Amendment to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
An amendment to the WTO’s intellectual property (TRIPS) agreement entered into force on 23 January 2017. Aimed at improving poor countries' access to affordable medicines, the amendment makes permanent a decision on patents and public health originally adopted in 2003. The amendment was formally built into the TRIPS Agreement after two-thirds of the WTO’s members accepted it.
- Back to TRIPS issues
The amendment marks the first change to a WTO agreement since the Organization was created. It applies to all members who have accepted it. Members who are yet to accept it currently have until 31 December 2023 or such later date as may be decided by the Ministerial Conference to do so. For them, the waiver (the decision of 2003) will continue to apply until a member accepts the amendment.
In August 2003, WTO members agreed to remove an important obstacle to affordable drug imports: they waived the limitation in the TRIPS Agreement to predominantly supply the local market when generic medicines are produced under compulsory licence. The system established by the decision empowers importing developing and least-developed countries facing public health problems and lacking the capacity to produce generic drugs to seek such medicines from third country producers under “compulsory licensing” arrangements. Normally, most medicines produced under compulsory licences can only be provided to the domestic market in the country where they are produced. This amendment allows exporting countries to grant compulsory licences to generic suppliers exclusively for the purpose of manufacturing and exporting needed medicines to countries lacking production capacity.
WTO members agreed on 6 December 2005 to permanently incorporate the 2003 waiver decision into the TRIPS Agreement. In line with general WTO rules, this amendment then required formal acceptance by two-thirds of WTO members. Following a recent rapid increase in the pace of acceptances, the amendment entered into force on 23 January 2017. This additional flexibility to protect public health is therefore an integral part of the TRIPS Agreement; hence this new procurement tool is now on a par with other flexibilities in the Agreement that are directly relevant to public health.
Compulsory licensing is a government's authorization to someone else to produce the patented product or process without the consent of the patent owner. While there has been particular attention to use of compulsory licensing for pharmaceuticals, it can also apply to patents in any field.
The TRIPS Agreement allows compulsory licensing as part of the Agreement’s overall balance between promoting access to existing drugs and promoting research and development into new drugs. Article 31 of the Agreement allows compulsory licensing and government use of a patent without the authorization of its owner, under a number of conditions aimed at protecting the legitimate interests of the patent holder. The option to grant a compulsory licence under Article 31 for the purpose of manufacturing or import is available to all members. It can cover all products or technologies needed to treat a disease or to fight a pandemic.
Under the conditions in Article 31, normally, the person or company applying for a licence must have first attempted, unsuccessfully, to obtain a voluntary licence from the right holder on reasonable commercial terms. If a compulsory licence is issued, adequate remuneration must still be paid to the patent holder.
However, 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 for a voluntary licence.
Compulsory licensing must meet certain additional requirements. In particular, it cannot be given exclusively to licensees (e.g. the patent-holder can still continue to produce under the patent), and, in principle, it must be granted mainly to supply the domestic market.
The Doha Declaration on the TRIPS Agreement and public health
Some governments were unsure of how these TRIPS flexibilities would be interpreted, and how far their right to use them would be respected. The African Group (all the African members of the WTO) were among the members pushing for clarification.
A large part of this was settled at the Doha Ministerial Conference in November 2001. In the main Doha Ministerial Declaration of 14 November 2001, WTO member governments stressed that it is important to implement and interpret the TRIPS Agreement in a way that supports public health — by promoting both access to existing medicines and the development of new medicines.
WTO members therefore adopted a separate Declaration on TRIPS and Public Health in 2001. It states that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. It clarified TRIPS flexibilities regarding compulsory licensing and exhaustion, and also created the basis for extending the transition period for least developed countries in the pharmaceutical sector. In particular, it dispelled the myth that compulsory licences should be limited to emergency situations by confirming that WTO members were free to determine the grounds under which compulsory licences could be issued.
On one remaining question, WTO members assigned further work to the TRIPS Council — to sort out how to provide extra flexibility, so that countries unable to produce pharmaceuticals domestically can obtain supplies of copies of patented drugs from other countries without the authorisation of the patent holder. Ministers had observed that without this extra flexibility, members lacking in production capacity may not be able to use compulsory licensing effectively. This is sometimes called the “Paragraph 6” issue because it comes under that paragraph in the separate Doha Declaration on the TRIPS Agreement and public health.
Importing under compulsory licensing (Special Compulsory Licensing System)
Article 31(f) of the TRIPS Agreement says products made under compulsory licensing must be “predominantly for the supply of the domestic market”. This applies to countries that can manufacture drugs — it limits the amount they can export when the drug is made under compulsory licence. And it has an impact on countries unable to make medicines and therefore wanting to import generics. In certain circumstances, they would find it difficult to find countries that can supply them with drugs made under compulsory licensing.
The legal problem for exporting countries was resolved on 30 August 2003 when WTO members agreed on legal changes to make it easier for countries to import cheaper generics made under compulsory licensing if they are unable to manufacture the medicines themselves.
Conditions are applied to products imported under the system to ensure that shipments reach their intended beneficiaries, particularly to prevent the medicines from being diverted to the wrong markets. Governments using the system are to keep all other members informed, although WTO approval is not required. At the same time, these conditions are limited by qualifications such as “reasonable measures within their means” and “proportionate to their administrative capacities” to prevent the conditions becoming burdensome and impractical for the importing countries. Developed country members are obliged to provide technical and financial cooperation, on request and on mutually agreed terms, to assist countries using the system to avoid trade diversion away from the intended beneficiaries.
Imports under the System can cover pharmaceutical products, including medicines, vaccines and diagnostics. All WTO members are eligible to export under this decision. But developed countries have committed themselves not to use the system to import. And some members said they would only use the system to import in national emergencies or other circumstances of extreme urgency.
How it has been used in practice
One special export licence under the ‘Paragraph 6’ system has been exercised. In that instance, the licence was used by a Canadian company to ship medicines to Rwanda (see case study).
Case study on supply of ARVs to Rwanda
In 2004, Médecins Sans Frontières (MSF) approached a Canadian company to produce a triplecombination ARV (zidovudine, lamivudine and nevirapine). MSF initiated this move in the absence of any specific request from an importing country. The company obtained marketing approval in Canada in 2006, less than six months after the date of its application. Canada's Access to Medicines Regime (CAMR), which implements the Paragraph 6 system, had to be amended to cover the product because Canada limits the scope of its law to a specified list of products. The three medicines combined in the product were each covered by a separate patent owned by a separate company. In July 2007, the company sought, without success, voluntary licences from the three patent holders.
In July 2007, Rwanda sent the WTO a brief notification of its intention to import 260,000 packs of the triple-combination ARV, reserving the right to modify the estimated quantity. It said it would not allow patent holders to enforce any patents on the product that may have been granted in its territory. As a least-developed country, Rwanda was not obliged to state anything else, nor did it need to notify its intention to use the system. In September 2007, the company applied for a compulsory licence in Canada which, under the system, would allow it to export 15,600,000 tablets (the equivalent of 260,000 packs) over a two-year period. The compulsory licence was granted two weeks later. The Canadian government notified the WTO in October that it was using the system as an exporting country. Canada reported that in October 2007 the Rwandan government issued a public tender for this triple-combination ARV. The Canadian company had originally offered its ARV at the no-profit price of US$ 0.39 per tablet. There were indications that at least four Indian generic manufacturers could supply the product at a lower price.
Canada reported that if Rwanda had procured the ARVs from these manufacturers, it would not have needed to use the system at all, since the products were not patented in India. However, during the tender process, the Canadian company halved its price to US$ 0.195 per tablet. In May 2008, the company announced that it had won the tender.
In line with the terms of the CAMR and the system itself, the tablets shipped to Rwanda were distinguished from the version manufactured for the domestic market by the mark “XCL” and white colouring, instead of the standard blue. The packaging bore an export tracking number issued by the Canadian government. Details of the product and its distinguishing characteristics, as well as details of the shipment, were posted on the web. A royalty was payable by the Canadian company for the right to use the patent, but the patent holders waived payment. A total of 6,785,000 tablets were shipped to Rwanda in September 2008, and an additional 7,628,000 tablets were shipped in September 2009, i.e. within the two-year validity period of the compulsory licence.
How to make it work in practice
The TRIPS Council reviews the special compulsory licence system each year and reports to the WTO General Council on how it has been implemented and used, its operational context, and the status of the TRIPS amendment. The discussions have become more detailed since 2010, after Canada and Rwanda used the system, and they now also cover a wider range of issues such as the operational requirements of the system. The system has also been a focus of an annual series of WTO capacity building workshops dealing with TRIPS and public health since 2005.
Alongside the entry into force of the TRIPS amendment in January 2017, another important development has been the significant increase in pharmaceutical exporting countries that are putting in place the necessary legislation to use the system for export. With more than 50 members having adopted such legislation, informal estimates say that the system now covers about 80 per cent of current global medicines export capacity.
These developments support demands from members to look into how to make the Paragraph 6 system work effectively in practice. Capacity building workshops organized by the WTO have therefore taken a more detailed look at how to make effective use of this additional procurement tool in practice so that affordable medicines do reach patients.
At the workshop held in October 2016, the general points that were raised included:
- The need to notify expected demands of medicines. It was noted that this could be done early in the procurement process, so as to open up a wider range of potential suppliers and potentially enable the pooling of demand by different members with similar needs. Notification under the system could also be used at this early stage to identify all possible sources of supply so as to ensure the most competitive and sustainable range of options for access to medicines.
- The need for economies of scale. It was observed that the system makes it clear that an export compulsory licence can serve the needs of multiple members. When countries do share the same needs and the same constraints, for example, in the same region, this could be an opportunity to pool demand so as to use the system more effectively. This would be especially effective if their regulatory requirements were similar or compatible, for example, through the WHO prequalification programme.
- The use of the system as part of efforts to build local production capacity, especially when this would enable one country's production to serve several countries in the same region, enabling economies of scale and thus lower cost, and to support more sustainable production of medicines.
- The need to raise awareness of the practical possibilities of use of this mechanism within domestic agencies and other programmes responsible for medicines procurement. More generally, the practicalities of situating the system as an integral part of procedures for access to medicines, including procurement processes and other processes such as needs identification, procurement policies and the regulation of medicines for safety and efficacy, could be considered.
- Other points raised included the possible choices for effective implementation of the system at the domestic and regional levels and, in particular, how to make the system more streamlined in its practical use in those countries that are most likely to be producers and exporters under the system. Further points discussed concerned the information needs of potential importing countries about potential sources of supply and how to facilitate the forecasting of expected needs which in turn would enable early notification under the system and more capacity to aggregate demand of similar needs.
- The economic viability, or commercial sustainability: how to use the system for greater predictability for potential suppliers, and the pooling and aggregation of demand so as to ensure that its use is commercially sustainable for producers seeking to export under this system.
Find out more
2001: Doha Declaration on the TRIPS Agreement and public health reaffirmed the rights of WTO members to use flexibilities under the TRIPS Agreement to promote health objectives