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Forced Import Substitution or Where Does TRIPS+ Lead?

Date of publication: 15 February 2016

Irina Kirichenko, Patent Attorney of Ukraine

Source: Apteka

According to the median analysis of economic research carried out by Bloomberg L.P. in 2016 Ukrainian economy will be rated in the ranking as the 5-th most “miserable” country in the world after Greece, South Africa, Argentina and Venezuela. In the shadow of such predictions on February 03, 2016 Ukrainian Parliament passed the Law “On adoption of the Protocol to amend the TRIPS Agreement” (draft law No. 0079) which is aimed at providing Ukrainians with cheap and good-quality “pharmaceutical products” (new term missing in the special legislation on pharmaceutical products).

Plague, cholera, tuberculosis, malaria, Ebola fever HIV/AIDS, bird and swine flu: among the side effects of such terrible illnesses are the development of medical and pharmacological knowledge, production of new drugs and… financial losses incurred by their developers. International agreements on intellectual property are aimed at minimization of the said losses. The Protocol on introduction of amendments into Agreement on Trade-Related Aspects of Intellectual Property Rights (further “TRIPS”) drafted on December 06, 2005 in Geneva will become valid for Ukraine pursuant to paragraph 3 Article X of the Agreement Establishing the World Trade Organization (WTO) and stipulates for simplified procedures of bringing generic drugs into the market by the countries – parties to the TRIPS Agreement.

The explanatory note to the draft law No. 0079 (registered by the Parliament on January 14, 2016) indicates that Ukraine’s joining the Protocol will contribute to settlement of the problem of the people’s access to the pharmaceutical products. The mentioned amendments will allow organizing export (through application of mandatory licensing procedure) of pharmaceutical products to the countries which do not have their own facilities for their production or pharmaceutical sector of which lacks facilities to satisfy their own health care needs.

Provisions of current valid TRIPS Agreement allow carrying out production of pharmaceutical products at the terms of mandatory licensing “mainly for the purpose of satisfying the needs of internal market”. As applied to our market it will mean replacement of original pharmaceuticals (protected by the patents or by the terms of data exclusivity) by generics – similar drugs having the same chemical makeup and the same dosage form as the referent (original) medicinal drug, but with a more affordable price.

The procedure of mandatory licensing stipulates for replication of the copy of the patented product on the basis of the production permit granted by the government of the corresponding country, but without the permit of the owner of the patent.

Enforcement of the social responsibility

 Introducing the draft law the deputy Minister of Economic Development Ms. Natalia Mykolska stated that the proposed amendments to TRIPS will contribute to fighting epidemics in the whole world: “The owner of the authors’ right for the drugs may regulate use of such rights. But, there may be cases when countries suffer epidemics of dangerous illnesses and the owner of the rights to these drugs does not provide its consent for their use. In such case (taking into consideration the high social significance of such drugs) there is a world-known procedure of mandatory licensing when production of drugs is allowed without the permit of the owner of the authors’ rights only for the purpose of curbing the emergency situations” (source – information agency UNIAN).

TRIPS Agreement is an international agreement included into WTO package of documents. The Agreement establishes the minimum standards of recognition and protection of the main objects of intellectual property. This Agreement was adopted in the course of Uruguay round of the General Agreement on Tariffs and Trade in 1994.

TRIPS Agreement stipulates for the procedure of settlement (within WTO) of the disputes related to intellectual property: if subjects from one country violate intellectual property rights owned by the subject from another country such another country (through consideration of the disputed matter according to the WTO dispute settlement procedures) may increase the duty imposed onto the import of certain products from the territory of the violating country to its own territory.

In the whole world patent protection of innovative pharmaceutical preparations and medical drugs (with consideration for the provisions of TRIPS on mutual recognition of intellectual property rights) has a critical meaning for the pharmaceutical sphere. For the generic companies the absence of restrictions would create unlimited possibilities for production of replicated drugs under the affordable prices. But for the manufacturers of original drugs absence of the patent protection would lead to destruction as soon as the high-priced original drugs would not be able to compete with their cheaper analogues. This particular parity of rights is ensured by the TRIPS Agreement (with consideration for time-limited monopoly).

The provisions of TRIPS establish the rights and determine the limits of international protection of intellectual property rights for all countries – WTO members. While TRIPS is the first complex agreement related to protection of intellectual property at the international level it contains only minimum standards of such protection. Requirements of TRIPS were also smoothened by transition periods – the developing countries received the maximum term till January 01, 2005, and the least developed countries – till 2016. The text of TRIPS includes a number of flexibilities also directed at smoothening the regime of patent protection.

The parity of rights of the originators and generic companies is stipulated by Article 7 of TRIPS which states that “The protection and enforcement of intellectual property rights should contribute to […] the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations”.

The mandatory licensing allows the states – WTO members – to issue licenses for use of the objects of intellectual property rights protected by patents without the permit of the patent owner upon settlement of royalties (remuneration) and under the price established by this state. At the same time mandatory licensing of use of brand names and trade marks is expressly forbidden by Article 21 of TRIPS, i.e. the manufacturing companies do not have the right to sell replicated objects of intellectual property rights under the original brand name.

However, in relation to the inventions the Article 31 of TRIPS stipulates for the direct possibility of their mandatory licensing upon compliance with a number of obligatory requirements: 1) if there were previous efforts to obtain authorization from the right holder; 2) this is a permitted non-commercial use of the license (for scientific purposes); 3) the license must be non-exclusive; 4) compulsory orientation at satisfying the requirements of internal market; 5) settlement of compulsory remuneration to the title holder; 6) possibility of the judicial review of the decision regarding provision of the license etc. (Article 30 of TRIPS does not limit the list of grounds under which a license may be provided). At the same time Article 31(b) of TRIPS establishes that prior to issuance of the mandatory license the corresponding party must make an effort to receive the license directly from the owner of the authors’ rights at the sensible commercial conditions. And if the mentioned effort is unsuccessful issuance of the mandatory license shall be possible.

Exceptions are represented by situations when mandatory licensing is necessary in case of (i) emergency and extreme necessity; (ii) civil non-commercial use and (iii) when such use was permitted in order to influence anti-competition practice.

In case of pharmaceutical drugs mandatory licensing is necessary in case of emergency situations: the crisis of the healthcare system, outbreak of HIV/AIDS epidemics, tuberculosis, malaria and of other socially dangerous illnesses. Article 31 (f) of TRIPS stipulates that any mandatory licensing shall be authorized predominantly for the supply of the domestic market of the WTO Member authorizing such use, i.e. if at the territory of the WTO member-state there is no pharmaceutical industry issuance of the mandatory license would not make any sense, and import of the products manufactured under the mandatory license from other countries would also be forbidden.

In essence Article 31(a) deprives the states – WTO members – of the possibility to issue mandatory licenses for production of generic drugs for export. Pursuant to the decision of the WTO’s General Council as of August 30, 2003 is was allowed to deviate from obligations stipulated by Article 31(f) by providing the countries – WTO members – with the right to issue mandatory licenses to the producers of generics with the aim of production and export of medical drugs to the countries – WTO members – with insufficient (or non-existent) internal level of production. According to the documents issuance of the mandatory license for the products manufactured with the purpose of further export is allowed under the following terms: 1) internal market of the importing country – WTO member – does not have its own pharmaceutical sector; 2) the importing country agrees to issue a mandatory license if the patent was registered in this country; and 3) the importing country timely informed the WTO’s Secretariat about this.

In December 2005 the WTO’s General Council approved an important decision on introduction of additions to the TRIPS Agreement in order to finally settle the matter of application of Article 31(f). Thus, Article 31 bis was added stipulating that the exporting country may issue a mandatory license with the aim of production of medical drugs for their further export to authorised importing country according to the provisions established in section 2 Article 31 bis.

The countries wishing to import medical drugs using the system of mandatory licensing (in fact – the major part of developing countries) must file an application to the Council of TRIPS with indication of concrete medical drug and its required volume, as well as of the intention to issue local permit for mandatory licensing is the patent for such drug had been registered in this country.  So, Article 31bis actually provides developing countries with a possibility to issue mandatory license for production of medical drugs to generic pharmaceutical companies thus allowing them to export the products to the developing countries.

Experience of application of the mandatory licensing procedure:

  • In Rwanda: on July 13, 2007, acting on the basis of the Canadian Patent Act, a pharmaceutical company Apotex requested a license from four pharmaceutical companies (GlaxoSmithKline; Shire Biochem, Boehringer Ingelheim, Dr. Karl Thomae GmbH) for the medical drugs combination of which made medication named TriAvir (a drug for fighting AIDS). Apotex indicated that it intended to sell and export 15.6 mln tablets under its own price of 0.405 USD per tablet without settlement of royalty payments. As a result on September 19, 2007 Apotex received a two-year license for production of 15.6 mln tablets and exported TriAvir, the generic drug, to Rwanda. According to this experience the whole process of obtaining the mandatory license may drag for a very long period of time. It took more than two years (27 months) for Apotex to do this.
  • In Thailand: in December 2006 issued was a mandatory license for production of a medical substance with active ingredient named еfavirenz, which was developed by Merck for treatment of AIDS. The drug was intended to be further imported from India. At the same time the price of the drug drooped almost by 50% – from 40 USD for a package to 22 USD. Later issued was a mandatory license for production of a drug named Kalets (owner of the patent – Abbot) which was also designed for treatment of HIV/AIDS and, finally, for the drug named Plavix.
  • In India: in March 2012, in order to fight kidney and liver cancer the patent service of India officially allowed an Indian company named Natco Pharma to produce and sell an analogue of Nexavar under the price constituting 3% of the price of the original substance with settlement of 6%-royalty for the benefit of Bayer. At the same time the difference from the initial price of the drug established by the owner of the patent, Bayer, constituted 97%. In March 2013 Bayer lost the dispute with Natco Pharma and filed a claim of appeal to the Supreme Court of Mumbai. The decision on the mandatory licensing was cancelled only when another Indian company, Cipla, decreased prices for its analogue for 75%.

The mandatory licensing is similar to a medal with a reverse side: the company-originator simply refuses to bring a new drug into the market not to give a possibility to use it as a reference drug for the premature analogues. In such way, in March 2007, in response to provision by Thailand of the compulsory license for the drug named Kaletra, Abbot (which held the license for the mentioned drug) announced that it would further decline registration new medical drugs to be sold at the territory of Thailand and withdrew several applications filed for obtaining registration. Another pharmaceutical giant (Merck from the USA) reacted in the similar manner: in reaction to the mandatory license issued by Brazil for its drug named Stocrin (with еfavirenz as an active substance) in 2007.

This is voluntarily, but compulsory

Ukrainian legislation also has provisions related to the mandatory licensing: Article 30 of the Law of Ukraine “On protection of rights for protection of rights for inventions and useful models” which states that forced alienation of the right for the invention (useful model) is possible if the invention (useful model), except for secret invention (useful model), is not used or is insufficiently used in Ukraine within three years starting from the date of publication of information about issuance of the patent or from the date when use of the invention (useful model) was terminated. In case of refusal of the title owner from execution of the License Agreement any person wishing and willing to use an invention (useful model) has the right to lodge a statement of claim to the court asking for the permit for use of the invention (useful model).

The owner of the patent is obliged to grant a permit (issue a license) for use of the invention (useful model) to the owner of the later issued patent if the invention (useful model) of the former is designed to achieve another purpose or has technical and economic advantages and cannot be used without violation of the rights of the owner of the earlier issued patent. The permit is issued within the volume necessary for use of the invention (useful model) by the owner of the later issued patent.

Article 30(3) of the Law of Ukraine “On protection of rights for protection of rights for inventions and useful models” states that “with the purpose of protection of the people’s health, country’s defense, ecological safety and other interests of the society the Cabinet of Ministers of Ukraine (the “CMU”) may allow the use of the patented invention (useful model) by the certain persons (defined by it) without consent of the holder of the patent (declarative patent) in case of its unsubstantiated refusal to grant the license for use of the invention (useful model)”. At the same time the permit for such use shall be provided on the basis of certain circumstances and allowed mainly to ensure the needs of the local market.

The procedure of provision by the Cabinet of Ministers of Ukraine of the permit for use of the patented invention is stipulated by the Decree of the CMU No. 8 as of January 14, 2004. Decision of the CMU on provision of the permit for use of the invention (useful model), time period and the terms of its provision, cancellation of the permit for its use, as well as the amount and the procedure of settlement of the remuneration to the patent’s owner may be appealed to court. However, Ukraine does not still have a well-established law-enforcement practice for settlement of the disputes. It is related to the fact that in the process of joining the WTO Ukraine undertook additional obligations as for protection of the intellectual property rights (so-called TRIPS+ regulations). As an example of such provisions is protection of exclusive data about medical drugs at their registration (Article 9 of the Law of Ukraine “On the medical drugs”). That is why the author of this article may provide only the example of successful protection of patented rights of innovative companies from introduction to the market of premature copies of blockbuster drugs.

Summing up the aforesaid it is possible to come to a conclusion that ratification by the Parliament of the Protocol is a deviation from the previously taken course of strict compliance with the rules accepted in the countries – the WTO members. As a result, on the one part, it will give a possibility to temporarily settle the matter of supply of cheap medical drugs – analogues of the new effective socially important foreign drugs. However, it may lead to withdrawal of innovative companies from the market because they will not be interested to grant products of their innovative work to the generic companies as referent drugs for registration of their premature copies.

However, all the world’s tendencies are gradually changing, the same as the ways of treatment of illnesses: “Do you see, Rama that any explanation is the function of the existing beliefs. If this is a scientific explanation it depends on the beliefs present in the science. Let’s say in the middle of the century it was considered that the plague gets contagious through the pores of human body. That is why, as a preventive measure, people were restricted from visiting bath-houses where human pores expand. And now the science believes that the plague is transferred by fleas and people are advised to visit bath-houses as often as possible. Once the beliefs change, so changes the verdict”. (Viktor Pelevin: Empire V).