The Negative Effects of Thailand Invoking Article 31

November 13, 2007 by Nick Koutsoukis

 In 2003, the Tufts Center for the Study of Drug Development (”Tufts”)
estimated the cost to develop a new drug to be in excess of $850 million. 
Today, that figure is likely well into the billions.  Tufts also found
that approximately 20% of new drugs that enter clinical testing eventually
receive U.S. marketing approval.  With developmental costs so high and
approval rates so low, there must be a sufficient incentive for
pharmaceutical companies to continue research and development. 
Pharmaceutical companies rely on patent rights as an inducement to develop
new drugs.  The patents allow the company exclusive rights to the
manufacture and sale of the drugs for a fixed time period, usually 20
  On November 29, 2006, Thailand invoked Article 31 of the World Trade
Organization’s agreement on Trade-Related Aspects of Intellectual Property
Rights (”TRIPS”).  Article 31 allows a country to produce a generic copy
of a patented drug in certain “emergency” situations.  The Thai
government’s main argument for invoking the provision was that Efavirenz,
an HIV/AIDS medicine made by Merck, was too expensive for the government
to cover treatment costs for all the country’s patients that needed it.
  While under patent, pharmaceutical companies typically sell their drug at
a high cost to recover research and development costs.  The incentive of
strong profits while under patent also motivates these pharmaceutical
companies to continue to fund extensive research and development programs
that eventually yield new drugs and treatments.  These innovative
discoveries add to the intellectual capital of the drug industry and to
increased quality of life for the eventual users.  When patents expire or
are broken by provisions such as Article 31, generic drug manufacturers
reverse engineer a patented drug and sell it at a significantly lower
price.  Julio Nogues in his paper, Social Costs and Benefits of
Introducing Patent Protection for Pharmaceutical Drugs in Developing
Countries, provides evidence that the introduction of generic drugs can
reduce the original cost by more than 80%.  The generic manufacturers
profit on the copied work of companies that spend considerable funds on
research and development, they do not add intellectual capital to the drug
  The issue becomes emotionally charged when important drugs that have a
profound benefit, such as Merck’s Efavirenz, are involved.  Purchasing the
patented version would cost the Thai government approximately $4000 per
year for each patient.  The generic version would cost approximately
$1400, saving the Thai government $24 million.  The difference in price
can, as the Thai government has argued, put the drug out of reach for
those who cannot afford it.  Without the treatment, the affected persons
will have earlier mortality rates and a significantly diminished quality
of life.
  What the Thai government fails to address is whether the example it is
setting by breaking patents will plunge the industry into a slippery slope
of decreased research and development.  If companies like Merck are not
protected by patent rights in order to profit from their inventions, its
main incentive for research is reduced.  In extreme cases, if companies
that engage in research and development feel that they cannot adequately
profit from their discoveries, they may believe it to be more profitable
to scale back or completely eliminate this research altogether.  For a
savings of $24 million, the Thai government may be doing more harm than
  Is there a better way to ensure that patented drugs are affordable to
everyone who needs them?  Article 31 is a short sighted measure. 
Humankind has no idea what will be developed in the future.  The provision
acts to decrease funds available to companies who engage in drug research
and development by shifting these resources to generic manufacturers. 
Pharmaceutical companies need large amounts of money to generate
groundbreaking discoveries that help and benefit all of humanity. 
Governments should not be intimidating pharmaceutical companies with the
threat of invoking Article 31.  Rather, the profit incentive for these
research based companies should be protected. 
  In situations where a government or their citizens cannot afford to
purchase a necessary drug, special aid should be provided.  Agencies such
as the United Nations can develop “drug pools” that member states pay
into.  The funds can be used for these types of emergency situations. 
When a state, such as Thailand, provides evidence that it cannot afford a
necessary drug, the agency can gap the funding shortfall.  This would not
only provide the drugs at affordable prices, but still protect the patent
holders’ rights, and more importantly, the patent holders’ ability to earn
funds that can be used in the vital research and development of new drugs.

  1. One Response to “The Negative Effects of Thailand Invoking Article 31”

  2. As Mr. Koutsoukis points out, TRIPS Article 31 sets out the requirements for the use of a patent without authorization. The author suggests a “funding pool” to address the problem; however, I believe that an amendment to the provision would be more effective. Article 31(b) requires an effort to obtain authorization on reasonable commercial terms within a reasonable period of time which may be waived in a national emergency. The ability to waive negotiations gives “carte blanche” to members regarding the exploitation of patents through declarations of national emergencies. The provision fails to consider the implications - with the costs of developing new drugs so prohibitive, what incentive does this “end run” around the patent provide to the pharmaceutical companies? This could be remedied through mandatory negotiation (within a specified time frame, shortened in emergencies) overseen by an independent committee. If negotiations proceed in good faith but fail, the member may proceed to the next step. This gives the patent holders an opportunity to take part in the solution.

    The author states that generic drugs can provide savings of up to 80%, essentially introducing competition to the marketplace. To protect their patent (and their monopoly) the pharmaceutical company should adjust their price according to the specific market. In the case of Efavirenz, wouldn’t Merck prefer $1,400/patient annually than whatever nominal remuneration and unfavourable press they might receive?

    With drug companies now threatening to withhold patents from countries invoking Article 31, the ultimate cost may be much greater than the savings.

    By Peter Luciano on Nov 29, 2007

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