Compulsory licensing of pharmaceuticals and TRIPS

A certain amount of confusion exists about the TRIPS Agreement’s provisions and compulsory licensing for medicines. These are some answers to questions that are frequently asked.

Updated: March 2018

What is compulsory licensing?

Compulsory licensing is when a government allows someone else to produce a patented product or process without the consent of the patent owner or plans to use the patent-protected invention itself. It is one of the flexibilities in the field of patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.

Are these flexibilities new?

No. They always existed in the TRIPS Agreement, ever since it took effect in January 1995.

But what about the November 2001 Doha Ministerial Declaration on TRIPS and Public Health? Didn’t that change the rules?

Not in general. Two provisions to do with least-developed countries and countries that do not have production capacity directly involved changes to the rules of the TRIPS Agreement. For the main part the declaration was important for clarifying the TRIPS Agreement’s flexibilities and assuring governments that they can use the flexibilities, because some governments were unsure about how the flexibilities would be interpreted. Let’s focus on the general case first.

OK. What is the general case?

For compulsory licensing, it’s when the generic copy is produced mainly for the domestic market, not for export.

Is this the same as tearing up the patent?

No. The patent owner still has rights over the patent, including a right to be paid for copies of the products made under the compulsory licence.

Does there have to be an emergency?

Not necessarily. This is a common misunderstanding. 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 licences, and to determine what constitutes a national emergency.

The TRIPS Agreement does list a number of conditions for issuing compulsory licences, in Article 31. In particular:

-  normally the person or company applying for a licence has to have tried, within a reasonable period of time, to negotiate a voluntary licence with the patent holder on reasonable commercial terms. Only if that fails can a compulsory licence be issued, and - even when a compulsory licence has been issued, the patent owner has to receive payment; the TRIPS Agreement says “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”, but it does not define “adequate remuneration” or “economic value”.

There’s more. Compulsory licensing must meet certain additional requirements: the scope and duration of the licence must be limited to the purpose for which it was granted, it cannot be given exclusively to licensees (e.g. the patent-holder can continue to produce), and it should be subject to legal review.

You said “normally” …

Yes, this is where the confusion about emergencies arises. For “national emergencies”, “other circumstances of extreme urgency” or “public non-commercial use” (or “government use”) or anti-competitive practices, there is no need to try first for a voluntary licence. It’s the only instance when the TRIPS Agreement specifically links emergencies to compulsory licensing: the purpose is to say that the first step of negotiating a voluntary licence can be bypassed in order to save time. But the patent owner still has to be paid.  

Who decides whether the payment is “adequate”?

This decision is for the authorities in the country concerned. The TRIPS Agreement says the patent owner must be given the right to appeal as well.

And that’s always been the case under the TRIPS Agreement? What has changed?

Yes, it’s always been the case. What has changed is a provision that used to say that compulsory licences must be granted mainly to supply the domestic market (paragraph (f) of Article 31). Now the TRIPS Agreement has been amended to provide for an additional type of compulsory licensing. This change follows a decision at the 2001 Doha Ministerial Conference when Ministers recognized that countries unable to manufacture pharmaceuticals should be able to obtain cheaper copies produced under compulsory licences elsewhere if necessary. 

The idea is that if such a country needs to turn to the option of compulsory licensing to produce needed affordable pharmaceuticals, producers overseas can step up and supply that need, even if a compulsory licence is needed in that country.  It's therefore a compulsory licence specially for production in one country, for export, to meet the public health needs of one or more other countries. 

The amendment to the TRIPS Agreement, which put this option on par with all other options, came into force on 23 January 2017. This was possible after two thirds of WTO members had formally notified their legal acceptance of this change, in line with the general rules for amending WTO treaties, following a sharp increase in the pace of such acceptances since 2013 (details available here ). WTO member governments had already unanimously agreed, back in 2005, that the Agreement should be amended, following a proposal by African members.  Earlier, in 2003, they had agreed on a waiver to the applicable rules which was subsequently formalised as the legal amendment. The amended TRIPS Agreement now applies to members who have accepted it; others can still use the 2003 waiver decision pending their acceptance.

Who can use this extra option?

All WTO members are eligible to import medicines under this special compulsory licensing mechanism.  LDCs can use it straight away; others have to notify their intention to do so, through a brief communication. For their part, industrialized countries have elected not to use it for imports. (footnote 3 of the Annex to the Amended TRIPS Agreement and footnote 3 of the 2003 waiver decision). Several other members have said they would only use it for imports in situations of national emergency or other circumstances of extreme urgency. These positions were put on record at the time the waiver and amendment decisions were adopted (see Chairperson's statements from 2003 and 2005).

So all obstacles have been removed?

As far as the TRIPS Agreement is concerned, yes. But to make it work requires practical steps.  The amended rules create the legal pathway, but countries have to make use of it.  Because it concerns production for export, those countries seeking to export under the system may need to amend their laws to ensure that such production is permissible under compulsory licences.  Many have already done so – in fact, the bulk of the world's exporters of pharmaceuticals have changed their laws (more information on members' laws for export and import under this system is available here and in a WTO working paper ).   

And least-developed countries?

They can now delay protecting pharmaceutical patents until at least 1 January 2033, provided they remain LDCs. And not all new medicines are patented even in those LDCs that recognize such patents. Plainly, if a medicine is not patented in a least developed country, the government does not need to issue a compulsory licence to import. The only compulsory licence needed would be in the supplying country, if indeed the medicine is patented in that country

Just to be clear, if a compulsory licence is issued it could be under the original TRIPS Agreement and not under the amended arrangements?

Correct. The special compulsory licensing system in the amended TRIPS Agreement, and the earlier 2003 waiver decision, (sometimes called the “Paragraph 6 System” because it refers to paragraph 6 of the Doha Declaration) only deals with compulsory licences to produce medicines expressly for export. Many news stories are about compulsory licences issued primarily to supply domestic markets. That was always possible.  And some proportion of production under 'regular' compulsory licences could always be exported, provided it wasn't the predominant part of production.  Equally, compulsory licences issued to remedy anticompetitive practices were never limited to largely servicing the domestic market.

> More frequently-asked questions on TRIPS