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By B K Keayla, Convener, National Working Group on Patent Law, and Trustee and Secretary General of the Centre for Study of Global Trade System and Development. He retired earlier as Commissioner of Payments
The compulsory licensing system is a core component of the patents law. The system refers to the practice where the government authorises itself, or third parties, to use the subject matter of a patent with or without the authorisation of the patent-holder, for reasons of public policy.
The system helps enterprises other than the patent-holder to play a competitive role by limiting the exclusive rights of the patentee in the domestic market and meeting the export demands of other countries for relevant patented products.
The Paris Convention, TRIPS Agreement and Doha Declaration on TRIPS and Public Health stipulate appropriate provisions on compulsory licensing for implementation by member countries of the World Trade Organisation in their national patent systems.
The following are the stipulations in the three documents:
Paris Convention
The Paris Convention was signed in 1883. It was mainly a club of developed countries. At that time, the term ‘working’ of the patent was not defined. Each member country was free to define the ‘working’ of the patent in its own national patent law.
The 1925 amendments of the Paris Convention dealt with forfeiture of patent for non-working after a grace period of three years from the date of grant of patent. The ability of patentees to justify the failure to work the patent was also stipulated in local laws.
The last-amended Paris Convention for the Protection of Industrial Property, of 1967, in its Article 5-A dealt with the issue of compulsory licensing in an adequate manner. Article 5-A stipulates:
“(1) Importation by the patentee into the country where the patent has been granted of articles manufactured in any of the countries of the Union shall not entail forfeiture of the patent.
(2) Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licences to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.
(3) Forfeiture of the patent shall not be provided for except in cases where the grant of compulsory licences would not have been sufficient to prevent the said abuses. No proceedings for the forfeiture or revocation of a patent may be instituted before the expiration of two years from the grant of the first compulsory licence.
(4) A compulsory licence may not be applied for on the ground of failure to work or insufficient working before 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; it shall be refused if the patentee justifies his inaction by legitimate reasons. Such a compulsory licence shall be non-exclusive and shall not be transferable, even in the form of the grant of a sub-licence, except with that part of the enterprise or goodwill which exploits such licence.”
The stipulations in the Paris Convention have become relevant even after the enforcement of the Agreement on TRIPS. Article 2 of TRIPS in Paragraph 1 provides that:
“Members shall comply with Articles 1 through 12, and Article 19 of the Paris Convention (1967).”
The above stipulations in the Paris Convention will be used in this paper to determine possibilities for grant of compulsory licences.
TRIPS Agreement
Article 31 of the TRIPS Agreement deals with ‘Other use (of the patented subject matter) Without Authorisation of the Right-Holder’. Article 31 and its relevant sub-paragraphs stipulate as follows:
Article 31: “Where the law of a member (country) allows for other use of the subject matter of a patent without the authorisation of the right-holder, including use by the government or third parties authorised by the government, the following provisions shall be respected:
(a) authorisation of such use shall be considered on its individual merits;
(b) such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorisation 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. In situations of national emergency or other circumstances of extreme urgency, the right-holder shall, nevertheless, be notified as soon as reasonably practicable. In the case of public non-commercial use, where the government or contractor, without making a patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government, the right-holder shall be informed promptly;
(k) members are not obliged to apply the conditions set forth in sub-paragraphs (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 authorisation if and when the conditions which led to such authorisation are likely to recur;
(l) where such use is authorised to permit the exploitation of a patent (“the second patent”) which cannot be exploited without infringing another patent (“the first patent”).”
The above Article thus covers some of the important contingencies for grant of compulsory licences.
Article 8 on ‘Principles’ also stipulates that, “Appropriate measures, provided that they are consistent with the provisions of this (TRIPS) Agreement, may be needed to prevent the abuse of intellectual property rights by right-holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology”.
Article 28 of the TRIPS Agreement stipulates the rights conferred on the patent-holder. However, Article 30 stipulates exceptions to rights conferred under Article 28. Article 30 reads as follows:
Article 30: “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 interest of third parties.”
The above two Articles can also be used to determine possibilities for grant of compulsory licences.
The TRIPS Agreement, under the above Articles, provides enough flexibilities for grant of compulsory licences.
Doha Declaration
The Doha Declaration on the TRIPS Agreement and Public Health (November 2001) is a landmark Declaration clarifying the rights of member countries with regard to the compulsory licensing system and other stipulations of the TRIPS Agreement. The relevant paragraphs of this Declaration are reproduced below:
“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.
“Accordingly, and in the light of Paragraph 4 above, while maintaining our commitments in the TRIPS Agreement, we recognise that these flexibilities include:
(a) In applying the customary rules of interpretation of public international law, each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles.
(b) Each member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.
(c) Each member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency.”
The Indian delegation to the Ministerial Conference at Doha, in November 2001, played a major role in the framing and adoption of the Doha Declaration on the TRIPS Agreement and Public Health.
The background to this Declaration was recognising the “gravity of public health problems afflicting many developing countries and least developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics”.
The flexibilities confirmed in the Doha Declaration are of utmost importance and should be used by developing countries in framing compulsory licence provisions to ensure a substantive role for domestic enterprises.
Approach in framing compulsory licences
In framing the national patent system, in particular compulsory licence provisions, it is relevant to ensure that there is a co-relation between the patent system and the national health policy.
The national health policy of each country is a paramount document which cannot be ignored because of certain parameters of the TRIPS Agreement on patent systems. The patent system, in fact, should be complementary to ensure the success of the national health policy.
In this connection, the Report of the U K Commission on Intellectual Property Rights states:
“Countries need to adopt a range of policies to improve access to medicines. Additional resources to improve services, delivery mechanisms and infrastructure are critical. Other macro-economic policies need to be in harmony with health policy objectives. But so also does the IP regime. Countries need to ensure that their IP protection regimes do not run counter to their public health policies and that they are consistent with and supportive of such policies.”
National health policy objectives have to be accomplished through this important legal tool, by carefully determining the various possibilities of compulsory licensing to ensure easy affordability and accessibility of medicines for healthcare.
Views expressed in various international studies
UK Commission on IPR: In its report on National Arrangements for Compulsory Licensing, the Commission said:
“An important barrier to compulsory licensing in developing countries is the absence of straightforward legislative and administrative procedures to put it into effect. Because legal systems in most developing countries are overburdened, it would be most appropriate to legislate for a quasi-judicial and independent administrative system for implementation of compulsory licensing. The essential elements would include:
- Straightforward, transparent and fast procedures.
- Procedures for appeals that do not suspend the execution of the licence.
- Legislation that fully exploits the flexibilities in TRIPS for determining the grounds for compulsory licensing, as well as for non-commercial use by government, including production for export.
- Clear, easy to apply and transparent guidelines for setting royalty rates.”
On providing safeguards in a patent policy, the Commission’s report further said:
“TRIPS prescribes a number of conditions that must be met in cases of such ‘uauthorised’ use, but it does not prescribe the grounds on which such use can be authorised. Developing countries can therefore develop their own grounds for authorising compulsory licensing or other exceptions to the rights of patentees (such as Crown or Government Use in developed countries). In considering introducing or revising legislation, they would seek guidance from the patent laws in other countries. For example, the US has used compulsory licensing in more than 100 anti-trust cases. The UK provides that compulsory licences may be granted on the following grounds:
- That the demand for the patented product in the UK is not being met on reasonable terms.
- That the exploitation in the UK of any other patented invention, which involves an important technical advance of considerable economic significance, is prevented or hindered.
- That the establishment or development of commercial or industrial activities in the UK is unfairly prejudiced.”
WHO Commission on Public Health Innovation and Intellectual Property Rights: In dealing with ‘facilitating the entry of generic competition on patent expiry,’ the WHO Commission stipulates that:
“The early working exception constitutes jointly, with parallel imports and compulsory licences, one of the flexibilities that the TRIPS Agreement permits, with an aim to get a balance between private and public interests, as set out in Articles 7 and 8 of the Agreement.”
The WHO Commission report further commenting on ‘The Doha Declaration and Compulsory Licences’ states:
“The Doha Declaration confirmed that WTO members, while maintaining their commitments in the TRIPS Agreement, reaffirmed the right of WTO members to use, to the full, the provisions in TRIPS which provide flexibility for the purpose of protecting public health, including the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.”
South Centre and WHO study on use of facilities in TRIPS: Patent experts Sisule F Musungu of South Centre, and Cecilia O H of the World Health Organisation have dealt with compulsory licensing extensively in the study. They have listed seven possible grounds for granting compulsory licences, based on an analysis of current state practice around the world:
- Refusal to licence: Where the patent-holder has refused, over a reasonable period of time, to enter into a voluntary licensing agreement on the reasonable commercial terms offered by the applicant, the refusal to deal or to license may be a ground for an application for a compulsory licence. The German patent law, for example, provides for such a ground, as does the patent law of the People’s Republic of China.
- Public interest: A general public interest ground for the granting of a compulsory licence is a standard feature in almost all patent laws. Most patent laws do not define “public interest” or provide a non-exhaustive or illustrative list of what may constitute public interest grounds for the granting of a compulsory licence. While this leaves the competent authority with the discretion to determine the ambit of public interest, it may also be expedient to specify a public health ground.
- Public health and nutrition.
- National emergency or situation of extreme urgency.
- Anti-competitive practices.
- Dependent patents.
- Failure to exploit or insufficiency of working.
The authors agree that “compulsory licences can therefore play a crucial role in ensuring that patent laws are able to meet public health needs, and that patent rights do not unnecessarily hinder or prevent access to affordable medicines. Compulsory licences may be granted to enable the production of generic versions of patented medicines or their importation from foreign producers”.
Views of international experts on the patent system
J H Reichman, Professor of Law, Duke University School of Law, in his paper ‘Non-Voluntary Licensing of Patented Inventions’ (September 2002), has clarified many important aspects of compulsory licensing. Some of the observations are:
“On the whole, Article 31 thus leaves considerable leeway to policymakers and administrators in both developed and developing countries to impose non-voluntary licensing of patented inventions for any legitimate purpose and without undue constraints. In particular, any government that seeks to bring a patentee’s practices into line with its own policies, especially with regard to disciplining the prices at which the patented articles are to be locally distributed, can achieve its aims within the confines of Article 31.”
With regard to the impact of the Doha Declaration on public health, Professor Reichman, in the same paper, states that:
“This (Doha Declaration) highly political document recognises that many developing countries are experiencing public health epidemics, and it stresses the need to reconcile the TRIPS Agreement with national and international efforts to address such crises.”
He adds:
“The Doha Declaration on Public Health attempts to clarify the flexibility already embodied in the TRIPS provisions concerning the use of non-voluntary licences to address public health problems, and it may help to alleviate certain misunderstandings that previously clouded these issues.” For example, the drafters “reaffirm the right of WTO members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility… to protect public health, and, in particular, to promote access to medicines for all”. To this end, they expressly declare that, “each member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted”. While this provision adds nothing to the substantive legal framework of Article 31, it attempts to clarify prior misperceptions, and it supplies an authoritative and “unequivocal statement regarding the right to members to grant compulsory licences”.
Dr Jakkrit Kuanpoth, Associate Professor of Law, Sukhothai Thammathirat Open University, Thailand, in his paper ‘Options for developing countries for improving access to essential medicines’, has dealt with the grounds for issuing a compulsory licence. The relevant extracts from this paper are as follows:
“The compulsory licence was initially used to force the patentee to work his invention. But it may also be used on other grounds, such as for remedying anti-competitive practices, cases of a national emergency, protecting environment and health.
“The following grounds may be specified in national law for the issuance of a compulsory licence:
- Non-working: such as when the patented invention is not being worked for the production of drugs within the patent-granting country.
- Anti-competitive practices: such as in the case where demand for the patented drug in the country is not being met on reasonable terms. This refers to the situation when the patentee refuses to sell the products protected by the patent, in the country, in sufficient quantity, or when such products are sold at an excessive price.
- Refusal to deal: for example, when the patentee has refused to grant licences to others on reasonable and equitable terms within a specified period. This refusal should be restricted as it prejudices the establishment or development of commercial or industrial activities in the country.
- Protecting public interest: such as in emergency situations, war, epidemics, a natural catastrophe, etc.
- Parallel patents: for example, when a patent-holder refuses to grant a licence to another person who is the holder of a dependent patent of an improved invention or a selection patent. The holder of the dependent patent can apply for a compulsory licence to work the invention on condition that he is prepared to cross-licence his own patent on reasonable terms.
“While in theory the compulsory licence can play a crucial role in protecting public health interests, in reality use of this safeguard is minimal. The law in most developing countries adopts the principle of compulsory licence, but it is rather ironic that those nations are equally unwilling to occasion forfeiture of patent. The real difficulty may stem from political difficulties rather than economic or technical reasons.”
Professor Carlos M Correa of the University of Buenos Aires, in his comprehensive paper ‘Implications of Doha Declaration on the TRIPS Agreement and Public Health’, published by the WHO in June 2002, has interpreted Paragraph 5 (b) of the Declaration (which says ‘Each member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted’) as follows:
“Developing countries have identified compulsory licensing as one of the key instruments that may limit the exclusive rights of the patent-owner when needed to fulfil certain objective of public policy, particularly in order to ensure the availability of alternative sources for the supply of medicines at lower prices.
“Sub-paragraph 5 (b) of the Doha Declaration deals with an issue central to the interests of developing countries. It simply states what is apparent: Article 31 sets forth a number of conditions for the granting of compulsory licences (case-by-case determination; prior negotiation, in certain cases with the patent-owner; remuneration, etc) but it does not limit the grounds on which such licences can be granted. Though Article 31 refers to some of the possible grounds (such as an emergency and anti-competitive practices) for issuing compulsory licences, it leaves members full freedom to stipulate other grounds such as non-working, public health, or public interest.”
Further, Professor Carlos Correa argues:
“The Doha Declaration addresses real and urgent problems faced by many developing countries in the area of public health. It is not intended to amend the TRIPS Agreement in any substantial manner. Rather, it aims to clarify the relationship between the TRIPS Agreement and public health policies of member countries, and confirm the rights that members have retained under the Agreement, particularly by defining the flexibility allowed in certain key areas.
“Though an important political document, the Doha Declaration also has legal effects, equivalent to those of an authoritative interpretation under WTO rules.” |
