International open tendering

 Open tender is a formal procedure by which quotations are invited from any manufacturer or manufacturer's representative on a local or worldwide basis, subject to the terms and conditions specified in the tender invitation. In medicine procurement, the use of competitive international tendering has indisputable economic advantages and is one of the classic cost-containment mechanisms. According to the experiences of many countries, international tendering can reduce prices by 40 to 50 %^[6].

 However, the economic advantages of this mechanism apply mainly to multi-source products where competition exists. Open tendering is not an option for medicines, such as the majority of ARVs, that are protected by patents, unless there are some means to ensure competitive bids (for example through parallel imports or compulsory licences).

Pooled purchasing arrangements

When several countries share the same pharmaceutical needs, and other conditions such as good communications among those countries are also met, international arrangements for pooled purchasing can generate additional price reductions through enhanced negotiation capacities and economies of scale in production and distribution. There have been various initiatives in this sphere, the most successful ones probably being the ones that concentrate country cooperation in the phase of price negotiations with pharmaceutical companies. Other successful initiatives have been coordinated by international organizations. One example is the longstanding purchase of childhood vaccines for the Expanded Programme on Immunization by UNICEF and, more recently, the Global Alliance for Vaccines and Immunization and its associated Vaccine Fund. The WHO-based Global Drug Facility for tuberculosis was created to respond to difficulties experienced by countries in the 1990s in finding and funding stable TB drug supplies, which in turn hindered the expansion of the TB control strategy. [7] 

Voluntary discount agreements

 There are two distinct categories of voluntary agreements between supplier firms and developing country governments to supply differentially priced products:

 a) initiatives where prices are negotiated at a central level, such as the Global Alliance for Vaccines and Immunization (GAVI) and the Green Light Committee (GLC);

 b) initiatives where prices are negotiated at a disaggregated level, between suppliers and countries^[8].

 Voluntary agreements in the second category include those between firms and countries to supply discounted ARVs through the Accelerating Access Initiative (a collaboration between 5 UN agencies and programmes and 7 research-based pharmaceutical companies); as well as agreements between countries and Indian, Brazilian or other countries' public or private pharmaceutical manufacturers.  These agreements need to be assessed in terms of their price level, volume assured, duration of the deal and any other conditions which may be requested by the manufacturer.  

Voluntary licensing

 Voluntary licensing arrangements between a patent holder and another party (licensee) in a country, or serving the country's market, may afford opportunities for significant cost-containment.  As with negotiated discounts, the benefits of voluntary licensing arrangements depend crucially on the terms of the licence. For voluntary licences, the capacity of the licensee is also critical.

 Patent holders may, at their discretion, licence to other parties on an exclusive or non-exclusive basis, the right to manufacture, import, and/or distribute a pharmaceutical product. Depending on the terms of the licence, the licensee may act entirely or effectively as an agent of the patent holder; or the licensee may be free to set the terms of sale and distribution within a prescribed market or markets, contingent on payment of a royalty. Either option, or arrangements in between, may allow for substantial price reductions.  However, it is important to keep in mind that voluntary licences are contract negotiations between private parties. Terms in a voluntary licence may set price ranges, or include other terms that maintain prices at or near the same level as those offered by the patent holder.  Or, terms may limit how many patients or which categories of patients are eligible to benefit from the lower prices provided by the licensee.  Again, such matters depend on the terms of the licence contract. Voluntary licensing arrangements, at the discretion of the patent holder, are usually made for strategic reasons (e.g. market entry) rather than as price gestures and they may, in certain cases, not entail any price reduction at all. In developing countries, due to the lack of negotiating capacity of the licensee, voluntary licensing does not always translate into price reductions.  

Local state production

 Several experiences have shown the importance of the existence of a state medicines manufacturing capacity. 

 During the 1998 Asian financial crisis, the Indonesian Government was able to supply hospitals, health centres and other health facilities with essential medicines thanks to the existence of state-owned local pharmaceutical manufacturers. Privately-owned local and foreign companies practically halted production for several weeks as the collapse of the local currency and uncertainty in foreign exchange rates prevented them from importing necessary raw materials.

 Another important example has been the success of the Brazilian policy to fight AIDS, which has relied crucially on state pharmaceutical manufacturing capacity.  Brazil produces most of the ARVs required for the local market, at prices significantly lower than those charged by brand-name companies. In addition, the existence of a significant local capacity to manufacture medicines, among other factors, increased Brazil's negotiating power in discussions with brand-name companies over price discounts (see also Chapter IV).

Government price controls   

Price regulation and negotiations

A competitive marketplace is the best way to ensure low prices for medicines.  Proper organization of the market and application of anti-trust (monopoly) laws should facilitate price competition. However, if the pharmaceutical market is not competitive and/or there is a need to contain medicine prices, governments may choose to institute price controls.

 Control or regulation of medicine prices may be based on:

1. actual costs (cost-plus pricing based on manufacturer's or  importer's cost plus a fixed mark-up),

2. controlling companies' profit margins, or

3. comparison with prices in other countries or prices of other medicines in the same therapeutic category (yardstick, benchmark, or  reference pricing). Once initial prices are established, decisions must then be made about price increases.

Reimbursement controls

A further means of controlling costs to the government is to establish different levels of reimbursement and to increase the proportion of the cost paid by the consumer for certain products (those not included in the national essential medicines list, for example).

 Economic evaluation

Medicine selection decisions and the establishment of standard treatments involve judgements about relative therapeutic value. The economic evaluation of medicines is a systematic method to identify which of a series of alternative therapies will achieve medical objectives most cost-effectively.  It forms part of a newly-emerging discipline called pharmacoeconomics. Economic evaluation is being used in some industrialized countries to determine whether the magnitude of the benefit of a new medicine justifies the cost and then to subsidize those medicines that produce the greatest output in improved health in return for the lowest cost.

Policy-makers are faced with a lack of unbiased and accurate information on the trade-offs between competing product options.Economic evaluation is useful because it offers a logical framework for considering a new medicine for subsidy, for drug formulary management, or for price-setting.  Yet it is not a proven means of budgetary control.It is a complex, time-consuming and resource-intensive process.Nevertheless, it would be a way to ensure that the medicines budget represents value for money. Frequent reassessment of decisions is necessary as more information becomes available.

Reduction of import and other taxes for essential medicines, and rational dispensing practices

Reducing import and other taxes on pharmaceuticals may serve to lower final prices to consumers.  Where there is competition, such taxes will clearly add to the final price of a product, an add-on to the wholesale price.  Where patent protections are in place, patent holders have much more pricing discretion, and may set wholesale prices with an eye to the final retail price. Thus, tax reductions may not translate into reduced retail prices, or price reductions equivalent to the tax reduction. Whether tax reductions thus benefit consumers will depend largely on the particularities of specific markets: whether products are patented, whether price controls are in place, how patent holders choose to act and pricing discretion available to pharmacies and dispensing agencies.

Pharmaceutical dispensaries may engage in significant price mark-ups or dispensing practices that favour use of brand-name and higher-cost products at the expense of generics and lower-cost alternatives. As is the case in many countries, Thailand may consider regulations to require or prefer generic substitution, where safe and effective generics exist. Many price-increasing dispensing practices relate to the percentage mark-up by dispensaries. To realign dispensary incentives, Thailand may consider regulations stipulating that pharmacies charge a flat fee per sale, as opposed to a percentage of the value of the product which provides inadvertent incentives to sell expensive products.

Public investment in R&D for new medicines: A mid- to long-term strategy

An option that developing countries with a large scientific base, such as Thailand, should explore more systematically is the strengthening and expansion of the R&D for medicines that are needed to address the diseases prevalent in those countries, including HIV/AIDS. Thailand may have significant cost advantages to undertake R&D in complex fields (including genomics, proteomics and other new fields) and become an important player in the invention of new medicines and treatment.This could be done on the basis of public investment at the national level, or through partnerships with other countries, for the public good, that is, in order to make available new therapeutic options for no-profit purposes. Several modalities may also be envisaged to recoup investment in R&D as well as to establish partners.

 II.      Non-voluntary licences for government use: practical aspects and procedures[9]

Article 31 of the TRIPS Agreement regulates “other use of the subject matter without the authorization of the right holder”, addressing what is commonly known as compulsory licensing. While, as was made clear in the Doha Declaration on the TRIPS Agreement and Public Health, the TRIPS Agreement leaves each Member free to determine the grounds on which compulsory licences can be granted, it does mention an number of possible grounds, including national emergency or extreme urgency, public non-commercial use, dependency of patents and to remedy anti-competitive practices.

This chapter specifically deals with the requirements and steps to be followed when granting a non-voluntary licence for government use. Similar requirements must also be complied with when granting non-voluntary licences under other grounds. Taking into account the provisions of the TRIPS Agreement, the granting of a non-voluntary licence for public non-commercial use would require a number of steps which are described below, and for which references to the Thai legislation are provided merely as an example of its national implementation.

Identify relevant patents

In most cases, pharmaceutical products are protected by a patent on the active ingredient (the main patent) and by a number of patents on formulations, manufacturing processes, new indications, etc. (secondary patents).  It is advisable to include all relevant patents in a compulsory licence to allow freedom to operate with the needed product.Otherwise, the use of the invention under the compulsory licence may be blocked on the basis of allegations of infringement of secondary patents (as illustrated by the well-documented case of didanosine in Thailand almost a decade ago), making it necessary to resort, for instance, to alternative drug formulations, such as powder forms.

Explore possible sources of supply based on local production

• The analysis to be undertaken should include:

• availability of technical resources for reverse engineering

• cost and duration of developing manufacturing processes and formulations

• the need for technology transfer

• good manufacturing practices and quality assurance of products made by local producers

• estimates of the investment required and of the marginal cost of production.

Identify possible sources of importation of the required medicine

 The analysis to be undertaken should include:

• compliance with good manufacturing practices and product quality assurance by potential suppliers

• cost comparisons vis-à-vis local production

• prices of supply over time

• the sustainability of the exporter's supply.

  Marketing approval  

Registration is an important safeguard to ensure quality of the product.  However, registration requirements may pose obstacles to the speedy distribution of needed medicines (see, for example, Chapter III, Bolar exemptions), hence, analysis of the scope of such obstacles and identification of the required remedial measures may be needed. Countries could consider creating a fast–track mechanism and/or giving priority to the evaluation and registration of a medicine that is considered urgently needed or important.

Request for a non-voluntary licence for government use[10]

A compulsory licence or ‘non-voluntary licence' allows a government to authorize itself or a third party to use the subject matter of a patent without the consent of the right holder for reasons of public policy. A ‘non-voluntary licence' authorizing the government itself to use a patented invention is known as a government use authorization. Article 31 of the TRIPS Agreement allows the grant of compulsory licences subject to certain conditions, and the Doha Declaration reaffirms that countries have “the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted”.[11] These rights and freedom do not mean that compulsory licences are not regulated. States have to fulfil certain procedures and criteria in order to grant a non-voluntary licence.

It has to be noted that the TRIPS Agreement does not define the meaning of “public non-commercial use”. However, the Vienna Convention on the Law of Treaties commands, as a general rule of interpretation, to interpret a treaty “in good faith in accordance with the ordinary meaning given to the terms” (Article 31). Following this rule, it has been argued that the meaning of “public non-commercial use” may be found in the nature of the transaction or the purpose of the use of the patent. Regarding the nature of the transaction, “non-commercial” may be understood as “not-for-profit” use, while, as far as the purpose of the use is concerned, “non-commercial" may refer to the supply of public institutions that are not functioning as commercial enterprises. The fact that the licence will be used to support a public interest programme may be sufficient grounds for justification.

Article 31 of the TRIPS Agreement makes the use of the subject matter of a patent without the authorization of the right holder, including use by the government, conditional on its admissibility under domestic law. In the case of Thailand, for instance, non-voluntary licences for government use can be granted on the basis of Section 51 of the Patent Act B.E. 2522 (1979), as amended by the Patent Act (No. 2) B.E. 2535 (1992) and the Patent Act (No. 3) B.E. 2542 (1999). Section 51 of Thailand's Patent Act recognizes the right of "any ministry or department of the Government", "by themselves or through others" to exercise any right conferred by the patent in order to carry out any service "for public consumption".

Section 51 specifically states: 

"In order to carry out any service for public consumption or which is of vital importance to the defence of the country or for the preservation or realization of natural resources or the environment or to prevent or relieve a severe shortage of food, drugs or other consumption items or for any other public service, any ministry, bureau or department of the Government may, by themselves or through others, exercise any right under Section 36 by paying a royalty to the patentee or his exclusive licensee under paragraph 2 of Section 48 and shall notify the patentee in writing without delay, notwithstanding the provisions of Section 46, 47 and 47bis.

In the circumstances under the above paragraph, the ministry or bureau or department shall submit its offer setting forth the amount of remuneration and conditions for the exploitation to the Director-General. The royalty rate shall be as agreed upon by the ministry or bureau or department and the patentee or his licensee, and the provisions of Section 50 shall apply mutatis mutandis."

Licensing authority

Under the Thai Patent Act, the Director-General of the Department of Intellectual Property is authorized to grant various types of compulsory licences. Complementing this, under Section 51, a public use licence may be also issued by "any ministry, bureau or department of the Government" by " themselves or through others."

Notice to the patent holder

Article 31 (b) of the TRIPS Agreement establishes as a general obligation to try to obtain authorization from the right holder on reasonable commercial terms and conditions when granting a non-voluntary licence. When such efforts are not successful, the use of the patent's subject matter without the authorization of the right holder can be permitted. The same article waives this obligation in cases of public non-commercial use and national emergency or other circumstances of extreme urgency. In cases of public non-commercial use, there is an obligation to promptly notify the title holder. In cases of national emergency or urgency, this notification is required as soon as reasonably practicable.

Section 51 of the Thai Patent Act requires that the licensing authority “shall notify the patentee in writing without delay, notwithstanding the provisions of Section 46, 47 and 47bis."The exemption from the requirements of Section 46, 47 and 47bis makes clear that the Government is not required to: (1) wait until "the expiration of three years from the grant of a patent or four years from the date of application," or (2) have "made an effort to obtain a license from the patentee having proposed conditions and remuneration reasonably sufficient under the circumstances".

In relation with the aforementioned notification, a communication to the patent holder should be sent. The TRIPS Agreement is silent on the content of this notification. However, regarding compulsory licences in general and extrapolating the practice in certain countries with regard to the request to the patent holder,[12] the notification may include:

• information about the requesting party

• the expected volume of production;

• the royalty to be paid

• the form of payment

• the intended mode of use of the invention

• quality controls

• trademark to be used, if any

• the duration of the licence

• the licensee's right to control sales for determination of royalties due

• the applicable law and jurisdiction in case of disputes.

  Scope and duration of the licence

According to Article 31 (c) and (g) of the TRIPS Agreement, the competent department will have to define the scope of the licence and its duration. The scope and duration shall be limited to the purpose which led to its authorization, and the authorization shall be liable to be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. In the same vein, the Thai Patent Act lays down that “the scope and duration of the license shall not be more than necessary under the circumstances” (Section 50.1).

It would be advisable for the scope to include all commercial and non-commercial uses of the relevant invention required to meet the purpose of the licence, and for the licence to last until the purpose which led to such granting so requires. In any case, authorization for such use should terminate if and when the circumstances which led to it cease to exist and are unlikely to recur. The fulfilment of this requisite can only be evaluated when a prudential period of time expires.

Royalties

Article 31 (h) of the TRIPS Agreement affirms that “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”. The TRIPS Agreement allows Members “to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice” (Article 1). This is a broad authorization to design the mechanisms to implement TRIPS obligations, precluding the necessity to copy or follow the procedures that are in place in other countries.

Regarding royalties, it has to be taken into account that there are no internationally agreed criteria - and frequently, no national ones either - to set up the payable fee. This vacuum and the associated controversies not only affect government use licences, but also voluntary commercial licences, which are characterized by their variability. To reduce uncertainty and promote predictability in this regard, it is advisable to formulate explicit guidelines or criteria to determine the remuneration rate or royalty fee payable in the case of non-voluntary licences (see Chapter V).

The Thai Patent Act, for example, in Section 51 states that the ministry or bureau or department issuing the non-voluntary licence "shall submit its offer setting forth the amount of remuneration and conditions for the exploitation to the Director-General [of the Department of Intellectual Property]". The royalty rate and terms shall be "as agreed upon by the ministry or bureau or department and the patentee or his licensee", and the provisions of Section 50 "shall apply mutatis mutandis" (i.e. with necessary changes).

After the granting of the compulsory licence, bona fide negotiations could be undertaken with the patent holder to evaluate the fee for the exploitation of the patent.Generally, fees are expressed as a percentage of the net sales price of the product made under the licence (and not the patentee's own product), but other modalities can be adopted, for instance, a fixed sum per unit sold.

Commercial practice in voluntary licensing is to use royalties ranging between 2% and 5%, though they may be higher or lower in certain cases.There is some evidence available on the royalties determined by national authorities in Canada, the USA[13] and developing countries[14] for the granting of compulsory licences. (A full discussion on how various countries have chosen to establish royalty rates is set out in Chapter V.)

Factors that may be considered in negotiating the fee include: launch date of the product; possible substitutes; coverage and possible invalidity (total or partial) of the patent(s); pending challenges to the patent(s), if any; accumulated sales and recovery of R&D investment made by the patent holder; global and local market for the product (units and value); expected volume of production and price under the compulsory licence; royalties agreed upon in voluntary licences on the same or similar products; and the nations' economic and health situation.

Acceptance of the terms of the licence

The terms of the government use licence may be appealed by the title holder. Lacking an appeal, it will be legally understood that the licence's terms are accepted. The Thai Law does not expressly fix the period of time for the patent holder to accept or reject the terms of the licence for government use. However, this period is the same as that established for compulsory licences granted to remedy anti-competitive practices, dependent patents and the non-working of a patent (Section 50): should the parties fail to reach an agreement within the period prescribed by the Director-General, the Director-General will set forth the royalty and conditions, and this decision may be appealed to the Board of Patents within sixty days.

Determination of fee and conditions by the Director-General of the Department of Intellectual Property 

Section 50 of the Thai Patent Act establishes that “if no agreement has been reached by the parties within the period prescribed by the Director-General, the Director-General shall fix the royalty and prescribe the conditions and restrictions as he deems appropriate” following a set of requirements also contained in Section 50.

Appeal

The relevant provisions in the TRIPS Agreement envisage that “the legal validity of any decision relating to the authorization of such use shall be subject to judicial review or other independent review by a distinct higher authority”, and “any decision relating to the remuneration provided in respect of such use shall be subject to judicial review or other independent review by a distinct higher authority” (Article 31 (i) and (j)). These provisions must be read in conjunction with Article 44.2 of the TRIPS Agreement regarding injunctions. This article establishes that Members may limit the remedies available against government use licences to those related to the payment of remuneration. This means that the decision to use the patent, to grant a compulsory licence for “government use”, need not be subject to injunctive relief (see also Chapter IV).

Section 50 of Thai Patent Act B.E. 2522 states that the decision of the Director- General of the Department of Intellectual Property on the terms and conditions of the compulsory licence is appealable to the Board of Patents within a period of sixty days. In turn, the Board's decision may be appealed to the Court also within sixty days, otherwise its decision will be final (Section 74). It should be noted that it is not the decision to grant a compulsory licence that it is appealable to the Board of Patents and later to the Court, but the terms of the licence. The explanation is as follows.

Section 50, to which refers Section 51 when defining the requirements of the government use licence, states that “the decision of the Director-General made under the first paragraph of the Section is appealable to the Board within sixty days”. The first paragraph of Section 51 deals with the conditions of the licence, but not with the decision to grant a licence, which is based either on Section 51 or Sections 46, 46bis or 47. This means that the evaluation of the grounds to grant a licence exclusively concerns the Director-General of the Department of Intellectual Property (and, in the case of public non-commercial use, any ministry, bureau or department of the Government). Consequently, the possible appeal to the Board of Patents, and later on to the Court, does not suspend the execution of the compulsory licence, limiting possible judicial claims to the terms of the licence. Thus, the patent holder has no right to appeal the grounds for the decision to grant a government use licence but rather is limited to contesting the compensation due for the non-voluntary licence.

Other considerations

1. Patent holders (or their governments) may attempt to use legal measures, such as injunctions, to delay or prevent the execution of a non-voluntary licence.

2. It would also be useful to check the possible application of other instruments, such as bilateral agreements on investment (which often consider intellectual property as an “asset” subject to their rules) or free trade agreements with intellectual property provisions.

3.  Article 31 (a) of the TRIPS Agreement lays down the requisite to consider on its individual merits the authorization of use without the consent of the patent holder. Each of the licences granted must be duly justified, which means that it is not possible to indiscriminately grant licences, but only after an assessment of their necessity has been undertaken.

4. The TRIPS Agreement also states that “such use shall be non-exclusive” (Article 31 (d)). This implies that the grant of a non-exclusive licence does not preclude the patent holder from exploiting the national market or exporting the patented product.

III.    Other important TRIPS flexibilities to promote access to medicines

It is important to underline the fact that compulsory and government use licences are not the only flexibilities under the TRIPS Agreement that can have an impact on access to medicines. The range of measures that can be taken by governments under the TRIPS Agreement before a pharmaceutical patent is issued is often referred to as “pre-grant” flexibilities. “Post-grant” flexibilities, on the other hand, are policy options that, if incorporated into national law, are generally employed to address particular cases in the exercise of exclusive patent rights. The following non-exhaustive list of flexibilities is available to all WTO Members. It should also be noted that a number of these options are the subject matter of negotiations in preferential trade and investment agreements.

Pre-grant flexibilities

Many of the pre-grant flexibilities are intended to help ensure that the patent system confers upon an applicant the reward of exclusive rights for a true and genuine innovation. While certainly not exhaustive, the following flexibilities may be of particular interest to a developing country, such as Thailand, seeking to encourage the local production of low cost, high quality pharmaceuticals as one means to meet the objective of greater access to medicines.

First, the TRIPS Agreement is silent on the establishment of administrative procedures for patent opposition. Particularly relevant in this regard is the establishment of observation procedures. Observation procedures provide third parties with the possibility to file an observation with the patent office on a pending patent application.

Third parties may use the observation procedures to claim, for example, that there has been insufficient disclosure by a patent applicant (Article 29 requires Members to provide for sufficiently clear and complete disclosure of an invention when submitting a patent application). An important additional flexibility in this regard is contained in Article 29.1, which allows Members to require the applicant to indicate the best mode known to the applicant for carrying out the invention.

Another important pre-grant flexibility is that of being able to define the criteria for patentability. Articles 27.1 states that inventions covering patentable subject matter need to be new, involve an inventive step, and capable of industrial application. None of these terms are defined in the TRIPS Agreement, however, and Members are generally free to define what constitutes a patentable invention. As an example, a strict novelty standard (which may stipulate that novelty should be judged internationally, rather than domestically), would narrow the scope of patentability. In the pharmaceutical context, new uses of an existing non-medical product for a medical purpose (first indications) and an existing medication for a new medical purpose (second indications) could conceivably be denied a product patent on grounds of lack of novelty. In this regard, it should be noted, for instance, that the new Indian Patent Act (2005) applies a strict standard on inventiveness (see also Chapter IV). Other countries apply relatively narrower or broader interpretations of the term “inventive step”. It should be noted, importantly, that existing practice differs considerably from country to country with the result that patent protection received in one country does not necessarily mean that such protection is granted in another country.

The TRIPS Agreement authorizes Members to exclude certain subject matter from patentability. Article 27.3 (a) permits Members to exclude from patentability diagnostic, therapeutic and surgical methods for the treatment of humans or animals.Some countries treat discoveries of substances existing in nature, extractions/purifications from natural substances as excludable on the grounds that they do not constitute an "invention" under Article 27.1.

Post-grant flexibilities

As far as post-grant flexibilities and the patent application procedures are concerned, an important flexibility is the freedom given for Members to have a system where opposition of a patent is permitted. Under this option, a third party may file an opposition with the patent office after a patent has been granted, within a pre-determined period after the publication of the patent grant. The grounds for opposition are left open to each country, and may be the same as that for pre-grant observation procedures.

National laws may also permit parallel importation of patented products. This is related to a concept that needs to be addressed in the national law, namely that of the exhaustion of patent rights. Upon the first sale of a patented product, the patent holder loses the right to control the further distribution and resale of that particular product. Parallel importation involves the purchase of certain patent-protected products at lower prices and their importation into higher priced countries. These lower priced imports are not counterfeits, but merely lower-priced patented products that are purchased and subsequently re-sold by a third party. Parallel imports can be facilitated or hindered depending upon the type of exhaustion regime a country decides to adopt. Under international exhaustion regimes, distribution rights available under the domestic patent will be exhausted by a first sale abroad in the same way as if that first sale happened domestically (thereby facilitating parallel imports). National exhaustion limits exhaustion to the domestic market and first sales of patented products outside the country will not affect the domestic patent (thereby inhibiting parallel imports).

In addition, a number of limited exceptions to patent rights exist under Article 30 and related TRIPS jurisprudence. Legally, this type of flexibility permits others to engage in activity that would normally be considered a patent right violation absent the consent of the right holder, due to overriding policy concerns. The two most notable ones, from the perspective of local pharmaceutical production and access to medicines, are the scientific research/experimental use exception (creating a safe harbour for scientific activities that might otherwise be blocked by patents – particularly for basic research and experimentation) and the regulatory review (Bolar) exception, which allows generic manufacturers to make use of a patented substance before the actual date of expiry of the patent for the sole purpose of obtaining marketing approval for that product.

An important flexibility exists in the compulsory licence system as well. Under Article 31 (f), pharmaceuticals produced under compulsory licence should normally be predominantly for the supply of the domestic market. The 2003 WTO Paragraph 6 Decision created a means by which it is possible to obtain a waiver from this general rule and therefore permits the production of a drug solely for export to needy countries. The TRIPS Agreement sets out, inter alia, detailed notification requirements for exporters and importers to avail of the waiver. In this regard, while least developed countries automatically qualify as an importing country under the system, developing countries may also take advantage of the system as importers if they can establish that they have insufficient or no manufacturing capacities.

A final post-grant flexibility that could potentially be of interest to Thailand is the use of competition law to address the abuse of the exercise of exclusive intellectual property rights. This flexibility is contained first in Article 8.2, which authorizes Members to adopt appropriate measures to prevent: the abuse of intellectual property rights by right holders, the resort to practices which unreasonably restrain trade, and practices which adversely affect the international transfer of technology, as long as such measures are TRIPS compatible. Further, Article 40.2 recognized the right of Members to take action against licensing practices or conditions pertaining to intellectual property rights which restrain competition and have adverse effects on trade and impede the transfer and dissemination of technology. The flexibility to use competition law and its related remedies (including fines, price regulation, compulsory licences (under Article 31(k)), etc.), requires not only enabling legislation that reflects the interrelationship between intellectual property and competition, but also professional and well-functioning competition authorities and interagency cooperation among the relevant authorities (in the case of pharmaceutical patents, between the patent and competition authorities and the ministry of health).

A comprehensive examination of Thailand's patent law vis-à-vis the above flexibilities is an exercise that is beyond the scope of this mission report. The mission recognizes that a number of flexibilities, such as the “best mode” requirement and pre-grant observation procedures, are already incorporated into Thai law. This report is meant only to list key TRIPS Agreement flexibilities that may be of interest to Thailand, with the understanding that the extent to which Thailand opts to deploy any of these flexibilities is a strategic one to be made by the Government.

IV. Information on country experiences [15] with the use of TRIPS flexibilities to protect public health and access to medicines

  Use of compulsory licensing and government use by developing countries  

In the past decade, several developing countries have issued compulsory licences in order to increase access to medicines. These include for example: