Will the patent waiver proposal really help third world countries?

International tensions over the distribution of vaccines are increasing, and the production capacity of manufacturers is finite. Early May the United States announced that it would actively support the temporary "waiver" of patents on coronavirus vaccines to enhance the supply of poorer countries. However, some critics say that the US proposal is hypocritical, both because it was made only after a large part of the US population had already been vaccinated and because making the use of patents free would not in itself solve the supply problems of poorer countries. Zoltán Novák and Petra Knall explored the key issues of waiving COVID vaccines patents.

Rising global tensions

More than 80% of the approximately 1.3 billion coronavirus vaccines administered worldwide to date have been used by high-income countries. South Africa and India were the first who raised their voices against this trend before the World Trade Organisation (WTO) last October, calling for the temporary suspension of certain provisions of the TRIPS Agreement which regulates trade-related intellectual property issues at international level. The initiative was later joined by a number of third world countries and now appears to be backed by the United States and Russia, as well.

In the meantime, the media has found the culprit responsible for this disturbing data in "big pharma", the multinational companies that control the patents of technology used for coronavirus vaccines. According to this argument, a patent waiver would boost vaccine production worldwide and give poorer countries earlier access to vaccines. Others, however, believe that the main obstacle to the vaccine supply of developing countries is not patents but the lack of manufacturing capacity and technology, and that the suspension of patents alone would not be able to solve the supply problems.

The intellectual property rights of manufacturers are clearly an important factor in the global distribution of coronavirus vaccines. Experts at Taylor Wessing have therefore examined the legal possibilities that the current international patent regime offers to manufacturers and purchasing states and the prospects that can be expected from the current proposal.

Existing patent waiver for least developed countries

Aspects of intellectual property related to international trade are governed by the TRIPS Agreement, concluded in 1995. In general, TRIPS provides protection for patents and obliges State parties to enforce such protection. 

Some countries, however, were granted a transition period, during which they did not have to grant patent protection, notably on medicines. This transition period enabled for example India to build up the world’s largest generic medicines capacities by 2005, when its exemption ended. 

The world’s least developed countries, however, still enjoy a patent waiver on medicines, currently extended to 2033. This means that the poorest countries are not obliged to protect pharmaceutical patents and, consequently, they are theoretically free to use in their territory the patented technology necessary to manufacture COVID-vaccines.

Compulsory licence for domestic use

In certain circumstances, TRIPS allows any country to exploit a protected invention without the consent of the right holder in order to address public need. Notably, Article 30 of the TRIPS Convention allows State parties to grant a “compulsory licence” for their own domestic market. Such license permits a domestic manufacturer to produce and distribute a patented product without the consent of the patent holder. 

The legality of compulsory licensing to address shortages in medicines was explicitly confirmed in a declaration adopted by the World Trade Organisation’s Ministerial Conference in Doha on 14 November 2001. Thus, if the patent holder is unable to supply a country with an important medicine in sufficient quantities and/or at an affordable price, the state may authorise domestic manufacturers to produce and distribute the medicine in question. By doing so, the state can prioritize public health in a way that limits the intellectual property rights of the patent holder. This was the case in January 2007 when Thailand issued a license for the generic manufacturing of an HIV/AIDS drug patented by US-based Abbott Laboratories. Brazil did the same and issued a compulsory license for a Merck-patented HIV/AIDS drug in May 2007. 

It is not only developing countries who have turned to this solution in the past in case of public health emergencies. Following the anthrax attacks in 2001 in the US, the government intended to stockpile immense amounts of Bayer’s anthrax antibiotic, called ciprofloxacin. In order to achieve this, the US issued compulsory licenses under its domestic (federal) law which eventually forced Bayer to negotiate and strike a deal with the US government. 

In other countries, compulsory licensing has rarely if ever been used. Hungary, for example, did not allow for compulsory licensing based on a public health crisis until the coronavirus outbreak last year. Following a legislative amendment, the Hungarian authority could now, in principle, grant a Hungarian pharmaceutical manufacturer a compulsory licence for the production and domestic distribution of any vaccine developed abroad. Still, we are not aware of any instances in which the instrument was used, which is no wonder considering that such a measure might lead to political and trade conflicts.

Compulsory licensing therefore seems to be a plausible solution to address public health emergencies. However, TRIPS requires that the patentee must be adequately compensated for the compulsory licence, the amount of which, like the normal licence fee, is proportional to the economic benefit derived from the patent. In addition to this, developing countries that have granted a compulsory licence for the domestic production of a patented medicine have also had to face trade retaliations or other sanctions. In 2001 the US government initiated legal proceedings against Brazil, claiming that Brazil’s production of US-patented generic HIV drugs breaks international laws on patent protection. Although the US eventually withdrew its complaint, this sent a strong message to the rest of the world that the US is willing to take very strong measures to protect its own pharmaceutical industry.

Compulsory licence for export

In the absence of adequate production capacities and technological background, domestic compulsory licensing may not be an option for less developed countries. It can easily happen that there is simply no company capable of producing the medicine in the country in question. 
This realization has led to the introduction of Article 31bis of the TRIPS Agreement in 2005, which specifically supports developing countries to get wider access to medicines by allowing the issuances of compulsory licenses for export purposes. 

Article 31bis basically allows a typically more developed country to issue a compulsory licence for the purpose of exporting medicines to another country, mostly to a developing state. The provision has been implemented into EU law and since 2007, a compulsory licence can also be granted in Hungary for "patents relating to the manufacture of pharmaceutical products for export to countries with public health problems".

However, Article 31bis of TRIPS raises several issues, as it would allow the exporting country to grant a compulsory licence – even on patents originating from another country – without itself being in a public health emergency, on the grounds that the measure would benefit a developing country. The importing country, on the other hand, would have to bear both the compensation of the original patent holder and the profit margin of the compulsory licensee, built into the purchase price of the medicine. 

It is no coincidence that this provision has rarely been applied in practice. One of the few examples was when in 2007 Canada allowed a Canadian pharmaceutical company to manufacture a generic version of another Canadian patent holder's HIV drug and to commercialise it in Rwanda. However, the protracted process delayed Rwanda to obtain the necessary medicines, which shows that the application of this provision cannot work miracles.

Contractual licensing

Another significant drawback of the compulsory licences is that they contribute little to nothing to the technology transfer between developed and developing countries. The holder of a compulsory licence issued for domestic use must have the technical means and processes for production already in place and cannot rely on the support of the patent holder. The TRIPS 31bis compulsory licence, on the other hand, appears to be merely an additional business opportunity for more developed countries with the appropriate manufacturing capacities and expertise, while developing countries still remain vulnerable.

A more favourable solution from the aspect of the technology transfer might be that the developer of a medicine voluntarily licenses its patent on the product as widely as possible. This is the case with AstraZeneca, that has already granted more than 20 licences for its COVID-19 vaccine to Asian and Latin American manufacturers - notably in exchange for a licence fee. The main advantage of this is that together with the licence the patent holder usually provides additional know-how related to the patented technology, making it much easier to build up manufacturing capacity and successfully manufacture the products.

The new proposal

In light of the above, it is not entirely clear what exact type of legal solution the new US proposal announced by the Biden administration would offer. Most assume that it would somehow make the production and distribution of patented vaccines entirely free of charge.<

Under the regulations of the TRIPS Agreement, this would probably mean that the parties of the convention would not protect the intellectual property rights in relation to COVID-19 vaccines; they would not grant patents on them or would not sanction their use by anyone. What is new compared to the existing options, that there would be no licence fee or compensation for the use of the patent by the manufacturer of the vaccine.

In effect, the proposal seems to extend the patent waiver on medicines currently enjoyed by least developed countries to every State with regard to COVID-19 treatments.

Criticism

Making patents free of charge would not in itself be a satisfactory solution, as it would not compensate for the scarcer capacities and lack of know-how in less developed countries. This is also demonstrated by the example of Moderna, which has already announced its intention not to enforce the patent protection on its vaccine. While the gesture is certainly to be appreciated, many believe that the lack of adequate capacities, technology and expertise will do little to overcome the practical obstacles around vaccine production.

As the poorest countries already enjoy a patent waiver on medicines anyway, the proposal would likely help middle-income nations with significant generic capacities – like India – to produce the vaccines for export without paying for the technology.

A further concern is that some companies might start producing the medicine without the right technology and good manufacturing practice, which could result in low-quality vaccines. Needless to say, such processes could lead to serious public health hazards.

Potential negative effects of the new proposal were also highlighted by The International Association for the Protection of Intellectual Property, AIPPI, in a recent statement. According to AIPPI, it is precisely the exclusive rights granted by patents that have contributed to successful healthcare developments in the past. The vaccines are the result of many years of research, and the private sector would have hardly provided significant financial support to it, while knowing that they would receive no compensation for their investment. 

Zoltán Novák argues that in the long term it would be more beneficial if governments and international organisations encouraged licensing agreements between drug developers and manufacturers of the less developed countries. Patent users would pay a market licence fee for the exploitation of the patent; however, this would be supported by a global fund set up specifically for this purpose. This way, beneficiaries would not only be able to use the patent itself but would also gain access to the technology and know-how associated with it. This could provide a win-win situation for all parties, unlike the US proposal, which would ultimately serve neither the interests of the companies developing the vaccines nor those of less developed countries.

It does not seem clear at the moment, how the conflict over vaccine production will evolve, but it is possible that the US standpoint, joined by the Russian government's position, will carry enough weight to lead to a decision at the next TRIPS Council meeting in June.