23 March 2011

Surprise! New Pharmaceutical Compulsory Licenses Proposed

We cannot speak for any other interested parties (although we will gladly quote them – see below) but we were blind-sided by the joint announcement yesterday by Senator Kim Carr (the Australian Minister for Innovation, Industry, Science and Research) and the Hon Dr Craig Emerson MP (Minister for Trade) of the Government’s intention to ‘introduce legislation to allow Australian courts to grant compulsory licences to manufacture and export patented pharmaceuticals to countries trying to deal with epidemics and other types of health crises.’

According to the joint media release:

The new system implements an international agreement on public health in the World Trade Organization, amending the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Protocol).

Developing countries and other interested organisations will now be able to apply to the Federal Court for a licence to manufacture and export patented pharmaceuticals from Australia to countries in need.

Apparently (and this is entirely independent of the reforms currently in-train on the initiative of IP Australia), the Government intends that the new system will be in-place by the end of 2011.


The media release makes it pretty clear that only the most heartless, money-grubbing, self-interested, arch-industrialist could possibly oppose the intent of the (as yet unseen) legislation:

The United Nations estimates that nearly two billion people do not have access to essential medicines. 

In 2008, an estimated 285 million people were infected with malaria, HIV/AIDS or tuberculosis, causing 4.2 million deaths.  Many of the countries that are suffering such epidemics are developing or least-developed countries with limited resources and manufacturing capabilities.

Senator Carr said lives would be saved through nations working together.

“The new system will enable a country that is experiencing a serious epidemic to ensure that its own population is supplied with vital treatments,” Senator Carr said.

But of course, says Senator Carr:

“The Government continues to support and encourage innovation, investment and international competitiveness by ensuring that patent owners will receive adequate compensation for any licences issued.

“Measures will also be taken to help ensure that pharmaceuticals exported under the system reach the people that need them and are not diverted to other markets.”

Well then, that’s nice to know, isn’t it?!


Let us ‘get real’ here.  What is being proposed is that Australian pharmaceutical manufacturers, other than the patentee, will be able to acquire compulsory licenses to manufacture and export patented drugs to ‘countries in need’, if a ‘developing country’ or ‘other interested party’ makes a successful application to the Federal Court of Australia.

However, the patent owners will be ‘adequately compensated’.  Really?  Unless the compensation associated with a compulsory license is greater than the patentee’s margin on selling its own product to a ‘developing country’, it would be better compensated by manufacturing and exporting the product itself.  Of course, the patentee may not have the capacity to do so, in which case it would be better off reaching a private agreement with one or more other manufacturers.

At the end of the day, this is (it seems to us) a political stunt that will serve largely to compel the industry to ‘self regulate’ (assuming that it does not already do so) in order to avoid being further disadvantaged by the consequences of the proposed legislation.  Here at Patentology, we are of the view that there is a place for government regulation, and we are in favour of businesses being good corporate citizens and nations being good global citizens.  But we also think that, much of the time, markets work more efficiently without undue regulation, and that government intervention should be limited to cases in which it is warranted by clear national, regional or global interest, or instances of indisputable market failure.

We are not aware of any reason to believe that mitigating circumstances of this kind apply to the Australian pharmaceutical industry.  Where is the evidence that the Australian industry is failing in its global obligations, or that new legislation will save a single life?  The type of legislation proposed has the clear intent of making drugs that are covered by patents in Australia available at lower cost for the ostensible benefit of developing countries.  Inevitably some of these drugs would end up on the black market – once the product is exported, this is largely out of the control of the Australian authorities.  It is the twenty-first century – we guarantee you that you would be able to buy these ‘cheap’ drugs on the Internet!

Additionally, the suggestion that a ‘developing country’ will be able to apply to the Federal Court of Australia for the grant of a compulsory license is somewhat concerning.  What, exactly, does this mean?  Many countries that would fall into this category are not exactly democratic.  As a nation, we might want to assist their people, but we might not support the governing regime.  Are we saying, however, that we would support such a regime acting as the applicant in a Federal Court action for the grant of a compulsory license?  And if a license is granted in such a case, to whom would the drugs be delivered, and how could we guarantee that they ultimately reach the people most in need?

As always, the devil will be in the detail, and so we await the actual draft legislation with baited breath!


Initial responses from various interested parties in the Australian pharmaceutical industry have been reported by BioTechnologyNews, which indicates that the Government’s announcement ‘has been met with some surprise’.

AusBiotech chief executive Dr Anna Lavelle is quoted as saying:

“We are seeking more information and will be consulting with the other members of the Pharmaceutical Industry Council,” …

”It is important that due process is undertaken and that the need identified is genuine.”

Medicines Australia chief executive Brendan Shaw is quoted as saying that:

“Medicines Australia strongly supports the principle of ensuring least developed countries in the midst of a health crisis have access to essential medicines. … We look forward to seeing the detail of the legislation.

“It is important that any legislation provides for adequate compensation for patent holders, and that safeguards are put in place to ensure the medicines are not diverted to other markets.”


We are greatly concerned about this announcement.  Since our own area of greatest interest is not in the pharmaceutical area, we thought that our surprise was due to our relative ignorance of the field.  But the response from the biotechnology industry suggests that we were not the only ones to be surprised, and that there has been very little prior consultation on this proposal.

However, we anticipate that once legislation has been drafted and presented to the parliament, there will be some opportunity for stakeholders to make submissions.  We will endeavour to keep track of developments, and to keep our readers informed.


Informed Counsel said...

See: ITSSD: U.S. High-Tech Innovations Face Gathering 'Perfect Storm' of Compulsory Licensing and Royalty-Free Interoperability Frame, accessible online at:
(and accompanying links to articles and links within such articles)

WIPO Standing Committee on the Law of Patents
Fifteenth Session
Geneva, October 11 to 15, 2010
prepared by the Secretariat

Philip Argy said...

I think the Constitutional prohibition on acquisition of property on unjust terms will be relevant here.

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