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NOV 2007 - FEB 2008

Michael Doyle

Partner, Seri Manop & Doyle

Compulsory Licensing of Drugs has put Thailand on the Forefront of a Major Global Debate

by Michael Doyle
Thailand is on the forefront of a major global debate concerning its decision to impose compulsory licensing for various drugs.

This is a huge issue both in terms of its impact on the multibillion dollar global pharmaceutical business, Thailand’s reputation in the global market and the sick people who may stand to benefit from the decision.

On one side of the argument, are the mammoth pharmaceutical companies and their armies of lobbyists and PR companies. They argue that the actions of the Thai government are inherently illegal and should be condemned by the international community as another example of Thailand’s lack of respect for intellectual property rights.

On the other side, are Bill Clinton, multiple NGO’s and the governments of several developing counties who firmly believe that the actions of the Thai government are perfectly legal and are a positive development in a world which has millions of sick people who currently cannot afford many life saving drugs.

As is the case with most big, complicated debates like this, many people are left wondering what the fuss is about and to how all of this might affect them.

What is Compulsory Licensing?

The intellectual property ownership of drugs in Thailand and everywhere else is covered by patent law. When a party applies for and is granted a patent for a drug in Thailand that party is granted a twenty year monopoly on the production, sale and use of that drug. This is a powerful exclusive right, but it is subject to certain exceptions, one of which, is compulsory licensing.

Compulsory licensing is set forth in a World Trade Organization (WTO) agreement in which Thailand is apart. This agreement states that in certain situations the Thai government (and other governments as well) may legally grant permission to third parties to produce specified patented drugs without the patent holder’s permission. These situations include those of ‘national emergency or other cases of extreme urgency’.

The provision also provides that before the government may impose compulsory licensing it must have first made efforts to obtain authorization from the patent holder under reasonable commercial terms and that such efforts were unsuccessful. Also, if the government goes forward with the compulsory licensing it must provide the drug’s patent holder with adequate compensation.

Therefore, in order for the Thai government to legally impose compulsory licensing for drugs, it must:

be able to demonstrate that a national emergency or other case of extreme urgency exists;

have made efforts to obtain authorization from the drugs patent holder under reasonable commercial terms and that such efforts were unsuccessful; and

provide the drug’s patent holder adequate compensation for the patent’s use.

Is it Legal for the Thai Government to Impose Compulsory Licensing in this Case?

There is a strong, good faith argument that the Thai government is legally justified to impose compulsory licensing for the drugs specified.

The debate, as to whether the Thai government’s decision is legal or not, mostly centers around whether or not the price of these drugs currently represents a national emergency or other case of extreme urgency to Thailand. The drug companies say no; the Thai government, yes.

The Thai government’s position on this issue represents a very credible legal argument. One could even go further and argue that the above mentioned WTO provision was specifically created to assist developing countries like Thailand in situations exactly like this.

Should the Thai Government Impose Compulsory Licensing?

This is a much more difficult question. Here, many, many other factors come into play such as the long term interests of the users on these drugs, the impact on pharmaceutical companies’ ability to develop new drugs, as well as the impact on trading and relations between affected governments.

One of the arguments put forth by drug companies is that the Thai government’s decision could easily become a slippery slope. This means that if the government can compulsory license pharmaceuticals, what is next? Textbooks? Software? Other types of intellectual property?

This argument is not compelling. It is true that the compulsory licensing is not limited in the WTO provisions to pharmaceuticals only. So theoretically it could be applied to textbooks, software and other IP as well. There have even been statements by the Thai government which also seem to threaten imposing compulsory licensing for these things.

However, if the Thai government attempted to impose compulsory licensing for these things the same standard of “national emergency or other circumstances of extreme urgency” would apply.

This argument works for the specified drugs which may be too expensive for many Thai citizens, but it would be much more difficult to justify for things such as text books or software. It would be difficult for the government to make this argument at the end of the day because it is too weak.

Another argument made by pharmaceutical companies, is that imposing compulsory licensing is unfair because it reduces the return on investment for the shareholders of these drug companies.

It is easy to sympathize with anyone who invests their hard-earned money to buy shares in a publicly traded company and does not realize a return on their investment. If the practice of compulsory licensing becomes widespread it would likely have a negative effect on their return on investment.

However, we must sympathize with the poor people with serious illnesses who are in need of these drugs much more, and it is distasteful to even compare the interests of the two groups.

The pharmaceutical companies do, however, have a compelling argument against compulsory licensing.

The argument is that in order to consistently develop new drugs pharmaceutical companies are required to invest in years of research and development that costs millions of dollars.

If governments now start imposing compulsory licensing on a wide range of drugs it will cause a significant negative effect on the drug companies’ bottom line which, in turn, will hurt their ability to be able to continue to develop new drugs moving forward.

This would be bad as it would slow innovation and the time to market in an industry which is vitally important to the world.

So it is very important that Thailand (as well as other countries who may impose compulsory licensing in the future) use discretion and not abuse this legal right. Just because a country has a legal right to do something does not mean that it can or should use it whenever it wants.

Also, if the Thai government started to unjustifiably expand the list of drugs it compulsory licenses it will lose the moral ground that it can currently claim in this argument and lose the support it has received from the international community.

But, to date, the Thai government has not yet abused this right and in my view is on the correct side of the argument. •