Compulsory License under Patent and Competition Law to Ensure Vaccine Equity
Vikas Kathuria & Arul Scaria
| 4 May 2021
By Vikas Kathuria & Arul Scaria | 4 May 2021
It is clear by now that universal access to vaccines depends upon cheap prices, and high scale and speed of production. Even if governments subsidise prices to make the vaccines cheap or ideally free of cost, at present, there are not enough vaccines to administer the critical mass of the population in poor- and middle-income countries. While at present around 30 percent of Americans are fully vaccinated, less than 2 percent of Indians have received vaccination. Equally important is the speed of vaccination as a delay risks further mutation.
The Serum Institute of India (SII), which manufactures the AstraZeneca COVID-19 vaccine, is struggling to meet its supply commitments. Several states in India are struggling to procure enough vaccines to vaccinate everyone above 18 years of age. AstraZeneca has committed not to make a profit “during the pandemic”, but that does not account for swift delivery of vaccines. AstraZeneca estimates that it will be able to make three billion doses by the end of 2021. But this quantity is enough for only 20 percent of the world’s population.
At this stage, the biggest impediment at ensuring speed and scale of vaccination appears to be the exclusive nature of agreements between developers and manufacturers. One should remember that Oxford, as opposed to its initial plan of making know-how and Intellectual Property (IP) available for all for its vaccine, entered into an exclusive agreement with AstraZeneca. In turn, AstraZeneca entered into an exclusive manufacturing agreement with SII.
Failure to stop vaccine monopolies
How did we come to this situation where manufacturers are often monopolies? This is even more bizarre as in most cases it was the taxpayers’ money that funded the R&D. Moderna received a total of US $2.5 billion in taxpayer money from the US government; Pfizer received a US $455 million grant from the German government, and nearly US $6 billion in purchase commitments from the United States and the European Union; AstraZeneca received a total of more than US $2 billion from the United States and the European Union for both research and in purchase commitments.
While rich countries such as the US, the UK and the EU funded the development of vaccines, they failed to curb production concentration. In the race to access vaccines swiftly, rich countries did not negotiate IP waivers for poor countries, even though it was public money that largely funded the R&D.
On their part, rich countries have committed to contribute to COVAX initiative, a pool that will ensure free vaccination for poor countries. The US administration has promised to give US $4 billion to Covax. The European Union has given nearly US $1 billion. But this is too little: Covax aims to vaccinate only 20 percent of people in the world’s poorest countries this year and faces a US $2 billion shortfall even to accomplish that.
Failure to waive IP rights under TRIPS
The second instance of failing to ensure vaccine equity was when the joint proposal by India and South Africa last year at the World Trade Organisation (WTO), asking for a temporary waiver of the application of certain provisions of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement on COVID-19 vaccines and drugs, was met with vehement opposition from the US and the EU among others.
It appears that as the COVID crisis is getting severe, the pressure is building on Western governments to reconsider their approach. The Wall Street Journal reports that Some 60 developing countries, led by India and South Africa, are drafting a new proposal to waive the World Trade Organisation’s intellectual-property rules.
Righting the wrong: Compulsory licenses
When the multilateral agreement TRIPS, despite having the provision, has failed to come to the rescue of countries such as India, municipal laws are the final resort to ensure justice. Indeed, the Supreme Court of India has suggested using provisions such as compulsory licensing to ensure accessibility to COVID medicines.
Even while opposing the IP waiver proposal in October 2020, the European Union had observed the following in October 2020.
If all voluntary solutions failed and IP became a barrier to treatments or vaccines against COVID-19, mechanisms to overcome it are already available. The EU has consistently supported the use, where necessary and justified, of the flexibilities provided under the TRIPS Agreement and the Doha Declaration with the objective of ensuring effective access to medicines.
In particular, the TRIPS Agreement provides for the possibility, under certain conditions, of issuing a compulsory licence for local consumption of medicines and provides for fast-track procedures in health emergencies. The TRIPS Council Secretariat has, regularly and consistently, offered its services to any WTO Member that sees itself in the need of getting help to manage the process of Article 31bis. This was confirmed in the presentation we saw yesterday.
There can be two ways to issue compulsory licenses on the patents of COVID vaccines.
The Indian Patent Act, 1970
Much has already been discussed on how the Indian Patents Act provides for compulsory licensing (CL) of patented drugs in case of a national emergency or to facilitate public non-commercial use. In 2011, India had granted a CL over a compound held by Bayer (sorafenib tosylate) that helped treat Kidney and liver cancer.
As it has turned out in May 2021, the situation is far more distressed than one could have imagined then. Clearly, the accessibility to vaccines argument should take preponderance over long term effects of preserving the IP system.
Indian Competition Act, 2002
An unlikely aid also comes from competition law when it comes to granting compulsory licenses. Some may argue that no particular firm may be dominant as there are multiple vaccine providers in India (Covishield, Covaxin, and now Sputnik V). Unlike ordinary times, when dominance in a relevant market can be attributed to one firm; in extraordinary times, more than one firm can be simultaneously found dominant as they may act independent of each other. When the inelastic demand supersedes supply, firms do not constrain each other’s pricing behaviour.
Thus, when a vaccine producer charges unfairly high prices, it may be subjected to compulsory licensing.
Is CL a viable alternative?
There are several arguments against compulsory licensing. As we show below, such arguments do not stand the scrutiny of experience and ground reality.
- Investment is required to ensure high production and scale of vaccines: The conventional case against price capping or compulsory licensing is that such measures chill investment in innovation. In these unprecedented times, this argument takes the backstage as the short-run welfare supersedes the long-run welfare.In the peculiar context of COVID vaccines, the investment protection argument also fails for the reason that most vaccines benefited from direct or indirect public money. Johnson & Johnson, Moderna, AstraZeneca, and Bharat Biotech have evidently benefitted from public money, while many others might have received support indirectly. To be clear, CLs are not royalty free licenses. Developers are paid reasonable royalty determined by an appropriate adjudicating authority. Moreover, the original manufacturer also stays in the business.
- The vaccines are difficult to replicate even with the patents shared. This has been one of the primary defenses against compulsory licensing. The same argument was advanced at the peak of HIV. As time showed, developing countries successfully started manufacturing HIV drugs. In the context of COVID vaccines, Suhaib Siddiqi, former director of chemistry at Moderna, observed that with the blueprint and technical advice, a modern factory should be able to get vaccine production going, at most, in three to four months.
- A related argument widely seen in the context of COVID vaccines is that obtaining the know-how associated with the manufacturing process might be the biggest challenge in facilitating mass manufacture of vaccines. But history has shown us multiple times that many firms have successfully reversed engineered diverse kinds of pharmaceutical products even in the absence of voluntary sharing of know-how from big pharma. Moreover, history can also tell us that there have been instances wherein agencies such as the Federal Trade Commission in the US have ordered know-how transfer.
- How do you account for the lack of capacity?: Lack of capacity is a secondary impediment which should not be the reason to do away with the first one, i.e., legal monopoly in the form of IP rights. Firms in developing countries may have or acquire the capacity to produce sophisticated vaccines. For instance, the Incepta factory in Bangladesh has expressed its ability to manufacture advanced mRNA COVID-19 vaccines if patents and know-how are shared. Some of the experts have already indicated that nearly 20 firms in India can manufacture COVID vaccines.
- How long before a licensee achieves the commercial scale? : It appears that achieving the commercial scale will not take too long. Amy Kapczynski, Professor of Law at Yale Law School, observed that the analysis of deals made between companies and their contract manufacturers shows that partners achieved commercial scale production just two months after deals were announced for the adenovirus (J&J and AstraZeneca) vaccines, and in two to seven months for mRNA vaccines.
Vikas Kathuria tweets @Kathuria18
The article first appeared in ORF