Ancillary orders of compulsory licensing and their compatibility with the TRIPs Agreement.

JurisdictionUnited States
AuthorWang, Richard Li-dar
Date01 January 2014

    The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) of the World Trade Organization (WTO) is one of the key international conventions in the field of intellectual property (IP). It is the first international treaty that lays down the mandatory minimum standard of patent protection for nations across the world. Given the comprehensive coverage of WTO membership, (1) the TRIPS Agreement has effectively established an international standard for IP protection in member states. With respect to copyright and patents, this Agreement expressly allows for compulsory licenses to be granted by competent authorities, with an aim to facilitate an adjusting mechanism to balance IP protection, on the one hand, and social or economic policy goals in general, on the other. (2)

    Specifically, Article 31 of the TRIPS Agreement authorizes WTO members to issue compulsory licenses on patents to address national emergencies, extreme urgency, or other socioeconomic issues arising at the domestic level, subject to the procedures and limitations stipulated in the same article. (3) Through Article 9.1, one of the incorporation clauses in the TRIPS Agreement, the compulsory license scheme as to the author's translation and reproduction rights for developing countries, as provided in the Appendix of the Berne Convention (1971), essentially merges into and becomes an integral part of the TRIPS Agreement. This involuntary license regime affords developing countries leeway to adapt the level of copyright protection to address local economic, social, or cultural needs. (4)

    In light of the important role that compulsory licensing could play in contemporary IP systems, the WTO reaffirms the members' right to grant such licenses in the Declaration on the TRIPS Agreement and Public Health, adopted in November 2001 at the Doha Ministerial Conference (Doha Declaration).5 One of the main themes in the Doha Declaration is that patent protection should be implemented in a manner that permits WTO members to protect public health and to promote access for the general public to essential medicines. For that purpose, WTO members may use, to the full extent, the flexibilities as set forth in Articles 30 and 31 of the TRIPS Agreement. (6)

    Following the guidance of the Doha Declaration, WTO members have made use of the compulsory license scheme to address their domestic issues, particularly in meeting the demands of public health. For instance, Brazil, (7) India, (8) Taiwan, (9) and Thailand (10) have issued compulsory licenses on pharmaceuticals essential for treating deadly diseases in recent years. Even so, relative to the large number of patents now in effect for WTO members, the frequency and number of compulsory licenses to date have been low. (11)


    The compulsory license does not exist in a vacuum. Rather, the success of a compulsory licensing regime depends on the industrial and technological contexts that the licensee encounters. For a compulsory license to be effective, a number of conditions must be present. First of all, licensees with sufficient capacities are indispensable. (12) The lack of technical sophistication and ability to learn has been a significant detriment to technological transfer in developing countries. (13) Existing manufacturing capacity also matters with respect to the quantity and speed at which the compulsory licensee could put the patented technology or copyrighted work into production. The more qualified capacity that is in place, the faster the licensed IP can come into mass production and fulfill the underlying goal of individual compulsory licenses--whether it is working the technology locally, treating a public health crisis, disseminating advanced knowledge and fostering higher education, or any other social or cultural need.

    Notably, the required capacity is not limited to those located within the issuing country. If the scope of the compulsory license includes importation, the issuing government could utilize competent manufacturers located overseas to exploit the licensed IP and produce targeted products to fulfill domestic needs. This practice is allowable under the TRIPS Agreement. No provision in the same Agreement stipulates against non-voluntary import licenses. The key is that the expected foreign supplier must have the right to produce in its own country, and be able to legitimately export the products at issue. There are a couple of situations where those conditions will be met and it is entirely lawful to practice the subject matter and export the product there: when the term of the intellectual property protection covering the licensed subject matter has expired, or when no pertinent IP protection has been secured in the specific foreign country. Supply from abroad may also be possible when a compulsory license is in place in the exporting country. However, Article 31(f) of the TRIPS Agreement requires that each of the non-voluntary licenses be granted predominantly for the supply of the domestic market, which does not prohibit the licensee from exporting the product so long as the exportation constitutes a minor portion of the total production. (14)

    Under the Guidance of the Doha Declaration, the WTO General Council established a waiver system in 2003 to soften the ban on production predominantly for exportation. (15) Under the waiver system, compulsory licenses predominantly for exports are permitted, with the condition that the importing WTO member has no pharmaceutical manufacturing capacity, grants such a waiver, and notifies the WTO Secretariat. (16) In December 2005, the General Council of the WTO formalized the waiver system, adding Article 31bis to the TRIPS Agreement. (17) This amendment is now waiting to take effect. (18) This waiver system, however, is limited to exporting pharmaceuticals to WTO members, and to date only Rwanda has filed one request for importation. (19)

    Historically, a number of governments have authorized importation of generic pharmaceuticals to address domestic health problems. (20) For instance, the government of Ecuador granted a compulsory license in 2010 on Ritonavir, an antiretroviral drug, to the local distributor of Cipla, an Indian company producing a generic version of the same drug. (21) Moreover, in the case of Efavirenz in Brazil, before local manufacturers could successfully provide this antiretroviral medicine, the Brazilian government included importation in the compulsory license and counted on several Indian generic producers to supply the medicine at a lower price. (22)

    The second critical condition is the size of the market, which is a decisive factor for the sales revenue that a licensee may reasonably anticipate from practicing the patent or copyright. The potential magnitude of the market closely relates to whether the licensee would recover the necessary cost for employing the IP, benefit from economy of scale, or even make a profit. (23) If the market size is narrowly restrained and only a very limited amount of revenue could be generated from the compulsory license, even manufacturers or publishers with adequate capacity to practice the patent or copyright may stay away from taking it.

    In calculating the size of a potential market for compulsory licenses, the basis for assessment in most cases would still be confined by the boundaries of the issuing country. Foreign markets are highly uncertain. The patent status of the targeted products in foreign countries determines whether they could be produced or imported freely in those countries, whether a compulsory license for importation will be imposed, and whether those countries would utilize the waiver system to lift the limitation of Article 31(f) of the TRIPS Agreement. Though there might be opportunities for the licensees to export part of their production to countries granting compulsory licenses on importation of the same products, the chances are quite uncertain, and it may seem remote for potential candidates that are considering whether to take the compulsory license or not. As a result, countries that have only small populations or weak buying power will suffer from the constraint of market size, (24) and the function of compulsory licenses would be seriously curtailed.

    A third precondition for an effective compulsory license concerns necessary know-how. (25) The patent law surely requires public disclosure of the claimed technology to enable persons skilled in the art to carry out the invention themselves, (26) but occasionally additional know-how is still necessary for them to put the claimed invention into industrial application on a commercial scale. IP licensing agreements, however, typically do not contain obligations regarding technical assistance or technology transfer from the IP owner.

    In the scenario of compulsory licensing, it is implausible to expect right- holders to voluntarily provide any technical guidance to the licensee. If the licensee does not possess all the skills that are critical for practicing the licensed IP--such as the know-how on commercialization, improving the manufacturing process, optimizing the yield rate, etc. (27)--she will still be unable to duplicate the product of the right-holder successfully. When this situation arises, the compulsory license may not work as effectively as expected.


    If countries fall short of the essential conditions as set forth above, necessary measures should be taken to make up...

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