an evaluation of compulsory licences (patents), in england & wales and the wto
Post on 18-Jul-2015
39 Views
Preview:
TRANSCRIPT
Nottingham Trent University
Nottingham Law School
An Evaluation of Compulsory Licences (Patents), in England &
Wales and the WTO
Written by Sean Christopher O’Hanrahan (Hons Irish) L.L.B.
LLM General Law
2007/2008
Table of Contents
Acknowledgement
Chapter 1
• Introduction. (Page: 1)
Chapter 2
• 2.1 General. (Page: 3)
• 2.2 Brief History of Patent Law. (Page: 3)
• 2.3 The Proprietary Rights vs. a Licence Agreement. (Page: 7)
Chapter 3
• 3.1General. (Page: 10)
• 3.2The Role of Intellectual Property Law. (Page: 10)
• 3.3 Benefits and Limitations of a Patent. (Page: 12)
• 3.4 Justifications of a Patent. (Page: 15)
• 3.5 Public Interest. (Page: 16)
• 3.6 Incentive to Innovate in Pharmaceutical Industry. (Page: 18)
• 3.7 Competition and Innovation. (Page: 20)
• 3.8 Cost R&D in the Pharmaceutical Industry. (Page: 21)
• 3.9 Copying of Pharmaceutical Drugs. (Page: 22)
• 3.10 New Drug Approval Procedure. (Page: 22)
• 3.11 A Strong or Weak Enforcement of Intellectual Property. (Page: 24)
• 3.12 A Strong Patent Enforcement System. (Page: 25)
• 3.13 A Weak Patent Enforcement System. (Page: 27)
Chapter 4
• 4.1 General. (Page: 30)
• 4.2 Compulsory Licence. (Page: 31)
• 4.4 History of Compulsory Licence in the UK. (Page: 32)
• 4.5 Comptroller. (Page: 34)
• 4.6 A Section 48 Licence. (Page: 35)
• 4.7 WTO-Members. (Page: 36)
• 4.8 Non WTO-Members. (Page: 37)
• 4.9 Competition Commission. (Page: 38)
• 4.10 Compulsory Licence and Europe. (Page: 40)
• 4.11 European Competition. (Page: 41)
• 4.12 Refusal to Supply. (Page: 42)
• 4.14 Crown Use. (Page: 43)
• 4.15 Royalty Fees. (Page: 43)
Chapter 5
• 5.1 General. (Page: 47)
• 5.2 TRIPS Agreement. (Page: 47)
• 5.3 Aims and Objectives of the TRIPS Agreement. (Page: 49)
• 5.4 The TRIPS Agreement and Pharmaceutical Patents (Page : 49)
• 5.4 The HIV/AIDS Virus. (Page: 51)
• 5.5 Generic Medicines. (Page: 51)
• 5.6 Amending the TRIPS Agreements. (Page: 53)
• 5.7 Doha Declaration. (Page: 55)
• 5.8 Background to the Doha Declaration. (Page: 56)
• 5.8 Potential Problems. (Page: 57)
• 5.10 Data Exclusivity. (Page: 58)
• 5.11 Political Barriers. (Page: 59)
• 5.12 Reactions to the Doha Declaration. (Page: 60)
Chapter 6
• 6.1 General. (Page: 63)
• 6.2 South Africa. (Page: 63)
• 6.3 Brazil. (Page: 65)
• 6.4 U.S Policy on the TRIPS Agreement and Doha Declaration. (Page: 70)
• 6.5 U.S and Canada. (Page: 73)
Chapter 7
• 7.1 General. (Page: 76)
• 7.2 The Pharmaceutical Industry’s Social Responsibility. (Page: 76)
• 7.3 Human Rights and Intellectual Property Rights. (Page: 78)
• 7.4 Intellectual Property as a Human Right. (Page: 79)
• 7.5 Health as a Human Right. (Page: 80)
Chapter 8
• Conclusion. (Page: 84)
• Bibliography. (Page: 88)
Acknowledgements
I would like to express my thanks to Nottingham Trent University for allowing me this opportunity to complete this Masters. I would like to express my gratitude to all the members of staff in the law school department.
I would especially like to thanks my parents for the support throughout this and previous academic endeavours. I would like to pay special thanks to both my brother Eddie O’Hanrahan (London) and my flatmate Mustafa Raniwalla (Nottingham), for all the advice and proof reading on the dissertation. Ultimately to all the people who provided a support, a most sincere thanks.
Chapter 1
Introduction
This dissertation outlines and evaluates the role of compulsory licences under the
patent system of intellectual property law. The evaluation will consider the domestic
and international role compulsory licensing plays in achieving objective policies.
The English legal system has had an influential role in the development of the modern
international patent system. A discussion on historical development of the patent
system in the UK will illustrate the long tradition of tension between the private rights
of the patentee and the requirement of public interest in the patent system. This
discussion will include an examination of the nature the modern patent rights.
In evaluating the role of the modern patent system, an analysis will be carried out of
the rationale and function of the patent system. The assessment will show how the
patent system responds to inherent tensions between public and private needs. This
assessment will also show the justifications and benefits of the patent system within a
society. This assessment will include corresponding methods of enforcement of the
patent system. A special emphasis will be placed upon the pharmaceutical industry
influential contribution to patent law and society.
In carrying out the examination, it shall be shown the evolution of compulsory
licensing system as a response to counteract the inherent tendency of monopolistic
control created by patent law in the UK. There will be an assessment of the modern
use and influence of compulsory licence under the Patent Act 1977 (as amended) and
the international community. The analysis of the differing jurisprudential jurisdictions
will show how the compulsory licence system interacts with influential economic and
public policy considerations.
A comprehensive analysis will be carried out on the international patent law system of
the World Trade Organisation. This will show the aims and objectives, the benefits
and deficiencies of international patent law in addressing tension between the private
rights of industry and the global policy. A special emphasis will be placed upon the
TRIPS Agreement and Doha Declaration in providing the developing world with
pharmaceutical products.
The examination of the TRIPS Agreement and Doha Declaration will include a case
study of Brazil and South Africa. The examination shall include an illustration of the
motivations and control of use of compulsory licensing by the developed world,
specifically the United States of America. The examination will highlight the
limitations, deficiencies and interpretations used by the developed world in response
to global health crisis caused by the Human Immunodeficiency Virus (HIV)/
Acquired Immune Deficiency Syndrome (AIDS) and other epidemics, in the
developing world. It will also show how the pharmaceutical industry influences the
developed world’s global political interpretations. Thus, a further examination of will
be carried out of the social responsibility of the pharmaceutical industry.
The assessment will show the failures of global community in achieving the policy
objectives, through the use of the compulsory licensing system. An alternative
independent global justification for the use of compulsory licences will be proposed in
the form of human rights. Essential the human rights will outline an alternative
solution to the international tension between the patent-holder and the policy
objective, in providing access to pharmaceuticals.
Chapter 2
General
This chapter will outline the historical development of the patent system in England
and Wales. As a consequence England’s colonial past, many former colonies have
been influenced by the English legal system, for example the Indian Patent & Design
Act 19111.
An assessment of the modern patent system, both at a national and international level
therefore begins with the UK. The historical development of the patent system
illustrates the inherent tension between the private rights of the patentee and the
public interest requirement of patents.
Also outlined is the general nature of a patent and the rights attached. The patents
classification and nature of the rights will to be analysed, to show the core benefits of
the patent system and why the patent system is commercially important to large
industries.
History of Patent Law
1 Patents for Chemicals, Pharmaceuticals and Biotechnology, Fundamentals of Global Law, Practice and Strategy, Philips W. Grubb, Fourth Edition, Oxford University Press.P.37
Intellectual property (IP) law has a long tradition in English law. Though IP law may
seem to be modern legal concept, the truth is, IP law for example pre-dates modern
company law by nearly 400 years.
‘‘The United Kingdom has enjoyed a system of company registration since 1844.
Today, company registration matters are dealt with in law, by the Companies Act
1985 and the updating legislation contained in the Companies Act 1989.’’2
The UK patent system is the oldest system of intellectual property rights (IPR’s), in
the world and thereby informs any meaningful consideration of national and
international laws governing the regulation of this form of IP law. England has played
a key role in developing patent rights and has set the mould on the international level,
especially in terms of compulsory licences3.
The four main categories of IP law are patent, copyright4, trademark5 and design6. To
concentrate on the nature of patents, a patent is defined as an exclusive right to exploit
an invention7. It seeks to protect the invention and reward the inventor of a product or
process while restricting the use of the same subject matter even where another has
developed the same subject matter independently. It is for this reason that an
assessment of patents (as distinct to another branch of IP law) is so critical to
understanding to development of practices and policies of the international
pharmaceutical organisations and has a direct correlation to the development of
compulsory licences which are designed to ensure a limited restriction on the 2 www.companieshouse.gov.uk/about/functionsHistory.shtml3 Bainbridge, INTELLECTUAL PROPERTY, FIFTH EDITION, 2002. P3454 Copyright created by the Statute of Anne 1709.5 First system of registering trademarks created in 1875. 6 Design rights, first created by the Design & Printing of Linen Act 1787. 7 Oxford Dictionary of Law, Sixth Edition 2006, Oxford University Press.
propriety rights of the patentee for the benefit of the wider society in times of need or
emergency . A patent compulsory licence is a statutory provision governed by the
Patent Act 1977 (as amended) which allows third parties to exploit the patent where
the patentee is unwilling or unable to exploit the patent subject to a royalty fee8,
The first appearances of patents were in the form of Letters of Patent, a Royal
Prerogative. A monarch would grant exclusive rights and privileges, by way of Letter
Patents9. Letter Patents were open letters stamped with the King’s Great Seal. The
objective of the Letter Patent was the encouragement of new trade and development
industry for the economic benefit of the public and the State10. The creation of
monopolies incentivised traders to promote new inventions and technologies for the
country while providing necessary employment and education for the public. In 1449,
King Henry VI granted the earliest known English patent to Flemish-born John of
Utynam, for 20 years for a method of making stained glass at Eton College11.
During the reign of Elizabeth I, claims of the abuse of the Letters of Patents arose. In
1610 James I preformed the first amendment to the Letters of Patent Act 1571. The
Statute of Monopolies 1623 was the first patent statute. Patents were granted for
fourteen years, on the condition the patent was ‘not contrary to the Lawe nor
mischievous to the State, by raisinge prices of Commodities at home, or hurt of
Trade, or generallie inconvenient’12. Thus, the Statute of Monopolies recognised the
fact that patents had the capacity to be exploitative and therefore sought to regulate 8 Intellectual Property Law, Bently and Sherman, Second Edition P 561. 9 Elizabeth I enacted the Letter Patent Act 1571, new inventions were patented on the condition the invention was not contrary to the law nor damaging to the state, hence ensuring the creation of patent limited by the public interest benefit. 10 INTELLECUAL PROPERTY LAW, BENTLY & SHERMAN, SECOND EDITION 2004, OXFORD P.323.11 www.ipo.gov.uk/about/about-ourorg/about-history/about-history-patent.htm12 Statute of Monopolies 1623 c.3 21 Ja 1.
the state sanctioned monopolies and thereby ensure that they would not to be used in
an abusive or untoward manner.
Over the centuries, the necessary elements of the modern day patent system have been
introduced namely: the registration procedure13, public disclosure14, and
specifications15. The Patent Office overhauled the patent system by the Patent Law
Amendment Act of 1852. The new regime created a simplified procedure, reducing
the cost and allowed for a single publication of a patent in the Great Britain and her
colonies at the time.
As part of the Patent Amendment Act 1852, compulsory licences were incorporated
for first time. The statutory provisions14 sought to protect the wider society from
exploitative monopolistic control of a patent by its holder. Thus, legal remedies were
introduced as a means to observe the public policy concerns deemed necessary within
the patent system.
It was not until Patent Act 1902 that the examination of the particular elements of a
patent (such as novelty, inventiveness, etc.) and its status legal and validity became
intertwined. This was unlike the United States of Patent Office, where this had been
the practise since 183616. Further elements of the English patent system were
introduced by statutory revision 1907, 1919 and 1949.
13In the 17th century, the Court of Chancery created the registration procedure necessary for a patent. www.ipo.gov.uk14The 18th century, introduced the public disclosure requirement of a patents. Gowers Review of Intellectual Property December 2006 P.1215 1718 The Law Officers of the Crown required a specification.16Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights by W. Cornish & D. Llewellyn, 6th Edition, Thomson Sweet & Maxwell. P.118
The Patent Act 1977 (as amended) (the Act) represents the modern governing
legislation. The Act represents a dramatic departure from what had gone before as it
was the result of a hybrid of national, European and international agreements.
“The overall objectives of intellectual property laws are to protect and reward, and
thus provide an incentive to, innovation and creation, while ensuring that the
resulting rights and obligation strike a fair balance between the originator, his
competitors and the user.”17
The effect of the Act was to enhance modern industry and accommodate future
developments in technology, while implementing the principles and policies of the
international agreements for example which had sought to bring about a global
standardisation of the patent system under the Trade-Related Aspects of Intellectual
Property Rights Agreement (TRIPS Agreement).
Proprietary Rights vs. a Licence Agreement
Patent rights grant the patent owner (the patentee) an exclusive propriety right. A
patent can be assigned, mortgaged or licensed as any other property right18. The
registration of a patent is only evidence that a patent has been granted. Once
registered, a patent binds all third parties without notice by the terms of ownership as
property established under statute19.
17 Intellectual Property and Innovation ,UK Government White Paper 1986, Cmnd 9712, 1986 cited in Modern Intellectual Property Law Second Edition Colston & Middletonn , Cavendish Publishing Limtited P.7818The Patent Act 1977(as amended), S.30. 19The Patent Act 1977 (as amended), S.33(1).
The propriety right of a patentee provides, enables him only to prevent others from
performing specific actions. Patentees do not have a positive right to compel a third
party to perform an action which they would not freely perform, thus the right is a
negative right20. The negative right is derived from the requirement of registration21.
Due to the nature of patent rights being a private right only a State can legitimately
restrict a property right by using a compulsory licence.
By contrast, the parties to a licence agreement enjoy freedom of contract and can
negotiate terms and conditions of use of the patent. Patents can therefore be used in an
anti-competitive manner by the imposition of excessive restrictions by the contracting
patentee. In recognition of this, in certain exceptional circumstances a compulsory
licence may be issued by the State, outlined in Chapter 4.
“compulsory licensing enables the government granting the patent to force the
patentee to license the invention if the government does not approve of the patent’s
use and consequently, another individual or company is allowed to make and sell the
invention.”22
A patent seeks to protect the invention of a product or process. Patent rights restrict
the use of the same subject matter even where someone develops the same subject
matter independently. A compulsory licence ensures a limited restriction on the
propriety rights of the patentee. This safeguard is necessary to stop private bodies, in
times of need or emergency caused by war or disease. Therefore a compulsory licence
20 A User’s Guide to Patents, Cook, Buttersworth LexisNexis 2002 P.721 Patent Act 1977 (as amended) , S11(1).22 ‘NOTE: Reasoned Compulsory Licensing: Applying U.S. Anti-trust’s “Rule of Reason” to TRIP’s Compulsory Licensing Provision’, Dora Kripapuri, N.E.L.R, Vol 36-3, 677. Citing... Cole M. Fauver, Compulsory Patent Licensing in the United States: An Idea Whose Time Has Come, 8 NW. J. INT’L L. & BUS. 666, 667 (1988).
seeks to balance the exclusive control of a patent by its holder against the needs of the
society at large.
The origin of the modern patent system, even influences which have been raised in
the recent debate on the TRIPS Agreement and HIV/AIDS epidemic, have roots in the
history of the UK patent system.
IPR’s have enhanced the trade incentives. The telephone serves as a remarkable
example, by patenting the telephone in 187623 the age of modern globalisation and
international trade had taken root. IP law is a catalyst for development and change in a
globalised world. The telephones provide a means to communicate over the sea and
ocean in minutes rather than months at a time.
The patent system provided the globalising world with an opportunity, a means of
creating and claiming property. It also introduced a system which was capable of
being abused and exploited to the detriment of society by enabling the patentee the
ability to restrict his property. The balancing of private rights of the patentee and the
public interests of society has always been required. These inherent conflicting
interests have been essential elements in shaping the modern day patent law system,
domestically and internationally. The compulsory licence system is an attempt to
balance both competing interests.
23 On March 7, 1876, the U.S. Patent Office granted Alexander Graham Bell (1847 -1922) a patent for a communication device for "transmitting vocal or other sounds telegraphically."
Chapter 3
General
As outlined in Chapter 2, the international and domestic patent system provides
obvious benefits for both society and the would-be patentee. The specific benefits of
the patents system play an ever increasing role in developed and developing societies.
However, as we have seen, there exists a tension within the patent regime between
these competing groups: the objective of incentivising enhancement of certain
commodities by legally permitting significant private gain to the exclusion of others
operates in a way so as to also legally hinder access to this type of property to the
potential detriment of the public, in particular those sections of society (or nations of
the World) that cannot afford the cost of accessing this information. So the question
poses: “how should the law of patents respond to this tension and how, if at all, should
the law be changed?” To answer this, one needs to consider the function and
justifications at the heart of the IP and patent system. This chapter therefore assesses
those elements of intellectual property, with particular attention to patent law and the
needs of society.
The Role of Intellectual Property Law
IP provides a systematic structure which incentivises the development and
improvement of human processes through firstly, sharing technical knowledge and
creativity, and secondly, financially rewarding the successful creator. The patent
system performs three principal roles within for society; for incentivising innovate,
collection of knowledge and protection of the creation24.
Therefore, IP law and, in particular, the patent law system has been instrumental in
the development of modern society. Consider for example the patentable telephone in
187625. With the prospect of serious rewards offered by the patent system, massive
developments in technology occurred ultimately leading to the mobile telephone and
the internet.
Since the development of the corporate structure26 in the 19th century and the
subsequent emergence of globalisation in the 20th century27, IP has played a hugely
important role in the enhancement of international trade and economics. Indeed, this
view of IP has been formally acknowledged and encouraged at a State level:
‘’The overall objectives of intellectual property laws are to protect and reward, and
thus provide an incentive to, innovation and creation, while ensuring that the
24 Gowers Review of Intellectual Property December 2006 P.1125 On March 7, 1876, the U.S. Patent Office granted Alexander Graham Bell (1847 -1922) a
patent for a communication device for "transmitting vocal or other sounds telegraphically."26 Salomon v Salomon & Co. Ltd (1896), [1897] A.C. 22 (H.L.)27 Between 1905 and 1918 The Coca-Cola Company moving into Canada, Panama, Cuba, Puerto Rico, France, and other countries and U.S. territories. In 1900, there were two bottlers of Coca-Cola; by 1920, there would be about 1,000. www.heritage.coca-cola.com/
resulting rights and obligation strike a fair balance between the originator, his
competitors and the user.28 ‘’
Therefore, as a result of very deliberate international policy. Trade in global goods
increased from $130 billion to $6,400 billion from 1980 to 200229. Global markets
have had an exponential impact on all forms of trade, including that of
pharmaceuticals. In 2007, the pharmaceutical industry contributed £4.276bn to the
UK economy, while exporting £14.567bn30 worth of pharmaceutical products.
With greater trade, comes greater illegal trade. In 2004, the European Union’s Custom
Office seized over 100 million illegal items31 of IP piracy including counterfeit and
illegal pharmaceutical goods32. A further function of IP regulation and the patent
system is therefore the provision of necessary protections for patentees and societies
at a global level. However, all legal systems (including IP regimes) are, to some
extent, inherently imperfect. I will now consider the benefit and limitations of patent
law as a specific example and assess how the law compensates for its perceived
inadequacies.
Benefits and Limitations of a Patent
28 Intellectual Property and Innovation ,UK Government White Paper 1986, Cmnd 9712, 1986 cited in Modern Intellectual Property Law Second Edition Colston & Middletonn , Cavendish Publishing Limited P.7829 Gowers Review of Intellectual Property December 2006 P.2330 http://www.abpi.org.uk/statistics/section.asp?sect=231 Gowers Review of Intellectual Property December 2006 P.2432 From the August 30, 2003 WTO decision to the December 6, 2005 agreement on an amendment to TRIPS: improving access to medicines in developing countries? , by Duncan Matthews, IPQ 2006, 2, 91-130.
The private nature of patentee rights creates the limitations in the patent systems
which are necessary for the purposes of rewarding the successful patentee. Those
same limitations can potentially have a very damaging effect on society at large.
The primary benefit with a patent is that the patentee can prevent a third party from
making a similar patent subject matter, irrespective of whether or not the third party
created the subject matter independently. This is a very dominant feature of this
particular property right. Also, if successful and exploited in the correct way, a patent
can be extremely valuable to its holder. Arguably, the success of the patent system
can be attributed to the form of monopoly is encourages.
That said, to the extent that monopolies are permitted (and indeed, encouraged) by the
regime, the forms of monopoly are for finite periods and relate to extremely specific
human processes. In practice, to secure a patent a patent application needs to contain
specific statements called “claims”. These claims articulate precisely the product or
process which the potential patentee is seeking to exercise control over. Therefore the
grant of such monopolies is very tightly regulated and assessed and, indeed, is subject
to further consideration by courts.
Once an inventor has “jumped through the hoops” of winning a set of patent rights,
the protection afforded to him is unusually favourable. For example if a competitor’s
subject matter falls within the scope of any of the claims, this is prima facia
infringement of the patent.
It takes time and expense for any patent office to grant an application. Moreover, the
patentee is responsible for the protection and enforcement of his patent rights
throughout the life of the patent where the only means of doing so is via lengthy and
expensive litigation.
In addition, a party which has secured a patent has no guarantee that the patent is
valid33. A party challenging a patent can always challenge another’s patent on the
grounds of validity. This is remarkable when compared to other property rights
associated with tangible property. For example, during an infringement action a less
that innocent third party can challenge, and if successful, retrospectively negate the
patentee’s (and his successors-in-title) of his property right, overturn the considered
decision of a quasi-judicial body such as the Patent Office and often, secure that very
property right himself. If successful, the defence is a complete defence34 and will
have serious costs implications for the patentee.
A further consideration is the value of patent and the investment which has gone into
securing it originally, is only realised where the subject matter is a commercial
success. Therefore in the absence of institutional investors, often the cost of research,
development, marketing and legal costs involved discourage would-be inventors from
trying to obtain patent protection. For example, in 2007 Hewlett-Packard
Development Company was the leading corporate body applying for patents. The
pharmaceutical industry had three firms in the top 50. The number of individuals
applying was minimal thus, not included in the review35.
33 A User’s Guide to Patents, Cook, Buttersworth LexisNexis 2002 P.534 Patent Act 1977(as amended), S.46 (3) (b). 35 The Intellectual Property Office annual Review 2007 P.42-3 available at www.ipo.gov.uk/about-review2007.pdf .
Perhaps, the most obvious short coming of the patent system, as outlined in Chapter 2,
is the fact that it provides a legal framework where access to information is limited to
those who can afford to pay for it. I will expand upon this theme in Chapter 6 by
reference to case studies of certain pharmaceutical medicines and their availability in
South Africa and Brazil.
For the remainder of this chapter, the focus will be upon how the law has traditionally
reacted to these limitations in the patent system. To a large extent, this reaction has
come in the form of the compulsory licensing system. Compulsory licences operate to
temporarily suspend the exclusive property rights of a patentee where the State has
deemed it necessary for access to the patent to be granted for the public in times of
war, disease or other epidemic.
Compulsory licences, like all licences, provide the user with a licence to do that which
is otherwise prohibited. Subject to a reasonable remuneration, a party can therefore be
granted a compulsory licence in absence of the patentee’s consent36. A compulsory
licence is specific. The restriction is minimal and temporary. The compulsory
licensing system is, it is argued, a necessary system especially where pharmaceutical
patents are concerned. There are numerous justifications for the patent system. In the
context of the pharmaceutical industry, the underpinning justifications assume
particular importance.
Justifications for Patents
36 Patent Act 1977(as amended), S.46 (1).
As stated above, the patent system has had a dramatic effect upon technical and
scientific knowledge in the world. The patent system in the United Kingdom has
contributed to the development of the industrial revolution in the 18 th century37. There
are several overlapping academic38 and judicial39 justifications for the patent system.
1. The social contract theory provides a short term protection for the inventor in
return for “new” knowledge. This national jurisprudence has been transposed
to the international level as illustrated in the international patent system in
respect of transfer of technology of pharmaceuticals. Where access to generic
data of pharmaceuticals is permitted40.
2. The incentive theory perceives a system whereby in the absence of protection
and reward, certain inventions may not emerge. This theory acknowledges the
IP regime as a driver of innovation in return for significant profit. This
continues to be the popular justification adopted by the pharmaceutical
industry in the context of the debate the price of medicines R&D process and
the expense incurred in testing, marketing the drugs.
3. The reward theory seeks to reward an inventor for making a new invention
with a law that guarantees compensation and protection for their genius. A
similar thesis underpins the royalty fee payable in compulsory licences41. This
approach reflects the importance of the patent system to both the inventor and
the public. Secondly it recognises the different functions served by the patent
system for both interest groups.
37Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights by W. Cornish & D. Llewellyn, 6th Edition, Thomson Sweet & Maxwell. P.11738 ‘‘The Patent System and Invention Activity during the Industrial Revolutions 1750-1852’’, Dutton, Manchester University Press in Chapter 1, cited in INTELLECUAL PROPERTY LAW, BENTLY & SHERMAN, SECOND EDITION 2004, OXFORD P.349. 39 Chiron Corporation v Organon Teknika (No 10.) [1995] F.R.S. 325 at 33340 Article 39 of the TRIPS Agreement41 The Patent Act 1977 (as amended), S.50 (1) (b).
4. The natural law theory states that an individual has a property right in their
own idea and this property must be protected against unjust attack by others.
This right is a natural right and similar to other property rights, is deserving of
protection from unjust attack42.
These general justifications illustrate the important interaction between an invention
and trade economics. The general justifications perceive the patent law system
primarily in terms of economics with public policy considerations being largely
secondary. It is argued that the public interest is not sufficiently safe-guarded by
looking at the patent system solely in these terms. This would seem to be accepted on
some level by nation states as evidenced by the adoption of the compulsory licence
system.
Public interest
The public interest is temporarily undermined by the creation of monopolies. The
balance is restored by industrial activities which benefit society on a larger scale, such
as employment, technical knowledge and development. Patent law guarantees
protection on limited terms. In return for the patentee disclosing details of his
invention and after which, the invention is accessible to all without consent required
from the owner to allow further development of the invention, a strong property right
is enforced during 20 year. In a capitalistic society, it is natural for a patentee to use
the monopoly to secure a commercial advantage, though it can have unconscionable
42 The legal philosopher Locke (1632 – 1704) argued that there were natural rights which survived the entry into civil society constituted by a social contract, and failure to protect them was a ground on which governments could be changed, ‘’Legal Philosophies’’, J.W Harris, 2003 Second Edition, Lexis Nexis P 10.
consequences. A compulsory licence provides protection for a State from extortionate
commercial practices of industry in emergencies.
After the period of protection the general public are free to use the invention. The true
benefit of an invention to general society can only be assessed where others have
access to technical knowledge. The publication of patents, add to the public
knowledge and benefits the public interest after the protection period ends, as seen
with Aspirin43.
The public benefits from technology transfer created by the inventor because the
technology or knowledge would not have been introduced in the state otherwise44.
Since the 18th century, the patent system has ensured public access to the information
by mandatorily requiring the disclosure and publication of the patent technology45.
Secondly, the public benefits from the economic effects of the patent system, by
creating employment, increasing the quality and standard of living for example
consider the telecommunications or pharmaceutical industries. Therefore patent
monopolies are in the public interest46.
The patent system can further the public interest with the addition of compulsory
licences. The effect of compulsory licences is twofold. Firstly it can be a legal and
equitable system for the appropriation of another’s property right in extreme
circumstances of a national emergency, such as in times of war or disease. Secondly,
43 Aspirin was patented in 1899 by Bayer for treating headaches. The structure of the molecule was published along with the patent, but only the company owning the patent had the right to manufacture the drug. The patent expired in 1917 and its formula is now publicly and freely available, allowing research, manufacture or sale of Aspirin by anyone. Gowers Review of Intellectual Property December 2006 P.12.44 In the late seventeenth centaury, England allowed compulsory licences on imported products as they were not worked domestically. The French originally would revoke patent rights as a punishment for importing patented articles from foreign States45 Patent Act 1977(as amended) S.16.46 Chiron Corporation v Organon Teknika Ltd ( No. 10) [1995] FRS 325at 333
a compulsory licence is most effective threat to bring large economic powers to heel
when the common good is fundamentally threatened.
If the patent system were to be abolished new inventions would become subject to
other mechanisms for protection such as trade secrets, reducing and restricting the
public assess knowledge.
Incentive to innovate in the Pharmaceutical Industry
A main justification for the pharmaceutical industry is the incentive to create new
inventions, per Lord Oliver “the underlying purpose of the patent system is the
encouragement of improvements and innovation. In return for a making known his
improvements to the public the inventor receives a benefit of a period of monopoly
during which he is entitled to prevent others from performing his invention except
with his licence”.47
By the duration of 20 years for a patent, provides a reasonable platform for an
investor to fund research and development (R&D) of the product or process. The
patent system acts as a carrier that links the commercial activities with scientific
knowledge. Thus, the pharmaceutical industry is highly protective of patents because
of the simplicity which the molecular structure of the drug can be reverse engineered.
Patentable inventions are expensive to create. The R&D for pharmaceuticals cost
billions of pounds but cheap to copy. The production costs for drugs are very low.
Without strong patent protection, competitors can ‘free ride’ on the creator’s original
47 Asahi Kasei Kogyo [1991] RPC 485 at 523.
investment and undercut the creator at lower price48, hence the dislike of the
temporary waiver under the TRIPS Agreement and Doha Declaration by the
pharmaceutical industry, outlined Chapter .
Without the protection of patent funding for R&D would dry up. An industry will
only absorb the R&D cost where the company can strongly protect the investment by
a patent and foresees a profitable return on the investment. This has been a core
criticism of the pharmaceutical industry concentrated development of ‘profitable
diseases’ in the northern hemisphere.
Without the patent protection there would be no incentive to fund the development of
life enhancing inventions, diminishing the innovation and creativity of the creator and
the public good49. Moreover, the rationale that the patent system is justified by the
need to create an incentive to innovate has become an internationally debateable issue
when discussing the pharmaceutical industry and the developing world. Compulsory
licensing limits the extent to which the pharmaceutical industry amplifies the
‘incentive to innovate’ justification, and thereby act in an abusive manner. The
industry is offered either reducing the cost of the medicines or removal of legal
protection of patent in the developing country, while ensuring a royalty rewards the
R&D and innovation.
Without the incentive to innovate, created by the patent system, other factors would
become influential. The period of natural market control may not be long enough for
the inventor to recover the cost of R&D or be rewarded. Thus the inventor would have
to consider other elements such as the quality and value for money in making the
48www.phrma.org/index.php49 Gowers Review of Intellectual Property December 2006. P.45
project financially viable. Without the protection afforded by patent law certain
industries like pharmaceutical and the electronic industry would be stalled due to the
high cost and lack of investment security50 and could be motivated to short cut the
quality of the product in favour undermining the safety and quality of all end users.
The patent system is a necessary regulated trade-off between the economic incentives
to innovate and exclusive monopoly practices in preventing other innovators.
Therefore due to the trade-off inherent in the patent system, it is necessary to balance
the conflicting interests.51
Competition and Innovation
Innovation leads to a market competition that in turn leads to further incentives to
create improved quality, cheaper prices and rewards the inventor and society.
Compulsory licences do not undermine innovation but support it. By granting access
to the technology via the compulsory licence system, spurring on an inventor to create
a new invention and be justly rewarded, while rewarding the previous innovator by a
royalty fee. In absence of the patent system this would not happen.
“The central function of intellectual property rights is to protect, the moral rights in a
rights-holders work and to reward creativity effort. But the objective function for that
creativity is to stimulate the general public good.”52
50 Bainbridge, INTELLECTUAL PROPERTY, FIFTH EDITION, 2002. P.35051 Gowers Review of Intellectual Property December 2006. P.4552 Case Comp/C 3/39. 792 Microsoft - Anti Trust [2004] EC COMM. Microsoft had refused to licence interoperability information to allow new product by new competitors. The ECJ held that Microsoft was infringing Art 82 and fined the company €497 million.
Cost of R&D in the Pharmaceutical Industry
Modern R&D of pharmaceuticals has come a long way since the discovery of
Penicillin53. With the increasing use of pharmaceuticals today by millions of people
daily, strict guidelines are in place to protect the public at large from minuet defects
overlooked in the R&D process. A high standard is required from developers of new
pharmaceuticals. The new drugs go through extensive and expensive testing to satisfy
the regulating authorities.
Europe, the United States of America (U.S) and Japan contain the top 20 research-
based pharmaceutical companies54 and the majority of generic-based pharmaceutical
companies are in developing countries like India55. From 1990-2001, an increasing
combined cost of pharmaceutical development reached a staggering $36.536 billion56.
Approximately, 60% of the cost is spent on R&D, for the collection of data to satisfy
the regulatory authorities such as the United States of America Food & Drug
Administration (US FDA) and the European Agency for Evaluation of Medical
Products (EMEA)57.
53 Discovered by bacteriologist Sir Alexander Fleming working at St. Mary's Hospital in London in 1928.54 www.abpi.org.uk/statistics/.55 The cleft-stick between anti-retroviral drug patents and HIV/AIDS victims: an in-depth analysis of the WTO’s TRIPS Article 31 bis amendment proposal of 6 December 2005, Senai W. Andemarim, I.P.Q 2007 P. 421.56 The Changing the Face of the Pharmaceutical Industry and Intellectual Property Rights , Johanna con Braun & Meir P. Pugatch, The Journal of World Intellectual Property , 2005 , Volume 8, Issue 5 , September , P.605.57The Changing the Face of the Pharmaceutical Industry and Intellectual Property Rights , Johanna con Braun & Meir P. Pugatch, The Journal of World Intellectual Property , 2005 , Volume 8, Issue 5 , September , P.613.
Approximately, out of five thousand products, only five will continue to clinical trial
and only one product will be patented, thus each patented drug averages out to cost
$897 million58. Despite the excessive cost of R&D, the pharmaceutical industry is one
of the most profitable industries in world, returning an average profit of 19% annually
compared to a 5% average return for the world’s five hundred richest companies as
ranked by the Fortune 50059.
Copying of Pharmaceutical Drugs
The pharmaceutical industry desires strong protection of patented drugs to protect the
original investment in R&D and data assessment and secondly, the EMEA or US
FDA approval is timely and costly. The end result is a molecular chemistry
composition and is relatively easy to reproduce by reverse engineering from other
competitors.
“Patents are particularly important for the pharmaceutical industry, first because the
industry has to shoulder often very high costs for testing, development and approval
of drugs, and secondly, because pharmaceuticals are generally relatively easy to
reverse-engineer and thus are open to easy copying in the absence of IP protection.”
60
New Drug Approval Procedure
58 The Price of Innovation: New Estimates of Drug Development Costs, Hansen DiMasi & Grabowski (20030 22 J. Health Econ. 151. 59
‘’Patents versus Patients, Five years after the Doha Declaration’’, Oxfam Briefing Paper, Oxfam International, November 2006. P 21.
60 The Impact of the TRIPS Agreement on Human Rights Report, The High Commissioner of the UN Commission on Human Rights, June 200, paragraph 38.
The medical approval procedure for a drug new is lengthy. The US FDA is the most
well-known authorising body and the USA has the most dominant international
pharmaceutical companies. The US FDA approval process is broken down into four
main lengthy stages.
First, the Pre-clinical Testing Process, a drug is tested to assess the safety for human
testing. The tests are carried out in laboratories and involve animal testing. The
average length of time is 30 months61.
Second is the Investigational New Drug (IND) procedure. All information and
evidence connected to the drug application is handed over to the US FDA. Where the
information is approved by the US FDA, human clinical trials can begin. The process
can take an average of 5 to 6 years. The IND process contains three further stages. In
the first phase 20 – 80 volunteers are tested with quantities of the drug lasting an
average of 6 months. In the second phase 100-300 patients are tested to assess the
effectiveness of the drug and for side effects for lasting an average of 18 months.
Upon successful completion of the third phase, the drug is given to 1000-5000
patients as a prescribe drug. This phase can last 3 years to assess the long term
reactions to the drug or to illustrate any side effects.
In the third stage, an applicant applies for approval to market the drug. This involves
several thousand patients and can take 5 years. Also the US FDA may request the
pharmaceutical company to report any adverse effects together with the normal
physician’s reports.
61 The cleft-stick between anti-retroviral drug patents and HIV/AIDS victims: an in-depth analysis of the WTO’s TRIPS Article 31 bis amendment proposal of 6 December 2005, Senai W. Andemarim, I.P.Q 2007 P. 425.
If a pharmaceutical company were to apply for a patent at the same time at Pre-
Clinical Test Process, the company would lose on average 12 years of the 20 years of
patent protection. The process for the development of new pharmaceuticals in terms
of time, energy and cost involved is large. Hence the desire for a patent system which
provides strong protection and enforcement rights against other competitors.
The resistance to compulsory licensing applications it is also commercial
understandable as the generic manufacturers do not have to bare any of the R&D costs
d. However U.S imposes excessive post-TRIPS conditions on patents in bilateral
agreement trade agreements with developing countries. This signatory and leading
industrialized State uses the patent system to ignore the humanitarian effect on
developing countries. Thus highlighting the importance of compulsory licensing, in
preventing the continued abuse and monopolistic control of pharmaceutical patents by
the developed world.
If patent law were to be abolished 62 the incentive for inventing would not stop. Other
factor would take control, such as an inventor lead-in time. The patent system is a
regulatory controller of certain commercial behaviours. This is a positive regulation in
the sense that it promotes and rewards new industries, research and development and
innovation. When non-economic factors are discussed such as health, human rights,
the environment or ethics, they are considered secondary in the patent system. This
should not be the case; objective benefits are retained for the public good in the
common law system63 and are the principal area where abuses of the property rights
62 During the seventh century Switzerland and the Netherlands abolished the patent system only to for the reintroduction in the nineteenth century. 63 The Patents, Design and Trade Mark Act 1883.
occur, especially where pharmaceuticals are concerned. Thus, the manner in which a
patent is enforced is just as important as its justification within society.
A Strong or Weak Enforcement of IP
With increasing benefits from globalised IPR’s, increased difficulties also occur. The
harmonisation of patent systems by international agreements is slow thus; the patent
system is always reacting up to industry markets. To gain patent protection in several
markets is both costly and slow, in comparison to the movements of the global market
factors. With the increase of global trade comes an increase in illegal trade.
The issue of patents is not whether or not they should legally exist, but how should
they be enforced in a society. Moreover, the monopolistic characteristic inherent to
the patent system has been subject to criticism from countries64, Parliament65 and
novelists66, since the 15th century. This implies the patent system is in constant need of
reform, to maintain a flexible legal system to incorporate new advances in technology,
protection of property rights and public interest.
A patent is one of the strongest IPR's. The effects of the patent system upon a society
are dramatic. Due the patent being a private contract between the patentee and the
state, the patentee has a choice either enforce, or not enforce the protective powers of
the patent system67. These are two polarised approaches to enforcement.
64 During the seventh century Switzerland and the Netherlands abolished the patent system only to for the reintroduction in the nineteenth century.65 The Patent Office was created to over haul the patent system by the Patent Law Amendment Act of 1852.66 A Poor Man’s Tale of a Patent, by Charles Dickens.67 The Patent Act 1977 (as amended) s. 61 (1).
A Strong Patent Enforcement System
Some commentators68 and the pharmaceutical industry69 argue in favour of strong
patent rights. The strong patent system provides numerous benefits for a developed
and developing country. Strong patent protection creates incentives for the developed
world to invest in poorer countries. The investment provides a developing country an
incentive to supply an educated work force while advancing technology and skill. The
new manufacturing facilities of a patent protected product, increases the amount of
exporting trade and creates a secondary business level, for the growth of creative
industries, while providing immediate access to patents in times of a national
emergency. A strong economy provides greater economic stability, which allows a
State to improve its social commitments such access to pharmaceuticals and public
health care hence. The circumstance which would require and justify use of a
compulsory would be rare.
For example, Japans rapid development after the WWII coincided with the
establishment of reasonably strong patent system. However there were numerous
other factors involved. An assessment cannot be made as to whether the same
development would have been made in the absence of the patent system. Japan is a
good example of a country that changed from being an importer and imitator of
technology, to being an innovator when the patent law was strengthened70.
68Economic Growth, Romer P., in Fortune Encyclopaedia of Economics, Henderson D., ed, 1993. & The Economic Value of IP, Shapiro R. and Hassett K., 2005.69 In 2000, the President Alan Holmer of PhMRA stated ‘We recognise that HIV/AIDS is a major problem, but weakening intellectual property right is not the solution’. http://news.bbc.co.uk/1/hi/world/africa/744759.stm70 Patents for Chemicals, Pharmaceuticals and Biotechnology, Fundamentals of Global Law, Practice and Strategy, Fourth Edition, Oxford University Press, Philips W. Grubb.
There is evidence to show a possible connection between economic growth and a
strong IPR’s. A case study in the Gower’s Review illustrates a study of 80 countries
between 1975 and 1994 showed that strong IP was correlated with high growth in rich
and poor countries71. Another study72 examining 95 countries from 1960 to 1988 also
found such strong correlations, and that foreign direct investment was encouraged in
developing countries with strong IP protection73. Though the evidence implies a
causal connection, the factors for economic growth can differ. The growth rate in
South East Asia in the 1970’s was created by other factors and not solely dependent
on a strong IP system.
A Weak Patent Enforcement System
The Commission on Intellectual Property Rights, commissioned by the Department
for International Development advocates a weak IP is best for developing countries. A
weak IP provides a developing country with the use of developed world technology,
enabling the developing country to develop a taste for innovation74. This analysis
assumes that by imitating products, a taste for innovation will be created in the long
term.
For example, the industrialisation of Switzerland in 1800’s took place without a
patent system, causing the country to benefit from development elsewhere. The patent
system was introduced under pressure from trading partners75. The USA sought to
develop by appropriating technology from Europe in 1790-1836. Italy introduced a
71 Gowers Review of Intellectual Property December 2006. P 5372 The Economic Value of IP, Shapiro R. and Hassett K., 2005.73 Gowers Review of Intellectual Property December 2006. P.5374 Gowers Review of Intellectual Property December 2006. P5375 Gowers Review of Intellectual Property December 2006. P.54
patent system in 1978. Therefore “enforceable intellectual property rights are neither
necessary nor sufficient to establish robust inflows of technology”76. Secondly, the
R&D does not need to be carried out in the registering country. Other factors such as
a skilled work force or government subsidies are more likely to influence a
corporation to develop an R&D department in a developing country.
Strengthening, the patent system will not automatically cause foreign investment for
development. However a strong system will be an enticing factor a creativity industry
company. The Switzerland example is of limited use in justifying of a weak patent
system. The global trade conditions of 200 years ago are incomparable for today’s
conditions77. In developing countries with a strong patent system can grant large
benefits in terms of national domestic innovation. However, a country with no or
limited capacity to innovate will not gain any of the associated economic benefits78.
This has been a central issue in the pharmaceutical and assess to medicine debate.
For developing countries a hybrid solution would be most effective. To allow a
developing country to choose when to implement a strong patent system, rather than
have the strong system forced upon them. Developed countries pressurise developing
countries with incentives of direct foreign investment79 or the enforcement of trade
76Encouraging International Technology Transfer, Maksus, K., International Centre for Trade and Sustainable Development and United Nations Conference on Trade and Development, 2004.77 Patents for Chemicals, Pharmaceuticals and Biotechnology, Fundamentals of Global Law, Practice and Strategy, Fourth Edition, Oxford University Press, Philips W. Grubb.78 The Role of Intellectual Property Rights in Technology Transfer and Economic Growth: Theory and Evidence, Falvey R. And Foster N., United Nations Industrial Development Organization, 2006.79 Gowers Review of Intellectual Property December 2006.P53
sanctions80. As Mark Twain once remarked “a country with a weak patent protection
is like a crab that can’t travel anyway but sideways or backways”81.
Over the history of industrial development, IP has provided many advantages and
disadvantages. The benefits and role of IP upon society have largely been taken for
granted. The patent system has created a strong platform to energise the development
of industrial, thus generating benefits for society at large. Since the creation of patent
legislation82, harmony between private and public interests has been difficult to
achieve. This need for harmonisation is a key element in the development of
compulsory licensing. The patent system is not without its faults. The patent system
incorporates safeguards to protect its integrity and the public interest. The use of
compulsory licences as safeguard is dependent the trigging of other factors (in
Chapter 4). The deployment of the legal instrument is dependent upon governmental
motivations, rather than the system itself.
While patent law is used in a primary economic way, notice must be taken of the
effects on society. The economic benefits of a patent should not be the sole factor
when analyzing the patent system as a whole. Patent acts and the international treaties
do provide for the non-economic factors in the patent system, as the Statute of
Monopolies stated patent must not be ‘mischievous to the State’ [or cause] ‘generallie
inconvenient’83. The justifications for the patent system, is severely undermined where
access to the pharmaceuticals is excessively hindered by the pharmaceutical industry.
80 The United States of America uses Section 301 of the Trade Act, to place a country on a’ priority watch list’ for failure to implement satisfactory intellectual property protection. 81 Per Mark Twain, Preface of Fundamentals of Patent Law , Interpretation and Scope of Protection , Matthew Fisher, 2007, Hart Publishing 82 Statute of Monopolies 1623 c.3 21 Ja 1. 83 Statute of Monopolies 1623 c.3 21 Ja 1.
The importance of the non-economic factors and the patent system, have come to light
recently in the debate of patent rights versus the access to medicine in developing
countries. This is discussed in Chapter 6.
Chapter 4
General
As illustrated in the previous chapters, the patent system has certain strengths. It also
has certain weakness for example a tendency towards monopolies and seeing IP solely
as a commodity. In response to such weakness, the compulsory licence has evolved.
Compulsory licence allows the state to temporarily override the property rights of a
patentee where it is deemed to be in the public interest.
Therefore compulsory licence system in England and Wales is outlined in this
chapter. IP and the patents have provided the world with a number of benefits. These
benefits enhance the justifications for their existence in a society.
IP has evolved as an important economic asset. While this needs to be protected in a
society, it is limited by the requirements of a society. Therefore the role of the
relevant adjudicating authorities within the system will also be examined.
The creation of the modern compulsory licensing system has evolved as useful legal
instrument in the protection of economic interests of society, in England and Wales as
a member of the European Union and as a member of WTO; this will be evaluated to
show the different influential factors have informed the various uses of the
compulsory licence system.
Compulsory Licence
The procedure for a compulsory licence is governed by the Patent Act 1977 (as
amended) (the Act). A patent compulsory licence is a statutory provision which
allows third parties to exploit the patent where the patentee is unwilling or unable to
exploit the patent subject to a royalty fee84. A compulsory licence can be granted after
three years after the filing of a patent85. Any legal person may apply for a compulsory
licence. The Comptroller General may grant a compulsory licence where it is deemed
84 Intellectual Property Law, Bently and Sherman, Second Edition P 561. 85 Patent Act 1977. S.48.
justified doing so after considering the policy factors involved86. Under English law
only a limited number of applications have been made87.
The nature of a compulsory licence is a compromise between monopolistic control by
a patentee and the public interest88. This employs the effective use of the system to
regulate large global and domestic industries activities, in compliance with social
policy objective. The patent system does restrict a patentee’s power to act in a
monopolistic manner. When a patent system was introduced to a country, many
countries felt an obligation to limit the monopolistic control of patent holders. For
example this is set out in the UK, by the Statute of Monopolies 162389.
The patent system and compulsory licences have a dramatic effect on global trade,
hence the strict protection by a State. In 2008, 1.75 million patent applications were
filed with World Intellectual Property Organisation90. The United Kingdom (UK) filed
40,000. In 2007 the UK filed 2% of 140,000 EPO patent applications91. The statistical
numbers appear to be small. However in 2004 the creative industries contributed 7.3%
of the Gross Added Value of the UK economy. This figure has significantly grown in
the intervening years92.
86 Patent Act 1977 (as amended) s. 50 87 Levenstein’s Petition [1898] 15 RPC 732, Hulton & Bleakey’s Petition [1898] 15 RPC 749, Bartlett’s Petition [1899] 16 RPC 641. 88 www.wto.org/english/tratop_e/trips_e/intel2_e.htm89Statute of Monopolies 1623 c.3 21 Ja 1. ‘not contrary to the Lawe nor mischievous to the State, by raisinge prices of Commodities at home, or hurt of Trade, or generallie inconvenient’Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights by W. Cornish & D. Llewellyn, 6th Edition, Thomson Sweet & Maxwell.90 http://www.wipo.int/ipstats/en/statistics/patents/wipo_pub_931.html91 http://www.epo.org/about-us/publications/general-information/facts-figures/2008.html92 Gowers Review of Intellectual Property December 2006
A compulsory licence is strictly regulated because of the economic and political
ramifications of its use. The international agreements signed by the UK have refrained
from directly amending the statutory provision due to its importance to an economy.
Recently, there has been an objective examination of the function and rationale of the
compulsory licence system by the implementation of the TRIPS Agreement and the
Doha Declaration. The rationale and function of the system have found to be a legally
valid though failing in addressing the problem of negative interpretations of the
articles by leading industrialised nations. The subversion of public policy
considerations is becoming more commonplace in recent times as a side effect of
globalisation.
History of Compulsory Licence in the UK
The Statue of Monopolies and subsequent acts of parliament provide public policy
limitations on the patent system. The Patents, Design and Trade Mark Act 1883
introduced the first statutory provision for compulsory licences. Under section 22, the
Board of Trade granted compulsory licences in circumstances where93:
1. the patent was not being worked in the UK;
2. the reasonable requirements of the public interest were not being met; and
3. a person was withholding the working or use of a patent, by possession.
The compulsory licensing system allowed for a flexible and harmonious relationship
between technical developments, created by economic forces and the objective policy
of the public good.
93 Terrell on the Law of Patents , Fifteenth Edition , S. Thorley, R. Miller, G. Burkhill, C. Birss.
The Patent Act 1902 transferred compulsory licensing to the Judicial Committee of
the Privy Council jurisdiction. The Patent and Design Act 190794 transferred
compulsory licences to the courts. The courts could grant a compulsory licence or
revoke a patent for failing to satisfy the public interest requirement for the invention.
The Patent and Design Act 1919 appointed a Comptroller with jurisdiction over all
monopoly rights95. The Comptroller has the initial responsibility for ensuring an
equitable response to the inherent tensions between public and private interests as
outlined below.
The Patent Act 1949 extended the compulsory licences system. A licence was granted
either as a compulsory licence, licence of right or revoked96. There is little evidence of
use97. A compulsory licence was granted where there was:
1. an inadequate working or oppressive conduct by the patentee; or
2. the invention was for food, medicine or a surgical device 98.
The compulsory licence was introduced to prevent foreign organisations from gaining
a dominant and abusive position with respect to a patent, which could be used to
undermine the state, and consequently society99. The Patent Act 1949 protected the
public interest by ensuring technical advances for the benefit of the public, would not
be hindered by the refusal to grant a licence for food, pharmaceuticals or surgical
94 The Patent and Design Act 1907, S. 2495 The Patent and Design Act 1919, S.2796 Patent Act 1949, S. 37. 97 Terrell on the Law of Patents , Fifteenth Edition , S. Thorley, R. Miller, G. Burkhill, C. Birss. 98 Patent Act 1949, S. 41.99 the Statute of Monopoly 1623
devices. Domestic applications for compulsory licences were few100. The power of
compulsory licences lay in the fact its use can undermine a patentee’s commercial
right for greater social needs. Several applications for pharmaceutical licences were
made101. However the Patent Act 1977 removed the food, pharmaceutical and surgical
device exception.
The Act is a radical departure from previous patent acts. The Act allows a compulsory
licence in three main categories: a Section 48 application: by the Competition
Commission in a report on anti-competitive behaviour: Crown use.
Comptroller
Since the Patent Act 1919, the Comptroller has largely had the responsibility for
compulsory licence applications, subject to review by the courts. A comptroller issues
a compulsory licence under strict conditions and discretion. The comptroller must
consider the guidelines factor in making a decision102.
1. the nature of the invention;
2. the time since the publication of the invention;
3. the use the invention has had;
4. the effect the granting of the licence would have to the public interest if
granted to the application;
5. the capital involved in working of the invention. 100 Re Brownie Wireless Co. Ltd’ Application [ 1929] 46 RPC 457, Pfizer v Ministry of Health [1965] RPC 26, Patchett’s Patent [1967] RPC 237, Allen & Hanbury Ltd’s (Salbutamol) Patent [1987] RPC 327.101 Pfizer v Ministry of Health [1965] RPC 26, Allen & Hanbury Ltd’s (Salbutamol) Patent [1987] RPC 327.102 The Patent Act 1977 (As amended) s. 50 (1)
The Comptrollers decision considers the facts at issue. A general global policy will be
an invalid ground for an application, where it is unconnected to the fact at issue. A
single ground for an application for a compulsory licence is not sufficient.103 Thus a
combination of economic and public policy factors must be present for an award of a
licence. The Comptroller will focus on whether the demand and price of the patent is
being reasonably met and is the licence in the public’s interest. Therefore a price
debate is irrelevant104. A licence from an international industry such as
pharmaceuticals is governed by a section 48 application. The authority of the
Comptroller is independent. Any decision is subject to review by the courts however
the State can restrict his powers by act of parliament. Thus, the Comptroller is
indirectly susceptible to political pressures from parliament.
A Section 48 Compulsory Licence
A compulsory licence is granted after three years from the date of the patent. An
application must be made on prima facie grounds. The three years period is for the
patentee to recover a reasonable return investment and reward for innovation. A
World Trade Organisation (WTO) proprietor can apply for a compulsory licence by a
Section 48A procedure and non-WTO proprietor can apply for a compulsory licence
by a Section48B procedure. The majority of compulsory licences applications are by
WTO members105.
103 Therma-Tru Corp’s Patent [1997] RPC 777. 104 Research Corporation’s Patent [1990] RPC 663. 105Out of 195 countries in the world, 153 are members of the WTO, www.wto.org the 18th of August 2008.
WTO Members
All Members of the WTO have a duty to implement all elements of the TRIPS
Agreements. The TRIPS Agreement Article 31(1) governs compulsory licensing. The
UK by section 48A of the Act provides a mechanism for a compulsory application by
another WTO-Member. A WTO-proprietor is a national, has a domiciled or a real
commercial establishment within a country that is a WTO-Member. The applicant for
a compulsory licence must show prima facie grounds for relief106. The applicant must
show efforts to obtain a licence from the patentee on reasonable commercial terms
within a reasonable time period107. The conditions are strict and are subject to the
discretion of the Comptroller.
1. the demand for the patent is not being met on reasonable terms;
2. the licence restrictions are preventing of hindering exploitation of another
patented invention which is technical an advance or of considerable economic
significance; or
3. the manufacture, use or disposal of unpatented material or commercial or
industrial activities in the UK are unfairly prejudiced by condition imposed on
the licensing of the patent or on the disposal, use or the product or process.
The granting of a WTO compulsory licence is subject to restrictions to protect the
patentee’s IP from abuse or unjust attack. The licence is not exclusive or assignable,
the licence is for predominantly supply in the domestic market, adequate
remuneration for the patentee and the licence is limited in scope and duration. The
106 Monsanto’s CCP Patent [1990] FRS 93 at 98. 107 Patent Act 1977 (As amended) s. 48 (2).
TRIPS Agreement provides public policy considerations in Article 7 and Article 8.
Under Article 31(b) the requirements of the national implementation can be
temporarily waived in a ‘national emergency or other circumstances of extreme
urgency or in cases of public non-commercial use’. WTO-Members’ compulsory
licences have been amended and subject to debate and political pressure, hindering
the use of the legal provision, in recent times. Twenty three of the WTO-Members’
have voluntarily reframed from using Article 31 of TRIPS Agreement108.
Domestically little reported use of section 48 A has been made. However compulsory
licences have been used by WTO-Members in situations of emergency.
Non WTO-Members
The grounds for a compulsory licence for a non WTO-Member are under section 48B.
All of the seven main grounds all are economically focused. Thus there appears to be
no consideration of any expressed public factors only the guiding principles of the
Comptroller. Few applications have been made. The focus of the debate on the use
and enforcement of patents and compulsory licences remains with WTO-Members.
Domestically the most common use of a compulsory licence is by the Competition
Commission.
Competition Commission
The Competition Commission109 can issue a compulsory licence where there is an
unhealthy monopolistic position or anti-competitive practices in place against the
108 www.wto.org/english/tratop_e/trips_e/intel2_e.htm109 Established by the Competition Act 1998.
public interest. Social policy factors are secondary to protecting economic stability.
The Competition Commission focuses on preventing market distortion, regulation of
mergers and regulating regulatory bodies110. Where the Competition Commission
reports an infringement, the Comptroller under the direction of the State grants a
compulsory licence to remedy the economic inequality, for the protection of trade in
the public interest.
Rarely has the compulsory licence been used in the UK, the mere threat has ensured
compliance. However European Union’s institutions have used compulsory licensing
to regulate and remedy to infringements to treaties. The Member State controls the
existence of a patent, only when the exercise of the monopoly rights infringes
European Community law, will the European Union (EU) use compulsory licences to
correct an imbalance.
‘’As the existence of patents rights is at present a matter solely of national law, a
Members State’s patent legislation is covered in principle by derogations for Article
[28 which are provided for in Article [30].’’111
Compulsory Licences and Europe
The interpretations and ruling of the EU’s legal institution upon compulsory licences
are relevant. The UK is a Member State. Rulings are binding and secondly, the
foundations of Europe are grounded upon a strong emphasis on trade factors similar
to the UK rationale but without a similar approach to social policy concerns112. The
110 http://www.competition-commission.org.uk/about_us/index.htm111 C-35/87 Thetford Corporation v Fiamma SpA [1988] ECR 3585. 112 Article 2 Treaty of Rome 1957.
interpretations and rulings upon compulsory licences by the European intuitions have
a direct effect upon the UK.
Compulsory licences and the interaction with Article 28-30 of Community law, raises
two issues. Firstly, whether compulsory licensed products are free to move within EU
and secondly, whether national law of compulsory licensed products can distinguish
between domestic and non-domestic products113.
In the first issue, the European Court of Justice (ECJ) rejected the principle that a
patentee with a parallel patents is deemed to have consented to free movement of
compulsory licensed goods114. The essence of a patent is the exclusive right of first
placing the product on the market to gain a reward for the creative effort. A patentee
retains the rights to block a parallel import although the patentee is receiving a royalty
for the compulsory licence115.
On the second issue116 the ECJ stated compulsory licences are not an objectively
justified exception covered by Article 30. The object of the patent system is not the
protection of commercial or industrial property but to limit the rights conferred by
property117. Therefore compulsory licences are governed by Article 28. Where a
patent was not worked in the UK and the patentee was a national of the EU, a
compulsory licence could be granted. This discriminated against other Members
States by requiring a patent to be worked in the Member State to avoid a compulsory
licence. The effect is to infringe the free movement of goods, and services, in
113 Intellectual Property in Europe, Guy Tritton, second Edition, London, sweet & Maxwell 2002. 114 Case 19/84 Pharmon v Hoechst [1985] ECR 2281. 115 Intellectual Property in Europe, Guy Tritton, second Edition, London, sweet & Maxwell 2002. 116 Intellectual Property in Europe, Guy Tritton, second Edition, London, sweet & Maxwell 2002. 117 Case C-30/90 EC Commission v United Kingdom & Italy [1992] ECR I-777 at paragraph 14.
contradiction to the objectives set out in the Treaty of Rome. Non-European
Members of the WTO have legitimately used a similar provision to allow access to
medicine118.
An indirect discrimination was found by ECJ, when granting an injunction to stop an
importer of an infringing patented product, where a licence of right was in
existence119. The rationale was the law required the manufacture of a patented product
to be produced the in the national territory of one Member State over another. The
ECJ has been most active in the use of compulsory licensing in terms of competition
and the effects of the monopolistic nature of IPR’s.
European Competition
The ECJ has used Article 82 EC, to protect community law from economic abuse or
distortion by issuing compulsory licences as a remedy. Where a company in a
dominant position refuses to grant an IP licence to a competitor, the refusal can be
interpreted in certain exceptional circumstances as an abuse of a dominant position
and in breach of Article 82120. The ECJ has attempted to reduce anti-competitive
practices within the EU for the promotion and development of the public good121, by
the use of compulsory licensing. Article 82 EC, does not prohibit the existence of
monopolies but seeks to stop the exercise of abusive power122, which is defined as:
118 In 2000, the United State Trade Representative issued a complaint to the WTO under the TRIPS Agreement against Brazilian legislation allowing the granting of compulsory licence over patent which were not worked local, within three years of granting patent protection. 119 Generics (U.K) Ltd v Smith Kline and French Laboratories Ltd. C-191[1992] ECR I-5335.120 Copyleft licensing and EC competition law, Mikko Valimaki, European Competition Law Review,
2006.121 European Union Law, Text & Materials, Chalmers, Hadjiemmanuil, Monti, Tomkins, Cambridge Press 2006.122 Case 6/72 Europemballage Corporation & Continental Can Co. Inc. v Commission [1973] E.C.R 215.
'' Any abuse by one or more undertakings of a dominant position within the common
market or in a substantial part of it shall be prohibited as incompatible with the
common market insofar as it may affect trade between Member States.''123
Refusal to Supply
A refusal to supply a raw material can be considered anti-competitive. This applies to
IP and non-IP124. The existence of IPR’s will not infringe competition, only by the
exercise of those rights in certain circumstances.
The ECJ first considered whether an IPR could be used to create an abuse by an
undertaking in a dominant position in Ab Volvo v Erik Veng125 and Maxicar v
Renault126. In both cases the ECJ analysed whether the car companies by refusing to
grant design rights on the parts of car, required by third parties wanting to sell and
manufacture parts. In Maxicar v Renault127 ECJ held that IP will be an abuse of a
dominant position where:
“Exercise of the exclusive right may be prohibited by [Article 82] if it gives rise to
certain abusive conduct on the part of the undertaking occupying a dominant position
such as an arbitrary refusal to deliver spare parts to independent repairers, the fixing
of prices for spare parts at unfair levels or a decision no longer to produce spare
parts for a particular model even though many cars of that model remain in
123 Article 82 of Treaty of Rome.124 Case C-7/73 Instituto Chemioterapico Italiano Spa v Commission [1974] E.C.R 223.125 Case 238/87, [1998] E.C.R 6211.126 Case 53/ 87, Maxicar v Renault [1998] E.C.R I-7791.127 Case 53/ 87, [1998] E.C.R I-7791.
circulation, provided that such conduct is liable to affect trade between Member
States.”128
In the Volvo case, a refusal to licence an IPR was held not a prima facie abuse of a
dominant position. The ECJ held an abuse will exist:
1. there is an arbitrary refusal to supply spare parts;
2. the price is fixed at unfair levels; or
3. a decision to no longer manufacture spare parts for a model of car that still has
many cars in circulation.
From the jurisprudence of the ECJ, the refusal of a licence for an IPR requires some
additional elements. The ECJ developed the case law further in copyright129
broadcasting130 and patent cases131. By the level of potential abuse and economic
importance IP has to both the Member State and the European economic block, the
need for an effective control and the legal instrument of a compulsory licence
provides a reasonable and justified measure against monopolistic control. Any patent
law or the compulsory licence does not cause the unjust results but the manner in
which these legal instruments are deployed be that politically, economically or
socially motivated.
128 Case 53/ 87, [1998] E.C.R I-7791 at 16.129 Case C-242/ 91 P, Radio Telefis Eireann & Independent Television Publication Ltd. v Commission
[1995] E.C.R I-743. Case C-418/01 IMS Health GmbH &Co OHG v NDC Health GmbH & Co KG [2004] E.C.R I-5039
130 Case T-504/94 Tierce Ladbroke [1997] E.C.R II-923. 131 Case 238/87, Volvo v Commission [1998] E.C.R 6211. Case 53/ 87 , Maxicar v Renault [1998]
E.C.R I-7791
The policy concerns in respect of public healthcare are placed secondary to concerns
in respect of the economy or trade. This position undermines the moral position of the
EU when it seeks to comment upon other economic blocks’ stance on the access or
protection of public health. However the economic pressure applied by the EU is
important when negotiating the moral and economic concerns under an international
agreement for example when the EU removed support from the European
pharmaceutical industry joint legal action against South Africa, outlined in Chapter 6.
Crown use
Since the Patent Letters Act 1571, a form of compulsory licence exists for the benefit
of the Crown because the monopoly rights were derived from the sovereignty of the
Crown. This form of compulsory licence is contained in section 55-59 of the Act.
The Crown includes a UK government department, such as health authority132 or
authorised persons in writing to do certain acts, in return for an adequate remuneration
to the patentee. Crown provision can override a patentee’s exclusive right of
production. Under duty, the Comptroller is informed of the compulsory licence. The
Crown has extensive power to use the patent for the public interest in an
emergency133. The public interest requirement involves the maintaining essential
supplies and services for life or well-being for the relief of the community or country
or assisting in relief of another country in distress as a result of war. Disputes relating
to the scope, use, terms or remuneration are referred for judgment to the courts134. The
132 Dory v Sheffield Health Authority [1991] FRS 221. 133 Patent Act 1977 s. 57 134 Patent Act 1977 (as amended ) s.58
Crown is allowed issue a compulsory licence such circumstance for domestic and
international use are rare.
Royalty Fee
When a compulsory licence is issued, the patentee is entitled to a royalty or
compensation for the restriction of his exclusive right of control. This element is
necessary to protect the property right from unjust attack. An unjust attack upon an
owner’s property rights is protected domestically135 and internationally136. The
compensation for a licence is normally left to the market forces and the parties. With
compulsory licence the Comptroller or the courts will determine the amount. The
assessment will value the patent, the profits and future profits.
The factors considered are: the amount willing contracting parties would reasonably
agree on a royalty for a licence; the research and development costs; the promotion
and maintenance of the market costs; and consideration will also be given to the
deserved reward of the patentee137. Compensation can be assessed in two main ways.
Firstly, the comparative analysis: ‘’ for my part I have no doubt that where close
comparable exist, they provide by far the best and surest approach. There is no better
guide to what a willing licensor and a willing licensee would agree than what other
licensors and licensee have in fact agreed in comparable cases’’138.
135 The Patent Act 1977 (as amended) s. 50 (1) (b).136 TRIPS Agreement Article 37 (1) and the Universal Declaration of Human Rights Art 17.137 Allen & Hanbury Ltd. Patent [1987] RPC 327. 138 Per Lloyd L J in Smith Kline & French Laboratories Ltd. Patent [1990] RPC 203 at 236.
Secondly, the ‘profits available’ method can be used where there is no comparative
possible however this should be the last resort because it involves future forecasting
of the market the patent is in and is subject to uncertainty139.
The different methods can lead to uncertainty. However the courts will always
consider the R&D cost in the assessment of a reasonable royalty, especially in the
case of patented pharmaceuticals140. If a strict rule were applied, this may undermine
or excessively reward the patentee. A flexible approach is more helpful in providing
an equitable solution to the tension between public and private rights would be
negated.
There are many reasons why compulsory licences are used. On a domestic level the
use is concentrated upon balancing trade factors and to a lesser extent the public
objective of the State in such areas as pharmaceuticals. The public policy contained in
the legislation has been reined in since the Patent Act 1949 and the Act.
The rationale for the elimination of medical compulsory licences under the Patent Act
1949 could be due to a strong development of social and medical partnership by the
NHS141 or due to political pressure from the pharmaceutical industry. It is clear that
the concerns for the individual health has been placed second to economic factors,
even in a developed country as the UK. Analysing the approach of the EU, there is a
strict control and use of the compulsory licence. The jurisprudence of EU is mainly
influenced by the development of economic strength. This position has been justified
by the EU as implementing the economic policy of the Treaty of Rome.
139 Shiley Inc’s Patent [1988] RPC 97. 140American Cyanamid Co’s Patent [1990] RPC 309. 141 The National Health Act 1977
The role of IP has provided the global community access to inventions for enhancing
and extending the quality of living. In times of global wants, IP provide access to
innovative creations and in time of global needs, provide access to necessary
technology, by use of compulsory licensing. IP is not primarily created for regulating
the necessities of society, however protection of society must be incorporated into any
system, hence compulsory licensing within the patent system.
In absence of an independent global authority, the assessment of a States function in
satisfying the demands of society is dependent on economic factors, which are
influenced by national and international agreements. Thus, use of the patent and
compulsory licensing system is limited by the inter-governmental political bargaining.
IP plays an important role in the development of any society. The patent system
contains specific benefits and necessary limitations for the advancement of a society.
A patent can dangerously control society’s health and welfare. The Act controls the
patents with society while observing and regulating the effects a patent has on the
society at large. The Act is susceptible to the pressure of international political
influence. Thus, the importance of compulsory licences as a safeguard for the public
good and ultimately, the policy discretions of the Comptroller are becoming more
important for the balance of private and public interests.
top related