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Eur J Health Econ (2015) 16:8394 DOI 10.1007/s10198-013-0556-2
ORIGINAL PAPER
Compulsory licensing and access to drugs
Charitini Stavropoulou Tommaso Valletti
Received: 7 August 2013 / Accepted: 18 December 2013 / Published online: 10 January 2014 Springer-Verlag Berlin Heidelberg 2014
Abstract Compulsory licensing allows the use of a patented invention without the owners consent, with the aim of improving access to essential drugs. The pharmaceutical sector argues that, if broadly used, it can be detrimental to innovation. We model the interaction between a company in the North that holds the patent for a certain drug and a government in the South that needs to purchase it. We show that both access to drugs and pharmaceutical innovation depend largely on the Southern countrys ability to manufacture a generic version. If the manufacturing cost is too high, compulsory licensing is not exercised. As the cost decreases, it becomes a credible threat forcing prices down, but reducing both access and innovation. When the cost is low enough, the South produces its own generic version and access reaches its highest value, despite a reduction in innovation. The global welfare analysis shows that the overall impact of compulsory licensing can be positive, even when accounting for its impact on innovation. We also consider the interaction between compulsory licensing and
the strength of intellectual property rights, which can have global repercussions in other markets beyond the South.
Keywords IPRs Pharmaceutical R&D Compulsory
licensing Access to drugs International exhaustion
JEL Classication F13 L12 O34
Introduction
Access to pharmaceutical drugs remains one of the greatest challenges to health policy around the world. Yet a number of developing countries lack both the manufacturing capability to develop new drugs as well as the negotiating power to buy them at affordable prices.
To address the issue, in 2001 members of the World Trade Organization (WTO) signed in Doha the Declaration of the trade-related aspects of intellectual property rights (TRIPs), which include public health considerations. The Doha Declaration, as it is more commonly known, for the rst time provided a strong negotiating tool to developing countries by allowing them to issue compulsory licensing of pharmaceuticals. A compulsory license is a non-voluntary authorization imposed by a government between the patent holder and a third party, by which the...