AIDS TREATMENT NEWS Issue #314, March 5, 1999
John S. James

AIDS TREATMENT NEWS: What is a 'compulsory license'?

James Love: A compulsory license is a license that is given to a company by the government, to use a patent, copyright, or other form of intellectual property, in return for some compensation of the patent holder. It is called compulsory because perhaps the company did not want to license the patent, or may not have been happy with the terms. A compulsory license is a limitation on patent rights or other forms of intellectual property.

Compulsory licenses are used in a wide variety of cases, in both the patent and copyright areas. For example, National Public Radio has a license as a non-commercial institution to play music on the radio; PBS does also. In the biotech industry, the U.S. government has granted a fair number of compulsory licenses on key patents, to other biotech and pharmaceutical companies. The Army uses compulsory licenses in areas as diverse as satellite technology and night-vision glasses. The U.S. government uses compulsory licenses of air- pollution technology to promote clean air, under the Clean Air Act. We have compulsory licenses on nuclear technology. And in entertainment, there are many compulsory licenses including, for example, cable or satellite television.

So there are many compulsory licenses used in the U.S.-- either for public-interest reasons like clean air, or to promote more competition in business. The government limits patents or copyrights, and grants compulsory licenses for these purposes.

ATN: What is the legal status on using compulsory licensing for allowing access to drugs in poor countries?

Love: It is well accepted in international law that countries can use compulsory licenses on patents for a variety of purposes. The Paris Convention, the most important international treaty on patent right, says, "Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work." The United States is one of 151 countries that have ratified this treaty.

The Paris Convention is also referenced in the GATT, the agreement which set up the World Trade Organization (WTO). The TRIPS agreement, Article 31 (Trade-Related Aspects of Intellectual Property Rights--the part of GATT dealing with intellectual property)--specifically says that you can do compulsory licensing, but it narrows the grounds under which you can do it, and it sets out some safeguards. So under TRIPS, you can do compulsory licensing, but you have to do things in a certain way. It's somewhat complicated, and countries have to think carefully about what they are doing, and why they are doing it.

For example, if a country uses compulsory licensing as a remedy to an anti-competitive or monopoly problem, you have a great deal of latitude. For instance, the country can permit companies that get such a compulsory license to export the product into world markets--and can set the royalty even at zero percent. An example of a zero royalty license is the U.S. Federal Trade Commission's requirement for open licensing of Dell's VL bus, a technology used in personal computers. (See http://www.cptech.org/ip/health/cl for more information and examples.)

On the other hand, if you want to use compulsory licensing not to prevent anti-competitive abuses, but for some other purpose such as making the air cleaner, or giving medicines to poor people, then you have to use the product in the country, not for export; the primary market has to be domestic. You also generally have to provide some reasonable compensation to the patent owner. Most of these cases will be in that category; the companies using the patent will have to make some royalty payment to the owner.

And there are also rules on whether or not you have to negotiate with the patent owner before the government gets involved and issues a compulsory license. Before a generic drug company, or a national drug company, receives a compulsory license to manufacture a drug protected by a patent, it would first have to try and negotiate a license with the patent owner; only after that failed could they go to the government to get a compulsory license. This could take some time, and questions could be raised about whether there was good-faith negotiation.

But another part of the agreement says that if the patent is used for non-commercial government purposes, then you don't have to give notice or negotiate, you can just issue a license at that point. You still have to pay compensation, but administratively it's simpler; you just do it and deal with compensation issues later. In the United States, this would include our very broad authority to use compulsory licensing of patents and copyrights under 28 USC 1498, our eminent domain authority.

For example, if the United States government or a government contractor wanted to manufacture an important patented drug, it could just do so, and in the United States, the company cannot get an injunction against the U.S. government or the contractor; all it can do is sue for compensation. The Army does this, and NASA also, because they do not want to be tied up in court if they decide that they need some patented technology.

In these government cases in the United States, the courts have held that the government doesn't have to give the company the price that in their dreams they would like to get, or even the standard price. All the government has to compensate them for is what they have lost, at a minimum, not for what they might have gained. (An important case on this point was lost by Kenneth Starr in 1996; at that time he was representing Hughes Aircraft Company which was seeking an increase in a 1% royalty on a patent used for a satellite technology.) And U.S. courts can also consider that a patent's military uses, for example, are so unlike the other uses that a new market has been created, and take this into account to lower the amount of compensation--for example, when the Army used a commercial eyeglass patent in making night-vision goggles.

These cases are important for developing countries, because if they have people who are not getting a product now, who are just priced out of the market, if the case were brought in the United States, the government could get by with less compensation than if it gave the drug to people who could otherwise have purchased the drug in the absence of the compulsory license.

So the legal basis is very good for developing countries. They are protected under the Paris Convention, and protected under the WTO and the TRIPS, Article 31. And what they want to do is consistent with the case law in the United States, in a variety of cases.

U.S. Government Policy and Its Impact

Love: The problem for developing countries is not whether compulsory licensing of pharmaceuticals is legal, because it clearly is legal. It's the political problem of whether they will face sanctions from the United States government, for doing things that they have a legal right to do, but which the United States government does not like. In the case of Thailand, that country clearly could have done compulsory licensing on these drugs for meningitis and AIDS. They had a statute in place that gave them the authority to do it, and it was consistent with international law. But the U.S. government threatened trade sanctions, and used a carrot-and- stick approach to persuade the Thai government not to do something which would have been legal under international law. Similarly in South Africa, we are trying to stop the South African government from doing compulsory licensing of essential medicines for South Africa, not because it's against international law, but because U.S. pharmaceutical companies, and English, German and Swiss pharmaceutical companies, don't like it.

Much of the effort by public health groups is focused on trying to reign in the U.S. government. For example, if you look at the "TRIPS Amendment" in the Hope for Africa bill, which is sponsored by Rep. Jesse Jackson, Jr. (D., Illinois), that amendment says that the United States government cannot ask sub-Saharan African countries to do more in the area of protecting intellectual property, than what is already required by the WTO (the World Trade Organization, in Geneva, which interprets the TRIPS agreement). This bill would make TRIPS the ceiling on what the United States could impose upon these countries, rather than the floor, as U.S. trade negotiators see it now. Today the U.S. tells these countries that they cannot do even what is permitted in TRIPS.

And the U.S. even tries to stop other countries from doing things in their country that we do in our country. For example, the U.S. has told Israel, Cypress, Brazil, and other countries that they cannot put in their own laws provisions that are in the U.S. Waxman-Hatch Act, or we will punish them in some way if they do it.

So even U.S. law isn't the measure used by our trade officials. What we use as our standard is the wish list of policies that are dreamed up by the International Federation of Pharmaceutical Manufacturers Associations (IFPMA).

Our government has been unwilling even to explain its position to the public. You get bits and pieces in the "Section 301" reports (against specific countries) of the U.S. Trade Representative. But if you call their office and ask for policy papers on issues like parallel imports or compulsory licensing, they will say they don't have any. More than once I was directed to PhRMA (the Pharmaceutical Research and Manufacturers of America); I was told to call the pharmaceutical industry to find out why our government is doing what it does! I asked our government officials for policy statements on compulsory licensing, on parallel imports,(2) and on health registration data,(2) and even though they brought trade sanctions on all three of these issues against numerous countries, they could not produce a single document which reflected the policy behind U.S. positions.

When I meet with people in the State Department, or the Department of Commerce, even those officials who are actively involved in lobbying against compulsory licensing do not know what it means. It is appalling that government professionals who work in these areas are so ill informed.

Normally the generic pharmaceutical industry, which has different interests, would be a check on domination of U.S. policy by a single industry segment. But many of the major U.S. generic companies are now owned by proprietary pharmaceutical companies.

It will be a long battle. Some officials at the World Health Organization are afraid of this issue; last year at one point some officials in the State Department had indicated they would recommend pulling all U.S. funds out of the WHO if they thought the WHO would be too aggressive in support of policies that would broaden access to patented medical technologies in poor countries. That was not the consensus view of the U.S. government; but there are radical people within the State Department who do not understand that they work for the U.S. government, not the U.S. drug companies.

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