Access Denied: Compulsory Licensing and the Structural Limits of Global IP Governance

By Harleen Kaur

In the middle of the COVID-19 pandemic, a Canadian company Biolyse Pharma, sought to manufacture generic COVID-19 vaccines for Bolivia. The effort was ultimately unsuccessful due to a series of bureaucratic requirements under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). This outcome was not the result of inadequate intent or manufacturing capability, but rather reflected the limitations of the international intellectual property governance framework. Despite multiple amendments intended to facilitate access to essential medicines for developing countries over the years, TRIPS continues to present significant practical barriers to developing countries in accessing medicines.

The experience of compulsory licensing under the TRIPS highlights a persistent issue in global governance of IP laws. While international frameworks are designed to allow flexibility for public health emergencies, their structure often makes it difficult to use these provisions in practice. The COVID-19 pandemic demonstrated the gap between policy objectives and implementation. Examining the reasons for the limited effectiveness of compulsory licensing, even after specific reforms, can inform the design of future international agreements on technology, health, and access to essential innovations.

TRIPS Agreement and compulsory licensing powers

The TRIPS Agreement is an international agreement on intellectual property rights that establishes a minimum standards framework for signatory countries. Article 31 of the TRIPS Agreement confers power to Nation States to allow others the use of patents without authorisation of the patent rights holder, as long as the conditions laid down by the article are met. This power of the States is referred to as ‘Compulsory licensing’.

Since it overrides patent rights, this provision can be used in emergency situations where the rights of people trump trade rights, and has been a part of the TRIPS Agreement since its inception in 1995. Generally, negotiations with the patent holder(s) are required before issuing a compulsory license, except in cases of national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. 

Before TRIPS came into force, many developing countries, such as India, already had patent frameworks enacted in a way to protect their social interests. For instance, India did not allow product patents in pharmaceuticals before the enactment of the TRIPS Agreement. This provision allowed India to promote its generic pharmaceutical industry, which provided access to medicines to its population. However, by signing the TRIPS Agreement, India had to allow product patents in pharmaceuticals in addition to process patents. Therefore, after much negotiation, Article 31 was introduced by the TRIPS Agreement to provide some flexibility to developing nations on protecting their public health concerns arising from the need to access medicines.

Inadequacy of the compulsory licensing framework in TRIPS

With time, cracks in the application of Article 31 exception emerged as it was not sufficient for developing countries to access medicines in emergency situations due to cumbersome conditions for compulsory licensing. For instance, Article 31(f) of the TRIPS states that any authorisation under compulsory licensing should be predominantly for the supply of the domestic market. This provision did not take into consideration the global nature of the pharmaceutical industry, where countries like India had a developed manufacturing ability to export drugs to other countries, which did not have such manufacturing capabilities. Also, article 31(f) of the TRIPS Agreement did not clarify the extent to which compulsory licensing for export of drugs was allowed, causing public health issues in States without robust pharmaceutical manufacturing capabilities. For example, the USA threatened trade sanctions against South Africa in 1997 due to a provision that allowed parallel importing of drugs under a compulsory license, despite the provisions being TRIPS-compliant. In addition, Article 31(h) of the TRIPS Agreement requires States to ensure that patent rights’ holders shall be paid adequate remuneration for compulsory licensing, increasing the burden of States to establish the meaning of ‘adequate’ remuneration in case of emergencies.

Attempts at reform

The WTO Ministerial Conference adopted the Doha Declaration on the TRIPS Agreement and Public Health in 2001 to relieve some of the tensions that existed in Article 31. This declaration took a long time to be enforced as a formal amendment of the TRIPS, with the protocol of the Doha Declaration being entered into force on January 23, 2017, after two-thirds of the WTO members accepted it.

There are three important changes brought to the Article 31(f) framework by way of this amendment: 

• A Nation-State may export generic pharmaceutical products under a compulsory license to meet the needs of other countries
• To avoid double payment, it was clarified that the importing States do not have to remunerate manufacturers of exporting countries under the compulsory licensing
• Exporting constraints are waived for developing and least-developed countries so that they can export within a regional trade agreement

Continuing hardships in using this flexibility

However, as seen during the COVID-19 pandemic, these changes introduced further procedural difficulties and impracticalities in the functioning of the compulsory licensing framework. For instance, the importing country is required to demonstrate its own insufficient manufacturing capacity before importing a patented drug.

There are two main issues in these amendments:

• high administrative burden on resource-poor countries before using exceptions, and 

• conflict between the amended TRIPS provisions and other bilateral and free trade agreements, such as international data exclusivity frameworks

Therefore, while the TRIPS Amendment aimed to streamline the process for granting compulsory licenses for the export of pharmaceutical products to countries with insufficient manufacturing capacity, utilising these flexibilities is extremely tough for countries that need such flexibilities the most.

Conclusion

The experience with compulsory licensing under TRIPS highlights the limitations of international governance frameworks that claim to offer flexibility but, in practice, introduce procedural barriers that restrict their use. The implementation of the Doha Declaration reforms, which took sixteen years, resulted in additional administrative requirements that undermined their intended purpose. The case of Biolyse Pharma, which was unable to access Canada's compulsory licensing process during the pandemic, illustrates that formal rights are insufficient without effective mechanisms for their exercise.

The TRIPS experience is instructive for future policy design in the context of health crises and access to essential technologies, including vaccines and climate-related solutions. It is important to assess whether international agreements provide genuine flexibility in emergencies, or whether they maintain existing power structures under the guise of balance. This issue extends beyond pharmaceuticals to the governance of any technology where equity and innovation are at stake. Achieving real flexibility requires not only formal amendments but also the development of systems that function effectively for countries with limited resources and capacity during emergencies.

Publication | Legal and regulatory framework for laboratory testing in India: A case study for Covid-19

By Harleen Kaur, Ameya Paleja, and Siddhartha Srivastava.

Testing is central to understanding the spread of the SARS-CoV-2 virus at an individual & population level and designing suitable interventions (Shah, 2020). As of June 23, 2020, India has the fourth-largest number of SARS-CoV-2 cases worldwide. This is despite having conducted only 119 tests per million people. In comparison, the United States and Russia, countries with more cases than India, have conducted 1518 and 2074 tests per million, respectively. While India has somewhat improved its testing rate since the early stages of the SARS-CoV-2 pandemic (21 per million on April 24), we are still unable to test in adequate numbers. In this blog, we study the reasons behind insufficient testing rates in India by reviewing the legal environment for regulating medical testing.

The Indian diagnostics industry is dominated by the private sector. The legal framework for the regulation of private labs is set up under the Clinical Establishments Act, 2010. The issues of non-standardisation of service quality and supplier-induced demands are prevalent in the industry (Competition Commission of India, 2018). Therefore, these labs have been functioning under market-led and self-imposed norms. The government did not depend on this regulatory framework during the SARS-CoV-2 pandemic. Instead, it granted unchecked discretionary power to the Indian Council of Medical Research (ICMR) to regulate the testing strategy. Under the regulatory framework set up by the ICMR, the private lab network is not being utilised optimally for SARS-CoV-2 testing. For instance, the private sector accounts for about 70% of the health care market in India. As of June 22, 2020, only 27% of all labs approved for SARS-CoV-2 testing in India are private labs. In this article, we argue that (i) the private labs are governed by a weak regulatory framework that has allowed market failure to persist in the diagnostics sector in India, and ii) the testing strategy mandated by the ICMR for the SARS-CoV-2 pandemic has led to poor outcomes for the participation of private labs. Hence, there is an immediate requirement for reviewing the powers of ICMR for managing the testing strategy and a long-term requirement for rethinking the present regulatory framework for labs.

Concerns about market failure in the field of medical testing

A market failure occurs when the free market is unable to obtain efficient economic outcomes. Of the four types of market failures, viz, externalities, asymmetric information, market power, and public goods, the diagnostics sector in India is seen to be affected primarily by information asymmetry. Information asymmetry or information inequality occurs when one party, such as a physician, possesses much greater information than the other, a patient (Arrow, 1963). During a pandemic, testing becomes a crucial part of a nation's public health strategy, and hence, the public goods element of market failure also comes into play. For instance, testing data is a public good inasmuch as it is useful to understand the spread of the disease in an area that helps the government to design public health policies, and sharing of such data by the government affects behavioral changes in individuals.

As a result of information asymmetry, the field of medical testing in India faces the recurring issue of quality control and standardisation of services. For instance, practices such as hiring unqualified professionals, using sub-standard equipment, and proxy digital signatures have become prevalent in the industry in the absence of effective regulation. In extreme cases, there have been instances of private labs disbursing 300-400 diagnostic reports within a matter of hours, often without conducting any testing at all.

The free market does not solve the issues of market failure on its own and requires state intervention. This can be done through effective regulation of the market, either by itself or through State coercion. We now study the existing regulatory framework for labs in India and its limitations.

Regulation of diagnostic labs

Healthcare is a state subject under the Indian Constitution. This means that in the usual course of events, states have exclusive powers to make laws concerning different aspects of health care, such as diagnostic laboratories. Article 249 of the Constitution provides exceptional powers to the Union government to make laws on state subjects in the national interest. For such matters, the states retain the power to accept or reject the union law. The Clinical Establishment Act has been passed by the Union government under this provision, and 11 states have enacted it as of now. However, there are two difficulties with the law that have created a gap between aspiration and outcome. First, under our constitutional arrangement, the Clinical Establishments Act is only applicable to those states that choose to adopt it, and only 11 states have adopted this law. Second, the law has serious difficulties in design and implementation.

In the 11 states where the Act is present and implemented, the regulatory function is limited to granting registration to labs and maintaining a register of clinical establishments. The labs interact with the regulatory authority only at the time of registration, when they submit evidence of having complied with the prescribed standards for registration to the regulatory authority. Once a permanent registration is granted, there is no mechanism to review the functioning of the labs or provide grievance redressal to patients under the Act. If a person starts a lab without registration, the maximum punishment under the law is a monetary penalty of rupees five lakhs.

Other than the Clinical Establishments Act, private labs have to comply with the standard regulatory requirements under the state Shops and Establishments Act (relating to hours of work, cleanliness, holidays, etc.) and obtain registration under the provisions of the Biomedical Waste Management Rules, 2016. Additionally, diagnostic kits and reagents used by labs are defined as 'drugs' under the Drugs and Cosmetics Act, 1940, and therefore have to be approved by the Central Drugs Standard Control Organisation (CDSCO).

We see that there is effectively no legal framework for regulating private labs in India. The labs only comply with allied regulatory requirements, such as disposal requirements for biomedical waste and approval of diagnostic kits under the Drugs and Cosmetics Act. Given this regime, two mechanisms, namely accreditation and public procurement, have sought to fill the regulatory void in the diagnostics industry.

Alternative methods of regulation

In the absence of an overarching law that assures the quality of clinical establishments, private labs have turned to voluntary accreditation to establish credibility in the vast diagnostics market. Accreditation of labs is not mandatory in India. The National Accreditation Board for Testing and Calibration Laboratories (NABL), an autonomous body under the Quality Council of India, prescribes accreditation criteria for various kinds of labs. Of the estimated 100,000-110,000 labs present in India, around 4000 have NABL accreditation. Some labs prefer obtaining certifications from international accreditation bodies in addition to obtaining NABL accreditation. Accreditation helps in assuring the quality of labs to the public as well as the government.

The second method to ensure quality standards and avoid market failure is public procurement. The government has dealt with the absence of a regulatory framework in the past by using contractual mandates to avail the services of private labs. The standards expected from these labs are contractually specified by the government while entering into public-private partnership (PPP) agreements for diagnostics. For instance, the union government under the National Health Mission (NHM) has a Free Diagnostics Services Initiative, which contains detailed requirements from diagnostic/pathology labs. NABL accreditation is one of the common requirements for private labs to participate in such government programmes.

To compensate for weak regulation under the Clinical Establishments Act, voluntary accreditation by the NABL and public procurement through PPP agreements have acted as alternative strategies for regulation. These alternatives help in reducing information asymmetry and assuring the quality of services to the public and could have played an important part in the regulation of the labs for SARS-CoV-2. Yet, we find that the government strategy for medical labs for SARS-CoV-2 is based on a command-and-control approach under the ICMR.

Regulation of medical labs for SARS-CoV-2

Under the existing regulatory framework, private labs did not have to follow any criteria or adhere to any standards before starting a new/novel test, such as the SARS-CoV-2 test. This means that patients would have been able to get SARS-CoV-2 tests done in any private lab offering the test using reagents/test kits approved by the CDSCO and having a valid bio-waste and other local licenses.

The lack of a regulatory framework led to confusion regarding the role of private labs in the response to the SARS-CoV-2 pandemic. As a result, the government set up an emergency regulatory framework for the SARS-CoV-2 crisis using provisions of the Epidemic Diseases Act, 1987, and the Disaster Management Act, 2005. Using these laws, it appointed the Indian Council of Medical Research (ICMR) as the apex decision-making body for India's diagnostic testing strategy through the MoHFW (see notifications here and here).

The Epidemics Act authorises the state governments to take exceptional measures and prescribe regulations to contain the spread of a dangerous epidemic disease. It lists a set of basic subjects for which regulations may be made such as travel restrictions, examination and quarantine of suspected cases, and inspections of any ship or vessel leaving or arriving at any port of call. The role of the union government under this law is limited to managing epidemic diseases at ports.

The Disaster Management Act contains an administrative framework for disaster management. Section 6 of the Act sets up the National Disaster Management Authority (NDMA) as a nodal body for disaster management. Any directions issued by the NDMA and the union government must be followed by the Union Ministries, State Governments and State Disaster Management Authorities. The SARS-CoV-2 pandemic has been notified as a disaster under this Act. Under this, the government has passed various directives on different aspects of the SARS-CoV-2 response using the umbrella clauses of this legislation such as section 6(2)(i) (The NDMA may lay down the policies, plans and guidelines for disaster management) and Section 10(2)(l) (The National Executive Committee may lay down guidelines or give directions to union ministries, state governments and state authorities for responding to the disaster) have been invoked to respond to the SARS-CoV-2 crisis.

Using the powers granted to it by the government, the ICMR has placed severe restrictions on private labs to test for SARS-CoV-2. These restrictions include requiring approvals from ICMR for lab facilities, commercial testing kits, and cost-capping for testing. We now study the ICMR decisions on testing strategy in detail to understand its role in the testing outcomes for SARS-CoV-2.

The role of the ICMR

The ICMR has been responsible for the regulation of public labs under a 2012 scheme called the Viral Research and Diagnostic Laboratories (VRDL) network under the MoHFW. The scheme was initiated to increase government capacity for the timely detection of emerging/re-emerging viral diseases. The VRDL labs were exclusively responsible for testing in the initial phase of the SARS-CoV-2 pandemic in India.

The initial advisories issued by the ICMR contained no mention of private labs and focused only on directing public labs to undertake SARS-CoV-2 testing. At the time, some state governments explicitly banned private labs from testing as per their regulations issued under section 2 of the Epidemic Diseases Act, 1897. For instance, the Delhi Epidemic Diseases COVID-19 Regulations, 2020 and the Bihar Epidemic Diseases COVID-19 Regulations, 2020 contain the following provision on testing of potential SARS-CoV-2 cases by private laboratories:

"No private laboratory has been authorised to take samples for COVID-19 in the State. All such samples will be collected as per the guidelines of the Government of India..."

Subsequently, the ICMR issued guidelines for private labs to undertake SARS-CoV-2 testing on March 21, 2020. Since then, the ICMR has been responsible for approving private labs to test for SARS-CoV-2. The ICMR conducts checks on the capability of private labs to test for SARS-CoV-2 and updates the list of approved private labs regularly. It also issues detailed guidelines for other aspects of testing such as procurement of reagents, evaluation of commercial testing kits, etc. In doing so, it has usurped the regulatory functions of existing statutory regulators such as the CDSCO, as well as voluntary bodies like the NABL. For instance, while diagnostic kits for SARS-CoV-2 are considered "drugs" and should be approved by the CDSCO, they also require validation by the ICMR. Similarly, NABL approved private labs are required to get a mandatory clearance from ICMR for SARS-CoV-2 testing. This means that while NABL has accredited 278 labs for RT PCR RNA testing for SARS-CoV-2, the ICMR has approved 258 of these labs for testing as of June 21, 2020. The ICMR does not document the rationale or process of performing these regulatory functions. The Epidemics Act and the Disaster Management Act do not require the ICMR to adhere to minimum standards of accountability, transparency, and public engagement. The invocation of these laws to empower the ICMR means that there is no coherent or intellectually defensible framework for reviewing the ICMR's actions during the pandemic except that the basic rule of law principles are followed by it.

Building state capacity for regulation is a gradual process that requires backing by a comprehensive legal framework (Roy et al, 2018). ICMR was abruptly thrust into a role for which it did not have the required organisational or procedural capacity. Hence, it compensated for the lack of a regulatory framework by issuing strict command and control orders. We see that after being appointed as the government regulator for the testing strategy for SARS-CoV-2, the ICMR barred all private labs from testing unless approved by it. Given that the labs are already approved by NABL, the rationale for re-approval for testing of private labs by ICMR was never shared. Additionally, ICMR started regulation of reagents, test-kits and costs of tests. This has had an adverse impact on the testing outcomes as seen below.

Implications of the regulation of private labs by ICMR

ICMR has been responsible for advising on the SARS-CoV-2 testing strategy for the country. The restrictive policies by the ICMR have led to the inaccessibility of the tests for a vast population. As a result, various courts in India are being involved to challenge such policies.

In April, the Supreme court heard the issue of cost-capping of lab testing for SARS-CoV-2 by ICMR and ordered that the tests shall be free for persons falling under government schemes such as Ayushman Bharat or any other category of economically weaker section of the society as notified by the government. The ICMR cost-cap of INR 4500 per test for private labs was not examined by the court in this petition, but it emphasised on the need for affordable tests to the population.

The Delhi high court reviewed the cost fixed by ICMR for the procurement of rapid testing kits in April. It held that the costs at which ICMR procured the kits had an unduly high profit-margin for the vendors and ordered the cost per kits to be reduced from INR 600 to INR 400. Furthermore, the kits procured by ICMR were later found to be faulty. The court criticised the government and ICMR for low testing of SARS-CoV-2 cases in another order dated June 18, 2020. It ordered the government to review ICMR policies on labs such as the protocol for sample collection, approval of labs, data sharing by labs, and costs per test through an existing government committee.

The Gujarat high court is monitoring the state response to SARS-CoV-2 under a suo-motu writ petition. Under this petition, in an order dated May 29, 2020, the court modified the ICMR guidelines on testing for different categories of patients as it found the patient categories to be non-exhaustive. The court has also decided to review the rationale behind the ICMR SARS-CoV-2 testing strategy.

The ICMR has been criticised for its advisories on the evolving SARS-CoV-2 testing strategy by experts. For instance, its restrictions on the usage of RT-PCR and rapid antigen testing are seen to be unreasonable as the testing capacity has been increasing over time. Additionally, the issue of lack of transparency in sharing testing data and its regulatory procedure makes ICMR decisions difficult to understand and implement.

The ICMR policies regarding the testing strategy for SARS-CoV-2 are restrictive for private labs. This is indicative of a trust-deficit between ICMR and the labs. The ICMR regulatory strategy to reduce this trust-deficit is to micromanage every aspect of testing sought to be done by the private labs. This has led to lower participation of such labs in testing for SARS-CoV-2 and issues of unavailability of tests to the public.

Conclusion

The bulk of the health care services in India are provided by the private sector despite the presence of public health care facilities (Hooda, 2015). Recognising the growth and demand of the private sector, the policy framework in health has gradually shifted from the government providing health care services to being a financier of these services (Patnaik et. al, 2018). Recently, the Indian government conceded before the Supreme Court that the testing capacity of the public sector for SARS-CoV-2 is insufficient.

In this article, we studied the regulatory framework with respect to medical laboratories in India. We find that in the regular course of events, the Clinical Establishment Act, 2010, and the rules thereunder are responsible for such regulation. Issues with the adoption and implementation of this Act leave the sector effectively unregulated. Despite the presence of some alternative methods of regulation, the regulatory gap in the diagnostic sector persists. Therefore, there is a need for a comprehensive law to deal with the market failure of information asymmetry and public goods. However, the enactment of such a law is a long-term deliberative process and should not be attempted in the face of a pandemic.

For SARS-CoV-2 testing, the government has deviated from the existing course of minimal intervention in regulating private labs to regulating every aspect of testing through the ICMR. Government laboratories set up under the VRDL framework were initially the exclusive bodies allowed to test for SARS-CoV-2. While private labs have now been allowed to test for SARS-CoV-2, they are still heavily regulated by the ICMR. The rationale for this approach has not been provided. We believe such an approach is unsuitable for managing the SARS-CoV-2 pandemic. Using the broad powers given to it, the ICMR has reduced the capacity for testing in India by introducing prescriptive testing guidelines, licensing requirements, and cost-capping. This has resulted in non-utilisation of a bulk of the testing capacity for SARS-CoV-2 in India so far. Therefore, we suggest that the power given to the ICMR for SARS-CoV-2 regulation be minimised by specifically disallowing any duplication of regulatory functions already being performed by bodies such as CDSCO and NABL. Further, for the powers delegated to ICMR for regulating the testing strategy, due process requirements such as documenting the rationale, public consultation, sharing of public data should be mandated by the government to increase the accountability of ICMR.

References and further reading:

Arrow, 1963: Kenneth J. Arrow, Uncertainty and the welfare economics of medical care The American Economic Review, December 1963.

Nandraj, 2012: Sunil Nandraj, Unregulated and Unaccountable: Private Health Providers, Economic and Political Weekly, January, 2012.

Srinivasan, 2013: Sandhya Srinivasan, Clinical Establishments Act, 2010 Regulation and the Medical Profession, Economic and Political Weekly, 19 January, 2013.

Hooda, 2015: Shailendra Kumar Hooda, Private Sector in Health Care Delivery Market in India: Structure, Growth and Implications, Institute for Studies in Industrial Development, Working Paper 185, December, 2015.

Patnaik et. al, 2018: Ila Patnaik, Shubho Roy, and Ajay Shah, The rise of government funded health insurance in India, NIPFP Working Paper Series, No. 231, 21 May 2018.

Roy et al, 2018: Shubho Roy, Ajay Shah, B. N. Srikrishna, and Somasekhar Sundaresan, Building State capacity for regulation in India NIPFP Working Paper Series, No. 237, 3 August, 2018.

Competition Commission of India, 2018, Policy Note: Making markets work for affordable health care, Competition Commission of India, October, 2018.

Kelkar and Shah, 2019: Vijay Kelkar and Ajay Shah, In service of the Republic: The Art and Science of Economic Policy, Penguin Allen lane, December 2019.

Shah, 2020: Ajay Shah, More testing: From concept to implementation, The Leap Blog, 06 April, 2020.

Originally published here.

Ameya Paleja is a molecular biologist and science blogger based in Hyderabad. Harleen and Siddhartha are researchers at NIPFP. The authors are thankful to Ajay Shah, Renuka Sane, Amrita Agarwal, Smriti Parsheera, Shubho Roy, Anand Prakash, Arjun Sinha, and three anonymous referees for their valuable comments.

Publication | Financing Common Goods for Health: A Public Administration Perspective from India

By Ajay Shah, Sanhita Sapatnekar, Harleen Kaur, and Shubho Roy

On average, higher per capita GDP is correlated with improved health outcomes. In parallel, improved population health also seems to foster higher GDP. Yet health and growth need not increase proportionately with one another, nor is this relationship universal. Patnaik highlights potential externalities resulting from growth that could negate efforts to improve population health: development itself can both increase and decrease certain health risks depending on how the process is planned, implemented, and regulated.

Over the last 35 years, India’s GDP grew annually at 6.3% (doubling every 11 years or so) but population-based health indicators did not improve proportionally. Instead, new health risks emerged while old ones remained unresolved. Decades of rapid urbanization led to unsafe buildings, unplanned cities, bad drainage and sewage, dysfunctional garbage disposal systems, polluted air and water, among other issues. For example, with the construction of roads catering to high-speed traffic, accompanied by inadequate design of road safety systems, road accident fatalities have surged since 1999.

Today, India’s disease burden is evolving into two streams. The first is the persistent poverty-related health agenda (e.g., malnutrition or high infant and maternal mortality). The second relates to growth that does not consider new health risks emerging from it (e.g,. air pollution resulting from rapid urbanization or infrastructure built on areas prone to natural disasters). In both areas, the key policy response involves population-based government-financed interventions that generate large societal health benefits, i.e., Common Goods for Health (CGH). Moving forward, CGH is therefore at the center of Indian health policy. In this commentary, we draw on India’s experience to decompose the overall CGH agenda and identify common obstacles that countries may face in financing such goods.

You can read the whole article here.