TWN Info Service on Intellectual Property Issues (Jul19/02)
5 July 2019
Third World Network

WIPO: Compulsory License a crucial public policy tool, say developing countries

Geneva, 4 Jul (Prathibha Sivasubramaniam and Sangeeta Shashikant): Compulsory license is a vital public policy tool to tackle high prices of essential goods such as medicines and to counter anti-competitive practices of the patent holder, say developing countries at the World Intellectual Property Organisation (WIPO).

The occasion was the 30th session of the WIPO Standing Committee on Law of Patents (SCP) which met in Geneva on 24-27 June 2019.

The developing countries asserted that compulsory licenses are an integral part of a strong and effective patent law, and stressed the importance of policy space for Member States to develop and adopt exceptions and limitations to patents. Such policy space is explicitly provided for in the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) administered by the World Trade Organization.

Ironically developed countries, frequent users of compulsory licenses, expressed restraint in the use of such licenses.

Compulsory license was the main topic of deliberations during the SCP agenda item on exceptions and limitations (E&L) to patents. The WIPO Secretariat prepared the “Draft reference document on the exception regarding compulsory licensing” (SCP/30/3), with the following sections: (i) overview of the exception regarding the compulsory licensing; (ii) objectives and goals of the compulsory licensing; (iii) compulsory licensing and international legal framework; (iv) compulsory licensing provisions in the regional instruments; (v) national implementation of the exception regarding compulsory licensing; (vi) challenges faced by Member States in implementing the exception regarding compulsory licensing; and (vii) results of implementation of the exception regarding compulsory licensing.

Extensive comments were presented on the Secretariat’s draft reference document, highlighting in particular gaps in the document and robustly challenging several of the assertions made in the document.

Discussions on E&L to patents has gained momentum in the SCP following Brazil’s proposals on the subject (SCP/14/7 and SCP/19/6).

At the start of the 30th session of the SCP, developing countries stressed the importance of TRIPS flexibilities including E&L to address prevailing socio-economic challenges.

Indonesia, speaking for the Asia and the Pacific Group noted that, “even when minimum international standards of patent protection were set out by the Paris Convention and the TRIPS Agreement, the patent laws essentially remain territorial”.

“As a result, countries have significant room or ‘flexibility’ to formulate domestic patent laws and maintaining this flexibility is critical for policy planners to craft, amend or delay domestic patent laws in accordance with national development priorities and social and economic realities”, it added.

Indonesia further stated “TRIPS flexibilities take into consideration these differences” as it “allows governments – especially in countries with limited resources – the necessary policy space to meet their health needs and at the same time foster innovation”.

It stressed that SCP’s work is “very important in creating a balance between the rights of patent owners and the larger public interest particularly in the area of public health, technology transfer and patent related flexibilities”.

Uganda on behalf of the Africa Group in its opening statement recalled the general understanding in the Committee, that discussions on agreed issues on the agenda are to be undertaken without the expectation of any norm-setting at this stage.

It said “the role of patents in innovation and how to enhance its effectiveness are matters of continuing debate, in principle, patents promote innovation by providing incentive to invest in Research & Development for social and economic development”, adding that “in order to achieve this objective, the patent system should provide a balance between interests of rights-holders and the legitimate interest of the public to access to knowledge and innovation. Indeed, a wide range of policy options and flexibilities are built into the international IP regime that can be used to pursue development objectives of developing and least developed countries including, differing IP exhaustion regimes, the criteria for grant of a patent, pre-grant and post-grant opposition procedures, as well as exceptions and limitations to patent rights once granted”.

Specifically on compulsory license (SCP/30/3) Uganda argued that for the patent system to be effective, access to fruits of innovation and health technologies should be available to the public. It stressed that countries should maintain the flexibilities to grant such licenses.

Generally on E&L, Brazil emphasized that E&L are “an integral and necessary part of a strong and effective patent system”, adding that a “basic tenet of the patent system is that legislation should provide incentives that lead to new discoveries and inventions, while ensuring that those incentives are not overly restrictive and do not create barriers to innovation and dissemination of knowledge. It is under such framework that the role of exceptions and limitations should be addressed”.

It expressed belief that “all Member States have the obligation to pursue a balance between the interests of the IP right holders and those of society as a whole. Preserving such balance is the best way to safeguard the legitimate interests of all stakeholders of the patent system. For instance, the regulatory review exception, also known as the Bolar exception, plays an important role in providing the realization of that balance, especially by ensuring that the market power granted by a patent does not create anti-competitive externalities beyond the term of protection of 20 years”.

“This is also true regarding compulsory license for patents”, Brazil further said, adding that it was a very important exception “to restore the balance in the special cases when its use is required, such as, but not limited to, emergency health situations or the anticompetitive use of patents”.

Commenting on the Secretariat’s document (SCP/30/3), Brazil pointed out that “the general rationale observed is that countries view the Compulsory Licensing mechanism as a tool for achieving the economic and social interest of societies” adding that “technical capacity is pointed out as one of the barriers to the enjoyment of compulsory licenses”.

Referring to paragraph 225 of the document, which mentions a study which concludes that “there were circumstances in which welfare effects increased globally when compulsory licensing was used, even in light of its effect on innovation”, Brazil suggested that more economic studies could be done to clarify aspects of the use of compulsory licenses including by the WIPO chief economist.

India said that it has a robust and balanced compulsory licensing system that is TRIPS compliant. It said that in 2012, it granted a compulsory license to a generic company for manufacturing a life-saving kidney and liver cancer medicine, Nexavar (sorefinib tosylate) and this was priced at 9000 Rupees (about USD130) for a month’s treatment. (In contrast, Bayer, the patent holder priced its product at USD 4121.55.)

India also referred to two other occasions where it had refused compulsory licenses when the requests did not meet national patent law requirements.

Dominican Republic raised the challenge of high prices of pharmaceutical products as many new molecules are patented resulting in extraordinarily high prices affecting national health budgets, creating difficulty in making these available to the people. It requested WIPO to conduct further studies on the cost of R&D.

Pakistan also pointed out that provision of compulsory license is an important tool in maintaining competition and increasing affordability of drugs, adding that the TRIPS Agreement allows Member States to adopt measures to promote public interest for their socio-economic and technological development. It urged WIPO to build on the existing work and enhance technical and legal assistance and raise awareness on E&L.

Iran stressed the importance of E&L in supporting appropriate functioning of the patent system adding that rights granted by patents are not absolute and flexible policy space is necessary for Member States to develop and adopt E&L.

Canada on behalf of developed countries (known as “Group B”) said the use of E&L is appropriate under specific circumstances; however excessive use would undermine the incentives (for industry) and would be detrimental to innovation.

The United States said that unrestrained application of compulsory license tends to undermine patent rights, reduce incentives to research and development and unfairly shift the burden of such research and development to foreign markets and discourage the introduction of new inventions. It maintained that compulsory license should be used in only limited circumstances and after making every effort to obtain authorization from the patent owner on reasonable commercial terms and conditions.

Third World Network (TWN) said that compulsory licenses (also known as non-voluntary licenses) are a crucial flexibility to increase access to medicines and reduce cost of medicines as recognized under Article 31 of the TRIPS Agreement. Target 3b of Goal 3 of the UN Sustainable Development Goals and the Doha Declaration (on TRIPS and Public Health) affirms the right to use TRIPS flexibilities to protect public health and secure access to medicines, TWN added. It further stressed that procedures for compulsory license should not be cumbersome and injunctions should not be issued on compulsory license orders during the review process as such procedures will have a chilling effect on the actual grant of compulsory license and access to medicines.

Countering statements by some developed countries that compulsory license should only be used in exceptional circumstances, TWN said that no such condition exists in Article 31 of the TRIPS Agreement, adding that developed countries such as Canada, the US and Italy have frequently used compulsory licenses.

TWN also provided several observations on SCP/30/3.

It pointed out major gaps in the Secretariat’s document, in particular the absence of information on judicial non-voluntary licenses whereby a court refuses an injunction and allows use of the patented inventions subject to payment of royalties, adding that there are many examples of such licenses in developed countries, particularly in the US in the area of medical technologies and beyond.

Another shortcoming that TWN underlined was the limited information on use of non-voluntary licenses by competition authorities. In 2007, the Italian Competition Authority required the Merck Group to grant free licences to allow the manufacture and sale in Italy of the active ingredient Finasteride and related generic drugs used for the treatment of prostate as well as male pattern hair loss. The royalty-free compulsory licenses were remedies to Merck’s earlier refusal to license the patents to Italian manufacturers of active pharmaceutical ingredients.

Hence, the assertion in paragraph 217 of SCP/30/3 that compulsory license has rarely been used is not fully accurate, TWN countered.

With respect to paragraph 191 of SCP/30/3, on “Extrinsic Influences”, TWN said the section would benefit from more detail on the sort of tactics used by certain governments and by industry to undermine the use of compulsory license. It further added that one such tactic is threatening to place countries on a Watch List (of the US) although the WTO Dispute Settlement Panel has held that unilateral trade sanctions without going through the WTO dispute settlement process is a clear violation of the WTO agreement.

Paragraph 222 of SCP/30/3 features the concern of the International Federation of Pharmaceutical Manufacturers and Associations that a compulsory license can have a chilling effect on their research and development, alleging that the cost of bringing a new medicine to market is estimated to be over USD1 billion.

In response, TWN said that the paragraph should also point out that apart from industry’s own assertion, there is no real verified evidence of the true costs of R&D. Moreover, many developed countries such as Canada, the US and Italy have been issuing non-voluntary licenses with no evidence of decline in innovation, TWN added.

It further said that in several cases, the industry itself is seeking non-voluntary licenses. For instance, in Germany, Merck requested a compulsory license amidst preliminary patent infringement proceedings in response to the patent holder’s request for an injunction to bar Merck from selling the allegedly infringing drug. The Federal Supreme Court agreed that the public interest warranted the compulsory license, given the threat that an injunction creates for certain HIV patients.

Referring to paragraphs 218, 219 and 229 of SCP/30/3, that claim price negotiations can lead to better price outcomes than compulsory license, TWN referred to a study by Médecins Sans Frontičres (MSF) on lessons from Brazil and Thailand, which argue that price negotiation does not help in reducing cost as much a compulsory license would. TWN also said that paragraphs 224 to 229 of SCP/30/3 rely on “selective literature” and does not fully reflect key findings concerning the use of compulsory licenses.

On paragraph 228 of SCP/30/3 TWN stressed that voluntary licenses granted by patent holders do not necessarily lead to technology transfer. For instance, in India, a quick analysis of the patent working statement filed by the pharmaceutical patent holders reveals that voluntary licenses granted to generic companies are only for marketing the patented product, without technology transfer and the majority of the patented drugs are being imported into the country.

TWN contended that SCP/30/3 would benefit from receiving feedback from observers as well as Member States on its contents.

It also urged countries to take urgent steps to address the challenge of access to affordable multi drug resistant TB drugs, delamanid and bedaquiline, which are widely patented in most high TB burden countries. An estimated 558,000 people developed drug-resistant tuberculosis (DR-TB) in 2017, but only about 25 per cent were treated.

It referred to MSF’s findings that “[t]he estimated price of longer individualised treatment regimens could now reach more than USD 2,000 for people who need at least 18 months of bedaquiline, which would represent a 50 per cent price increase over previous standard treatment. For people who might need both bedaquiline and delamanid for as long as 20 months, the price increase could reach 500 per cent, with a treatment regimen priced at around USD 9,000.”

TWN called upon WIPO Member States to make use of compulsory license to ensure access at affordable prices, rather than relying on unsustainable donation programmes. Countries where TB medicines are not patented were called upon to explore opportunities for generic production to supply those with high TB burden.

Knowledge Ecology International (KEI), provided background to the use of compulsory licenses as a limitation on remedies, pointing out that in 2006, the United States Supreme Court, in a decision involving eBay, the online auction service, held that injunctions on patents can only be issued if other remedies for infringement are rejected, including granting compulsory licenses on infringed patents. Since 2006, the courts in the US have issued a number of compulsory licenses on patents, including compulsory licenses that have benefited Microsoft, Toyota, DirectTV, Johnson and Johnson, Abbott Laboratories and other leading technology and manufacturing firms, KEI added.

Furthermore, in the field of medical technologies, courts in the US have rejected injunctions and ordered running royalties in several cases, among others: oral contraceptives, transcatheter heart valves, contact lenses, and hepatitis C diagnostic tests, KEI said, fhighlighting two eBay cases involving non-medical technologies.

In 2009, in Paice v. Toyota, US District Court Judge David Folsom issued an ongoing royalty rate in light of patent infringement by three of Toyota’s vehicles. Paice had filed a lawsuit in 2004 alleging that Toyota’s Prius, Highlander SUV, and Lexus RX400h SUV vehicles infringed patents held by Paice relating to the drive train for hybrid electric vehicles. Toyota was found to be infringing on one patent and a jury awarded Paice USD 4,269,950 in damages. The court set an ongoing royalty rate as a percentage of wholesale vehicle price per model in question. The rates decided were 0.48 percent on each Toyota Prius, 0.32 percent on each Toyota Highlander, and 0.26 percent on each Lexus RX400h sold for the remaining life of the patent.

In relation to this case, KEI quoted Judge Randall Rader who said:

“District courts have considerable discretion in crafting equitable remedies, and in a limited number of cases, as here, imposition of an ongoing royalty may be appropriate. Nonetheless, calling a compulsory license an “ongoing royalty” does not make it any less a compulsory license.”

In the 2012 case of Apple v. Motorola, Judge Richard Posner dismissed without prejudice the patent infringement suits filed in Apple Inc. v Motorola, Inc. in the United States District Court for the Northern District of Illinois (Eastern Division) in June 2012. In this case, the judge cited the eBay decision noting that neither party was entitled to injunctive relief as neither party demonstrated that “damages would not be an adequate remedy”. In fact, the judge specifically noted that a “compulsory license with ongoing royalty is likely to be a superior remedy in a case like this because of the frequent disproportion between harm to the patentee from infringement and harm to the infringer and to the public from an injunction.”

KEI reiterated its request to the WIPO Secretariat to revise the draft reference document on compulsory licensing to include a section on cases where non-voluntary use was employed as a limitation on remedies.+