The Paris Convention, TRIPS Agreement and Doha Declaration on TRIPS and Public Health stipulate provisions on compulsory licensing for implementation by member countries of the World Trade Organisation in their national patent systems (to read a backgrounder on compulsory licensing based on these documents, click here).
There is hardly any developing country, including India, that has made full use of stipulations in these three above-mentioned documents.
This article deals with the various possibilities for ensuring the working of patents under certain contingencies through compulsory licences granted by the concerned government authorities to meet the demands of the relevant products, particularly in the area of healthcare.
India, in particular, has ignored certain important provisions in the amending process of its national Patents Act 1970
Article 27 of the TRIPS Agreement absolves patent-holders from the obligation of working their patents as ‘patent rights are enjoyable whether products are imported or locally produced’. However, working of patent through domestic enterprises must be ensured through the system of grant of compulsory licences.
Presently, there are over 20,000 pharmaceutical manufacturers registered in India; hundreds of enterprises are producing the same product and competing amongst themselves to meet the country’s requirements. This phenomenon cannot be equated with the working of patent through imports by the patent-holder. Extensive involvement of domestic enterprises in the production and availability of patented products is absolutely necessary in India.
Compulsory licensing system
Compulsory licensing is certainly the backbone of patent laws. The question of constraints that would emerge after the implementation of TRIPS has been a subject of serious concern and was discussed in the TRIPS Council of the World Trade Organisation during 2001. The issue was further hotly debated in the Doha Ministerial Conference held in November 2001.
The result was the Doha Declaration on TRIPS Agreement and Public Health, which clarifies that sufficient flexibilities and freedom to determine the grounds upon which compulsory licences can be granted are available to member countries. It is now up to member countries to exercise their right and make suitable provisions in their national legislations.
While enacting the Indian Patents (Second Amendment) Act 2002, this aspect did not receive due consideration even when the Indian delegation was a major player in the adoption of the Declaration on TRIPS Agreement and Public Health.
There are nine possibilities of structuring grant of compulsory licences arising from the TRIPS Agreement and the Paris Convention, and as clarified in the Doha Declaration on Public Health. These are:
- Voluntary licences.
- Authorisation for meeting government requirements.
- Compulsory licence due to abuse of patent rights by the patent-holder.
- Compulsory licence due to unsuccessful attempts by an enterprise to obtain a voluntary licence from the patent-holder.
- Compulsory licence due to a national emergency.
- Compulsory licence due to circumstances of extreme urgency.
- Compulsory licence in cases of public non-commercial use.
- Compulsory licence to remedy anti-competitive practices.
- Second patent for an invention involving important technical advance of considerable economic significance over the existing patent.
Voluntary licence
The amended Indian Patents Act 1970 does not provide for a voluntary licensing system. This provision should be available in the Patents Act to meet the needs of those patentees who may not themselves like to promote their patented products in the market due to certain limitations. They are, however, interested in their patented products being sold in the country so that they are able to realise royalty and benefit from their product. The provision of a voluntary licence in the Patents Act would help meet this need.
To encourage this, the Act could also provide certain incentives for those patent-holders who may like to avail of this provision.
Authorisation for meeting government requirements
Article 31 of the TRIPS Agreement clearly provides for the use of patented substances to meet government requirements through government undertakings or other private enterprises authorised by the government to produce and supply. There will be no need to consult the patent-holder while authorising use of the patented product to meet government requirements. Appropriate provision does exist in the amended Indian Patents Act 1970 in Section 100 thereof.
Compulsory licence due to abuse of patent rights by the patent-holder
Article 8 of the TRIPS Agreement and Article 5 A of the Paris Convention deal with the abuse of patent rights by the patentees. These Articles provide that suitable measures could be taken by the government to prevent abuse. Abuses arise when the patentee is charging a high price for his patented product, and the relevant product is not available in sufficient quantities to meet domestic demand either through imports or domestic production by the patentee. The grounds could be stipulated as any one of the following:
- That the reasonable requirements of the public with respect to the patented invention have not been satisfied.
- That the patented invention is not available at a reasonably affordable price.
- That the patented invention is not being worked in different regions of the country to meet demand.
The validity of the above grounds would be examined and terms and conditions for grant of compulsory licence for any of the reasons stated would be settled by the Controller of Patents in consultation with the patent-holder. There is also no need for the intended enterprise to approach the patent-holder first to apprise him of the abuse. The stipulation in the Indian Patents Act in this respect needs to be suitably modified.
Compulsory licence due to unsuccessful attempts at obtaining a voluntary licence
Article 31 (a) of the TRIPS Agreement stipulates that authorisation of use of the subject matter of a patent shall be considered on the individual merits of each case.
Article 31 (b) provides for a compulsory licence due to unsuccessful attempts by an enterprise to obtain a voluntary licence on reasonable commercial terms and conditions from the patent-holder. The requirement is that the patent-holder should be directly approached first by the interested enterprise, offering commercial terms and conditions. If this effort is unsuccessful within a reasonable period of time, then the enterprise can approach the Controller of Patents for grant of compulsory licence. The Controller shall grant the licence on such terms as he deems reasonable.
This is an important provision for an effective role for domestic enterprises and must be incorporated into the national Patents Act. The application of compulsory licence under this possibility is virtually at par with licences of right, as was stipulated in the non-amended Patents Act 1970.
The TRIPS Agreement in Article 31 (b) also deals with situations of national emergency or other circumstances of extreme urgency, or in cases of public non-commercial use. These contingencies arise under different circumstances and should be dealt with under independent sections of the Patents Act as suggested hitherto:
Compulsory licence due to national emergency
When a government notifies a situation of national emergency, compulsory licence can be granted by the Controller of Patents. The formulation of provision in the Patents Act could be as follows:
“In the situation of notification of a national emergency by the government, the Controller of Patents may issue authorisation of right at any time during the national emergency for working of any patent in the country on application by any enterprise interested to use the patent on such terms and conditions as the Controller of Patents may deem reasonable.”
Compulsory licence due to circumstances of extreme urgency (health emergency, environment emergency, etc)
Under circumstances of extreme urgency, contingencies may arise because of health crises or serious environmental conditions. The government may notify the urgency, and thereafter the Controller of Patents can grant compulsory licences to the interested enterprises. The formulation of provision in the Patents Act could be as follows:
“In circumstances of extreme urgency as notified by the health authorities which may arise as the case may be, including prevention or control of HIV/AIDS, malaria, tuberculosis or any other epidemic among human beings or animals, and control of crisis arising from pollution of air or water or soil as notified by the concerned authorities in the government, the Controller of Patents shall issue authorisation of rights on relevant patented products to any enterprise interested on such terms and conditions as he may deem reasonable. The urgency may be for the country as a whole or for any region of the country.”
Compulsory licence in cases of public non-commercial use
Circumstances of public non-commercial use are totally different from other contingencies. The formulation in the Patents Act could be as follows:
“At any time after the expiration of three years from the date of sealing of a patent any enterprise may make an application to the Controller of Patents for grant of compulsory licence for using the patented substance to produce finished formulations for distribution/sale on a public non-commercial basis, that is, on a no-profit no-loss basis;
“that the concerned enterprise shall furnish a certificate to the Controller of Patents at the end of each year that the product has been used for public non-commercial purposes;
“that the term of the licence will be as may be requested by the concerned enterprise. The royalty payable to the patentee shall be decided by the Controller of Patents in consultation with the patentee.”
Compulsory licence to remedy anti-competitive practices
Article 31 (k) of TRIPS offers a procedure for remedying anti-competitive practices. Where the situation of resorting to anti-competitive practice by the patentee has been determined after judicial or administrative process, and that the need to remedy the practice has been notified by the government in the official gazette, the Controller of Patents will issue a compulsory licence to remedy the situation. The terms and conditions of the compulsory licence will be decided by the Controller of Patents.
Second patent for an invention involving important technical advance
Article 31 (l) provides that if an important technical advance of considerable economic significance over the first patent has been justified by an interested enterprise to the satisfaction of the Controller of Patents, a compulsory licence may be granted to that enterprise in consultation with the first patent-holder on such terms and conditions as may be settled by the Controller of Patents.
If all the above possibilities are suitably provided in the national patent law, it would be possible to strengthen the competitive environment regarding availability of patented drugs and pharmaceuticals in the country. In the Indian Patents (Second Amendment) Act 2002, certain possibilities that are available have not been incorporated nor adequately provided. The framing of appropriate provisions on this subject has been suggested above.
Working of patented inventions
The Indian Patents Act 1970, in Chapter XVI, specifically deals with the ‘Working of Patents, Compulsory Licences and Revocation’. Section 83 of this chapter deals with the general principles applicable to the working of patented inventions and is as follows:
General principles applicable to working of patented inventions: Without prejudice to other provisions contained in this Act, in exercising the powers conferred by the chapter, regard shall be had to the following general considerations, namely:
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That patents are granted to encourage inventions and to secure that the inventions are worked in India on a commercial scale and to the fullest extent that is reasonably practicable without undue delay.
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That they are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article.
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That the protection and enforcement of patent rights contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.
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That patents granted do not impede protection of public health and nutrition and should act as an instrument to promote the public interest especially in sectors of vital importance for India’s socio-economic and technological development.
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That patents granted do not in any way prohibit the central government from taking measures to protect public health.
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That the patent right is not abused by the patentee or person deriving title or interest on patent from the patentee, and the patentee or a person deriving title or interest on patent from the patentee does not resort to practices which unreasonably restrain trade or adversely affect the inter-nation transfer of technology.
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That patents are granted to make the benefits of the patented invention available at reasonably affordable prices to the public.
The section quoted above is virtually the patent policy the Indian government aims to accomplish through other sections of this chapter. However, an in-depth examination of formulations of other sections of this chapter leaves some ambiguities that ought to be rectified through further amendments to the Patents Act 1970.
There is another important issue that needs to be re-examined. This is with regard to Section 92, dealing with grant of compulsory licensing during circumstances of national emergency and circumstances of extreme urgency. Section 117 A provides for an appeal to be filed, even for compulsory licences under Section 92, with the Appellate Board. This stipulation needs reconsideration.
Royalty payments
Article 31 (h) of TRIPS provides that “the right-holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorisation”. This stipulation is not specific about the rate of royalty that should be paid. The non-amended Patents Act 1970 provided a ceiling of 4% on royalty payments.
This provision has been deleted and substituted by a provision in Section 90 of the amended Act which does not stipulate any ceiling on payment of royalty.
Because of the long term of protection of 20 years for patents, whether product or process, royalty payment has to be very carefully determined to avoid a long-term burden on the prices of patented drugs.
Thailand’s Ministry of Health, on November 29, 2006, issued a compulsory licence for imports and local production for five years on a patented AIDS drug, Efavirenz, originally developed by Dupont Pharma and now marketed by Bristol Myers-Squibb. Merck has marketing rights in a number of countries including Thailand and China. The royalty allowed by the Thai government is 0.5% of sales in Thailand. The generic version will be sold in Thailand by the Government Pharmaceutical Organisation at half Merck’s price.
Earlier, Malaysia and Indonesia also issued similar compulsory licences.
Compulsory licences in the USA
The Consumer Project on Technology, Washington, USA, in a recent communication, has indicated that the main United States statute regarding use of patents in certain circumstances is 28 US Code (USC) 1498. There is no obligation for prior negotiation or prior notice with the patent-owner under 28 USC 1498, when a non-voluntary authorisation is for the government. This includes uses by third parties.
The United States has a number of mechanisms to issue compulsory licences for use of patents. These include, in addition to 28 USC 1498, the following:
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Mandatory patent licences under Section 308 of the Clean Air Act.
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Compulsory licences for patents “affected with the public interest” that are of primary importance in the production or utilisation of special nuclear material or atomic energy, for non-military purposes (see 42 USC 2183).
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The Bayh-Dole Act march-in rights for patents on inventions conceived with federal funding.
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Remedies to anti-competitive practices.
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Compulsory licences issued under procedures set out by the US Supreme Court in the recent eBay decision.
The following are just a few recent examples of the use of compulsory licences by the United States:
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In 2001, Department of Health and Human Services (DHHS) Secretary Tommy Thompson used the threat to use 28 USC 1498 to authorise imports of generic ciprofloxacin, for stockpiles against a possible anthrax attack.
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In 2001, the DHHS used its authority to exercise march-in rights for patents on stem cell lines held by the Wisconsin Alumni Foundation as leverage to secure an open licence on those patents.
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In 2002, the US Federal Trade Commission (FTC) ordered a compulsory cross-licence of the Immunex Tumor Necrosis Factor (TNF) patent, to Serono, including the “freedom to practice in the research, development, manufacture, use, import, export, distribution and sale of TNFbp-I products and certain glycosylated and non-glycosylated fragments, derivatives and analogs thereof in the United States”.
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In 2002, the US Department of Justice required Microsoft to licence, on reasonable and non-discriminatory terms, intellectual property rights in a number of different protocols needed to create products that were interoperable with Microsoft Windows.
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In 2005, the FTC ordered a compulsory licence of Guidant’s intellectual property surrounding the ‘RX’ delivery system for drug-eluting stents.
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In 2005, the US Department of Justice cited its right to use patents in 28 USC 1498 when it opposed injunctive relief for infringement of patents relating to the Blackberry email services supplied to both the government and private firms.
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In a November 2005 Congressional hearing, DHHS Secretary Michael Levitt testified before the House of Representatives that he threatened to override the patents on treatments for avian flu if companies had not expanded US production facilities.
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More recently, the Centre for Disease Control threatened to use Bayh-Dole “march-in” rights to issue compulsory licences on patents on reverse genetics, which are needed to manufacture vaccines for avian flu.
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In June 2006, a court granted Microsoft a compulsory licence to use two patents owned by z4 Technologies that relate to digital rights management systems used by Microsoft for its Windows and MS Office software programmes.
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In September 2006, a court granted Johnson and Johnson a compulsory licence to use three of Jan Voda’s patents on guiding-catheters for performing angioplasty.
This kind of pragmatic approach is needed by all developing countries and in no way must the ceiling on royalty exceed 5% of ex-factory sales by the compulsory licence holder.
Summing up
To conclude, international human rights law is becoming a focused issue in relation to implementation of the TRIPS Agreement when it comes to the basic and fundamental rights of human beings. These rights relate to right to health and right to food. In relation to the monopolisation factor under the TRIPS Agreement, these issues are becoming crucial and are being debated worldwide.
Patents to protect innovation should be supported, but the system should not be used as a device to restrict competition and allow the creation of monopolies. The originators of inventions should get their just rewards by way of suitable royalties, and these should not be grudged. The doors should be opened for obligatory licensing involving domestic enterprises in the production of patented drugs.
The suggestions made in this paper are within the framework of the TRIPS Agreement. Judicious and careful implementation of TRIPS is needed for its smooth application and balancing of rights and obligations of the patent-holder in a manner conducive to social and economic welfare, as stipulated in Article 7 of the TRIPS Agreement. The lives of patients have to come before the patents of drug companies, and that is the fulfilment of the objectives of the National Health Policy and international human rights laws. |
