When a product is patented, competitive bidding is not a viable option to reduce prices because, unless a patent is made ineffective, there is no competition. Compulsory licences may be an important cost-containment measure in that situation. The granting of such licences creates competition by one or more compulsory licensees, which in turn may force prices down. At the same time, the patent holder (and/or any voluntary licensees) can continue with commercial exploitation of the patent, and will receive a compensation (generally in the form of a royalty) from the compulsory licensee/s.
Article 31 of the WTO TRIPS Agreement expressly allows the granting of compulsory licences. The Agreement contains no limits on the grounds under which such licences can be granted. Members’ right to determine such grounds has been confirmed by the Doha Declaration on the TRIPS Agreement and Public Health (November 2001). Article 31 makes particular, but not exhaustive, reference to cases of national emergency or extreme urgency, dependency of patents, licences for governmental non-commercial use, and licences to remedy anti-competitive practices. National laws can, however, provide for the granting of such licences whenever the title holder refuses to grant a voluntary licence "on reasonable commercial terms" (Article 31 (b)) and for other reasons, such as public health or broad public interest considerations. The Agreement permits compulsory licences to authorize licensees to exercise any of the rights conferred by a patent, including production or importation.
The Chinese Patent Law provides that compulsory licences may be issued in the case of patent holder refusal to grant voluntary licences on reasonable commercial terms (Article 48), or to address a national emergency, an extraordinary state of affairs or public interest needs (Article 49).
China, like any other WTO Member country, may address the current problems of access to antiretrovirals or other essential medicines by issuing one or more compulsory licences. The granting of such licences -- subject to the conditions set forth by Article 31 of the TRIPS Agreement and Chinese Patent Law -- would constitute a legitimate implementation of one of the safeguards allowed by the TRIPS Agreement in order to protect public health.
Compulsory licences and government use provisions have been extensively used in developed countries, such as Canada and the USA, to address various public interests through the creation of competitive sources of supply4.
4 Correa C. Integrating Public Health Concerns into Patent Legislation in Developing Countries. Geneva, South Centre, 2000, p. 93-94.