The tension between economic policy and health policy is a longstanding dilemma, but one that was brought to the fore with the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights Agreement in 1994. The pharmaceutical industry has long argued that intellectual property protection is vital for innovation. At the same time, there are those who counter that strong IPP negatively impacts the affordability and availability of essential medicines in developing countries. However, actors on both sides of the debate were (...) in agreement that something needed to be done to address the HIV/AIDS crisis, especially in developing countries. In response to sustained and significant pressure from civil society groups, members of the World Trade Organization agreed to the Declaration on the TRIPS Agreement and Public Health in 2001. The Declaration clarified that countries unable to manufacture the needed pharmaceuticals could obtain more affordable generics elsewhere if necessary. (shrink)

This paper examines two recent examples of compulsory licensing legislation: one globally embraced regime and one internationally controversial regime operating under the same WTO rules. In particular, we consider Canadian legislation and the use of compulsory licensing for HIV/AIDS drugs destined for a developing country. This is then contrasted with the conditions under which Thai authorities are pursuing compulsory licenses, the outcomes of their compulsory licenses, as well as the likely impact of the Thai policy. Finally, we construct a rubric (...) to evaluate characteristics of a successful regime. This is used to analyze the Canadian and Thai regimes and frame the expected implications of each national policy. It is hoped that the assessment will guide changes to compulsory licensing design to ensure that legitimate regimes are embraced while illegitimate ones are disallowed. (shrink)

Tens of millions of adults and children die each year from illnesses that are treatable or preventable with existing medicines. Each year over 500 million people are infected with malaria, and the disease kills two million people annually. Hundreds of thousands more die annually from a myriad of lesser known diseases including diphtheria, measles, tetanus, and syphilis. Approximately 30 percent of the world’s population, over 1.7 billion people, has inadequate access or no access at all to essential medicines.Not surprisingly, the (...) vast majority of these illnesses are contracted in poor countries. Four million lives could be saved annually through prompt diagnosis and treatment of illnesses in Africa and Southeast Asia alone, and access to pharmaceutical drugs could likely save millions more. Many of the health problems facing the developing world do not arise from lack of understanding of complex diseases. Rather, the problem arises from a striking lack of availability of life-saving medicines for the consumers that need these medicines the most. (shrink)

This paper offers an economic rationale for compulsory licensing of needed medicines in developing countries. The patent system is based on a trade-off between the “deadweight losses” caused by market power and the incentive to innovate created by increased profits from monopoly pricing during the period of the patent. However, markets for essential medicines under patent in developing countries with high income inequality are characterized by highly convex demand curves, producing large deadweight losses relative to potential profits when monopoly firms (...) exercise profit-maximizing pricing strategies. As a result, these markets are systematically ill-suited to exclusive marketing rights, a problem which can be corrected through compulsory licensing. Open licenses that permit any qualified firm to supply the market on the same terms, such as may be available under licenses of right or essential facility legal standards, can be used to mitigate the negative effects of government-granted patents, thereby increasing overall social welfare. (shrink)

Not all intellectual property rights grant the right to exclude that is indicative of “property rules,” as that term was used by Guido Calabresi and A. Douglas Melamed in their seminal article. Some intellectual property rights are “liability rules,” in which the right holder has an entitlement to compensation for use of the protected invention, not a right to preclude the use. Although patent laws normally grant a right to exclude others from use of the protected invention as a default, (...) most countries’ laws allow the government to convert the patent property rule into a liability rule through a compulsory license. It has been noted, for example, that by the end of the 1950s, the U.S. had issued compulsory licenses covering 40 to 50 thousand patents, including substantial portions of the patent portfolios of AT&T, General Electric, IBM, and Xerox. The U.S. Supreme Court recently expressed a willingness to accept liability rules over injunctions in some patent infringement cases. (shrink)