Compulsory licensing and the duty of good faith in TRIPS.

AuthorBagchi, Aditi
PositionAgreement on Trade-Related Aspects of Intellectual Property - Symposium on Treaties, Enforcement, and U.S. Sovereignty

INTRODUCTION I. TEXTUAL BASES FOR GOOD FAITH II. AUTHORITY FOR THE ENFORCEMENT OF GOOD FAITH III. GOOD FAITH IN THE EXERCISE OF PATENT RIGHTS A. Underutilization B. Differential Pricing IV. GOOD FAITH IN THE ENACTMENT OF COMPULSORY LICENSES A. Reverse Takings B. Emergency Takings C. Self-Enforcement CONCLUSION INTRODUCTION

In 1997, in response to its nation's HIV epidemic, the South African Parliament proposed the Medicines and Related Substances Control Amendment Act. The Act empowered the Minister of Health to allow compulsory licensing and parallel importing in certain situations, in order to create "conditions for the supply of more affordable medicines ... so as to protect the health of the public." (1) The subsequent dispute between South Africa and the United States brought to public attention international disputes over pharmaceutical patents in developing countries.

The controversy centers around the appropriate responses--by pharmaceutical companies, by their home governments, and by the governments of poor nations facing epidemics--to intellectual property rights that price life-saving drugs outside the reach of whole patient populations. It has also raised hard questions about the legitimacy of the international legal instruments that claim to govern this moral space. Although in the context of human rights and security, international law is seen as a promising means by which cross-border moral responsibilities may gain legal force, the legal duties created by international commercial treaties are presumed amoral in their content. Commentators are unhappy but not shocked to "find" gaps between governing treaty law and the applicable moral rules. In most areas of law, by contrast, normative considerations are built into our understanding of our legal duties--the moral implications of legal rules go into our interpretation of them. It may be that we treat international commercial treaties differently because we see them as essentially contract-like, and we carry over the deeply flawed (allegedly "dead") classical account of contracts; like the intent and will of parties to a contract, we expect the intent of sovereign states to supply all or most of the legal meaning of a treaty. While we read domestic legislation in a way that makes it fair, we would only despair that a similarly worded treaty is unfair.

Such an approach to international commercial treaties allows for two parallel discourses about questions of commercial law with social significance--one moral, one legal. In this Article, I reject that approach. In the controversy around drug prices in developing countries, it is not even possible to interpret the law of compulsory licensing "correctly" without weighing the normative significance of various positive facts about the world, such as the institutional structure and political status of the WTO, the economics of compulsory licensing, and the distribution of power among states. The primary site at which normative considerations leak into the governing law is through the duty of good faith. I argue that in light of this duty, developing countries should be granted substantial discretion in the use of compulsory licensing. The normative underpinnings for such a right are already embedded in the governing law. Nevertheless, I will show that one of the chief virtues of such a legal rule is that the more clearly established the right, the less frequently it will be exercised.

The central economic dilemma regarding drug patents is recognized by developed and developing countries alike. On the one hand, some nations facing health epidemics, such as HIV epidemics in Southern Africa, cannot afford to purchase life-saving drugs at the monopoly market price commanded by a patent-protected drug producer. Most people in these countries cannot afford to pay the market price, and any attempt by the government to purchase the drugs at market price on mass scale would place excessive strain on already tight public budgets. Of course, the concept of excessive strain is ambiguous. The loose short-term limits on public spending may make it appear that states can afford anything. However, a state's abilities are not boundless, and where the government would have to abrogate other important state responsibilities, such as minimal budgetary restraint or classic public goods like police protection, in order to purchase the drugs at their patented price, drugs can properly be considered unaffordable. For similar reasons, individuals who could not purchase drugs without stealing, selling organs, prostituting themselves or engaging in other discouraged activities, are deemed "unable" to buy the drugs. Unlike the individual obligation not to steal drugs or trade organs, the state responsibility to provide various public goods is rarely legally binding. These state obligations have weak legal status because there is no supranational authority positioned to evaluate competing claims on state resources. The absence of such a competent supranational authority, combined with deference to democratic processes, advises substantial deference to governments' own assessment of their capabilities; it does not undermine the very notion of states' "inability to pay."

On the other side of the dilemma, pharmaceutical companies invest heavily in research and development with the expectation that they will recoup these costs through monopoly profit margins on those drugs that are successfully developed, patented and marketed. Without this expectation, based on the sanctity of their patent rights, they have less investment incentive. The merits of this claim no doubt depend on the margins in question, and the volume of sales across which costs may be recouped. Unfortunately, much of the specific relevant information is best (if not exclusively) available to the pharmaceutical companies themselves, who of course have an incentive to distribute and interpret their data to their policy advantage. Nevertheless, the basic premise of this claim is well-accepted: If pharmaceutical companies were forced to sell all their products at marginal cost, we could expect less investment in research and development.

One response to the dilemma is compulsory licensing. Compulsory licensing entails a government license to use a patent without the permission of the patent holder. Here I include the following within the practice: (1) granting a license to domestic producers; (2) in the absence of adequate domestic production capacity, granting a license to a generic producer in another country for sale only to the country granting the license; and (3) parallel importing from a generic producer that has been granted a compulsory license by another government. That is, compulsory licensing as I consider it here allows a government to obtain drugs from a generic manufacturer but does not give that manufacturer rights with respect to other countries' markets.

The possibility of compulsory licensing limits the duty to respect patents created in other jurisdictions. The duty itself, together with its qualifications, stems from the developing international intellectual property regime. The cornerstone of this regime is the Agreement on Trade Related Aspects of Intellectual Property (TRIPS), which imposes an obligation to respect and enforce intellectual property rights created in other members' jurisdictions. (2) The Agreement establishes minimum intellectual property rights standards for Members of the World Trade Organization (WTO), and subjects cross-border intellectual property disputes to the dispute settlement process of the WTO, specifically, the Dispute Settlement Body (DSB).

Under TRIPS and incorporated conventions, governments may grant compulsory licenses (1) where the patent holder is not using the patent within the country or is not using it adequately; or (2) where special conditions within the host country (3) justify exemption from patent protections provided under the established regime. These two grounds are not presented as such; however, as I will discuss below, they are implicit in the several clauses that appear to authorize compulsory licenses. Each of these two grounds can be associated with a distinct question of good faith.

Compulsory licensing under TRIPS is governed by limited textual reference within the treaty, as well as by the Paris Convention of 1967, (4) which deals with it more explicitly. Article 27, paragraph 2 of TRIPS states: "Members may exclude from patentability inventions, the prevention within their territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human ... life or health...." (5) Likewise, article 8, paragraph 1 states: "Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement." (6) Article 30 places a general constraint on all such exceptions: "Members 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." (7) These provisions present a limited right to patent exemption under certain social conditions.

Article 31(b) of TRIPS, however, appears to contemplate compulsory licenses as a response to bargaining failure: Member states that grant unauthorized patents must first have made "efforts to obtain authorization from the right holder on reasonable commercial terms and conditions" and requires that such efforts have not been successful within a reasonable period of time, with exception for cases of...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT