Patents and Public Interest – Musings from the Thai Compulsory License Controversy

The conflict (or apparent conflict) between patent rights and public health once again came into the limelight with the Thai government granting compulsory licenses to three patented drugs. On November 29 last year, the Thai government made its first strike with the announcement that it was granting a compulsory license to the Government Pharmaceutical Organization of Thailand (Click Here) for production of Merck’s patent on Efavirenz (an AIDS drug sold as Stocrin). Following closely in line was the compulsory license on Kaletra (produced by Abott), another anti retro-viral used to treat HIV/AIDS. The third, and rather surprising addition to the list was Plavix – a blood thinning medicine developed by Sanofi-Aventis and Bristol-Myers-Squibb (See “Why Thailand is at the Center of a Patent Storm, MIP, March 2007). The compulsory licenses have been granted on the ground that Thailand is suffering a health emergency and the same are necessary for the government to fulfill its obligations of providing universal access to medicines to its people.

Not surprisingly, there were a variety of reactions to the grant of compulsory licenses by the Thai government. The Pharmaceutical companies concerned offered to reduce the prices of drugs, public interest groups applauded the “strong” stand taken by the Thai government. and a number of articles discussed the legality and TRIPs compatibility of the steps taken (or not taken) by the Thai Government (See Articles here here and here.)

The grant of compulsory licenses is no more as uncommon/unusual a practice as it was when South Africa granted compulsory licenses to the cocktail drugs for HIV/AIDS under the amendments to its Medicines and Related Substances Control Act in 1997. (The Act allowed the import of unlicensed generic drugs to treat the millions of HIV and AIDS sufferers in South Africa. The Act also called for the creation of a committee to monitor drug prices and compel pharmaceutical companies to justify their prices. It proposes that doctors prescribe generic versions in place of brand-name drugs whose patents in South Africa have expired. For discussions on the South African controversy of 1997-2001, see the articles here, here and here.)

At the time of the South African controversy, the Doha Declaration was yet to happen. There was therefore, a considerably greater degree of uncertainty as to the scope of Article 31 of the TRIPs agreement. Since then, a number of Asian countries have granted compulsory licenses over a number of patented drugs in the last few year. (For a list of such compulsory licenses, see this Article)

Nevertheless, the issue is one that is far from resolved and continues to be a reason for discomfort for all parties concerned – particularly the pharmaceutical industry. There are a number of issues in the Thai controversy that may become relevant to India and other developing countries in the near future. This is particularly so now that India has amended its patent laws to permit product patents in pharmaceuticals. The elaborate compulsory licensing provisions under the Indian Patents Act, 1970, which have been used only infrequently, may soon become the most often used. The key issues in the Thai controversy are discussed hereunder with relevant comparison with Indian Laws:


Prior negotiation with Patentee and the meaning of “emergency”:

One of the main grievances of the Pharmaceutical industry is that the Thai government did not conduct negotiations prior to announcing the compulsory licenses. The Thai government on the other hand, claims that it did. It its report titled “Facts and Evidence on the 10 Burning Issues Related to the Government Use of Patents on the Three Patented Drugs in Thailand”, the Thai government claims that the Ministry of Public health had tried through several means between 2004 and 2006 to discuss ad negotiate with patent holders. It also states that a Working Group was also created to negotiate price reduction of patented drugs, but the patent holders did not co-operate with the group. Further, the Thai government contends that no negotiations are needed under the TRIPs agreement or under the Thai patent law in the present case.

Article 31 of TRIPS states “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.” Under Thai Law, § 46(2) states that an “applicant for [compulsory] license must show that he has made an effort to obtain a license from the patentee…” However, this is only in case of commercial ventures. § 51 provides for compulsory license to “relieve a severe shortage of food, drugs or other consumption items…” and does not require prior negotiations with the patentee. As required by TRIPs, there is only a requirement that the patentee be informed.(See Thai Patent law here)

In India, similarly, the requirement of prior negotiation with patentee is mentioned only under § 84(6)(iv) which only deals with applications for compulsory license made by private applicants. There is no such requirement under § 92 which provide for grant of compulsory license by notification by the central government, inter alia, in case of national emergency or extreme urgency.

Indeed, the requirement of negotiation with the patentee would defeat the purpose of having emergency provisions. It may of course be argued that the AIDS situation in Thailand has not come about overnight and there is therefore no real “emergency” as envisaged under TRIPs or the Thai Patent Act. However, 5 of the Doha Declaration provides that “(c) Each member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crisis, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstance of extreme urgency.” This being the case, it is clear that at least for the HIV/AIDS drugs, no prior negotiations were necessary with the patent holders. However, issue may well be legitimately raised with regards Plavix which does not treat an “epidemic” but is a drug that is mostly directed to more affluent populations who have suffered from recent heart attacks or strokes.

The Thai government also argues in its White paper that negotiation attempts prior to grant of compulsory licenses are often a waste of time. Following the grant of compulsory licenses, however, the price decline is rapid. In Thailand, at the time the compulsory licenses were announced, the price of the drug Efavirenz was 1,400 Baht/m. After the announcement, Merck offered to provide the drug at 550 Baht/m (10 Baht less than the price at which the Government pharmaceutical organization(GPO) could provide it. (Click Here)

What is adequate remuneration?

The Thai government has offered the patent holder a royalty of 0.5% under the compulsory licenses. Neither TRIPs nor the national law off Thailand expressly lay down what constitutes minimum or reasonable royalty. However, TRIPS Article 31(h) provides that “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization;” and § 48 of the Thai patent act states that Where a compulsory license is granted under Section 46, 47 or 47bis, the patentee shall be entitled to remuneration. § 46(2) provides little interpretative guidance as it states that the remuneration must be “reasonably sufficient under the circumstances.”

Under the Indian Patents Act, 1970, § 90 provides that “In setting the terms and conditions of a [compulsory] license under § 84, the Controller shall endeavor to secure (a) that the royalty and other remuneration, if any, reserved to the patentee or other person beneficially entitled to the patent is reasonable, having regard to the nature of the invention, the expenditure incurred by the patentee in making the invention or developing it and obtaining a patent and keeping it in force and other relevant factors.” This provision also applies to determination of royalty in case of compulsory licenses granted for “emergencies” under § 92.

While there have been no cases determining what royalty constitutes reasonable royalty under § 90, In Imperial Chemicals Industries Ltd. v Controller General of Patents, Designs and Trademarks and Anr, the court found a royalty of 3% to be adequate in a case dealing with the now defunct concept of licenses of right.

Effect of refusal to supply?

Retaliating against the compulsory license issued by the Thai government, Abott decided to withhold access to 7 new drugs in Thailand. This approach was widely criticized and a number of public interest groups boycotted Abott’s drugs including baby food and nutrition products. However, one may wonder how this retaliation would prevent further compulsory licensing in the future. Under Thai law, section 46 (2) provides that if the patented product is not supplied in the domestic market, there is adequate grounds for the grant of a compulsory license. It may be noted though that under § 46, a compulsory license may be granted only after the expiration of 3 years from the grant of the patent. Here again, there is no such requirement (of waiting 3 years) if the Thai government determines that an emergency exists that mandates the compulsory licensing of the newer versions of the drugs that Abott is currently holding out of the Thai market.

In India also, § 84(b) provides that a compulsory license may be granted on the ground that the patented invention is not worked in the territory of India. The TRIPs compatibility of this provision (which may be read as mandating local working of inventions) is not clear. However, in Franz Xaver Huemer v New Yash Engineers Delhi High Court 1996 PTC (16)(DB), where the patentee’s argument was that using the patented invention was the patentee’s exclusive prerogative, the court refused to grant injunction for alleged infringement of patent on the ground that the patentee’s contention (of prerogative of use), if sustained, would enable a deviceto be registered in India and kept unused, thereby not only denying to the public its benefit, but also precluding similar devices from being manufactured and sold by third parties in India. This would work against the very reasons that compel the grant of a patent. The court further held, that an injunction being an equitable remedy must be refused in cases of ‘non use’ of a patent. On the other hand, in the Telemecanique & Controls (I) Ltd. v Schneider Electric Ind. SA 2002 High Court of Delhi (24) PTC 632, where the patentee was working the patent, albeit through imports, the court was willing to grant the desired injunction.

All in all, the trend of increasing popularity of compulsory licenses in the international market may be good news for the Indian generic industry. By the Decision dated 30 August 2003, of the General Council on ‘Implementation of paragraph 6 of the Doha Declaration on the TRIPs Agreement and Public Health’,(‘the Decision’) declared that ‘the obligation 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 pharmaceutical products and its export to an eligible importing Member…’ In response to this, India inserted § 92A into its Patent Act by the 2005 amendments whereby:

92A. (1) Compulsory licence shall be available for manufacture and export of patented pharmaceutical products to any country having insufficient or no manufacturing capacity in the pharmaceutical sector for the concerned product to address public health problems, provided a compulsory licence has been granted by such country.

With Cipla and other genetic Indian companies having demonstrated their capacity and willingness to supply essential life saving drugs to South Africa, Kenya and other countries that may not have manufacturing capabilities of their own, this provision assumes enormous significance.


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