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Compulsory licensing of pharmaceuticals: A solution to high drug prices?

Patent attorney Steve Jones considers the potentially controversial policy regarding intellectual property and the pharmaceutical sector as outlined by Jeremy Corbyn, leader of the Opposition, in his recent speech at the Labour Party conference.

Jeremy Corbyn speech

The UK continues to grapple with its departure – or not – from the European Union, and whilst the outcome remains unclear, one thing now seems certain: before long there will be a general election. Ministers of the ruling Conservative Party have already made numerous spending promises, no doubt with an eye on that election, and as they hold their annual conferences the other major parties are responding with policy statements of their own.

As the Supreme Court’s Judgment that the government’s suspension of parliament was unlawful made headlines, Jeremy Corbyn – the leader of the Opposition – used his speech at the Labour Party conference to announce radical policies. Some of those policies involve a controversial area of intellectual property, namely the prices charged by pharmaceutical companies for patented medicines and the fact that many patients who might benefit from those medicines are denied access to them on the grounds of cost. In his speech, Mr Corbyn referred to a young cystic fibrosis sufferer he had met recently, who would benefit from a treatment that is licensed in the UK but is not available on the National Health Service (NHS) because its manufacturer demands a price that is in excess of £100,000 per patient per year.

Labour’s solutions – if elected – to that problem would be threefold:

  1. the use of compulsory licensing to enable manufacture and supply of the patented medicine by other companies,
  2. the establishment of a publicly-owned generic drug manufacturer, and 
  3. the denial of public funding to companies that charge excessive prices for their patented medicines. It is the first of these in particular – compulsory licensing – that is impacted by IP law.

The aim of the patent system is to incentivise companies to develop new and inventive products for the public good, by granting to those innovators a headstart over their competitors in the form of a patent monopoly, usually for 20 years or so. So long as the patent is in force, the patent holder enjoys the benefit of the monopoly, including the ability to charge high prices due to the lack of competition. This is particularly important to the innovative pharmaceutical industry, in view of the immense cost and risk involved in developing new drugs. To those in that industry, it is only that period of exclusivity that enables them to make a sufficient return on their investment and to invest in further R&D. Drug prices are generally high for as long as patent protection remains in place, but prices then plummet as soon as the patent expires and “generic” competition becomes possible.

Compulsory licensing provisions are a feature of many patent laws around the world, and exist to provide a remedy for abuses of the patent system. One such abuse would be the use of a patent not to make a new invention available to the public, but to withhold that invention from the public. An example is the “urban myth” of a light bulb manufacturer that invents an everlasting lightbulb. As a company that profits from the eventual failure of its conventional lightbulbs and its customers’ consequent need to replace them, it might be in the company’s commercial interest not to market the everlasting product at all, or to market it only at an exorbitant price. The company may well patent the invention but would then use that patent solely to prevent competitors marketing a competing product. As a result, customers would be denied access to the beneficial product, or would be in a position to access it only if they are able to pay the excessive price.

It is in just these circumstances that compulsory licensing comes into play. Compulsory licensing simply means that a patent holder is ordered to grant a licence under the patent to a third party, thereby enabling that third party to manufacture and sell the patented product. The licence is not free-of-charge, however. The licensee will have to pay the patent holder for the licence, usually in the form of a royalty, but the return for the patent holder will normally be much less than it would make by manufacturing and selling the product itself.

Under UK law, the most important ground on which a compulsory licence can be ordered is:

“a demand for the product is not being met on reasonable terms”

Returning to the issue of drug pricing, it is easy to see how this provision could be invoked in circumstances where patients in the UK are denied access to a patented medicine that has a price comparable to the example quoted by Mr Corbyn in his speech. One or more established generic drug companies, whether based in the UK or elsewhere (for instance, India), or indeed Labour’s proposed state-owned generic manufacturer, could apply for the grant of a compulsory licence, and if successful could then supply the patented drug to the NHS at an affordable price.

Of course, things are not that simple. Historically, the compulsory licensing provisions in UK law have very seldom been invoked. Even if generic drug manufacturers can obtain the grant of licences, their products will still have to go through the process of regulatory approval. There is also concern as to how the research-based pharmaceutical industry could react to what it might perceive to be a hostile environment in the UK. Indeed, the Association of the British Pharmaceutical Industry has already responded to Mr Corbyn’s announcement by saying that, whilst it recognises the problem associated with high-priced medicines,

“… ‘compulsory licensing’ – the seizure of new research – is not the answer. It would completely undermine the system for developing new medicines. It would send a hugely negative signal to British scientists and would discourage research in a country that wants to be a leader in innovation.”

In interviews since his conference speech, Mr Corbyn has referred to recent experience in South Africa, where numerous treatments for HIV/AIDS were made the subject of compulsory licences, with the result that cheap generic versions of those drugs have been supplied to South Africa by manufacturers in India. In India itself, pharmaceutical compulsory licensing made headlines in 2012 when that country’s first compulsory licence was granted in respect of an anti-cancer drug. It was widely thought at the time that that decision might herald a flood of further compulsory licences in favour of Indian generic manufacturers, but that has not happened.

In any event, it is difficult to draw parallels between the emerging economies of India and South Africa on the one hand and the UK, which is a centre of pharmaceutical research and the fifth largest economy in the world, on the other.

Labour’s proposals, having briefly made the headlines, will now most likely be submerged in the ongoing Brexit furore. As and when an election is called, they will resurface and if Labour comes to power it will be interesting to see whether – and in what form – they are enacted.

For information about intellectual property protection for pharmaceuticals please click here.

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