Comments to Indian Department of Industry Policy and Promotion Regarding the Compulsory Licensing of Pharmaceuticals

Sean Flymm
September 30, 2010

Today I submitted the following comments to the Indian Department of Inidustry Policy and Promotion, which has invited views on its Discussion Paper on Compulsory Licensing.  The full text of my comments are below, and a PDF is available here.

 


 

v.bhaskar@nic.in    
chandni.raina@nic.in
sk.lal@nic.in

COMMENTS ON COMPULSORY LICENSE POLICY OF INDIA

September 30, 2010

Thank you for the opportunity to submit comments on India’s compulsory licensing policy.

I submit these comments in my individual capacity as a scholar of the WTO TRIPS agreement with a particular interest in global access to medicines issues.

I plan to be in India in January 2011 and would be happy to consult with you at that time in person if it is of help to you.

As a threshold matter, your policy should be based on an acknowledgment that monopolies on essential products like needed medicines provide perverse incentives in developing countries with high income inequality to price to the very richest segment of the market, leaving the great majority of consumers without access to the good. Where the good is needed to meet a basic life or development need, this effect can be catastrophic. As a result, the use of compulsory licensing in such countries – of which India is one – should be much more routine than is common in wealthier countries and much more routine than is yet practiced in developing economies.

For a further exposition of this idea, please see

Sean Flynn, Aidan Hollis and Mike Palmedo "An Economic Justification for Open Access to Essential Medicine Patents in Developing Countries" Journal of Law, Medicine & Ethics (2009), available at http://www.wcl.american.edu/pijip/go/publications

In response to some of your specific questions, I would like to provide the following advice and references to resources.

1.  Are guidelines necessary or required for the issue of compulsory licences?

There are no international legal requirements that India have guidelines for compulsory licenses. There may be instances when guidelines would be helpful. For example, James Love and I have previously suggested an “access gap” approach to compulsory licensing where use of licenses would become presumptively warranted where there is a higher need for a patented medicine than the market is meeting, and a key factor is the price of the patented drug.

See Sean Flynn, "Legal Strategies for Expanding Access to Medicines." Emory International Law Journal. 17 (2003): 535-546, available at http://www.wcl.american.edu/pijip/go/publications

1.b. Should therefore such guidelines be restricted to the royalty payment to be awarded while issuing a CL?

Royalty guidelines are strongly encouraged. Such guidelines can make royalty payments easier and quicker for officials to determine and increase the reasonableness and coherence of royalties between cases. The guidelines must be flexible and allow for case by case determinations to comply with TRIPS Art. 31. A set fixed royalty for every license would be problematic under TRIPS.

2.  Do the requirements for issue of a notification by the Central Government (national emergency; extreme urgency; public non commercial use) under Section 92 require amplification through issue of guidelines? Further are these grounds sufficient to meet all the circumstances and exigencies that may necessitate issue of a compulsory licence? . . . Should drugs for treating diseases like cancer or diabetes should also fall within the ambit of CLs? Should such notifications be confined to public health emergencies? Are there other valid circumstances when such provisions can be invoked?

Under TRIPS Article 31, as amplified in the Doha Declaration, countries may issue a compulsory license for any purpose. The government should not restrain its use of licenses to national emergency; extreme urgency; or public non commercial use. Compulsory licenses can be used for industrial or developmental concerns, to combat high prices or for any public interest. The provision of affordable medications for chronic diseases like cancer and diabetes is equally a public concern that may demand compulsory licenses as the treatment of epidemic diseases.

The best resource on Article 31 I am aware of is the UNCTAD Resource Book on TRIPS and Development, available at http://www.iprsonline.org/unctadictsd/ResourceBookIndex.htm

The chapter on Article 31 and compulsory licensing is available at http://www.iprsonline.org/unctadictsd/docs/RB2.5_Patents_2.5.8_update.pdf

2.b. Does the term public non commercial use necessarily imply free distribution? Should such distribution be confined to government channels?

No to both questions. A public use may occur where the government funds distribution through contractors as well as through its own institutions and need not be for free. 

As described by UNCTAD’s Resource Book on TRIPS and Development (http://www.iprsonline.org/unctadictsd/ResourceBookIndex.htm):

“Non-commercial use” may be defined either in relation to the nature of the transaction, or in relation to the purpose of the use. Regarding the nature of the transaction, “non-commercial” may be understood as “not-for-profit” use. A commercial enterprise does not ordinarily enter the market without intending to earn a profit. Regarding the purpose of the use, “non-commercial” may refer to the supply of public institutions that are not functioning as commercial enterprises. The supply of a public hospital operating on a non-profit basis may be a “noncommercial” use of the patent. “Public non-commercial use” is a flexible concept, leaving governments with considerable flexibility in granting compulsory licences without requiring commercial negotiations in advance.

5.  The Competition Act 2002 does not explicitly provide for issue of Compulsory Licences as a remedy for anti competitive practices. However, Section 27(g) empowers the Competition Commission to pass ‘such other order or issue such other directions as it may deem fit’. Further Section 90(ix) of the Patents Act recognizes that CLs can be granted to remedy a practice determined, after judicial or administrative process to be anti competitive. Should CLs be issued on the basis of anti competition law – if it is determined that companies have abused their dominant position in the market or engaged in unfair competition? 

As discussed above, the anticompetitive effects of patents in a developing country with high income inequality, like India, is likely to be particularly severe and common. Using competition norms to address this common problem may have many advantages. This is a topic canvassed in a soon to be published book chapter:

Sean Flynn, "Using Competition Law to Promote Access to Knowledge." From Intellectual Property to Access to Knowledge. Ed. Amy Kapczynski, forthcoming 2009. available at: http://www.wcl.american.edu/pijip/go/publications or the direct link at http://www.wcl.american.edu/pijip_static/documents/flynn08122008.pdf?rd=1

One particular advantage for India is that the country is a prime producer of many generic versions of medicines and other potentially patented products for export. TRIPS Article 31(f) requires that most compulsory licenses be restricted to the predominant use of the domestic market. But this requirement is waived in cases of licenses granted to remedy anticompetitive conduct. Using competition norms to authorize compulsory licenses may be the most expedient way for India to serve its industrial goal of promoting exports while meeting its social welfare objectives of restraining anti-competitive use of monopoly rights.

South Africa, like India, possesses a law that is silent on whether a CL can be granted to remedy anticompetitive conduct. But its competition authorities recognized the usefulness of this remedy and ordered compulsory licenses in a case involving access to needed medicines. See http://www.cptech.org/ip/health/sa/cc10162003.html and http://www.cptech.org/ip/health/sa/tac-competition-complaint.html

6.   Should working of a patent in the territory of India be interpreted to mean that it should be manufactured within the territory of India?  Under what circumstances should the provisions of Section 84(7) (e) regarding working of the patent being prevented or hindered by importation from abroad be applied?

A better definition of “working” would focus on whether the demand for the patented good is being met in the country on reasonable and affordable terms by the majority of people in need of the product.

8.  What should be the basis for royalty payments to compensate for CLs? Should a uniform stance be   taken for Category I CLs; Category II CLs and Central Government use of inventions? Or should a differential approach be adopted?

The best work I am aware of on the determination of royalty guidelines for medicines is 2005. James Love. "Remuneration Guidelines for Non-Voluntary Use of a Patent on Medical Technologies." Paper published by the World Health Organization. Health Economics and Drugs, TCM Series No. 18, available at http://www.cptech.org/ip/health/cl/cl-papers.html or at http://www.who.int/medicines/areas/technical_cooperation/WHOTCM2005.1_OMS.pdf

9.  Should payments to the patent holder include a component of solatium as indicated in Para 62?  How should such a solatium be arrived at? Should the aggregate royalty and solatium be fixed at say 10% of the generic price?

The royalty should not be fixed to comply with TRIPS article 31.

10.  How can the operational constraints in the implementation of the August 30 decision be resolved during the course of issue of CLs under Section 92A?

One way to resolve them is to use competition grounds as the basis for licensing, thereby authorizing unlimited exports without resort to the Aug 30 decision.

 

 

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