Patents? Compulsory Licences and Access to Medicines: Some Recent Experiences

Item

Title
Patents? Compulsory Licences
and Access to Medicines:
Some Recent Experiences
extracted text
Intellectual Property Rights Series

Patents? Compnlsory Licences
and Access to Medicines:
Some Recent Experiences

Martin Khor

TWN
Third World Network

10

Patents, Compulsory Licences and Access to
Medicines: Some Recent Experiences

Martin Khor

TWN

Third World Network

Patents, Compulsory Licences and Access to Medicines:
Some Recent Experiences

is published by
Third World Network
131 Jalan Macalister
10400 Penang, Malaysia.
Website: www.twnside.org.sg
E-mail: twnet@po.jaring.my

© Third World Network 2007

Printed by Jutaprint
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ISBN: 978-983-2729-19-8

CONTENTS
1

Background

2

National Public Health Measures that are
TRIPS-Consistent
Importing the Drug
Local Manufacture
Export, Including to Countries with Inadequate Manufacturing
Capacity
Conclusion

3

Use of TRIPS Flexibilities: Recent Experiences
Malaysia
Indonesia
Thailand
Zimbabwe
Ghana

4

Implications of Bilateral FTAs on Implementation
of TRIPS Flexibilities Regarding Public Health
Increasing Awareness of IPR Problems in Multilateral Context
Dangers of Bilateral FTAs in Eroding TRIPS Flexibilities
Thai Human Rights Commission Report

i
3
3
4
4
5
6
7
9
11
13
14

15
15
16
17

Appendix:
Some Recent Cases of Compulsory Licensing for AIDS Drugs

20

Bibliography

21

Acknowledgements
This is an edited version of a paper presented at the Prince Mahidol Award Confer­
ence 2007 on “Improving Access to Essential Health Technologies: Focusing on
Neglected Diseases, Reaching Neglected Populations”. The conference was jointly
hosted by the Prince Mahidol Award Foundation, the Thai Ministry of Public Health,
the World Health Organization, Mahidol University and the Faculty of Medicine,
Siriraj Hospital, and was held in Bangkok, Thailand on 1-2 February 2007.
The paper draws from various other documents. Chapters 1 and 2 draw on Khor
(2004). The framework and parts of Chapter 3 are from Sangeeta (2007), while
material on the various country cases is drawn from Chee (2006a) for Thailand.
Chee (2006b) for Malaysia, and Lutfiyah and Hira (2006) for Indonesia. Chapter 4
draws from Khor (2007) and Medecins Sans Frontieres (2004) on FTAs, and from
Smith (2007) on the report of the Thai Human Rights Commission.

1 Background
ACCESS to medicines, which is part of the human right to health services, has
emerged as a major public health issue, especially with the impact of patents on the
prices of drugs. The patenting of medicines has become more prevalent after the
establishment of the Trade-Related Aspects of Intellectual Property Rights (TRIPS)
Agreement in the World Trade Organization (WTO) in 1995. That agreement made
it compulsory for WTO member states to include medicines in their regime for
product and process patents.
A few years ago, there was a public outcry after public health and development
organizations highlighted how the monopoly granted by patents enabled the main­
tenance of excessive prices of medicines for HIV/AIDS. The cost of treating a
patient with patented drugs was US$10,000-15,000 a year in developed countries,
whereas some producers in developing countries were able to provide generic ver­
sions for as low as US$300. The cost of generic drugs has now dropped to US$100150. If developing countries are able to make or import these generic drugs at
lower cost, that would significantly increase access to medicines.
Whilst mandating that WTO members have to allow patenting for medicines, the
TRIPS Agreement does contain flexibilities. For example, if patented drugs cost
too much, the government authorities can take measures such as issuing a compul­
sory licence to an agency or company to manufacture or import a generic version of
that patented drug, which can then be made more available to patients more cheaply.

At the WTO’s Ministerial Conference in Doha in 2001, the Doha Declaration on
the TRIPS Agreement and Public Health was adopted as a response to the public
concents. The Declaration reaffirmed and clarified the flexibilities available under
the TRIPS Agreement, and proclaimed: “We agree that the TRIPS Agreement does
not and should not prevent Members from taking measures to protect public health
.... [W]e affirm that the Agreement can and should be interpreted and implemented
in a manner supportive of WTO Members' right to protect public health and, in

particular, to promote access to medicines for all.” The Declaration spells out sev­
eral flexibilities that WTO members can use to the full, such as the right to grant
compulsory licences and the freedom to determine the grounds for these.
If the Doha Declaration is to benefit AIDS patients and those afflicted with other
ailments in developing countries, these countries now have to establish appropriate
provisions in their national patent legislation by using “to the full” the flexibilities
in the TRIPS Agreement. They also need to formulate and implement national poli­
cies aimed at providing access to medicines for all. In doing so, they would be
operationalizing, at national level, the aims of the Doha Declaration. If such laws
and policies are not introduced, the gains made at international level through the
Declaration will not translate into actual benefits for patients.
In other words, whilst in recent years the goal of access to medicines has been
significantly pursued at the international level, action is now equally or even more
important at the national level, where policy makers should focus on policy and
practical measures to get medicines to poor patients.

2

2

National Public Health Measures
that are TRIPS-Consistent

GOVERNMENTS can take a range of policy measures to facilitate access to af­
fordable medicines, including the following:

Importing the Drug
A country can import a generic version of a patented drug by issuing a compulsory
licence to a company or agency to import the drug, and the government has the
freedom to determine the grounds upon which such licences are given. The im­
ported drug can be from a country in which the drug is not patented, or in which the
drug is patented (in which case the exporting country also has to issue a compul­
sory licence). The applicant has to firstly negotiate to obtain a voluntary licence
from the patent holder (except in cases of public non-commercial use, situations of
extreme urgency and national emergency) and if that fails, then a compulsory li­
cence can be granted. Adequate compensation has to be paid to the patent holder.
A generic version of the patented drug can also be imported for “public non-commercial use” by the government. Under this “government use” procedure, the prior
consent of or negotiations with the patent holder are not required, but adequate
compensation has to be paid. This method is suitable if the imported drug is to be
used by the government.

There can also be “parallel importation”, i.e., the import and resale in a country,
without the consent of the patent holder, of a patented product that has been legiti­
mately put on the market of the exporting country under a parallel patent. It is a
very important tool enabling access to affordable medicines because there are still
substantia] price differences for pharmaceutical products in different markets. Par­
allel importation is allowed under Article 6 of the TRIPS Agreement (on “exhaus­
tion” of intellectual property (IP) rights), and the Doha Declaration affirms this by
stating that each WTO member is “free to establish its own regime for such exhaus­
tion without challenge”. There is no need for an importer to obtain a compulsory
licence or to pay compensation to the patent holder.

Local Manufacture
If a drug is patented in a country, generic versions of the drug can be locally manu­
factured by a local company or agency that has been granted a compulsory li­
cence. The applicant has to have negotiated with the patent holder for a voluntary
licence and failed to obtain such a licence, before applying for a compulsory li­
cence. This requirement does not apply, however, if the compulsory licence is is­
sued on grounds of public non-commercial use, for national emergency or situa­
tions of extreme urgency, or to remedy anti-competitive practices. Compensation
has to be paid.
The government can also assign to a public or private agency the right to locally
manufacture a patented product without the patent holder’s permission, provided it
is used for a public non-commercial purpose. Compensation has to be paid.

Export, Including to Countries with Inadequate Manufacturing Capacity
A local producer of generic versions of patented products under a compulsory li­
cence or govemment-use provision may export a portion of its output. However,
Article 31(f) of the TRIPS Agreement requires that this production be “predomi­
nantly for the supply of the domestic market” and thus there is a limit to the amount
that can be exported. This restriction does not apply when the compulsory licence
is granted to correct anti-competitive practices.
The restriction on export quantity has posed a problem for developing countries
with insufficient or no drug manufacturing capacities, as they may find it difficult
to import the required medicines since there is a limit to the amount the potential
exporting countries can supply to them.
The Doha Declaration recognized this problem could also affect access to medi­
cines, and mandated the WTO to find an “expeditious solution”. After lengthy ne­
gotiations, the WTO's governing General Council in August 2003 adopted a deci­
sion on a “temporary solution” in the form of an interim waiver to the Article 31(f)
restriction, such that countries producing generic versions of patented products un­
der compulsory licence would be allowed to export the products to eligible import­
ing countries without having to limit the exported amount.

However, the decision also obliges importing and exporting countries that wish to
make use of the waiver to undertake several measures and fulfil several conditions.
It has been pointed out by some experts and non-governmental organizations (NGOs)
that these measures and conditions are difficult for the relevant companies and
governments to comply with.
4

There are additional requirements under a “Chairperson’s Statement” linked to the
decision, such as that the system should be used in good faith and not pursue a
commercial policy objective, and members concerned about how the decision is
implemented can bring matters for review in the WTO’s TRIPS Council.
As the waiver and the conditions for its use are only an “interim solution”, the
WTO has mandated a “permanent solution” to this problem. In December 2005.
the WTO General Council adopted a set of amendments to the TRIPS Agreement
that was basically a reiteration of the August 2003 “interim solution”. This amend­
ment will come into force only when it has been ratified by a sufficient number of
countries. As of January 2007, this number has not yet been reached. Thus the
“interim solution” of August 2003 is still in force.

Conclusion
Patents can and often do affect the access of patients (especially the poor) to medi­
cines, and the TRIPS Agreement also does affect the space available to developing­
country members of the WTO to formulate the drug patent policies of their choice.

However, despite these problems, developing countries can and should take full
advantage of the measures that are permitted by the TRIPS Agreement in pursuit of
the goal of promoting access to medicines for all.

In order to exercise their right to “use to the full” these flexibilities in the TRIPS
Agreement (in the words of the Doha Declaration), developing countries can study
the policy options available to them, and introduce the appropriate laws and con­
crete measures. In the longer term, revisions to the TRIPS Agreement may also be
desirable, in order that the existing flexibilities be expanded to meet the needs of
patients and consumers. As millions of lives are at stake, both the shorter- and
longer-term tasks are urgent.

5

3

Use of TRIPS Flexibilities: Recent
Experiences

IMPLEMENTATION of the flexibilities in the TRIPS Agreement is vital if a coun­
try is to achieve the objectives and abide by the principles outlined in the Agree­
ment. Article 7 of the Agreement unequivocally expresses the “objective” of pro­
tection and enforcement of intellectual property rights as contributing “to the pro­
motion of technological innovation and to the transfer and dissemination of tech­
nology, to the mutual advantage of producers and users of technological knowl­
edge and in a manner conducive to social and economic welfare, and to a balance of
rights and obligations”.
Article 8 (on “principles”) recognizes that IP right holders can abuse the rights
granted to them and/or resort to practices which unreasonably restrain trade or ad­
versely affect the international transfer of technology, wherein governments may
need to take “appropriate measures” consistent with the TRIPS Agreement to pre­
vent this from happening. It also recognizes that governments may “adopt mea­
sures necessary to protect public health and nutrition, and to promote the public
interest in sectors of vital importance to their socio-economic and technological
development, provided that such measures are consistent with” the TRIPS Agree­
ment.
For many years, even before the TRIPS Agreement came into force, several devel­
oped countries have on many occasions made use of compulsory licences.
In comparison, few developing countries have implemented TRIPS flexibilities.
This is due to a variety of reasons, e.g., lack of awareness or understanding about
the available flexibilities, lack of legal expertise on IP-related issues (in particular
with a pro-development perspective) in government departments, inappropriate or
inadequate laws on TRIPS flexibilities and, finally, pressure from developed-coun­
try governments and industry, in particular the multinational pharmaceutical indus­
try, to not use these flexibilities.

An example of such pressure was seen in 2001 when 39 pharmaceutical companies
brought an action against the South African government for amendments it wished
to make to its law (Medicines and Related Substances Control Amendment Act No.
90 of 1997) to incorporate provisions on compulsory licensing and parallel impor­
tation to increase access to affordable medicines. Later the industry capitulated by
withdrawing the suit after it faced severe criticisms nationally and globally.
It was criticism of the effects of patents on prices which led to the adoption of the
Doha Declaration in 2001. As stated above, the Declaration recognized “that the
TRIPS Agreement does not and should not prevent Members from taking measures
to protect public health” and affirmed that “the Agreement can and should be inter­
preted and implemented in a manner supportive of WTO Members’ right to protect
public health and, in particular, to promote access to medicines for all”.

Very importantly the Declaration reaffirmed “the right of WTO Members to use, to
the full, the provisions in the TRIPS Agreement, which provide flexibility for this
purpose”.
Since the adoption of the Doha Declaration, many more developing countries have
exercised their rights and made use of the available flexibilities to access afford­
able medicines, despite the continuing pressure.

Below are examples of the use of TRIPS flexibilities by developing countries.

Malaysia
In 2003, Malaysia became the first country in Asia following the adoption of the
Doha Declaration to issue a government-use licence. The health authorities initi­
ated the measure after considering various options (i.e., between compulsory' li­
censing and government-use order) and after consultations with other government
departments.
The government-use authorization was for the import of generic versions of pat­
ented antiretrovirals or ARVs (to treat AIDS) from the Indian company Cipla for
use in government hospitals and clinics.
The patented ARVs were didanosine (ddl) 100 mg tablet (patent holder: BristolMyers Squibb); didanosine 25 mg tablet (patent holder: Bristol-Myers Squibb);
zidovudine (AZT) 100 mg capsule (patent holder: GlaxoSmithKline); lamivudine
150 mg + zidovudine 300 mg tablet (Combivir; patent holder: GlaxoSmithKline).

7

Table 1
Malaysia: Cost of treatment per patient per month

Treatment

2001 price for
patented ARV
(US$)

2004 price for
patented ARV
(US$)

2004 price
Percentage
for generic ARV of cost
reduction
(US$)

Stavudine +
didanosine +
nevirapine

261.44

197.10

45.32

83%

Combination of
zidovudine and
lamivudine +
efavirenz

362.63

136.34

115.14

68%

Source: Ministry of Health. Malaysia.

The authorization, which was for a period of two years beginning 1 November
2003, was obtained from the Ministry of Domestic Trade and Consumer Affairs
(DTCA) for the import of AZT, ddl and Combivir.
The government-use authorization was initiated by the Ministry of Health (MOH)
and the licence was issued by the DTCA. In November 2002, the MOH had pre­
sented a paper to the Malaysian Cabinet with a recommendation to import generic
ARV drugs, under a section in the Patents Act that allowed the Minister to exploit a
patented invention where it is required by the public interest. The Cabinet approved
the import on the basis of this provision.

As a result of the govemment-use licence, the average cost of MOH treatment per
patient per month dropped significantly from 2001 (before the govemment-use mea­
sure) to 2004, as can be seen from Table 1.
For one combination of drugs (stavudine, didanosine and nevirapine), the cost of
treatment per patient per month fell from US$261 (for the patented ARV) to US$45
(for the generic ARV), an 83% decline. For another combi nation of drugs (zidovudine
and lamivudine and efavirenz), the cost fell from US$363 to US$115, or a decline
of 68%,

Also as a result of the exercise of the right of government use, the patent holders
dropped their own prices, leading to considerable reduction in the cost of treat­
ment, as seen in Table 1.
8

The much lower cost encouraged the MOH to consider free treatment for more
people who needed treatment. Previously, free treatment had only been provided to
a few selected categories of patients. In addition, the number of patients that could
be treated in government hospitals and clinics increased from 1,500 to 4,000, ac­
cording to the MOH.

In June 2004, the MOH began prescribing the imported generic medicines, which
were distributed through government hospitals.

Health Minister Dr Chua Soi Lek announced on 6 June 2004 that the monthly cost
of treating a patient would be reduced from RM 1,200 to RM200-220, after the
drugs were imported from India. “With the cheaper cost, we can treat at least 4,000
HIV patients compared to the present 1,500,” he said. {The Star, 7 June 2004).
According to news reports, there are 59,000 people in Malaysia infected with HIV,
only 6,000 have gone for follow-up treatment in government hospitals, and up to a
few years ago only 1,500 of the estimated 4,000 HIV-positive people on the verge
of developing full-blown AIDS were receiving treatment {Sunday Star, 4 July 2004).
The MOH proposed to the patent holders a remuneration level of 4% of the value of
stocks actually delivered. As of February 2006, it was reported that the patent
holders had not shown interest in claiming the offered compensation.

Indonesia
Indonesia became the second Asian country in the post-Doha Declaration period to
issue a government-use authorization. On 5 October 2004 a Presidential Decree
was issued in accordance with Article 5 of the Indonesian Government Regulation
No. 27 of 2004 regarding the Mechanism of Patent Exploitation by the Govern­
ment. This was in light of “the urgent need of the community in the effort to control
the HIV/AIDS epidemic”.
The Presidential Decree No. 83 of 2004 Regarding Exploitation of Patent by the
Government on Antiretroviral Drugs empowered the Minister of Health to appoint
a “pharmaceutical factory” as the patent exploiter on behalf of the government,
taking into account the recommendations from the head of the National Drug and
Food Authority. The two ARVs in question are nevirapine (for seven years) and
lamivudine (for eight years) and the exploitation period covers die remaining patent
protection term.

9

The decree also set the “compensation fee” at 0.5% of the net selling value of the
ARVs concerned to the patent holder. According to an interview with a staff mem­
ber at the Indonesian Patent Directorate, the patent holder has not provided any
comments on the release of the Presidential Decree.

Production of the ARVs has resulted in cheaper ARVs for use in government hospi­
tals, as seen in Table 2.

Patients who need the ARVs can now get free or partly subsidized medicines from
the hospital. The price per package per month for the first-line fixed dose combina­
tion (lamivudine, zidovudine and nevirapine) produced by Kimia Farma, the au­
thorized generic manufacturer, is USS38. The government provides a subsidy of
US$20 per month, so patients pay only US$18 per month per package.
In comparison, the price of lamivudine produced by GlaxoSmithKline is about
US$290 per 60 tablets and of nevirapine produced by Boehringer Ingelheim is
US$96 per 60 tablets. Table 2 provides a summary of the relevant ARV prices
compared with prices of patented equivalents in 2000 as a baseline.

Table 2
Indonesia: Prices of patented ARVs compared with prices of the generic ver­
sion
ARVs

Price of patented Price of patented Price of generic ARV
ARV before 2000 ARV after 2000 after government-use
(per 60 tablets) authorization
(per 60 tablets)
(per 60 tablets)
(USS)
(USS)
(USS)

Lamivudine +
zidovudine + nevirapine

800-1.000

600

18-65*

Lamivudine (3TC)

NA

290-330**

28

Nevirapine (Viramune)

NA

96

28

Lamivudine and
zidovudine (Combivir)

NA

400

48.60

Source: Lutfiyah and Hira (2006). Data obtained through interview with PT Kimia Farma, the Indo­
nesian generic manufacturer.
Note: The brands of the patented ARVs are in brackets.
* The range of subsidized and full-cost prices that patients have to pay.
** The price range in different pharmacies. Indonesia does not have price control on medicines and
therefore pharmacies and hospitals charge different prices.
10

According to the Working Group on HIV/AIDS of the Faculty of Medicine, Uni­
versity of Indonesia (Pokdisus), the price of patented ARVs has not decreased
substantially even though the generic drugs are in the market. Almost all the PLWHA
(people living with HIV/AIDS) treated under the Pokdisus programme have turned
to generic drugs. Pokdisus currently provides to about 2,000 persons free generic
ARVs sourced from the domestic production under the govemment-use decree.

Thailand
On 29 November 2006 Thailand’s Ministry of Public Health announced a five-year
govemment-use authorization for the domestic manufacture of efavirenz. This drug
is recommended by the World Health Organization for HIV/AIDS treatment and is
commonly used and considered by doctors as one of the best components for firstline therapy because it results in fewer side-effects and is more suitable for those
co-infected with other diseases such as tuberculosis or liver infections. Although
the drug has been in the market for many years, it still remains very expensive.

Originally developed by DuPont Pharma, the medicine is now marketed by BristolMyers Squibb. However, Merck, another pharmaceutical giant, has marketing li­
cence rights in a number of countries including Thailand and China.
The govemment-use authorization was issued by virtue of Section 51 of Thailand’s
Patent Act B.E. 2522 (as amended by the Thai Patent Act no.2 B.E. 2535 and no.3
B.E. 2542), which states that any ministry, bureau or department of the government
may, by themselves or through others, exercise the compulsory-licensing right “in
order to carry out any service for public consumption or which is of vital impor­
tance to the defence of the country or for the preservation or realization of natural
resources or the environment or to prevent or relieve a severe shortage of food,
drugs or other consumption items or for any other public service”.
The authorization grants the Government Pharmaceutical Organization (GPO) of
Thailand, a government-linked pharmaceutical manufacturer, the authority to exer­
cise the rights under the Act.

A royalty fee of 0.5% of the GPO’s total sale value of the imported or locally
produced efavirenz will be paid to the patent holder.
The authorization took effect immediately following the announcement and the
GPO is expected to start mass production of a generic version of the drug by mid2007. In the meantime, imports of generic efavirenz from India under the same
authorization will start.

11

This importation of the generic version from India is expected to reduce the cost of
the drug for treatment to US$22 per month from US$41 per month (the price of the
patented product). The cost of the locally produced drug is also expected to reduce
the price to about half that of Merck’s product.

Minister of Public Health Dr Mongkol na Songkhla told a national daily newspaper
The Nation that there were about 500.000 HIV-infected people who needed to use
antiretroviral treatments, yet only about 100,000 had access to the drugs because of
the high prices as well as insufficient budgets. “Of course, the company [patent
holder/licensee] will do something to oppose this but we're doing everything ac­
cording to not only the country’s law. but also international law,” said Mongkol in
the news report.

The Thai Network of People Living with HIV/AIDS (TNP+) and other HIV/AIDS
activists hailed the Thai government’s decision. They have been at the forefront of
efforts to advocate for the government to use the flexibilities in the TRIPS Agree­
ment.
In issuing a licence to temporarily override the patent barrier to enable the GPO to
first import, and then locally manufacture, generic efavirenz, Thailand has further
strengthened its policy to ensure access to affordable HIV/AIDS medicines. This
move will allow more patients to switch from the current triple therapy (which
could result in serious side-effects) to efavirenz. Eventually, if the cost of efavirenz
were to drop further, the Thai government hopes to replace the triple-therapy for­
mulation with an efavirenz-based one for all patients, according to Dr Suwit
Wibulpolprasert. Senior Adviser on Health Economics to the Thai Ministry of Pub­
lic Health, in a recent interview with the international medical humanitarian aid
organization Medecins Sans Frontieres (MSF).

Since Thailand’s decision was announced, there have been commercial pressures
on the government. There has also, however, been widespread support from inter­
national health networks and organizations, including MSF and the Consumer Project
on Technology, which have written separately to the US government calling on it
not to put pressure on the Thai government. About 22 members of the US House of
Representatives have also sent a letter to US Trade Representative Susan Schwab
asking the USTR not to interfere in Thailand’s decision to issue the government­
use licence on efavirenz.

According to an AFP news report, the Thai Public Health Ministry announced on
29 January 2007 that it had issued compulsory licences for supplying generic ver­
sions of two other patented drugs, Plavix (for treating heart ailments) and Kaletra
(an anti-AIDS drug). According to the report, the cost of Plavix is expected to drop
12

from 120 baht per pill to 6-12 baht per pill. The cost of treatment with Kaletra is
expected to drop from 11,580 baht per month to 4,000 baht per month.

According to MSF, the Thai government has been trying to balance drug patents
with lowering high prices of drugs. This could be a standard followed by other
developing countries facing the same problems. The compulsory licensing or gov­
ernment use which complies with both Thai and international law will help the
government cut the cost of AIDS drugs by as much as 90%, said an MSF spokes­
person.

Zimbabwe
In 2002, in view of the HIV/AIDS pandemic affecting Zimbabwe, a notice of “Dec­
laration of Period of Emergency (HIV/AIDS)” was issued by the Minister of Jus­
tice, Legal and Parliamentary Affairs for a period of six months.
The notice was intended to allow the state or a person authorized by the Minister to:
(a) make or use any patented drug including any antiretroviral drug; and (b) import
any generic drug used in the treatment of persons suffering from HIV/AIDS or
HIV/AIDS-related conditions.

The period of emergency was extended to 31 December 2008 in a Statutory Instru­
ment 32 of 2003. During this period the state or any person authorized by the Min­
ister of Justice would be able to manufacture or use patented medicines or import
any generic medicines used in the treatment of persons suffering from HIV/AIDS
or HIV/AIDS-related conditions.
Varichem Pharmaceuticals (Private) Limited, a Zimbabwean generic company, ap­
plied under Section 34 of the Patents Act for the authority to make, use or exercise
any invention disclosed in any specification lodged at the Patent Office for the
service of the state.

Following the application, the Minister of Justice, Legal and Parliamentary Affairs
in April 2003 granted Varichem the authority to “produce ARVs or HIV/AIDS re­
lated drugs and supply three quarters of its produced drugs to State-owned health
institutions”. The licence that was issued also states that the prices of the drags
shall be fixed subject to price control mechanisms that are to be determined by the
Minister.
According to a Varichem representative, the company produced its first ARV in
October 2003 and it has seven generic versions of ARV medicines on the market
(i.e., Combivir, Nevirapine (200mg tablets), Stalanev-40 (fixed dose combination
13

comprising Stavudine 40mg, Lamivudine 150mg and Nevirapine 200mg), Stalanev30 (Stavudine 30mg, Lamivudine 150mg and Nevirapine 200mg), Stavudine (30mg
capsules), Stavudine (40mg capsules) and Lamivudine (150mg tablets)).

Ghana
In October 2005, the government of Ghana issued a government-use order to im­
port (from selected generic pharmaceutical companies in India) generic versions of
selected ARVs that are patented in Ghana. The HIV/AIDS drugs will be used to
treat people without commercial purpose and will be for government use, accord­
ing to the Ministry of Health. According to an official source, the cost of the ARVs
dropped more than 50% from US$495 to US$235 for one year’s treatment.

14

4

Implications of Bilateral FTAs on
Implementation of TRIPS
Flexibilities Regarding Public
Health

Increasing Awareness of IPR Problems in Multilateral Context
THE introduction of intellectual property rights (IPRs) as an issue subject to bind­
ing rules within a trade agreement was very controversial, and remains so, after the
TRIPS Agreement was incorporated within the WTO. Since then, many econo­
mists, ranging from Joseph Stiglitz to Jagdish Bhagwati, have decried the inclusion
of IPRs and TRIPS in the WTO. There is a growing realization that high IPR
standards, as contained in the TRIPS Agreement, are inappropriate to the develop­
ment needs of developing countries. In particular, the former head of the World
Bank’s trade research department, Michael Finger, estimated that the cost to devel­
oping countries of implementing their TRIPS Agreement obligations amounts to
US$60 billion annually, and that this more than offsets the gains they may expect to
obtain from expanded market access in the agriculture and textiles sectors under
other WTO agreements.
There is now a movement by developing countries to clarify some aspects of the
TRIPS Agreement or to amend them, in order to reduce the more developmentally
negative aspects. For instance, the Doha Declaration has clarified that developing
countries can make use of flexibilities such as compulsory licences to offset the
monopoly privileges of patent holders.

(Developing countries are also trying to have the TRIPS Agreement amended to
deal with the problem of “biopiracy”, by requiring that patent applications involv­
ing biological resources be accompanied by disclosure of the countries of origin of
the resources and evidence of benefit-sharing arrangements with these countries.)
As negotiators in the WTO have become more aware of the development dimen­
sions of IPRs, the developed countries have tried to introduce even higher IPR
standards globally through another forum, the World Intellectual Property Organi­
zation (WIPO). However, many developing countries have now started a move­

ment to establish a “development agenda" within WIPO. They have also resisted
attempts at harmonizing patent and copyright laws at even higher standards.

Dangers of Bilateral FTAs in Eroding TRIPS Flexibilities
Thus, there is now an attempt by some of the developed countries to use the forum
of free trade agreements (FTAs) to: (a) remove or reduce the flexibilities in the
TRIPS Agreement; and (b) establish even higher IPR standards in developing coun­
tries. IP is thus a major item covered in bilateral FTAs, and countries like the US
and Japan are keen to further their interests in this area beyond what is in the TRIPS
Agreement. The FTAs threaten the use of TRIPS flexibilities in relation to patents
and access to medicines, as well as other aspects of IP. including biodiversity.

On IP and public health, the FTAs will have serious implications. Implementation
of the right to use TRIPS flexibilities like compulsory licensing and government­
use orders can be eroded or even erased through provisions in an FTA. Thus it
would also affect the developing-country FTA signatory’s ability to implement the
Doha Declaration which spelt out the flexibilities available for policy measures to
promote access to affordable medicines.

Bilateral FTAs signed by the US with several countries or groupings are limiting
the flexibilities or measures that are permitted in the WTO through the TRIPS Agree­
ment. The result is that the developing-country partner in the FTA would now find
it more difficult or impossible to undertake measures such as compulsory licensing
or government use to provide cheaper generic drugs to patients. Examples (in the
Medecins Sans Frontieres paper, “Access to Medicines at Risk Across the Globe”)
include:
(a)

Data exclusivity. The WTO does not require “data exclusivity”, i.e., that data
submitted by a patent holder to drug regulatory authorities (to obtain market­
ing approval for safety) cannot be made use of as part of the drug regulatory
approval process undertaken by other applicants. Thus, a generic producer
(which is given permission, for example under a compulsory licence, to sell
or produce a generic version of a patented drug) can make use of that data
when it seeks safety approval from the drug regulatory authority. However,
in bilateral FTAs the US seeks to establish or expand “exclusive rights” over
test data provided by the originator companies to prevent generic companies
from registering an equivalent generic version of the drug, thus preventing or
making it difficult for a compulsory licence to take effect, and effectively
curbing the supply of generic drugs. This limitation is contained in the USSingapore FTA.

16

(b)

Extending the patent life span. Patents on drugs last 20 years from the date
of filing in most countries; this is also the WTO requirement. However, the
US is seeking to “compensate” drug companies for any “unreasonable” time
a national drug authority or patent office takes to examine or approve an ap­
plication. The life of the patent would be extended by the “unreasonable
time” taken. This extension measure is in the US FTA with Central American
countries (CAFTA).

(c)

“Evergreening” the patent. Drug companies try to renew patents after they
expire by applying for new patents for “new uses” of the same product. Un­
der the WTO rules, members are not obliged to grant patents on new uses of
existing substances. The US wants provisions in FTAs to allow companies to
apply for new patents for each “new use” of a product, thus allowing the
patent protection to continue beyond the expiry date of the original patent.
This provision is in the US-Morocco FTA.

(d)

Limiting the grounds for compulsory licensing. The TRIPS Agreement
allows countries to issue compulsory licences and does not restrict conditions
for their use. The Doha Declaration confirms that countries have “the free­
dom to determine the grounds upon which such licences are granted”. How­
ever, the US seeks limitations on the circumstances under which compulsory
licences on drugs are issued. For example, the US-Singapore FTA allows
compulsory licences only for remedying anti-competitive practices by the
patent holder; for public non-commercial use; and in the case of national
emergency or circumstances of extreme urgency.

Thai Human Rights Commission Report
In January 2007 the National Human Rights Commission of Thailand issued a draft
report on a human rights assessment of the FTA that Thailand has been negotiating
with the US.

It concluded that such an agreement would violate the human rights of Thai people
and affect the country’s sovereignty, and thus that the negotiations should not re­
sume until a thorough review of its impact is undertaken. [For a detailed article on
the report, see Smith (2007).]
The Commission based its findings on a human rights assessment of the intellec­
tual property chapter proposed by the US as well as on other chapters of the FTA
based on the texts of other bilateral deals signed by the US.

17

The Commission found that “an FTA is like a tsunami that crashes to the shore
without warning when one is not prepared to deal with it".

In its investigation of the IP chapter, the Commission focused on the impact on
public health and farmers’ rights. The Commission charted the history of US pres­
sure on Thailand to increase its IP protection and the protests against such a move
by academics, public health officials and NGOs.
The report also explains demands made by the US that go beyond the requirements
under the TRIPS Agreement. These “TRIPS-plus” provisions include: the patent­
ing of plants, animals and methods of treatment; patent term extensions beyond the
20 years required by the TRIPS Agreement; data exclusivity; linkage of patent
status and medicine registration; prohibition on patent pre-grant opposition; and
limitations on the use of compulsory licences. These last two (i.e., pre-grant oppo­
sition and compulsory licensing) have been recently successfully used in Thailand
to ensure access to medicines used to treat AIDS.
The Commission highlighted research that showed that in Thailand the price of
branded/originator medicines can be 10 times higher than that of the generic ver­
sion. It concluded: “The impact [of] the market monopoly will be that the costs of
drugs will be too expensive or beyond the purchasing power of people.
“On top of this, the estimated increase of expenses over 100,000 million Baht,
more than the annual budget for public health, will definitely undermine any ear­
nest attempt to manage the health system in Thailand, particularly the health insur­
ance scheme ... In the final analysis, the people in Thailand will be denied access to
drugs, causing endless public health and social problems...”

“Doing so would amount to undermining the universal health care system and popular
health insurance scheme and destroying the chances for Thailand to develop its
own potentials in this pharmaceutical field and to be self-reliant in manufacturing
and distribution of quality pharmaceutical products at reasonable price.”
Among the Commission’s many recommendations in the report are that:
•

All sectors of society should be involved in the negotiating process for the
FTA and the matter must go through Parliament.
Thailand should delay the negotiations for the time being to be able to care­
fully scrutinize important issues. FTA negotiations with every country should
be suspended for a one-year period during the administration of the current

18

temporary government, because the negotiations and the signing of FTAs will
be legally binding on Thailand in the long term.
On matters relating to medicines and public health services, the government
must adhere to the principles of the rights of patients and consumers, and selfreliance in terms of drugs and public health. If the US demands impact on
health conditions and access to drugs and public health services, they must be
rejected without being compared to benefits offered by the US.
As every person has fundamental rights to good health, the issue of IPR pro­
tection relating to drugs and public health services should not be considered
in the bilateral trade negotiations. This can be compared with the US not agree­
ing to include its agricultural subsidies on the agenda.

19

Appendix: Some Recent Cases of Compulsory Licensing
for AIDS Drugs
Country

Type of Compulsory
Licence (CL)

Reason

“Adequate
Remuneration”

Malaysia

CL to local company
to import for use in
public hospitals

Government use

Offer 4% to patent
holder

Mozambique

CL to Pharco
Mocambique Lda for
local manufacture

Condition of
national emergency
and extreme urgency

Not to exceed 2% of
sales

Zambia

CL to Pharco Ltd for
local manufacture

Condition of national
emergency and
extreme urgency

Not to exceed 2.5% of
the total turnover of
the products

Indonesia

Licence for Ministry
of Health to appoint a
pharmaceutical factory
as patent exploiter

Government use

Compensation fee of
0.5% of the net selling
value of the ARVs to
the patent holder

Zimbabwe

CL to Varichem to
exploit patent

Emergency

Thailand

CL to Government
Pharmaceutical
Organization to
manufacture efavirenz

Government use

Ghana

CL to import generic
ARVs

Government use

20

0.5% of the sale price
of the generics to
patent holder

Bibliography

Chee Yoke Ling (2006a). “Thailand uses compulsory licence for cheaper AIDS
drug”. Third World Resurgence, No, 196, December.

Chee Yoke Ling (2006b). “Malaysia: ‘Government use’ route to importing generic
medicines”, Third World Resurgence, No. 196. December.

Khor, Martin (2004). “Patents and Access to Medicines: What Can be Done at
National Level”, Third World Network Briefing Paper 23.
Khor. Martin (2007). “Bilateral FTAs: Overview of Elements, Nature and Implica­
tions for Developing Countries”.

Lutfiyah Hanim and Hira Jhamtani (2006). “Indonesia: Manufacturing generic AIDS
medicines under the ‘government use’ approach”. Third World Resurgence, No.
196, December.
Medecins Sans Frontieres (2004). “Access to Medicines at Risk Across the Globe”.

Musungu, Sisule and Cecilia Oh (2006). The Use of Flexibilities in TRIPS by De­
veloping Countries, Geneva: South Centre and World Health Organization.
Sangeeta Shashikant (2007). “Implementing TRIPS Flexibilities”.

Smith, Sanya (2007). “Thai Human Rights Commission attacks FTA with US",
South-North Development Monitor (SUNS), No. 6176, 25 January.

21

PATENTS, COMPULSORY LICENCES AND ACCESS TO
MEDICINES: SOME RECENT EXPERIENCES
High prices of patent-protected medicines have become a major public health concern
in developing countries, especially since the coming into force of the World Trade
Organization (WTO)’s TRIPS Agreement, which sets stringent patent norms for WTO
member states. Nevertheless, despite providing for the patenting of medicines, the TRIPS
Agreement does allow certain exceptions and flexibilities which are in line with the
public interest.

This paper examines the TRIPS-permitted flexibilities - compulsory licensing,
government use and parallel importation - which developing countries can make use of
to override drug patents and make available more affordable medicines.
Recent examples (from Malaysia, Indonesia, Thailand, Zimbabwe and Ghana) are
provided of individual developing countries' use of compulsory licences or government­
use orders or other flexibilities to produce and import cheaper generic versions of patented
drugs.

The author also cautions, however, that a new wave of bilateral “free trade agreements”
(FTAs) between developed and developing countries effectively erode these flexibilities
by imposing even stricter patent standards than those in the TRIPS Agreement. If left
unchecked, the trend towards such “TRIPS-plus” FTAs threatens to undermine access
to essential medicines by poor patients throughout the developing world.
MARTIN KHOR is the Director of the Third World Network. An economist trained in

Cambridge University, he is the author of several books and articles on trade,
development and environment issues.

TWN INTELLECTUAL PROPERTY RIGHTS SERIES

is a series of papers published by the Third World Network to provide a
critical analysis of intellectual property rights protection from a Third
World perspective. A particular focus is given to the WTO Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and
its implications for developing countries.
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