Quite close on the heel of grant of Compulsory License (CL) to Bayer AG’s expensive Kidney and Liver cancer drug Sorafenib to the domestic Indian manufacturer Natco by the Indian Patent Office, as provided in the Indian Patent Law, China amended its own Patent Law allowing Chinese pharmaceutical manufacturers to make cheaper generic equivalent of patented medicines in the country not only during ‘state emergencies’, but also in ‘unusual circumstances’ or ‘in the interests of the public’.
As reported earlier, Natco Pharma promised to sell its generic version of Sorafenib in India for US$ 176 for a month’s treatment as compared to Bayer’s US$ 5,600, for the same time period.
Let me now very briefly touch upon some WTO related and other facts on CL, in general.
Compulsory Licensing (CL) – A perspective:
World Trade Organization (WTO) defines CL as follows:
“Compulsory licensing is when a government allows someone else to produce the patented product or process without the consent of the patent owner. It is one of the flexibilities on patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement”.
These flexibilities for CL are not new and exist in the TRIPS Agreement since its inception in January 1995.
However, November 2001 Doha Ministerial Declaration on ‘TRIPS and Public Health’ included two new provisions of CL, one for the Least-Developed Countries (LDC) and the other for countries that do not have production capacity.
The key purpose of CL:
CL is generally considered as an excellent provision in the Patent Law of a country to protect public health interest by the respective governments and also the intelligentsia of the civil society. The key purpose of CL is to:
- Rectify any type of market failure
- Discourage abuse of a patent in any form by the patent holder
Can CL be granted only in an Emergency situation?
This is a common misunderstanding and the WTO clarifies the situation as follows:
“The TRIPS Agreement does not specifically list the reasons that might be used to justify compulsory licensing. However, the Doha Declaration on TRIPS and Public Health confirms that countries are free to determine the grounds for granting compulsory licenses”.
Keeping all these in view, now let me go back to the China CL story.
China was preparing for it since 2008-09:
Aljazeera in its June 9, 2012 edition reported that China was toying with this idea since 2008-2009.
In fact, during this time, the State Intellectual Property Office (SIPO) of China had invited experts from other countries to train their officials on how to create robust legal grounds for the grant of CL in the country.
Chinese Patent Law amendment for CL has already been made effective:
The State Intellectual Property Office (SIPO) has reported that a revised version of ‘Measures for the Compulsory Licensing for Patent Implementation’ has already been made operational in China effective May 1, 2012.
Interestingly, for “reasons of public health”, such medicines can also be exported under ‘Compulsory License’ to other countries, including those members of the World Trade Organization, where life-saving treatments are unaffordable.
In tandem, China, reportedly, is in the process of further strengthening its legal framework for local manufacturing of generic equivalents of patented drugs in the country.
Some other countries have already issued CL:
In the emerging markets, India, Brazil, Indonesia, Malaysia and Thailand have already granted CLs in their respective countries. It is worth noting that USA and the member countries of the European Union (EU) have also issued CL in more than one occasion.
China also encourages domestic innovation being world’s top patent filer in 2011:
All these happened, when ‘Thomson Reuters’ research report highlighted that ‘China became the world’s top patent filer in 2011, surpassing the United States and Japan as it steps up local innovation to improve its intellectual property rights track record.’
Thus China’s intention in maintaining a right balance between encouraging domestic innovation and protecting public health interest is indeed very clear.
A key Chinese concern:
Reuters also reported that the Chinese government is now concerned with the increasing trend of HIV- AIDS in the country and wants to have ‘Viread (Tenofovir)’ of Gilead Sciences, which according to Reuters, is recommended by WHO as part of a first-line cocktail treatment for this disease condition.
Quoting ‘Medecins Sans Frontieres’, Reuters reported that as a result of recent expansion of CL provisions in the Chinese Patent Law, the country compels Gilead Sciences to extend significant concessions on the supply of Viread, which includes a generous donation package for the drug, provided the Chinese government continues to buy the same quantity of the medicine from them.
Many would interpret this development as a clever use of CL by the Chinese government to compel Gilead to extend a better deal for Viread for the country.
Will China use the CL provisions for hard price negotiation for patented drugs?
Like Brazil whether China will also use CL as a potent tool to drive down patented drug prices through hard negotiation or actually make the innovator companies to extend voluntary licenses to Chinese manufactures to produce and sell equivalent generics in the country is something which needs to be very closely watched in due course of time.
Increased patent protection and its impact on drug prices in low-income countries:
On this raging debate, in a July 2011 paper titled, “China and India as Suppliers of Affordable Medicines to Developing Countries”, published by National Bureau of Economic research, USA, the authors articulated as follows:
“As countries reform their patent laws to be in compliance with the Trade Related Intellectual Property Rights Agreement, an important question is how increased patent protection will affect drug prices in low-income countries. Using pharmaceutical trade data from 1996 to 2005, we examine the role of China and India as suppliers of medicines to other middle- and low-income countries and evaluate the competitive effect of medicine imports from these countries on the price of medicines from high- income countries. We find that imports of antibiotics and unspecified medicament from India and China significantly depress the average price of these commodities imported from high-income trading partners, suggesting that India and China are not only important sources of inexpensive medicines but also have an indirect effect by lowering prices through competition. As India is the leading supplier of medicines in Sub-Saharan Africa, this region will likely be affected most adversely”.
Thus, this is also an area worth keeping tab in the years ahead, both in India and China.
A subtle difference:
The difference between the Indian and Chinese move on CL, I reckon, is that the Indian Patent Office limited the CL of Sorafenib for domestic use only and not for export in any way to any other country.
However, it is interesting to note that Chinese amendment of the CL provisions will now enable the CL holders in China to apply for permissions for export of the same drug in other countries, as well. This could probably point to the direction of future ambitions of China to pave the way for rapid growth of their generic drug industry by invoking CL measures not only for use within the country, but way beyond the shores of China.
It is worth noting that despite clear provisions of CL in TRIPS and especially even after Doha Declaration, the world had not seen many CL being granted by any country, as yet.
In this context, ‘Business Insider’ in its June 11, 2012 edition stated as follows:
“We haven’t seen a deluge of compulsory licenses over the years, and the drug companies (along with the U.S. government) have done what they can to slow down or halt this process. In China, every time a government official opens his mouth and even talks about compulsory licensing, the lobbyists are sent in, the Op/Ed columns are written, and things quiet down for another couple years.”
However, now with such broad provisions for CL in their respective patent laws to protect public health interest effectively, both India and China can, at least theoretically, allow introductions of low priced generic equivalents of patented medicines in their domestic markets, well before those drugs go off-patent. This development will certainly make the innovator companies edgy…very edgy!
It will be interesting to watch, whether global pharma majors consider such broad CL provisions both in India and now in China as serious business impediments or not.
Most probably, the worry will be more intense for much larger and faster growing Chinese Pharmaceutical market, which is now widely being considered as the emerging ‘Eldorado’ of the world.
By: Tapan J Ray
Disclaimer: The views/opinions expressed in this article are entirely my own, written in my individual and personal capacity. I do not represent any other person or organization for this opinion.