Brazil Puts Patients Before Patents

Rejects Bush administration pressure and issues compulsory license on important AIDS drug

On national television Brazilian President Luiz Inácio Lula Da Silva has just announced a compulsory license on patents controlled by Merck for the important AIDS drug Efavirenz. Brazil has a large and growing population of AIDS patients, and cannot afford to sustain treatment without obtaining low cost generic copies of AIDS drugs.

Press coverage of today's action will likely have a narrative about poor countries breaking rich country patents, but it could also be presented as a larger discussion about the problems of giving exclusive rights to patent owners.

Yesterday, The Wall Street Journal praised the US Supreme Court for "restoring some sanity to America's runaway patent law" by giving "judges much-needed flexibility in granting or denying permanent injunctions." The WSJ was referring to the 2006 decision involving an attempt to enforce an injunction against eBay, enforcing a patent owner's "exclusive" right to determine who can use the invention.

The U.S. Supreme court decision in eBay made it clear that, after considering the facts in the case and the public interest, a judge could choose to not enforce the exclusive right, and instead authorize the infringer to use the patent, in return for a court determined royalty.

Outside of the U.S., when Thailand or Brazil decide to allow non-voluntary use of a patent, we call it a compulsory license, and a smug U.S. and European press talk about the lack of respect for intellectual property in certain developing countries (the ones that dare to issue compulsory licenses).

In the U.S., The WSJ and others call the non-voluntary use of a patent something else -- patent reform.

Since June of 2006, U.S. courts have issued compulsory licenses on patents in cases that have benefited Toyota (for patents on an automatic transmission), Direct TV (set top box patents), Microsoft (on DRM technology patents) and Johnson & Johnson (on a medial device). The U.S. Federal Trade Commission recently issued a compulsory license on computer memory chips (the Rambus case).

Since 2005, Italy has granted compulsory licenses on patents for two Merck products (an antibiotic and a prostrate and baldness drug), and one GSK products (for migraine headaches.)

For more of these examples, see here and here.

Back to Brazil, and the very important announcement today regarding its compulsory license. What does this mean for drug developers?

The Brazil decision today, which involves the first (post-WTO/TRIPS Agreement) compulsory license on patents on medicines for all of Latin America, will likely be widely copied in the region.

It is now time for drug developers to rethink their strategy and business models. Developing countries will not accept prices that the poor cannot afford. But prices that the poor can afford don't include a premium for R&D.

The answer to this dilemma is not to raise prices, but to decouple the R&D incentive from the price. The most far reaching way to do this would be to replace drug monopolies with large prizes .