Compulsory patent licensing in the era of pandemic

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Justin Culbertson
Knobbe Martens, Washington DC
justin.culbertson@knobbe.com

Jason J Jardine
Knobbe Martens, San Diego
jason.jardine@knobbe.com

When a business decides whether to compete in today’s world marketplace, it must consider the extent to which its ideas and designs will be protected from misappropriation.  This can be especially true when a company invests heavily in developing a remedy, vaccine, or therapy during a pandemic.

Covid-19 is not the first potential pandemic to threaten the international community. The world has previously faced threats in the form of bioterrorism and infectious diseases. For example, the threat of anthrax attacks in the aftermath of 9/11 led to concern over the availability of the drug Cipro. In November 2002, over 8,000 people contracted Severe Acute Respiratory Syndrome (SARS). Since 1981, more than 32 million people have died from AIDS worldwide.^[1] The 2009 H1N1 influenza pandemic was estimated to be associated with 151,700 to 575,400 deaths worldwide during its first year.^[2]

Despite its international ramifications, patent protection is territorial, operating only within the jurisdiction granting the patent. While several treaties and international congresses have been successful in creating fundamental equity and uniformity among national patent laws, complete uniformity is difficult to achieve due to different philosophies regarding free enterprise, monopoly rights and technological developments. 

Compulsory licences

One aspect of patent laws, common throughout the world but virtually absent in the United States, is compulsory licensing.^[3] A compulsory licence in this context is the grant of permission by a government to a manufacturer seeking to use another party’s intellectual property without consent. Compulsory licences have been imposed on pharmaceutical manufacturers by some countries on the asserted grounds of public health and safety, but they could potentially apply to any patented invention. Grounds that have been proposed or asserted to support the imposition of a compulsory licence have included:

• circumstances of national emergency or extreme urgency;
• vital public health needs;
• strong societal interest has arisen in access to the invention;
• abuse of economic power by the patent owner, in such a manner as to violate antitrust laws; and
• in circumstances where multiple patents held by different owners cover a particular technology. For example, combination therapies – such as triple antiretroviral drugs – may be subject to more than one patent. In such cases, if one patent owner refuses to license, then the technology may not be marketed, absent a compulsory licence.

US law on compulsory licences

In an effort to ensure that diagnostics, vaccines and therapeutics are developed, the US government, as well as other governments, have poured money into developing these remedies. Under the Bayh-Dole Act, the US Government will have a ‘nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world’, to promote the utilisation of government-funded technology.^[4] The law also authorises the US Government to exercise so-called ‘march-in’ rights, which compel the owner of any invention obtained through federal funding to license it to one or more third parties to the extent necessary, among other things, to address health or safety needs, ‘upon terms that are reasonable under the circumstances.’^[5]

The US Government may also use compulsory licensing under 28 US Code, section 1498. The statute permits the government to use patents even ‘without license of the owner thereof or the lawful right to use or manufacture the same.’ As a remedy, the rightful owner of the patent may sue under section 1498 for ‘reasonable and entire compensation for such use and manufacture.’ In short, this statute gives the Government the ability to compel a licence of any patent without the permission of the owner, so long as the Government compensates the owner. Through such licences, the government can infringe on and manufacture a patented invention for as long as necessary. However, the US patent system has generally been hostile toward the practice of compulsory licensing, although pharmaceutical-specific price regulations have been contemplated.^[6]

International law

Compulsory licensing of a patent is provided for under Article 5 of the Paris Convention to prevent patent abuse.^[7] Article 5, section A(2) provides that ‘[e]ach country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.’ Section 4 provides that the compulsory licence may not be applied until after ‘the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last.’ The patentee can avoid the compulsory licence if he ‘justifies his inaction by legitimate reasons.’ The licence is non-exclusive and non-transferable.

Compulsory licensing was also built into the Trade-Related Aspects of Intellectual Property (TRIPs) Agreement. The TRIPs agreement places further limitations on the granting of compulsory licences. Specifically, ‘[m]embers may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.’^[8] Compulsory licences are regulated under Article 31, which has the following requirements: authorisation must be considered on the individual merits; the applicant has attempted to obtain a licence from the patent holder; the use is non-exclusive and non-assignable; the use is primarily for the domestic market; and the patent holder receives adequate remuneration. TRIPs allows the government to impose compulsory licences as a remedy for ‘anti-competitive practices.’ 

Specific provisions under other national laws

Under certain circumstances in most countries, the government has the power to revoke or limit a previously granted exclusive patent right. The specific terms vary from country to country. A brief summary of a few selected countries are listed below:

Brazil

The Brazilian Government has utilised compulsory licences as a means of reducing the price of branded patented products, particularly anti-AIDS medicines. Predicated on the ground of public interest, in September 2003 the Brazilian Government issued a decree to produce or import generic anti-AIDS medicines without the prior approval of the patent holder, rationalising that they had already negotiated with these companies to get a reduction of 40 per cent but were not able to reach an agreement. The decree was concerning lopinavir (Abbott), efavirenz (Merck), ritonavir (Abbott) and nelfinavir (Gilead). In November of the same year, Brazil and Merck reached an agreement.^[9]

In 2005, the Minister of Health issued two decrees stating that Kaletra (Abbott) and Viread (Gilead) were in the public interest and, thus, were appropriate for compulsory licensing. Following this decree, both companies agreed to reduce their prices: Abbott by 46 per cent and Gilead by 50 per cent.^[10]

Canada

In Canada, a compulsory license may be granted if, three years after a patent grant, ‘the demand for the patented article in Canada is not being met to an adequate extent and on reasonable terms.’^[11] Canada previously allowed compulsory licences for both non-use and pharmaceutical patents, but these provisions were abolished in 1993.^[12]

China

On 1 May 2012, China’s ‘Measures for Compulsory Licensing of Patent Implementation’ (the 'New Measures') came into effect. These measures allowed China’s State Intellectual Property Office (SIPO) to grant compulsory licences for producing generic versions of branded drugs. Under the New Measures, China’s SIPO may issue and terminate compulsory licences for invention patents and utility patents (not design patents) to a qualified entity or individual, considering three factors: non-use of the patented invention or misuse of patent in violation of anti-monopoly law; public welfare, including ‘national emergency or extraordinary situation’ and ‘public interest’; and cross-licence for exploitation of an improvement invention. If a compulsory licence is granted, the parties may negotiate the royalties or ask the SIPO for adjudication on such fees. If a party is unsatisfied with the SIPO’s decision on compulsory licensing, it can apply for an administrative review or initiate an administrative litigation.

Germany

Germany allows compulsory licences if the patent is not worked within three years of the grant, or if the patentee refuses to license and permission to use the patent is ‘indispensable in the public interest.’^[13]

India

The Indian Patent Act provides for compulsory licences at the expiration of three years from the date of a patent grant, on any of the following grounds: reasonable requirements of the public with respect to the patented invention have not been satisfied; or patented invention is not available to the public at a reasonably affordable price; or patented invention is not worked in the territory of India.^[14]

Further, India’s patent law states:

‘Compulsory license for export of patented pharmaceutical products in certain exceptional circumstances. (1) Compulsory license shall be available for manufacture and export of patented pharmaceutical products to any country having insufficient or no manufacturing capacity in the pharmaceutical sector for the concerned product to address public health problems, provided compulsory license has been granted by such country or such country has, by notification or otherwise, allowed importation of the patented pharmaceutical products from India.'^[15]

Japan

In Japan, compulsory licensing may be ordered if the patent is not worked in Japan for three consecutive years. Japanese law also permits compulsory licensing ‘where working is in the public interest.’^[16]

Russia

On 22 August 2012, Russia joined the World Trade Organisation (WTO). To conform Russian patent law to TRIPS requirements, the Russian Parliament had amended Articles 1360 and 1362 of the Russian Civil Code. Article 1360 allows for the use of an invention without the consent of the right owner in the interest of ‘national security’ and Article 1362 authorises the issuance of compulsory licences.^[17]

United Kingdom

In the United Kingdom, compulsory licensing may be ordered three years after a patent grant if the demand for the patented product in the UK ‘[i]s not being met on reasonable terms,’ or if the refusal to grant a licence prejudices ‘[t]he establishment or development of commercial or industrial activities.’^[18] There is also a provision for dependent patents: if a patented invention represents ‘[a]n important technical advance of considerable economic significance,’ but its use is hindered by a previous patent, the owner of the dependent patent may obtain a compulsory license and the original patentee may obtain a cross-licence.^[19]

Conclusions

As the world continues to battle the coronavirus, conflicts may arise between governments and private owners of patents that cover medical vaccines, therapies and drugs. Such conflicts may centre, in part, around the growing concern of domestic and international governments utilising compulsory licences, either to drive down the price of a vaccine or drug or to increase supply. Even without the threat of a compulsory licence in a particular country, however, there may be considerable challenges for a company manufacturing a new medical vaccine or drug to scale up production, in order to meet a potential world-wide demand during the current pandemic. On the other hand, if a compulsory licence can be used by a particular national government for the benefit of its own people for relief from the coronavirus, it is hard not to see why such a country would not use such a tool.