Compulsory licenses in Latin America

Lesly Nowak
IP expert at Latin America IPR SME Helpdesk

Issues regarding competition law and IP can, on their own, provoke sever headaches. However, these are not isolated subjects that never cross paths. Problems can grow exponentially when they do and require every bit of our attention and perspicacity.

Competition law and IP cannot be considered as pursuing opposite goals. Quite on the contrary, they must be seen as complementary. Granting exclusive rights through IP promotes innovation and competition between undertakings, the final beneficiary being the customer. This affirmation is also true when talking about Competition law: ensuring competition on the merits and avoiding distortion of the competition, which in the end will promote general economic welfare. In their dynamic relation, competition does not seek to impede the existence of exclusive rights, rather it seeks to avoid an abuse in the exploitation of those rights.

Compulsory licensing is one of the important ‘flexibilities’ recognized under Article 31 of the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS). This is true since it makes it easier for WTO members with insufficient or no manufacturing capacities in the pharmaceutical sector to avoid the trouble of negotiating expensive licenses with big pharmaceutical companies who are in a clear position of power in these negotiations. So far, only two countries in Latin America (Brazil and Ecuador) have made effective use of compulsory licensing provisions.

A compulsory license is generally ordered as a remedy when intellectual property law is not capable to offer a suitable remedy to a situation, usually because the owner of the IPR and the licensee are incapable of reaching a satisfactory settlement. Through these licenses, the owner of intellectual property is required to provide at least one other firm or a government with a right to import, reproduce, and/or sell the intellectual property.

Patent legislation in Latin America provides for different grounds for the granting of compulsory license:

  • Failure to exploit (ANDEAN, Argentina, Brazil, Dominican Republic, Mexico, Chile, Uruguay and Costa Rica).
  • Public interest (ANDEAN, Brazil, Dominican Republic, Honduras, Mexico, Chile, Uruguay and Costa Rica).
  • National emergency (ANDEAN, Argentina, Brazil, Dominican Republic, Honduras, Mexico, Chile, Uruguay and Costa Rica).
  • As a remedy against anti-competitive practices (ANDEAN, Argentina, Brazil, Dominican Republic, Chile, Uruguay and Costa Rica).
  • In case of failure to obtain a license under reasonable terms (Argentina, Dominican Republic and Uruguay).
  • In case of dependent patents (ANDEAN, Argentina, Brazil, Dominican Republic, Honduras, Chile, Uruguay and Costa Rica).

Although some Free Trade Agreements (FTAs) have been signed between Latin American countries and Europe (with Mexico, Chile and Colombia, for example) such agreements have not introduced any limitations on the possible grounds for compulsory licenses.

When granting a compulsory license, the competent authority will face a number of different challenges. First, it must justify the grant of such a license under one of the conditions above mentioned. Second, the authority will have to establish the life of the compulsory license. Finally, setting a correct level of royalty payment is another challenge to ensure proper retribution of the patent owner.

Real life cases: Brazil and Ecuador

In 2007, Brazil decided to override the patent on an AIDS drug in order to make it available under the country’s free treatment program.

Prior investigation lead the government to note that Merck was selling its drug at cheaper prices in countries at the same development level but with fewer people in need of treatment than Brazil; the Indian generic versions were much cheaper than Merck’s product.

Prior to the grant, the Brazilian government engaged in negotiations with the patent holder in order to achieve an acceptable price reduction. During these negotiations, Merck offered a price reduction from US$1.59 to 1.10 per dose, which was deemed unsatisfactory by the Brazilian government. Hence, through Presidential Decree No. 6.108 (4 May 2007) the government decided the grant of a “compulsory license, on the ground of public interest, of Efavirenz’s patents, for public non-commercial use” for a period of 5 years (renewable for the same period31) and a royalty fee for the patent owner of 1.5 % of the finished product.

This decision was far from popular. Although health activists, such as Médecins Sans Frontières, reacted positively, pharmaceutical industries were not pleased with the decision.

In Ecuador, the granting of compulsory licenses is based on the Presidential Decree No. 118 of November 16, 2009, that established “of public interest, access to medicines used for the treatment of diseases that affect the population of Ecuador and that are priorities for public health”. It also specifically specified that compulsory licenses could be issued for patents protecting medicines for human use that are necessary for the treatment of such diseases.

Following this Presidential Decree, the IEPI (Insituto Ecuatoriano de la Propiedad Intelectual) issued a Resolution (Resolution No. 10-04 P) with Guidelines on how to issue a compulsory license in the case of pharmaceutical patents.

Thanks to these instruments, on April 2010, the government of Ecuador granted a compulsory license for an anti-retroviral drug, to Eskegroup SA, a local distributor of a generic produced by an Indian company.

The government of Ecuador, on June 2012, granted a second compulsory license to Acromax Laboratorio Quimico Farmaceutico S.A. regarding a drug protected by and held by the Glaxo Group. After confirmation by the Ministry of Public Health that the pharmaceutical was a priority medicine, the compulsory license was finally granted. The compulsory license is available until the expiry of the patent in May 2018. This action was taken in order to enable the government to further expand access to more affordable treatments for HIV and facilitate local production of the product, leading to an important reduction in costs.

Conclusion

As examined above, although only used in three cases so far, compulsory licenses have been used against pharmaceutical patents. The European Court of Justice has been more inclined to use compulsory licenses as a “punishment” in cases of abuse of dominant position, rather than as a pressure element. In Europe, case law on the subject is rather abundant starting with Magill, which set the basic requirements, later on developed through IMS Health.

In any case, this opens up an interesting debate about pharmaceutical patents, drug prices, health imperatives and incentives. Some medicines are not even available -period- in some markets. One of the reason is that our current patent system does not provide sufficient incentives in R&D for solutions to problems that mostly affect the poor. Another challenge arises from the very nature of the patent regime: innovators are rewarded with a temporary monopoly. In the context of life-saving drugs or vaccines, this monopoly will have a more meaningful impact on poor people who cannot afford the essential drug.

One solution to face this challenge might be voluntary licensing involving contracts with generic manufacturers to distribute and sell drugs in markets where there is no profit to make for branded companies. Voluntary licensing could present several advantages: generic manufacturers would be able to distribute patented medicines in certain countries; multiple licensees can be granted allowing to sell generic versions at prices freely established in certain low and middle-income nations; royalties will be paid to patent owners or economies of scale can be made. All the above would avoid raising competition concerns by creating effective competition through licenses offered to multiple generic manufacturers.

Anyways, the topic surely gives food for thought…