Bringing down the cost of medicine through compulsory licensing

Amicus Curiae
Harry Gwynn Omar M. Fernan

Posted on September 16, 2015

The prices of medicine in the Philippines are higher compared to other countries in Asia and in countries of similar economic status. Some of the factors affecting medicine prices are the cost of research, presence of competition in the market, government regulations, and patent protection.

Medicines with existing patents are expensive due to the ability of pharmaceutical companies to dictate their price. The grant of a patent over such products practically results in a monopoly.

Under the Intellectual Property Code of the Philippines (IP Code), inventors are granted exclusive rights to exploit an invention (including medicines) for a period of 20 years from the filing date of the application.

Patent protection is important in the search for cures of diseases because it gives incentive to inventors and pharmaceutical companies to invest in the research and development of medicines. A patent gives pharmaceutical companies a monopoly spanning a period of 20 years to recoup their research expense and obtain reasonable profit. Patent grants may, however, result in arbitrary pricing of medicines.

The drug Soliris, for example, costs half a million dollars or 20 million pesos per year for each patient despite a production cost of less than 1% of the selling price. It is considered one of the world’s single most expensive drugs and is produced by a relatively new player in the pharmaceutical industry, Alexion Pharmaceuticals.

One way to bring down the prices of medicine is through compulsory licensing. Compulsory licensing allows competition among pharmaceutical companies resulting in lower prices.

Section 93 of the IP Code allows the grant of a license to exploit a patented invention even without the agreement of the patent owner under certain circumstances such as national emergencies or other circumstances of extreme urgency. Once a compulsory license is granted, the patented medicine may now be manufactured by the grantee subject to the payment of reasonable royalties to be fixed by the Intellectual Property Office (IPO). Based on jurisprudence, the amount of royalties to be paid to the patent holder is typically 2.5% of the wholesale price of the patented product. This amount of royalty is small enough to allow the grantee of the compulsory license to sell the medicine at a much lesser price. Through this, competition is established.

In the case of Parke, Davis and Company vs. Doctors’ Pharmaceuticals, Inc., et al., the Supreme Court said that the grant of a compulsory license is intended not only to give a chance to others to supply the public with the quantity of the patented product but especially to prevent the building up of patent monopolies.

The Doha Declaration on the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement and Public Health allows countries to determine what constitutes a national emergency or other circumstance of extreme urgency. This will give the government ample leeway to determine which medicines are necessary to address health crisis and, thus, make medicines affordable. Drug manufacturers may file a petition with the Director of Legal Affairs of the IPO for the grant of a license to manufacture and sell a patented drug.

Under the IP Code, public interest, in particular, national security, nutrition, health, or the development of other vital sectors of the national economy is sufficient ground to grant a compulsory license.

Under the TRIPS Agreement, however, not every patented medicine may be a subject of a compulsory license.

Common illnesses such as hypertension and heart disease, do not fall under circumstance of extreme urgency. Thus, hypertensive drugs may not be a subject of compulsory licensing.

When Thailand granted a compulsory license for Plavix, a drug to prevent heart disease, it was considered to have violated the TRIPS Agreement. Ronald Cass, dean emeritus of Boston University Law School and chairman of the Center of the Rule of Law, a property-rights organization, opined that Thailand violated the TRIPS agreement because the circumstances of the Thai case do not fall within the narrow exceptions of the TRIPS Agreement on when a government may use patented technology without first negotiating with the patent holder.

Under the TRIPS Agreement, member countries may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.

The Doha Declaration relaxed the exception to the rights conferred by a patent under the TRIPS Agreement and recognized the inability of poor countries to pay for essential medications for its citizens. The Doha Declaration allowed the grant of compulsory licenses based on national emergency or other circumstances of extreme urgency, national emergency being understood as one that involves public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics.

While it seems that the IP Code may subject any patented medicine to compulsory licensing as long as there is a public interest to be protected, international agreements such as the TRIPS Agreement limit such scope. The State has the duty to protect and promote the right to health of its people.

Countries such as India, Brazil, and Thailand went as far as violating the TRIPS Agreement in order to protect the health of its citizens. Intellectual property protection is indeed vital to the growth and development of civilized society. However, at a certain point, an individual’s right to life of the people should be considered paramount.

Harry Gwynn Omar M. Fernan is an Associate of the Intellectual Property Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).