Trade Group Wants to See Stricter Limits on Compulsory Licensing

Regulatory NewsRegulatory News
| 02 March 2015 | By Michael Mezher 

A US-based trade group wants to see the United States Trade Representative (USTR) pursue stricter limits on the ability of countries to bypass patent protection. In its Special 301 Submission 2015, the Pharmaceutical Research and Manufacturers of America (PhRMA) argues that compulsory licenses should only be issued in “exceptional situations,” where there is a pressing public health need.

What is a Compulsory License?

Compulsory licensing (CL) is a legal provision that allows for the licensing of intellectual property (IP) to another without the IP owner’s consent. This is in contrast to voluntary licensing, where a rights holder decides whether or not to license its property to a third party.

On an international level, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) establishes the standards for issuing compulsory licenses by World Trade Organization (WTO) members. The provisions for compulsory licensing are contained within Article 31 of the agreement.

The text of TRIPS states that compulsory licenses should only be granted after reasonable efforts to enter into a voluntary licensing agreement fail. This provision does not apply in cases of “national emergency or other circumstances of extreme urgency or in cases of public non-commercial use.” In such cases, members are required to notify the rights holder that a compulsory license has been issued.

Additionally, the agreement specifies that the license should primarily be for domestic use in the country the license is issued, and that the licensee should pay the rights holder “adequate remuneration […] taking into account the economic value of the authorization.”

While TRIPS sets general provisions for compulsory licensing, individual countries’ national law will dictate the specific terms and legal requirements on a local level. National laws often require the party looking to obtain a compulsory license to first attempt to negotiate a voluntary license with the owner of the IP and, failing that, the licensee to pay the rights holder some remuneration for the license.

PhRMA’s Gripes

Intellectual property protection is a sensitive subject for drug companies. Pharmaceutical products can cost billions of dollars to develop and require years of testing and review before they are ready to be marketed. Recognizing this, most regulatory systems give pharmaceutical products additional intellectual property and regulatory data protections on top of their patent protection to allow companies sufficient time to recoup their investments.

Earlier this month, PhRMA released its Special 301 Submission 2015, which presents its case to the USTR on trade issues related to intellectual property. The report claims that several countries “have implemented policies that undermine the ability of US business to enforce patent rights.”

While PhRMA acknowledges that TRIPS allows for compulsory licensing, the group says there needs to be additional restrictions to prevent the licenses from being used too often. PhRMA says compulsory licensing is “not a sustainable or effective way to address healthcare needs,” and that voluntary licensing would “better ensure that … patients have access to innovative medicines.”

The report specifically calls out India, Indonesia, Thailand, Ecuador, Malaysia, Russia, the Dominican Republic and Peru for either issuing compulsory licenses or considering legislation that would make issuing such licenses easier.

Despite PhRMA’s complaints, compulsory licensing is not widely practiced.  One study found only 24 instances of compulsory licenses being issued for 40 specific pharmaceutical patents between 1995 and 2011.

The Argument for Compulsory Licensing

The primary argument in favor of compulsory licensing is that it gives countries the ability to take matters into their own hands when a drug is not accessible because of its pricing or supply.

This is precisely the argument India’s patent office gave when issuing a compulsory license for Bayer’s cancer drug Nexavar to generic manufacturer Natco Pharma Limited in 2012.

The patent office’s decision was supported by a number of different advocacy groups, including Knowledge Ecology International and Médecins Sans Frontières (MSF).

Early History

Despite recent attention on compulsory licensing, the practice is not new. In fact, the concept dates back to the late 18th century when a number of US states approved intellectual property laws that allowed for compulsory licensing of books and other printed materials. The first of such acts, Connecticut’s 1783 An act for the encouragement of literature and genius makes the following allowance:

“And whereas it is equally necessary, for the encouragement of learning, that the inhabitants of this State be furnished with useful books, &c., at reasonable prices:

Be it further enacted, That whenever any such author or proprietor of such book, pamphlet, map or chart, shall neglect to furnish to public with sufficient editions thereof, or shall sell the same at a price unreasonable, and beyond what may be adjudged a sufficient compensation for his labour, time, expence, and risque of sale, the judge of the superior court in this State, on complaint thereof made to him in writing, is hereby authorized and impowered to summon such author or proprietor to appear before the next superior court […] and if the [complaint] be found true, […] he shall within such reasonable time […] publish and offer the sale in this State, a sufficient number of copies of such book, pamphlet, map, or chart, at such reasonable price as said court shall, on due consideration affix: And if such author or proprietor shall, before said court, neglect or refuse to give such security as aforesaid, the said court are hereby authorized and impowered to give such complainant, a full and ample license to re-print and publish such book, pamphlet, map or chart, in such numbers and for such terms as said court shall judge just and reasonable prices as said court shall thereto affix.[sic]”

International precedent for compulsory licensing also greatly predates the TRIPS agreement. The first international resolution to cover compulsory licensing was made during the First Patent Congress at the 1873 Vienna World’s Fair. The provisions of the resolution were part of a compromise between intellectual property holders and the anti-patent movement.

The subsequent 1883 Paris Convention for the Protection of Industrial Property, which is still in effect based on the WTO-WIPO cooperation agreement, allows for compulsory licensing:

“Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.”

However, the Paris Convention also makes certain restrictions on when such a license can be issued:

“A compulsory license may not be applied for on the ground of failure to work or insufficient working before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last; it shall be refused if the patentee justifies his inaction by legitimate reasons. Such a compulsory license shall be non-exclusive and shall not be transferable, even in the form of the grant of a sub-license, except with that part of the enterprise or goodwill which exploits such license.”


PhRMA Special 301 Submission


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