and financial assistance.
The TRIPS agreement and the new rules both require high income countries to provide
developing countries with technical and financial assistance on mutually agreed terms.
Revising intellectual property rights systems is costly and many countries need assistance to
do it. Assistance will also be crucial for finding forms and finance to facilitate use of the new
rules. An analysis of intellectual property-related assistance in the last decade shows that
advice and projects have generally focussed on assisting developing countries to implement
and enforce all the TRIPS standards. It has not focussed on assisting countries to implement
and use the various exceptions in the TRIPS, such as compulsory licences. Several
evaluations have found that intellectual property-related assistance has been biased in favour
of strong intellectual property protection and rarely formed part of local development
strategies. Changes may be underway in the largest supplier of intellectual property-related
assistance, WIPO – the World Intellectual Property Organisation – due to the so-called WIPO
development agenda. Other donors may need to rethink their focus as well if intellectual
property-related assistance is to contribute to facilitating use of the new rules.
Final conclusions
Access to medicines is a very complex issue. Trade rules are only a small part of it. It is
therefore difficult to isolate and assess the value of just the new TRIPS rules that have been
discussed here, particularly since there have been only a few cases. By analysing the new
rules and the current situation for access to medicines, the National Board of Trade has drawn
the following conclusions in regards to the new rules for compulsory licences adopted by the
WTO in August 2003:

ƒ
The new rules are intended to improve access to patented medicines. So far,
they have not been fully used, which may be explained by countries like India having
had the capacity to produce copies of medicines at lower prices. It is likely that the need
for new rules will increase as these countries have recently implemented patent
protection for medicines.
ƒ
The possibilities are limited that the new rules can enable import of
medicines to low income countries. The market value is generally too small. There will
probably be few situations when all prerequisites are fulfilled.
ƒ
The new rules can therefore probably not improve access to medicines in
developing countries generally. They may be viable for some countries or for some
products.
ƒ
Provisions in regional trade agreements may make use of the new rules
more difficult or even impossible. The same may apply if undefined terms and
conditions in the new rules are interpreted in a restrictive way.
ƒ
Use of the new rules may be facilitated by regional cooperation for pooling
demand. Technical and financial assistance may also be valuable, for example by
improving importing countries' administrative capacity to manage the new rules.

A Swedish version of this summary can be found on the homepage of the National Board of
Trade, www.kommers.se.
1. Introduction
On August 30, 2003, the WTO General Council reached a decision that was the first step to
amend article 31 of the TRIPS agreement. This Decision1 created a system for improving the
ability of developing countries with no or insufficient manufacturing capacity to import
patented medicines by using an instrument called "compulsory licensing". It was supposed to
make trade in patented medicines possible in situations where the importing markets are not
adequately supplied.
It is an ongoing global tragedy that 1.7 billion people, or one out of three on Earth, lack
access to essential medicines.2 There are estimates that reliable delivery of currently existing
essential medicines to developing countries could save up to ten million lives a year,
representing 18% of the world's deaths.3 Many of these deaths are due to AIDS, which
currently almost 40 million people are infected with. The Decision was a response to criticism
that WTO rules were part of the obstacles to increased access to life-saving medicines.
The Decision is the first and so far the only time since the establishment of WTO in 1995 that
Members have amended one of the agreements. It was the result of almost two years of high-
profile and contentious negotiations. When finalised, it was welcomed by Member states4 and
hailed as an "historic agreement for the WTO" by the Director-General.5
The agreed text included a mandate for the council for TRIPS to "review annually the
functioning of the system set out in this Decision with a view to ensuring its effective
operation and shall annually report on its operation to the General Council"6. However, so far
this has not been a substantive review of the system as such but rather reports on when
Members have implemented or otherwise used the new system.
The importance of monitoring and evaluating the Decision has been brought up in
recommendations from the recent Commission for Africa7 and Commission for Intellectual
Property, Innovation and Public Health8.
The National Board of Trade advocates open trade under strengthened multilateral rules. This
report analyses this new aspect of the world trading system.
1 WTO 2003f (see annex 3) 2 WHO 2004b, p.61 3 WHO figures, cited in Attaran 2004, p. 163 4 WTO 2003d 5 WTO 2003e 6 WTO 2003f, paragraph 8 7 "Although [the Decision's] impact is not yet known, this should be an important way of maintaining access to cheaper drugs. However, critics argue that getting the licence is complicated and time consuming. This therefore requires further analysis. We recommend that the G8 and other donors should support developing countries to make effective use of TRIPS and its flexibilities as appropriate, through financial, technical and political support." The Commission for Africa 2005, p. 193 8 "The WTO decision agreed on 30 August 2003, for countries with inadequate manufacturing capacity, has not yet been used by any importing country. Its effectiveness needs to be kept under review and appropriate changes considered to achieve a workable solution, if necessary." Commission for Intellectual Property, Innovation and Public Health 2006, recommendation 4.15 1.2 Purpose and scope
Our purpose is to analyse in a comprehensive manner whether the Decision can enable import
of medicines for developing countries with grave public health problems in the cases where
the medicines are patented and the country in question has no manufacturing capacity. To
arrive at an answer, we have looked at the following sub-questions:
• How has the new system been used so far? We review legal implementation, actual use and indirect effects. • Is there a need for the new system that would motivate its use? If so, in what kind of • What are the prerequisites for new system to fulfil its purpose? • Are there any measures that might support and facilitate use of the new system?9 1.3 Method and materials
There is hardly any debate about the Decision in the WTO outside its formal TRIPS council
review. Instead, discussion is mainly carried on in academia, NGOs, the pharmaceutical
industries, national parliaments and the European parliament, and to some extent in the UN
bodies WHO and WIPO. This study draws mostly on the rich scholarly and activist discussion
in said fora. The debate is sometimes polarised, since the issue concerns considerable values,
both commercial and human.
To complement the written materials, the Board has been in contact with the Swedish
Association of the Pharmaceutical Industry, The International Federation of Pharmaceutical
Manufacturers & Associations, the European Generic Medicines Association, the Indian
Pharmaceutical Alliance, experts within the European Commission, the WTO and the WHO,
the Africa Groups of Sweden, the Médecins Sans Frontières/Doctors Without Borders in
Brussels and Stockholm, the Canadian Access to Drugs Initiative and individual researchers.
Furthermore, we had the opportunity to participate as observer in a WTO workshop on TRIPS
and Public Health for developing country delegates in Geneva on 27-29 November 2006. At
this event, information and opinions were gathered from the WTO experts and people from
academia, the generic and originator (innovative) industry, NGOs, IGOs and delegates from
22 developing countries and three regional organisations.
1.4 Disposition and main findings
The Decision created new possibilities for developing countries to use compulsory licensing
to import patented pharmaceuticals. Chapter 2 first presents the reasons for and the rules
regarding compulsory licences in general and in the TRIPS agreement. It describes the
economics of access to medicines, how compulsory licensing can affect the situation, and the
reason that it was considered necessary to amend the TRIPS provisions. It also describes the
exact content of the Decision – when and how it can be used.
Chapter 3 looks at how the Decision has been used so far. Some exporting countries have
implemented it legally, whereas very few importers seem to have done so. The actual attempts
to use the system are few and nobody has so far completed the process. The level of interest is
overall not striking. We therefore move to find out, in chapter 4, whether there is really a need
9 Outside of the scope of this study is the issue of whether anything in the Decision ought to be changed. Our assessment is that there will be very little, if any, political will in the foreseeable future to re-negotiate an amendment that Members are at present trying to ratify, especially considering the difficult negotiations 2001-2003 and the fact that the WTO agenda is crowded already for countries with limited capacity. for the Decision. We find that while it has not necessarily been very important so far, it will probably become more so in the future and it is therefore essential that countries are able to use it, if necessary. Chapter 5 reviews the prerequisites for the Decision to enable medicine export to developing countries. The possibilities seem rather limited, due to the economic, legal and political situation surrounding the new system. It may be a viable option for some countries and for some products. In other cases it cannot be viable. In Chapter 6 we try to identify measures that could facilitate use of the Decision in the future, especially in terms of the economic viability. 2. Background
2.1 Compulsory licences
A patent is an intellectual property right. It is an exclusive right granted by the state to an
inventor for the invention of a product that can have commercial application. The exclusivity
is limited in time, usually to 20 years. During this time nobody may use the invention without
the prior approval of the patent holder. In return, the patent holder must disclose technical
information on how the invention can be worked.
Patent systems give incentives to private actors to invest in technical innovation or
improvement, beneficial to the society as a whole. The exclusivity enshrined in the patent
right allows the inventor to recover costs for research and development but may also increase
costs for users to access the invention. Patent systems therefore must strike a balance between
competing interests. In the case of medicines, the challenge is to protect innovation so that
more and better medicines can enter the market, while also making it possible for the general
public to access them.10
The patent holder may freely dispose of the patent, either by using the subject matter, by
transferring it or granting licences. A licence allows others to exploit the invention in return
for remuneration (royalties).
If another party wishes to have access to a patent but cannot come to an agreement with the
patent holder, there is a possibility of seeking a compulsory licence (CL). It is an
extraordinary legal instrument where an administrative or a judicial body authorises a licensee
to exploit the patent without the consent of the patent holder. The purpose of the CL is to
provide a safeguard against lack of use of a patent or misuse of the patent holder's monopoly
rights in order to protect the public interest. It can thus alter the balance between the
competing interests in the patent system.
The CL does not revoke the patent as such but it revokes the exclusive right of the patent
holder that allows him to control how the patent may be used. A CL that is granted to the
10 The dual objective is reflected in TRIPS article 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." There is a similar double obligation in the UN Universal declaration on human rights, article 27: (1) Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits. (2) Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author. government, instead of a private entity, is known as "public, non-commercial use" of the patent or "government use". The following are examples in national laws that specify when CLs can be issued11: ƒ Refusal to enter into a voluntary licensing agreement on reasonable commercial terms (e.g. in the German and Chinese patent laws); ƒ Public interest (e.g. in the Swedish law12); ƒ Public health and nutrition (e.g. provisions in the French law where ex-officio licences may be granted by the responsible Minister "in the event of medicines being made available in insufficient quantity or quality or at abnormally high prices"); ƒ National emergency or situation of extreme urgency; ƒ Anti-competitive practices on the part of patent holders; ƒ Dependent patents; ƒ No or insufficient working of the invention in the national territory. This is the most common ground13. The concept of compulsory licensing dates back to the 1600s and the use was provided for in the Paris Convention on Industrial Property 1883. It has been a common and integrated feature of most patent systems since then, even if it is not often put into practice. By the early 1990s, about one hundred countries' patent laws had some form of CL provision.14 This includes most developed countries. The US and UK, for instance, have wide provisions for government use, or "crown use" which allows their governments to use patents for virtually any public purpose.15 Since 1995, CLs are also regulated through the WTO's TRIPS agreement. 2.1.1 Compulsory licences in the TRIPS agreement
The Agreement on Trade-Related Aspects of Intellectual Property Rights, TRIPS, came into
force in 1995. It sets minimum standards for intellectual property protection for all Members,
including on patents. Least developed country (LDC) members are still in a transition period,
but all other members are by now supposed to have implemented the agreement fully.16
The provisions for CLs were among the most contested in the TRIPS negotiations.17 The
resulting Article 31 does not define a CL, nor does it specify when CLs may be granted.18
Instead, it sets out the procedures that must be followed and some terms that must be fulfilled.
The CL shall be considered on its individual merits, be subject to independent legal review
and the scope and duration shall be limited to the purpose for which it was granted. The patent
holder is entitled to adequate remuneration. Before seeking a CL, the licensee must negotiate
11 Listed by Musungu & Oh 2006, p 28-31 12 Patentlagen (1967:837), 47§ 13 According to Scherer och Watal 2002, p 15 14 Reichman & Hasenzhal 2003, p 12 15 Musungu & Oh 2006, p 36-37 16 The LDC transition period expires in 2013, with an extension in respect of pharmaceutical products to 2016. 17 See Reichman & Hasenzhal 2003 for a negotiation history 18 This was also confirmed in the Doha Declaration, paragraph 5b. It has not been finally established through dispute settlement whether Article 27.1 which says that patent rights shall be enjoyable without discrimination as to whether produces are imported or locally produced may provide for a limitation. Some, but not all, observers would interpret this to mean a prohibition on requirements that a patent must be locally worked, i.e. that the demand is not met through import only. With such an interpretation, a CL should not be possible to grant on the basis of failure to produce locally. See UNCTAD-ICTSD 2005. with the patent holder and ask for a voluntary license on reasonable commercial terms. This requirement may be waived in cases of national emergency, other circumstances of extreme urgency, public non-commercial use or remedies to anti-competitive practices. Even in these cases the patent holder must be notified. Also, the CL shall be predominantly for the supply of the domestic market (31f). This is the requirement that was amended through the Decision (see annex 1 for Article 31). 2.2 The economics of access to medicines
Why do so many people lack access to essential medicines? And how could compulsory
licensing affect this situation?
One reason is of course poverty – many developing country consumers do not have enough
purchasing power. There are however also other economic factors that affect access. One
indication of this is that the proportion of people without access to medicines is higher than
the proportion living in extreme poverty.19
The pharmaceutical industry has become highly concentrated through mergers and
acquisitions in the last decades. Companies have sought to insure themselves from high costs
and risks by growing. Coupled with the full implementation of TRIPS, which has extended
patent protection to almost all countries, it is now possible for the big companies to exercise a
high degree of control over prices and availability worldwide.20
Pharmaceutical manufacturing is characterised by very high initial costs for research and
development of new medicines and very low marginal costs for producing the medicines. The
companies must recoup the initial costs by selling the units above marginal cost – at least in
some markets. According to the "Ramsey pricing theory", companies would however
maximise sales in all types of markets if they adopted a differential pricing strategy. The
initial costs would be mainly supported by the richer markets whereas markets with less
capacity to pay would absorb marginal costs only. The poor markets would contribute to
companies' economies of scale, even if they cannot cover research costs.21
If Ramsey pricing was routinely practiced, as many as one out of three persons on Earth
would probably not lack access to medicines. While most companies maintain differential
pricing schemes, the effects are not systematic. Scherer and Watal found for example at best a
very weak empirical relationship between medicine prices and country per capita income. In
some developing countries, there were actually higher prices than in the US.22
The reason is that optimal pricing will only take place under the right conditions. Danzon and
Towse argue that companies do not use Ramsey pricing because of the risk of parallel
importation. Companies need to recoup costs in high-income markets, and this is not possible
if low-priced products can be diverted from developing country recipients and "leak" back
into high income markets. There is also the risk of "external reference pricing", which occurs
when high income countries use prices in developing countries as benchmarks for regulating
their own domestic price levels. The rational response of the company when faced with the
threats of parallel imports or external reference pricing is to set one international price that
will apply to all markets. It will impede the possibility of selling to low income markets, but
19 21% of the world population lived on less than US$ 1 per day in 2004 (MDG report)
20 Rosenberg 2006, p. 65-71; Abbott 2006, p 28-29
21 See discussion in Danzon and Towse 2005. Differential pricing is not regulated in TRIPS.
22 Scherer and Watal 2001, p 37-44
guard the profit derived from the most important markets.23 The result is efficiency losses both for the company and consumers. Companies may view external reference pricing as an increasing threat due to developments in high income markets where ageing populations and increased use of patented medicines are straining health budgets. There has been growing pressure for lower prices in the rich countries as well, for example in relation to disadvantaged people in the US.24 In many cases, it is also difficult to say what the Ramsey optimal price would be. Even in very poor countries, there may be a relatively large and growing middle class with higher purchasing power, which companies of course will want to exploit. The government response should be to separate the markets within the country, e.g. by letting only the poor access subsidised medicines through the national healthcare system. The problem in many developing countries is that the healthcare system is too weak to perform this role adequately, which again means that low-priced products may leak back to consumers that could pay more. 2.2.1 The economics of compulsory licensing
The effect of compulsory licensing is to introduce a new actor into the arena that has different
concerns than the patent holders. The licensee will copy the original product – thus there are
lower costs for research and development to recoup. The licensee is allowed to access a, for
them, new market for a certain period of time, and can make the most of this time without any
need to worry about products leaking into or influencing other markets. In fact, for this actor
it would be better the more they can sell, including to markets outside the realm of the CL.
Thus, compulsory licensing can improve the possibility for setting prices closer to the
market's real purchasing power which can improve access.25
It is important to note that CLs cannot guarantee affordable prices. Prices are influenced by a
number of factors, including procurement policies, taxes, regulatory costs and distribution
costs.26 Many of these factors can be addressed by the importing country government outside
the area of patent law. For instance, one study showed that 61 % of the 150-odd studied
countries maintained tariffs on finished pharmaceutical products.27
In the end, it will be an empirical question how a CL for a particular product in a particular
market will influence price.
23 Danzon and Towse 2005, p 438-444. They argue that the most efficient way to increase access to medicines while retaining the incentives to invest in R&D is to promote market separation in such a way that allows price discrimination based on each market's purchasing power (p 444-456) 24 Abbott 2006, p 29 25 Danzon and Towse 2005, p 454. However, compulsory licensing does not alleviate the problem of leakage between groups in the country. 26 See e.g. Rozek and Rainey (2001, p 476-478). Instead,these authors argue for voluntary licensing in order to promote competition and secure innovators rights, and also voluntary donation programmes by the large TNCs. 27 Tthe rates were often below 10 % and factors such as manufacturer's prices and sales taxes were more likely to impact the price. Nonetheless, the study concluded that tariffs are a regressive form of taxation which targets the sick and should be removed. Olcay and Laing 2005, p 2(cont) 2.3 The road to the Decision
2.3.1 The problem of compulsory licensing being limited "to supply the
domestic market"
The TRIPS allows CLs, but Article 31(f) stated that CLs could only be used to supply the
domestic market. This meant that countries without manufacturing capacity could not use the
instrument effectively. They could issue a CL, but no domestic firm would be able to produce.
They could not influence patents in other countries since patent rights are territorial.28 And
article 31 did not allow CLs for export, so they could not be helped by a CL in a country with
manufacturing capacity if the product was patented there.
This problem was brought to the forefront in the run-up to the Doha ministerial conference of
the WTO in November 2001. There had been a number of international events in that year
with regard to compulsory licensing which had caused a lively international debate. South
Africa29 and Brazil30 had both come under pressure for introducing or maintaining legal
provisions in regard to compulsory licences that were not considered WTO-compatible by
everyone. Then, after September 11, 2001, a series of anthrax attacks were committed in the
US, and both the US and Canada threatened to use compulsory licensing to ensure access to
anthrax medicines.31 Due to these incidents several WTO members wanted the relationship
between intellectual property and access to medicines clarified so that Members would know
what measures they were allowed to take to protect public health.
28 This means that they can only be sought, issued, regulated and enforced in a specific territory, usually a country. They have no cross-border effects. 29 South Africa had in 1997 introduced a legal amendment to provide for new rules regarding CLs, parallel imports and price regulation of medicines. The Pharmaceutical Manufacturers' Association of South Africa challenged the act, arguing that it violated obligations under TRIPS. The US and the EU supported the criticism.The US placed South Africa on its Special 301 Watch list (see chapter 5.4.1). The EU Commissioner for Trade, Sir Leon Brittan, wrote to South Africa: "Section 15C of the law in question would appear to be at variance with South Africa's obligations under the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs) and its implementation would negatively affect the interests of the European pharmaceutical industry. Having said this, I share your Government's concern for the protection of public health in general and the need to provide state of the art medicines at a reasonable cost to all layers of the South African population. Considerations of cost reductions in the health sector are also given high priority in the Community, but I believe that this can be achieved without undermining the necessary protection of intellectual property rights." (Brittan 1998) An international campaign in support of South Africa began and the case turned into a public relations disaster for the pharmaceutical companies, who subsequently dropped the case in 2001. South Africa had at the time the highest number of people living with HIV/AIDS in the world. See Bartelt 2003 or Sun 2004 for discussion of the case. 30 In June 2001 the US requested consultations with Brazil under the WTO dispute settlement mechanism regarding the TRIPS-compliance of the Brazilian system for CLs. The US argued that allowing CLs for failure to work a patent locally was inconsistent with article 27.1 where imports are said to be equal to local production in the enjoyment of patent rights.After a lot of public support for Brazil the dispute was settled bilaterally, with Brazil committing to first consult with the US if they intended to issue such a CL on a US-owned patent. The settled terms can be found in WTO 2001a. 31 Canada, even though it had not experienced any attacks, issued a CL and ordered a million tablets of a generic (copied) version from a Canadian company. Later Canada withdrew this decision, and reached an agreement with the patent holder instead. The US threatened to issue a CL and managed to win a major price concession from the patent holder. (Sun 2004, p 134) At this time, the US had 22 reported cases of anthrax and five deaths, and Canada had none (Hughes and Gerberding 2002, p 1013). 2.3.2 The Doha Declaration on TRIPS and public health
The Declaration on the TRIPS Agreement and Public Health32 ("the Doha Declaration" – see
annex 2) was adopted in Doha alongside the declaration launching the new negotiating round,
the Doha Development Agenda.
The declaration reaffirms Members' commitment to the TRIPS, but also it emphasises that
TRIPS must be a part of the international solutions for addressing public health problems.
Members recognise that intellectual property protection is important for developing new
medicines, but also the concerns about its effect on prices. Therefore, TRIPS can and should
be interpreted and implemented to support public health and in particular access to medicines
for all. Members have the right to use, to the full, the provisions in TRIPS that provide
flexibility for this purpose.
The Declaration reaffirms that issuing CLs and determining freely the reasons for granting
CLs are such flexibilities. Members also have the right to determine what constitutes a
national emergency. The LDC transition period for implementing TRIPS in respect of
pharmaceutical products was prolonged till 2016.33
Finally, paragraph 6 of the Declaration recognises that countries without sufficient
manufacturing capacity can have difficulties in using the CL instrument, as explained above:
"We instruct the Council for TRIPS to find an expeditious solution to this problem and to
report to the General Council before the end of 2002."34
2.3.3 Negotiating paragraph 6 of the Doha declaration
The negotiations were difficult and contentious. There were a number of suggestions from
Members as to what the expeditious solution should look like. There were also disagreements
regarding the scope of the solution: what diseases and what products should be covered,
which countries should be eligible to be importers and exporters and which safeguards were
necessary to the system. As a general rule, developed countries preferred more restricted
scope of countries and diseases coupled with clear safeguards, whereas developing countries
and LDCs wanted wider scope and less onerous safeguards.35
In December 2002, the chairman of the TRIPS council presented a draft compromise text for
an amendment to article 31(f). At the subsequent TRIPS council meeting, all Member states
could accept the text – all except the US. The US preferred to include a list of eligible
diseases in order to prevent medicines for "lifestyle" diseases to be included in the system.
Eight months later in August 2003, right before the Cancun ministerial conference, the draft
text was finally adopted by the General Council as the "Implementation of paragraph 6 of the
Doha Declaration on the TRIPS agreement and Public Health. Decision of 30 August 2003".36
It was the same text as in December 2002, but in order to reach consensus it was accompanied
32 WTO 2001b. For some views on the legal status of the declaration, see Matthews 2004. 33 WTO 2002. The waiver was subsequently implemented through a TRIPS council decision. Unlike the general LDC waiver which expires 2013, the extension in respect of pharmaceutical products is not qualified by a "standstill" commitment. 34 "Expeditious" means, inter alia, that the negotiations were not tied to progress in the Doha Development Agenda. 35 For more on the negotiating history, see Matthews 2004. 36 WTO 2003f by a statement reflecting "shared understandings" regarding the system that was read aloud by the Chairman of the General Council37 (see annex 3 and 4 for Decision and Statement). 2.3.4 The Decision of 30 August 2003
The Decision is essentially comprised of three waivers from provisions in article 31. In
respect of pharmaceutical products, it waives
the obligation in 31(f) that CLs shall be predominantly for supply of the domestic market, ii) the obligation in 31(h) for the importing country to pay remuneration to the right holder and iii) the obligation in 31(f) to the extent that re-export of the imported pharmaceuticals is allowed among members of a regional trade agreement, if this agreement is composed of at least half LDC members. All LDCs are automatically eligible to use the system. Developing country Members are eligible if they have no or insufficient manufacturing capacity, and make a notification of their intention to the Council for TRIPS. The developed countries opt out of using the system as importers. Some high-income developing countries declared that they would only use it in situations of national emergency or extreme urgency.38 Any Member may be an exporter. All pharmaceutical products, including active ingredients and diagnostic kits, are included in the system and it is generally assumed that vaccines also are included. There is no list of eligible diseases; instead, the Decision refers to pharmaceuticals needed to address health problems as recognised in the Doha declaration, paragraph 1: "We recognize the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics." Thus, while epidemics are recognised as the core problem, other public health problems of similar gravity are also included. 2.3.5 Amending the TRIPS
The negotiations for the exact phrasing of the legal amendment to article 31 took an
additional two years. The amendment should be based on the Decision "where appropriate",
which opened for attempts at renegotiation. Another difficult area was how the Chairman's
statement should be reflected. An agreement was reached on 6 December 2005 which
incorporates the Decision very faithfully into a new article 31bis and a new annex to TRIPS.39
The Chairman's statement was again read aloud. The amendment will come into force when
two thirds of the members have ratified.40 Delays in the ratification procedure would not have
any material implications. The waivers of the Decision have been operational since 30 August
2003 and will remain in force until the amendment is in effect.41
37 The final version of the statement can be found in WTO 2003d. 38 The ten countries that were to accede to the EU in 2004 would opt out of the system when they became members. Until then, they would only use the system for import in situations of national emergency or extreme urgency. Hong Kong China, Israel, Korea, Kuwait, Macao China, Mexico, Qatar, Singapore, Chinese Taipei, Turkey and the United Arab Emirates would only use the system for import in situations of national emergency or extreme urgency. 39 WTO 2005 40 The WTO keeps a list at http://www.wto.org/english/tratop_e/trips_e/amendment_e.htm 41 See e.g. the argumentation in Nottage & Sebastian 2006, p 993 Countries may implement the Decision without first ratifying the amendment. Conversely, they may also ratify but not implement. The two measures are independent. 2.4 The new system
2.4.1 When to use it
The Decision is only to be used in specific situations – see figure 1. If there is no patent in
either exporting or importing country, the need can be met by regular import without
reference to the TRIPS. If there is a patent in the importing country but not in the exporting
country, the importer can issue a regular CL for import under article 31, since the purpose
would be to supply the domestic market. Such CLs have been issued a number of times in the
last decade for HIV/AIDS medicines (see chapter 4.1.1).
When there is a patent in the exporting country but not in the importing country, the regular
CL procedure is not an option. The parties must use the Decision, but it is only the exporter
that needs to issue a CL. When the product is patented in both countries, the parties will also
use the Decision, and both countries have to issue CLs.
Figure 1. When to use the Decision

Importing
Product patented Product not patented Exporting
Both countries issue CLs Only exporting country issues CL Not the Decision Not the Decision Importing country issues a normal Regular import from CL for import under article 31 any manufacturer Exporting country takes no action 2.4.2 How to use it
The Decision specifies a process for using the system. It involves (maximum) five parties: the
importing country, the agent/company in the importing country, the relevant authority in the
exporting country, the exporting company and the WTO. The following is a schematic view
of all the steps that must be taken before the pharmaceuticals can reach the importer.
Table 1. How to use the Decision

Importing Member/company
Exporting Member/company
Recognition of a public health problem requiring pharmaceutical product(s) that • cannot be produced domestically and • is patented in producing countries If product is patented domestically: • negotiate for a voluntary licence from the patent holder – can be waived in cases of government use, national emergency, extreme urgency, anti-competitive practices if national rules allow • If negotiations fail – seek and obtain a CL, as regulated by article 31 Country notifies the WTO of intention to use system as an importer42 Not required for LDCs Country/agent notifies the WTO of • product's name and expected quantities • grant or intention to grant a CL, if there is a domestic patent in force • confirmation of no or insufficient manufacturing capacity – Not required for LDCs Since the product is patented, the exporting company must • negotiate for a voluntary licence from the patent holder – can be waived in cases of government use, national emergency, extreme urgency, anti-competitive practices if national rules allow • If negotiations fail – seek and obtain a CL, as regulated by article 31 Relevant authority grants a CL for the product(s) and quantity needed, for the country(ies) that notified Exporting company identifies product as produced under the system through labelling or marking Exporting company discloses quantities, destination(s) and distinguishing features on a website The remuneration obligation is waived for importing Exporting company pays adequate remuneration to Relevant authority notifies the WTO of the CL and its conditions and the information posted by company Country takes reasonable measures to prevent re- exportation of product There are a number of safeguards to prevent diversion. The products must be recognisable as produced under the Decision and the importing country must take reasonable measures to prevent re-exportation. It may request technical and financial cooperation to facilitate this obligation. Furthermore, all Members must ensure that they have effective means to prevent 42 This can take place at any time. It does not need to be approved by the TRIPS council, which is composed of all WTO members. importation of products produced under the Decision into their territories, unless they are the recipient. These means may be reviewed by the TRIPS council at the request of a Member. There are some special arrangements to enable economies of scale within regional trade agreements. If the importing country is a party to such an agreement where at least half of the membership is made up of LDCs, the country may re-export the products to other members of that agreement that share the health problem in question. The "shared understandings" about the system in the Chairman's statement are as follows: a) The system shall be used in good faith to protect public health, not be an instrument to pursue industrial or commercial objectives. b) To promote transparency, Members are encouraged to explain how they established insufficient manufacturing capacity. Any matter relating to the system may be taken to the TRIPS council for review, "with a view to taking appropriate action". c) It repeats and maybe strengthens the obligations to prevent diversion of the products ("all reasonable measures") and points at a number of "best practices" to prevent this. d) It lists the Members that have fully or partially opted out of using the system. The legal status of the statement is unclear. It is not part of the formal agreement; rather it can be viewed sort of as a "gentlemen's agreement". After this illustration of the Decision, we will show how the new system has been used so far. 3. How has the Decision been used?
In this chapter we study how the new system has been used so far. The use can be gauged in
three ways: formally – how many countries have implemented it, directly – how many have
actually used it, and indirectly – any effects that stem from the mere existence of the system.
3.1 National implementation
Before the Decision can be used it must be translated into national laws, both in the exporting
and importing countries. The implementation is independent of whether the country has
ratified the change in TRIPS.
3.1.1 Exporting countries
The Decision mainly changes the situation for exporting countries, by waiving the provision
about "predominantly for domestic use". Thus, if an exporting country had TRIPS-compliant
CL legislation before August 2003 it must be changed to take account of the Decision. There
is no requirement upon WTO Members to make such changes. Implementation is optional.
As of October 2007, four Members have implemented the Decision and notified it to the
TRIPS council and an additional two have also implemented but not formally notified.
Table 2. Implementation in exporting countries

Legal instrument
Notification to the
TRIPS council
Bill C-9, An Act to amend the Patent Act and the Food and Drugs Act43 Regulations amending the Patent Regulations of 20 December 1996 No 1162, sections 107-109 A new section 92A and amendment of section 90(1) in the Patents (Amendments) 200547 Act, 200546 EC Regulation 816/200648 14-15 China's State Intellectual Property Office Amendment to in articles 106-116 of the 43 Canada's Access to Medicines Regime – initially known as "The Jean Chrétien pledge to Africa". 44 Communication from Canada. IP/C/W/464 45 Communication from Norway. IP/C/W/427 46 Published in the Gazette of India, April 5, 2005. 47 Minutes of the TRIPS council, IP/C/M/48 and notification pursuant to Article 63.2 of the TRIPS Agreement by India, IP/N/1/IND/D/2-5. 48 Regulation (EC) No 816/2006 of the European Parliament and of the Council of 17 May 2006 on compulsory licencing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems. Official Journal of the European Union L/157/1, 9 June 2006. 49 European Communities' notification pursuant to Article 63.2 of the TRIPS Agreement, IP/N/1/EEC/P/5, and Minutes of the TRIPS council, IP/C/M/51. 50 An unofficial translation provided by the MSF may be found on the Consumer Project on Technology website, http://www.cptech.org/ip/wto/p6/china-order37.html The implementations are very different. Canada and the EU adopted long legal texts, dealing with all issues including trade diversion. By contrast, the Indian amendment is only three paragraphs long. Unlike the others, Canada has incorporated several "Decision-plus" features: a limited list of eligible pharmaceutical products, a time limit on the length of the CL and a requirement that exported medicines first receive regulatory approval (see more below). Two important potential exporters that have not implemented are the US and Brazil.52 The US resisted the final text of the Decision for half a year, until a solution was found with the Chairman's statement and in the negotiations the US advocated that only developing countries and LDCs ought to qualify as exporting countries, as a means of encouraging investment in these countries.53 It is therefore not likely that the US will implement the Decision unless major domestic political changes take place. The Brazilian industry is mostly focussed on generics and has produced at low cost to supply the national health programmes. However, there have been no initiatives to share this capacity to supply other developing countries or LDCs, even though the country was very active and vocal in the negotiations on the importance of the Decision.54 3.1.2 Importing countries
The legal situation in most importers is unclear. Few seem to have revised their legislation to
implement the Decision, but they might be able to use the Decision under existing laws.
A survey published by the South Centre in collaboration with the WHO in 2006 found no
evidence that any of the 49 developing countries in the review had undertaken legal reform to
implement the Decision.55 The International Association for the Protection of Intellectual
Property surveyed its member societies in developed countries and larger developing
countries in 2004 and only two possible importers out of 35 respondents gave information on
implementation: Indonesia had prepared a draft for a regulation that would provide for both
export and import CLs, and South Africa indicated that legislative provisions had been made
for importation licences, but not on the basis of the Decision.56 China appears however to
have enacted regulations for both export and import.57 Ghana has begun and possibly also
finished implementing the Decision.58 Both Vietnam and the Philippines were discussing the
issue in 2006.59
51 See Managing Intellectual Property 2005, p 100, and minutes from the TRIPS council , IP/C/M/48. The grounds for granting CLs have been expanded to include for export of medicines to address public health problems in the importing country (including non-WTO countries). The amendment also mandates a quicker process for issuing CLs, setting a norm of maximum six months. 52 A US Senator submitted a proposal in May 2006, which stressed the importance of enlightened self-interest, i.e. that it was in the best interest of the US to help reduce the spread of deadly disease, but it was not carried. US Senate bill, May 2006 53 WTO 2002c 54 Josefsson 2006, p 19 55 Musungu & Oh 2006, p 71 56 Hjertman and du Plessis 2005 57 China's State Intellectual Property Office, Order 37, November 2005, article 5. 58 Ghana's government has entered into a partnership with the Access to Drugs Initiative (ADI) at the Canadian University of Toronto. ADI provides drafts and comments to help Ghana implement the Decision. http://www.law.utoronto.ca/accesstodrugs/index.html 59 Information from presentations at the WTO workshop on TRIPS and Public Health for developing country delegates in Geneva on 27-29 November 2006. However, the importing countries may not need to change their laws to make use of the Decision. The existing system may be possible to use (unless the law explicitly prohibits importation). All countries reviewed by the South Centre but two provided for some form of compulsory licensing in their patent laws. Similarly, a background paper for the UK Commission on Intellectual Property Rights investigating 70 developing countries and LDCs, found that all of them provided for some form of CL.60 However, it may be necessary to amend the law in order to take advantage of the Decision waiver for importing countries not to pay remuneration to the patent holder. It is notable that even though LDCs are not obliged to implement the TRIPS the surveys show that most of them have patent laws and patent protection. However, if they have a patent on a product and want to use the Decision to import a copy, they can make use of the special LDC transition period for pharmaceutical products until 2016. This makes it possible for LDCs simply not to enforce the relevant patent which may be simpler than issuing a CL. Thus, most eligible importers are at least theoretically able to issue CLs, even though most have probably not taken explicit account of the Decision remuneration waiver. 3.2 Attempts to make use of the system
To our knowledge there have been three initiatives to use the Decision so far. All of them
have employed the Canadian implementation of the system. The first was an abortive attempt
by the NGO Médecins Sans Frontières/Doctors without borders (MSF), acting on behalf of a
country, not known which. The second came on the initiative of Ghana. The third began in
July 2007 when Rwanda notified its intention to use the system to the WTO. Neither MSF nor
Ghana came so far in the process as to send in notifications. Their initiatives have stalled,
whereas the Rwandan is still underway. Nobody has so far completed the process.
3.2.1 The case of Médecins Sans Frontières
The MSF attempted in 2004 to place an order with the Canadian company Apotex to
manufacture a combination pill of three HIV/AIDS medicines protected by Canadian patents.
Apotex applied for a CL for export under the Canadian law to be able to process the order.
Two years later, in August 2006, the process was still not finished and no pills had been
exported. The MSF argued that the experience showed that the Decision is unworkable and
not the "expeditious solution" mandated in the Doha Declaration. While the process went on,
two Indian companies received WHO prequalification and approval by the US government
respectively for copies of the same combination medicine. MSF started buying these copies
instead and abandoned the effort in Canada.61
3.2.2 The case of Ghana
In collaboration with two Canadian NGOs, Ghana expressed an interest to use the Canadian
law to import generics, both for itself and as a regional importer to the benefit of the
ECOWAS countries. Ghana had issued a regular CL in 2005, and thus had experience with
the instrument. The Ghanaian law was revised, but there was never a notification to use the
system.62
60 Thorpe 2002, p 2 61 The attempt and the critique are described in detail in MSF 2006a. This section builds on this material. 62 Access to Drugs Initiative 2007. The NGOs were The Access to Drugs Initiative and The AIDS in Africa Working Group at the University of Toronto. 3.2.3 The case of Rwanda
On July 19, 2007, Rwanda became the first country to notify the WTO of their intention to
use the Decision. Also in this case the supplier was the Canadian company Apotex and the
product was the same combination product to treat HIV/AIDS that Apotex had developed for
the MSF. Rwanda reserved the right to modify the amount, as it was impossible to predict
needs with certainty. Rwanda did not intend to issue a CL – instead they would use the LDC
transition period and not enforce any patent rights that might pertain to the product.63
Both the affected patent holders have since agreed to allow Apotex's manufacture of their
products. One of them has agreed to waive their royalty as well as allow the licence for the
length of the patent and allow it to be extended to other WTO developing countries besides
Rwanda. They set as conditions that the product is differentiated, properly notified and
approved by the drug regulatory authority, all measures that are required in the Canadian
implementation of the Decision.64 The other company refrained from royalties only if Apotex
would supply the product on a non-profit basis.65
The Canadian Intellectual Property Office granted the licence on 19 September 2007 and
subsequently notified it to the WTO. The license allowed manufacture and delivery of 15.6
million pills of the requested product to Rwandan health authorities.66 According to one
source it will be enough to treat 21 000 patients for one year.67
The price offered by the Canadian company – whether or not it contains a profit margin –
seems to be higher than the price offered for the same combination in India. There are reports
that the Indian companies sell at almost one third of the price of Apotex.68 The Rwandan
government may be rethinking their use of the Canadian system on this ground. According to
a Rwanda newspaper, the responsible minister said that there was no finalised deal with
Apotex, and that they will buy from the cheapest source, as long as the medicines are of the
same quality.69
3.2.4 Lessons to be drawn from the attempts
So far nobody has completed the Decision process. Is this a sign that the Decision is
unworkable, as claimed by the MSF? It is not possible to either confirm or refute this on the
empirical basis of the cases because the attempts have all been made in Canada, and the
Canadian system is not representative of the WTO Decision.
Many of the obstacles encountered by the MSF can be attributed to Canada's inclusion of
restrictions that are not part of the Decision. Products are only eligible under the Canadian
system if they appear on a list annexed to the law. The list can be modified, but it takes time.70
The product wanted by the MSF and later by Rwanda was not on the list and it took three
months to put it there. Also, products can only be exported if the safety, quality and efficacy
have been approved by the Canadian health authority.71 In the Decision it is left to the
63 WTO 2007a. The product is a combination of zidovudine, lamivudine and nevirapine. 64 Boehringer Ingelheim 2007 65 GlaxoSmithKline 2007 66 WTO 2007b 67 BRIDGES Weekly Trade News Digest 2007 68 Attaran 2007 69 Gahigana 2007 70 Canada's Bill C-9, 21.02 (Definitions) and 21.03(1)a(i) (Amending schedules) 71 Ibid, 21.04 (3)b (Conditions for granting of authorization) importer to determine if and how they want to control the quality. The Apotex product had not previously been approved and the process took 15 months. Unlike TRIPS Article 31, Canada has no exceptions from the requirement of at least 30 days prior negotiations with the patent holder in case of national emergency, extreme urgency, public non-commercial use or remedies for anti-competitive practices.72 The licence is limited to two years, with some possibilities of renewal. Canada requires the parties to state the "maximum product" to be manufactured, rather than "the expected quantities" required by the Decision.73 Another relevant issue is that MSF failed to fulfil the transparency obligations in the Decision by disclosing the country for which the medicines were intended in the CL application. According to the MSF, this was due to a request of that country, which feared to come under pressure not to go through with the process.74 Nor did the country notify the WTO. The MSF also argues that the Decision itself has inherent flaws that make it unworkable. They point to the anti-diversion measures, the problem of achieving economies of scale and the numerous administrative requirements as being problematic. These issues will be discussed in chapters 5 and 6. It may seem paradoxical that all attempts have taken place in Canada, when Canada is the only country that added requirements compared to the Decision. One explanation could be that the generic industry in Canada is very successful. For example, Apotex is the largest Canadian-owned pharmaceutical company.75 In many other industrialised countries, the research-based industry has a dominant position. Another explanation may be that Canada was the first to implement the Decision and may have been the most active in marketing it. Canada is currently revising the legislation.76 3.3 Indirect effects
It is important to remember that the Decision may have had effect without actually being put
to use. As will be discussed more below, a CL is a bargaining tool. The mere existence of the
new system may therefore make it easier to negotiate price reductions or voluntary licences
from the patent holders.
An indicator of this effect would be changes in prices for key patented medicines before and
after the Decision. The picture is mixed. On the one hand, prices for most HIV/AIDS
medicines have dropped the last years.77 On the other hand, prices are still high for some of
the new and more effective medicines.78 Prices will be looked at in more detail in chapter 4.2.
Another indicator could be the propensity of patent holders to issue voluntary licences, e.g.
for local production in developing countries. The only way to measure voluntary licence
practice over time would be to go through patent holders and their practices in this regard –
information difficult to obtain. A trend that can be observed is the increased role of public-
private partnerships which may involve voluntary licences.
72 Ibid, 21.04 (3)c (Conditions for granting of authorization) 73 Ibid, 21.09 (Duration); 21.12 (Renewal); and 21.04 (2)c (Contents of application) 74 Personal communication with Alexandra Heumber, MSF Brussels, April 24, 2007. 75 Apotex 2007 76 The issues to be discussed and stakeholders' comments may be found at http://camr-rcam.hc-sc.gc.ca/review-reviser/index_e.html 77 UNICEF et al 2005 78 MSF 2007b, p 6-10 3.4 Conclusion – limited use so far
From this chapter we can conclude that there appears to be overall a lack of interest in
implementing or using the Decision. One reason might be limited resources to amend existing
legislation. Another might be that the stalled initiatives of MSF and Ghana have discouraged
other eligible users. These may agree with the MSF that the Decision is unworkable. It might
also be that the engagement in the negotiations for the Decision was strategic rather than
aimed at achieving something that would actually be implemented. As said, there may
however have been indirect effects without actual use or implementation. However, such
effects may be less likely if the prospective importer has not implemented the Decision
legally.
Lastly, it is possible that so far there has not been any actual need to put the Decision into use,
for several reasons. This point will be discussed next.
4. Is there a need for the system established by the
Decision?
The Decision is a way to use the CL instrument to import patented medicines. Obviously, this
is not going to be an attractive option if the CL instrument in itself is not attractive. Also, if
most medicines are unpatented, or if there are other ways to import patented medicines, there
is no need to resort to the Decision. This may be the case for Rwanda. In the following section
we will discuss these two issues.
4.1 Compulsory licensing – a controversial instrument
Compulsory licensing is a much debated and controversial instrument. Arguments against it
are brought forward by research-based industry and certain researchers. There are risks and
potential benefits associated with using CLs. To assess whether a CL as such is a useful
option for developing countries, we will review cases where regular, article 31-based CLs
have been used (i.e. not CLs based on the Decision), and systematic research on the effects.
4.1.1 Cases of compulsory licences
Overall, CLs are rarely used. The Swedish patent law for example allows CLs, but the
provision has not been used in modern times.79
Two countries with experience of CL regimes are Canada and the US but they have used it for
very different purposes. Between 1969 and 1992, Canada granted 613 CLs for
pharmaceuticals. After 1992, Canada joined the NAFTA and no CLs have been granted since
then. The reasons for the CLs were to ensure affordable supplies of medicines, but there was
also an industrial policy motive with the view to promote local generic production. The active
ingredients were generally imported, because the Canadian market was too small to sustain
domestic production, and the ingredients were assembled into medicines in Canada. The US
has primarily used CLs to promote competition and penalise anti-trust violations, e.g. in cases
of corporate mergers and acquisitions. The federal government has also issued CLs for
government use, mostly in the national defence sector.80
Between 2005 and 2007, Italy has issued CLs for three medicines and authorised export of the
products to other EU member states. They were based on TRIPS article 31k which allows
CLs for anti-competitive practices without any restriction on export.81 The competition
flexibilities in TRIPS have also been used by South Africa in 2004.82
The following countries have issued CLs for HIV/AIDS medicines in the last five years:
• Zimbabwe 2002 on the grounds of a state of emergency83; 79 SOU 2006:70, p 121. The rules may however have had a psychological effect by providing incentives for an effective voluntary licensing system. 80 Reichman & Hasenzhal 2003, p 21-22; Scherer and Watal 2002, p 15-17 81 The medicines were primarily used to treat prostate disease, migraines and male pattern baldness. (Consumer Project on Technology website "Examples of Health-Related Compulsory Licenses – Italy") 82 The South Africa Competition Commission found that two originator companies had abused their dominant positions in the ARV market. In the settlement agreement the companies had to extend their voluntary licensing schemes to South African companies and allow export and import of their products, under certain conditions. See Avafia et al 2006, p 5-7, 20-37; Berger 2006, p 197-200. 83 See Oh 2006, p 25-27; Consumer Project on Technology website "Examples of Health-Related Compulsory Licenses – Zimbabwe"; Musungu & Oh 2006, p 38-41. The CL was for local manufacturing of zidovudine+lamivudine, nevirapine and stavudine. • Malaysia 2003 for government use84; • Mozambique 2004 on the grounds of a state of emergency 85; • Zambia 2004 on the grounds of a state of emergency 86; • Indonesia 2004 for government use 87; • Ghana 2005 for government use 88; • Eritrea 200589; • Thailand 2006 for government use ;and • Brazil 2007. These CLs were issued either for domestic production or for import of medicines that were not patented in the exporting country (India). Therefore, there was no need for these countries to use the Decision. It is not clear whether all these CLs actually have been implemented. Nevertheless, the list shows that it is sometimes possible and attractive to issue CLs, even for very poor countries.90 4.1.2 Empirical studies of compulsory licences
The rationale of patents is to stimulate investment that may lead to innovations. There are
diverging opinions in the literature on the effects of CLs on investment and innovation, and
since the instrument seldom is used there is little systematic research on the results thereof.
The main critique is that CLs reduce incentives for innovation by undermining patent rights.91
Due to high initial costs, knowledge-intensive industries such as the pharmaceutical industry
are recognised to be more sensitive to weak intellectual property protection than other
industries.92 A study from the 1980s found that a majority of pharmaceutical innovations
studied would not have been made available to consumers without patent protection.93
There can be two potential problems for innovation due to CLs: there may be a reduction in
the level of research and innovation in the affected sector (i.e. in medicine development) or a
reduction in the level of research and innovation overall in the country that issues CLs.
84 See Oh 2006, p 27-28; Musungu & Oh 2006, p 42-46; Consumer Project on Technology website "Examples of Health-Related Compulsory Licenses – Malaysia". The CL was for didanosine, zidovudine and zidovudine+lamivudine to be imported from India 85 See Oh 2006, p 28-29; WHO 2004a; Consumer Project on Technology website "Examples of Health-Related Compulsory Licenses – Mozambique". The CL was for local manufacturing of stavudine, lamivudine and nevirapine. 86 See Oh 2006 p 29-30. The CL was for local manufacturing of stavudine, lamivudine and nevirapine. In actual fact, there were no valid Zambian patents for these products. The rationale of issuing a CL was instead that the two originator companies BI and BMS were not able to come to an agreement to manufacture an FDC, which was important to the governmental AIDS treatment plan. The licensee was a local manufacturer. 87 See Oh 2006 p 30-31; WHO-UNAIDS 2006, p 61; Consumer Project on Technology website "Examples of Health-Related Compulsory Licenses – Indonesia". The CL was for lamivudine and nevirapine. 88 See Consumer Project on Technology website "Examples of Health-Related Compulsory Licenses – Ghana"; ADI et al 2007. The CL was for "generic HIV/AIDS medicines". 89 See Consumer Project on Technology website "Examples of Health-Related Compulsory Licenses – Eritrea"; The CL was for "generic HIV/AIDS medicines". 90 Mozambique, Zambia and Eritrea are all LDCs. 91 See e.g. LIF 2002, p 12-13; IFPMA 2007; PhRMA 2007; Rozek and Rainey 2001, p 467-478. 92 See Maskus 2000 for a discussion on the effects on FDI and trade of intellectual property, p 109-142. 93 Mansfield 1986 Effects on innovation and investment in the affected sector
Rozek and Rainey contend that the CLs in Canada between 1923 and 1992 were policy
failures, since they led to a decline of the industry which instead merely became able to copy
technologies developed elsewhere. When the instrument was abandoned in 1992, investment
in pharmaceutical industry started to increase again.94
Chien analyzes six CLs in the pharmaceutical sector issued in the US in the 1980s and 90s.
Looking at patent applications by the affected company in the years before and after the CL
was issued, she finds no systematic evidence that individual companies reduce their
investment in R&D after being affected by a CL. She argues that the effects of a CL on R&D
levels depend on two factors: how important the market is for the affected product, and how
predictable the CL was. In the one case analysed where the licence was predictable and
affected an important market for a developed medicine, there was some signs of a decline in
R&D.95
Chien cites studies that found no adverse impact on innovation of the different kinds of CLs
used in either the US and Canada.96 She argues that in the US case, this was due to the fact
that the licences were unpredictable and that in the Canadian case the domestic market was
small and the use did not heavily impact global companies. Chien's cautious conclusion is
that the assertion that CLs categorically harm innovation is probably wrong.
There is thus some controversy over the effects of the Canadian CLs. It is partly because they
study different things – effects on company and country-wide R&D in Chien, investment in
Rozek and Rainey – but also because it is difficult to measure effects of one policy instrument
amidst all other factors.
As a general conclusion, it would appear that systematic and predictable use of CLs for
important products in large markets may have consequences for investment and innovation.
To what extent are these studies relevant for developing countries? Chien argues that for
global diseases, where there is a market in developed countries (e.g. HIV/AIDS or cancer),
the markets represented by developing countries are usually not where companies derive their
profits. Therefore, it is unlikely that CLs in these countries would hamper global R&D for
these diseases, unless there is a great threat of the products leaking into developed markets.97
For diseases that are only prevalent in developing countries, CLs might cover the whole of the
actual market and therefore be a problem to innovation. However, this problem is largely
illusory, since there is very little privately financed R&D for these diseases.98
It is useful to distinguish between the emerging economies and other developing countries. In
contrast to the latter group, economies with growing middle classes constitute interesting
markets for innovative companies for the future.
94 Rozek and Rainey 2001, p 473 95 Chien 2003, p 1-57 96 Also cited by Reichman & Hasenzhal 2003, p 24 97 This argument is also advanced by Abbott 2002, p 5-6 and in Abbott 2005b, p 420-423. With publicly available data Abbott derives "some order of magnitude approximations" that give an indication that any loss of revenue due to exceptions to patent rights in developing countries will not have any serious effects on the levels of R&D in pharmaceutical companies, since most of their profits derive from OECD markets. 98 Commission for Intellectual property, innovation and public health, 2006, p 25 Effects on innovation and investment in the country
The risk of reduced investment in research and development in the particular country that
issues a CL is difficult to study, since investment decisions are taken for a number of reasons,
not just the patent system.99 The perception of danger may be more important than facts.
There may be concerns that CLs will send the wrong signal to investors and reduce inflows,
especially in research-intensive sectors.
This concern may apply especially to emerging economies. Low income developing countries
or LDCs do not receive much investment anyway, and any such investment is likely not
motivated by intellectual property protection, but instead to reduce labour-costs or make use
of strategic resources.100 Emerging markets such as Brazil, China and India both seek and
attract some research-intensive investment. For them, the mixed experience of Canada may be
a deterrent.
Effects on prices
The Canadian use of CLs resulted in some of the lowest medicine prices in the industrialised
world.101 However, it has also been argued that while prices were lowered with approximately
25 %, this is not much considering that the generic firm had no expenses for R&D and only
paid about 5 % in remuneration to the patent holder.102
There is very little information on the price effects of the HIV-related CLs that have been
issued by developing countries in the last five years. Examples from Malaysia and Zimbabwe
suggest price reductions around 10-30 %.103 However, it is difficult to draw any firm
conclusions, especially in regard to Zimbabwe, due to the economic and political turmoil in
the country.
More dramatic price reductions were estimated by the Thai government as a result of the CLs
for HIV/AIDS medicines issued 2006 and 2007. Comparing price offers from the Indian
generic companies with the original prices before the CLs were issued, the price for one AIDS
medicine would be reduced by almost 50 %104 and the price for the other with almost 70%105.
However, the final cost remains to be seen as the process is still underway.
4.1.3 Some pros and cons of compulsory licences
Specific difficulties
A CL does not guarantee transfer of technology or know-how, which means that it may be
difficult or even impossible for the licensee to produce with the same level of quality and
safety and at a lower cost than the originator. The information in the patent application must
contain descriptions for how the product may be manufactured, but this need not be the most
99 Maskus 2000, p 119f 100 Maskus 2000, citing Zhang 1996, p 122. 101 Reichman & Hasenzhal 2003, p 20 102 LIF 2002, p 12-13 103 In Malaysia, the ministry of health reported 2003 that costs for a three-substance combination was at US$ 115 per patient and month, after two of the substances had been procured through a CL. The 2001 originator price was at US$ 363 per patient and month, but had been reduced to US$ 136 in 2003. In Zimbabwe, the local company reportedly offered to supply a generic version of a two-substance combination pill for about US$ 180 per patient and year, as compared with the originator prices that were US$ 197-237. Oh 2006 p 26, 28. 104 Kazmin 2006. The product was efavirenz. 105 Kaiser Daily HIV/AIDS report 2007a. The product was lopinavir-ritonavir. efficient process. Sometimes, such processes are protected through know-how and trade secrets instead of patents, or even by a separate patent owned by another company. In cases of extreme urgency, the originator company may be the only party having ready stocks of the product.106 The patent holder will probably oppose the CL, which means that the licensee and the buyer will operate in an unfriendly environment, possibly including litigations and delays. The CL may also hamper future possibilities of making advantageous deals with patent holders. Specific advantages
CLs can permit production of fixed dose combinations (FDCs) of medicines when there are
none on the market. FDCs are easier to administer than several individual pills or liquids.
They therefore improve patient adherence to the medication regime and reduce the risk of
them developing resistance. HIV/AIDS medicines are given in combinations, and for all the
combinations recommended by the WHO there are at least two different patent holders
involved. Patent holders are not always willing to cross-license their products with
competitors to permit FDCs and in such instances CLs can solve a bottleneck.107 No
combination has e.g. been made by the patent holders for the basic triple combination
containing stavudine, lamivudine and nevirapine. Zambia and Mozambique both referred to
this reason in granting CLs.108
Probably the most important advantage of CLs is that it may strengthen the government's
negotiating position vis-à-vis the patent holders and influence them to lower their prices.
Brazil has several times used the threat of CLs to win very large price concessions from a
number of patent holders, resulting in some of the lowest prices for HIV/AIDS medicines in
the world. In 2001, the health minister threatened to issue a CL for Roche's patented
nelfinavir on the grounds of abusive pricing. Roche was sensitive to the threat, since they
earned a greater percentage of their revenue in Brazil than many other companies did. The
parties came to an agreement, which reduced prices with 40 %, ending up with a final price
that was 30 % of the US price.109 Similar modus operandi was observed the same year against
Merck's efavirenz and indinavir with resulting price cuts.110 After negotiations in 2005,
Abbott reduced the price for lopinavir/ritonavir with 46 % for five years, the lowest price in
the world at that time and lower than the estimated price for a locally manufactured copy. The
condition was that Brazil would not issue a CL. In 2006 Gilead halved their price for
tenofovir, compared to previous agreements.111
When Malaysia, another middle income country, started a process in 2003 to issue CLs for
government use, the companies also responded by offering substantial price cuts.112
106 LIF 2002, p 12-13; Bale 2005 107 Baker 2004, p 25. An exception is the new triple combination pill Atripla – a collaboration between originators Merck and Gilead (containing the substances tenofovir, emtricitabine and efavirenz). 108 Avafia et al 2006, p 17-18 109 Petersen & Rich 2001; Rich 2001 110 Petersen & Rohter 2001 111 Josefsson 2006, p 31-32. In May 2007, Brazil finally made good its threats and issued a CL for Merck's efavirenz. Brazil wanted Merck to offer them the same price that the poorest countries pay, and which had been offered to Thailand after they issued a CL in 2006. Instead, Merck offered a 30 % discount, midway the Thai and the Brazilian current price, which Brazil turned down. (Economist 2007) 112 Musungu & Oh 2006, p 44-45 The bargaining chip may also work after having issued a CL, but before actually implementing it. If companies are allowed to make price offers at this time, they may be eager to do so to prevent the worst outcome, which is the CL. This behaviour has been observed after the recent CLs in Thailand. Merck has offered to reduce its price by 46 %113, Abbott by 54 %114 and Sanofi-Aventis by 70%, but the latter only for a limited number of patients115. Cases from middle income countries are probably not representative of what would happen in smaller or poorer countries. These threats were successful because they were credible. This applies especially to Brazil which has significant manufacturing capability and ability to reverse-engineer new medicines. The Brazilian market for pharmaceuticals is one of the world's ten largest, partly due to its national AIDS programme which offers medicines for free to those infected. Brazil is also a growing economy, and companies do not want to lose their footing in such a market. Similar considerations may apply to Malaysia and Thailand. 4.1.4 Conclusion
There is reason to agree with the conclusion of Reichman & Hasenzhal (2003) who called
CLs "a two-edged sword". They argue that CLs should be viewed only as one item in the
governmental arsenal of tools. Similar views were advanced by the UK Commission on
Intellectual Property Rights in 2002: "We do not regard compulsory licence as a panacea, but
rather as an essential insurance policy to prevent abuses of the IP system".116 CLs may solve
particular bottlenecks, such as allowing production of combination medicines. There are risks
involved for the licensee, however, such as being sued by the patent holder.
Drawing on the literature, it seems as though systematic use of CLs for important products in
important markets could be expected to have adverse consequences for investment and
innovation. Sporadic use may not have any such effects, unless perhaps there are expectations
that one CL will be followed by several. Countries may also take into account that increased
access to life-saving medicines could also be considered an investment, in human capital. The
gain in that area might be enough to outweigh potential losses in others.
In terms of price, CLs may be expected to reduce them, but not necessarily very much. It is
difficult to say for certain, since there is little information from developing country
experiences with CLs. The licensee usually will not be able to produce as effectively as the
patent holder. It seems that CLs are more useful as bargaining tools in order to get patent
holders to reduce their own prices considerably. Not all countries can however expect the
same success as those that possess the elements to make the threats credible.
4.2 Patented medicines – needs and access
While there is a large, unfulfilled need for essential medicines in the world, it is only access to
patented medicines that matters for whether or not the Decision is needed. CLs can only be
conceived of as solutions to access patented products, as patents are no obstacle for off-patent
medicines. Furthermore, the Decision CL is only a solution for products patented in the
exporting country. Below, we will investigate the need in the developing world for medicines
patented in major exporting countries.117
113 From 1400 bhat/month to 767 for efavirenz. The offer was verbal only. Kaiser Daily HIV/AIDS report 2007b. 114 From 2200 US$/patient-year to 1000 for lopinavir-ritonavir. Schwindt 2007. 115 The Nation, Bangkok's Independent Newspaper, 2007 116 Commission on Intellectual Property Rights (2002), p 42 117 It can be very difficult to establish how widely a particular medicine is patented. Many are protected by several patents which may expire at different times. One example is the AIDS medicine Kaletra 4.2.1 Patents, prices and access
High medicine prices are certainly not the only thing obstacle to global health. This is
emphasised very clearly by both WHO and UNAIDS. The state of the national health
infrastructure is probably the most important issue. Medicines will not do much good in the
absence of clinics, doctors, information or safe distribution. Prices may be affected by taxes
and tariffs, reliable financing may be absent, demand reduced because of social stigma on
certain diseases. Another problem is the prevalence of counterfeit medicines that do not have
the same effect or quality or are downright dangerous.118
There are also many circumstances where there is therapeutic competition between similar
patented medicines that are used for the same disease. This reduces the opportunities for
monopoly pricing.
That said, it cannot be denied that patents generally affect prices and that prices affect
access.119 As stated in the Doha declaration: "We recognise that IP protection is important for
the development of new medicines. We also recognise the concerns about its effects on
prices." Prices matter, because medicines account for up to 80% of health expenditure in
some developing countries and thus strongly influence overall access to health care. In many
developing countries there are no general health insurance systems. Most people must finance
their medicines privately and at the time of the illness. WHO estimates that that 50–90 % of
such "out-of-pocket" spending for health care are spent on medicines. The lack of insurance
of course makes high medicine prices extra burdensome for poor people.120
4.2.2 Patented medicines needed
About 95 % of the 300-odd medicines on WHO's list of essential medicines121 are off-patent.
Medicines on the list (divided into a core list and a complementary list) are "the
most efficacious, safe and cost-effective medicines for priority conditions". The list is
supposed to be a practical tool for developing countries in deciding what medicines to
procure. Thus, it does take the prices of medicines into account. Some patented medicines
may be excluded for this reason. A review of the 2005 list found that 12 medicines on the
core list were patented in the US for the listed dose. Of these, 11 were for AIDS and one for
malaria. There are for instance no anti-cancer medicines on the list at all.122 Judging from this
list, AIDS and malaria would be the diseases where there is the largest need for patented
medicines.123
HIV/AIDS
25 million people have died of AIDS since it was first diagnosed in 1981.124 Today, there are
about 40 million people living with HIV, 95% of which in developing countries. Due to
(lopinavir/ritonavir). It exists in two different formulations, together protected by a total of 21 patents, of which the first expired in 2005, and the last will expire in 2017 (Abbott 2005a, note 45). Patent holders do not necessarily seek protection everywhere in the world, since it represents substantial costs. 118 WHO 2004b, p 61-74; UNAIDS 2006, p 151-164 119 See e.g. Sherer and Watal 2001, p 5-8 and Maskus 2000, p 159-167 on effects on prices after introduction of product patents. 120 WHO figures cited in Ford 2004; WHO 2001 121 WHO model list of essential medicines, at http://www.who.int/medicines/publications/essentialmedicines/en/ 122 Love 2006b 123 Tuberculosis kills about 2 million people each year, of which 98 % in developing countries. Patents do not restrict access to TBC medicines – rather, it is lack of R&D. The treatment involves a cocktail of off-patent medicines that were developed 40-60 years ago. CLs are therefore no solution to improved access in this case 124 The figures in this section are from UNAIDS 2006, p 150-153 enormous advancements in R&D, there are now medicines available that have, in the developed world at least, turned AIDS from a mortal to a chronic disease. The medicines, antiretrovirals125 (ARVs) are taken in certain combinations by the patients every day for the rest of their lives and keep the HIV from developing into AIDS. Of those in need of ARVs, only one in five in developing countries were getting treatment by December 2005. While insufficient, this represents a huge improvement compared to 2001.126 It has been calculated that 250 000-350 000 deaths have been prevented by the increased treatment.127 The improved access was possible because of a dramatic drop in prices for the most commonly used ARVs. It was partly due to voluntary price reductions from originator companies128 and partly to increased generic production, located primarily in India.129 AIDS medicines – patents and prices
ARV is not one kind of medicine; a country needs access to at least six different sorts, and preferably several more, since tolerance and resistance patterns vary very much (see Box 2). Some patients are intolerant to one or two components in the combination. This makes procuring the ARVs difficult. Box 2. Antiretrovirals
Patients should be treated with a "triple cocktail" that combines different classes of ARVs.
WHO treatment guidelines further divide ARVs into first line and second line regimens.
The second line is for patients that have developed resistance to the first line treatment.
WHO recommends a standard first-line treatment that with two medicines from a class
known as nucleoside reverse transcriptase inhibitors, NRTIs (e.g. stavudine, zidovudine,
lamivudine, abacavir, didanosine and tenofovir) and one from a class called non-
nucleoside reverse transcriptase inhibitors, NNRTI (nevirapine or efavirenz).
A standard second line treatment involves changing at least one of the NRTIs, but shall
also include one medicine from a new class, the protease inhibitors (e.g. lopinavir,
indinavir, saquinavir, ritonavir, nelfinavir). The protease inhibitors have been developed
later than the other two classes and increase the effectiveness of the NRTIs.
(Source: WHO 2006a, pp 19-26, 45-48)
Generally, all ARVs are patented in developed countries, except some where the patent expired in 2006.130 In developing countries, a 2001 survey showed that most were not widely patented in Sub-Saharan Africa, with the exception of three important first line medicines.131 However, most of these countries have no manufacturing capacity and rely on imports. 125 The HIV belongs to a group of viruses known as retroviruses. 126 The 2001 Declaration of Commitment on HIV/AIDS launched the "3 by 5 initiative", which aimed at providing 3 million people with ARVs by 2005. At the G8 meeting in Gleneagles 2005, a goal was set to reach as close as possible to universal access by 2010, and this was endorsed by the UN general assembly in September 2005. 127 There are great regional differences in access. In Latin America, 68 % of those needing it receive ARVs, whereas in North Africa and the Middle East the figure is only at 5 %. In Sub-Saharan Africa, the number of people with access doubled in 2005, but still only represents 17 %. 128 For example the Accelerated Access Initiative – see discussion in Hammer 2002 129 Some would argue that the first phenomenon was a result of the second, i.e. that originator companies dropped their prices due to generic competition, 130 Didanosine, stavudine and zidovudine. 131 Lamivudine, ziduvudine, nevirapine – see Attaran and Gillespie-White 2001, p 1886-1892 ARVs are much more widely patented in potential exporting developing countries. Comparing the 2001 survey data with that provided by the MSF, one study finds that of the 12 ARVs on the WHO essential medicines list, 10 were patented or have patents pending in China, 10 in Thailand, 8 in Brazil, 9 in Argentina and all 12 in South Africa. In India, which did not provide patent protection at this time, none was patented, but five, possibly six, had pending mailbox applications (see under 4.2.3).132 In terms of prices, there have been extremely significant reductions for the oldest ARVs – more than 90% for some combinations. For many of the older ARVs, there is now vigorous competition. This is not the case for the second line ARVs. They are often 6-12 times more expensive than the first line, being newer, more complex and more widely patented.133 Prices are also high for new and better first line medicines. There is evidence that long treatment with some of the old ARVs causes serious side-effects and transition to new and better medicines could therefore improve treatment. However, replacing older medicines such as stavudine with newer like tenofovir would increase the cost per patient-year more than three times.134 There are large regional differences in prices. The price reductions by originator companies are mainly offered to low income countries, and in middle income and lower middle income countries ARVs are often much more expensive, even though they may also hold a large number of very poor people. There are also geographical differences, in that countries in Sub-Saharan Africa might be offered lower prices than equally poor countries elsewhere. One study showed that prices in countries such as El Salvador and Honduras can be up to 10-20 times higher than the lowest price for that originator medicine offered elsewhere.135 From this it can be concluded that there is a big difference between the first line and second line ARVs, old and new ARVs, and between countries, both in terms of patenting and pricing. It is also an example of how differential pricing works in practice. There are attempts at the Ramsey optimal pricing described in section 2.2, but it is not systematic. So far, rather few people are on second line medication, but this will change within the next few years. There is no global data on resistance patterns yet136, but data from MSF projects in South Africa, shows that 1/6 patients must switch to second line medication after 4 years of treatment.137 Data from Thailand indicates that patients can take the locally produced, basic 132 Morgan p 25. Data is drawn from MSF 2004. The five medicines in the Indian mailbox were lamivudine, nevirapine, abacavir, saquinavir-ritonavir and lopinavir-ritonavir and the sixth tenofovir. 133 WHO-UNAIDS 2006, p 60. In Thailand for example, the average cost of second line medicines is 14 times as high as for first line (6737 US$ per patient-year on average compared to 482 US$ for the first line). The cost is higher that the total yearly household income for 40 % of the population. Second-line medicines represented 95 % of the total Thai ARV cost in 2006. (World Bank 2006, p 82) 134 MSF 2007b. The figures in the example are the cheapest available fixed dose combinations of stavudine+lamivudine+nevirapine and tenofovir+lamivudine+efavirenz, respectively. 135 It studied prices paid during the procurement of ARVs funded by the Global Fund to Fight AIDS, Tuberculosis and Malaria. Vasan et al 2006 136 WHO, in collaboration with the International AIDS Society are developing the "Global HIV Drug Resistance Surveillance Network" for tracking resistance patterns and develop counterstrategies. In December 2005 surveillance was planned or started in 20 developing countries and countries in transition. So far there has been no report on the situation. (WHO-UNAIDS 2006, p 63. Website at http://www.who.int/drugresistance/hivaids/network/en/index.html) 137 MSF 2006b first line combination for three to five years before resistance develops and they need to switch.138 By now, therefore, there is a substantial number of people taking ARVs who may be starting to develop or already have developed resistance. Treatment agencies are concerned that the second line medication is still so much more expensive, as this will put increased pressure on financing. Due to the current or coming wide patenting of these medicines, in a largely TRIPS-compliant world, there may not be the same competitive pressure that helped drive prices down for the first line treatment. WHO and UNAIDS say that use of the TRIPS flexibilities, which includes the Decision, may be critical to efforts to reach the goal of universal ARV access.139 Other diseases
Malaria kills more than one million people annually and cause 300-500 million new infections yearly, of which 90 % in Africa. There are a few potent combination products, as recommended by the WHO, on the market. One combination is patented, e.g. in China, Thailand, Argentina and South Africa and developed countries.140 Another was launched in 2007 by the non-profit public-private partnership Drugs for Neglected Diseases Initiative and will not be patented.141 While the epidemics are the diseases mostly discussed in relation to the TRIPS, as well as specifically mentioned in the Doha declaration, non-communicable diseases also occur in developing countries. 80 % of world mortality in non-communicable diseases takes place in developing countries. Cancer rates, including those related to HIV, are expected to double between 2002 and 2020, with 60 % of these occurring in developing countries.142 Other major non-communicable diseases are cardiovascular disease, diabetes and respiratory disease including asthma. Some of them have new medicines that are patented.143 Despite this, as mentioned above, there are no patented medicines for diseases other than AIDS and malaria on the WHO list of essential medicines. This is because the WHO considers it more urgent to treat other diseases, which may be due to price and funding considerations. 4.2.3 The special case of India
Indian production of medicines is very important for the developing world. India, like many
other low- and middle-income countries had no product patent protection for pharmaceuticals
prior to the TRIPS Agreement. India also took advantage of the longest possible transition
period in the TRIPS, whereby introduction of product patents for pharmaceuticals could be
delayed until January 2005. 144 A large generic industry has grown in India under these
conditions which has allowed reverse-engineering and copying of medicines that were
introduced and patented in other countries.
138 Kazmin 2004. The combination is stavudine, lamivudine, nevirapine, known as "GPO-vir" in Thailand. 139 WHO-UNAIDS 2006, p 60-61 140 Morgan, p 27, based on data from Attaran & Gillespie-White 2001. The medicine is Coartem, sold by Novartis. 141 The pill will be sold for US$ 1 for adults and US$ 0.50 for children. See Drugs for Neglected Diseases Initiative website, at www.dndi.org 142 WHO figures put together by Oxfam 2006. See also World Bank 2006, p 50. 143 Gleevec for leukaemia (expires 2013), some patents listed for Cipro antibiotic (expires 2015) and the anti-cholesterol medicine Lipitor (expires 2009). Abbott 2005a, note 47. 144 Article 65.4. The general transition period for developing countries expired in 2000. These copied, or "generic", versions have come to play a vital part in the global supply of low-cost, high-volume medicines. Indian firms supply 1.5 % of the value of the global pharmaceutical market, but 20 % of the global consumption. Indian firms also produce 22 % of all generic medicines worldwide.145 Together with China, India also produces a lot of active pharmaceutical ingredients and is a major supplier of vaccines.146 Almost half of the Indian medicine exports go to developing countries. According to the MSF, 50 % of all developing country patients on treatment get their ARVs from India. Many international organisations also procure their medicines from India.147 Another important function of the Indian market has been to produce fixed-dose combinations of ARVs. In January 2005 India implemented the TRIPS rule of 20 year product patents for pharmaceuticals. For new medicines, India will therefore be in the same situation as other non-LDCs. If patents are granted, there must be no generic copying unless CLs are issued. One restriction on the longer transition period was the obligation in article 70 TRIPS to establish a "mailbox", where patent applications from 1995 and onwards could be filed. When the country became TRIPS-compliant, the applications should be processed by the patent office, and, if granted, a patent would extend for the remainder of the 20 year term from the date in the application. This provision means that a patent may be granted after 2005 on a product which was at that time already on the market in India. As described above, there are five or six pending applications in the mailbox for ARVs. If they are approved, they will be granted as patents for whatever time remains of the 20 years. However, most ARVs are based on medicines patented before 1995, and India's current production of these medicines will not be affected by what is in the mailbox, unless patents are sought and granted for improvements, or combinations on known components.148 Overall, it is likely that some if not most existing ARVs, at least in their non-combination form, will remain available and off-patent in India, even after 2005.149 This is for example the situation with the medicines that MSF could buy from India without using the Decision as they would have had to do in Canada. However, for coming medicines the Indian situation has changed with TRIPS compliance. 4.2.4 Access through donations or differential pricing
Patent holder companies argue that the solution to high costs for the poor during a patent term
is voluntary donations and differential prices, and these measures are a reason why the
Decision has not so far been used. All the large pharmaceutical companies have programs for
differential pricing and many donate large volumes of medicines to developing countries, in
particular LDCs. Between 2000 and 2005, patent holder companies provided donations for
diseases relating to the fulfilment of the Millennium Development Goals to a cost of US$ 4.4
billion.150
145 Gehl Samprath 2006b 146 Grace 2004, p 9, p 14 147 80% of the MSF ARVs, 70% of the medicines for the UNICEF, International Dispensary Association and the Global Fund. The US President's Emergency Aids Relief plan, PEPFAR, has also begun using Indian generics (MSF 2007a) 148 However, India has introduced strict patentability criteria with regard to new forms of known substances. 149 Abbott 2005a, p 322 150 Kanavos et al 2006, p 8 According to the UNDP, donation programmes can be highly effective. Merck's programme to provide free medicine to cure river blindness was successful, partly because the disease is found in a specific region, it can be eradicated and it has a simple treatment. But in less ideal cases, the UNDP highlights several drawbacks of relying only on donations as a long-term solution. For administrative purposes the poorest people (e.g. without a fixed address) are often excluded from the programmes. Donations can also be a burden on public health structures by establishing separate disbursement systems. It is costly to keep medicines from being diverted from the programme. For a disease that persists it is not sustainable, and if the disease is widespread (such as AIDS), the donations can never fully meet the demand.151 The companies can only donate a certain amount before it starts affecting their overall ability to make a profit and continue in the market. As shown in section 2.2 and above, there is currently an international system of price discrimination even if it does not generally result in systematic links between price levels and a country's level of development. Sometimes there are large price differentials between equally poor countries, depending e.g. on geographic location. This price discrimination takes place even though there is a risk of high income markets prices being influenced. Donations and price reductions can be attributed rather to philanthropic motives and to the need to maintain a good corporate image than to optimal efficiency pricing. The pharmaceutical industry is often under scrutiny and need to respond by increasing access to their products. Another underlying reason is probably the threat of countries instead relying on generic competition and CLs. Incentives to lower prices may not be strong enough in the current situation where markets are not perfectly separate unless these threats are credible.152 Thus, while donations and differential pricing are extremely important for improving access they cannot be the full or only solution for each and every poor country, or for every product. 4.2.5 Conclusion
Many essential medicines are not patented in major exporting countries, but some are. Many
poor countries are offered donations or reduced prices for the patented medicines that they
need, but not necessarily for every product they need, and not always at a price that is
commensurate with the country's level of development. So far, many developing countries
have had the option to buy cheaper copies of patented medicines, for example from India.
This will continue to be an option for existing medicines but the full implementation of
TRIPS in all major exporting countries will reduce the future production of generic versions
of new medicines.
We therefore conclude that even though the need to import patented medicines through the
Decision has not been very acute up until recently, it may become more important in the
future.
4.3 Conclusion – a growing need for the Decision
From our evaluation of the CL as an instrument it was found that CLs are not to be used
lightly or systematically due to the risks and limitations involved. However, empirical
research shows that there are situations when a case can be made for using CLs or the
Decision. There is a growing need for patented medicines, especially in cases where there is
151 UNDP 2001, p 101 152 Grace 2003, p 35; Hammer 2002 rapid product development due to increasing resistance, such as the second (and later third and fourth) line ARVs. In combination with the end of the TRIPS transition periods for all developing countries and the fact that companies do not systematically set prices that match different countries' income levels (Ramsey optimal pricing), this means that prices on such medicines will probably not drop significantly in the near future. Several countries and organisations may find themselves in a difficult position for funding procurement. The Decision may therefore quite likely become much more important in the future. This is also the conclusion in a joint WHO-UNAIDS publication.153 The Decision is primarily important because credible threats of compulsory licensing may improve a country's chances to negotiate price reductions from patent holders. In the next chapter the prerequisites for the system to work as intended will be reviewed. 153 WHO-UNAIDS 2006 5. Prerequisites for the Decision to fulfil its purpose
So far, it has been established that there has overall been a lack of interest in using the
Decision, that the system has been criticised for being unworkable but that due to a number of
circumstances it will become more important for it to work in the future. The purpose of the
Decision is to enable developing countries with grave public health problems to import
affordable essential patented medicines. This chapter will discuss the likelihood that the
Decision can fulfil this purpose – are necessary prerequisites in place?
5.1 Economic prerequisites
One of the most important prerequisites concerns the economic viability of the new system. A
compulsory licence (CL) is a business transaction between a supplier and a buyer. The
supplier will usually be a regular for-profit company, even though the goods may be destined
for public use. The buyer will be the government or a company of a developing country with
grave public health problems. The transaction will only take place if a price acceptable to both
is found. The price must allow the supplier to make a reasonable profit154 while also be so
much below the patent holder's price that the buyer can afford it.
Is it likely that a price equating supply and demand can be achieved through the Decision?
First, it can be established that for a number of people in the world, it would not help much
even if prices dropped to marginal cost – they would still not be affordable on an income of
e.g. less than US$ 1 a day. For people somewhat better off and for purchasing organisations
or governments such price reductions may make a lot of difference.
This section will explore how factors influencing price will work under the Decision and the
views of generic industries on the issue.
5.1.1 The difference between the Decision and regular compulsory
licensing
The previous chapter discussed the empirically observed price effects of regular compulsory
licensing (recall Figure 1, which showed when the Decision or other methods were to be
used). Use of the Decision cannot straight-off be compared with these effects, for several
reasons. Since nobody has so far completed a purchase under the Decision this means that our
conclusions will be speculative rather than empirical.
Compared to cases of CLs importing from countries where the product is off-patent and
already being manufactured (e.g. in the cases of Thailand or Malaysia, purchasing from
India), start-up costs for production will be higher under the Decision because the licensed
supplier do not have any production at the time. Nor can use of the Decision for developing
countries be compared to the case of Canada, where the licensee was a local producer in a
high-income market. It can be hoped that it can lead to similar effects as observed in Brazil or
other countries that managed to negotiate lower prices from the patent holder after threatening
to use CLs.
5.1.2 Factors affecting price
Price is affected by a number of factors: the level of competition for the order, the production
costs, the size of the order, and risks.
154 Unless the company decides to waive profits, for philantropic or PR reasons. Competition
Figures from the WHO show that when a patent expires in the US the average wholesale price
falls to 60 % of the branded medicine's price when there is just one generic competitor. When
there are ten competitors, prices fall all the way to 29 %.155 Another study of the American
market found that generic medicine prices fall with the number of competitors in the market.
Prices only approach long-run marginal cost when there are as many as eight (or more)
generic competitors. The result only applies to markets of sufficient size. For medicines less
in demand, prices will remain above marginal cost and not induce generic firms to entry.156
A study by the Agence Nationale de Recherches sur le SIDA drew similar conclusions for
some developing country markets. Exploring determinants of ARV prices in Brazil and 13
African countries, they found that introduction of generic competition remained an essential
factor for lowering prices even when controlling for other factors that influence price.
Furthermore, they concluded that pooled negotiations will only translate to lower prices when
there are multiple possible suppliers.157
Some studies show that if there is only one generic product in the market, alongside the
original product, the generic price will typically "shadow" the price of the original, placing
itself just below the original.158
A Decision CL will introduce one more supplier into the market. The empirical studies seem
to indicate that this increased competition can reduce prices, but probably not to marginal
cost.
Competitive procurement
Price might be further reduced if several suppliers are allowed to compete for the license. There are a number of possible procurement methods.159 "Limited international bidding" offers a way to introduce competition between suppliers under the Decision. The buyer directly invites a limited number of qualified suppliers to submit bids for a compulsory licence. However, it would be difficult to reconcile with the Decision for both suppliers and buyers. According to the Decision, the conditions of the CL granted in the exporting country have to specify where the medicines are going.160 This means that the exporter can only grant a CL after the importer has made its needs public. The two parties (exporting company and importer) must already have some sort of an agreement in place, before they know whether the CL will be granted by the exporting country or on what terms. 155 Cited in Abbott 2002, p 15 156 Reiffen and Ward 2002, a study of generic versions of 32 pharmaceutical substances that went off-patent in the late 1980s and early 1990s in the US. 157 Lucchini et al 2003 158 Danzon and Towse 2005, p 453-454. 159 The World Bank medicine procurement guide (World Bank 2004, p 69-74) says that in the case of ARVs the most appropriate methods are shopping (for small amounts of readily available products), direct contracting or limited international bidding. The standard international procurement with competitive bidding typically cannot be the preferred method since the majority of ARVs are either single-source or limited-source products. For our purpose, shopping or direct contracting are not very useful – the first, because there will be no readily available alternatives to shop for in the case of a patented product and the second because negotiations with only one generic company may not result in the price cuts the buyer needs. 160 "…the compulsory licence issued by the exporting Member under this Decision shall contain the following conditions i) only the amount necessary to meet the needs of the eligible importing Member(s) may be manufactured under the licence and the entirety of this production shall be exported to the Member(s) which has notified its needs to the Council for TRIPS" (Paragraph 2b of the Decision) For the company, it will therefore be difficult to partake in a bidding competition if a CL is needed for export. The company cannot be sure that the CL will be granted, so they cannot guarantee delivery. The Decision requires the exporting company to pay adequate remuneration to the patent holder, but does not clarify "adequate". It may be difficult for the company to set a price since the total cost including remuneration cannot be known until remuneration is set by the national authority granting CLs. For these reasons a company that needs a CL (because there is a patent in force) can hardly compete in a tender with a company that does not need a CL. If the product is patented in every country where there is production capability, it is (at least theoretically) possible that a number of companies could compete for a CL, if offered a sufficient market. In this case, all of the bidders would have to "factor in" the uncertainty in their offer.161 This scenario could appear for popular medicines some years post-2005. However, in such a scenario it will be difficult for the buyer to compare offers. The buyer would need to estimate which of the exporting countries' authorities would be more or less likely to grant a CL, and how it would set remuneration before choosing a bidder. Also, rules in the importing country may disqualify tenders from companies that may not be able to supply in the end.162 There are only a few high-quality generic producers in the world, able to reverse-engineer new medicines and active pharmaceutical ingredients while at the same time adhering to good manufacturing practices163, especially if they are also supposed to have low costs. The Decision will not substantially affect this fact, which means that even if a competitive bidding process should work, there would not be many possible bidders. Production costs
Costs will depend on the complexity of the medicine and how similar it is to what the supplier
is already manufacturing. The start-up costs may be substantial. The supplier needs first to
obtain a CL and then develop and implement a method for the production. As discussed in
section 4.1.3, the licensee does not necessarily get access to important know-how or the most
efficient production method through the CL. The supplier must either expand manufacturing
capacity or reduce manufacturing of other products. After planning and manufacturing the
medicine, marketing approval may be needed, depending on the national legislation.
Start-up costs may be higher if the effective length of the licence is very short and the supplier
must proceed quickly to produce the full order.164 The effective length of the CL depends on
the length of the authorisation, and/or the remaining length of the patent itself.165 It also
matters how complex it is to start production and sales. The study on patent expiry in the US
showed that it normally took two to three years for the generic producers from the time it
started preparing to manufacture a medicine until it could begin to sell it.166 According to two
161 In these cases, it may be valuable that the exporters' legislations minimise uncertainty by saying that they shall issue CLs if all the conditions are fulfilled, rather than may issue. Only China has a "may issue" provision; Canada, the EU, India, Norway and Korea have "shall". 162 See Access to Drugs Initiative 2007, p 4-6 163 Baker 2004, p 37f 164 According to TRIPS Article 31, the length is to be determined on a case-by-case basis, since the CL shall be liable to be terminated "if and when the circumstances which led to it cease to exist and are unlikely to recur". 165 The Canadian legislation may be problematic in this respect since it limits the CL to two years, albeit with possibilities of renewal. (Canada's Bill C-9 21.09 (Duration); 21.12 (Renewal)) 166 Reiffen & Ward 2002, p 5 sources cited by Abbott, the CL process from request to delivery, including reverse-engineering of the product, gaining regulatory approval and manufacturing the right quantity under good manufacturing practice, may take 1-3 years. The secretary-general of the Indian Pharmaceutical Alliance estimated 3-4 years, and the director of the Brazilian manufacturer Far Manguinhos thought that one year might be possible.167 Risks
For the suppliers, getting involved in a CL procedure entails an element of risk, higher than
for ordinary production. They cannot be certain at first if the licence and the regulatory
approval, if needed, will be granted. There will probably be a long time between the order and
the shipment, during which the buyer may default on the order. This could happen for
example if the products are for public use and there is a change of government in the
importing country.
The exporting country must notify the TRIPS council of a granted CL, the quantities to be
produced and the conditions attached. This transparency may enable the patent holder to
undercut the price set by the licensee in order to keep the market. This would create further
competition, which is in line with the purpose of a CL, and it would benefit the recipient
country. From the point of view of the supplier it could be costly if it has already taken steps
towards production but will lose the order.
Another risk to consider is how becoming involved in a CL will affect future opportunities for
investment or voluntary licensing from patent holders. For example, after TRIPS-compliance
in 2005, many Indian firms pursue business strategies to change from mainly generic to
mainly innovative companies in order to survive in the new situation.168 To achieve this they
will need investment and may not wish risking tarnishing their image by applying for CLs.
Finally, there is the risk of litigation from the patent holder for example if some products
should be diverted from the recipient. Patent-related litigation is often very costly.
The size of the market
From all this follows that the supplier will need a rather large and secure market for the new
product in order to recover production costs, allow a risk premium and still undercut the
patent holder's price and possibly also prices of generic competitors. According to the
Decision, the licensee can only sell the products to the requesting country/countries, not to the
world market in general.169 The recipient(s) will constitute the entire market, at least at the
time of the application for the CL. Other buyers may also become interested to use the
Decision to buy the same product, but this is not necessarily known at the time of the
production or when the price per unit is agreed. As well, it cannot be certain that the company
will be granted a CL for other buyers as well.
Most developing country markets are probably not big enough to supply the sufficient
incentives. 49 developing countries have a total expenditure on health of less than 30 US$ per
capita and year. 34 of these are in Sub-Saharan Africa. The sum includes government
expenditure, as well as expenditure from other sources, and represent all health spending, not
167 Abbott 2005b, p 415 168 Gehl Sampath 2006a, e.g. p 5 169 Paragraph 2.b(i): "only the amount necessary to meet the needs of the eligible importing Member(s) may be manufactured under the licence and the entirety of this production shall be exported to the Member(s) which has notified its needs to the Council for TRIPS" just pharmaceuticals.170 Developed countries constitute the lion's share of the pharmaceutical market – North America, Europe and Japan together accounted for 87 % of total sales in 2006.171 A World Bank economist estimated in 2003 that the group of developing countries that may benefit from the Decision accounts for less than 1 or 2 percent of global pharmaceutical sales.172 It may be more or less for certain products. With the strong growth in some developing countries, the share might also have increased since 2003. Large or more advanced developing countries would probably constitute viable markets. Smaller developing country markets might also be interesting markets if many people need one particular medicine and the government can get funding from donors. Many countries depend on donor money to buy medicines, and the procurement policies of major donors may therefore have an impact on the possibility of using the Decision. There are different approaches. When donors donate medicines instead of money using the Decision is not an option.173 Other donors have clear policies on the documents countries need to present if they want to use donated money to procure through the Decision or other TRIPS flexibilities.174 Some donors allow use of the Decision, but lack coherent policies to make it possible. The Global Fund to fight AIDS, Tuberculosis and Malaria and the World Bank require that the recipient procure in accordance with national and international rules, which can mean use of TRIPS flexibilities.175 However, they also favour procuring medicines of assured safety, quality and efficacy.176 Insisting on pre-certified medicines can make it impossible to use the Decision. Medicines that would be manufactured under a CL do not exist yet and therefore cannot have been certified. 5.1.3 The view of potential producers
The European Generic Medicines Association has stated that it is unlikely that any company
in Europe would be able to serve as exporters, if the market was restricted to one country and
there is no long-term market prospect.177
The Canadian generic industry seems to feel that they cannot compete with Indian companies
in the market for antiretrovirals, ARVs. Indian companies are already well-established in the
African market for example and have very low manufacturing costs. The possibility for
developed country export would be if they found a niche market, not supplied by India.178
Most observers assume that the likely suppliers under the Decision would be based in India,
or other countries with lower costs than the developed world. A survey of Indian
pharmaceutical firms between 2000 and 2004179 found that 25 out of 103 surveyed firms
considered that the Decision offered favourable economic incentives for exports – the rest did
170 WHO 2006b. By contrast, even the lowest price for the cheapest triple combination of ARVs is currently at 99 US$ per person and year (brokered through the Clinton foundation). 171 EFPIA 2007, p 10 172 Fink 2003, p 5 173 E.g. the US President's Emergency Plan for AIDS Relief, PEPFAR where procurement goes through the Supply Chain Management System, see www.pepfar.gov 174 E.g. the International Dispensary Association (2005) 175 The Global Fund 2006; World Bank 2004 176 The qualification can be done by the WHO or a drug regulatory authority in a high income country. 177 Perry 2007 178 Personal communication with Sarah Perkins, Acting Director of International human rights program, faculty of law, university of Toronto. 24 May 2997. 179 Gehl Sampath 2006a and 2006b not. The common reason given by the negative responders was that the process increased the procedural hassles associated with such exports and this was not considered worthwhile, especially since the economic returns from such exports were expected to be very low. The overall conclusion was that Indian companies may not have sufficient incentives to engage in the new system. Many of the big companies are adapting to the TRIPS-compliance by investing more in research and increasing exports to developed countries. Middle-sized companies will find the Decision more attractive than those able to export to high-income markets, but they may be limited by process technologies and input requirements, especially if the products that are under demand are very different from what are currently being produced. Aggregated demand among importers may induce some of the biggest companies to use the Decision. It seems as though the respondents were asked about the Decision only in relation to LDCs but the Decision may also be used by non-LDC developing countries. Some respondents may have been more optimistic if these countries had been explicitly included. It was made clear that many firms wanted to (continue) supply to Africa and other LDCs, but needed economic viability to make it work. The generic industry is an interested party and will obviously try to make the WTO rules as lucrative as possible to them. Still, their comments are useful to understand the economic climate in which the Decision must operate. 5.1.4 Conclusion
Obviously, it cannot be said for certain whether an equilibrium price enabling import can be
achieved with the Decision. It does seem, however, as though the chances will be small.
For a generic company it will probably take at least one year to arrive at a finished product,
and initial costs will be high. Prospects seem dim for combining the Decision with
competitive procurement. There is no logical link between them. Comments from the industry
suggest that there will not be any rush to participate in the Decision, but some firms might be
interested if there is a big enough market to off-set costs.
It seems that economic viability will depend primarily on the size of the market, or on access
to donor money. Donors could therefore facilitate use of the Decision by adopting explicit
policies for how the recipients can do it without compromising quality and safety or the
security of the funding.
Before the Decision was agreed, the Commission on Intellectual Property Rights commented
that a legal solution to the problem of compulsory licensing for export was necessary but not
sufficient. The economic difficulties of production costs and market potential would need to
be addressed as well.180 It appears that this remains to be done, at least in regards to small
markets.
Overall, it is probable that in a TRIPS-compliant world the patent holder will generally be the
one that can offer the lowest price as well as the quickest delivery. This underscores that the
main value of CLs, including the Decision, lies in the possibility of improved negotiating
180 Commission on Intellectual Property Rights (2002), p. 45 strength vis-à-vis patent holders. Again, however – it is not likely that this effect will be very strong for the smaller developing country markets. 5.2 Legal prerequisites – the issue of TRIPS-plus
Use of the new system is not necessarily legal just because the Decision has been agreed.
Other obligations may come in the way. The TRIPS sets minimum standards, but members
can raise the protection from this level ("TRIPS-plus"). TRIPS-plus standards are common in
regional trade agreements (RTAs), especially in the RTAs negotiated by the United States
with various partners. In order to protect its pharmaceutical industry, the US promotes and
negotiates TRIPS-plus rules that are meant to slow down entry of generic competition into the
market. These may result in obstacles to using the Decision.181
The EU and other industrialised countries also have significant "TRIPS plus" in their RTAs,
but not in the area of patents or pharmaceuticals. However, the EU and other WTO members
can "free ride" on the obligations negotiated by the US, since TRIPS-plus standards have to
apply equally to all WTO members even when negotiated through a bilateral agreement.182
5.2.1 Provisions in regional trade agreements
The US RTAs shall ensure that intellectual property rights are adequately and effectively
protected in the partner country, on a level that is similar to the one in the US. Furthermore,
the RTAs should respect the Doha Declaration.183 It seems as though the first objective is on
the whole overriding the second. Table 3 is an overview of the recent US RTAs and their
various TRIPS-plus measures.
181 The following section builds mainly on Abbott 2004 and Abbott 2005a, p 349-357 182 In the TRIPS, there is no exception to the non-discrimination principle (most favoured nation principle) in the case of RTAs. Any IP standard or rule agreed to with one WTO member must therefore be unconditionally be extended to all other WTO members as well. The EU RTAs mostly focuses on higher standards in regard to geographical indications and enforcement of intellectual property rights in general. 183 Objectives for negotiating bilateral agreements as laid down by the US Congress in the US Trade Act of 2002 (the US Trade Promotion Authority Act). Table 3. Illustrative table of TRIPS-plus provisions in US RTAs
RTA
Year Limited
Link between
Side letter
grounds for
regulatory approval
on public
& patent186
(draft text) Korea (draft text) * Applicant may not market a copy during the patent term. Patent holder must be informed of applicant's identity. Note: the provisions may not be exactly the same in each RTA. Source: The final texts (draft texts for Panama and Korea) of the agreements, at the USTR website www.ustr.gov. The US also has ongoing negotiations with Malaysia, but the negotiations with SACU, Thailand, Ecuador and UAE are inactive. A potential explicit obstacle in three RTAs is a provision that CLs may only be granted for government use, national emergencies, cases of extreme urgency or to remedy anti-competitive practices. It does not say whose national emergency or whose government use. If it only applies to emergencies and governments in the parties to the agreement, the US, 184 Sample text: Neither Party shall permit the use of the subject matter of a patent without the authorization of the right holder except in the following circumstances: (a) to remedy a practice determined after judicial or administrative process to be anticompetitive under the competition laws of the Party; (b) in the case of public non-commercial use or in the case of a national emergency or other circumstances of extreme urgency, provided that: (i) such use is limited to use by the government or third parties authorized by the government; (ii) the patent owner is provided with reasonable and entire compensation for such use and manufacture; and (iii) the Party shall not require the patent owner to transfer undisclosed information or technical "know how" related to a patented invention that has been authorized for use without the consent of the patent owner pursuant to this paragraph. Where a Party's law allows for such use pursuant to subparagraphs (a) and (b), the Party shall respect the provisions of Article 31 of the TRIPS Agreement. US-Singapore RTA, article 16.7.6 185 Sample text: If a Party requires, as a condition of approving the marketing of a new pharmaceutical or agricultural chemical product, the submission of: (a) safety and efficacy data, or (b) evidence of prior approval of the product in another territory that requires such information, the Party shall not permit third persons not having the consent of the person providing the information to market a product on the basis of the approval granted to the person submitting that information for at least five years for pharmaceutical products and ten years for agricultural chemical products from the date of approval in the Party's territory. For purposes of this paragraph, a new product is one that contains a new chemical entity that has not been previously approved in the Party's territory. US-Morocco RTA, article 15.10.1 186 Sample text: With respect to pharmaceutical products that are subject to a patent, each Party shall:(…) c) not grant marketing approval to any third party prior to the expiration of the patent term, unless by consent or acquiescence of the patent owner US-Chile RTA, article 17.10.2c Singapore, Australia and Jordan cannot be exporters under the Decision. As an exporter, CLs would be issued on other grounds than the three mentioned. Two hotly debated possible implicit obstacles concern the role of test data protection and national regulatory authorities. Most countries only allow sale and marketing of a pharmaceutical or an agricultural chemical product if it has been approved and registered by the relevant authority.187 Companies prove that their products are safe, effective and of high quality by submitting data from clinical trials. After patent expiry, generic products generally only have to prove that their products are bioequivalent with the original product to get an approval, and do not have to reproduce the test data. Data is not an invention and is not protected by patents in TRIPS but as trade secrets. Article 39.3 requires Members to protect undisclosed test data against "unfair commercial use". The US RTAs instead requires full protection, i.e. there are no exceptions for "fair" or "non-commercial" use of the data. No generic company may rely on these data for at least 5 years after the date of approval. This exclusivity may apply even if the product itself is not patented. The provisions sometimes also create a cross-border obligation, in that this marketing exclusivity can be based also on data submitted in foreign countries or on the fact of marketing approval in foreign countries. Protection for data is very important for the research-based industry, since it is the clinical trials that cause the greatest costs in developing a new medicine. However, full exclusivity may make it impossible to use the Decision during the time when the exclusivity is in place. It will be too expensive and take too long for a generic company to produce a medicine for export if the importing country requires that they re-do all the clinical trials in order to approve the product. Technically, a country may allow access to relevant data as a part of the terms of a CL. However, this is not explicitly allowed in the US RTA texts. Some RTAs forbid the national regulatory authorities to approve and register a generic medicine if there is a valid patent in force on the same product, unless with the express consent of the patent holder. This "linkage" obligation requires the authority to take a role in enforcing patent rights. Since intellectual property rights are private rights, normally it would be up to the companies involved to make sure that they are not infringing or being infringed upon. The authorities may not be suited or equipped for such a role. It also creates difficulties in relation to the Decision. If a country grants a CL for import, that product will probably not be on the market in its generic form and therefore not yet approved or registered. With the linkage provisions, the right holder may refuse consent to approve the generic medicine and prevent the products from entering the market. Possibly, this obligation could also be overridden through the CL but there is no recognition of this in the texts. The effects of the TRIPS-plus provisions of US RTAs in regards to medicines have been a cause of concern for many, including the UN through human rights treaty monitoring bodies188 and its Special Rapporteur on the right of everyone to the enjoyment of the highest 187 In Sweden this is done by Läkemedelsverket. 188 Committee on Economic, Social and Cultural Rights and the Committee on the Rights of the Child, various statements 2004-2006 to reviewed countries encouraging them to use flexibilities to improve access to affordable medicines, and to be careful so that RTA negotiations to not negatively impact these efforts (3D 2006) attainable standard of physical and mental health189, economists at the World Bank190, the WHO World Health Assembly191, two international commissions on intellectual property192, the former chief economist of the World Bank Joseph Stiglitz193, French president Jacques Chirac194, and various NGOs including Médecins Sans Frontières and Oxfam. These observers urge developing countries to consider carefully the effects on access to medicines in negotiating RTAs, and developed countries not to insist on TRIPS-plus provisions. However, an RTA with the US is very valuable in order to gain access to the American market. Most developing countries have no significant domestic pharmaceutical industry to protect or promote in the RTA and thus see no problems in accepting stronger patent rules if instead they gain market access in the areas on which their economies principally depend.195 The response of the US to the criticism is to issue side letters on public health to accompany the RTAs – understandings between the parties that the IP provisions do not "prevent the effective utilization of the TRIPS/health solution".196 It is not fully clear what the side letters mean. On the one hand, representatives for the US government have stated that they should be interpreted to mean that "if circumstances ever arise in which a drug is produced under a compulsory licence and it is necessary to approve that drug to protect public health or effectively utilize the TRIPS/health solution, the data protection provisions in the RTA would not stand in the way".197 On the other hand, responses to World Bank staff indicate that the US does not view the side letters as exemptions to any of the obligations in the text.198 The main problem is probably the uncertainty involved in having a specific legal text that says one thing, and a less specific side agreement that may, or may not, say another. The uncertainty may in itself become a barrier. It is difficult to predict if the interpretive letter would override specific obligations in the case of a dispute. Another issue is what this means for those agreements where there are no side letters. If the side letters have real value, are the other agreements worse off in terms of using the Decision?199 5.2.2 The Special 301 mechanism
The United States also advocates TRIPS-plus standards through the "Special 301" instrument.
This instrument requires the US Trade Representative, the USTR, to identify countries that
deny adequate and effective protection for intellectual property. The countries with the
189 Paul Hunt, who commented on the US-Peru RTA. UN News Centre 2005 190 World Bank 2005, p 110-111; Fink and Reichenmiller 2005, p 9-10; World Bank 2006, p 169f 191 WHO 2004c 192 Commission on Intellectual Property Rights (2002), p 164; Commission for Intellectual property, innovation and public health (2006), p 142-148 193 Stiglitz 2004 194 Dyer 2004 195 See Abbott 2004, p 3. A different view was taken by Thailand. The Thai-US RTA negotiations have stalled, due among other things to disagreements over the intellectual property provisions and their effect on public health. (Reuters 2006) Thus, developing countries sometimes can say "no" to RTAs. 196 US-Morocco "Side letter on public health" 197 Here the explanation also introduces a necessity test, where measures are legal if they are necessary to protect public health. In the Decision, a product must merely be "needed" to address a public health problem. (Reply to concerns regarding the IP chapter of the US-Morocco RTA from US Congressman Sander M. Levin by John Veroneau, General Council of the USTR. USTR 2004a.) 198 Fink and Reichenmiller 2005, p 3 199 There are some signs that the US line may change. The deal between the White House and the Congressional leadership on May 10, 2007 ("A new US Trade Policy") included making clarifications in the RTAs that there may be exceptions from data protection and that the commitment to the Doha declaration should be integrated into the text. (USTR 2007a) "worst" practices that have the greatest adverse impact (actual or potential) on the relevant US products must be placed on the "Watch List" or the "Priority Watch List" and the USTR can withdraw trade preferences if a country on the list does not improve its performance.200 This is generally considered compatible with the permissive WTO rules in this area.201 Many developing countries economies depend to at least some extent on the value of the preferential market access in the US and are vulnerable to suggestions to withdraw them. Lately, the Special 301 watch lists, just like the RTAs, have become more focussed on advocating and enforcing TRIPS-plus protection regarding test data and regulatory approval. In 2004, about one third of the countries on the watch lists were criticised for not complying with one or both of these requirements. In 2007, as many as 12 out of 13 countries on the priority list were critisised for having indadequate data protection, three of these also on the linkage issue. The 13th had recently amended the law to include data protection. On the non-priority list, 9 out of 31 countries were critisised on the data issue, 4 of these also for the linkage issue. The lists have not included any LDCs, or countries in Sub Saharan Africa.202 5.2.3 Conclusion
"TRIPS plus" provisions as advocated by the US create a web of conflicting interpretations
and uncertainty that is likely to deter developing country governments from attempting to use
the Decision. The introduction of the side letters into the RTAs does not improve clarity. At
present, 16 countries in Asia and Latin America, but none in Sub-Saharan Africa and no
LDCs, are affected by the RTAs. The Special 301 instrument also affects countries outside
Sub-Saharan Africa or the LDC group.
5.3 Political prerequisites
Even if there are no legal or economic obstacles to use the Decision, there may be political
ones. The negotiations for the Decision were contentious and difficult. The final text was a
compromise that was not optimal to everyone. It must also be remembered that the value of
the intellectual property at stake in a CL application may be critical for certain companies or
countries. Even though the Decision is now agreed upon, the issue of CLs is still
controversial. This political "climate" may influence use of the new system.
There are no reports of any interventions to prevent others from using of the Decision.
However, some of the literature on the TRIPS mentions interventions in opposition to other
TRIPS flexibilities (e.g. regular compulsory licensing for the domestic market). For example,
The Commission on Intellectual Property Rights noted that "In the past, trade concessions
have been withheld and trade sanctions implemented against certain developing countries
whose IP regimes have not met the expectations of their trading partners in the developed
world."203 The Human Development Report in 2001 mentioned pressure from Europe and the
200 USTR 2006 201 Unilateral preferences in favour of DCs are allowed under a decision of the GATT parties 1979 "Differential and more favourable treatment. Reciprocity and fuller participation of developing countries (the enabling clause)". It has permissive rather than mandatory language meaning that developed countries can set their own terms and withdraw unilateral preferences if and when they choose. 202 Based on our review of the 2004 and 2007 Special 301 reports. Test data protection is not necessarily TRIPS-plus, since the TRIPS requires protection against " unfair commercial use". However, considering the provisions US have included in FTAs, which require a period of full data exclusivity, it is likely that they are interested in the same thing here. 203 Commission on Intellectual Property Rights 2002, p 162. Similarly, Abbott argues that the problem with the Decision is that the powerful WTO Members will use methods such as withdrawing trade preferences to prevent poor countries from using the system (Abbott 2003, p 4). USA on developing countries not to legislate for or use CLs.204 One example is Argentina, where the US used the Special 301 and GSP instruments to strengthen and accelerate Argentinean pharmaceutical patent protection.205 The recent compulsory licences granted in Thailand have been critiqued by some developed countries, including the EU.206 While not directly linked to use of the Decision, the fact that regular compulsory licensing have been opposed before is a part of the political climate surrounding the new system. It seems that attempts to influence countries not to use flexibilities will mostly affect the emerging economies.207 In contrast, the climate has seemed very open during Rwanda's recent attempt to use the Decision. The affected patent holders have offered voluntary licensing and waived remuneration and the attempt has been welcomed in the TRIPS council. This probably has to do with Rwanda being an LDC, a very small market with a very poor population. It is possible that if Rwanda completes their process, without encountering any open opposition, it may influence other, equally poor countries to view the Decision as a politically viable option. Another political dimension arises because even though the Decision was intended to improve the situation of the importing countries, it requires the involvement of two countries to work – i.e. both the importer and the exporter. The exporting countries must implement the Decision legally. Implementation is a political decision, and may be influenced by the climate surrounding compulsory licences. In some countries the granting of a CL is also a political decision, handled by a ministry, and may be similarly influenced. In other countries, granting a CLs is an administrative decision handled by courts or other agencies. There is nothing in the Decision that guarantees that an exporting country will either implement the rules or grant a CL if requested. Therefore, while the Decision makes it possible for the importer to use CLs, it creates a situation where the importer is dependent on the exporter. Compulsory licensing for export may be especially sensitive in countries that have a lot to prove to investors, such as emerging economies that have not protected intellectual property rights stringently in the past, either as a development strategy or for lack of resources. The government of an emerging economy may therefore be reluctant to grant CLs. A developed 204 UNDP 2001, 107 205 Argentina was put on the 301 watch list in 1989 due to its patent regime. In 1997 the USTR reduced the number of Argentine exports eligible for preferential tariff reductions with 50%, worth US$ 260 million, as a result of the unsuccessful 301 process. Further, in 1998, the US suspended all imports from Argentina for 120 days. (Bentolila 2002, p 59-102; USTR press releases, cited in Bentolila p 81) 206 The EU Trade Commissioner Mandelson wrote to responsible Thai ministers that the EU was concerned about the new approach where "if drug companies wish to do business in Thailand, they should offer their drugs for no more than 5 percent above generic cost". He considered that such an approach was detrimental to the patent system and innovation and that the TRIPS does not justify a systematic policy of CLs whenever prices exceed a certain sum. He encouraged the Thai government to engage in discussions with the patent holder (Mandelson 2007). The US elevated Thailand from the ordinary to the priority watch list". "reflecting a concern that the past year has been characterized by an overall deterioration in the protection and enforcement of IPR in Thailand. /…/ in late 2006 and early 2007, there were further indications of a weakening of respect for patents, as the Thai Government announced decisions to issue compulsory licenses for several patented pharmaceutical products. While the United States acknowledges a country's ability to issue such licenses in accordance with WTO rules, the lack of transparency and due process exhibited in Thailand represents a serious concern. These actions have compounded previously expressed concerns such as delay in the granting of patents and weak protection against unfair commercial use for data generated to obtain marketing approval." (USTR 2007b, p 27) 207 For example, with the exception of Thailand, the US 301 watch lists have not mentioned the CLs for AIDS medicines that have been granted by some other developing countries in the last five years, although in some cases countries have been criticised for having too broad CL laws. country may more easily refer to the humanitarian issues at stake and its decision need not reflect on its overall intellectual property protection. If granting a CL according to the Decision is a political matter, it may matter who the recipient is. It may be politically easier if it is in favour of a small and very poor country. 5.4 Conclusion – limited possibilities
We conclude that the possibilities for the Decision to enable developing countries with grave
public health problems to import affordable essential patented medicines are rather limited.
Economic realities and cost structures will not favour small markets. Use of the Decision will
probably not be legally possible for countries that have obligations, encouraged through
RTAs or other measures, on test data or on linking regulatory approval of medicines to patent
status. The political climate may indirectly influence viability.
Furthermore, it may be very difficult to fulfil all prerequisites at the same time. In terms of
price, it seems as though developing country producers would be the ones best able to set a
low price while also making a profit. However, due to the risks for investment and innovation
developing countries may need to be more careful with CLs than developed countries.
Developed countries are already well established amongst investors and researchers;
developing countries have more to prove.
Also, on the one hand, we have seen that the importing market needs to be large enough to
off-set costs and risks for the supplier. On the other hand, there are indications that the larger
markets are also where outside opposition to the use of TRIPS flexibilities in general may be
encountered or introduction of TRIPS-plus rules advocated. Therefore, there is a risk that a
country (or a group of countries) that is large enough to construe an economically viable
market also is large enough to warrant concerns from patent holders and their governments.
Developed countries, even "flexibility sceptics", may have no problems with LDCs such as
Rwanda or small developing countries using the Decision, but they may be more concerned
with larger importer.
The conclusion is that simply creating the Decision was not enough to solve the import
problem identified in the Doha Declaration. The new system can be a viable option for some
countries and for some products. In other cases it cannot be viable. In some cases it might
work if there is outside support to strengthen the market, the supplier or the buyer and to
alleviate practical difficulties.
6. Can use of the Decision be facilitated?
We have now seen that even though the Decision will become more important in the future, in
many cases the new system is going to be unviable – at least for poor and small markets that
perhaps are the ones that would need it the most. In this chapter we discuss measures that
might facilitate use of the system and make the difference between viability and non-viability.
We will discuss how the economic feasibility of the Decision may be improved and practical
difficulties alleviated. We also explore how feasibility is influenced by different
interpretations of key terms and conditions in the Decision. Several identified difficulties may
be lessened by cooperation and we therefore review the role of IP-related technical and
financial assistance.
6.1 Enlarging the market by pooling demand
Several observers have suggested that the answer to the problem of too small markets is
pooled demand.208 Procuring medicines in bulk strengthen buyers' bargaining power, create
economies of scale for the supplier and can therefore reduce prices and alleviate the economic
difficulties discussed in the previous chapter.209 The drawback for some is that may reduce
the ability of a country to make independent decisions about medicines. Pooling demand by
negotiating together might be the most interesting and more viable than also procuring
together.
Several regional and global pooling arrangements already exist. The nine countries of the
Organisation of Eastern Caribbean States established a common Pharmaceutical Procurement
Service (OECS/PPS) in 1986. In 2001 a survey showed that the regional prices it obtained
were on average 44% lower than individual country prices. Countries deposit part of their
annual budget in the PPS, which solicits tenders, places orders with suppliers and monitors
the delivery.210 Experiences from the "Accelerated Access Initiative" in Latin America show
that the countries that grouped into the biggest market and negotiated with generic suppliers
as well as originators received the best price for the same ARV combination: US$ 400 per
person and year compared to US$ 1100 for the countries that only negotiated with patent
holders.211
Pooling facilities have been used to procure off-patent medicines or for negotiating directly
with the originators. They have not (to our knowledge) been used in combination with a CL.
But now that more and more new medicines will be patented there may be a need to combine
the two instruments. We have identified several options for regional pooling compatible with
the Decision.
208 Commission on Intellectual Property Rights 2002, p 48; Abbott 2005a, p 346; Musungu et al 2004; Morgan, p 39; Grace 2003, p 24-29, 39-40 209 Bulk procurement can also reduce risks, transaction costs, distribution costs and uncertainty for suppliers, as well as improve chain security, quality due to better access to and exchange of information and rational use of medicines through coordinated selection. (Management Sciences for Health 2002, cited in Musungu et al 2004, p 69-70) 210 Burnett, 2003, p 7-8 211 Fitzgerald & Gomez 2003, p 1-7. The Accelerating Access Initiative is a cooperative endeavour of UNAIDS, the World Health Organization, UNICEF, the UN Population Fund, the World Bank, and seven originator pharmaceutical companies (Abbott Laboratories, Boehringer Ingelheim, Bristol-Myers Squibb, GlaxoSmithKline, Gilead Sciences, Merck & Co., Inc. and F. Hoffmann–La Roche) intended to offer increased access to originator ARVs. 6.1.1 Pooling through the RTA exception in the Decision
The Decision recognises, albeit in a limited fashion, the importance of economies of scale in
paragraph 6. It applies to developing countries or LDCs that are parties to regional trade
agreements within the meaning of Article XXIV of the GATT 1994 and the Enabling
Clause212 where at least half of the members are LDCs. These countries may re-export
pharmaceuticals imported under the Decision within the RTA, as long as the other country
shares the health problem in question. This opens for the possibility to pool regional demand
for patented products, import them into one member and distribute from there.
The requirement of 50 % LDC rules out all RTAs in Latin America, the Caribbean, the
Pacific or in Asia, and only leaves the African RTAs.213 The qualifying agreements that have
been notified to the WTO214 as of 1 March 2007 are the following
• ECOWAS (13 out of 16 members are LDCs); • COMESA (13 out of 20); • CEMAC (3 out of 6); • WAEMU/UEMOA (7 out of 8); • EAC (2 out of 3); • SADC (8 out of 14). Several of these arrangements overlap, i.e. some countries are members in more than one. Another problem is that they are not always consistent with the groups formed to negotiate Economic Partnership Agreements with the EU. Thus, even though they qualify, they may not be optimal or possible to use. The RTA option can be used with or without a system for regional patents. Currently, the only organisation providing for regional patents in the third world is OAPI, Organisation Africaine de la Propriété Intellectuelle, which comprises 16 countries, including 12 LDCs, in western and central Africa.215 OAPI does not coincide with any of the groupings notified as RTAs, and it is not a trade agreement. It would therefore not be possible to use in the context of paragraph 6. Therefore, as of this moment there are no qualifying RTAs with regional patents or CLs. The six qualifying African RTAs can however benefit from the paragraph 6 waiver and pool their demand even though they have no regional patent system. Every member country that has a patent on the product in question could issue a CL, and together these CLs would create a de facto regional CL which could be used as the basis for negotiating with the suppliers.216 212 The Decision of 28 November 1979 on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (L/4903) is also known as the enabling clause. It relaxes some requirements for RTAs consisting only of developing countries. 213 The specific rules for RTAs were a request from the African group (WTO 2002a). 214 There is no requirement in the Decision that they must be notified, but the list shows potentially feasible organisations. It should be noted that none of the RTAs have been examined by the WTO committee for regional trade agreements, CRTA, and it could therefore be said to be uncertain whether they really are RTAs "within the meaning of Article XXIV of the GATT 1994". However, no RTA has ever been disqualified by the CRTA. 215 The patents issued by OAPI have the status of national law for all the members. However, the current rules (the revised Bangui agreement from 1999) do not provide for a common CL procedure and has not incorporated the waivers of the Decision to provide for importation under CLs. (Vandoren & Eeckhaute 2003, p 791; Nwauche 2003, p 112-114) 216 Procuring together would be trickier than with a regional patent, since each and every CL would have to specify the amount for each country, which would then have to be redistributed accordingly after import from the manufacturer, through the waiver for re-export. However, as discussed, the Decision does not require exact quantities. A "fast-track" CL procedure for these types of RTAs has been suggested by Musungu et al to simplify the procedure. Member countries would enact a provision where a valid ground for granting a CL would be the granting of a CL in another member country that shares the health problem in question, i.e. a "mutual recognition mechanism" for CLs. The exporting country would only issue one CL.217 Similarly, Reichman has proposed the creation of Regional Pharmaceutical Supply Centres, RPSCs, in RTAs that qualify under the Decision. An RPSC should procure and distribute needed supplies. A longer term goal should be to standardise regulatory procedures and facilitate local pharmaceutical investment. When the RPSC identifies a need for patented products, each member country issues a CL and entrusts it to the RPSC. So armed, the RPSC should first seek to obtain price concessions, based on marginal cost of production plus a genuine royalty of five or six percent. If this does not work, the CLs should be used to import under the Decision for the entire region.218 Currently none of the six qualifying RTAs have implemented procedures for cumulative CLs. Generally, the RTAs are not well developed institutionally and may not be strong enough to coordinate between the members. Due to the colonial heritage, trade and other exchanges are low between the members. Ties to Europe are often more developed than those to each other. Another potentially difficult issue for the re-export option is the existence of non-tariff barriers between the countries for medicines. 6.1.2 Pooling through other regional groupings
The Decision implicitly recognises that several countries may be recipients of products
produced under one export licence, even though they are not members of a qualifying RTA:
the exporting Member shall notify the Council for TRIPS of the grant of the licence, including
the conditions attached to it. The information provided shall include the name and address of
the licensee, the product(s) for which the licence has been granted, the quantity(ies) for which
it has been granted, the country(ies) to which the product(s) is (are) to be supplied and the
duration of the licence.(…)219

Countries in other groupings may therefore also pool demand under the Decision. In this case
OAPI, OECS/PPS or a non-African RTA are equally viable. The system could work in much
the same way as the option above, with a single entity procuring on the basis of several import
CLs. The exporting country would only issue one CL. The difference would be the actual
import if they also wanted to procure together. The final delivery would have to be divided by
each participating country, since there is no re-export waiver. This might create additional
costs, but on the other hand the RTA option would also have costs for redistribution. Also, the
TRIPS rules allow for the goods to be shipped through one country only, and transited from
there.220
217 Musungu et al 2004 further suggests that the system should be accompanied by regional advisory committees
for IP and innovation to act as focal points for training, research, information exchange and political
coordination in the use of TRIPS flexibilities (p 53-54).
218 Reichman 2006, p 12-23
219 Article 2b
220 Article 51 TRIPS requires members to adopt procedures to enable right holders to apply for the suspension of
release into circulation of goods at the border that are suspected to be infringing. However, footnote 13 allows
countries to make exceptions and not apply border measures to goods in transit. The concept of transit is defined
and regulated in Article V GATT.
This option might be the most efficient regional use of the Decision, since it could build upon previous cooperation and models for regional procurement, and create bigger markets than possible for an RTA containing at least 50 % of the poorest countries in the world. However, so far no regional organisation has used a CL. 6.1.3 Options under exporters' legislations
Unfortunately, while there are apparently several options to enlarge the market through
regional pooling under the Decision, most of the exporting countries' legislations seem to
have closed the opportunity. Only the EU regulation consistently refers to "country or
countries" as recipient(s) of the proceeds of the CL. The Indian amendment refers to "any
country", which is rather ambiguous and could be taken to mean either one or several
countries.221 However, in the other implementations the recipient is defined as "a" or "one"
country.222 The result is that their legislation may not allow multiple buyers which would be
less permissive than the Decision.
6.1.4 Conclusion
Pooled demand has the potential to improve viability of the Decision by enlarging small
markets. There are several options under the Decision – with or without regional patents, with
or without re-export through the qualifying RTAs. However, while all of these options are
theoretically feasible, there are hardly any mechanisms in place today that would be able to
make use of them. Nobody has so far combined a CL with a mechanism for pooling
procurement. They are therefore only likely to be used if there is first substantial investment
in capacity, awareness raising and institutional improvement.
6.2 Improving administrative capacity
A common critique of the Decision is that it is cumbersome, and requires too much
administrative capacity to be feasible for developing countries. It is true that an importer must
be able to fulfil a number of administrative or practical tasks (recall the flowchart in Table 1).
Some of them are the same as if the country would use a normal compulsory licence instead
of the Decision. Some are not very burdensome, such as the requirement to notify the WTO.
Some are more onerous, and we discuss ways to alleviate them below.
6.2.1 Determining patent status of a medicine
A CL must only be issued if the product is patented, so a prospective importer needs to
determine the patent status of the needed product. It is not always easy to establish if a
particular product is patented and if so, how many patents apply. The problem is exacerbated
in many developing countries where the patent systems are disorganised and maybe paper-
based and registers are difficult to search.223 These factors can delay the issuing of a CL.
However, the cases of Zambia and Mozambique show that unclear patent status need not
prevent the issuing of CLs.224
221 Regulation (EC) No 816/2006 of the European Parliament and of the Council of 17 May 2006 on compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems – see e.g. article 6. 222 Canada's Bill C-9, 21.04(1); Norway Regulations amending the Patent Regulations of 20 December 1996 No 1162, sections 107; China's State Intellectual Property Office Order 37, article 9; Amendment to Korean Patent Act, Article 106.7 223 This problem is discussed by Baker 2004, p 42; Love 2006a, p 252-253; Oh 2006, p 33 and Abbott 2005b, p 409. 224 Oh 2006, p 28-30 Home country patent status must be determined with normal CLs as well. The extra burden with using the Decision is finding out whether the product is patented in prospective exporting countries. However, neither the Decision nor TRIPS requires explicitly that a CL lists the specific patents – it is possible to issue a CL in respect of a product, and let it cover all relevant patents. LDCs may until 2016 skip this step, because of the extended transition period for pharmaceuticals. This gives them the right to refrain from enforcing any relevant patents even though they have been issued. Rwanda did not identify the relevant patents in their notification to the WTO but stated instead that they would not enforce any affected patent. International initiatives could be very helpful to help clarify patent status for essential pharmaceuticals. The Commission for Intellectual Property, Innovation and Public Health recommended for example that WHO establish a database on information on patent status of medicines.225 WHO has a pilot project under way to analyse the extent of patent protection for essential medicines in developing countries in cooperation with WIPO, the European Patent Office and national patent offices.226 6.2.2 Administrative capability to issue CLs
According to a survey of developing countries' use of TRIPS flexibilities, the most significant
barrier to the use of CLs in general is in many cases the absence of simple, straightforward
procedures to put legally available provisions into effect. It is often unclear which authority or
ministry is responsible, what form the decision-making procedure should take and how long
time such a process may take.227 Since very few CLs have been issued, there is inexperience
with the instrument.
The UNDP Human Development Report 2001 and the UK Commission on Intellectual
Property Rights both recommend that developing countries establish independent systems for
implementing CLs. They should be administrative rather than legal, since the legal systems in
most developing countries are overburdened. The system should be transparent and fast, have
procedures for appeal that to not suspend the working of the licence228, and reliable, easy-to-
apply and transparent guidelines for setting remuneration.229
Another administrative difficulty may be to coordinate between competing national interests.
Since CLs are "double-edged swords" it is important to have a coordinated national process
between different ministries and stakeholders to ensure that different views are heard. For
225 Commission for Intellectual property, innovation and public health, recommendation no. 4.17, p 140: "WHO, in cooperation with WIPO and others, should continue to pursue the establishment of a database of information about patents, in order to remove potential barriers to availability and access resulting from uncertainty about the patent status in a country of a given product." 226 WHO 2007, p. 14. Another idea based on the US Orange Book has been suggested by Love (2006a). The Orange Book is a list of voluntary disclosures of patent holders, for patents they consider relevant to medicines sold in the US market. National drug registration authorities could require or encourage disclosure in such lists, by providing that patent owners would not otherwise be able to register their medicine, or enforce unlisted patents in court. It could also be done on a regional level or by multilateral bodies. 227 Musungu & Oh 2006, p 33-34 228 Article 44.2 of the TRIPS Agreement provides that Members are not obliged to provide for injunctive rights in the cases of use of compulsory licences. 229 UNDP 2001, p 107-108. Commission on Intellectual Property Rights 2002, p 44. For a discussion of different remuneration systems, see Love 2005. example, the ministry for health may be positive towards issuing a CL, while ministries for trade and industry may be negative – all for good reasons.230 It is not necessary in all cases for the importer to issue a CL. It depends on whether there is a patent in force in the importer (recall figure 1). LDCs may again skip this step, and instead use the flexibility of the transition period. Well-constructed technical and financial assistance and cooperation could be very useful to facilitate and improve management of compulsory licences in developing countries. Important observers have already identified what needs to be done – their recommendations only remain to be implemented. 6.2.3 Prevention of re-export
The Decision requires importing countries to prevent products from being diverted.231 To
ensure that there is no diversion would probably be difficult, considering the weakness of
legal systems and border enforcement as well as issues with trade-related corruption in many
developing countries. However, measures shall be i) within countries' means, ii)
proportionate to the administrative capacity and iii) proportionate to the risk of diversion. For
example, if the products themselves are clearly marked, the risk of diversion is smaller since
they cannot be sold as the original product in other markets.
It is important for the legitimacy of the system that products only go to countries that need
them. Still, the requirement constitutes an extra burden compared with regular CLs and the
rest of the TRIPS agreement. Ordinarily, the TRIPS only requires that member states provide
legal channels to enable right holders to enforce their rights in relation to import of infringing
goods. The obligation does not extend to export, nor does it require independent enforcement
operations on the part of governments.
It is difficult to say exactly how far-reaching this obligation is but it can probably seem
daunting and costly to countries with limited capacity. However, the possibility to request and
receive technical and financial assistance to implement the obligation is an integral part of the
text, which may offset some of the burden.
Interpretation is made more difficult because diversion is also mentioned in the Chairman's
statement which was read aloud at the adoption of the Decision. The statement says that "all
resonable measures should be taken" to prevent diversion. In the Decision, Members are only
230 For example, in Malaysia the ministry for health proposed a CL that was criticised by other ministries which were concerned about reduced investment – especially after the affected originator companies had lodged complaints. (Musungu & Oh 2006, p 42-46) Kenya is as another example. In 2003 the Kenyan firm Cosmos Pharmaceuticals won a government tender for generic ARVs but the process appears to have been stalled due to disagreements between the ministry for health and the ministry for trade and industry. The latter refused to issue a license despite but the ministry for health ordered the generic medicines produced. In 2004, the firm instead obtained a voluntary licence from the originator for the production. The ARVs in question were lamivudine and zidovudine. Avafia et al 2006, p 12; Kimani 2004. 231 "In order to ensure that the products imported under the system set out in this Decision are used for the public health purposes underlying their importation, eligible importing Members shall take reasonable measures within their means, proportionate to their administrative capacities and to the risk of trade diversion to prevent re-exportation of the products that have actually been imported into their territories under the system. In the event that an eligible importing Member that is a developing country Member or a least-developed country Member experiences difficulty in implementing this provision, developed country Members shall provide, on request and on mutually agreed terms and conditions, technical and financial cooperation in order to facilitate its implementation" (Paragraph 4) obliged to take "reasonable measures within their means, proportionate to their administrative capacities and to the risk of trade diversion to prevent re-exportation". As will be further discussed below, interpretations may have impact on feasibility of the Decision. In this case it may be especially pertinent. 6.2.4 Conclusion
The administrative requirements reviewed here can be burdensome but can also be alleviated
through technical and financial assistance or efforts in multilateral fora. If such support is
provided, it can facilitate use of the Decision.
6.3 Interpreting the conditions in the Decision and the Chairman's
statement
As a result of the difficult negotiations, there are various undefined terms and conditions in
the Decision. The way these terms and conditions are interpreted can have an impact on
whether the system will be viable in a particular case. A liberal interpretation can improve
viability; a restrictive one can reduce it.
The Chairman's statement which accompanied the Decision further complicates matters. It
introduces other vague terms and it appears to alter some obligations in the Decision, such as
the one on preventing diversion. Furthermore, the legal status of the statement is unclear.
Some Members may insist that the statement is the "filter" for interpreting the Decision, while
others will want to use the Doha Declaration for this purpose.
The legal status depends on the interpretation of the Vienna Convention on the Law of
Treaties (1969), where treaty interpretation according to the general rule of interpretation
should take into account the context of the terms of the treaty (Article 31) and in certain
circumstances use supplementary means of interpretation (Article 32). If the statement
constitutes context, it must be taken into account in any interpretation of the Decision. If it is
instead a supplementary means of interpretation, it is only to be used when the application of
the general rule of interpretation i) leaves the meaning ambiguous or obscure, or ii) leads to a
result which is manifestly absurd or unreasonable. It could also be used to confirm the
meaning resulting from the general rule of interpretation.
It is not clear cut to which category the statement belongs.232 It can only be finally settled in a
dispute ruling. However, even if the statement only constitutes supplementary means of
interpretation, it can be given an important role for interpreting the undefined terms employed
in the Decision.
232 Article 31(2)(a) stipulates that the context comprises "any agreement relating to the treaty which was made between all parties in connection with the conclusion of the treaty". Grosse Ruse-Khan (2007) analyses whether the Chairman's statement can be seen as such an agreement. Drawing on the circumstances prevailing at the time of the statement, he reaches the conclusion that the statement does not constitute an agreement because Members differentiated between the proposal for amendment itself and the Chairman's statement. They agreed to the proposal for amendment while they only took note of the statement. The US and EU proposals to establish a formal link between the statement and the amendment did not find consensus (p 518-521). Moreover, even though the statement purports to represent "several key shared understandings of Members regarding the amendment", the author points to the fact that not all Members agreed to the statement as such (520). He therefore qualifies the Chairman's statement as a "non-agreed" statement and contends that it is rather to be seen as "circumstances of [the treaty's] conclusion". As such it can only be used as a supplementary means of interpretation although "its interpretative value is surely enhanced by the fact that Members ha[ve] adopted the amendment ‘in light of' the statement" (p 532, 524). In this section, we will present the terms and conditions where interpretation may have an impact on who can use the new system, when it can be used and prices. 6.3.1 Who may use the system and when
LDCs are automatically eligible to use the system. A non-LDC developing country is eligible
if it confirms to the TRIPS council that it has either no manufacturing capacity or some
manufacturing capacity that "excluding any capacity owned or controlled by the patent owner,
it is currently insufficient for the purposes of meeting its needs."233 The Chairman's statement
also encourages the country to include information on how it came to this conclusion, in order
to promote transparency and avoid controversy.
What does "insufficent manufacturing capacity" mean exactly? Manufacturing capacity can
mean either technical capacity (through technology, know-how, equipment, raw materials etc)
or economic feasibility of production (e.g. through economies of scale) or both. The
interpretation will influence who may use the system. Quite a number of developing countries
have some manufacturing capacity, such as ability to assemble imported active
pharmaceutical ingredients.234 Already before the Decision was taken, this issue was
discussed in the TRIPS council. The Philippines stated that some developing countries,
including themselves, had been told in bilateral settings that their country had sufficient
manufacturing capacity, and would not be eligible for the system.235
Another question is when an eligible user may resort to the Decision. There is no restriction in
the Decision itself, other than what is laid down by the original Article 31, but the Chairman's
statement says that the system "should be used in good faith to protect public health and (.)
not be an instrument to pursue industrial or commercial policy objectives". The term policy
objectives shows that this norm applies to member states, not to the involved companies who
would be allowed to pursue commerical objectives.236 It is not always easy to determine what
an industrial vs. a humanitarian motive is. Some would argue that building a domestic
pharmaceutical industry can be important tool to ensure sustained access to medicines.
Another interpretation difficulty in regards to "industrial or commercial policy objectives" is
that the purpose of a Decision CL is economic – to lower prices. As such, the measure will
have industrial and commercial side-purposes or at least industrial and commercial
repercussions. It may be difficult to decide which policy measures belong to which sphere.237
6.3.2 Product quantity
Many countries have difficulties forecasting and updating their medicine needs.238 This is
especially important with AIDS medicines where it is difficult to know beforehand how many
people will tolerate and respond positively to a specific combination. At the same time, it is
233 Annex to the Decision – "Assessment of manufacturing capacity in the pharmaceutical sector". LDCs are automatically deemed to have insufficient or no manufacturing capacity. Certain members have also opted out and will not use the Decision (see chapter 2.2.4) 234 According to WHO 2004b (p 5-6) 84 countries have this ability, whereas 42 countries have no pharmaceutical manufacturing capacity at all. 235 WTO 2003a, paragraph 52 236 Abbott 2005a, p 346 237 At the meeting of the TRIPS council August 28, 2003, the Philippine delegate said that the understanding of his delegation was that the CL should not be primarily an instrument to pursue industrial or commercial policy objectives, but that the inclusion of such secondary objectives would not render the CL invalid. (WTO 2003c) 238 See e.g. the Access to Drugs Initiative 2007, p 9, which says that this was the case for their partner, Ghana. crucial to ensure a steady supply since shortages will create resistance and injuries in patients. An importer may therefore need to modify the order, even while it is being processed. These difficulties apply to all medicine procurement and not just when using the Decision, but the Decision adds a constraint as the "expected quantities" must be notified to the WTO. However, the notified expected quantity must not be the same as the quantity expressed in the CL in the importing country, the quantity in the order or the imported final quantity.239 Therefore, countries are not required to have fine-tuned forecasting abilities to fulfil this obligation. We saw that Rwanda reserved the right to modify the expected quantity in their notification to the TRIPS council. Whether such modifications are permitted in the exporter's legislation is another issue. Canada requires the CL application to state the "maximum" quantity to be produced. In the EU, it just says that the application shall specify the amount that the licensee "seeks to produce", which may open for adjustments.240 6.3.3 Labelling the products
According to the Decision, the products must be clearly marked for the purpose of preventing
diversion into other countries than the beneficiaries. 241 The requirement is not absolute: the
distinction has to be feasible242 and must not have a significant effect on price. This obligation
may be interpreted to mean more or less costly changes.
6.3.4 Remuneration to the patent holder
Like the original TRIPS article 31, the Decision includes an obligation for the exporting
company to pay adequate remuneration to the patent holder.243 It is a very important
obligation that ensures some compensation to the inventor of the desired product. "Adequate"
is not defined in the text, but the remuneration shall take account of the value of the license to
be the importing country. However, since the text does not elaborate on how the amount shall
be calculated the rules in the exporting country's legislation will be decisive.
The remuneration requirement has been interpreted differently in exporters' implementations
of the Decision. Canada's system is the most predictable: the sum is calculated by multiplying
the monetary value of the supply agreement by an amount which fluctuates on the basis of the
importing country's rank on the UN Human Development Index. The maximum would be 4
% of the monetary value, and apply to the country with the highest score in the index
(Norway in 2006).244 In India, China, Korea and Norway the competent authority decides on
the remuneration, which shall be "adequate" or "reasonable". The EU system takes a middle
position. Ordinarily, remuneration is determined by the competent authority (taking into
239 See e.g. Correa 2004b, p 16
240 Canada's Bill C-9 21.04 (2)c (Contents of application); Regulation (EC) No 816/2006 of the European
Parliament and of the Council of 17 May 2006 on compulsory licensing of patents relating to the manufacture of
pharmaceutical products for export to countries with public health problems – Article 6.3(c)
241 Paragraph in 2.b(ii): "products produced under the licence shall be clearly identified as being produced
under the system set out in this Decision through specific labelling or marking. Suppliers should distinguish
such products through special packaging and/or special colouring/shaping of the products themselves, provided
that such distinction is feasible and does not have a significant impact on price."
242 E.g. changes in colour may reduce the bioequivalence with the original medicine and therefore not be feasible
243 Paragraph 3: "adequate remuneration pursuant to Article 31(h) of the TRIPS Agreement shall be paid in [the
exporting] Member taking into account the economic value to the importing Member of the use that has been
authorized in the exporting Member. Where a compulsory licence is granted for the same products in the
eligible importing Member, the obligation of that Member under Article 31(h) shall be waived in respect of those
products for which remuneration in accordance with the first sentence of this paragraph is paid in the exporting
Member."
244 "The TRIPS agreement and Public Health" Communication from Canada. IP/C/W/464, 15 November 2005
account the economic value and humanitarian circumstances), but in cases of public, non-commercial use or situations of national emergency or circumstances of extreme urgency it is specified that the sum must not exceed 4 % of the total price paid by the importer.245 The interpretation of "adequate" will influence the price the exporting company can offer the buyer. 246 It may be helpful if the exporter, like Canada, has a predictable and transparent system where it can be known beforehand how high the remuneration will be. 6.3.5 Conclusion
We conclude that interpretation of some undefined terms can influence feasibility. The
concept of eligible users is affected by how to determine manufacturing capacity. Price can be
affected by the labelling and remuneration requirements. There is room in the text to make
interpretations that support feasibility. If the purpose of the Decision – making trade in
patented medicines possible where the ordinary market forces do not adequately supply
developing country markets – is recognized, it would be proper to include economies of scale
when determining manufacturing capacity, to see labelling and remuneration requirements
from the importer's perspective and to allow for modifications in the imported quantity. The
Doha Declaration which says that the TRIPS needs to be a part of the wider national and
international action to address public health problems would support such interpretations.
However, the requirements will not necessarily be interpreted this way, because there is also
the Chairman's statement to consider. To some WTO members it is very important and an
integral part of the new system. The statement provides ways to promote a restrictive
interpretation of some important features of the system, such as preventing re-export and
determining user eligibility. Such interpretations can make importers avoid using the Decision
even though they may need to, despite the lack of clear legal status.
Interpretations are also made by exporters when they implement the Decision. Their
legislation may codify one interpretation and disallow alternative ones.
6.4 Technical and financial assistance
Technical and financial assistance (TFA) can be a remedy to some of the difficulties
discussed above. To understand the role that TFA might play in facilitating use of the
Decision, we will first review the role it has played in implementing TRIPS and in particular
the other flexibilities in TRIPS.
6.4.1 The role of IP-related assistance for implementing the TRIPS
Complying with TRIPS is a complex procedure that requires resources, institutional capacity
and technical expertise – ingredients in short supply in many developing countries.247
Technical and financial assistance has therefore had a vital role to support the
implementation. TRIPS Article 67 obliges developed countries to provide "on request and
mutually agreed terms and conditions, technical and financial cooperation in favour of
245 Regulation (EC) No 816/2006 of the European Parliament and of the Council of 17 May 2006 on compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems – Article 10.9 246 For discussions of different methods for setting equitable remuneration rates, see Cahoy 2007; Love 2005; Sherer and Watal 2001, p 21-28. 247 The World Bank estimated for example that total modernisation of a country's IPR system, including training costs, would come with an up front-cost of at least US$ 1.5-2 million, plus recurrent costs. (World Bank 2002, p 136) developing and least-developed country Members. Such cooperation shall include assistance in the preparation of laws and regulations on the protection and enforcement of intellectual property as well as on the prevention of their abuse". The biggest provider of TFA related to intellectual property by far is the World Intellectual Property Organisation, WIPO, a specialised UN agency.248 An agreement in 1995 with the WTO entrusted the chief responsibility of providing TFA for implementing TRIPS to WIPO. Between 1996 and 2000, WIPO gave legislative advice to 119 developing countries and regional organisations in the form of 214 draft IP laws, and comments and other advice.249 By contrast, assistance through the WTO secretariat is limited and mostly focuses on explaining rights and obligations, ad hoc advice on technical questions and information on the negotiations.250 Evaluations of IP-related assistance
The Commission on Intellectual Property Rights (CIPR) reviewed the intellectual property-related TFA until 2002 but found few systematic evaluations to build on and a poor literature around best practices compared e.g. with trade-related assistance. For data, the background paper had to rely on submissions to the TRIPS council under article 67.251 CIPR also found that IP-related TFA often was not integrated into national development strategies or subject to donor coordination. This brought a risk of duplicate efforts, or at worst conflicting advice. In a study commissioned by the International Centre for Trade and Sustainable Development, ICTSD, Kostecki finds that IP-related TFA tends to be more influenced by stakeholder groups than many other areas of TFA. Both the main providers and receivers have contributed to a bias in favour of strong IP protection. TFA is usually addressed to national IP offices and less to other stakeholders, often neglecting business, consumer and civil society interests. Kostecki highlights a broad consensus among those interviewed for his study that IP-related technical assistance has a strategic role to play in the process of economic development, but that it frequently lacks an explicit development dimension. Drawing on in-depth interviews with TFA experts and beneficiaries, Kostecki finds that TFA from both WIPO and other donors is perceived as donor-driven, ideological, not evaluated enough, cost-ineffective and suppressing alternative research, such as the fact that many big exporters of IP today were importers with much lower IP standards not so long ago (e.g. Japan).252 Relevant to our report is Kostecki's finding that TFA has mostly neglected to provide information about the TRIPS flexibilities. This is supported by several other recent studies.253 One reason why this is so is discussed in the CIPR background paper where interviews with World Intellectual Property Organisation officers show that they are anxious to behave responsibly towards the countries with which they work, and make sure that their advice is 248 The WIPO differs from other UN organisations in that only about 6 % of its income come from contributions from member states, and 91% is derived from user fees in the various IP-systems managed by WIPO (the PCT, Madrid and Hague systems.) WIPO 2006 249 WIPO's Program and Budget, cited in Leesti & Pengelly 2002, p 22 250 Pengelly 2005, p 14 251 The background paper was Leesti & Pengelly 2002 252 Kostecki 2006 253 Vivas & Bellman 2004; Matthews 2005; Sagar 2006; Musungu & Dutfield 2003. Also, in 2002, a joint conference by four NGOs, Médecins sans Frontières, Health Action International, Oxfam International and the Consumer Project on Technology, in Geneva raised concerns about IP-related technical cooperation, especially that provided by WIPO (Médecins sans Frontières et al 2002). such that the recipient will not risk becoming involved in a WTO dispute. Obviously, a way to guarantee this is through models that go beyond TRIPS and do not exploit flexibilities.254 Most of these evaluations do not specifically mention the Decision, but they point at the lack of advice in regards to flexibilities in general that seems to have been the standard operating procedure of donors. The WIPO technical and financial assistance
As the biggest player, much criticism of IP-related TFA is directed at WIPO. The CIPR
expressed concern that the WIPO advisory groups have included providers but hardly any of
the users of IP. The recipients have mostly been IP offices in developing countries.255 Another
critique is that WIPO itself is an interested party, since it manages and promotes IP treaties.256
The MSF has drawn attention to the particular case of Cambodia, an LDC. When Cambodia
was in the process of acceding to the WTO, the draft patent law submitted by WIPO to the
government did not take account of the TRIPS flexibilities and WIPO had not informed
Cambodia of the Doha Declaration or that the country as an LDC was not required to grant or
enforce patents on pharmaceuticals until 2016.257
Since 1996, The WIPO reports on its TFA activities to the TRIPS council. The idea of
promoting the flexibilities in TRIPS is not expressed until 2005.258 Until then, the reports
focus on conformity with and enforcement of TRIPS without mentioning the flexibilities or
access to medicines. The aim is to deliver "tailor-made" assistance to developing countries,
which probably means that the assistance gives the countries what they have asked for,
probably through their office or ministry responsible for IP.
In 2005, the submission shows and reports a shift in focus in the WIPO activities. Two
priority areas are listed: a) assisting countries in creating IP assets and realize real benefits
from these assets and b) providing legal and general advice on using flexibilities in TRIPS
and WIPO treaties, through which countries may promote national goals of economic and
social developments. In 2006, there is the first specific mentioning of providing assistance for
implementing the Decision. WIPO initiates a study on the nature, extent and implementation
of flexibilities available under the Paris convention and the TRIPS as regards the protection of
inventions in the pharmaceutical sector. Workshops and forums are held on the topic of IP
and public health.
The current WIPO website also emphasises the TRIPS flexibilities, saying that development
objectives, all TRIPS flexibilities as well as the Doha declaration are taken into account in
their country-specific advice.259
254 Drahos 2002, p 23 255 Commission on Intellectual Property Rights 2002, p 159, 166 256 Kostecki 2006, p 19-20. Musungu & Dutfield (2003, p 24) suggest that the two roles of the WIPO secretariat – norm-setting and providing TFA – should be separate, in order to guarantee impartial advice. The TFA function could answer to the General Assembly instead of the Director General, or be reshaped into an entirely different organisation, independent from but funded by WIPO. 257 Médecins Sans Frontières 2003 258 WIPO 1995-2006 259 WIPO 2007b (Advice on flexibilities under the TRIPS agreement). It also explains the timing of the new policy: "Between 1995 and 2000, when the Member States of WIPO and of WTO were mainly concerned with the timely implementation of their TRIPS obligations, WIPO's advice focused on ensuring that national legislation would be in compliance with those obligations. Since 2000, and in particular since the beginning of Neither the website nor the reports to the TRIPS council are definite indications of the real nature of WIPO assistance. Certainly, the assistance may promote flexibilities without explicitly saying so, or conversely not promote them despite saying so. These sources can only give an indication of what WIPO considers important to mention. As its legislative advice is provided on a confidential basis to the country concerned, it is difficult to ascertain how the flexibilities are treated. New evaluations would be needed for this. The principles for technical assistance have recently been addressed within the "Development Agenda", adopted by the WIPO General Assembly on 28 September 2007. The purpose is to make WIPO more development-conducive. The TFA related proposals say inter alia that the WIPO shall "make available advice to developing countries and LDCs, on the implementation and operation of the rights and obligations, and the understanding and use of flexibilities contained in the TRIPS Agreement". Other providers
IP-related TFA from the WHO began in 1997, when the World Health Assembly first issued a resolution to monitor and analyse health impacts of international IP rules and to help member states to implement IP policies that maximises benefits and minimises costs. Due to its mandate and expertise, the WHO considers that it has a niche in assistance for utilizing IP flexibilities for public health purposes.260 WHO TFA is much smaller than the WIPO's.261 UNCTAD is another provider, which for example has projects relating to regional production capacity of pharmaceuticals in LDCs and the role of IP.262 A study of the submissions to the TRIPS council 1996-2005 from the major bilateral donors the US, the EU and Japan, showed that their TRIPS-related TFA activities tended to emphasise IP protection and enforcement activities, i.e. priority areas for foreign right holders operating in developing countries. They have rarely offered TFA on how to incorporate flexibilities. There are some differences between the three providers. The US TFA is focussed on higher protection and better enforcement, and the US-based IP-industries are very involved, both in designing and delivering the TFA. There is a risk that the advice is responsive mainly to their interests. Japan has mostly directed its TFA to the Asia-Pacific region, and focussed on strengthening capabilities of IP offices and their personnel. The TFA is generally supplied by government agencies in cooperation with other organisations. The EU has adopted policies which give room for giving advice on TRIPS flexibilities.263 However, the study found little evidence that the programmes have actually incorporated such the debate in the WTO TRIPS Council on access to drugs, WIPO Member States have increasingly sought assistance and advice in exploiting the flexibility under international treaties in implementing their obligations." (WIPO 2007a, Legislative Assistance) 260 The WHO has e.g. published guides to implementing the Decision and determining remuneration (Correa 2004b and Love 2005) 261 WHO 2006c 262 See e.g. the UNCTAD Regional workshop on developing local productive and supply capacity in the pharmaceutical sector – the role of intellectual property rights, 19-23 March 2007, United Nations Conference Center UNECA, Addis Ababa, Ethiopia. http://www.iprsonline.org/conferences/UNCTAD%20workshop%20pharmaceutical%20sector.pdf 263 The EU also has submitted a WTO paper along these lines, saying that TFA by the major providers (WIPO, WTO) will be paramount to enable countries to give effect to the declaration, including by creating transparent advice. Some of the EU member states also have TFA programmes. Sweden and the UK involved their development agencies in some programmes – these tended to be more development oriented.264 The 2006 EU submission to the TRIPS council lists a few activities directed to ACP countries that have a public health focus but the bulk of the EU's activities focus on helping China, ASEAN and certain CIS countries to meet and enforce IP standards. No individual EU member state reported any activity with explicit health or medicine focus.265 Some activities may of course have health/medicine discussions as a part of the programme anyway.266 The current website of the European Commission outlines the objectives and content of IP-related TFA activities. TRIPS flexibilities are not mentioned. On IP standards, it says that the EU TA typically focuses on "completing the legal framework to make the IP laws in the countries/regions concerned in line with, at least, the minimum TRIPS requirements".267 Taken together with the review of the information in the submissions to the TRIPS council, it does not appear that the flexibilities, CLs or public health play major roles in the EU IP-related TFA. The EU does however maintain other programmes to support public health, including a tiered price system with prevention of import of low-price pharmaceuticals as well as support to the WHO. 6.4.2 The role of IP-related assistance for facilitating use of the Decision
The review above indicates that advice and activities relating to the TRIPS flexibilities,
including the Decision, started fairly recently. The exception is the WHO where it was the
natural centre of attention. Only in 2005, two years after the Decision was taken, does the
WIPO mention the flexibilities to the TRIPS council. Considering the costs – direct costs and
opportunity costs – for developing countries to change IP regimes again after having once
become TRIPS-compliant, it is hardly surprising that so few developing countries have
implemented the Decision or created useful structures for managing CLs.
The review has also shown that several evaluations have criticised the form and content of
various IP-related TFA activities and donors. Changes may be underway in the WIPO due to
the development agenda. Bilateral providers also need to integrate information on the
flexibilities into their activities.
The lesson is that relying on "more of the same" may not result in the TFA needed to
facilitate use of the Decision, or even assistance to countries that wish to implement it legally.
6.5 Conclusion – certain measures may facilitate use
The purpose of this chapter was to see what can facilitate use of the Decision. It has identified
certain measures that could be supportive.
Pooled demand has potential to improve the market situation of low income countries. This
potential is however yet to be realised. No organisation has so far combined pooled
and expeditious procedures for CLs, perhaps in regional arrangements. LDCs need TFA to set up efficient negotiating machinery in obtaining price concessions or voluntary licences. (WTO 2003b) 264 Matthews and Munoz-Tellez 2006, p 633-650 265 WTO 2006. Some TFA activities may of course have health/medicine discussions as a part of the programme. 266 This is for example the case with one of the Swedish activities (a training course for LDCs). 267 European Commission Website: External Trade, Trade issues. "Intellectual property – objectives and content." http://ec.europa.eu/trade/issues/sectoral/intell_property/pr030806a_en.htm Accessed 2007-09-07 negotiation or procurement with compulsory licences. It is not likely that it will happen without substantial institutional development. National laws may have to be amended for new grounds to issue CLs. Regionally, mechanisms must be developed so they can able to issue or manage CLs, approach and negotiate with suppliers, discriminate between them to find the best offer and use domestic as well as donor money for the purchase. Creation of such regional mechanisms may have positive spill over effects outside the area of CLs, by strengthening regional cooperation and improving rational use or medicines for example. To make pooling feasible, the exporter countries have to provide for the possibility of multiple purchasing countries in their legislation. It has been suggested that economic feasibility might also be improved if there were a coordination mechanism to bring buyers and suppliers together.268 Such a mechanism could enable importers to find the most efficient manufacturer. International institutions such as the WHO, the Global Fund, the Clinton foundation or UNITAID269 already facilitate and finance pooled purchases of medicines from both patent holders and generic manufacturers. They could also play a role in facilitating Decision CLs.270 Other measures discussed in this chapter can facilitate use of the Decision but they cannot compensate for more fundamental difficulties. If the legal or economic prerequisites identified above are not lacking, improving administrative capacity is not going to make the system viable. All the same, there is a clear role for technical and financial assistance to facilitate use of the Decision. The countries most in need of more affordable medicines are often also countries with weak institutional capacity. There are clear obligations in TRIPS article 67 and paragraphs 4 and 6(ii) of the Decision for developed countries to provide such assistance. To make a real difference, the quality and direction of TFA related to intellectual property may need to be changed. It can be useful to support development of mechanisms for regional pooling.271 International or regional initiatives would be helpful to clarify the patent status of essential medicines. Several eligible importers might be helped by measures aiming to facilitate and improve intellectual property management with specific focus on how to coordinate and issue compulsory licences. There must also be a readiness to offer assistance on preventing re-export of the products, in the case that an eligible user decides to use the new system. Such assistance would fit well into existing programmes to improve enforcement which is the focus of many bilateral donors' current assistance. Finally, it will matter how obligations in the Decision are interpreted in implementing the new provisions legally or in assessing specific cases. If the obligations are seen in the light of the purpose of the Decision or the Doha Declaration on TRIPS and Public Health they may underpin the feasibility of the Decision. If they are instead seen in the light of the Chairman's statement it may undermine feasibility. 268 Suggested e.g. by Abbott 2005a, p 346 269 The UNITAID is a financing mechanism, launched in 2006, where member countries supply funds generated from levies on air travel. The funds are spent on medicines and projects identified by the Global Fund and UN organisations. The Clinton Foundation HIV/AIDS Initiative offers to negotiate on behalf of countries and organisations to get the best possible price. 270 Similar ideas was presented by the Commission on Intellectual Property Rights 2002, p.48 271 As recommended for example by the Commission for Africa: "We recommend that donors should support efforts by developing countries to operate through regional groupings to enhance capacity for drug regulation, manufacturing and management of intellectual property. (The Commission for Africa 2005, p 193) 7. Final conclusions
We will now summarise our conclusions as to whether the Decision can enable import of
medicines for developing countries with grave public health problems when the medicines are
patented and the country in question has no manufacturing capacity.
Æ So far there has been a limited need to use the system established by the Decision,
but it will become more important in the future.
The analysis on compulsory licensing as an instrument for improved access showed that it can
be a useful tool in certain cases. It introduces another actor into the market – one that in
contrast to patent holders does not have to be concerned with problems of prices in
developing counties influencing prices in high income countries. The analysis also showed
that so far most countries have been able to import essential medicines using other
instruments than compulsory licences. However, with the full implementation of the TRIPS in
all countries with meaningful manufacturing capacity the need for the new system will
increase, especially where there is rapid product development. The main advantage of a
compulsory licence is to provide a bargaining tool for importers when negotiating with patent
holders. The new system may already have had such indirect effects and strengthened
developing country negotiators, even though nobody has so far completed an attempt to use
the system.
Æ The possibilities that the Decision can enable import of affordable medicines to
small and poor markets are rather limited. The economic prerequisites are probably
going to be difficult to achieve.
The Decision can probably not enable affordable imports under compulsory licences when the recipient markets are not large enough to off-set the substantial costs and risks involved for the licensee. These markets are also probably the ones where governments would have most difficulty in handling the administrative tasks required by the new system. At the same time these countries would be the ones most in need of increased bargaining power. There is no obvious way to combine the Decision with competitive procurement procedures which reduces the possibility for prices to approach marginal cost. The use of donor money could improve purchasing power but donor rules are not always compatible with use of the Decision. The system can probably be viable for some situations and for some countries. However, the larger or more advanced developing countries can also have other means of accessing affordable medicines and were perhaps not the ones primarily intended to be aided by the Decision. Æ Factors outside the WTO may add complications or make use impossible.
Use of the Decision will probably not be legally possible for countries that have obligations, encouraged through RTAs or other measures, on pharmaceutical test data or on linking regulatory approval of medicines to patent status. It was politically difficult to negotiate the Decision and the use of compulsory licensing is not uncontroversial. In the past, use of regular compulsory licences for the domestic market has sometimes met with critique from developed countries. There is therefore a surrounding political "climate" that may influence the viability also of compulsory licences under the new system. Æ In some cases, import under the system can be facilitated or made viable by regional
cooperation, technical and financial assistance and by interpreting terms and
conditions in the Decision in light of the Doha Declaration rather than, for example,
the Chairman's statement.
The Decision contains significant flexibility, for example in the provisions regarding labelling, remuneration and preventing diversion of the products. The original TRIPS Article 31 also includes certain flexibilities, such as waivers of the obligation to first negotiate with the patent holder in certain cases. The Doha Declaration emphasises that TRIPS must be a part of the international solutions for addressing public health problems and affirms the right to use the flexibilities for this purpose. Interpreting and legally implementing the provisions in this light can support and facilitate use of the Decision. Emphasis on the understandings in the Chairman's statement – itself legally unclear – would work in the other direction. If there are no legal or definite economic obstacles, the system may also be made more feasible by technical and financial assistance to strengthen the market or alleviate practical difficulties. Changes may also have to take place in developed countries. We have noted the following areas where efforts might facilitate use of the system: • Technical and financial assistance to focus on implementing and managing the TRIPS flexibilities, including the Decision and include different groups of stakeholders • Development of regional capacity to grant and manage compulsory licences and pool demand for medicines • Exporting country legislation to allow multiple purchasers under one compulsory • Technical and financial assistance to prevent diversion of products manufactured under the Decision • Donors to adopt explicit policies for how the recipients can use the Decision without compromising quality and safety of medicines or the security of the funding • Clarified situation as to patent status of essential medicines The negotiations on the Decision showed that the area of compulsory licensing and access to medicines is ripe with conflicting policy goals and ideals. The outcome of the negotiations is a compromise system that can hardly live up to expectations that were perhaps attached to it. The Decision system can be one way for some countries to improve access to medicines post-2005 but it is not sufficient. Additional measures are needed to create supporting mechanisms to increase the number of cases where the system can be viable, as well as support the countries where it cannot, e.g. through sustainable external financing of medicines for the poor. List of abbreviations and acronyms

ARV Antiretroviral
Commission on Intellectual Property Rights General system of preferences IP Intellectual Intellectual property right Least developed country Médecins Sans Frontières (Doctors without borders) NGO Non-governmental OAPI Organisation la Propriété Intellectuelle Organisation for Economic Cooperation and Development Research and development Regional trade agreement Technical and financial assistance The Agreement on Trade-Related Aspects of Intellectual Property Right The Joint United Nations Programme on HIV/AIDS United Nations Development Programme World Health Organisation Intellectual Property Organisation World Trade Organisation Literature and sources

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Canada: Canada's Access to Medicines Regime: Bill C-9, An Act to amend the Patent Act
and the Food and Drugs Act ("The Jean Chrétien pledge to Africa). Assented to 14th May,
2004. See also "The TRIPS agreement and Public Health" Communication from Canada.
IP/C/W/464, 15 November 2005
Norway: Regulations amending the Patent Regulations of 20 December 1996 No 1162,
sections 107-109. See also WTO document IP/C/W/427, 17 September 2004.
EU: Regulation (EC) No 816/2006 of the European Parliament and of the Council of 17 May
2006 on compulsory licencing of patents relating to the manufacture of pharmaceutical
products for export to countries with public health problems. Official Journal of the European
Union L/157/1, 9 June 2006.
India: Insertion of a new section 92A and amendment of section 90(1) in the Patents
(Amendments) Act, 2005. Published in the Gazette of India, April 5, 2005. See also WTO
document IP/N/1/IND/D/2-5.
Implementations of the Decision not yet notified to the Council for TRIPS
China: China's State Intellectual Property Office Order 37. Adopted November 2005,
effective as of 1 January 2006. An unofficial translation provided by the MSF may be found
on the Consumer Project on Technology website, http://www.cptech.org/ip/wto/p6/china-
order37.html
Korea: An amendment contained in articles 106-116 of the Patent Act, which came into force
on December 1, 2005 (according to Managing Intellectual Property 2005, p 100). See also
minutes from the TRIPS council in WTO document IP/C/M/48. The grounds for granting CLs
have been expanded to include for export of medicines to address public health problems in
the importing country (including non-WTO countries). The amendment also mandates a
quicker process for issuing CLs, setting a norm of maximum six months.
Interviews/ Personal communications
Communication from WTO Enquiries, April 4, 2007.
Alexandra Heumber, MSF Brussels, Access to Medicines Campaign, April 24, 2007.
Sarah Perkins, Acting Director of International human rights program, faculty of law,
university of Toronto. May 24 2997.
Annex 1: TRIPS article 31

Other Use Without Authorization of the Right Holder
Where the law of a Member allows for other use272 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:
(a)
authorization of such use shall be considered on its individual merits; 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; the scope and duration of such use shall be limited to the purpose for which it was authorized, and in the case of semi-conductor technology shall only be for public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive; such use shall be non-exclusive; such use shall be non-assignable, except with that part of the enterprise or goodwill which enjoys such use; any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use; authorization 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; the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization; 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; 272 "Other use" refers to use other than that allowed under Article 30. 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; Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive. The need to correct anti-competitive practices may be taken into account in determining the amount of remuneration in such cases. Competent authorities shall have the authority to refuse termination of authorization if and when the conditions which led to such authorization are likely to recur; where such use is authorized to permit the exploitation of a patent ("the second patent") which cannot be exploited without infringing another patent ("the first patent"), the following additional conditions shall apply: the invention claimed in the second patent shall involve an important technical advance of considerable economic significance in relation to the invention claimed in the first patent; (ii) the owner of the first patent shall be entitled to a cross-licence on reasonable terms to use the invention claimed in the second patent; and (iii) the use authorized in respect of the first patent shall be non-assignable except with the assignment of the second patent. Annex 2: The Doha Declaration on TRIPS and Public Health

1.
We recognize the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics. 2. We stress the need for the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) to be part of the wider national and international action to address these problems. 3. We recognize that intellectual property protection is important for the development of new medicines. We also recognize the concerns about its effects on prices. 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. 5. Accordingly and in the light of paragraph 4 above, while maintaining our commitments in the TRIPS Agreement, we recognize that these flexibilities include: In applying the customary rules of interpretation of public international law, each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles. Each Member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted. 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. The effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each Member free to establish its own regime for such exhaustion without challenge, subject to the MFN and national treatment provisions of Articles 3 and 4. We recognize that WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem and to report to the General Council before the end of 2002. We reaffirm the commitment of developed-country Members to provide incentives to their enterprises and institutions to promote and encourage technology transfer to least-developed country Members pursuant to Article 66.2. We also agree that the least-developed country Members will not be obliged, with respect to pharmaceutical products, to implement or apply Sections 5 and 7 of Part II of the TRIPS Agreement or to enforce rights provided for under these Sections until 1 January 2016, without prejudice to the right of least-developed country Members to seek other extensions of the transition periods as provided for in Article 66.1 of the TRIPS Agreement. We instruct the Council for TRIPS to take the necessary action to give effect to this pursuant to Article 66.1 of the TRIPS Agreement. Annex 3: Implementation of paragraph 6 of the Doha Declaration on
the TRIPS agreement and public health. Decision of 30 August 2003

The General Council,
Having regard to paragraphs 1, 3 and 4 of Article IX of the Marrakesh Agreement
Establishing the World Trade Organization ("the WTO Agreement");
Conducting the functions of the Ministerial Conference in the interval between meetings
pursuant to paragraph 2 of Article IV of the WTO Agreement;
Noting the Declaration on the TRIPS Agreement and Public Health (the "Declaration") and,
in particular, the instruction of the Ministerial Conference to the Council for TRIPS contained
in paragraph 6 of the Declaration to find an expeditious solution to the problem of the
difficulties that WTO Members with insufficient or no manufacturing capacities in the
pharmaceutical sector could face in making effective use of compulsory licensing under the
TRIPS Agreement and to report to the General Council before the end of 2002;
Recognizing, where eligible importing Members seek to obtain supplies under the system set
out in this Decision, the importance of a rapid response to those needs consistent with the
provisions of this Decision;
Noting that, in the light of the foregoing, exceptional circumstances exist justifying waivers
from the obligations set out in paragraphs (f) and (h) of Article 31 of the TRIPS Agreement
with respect to pharmaceutical products;
Decides as follows:
1. For the purposes of this Decision:
(a) "pharmaceutical product" means any patented product, or product manufactured through a patented process, of the pharmaceutical sector needed to address the public health problems as recognized in paragraph 1 of the Declaration. It is understood that active ingredients necessary for its manufacture and diagnostic kits needed for its use would be included; (b) "eligible importing Member" means any least-developed country Member, and any other Member that has made a notification to the Council for TRIPS of its intention to use the system as an importer, it being understood that a Member may notify at any time that it will use the system in whole or in a limited way, for example only in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. It is noted that some Members will not use the system set out in this Decision as importing Members and that some other Members have stated that, if they use the system, it would be in no more than situations of national emergency or other circumstances of extreme urgency; (c) "exporting Member" means a Member using the system set out in this Decision to produce pharmaceutical products for, and export them to, an eligible importing Member.
2. The obligations of an exporting Member under Article 31(f) of the TRIPS Agreement
shall be waived with respect to the grant by it of a compulsory licence to the extent necessary
for the purposes of production of a pharmaceutical product(s) and its export to an eligible
importing Member(s) in accordance with the terms set out below in this paragraph:
(a) the eligible importing Member(s) has made a notification to the Council for TRIPS, that: (i) specifies the names and expected quantities of the product(s) needed; (ii) confirms that the eligible importing Member in question, other than a least developed country Member, has established that it has insufficient or no manufacturing capacities in the pharmaceutical sector for the product(s) in question in one of the ways set out in the Annex to this Decision; and (iii) confirms that, where a pharmaceutical product is patented in its territory, it has granted or intends to grant a compulsory licence in accordance with Article 31 of the TRIPS Agreement and the provisions of this Decision; (b) the compulsory licence issued by the exporting Member under this Decision shall contain the following conditions: (i) only the amount necessary to meet the needs of the eligible importing Member(s) may be manufactured under the licence and the entirety of this production shall be exported to the Member(s) which has notified its needs to the Council for TRIPS; (ii) products produced under the licence shall be clearly identified as being produced under the system set out in this Decision through specific labelling or marking. Suppliers should distinguish such products through special packaging and/or special colouring/shaping of the products themselves, provided that such distinction is feasible and does not have a significant impact on price; and (iii) before shipment begins, the licensee shall post on a website the following information: - the quantities being supplied to each destination as referred to in indent (i) above; and - the distinguishing features of the product(s) referred to in indent (ii) above; (c) the exporting Member shall notify the Council for TRIPS of the grant of the licence, including the conditions attached to it. The information provided shall include the name and address of the licensee, the product(s) for which the licence has been granted, the quantity(ies) for which it has been granted, the country(ies) to which the product(s) is (are) to be supplied and the duration of the licence. The notification shall also indicate the address of the website referred to in subparagraph (b)(iii) above.
3. Where a compulsory licence is granted by an exporting Member under the system set out
in this Decision, adequate remuneration pursuant to Article 31(h) of the TRIPS Agreement
shall be paid in that Member taking into account the economic value to the importing Member
of the use that has been authorized in the exporting Member. Where a compulsory licence is
granted for the same products in the eligible importing Member, the obligation of that
Member under Article 31(h) shall be waived in respect of those products for which
remuneration in accordance with the first sentence of this paragraph is paid in the exporting
Member.

4. In order to ensure that the products imported under the system set out in this Decision are
used for the public health purposes underlying their importation, eligible importing Members
shall take reasonable measures within their means, proportionate to their administrative
capacities and to the risk of trade diversion to prevent re-exportation of the products that have
actually been imported into their territories under the system. In the event that an eligible
importing Member that is a developing country Member or a least-developed country
Member experiences difficulty in implementing this provision, developed country Members
shall provide, on request and on mutually agreed terms and conditions, technical and financial
cooperation in order to facilitate its implementation.
5. Members shall ensure the availability of effective legal means to prevent the importation
into, and sale in, their territories of products produced under the system set out in this
Decision and diverted to their markets inconsistently with its provisions, using the means
already required to be available under the TRIPS Agreement. If any Member considers that
such measures are proving insufficient for this purpose, the matter may be reviewed in the
Council for TRIPS at the request of that Member.
6. With a view to harnessing economies of scale for the purposes of enhancing purchasing
power for, and facilitating the local production of, pharmaceutical products:
(i) where a developing or least-developed country WTO Member is a party to a regional trade agreement within the meaning of Article XXIV of the GATT 1994 and the Decision of 28 November 1979 on Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries (L/4903), at least half of the current membership of which is made up of countries presently on the United Nations list of least developed countries, the obligation of that Member under Article 31(f) of the TRIPS Agreement shall be waived to the extent necessary to enable a pharmaceutical product produced or imported under a compulsory licence in that Member to be exported to the markets of those other developing or least developed country parties to the regional trade agreement that share the health problem in question. It is understood that this will not prejudice the territorial nature of the patent rights in question; (ii) it is recognized that the development of systems providing for the grant of regional patents to be applicable in the above Members should be promoted. To this end, developed country Members undertake to provide technical cooperation in accordance with Article 67 of the TRIPS Agreement, including in conjunction with other relevant intergovernmental organizations.
7. Members recognize the desirability of promoting the transfer of technology and capacity
building in the pharmaceutical sector in order to overcome the problem identified in
paragraph 6 of the Declaration. To this end, eligible importing Members and exporting
Members are encouraged to use the system set out in this Decision in a way which would
promote this objective. Members undertake to cooperate in paying special attention to the
transfer of technology and capacity building in the pharmaceutical sector in the work to be
undertaken pursuant to Article 66.2 of the TRIPS Agreement, paragraph 7 of the Declaration
and any other relevant work of the Council for TRIPS.
8. The Council for TRIPS shall review annually the functioning of the system set out in this
Decision with a view to ensuring its effective operation and shall annually report on its
operation to the General Council. This review shall be deemed to fulfil the review
requirements of Article IX:4 of the WTO Agreement.
9. This Decision is without prejudice to the rights, obligations and flexibilities that Members
have under the provisions of the TRIPS Agreement other than paragraphs (f) and (h) of
Article 31, including those reaffirmed by the Declaration, and to their interpretation. It is also
without prejudice to the extent to which pharmaceutical products produced under a
compulsory licence can be exported under the present provisions of Article 31(f) of the
TRIPS Agreement.
10. Members shall not challenge any measures taken in conformity with the provisions of
the waivers contained in this Decision under subparagraphs 1(b) and 1(c) of Article XXIII of
GATT 1994.
11. This Decision, including the waivers granted in it, shall terminate for each Member on
the date on which an amendment to the TRIPS Agreement replacing its provisions takes effect
for that Member. The TRIPS Council shall initiate by the end of 2003 work on the preparation
of such an amendment with a view to its adoption within six months, on the understanding
that the amendment will be based, where appropriate, on this Decision and on the further
understanding that it will not be part of the negotiations referred to in paragraph 45 of the
Doha Ministerial Declaration.
ANNEX
Assessment of Manufacturing Capacities in the Pharmaceutical Sector
Least-developed country Members are deemed to have insufficient or no manufacturing
capacities in the pharmaceutical sector.
For other eligible importing Members insufficient or no manufacturing capacities for the
product(s) in question may be established in either of the following ways:
(i) the Member in question has established that it has no manufacturing capacity in the pharmaceutical sector; (ii) where the Member has some manufacturing capacity in this sector, it has examined this capacity and found that, excluding any capacity owned or controlled by the patent owner, it is currently insufficient for the purposes of meeting its needs. When it is established that such capacity has become sufficient to meet the Member's needs, the system shall no longer apply. Annex 4: The Chairman's statement
Excerpt from the minutes of the General council meeting 30 August 2003 (paragraph 29)

"The General Council has been presented with a draft Decision contained in document
IP/C/W/405 to implement paragraph 6 of the Doha Declaration on the TRIPS Agreement and
Public Health. This Decision is part of the wider national and international action to address
problems as recognized in paragraph 1 of the Declaration. Before adopting this Decision, I
would like to place on the record this Statement which represents several key shared
understandings of Members regarding the Decision to be taken and the way in which it will be
interpreted and implemented. I would like to emphasize that this Statement is limited in its
implications to paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public
Health.
"First, Members recognize that the system that will be established by the
Decision should be used in good faith to protect public health and, without prejudice to
paragraph 6 of the Decision, not be an instrument to pursue industrial or commercial policy
objectives.
"Second, Members recognize that the purpose of the Decision would be
defeated if products supplied under this Decision are diverted from the markets for which they
are intended. Therefore, all reasonable measures should be taken to prevent such diversion in
accordance with the relevant paragraphs of the Decision. In this regard, the provisions of
paragraph 2(b)(ii) apply not only to formulated pharmaceuticals produced and supplied under
the system but also to active ingredients produced and supplied under the system and to
finished products produced using such active ingredients. It is the understanding of Members
that in general special packaging and/or special colouring or shaping should not have a
significant impact on the price of pharmaceuticals.
"In the past, companies have developed procedures to prevent diversion of products that are, for example, provided through donor programmes. "Best practices" guidelines that draw upon the experiences of companies are attached to this statement for illustrative purposes.273 Members and producers are encouraged to draw from and use these practices, and to share information on their experiences in preventing diversion. "Third, it is important that Members seek to resolve any issues arising from the use and implementation of the Decision expeditiously and amicably: - "To promote transparency and avoid controversy, notifications under paragraph 2(a)(ii) of the Decision would include information on how the Member in question had established, in accordance with the Annex, that it has insufficient or no manufacturing capacities in the pharmaceutical sector. - "In accordance with the normal practice of the TRIPS Council, notifications made under the system shall be brought to the attention of its next meeting. 273 Reproduced as Annex I. - "Any Member may bring any matter related to the interpretation or implementation of the Decision, including issues related to diversion, to the TRIPS Council for expeditious review, with a view to taking appropriate action. - "If any Member has concerns that the terms of the Decision have not been fully complied with, the Member may also utilize the good offices of the Director-General or Chair of the TRIPS Council, with a view to finding a mutually acceptable solution. "Fourth, all information gathered on the implementation of the Decision shall be brought to the attention of the TRIPS Council in its annual review as set out in paragraph 8 of the Decision. "In addition, as stated in footnote 3 to paragraph 1(b) of the Decision, the following Members have agreed to opt out of using the system as importers: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, The Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom and the United States. "Until their accession to the European Union, the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia agree that they would only use the system as importers in situations of national emergency or other circumstances of extreme urgency. These countries further agree that upon their accession to the European Union, they will opt out of using the system as importers. "As we have heard today, and as the Secretariat has been informed in certain communications, some other Members have agreed that they would only use the system as importers in situations of national emergency or other circumstances of extreme urgency. These are the following: Hong Kong, China; Israel; Korea; Kuwait; Macao China; Mexico; Qatar; Singapore; the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu; Turkey and the United Arab Emirates."

Source: http://www.kommers.se/Documents/dokumentarkiv/publikationer/2008/rapporter/report-the-wto-decision-on-compulsory-licensing.pdf