The Decision requires the exporting country to grant a compulsory licence.
The Decision does not waive the Article 31 (b) requirement that, prior to issuance of a compulsory licence, a request for a voluntary licence be made to the patent owner.35
35 As previously mentioned, it may be argued that the exporting country is entitled to consider the situation in the importing country as an emergency, or to recognize public non-commercial use, thus waiving the obligation for prior negotiations as required by Article 31 (b) of the TRIPS Agreement. This possibility would speed up the application of the system.
If the request for the voluntary licence is unsuccessful, the interested supplier would have to apply for a compulsory licence under the applicable national rules. The competent national authority would have to decide on the application and determine the remuneration to be paid. As mentioned above, this would require that the national law in the exporting country provide for the possibility of issuing a compulsory licence to satisfy a demand on the terms set out in the Decision.
The patent owner may appeal the government’s decision to grant a compulsory licence. Depending on procedural rules in the exporting country, an appeal may not interfere with the immediate execution of the licence, or it may prevent the applicant from using the licence until the decision is confirmed. If the appeal does not suspend the execution of the licence, the applicant may start production and export but at the risk of a later claim for damages by the patent owner, if the decision to grant the compulsory licence were reversed.
The Decision sets out with some detail the conditions under which a compulsory licence can be issued by the exporting Member:
Amount necessary to meet needs
The compulsory licence must be granted only to produce and export "the amount necessary to meet the needs of the eligible importing Member(s)". In addition, the entirety of the production under licence shall be exported to the Member(s) which has notified its needs to the Council for TRIPS.
The "needs" are established by the importing country. The amount to be supplied is that actually agreed upon with the importing country (which autonomously determines what its needs are) and not necessarily what was indicated in the notification by the importing country (which only needs to specify the "expected" quantities, as previously mentioned). The "amount necessary to meet the needs" may be established on the basis of several criteria, depending on the degree to which the needs of the eligible importing country can be determined ex ante.
For instance, it may be based on a specified number of units of products when the needs can be precisely determined, or on the basis of patients to be treated or hospitals to be supplied over a period of time. In order to avoid the transaction costs and delays involved in obtaining a compulsory licence, it might also be possible to consider the granting of an amendable compulsory licence that expands the quantity to be supplied based on subsequent requests notified by the importing country(ies).
Given that one of the concerns underpinning the Decision is the risk of diversion, the criteria to determine quantities to be supplied should be established in good faith and be sufficient to determine the extent of use of the patented invention.
Identification of product(s)
(i) Labelling and marks
The Decision requires that the products to be supplied under the Decision be clearly identified "through specific labelling or marking". The purpose of the label or mark is to make the products identifiable in case there is diversion to other markets. This requirement may be satisfied by literally stating on the label that a product has been produced under the Decision,36 but the requirement does not impose any specific indication. Hence, the supplier may choose what phrase or sign to utilize to make the products identifiable.
36 For instance, by indicating in the label “Product made for country X under the WTO General Council Decision of 30 August 2003 (WT/L/540)”.
(ii) Packaging, colouring and shaping
Products should not only be identifiable but also distinguishable, presumably from the branded products. This is to be achieved, according to the Decision, through special packaging and/or the colouring/shaping of the products themselves.
Despite the apparent ambiguity of the expression "colouring/shaping", it is clear that these requirements are not cumulative.37 It will be up to the supplier to choose whether to distinguish through packaging, colouring or shaping.
37 See the second paragraph of the Statement by the Chair of the General Council where reference is explicitly made to “packaging … colouring or shaping” (emphasis added).
The differences in packaging, colouring or shaping should be those reasonably necessary to enable the distinction to be made. The Decision does not state, however, who should be able to distinguish the products. The requirements may be differently implemented depending on whether the products are to be distinguishable to customs authorities, distributors and retailers, medical doctors, or the general public. Since the objective of this provision is not to protect consumers but to protect pharmaceutical companies against diversion,38 the differences should be those sufficient for customs authorities or pharmaceutical manufacturers (in the case of active ingredients) to distinguish the products. In addition, it is to be noted that while special packaging is not likely to impose a heavy burden on suppliers, changes in colour or shape may require new bioequivalence and bioavailability studies (if such studies had already been made before) thereby delaying the supply of the products and increasing their prices.
38 See the second paragraph of the Statement by the Chair of the General Council which indicates that “Members recognize that the purpose of the Decision would be defeated if products supplied under this Decision are diverted from the markets for which they are intended. Therefore, all reasonable measures should be taken to prevent such diversion in accordance with the relevant paragraphs of the Decision”.
The Decision seems to refer to differentiation of finished products only. However, the Statement indicates that "the provisions of paragraph 2(b) (ii) apply not only to formulated pharmaceuticals produced and supplied under the system but also to active ingredients produced and supplied under the system and to finished products produced using such active ingredients". Whatever the legal value of the Statement (an issue not addressed in this document), the differentiation of an active ingredient by shape may be impossible (since it would normally be provided in powder, liquid or other amorphous form), while differentiation by colour would require inclusion of unnecessary additives and would change the chemical composition of the product. Packaging would seem the only reasonable option for differentiation of active ingredients. Since they are traded between specialized companies, however, differentiation of active ingredients, as opposed to finished products, may not be necessary to prevent diversion.
The obligation to distinguish the products is not absolute. Exporters do not need to distinguish the products when doing so (i) is not feasible, or (ii) will have a significant impact on price.
There are no parameters in the Decision to determine what constitutes a "significant impact on price". Since the Decision’s aim is to address the public health needs of Member countries - in the framework of the overall objective of the Doha Declaration to ensure access to medicines for all (paragraph 4) - the significance of the increase in price should be assessed from the perspective of the purchaser. Any increase in price may be "significant" for the purchaser and limit its capacity to address public health needs, particularly in the case of expensive products or purchases in big volumes.
Nor does the Decision specify who should assess whether the impact is significant. It is apparently the supplier who is expected to make this judgment, which should be made taking the purchasers’ interests into account.
The Statement indicates that "[i]t is the understanding of Members that in general special packaging and/or special colouring or shaping should not have a significant impact on the price of pharmaceuticals". This ambiguous statement may be read as a recognition that special packaging, colouring or shaping generally does not have a significant impact, or as a normative statement emphasizing the idea that the use of such distinction should not have such a negative impact. This second reading corresponds to the literal wording of the text. Though it may be seen as redundant, it does clarify that colouring and shaping are alternative and not cumulative, and expresses the Members' concern that the distinction of products must not significantly increase prices.
It is important to note that obtaining a compulsory licence may not be sufficient for a company to be able to export a pharmaceutical product under the system, as national health regulations generally require prior approval from national drug regulatory agencies for the production of medicines for export.
Notification by the supplier
Under the terms of the compulsory licence granted in the supplying country, the supplier should post on a web site certain information before shipment begins. The licensee may use its own web site or the page on the WTO web site dedicated to the Decision. The information must include (i) the quantities being supplied to each destination, and (ii) the distinguishing features of the product(s).
The obligation to provide information is limited to the "distinguishing features", and does not encompass other information about the product. It may include, for instance, an image showing the product as packaged or its label, or indication of its colour or shape, depending on the distinguishing characteristic chosen by the supplier.
Notification by the exporting country
In addition to the supplier’s notification, the exporting country must notify the Council for TRIPS of the grant of the licence. As in the case of the notification by the importing country, this notification does not need to be approved by any WTO body (footnote 8 of the Decision). The Council for TRIPS has no authority to review the notification nor to object to the grounds and conditions under which the compulsory licence has been granted. Nor can it observe deficiencies in the notification either (for instance, if some of the required information was missing).39 The notification will be made available publicly by the WTO Secretariat through a page on the WTO web site dedicated to the Decision.
39 The Statement by the Chair of the General Council, however, indicates that “[a]ny Member may bring any matter related to the interpretation or implementation of the Decision, including issues related to diversion, to the TRIPS Council for expeditious review, with a view to taking appropriate action.” In addition, “if any Member has concerns that the terms of the Decision have not been fully complied with, the Member may also utilize the good offices of the Director-General or Chair of the TRIPS Council, with a view to finding a mutually acceptable solution”.
The notification must contain the following:
• the name and address of the licensee;
• the product(s) for which the licence has been granted;
• the quantity(ies) for which it has been granted;
• the country(ies) to which the product(s) is (are) to be supplied;
• the duration of the licence;
• the address of the web site where the supplier will post the information referred to in paragraph 2 (b) (iii) of the Decision.
The specified content of the notification suggests that, although a compulsory licence is to be granted for a limited quantity only, a single compulsory licence may cover the production for and export to more than one country. Several importing countries may, in fact, pool their purchasing power for a set of pharmaceutical products, in order to obtain better prices. The Decision also allows a country member of a regional trade agreement, at least half of which is made up of LDCs, to re-export products acquired under the system established by the Decision to other developing or LDC parties to the regional trade agreement that "share the health problem in question" (paragraph 6(i)). The main advantage created by this provision is that the waiver of Article 31 (f) applies to all members of the trade agreement and there is no need to notify the Council for TRIPS each time that an exportation is made. However, this exception only applies to some regional trade agreements in Africa, and not to the bigger regional markets in Asia and Latin America, where more significant economies of scale could be attained. Moreover, the Decision does not allow the supplier to supply all or some of the eligible members of the regional trade agreement. The exception applies only to permit an importing trade agreement member to re-export to others.
The duration of the compulsory licence is to be determined by the exporting country’s government. It would be logical to provide for its termination upon the effective supply of the required quantities of a given product, in order to avoid the burden and cost of requiring repeated compulsory licences if delivery takes place over a period of time.