07 Aug 2020
Covid-19 in Indonesia: Is Govt Planning to Commandeer Drug Patents to Reduce Vaccination Costs?

In a development that appears to be directly related to growing concerns over access to, and the cost of, potential Covid-19 vaccines, the Indonesian Government has issued Presidential Regulation No. 77 of 2020 on Procedures for Government Patent Use (the “Regulation”, effective 8 July 2020).

While “government patent use” (Pelaksanaan Paten oleh Pemerintah / “GPU”) is not defined in the Regulation, what it essentially means is that the government can step in to use a patent, or authorize a third party to use it, without the patent holder’s permission, subject to the payment of compensation to the patent holder. It is important to note that GPU does not diminish the exclusive rights of the patent holder, which can also manufacture the patented product and is required to continue paying maintenance fees. In practice, what is likely to happen is that the Government will avail of GPU to procure cheap, generic versions of patented products, while more expensive, “branded” versions of the same products are manufactured and sold by the patent holders.

As the scramble to find a Covid-19 vaccine heats up, the timing of the Regulation would seem to be no coincidence given that it was mandated back in 2016 by the then newly enacted Patent Law[1] but is only being issued now.

In line with the Patent Law, the Regulation provides that GPU may be based on considerations of:

1. National defense and security; or
2. Urgent public need.

In this update, we focus on GPU for urgent public need, as this is directly relevant to the Covid-19 vaccine issue.

What is Urgent Public Need?

Under the Regulation, GPU based on urgent public need is permitted where a pharmaceutical and/or biotechnology product is prohibitively expensive to develop and/or is essential to overcoming a disease that may result in mass mortality or significant disability, and which constitutes a global public health emergency. The Covid-19 pandemic clearly ticks all of the required boxes.

Besides the above circumstances, GPU for urgent public need is also permitted in the case of:

1. agricultural chemicals and/or biotechnology products that are required for ensuring food security;
2. veterinary medicines that are required to overcome contagious animal pests and diseases; and/or
3. processes and/or products that are needed to overcome a natural and/or environmental disaster.

In all cases, the Government may (i) use the patent itself, or (ii) appoint a third party to do so on its behalf, subject to:

1. The third party having a facility and the capacity to manufacture the product protected by the patent;
2. a prohibition on the assignment of the patent by the third party; and
3. adherence to good manufacturing, distribution and supervision practices

For GPU to be applied, the minister or head of the relevant state agency must apply to the Minister of Law and Human Rights (“MOLHR”) for consent. MOLHR will assess the application, notify the patent holder and appoint a team comprising representatives of relevant ministries to consider the compensation that should be paid to the patent holder.

Once all this has been done and it is agreed that the patent in question should be subject to GPU, the MOLHR will submit a recommendation for the issuance of a presidential regulation to this effect, which will include details of the compensation payable to the patent holder.

Determination of Compensation

The Regulation has little concrete to say about the determination of compensation, other than stating that it should be wajar, which may be translated as “reasonable” or “fair.” In addition, the Regulation provides that the specific amount of compensation in each case will be determined by a team that comprises representatives of the relevant ministries and state agencies, as well as experts. Further details on compensation are to be subsequently provided by government regulation.

ABNR Commentary

With the global race to discover an effective Covid-19 vaccine apparently entering the last lap, it is hardly surprising that the Government has moved now to activate the Patent Law’s provisions on GPU. However, the implications of this go far beyond the current crisis. While there has been little debate on the desirability or otherwise of GPU and other forms of public-interest compulsory licensing in Indonesia (by contrast with many other less-developed nations), this could change going ahead, particularly if the application of GPU to a Covid-19 vaccine(s) proves successful.

Consequently, it will be interesting to observe how GPU is applied in practice, especially as regards compensation. The first test will obviously be Covid-19. Given the long-running and often heated debate over public-interest compulsory licensing in general, Indonesia will need to tread very carefully so as to strike a reasonable balance between procuring affordable Covid-19 vaccines while simultaneously compensating and rewarding pharma companies for shouldering the huge R&D costs involved in their development.

[1] Undang-Undang Nomor 13 Tahun 2016 Tentang Paten

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This edition of ABNR News and the contents hereof are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained herein. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.