Article 31: Other Use Without Authorization of the Right Holder

Article 31 TRIPS regulates exceptional uses of patented inventions other than those allowed under Article 30.³⁰⁶ In particular, Article 31 facilitates the granting of non-voluntary or compulsory licenses under specific circumstances, where the public interest is regarded of higher importance than the exclusive rights of patent owners.³⁰⁷ The concept of compulsory licensing is not new and existed in most nations long before the TRIPS Agreement was concluded.³⁰⁸ In brief, a compulsory license is granted by a government, directed at a single patented invention, permitting a third party to produce and use the patented goods without requiring the authorisation of the patent owner.³⁰⁹ However, compulsory licenses do not generally ‘break’ a patent, so that rights holders retain their exclusive rights towards all other actors interested in using the patented invention.³¹⁰ Thus, compulsory licenses are not intended to undermine the legitimate rights of patent holders, but to amend or regulate inappropriate market behaviour. The imposition of compulsory licenses can therefore, be utilised for the protection of public interests, by limiting the private power inherent to exclusive patent rights.³¹¹ In particular, such licenses can drive down prices, and facilitate follow-up and new inventions, thereby not only improving the affordability of products, but generally facilitating a wider accessibility.³¹²

In the context of addressing public health concerns, compulsory licenses can serve the purpose of reducing the prices of pharmaceutical products in order to make them accessible to a larger number of patients, including poorer members of the population.³¹³ India’s patent laws, for example, utilised this TRIPS flexibility for enhancing the accessibility of medicines, by implementing the non-availability of a pharmaceutical product at a ‘reasonably affordable price’ as a ground for issuing a

306 TRIPS Agreement (n 32) Footnote 7 to Article 31; cf. Sellin J (n 35) 201; UNCTAD-ICTSD (n 35) 461.

307 cf. Sellin J (n 35) 200; UNCTAD-ICTSD (n 35) 461.

308 UNCTAD-ICTSD (n 35) 462.

309 cf. Ho CM (n 31) 127; Sellin J (n 35) 200.

310 Ho CM (n 31) 127.

311 cf. Sellin J (n 35) 200, UNCTAD-ICTSD (n 35) 461.

312 Correa CM, A commentary on the TRIPS Agreement (n 129) 313.

313 Abbott FM and Reichman JH, ‘The Doha Round’s Public Health Legacy: Strategies for the Production and Diffusion of Patented Medicines under the Amended TRIPS Provisions’ (2007) 10 JIEL 921, 970.

86 compulsory license.³¹⁴ Furthermore, the general possibility of threatening the use of a compulsory license can provide an essential means of leverage for governments in negotiations with the industry, regarding the pricing of medicines.³¹⁵ Thereby, the availability of compulsory licenses is not only an exception to the exclusive rights granted by a patent, but also a means for ‘promoting effective price negotiations with patent holders’.³¹⁶

Article 31 TRIPS provides detailed conditions and limitations regulating the use of compulsory licenses, but refrains from defining or limiting the grounds upon which a compulsory license can be granted, indicating that WTO member states are free to self-determine these grounds.³¹⁷ Similarly, TRIPS does not limit the types of patents or products that can be subject to compulsory licensing.³¹⁸ The right of governments to freely determine the grounds upon which compulsory licenses can be granted was further reaffirmed by Article 5(b) of the Doha Declaration, which explicitly provides that every member of the WTO not only has the right to grant compulsory licenses, but also ‘the freedom to determine the grounds upon which such licenses are granted.’³¹⁹ Similarly, with regard to pharmaceutical products, TRIPS does not include any limitations on the types of diseases for which compulsory licenses can be granted.³²⁰ Again, this was reaffirmed by paragraph 1 of the Doha Declaration which, while mentioning examples of specific diseases, provides a non-exhaustive list of health conditions, thereby not limiting the applicability of the TRIPS flexibilities to any specific diseases.³²¹

It follows that compulsory licenses under TRIPS can theoretically be issued for any reasonable purposes.³²² In this respect, Article 31 simply regulates the procedures and conditions to be followed when issuing a compulsory license in order to ensure the

314 Ho CM (n 31) 143.

315 Abbott FM and Reichman JH (n 313) 970.

316 ibid.

317 cf. Correa CM, A commentary on the TRIPS Agreement (n 129) 313-314; Sellin J (n 35) 200;

UNCTAD-ICTSD (n 35) 462.

318 Ho CM (n 31) 127-129.

319 Doha Declaration (n 64) Paragraph 5(b); cf. Reichman JH, ‘Comment: Compulsory Licensing of Patented Pharmaceutical Inventions: Evaluating the Options’ (2009) Pharmaceutical Regulations 247, 249.

320 Outterson K, ‘Disease-Based Limitations on Compulsory Licenses under Articles 31 and 31bis’ in Correa CM (ed), Research Handbook on the Protection of Intellectual Property under WTO Rules:

Intellectual Property in the WTO Volume I (Edward Elgar Publishing 2010) 675.

321 Doha Declaration (n 64) Paragraph 1.

322 Gumbel M, ‘Is Article 31bis enough? The Need to Promote Economies of Scale in the International Compulsory Licensing System’ (2008) 22 Temple Int’l & Comp. L. J. 161, 167.

87 fairness of the system and its use in a legitimate manner.³²³ In general, compulsory licenses can be issued both for governmental use, and for use by third parties authorised by the government.³²⁴ Governments, however, cannot issue general compulsory licenses for entire fields of technology or types of enterprises, as, just like Article 30 TRIPS, Article 31 is subject to the non-discrimination principle of Article 27.1 regarding, inter alia, the field of technology.³²⁵

For the issuance of a compulsory license, Article 31(a) TRIPS provides that each

‘authorisation of such use shall be considered on its individual merits’.³²⁶ It follows that every application needs to be reviewed on a case-by-case basis to establish whether the criteria for the grant of a compulsory license are fulfilled.³²⁷ To protect the legitimate interests of patent owners, however, compulsory licenses should only be adopted as a measure of last resort. Thus, before a compulsory license can be granted, Article 31(b) requires that the proposed grantee has to engage in prior negotiations with the rights holder, seeking to obtain a voluntary license based on

‘reasonable commercial terms and conditions’.³²⁸ While this requirement is not further defined by TRIPS, ‘reasonable commercial terms and conditions’ seem to include the payment of adequate royalty fees, the reasonable duration of the license, and potential export restrictions to protect the interests of the patentee in other markets.³²⁹

The subsequent grant of a compulsory license is only adequate if such negotiations

‘have not been successful within a reasonable period of time.’³³⁰ The reasonableness of this period may, inter alia, depend on the purpose for which a license is required.³³¹ It can therefore be suggested that a license for the production of a life-saving drug would justify a relatively short negotiation period, as otherwise unwilling patent holders could abuse negotiations to substantially delay the issuance of compulsory licenses.³³² In this respect, Article 31(b) further provides that the requirement of prior negotiations can be waived in situations ‘of a national emergency or other

323 cf. UNCTAD-ICTSD (n 35) 462.

324 TRIPS Agreement (n 32) Article 31.

325 UNCTAD-ICTSD (n 35) 468 and 480.

326 TRIPS Agreement (n 32) Article 31(a).

327 cf. UNCTAD-ICTSD (n 35) 468; Gervais DJ, The TRIPS Agreement (n 129) para 2.409.

328 TRIPS Agreement (n 32) Article 31(b).

329 Gervais DJ, The TRIPS Agreement (n 129) para 2.409; UNCTAD-ICTSD (n 35) 469-470.

330 TRIPS Agreement (n 32) Article 31(b).

331 UNCTAD-ICTSD (n 35) 470.

332 ibid.

88 circumstances of extreme urgency or in cases of public non-commercial use.’³³³ Of particular importance in this regard, is paragraph 5(c) of the Doha Declaration, acknowledging the right of each WTO member to self-determine what constitutes a national emergency or ‘other circumstances of extreme urgency’, further recognising that public health crises, including, but not limited to, HIV/AIDS, tuberculosis, malaria and other epidemics ‘can constitute a national emergency or other circumstance of extreme urgency.’³³⁴ To remedy anti-competitive behaviour, the requirement of prior negotiations can further be waived under Article 31(k) TRIPS, when a compulsory license is granted after a judicial review.³³⁵

According to Article 31(c) TRIPS, the scope and duration of a compulsory license

‘shall be limited to the purpose for which it was authorized’.³³⁶ As the TRIPS Agreement sets no criteria for the assessment of the scope and duration, it seems sensible to suggest that every compulsory license needs to be customised for the specific purpose of its authorisation.³³⁷ In consideration of this specific purpose, Article 31(g) TRIPS regulates that a compulsory license shall further be subject to termination once the circumstances that led to its authorisation cease to exist.³³⁸ Nevertheless, Article 31(g) acknowledges the importance of protecting the legitimate interests of the persons authorised under a compulsory license, to recover the potentially substantial investments made in order to work a compulsory license in the public interest.³³⁹ Without the safeguard provided by Article 31(g), it could be expected to be exponentially difficult to find a distributer willing to make such an investment.

To protect rights holders, Article 31 TRIPS provides certain safeguards to ensure that compulsory licenses do not unreasonably interfere with the legitimate interests of patent owners.³⁴⁰ In this respect, Article 31(h) requires the payment of adequate

333 TRIPS Agreement (n 32) Article 31(b).

334 Doha Declaration (n 64) Paragraph 5(c).

335 TRIPS Agreement (n 32) Article 31(k).

336 ibid Article 31(c).

337 Ho CM (n 31) 136-137.

338 TRIPS Agreement (n 32) Article 31(g).

339 ibid; UNCTAD-ICTSD (n 35) 474-475.

340 In addition to the here discussed paragraphs (h) and (f) of Article 31, the TRIPS Agreement provides further safeguards for the protection of patent owners in paragraphs (d), (e), (i), and (j), an analysis of which, however, exceeds the scope of this thesis. In essence, Article 31(d) and (e) TRIPS provide that compulsory licenses shall be exclusive and assignable. This non-exclusivity requirement allows patent holders to continue the commercialisation of their patented products, and to issue voluntary licenses to other manufacturers, while the non-assignability

89 remuneration to the rights holder, subject to the circumstances of each individual case.³⁴¹ To determine the adequacy of this remuneration, TRIPS provides that the

‘economic value of the authorization’ shall be taken into account.³⁴² While it would be in the interest of patent holders to receive a remuneration equivalent or similar to the market rate, it has to be borne in mind that compulsory licenses aim to serve higher public objectives, so that the term ‘adequate’ may suggest that the remuneration should rather be sufficient on a minimum level.³⁴³ In particular, in the context of the protection of public health, it can be suggested that remuneration for pharmaceutical products should be below the common market rate, to ensure that compulsory licenses can effectively reduce the prices of required medicines.³⁴⁴

Lastly, Article 31(f) TRIPS stipulates that compulsory licenses ‘shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use’,³⁴⁵ unless a compulsory license is issued in accordance with paragraph (k), to remedy anti-competitive behaviour.³⁴⁶ As the TRIPS Agreement does not provide any further guidance on the term ‘predominantly’, it is commonly suggested that the majority of products produced under a compulsory license, i.e. at least 50.1 percent, need to be produced for the supply of the domestic market.³⁴⁷ Simultaneously, this definition suggests that compulsory licenses can generally be issued for exportation, as long as the majority of products stay within the issuing country’s market.³⁴⁸ However, this also means that in situations where a product is urgently required abroad, production under a compulsory license can only be of assistance where the same product is required in the domestic market of the exporting country.

While the possibility to grant compulsory licenses should provide considerable benefits for enhancing the accessibility of medicines in developing countries, the

requirement aims to prevent the emergence of a market in compulsory licenses, which undermines the rights of patent holders. Furthermore, Article 31(i) and (j) TRIPS safeguard patent holders by granting them an opportunity to legally challenge both the initial decision to issue a compulsory license as well as any decisions concerning the remuneration provided to them under Article 31(h) TRIPS. See thereto: TRIPS Agreement (n 32) Article 31(d), (e), (i), and (j); Ho CM (n 31) 136;

UNCTAD-ICTSD (n 35) 473.

341 TRIPS Agreement (n 32) Article 31(h).

342 ibid.

343 Ho CM (n 31) 138; UNCTAD-ICTSD (n 35) 475.

344 Ho CM (n 31) 138.

345 TRIPS Agreement (n 32) Article 31(f).

346 ibid Article 31(k).

347 cf. Correa CM, A commentary on the TRIPS Agreement (n 129) 321; Ho CM (n 31) 135;

UNCTAD-ICTSD (n 35) 474.

348 UNCTAD-ICTSD (n 35) 474.

90 system provided by Article 31 was heavily criticised as being ineffective for a variety of reasons.³⁴⁹ In particular, it can be suggested that the WTO does not provide sufficient safeguards to prevent threats of trade sanctions against countries intending to utilise Article 31.³⁵⁰ A major problem in this respect, can be seen in the imbalance of power between developing countries and multinational corporations, particularly with regard to the pharmaceutical industry with exclusive rights over life-saving medications. Any government that intends or decides to grant a compulsory license does so in the knowledge that this will displease the patent holder, and that patent holders are likely to try anything to prevent a compulsory license being issued. This means that when the legal means to prevent such licenses under TRIPS are exhausted, a corporation might decide to retaliate against government decisions by withdrawing other patented products from markets where compulsory licenses are issued.³⁵¹ This happened for example, when Thailand issued a compulsory license for Abbott’s HIV drug Kaletra. Abbott decided to withdraw from filing patents for seven new drugs in Thailand, including an HIV drug that is particularly suitable for Thailand’s tropical climate.³⁵² Considering the severity of those threats, developing countries tend to be more cautious about issuing compulsory licenses, as the balance of power is lopsided towards the multinational industry.³⁵³

Similarly, developing countries and LDCs may be threatened by unilateral economic and/or trade sanctions imposed by industrialised nations.³⁵⁴ If a developed country government assumes that a compulsory license interferes with the interests of patent holding corporations based in their country, such a developed nation may try to intervene to prevent the issuing of such a license. One of the practices applied by developed country governments is to threaten trade sanctions, which may lead to even more severe problems in developing countries, than the acute health issues which the compulsory license is intended to alleviate.³⁵⁵ While this imposition of unilateral measures is not allowed under TRIPS and the WTO, trade sanctions are a very real

349 Sellin J (n 35) 210-211.

350 ibid 211.

351 Ho CM (n 31) 149.

352 ibid 150.

353 ibid 150-151.

354 ibid 151.

355 ibid.

91 threat for developing countries – as past state practices prove³⁵⁶ – and seem to be one of the main reasons for developing countries and LDCs refraining from issuing compulsory licenses.³⁵⁷

Additionally, compulsory licensing under TRIPS can be criticised for the complexity of the procedural and administrative requirements of Article 31 itself, which severely constrain the efficacy of the system.³⁵⁸ Scrutinising this inefficacy of the procedural requirements, it becomes apparent that a particular problem for the protection of public health is inherent in the requirement of prior negotiations with the rights holder. As the industry is not keen on providing licenses that lower their profitability, such negotiations are complicated and can become a rather lengthy process, thereby jeopardising the timely issuance of compulsory licenses for the protection of human health and life.³⁵⁹ Another obstacle to the efficacy of compulsory licenses is that such licenses seemingly only provide exceptions to patent rights under Section 5 of Part II TRIPS, not, however, to the data exclusivity provisions of Section 7 of Part II TRIPS,

356 A much-recited illustration of such unilateral threats can be found in the example of the United States pressurising Thailand as a countermeasure for making use of the flexibility to issue compulsory licenses for public health reasons. Thailand attempted to utilise the system provided by Article 31 to provide compulsory licenses for pharmaceuticals intended to treat cancer and heart diseases. This led to strong criticism from conservative media, pharmaceutical corporations, and industrialised country governments, which – disregarding the actual wording of TRIPS and the Doha Declaration – claimed that Thailand was in violation of global trade rules. For US retaliation measures, however, it is not necessary to be in violation of any specific TRIPS regulations.

Thailand, although in compliance with international IP laws, was thus listed in the US ‘Special 301’ report for allegedly offering inadequate IP protection. As such a listing may have

implications on the investment strategies of rights holding industries with severe impacts on the economy of a listed country, the action taken by the US governments must be regarded as an unjustified unilateral measure of economic pressure, leading to a reluctancy of developing countries utilising compulsory licenses. See thereto: Boundsin A, ‘Thais warned over drug pricing pressure’ Financial Times (10 August 2007) <https://www.ft.com/content/ad6e844a-46a5-11dc-a3be-0000779fd2ac> accessed 14 Mai 2019; Ho CM (n 31) 151-152; Outterson K (n 320) 673-675 and 678-682.

This practice of the United States is rather hypocritical, considering that when faced with their own health emergency, the US government was not hesitant to threaten the use of a compulsory license themselves. After the 9/11 attacks in 2001, when faced with potential biological warfare by anthrax infected mail, the United States decided to stockpile large amounts of the anthrax

medication ciprofloxacin, and threatened the patent holder Bayer with the issuance of a compulsory license if Bayer was not willing to halve the price of the product. See thereto:

Anderson B, ‘Better Access to Medicines: Why Countries are Getting “Tripped” up and Not Ratifying Article 31-Bis’ (2010) 1 Case W. Res. J.L. Tech. & Internet 165, 170; Dutfield G,

‘Delivering Drugs to the Poor: Will the TRIPS Amendment Help?’ 34 American Journal of Law &

Medicine 107, 115-116; Reichman JH (n 319) 250.

357 Ho CM (n 31) 152.

358 Sellin J (n 35) 211.

359 cf. Dutfield G, ‘Delivering Drugs to the Poor’ (n 356) 120.

92 as discussed below in 2.4.4.³⁶⁰ If compulsory licenses did not include a right to waive these data exclusivity provisions, generic manufacturers would be required to conduct their own clinical trials, which would delay the introduction of generic medicines, and increase their costs.³⁶¹ Similarly, the requirement of adequate remuneration for the patent holder under Article 31(h) TRIPS, as discussed above, can have detrimental impacts on the pricing of generic medicines produced under compulsory licenses.

Most notably, however, the compulsory licensing system of TRIPS can be criticised for Article 31(f), as the export restriction seems to disregard the special needs of developing countries and LDCs in urgent need of cheaper generic medicines. While in theory, developing countries and LDCs can grant compulsory licenses for the production of generic drugs, in practice, most of those countries frequently lack the manufacturing capacity to do so.³⁶² While other countries that do have the required manufacturing capacity would potentially be willing to supply the required generic products, the export restriction of Article 31(f) provides a distinct legal obstacle.³⁶³ Developing countries without sufficient manufacturing capacity in the pharmaceutical sector cannot simply authorise an overseas manufacturer to work a compulsory license, as compulsory licenses need to be issued in the country of production as well.³⁶⁴ As the compulsory license in the manufacturing country would then be required to be predominantly for domestic use, that country would need to require the same generic medicine in order to grant a compulsory license, and could further only export a maximum of 49.9 percent of the production to the initial country in need.³⁶⁵ In this respect, the export restriction of Article 31(f) seems to unduly burden countries that rely on the importation of generic medicines to satisfy the health needs of their population.³⁶⁶ It was therefore recognised by the WTO General Council that the initial

360 This is indicated by the use of the term ‘other use of the subject matter of a patent’ in Article 31 TRIPS.

361 Dutfield G, ‘Delivering Drugs to the Poor’ (n 356) 120.

362 Reichman JH (n 319) 248.

363 ibid; Anderson B (n 356) 167.

Prior to the restrictions of TRIPS, developing countries that had developed manufacturing capacity in the pharmaceutical sector, such as India, were able to export generic drugs to other developing countries and LDCs. With the end of the transitional periods for developing countries in 2005, as elaborated below in 2.4.5, however, those countries are now required to comply with the export restriction of Article 31(f). See thereto: Abbott FM and Reichman JH (n 313) 934.

364 Dutfield G, ‘Delivering Drugs to the Poor’ (n 356) 121.

365 TRIPS Agreement (n 32) Article 31(f); cf. Dutfield G, ‘Delivering Drugs to the Poor’ (n 356) 121.

366 Anderson B (n 356) 171.

93 compulsory licensing system under Article 31 TRIPS was impractical for many countries, particularly for those that needed cheaper medications most urgently.³⁶⁷

93 compulsory licensing system under Article 31 TRIPS was impractical for many countries, particularly for those that needed cheaper medications most urgently.³⁶⁷