In paragraph 6 the Doha Declaration instructs the Council for TRIPS to address a delicate issue: how can Members lacking or with insufficient manufacturing capacities make effective use of compulsory licensing. The Declaration requests the Council for TRIPS “to find an expeditious solution to this problem and to report to the General Council before the end of 2002”. As discussed below, in order to be effective such a solution should be economically viable, and not only legally acceptable.

A major limitation in compulsory licensing rules under Article 31 (f) of the TRIPS Agreement is the requirement that a product made under a compulsory licence be supplied predominantly to the licensee’s domestic market⁵⁹, unless the licence were issued to remedy anti-competitive practices (Article 31 (k) of the Agreement). This means, in practical terms, that Members with large markets, like India, the UK or the USA, typically could easily grant compulsory licences for the supply of patented medicines to meet public health needs (for instance, those arising from the threat of bioterrorism). However, for Member countries with small markets, like the African countries where the AIDS crisis is most severe, it might be extremely difficult to establish economically viable production if the manufactured product has to be “predominantly” sold in the local market.

⁵⁹ TRIPS Article 31: “Where the law of a Member allows for other use of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the government, the following provisions shall be respected:

...

(f) any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use”.

The basic problem underlying paragraph 6 is that many developing countries lack or have an insufficient capacity to manufacture medicines on their own. As indicated in Annex 2⁶⁰, manufacturing capacities in pharmaceuticals are distributed very unevenly in the world. Not many countries have the capacity to produce both active ingredients and formulations, and very few countries maintain significant research and development capabilities.

⁶⁰ See also WHO, 2000, p. 32.

Given that only a few developing countries have substantial manufacturing capacity in pharmaceuticals, once the TRIPS Agreement becomes fully operative (after 2005), many countries may face difficulties in acquiring medicines at affordable prices. Today, for example, some countries, such as India, do not provide patent protections for pharmaceutical products, and produce generic versions at a fraction of the price of the patented product. A Member country where the price of patented products is high has the option of issuing a compulsory licence to permit import from such countries. The problem is that, as countries fully comply with the TRIPS Agreement by 2005 at the latest, they will no longer be able to produce and export cheap generic copies of patented medicines. Consequently, the sources of affordable new medicines will dry up and countries without sufficient manufacturing capacity and market demand will not be able to grant a compulsory licence either for the local production or for the importation of such medicines: they will become entirely dependent on the expensive patented versions⁶¹.

⁶¹ See, e.g., Oxfam, 2002.

This problem had been raised by developing countries during the special sessions on TRIPS and health at the Council for TRIPS, and by the EC and their Member States in its submission of 12 June 2001. Developing countries argued that “nothing in the TRIPS Agreement prevents Members from granting compulsory licences for foreign suppliers to provide medicines in the domestic market... In this respect, the reading of Article 31 (f) should confirm that nothing in the TRIPS Agreement will prevent Members from granting compulsory licences to supply foreign markets”⁶².

⁶² See IP/C/W/296.

The EC and their Member States noted the problems posed by the limitation imposed by Article 31 (f). A Member is free to grant a compulsory licence for the importation of goods which are under patent in its own territory, as long as the imported goods have been produced in a country where they are not patented, or where the term of protection has expired. However, when a patent exists in the potential supplier country, the patent owner may block exports to the country in need of the medicines⁶³. Moreover, since Article 31 (f) requires that a compulsory licencee predominantly supply the domestic market, that provision would prevent the granting of a compulsory licence exclusively or mainly to export to a country in need of certain medicines.

⁶³ See IP/C/W/280.