Compulsory Licensing in Canada and Thailand: Comparing Regimes to Ensure Legitimate Use of the WTO Rules

Personal Communication with Elie Betito, Director, Public and Government Affairs, Apotex Inc., November 24, 2008.

Pharmaceutical News, “Apotex Receives Final Tender Approval from Rwanda for Vital AIDS Drug,” Pharmaceutical News , May 7, 2008, available at <http://www.news-medical.net/?id=38157> (last visited April 7, 2009).

Mills R. Efird C. , “TRIPS and Health Emergencies,” Office of the United States Trade Representative, Washington, D.C., November 10, 2001, at 1, available at <http://www.ustr.gov/Document_Library/Press_Releases/2001/November/TRIPs_Health_Emergencies.html> (last visited April 7, 2009).

As described by Scherer and Watal: Article 31 allows compulsory licensing after a proposed user has been unsuccessful within a reasonable period of time in negotiating to obtain from the patent holder authorization to use the patented invention ‘on reasonable commercial terms and conditions’…[While] Article 40 permits WTO member nations to take appropriate measures including compulsory licensing of patented inventions, when judicial or administrative procedures have identified conditions that constitute ‘an abuse of intellectual property rights having an adverse effect on competition in the relevant market.’ See Scherer F. M. Watal J. , “Post-TRIPS Options for Access to Patented Medicines in Developing Nations,” Journal of International Economic Law 5, no. 4 (2002): 913–939, at 914–915.

Although this paper exclusively treats the application of compulsory licensing in the pharmaceutical sector, it is important to recognize that the mechanism is widely utilized in a variety of other industries.

Organization for Economic Co-operation and Development (OECD), Patents and Innovations: Trends and Policy Challenges , Paris, 2004, at 9, available at <http://www.oecd.org/dataoecd/48/12/24508541.pdf> (last visited April 7, 2009).

Royal Society Working Group on Intellectual Property, Keeping Science Open: The Effects of Intellectual Property Policy on the Conduct of Science , April 14, 2003, at 5, available at <http://royalsociety.org/displaypagedoc.asp?id=11403> (last visited 14 July 2008).

Sykes A. O. , “TRIPs, Pharmaceuticals, Developing Countries, and the Doha ‘Solution’,” John M. Olin Law & Economics Working Paper no. 140, 2nd Series, The Law School, The University of Chicago, February 2002.

Id., at 8.

World Trade Organization, “Compulsory Licensing of Pharmaceuticals and TRIPS,” Geneva, September 2006, available at <http://www.wto.org/english/tratop_e/TRIPs_e/public_health_faq_e.htm> (last visited 12 July 2008).

Article 31(f) states that “any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use.” World Trade Organization, “Uruguay Round Agreement: TRIPS, Part II – Standards Concerning the Availability, Scope and Use of Intellectual Property Rights, Sections 5 and 6,” Geneva, January 6, 2007, available at <http://www.wto.org/english/docs_e/legal_e/27-trips_04c_e.htm> (last visited April 7, 2009).

Elliot R. , “Solving the Doha Paragraph 6 Problem: The WTO Decision of 30 August 2003,” Canadian HIV/AIDS Policy & Law Review 8, no. 3 (December 2003): 8–18, at 9.

Article 31(b) states: [S]uch 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 noncommercial 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. See WTO, supra note 11.

Historically, royalty rates have varied greatly, from estimates of 18% in the U.K. to 4% in Canada (see Watal J. , “Access to Essential Medicines in Developing Countries: Does the WTO TRIPS Agreement Hinder It?” May 15, 2000, available at <http://www.cid.harvard.edu/archive/biotech/papers/discus-sion8.pdf> (last visited April 7, 2009.) In the minority of U.S. cases in which the royalties were established by the courts, royalties ranged from 0.2 to 3.0%. As noted by Scherer and Watal, the “choices made in industrialized nations provide ample precedent for royalty-setting on the modest side of the range of possibilities.” See Scherer Watal , supra note 2, at 924.

Chatterjee S. , “Flexibilities under Trips [Compulsory Licensing]: The Pharmaceutical Industry in India and Canada,” June 14, 2007, at 6, available at <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1025386> (last visited April 7, 2009).

A research note prepared by KEI chronicled recent examples of compulsory licensing of patents. The paper presented a number of recent examples on the use of this practice for a wide spectrum of technologies, in both developed and developing economies. See Love J. P. , “Recent Examples of Compulsory Licensing of Patents,” March 8, 2007, available at <http://www.keionline.org/index.php?option=com_content&task=view&id=41> (last visited April 7, 2009).

Reichman J. H. Hasenzahl C. , “Non-voluntary Licensing of Patented Inventions: Historical Perspective, Legal Framework under TRIPS, and an Overview of the Practice in Canada and the USA,” UNCTAD-ICTSD Project on IPRs and Sustainable Development, Issue Paper no. 5, 2003, at 12.

Cohen W. M. Nelson R. R. Walsh J. , “A First Look at the Results of the 1994 Carnegie Mellon Survey of Industrial R&D in the United States,” unpublished manuscript, 28 February 28, 1996, at 14. This is echoed in numerous other studies which report that the protection of intellectual property is disproportionally more important to the chemical and pharmaceutical industries, including: Levin R. C. Klevorick A. K. Nelson R. R. Winter S. G. , “Appropriating the Returns from Industrial Research and Development,” Brookings Papers on Economic Activity, Special Issue no. 3, (1987): 783–831; Taylor C. T. Silberston Z. A. , The Economic Impact of the Patent System (Cambridge, U.K.: Cambridge University Press, 1973); Scherer F. M. , “The Economic Effect of Compulsory Patent Licensing,” Monograph Series in Finance and Economics (New York: New York University, 1997); Mansfield E. , “Patents and Innovations: An Empirical Study,” Management Science 32, no.2, (February 1986): 173–181; Mansfield E. Schwartz M. Wagner S. , “Imitation Costs and Patents: An Empirical Study,” Economic Journal 91, no. 364 (December 1981): 907–918; and Tocker E. , “A Chemical Industry Perspective,” in Walker C. E. Bloomfield M. A. , eds., Intellectual Property Rights and Capital Formation in the Next Decade (Landham, MD: University Press of America, Inc., 1988): At 151–162. These studies are echoed by arguments from within the pharmaceutical industry: Mossinghoff G. J. , “Encouraging Invention and Innovation: The Key to Human Progress,” PhRMA: Pharmaceutical Research and Manufacturers of America, World Wide Web Posting: January 1998, available at <www.phrma.org/issues/inter1.htm> (last visited August 1, 2003); Peretz S. M. , “Pharmaceuticals in the Third World: The Problem from the Suppliers' Point of View,” World Development 11, no. 3 (March 1983): 259–264; Mossinghoff G. J. , “Research-Based Pharmaceutical Companies: The Need for Improved Patent Protection Worldwide,” Journal of Law and Technology 2, no. 2 (1987): 307–324; Santoro M. , “Pfizer: Global Protection of Intellectual Property,” Harvard Business School Case Study N9-392-073, April 6, 1995; Craig Smith N. , “Note on Pharmaceutical Marketing Practices in the Third World,” Harvard Business School Case Study N9-590-032, December 16, 1990; Smith N. C. , “Ciba-Geigy Pharmaceuticals: Pharma International,” Harvard Business School Case Study N9-589-108, December 14, 1990; Mossinghoff G. J. Bombelles T. , “The Importance of Intellectual Property Protection to the American Research-Intensive Pharmaceutical Industry,” Columbia Journal of World Business XXXI, no.1 (Spring 1996): 38–48; and Bombelles T. , Assistant Vice President International at the Pharmaceutical Research and Manufacturers of America (PhRMA), Washington, D.C., conversation with author, April 1, 1999.

Patent Act, S.C. 1923, c. 23, s.17.

Smith M. , Patent Protection for Pharmaceutical Products , Government of Canada, Law and Government Division, November 1993, available at <http://dsp-psd.pwgsc.gc.ca/Collection-R/LoPBdP/BP/bp354-e.htm> (last visited April 7, 2009).

See Reichman Hasenzahl , supra note 17, at 20.

Campbell R. M. Pal L. A. Howlett M. , The Real Worlds of Canadian Politics: Cases in Process and Policy (Peterborough, Ontario: Broadview Press, 1994).

CBC News, “Canadian AIDS meds may soon head to Rwanda,” CBC News Web site, May 8, 2008, available at <http://www.cbc.ca/health/story/2008/05/08/aids-drugs.html> (last visited April 7, 2009).

Industry Canada Web site, “About Us,” available at <http://www.ic.gc.ca/epic/site/ic1.nsf/en/h_00007e.html> (last visited April 7, 2009).

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See Government of Canada, supra note 26, at 1.

Médecins Sans Frontières (MSF), Neither Expeditious, Nor a Solution: The WTO August 30th Decision Is Unworkable. An illustration through Canada's Jean Chretien Pledge to Africa , report prepared for the XVI International AIDS Conference, Toronto, August 2006, available at <http://www.msf.ch/filead-min/user_upload/uploads/communiques/images_2006/pdf/came_Neither_expeditious_nor_a_solution_-_August_30_and_the_JCPA_single_page.pdf> (last visited April 7, 2009).

See Elliott , supra note 12.

Attaran A. , “A Tragically Naïve Canadian Law for Tragically Neglected Global Health,” Canadian Medical Association Journal 176, no.12 (April 20, 2007): 1726–1727, at 1727.

Program on Information Justice and Intellectual Property (PIJIP), “Timeline for Thailand's Compulsory Licenses,” version 2, Washington College of Law, American University, March 2008, at 3, available at <http://www.wcl.american.edu/pijip/documents/timeline.pdf?rd=1> (last visited April 7, 2009).

Id., at 4.

As of October 2001, the exchange rate between the Thai baht and U.S. dollar was $1 to 44.59 baht (1 baht to $0.022). Accordingly, 30 baht would have been about $0.67. See Federal Reserve Bank of New York, “Foreign Exchange Rates Historical Search,” available at <http://www.ny.frb.org/markets/fxrates/historical/home.cfm> (last visited April 7, 2009).

See PIJIP, supra note 32, at 4.

Thailand, Ministry of Public Health and National Health Security Office, “The 10 Burning Questions on the Government Use of Patents on the four Anticancer Drugs in Thailand,” National Health Security Office, February 2008, available at <http://www.moph.go.th/hot/Second_white_paper_on_the_Thai_CL_%5BEN%5D.pdf> (last visited April 10, 2009), as quoted in Norris J. , “The Unraveling of Compulsory Licenses: Evidence from Thailand and India,” International Policy Network , May 18, 2007, at 3, available at <http://www.fightingdiseases.org/pdf/unravelling_of_CLs_norris.pdf> (last visited April 10, 2009).

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Abbott F. M. Reichman J. H. , “The DOHA Round's Public Health Legacy: Strategies for the Production and Diffusion of Patented Medicines under the Amended TRIPS Provisions,” Journal of International Economic Law 10, no. 4 (2007): 921–987, at 953.

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Steinbrook R. , “Thailand and the Compulsory Licensing of Efavirenz,” New England Journal of Medicine 356, no. 6 (February 8, 2007): 544–546, at 544.

As noted in the September 2007 U.S. Government Accountability Office report, the U.S. Trade Representative has recognized Thailand's “ability to issue compulsory licenses subject to WTO rules and the country's domestic laws. However, it expressed concern about what it considered to be the lack of transparency exhibited in Thailand.” See U.S. Government Accountability Office, Intellectual Property: U.S. Trade Policy Guidance on WTO Declaration on Access to Medicines May Need Clarification , GAO-07-1198, September 2007, at 49, available at <http://www.gao.gov/new.items/d071198.pdf> (last visited April 7, 2009). The lack of clarity surrounding whether Thailand did or did not negotiate with the patent holders perfectly exemplifies this concern.

Chokevivat V. , ed., Ministry of Public Health and the National Health Security Office, Thailand, “Facts and Evidences on the 10 Burning Issues Related to the Government Use of Patents on Three Patented Essential Drugs in Thailand,” Sangsue Co., Ltd., Thailand, February 2007, at 6, available at <http://www.moph.go.th/hot/White%20Paper%20CL-EN.pdf> (last visited April 7, 2009).

Stevens P. , Will Compulsory Licenses Improve Treatment for Patients: The Case of Thailand , International Policy Press, London U.K., May 2007, available at <http://www.fightingdis-eases.org/pdf/Stevens_thailand_web.pdf> (last visited April 7, 2009).

This decision is particularly interesting in the context of Articles 31(d) and (e) which specify that compulsory licenses without the authorization of the right holder should be non-exclusive and non-assignable. By refusing to contract with other producers and thus denying them a market, the GPO essentially becomes the only firm able to utilize the licenses.

See Stevens , supra note 44, at 5. As of July 28, 2008 the exchange rate between the Thai baht and US dollar was $1 to 33.45 baht (1 baht to $0.0298). Accordingly, 10 billion baht is about $298 million. See Federal Reserve Bank of New York, supra note 35.

Id. (Stevens), at 4.

Steinbrook R. , “Closing the Affordability Gap for Drugs in Low-Income Countries,” New England Journal of Medicine 357, no. 20 (November 15, 2007): 1996–1999, at 1998.

While the establishment and growth of a domestic generics industry is considered a valid objective for the implementation of a compulsory licensing program, it is worth noting that the U.S. generics industry emerged without compulsory licensing. This may be due to the profitability of the U.S. generics market, the ease of accessing drug patent information, and the regulatory framework conferred by the Hatch-Waxman Act (Drug Price Competition and Patent Term Restoration Act of 1984) designed to promote generics while preserving a financial incentive for research and development.

Note that in the context of the objectives described here compulsory licenses could be issued for either domestic production or importation. While the requirements surrounding the phrase “predominantly for the supply of the domestic market” have yet to be resolved, many developing nations have no alternative apart from importation. Scherer and Watal make the point that during the 1970s, even Canada – with its high income and internationally renowned universities – found it necessary to import the majority of the bulk pharmaceuticals supplied under compulsory licenses (see Scherer Watal , supra note 2, at 925.) If it turns out that patented pharmaceuticals distributed under a compulsory license cannot be exported as ‘parallel goods’ within paragraph 5(d) of the Doha Declaration, then they remain subject to article 31(f) of the TRIPS Agreement, which literally limits such exports to 49.9 per cent of the total supplies distributed under the compulsory license in the local market. Since only a small number of developing countries can manufacture technically advanced medicines, these legal impediments hamstring the ability of these countries to assist other poor countries that issue compulsory licenses in order to acquire essential medicines without possessing any local manufacturing capacity in this regard. See Reichman J. H. Hasenzahl C. , “Non-voluntary Licensing of Patented Inventions: Historical Perspective, Legal Framework under TRIPS, and an Overview of the Practice in Canada and the U.S.A.,” UNCTADICTSD Project on IPRs and Sustainable Development, Issue Paper no. 5, 2003, at 17.

Id. (Scherer and Watal), at 924.

Elliott R. , “Pledges and Pitfalls: Canada's Legislation on Compulsory Licensing of Pharmaceuticals for Export,” International Journal of Intellectual Property Management 1, nos.1/2 (2006): 94–112, at 101.

Id., at 94.

Gupte E. , “Apotex Ships Drugs under Doha License” Managing Intellectual Property, 28 September 2008, available at <http://www.managingip.com/Article/2017247/Apotex-ships-drug-under-Doha-licence.html> (last visited April 7, 2009).

See CBC News, supra note 23.

See Attaran , supra note 31, at 1727.

Industry Canada and Health Canada, “Report on the Statutory Review of Sections 21.01 to 21.19 of the Patent Act,” Cat. No. Iu4–118/2007, 2007, available at <http://camr-rcam.hc-sc.gc.ca/review-reviser/camr_rcam_report_rapport-eng.php> (last visited 20 November 2008).

Talaga T. , “AIDS Drugs Fiasco a Tale of Red Tape” Toronto Star, August 9, 2007, available at <http://www.thestar.com/comment/columnists/article/244582> (last visited April 7, 2009).

See Stevens 2007, supra note 44, at 5.

See Norris , supra note 37, at 4.

Merry C. Mairin R. Blaschke T. , “Generic Drugs for HIV/AIDS Is Good News, but Manufacturing Standards Must Be Monitored,” Financial Times, October 6, 2003, available at <http://search.ft.com/ftArticle?queryText=blaschke&y=0&aje=true&x=0&id=031006001147&ct=0&nclick_check=1> (last visited April 7, 2009).

These results were presented at Thailand's 10th National Seminar on AIDS in Bangkok (see U.S. Centers for Disease Control and Prevention, “Thailand: HIV Drugs Losing their Power,” CDC HIV/Hepatitis/STD/TB Prevention News Update , 2005, available at <http://www.thebody.com/content/treat/art25270.html> [last visited April 7, 2009]). Complete results may be found in: Sutthent R. Arworn D. Kaoriangudom S. Chokphabulkit K. Chaisilwatana P. Wirachsilp P. Thiamchai V. Sirapraphasiri T. Tanprasertsuk S. , “HIV-1 Drug Resistance in Thailand: Before and After National Access to Antiretroviral Program,” Journal of Clinical Virology 34, no. 4 (2005): 272–276.

Bate R. , “Thaiing Pharma Down,” Wall Street Journal Asia, February 9, 2007, available at <http://www.aei.org/publications/pubID.25585/pub_detail.asp> (last visited April 7, 2009).

Treerutkuarkul A. , “WHO Raps Compulsory Licensing Plan: Government Urged to Seek Talks with Drug Firms,” Bangkok Post, February 2, 2007, available at <http://www.aegis.com/news/bp/2007/bp070201.html> (last visited April 7, 2009).

See Norris , supra note 37, at 4.

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See Stevens , supra note 44.

See Bate , supra 68, at 2.

Id., at 1.

AFX News Limited, “Thailand to import generic version of heart drug Plavix from India,” Forbes.com, August 22, 2007, available at <http://www.forbes.com/feeds/afx/2007/08/22/afx4043270.html> (last visited April 7, 2009).

Fuller T. , “Thailand Takes on Drug Industry, and May Be Winning,” International Herald Tribune, April 11, 2007, available at <http://www.iht.com/articles/2007/04/11/news/pharma.php> [last visited July 12, 2008; find this article now through the New York Times].

See Sykes , supra note 8, at 13.

Chien C. , “Cheap Drugs at What Price to Innovation: Does the Compulsory Licensing of Pharmaceuticals Hurt Innovation?” Berkeley Technology Law Journal 18, no. 1 (2003): 3–57, at 4.

Although the industry claims that compulsory licensing reduces the incentive to conduct R&D in such diseases, as long as there are large emerging markets (i.e., China and India) with similar disease burdens, it is hard to imagine that the actions of Thailand will influence the industry's decision to research treatments in these disease areas.

See Chien , supra note 75.

Id., at 5.

Id., at 40.

See Reichman Hasenzahl , supra note 17, at 24.

This strategy, however, is likely to be most successfully employed by nations with some degree of market power. The Brazilian case is noteworthy in this context. Cohen and Lybecker detail the Brazilian negotiations. See Cohen J. C. Lybecker K. M. , “AIDS Policy and Pharmaceutical Patents: Brazil's Strategy to Safeguard Public Health,” World Economy 28, no. 2 (Spring 2005): 211–230.

In a recent U.S. GAO report (supra note 12), Thailand's legal right to issue the compulsory licenses was reaffirmed but the lack of transparency in their process was criticized.

Compulsory licensing is most likely to negatively impact research on what are known as Type II diseases, those with significant developing country markets and yet a sufficient enough market in high-income countries to attract some research resources. Though explored by others, this phenomenon is exceedingly well described by Outterson. (See Outterson K. , “Should Access to Medicines and TRIPS Flexibilities Be Limited to Specific Diseases?” American Journal of Law & Medicine 34, nos.2–3 (2008): 279–301.) Type I diseases occur in high-income nations and the purchasing power of these markets alone can support innovation on these diseases. The majority of research is currently devoted to Type I diseases. Type III diseases primarily appear in developing nations where virtually no commercial market exists. As a consequence, few resources are dedicated to work on Type III diseases. Type II diseases create the intermediate category and innovation on these diseases attracts some resources. In some cases, high-income markets are enough to incentivize research on Type II diseases. For additional reading, please see the following: Outterson K. , “Pharmaceutical Arbitrage: Balancing Access and Innovation in International Prescription Drug Markets,” Yale Journal of Health Policy, Law, and Ethics 5, no.1 (2005): 193–291; and Outterson K. Kesselheim A. S. , “Market-Based Licensing for HPV Vaccines in Developing Countries,” Health Affairs 27, no.1, (January/February 2008): 130–139.