Compulsory Licensing and TRIPS compatibility

It seems like the Thai compulsory licensing controversy is not the only one doing the rounds. A less controversial one (as it doesn’t deal with public health) is a complaint by Philips that a compulsory license issued in Taiwan over its CD patents is not compatible with TRIPS.

IP Geek reports:

“The European Commission has launched an in-depth investigation into the WTO consistency of the granting of compulsory licenses by Taiwan for recordable compact discs (CDRs) under the Trade Barriers Regulation. This follows a complaint lodged by Philips, the electronics manufacturer which holds patents in the technology for CDRs.

Philips is the inventor of some of the core technologies for CDRs and holds patents in those technologies. The complaint alleges that Taiwan granted compulsory licences inconsistently with the WTO TRIPs Agreement. In particular, it is alleged that Taiwan granted these licences where Philips had made reasonable efforts to provide its licenses on a voluntary basis by offering terms acceptable to seven of the eight main producers in Taiwan. It is also alleged that Taiwan granted the licence in full knowledge of the fact that the CDRs produced would be for export ( Taiwan produces 80% of the world’s CDRs) despite the express prohibition on the use of such licences for export production in the TRIPs Agreement. The Commission is satisfied that there is sufficient prima facie evidence of a violation of the TRIPs Agreement and of adverse effects on the Community to merit an investigation.”

If this makes it to the WTO, it’ll be the second IP case this year. As many of you know, the US filed a WTO complaint against China recently, alleging that its copyright enforcement norms fall short of TRIPS standards.

One wonders whether the Indian compulsory licensing provisions are susceptible to similar challenges. Section 11A of the new patent regime grants an automatic right to generic producers to continue producing versions of patented drugs, provided a “reasonable” royalty is paid. As with the term “efficacy” that is the subject matter of controversy in the Novartis dispute, “reasonable royalty” is likely to provide adequate fodder for litigation.

Yet another provision stipulates that a compulsory license can be granted if the patent is not worked in India (commonly referred to as the “local working” provision). A very powerful provision and one that might be used in the near future, given that a number of multinational pharmaceutical companies do not manufacture drugs in India but import them into the country. When I queried a colleague (who is very knowledgeable on these aspects) on how many multinationals manufacture drugs in India, this is what he had to say:

“1. Pfizer has all but closed down all its manufacturing facilities in India. Last I heard they had one facility near Chandigarh. Glaxo still has some manufacturing. Roche and Lilly – no, I do not think so. Novartis has some facilities near Thane. Aventis may have someVestigial facilities from their Hoechst days. By and large, MNCs outsourcemost of their manufacturing through loan-license deals with Indian manufacturers. That too for age-old products like Benadryl, Becosules, etc. None of the newer products is made in India.



2. My query to him:
So where is the manufacturing hub for most of these MNC’s–China? And also, given the craze about outsourcing, aren’t any ofthem doing manufacture through “outsourcing” partners in India (such asIndian generics?). Glaxo manufactures itself? And new drugs?



His answer:
Not China. Ireland, Puerto Rico, Portugal, Italy and Mexico are the most common places. Of late, Eastern European facilities are increasingly being used. Outsourcing to India is also picking up, but only of those products that are at the end of their lifecycle. Intermediates for NCEs are being increasingly outsourced from India and China.This general rule applies to Glaxo too. They do not manufacture newdrugs in India.”

Given the above scenario, one can expect the “local working” compulsory licensing provision to be invoked by generics. Unless of course, multinationals begin using India as an outsourced manufacturing/R&D hub. This is happening already, albeit on a small scale.



As to whether such a local working provision is TRIPS compatible is a moot issue. I personally don’t think it’s likely to violate TRIPS. For one, Article 31 of TRIPS does not stipulate any “grounds” for invoking compulsory licenses—thereby suggesting that almost any ground would pass muster. Some argue that a local working provision contravenes the mandate under Article 27 to not “discriminate” between locally produced and imported patented products. Given the fact that in the WTO Canada case, the panel stated that discrimination meant “unjustified differentiation”, one could argue that “local working” is a “justified” differentiation. For one, the Paris Convention clearly stated that “importation” would not amount to working of a patent, and that if a patent wasn’t worked, this could be treated as an “abuse”. Secondly, TRIPS is premised on the promise of technology transfer to developing countries. And a local working provision is geared towards encouraging such technology transfer. By forcing patentees to “work” their patents in India, the regime encourages local use/transfer of the said technology.

A similar provision on “local working” in Brazil’s regime was challenged by the US—however, the case was later withdrawn and there was no ruling. One has to wait and watch if the Indian provision is likely to trigger a similar action by the US/EU.

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