Order Code RL33159
CRS Report for Congress
Received through the CRS Web
Influenza Antiviral Drugs and Patent Law Issues
November 18, 2005
Brian T. Yeh
Legislative Attorney
American Law Division
Congressional Research Service ˜ The Library of Congress

---

Influenza Antiviral Drugs and Patent Law Issues
Summary
The potential for a worldwide influenza pandemic caused by bird flu has
heightened public interest regarding the availability and affordability of influenza
antiviral medications such as Tamiflu. As countries prepare for the possibility of a
pandemic flu outbreak, orders for Tamiflu have far exceeded the production
capacities of the Swiss pharmaceutical company Roche, Inc., that owns the exclusive
right to manufacture the patented drug. In addition, poor countries in Asia and
Africa, where any bird flu crisis could occur first, suggest that they cannot afford to
stockpile supplies of Tamiflu for treating their human populations at current prices.
This report identifies and analyzes the patent law aspects of the current avian
influenza drug situation. First, the report explains the role that patent rights have
played in affecting the availability of Tamiflu. Second, the report examines options
for increasing the drug’s production, including the possibility of governments
abrogating Roche’s patent rights by issuing compulsory licenses to other drug
companies to manufacture generic versions of Tamiflu without Roche’s consent.
Such option is available to countries under the Trade-Related Aspects of Intellectual
Property (TRIPS) Agreement, a component of the treaties that created the World
Trade Organization (WTO) in 1995. The U.S. government’s authority to declare
compulsory licenses is Section 1498(a) of Title 28 of the U.S. Code. It is contended
that such suspension of Roche’s patent rights to Tamiflu are necessary to mass
produce the drug to meet the enormous demand, but this proposition has been
challenged. Other legal mechanisms to increase the supply of, and lower the price
for, Tamiflu include voluntary licensing agreements with other pharmaceutical
companies.
This report will be updated as events warrant.

---

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Tamiflu Production Shortage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Intellectual Property Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Patent Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Patent Holder Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Tamiflu’s Patent Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Patent Law and Public Health Crises . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Legal Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
28 U.S.C. § 1498(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
TRIPS and Compulsory Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Sublicensing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

---

Influenza Antiviral Drugs and Patent Law
Issues
Background
Avian influenza, or “bird flu,” is a contagious virus that normally infects only
birds but occasionally crosses the species barrier to infect humans.1 In 1997, a
particular strain of avian influenza, the H5N1 virus, infected 18 people in Hong
Kong, killing 6 of them.2 Since mid-2003, more than 100 human H5N1 cases have
been diagnosed in Southeast Asia, causing more than 50 deaths.3 According to the
World Health Organization, of the few avian influenza viruses that have crossed the
species barrier to infect humans, the H5N1 virus has caused the largest number of
cases of severe disease and death in humans.4
The H5N1 virus is alarming because, if it mutates into a form that easily infects
many humans, it has the potential to cause a deadly “pandemic,”5 or a global disease
outbreak in humans. In the 20th century, there were three pandemics, in 1918, 1957
and 1968, that killed millions of people worldwide.6 On November 1, 2005,
President George W. Bush issued a letter to the American public in which he
described the “National Strategy for Pandemic Influenza,” the federal government’s
plan to address the potential outbreak of avian influenza. In this letter, the president
stated:
It is impossible to know whether the currently circulating H5N1 virus will cause
a human pandemic. The widespread nature of H5N1 in birds and the likelihood
of mutations over time raise our concerns that the virus will become
transmissible between humans, with potentially catastrophic consequences. If
1 For more detailed information concerning avian influenza, see CRS Report RS21747,
Avian Influenza: Agricultural Issues, by Jim Monke.
2 U.S. Department of Health & Human Services., Avian Influenza (Bird Flu), at
[http://www.pandemicflu.gov/general/avian.html].
3 Id.
4 World Health Organization, Avian Influenza Frequently Asked Questions, at
[http://www.who.int/csr/disease/avian_influenza/avian_faqs/en/index.html#present].
5 An influenza pandemic “occurs when a new influenza A virus emerges for which there is
little or no immunity in the human population, begins to cause serious illness and then
spreads easily person-to-person worldwide.” U.S. Department of Health & Human
S e r v i c e s . ,
W h a t I s A n I n f l u e n z a P a n d e m i c ? , a t
[http://www.pandemicflu.gov/general/whatis.html].
6 Gardiner Harris, Bush Offers Strategy to Prepare for a Vast Flu Epidemic, N.Y. TIMES,
Nov. 2, 2005, at A20.

---

CRS-2
this does not happen with the current H5N1 strain, history suggests that a
different influenza virus will emerge and result in the next pandemic.7
This fear of a global flu pandemic has compelled many countries to prepare for
the threat by stockpiling antiviral drugs8 and attempting to develop vaccines against
the disease.9 President Bush explained that vaccines and antiviral drugs are “the
foundation of our [influenza virus] infection control strategy.”10 The President’s plan
proposes to spend $1 billion to build a national reserve of antiviral medications such
as Tamiflu and Relenza, enough for 20 million doses.11 There are several bills
pending in the 109th Congress that directly address influenza pandemic
preparedness.12
Tamiflu Production Shortage. Oseltamivir phosphate, marketed under the
brand name Tamiflu, is an antiviral drug manufactured by the Swiss pharmaceutical
company Roche, Inc. Tamiflu is not a vaccine, but is perhaps the most efficient
antiviral treatment for influenza.13 The drug eases flu symptoms by preventing the
influenza virus from spreading inside the human body. Some research studies have
shown that Tamiflu is effective against the H5N1 avian and human virus strains.14
7 The White House, National Strategy for Pandemic Influenza, President’s Letter, at
[http://www.whitehouse.gov/homeland/pandemic-influenza.html] (hereinafter National
Strategy).
8 Antiviral drugs are used to reduce flu symptoms in persons infected with the virus, but
these drugs do not provide a cure. In addition, the mass administration of antiviral drugs to
healthy people for prophylactic purposes could hasten the bird flu virus developing a
resistance to the drugs. World Health Organization, Antivirals Drugs: Their Role During
A Pandemic (Nov. 2005), at
[http://www.who.int/csr/disease/avian_influenza/antivirals2005_11_3/en/index.html].
9 A vaccine is administered before humans are exposed to a disease and prevents initial
infection. There is no vaccine currently commercially available to protect against the
human strain of the H5N1 virus, although several are in development and clinical trials. See
Nat’l Inst. of Allergy & Infectious Diseases, Nat’l Inst. of Health,
Q u e s t i o n s a n d A n s w e r s : H 5 N 1 A v i a n F l u V a c c i n e T r i a l s , a t
[http://www3.niaid.nih.gov/news/newsreleases/2005/H5N1QandA.htm].
10 National Strategy, supra note 7. For more information concerning federal and state
government plans to cope with pandemic influenza, see CRS Report RL33145, Pandemic
Influenza: Domestic Preparedness Efforts, by Sarah A. Lister.
11 Harris, supra note 6.
12 See, e.g., S. 1912 (“Global Network for Avian Influenza Surveillance Act”), H.R. 4062
(“Pandemic Preparedness and Response Act”), S. 1880 (“National Biodefense and Pandemic
Preparedness Act of 2005”), S. 1828 (“Influenza Vaccine Security Act of 2005”).
13 Relenza, made by GlaxoSmithKline, is also an antiviral medicine, but it is more difficult
to administer compared to Tamiflu because it must be inhaled. Tamiflu is given orally in
capsule form. See Andrew Pollack, Talk of Bird Flu Pandemic Revives Interest in
Passed-Over Drugs, N.Y. TIMES, Oct. 7, 2005, at C1.
14 Roche, Inc., Factsheet Tamiflu, at 2, at [http://www.roche.com/med_mbfstamiflu.pdf]
(hereinafter Factsheet Tamiflu).

---

CRS-3
However, it is unknown how well Tamiflu would work to control a pandemic.15
Also, the drug must be ingested within 48 hours of the onset of flu symptoms for
maximum efficacy.16 This requirement raises concerns about the utility of Tamiflu,
since it is often difficult for patients to realize within such a short time whether their
symptoms are caused by the flu or the common cold.17 In addition, since Tamiflu has
a shelf life of five years,18 a pandemic may not strike during that time period, raising
the possibility that stockpiles of the medicine may go unused and become useless.
As the exclusive manufacturer of Tamiflu, Roche has had difficulty meeting the
strong demand for the patented drug.19 According to the company, manufacturing the
drug is complicated, involving ten main steps, and takes a long time, from six to
eight months to produce a capsule of Tamiflu once all the raw materials have been
sourced.20 The World Health Organization has estimated that, at Roche’s present
manufacturing capacity, “it will take a decade to produce enough oseltamivir
[Tamiflu] to treat 20% of the world’s population.”21
The Tamiflu production shortage has prompted both international and domestic
pressures on Roche to ease its patent monopoly and permit other companies to
manufacture generic versions of the drug.22 Such action would likely help to increase
supplies of the flu treatment to meet the backlog of orders, as well as make the drug
more affordable. Companies in India and Taiwan have already successfully
reproduced Tamiflu in small quantities in a laboratory environment, although Roche
argues that it is much more difficult and time-consuming to mass produce the drug.23
One of the challenges of producing large quantities of Tamiflu is obtaining enough
15 Some strains of avian influenza virus have developed a resistance to Tamiflu. However,
scientists speculate that a Tamiflu-resistant virus would not be transmissible from person
to person, and that in any event, resistant strains would not be the ones spreading in a
pandemic. David Brown, Bird Flu Virus That Is Drug-Resistant Is Found in Vietnamese
Girl, WASH. POST, Oct. 15, 2005, at A09.
16 Factsheet Tamiflu, supra note 14, at 1.
17 See Elisabeth Rosenthal, Better Planning Is Needed for Flu Drugs, Experts Say, N.Y.
TIMES, Oct. 19, 2005, A8.
18 Roche, Inc., Roche Prepared to Work With Government To Supply Tamiflu, at
[http://www.rocheusa.com/newsroom/current/2005/pr2005110102.html].
19 See Andrew Pollack, Governments Pressing Roche For More of Its Flu Medicine, N.Y.
Times, Oct. 20, 2005, at C7. Sales of the once-obscure Tamiflu drug have increased from
$76 million in 2001 to approximately $1.1 billion in 2005. Erica Bulman, Tamiflu Patent:
Two-Edged Sword, SAN JOSE MERCURY NEWS, Nov. 12, 2005, at B1.
20 Factsheet Tamiflu, supra note 14, at 2.
21 World Health Organization, Antivirals Drugs: Their Role During a Pandemic (Nov.
2005),
at [http://www.who.int/csr/disease/avian_influenza/antivirals2005_11_3/en/index.html].
22 See Donald G. McNeil, Jr., Indian Company to Make Generic Version of Flu Drug
Tamiflu, N.Y. TIMES, Oct. 14, 2005, at A3.
23 Nicholas Zamiska, Generics Challenge Roche’s Tamiflu Claims, WALL ST. J., Nov. 3,
2005, at B1.

---

CRS-4
supplies of its key active ingredient, shikimic acid, extracted from the pods of a
Chinese cooking spice called star anise.24 However, there may not be enough star
anise in China or elsewhere to produce Tamiflu on a massive scale.25 To address this
supply shortage, Roche has begun experimenting with a fermentation process using
genetically altered E. coli bacteria to make the shikimic acid.26 Some scientists are
confident that the fermentation process will prove to be more effective in producing
the acid than processing star anise.27

Intellectual Property Issues
Patent Policy. One of the primary purposes for United States patent law is
to provide individuals and institutions with economic incentives to engage in
research and development that lead to new products or processes. By granting
inventors with a limited monopoly28 over the use of their discoveries, patent holders
will be able to receive a return on investment from their creations. Without patent
protection, competitors could “free ride” on the inventor’s research and development
efforts and easily duplicate or otherwise practice the new inventions without having
incurred the costs to develop them.29
Patent Holder Rights. A patent holder has the right to exclude others from
making, using, selling, offering to sell, and importing the protected invention.30
Whoever performs any one of these five acts during the term of the invention’s
patent, without authorization of the patent holder, is liable for infringement. Since
the Patent Act expressly states that “patents shall have the attributes of personal
property,”31 owners may sell their patent rights in a legal transfer called an
“assignment.”32 Alternatively, owners may grant others a “license” to exercise one
of the five statutory patent rights A license is not a transfer of ownership of the
patent, but rather is the patent owner’s permission to another entity to use the
invention in a limited way, typically in exchange for periodic royalty payments
during the term of the patent.33
24 Andrew Pollack, Is Bird Flu Drug Really So Vexing? Debating the Difficulty of Tamiflu,
N.Y. TIMES, Nov. 5, 2005, at C3.
25 Id.
26 Sabin Russell, Manufacturers Crank Out Tamiflu At a Fever Pitch, S.F. CHRON., Nov. 10,
2005, at A4.
27 Id.
28 This time period is generally twenty years from the date of filing the patent application
for most inventions. 35 U.S.C. § 154.
29 ROGER SCHECHTER & JOHN THOMAS, PRINCIPLES OF PATENT LAW 9-13 (2d ed. 2004).
30 35 U.S.C. § 271(a).
31 35 U.S.C. § 261.
32 SCHECHTER & THOMAS, supra note 29, at 362.
33 Id. at 363-64 (citations omitted).

---

CRS-5
Tamiflu’s Patent Dispute. Scientists working for a California biotech
company, Gilead Sciences, Inc., invented Tamiflu in 1996. To help develop the drug
for U.S. Food and Drug Administration approval34 and its subsequent marketing and
production, Gilead licensed all its commercial and manufacturing rights to Roche in
exchange for a $50 million license fee35 and royalty payments during the life of the
drug’s patent.36 Tamiflu is patent protected until 2016.37
In June 2005, Gilead notified Roche that it was terminating the 1996 license
agreement pursuant to a clause that provides for contract cancellation due to a
“material breach” of its terms. This termination would result in a reversion of
Tamiflu’s manufacturing and commercial rights back to Gilead.38 Gilead claimed
that Roche for many years has failed to use “best efforts” to manufacture and
promote the drug, and is $18 million behind in royalty payments.39 The agreement
mandates an arbitration process to resolve the dispute. On November 16, 2005, the
companies announced that they had reached an amicable settlement, which amends
the earlier agreement.40 Under the terms of the settlement, Roche will reimburse
Gilead $62.5 million in retroactive cost of goods adjustments, and Gilead will retain
the $18.2 million that Roche had paid under protest concerning royalties owed from
2001 to 2003. However, Gilead’s share of the royalties on net sales of Tamiflu will
remain unchanged, ranging from 14 to 22 percent depending on the volume of sales
per year. Roche and Gilead will also establish joint committees to oversee the
coordination of global manufacturing and commercialization, issuing third-party
licenses to generic drug makers, and pandemic planning.41
Patent Law and Public Health Crises. Prior to the influenza pandemic
threat, two other public health crises raised patent law issues: concerns over the
supply of Cipro, a drug patented by the German firm Bayer, during the anthrax
bioterrorism scare in late 2001;42 and access to affordable medication for developing
34 For more information concerning the FDA drug approval process, see CRS Report
RL30989, The U.S. Drug Approval Process: A Primer, by Blanchard Randall IV.
35 Sabin Russell, Biotech Firm Wants To Regain Control of Avian Flu Drug; Gilead Says
Deal with Roche Inc. Threatens Tamiflu’s Production, S.F. CHRON., Jun. 24, 2005, at A9.
36 Nelson D. Schwartz, The Tamiflu Tug of War, FORTUNE, Nov. 14, 2005, at 33.
37 Factsheet Tamiflu, supra note 14, at 1.
38 Gilead Sciences, Inc., Press Release: Gilead Delivers Termination Notice to Roche for
Tamiflu Development and Licensing Agreement, June 23, 2005, at
[http://www.gilead.com/wt/sec/pr_723430].
39 Id.
40 Roche, Inc., Press Release: Roche and Gilead End Dispute on Influenza Drug Tamiflu,
Nov. 16, 2005, at [http://www.roche.com/med-cor-2005-11-16].
41 Id.
42 In October 2001, anthrax was sent through the U.S. mail to some members of Congress
and members of the media. For more information concerning the Cipro incident and the
intersection of homeland security and intellectual property law, see CRS Report RL32051,
Innovation and Intellectual Property Issues in Homeland Security, by John R. Thomas.

---

CRS-6
countries in the 1990s to fight the HIV/AIDS epidemic in their populations.43 Some
commentators had argued for “overriding” the patent rights of the drug manufacturers
in those cases, in order to allow for generic suppliers to enter the market.44
Those same arguments are being made in the case of Tamiflu. In early October
2005, Roche repeatedly refused to license a generic version of Tamiflu.45 The
company cited the complex, time-consuming, and potentially explosive drug
manufacturing process, as the reason for retaining its exclusive rights to produce
Tamiflu: “No one can do it faster. Our assumption is that it would take a generic
company about three years to gear up. Therefore, it does not make sense to
out-license manufacturing.”46
This corporate position prompted criticism from domestic and international
government leaders. United Nations Secretary-General Kofi Annan argued that
intellectual property laws should not prevent developing countries from obtaining
supplies of Tamiflu and similar antiviral influenza medication in emergency health
situations.47 Senator Charles Schumer also had suggested that Congress might
consider a “temporary suspension” of the Tamiflu patent if Roche did not agree to
license the drug’s production to other companies.48 Other Members of Congress
expressed similar desire to abrogate Roche’s patent rights in the interest of public
health.49
Under such pressure, Roche softened its stance and agreed to discuss
sublicensing arrangements with countries and companies interested in producing
43 For more information regarding the issue of access to affordable medicines for developing
countries, see CRS Report RS21609, The WTO, Intellectual Property Rights, and the Access
to Medicines Controversy, by Ian F. Fergusson, and CRS Report RL31066, HIV/AIDS
Drugs, Patents and the TRIPS Agreement: Issues and Options, by John R. Thomas.
44 See generally, James Love, A Better Way of Stockpiling Emergency Medicines, FINANCIAL
TIMES (London), Oct. 28, 2005, at 17.
45 A Roche spokesperson had stated, “Roche ... fully intends to remain the sole manufacturer
of Tamiflu.” See Sabin Russell, Flu Vaccine Maker Won’t Share Patent; Roche Rejects
Calls To Allow Production of Generic Versions, S.F. CHRON., Oct. 13, 2005, at A1.
46 Keith Bradsher, Pressure Rises on Producer of a Flu Drug, N.Y. TIMES, Oct. 11, 2005,
at C1.
47 Id.
48 See Press Release from U.S. Senator Charles E. Schumer, “As Avian Flu Closes In On
U.S., Schumer Calls for Immediate Action: Demands Suspension of Tamiflu Patent So
Vaccine Can Be Mass-Produced, Dramatically Increasing Supply,” available at
[http://schumer.senate.gov/SchumerWebsite/pressroom/press_releases/2005/PR41891.N
YC%20Avian%20Flu.10.16.05.html]
49 See Letter from U.S. Representative Dennis J. Kucinich, et al., to Dep’t of Health &
Human Services Secretary Michael Leavitt (Oct. 26, 2005), available at
[http://kucinich.house.gov/UploadedFiles/Kucinich%20anti%20viral%20comp%20licens
e%20request.pdf].

---

CRS-7
generic versions of Tamiflu.50 However, Roche has cautioned that sublicenses will
only be issued to third parties that “can realistically produce substantial amounts of
the medicine for emergency pandemic use, in accordance with appropriate quality
specifications, safety and regulatory guidelines.”51

Legal Options
The primary legal mechanisms to accomplish permissible encroachment upon
a privately owned patent include (1) compulsory licenses under a government’s
statutory authority to issue them; (2) compulsory licenses pursuant to an international
treaty that grants this right; and (3) voluntary licensing agreements negotiated
between the patent owner and third parties. This report addresses each of these
options in turn.
28 U.S.C. § 1498(a). In the United States, the Takings Clause of the Fifth
Amendment to the U.S. Constitution authorizes the federal government to take
private property for public use.52 Such eminent domain power over intellectual
property is explicitly provided by statute, codified at 28 U.S.C. § 1498(a). This law
empowers the federal government to take the intellectual property of a private entity,
subject to reasonable compensation being paid to the patent holder. Section 1498(a)
provides in part:
Whenever an invention described in and covered by a patent of the United States
is used or manufactured by or for the United States without license of the owner
thereof or lawful right to use or manufacture the same, the owner’s remedy shall
be by action against the United States in the United States Court of Federal
Claims for the recovery of his reasonable and entire compensation for such use
and manufacture.
By exercising this statutory authority, the federal government declares a
“compulsory license” that allows third-party use of a patented invention without the
authorization of the patent holder. If a compulsory license was issued in the case of
Tamiflu, the patent holder may not enjoin generic manufacturers from producing the
drug and selling it to the government for its stockpiles. The only legal remedy
available to Roche would be the right to bring suit in the U.S. Court of Federal
Claims to recover “reasonable and entire compensation” from the federal
government.
The pharmaceutical industry warns that imposing compulsory licenses on avian
flu drugs pursuant to § 1498(a) would “take away incentives for other companies to
undertake the difficult and costly work of searching for new antivirals and vaccines
50 Mark Kaufman, Swiss Firm May Cede Bird Flu Drug Rights, WASH. POST., Oct. 19, 2005,
at A13.
51 Factsheet Tamiflu, supra note 14, at 3.
52 For more information concerning eminent domain, see CRS Report 97-122, Takings
Decisions of the U.S. Supreme Court: A Chronology, by Robert Meltz.

---

CRS-8
for this possible health crisis.”53 Since drug products are time-consuming and
expensive to develop but relatively easy to copy, the pharmaceutical industry is
particularly dependent upon the patent system. Opponents of compulsory licensing
argue that patent protection permits drug companies to benefit from their investment
in research and development, and encourages them to continue to engage in such
efforts. Some observers assert that “[b]reaking the patent through a compulsory
license would actively discourage Roche from either producing the drug or lending
its expertise, which would be directly counterproductive.”54
On the other hand, some maintain that if Roche remains the sole manufacturer
of Tamiflu, it may not be able to produce enough of the drug to satisfy the emergency
need for it. From this perspective, if Roche refuses to issue voluntary licenses for
generic drug companies to manufacture Tamiflu, a compulsory license may help to
increase the drug’s production. At a congressional hearing on November 4, 2005,
Department of Health & Human Services Secretary Michael Leavitt stated that he did
not intend to issue a compulsory license for Tamiflu, since he was concerned that
“violating” the patent would remove incentives for future drug research and
development.55 In another congressional hearing several days later, Secretary Leavitt
stated that a compulsory license would probably not be needed in light of Roche’s
clear intent “not to let intellectual property issues to become a barrier” to generic
manufacturing of Tamiflu, and Roche’s demonstrated willingness to work with other
companies to produce the drug.56
TRIPS and Compulsory Licenses. The Agreement on Trade-Related
Aspects of Intellectual Property Rights (“TRIPS Agreement”) is an international
agreement on intellectual property that is one component of the treaties that created
the World Trade Organization (WTO) in 1995. The TRIPS Agreement establishes
minimum standards of protection for patents, copyrights, trademarks, and trade
secrets that each WTO signatory state must give to the intellectual property of fellow
WTO members.57 Compliance with TRIPS is a prerequisite for WTO membership.

Article 31 of the TRIPS Agreement addresses the right of WTO member states
to award compulsory licenses. This article specifies a number of procedural and
substantive conditions for issuing compulsory licenses, including the following:58
53 Keith Bradsher, Pressure Rises on Producer of a Flu Drug, N.Y. TIMES, Oct. 11, 2005,
at C1.
54 Alec Van Gelder, Patent Nonsense on Avian Flu, BOSTON GLOBE, Oct. 31, 2005, at A11.
55 The National Pandemic Influenza Preparedness and Response Plan - Is the U.S. Ready
for Avian Flu?: Hearings Before the House Comm. on Gov’t Reform, 109th Cong., 1st Sess.
(Nov. 4, 2005) (testimony of Secretary Leavitt).
56 Assessing the National Pandemic Flu Preparedness Plan: Hearings Before the House
Comm. on Energy and Commerce, 109th Cong., 1st Sess. (Nov. 8, 2005) (testimony of
Secretary Leavitt).
57 World Trade Organization, Understanding the WTO - Intellectual Property: Protection
and Enforcement, at [http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm].
58 Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, art.
(continued...)

---

CRS-9
! Domestic law must permit compulsory licenses to be granted.
! Manufacturing of a patented invention under a compulsory license
shall be predominantly for the supply of the domestic market of the
WTO member state authorizing such use.
! Authorization for such use must be terminated if and when the
compulsory license’s motivating circumstances cease to exist and
are unlikely to recur.
! The patent owner must be paid adequate remuneration in the
circumstances of each case, taking into account the economic value
of the authorization.
! Under normal circumstances, the proposed user must have tried to
obtain permission from the patent holder on reasonable commercial
terms and conditions. If these efforts fail to obtain a voluntary
license, the government may issue a compulsory license.
Notably, Article 31 does not discuss the circumstances under which compulsory
licenses would be justified.59 However, for “national emergencies” and “other
circumstances of extreme urgency,” Article 31 provides that a compulsory license
may issue without the proposed user having to first make an effort to obtain a
voluntary license from the patent holder.60 This time-saving, “national emergency”
provision in TRIPS was clarified by the WTO in November 2001 and again in
August 2003. The November 14, 2001 “Declaration on the TRIPS Agreement and
Public Health” (Doha Declaration) affirms that the TRIPS Agreement “can and
should be interpreted and implemented in a manner supportive of WTO Members’
right to protect public health and, in particular, to promote access to medicines for
all.”61 In addition, the Doha Declaration explains that each WTO member state “has
the right to determine what constitutes a national emergency or other circumstances
of extreme urgency, it being understood that public health crises, including those
relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a
national emergency or other circumstances of extreme urgency.”62
Confronted with these public health emergencies, WTO members with
insufficient or no manufacturing capacities in the pharmaceutical sector may be
unable to make effective use of compulsory licensing under the TRIPS Agreement.63
The WTO’s proposed solution to this problem was announced on August 30, 2003,
58 (...continued)
31, 33 I.L.M. 1197, 1209-10 (1994).
59 See World Trade Organization, Declaration on the TRIPS Agreement and Public Health,
para. 5b, WT/MIN(01)/DEC/2 (adopted Nov. 20, 2001), available at
[http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm] (“Each
member has the right to grant compulsory licences and the freedom to determine the grounds
upon which such licences are granted.”).
60 World Trade Organization, Compulsory Licensing of Pharmaceuticals and TRIPS, at
[http://www.wto.org/english/tratop_e/trips_e/public_health_faq_e.htm].
61 Id. at para. 4.
62 Id., at para. 5c.
63 Id., at para. 6.

---

CRS-10
when the WTO General Council issued a decision that allows member states,
meeting certain strict conditions, to import generic versions of drugs produced under
compulsory licenses issued by other countries. Specifically, this “Paragraph 6
Agreement” permits a waiver of Article 31(f) of the TRIPS Agreement, which
specifies that compulsory licenses are to be used predominantly for the supply of the
domestic market.64 Thus, countries that produce generic drugs under a compulsory
license may export them to other WTO members that are unable to manufacture the
medicine to meet their urgent needs.
As many nations attempt to stockpile antiviral drugs to prepare for the possible
bird flu pandemic, the TRIPS “national emergency” provision for compulsory
licenses has garnered public interest as a possible way to increase the production and
supply of Tamiflu.65 However, at the time of the Paragraph 6 Agreement, the United
States and 22 other developed countries decided to “opt-out” of using the compulsory
license system as importers, under any and all circumstances.66 Some observers have
speculated that the reason for this decision is to discourage compulsory licensing and
put pressure on developing countries not to use it.67 Yet this opt-out may now
effectively prevent developed countries from importing generic versions of Tamiflu
made by companies in countries such as India and Israel.68 With Roche’s production
capacity limitations affecting the ability of countries to procure enough Tamiflu to
treat their populations, the decision to opt-out has become the focus of increased
criticism and appeal for change.69 However, in a congressional hearing on November
8, 2005, Department of Health & Human Services Secretary Michael Leavitt
downplayed the consequences of the opt-out decision, arguing that in a global
pandemic situation, each country will likely only have access to what it produces
domestically, as countries will want to keep domestically-produced flu drugs inside
their own borders.70
64 World Trade Organization, Implementation of Paragraph 6 of the Doha Declaration on
the TRIPS Agreement and Public Health, WT/L/540 (Aug. 30, 2003), available at
[http://www.wto.org/english/tratop_e/trips_e/implem_para6_e.htm].
65 Groups Want WTO Rules Eased Over WTO, Associated Press, Oct. 25, 2005, available
at [http://www.forbes.com/home/feeds/ap/2005/10/25/ap2298080.html].
66 Statement of General Council Chairperson, WT/GC/M/82 (Nov. 13, 2003), (excerpt from
the minutes of the General Council meeting of Aug. 30, 2003), available at
[http://www.wto.org/english/tratop_e/trips_e/gc_stat_30aug03_e.htm].
67 James Love, What Bush Did Not Explain About Bird Flu, Nov. 1, 2005, available at
[http://www.huffingtonpost.com/james-love/what-bush-did-not-explain_b_9968.html].
68 See Letter from James Love to U.S. Trade Representative Rob Portman (Oct. 14, 2005),
available at [http://www.cptech.org/ip/birdflu/ustr-birdflu.html].
69 Id.; see also Statement of Consumers International to TRIPS Council (Oct. 25, 2005),
available at
[http://www.consumersinternational.org/shared_asp_files/uploadedfiles/EC5FF641-1FF9
-4F8F-AF7C-AE669EF7242A_TRIPSCouncilstatement1.doc].
70 Assessing the National Pandemic Flu Preparedness Plan: Hearings Before the House
Comm. on Energy and Commerce, 109th Cong., 1st Sess. (Nov. 8, 2005) (testimony of
Secretary Leavitt).

---

CRS-11
Sublicensing Agreements. If Tamiflu was subject to a compulsory license,
Roche would still be entitled to receive three to five percent royalties. However,
Roche would have no ability to control the sale price of the drug, and a cheaper
generic version would mean smaller royalty payments.71 Roche thus prefers an
alternative to the use of compulsory licensing, which are sublicensing agreements
voluntarily negotiated by the company with third-parties of its choosing.72 Roche has
selected 8 drug manufacturers out of 150 interested companies, with which it plans
to hold sublicensing discussions by the end of November 2005.73
Sublicensing agreements are contracts that permit other companies to
manufacture and market generic versions of Tamiflu, in exchange for the companies
paying licensing fees to Roche and agreeing to certain conditions. For example, the
agreements may restrict the sale of generic Tamiflu to emergency government
stockpiles, prevent re-exports of the drug, and time-limit the sublicense.74 An
advantage of a sublicensing scheme is that generic companies can seek and obtain
Roche’s manufacturing expertise to ensure quality production.75 In addition,
sublicensing allows for coordination of obtaining the active ingredient in the antiviral
drug, shikimic acid.76 However, some critics have asserted that these voluntary
sublicensing agreements might only help rich countries to stockpile Tamiflu, and do
little to improve the treatment’s availability for poorer countries.77 They maintain
that under such agreements, Roche would likely still retain the right to control pricing
and could reap large profits on generic Tamiflu.
Conclusion
Should the H5N1 virus, or some other avian influenza strain, cause a human
pandemic, antiviral drugs, in the absence of a vaccine, will likely play a critical role
to help prevent infection78 and to relieve the flu symptoms of those infected.
However, the exclusive manufacturer of Tamiflu, the most effective influenza
71 Erica Bulman, Tamiflu Patent: Two-Edged Sword, SAN JOSE MERCURY NEWS, Nov. 12,
2005, at B1.
72 Factsheet Tamiflu, supra note 14, at 3 (stating that Roche is willing to “negotiate with any
partner about granting a license [for Tamiflu] at equitable conditions. ... Selection criteria
are quality, technical ability, capacity and the speed of bringing that capacity on stream.”).
73 Russell, supra note 26.
74 James Kanter, Roche Offers To Negotiate on Flu Drug, N.Y. TIMES, Oct. 19, 2005, at C1.
75 A Patent Solution: Bird Flu Revives the Trickiest Questions in Intellectual Property,
FINANCIAL TIMES (London), Oct. 21, 2005, at 18.
76 See discussion of shikimic acid, supra page 4.
77 Brook K. Baker, Roche’s Secret, Sub-Licenses for Tamiflu Will Not Bring Poor People
in From the Cold, available at [http://www.health-now.org/site/article.php?menuId=12
&articleId=504].
78 For individuals at severe risk of infection, antiviral drugs may be used for protective
purposes (called prophylaxis of influenza) by administering the medication for at least seven
days during a community outbreak of influenza.
See [http://www.tamiflu.com/hcp/prophylaxis/prophy_index.asp].

---

CRS-12
antiviral drug, is struggling to meet the high demand from countries seeking to build
drug stockpiles in preparation for a pandemic. The Tamiflu supply shortage has
sparked public debate concerning the practicality and morality of protecting
intellectual property rights during a possible health crisis, which can directly affect
the availability and affordability of medicine for populations in dire need of it.
Voluntary licenses between Roche and generic drug manufacturers could help to
increase production of Tamiflu to satisfy global demand. Compulsory licenses are
also a possibility if Roche’s sublicensing efforts fail to adequately expand
production, or if poorer countries determine they cannot afford Roche’s licensing
fees.79
79 Kanter, supra note 74.

---