A Framework for Compulsory Licensing of Medical Inventions

James Love

CPTech

AAAS Science and Intellectual Property in the Public Interest Project (SIPPI) briefing on

Science and Technology in the New World of International IP

September 4, 2003

Carnegie Institution, Washington, DC

Doha Declaration on the TRIPS Agreement and Public Health

WORLD TRADEORGANIZATION

WT/MIN(01)/DEC/W/2

14 November 2001 (01-5770)

MINISTERIAL CONFERENCE

Fourth SessionDoha, 9 - 14 November 2001

Doha Declaration, con't

4. We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all.

In this connection, we reaffirm the right of WTO Members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.

Doha Declaration, con't

5. Accordingly and in the light of paragraph 4 above, while maintaining our commitments in the TRIPS Agreement, we recognize that these flexibilities include:

(a) In applying the customary rules of interpretation of public international law, each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.

(b)(b) Each Member has the right to grant compulsory licences and the freedom Each Member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.to determine the grounds upon which such licences are granted.

(c) Each Member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency.

(d) The effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each Member free to establish its own regime for such exhaustion without challenge, subject to the MFN and national treatment provisions of Articles 3 and 4.

Doha Declaration, con't

6. We recognize that WTO Members with insufficient or no manufacturing capacities in the pharmaceutical sector could face difficulties in making effective use of compulsory licensing under the TRIPS Agreement. We instruct the Council for TRIPS to find an expeditious solution to this problem and to report to the General Council before the end of 2002.

The August 30, 2003 WHO decision on Paragraph 6 was flawed

• Some Benefits, but:– Very complex and regulatory

• 52 words for EP Amendment 196 v. 3,200+ for WTO/P6

– The WTO secretariat, the TRIPS Council and the Chair of the TRIPS council asked to routinely review the terms of individual licenses

• evaluating the basis for deciding manufacturing capacity is insufficient,

• reviewing or second guessing terms of licenses.

– Restrictive Annex on Capacity (economic efficiency is not sufficient grounds)

– New model for explicitly endorsing protectionism.  • The United States, Europe, Canada, Australia, Japan and other developed economies will

be allowed to bar imports from developing country generic suppliers

• under completely irrational protectionist measures that are defended by the WTO Secretariat and its most powerful members as a humanitarian gesture.

• US opt-out leaves country vulnerable in event of crisis (Anthrax, SARS, etc)

– Prejudice to other mechanisms to export

Moving on

Grounds for issuing a license

Focus on Opportunities to Improve Access to Essential Intellectual PropertyAbility to copy Sector Essential Non-Essential Luxury

Intellectual Property Medicine Treatment of significant morbidity and mortality

Some cosmetic products

Software Client operating systems and applications essential to operate in areas of strong standardization (i.e. MS Windows, MS Word)

Server software, non-essential applications, applications where standards do not restrict competition, consumer video games

Journals and Textbooks Essential reference materials for primary and secondary education

Specialized publications for industry

Physical Goods/Services Food Staples More expensive food items, cola, chips, meals at restaurants

Gourmet food

Housing Basic Housing Better Housing Park Avenue Co-op

Physician/Dental Services Preventive and basic health services, treatment for diseases of significant morbidity and mortality, basic dental care

Cosmetic surgery, some cosmetic dental work, health care that exceeds accepted standard of care

The lack of affordability of essential intellectual property goods can and should be a grounds for issuing a compulsory license

This is an efficient strategy to give effect to Doha Declaration requirement that:

[TRIPS] Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all.

Is the good considered essential in other countries?

Compare the level of access to the good in one country to one or more reference countries

A ccessR a tioA C C E SS

N E E DA C C E SS

N E E D

A

A

R C

R C

Coverage Of Antiretroviral Therapy in Developing Countries, December 2002

Region # on ART Estimated Need Coverage

Sub-Saharan Africa

50,000 4,100,000 1 %

Asia 43,000 1,000,000 4 %

North Africa & Middle East

3,000 7,000 29 %

Eastern Europe & Central Asia

7,000 80,000 9 %

Latin America, Caribbean

196,000 370,000 53 %

TOTAL 300,000 5,000,000 5 %

When there is a important gap between access and need for an essential intellectual property good

– Presumption that good is priced higher than most people can afford

• When competition is feasible, require licensing on reasonable terms

• When competition is not feasible, price essential good at affordable levels, or lowest price consistent with recovery of (appropriately defined) costs

Benchmark for affordability when when purchased out of pocket.

One measure of an affordable price is the price of the same good sold in a reference country (RC) where the good is affordable, but adjusted for relative GDP per capita.

P PG D P

P O PG D P

P O PR C

R CR C

AA

*

Affordability benchmark when good is purchased via insurance in wealthy country but out-of-pocket in poor country

Use the price of a different product as a reference price that is actually affordable out of pocket in the reference country

P PG D P

P O PG D P

P O PR C

R CR C

AA

*

Benchmark for affordability when resources are pooled (reimbursed by state or insurance), but a high prevalence of the disease places burden on pooling mechanisms.

Reference price are adjusted for relative GDP per infected person.

P PG D P

H IVG D P

H IVR C

R CR C

AA

*

Two affordability benchmarks applied

Relative

GDP/Pop

Relative GDP/HIV

$10,000 price pooled payment

mechanism

$1,400 price paid out of

pocket

Brazil 14 16 $641 $100

Guatemala 19 33 $300 $74

India 74 89 $112 $19

Kenya 93 2,383 $4 $15

South Africa

(bottom 90 percent)

14 555 $18 $100 /

$60

Thailand 18 61 $163 $78

Approaches to setting royalties

• Setting rates– Pharmaeconomic approach

• Royalties based on value of invention, given realistic budget constraint

– Royalty Guidelines

• Other issues– One off “lump sum” royalties?– Allocation among stacked royalties

In developing countries, use royalty guidelines to set

compensation

Benefits of royalty guideline approach

• Transparent and predictable• Requires less time and effort to calculate rates• Innovation is stochastic process, and it is not

necessary to seek precision in compensation for individual products

• Can be related to policy goals regarding access– what percent of a mark-up over marginal cost is

appropriate in terms of access goals?

Application of Royalty Guidelines to Fixed Dose Combination

Value Utilization Increase / Decrease

Exploration Total

AZT+3TC .05 .10 100% 100% .005

AZT .05 .30 50% 100% .0075

3TC .05 .30 100% 100% .015

Nevirapine .05 .30 150% 100% .0225

Total .05

Are Access and R&D competing policy objectives?

Do we need a new global framework for funding R&D?

R&D for new products, as reported on US income tax returns

175.0190.0

$201

$14.6 $15.6 $18.5

0.0

50.0

100.0

150.0

200.0

250.0

1997.0 1998.0 1999

bill

ions

of

doll

ars

SalesR&D

New, but not significantly better

9.6%

New products rated significantly better than existing treatments

2.4%

Research on existing products

4.0%

Most invested in products with no significant benefits over existing treatments

How is the private R&D budget spent?

Sources: Total turnoverinvested in R&D and share onnew producdts from PhRMAmembership survey. US FDAapproval data on “priority” and“standard” products

Models for R&D treaties• The Treaty of Europe: R&D as a development tool• Landmine treaty: Humanitarian de-mining

technologies• Koyto Climate Treaty: Energy efficient

technologies• G-8: Negotiations over funding vaccines and drugs

for neglected diseases• John Barton: Vaccines, public domain, technology

transfer • Discussions on access to scientific journals• Human Genome Project: Clinton/Blair Agreement

Addressing the free rider problem

• Focus on capacity of country to support R&D• Include both public and private sector funding• Consider public health criteria and social

objectives• Mechanics

– Introduce transparency of investment flows

– Choose weights for priority investments

Simple model to measure contributions

• Raw contributions to investment– Pharmaceutical Sales = S– Re-Investment in R&D = r– Public Sector/Mandated Research = M

• Social multipliers– Open Research = – Priority Research = – Technology Transfer = λ

Measured Contributions to R&D

i i λ i [M i + S i r i] i

Simple Example r = .1, = = λ = 2.0

• $600 million pharmaceutical sales 600 x .1 = $60 million

• $10 million in public sector funding on open source R&D on AIDS vaccine, half performed in developing country

5 x 2 x 2 = $ 20 million5 x 2 x 2 x 2 = $ 40 million

Total = $60 million