Compulsory licensing operates to trim down the power of the exclusive rights conferred by a patent. Its application arises where a patent protection exists in countries where an inventor has received a valid patent. Good patents are expensive and should be filed in each country in which protection is sought. It is now firmly embedded in law that if an inventor elects not to secure protection in a particular country or a market, any interested person may make use, offer for sale or sell the product in that market or use the process or produce the product for export. In historical fact the underlying justifications for compulsory licensing is to maintain a state’s national security and public interest. Compulsory licensing is a device utilized to meet domestic needs by limiting importation of a patented product and ensuring that lack of exploitation by the patentee will not impede the export market being supplied with the patented product. The state’s ability to surpass the patentee’s non-authorization after being consulted is a crucial counterbalance to absolute monopoly power.
As a matter of fact, the great majority of patents are owned by larger corporations or multinational companies having the financial capacity to undertake the required research. Accordingly, it is a pre-condition to funding that ownership of all patents rights shall bestow on these corporations. The financial capacity of larger corporations provides them with the power to utilize the regime of patent protection in a manner conducive to claim ownership in many inventions.
The prime goal of an offensive patent strategy is to set up an extensive patent protection to the extent of controlling a particular business area in the territories covered by the patent. On the other hand, the main purpose of the defensive patent strategy is to utilize well calculated measures to preclude others from patenting in a specific field. Larger corporations prefer to employ their patents defensively with a view to protecting strategic technologies more willingly than to license them to non-competing companies. Immediate competitors would be perfectly debarred. Patents are considered strategic assets which deserve to be defended to boost up the company’s competitive edge and earning capacity. It is pertinent to indicate that some of these inventions may not be put into operation and others may be filed to perplex competitors. Again, patent monopolies lead to keeping research findings under wraps in a manner that would ultimately restrict the dissemination of research findings and hence slow down the advancement of research. Such a state of affairs will provide transnational companies the chance to deal with the entire world as their untreated field of open wealth, workforce and consumer market. On account of this, patent monopolies result in economic distortions in the like manner that trade tariffs or quoted quotas steer economic distortions, however, the extent of distortions in the former case is excessive. Consequently, the earliest notion of the patent as an individual or an entrepreneurial right does no longer survive.
At present an inventor may be one who has put in a significant part to an invention, as a minimum, one of the claims scheduled in the patent is attributable to that inventor. The argument that diminutive protection usurps innovators from the fruit of their creativity i.e. the predictable reimbursement in substitute of making a full and complete disclosure can no longer be convincingly upheld. The general view even in major industrialized countries such as the U.S.A is that the direct reason of elevated drug prices is government approval of patents monopolies, which permits drug companies to charge prices commonly 400 percent or extra on top of competitive market prices. Lack of competition in some industries entails high profits. This is due to the fact that rival companies have no access to critical inputs such as skilled labor and entrepreneurship. This signifies a vital resource limitation and hence the likelihood of unusual profits. Given these facts, the likelihood of some of the developing countries being entirely competitive is highly remote in the near future. In addition to that lack of specialist knowledge in appraising investment in innovative pursuits may add to the technological gap. Again, Research and Development (R&D) requires a science-base sector which is weak or not sufficiently available in developing countries. In the industrialized countries such as the U.S.A public and the private sector engage to perform R&D utilizing specialized governmental facilities regularly having exceptional potentialities not available to the private sector such as equipment, expertise and information. In cases where the information is of high interest to the scientific community at large a Cooperative Research & Development Agreement (CROA) will be structured. This entails sharing information, exchanging personnel, finding technical assistance, utilizing distinctive government laboratory facilities and potentialities, licensing patent and technical know-how, forming consortia and using technology built-up by virtue of government contracts.
Some commentators espouse the view of establishing publicly aided research centers through purchase of patents by governments and set them in public domain. A host of other suggestions are offered such as zero-cost compulsory licensing founded on value and extent of use, a mandatory employer developed research fee to be distributed to researchers, curtailing expenses squandered on excessive marketing, and duplicate research. Moreover, it is suggested that research and development of copycat drugs may militate against the present crisis. This suggestion is structured on the ground that developing countries in reliance on paragraph 39.3 of the TRIPS are entitled to undertake testing to establish the bioequivalence of generic products before expiration of the relevant patent on the premise that protection as regards test data is confined to chemical entities to the effect that usage for second and further applications is permissible.
The conflict between the yearning of the industrialized countries to control the justifications of compulsory licensing and the developing countries to ease and make things easier as regards compulsory licensing typified the TRIPS negotiations. As a compromise article 31 of the TRIPS provides in pertinent part for other use of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the government, subject to certain conditions such as assessment of the other use on its individual merits, securing prior authorization from the right holder. However such authorization may be waived in the case of national emergency or other circumstances of extreme urgency or in case of public non-commercial use or in the event that prior to use the right holder declined to provide authorization though reasonable commercial terms were offered.
In a case of anti-competitive practice, prior consultation is not required, and the amount of remuneration will be assessed on the need to correct the said anti-competitive practice. In the case of semi-conductor technology, compulsory licensing shall only be for public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive. The said use shall be non-exclusive, non-assignable, authorized predominately for the supply of the domestic market subject to payment of adequate remuneration to the right holder and adequate protection of the legitimate interests of the authorized person. As a safeguard, the right for judicial review to assess legal validity of the authorization and adequacy of the compensation is provided for. Article 7 entitled objectives sets down a subtle weighing scale between the requirement to recompense inventors and the demand for technological dissemination. It aims at striking a balance that protection and enforcement of intellectual property rights must eventually lead to the promotion of technological innovation and the transfer of technology. Again, article 8 provides that members may adopt the necessary required measures to protect public health and nutrition insofar as such measures are not contravening the provisions as contained in Article 31 of the TRIPS which deal with compulsory licensing.
It is obvious that the TRIPS Agreement does not thoroughly itemize the basis for granting of a compulsory license without prior authorization of the right holder. However, as hereinbefore stated a number of conditions were indicated such as national emergency or other extreme urgency, public non-commercial use, to remedy an adverse anti-competitive practice as determined by a competent judicial and administrative authority. In other instances, such as the case of a dependent patent, prior consultation with the patentee is required unless an unsuccessful effort has been exercised and proved to be futile. The effort must be in line with normal commercial practices. Overriding public interest furnishes the ground for exploitation by the government or any other authorized third party. Failure to supply necessary products such as drugs at affordable prices justifies compulsory licensing within the ambit of public non-commercial use.
Access to drugs at reasonable prices may be difficult to achieve in a country facing financial hurdles, physical and infrastructure barriers, in addition to the information gap. In the same vein, compulsory licensing may be executed by means of parallel importation from compulsory licensees of patent products where the size of the market does not justify local manufacturing. Concomitant to this, a compulsory licensee can export the products to other markets. The said measures are considered to be effective machinery apt to force intellectual property rights holders to sell their protected products of high need at reasonable affordable prices.
In connection with access to essential medicine, developing countries have argued that the TRIPS Agreement does not limit their sovereignty to address epidemics such as HIV/AIDS, tuberculosis, and malaria. They entertain the view that compulsory licensing and parallel importation are permissible objectives that do not violate the TRIPS Agreement. They contend that the Ministry of Health in any developing country may on the basis of national security and the public interest authorize an importer to procure essential drugs not manufactured by the patentee to meet national health requirements. Developed countries, particularly the U.S.A and Switzerland have argued that the only flexibility in the TRIPS Agreement is the deferred implementation periods developing countries can enjoy under the agreement. One would hope that Article 31 is to be given its ordinary sense and is not to be watered down. Any effort to whittle away the privilege conferred by the said article may have a negative impact. Access to essential medicine represents the first dispute between developing and developed countries as regards the TRIPS Agreement. Developed countries adopt the view that high level of intellectual property protection furnishes the needed incentive for investment in research and development which is the paramount guarantee to access to indispensable medicine for all countries. In contrast, developing countries advocate the view that strict construction of the TRIPS Agreement fails to recognize the legitimate interest of these countries.
The ministerial Declaration on TRIPS and Public health adopted by WTO ministers in the Doha Round in December 14, 2001 entitled “Doha Ministerial Declaration” clearly delineates the grounds and conditions under which compulsory licensing may be given and at the same time keeping the TRIPS provisions intact. The yardstick in employing compulsory licensing is an exercise of an assessment of the public interest of working the patent against the public interest in the protection and enforcement of intellectual property rights. The relevant country is obligated to weigh up the competing interests. In light of the predictability needed in the intellectual property regime, the public interest of working the patent must outweigh the public interest in the protection and enforcement of intellectual property. However, such a decision as stipulated in paragraph 27.1 of the TRIPS must be made without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.