It can solve the controversial issue of granting compulsory licensesand prevent them from happening, and also provide drugs at a low cost.
Unlikea compulsory license, a single patent buy-out can apply to multiple drugs andcountries. Since it can be manufactured and sold to a number ofcountries, it reduces the transaction costs. Also, the purchaser, who can beany entity from a government or a philanthropic foundation, would haveexclusive rights to market and license the drugs in the negotiated region.
1 Thepurchaser can then offer multiple non-exclusive, no-royalty licenses to genericdrug manufacturers in order to generate a competitive market. Moreover, unlikecompulsory licensing which requires royalty payments to be paid to the patentholder, the patent-buyout price would be determined by “the net present valueof expected future profit”.2It enhances flexibility in financing the buy-out. It can also attractpharmaceutical companies who, under compulsory licensing, would have had to settlethe number of drugs actually manufactured and sold in order to receive theroyalty payments.
3However,patent buy-outs may bring a loss of profit to pharmaceutical companies,increase risks of arbitrage to OECD nations, and encourage counterfeit drug manufacturing. 4 Yet, profit loss result in a decrease in incentives for innovation isunavoidable. Thus, cautious design of patent buy-outs and safeguards againstarbitrage should be implement in order to provide adequate incentives forpharmaceutical companies to engage in negotiations. 5Patentbuy-outs seem to be one of the most appropriate alternatives to compulsorylicensing, but more research should be conducted on the financing system and termsand clauses for the buy-out mechanism.On the other hand, some may doubt the usefulness of the patentbuy-outs as it has not been adopted or tested in the market and may argue thatwe should focus on what we have already developed in the market instead ofsearching for new alternatives.
A more determinate terms in compulsorylicensing provision should be introduced in order to clarify the ambiguities inthe compulsory licensing scheme. It can hence improve the efficiency of thescheme, and also encourage nations to issue compulsory licence without the fearof political pressure. An official list of universally recognized disease whichare considered to be a threat to public health and a list of drugs that can beautomatically be allowed for compulsory licenses should be developed andmaintained6. Itwill hence, reduce the tension and unnecessary conflicts between countries andreduce time for government to debate whether issuing compulsory licence forcertain drug is fair or not. Secondly, the WTO can adopt a unified “socio-economicmodel”7to decide whether a nation is allowed to grant compulsory licenses. By doingso, developing countries can no long suffer from the political abuses fromdeveloped countries.
It can also ensure that not every nation can takeadvantage of the system. It is also suggested that the WTO can conduct a “benefit-detrimentanalysis to compare the profit loss suffered by each of the pharmaceutical firmwith the aggregate social benefit”8. The WTO should also created a set ofsocio-economic indicators related to the pharmaceutical industry in order toidentify nations, drugs and disease which are qualified for compulsorylicensing9.