A Framework for Compulsory Licensing of Medical Inventions

1. 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

2. WORLD TRADE ORGANIZATION WT/MIN(01)/DEC/W/2 14 November 2001 (01-5770) MINISTERIAL CONFERENCE Fourth Session Doha, 9 - 14 November 2001 Doha Declaration on the TRIPS Agreement and Public Health

3. Doha Declaration, con't • 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.

4. Doha Declaration, con't • Accordingly and in the light of paragraph 4 above, while maintaining our commitments in the TRIPS Agreement, we recognize that these flexibilities include: • 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. • Each Member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted. • 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. • 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.

5. Doha Declaration, con't • 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.

6. 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

7. Moving on

8. Grounds for issuing a license

9. Focus on Opportunities to Improve Access to Essential Intellectual Property

10. 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.

11. 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

12. Coverage Of Antiretroviral Therapy in Developing Countries, December 2002

13. 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

14. 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.

15. 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

16. Benchmark for affordability when resources are pooled (reimbursed by state or insurance), but a highprevalence of the disease places burden on pooling mechanisms. Reference price are adjusted for relative GDP per infected person.

17. Two affordability benchmarks applied

18. 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

19. In developing countries, use royalty guidelines to set compensation

20. 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?

21. Application of Royalty Guidelines to Fixed Dose Combination

22. Are Access and R&D competing policy objectives?

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

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

26. 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

27. 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

28. 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

29. Measured Contributions to R&D i i λ i [M i + S i r i] i

30. Simple Exampler = .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 million 5 x 2 x 2 x 2 = $ 40 million Total = $60 million