By Jorge L. Contreras
On May 5, 2021, U.S. Trade Representative Katherine Tai announced that the U.S. would support a “waiver of IP protections on COVID-19 vaccines to help end the pandemic” currently being discussed at the World Trade Organization (WTO). This announcement, representing a reversal of longstanding U.S. policy toward intellectual property, came as a welcome surprise to much of the world, but elicited strong negative responses from the pharmaceutical industry as stock prices of leading vaccine producers sank.
In the short time since the announcement was made, there has been a fair amount of speculation, hyperbole, and misinformation on the topic. In this post, I offer an explanation of what just happened, and my guess as to what its likely effects will be, bearing in mind that the situation is fast-moving and somewhat unpredictable.
What is the World Trade Organization (WTO)?
The WTO is a non-governmental forum for the resolution of international trade disputes. It is not part of the United Nations, but its 164 members include most developed countries. A number of international agreements (treaties) have been enacted under the auspices of the WTO, including the TRIPS Agreement (discussed below). If a country believes that another country has violated a WTO agreement, it may bring a claim to the WTO, which will resolve the dispute. The WTO has no authority to enforce its judgments or decisions within a country — this is left to the member countries themselves.
What is the TRIPS Agreement?
The Trade Related Aspects of Intellectual Property (TRIPS) Agreement was negotiated as part of the Uruguay Round of the WTO’s General Agreement on Tariffs and Trade (GATT) and came into effect in 1995. It requires WTO member countries to enact laws protecting various forms of intellectual property including patents, copyrights, and trade secrets, and to impose minimum levels of protection for these rights (e.g., a 20-year term for patents).
What is compulsory licensing of IP?
Compulsory licensing occurs when a country that has issued an IP right, such as a patent, authorizes someone to operate under that patent without the permission of the owner. For example, the government of India could issue a compulsory license for a drug developed in the U.S. and patented in India. Note that a country’s compulsory license only applies to patents and activity in that country.
Is compulsory licensing of patents permitted under TRIPS?
Yes. Though TRIPS requires that countries protect patents and other forms of IP, Article 31 allows countries to issue compulsory licenses to ensure the domestic supply of a patented product, provided that the patent owner is paid “adequate remuneration.” In 2001, a group of countries adopted the supplemental “Doha Declaration” that permits countries to grant compulsory licenses to export pharmaceutical products to meet public health needs (e.g., Canada could authorize companies to manufacture drugs in Canada for export to South Africa without the permission of the Canadian patent holder). Over the years, a handful of countries have issued compulsory patent licenses using TRIPS flexibilities to increase local supplies of drugs for HIV/AIDS, cancer, and heart disease.
Have compulsory licenses been issued in connection with COVID-19?
Yes. Beginning in March 2020, a number of countries including Chile, Ecuador, Canada, Germany, and Israel enacted, or seriously considered, compulsory licensing and access measures to address the emerging COVID-19 pandemic. Indonesia and Brazil have more recently taken such measures. To my knowledge, none of these measures has yet resulted in significant production of a patented product, and no country has lodged a formal complaint with the WTO or otherwise imposed sanctions against such countries for doing so.
THE PROPOSED WTO IP WAIVER
What is the proposed WTO IP waiver?
In October 2020, the governments of South Africa and India requested that the WTO issue a waiver providing that countries would not be deemed to violate TRIPS by suspending, in their countries, the enforcement of patents, copyrights, industrial designs, and trade secrets “in relation to prevention, containment or treatment of COVID-19.” In effect, if enacted, the waiver would prevent countries from bringing trade-related challenges at the WTO against countries that grant compulsory licenses in response to COVID-19.
Does the WTO IP waiver go beyond existing TRIPS compulsory licensing provisions?
Yes. Other than some unrelated copyright provisions, TRIPS authorizes compulsory licensing only for patents and only for domestic use (i.e., in the country issuing the compulsory license). The WTO IP waiver would expand this scope significantly by authorizing compulsory licensing of copyrights, industrial designs, and trade secrets for any use relating to COVID-19.
When will this waiver become effective?
In order to become effective, the waiver must be approved by the General Council of the WTO, which meets periodically in Geneva and typically reaches agreement by consensus of the members. As of the General Council’s meeting of May 6, 2021, it appears that South Africa and India are revising their waiver proposal for further discussion.
U.S. SUPPORT FOR THE WAIVER
Who is the U.S. Trade Representative (USTR)?
The Office of the U.S. Trade Representative is part of the Executive Office of the President. It is responsible for developing and coordinating U.S. international trade policy and overseeing trade negotiations with other countries — authority that somewhat parallels that of the Department of State on matters of international political relations. The U.S. Trade Representative (USTR) is a Cabinet-level official who leads this Office and serves as the president’s principal trade advisor. Katherine Tai was appointed as USTR on March 18, 2021.
Does the USTR have authority over U.S. patents?
No. Patents are issued by the U.S. Patent and Trademark Office (PTO), which is part of the Department of Commerce, which has not expressed public support for the proposed IP waiver. While the USTR lacks authority over U.S. patents, it develops U.S. policy in the area of international trade, and strongly influences whether or not the U.S. charges other countries with violations of international treaties at organizations like the WTO or otherwise imposes trade sanctions on them.
What does U.S. support for the WTO IP waiver mean?
The USTR’s statement suggests that the U.S. will negotiate at the WTO for a broadly acceptable waiver and probably support approval of the IP waiver at the WTO General Council. Since the USTR’s announcement on May 5, a number of other Western countries have expressed public support for the waiver, though some, including Germany, have opposed it (which is unexpected, given Germany’s early consideration of compulsory licensing measures for COVID-19 technology).
Why is U.S. support of the WTO IP waiver notable?
Since at least the Reagan Administration, the United States has adopted a relatively hardline stance regarding IP in international fora and has opposed, through the WTO, trade sanctions and otherwise compulsory licensing measures adopted by other countries (see, for example, the USTR’s 2020 report, which was highly critical of compulsory licensing measures in several countries). The recent USTR announcement in support of the WTO IP waiver thus comes as a surprise and a reversal of four decades of U.S. international IP policy.
IMPLICATIONS OF THE WAIVER
What IP is needed to manufacture and distribute vaccines worldwide?
A lot has been written about the IP embodied in vaccines for COVID-19 (see good summaries here, here and here). To oversimplify grossly, there are two types of necessary IP: patents, which are publicly disclosed but can’t be used without a license, and manufacturing know-how: processes and techniques that are maintained as “trade secrets” by their owners.
In some fields, simply having licenses to the necessary patents is enough to begin manufacturing a product and selling it. Often, patents covering the same end product are owned by different companies — the latest 5G wireless telecommunications technology, for example, is covered by patents held by more than a hundred different companies (a so-called patent “thicket”). While biotech inventions are often covered by far fewer patents than electronic devices, they still often require licenses from multiple patent owners, and the failure to obtain just one can block the production of a product. This may be why, despite the fact that Moderna publicly pledged not to assert its mRNA vaccine patents back in October 2020, nobody has yet reproduced the Moderna vaccine for commercial distribution. A broad compulsory license of patents in a country would eliminate the need for multiple bilateral licensing negotiations, speeding up time to market and allowing compensation determinations to follow after products are distributed (a so-called “liability rule” solution, which has previously been proposed in this context).
In addition, vaccines are complex and finnicky, so patents alone generally aren’t sufficient to enable a producer to reproduce another company’s product (as discussed here). Trade secrets are needed as well. When companies collaborate, they often license patents plus associated trade secrets to their collaborators, and offer technical assistance, training, documentation, and materials to help them implement whatever manufacturing processes are necessary. But without voluntary collaboration, it is difficult to “force” a company to give up its trade secrets.
And, for the sake of completeness, we should also remember that a lot of resources beyond IP are needed to manufacture and distribute a safe and effective vaccine, including specialized manufacturing facilities, biological materials, a supply chain and infrastructure, safety testing, and a number of regulatory approvals.
Of course, none of these IP rights or other resources are absolutely essential to develop, manufacture, and produce a COVID-19 vaccine — demonstrated by the fact that a half dozen different companies around the world have independently developed their own vaccines using a remarkable array of technologies. Other companies in other countries could do so, too. But when the issue is the need for large quantities of vaccine doses around the world, speed is of the essence.
What effect will the proposed WTO IP waiver have on compulsory licensing of patents?
If the waiver is approved, countries will have significant flexibility to issue compulsory licenses to manufacture, sell, and administer vaccines and other patented products in their countries, and to export these to other countries. But, as discussed above, compulsory licensing of patents to address public health issues is already authorized under TRIPS and the Doha Declaration, and in March 2020 a handful of countries enacted compulsory licensing measures to address COVID-19.
It is not clear that the proposed WTO waiver provides additional incentives for countries to issue compulsory licenses of patents. Rather, the main benefit of the waiver could be in the area of non-patent IP (see below).
What about trade secrets?
As noted above, complex manufacturing, storage and testing processes — generally held as trade secrets — are critical to the manufacture of vaccines. And, unlike patents, there is no mechanism for compulsory licensing of trade secrets under TRIPS.
The proposed WTO IP waiver is significant because it includes trade secrets. Thus, under the waiver’s original language, a country that wished to suspend trade secret protection for COVID-19 technology could do so without violating the TRIPS Agreement. Such a country could also, presumably, mandate that foreign companies operating in the country disclose their proprietary manufacturing, storage, and testing information to local producers under a compulsory license.
The details of this disclosure requirement, and any compensation payable to the originator of the information, would need to be worked out in whatever waiver is eventually adopted by the WTO, but the prospect for a mandatory trade secret transfer — something that would be unprecedented in the international arena — is worth watching carefully. As reported by Intellectual Asset Management on May 4, 2021, the Brazilian Congress is currently considering legislation that would nullify the patents of any company that fails to disclose know-how and data related to a compulsory COVID-19 patent license. It will also be interesting to see whether the United States stands behind such a requirement, which goes far beyond the compulsory licensing of patents.
Will the U.S. require companies to share their know-how with others?
As noted above, under the waiver, a country could impose a trade secret disclosure requirement on companies operating within its jurisdiction. But that requirement would have little effect on U.S. vaccine producers who do not, themselves, have material operations overseas. Only the U.S. government could require a U.S.-based company to disclose its trade secrets. Would the U.S. impose such a requirement? This is not known, but I think it’s unlikely. It is one thing for the U.S. to agree not to challenge other countries’ compulsory licensing regimes as violations of TRIPS, but a very different thing for the U.S. to issue a compulsory licensing order of its own, particularly in the area of trade secrets, where it would be met with significant internal opposition.
A note about copyrights
Copyrights are also within the proposed scope of the WTO waiver, which would potentially enable broader use of software algorithms used in vaccine production and make otherwise protected scientific publications broadly available to the research community, as described in this statement in support of the waiver.
Will the U.S. waive IP protection for COVID-19 vaccines in the U.S.?
Almost certainly not. As noted above, the WTO waiver only provides that a country won’t be in violation of TRIPS if it issues compulsory licenses for COVID-related IP. But it does not commit any country to grant compulsory licenses or otherwise suspend its IP laws, and it seems unlikely that the U.S. will suspend rights under U.S. patents or other IP rights.
How will the waiver affect voluntary pledges and collaboration?
Since the early days of the pandemic, a number of companies and institutions have voluntarily pledged their IP to the COVID-19 response, both unilaterally and under open frameworks such as the Open COVID Pledge. In some cases, these pledges may have been prompted by the threat of governmental compulsory licensing or other action, as with AbbVie’s pledge of patents covering its drug Kaletra, Moderna’s pledge of its mRNA vaccine patents, and Gilead’s royalty-free licensing of its Remdesivir patents to five generics manufacturers.
It is possible that the enhanced prospect of governmental action around the globe, enabled by the WTO IP waiver, will encourage more companies to make their IP, including trade secrets, available to others in order to alleviate the most pressing supply shortages. Despite the potential force of a compulsory trade secret disclosure regime, a case can be made that knowledge transfer is more effectively achieved through voluntary mechanisms than governmental compulsion.
Will the WTO IP waiver have an effect on innovation?
It’s doubtful. Opponents of the waiver argue that “giving away” IP rights will eliminate incentives for drug companies and others to develop new technologies. One overheated editorial in the Wall Street Journal poses the question, “Biden’s Vaccine Patent Theft: Who will invest in future therapies when the White House helps other governments steal?”
I find these critiques unpersuasive. The companies that have developed new vaccine technologies in response to COVID-19 have been handsomely rewarded through multi-billion dollar procurement contracts with the U.S. and foreign governments. It seems probable that these companies have recouped their R&D costs many times over, and will continue to see substantial returns on their investments (some of which were supplemented with Federal research funding). As a result, more companies will be attracted to the development of vaccines and cures for new viral strains, thereby increasing the potential for innovation. I doubt that the compulsory licensing of patent rights in developing countries will substantially hurt these companies or diminish incentives for future innovation in this area.
The unprecedented U.S. support of the proposed WTO IP waiver is an important national gesture toward global solidarity in a time of crisis. Yet it is important to remember the limited scope of such a waiver — it simply provides that countries will not be able to bring trade-related claims in the WTO against countries that issue compulsory IP licenses in the context of COVID-19. The impact of such a waiver on international vaccine supplies will depend in large part on how other countries elect to implement compulsory licensing rules under the waiver, and whether they can effectively require the transfer of confidential manufacturing, testing, and safety information to supplemental producers. Alternatively, the threat of such governmental action around the world could encourage companies to engage in voluntary knowledge transfer to alleviate global supply shortages, which might be the greatest benefit of the WTO IP waiver.