Department of Policy and Business Practices

Further views on cross border compulsory licensing
Commission on Intellectual Property, 20 November 2002

ICC, the world business organization, promotes international trade, investment and open market economies. ICC firmly believes that the protection of intellectual property stimulates international trade, creates a favourable environment for foreign direct investment, and encourages innovation, transfer of technology, and the development of local industry, all of which are essential for sustainable economic growth.

ICC has always supported the need for a proper balance among different interests. In the field of patents, for example, the system should allow those who innovate to obtain and enforce rights protecting their technological innovations, but should also ensure that society as a whole benefits from disclosure of inventions and the dissemination of knowledge. In the view of ICC, maintaining adequate balances is necessary for the continued successful operation and, hence, acceptance of intellectual property protection systems.

ICC fully shares WTO members' concern that adequate measures should be taken so that serious epidemics of infectious diseases such as HIV/AIDS, tuberculosis and malaria in the developing world can be effectiv ely treated. However, it is clear that many factors other than patented drugs play a role in a successful health strategy - including living conditions, medical facilities, nutrition, and means for the distribution and administration of medicine. It is also clear that many pharmaceuticals which are effective in combating diseases in the developing world are not subject to patent rights (see attached table). It has been pointed out that the availability of health services adapted to local needs, efficient distribution systems and tariff and tax free treatment for drugs play an equally important role in ensuring access to medicines.(1) In the current negotiations on paragraph 6 of the Doha Declaration on TRIPS and Public Health, it is therefore important to remember that the issue of access to medicines calls for measures and policies that are entirely unrelated to intellectual property, and which will not be resolved by eroding the strength of intellectual property rights.

Where a country does need medicines to fight a major disease and cannot afford their market price, the real question to be considered is how to finance that country's access to these drugs, whether patented or not. The current discussions in the TRIPS Council concerning cross border compulsory licensing appear to be premised on the assumption that the companies or institutions which develop such drugs should essentially bear the financial burden of supplying these drugs to countries which cannot afford them.

Research and development in all innovative sectors, including pharmaceuticals, can be funded through grants or, as is the case of the private sector and some academic institutions, through revenues generated by the sale of the resulting products. These revenues in turn are largely dependent on the exclusive rights afforded by patent protection, which is of a limited duration. Cutting off these revenues will deprive entities carrying out research and development of the funds necessary to continue their work. In addition, without the guarantees of effective patent protection, innovative industries and research institutions cannot take the risk of investing in the R&D necessary to the development of new products; indeed, a company's financial viability may depend on the strength of its patents given the sensitivity of share prices to a firm's patent portfolio in certain industries. Innovative companies whose revenues are reduced in certain markets may also be obliged to raise their prices in other markets to recoup their R&D costs.

ICC submits that the problem of access to medicines is essentially one of financing, both of the R&D to produce the necessary drugs and of the infrastructure necessary to administer them effectively. ICC also submits that this financing should be the responsibility of the entire international community, including industry and governments. The private sector is already working with governments and non-governmental organizations to develop and deliver drugs, as well as to build the infrastructure necessary to combat diseases prevalent in developing countries, such as malaria, tuberculosis and HIV/AIDS (see attached table for examples of initiatives). ICC therefore urges governments to give priority to voluntary initiatives and partnerships with the private sector to resolve the problem of access to medicines rather than resorting to a system of unrestrained cross border compulsory licensing which imposes the burden of financing primarily on innovative organizations.

Working with the private sector through voluntary mechanisms will also help reduce the risk that products being manufactured and distributed are of substandard quality, which in the case of pharmaceuticals, can have dangerous and even lethal consequences (see table for proportion of drugs failing quality control tests in developing countries). This risk can spread into other markets if drugs produced under a cross border compulsory licence, not subject to the quality control standards of the patent holder, are diverted into other markets, as has recently occured in Europe.(2)

Although ICC urges governments to give priority to voluntary solutions for the reasons stated above, it recognizes that negotiations are underway in the TRIPS Council to decide on a mechanism to allow a country to issue compulsory licences for the purpose of exporting to other countries that do not have sufficient manufacturing capacity in the pharmaceutical sector. ICC is concerned that sight of the initial objective has been lost during the course of these discussions. The genesis of the Doha Declaration on TRIPS and Public Health was the debate on how to help populations in certain low income countries to access medicines for HIV/AIDS, malaria and TB. Some of the solutions being proposed are far wider than necessary to tackle this issue and will erode the patent system without any corresponding contribution to resolving the original problem. ICC urges the TRIPS Council to keep its focus on diseases of the degree of seriousness of HIV/AIDS, malaria and TB and on access by countries that cannot afford drugs for such diseases.

To limit unneccessary erosion of the patent system, which could in turn discourage research into drugs for the diseases falling within the scope of any mechanism eventually agreed, any solution to the cross-border compulsory licensing problem must include adequate safeguards to protect the patent holder's interests. ICC urges that the TRIPS Council clarify the following critical issues:

• That the field of use of cross border compulsory licensing be strictly limited.
• That the solution should not apply to products other than pharmaceuticals.
• That safeguards be put into place to protect the rights of the innovator from re-exportation of the drug out of the receiving country and from diversion of the drug either within the manufacturing country or to other countries.
• That safeguards be put in place to limit which countries will be eligible as a receiving country, and which countries will be eligible as a manufacturing country.
• That the duration of a cross border compulsory licence be limited in time and that the cross border compulsory licence itself be reviewed periodically by the TRIPS Council.
• That the exporting and importing countries issue cross border compulsory licences that comply with each provision of TRIPS Article 31, excepting Article 31 (f) but including prior notice to the right holder in conformity with Article 31 (b) and with particular emphasis on Article 31 (c) as to limiting the scope of the cross border compulsory licence to the purpose for which the use was authorized.

Document n° 450/956 Rev.
20 November 2002

Attached is a table of facts and figures which ICC hopes will contribute to the debate by setting the discussions in a factual context.< /i>

Table of facts and figures (download Word6 file)
Table of facts and figures (download PDF file)

Footnotes
(1) Workshop on Differential Pricing and Financing of Essential Drugs organised by WHO and WTO, 8-11 April 2001 in Norway.

(2) The Financial Times. 3 October 2002, Section Europe Pg. 8, DYER, Geoff "Netherlands acts against re-sold Aids drugs Africa illegal re-exports uncovered:" ; The Guardian, 4 October 2002, Boseley and Carroll.