President Luiz Inacio Lula da Silva will issue a "compulsory license" overriding the patent of an AIDS drug made by the U.S. pharmaceutical giant Merck, Brazil's official news service reported Friday.

The announcement came a day after talks on the efavirenz drug broke down when the Brazilian government rejected Merck & Co.'s offer to sell the drug at a 30 percent discount, or US$1.10 (euro0.81) per pill, down from US$1.57 (euro1.15).

The country was seeking to purchase the drug at 65 cents (euro0.47) a pill, the same price Thailand pays.

Amy Rose, a spokeswoman for the Whitehouse Station, New Jersey-based company, said Merck is still open to negotiations.

"We would be profoundly disappointed if Brazil goes ahead with a compulsory license," Rose said.

A compulsory license is a legal mechanism that allows a country to manufacture or buy generic versions of patented drugs while paying the patent holder only a small royalty.

Brazilian law and rules established under the World Trade Organization allow for compulsory licenses in a health emergency or if the pharmaceutical industry uses abusive pricing.

After Thailand moved to override patents on three anti-AIDS drugs, including those made by Abbott Laboratories and Merck, the United States placed Thailand on a list of copyright violators after the Asian country

In Thailand's capital of Bangkok, AIDS activists rallied outside the U.S. Embassy on Thursday to protest the decision, calling the Thai government's move to slash the cost of pricey U.S.-made AIDS drugs a "lifesaver."

Although Brazil has threatened several times to bypass drug patents, the country has always reached a last-minute agreement with drug manufacturers.

Brazil provides free AIDS drugs to anyone who needs them and manufactures generic versions of several drugs that were in production before Brazil enacted an intellectual property law in 1997 to join the WTO.

But as newer drugs have emerged, costs ballooned and health officials warned that without deep discounts, they would be forced to issue compulsory licenses.

Efavirenz is used by 75,000 of the 180,000 Brazilians who receive free AIDS drugs from the government. The drug currently costs about the government about US$580 (euro427) per patient per year.

The Health Ministry says that a generic version of efavirenz would save the government some US$240 million (euro170 million) between now and 2012, when Merck's patent expires.