Developing Countries Look for Minimal Compensation

As a threshold matter, due to the limited financial affordability, developing nations tend to interpret “adequate remuneration” under Article 31 (h) in accord with their insufficient budgets.²⁰⁵ Basically, developing countries or least developed countries are overwhelmingly financially limited and unable to afford full market prices for patented products such as pharmaceuticals. Therefore, compulsory license, as the most important leverage, can be granted in cases of emergency threatening the citizens’ health or other public interest.

Under such conditions, developing nations might already deplete their resources in order to dealing with the crisis. Therefore, the price of the patented products may be beyond the government’s reach. Moreover, even developing nations are able to meet the requirement of issuing compulsory license under the TRIPS Agreement Article 31(a), the inadequate financial budget could also leave the public crises unsolved because of the expensive payment.²⁰⁶

Although proponents of restrictive protection over IPR argue that insufficient patent-system will inhibit investment from foreign countries and compulsory licensing would impede innovation, empirical studies indicate differently.²⁰⁷ Empirical evidence proves that compulsory license will weaken

204 Gana, supra note 201, at 771-72.

205 Robert Weissman, A Long Strange TRIPS: The Pharmaceutical Industry Drive to Harmonize Global Intellectual Property Rules, and the Remaining WTO Legal Alternatives Available to Third World Countries, 17 U. Pa. J. Int’l Econ. L. 1069, 1114 (1996).

206 Id.

207 Richard T. Rapp & Richard P. Rozek, Benefits and Costs of Intellectual Property Protection in Developing Countries, Journal of World Trade, Oct. 1990, at 75, 81-87.

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the incentive of innovation is somehow questionable. For instance, elimination of patent protection for pharmaceuticals in Brazil in 1969 was followed by a near six-fold increase in foreign investment in the local pharmaceuticals industry.²⁰⁸ In Turkey, “abolishing patents has not adversely influenced the flow of direct foreign investment and the transfer of technology into the country.”²⁰⁹ Furthermore, a global survey and regression analysis conducted by J. Davidson Frame shows that the third world countries adopting less stronger IPR protections present better capacities in science and technology than other third world countries.²¹⁰

Also, the protection in innovation does not always stand as paramount objective even in developed countries. In the U.S., the law²¹¹ prevents holders of patents in medical procedures from suing doctors for infringement.²¹² This section effectively grants compulsory license with no compensation to the most likely users of medical procedure patents-doctors.²¹³ The enactment of the law indicates the U.S. Congress put human needs for access to medical procedure prior to the patent holders’ interests. Thus, the policy reflects the recognition of denial of that innovation will be improperly stifled by government action that provides reasonable access to important inventions.

Developing countries contend that controlled compulsory licensing with

208 See Gary Gereffi, The Global Pharmaceutical Industry and its Impact in Latin America, in PROFIT, PROGRESS AND POVERTY:CASE STUDIES OF INTERNATIONAL INDUSTRY IN LATIN AMERICA 277-78 (Richard S. Newfarmer ed.) (1985).

209 Arman S. Kirim, Reconsidering Patents and Economic Development: A Case Study of the Turkish Pharmaceutical Industry, 13 WORLD DEV. 219, 220 (1985).

210 See J. Davidson Frame, National Commitment to Intellectual Property Protection:

An Empirical Investigation, 2 J.L. & TECH. 209, 215 (1987).

211 35 U.S.C. § 287(c)

212 Trevor Cook, Catherine Doyole&Jabbari, Pharmaceuticals Biotechnology & the Law 73, 89 (Stockton Press 1991); Bernd Hansen &Fritjoff Hirsch, Protecting Inventions in Chemistry:

Commentary on Chemical Case Law under the European Patent Convention and the German Patent Law 113 (VCH 1997).

213 Cynthis M. Ho, Patents, Patients, and Public Policy: An Incomplete Intersection at 35 U.S.C. § 287(c), 33 U.C. Davis L. Rev. 601, 669-70 (2000).

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minimal compensation will promote, not stifle, innovation for the following reason. The thesis that the innovation deficiency is due to the lack of IPR protection in developing countries is unconvincing considering the insufficient infrastructure in those nations.²¹⁴ It is notable that, even though developed countries provide strong patent protection today, in virtually all cases, those protection can only extended when the nation have developed sufficient technological strength. Before equipped with greater economic power and science advance, strategies based on imitation or copying were typical to apply in develop certain industries.²¹⁵ Therefore, only after developing countries achieve greater accomplishment in economy and science, will the strict protection be feasible to promote innovation. In other words, convenient access to IPR, including access to patents through compulsory licensing, serves as vital means in economic development in developing countries. Such development will enhance the level of global innovation, which can further the ultimate goal of generating innovative capacities in both domestic and international markets.²¹⁶

As for the remuneration to patent holders, full compensation for lost cost and profit is not defensible for licensors who suffer no injury by temporary compulsory license in developing country. Developing countries are usually not part of the pharmaceutical investment markets. The manufacturers do not develop drugs to cure diseases in developing countries in the first place, their direct investment is in developed nations. As a result, the return of investment is not impacted by compulsory license to addressing urgent health needs in developing countries. Therefore, patent holders are not entitled to the lost

214 Id. at 775.

215 Id.

216 Id.

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profit from sales of drugs in these countries.²¹⁷ The same reasoning can be found in the case in the United States, in Leesona Corporation v United States, a federal court of appeals held that compensation should be based on “what the patent holder has lost, not what the taker has gained.”²¹⁸