The Patent Snatchers

The UK Labour Party has set out its plans to put “public health before private profit” and ensure that “pharmaceutical companies make vital drugs available at prices that the National Health Service (NHS) can afford.” The proposals include making public funding for research conditional on the resultant drugs being priced affordably and the creation of a new, publicly-owned generic drugs manufacturer to supply cheaper medicines to the NHS.

Perhaps most controversially, a Labour government would also issue Crown- or compulsory-use licenses when the NHS isn’t being offered an “affordable price for a medicine.” A compulsory use license enables a government to issue a license to another manufacturer (private or public) to produce a generic version of a patented drug at a lower price – without the consent of the patent holder.

The proposals are compatible with international law; namely Article 31 of The World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). According to Article 31 of TRIPS, governments have the right to grant compulsory licenses on virtually any ground – including public interest, anticompetitive conduct, or for noncommercial government use.

However, the TRIPS Agreement does subject the exercise of this power to certain preconditions, including that manufacturers should be “paid adequate remuneration in the circumstances of each case.” 

Ellen ‘t Hoen, lawyer and director of Medicines Law & Policy and researcher at the Global Health Unit of the University Medical Centre at the University of Groningen, The Netherlands, explains that, ultimately, “the government sets a royalty rate.” Though there is guidance for setting remuneration from the WHO/UNDP (2).

‘t Hoen has documented the use of compulsory-use licenses since 2001 (3). She found that between 2001 and 2016, there were 100 instances of the possible use of compulsory licences or public noncommercial use licences, predominantly concerning medicines for HIV. Only eight were issued by “developed” nations. For example, in 2005, the Italian Competition Authority forced Merck to grant free licences to allow the manufacture and sale of Finasteride in Italy, two years before the patent was set to expire in 2009. The royalty paid to Merck wasn’t disclosed. 

Some governments have faced international political pressure for making use of the “TRIPS flexibilities.” In 2016, US officials threatened to withdraw financial support for Colombia’s peace process after the country issued a compulsory licence for the cancer drug imatinib (4), for example. But, as ‘t Hoen’s research shows, the majority of TRIPS flexibilities invoked were successfully implemented.

‘t Hoen also points out that a credible threat of a compulsory-use license can lead to a better price offer or a voluntary license. Bayer drastically lowered its price for ciprofloxacin in 2001 after the US threatened to issue a compulsory license, for example (4).

Crown use was relatively commonplace in the UK during the 60s and 70s. “Between 1953 and 1971, the UK issued 20 compulsory licenses for medicines,” says ‘t Hoen. “The  famous British IP Scolar Stephen Ladas commented in 1975: ‘Although this power of the Ministry of Health to purchase drugs and medicines from sources independent of the patentee has been much criticized by the pharmaceutical industry, it is not likely to be affected by such criticism. Such power will be exercised if the patentee is alleged to maintain unduly high prices for these products.’”

One potential problem for the Labour Party is section 57A of the UK Patent Act (added in 1977), which implies that companies should be compensated based on profits lost as a result of a government issuing a Crown-use licence. The Labour plan says that this “creates ambiguity on the need to offer compensation to the patent holder” and that, though this hasn’t been tested in court, “there may be a need to revise the law to make it clear there is no responsibility to pay such compensation in such cases.”

Labour’s proposal also states that Brexit may “present an opportunity” for the UK to “move away” from EU rules covering data exclusivity, marketing exclusivity and Supplementary Protection, which they argue lead to higher prices.

The response from pharma has, to say the least, been disapproving. Richard Torbett, Executive Director of Commercial Policy at the Association of the British Pharmaceutical Industry, referred to compulsory licensing as “the seizure of new research” and warned that “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” (5).

Steve Bates, chief executive of the Bioindustry Association, added: “NHS patients and the UK economy would both lose the chance of new life saving treatments if the UK becomes a hostile environment for intellectual property” (6).

The proposal does not specify exactly how frequently compulsory licences would be issued. But one example cited was the recent case of the cystic fibrosis drug Orkambi, which NHS England refused to purchase from US-based Vertex because the price was “unaffordable.” And if the plan is to issue a compulsory license in any circumstance when the NHS isn’t being offered an “affordable” price, then the UK’s intellectual property environment could be rather different under a Labour government. 

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