Vaccine War, Patent War or Just a Misconception?

Global Political Events in First Week of May

From the first week of May, the world’s press is all over the worsening virus situation in India. It can be read everywhere that India and South-Africa requested various forums to lift or waive patent rights and confidentiality of trade secrets of COVID-19 vaccines and pharmaceutical products considered to be effective during the treatment of the infection. According to the news, this request was presented to the president of the United States, Joe Biden; the European Union in the course of the Porto Summit; the heads of the Member States of the World Trade Organisation (WTO) in its session; and the Pope. The petitioners emphasized that IP rights hinder the vaccination of the world’s population and the treatment of the illness. [i]

On 5th May, in the spirit of the motto ’extraordinary times call for extraordinary measures’, President Biden assured the Prime Minister of India of his support. The President turned to the WTO for waiver of patents on vaccines, but the negotiations may take a long time.[ii] On the following day, the Russian President, Vladimir Putin stated that Moscow is also ready to support waiver of patents on COVID vaccines.

It was reported that the heads of the EU Member States, trying to form a common position, started to discuss the initiative coming from the US during the Social Summit in Porto started on the 6 May. [iii] The President of the European Commission, Ursula von der Leyen, confirmed that pursuant to the Porto declaration on social rights, the EU is ready to negotiate about the proposal of the US on temporary waiver of IP rights on COVID vaccines. On the other hand, we could hear about that behind the scenes, European unity seems to fall apart again. While the Spanish Prime Minister, Pedro Sanchez affirmed to endorse the initiative of the US President on the EU Summit, the German Chancellor, Angela Merkel, thinks that the key problem is how to ensure continuous supply chains.[iv]  Besides, the French President, Emmanuel Macron changed his previous opinion – so that not monopoly creates the barrier against the situation but rather transfer of the technologies – and in Porto he declared that naturally, it needs to be ensured that vaccines becomes ’global public goods’.  The President of the European Council, Charles Michel, upon his Saturday arrival to the second working day of the Port Social Summit, suggested that he believes that the epidemic cannot be suppressed simply by lifting patents on vaccines against COVID-19, however, the EU intends to negotiate on concrete, corresponding proposals.

It follows that although, we can access loads of news, we do not get any closer to understand the problem and the opportunities available. Therefore, let us take a closer look at the situation reviewing the relevant regulations on intellectual property rights protection.

WTO, TRIPS, Patents, Compulsory Licences

Since the appearance of the anti-HIV/AIDS drugs, compulsory licences have become a rather controversial element of the patent system. The fight – basically meaning lobby activities in front of the WTO – received a lot of press coverage. In one side of the box ring gathers he governments of Brazil and South-Africa and several human rights and civil organisations, while in the other one great pharma companies and the developed industrial nations can be found. The media battle has revealed that the former group criticized that pharmaceutical manufacturers price their product not according to the wallet of the less developed states but the financial resources of the ’backpacking’ youngsters of the rich countries who return home from their adventures with unnoticed souvenirs such as HIV infection, meningitis, malaria or tuberculosis.

The TRIPS Agreement sets some requirements for compulsory licensing. [v]  For instance, firstly, the applicant has to try to obtain a voluntary license from the patent holder unsuccessfully on reasonable commercial terms in a reasonable period. However, the Agreement grants some exemptions in the following cases: a) during national emergency, b) in other circumstances of extreme urgency, c) for governmental, non-commercial use and d) for anti-competitive practices. Furthermore, compulsory licenses can be used mostly to provide supply to the national market and not primarily in order to export.[vi] The Agreement does not exempt the compulsory licensee from the obligation to pay a fair licence fee to the licensor. However, it is not specified what is considered to be a fair fee, it can be defined by the individual states. Another check to compulsory licenses is that it can be in force only to the extent and time necessary. Furthermore, exclusive licenses for exploitation cannot be issued by this institution, i.e. the patent owner cannot be excluded from exploiting its invention by any means.

What else is in the box? Further Means of ’Flexible Policy’

The TRIPS Agreement recognises one more objective based on which the patent holders’ rights may be limited flexibly. This is the parallel import. Parallel import refers to the act of importing such goods which are under protection in the importer country and are produced and marketed by the patent holder or its licensee with its permission. The so called ’principle of the exhaustion of the patent protection’ provides the legal basis for parallel import. In compliance with the principle, if a company, for example a patent holder of a pharmaceutical product, sells out its products, its rights are exhausted, meaning that it does not have any right to attend to what happens to the product any longer. Thus everyone gets the right to buy the product in a country where the product is cheaper and to import it in order to gain profit from the price gap. On the other hand, the WTO does not deal with the implementation of parallel import in the nation states, in addition, it even allows its Member States to impose particular permissive or prohibiting rules in this matter.

The WTO’s Doha Ministerial Declaration signed in 2001 reaffirms the aim of the before mentioned hall passes provided by the TRIPS, so that compounds which can prevent or treat epidemic diseases need to be more easily accessible in the less developed countries as well.[vii] In the same spirit, the Declaration specifically authorises the TRIPS Member States to announce national emergency or other situation requiring exceptional intervention in their own national competence at their discretion. Health crises always legitimise the announcement of such a state of emergency. Moreover, the Doha Declaration – similarly to the TRIPS Agreement – does not include that announcement of an emergency situation or a state of alarm is prerequisite to provide a compulsory license. The Member States can decide about the use of these means at their very own discretion.

The Doha Declaration also recognises that the industrially less advanced countries (the so called less developed countries or LDCs), whose professional background and manufacturing infrastructure is not adequate, cannot see the considerable benefits of compulsory licenses which could allow them to provide their citizens with drugs. Besides, if their health care system faces challenges, compulsory licenses enable generic manufacturers with infrastructure in another country to produce products for export to the country in need. The Declaration entitles all countries to be exporters. Although, it sets out that not only the industrially less developed countries can seize the opportunity to import these goods, the industrially developed Member States undertook not to take advantage of the opportunity, and use it only in profound cases (i.e. in emergency). The possibility to satisfy one’s needs from export sources was added to the TRIPS Agreement in 2017 after the ratification of the proposal by two-third of the WTO Member States.[viii]

What is more, in the Doha Agreement, the less developed countries received a major relief to 2033 in connection with pharmaceutical patents. In case a patent cannot be claimed to a drug in a less developed country, there is no need to issue a compulsory license for the drug in order to be exploited freely, namely to be manufactured within the particular country or imported thereto. In case of import, compulsory license is solely required in the importer country if the drug is under patent protection in the exporter country.

Furthermore, medicine developers can also help to improve the availability of drugs under patent protection in the developing countries in need by a) following a favourable pricing policy taking financial solvency of the countries into consideration, b) voluntary licensing, c) voluntary withdrawal from enforcement, d) complete waiver of patent rights in case of some highly disadvantaged states e) and/or product donation.[ix] Naturally, these means are not legally enforceable and are at the patent holder’s discretion.

It follows that there are several ways to deal with the problems caused by public health emergency situations.

What does experience show in connection with effectiveness and consequences of compulsory licensing?         

Based on the experience of the past 20 years, a research was conducted in connection with the prevalence of the application of compulsory licenses and its price dropping impact with the aim of detecting anomalies.[x] The analysis shows an on average 66.2%-73.9% fall in terms of the most favourable and the most expensive license fees as a result of compulsory licensing. The lowest discount was 6.7% and the highest was 98%.

The first surprising conclusion of the report is that as a result of compulsory licensing, price reduction may be reached more easily in the international market than in local production. In the former case, there was an on average 72.18% drop in prices while in the latter case it was ’only’ 65.28%. For example, in Brazil, at the beginning, product Efavirenz was purchased through import based on a compulsory license from an Indian manufacturer. Later a local firm started to produce the same drug, based on compulsory licence too. The pricing of the imported product became much lower than the price of the locally produced one. And the difference was not a small one either! When the local manufacturer started its activity in 2007, the price of its product was 2.6 times higher than the lowest prices of the similar compound available on the market. By 2013, the price of the locally manufactured product increased to 6.3 times that of the less expensive global market counterpart. Therefore, from public health point of view, local procurement does not seem to be the most cost-efficient solution.

The second remarkable statement of the report is that although, primarily the poor, less developed countries gain profit from the system of compulsory licenses, it is not exceptional that rich countries turn to this mean to make a highly-priced drug affordable. In case of the COVID-19 epidemic, it can be seen too that instead of the poor countries, does the rich ones take actions actively in the matter of issuing compulsory licenses, as Canada, France, Germany and Israel made steps to access to pharmaceutical products (i.e. vaccines, medicines which may treat the disease effectively, diagnostic preparations ­like tests). These events confirm that flexibility in the patent system, primarily compulsory licensing, is actively used by the Member States of the WTO. [xi]

 Conclusion

We hope that after reading this article, details of compulsory licensing of pharmaceuticals, applicable to a certain group of patents, became clear and transparent for our readers. As we can see, the TRIPS Agreement offers opportunity for its Member States to satisfy the needs of their citizens in public health emergency situations by different flexible means, primarily by compulsory licensing of patents. Thus the only question is whether the parties –who possibly have different interests – manage to agree on the application of this institution. It is obvious that direct economic interests of an industrial country, which invests much in researches and has manufacturing capacities to produce vaccines, such as Germany, differ from the interest of a country which also has huge manufacturing capacities but lacks the right to produce the vaccines and is struck by an epidemic, like India; or from the interest of an underdeveloped country lacking both knowledge capital and manufacturing infrastructure to exploit and use a particular technology. Vaccine production requires special knowledge and many years of operational experience which can prevent certain countries from being able to produce vaccines in the short and in the medium term, even if they do not get hindered by patents. Therefore, the author of the present article agrees with the statement of President Macron’s previous advisors and with the declaration of the President of the European Council, Charles Michel, made in the press conference of the Porto Summit, namely that temporary waiver of patent rights by compulsory licensing is not a ’magic bullet’ which can solve any problems. [xii]

The situation may be further complicated – or rather simplified – by that vaccine researches are often conducted with the help of significant governmental or regional subsidies. For example, it was the case with AstraZeneca as well. And that is exactly why it provides the EU with vaccines virtually at cost price (1.78 EUR/vaccine). This price is approximately half of the price offered to other customers. [xiii] [xiv]

The key question is therefore to what extent Member States will manage to take responsibility within the framework of a joint resolution for harmonising their activities to exploit the flexibilities which the TRIPS Agreement provides in relation to the IP system at the next WTO Summit. We will watch the news attentively to get answer for this question.

[i] New York Times: Pressure Mounts to Lift Patent Protections on Coronavirus Vaccines., 05. 03. 2021, available online at https://www.nytimes.com/2021/05/03/us/politics/biden-coronavirus-vaccine-patents.html

[ii] BBC: Covid: US backs waiver on vaccine patents to boost supply, 05. 06. 2021, available online at https://www.bbc.com/news/world-us-canada-57004302

[iii] AP: EU to discuss US vaccine patent plan at Friday summit., 05. 06. 2021,  available online at https://apnews.com/article/europe-technology-business-patents-coronavirus-pandemic-afee82307c73f9dbd06ba6afb5c0c832

[iv] Bloomberg: EU Split on Covid-Patent Waivers Casts Doubt on U.S. Plan., 05. 07. 2021, available online at https://www.bloomberg.com/news/articles/2021-05-07/spain-backs-ip-waivers-for-vaccines-ahead-of-eu-leaders-summit

[v] TRIPS Agreement, paragraph (31)

[vi] https://eur-lex.europa.eu/legal-content/HU/TXT/HTML/?uri=LEGISSUM:l21168

[vii] Doha WTO Ministerial 2001: TRIPS WT=MIN(01)/Dec/2: Declaration on the TRIPS agreement and public health, 2001., available online at https://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm

[viii] WTO: Compulsory licensing of pharmaceuticals and TRIPS., available online at https://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm

[ix] Access to Medicine Foundation: Are pharmaceutical companies making progress when it comes to global health? – FIRST INDEPENDENT TEN-YEAR ANALYSIS., 2019., available online at https://digicollections.net/medicinedocs/documents/s23694en/s23694en.pdf

[x] E Urias, S. V. Ramani: Access to medicines after TRIPS: Is compulsory licensing an effective mechanism to lower drug prices? – A review of the existing evidence., J Int Bus Policy, Nature Public Health Emergency Collection – Public Health Emergency COVID-19 Initiative, 09. 03. 2020, Pp: 1-18., available online at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7468182/

[xi] OECD: OECD Policy Responses to Coronavirus (COVID-19) Treatments and a vaccine for COVID-19: The need for coordinating policies on R&D, manufacturing and access., available online at https://www.oecd.org/coronavirus/policy-responses/treatments-and-a-vaccine-for-covid-19-the-need-for-coordinating-policies-on-r-d-manufacturing-and-access-6e7669a9/

[xii] Reuters: EU sceptical on vaccine waiver, but ready to discuss proposal., 05. 08. 2021, available online at https://news.trust.org/item/20210508091603-peg00/

[xiii] The Guardian: Belgian Minister tweets EU’s Covid vaccine price list to anger of manufacturers., 12. 18. 2020, available online at https://www.theguardian.com/world/2020/dec/18/belgian-minister-accidentally-tweets-eus-covid-vaccine-price-list

[xiv] BMJ: Covid-19: Countries are learning what others paid for vaccines., 01. 29. 2021, available online at https://www.bmj.com/content/372/bmj.n281

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