Weak regulatory policies on compulsory licensing (CL) are a setback to countering monopolies on the Russian pharmaceutical market. Recognizing CL as a legal tool for protecting the fundamental right to life and health might be a promising strategy. The world is faced with economic, political and social challenges that are escalating tensions in the pharmaceutical market and affecting the availability of pharmaceutical drugs (PDs). The mechanisms used to relieve these tensions at the national level include patent legislation and adequate drug supply to the population. At the international level, CL can be applied. In Russia, the Government has the right to authorize the use of a patented invention without the patent holder’s consent in the interest of national defense and public safety. The patent holder must be promptly notified of the decision and is entitled to adequate remuneration [1]. The procedure is regulated by the Civil Code of the Russian Federation.

Innovative PDs are used to prevent, diagnose and manage diseases that could not be treated or cured in the past and to rehabilitate the affected patients [2]. Development of an innovative PD is a long, difficult, knowledge-intensive and costly process associated with a plethora of risks threatening to suspend or terminate the project [3]. A PD patent offers its proprietor the chance to recoup the costs of drug development, registration and marketing. Once a PD has been approved and registered, the patent holder has the right to decide on how and where the invention can be exploited. Due to the abuse of a dominant position by pharmaceutical companies, public access to some essential original drugs is limited.

Intellectual property law is the primary mechanism for recouping investments in drug development. Throughout the exclusivity period, a holder of a composition-of-matter, production technology or method-of-use patent remains the only representative of the patented product in the pharmaceutical marker. This allows the patent holder to address economic issues associated with product development.

However, patent law sometimes clashes with national security, the right to health, public welfare and technical progress. CL, which restricts the rights of a patent holder, is one of the mechanisms devised by the state to regulate such disagreements.

First and foremost, patent rights can be restricted in the best interest of national defense and security. The cases of conducting a research study, preparing a drug at a pharmacy for an individual patient, using a patented innovation in the event of emergency, etc. are not considered an infringement of the exclusive rights of a patent proprietor [1].

A compulsory license cannot be issued on account of overpricing, allowing pharmaceutical companies to abuse their dominant position in the market. Up to this day, there are no effective regulatory policies to protect against such abusive practices. A draft bill, which is currently under consideration in the State Duma, seeks to broaden the mandate of the Government so as to limit the rights of patent holders in the best interest of national defense and to uphold the rights to life and health [4].

In Russia, patent laws protecting the rights of a PD patent holder conform to international standards. So far, CL has not been used to resolve disagreements between pharmaceutical companies. However, in 2018 a compulsory license was issued by the court of law to allow a Russian-based pharmaceutical manufacturer Nativa to produce an analogue of a drug patented by the Celgene International Holdings Corporation; the situation sparked a lot of debate in the pharmaceutical sector [5].

Aspects and prospects of CL

We collected and organized data on the use of CL worldwide [6–10]; the results are presented in tab. 1.

Table 1 (tab. 1) illustrates that at the international level, legal grounds for issuing a compulsory license for a PD are limited to PD exclusiveness.

In Russia, the first compulsory license for a patented medicinal product was issued in 2018. Initially, the original drug was patented by Celgene International Holdings Corporation. A suit against Celgene was filed by the Russian company Nativa on grounds of patent dependency and following the refusal of the patent holder to license the drug to Nativa [5]. In other words, the compulsory license was issued because one patent was dependent on the other [6] but not because competition policy was being pursued to safeguard the life and health of the population. A significant reduction in the selling price was the main positive outcome of the court’s decision [11].

Table 1 (tab. 1) features cases of CL due to the abuse of market dominance by drug manufacturers [7–10]. In its current state, Russian legislation does not contain any provisions protecting against the abuse of a dominant position by a pharmaceutical company.

For this study, we compared wholesale prices for the original patented drug Revlimid (lenalidomide) and its generic using archived data from the State Registry of Maximum  Wholesale Prices dated 08.06.2018 (tab. 2).

CL as factor for safeguarding the life and health

To assess the feasibility of using CL as a tool for safeguarding the life and health of the population, we performed the PEST analysis of external political, economic, social, and technological factors that might influence the decision to issue a compulsory license for the generic drug Lenalidomide-Nativ. The factors were ranked by the force of impact in the descending order. For each factor, the force of impact was evaluated on a scale from 1 to 3 points, where 1 point represented mild impact, 2 points represented moderate impact and 3 points represented strong impact. For each external factor, the probability of change was estimated on a 5-point scale, where 1 point represented the minimal likelihood, and 5 points represented the maximum probability. Weight-corrected scores were obtained by multiplying the force of impact determined for the studied factor by the probability of change and dividing the resultant value by 34, i.e. the total impact of the factor [12, 13].

Weight-corrected scores represent the real significance of the studied factors in determining the decision to issue the compulsory license for the drug and launch its domestic production. The higher the real significance of the factor shown in tab. 3, the more effort is needed to reduce its negative impact. The results of the PEST-analysis are shown in figure.

The analysis revealed that weakened intellectual property protection due to CL is the crucial political factor affecting the decision to launch the production of a generic; in our case this might drive the manufacturer of the original drug out of the Russian market. The registry of essential medicines is a mechanism of market regulation by the state: it allows the state to set a fixed price for a PD. Once a drug is excluded from the registry, the doors for competitive pricing will be opened because the manufacturer will no longer have to register the price for the product with the state. The most influential economic factor involves the cutting of state expenditures on drug procurement, which may give a competitive advantage to a generic. The most important social factor is patients’ awareness about the original drug and its generic, because the negative opinion about the generic drug affects the demand.

Thus, CL for medicinal drugs aimed at protecting the life and health of the population may produce undesirable economic and other effects on the pharmaceutical market.

CL limits the rights of a patent-holder in cases when mass production of a drug is needed. In Russia, a compulsory license can be legally issued by the court of law following a third party’s claim. The patent will be licensed to the third party if the court decides that there are sufficient grounds for CL. The terms and conditions for CL are determined by the court.

In Russia, there are only 2 legal grounds for issuing a compulsory license. The first is the non-use of an innovation (a medicinal product in our case), a patented production prototype or a useful model over a certain time period. If the innovation is not produced in sufficient quantities to satisfy the market demand and the patent holder has refused to license the innovation to the third party that possesses the capacities to launch mass production of the innovation, the third party has the right to file a legal claim for the compulsory license. If the patent holder fails to prove that they were facing insurmountable obstacles preventing them from signing the agreement, the court is likely to issue a compulsory license to the third party.

The second legal ground for issuing a compulsory license is patent dependency. If an innovation cannot be manufactured without exploiting another patented innovation that bears no relation to the holder of the dependent patent, the latter has the right to seek a compulsory license for the original patent in court. The terms and conditions of patent transfer are specified by the original patent holder and determined by the court. The obtained license cannot be transferred to other parties expect for cases of dependent patent transfer [1]. New regulatory mechanisms are being discussed to sort out such disagreements. A patent holder faces a number of additional risks of losing control over the invention. Similarly, the state faces a number of economic and non-economic problems (political, legislative, ethical) when trying to ensure that the demand for essential drugs is satisfied.

The price for an essential drug is established based on of the wholesale price, wholesale and retail markups [14]. Limits to wholesale and retail markups are set by the state. The wholesale price set by the manufacturer is the sum of production costs and profits. According to the Russian law on drug circulation, the maximum wholesale price set by a manufacturer for the drug included in the registry of essential medicinal products must be registered with the state. If the costs of production are low and the wholesale price is too high, public access to the drug will be limited. The state should seek to create a fair and economically justified balance of interests between the manufacturer and the consumer when fair competition and public wellbeing are at risk and the conflict of interests cannot be solved without state intervention. Damage to public welfare is not the sufficient reason for the manufacturer of the original drug (the monopolist) to lower the wholesale price; on the contrary, the manufacturer will raise the price, pointing to the substantial R&D investments. The price might go down due to fair competition, but in order to produce a competitive generic, the rivaling company needs the manufacturing technology normally protected by the patent. So, in the event of market dominance abuse, CL might be viewed as a safeguard of the population’s life and health.

The relationship between competitive policies and innovation activities in different sectors of the economy is an attractive object of research [15–17]. Some authors describe CL as a mechanism for the implementation of competitive policies associated with the innovation activities of companies [16–18]. Some researchers [18–21] have proposed economic models suggesting that CL can significantly improve consumer welfare in some cases. Using an original model, researchers have demonstrated that CL effects on consumer welfare depend on the level of competition in the field; if the market is not competitive, CL will improve consumer welfare [18]. There are different ways of PD commercialization. Sometimes, intellectual property licensing can be applied: the right to launch mass production of the product is granted to another company on certain terms but the developer of the product retains the patent for the manufacturing technology. Often, the developer sells the manufacturing technology to another company. The most difficult and costly way is to launch independent production of the PD using the original manufacturing technology [22]. In such cases, CL should be applied with caution so as not to do irrevocable damage to the parties involved and not to violate the law.

The results of PEST analysis suggest that safeguarding the life and health of the population is the sufficient ground for issuing a compulsory license; it also improves public welfare in the short term.

There is a lot of controversy about using CL as a mechanism to regulate competition [23]. When viewed as a factor ensuring the right to life and health, CL is used as a component of competitive policies. It is reported that CL was effective in countering the abuse of a dominant position in the domestic market during the COVID-19 pandemic [24]; however, our findings suggest that the results of applying CL might be controversial.

CONCLUSION

At present, the right to life and health cannot be appealed to as the legal ground to issue a compulsory license for medicinal products in Russia. Although CL poses significant risks for market competition, its regulatory potential can be estimated as powerful.

As a factor safeguarding the life and health of the population, CL can significantly improve consumer welfare as it makes essential drugs more accessible to consumers. CL will be instrumental in countering the abuse of market dominance by pharmaceutical companies.