Royalty payments and Canada's Access to Medicines Regime

A pharmaceutical company that holds a compulsory licence under Canada's Access to Medicines Regime is required to pay royalties to the patent holder. The company must make payments within a prescribed amount of time and in accordance with a prescribed formula. The formula takes into account the humanitarian and non-commercial basis for the licence.

The formula calculates the royalty by multiplying the monetary value of the supply agreement between the licence holder and the importing country by an amount that fluctuates on the basis of that country's standing on the United Nations Human Development Index (UNHDI). The lower the ranking on the UNHDI, the lower the prescribed royalty rate will be.

The formula to determine the royalty rate is 1, plus the number of countries on the UNHDI, minus the importing country's rank on the UNHDI, divided by the number of countries on the UNHDI, multiplied by 0.04. Mathematically, the regulatory formula cannot result in a royalty rate in excess of 4 percent, a ceiling that is consistent with the humanitarian and non-commercial considerations that are the foundation of the Regime.

Forumla 1 - Formula to determine royalty rate;

Formula for calculating royalty payments

For example, if country X is ranked 165 on the UNHDI and there are 177 countries on the UNHDI this year, then the royalty rate for products imported into country X under the Regime would be

Formula 2 - Example if country X is ranked one hundred and sixty-five and there are one hundred and seventy seven countries

Example formula for calculating royalty payments

The patent holder has the right to apply to the Federal Court of Canada for an order setting a higher amount. In considering the merits of such an application, the court must take into account the economic value of the use of the licensed product by the importing country and the humanitarian and non-commercial reasons underlying the issuance of the licence.

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