The failure of compulsory licensing of pharmaceuticals in least developed countries

With its ratication in 1995 the World Trade Organization's agreement on "Trade Related Aspects of Intellectual Property Rights" (TRIPS) advances minimum global patent protection. Particularly in view of access to essential medicines the TRIPS agreement permits countries to overwrite patent exclusivity in isolated cases and compulsory license a domestic manufacturer. Subsequently, export of compulsory licensed drugs was authorized to account for the lack in appropriate drug production capabilities of least developed countries. So far, this cross border compulsory licensing was used only once, in contrast to numerous domestic utilizations. While literature highlights political pressure and threads to foreign direct investment as general barriers for compulsory licensing the question remains why only least developed countries do not make use of this instrument. The work at hand contributes to the debate by identifying a discrimination of least developed countries which roots in the mechanics induced by the compulsory licensing process itself. A private generic manufacturer would not sell a compulsory licensed drug at marginal costs but determine the optimal duopoly competition price for a given structure of demand. Since potential licensees apply for compulsory licensing the optimal price is overwritten by negotiations and usually reduced signicantly. This does not hold for least developed countries seeking cross border compulsory licensing because the sequence of price bids and decision is dierent. As a result, cross border compulsory licensing loses its appeal, further reduced by royalty and transportation cost eects on the generic price.


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