Compulsory Licensing For Expensive Medicines 

Khurana and Khurana, Advocates and IP Attorneys India



The Belgian Health Care Knowledge Centre (KCE) has released an interesting report titled ‘Compulsory Licensing for Expensive Medicines’. This report comes at a propitious moment. Covid 19 has considerably increased public awareness of intellectual property rights and their significance to the pharmaceutical industry. The report focuses on the potential use of compulsory licences (CLs) for "excessively expensive" drugs outside of emergency situations rather than on compulsory licences (CLs) in emergency situations (like the Covid pandemic).


[Picture Credit: gettyimages]

Normally, patentees freely choose whether or not to grant licences to third parties and on what terms. A compulsory licence, on the other hand, compels patentees to provide licences to third parties with fair compensation. Countries can get lower priced medications owing to TRIPS flexibility features like compulsory licences.


Despite the report's focus on the EU and Belgian patent systems, it offers insightful information on the application of compulsory licencing and competition law in the context of exorbitant medicine prices. Under this regard, exorbitant pricing is included as a reason for the issuance of a compulsory licence in Section 84(1)(b) of the Indian Patents Act, 1970.


As the report mentions, the first step is to evaluate what ‘expensive’ means and what adequate remittance to the patentee entails. According to the report, the Court of Justice of the EU (CJEU) has not rendered a decision in a case involving exorbitant pricing in the pharmaceutical industry. However, the study makes reference to the CJEU's landmark two-limbed test, which provides a flexible framework for determining exorbitant price: "(1) whether the disparity between the costs actually incurred and the price charged are excessive (cost-price analysis) (the so-called "excessiveness limb"), and if the answer to this question is yes, "(2) whether a price has been imposed which is either unfair in itself or when compared with competing products" Competition authorities have used this methodology to evaluate instances involving over-the-counter and generic medications.

According to the report, neither a national nor an EU competition body has yet reached a decision in a case involving exorbitant prices for patented medications. Despite this, the research contends that, with caution and appropriate alterations, the experience of competition authorities and cases might serve as a source of inspiration for determining whether Compulsory Licensing is overpriced.

The two-limbed competition law test is in contrast to the standard used by India in Bayer Corporation v. Natco Pharma Ltd., its first and only case involving compulsory licencing. According to the Patents Act of 1970, patented medicines must be reasonably priced and accessible to the general public. Failing such requirement, a compulsory licence may be granted. In Bayer v. Natco, the IPAB ruled that the "reasonably affordable price" must be determined from the viewpoint of the general public, not the inventor. R&D expenses (related to cost-price analysis) and the pricing of competing medications (unfair limb) were not taken into consideration in this situation when determining whether or not the medication was "affordable." These characteristics, according to the IPAB, did not indicate whether the general population could afford to purchase the medication. As a result of Bayer's outrageous pricing of its anti-cancer medication at INR 2,80,000 per month, the majority of the population was unable to finance it. Because of this, the medicine was deemed to be disproportionately priced because it was out of the reach of the general public. This was one of the reasons Natco was able to successfully secure a compulsory licence to produce the same medication for INR 8,800, or around 1/30 of the cost.

R&D expenses must still be taken into consideration in order to determine the proper royalty rates because compulsory licences are not free passes and demand payment of a royalty. However, since medicine expenses are typically kept a secret, determining royalty rates is not simple. As can be seen in the Bayer v. Nacto case, Bayer declined to provide records of costs despite arguing that the royalty rates were unreasonable. The research also states that because of a lack of data, issues with data analysis, inconsistent evaluation standards, etc., identifying costs and high prices is a "daunting, if not an impossible task."

The research sheds insight on how nations use TRIPS flexibilities in their laws and in actual practise. Although nations are hesitant to award CLs, a study “Medicine procurement and the use of flexibilities in the Agreement on Trade-Related Aspects of Intellectual Property Rights, 2001–2016” demonstrates that TRIPS flexibilities are used more frequently than is commonly acknowledged.

According to this study, in order to acquire access to low - cost medicines, governments issued 100 compulsory licences or government use permits between 2001 and 2016. The majority of the compulsory licences involved HIV/AIDS medications. Countries with low and moderate incomes made extensive use of these measures. Only a few high-income nations have ever issued compulsory licencing or government use licences.

According to the study, of the 100 instances of compulsory licensing, 81 were implemented, but 19 were not. Reasons for non-implementation were: (i) the patent holder offered a price reduction or donation; (ii) the patent holder agreed to a voluntary licence allowing the purchase of a generic medicine; (iii) no relevant patent existed that warranted the pursuit of the measure; (iv) the application was rejected on legal or procedural grounds; (v) the applicant withdrew the application; and (vi) the application has been pending since 2005 with no response.

One of the primary conclusions of this report is that consideration of the "broader picture" must be given while issuing Compulsory Licenses. Medicines need to be protected and regulated, and other types of protection like know-how, trade secrets, data, and market exclusivity are important. Before compulsory licences are used, other aspects must be considered because CLs only apply to patents and because there are other protection mechanisms outside patents. The local manufacturer must have access to the necessary know-how, raw resources, infrastructure, scientific and technical skills to create the medicines in question for a compulsory licence to be successful.

The report advises caution when implementing mandatory licences due to their potential negative implications. These possible effects are examined in the economic study section of the report, which also looks at industrial effects (such as the influence on foreign investment, research, and development) and health effects (e.g. increased access to expensive drugs). The report concludes by advising a case-by-case approach for compulsory licences.

Author: Shobhita – an intern at Khurana & Khurana, Advocates and IP Attorney, in case of any queries please contact/write back to us via email 


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