Compulsory Licensing of Essential Drugs During the Covid-19 Pandemic

Thursday 12 August 2021

Krrishan Singhania
K Singhania & Co, Mumbai

Vanshaj Mehta
K Singhania & Co, Mumbai

The question of compulsory licensing of essential drugs and vaccines has come to the fore in India in light of recent shortages following a surge in Covid-19 cases. Numerous drugs used to treat Covid-19, such as Remdesivir, Favipiravir and Tocilizumab, are under patents.

In taking up a suo motu petition on Covid-19 measures, the Supreme Court of India recently asked the central government to consider compulsory licensing to tackle the current shortage of essential drugs.

However, there are arguments for and against compulsory licensing, which we outline below.

Governing legal regime and scope for compulsory licensing in India

Compulsory licensing refers to the grant of a licence by the government to other entities for use of patented innovations, without the need for the patent-holder’s permission.

Section 92 of the Patents Act 1970 in India provides for compulsory licensing of patents during a public health emergency. Article 31 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (the ‘TRIPS Agreement’) read in tandem with paragraph 5(b) of the Doha Declaration also permits compulsory licensing for advancing public health objectives.

While factors such as the nature of the invention, the capability of the applicant to use the product for the benefit of the public and the reasonability are taken into account, ultimate discretion to grant the compulsory licence lies with the Controller General.

Even after a compulsory licence is granted to a third party, the patent owner still has rights over the patent, including a right to be paid for copies of the products made under the compulsory licence.

To date, a compulsory licence has only been granted to Natco Pharma for the generic production of anti-cancer drug Nevaxar. In the case of Covid-19, while it is essential that the government abide by international treaties and allow differential pricing across regions so that the vaccine can be sold to developing countries at an affordable rate, manufacturers must also think about their long-term relationship with the Indian government.

Indeed, pharmaceutical companies may continue to sell the raw material for these vaccines, so their profits will not be massively affected. There is therefore ample opportunity for pharmaceutical companies to recover their investments and become profitable in the long run. The pandemic is here to stay for here at least the next three to four years and people will need to be vaccinated annually, which will ensure that pharmaceutical companies earn their share of profit.

The case for compulsory licensing in a crisis: affordability and availability

Compulsory licensing would enable India’s manufacturers to make generic versions of Covid-19 drugs at a fraction of the original price. Given that commercial scale of production for generic drugs can be achieved within a short time period in the country, both the availability and affordability of critical drugs would be ensured.

There is also a case to be made for the potential strengthening of international ties with other countries. This would help boost the Indian economy and allow domestic players to flourish. Such an exercise would also be immensely helpful to other global regions. For example, it would allow India access and distribution to markets in sub-Saharan Africa, which are not economically strong. (While the vaccine may be affordable at $20 in the United States, the same might be exorbitant for someone in India or in sub-Saharan Africa).

Compulsory licensing would not only be a win for the recipients, who will be able to access affordable drugs, but also for government and the vaccine’s manufacturers: with such a large population to test the drug’s efficacy, the cost of testing would be more evenly spread.

A time-limited compulsory licence would be sufficient to bolster India’s public health during the Covid-19 crisis, with adequate royalties payable to the patent-holder. Given the increasing shortage of critical drugs in the country, compulsory licensing is arguably a viable course of action to ensure early accessibility to affordable drugs.

The other side of the coin: adverse impact on innovation and research

It is, of course, imperative to consider the potential loss of life without access to an affordable vaccine. But, while it is important to distribute vaccines without any embargo, it is also vital to maintain their quality throughout the distribution process. An adverse effect of compulsorily licensing may be that suitable know-how might not reach the licensee and if that happens, the subsequent vaccine may not be of any use.

Compulsory licensing is also likely to have a negative effect on investment in innovation. Pharmaceutical companies invest significant time and effort into the development of drugs, and have a reasonable expectation of commercial returns for recovering this investment. Patent protection is often necessary to ensure continued innovation. Compulsory licences undermine the patentee’s exclusive rights and freedom of entering into suitable licensing arrangements. This in turn may dissuade pharmaceutical companies from investing in research or introducing patented drugs in India in the long term.

As such, the central government has adopted a stance against compulsory licensing in India, arguing that it would adversely affect the country’s efforts at a global level to negotiate the import of vaccines and other drugs. The government has also emphasised the shortage of raw materials for production of drugs even if compulsory licences were granted. The impact of compulsory licensing on diplomatic negotiations and access to raw materials are therefore equally important aspects to factor into this discussion.

Concluding remarks

Whether compulsory licensing is the most appropriate course of action to ensure expedient access to Covid-19 vaccines remains a complex debate.

Before any compulsory licensing is granted, an attempt must be made to obtain voluntarily licensing. Voluntary licensing will solve the issue of affordability and availability of vaccines and essential drugs, while also ensuring that pharmaceutical companies are able to negotiate their royalty fee.

It is also important to strike a balance between the economic interests of both the patent holders and the population at large. The government must make this policy decision in a manner that best serves the public interest amid the current pandemic.