Compulsory Licensing of Patents in South Africa

James LoveConsumer Project on Technology

Implementing the Doha Declaration on TRIPS and Public Health

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War and Patent Story

In 1903, Wilbur and Orville Wright flew the first airplane

In 1906 they received US patent No. 821,393 for a flying machine

Glenn Curtiss and others improved upon the Wright Plane

• In 1909 Curtiss won the James Gordon Bennett Cup at Reims, France.

• Backed by Alexander Bell and others, the Curtiss companies obtained additional patents

The Wright Brothers sued the Curtiss companies over patent infringement and won

• After several years of litigation, in 1913, the Federal Circuit Court of Appeals ordered Curtiss to cease making airplanes

• Henry Ford had earlier fought patent litigation that would have destroyed his business, and he helped Curtiss obtain a stay of the verdict.

• Even then, patent litigation was very expensive.

In 1914, war broke out in Europe.

Aircraft became important to national security

• It was impossible to manufacture aircraft in the USA without the Wright and Curtiss patents

The Navy asked FDR to study the aircraft patent problem

• A National Advisory Committee for Aeronautics was created pursuant to an act of Congress “to consider and advise the President and the departments on aeronautical problems and to consider and devise some plan to remedy the existing difficulties” in the manufacture of aircraft.

On January 17, 1917, the Navy said patent litigation had retarded the development of the

US aircraft industry

• “various companies were threatening all other airplane and seaplane manufacturing companies with suits for infringements of patents, resulting in a general demoralization of the entire trade; that it was difficult for the Government to obtain fulfilment of orders because some companies would not expend any money on their plants for fear that suits brought against them would force them out of business; that to protect themselves in case they were forced to pay large license fees the companies had greatly increased the sales prices of their products to the Government .

• Manufacturers Aircraft Association, Inc., v. the United States, 77 Ct. Cl. 481

The government recommended the creation a pool for essential aircraft patents

• March 23, 1917

– A joint meeting of the Committee, the War and the Navy Departments and the aeronautical industry was held to discuss "various means by which the basic airplane patents could be acquired by the Government for the development of the industry" noting "just recognition will be made to the owners of the more important or basic patents in the form of reasonable royalties to be paid by the purchasers of planes whether for military or civil use."

• March 24, 1917

– The patent committee of the National Advisory Committee rendered a report recommending "the formation of the Aircraft Manufacturers Association among all aircraft manufacturers to manage a patent pool.”

On March 24, 1917,

the US Congress passed a law to enable the Secretary of War and the Secretary of the Navy to secure by purchase, condemnation, donation, or otherwise such basic patent or patents as they may consider necessary to the manufacture and development of aircraft in the United States for governmental and civil purposes.'

On April 6, 1917, the United States Entered the War

The Manufacturers Aircraft Association patent pool was formally created in July

• June 14, 1917– the executive committee of the National Advisory Committee for

Aeronautics "authorized the patent committee to take such steps as appeared necessary to effect a solution of the patent question and recommended that royalties to be paid by the Aircraft Manufacturers Association" to the "Wright and Curtiss Companies, who owned the principal airplane patents, be limited to two million dollars each."

• July 10, 1917– a meeting was held with competitive airplane manufacturers and

the Wright and Curtiss patent owners.

• July 16, 1917– The Manufactures Aircraft Association was incorporated in New

York

• July 24, 1917– The first MAA meeting was held and the patent pool was formally

created.

The federal government forced the patent owners to accept lower royalties

Prior to the creation of the patent pool, the Wright Brothers were asking $1,000 per aircraft as a royalty (about 5 percent of the cost of a plane then) for a single patent. The federal government forced patent owners to accept a $200 flat fee for each airplane that was manufactured, and later lowered this to $100 per plane. The royalties were divided 67.5 percent to the Wright Brothers, and 20 percent to the Curtiss-Burgess company, with the remainder used to support the MAA. The royalties to both the Wright and Curtiss patent owners were reduced once they accumulated $2 million in royalty payments, to $25 per airplane.

Postscript on “war” story

• Patents weren't the only problem in fighting a war.– To fight a war you needed funding,

infrastructure, training, political will, strategy and lots of other things.

• But the government still fixed the patent problem, and did so in a hurry.

Farmer Story

Directive 98/44 of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions.

(52) Whereas, in the field of exploitation of new plant characteristics resulting from genetic engineering, guaranteed access must, on payment of a fee, be granted in the form of a compulsory licence where, in relation to the genus or species concerned, the plant variety represents significant technical progress of considerable economic interest compared to the invention claimed in the patent

Compulsory cross-licensing: Article 12

1. Where a breeder cannot acquire or exploit a plant variety right without infringing a prior patent, he may apply for a compulsory licence for non-exclusive use of the invention protected by the patent inasmuch as the licence is necessary for the exploitation of the plant variety to be protected, subject to payment of an appropriate royalty. Member States shall provide that, where such a licence is granted, the holder of the patent will be entitled to a cross-licence on reasonable terms to use the protected variety.

UK: Statutory Instrument 2002 No. 247

The Patents and Plant Variety Rights (Compulsory Licensing) Regulations 2002

COMPULSORY PATENT LICENCESApplications 3. - (1) Where a person cannot acquire or exploit plant breeders' rights or a Community plant

variety right in a new variety without infringing a prior patent, he may apply in accordance with rules to the Comptroller General of Patents for a licence under the patent and on such application shall pay the prescribed fee.

(2) An application under paragraph (1) shall be accompanied by particulars which seek to demonstrate that -

(a) the applicant cannot acquire or exploit plant breeders' rights or a Community plant variety right without infringing a prior patent,

(b) the applicant has applied unsuccessfully to the proprietor of the prior patent concerned for a licence to use that patent to acquire or exploit plant breeders' rights or a Community plant variety right, and

(c) the new plant variety, in which the applicant wishes to acquire or exploit the plant breeders' rights or Community plant variety right, constitutes significant technical progress of considerable economic interest in relation to the invention protected by the patent.

(3) If and so far as any agreement purports to bind any person not to apply for a licence under paragraph (1), it shall be void.

The TRIPS Agreement is quite permissive in terms of

compulsory licensing, but requires attention to certain

procedural issues.

Doha Declaration On The Trips Agreement And Public Health

5(a) Each Member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.

Paragraph 4: Doha Declaration on TRIPS

We agree that the TRIPS Agreement does not and should not prevent Members from taking measures to protect public health. Accordingly, while reiterating our commitment to the TRIPS Agreement, we affirm that the Agreement can and should be interpreted and implemented in a manner supportive of WTO Members' right to protect public health and, in particular, to promote access to medicines for all.

In this connection, we reaffirm the right of WTO Members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.

Article 1 of WTO TRIPS Agreement

Nature and Scope of Obligations

1. Members shall give effect to the provisions of this Agreement. Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.

Article 31 (a)

(a) authorization of such use shall be considered on its individual merits;

Obligation for prior negotiation in some cases, but not in other cases

31 (b)    such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time. This requirement may be waived by a Member in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. . .

31(k) members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive.

Article 31 (f)

(f) any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use;

Article 31 (g)

(g) authorization for such use shall be liable, subject to adequate protection of the legitimate interests of the persons so authorized, to be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. The competent authority shall have the authority to review, upon motivated request, the continued existence of these circumstances;

Article 31 (h)

(h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization;

Reviews of decisions may be by Administrative process

• 31(i) the legal validity of any decision relating to the authorization of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member;

• 31(j) any decision relating to the remuneration provided in respect of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member;

• 31(k) Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive.

Article 31 (k)

Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive. The need to correct anti-competitive practices may be taken into account in determining the amount of remuneration in such cases. Competent authorities shall have the authority to refuse termination of authorization if and when the conditions which led to such authorization are likely to recur;

Article 31 (l)(l) where such use is authorized to permit the exploitation of a patent ("the

second patent") which cannot be exploited without infringing another patent ("the first patent"), the following additional conditions shall apply:

(i) the invention claimed in the second patent shall involve an important technical advance of considerable economic significance in relation to the invention claimed in the first patent;

(ii) the owner of the first patent shall be entitled to a cross-licence on reasonable terms to use the invention claimed in the second patent; and

(iii) the use authorized in respect of the first patent shall be non-assignable except with the assignment of the second patent.

Two major problem areas

• How does one address the restrictions on exports of medicines?

• What is “undisclosed test or other data, the origination of which involves a considerable effort,” and how does one “protect such data against unfair commercial use”?

SECTION 7: PROTECTION OF UNDISCLOSED INFORMATION, Article 39

1. In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention (1967), Members shall protect undisclosed information in accordance with paragraph 2 and data submitted to governments or governmental agencies in accordance with paragraph 3.

2. Natural and legal persons shall have the possibility of preventing information lawfully within their control from being disclosed to, acquired by, or used by others without their consent in a manner contrary to honest commercial practices so long as such information:

(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question;

(b) has commercial value because it is secret; and (c) has been subject to reasonable steps under the circumstances, by the person lawfully in control

of the information, to keep it secret.3. Members, when requiring, as a condition of approving the marketing of pharmaceutical or of

agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure that the data are protected against unfair commercial use.

In implementing Article 39.3, insure that any rights to data can be subject to compulsory licensing• Exclusive rights are not required in TRIPS

• Long term rights are not required in TRIPS- terms could range from 6 months to 15 years

• Cost sharing, based upon disclosures of actual expenditures and global market shares, is reasonable approach

• The US government has compulsory licensing (with compensation set by arbitration) for registration data submitted under the Federal Insecticide, Fungicide, and Rodenticide Act

Exports under Article 30

Article 30: Exceptions to Rights Conferred

Members 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.

Amendment 196 to the European Medicines Directive

Manufacturing shall be allowed if the medicinal product is intended for export to a third country that has issued a compulsory licence for that product, or where a patent is not in force and if there is a request to that effect of the competent public health authorities of that third country.

Canada asked thee WTO to permit exports of medicines without the permission of the patent owner, in cases involving early working of patents

Very few countries had fully integrated brand name or generic drug industries within their borders. Even in large countries, generic producers frequently had to obtain ingredients such as fine chemicals from producers in other countries. Many countries had no generic industries at all and had to obtain generic (as well as brand name) products from other countries. Smaller countries that did have generic industries did not have domestic markets sufficiently large to enable those industries to operate on an economic scale. Those industries had to export in order to be able to manufacture in sufficient quantities to achieve economies of scale, so that domestic consumers could receive the benefits of cost-effective generic Products

. . . the market in the United States was large enough for generic producers to manufacture on an economic scale. Very few countries were in that position. "Pre-expiration testing" exceptions that had the effect of confining all activities to a single country were of little use to countries that, unlike the United States, depended on international trade to obtain generic products.

•WT/DS114/R 17 March 2000 (00-1012)

Canada won the right to use Article 30 to export products in its WTO Bolar case

• Canada said:– As the TRIPS system was designed to be international and so to extend across borders, there was no reason why the

legitimate interests of third parties in other countries could not be taken into account when applying a limited exception under Article 30. As indicated above, unlike the United States, very few countries had markets large enough to support domestic generic drug industries, and many countries had no generic industries at all. . . Alternatively, if the legitimate interests of third parties in other countries were not to be taken into account, the interests of the patent owner in those countries also should not be taken into account. . . As regards the EC's observation that, by allowing the activities referred to in Section 55.2(1) of the Canadian Patent Act with a view to obtaining marketing approval in any country in the world, the extent of such activities and their duration during the patent term was totally open-ended and completely outside the control of the Canadian authorities278, it should be noted that the whole point of the TRIPS Agreement was to establish standards for intellectual property protection in all WTO Members. Accordingly, while the conduct of foreign regulatory approvals was not within the control of Canadian authorities, the use of patented inventions in foreign countries was within the control of the patent laws of those countries, most of which were, or would soon be, subject to the requirements of the TRIPS Agreement.

• The Panel agreed with Canada:– 7.46 The Panel found no basis for believing that activities seeking product approvals under foreign regulatory procedures

would be any less subject to these limitations. There is no a priori basis to assume that the requirements of foreign regulatory procedures will require activities unrelated to legitimate objectives of product quality and safety, nor has the EC provided any evidence to that effect. Nor is there any reason to assume that Canadian law would apply the exception in cases where foreign requirements clearly had no regulatory purpose. Nor, finally, is there any reason to assume that it will be any more difficult to enforce the requirements of Canadian law when Canadian producers claim exceptions under foreign procedures. With regard to the latter point, the Panel concurred with Canada's point that the government is not normally expected to regulate the actual conduct of third parties in such cases. The enforcement of these conditions, as with other enforcement of patent rights, occurs by means of private infringement actions brought by the patent owner. The patent owner merely has to prove that the challenged conduct is inconsistent with the basic patent rights created by national law. Once that initial case is made, the burden will be on the party accused of infringement to prove its defence by establishing that its conduct with respect to foreign regulatory procedures was in compliance with the conditions of Section 55.2(1).

The pharmaceutical market is projected to grow at 7.8 percent annually to $406 billion in 2002. North America, Europe, Japan and Latin America are projected to account for 85.2% of the worldwide pharmaceutical market.

• IMS estimates Africa will account for only $5.3 billion in sales, 1.3 percent of the global market, and less than Australasia market

• All of Eastern Europe is $7.4 billion, or about the same size as the Indian sub-continent.

• Few countries in Latin America or Asia have large domestic markets

• The European market is is divided among several distinct national markets, under WTO rules

What would be a good compulsory licensing statute?

Check list

• Reduce litigation costs as much as possible

• Make the grounds straightforward, and be clear about policy objectives

• Pay attention to compensation rules

• Get the maximum flexibility from government use and emergency provisions

Examples of good public interest grounds

To address a gap in access to essential health care inventions• It should be illegal to refuse to license a

technology when two conditions obtain:– There is a significant gap between the number

of people who need a medicine or other essential medical technology, and the number of people who have access

– When the price of the product is a barrier to access

To promote economic development and facilitate technology transfer in an area of strategic importance

• US statute on civilian atomic energy

• US Aircraft patent pool.

• European Biotechnology Directive

Government use or emergencies

Create a liability rule

• Anyone can use the patents needed to provide essential health care inventions

• No need for prior negotiation, or to request permission

• Only that– Patent owners are notified– Compensation is paid

• Inventions must be affordable to the poor

Rules for compensation are important

Countries have great flexibility under TRIPS to make compensation affordable

• Avoid “lost profit” or taking models that require compensation that is not affordable

• Royalty guidelines would make compensation more predictable and transparent

• Pharmacia’s 5 percent royalty for voluntary licensing is consistent with typical NGO recommendation regarding affordable royalty in developing countries

• In cases of multiple patents, patent owners share revenues according to relative important of patents.

• Alternative dispute resolution (ADR) or arbitration mechanisms are useful to reduce transaction costs

Need for more discussion of compensation issues

• Fall meeting on compensation for compulsory licensing– Development of administrative models of

setting compensation– How to address budget constraints– Up front royalty payments– WHO/Harare proposal

• Compensation in shares of domestic R&D fund

A few US examples

Example of administrative decision making in the context of pharmaceutical patents

35 USC 209(d)

After consideration of whether the interests of the Federal Government or United States industry in foreign commerce will be enhanced, any Federal agency may grant exclusive or partially exclusive licenses in any invention covered by a foreign patent application or patent, after public notice and opportunity for filing written objections, except that a Federal agency shall not grant such exclusive or partially exclusive license if it determines that the grant of such license will tend substantially to lessen competition or result in undue concentration in any section of the United States in any line of commerce to which the technology to be licensed relates, or to create or maintain other situations inconsistent with antitrust laws.

Rights to use data under the Federal Insecticide, Fungicide, and Rodenticide Act

“If, at the end of ninety days after the date of delivery to the original data submitter of the offer to compensate, the original data submitter and the applicant have neither agreed on the amount and terms of compensation nor on a procedure for reaching an agreement on the amount and terms of compensation, either person may initiate binding arbitration proceedings by requesting the Federal Mediation and Conciliation Service to appoint an arbitrator from the roster of arbitrators maintained by such Service. . . . The findings and determination of the arbitrator shall be final and conclusive, and no official or court of the United States shall have power or jurisdiction to review any such findings and determination, except for fraud, misrepresentation, or other misconduct . . . The parties to the arbitration shall share equally in the payment of the fee and expenses of the arbitrator. ”

Atomic Energy – Non Military Utilization 42 USC 2183

(a) Declaration of public interest The Commission may, after giving the patent owner an opportunity for a hearing, declare

any patent to be affected with the public interest if(1) the invention or discovery covered by the patent is of primary importance in the production or utilization of special nuclear material or atomic energy; and(2) the licensing of such invention or discovery under this section is of primary importance to effectuate the policies and purposes of this chapter.

(b) Action by Commission Whenever any patent has been declared affected with the public interest, pursuant to

subsection (a) of this section - (1) the Commission is licensed to use the invention or discovery covered by such patent in performing any of its powers under this chapter; and (2) any person may apply to the Commission for a nonexclusive patent license to use the invention or discovery covered by such patent, and the Commission shall grant such patent license to the extent that it finds that the use of the invention or discovery is of primary importance to the conduct of an activity by such person authorized under this chapter.

Compensation for licenses for atomic energy non-military use

The standards for compensation to the patent owner are set out in 42 USC 2187, which reads in part:

(1) In determining a reasonable royalty fee as provided for in section 2183(b) or 2183(e) of this title, the Commission shall take into consideration (A) the advice of the Patent Compensation Board; (B) any defense, general or special, that might be pleaded by a defendant in an action for infringement; (C) the extent to which, if any, such patent was developed through federally financed research; and (D) the degree of utility, novelty, and importance of the invention or discovery, and may consider the cost to the owner of the patent of developing such invention or discovery or acquiring such patent.

For more information

Consumer Project on Technology

http://www.cptech.org

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