Patents, the WTO, and Access to Essential Medicines

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September 28, 2006

Patents, international trade agreements, and their impact on pharmaceutical innovation and access to essential medicines in developing countries were the subjects of a provocative discussion at the Law School on September 22 featuring Stanford Law Professor Alan Sykes, and Duke’s Bunya S. Womb le Professor of Law Jerome Reichman.

Introducing the discussion, Professor Joost Pauwelyn told the capacity student audience that the vast majority of people living with HIV and AIDS — more than 40 million — live in developing countries. The cost of patent protected medicines has long been out of reach for many of them, partly because of the agreement by their governments to abide by minimum intellectual property guarantees as a condition of membership in the World Trade Organization (WTO). However, through a legal process put in place by the 2001 “Doha declaration,” which was finally adopted as an amendment to the WTO-administered Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), it became possible to circumvent some of those standards in the interest of facilitating access to essential medicines in the poorest nations.

While calling reduced costs for AIDS treatment in developing countries “an extremely sympathetic case,” Sykes expressed reservations over the methods used in the Doha process, such as allowing governments to grant compulsory licenses in the face of national emergencies; over the objections of a patent rights holder, a government can authorize licensees to produce the patented goods, such as pharmaceuticals, in return for “adequate remuneration.” “That does’t amount to very much,” said Sykes, adding that “national emergency” is not defined, though it is generally interpreted to include public health crises.

“Reducing the intellectual property protection for pharmaceuticals in developing countries is very much a double-edged sword,” said Sykes. “To do it for AIDS means that pharmaceutical companies will know that it can potentially be done for other things such as for malaria drugs or drugs to arrest drug-resistant TB. And it generally means that the expected royalties for pharmaceutical companies in developing markets are diminished.”

Any reduction in intellectual property rights could greatly discourage pharmaceutical innovation, said Sykes, as virtually all the costs involved in developing new drugs, including the cost of clinical trials, are borne by the innovator. For that reason, a reasonable period of “supra-pricing” to benefit the innovator is essential, he said, arguing that it isn’t enough to offer patent holders full rights in the developed world. “Every little bit of patent ‘rents’ helps encourage research in an area where too little research is going on.” A total relaxation of patent protection in developing countries could have a particularly chilling effect on research into drugs to combat tropical illnesses, in particular, said Sykes, such as malaria, sleeping sickness, and drug resistant TB, as innovators would see almost no prospect of profit or recouping costs.

Saying there is no evidence that the patent system has so far attracted the development of effective and affordable drugs for neglected diseases in developing countries, Reichman, one of the world’s top authorities on the TRIPS agreement, credited the 2005 amendments with sparking new prospects for regional pharmaceutical procurement policies by poor countries.

One series of amendments make it possible for a developed country to issue a second compulsory license to support a first compulsory license in a developing country, Reichman explained, one to supply goods domestically, and another to produce goods for export to a developing country that lacks manufacturing capacity. One payment is imposed in the developed country, at rates based on conditions in the developing country, and the goods can’t be re-exported. “We can now actually supply these goods, these essential medicines, assuming developed countries enact enabling legislation,” he said, noting that Canada, Norway, Korea, and India have already done so, with Switzerland and the EU expected to follow suit.

Other amendments gave the least developed countries an exemption from some of their TRIPS obligations until 2013, and a further exemption from patenting pharmaceuticals until 2016. Significantly, said Reichman, if a regional group of these countries associated themselves in a trade association, 50 percent of members of which are among these least developed countries — “the poorest of the poor” — they can re-export imported goods, including essential medicines, imported under double compulsory licenses throughout the entire region.

“What I want to persuade you of is that my dream of establishing regional pharmaceutical supply centers in poor countries, which I launched four or five years ago before we had this enabling legislation, has now become legally feasible,” said Reichman. He proceeded to outline, by way of example, the formation of a loose trade agreement between 12 countries in sub-Saharan Africa, and their subsequent establishment of a regional pharmaceutical supply center in a member country exempt from patent protections until 2016. The center’s board of directors, composed of member countries’ health ministers, would decide which essential medicines were needed regionally; they would make the necessary compulsory licenses under Article 31 of the TRIPS agreement, and then endorse the licenses over to the central pharmaceutical supply center. “Behold, suddenly the directors find themselves in a very strong negotiating position vis-a-vis the pharmaceutical companies,” said Reichman.

“The ministers, acting jointly, holding this bundle of compulsory licenses, can go to the original patent holder and offer the possibility of supplying the entire regional market, if it agrees to supply the drugs at truly affordable prices,” he said. “One of the things we have learned is that under the existing set of incentives, the manufacture of these drugs in developed countries is not being induced by markets in developing countries. So … if in these markets they get the marginal cost of production plus a genuine royalty of five or six percent, they are receiving rewards that go far beyond their original investment calculus.” Through this arrangement the patent holders would also be preserving their trademark and market share in the entire region against future competition, Reichman added.

The ministers could offer “an even better deal” to the patent holder if the latter set up a regional factory, supervised production quality and supplied the member states from the regional facility, said Reichman. “The manufacturer then becomes a power in the region, we get exchange of know-how, we get spillovers, we get capacity building in these countries.” Such an arrangement would also help satisfy a little known provision in the TRIPS agreement which imposes hard obligations on developed countries to transfer technology to the least developed countries in order to give them a viable technological base, he said. And if the original patent holder declined such an offer, the directors could approach countries with experience producing generics, such as India, China, or Brazil, offering them a chance to develop a robust generic industry over 10 years which could subsequently convert to research.

“Are these scenarios just another pipe dream? Will political pressures, incompetence, and corruption kill them in practice?” asked Reichman. “Certainly there is a question about quality standards, but Bangladesh and Columbia have been able to meet pharmaceutical quality standards set by the WHO, and I have no doubt that if we have turnkey projects we could do it in these countries.”

“Patents, the WTO, and Access to Essential Medicines in Developing Countries” was sponsored by Duke’s Center for International and Comparative Law and the student-run International Law Society. A webcast of the panel discussion is available at