AIDS TREATMENT NEWS No. 079 - May 15, 1989
John S. James

In the United States, it would probably be impossible to pass such a law over the opposition of the pharmaceutical indus- try; too many lawmakers are more influenced by campaign contributions than by the public interest. We suggest the concept because a limited kind of compulsory licensing might be in the interest of pharmaceutical companies (and therefore politically possible), as well as in the interest of persons with serious or life-threatening illnesses. Compulsory licensing could overcome the liability problems which otherwise block the treatment use of new drugs even when government agencies ask for their release. It could place responsibility for emergency access to drugs clearly in the hands of the government, which has public accountability, as private companies do not. It would not open the door to quackery, because compulsory licensing would only be used for drugs requested by government bodies for emergency treatment use. And it might be acceptable to the industry, because whenever it was used it would turn an unmarketable drug which was only a loss to the company which held the patent into a risk-free, trouble-free source of profit instead.

In Canada, compulsory licensing of pharmaceutical patents has been the law since 1923. Its main purpose is to keep drug prices low by encouraging generic pharmaceuticals. Compulsory licensing was not used very often until 1969, however, because until that year the generic drug had to be manufactured in Canada in order to qualify for such a license. In 1969, an amendment allowed imported drugs to qualify also, and compulsory licensing became more widely used.

According to a 1985 Canadian report (by the Commission of Inquiry on the Pharmaceutical Industry), the law had succeeded in greatly reducing drug prices, at no cost to the overall profitability of the Canadian pharmaceutical industry. However, that industry has bitterly opposed compulsory licensing, and after great controversy significant restrictions were adapted in 1987.

As far as we know, Canada is the only country with compulsory licensing of pharmaceuticals. In the United States, a bill proposing such a system was introduced in the House of Representatives in 1981.

In the United States today, compulsory licensing could be most important when patent holders have refused to allow the use of irreplaceable drugs for treating AIDS or other serious diseases (through compassionate use or through the "treatment IND"), even when the FDA has pleaded with them to do so. Under current law, there is no public recourse for access to such drugs. And companies have no incentive to make the drugs available, since it is expensive to do so and the manufacturers are seldom allowed to charge anything, even to reimburse their costs. In addition, they could face product liability lawsuits in the future, another reason to deny use of the drug, for which they are usually the only legal source. All existing incentives are for companies to deny access to potentially lifesaving drugs, before completion of the years-long process of obtaining full marketing approval. In the United States today, allowing physicians to use any experimental drug is all cost and no benefit to the company which holds the patent rights.

Under compulsory licensing, a government body (probably a commission set up within in the Public Health Service) could designate drugs urgently needed for treatment use (not for gen- eral marketing), and issue a license to any qualified company which contracted to supply the drug. The price would be set in the contract. The commission would also set a fair royalty (probably a percentage of the contract price), which would be paid to the patent holder. The patent holder would therefore receive a royalty without any trouble or expenseQor any risk of liability, since it had done nothing to provide the drug. It would also benefit from data which could speed full marketing approval, and also from the favorable publicity of having its drug selected by an independent body as beneficial and indeed essential.

The cost for this system would be minimal, for several rea- sons. The price for the drug would presumably be low, near the generic price; this emergency access system would not have to pay for the cost of development of the drug, since compulsory licensing places no additional cost on the licensor, but only provides pure profit. If the government paid for the drug, the total cost would also be kept low by the fact that few drugs would be distributed this way, as this system would be used only when urgently necessary. The cost of deciding which drugs to release would also be low, since only a few obvious candidates would ever be considered. (By contrast, the FDA must consider thousands of drug applications, and apply much more thorough criteria to approve for general marketing than would be appropriate to approve for treatment use in an emergency.)

In the United States, the concept of compulsory licensing of patented pharmaceuticals has been absent from public discussion. We suggest that the idea be investigated and considered, so that legislation to provide this access to essential treatments can be proposed if necessary.

References

Chromecek, M. The amended Canadian patent act: general amend- ments and pharmaceutical patents compulsory licensing provisions. Fordham International Law Journal, volume 11 number 3, pages 504-548, Spring 1988.

Rayhurst, WL. Food for thought: compulsory licensing of patents. Intellectual Property Journal, volume 1 number 1, pages 73-76, July 1984.

Shulman, SR, and Richard, BW. The 1987 Canadian patent law amendments: revised pharmaceutical compulsory licensing provisions. Food Drug Cosmetic Law Journal, volume 43 number 5, pages 745-757, September 1988.

U. S. House of Representatives. HR 915, compulsory licensing of prescription drug patents (12 cosponsors). House Proceedings, 97-046, page H1049, March 23, 1981.

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