Cost-Containment Mechanisms for Essential Medicines, Including Antiretrovirals, in China - Health Economics and Drugs Series No. 013
(2003; 30 pages) [French] [Spanish] View the PDF document
Table of Contents
View the documentAcknowledgements
View the documentTerms of reference
Open this folder and view contentsIntroduction
View the documentBackground and experiences with voluntary agreements
View the documentCountry rights to be protected in voluntary agreements for reduction of prices of medicines
Close this folderCompulsory licensing - practical aspects and procedures
View the documentIdentify relevant patents
View the documentExplore possible sources of supply based on local production
View the documentIdentify possible sources of importation of the required medicine
View the documentMarketing approval
View the documentRequest for a compulsory licence
View the documentGranting of the compulsory licence by the Patent Administration Department
View the documentNegotiation with patent holder about fee
View the documentDetermination of fee by the Patent Administration Department
View the documentAppeal
View the documentOther considerations
View the documentConcluding comments
View the documentList of persons contacted
View the documentFurther reading

Negotiation with patent holder about fee

After the granting of the compulsory licence, bona fide negotiations should be undertaken with the patent holder to establish the fee for the exploitation of the patent. Generally, fees are determined 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.

The TRIPS Agreement requires that the compensation reflect the economic value of the licence.

Commercial practice in voluntary licensing is to use royalties ranging between 2% and 5%, though they may be higher in certain cases. There is some evidence available on the royalties determined by national authorities in Canada, the USA and other countries for the granting of compulsory licences10.

10 Niess, P. Technology evaluation and pricing. TECH MONITOR, November-December 1999, p. 16-17.

Factors that may be considered to negotiate 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 Chinese 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.

Of course, gathering this information will require considerable preparation and work by an inter-disciplinary team.

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