20 August 2012

Pharmaceutical Compulsory Licences to Assist Developing Nations

Malaria RegionsIP Australia has released an ‘exposure draft’ of proposed legislation named the Intellectual Property Laws Amendment Bill 2012.  The main purpose of the legislation is to implement additional compulsory licencing provisions consistent with Australia’s obligations under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Protocol.  The Protocol is aimed at helping developing nations to tackle diseases such as malaria and HIV/AIDS using affordable generic medicines from other countries. 

IP Australia is currently welcoming submissions on the exposure draft, up until 5.00pm, on 1 October 2012.

The Australian Government (then Innovation Minister Senator Kim Carr and Trade Minister Dr Craig Emerson) originally announced, in March last year, its intention to have this legislation drafted and in place by the end of 2011.  It then disappeared without a trace, until now!

We recently wrote about the Productivity Commission’s inquiry into the compulsory licensing provisions of the Australian Patents Act 1990, which is currently accepting public submissions (see Compulsory Licensing Inquiry – Issues Paper Released).  This inquiry is concerned with the domestic impacts of patents and compulsory licences – the primary focus of the Productivity Commission is on ways of achieving a more productive Australian economy, which is seen as the key to higher living standards for the country’s citizens.

Australia’s existing compulsory licensing provisions are consistent with the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property (the TRIPS Agreement).  According to TRIPS, products made under compulsory licence must be predominantly for the supply of the domestic market and are not allowed to be exported. 

This restriction makes sense to protect rights-holders in advanced economies, which do not wish to see an influx cheap imported goods from countries where they are manufactured under favourable compulsory licence terms. 

However, the WTO recognises that less-developed member countries may find themselves facing problems in the event of a public health crisis, such as an HIV/AIDS, malaria or influenza epidemic, if they have insufficient capacity to manufacture pharmaceuticals themselves, and can not afford to purchase the required drugs on the open market.  Such countries cannot obtain patented pharmaceuticals produced under compulsory licence in another WTO country, even if they are more affordable, because these products could not be exported under current laws.


An amendment to the TRIPS Agreement, known as the TRIPS Protocol, seeks to address the above-described problem.  The Protocol permits WTO members to issue compulsory licences to produce patented pharmaceutical products for export to least-developed and developing countries.  The main features of the Protocol are:
  1. licences may only be issued for products of the pharmaceutical sector needed to address public health concerns;
  2. countries eligible to import pharmaceuticals under the system comprise any least-developed WTO country or any other WTO country that has notified the TRIPS Council;
  3. importing countries are obliged to provide the TRIPS Council with details such as the names and quantities of the products needed and whether they need to issue a compulsory licence in their own country;
  4. exporting countries are obliged to notify the TRIPS Council of a range of details and ensure that importing countries have done the same; and
  5. importers and exporters must have in place anti-diversion measures to ensure the products produced under the system reach the intended market and are not re-exported.
Australia has accepted the TRIPS Protocol, and may have a role in exporting pharmaceuticals under the system, however it has notified the TRIPS Council that it will not be an importer.  The new draft legislation is intended to implement the TRIPS protocol in Australia.


The amendments proposed to the Patents Act 1990 would create a separate class of compulsory licence, which the draft legislation calls a Patented Pharmaceutical Invention (PPI) Compulsory Licence.  There would be no change to the operation of the existing compulsory licence provisions, currently being considered by the Productivity Commission.  Power to order the grant of a PPI compulsory licence would lie exclusively with the Federal Court of Australia.

A new definition is provided for a PPI:

patented pharmaceutical invention, in relation to a pharmaceutical product, means:
    (a) if the product is a patented product—the patented product; or
    (b) if the product results from the use of a patented process—the patented process.

According to a further definition, ‘pharmaceutical product means any patented product, or product manufactured through a patented process, of the pharmaceutical sector.’

PPI compulsory licences may be granted for the purpose of manufacturing and exporting patented drugs to meet the urgent needs of an eligible importing country.  As defined, an eligible importing country is:

(a) a foreign country (whether or not a member of the World Trade Organization) recognised by the United Nations as a least-developed country; or
(b) a foreign country that has made a notification to the Council for TRIPS of its intention to use, as an importer, the system created by the TRIPS Protocol; or
(c) a foreign country (whether or not a member of the World Trade Organization) included in a class of foreign countries expressly prescribed as being eligible.

An application for a PPI compulsory licence would need to be made to the Federal Court, which would be required to determine that all of the necessary conditions are met before ordering the grant of a PPI compulsory licence.

There are also provisions in the proposed legislation to enable the court to determine the remuneration (i.e. royalty) payable to the patentee on a PPI compulsory licence, if the parties are unable to reach agreement between themselves.  The court may also order the terms of a PPI compulsory licence to be amended, or that the licence be revoked, in appropriate circumstances.


One trickier aspect of the proposal relates to something the draft legislation calls an ancillary compulsory licence.  This seeks to address the situation that a PPI licensee may require access to another patented product or process in order to produce the pharmaceutical goods covered by the main PPI-licensed patent.  In this case, the court will be able to order the grant of a compulsory licence to both the main patent, and the additional patent(s).

However, this is where things become difficult to follow.  According to proposed subsection 136F(2), the Federal Court may make the PPI order, and an order for the grant of an ancillary PPI licence…

…only if the court is satisfied that the patented pharmaceutical invention involves an important technical advance of considerable economic significance on the invention (the other invention) to which the other patent relates.

Oddly, this appears to imply that the existence of an additional patent which is required to manufacture a drug under a PPI compulsory license can act to block the grant of the license if the patented pharmaceutical invention is not ‘an important technical advance of considerable economic significance’ over the invention in the ancillary patent.

In the absence of an additional patent, there is no test of the technical merit or economic significance of the PPI required in order for a compulsory licence to be granted.

It is therefore not at all clear (to us, at least) what this proviso is intended to achieve.  The draft Explanatory Memorandum states:

This ensures that a licence is being sought for the appropriate patent and is in accordance with Article 31(l)(i) of the TRIPS Agreement and subsection 133(3B) of the Patents Act relating to general compulsory licences.

Certainly the language of proposed subsection 136F(2) mirrors that of the existing subsection 133(3B).  However, it is not apparent that it makes sense to place additional restrictions on the grant of a PPI compulsory licence merely because a licence to more than one patent is necessary to produce the required drug.

If any readers can shed more light on how this provision is intended to operate, we would appreciate you letting us know, either in the comments below or via email or the ‘Ask Patentology’ contact form.


Australia has already committed to implementation of the TRIPS Protocol, so the proposed legislation will be passed in some form.

Generally speaking, the draft legislation appears to follow the scheme of the TRIPS Protocol.  However, the ancillary PPI licence provisions are an additional feature of the proposed Australian system which place additional restrictions on the grant of compulsory licences to manufacture drugs for which multiple patents are required.

As noted at the start of this article, IP Australia is currently welcoming submissions on the exposure draft.  The deadline is 5.00pm, on 1 October 2012.  No extensions of time will be available, and late submissions may not be considered.

Submissions should be sent to Bill2012@ipaustralia.gov.au or contact Ms Terry Moore on 02 6283 2632 for more information.


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