Structuring your investment to protect IP rights – the case of compulsory licensing

Pharmaceutical companies may obtain additional international law protection against unlawful compulsory licensing by governments, explain Caline Mouawad and Silvia Marchili (partners) and Louis-Alexis Bret (associate) in King & Spalding’s International Arbitration Group, in this exclusive report for The Pharma Letter.

A growing number of countries, including Brazil, Thailand and India, have enabled local drug makers to produce drugs patented by foreign companies under a compulsory license. The term “compulsory license” refers to circumstances in which a government authorizes someone other than the patent owner to produce a patented product or use a patented process without the consent of the patent owner, subject to certain conditions. Although Article 31 of the Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS) affords this flexibility to WTO members under certain circumstances related to public health and safety, this mechanism recently has become a major threat for the pharmaceutical industry worldwide. Under compulsory licensing schemes, pharmaceutical companies face the risk of receiving only a drastically reduced royalty for the use of their intellectual property, imperiling in turn their ability to develop profitably new treatments and molecules.

One of the most well-known instances of compulsory licensing was that issued by Brazil, which, in 2007, allowed the manufacture and importation of a generic form of the anti-HIV drug, Efavirenz, without the patent owner’s consent. Other examples are in India, where courts have rendered a number of decisions affirming the use of compulsory licenses affecting large international pharmaceutical companies, and where local authorities have most recently received a request for compulsory licenses for patented diabetes management drugs. Moreover, while a large number of the drugs targeted by compulsory licenses are intended to treat life-threatening conditions, some relate to less critical conditions, thus expanding the scope of the problem considerably.

Pharma sector concern