Compulsory licences now available for export of patented pharmaceuticals


As of 25 August 2015, it is now possible for third parties to apply to the Federal Court of Australia for a compulsory licence to manufacture generic versions of patented pharmaceutical inventions (“PPI”) for export to developing countries to address public health problems.



Australia is a signatory to the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement). The TRIPS Agreement sets out the minimum requirements for intellectual property protection for WTO member states.

The TRIPS Agreement was amended in 2005 by the TRIPS Protocol, which had the aim of providing developing countries with better access to medicines.  Under the TRIPS Protocol, WTO member states with insufficient manufacturing capacity are able to import patented pharmaceutical products made under a compulsory licence from another WTO member state.

Compulsory licences were previously available under Australian patent law in circumstances where a patent is not being utilised, the patentee has been approached by a third party seeking a licence, and the patentee has refused to grant a licence “on reasonable terms and conditions”.  To date, no compulsory licences have been granted, prompting a 2012/2013 Productivity Commission inquiry into their effectiveness.

The Intellectual Property Laws Amendment Act 2015, which came into effect on 25 August 2015, does not implement the recommendations of the Productivity Commission but, rather, implements the TRIPS Protocol and introduces into the Patents Act a new form of compulsory licence.  A PPI compulsory license enables generic Australian medicine producers to manufacture and export patented pharmaceuticals products to developing countries to address public health problems.  It is important to note that a PPI compulsory license may be granted even if the patented pharmaceutical product is being sold in Australia and, as such, represents a significant addition to the existing compulsory license provisions.

PPI compulsory licences

A PPI compulsory licence means that the licensee does not infringe by manufacturing and exporting a patented pharmaceutical product if it is used to address a public health problem in an eligible country:

  • in circumstances of national emergency or other circumstances of extreme urgency; or
  • by the public non-commercial use of the patented pharmaceutical product (e.g., use by a government or a non-profit non-government organisation to address ongoing public health problems).

An eligible country is:

  • a country identified by the United Nations as a “least developed country” – such countries include Afghanistan, Bangladesh, Cambodia, Haiti and Nepal, as well as many African countries; or
  • a WTO member state with insufficient manufacturing capacity that has notified the TRIPS Council of its intention to make use of the PPI compulsory licence system as an importer.

Requirements for grant of PPI compulsory licences

The Federal Court may only grant a PPI compulsory licence if it is satisfied that:

  • the proposed use of the patented pharmaceutical product is to address a public health problem in the eligible importing country
  • the PPI compulsory licence is necessary
  • the application for the PPI compulsory licence has been made in good faith (i.e., a PPI compulsory licence should not be sought in order to pursue commercial objectives in Australia)
  • the eligible importing country has notified the Commissioner of Patents or the TRIPS Council
  • the patented pharmaceutical product is to be imported by the eligible importing country (or by an authorised third party importer)
  • the PPI compulsory licence applicant, the eligible importing country and any third party importer will take reasonable measures to prevent the patented pharmaceutical product being used for a purpose other than addressing a public health problem and
  • the PPI compulsory licence applicant has given the patentee an opportunity to voluntarily authorise use of the patented pharmaceutical product (unless there are circumstances of extreme urgency in the eligible importing country).

Remuneration of the patentee

The licensee must remunerate the patentee for the use of the patented pharmaceutical product.  If the licensee and the patentee cannot agree on the terms for the licence, either party can ask the Federal Court to determine the remuneration.  In determining adequate remuneration, the court will take into account the economic value to the eligible importing country of the use of the patented pharmaceutical product.

In circumstances of extreme urgency in the eligible importing country, the licensee does not have to wait for the remuneration to be agreed with the patentee or determined by the Federal Court – the licensee and the patentee can conduct their negotiations in parallel with the manufacturing and export of the patented pharmaceutical product.

In the absence of circumstances of extreme urgency, the licensee will need to wait for the remuneration to be agreed with the patentee or to be determined by the Federal Court.

Concluding remarks

According to the World Health Organization, “differential” or “tiered” pricing has reduced the cost of many drugs in developing countries.  For example, the cost of anti-retroviral HIV/AIDS therapies has been reduced by up to 90% in low-income countries, while the same drugs continue to be sold at market price in developed counties.  Differential pricing and other measures aimed at increasing the supply of affordable pharmaceuticals to developing countries have proven useful but, in addition, the United Nations Development Programme questioned the compatibility of the TRIPS Agreement with human rights law due to the impact of the Agreement on access to essential drugs in low-income countries.  The PPI compulsory licence appears to go some way towards providing a solution to some of the problems posed by the TRIPS Agreement.  It represents another step towards ameliorating the significant social and humanitarian issues associated with the undersupply of affordable pharmaceuticals to the developing world.