In their recent book on the Health Impact Fund,* Aidan Hollis and Thomas Pogge discuss a number of issues. This is what they say about compulsory licensing of patents.
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Strengthened intellectual property protections in the less developed countries burden the poor immediately by pricing vital medicines out of their reach. Yet, such protections may benefit only future poor people, starting in 2025, when patents on medicines that owe their existence to such protections expire. Appealing to this time difference, one might then propose to resolve the dilemma in favor of Pre-TRIPS on the ground that it is morally impermissible to cause severe harms, including death, to poor people now for the sake of protecting millions of poor people from similarly severe harms later on. Many endorse such a principled stance. Yet, one can not be satisfied with such an outcome in view of all the harm that stimulating new drug development could avert from so many future lives.
It may seem as though compulsory licenses — as envisioned in the TRIPS Agreement and reaffirmed in the 2001 Doha Declaration — are a practical solution to this dilemma. By issuing a compulsory license, a government can force down the price of a patented invention by compelling the patent holder to license it to other producers for a set percentage (typically below 10 percent) of the latter’s sales revenues. Yet, compulsory licenses cannot fully solve the dilemma because, insofar as governments actually use them to improve access by the poor to patented medicines, compulsory licenses weaken the innovation incentives that were supposed to result from the extension of strong intellectual property rights into the less developed countries. Pharmaceutical companies will understandably discount any such incentive if they are uncertain whether and to what extent they will actually be allowed to reap the fi nancial reward from inventing a new medicine.
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Compulsory Licensing
Compulsory licensing is a mechanism for enabling competitive production of a patented product by mandating a license at a set royalty rate for a patented innovation, and is in effect an overturning of the normal patent right to the exclusive use of the claimed invention. By issuing a compulsory license, a government authorizes the production and marketing of a cheaper generic version of a patented medicine on condition that the authorized generic firm pays a small license fee to the patent holder. Such a license, and even the mere threat of one, will typically cause the price of the relevant medicine to fall substantially in the relevant country. In Canada, compulsory licensing applied to pharmaceutical patents from 1923 until 1993. Thailand and Brazil have recently imposed compulsory licenses on a number of medicines. Compulsory licensing was expressly envisaged in the TRIPS Agreement and again prominently endorsed in the 2001 Doha Declaration, which stated that “the TRIPS agreement does not and should not prevent members from taking measures to protect public health” (WTO 2001). Since Doha, compulsory licensing has become popular among many NGOs, who see it as an effective mechanism for improving access to essential medicines. However, compulsory licensing has important limitations.
First, the scope for increasing access to existing medicines is limited. Compulsory licensing is normally only allowed for domestic consumption. This does not help the many countries that lack domestic generic drug manufacturing capacity, which include almost all developing countries other than Brazil, India, and China. According to a 2003 WTO General Council decision, exceptions exist for issuing compulsory licenses to countries lacking domestic production capacity, but the cost of the compulsory license must be borne by the exporting country (WTO 2003). Even when the will to export under a compulsory license exists, the process is oft en so complex and “riddled with restrictions, safeguards, practical hurdles, and red tape that it is unworkable” (Johnston and Wasunna 2007, S18).1
Second, the use of compulsory licenses is limited by the fierce opposition of the pharmaceutical industry, which has attempted to suppress the use of compulsory licenses or to confine it narrowly to cases of acute crisis. For this reason, developing countries are often reluctant or uncertain about whether to engage in compulsory licensing, lest they provoke political retaliation.
Third, while systems of compulsory licensing may provide an expedient solution to short-term health problems, they discourage investment in R&D for diseases whose remedies may become targets for compulsory licenses. The welcome relief from the problem of high prices compulsory licenses bring thus aggravates the neglect of diseases concentrated among the poor. Pharmaceutical companies spend less on the quest for vital medicines — especially ones needed mainly by the poor — when the uncertainties of development, testing, and regulatory approval are compounded by the additional unpredictability of whether and to what extent successful innovators will be allowed to recoup their investments through undisturbed use of their monopoly pricing powers. Compulsory licensing may thereby even exacerbate the health crisis facing developing countries over the medium and long terms (Pogge 2008b, 240).
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* Aidan Hollis and Thomas Pogge, The Health Impact Fund, Making New Medicines Accessible for All, A Report of Incentives for Global Health, 2008