Compulsory Licensing: A Cure for Distributing the Cure?

May 8, 2020

On March 11, the World Health Organization (WHO) declared Covid-19 a global pandemic. Since the virus first emerged at the end of 2019, pharmaceutical companies have been ramping up efforts to develop new medicines and vaccines to address the pandemic, but concerns regarding fair access to medicines and vaccines accompany these efforts.

Usually, patents grant exclusive rights to the patent owner to make use of the patented product or process. The Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, part of the World Trade Organization (WTO) agreements, aims to facilitate innovation as well as trade in knowledge and creativity by providing global minimum standards for protection and enforcement of intellectual property rights, including patents. Compulsory licensing, however, provides a specific mechanism to bypass a patent owner’s legal monopoly. It provides a way to introduce low-cost generic medicines to the market that would otherwise be patented. In case of a pandemic, state intervention through compulsory licenses has been regarded as necessary and essential.

Q1: What is compulsory licensing?

A1: A patent grants a patent owner an exclusive right to make, use, sell, or import a product, giving the patent owner time to recover the costs incurred in developing the product or process and eventually turn a profit if the invention is successful. Compulsory licensing is a process by which a government licenses companies or individuals other than the patent owner to use the rights of the patent—to make, use, sell, or import a product under patent—without the permission of the patent owner.

Within the medical context, pharmaceutical companies invest significant resources into researching, inventing, and gaining approval for new medicines to treat known and emerging diseases. The Tufts University Center for the Study of Drug Development has estimated the cost of producing a new drug to be $2.6 billion based on the information provided by 10 pharmaceutical companies on 106 randomly selected drugs. The high cost, time-consuming process, and the risks of not making it to market have put a premium on patents. Patent holders claim the high costs of successfully creating a new drug justify—and often require—high prices. Therefore, new medications are often inaccessible to low-income consumers, especially in developing and least developed countries; however, some pharmaceutical companies are taking steps to make drugs more accessible.

Proponents of compulsory licensing claim it is a mechanism through which governments can overcome access and price barriers. On the other hand, critics of compulsory licensing argue the practice discourages pharmaceutical companies from investing in new drugs as they are deprived of the benefit of monopoly rights. The result, according to critics, is that drug companies have less incentive and fewer resources to invest in new innovative, lifesaving medicines.

Q2: How does TRIPS permit compulsory licensing?

A2: In 1995, TRIPS established minimum standards of protection and enforcement that each government adhere to for intellectual property held by nationals of fellow WTO members. Article 28 of TRIPS enshrines exclusive rights of patent holders to use, offer for sale, sell, or import the patented good. The patent holder also has an exclusive right to assign, transfer, or license the patent. As a result of TRIPS, generic pharmaceutical industries could not reverse-engineer products of foreign research and development under the shield of their domestic law. This led to developing and least developed country populations around the world not being able to access expensive patented products.

While TRIPS ensures the enforcement of intellectual property rights, including pharmaceutical patents, the agreement does provide for flexibilities in the form of compulsory licensing through Articles 30 and 31. Article 30 allows WTO members to make limited exceptions to patent rights as long as certain conditions are met. Article 31 provides a detailed exception in the form of compulsory licensing. It requires a third party to first attempt to negotiate a voluntary license with a patent holder before requesting a compulsory license. The process of voluntary licensing can be bypassed in case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. The emergency compulsory license exception is limited to requiring compulsory licenses to be authorized predominantly for domestic use.

While TRIPS originally provided limited flexibilities, developing countries raised the scope of these flexibilities and their ability to provide greater access to pharmaceuticals. Through the 2001 Doha Declaration, the WTO reaffirmed the need to balance grave public health problems afflicting many developing countries and recognized a WTO member’s right to protect public health and promote access to medicines for all. It stated that each member can determine the circumstances that constitute a national emergency.

Article 31(f) states that compulsory licenses should be predominantly used for the purposes of domestic use. However, several developing countries do not have the capacities to produce pharmaceutical products domestically, which limits the utility of compulsory licensing. To address this issue, the WTO adopted Article 31bis, creating a waiver for Article 31(f) by which a country that lacks manufacturing capabilities may import specific pharmaceutical products. Article 31bis procedure has been criticized as time consuming and expensive and is therefore rarely used. During a General Council meeting in 2019, for example, India highlighted that the process is both too cumbersome and has been used just once—to export HIV/AIDS medicines manufactured by Canadian pharmaceutical company Apotex to Rwanda in September 2008. Many countries have not enacted domestic legislation to incorporate Article 31bis, making it non-operational. 

Q3: What role has compulsory licensing played in the context of the Covid-19 outbreak?

A3: The Covid-19 outbreak has led to increased demand for several medicines around the world, including among developing and least developed countries that lack the capacities to manufacture essential medicines. Exclusive rights granted through patents often obstruct access for low-income people in need of medicine due to high prices. In addition, several WTO members, including developed countries, want to ensure that exclusive rights do not prevent them from producing enough medicine to combat Covid-19. As a result, several countries, including Canada, Germany, Ecuador, and Chile, have taken steps to make it easier to use compulsory licenses. AbbVie, a U.S. drug maker has decided not to enforce patent rights for its antiretroviral drug Kaletra—which is being used to treat Covid-19—anywhere in the world.

Article 31 of TRIPS permits the use of compulsory licensing predominantly for domestic use. Article 31bis waives the obligation. It allows for the grant of compulsory license to the extent necessary for the purposes of production of a pharmaceutical product and its export to an eligible importing member. “Eligible importing member” has been defined to allow countries to choose not to use the system to import drugs. Thirty-seven entities, including the United States, Canada, Australia, Japan, and the European Union, opted to be ineligible to import medicines that are manufactured and patented in another country where there is a compulsory license issued to export for other countries. Several advocacy groups and experts sent an open letter to those governments, arguing this decision may impact access to needed medical products as a result of the complex intersection of patents and global supply chains. The letter states, “it’s totally irrational for any country, even a rich country, to keep its own hands tied to meet the COVID-19 needs of its population by voluntarily shutting itself off from patented ingredients, components, and essential medical products and supplies.” Moreover, the countries that have opted out may have a detrimental impact on countries willing to use compulsory licenses as they limit their potential export market and prevent producers from benefitting from economies of scale.

Considering the spread of the pandemic, the WHO granted its support to Costa Rica’s proposal to create a pool of rights to tests, medicines, and vaccines, with free access or licensing on reasonable and affordable terms for all countries. This proposal goes much further than compulsory licensing provisions by including technologies from a larger number of players rather than on a drug-by-drug, country-by-country basis. Costa Rica’s proposal aims to create more equitable access to drugs and medicine as well as avoid disjointed efforts to mitigate affordability and access. However, Thomas Cueni, who heads the International Federation of Pharmaceutical Manufacturers & Associations, stated that while voluntary pooling of intellectual property and other assets can stimulate R&D and facilitate access, its impact on the current situation will be limited. Spain’s science minister has suggested European coordination and cooperation to create a publicly backed fund to produce a patent bank for Covid-19 treatments. On the other hand, Greece has suggested EU members states jointly buy patent rights for vaccines and rapid tests under development to help ensure quick distribution across the bloc.

Considering the global spread of the pandemic, there is a need for more cooperative efforts to address patent issues and ensure that treatments and an eventual vaccine for Covid-19 are available, accessible, and affordable globally.

Q4: Is the United States participating in multinational efforts to develop vaccines?

A4: Led by the European Union, several world leaders came together in a virtual summit on May 4 to pledge billions of dollars to develop vaccines and drugs to fight the pandemic. The summit included statements by leaders highlighting their achievements and the need for global cooperation. British prime minister Boris Johnson, for example, stated that “to win this battle, we must work together to build an impregnable shield around all our people and that can only be achieved by developing and mass producing a vaccine.”

The United States did not participate in the EU-led summit, nor is it participating in a separate WHO initiative that aims to hasten production of tests, treatments, and vaccines. The EU summit and launch of the WHO initiative came after the Trump administration decided to freeze payments to the organization over its handling of the coronavirus pandemic. India and Russia also did not participate in the EU summit and, along with China, are not part of the WHO initiative. The absence of major powers from joint vaccine initiatives raises concerns that some countries are seeking to win the vaccine race to ensure their own citizens are first to receive it regardless of whether they need it most. The absence of the United States from the virtual summit further underscores its lack of leadership in driving global efforts to address the pandemic.

When asked about the United States’ absence from multinational efforts to develop vaccines and drugs, officials from the Trump administration highlighted that the U.S. government and private sector already support the organizations and programs the summit sought to support. Yet Representative Ami Bera (D-CA), who leads the House Foreign Affairs Asia subcommittee underlined the role of the United States as a world leader in the post-World War II era and stated that “the absence of the United States participation at the government level is just shocking, and is noticeable.” He and Representative Ted Yoho (R-FL) introduced legislation to authorize U.S. government funding to the Coalition for Epidemic Preparedness Innovations. In a letter to Secretary Pompeo, the two congressmen warned about the risks of pursuing a winner-take-all approach to develop and manufacture a vaccine. They argued the manufacturing of the vaccine will require international supply chains.

International cooperation is necessary to successfully combat the coronavirus. For the United States to lead in the development, mass manufacturing, and distribution of drugs and a vaccine to treat Covid-19, it will have to embrace scientific cooperation and global supply chains. Policymakers and the private sector in the United States should also be cognizant that others around the world view treatment and a vaccine for Covid-19 as a public necessity, not necessarily a geopolitical race to win for their own citizens and international prestige. In turn, compulsory licensing of new treatments and a vaccine is more likely than not, particularly given the legislative steps a number of countries have taken to ease that process. Instead of gearing up to fight those measures, the U.S. government and businesses should accept that, in current circumstances, there is a growing expectation that medical solutions to Covid-19 will be freely shared, not made available only to those that can afford it.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Jack Caporal is an associate fellow with the CSIS Scholl Chair in International Business. Sanvid Tuljapurkar is an intern with the CSIS Scholl Chair.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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