Compulsory Licensing for Crisis Management: Revisiting the EU’s Approach

[Pallavi Arora is a Legal Consultant (at the level of Assistant Professor) at the Centre for WTO Studies, Indian Institute of Foreign Trade in New Delhi. She advises India’s Ministry of Commerce and Industry on matters related to international trade and investment law.]

Recently, the European Commission (hereinafter “Commission”) tabled its new pharmaceutical strategy aimed at balancing access and innovation through a string of proposals, like the introduction of a unitary supplementary protection certificate (SPC) and general reduction of regulatory data protection (RDP) from 10 to 8 years. However, the proposal that garnered the most attention was the introduction of a unitary compulsory license (CL) for crisis management.

Recall that during the COVID-19 pandemic, as the WTO grappled with the impact of the TRIPS Agreement on access to lifesaving health products, the European Union (EU) vehemently opposed the TRIPS waiver proposal and instead tabled a counterproposal advocating the use of CL to handle the pandemic. Consequently, the Ministerial Decision on the TRIPS Agreement (2022) (hereinafter “TRIPS Decision”) only went so far as reiterating and modestly streamlining the existing TRIPS provisions on compulsory licensing.

The EU views CL as a useful tool for protecting the public interest while promoting innovation.  However, countries with strong pharmaceutical industries have historically opposed the use of CL. A telling example is the United States of America’s (US) pushback against India following the issuance of its one and only CL on Bayer’s cancer drug, which India’s apex court notably upheld. This type of diplomatic pressure is symptomatic of the narrow construction of TRIPS flexibilities, particularly those enshrined under Article 31 (compulsory licensing) and Article 39 (undisclosed information). In fact, during the negotiation of the TRIPS Decision, the scope of these provisions became a sticking point. Concerns were raised regarding the exclusion of patent thickets and know-how from the scope of CL and the cumbersome procedure regarding compulsory licensing for export.

Since the EU perceives CL as an effective crisis management tool, it was expected that the Commission would clarify the CL-related flexibilities under the TRIPS Agreement and specify the state’s role in regulating the conduct of innovator companies in order to safeguard the broader public interest, related to public health or climate change mitigation. However, the proposed measures fall short of addressing the obstacles to compulsory licensing and pushing the interpretive boundaries of the TRIPS Agreement. This post highlights the shortcomings of the Commission’s proposal on unitary CL. It begins by acknowledging the proposal’s strengths, followed by its limitations.

Concept of Unitary CL

The Commission’s unitary CL proposal establishes an EU-wide centralised compulsory licensing system. This is an advance over the fragmented patchwork national rules on CL among EU Member States. Under the proposal, a unitary CL can be issued on granted patents, published patent applications, utility models and SPCs (concerning patent-term extension). This is a positive development, as it clarifies the scope of the phrase “subject matter of a patent” under Article 31 of the TRIPS, encompassing not only patented inventions but also patent applications and SPCs. However, unlike the comprehensive TRIPS waiver proposal, the Commission’s proposal explicitly excludes designs and copyright from the scope of compulsory licensing.

Suspension of RDP

One of the great strengths of the Commission’s pharmaceutical package is the suspension of RDP in relation to CL (Article 84.4 of the proposed directive concerning RDP). This means that generic manufacturers under a CL can obtain marketing approval by using the originator’s clinical trial data, avoiding the delay in market entry caused by test data and market exclusivity. This provision promotes a broader understanding of the notion of “unfair commercial use” under Article 39.3 of the TRIPS. A similar flexibility was incorporated in paragraph 4 of the TRIPS Decision, providing that Article 39.3 of the TRIPS would not hinder the rapid approval of COVID-19 vaccines produced under the Decision.

Sharing of Know-how

By far, the biggest shortcoming of the proposal is its ambivalence around the sharing of know-how, protected as trade secrets. Know-how could be in the form of the manufacturing process of pharmaceutical products or technical expertise related to environmentally sound technologies. Obtaining a CL does not guarantee access to know-how, as it is often safeguarded as trade secrets. Consequently, licensees must invest a significant amount of time and effort to implement the invention, resulting in delays in bringing the product to market. This defeats the intended purpose of a CL.

A significant flaw of the TRIPS Decision was its silence on sharing know-how in relation to CLs granted under the Decision. Ideally, the Decision should have offered guidance on the policy tools that states could employ under the TRIPS Agreement to facilitate the transfer of know-how. Rather than providing such guidance, the Decision left it to pharmaceutical companies to negotiate voluntary arrangements for technology transfer. While voluntary partnerships may work in some circumstances, they have not always proven effective, as evidenced by the lack of contributions to the COVID-19 Technology Access Pool. One may also attribute the success of the Medicines Patent Pool to the threat of a CL stemming from the TRIPS Decision.

The Commission’s approach is no different. It prescribes “good collaboration” between innovator companies and licensees as the means to facilitate technology transfer. However, it offers no concrete policy measures to effect such collaboration. Although Article 14.2 of the proposal mentions that the Commission has the authority to implement supplementary measures to promote good collaboration between rights-holders and licensees in relation to the unitary CL, it does not provide details on what those measures might entail.

Analysing this issue from a business and human rights perspective provides valuable insights. According to the UN Guiding Principles on Business and Human Rights, while corporations have human rights responsibilities, states have the primary obligation under international law to enforce human rights. Thus, corporate responsibility should not become a pretext for states to disregard their human rights obligations. The architect of this framework, John Ruggie, further notes that corporations are responsible for upholding certain fundamental human rights. If a corporation is involved in public functions, such as providing healthcare, it may have further responsibilities to consider beyond the baseline. However, these additional responsibilities of corporations, while socially desirable, are of secondary importance. Ultimately, states are the primary duty-bearers to protect human rights through the provision of public services (see here, p.9). Thus, while innovator companies may have a secondary responsibility to share know-how on equitable terms with licensees, it is ultimately the duty of states to ensure that the technology required to implement a compulsory license is shared. This is the underlying principle of the Human Rights Guidelines for Pharmaceutical Companies in Relation to Access to Medicines (2008), as affirmed by the UN Special Rapporteur on the Right to Health, Paul Hunt, who drafted these guidelines (see here, p.12). This principle is enshrined under Articles 7 and 8 of the TRIPS Agreement, which recognise the need for states to take appropriate measures against practices that constitute an abuse of intellectual property rights or adversely affect technology transfer.

States have various policy tools at their disposal to ensure that the know-how underlying a CL is shared with licensees. To begin with, states could establish clear guidelines on the conduct of private entities requiring the transfer of know-how accompanying a CL on equitable terms. This could be supplemented with incentives for firms to pool their know-how into technology transfer mechanisms and patent pools. The refusal to license or licensing on prohibitive terms should attract action under competition law, as recognised by Article 40.2 of the TRIPS. In addition, emergency legislation, such as the present proposal, may set out the framework for the compulsory licensing of know-how. Along similar lines, experts have interpreted the US Defence Production Act as authorising the President to compel the disclosure of information needed to boost the production of critical commodities for national defence purposes. Such compelled disclosure of trade secrets by the government could be justified under Article 39.2 of the TRIPS on the ground that it is not “contrary to honest commercial practices” (see here and here). Notably, the impact assessment accompanying the Commission’s proposal also acknowledges the possibility of issuing a CL on trade secrets but ultimately does not pursue this option.

The failure to consider these options makes the Commission’s proposal a missed opportunity. Ideally, the Commission should have closely examined these measures in order to effectively implement a CL. This would have promoted a progressive interpretation of the TRIPS Agreement and encouraged other developing countries to follow suit.

Other Drawbacks

Another limitation of the proposal is that it only applies to crisis situations. Article 3 of the proposal further limits its scope to products/processes which are “indispensable” for responding to a crisis, leaving the scope of the term undefined. Additionally, a unitary CL can only be issued for an EU-wide crisis and not one affecting specific Member States. For example, the unavailability or unaffordability of patented medicines within a particular Member State or a climate crisis that only affects some EU members cannot be the basis for the grant of a unitary CL; instead the crisis must affect the EU as a whole. It is important to note that there is significant disagreement regarding the situations that warrant the grant of a CL under Article 31 of the TRIPS. By setting such a high threshold, the Commission has favoured a conservative reading of Article 31, limiting its scope to a very narrow range of circumstances.

Finally, the COVID-19 pandemic is a sobering reminder of the disparity in access to critical products between developed and developing countries. As discussed above, the proposal offers no concrete measures to facilitate technology transfer to low-and middle-income countries in the event of future public health or climate-related crises. The EU’s Free Trade Agreements with developing nations have much to contribute in this regard. Furthermore, the EU’s decision to opt out of Article 31bis of the TRIPS means it cannot import pharmaceutical products produced under a CL from third countries. This restricts access to the EU market for generic manufacturers from developing countries, depriving them of the benefits of economies of scale.

Conclusion

In conclusion, if compulsory licensing is indeed the EU’s instrument of choice to tackle future crises, it must contend with the above challenges rather than waiting for the next disaster to strike.