Compulsory Licensing of Patents in
South Africa
James Love
Consumer Project on Technology
Implementing the Doha Declaration on TRIPS and Public Health
Meeting hosted by
Treatment Access Campaign and the Aids Law Project
18 March 2003
Cost
Tim Hubbard’s demand curve
problem
+ Marketing
+ R&D
Cost + Profit
Free
People treated
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 nonexclusive 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 LICENCES
Applications
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 anticompetitive.
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 anticompetitive.
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)
(i)
(ii)
(iii)
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:
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;
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
the use authorized in respect of the first patent shall be nonassignable 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.
2.
3.
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.
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.
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. "Preexpiration 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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