Compulsory Licensing: Modelsfor State Practice in Developing Countries, Access to Medicine and Compliance with the WTO TRIPS Accord
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- Title
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Compulsory Licensing:
Modelsfor State Practice in Developing
Countries, Access to Medicine and Compliance
with the WTO TRIPS Accord - extracted text
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Intellectual Property Rights Series
Compulsory Licensing:
Models for State Practices
in Developing Countries
Access to Medicine and
Compliance with the WTO
TRIPS Accord
James Love
TWN
Third World Network
6
Compulsory Licensing:
Models for State Practice in Developing
Countries, Access to Medicine and Compliance
with the WTO TRIPS Accord
James Love
TWN
Third World Network
Compulsory Licensing: Models for State Practice
in Developing Countries, Access to Medicine and
Compliance with the WTO TRIPS Accord
is published by
Third World Network
131, Jalan Macalister
10400 Penang, Malaysia.
Website: www.twnside.org.sg
Email: twnet@po.jaring.my
© Third World Network 2004
1st Printing 2004
2nd Printing 2006
Printed by Jutaprint
2 Solok Sungei Pinang 3, Sg. Pinang
11600 Penang, Malaysia.
CONTENTS
1
Introduction
1
2
Recommended Features for a Good State Practice
6
3
Administrative Processes
9
4
Government Use of Patents
12
5
Setting Compensation
16
6
Discrimination By Field Of Technology
20
Endnotes
26
NOTE:
This paper was originally written for the Human Development Report
Office as a contribution to UNDP's Human Development Report 200'1:
Making New Technologies Workfor Human Development. It is reproduced in
this format with the kind permission of the author and HDRO/UNDP.
1
Introduction1
This booklet addresses the issue of government authorization to use a
patent without the permission of the patent owner. In particular, models
for compulsory licensing and government use of patents are examined,
as a tool to increase access to medicines in developing countries.2 The
recommendations in this booklet are based on the following facts.
Contrary to much of the debate over the World Trade Organization
(WTO) rules for intellectual property, the Trade-Related Aspects of
Intellectual Rights (TRIPS) Agreement accord is actually fairly permis
sive with regard to what is permitted in terms of government decisions
to authorize third parties to use patents without the permission of the
patent owners.
For example, for public non-commercial use, a country may use or
authorize a third party to use a patent without negotiation or without a
licence (31.b), the only obligation being the payment of "adequate"
compensation (31 .h). This approach too can be used for emergencies,
including public health emergencies (31.b). When an authorization is to
remedy anticompetitive practices, such as high prices from the exercise
of monopoly power, the products can even be exported (31 .k).
TRIPS also allows countries to make virtually all of its decisions on these
issues, including those regarding compensation or appeals, through
administrative processes (31.c, 31.i, 31.j, 31.k). Moreover, TRIPS specifi
cally does not require governments to grant injunctive relief to patent
holders (44.2) in cases where government authorizations of patent use
satisfy the Article 31 framework.
1
Taken together, these provisions in the existing TRIPS accord permit
countries to create very simple and easy to administer systems for
permitting production or import of generic products from the competi
tive sector. However, what TRIPS permits and what countries actually
do are two different things, and in the end, it is national law and practice
that will be decisive, both in terms of providing access to inventions,
including medicines, and in establishing the state practice framework in
which TRIPS rules will be interpreted. Also, there remains an important
issue with respect to the degree to which countries can tailor their laws
to specific concerns regarding access to medicines, due to the Article 27.1
restrictions on discrimination of patent rights by field of technology.
Many governments have good national laws for public use of patents,
which is a similar but more direct and less restrictive method of author
izing non-voluntary use of a patent than a compulsory licence. For
example, under 28 USC Sec 1498, the US government can use patents or
authorize third parties to use patents for virtually any public use,
without negotiation.
Patent owners have no rights for injunctive relief, and may only seek
compensation, not as a tort, but as an eminent domain taking? This is not
unique, however, and the Australian, Irish, Italian, German, New Zea
land and UK public use provisions also provide very similar powers, as
do several other countries, including the Philippines, Malaysia and
Singapore, among others. See below for example of specific national laws
on this. TRIPS rules are designed to accommodate these practices.
Compulsory licences have been used extensively in North America,
Japan, and Europe for a variety of purposes, including many that have
been issued for computers, software, biotechnology and other modern
technologies. In 2000 the US issued several compulsory licences for tow
truck technologies.
Canada has the most extensive experience with the use of compulsory
2
licences for pharmaceutical drugs. Until pressured by the US, as a
condition to join NAFTA, to abandon a compulsory licensing approach
that was nearly automatic, Canada routinely granted compulsory li
cences on pharmaceuticals, with compensation based upon royalties,
typically set at 4percent of the competitor's sales price.
Despite a public health crisis of enormous proportions for HIV/AIDS,
apparently no African country has issued a compulsory licence for any
medicine. Given the permissive global trade framework for compulsory
licensing, one has to wonder why this is so.
Virtually all national patent law systems are modeled after European and
US patent legal traditions, often based upon colonial statutes, or the
modern day equivalent, laws informed by WIPO technical assistance.
The United States spends $1 billion annually on its patent and trademark
office. Europe and Japan also spend large sums to examine patents.
Despite these investments in rich countries, the quality of US patent
examinations is poor. According to a study by Lemley and Allison of
patents litigated to judgment, 54percent were found to be valid, and
46percent were invalid.4
Critics of US patent examinations believe a much larger number of issued
patents are not valid under any reasonable tests of utility and invention,
and would be busted if the patent owners sought enforcement. Patent
examination offices in developing countries, if they exist at all, are under
staffed, undertrained and have less access to research materials on prior
art.5
Litigation Costs
The costs of litigation are not trivial. In (27 December) 1998, the New York
Times reported the median cost of US patent litigation was $1.2 million,
per side, and the costs of litigation in complex cases are much higher. In
3
Polaroid v. Kodak, each side reportedly spent over $100 million. Con
sider this quote from a judge in the AZT patent dispute.6
"In the twenty-five months transpiring between the filing of the initial
complaint in this consolidated patent infringement action on May 14,
1991, and the commencement of the trial on June 28,1993, approximately
five hundred forty-one pleadings have been filed and dozens of hearings
on motions and discovery matters have been conducted by the court. The
court has entered eighty-eight written orders and numerous bench
rulings. Thus, the court is intimately familiar with the facts of this case
and the legal contentions of the parties. To state that the case has been
hotly contested would be an understatement. The parties have amassed
learned, experienced and sizable trial teams who have represented their
clients zealously and competently. The administrative complexity [of]
conducting a trial of this magnitude has been enormous for the court and
the parties. The sixty-year- old courtroom in New Bern, North Carolina,
has been converted into a contemporary high tech facility utilizing real
time court reporting and six computer-integrated video display moni
tors. It is highly conceivable that the cost of this trial for the parties
exceeds $100,000 per day, in addition to the time and expense associated
with this court and the jury. As the case enters its fourth week of trial, the
parties estimate, somewhat conservatively the court suspects, that the
trial will last an additional six to eight weeks."
See also this quote by Professor Michael Meurer:7
"First of all, frequency of litigation and the cost of litigation for biotech
patents is very high. Drug and health patents are litigated more than any
other kind of technology. There is one empirical study that showed that
six lawsuits are spawned by every 100 corporate biotech patents.[17]8
There is also research that shows that most of the start-up companies are
spending a comparable amount on legal costs to what they are spending
on research.[18]9 So this is a very big concern for start-up companies."
4
Few if any developing countries have a significant capacity to examine
patent applications, or to litigate patent claims. Some developing coun
tries have patent registration systems that do not require patent exami
nation at all. In the US, Japan or European markets, there are substantial
financial incentives for generic drug companies to bust bad patents.
These incentives do not exist in small national markets. It is predictable
that a considerable number of patents in developing countries will be bad
patents, because the countries or competitors will not have the capacity
or economic incentives to evaluate and litigate overreaching patent
claims.
For a variety of reasons, poor countries are extremely reluctant to sue or
be sued. Litigation is expensive, and can overwhelm already limited
program budgets. In some countries, a cultural reluctance to engage in
litigation restrains public officials from pursuing courses of action likely
to involve protracted litigation.
Developing countries have not enacted good TRIPS-compliant state
practice models for authorizing the use of patents on medicines. Prior to
TRIPS, many countries simply excluded pharmaceuticals from the pat
ent system. Under TRIPS, countries must issue patents on medicines.
Unless they can invent a model for state practice that will actually work
in developing countries, countries will not be able to obtain less expen
sive medicines from the competitive sector.
5
2
Features for a Good State
Practice Model
While I am interested in the development of a state practice model for
developing countries, I have also drawn on examples from patent laws
in developed countries. People looking at these issues can obtain trans
lations of foreign Intellectual Property Rights (IPR) laws from the World
Intellectual Property Organisation (WIPO) in both paper and electronic
formats.
A WIPO source which the Consumer Project on Technology (CPT) has
excerpted sections of several patent laws, including compulsory licens
ing, government use and patent exception provisions, can be found on:
http://iuww.cptech.org/ip/liealtli/cl/exaniples2.litml.
The recommended features for a good state practice model are as follows:
(i)
The system must not be overly legalistic or expensive to administer,
or easily manipulated by litigation. The large pharmaceutical com
panies are masters of IPR litigation and routinely misuse regulatory
and IPR laws, exploit loopholes, and harass competitors, in the
courts. Any system which permits the big pharmaceutical compa
nies to do this will not work very well in practice. For this reason, we
recommend models that rely upon administrative processes.
(ii) The government-use provisions should be strong. The rules in
TRIPS give governments very broad powers to authorize use of
patents for public non-commercial use, and this is one area where
there are many good state practice models to consider. No develop
ing country should have statutory public-use provisions that are
6
weaker than the US, German, Irish, or UK provisions.
(iii) The system of setting compensation should be relatively predictable
and easy to administer. We recommend adoption of royalty guide
lines to reduce uncertainty, and to speed up decisions, and an
administrative process that places burdens on patent owners to
disclose essential economics data if they seek to appeal administra
tive decisions. It is important to have greater transparency in this
area. This process should also be fast, with initial decisions setting
initial compensation, and revisions, such as from administrative
appeals, providing forward looking adjustments.
When there are complex IP rights for a product, as is sometimes the case
for medical technologies, one approach is to permit a decision setting a
royalty for all claims to be paid into an escrow fund, and to have the
various patent owners settle claims between each other, possibly through
arbitration, with the arbitration costs borne by the competing patent
owners.
(iv) Production for export should be permitted. Under TRIPS, the most
straightforward way would be to permit exports if an administra
tive process found that a lack of competition within the therapeutic
class of drugs has given the producer market power, creating a
barrier to access. This would be consistent with Article 31.k of
TRIPS. This can be done by a health agency, or even by administra
tive action.
A different approach would be to authorize production for export when
the legitimate interests of the patent owner are protected in the export
market, such as when the export market provides reasonable compensa
tion to the patent owner, as an Article 30 exception to patent rights. A
number of NGOs are also urging countries to adopt an Article 30 patent
exception for products that are produced for humanitarian purposes.
7
The Article 31.k and Article 30 approaches are both stronger if accompa
nied with an administrative finding, such as finding that:
(a) increasing returns to scale in the production of a product are
important
(b) the product is used to treat infectious diseases
(c) the export of the product will benefit the public health, and/or
(d) the export of the product will address humanitarian objectives.
(v) There should be a provision for authorization of the use of patents
to address public health emergencies. Under 31.b, this triggers the
same fast track liberal procedures as those that exist for public non
commercial use. Many European governments have a large public
sector role in funding health care, but for most developing corm tries,
there is little capacity to provide expensive drugs for HIV/AIDs or
other severe illnesses. Ln these countries, it is possible to expand
access to now expensive drugs by permitting the competitive gener
ics sector to enter the commercial market, where there are opportu
nities for expanded access to medicines, at least among some income
groups.
By declaring a public health emergency for HIV/AIDs, tuberculosis,
malaria or other illnesses, a government could give general authorization
for the competitive sector to supply particular types of drugs, subject to
paying a modest royalty to the patent owner, and can eliminate the steps
of negotiation normally required for commercial use, saving time and
lowering barriers to entry, and probably increasing the number of
generic competitors. In our opinion, this should be done right now for all
HIV/AIDS related medicines in Africa, Romania, Thailand and other
countries where AIDS drugs are protected by patents, and the high price
creates access barriers.
8
3
Administrative Processes
and Trips
As indicated earlier, TRIPS permits the use of administrative practices in
all Article 31 decisions, including the setting up of compensation and
appeals processes. The key thing for each country is to settle basic issues,
and determine which agency, official, committee or other body will make
the initial decision, and which will receive and act on appeals.
TRIPS requires that the processes be fair, transparent, and accountable,
relying, for example, on written records and decisions, with opportuni
ties to provide evidence and be heard, and that there exists an appeals
process by an independent body from the one that makes the initial
decision.
Several countries give very broad powers to a wide range of government
officials to make decisions regarding the initial authorization of use,
when the use involves public non-commercial use. In some cases, includ
ing the US, the statute gives the power to authorize the use of the patent
to any government official, for example by issuing a contract or agree
ment that contains the authorization to use patents or copyrights, and the
agency's administrative procedures may provide additional guidance
on how these decisions are made, such as, for example, the procedures
spelled out in the US federal acquisition regulations.
The procedures for authorizing third parties to engage in commercial use
of a patent tend to be more specific, in terms of who can make such an
authorization. In Belgium, the statute provides for a committee that
includes persons representing consumer, labor and small business inter
ests. In Switzerland, compulsory licensing decisions are made by the
9
Federal Council. In many countries, the licences are issued by the
registrar of patents or the Ministries of Trade or Industry. In the US, the
Secretary of the Department of Health and Human Services makes the
determination in cases involving the Bayh-Dole "March-In" rights, while
compulsory licensing of patents for nuclear energy or clean air are
handled by different bodies. In Spain, the Minister of Industry is required
to consult with the Minister of Health on compulsory licensing applica
tions that involve patents that concern public health.
Article 31 of TRIPS requires that the administrative process provide an
"independent review by a distinct higher authority." For example, the
Minister of Health could appoint an officer to make decisions, and also
an independent body to review decisions, with the power to overrule,
modify or remand the initial decisions. The review could be provided by
another office, such as the registrar of patents, the Attorney General. The
task is to create a system that will carry out the purposes of the compul
sory licensing or government-use program, and to have a process that is
perceived to be fair and straightforward.
With respect to Article 31, TRIPS is more about having a rules-based
system than it is about the specific rule or outcomes, at least as far as the
WTO is concerned. That is, in a WTO dispute resolution procedure, many
different approaches and outcomes will be acceptable to the WTO, if they
follow in good faith the procedural safeguards.
While the purely administrative process is one option, countries could
also have a mixed system where the appeals are handled by a federal
court. If judicial appeals are permitted, the statute could set out the basis
for an appeal, and could be very specific with regard to the standards
used to overturn an administrative decision. For example, the statute
could make it very difficult to overturn an administrative decision, or it
could make it easier for either the patent owner or the person seeking the
licence to prevail on an appeal. This is one of many areas where policy
makers have discretion and choices to make.
10
A decision to permit a judicial appeal does not need to include the right
of the patent owner to obtain injunctive relief. For example, in the US
system for public use, nearly any government employee can authorize
use, which is not considered an infringement of the patent, and the patent
owner does not get the right to obtain an injunction against either the
government or third parties authorized by the government. The patent
holder does, however, have a right to compensation, and the decisions
regarding compensation, including appeals, are made by federal courts.
11
4
Government Use of Patents
There is a high variance in national provisions for government or public
use of patents. Some are quite permissive, while others are not. Below are
some examples of countries with fairly liberal public-use provisions in
national patent laws.
The US has very broad rights to use patents for public purposes. As noted
earlier, the government can use patents for any government purpose, is
not obligated to negotiate for licences, and does not authorize any
injunctive relief to the patent owner. The patent owner is granted
compensation, as a government taking under eminent domain laws.
Italy gives the government the right to expropriate patents for "Military
or public interest" uses.
In Australia, "Exploitation by the Crown" of a patent, including use "by
a person authorized in writing by the Commonwealth or a State" is "not
an infringement" of a patent.
In Germany, "a patent shall have no effect where the Federal Govern
ment orders that the invention be exploited in the interest of public
welfare."
The Malaysian patent law has a special provision for "Rights of Govern
ment" which authorizes "the Government of the Federation or of any
State, a Ministry or Government department or any person authorized
by such Government, Ministry or Government department" to "make
use and exercise any invention", subject to the payment of "reasonable
12
compensation". Like many other countries, in Malaysia, governmentauthorized uses of patents are not considered an infringement.
In Singapore, the patent law has a provision for "Use of Patented
Inventions for Services of Government", which permits "a Government
department or a person authorized by a Government department" to
"make, use, exercise and vend the patented invention for any purpose
which appears to the Government department necessary or expedient"
for several stated purposes, including "public non-commercial use".
The New Zealand patent law has a provision for "Use of patented
inventions for services of the Crown" which states, "notwithstanding
any other provision of this Act, any Government Department, and any
person authorized in writing by a Government Department, may make,
use, exercise, and vend any patented invention for the services of the
Crown and anything done by virtue of this subsection shall not amount
to an infringement of the patent." Interestingly, the only limitation on the
sale of a good to the public under this provision concerns integrated
circuits.
In the Philippines, the relevant provision is "Use of Invention by Govern
ment" which says, a "Government agency or third person authorized by
the Government may exploit the invention even without agreement of
the patent owner where: The public interest, in particular, national
security, nutrition, health or the development of other sectors, as deter
mined by the appropriate agency of the government, so requires; or A
judicial or administrative body has determined that the manner of
exploitation, by the owner of the patent or his licencee, is anti-competi
tive. "
Like other countries, this is a separate section in the national law from the
sections on compulsory licensing.
The Irish patent law has provisions for "Use of Inventions for the service
13
of the State" which authorizes a government Minister "to use the
invention for any purpose which appears to such Minister to be neces
sary or expedient - for the maintenance of supplies and services essential
to the life of the community; for securing a sufficiency of supplies and
services essential to the well-being of the community; for promoting the
productivity of commerce and industry, including agriculture; gener
ally for ensuring that the whole resources of the community are available
for use and are used, in a manner best calculated to serve the interests of
the community; for assisting the relief of suffering and the restoration
and distribution of essential supplies and sendees in any country or
territory other than the State that is in grave distress; or for ensuring the
public safety and the preservation of the State."
The Switzerland patent law provides for "Expropriation of the Patent"
and states, "If public interest so requires, the Federal Council may wholly
or partially expropriate the patent."
The UK law provides for "'Use of patented inventions for services of the
Crown" and the government's powers are quite broad. It provides that:
"Notwithstanding anything in this Act, any government department
and any person authorised in writing by a government department
may, for the services of the Crown and in accordance with this section,
do any of the following acts in the United Kingdom in relation to a
patented invention without the consent of the proprietor of the patent,
that is to say (a) where the invention is a product, may (i) make, use, import or keep the product, or sell or offer to sell it where
to do so would be incidental or ancillary to making, using, importing or
(ii) in any event, sell or offer to sell it for foreign defence purposes or for
the production or supply of specified drugs and medicines, or dispose or
offer to dispose of it (otherwise than by selling it) for any purpose
whatever;
14
(b) where the invention is a process, may use it or do in relation to any
product obtained directly by means of the process anything men
tioned in paragraph (a) above;
(c)
without prejudice to the foregoing, where the invention or any
product obtained directly by means of the invention is a specified
drug or medicine, may sell or offer to sell the drug or medicine;
(d) may supply or offer to supply to any person any of the means,
relating to an essential element of the invention, for putting the
invention into effect;
(e)
may dispose or offer to dispose of anything which was made, used,
imported or kept in the exercise of the powers conferred by this
section and which is no longer required for the purpose for which it
was made, used, imported or kept (as the case may be), and anything
done by virtue of this subsection shall not amount to an infringe
ment of the patent concerned.
15
5
Setting Compensation
Use of a patent under Article 31 of the TRIPS requires that the patent
owner is compensated. The general rule is in 31.h:
(h) the right holder shall be paid adequate remuneration in the
circumstances of each case, taking into account the economic
value of the authorization;
In many respects, this is the most fundamental obligation in Article 31.
It is clear that countries have considerable discretion in setting compen
sation. Article 1 of the TRIPS says that countries
"shall be free to determine the appropriate method of imple
menting the provisions of this Agreement within their own
legal system and practice."
There are of course limits to what would satisfy this requirement, but
there is already a rich diversity of national approaches in terms of
compensation in compulsory licensing and government use, and the
WTO would be hard pressed to justify intrusive reviews of this.
Like most Article 31 issues, the most important issue is to provide a fair
process for reaching a reasonable result. There is no question about the
power of states to rein in IP Rs in order to assure affordability and access,
but in the process of doing so, governments are advised to provide an
administrative record which explains the basis for policy and specific
outcomes. This doesn't have to be complex or involve endless proceed
ings. It can be simple and quick.
16
The easiest way to proceed is to create a set of compensation guidelines,
based upon reasonable royalties in most cases, that will provide a
framework for decision-making, and also provide some predictability
and transparency for the system. These guidelines can be administrative,
or even be set out in statute.
In practice, a straightforward royalty guidelines system will facilitate
early action. Government officials can simply pick the royalty rate from
the guidelines that provides a rough match wi th the specific facts, and the
products can be put on the market without delay. Patent owners or
generic producers could appeal initial decisions, but the appeal process
should not slow down the introduction of generic competitors.
One issue that should also be addressed concerns cases of complex rights
on the same product, a situation that is likely to become more common
place. One solution is to have the government set a reasonable royalty
that would compensate all of the various patent owners, and have the
money paid into an escrow account. The patents owners could work out
their differences, possibly with arbitration, and split the escrow funds
when the international differences are resolved. Again, this would
permit rapid introduction of the generic products, without waiting for
the distributional issues to be resolved among competition patent own
ers.
Japan, Germany, the Philippines and other groups have adopted various
forms of royalty guidelines, and countries can invent their own models
for this as well. PhRMA, the US based big pharmaceutical trade group,
presented data to the USTR in February 2000 that 5 percent was the
average US royalty rate for pharmaceutical drugs, and Japan has used
rates from 2 to 4 percent in the past for some purposes, while for
pharmaceuticals Germany has used 2 to 10 percent. In the Canadian case,
which according to the WHO is the most extensive use of compulsory
licensing for pharmaceutical products, the government typically or
dered royalties around 4 percent.
17
Whatever the rate, it should be manageable, and there is no reason for
the WTO to demand the poor countries of the world to pay top dollar
on medicines while millions are dying for lack of access to treatment.
Indeed, the target royalty payment could be an approximation of the
average or median royalty paid on pharmaceutical products, for which
there exists reasonable competition among therapeutic substitutes, and
some other methodology which does not impose high royalties from
blockbuster drugs as a norm for the developing country poor.
In a recent presentation to the Indian domestic competitive industry in
a meeting in Mumbai, the following royalty guidelines were recom
mended for developing countries:
Innovative products — 3 to 5 percent
Production with modest innovation — 2 to 3 percent
Minor patents — 1 percent or less
There could be different numbers, a study to choose the rates, or
additional compensation, such as an extra royalty payment of 1 to 2
percent over the guidelines for productions that are particularly useful
from a therapeutic point of view, unusually expensive to develop (based
upon real evidence of costs), that reach limited audiences, or that have
other special considerations. There could also be lowering of payments
when R&D was supported by public sector organizations, including tax
based subsidies, such as the US orphan drug tax credit program.
In the best of all possible worlds there could be much more analysis, such
as the thoughtful pharmo-economic analysis conducted by the Austral
ian government to determine reimbursement for pharmaceutical drugs.
However, this is expensive in terms of money and time of training of staff,
and not only may be hard to justify in terms of resources, but it may also
make the program harder to understand and manage.
One important innovation in this area is to place specific requirements
18
that parties who seek royalties provide basic data to governments and for
the public. For example, no company should be permitted to make
entirely un-supported claims regarding the costs of developing prod
ucts, in order to plead for higher royalty payments.
If a firm wants to argue that it has under taken large investments and risk,
as of course it may have done so, the firm should be required to provide
evidence to back up the claim. For example, the firm should disclose the
actual costs invested in the development of the product, using a stand
ardized disclosure format, so the data would contribute to deeper public
sector and citizen understanding of the actual investments in products
and the economics of new drug development. This should be accompa
nied by data on the actual sales of that product, since its introduction, to
provide more information on the returns from the company investments.
No appeal of a royalty rate should be permitted without such d isclosures,
and indeed, countries could and I hope would require such disclosures
before granting any compensation at all. Such disclosures are addressed
now in the Trans Atlantic Consumer Dialogue's recent recommenda
tions to the US and the EU on transparency in pharmaceutical econom
ics.10
19
6
Discrimination By Field Of
Technology
A troublesome area of TRIPS concerns Article 27.1, which reads in part:
...patents shall be available and patent rights enjoyable with
out discrimination as to the place of invention, the field of
technology and whether products are imported or locally
produced.
The meaning of this text isn't clear, because the phrase, "field of technol
ogy" is not a well established legal term. The big pharmaceutical compa
nies cited this Article of TRIPS in their complaint against the South
African Medicines Act.”
2.4. it is discriminatory in respect of the enjoyment of patent
rights in the pharmaceutical field which discrimination is in
conflict with the provisions of Article 27 of the Trade Related
Aspects of Intellectual Property Rights Agreement [hereinafter
referred to as the "TRIPS Agreement"], an international agree
ment binding the Republic and to which Parliament has given
effect by the promulgation of the Intellectual Property Laws
Amendment Act, No. 38 of 1997, and consequently such provi
sion is in conflict with Section 44(4) of the Constitution read
with Sections 231(2) and 231(3) of the Constitution.
The issue of the Article 27.1 discrimination language was raised in WT/
DS114/R, a recent WTO dispute involving Canadian patent exceptions
for research and testing on generic drugs used for drug registration (the
so-called "bolar" exception) and a Canadian patent exception that per
20
mitted stockpiling of production in anticipation of the patent expiration.
The EU submission to the WTO stated:12
Article 27.1 of the TRIPS Agreement
(b) That Canada, by treating patent holders in the field of
pharmaceutical inventions by virtue of these provisions less
favourably than inventions in all other fields of technology,
violated its obligations under Article 27.1 of the TRIPS Agree
ment requiring patents to be available and patent rights enjoy
able without discrimination as to the field of technology.
The WTO considered very technical arguments over whether or not its
patent exceptions violated Article 27.1. Canada referred to Article 32(b)
of the Vienna Convention on the Law of Treaties, which said the interpre
tation of treaty terms "should not produce manifestly absurd or unrea
sonable results." As summarized by the WTO panel, Canada argued:
The adoption of the meaning of Article 27.1 reflected under (a)
above would clearly violate that rule of construction. It would
lead to a requirement for "across-the-board" derogations from
patent rights, thus compelling exceptions where there was no
practical need and reducing patent protection more than was
required in all areas save those in which a balancing measure
was actually required. Such an incongruous result would not
be consistent with the objectives of the TRIPS Agreement
Article 27.1 that was consistent with the intent of Article 30, i.e.,
allowing exceptions that were "limited" because they were not
spread across all sectors of technology, and which respected
the objective, as reflected in the TRIPS Agreement, of ensuring
balance, by avoiding an anti-discrimination rule which would
overwhelm other important societal interests if it had to be
applied "across the board", without regard for particular cir
cumstances.
— The European Communities and their member States did
not seek to read Article 27.1 in its context and in light of the
TRIPS objectives but, instead, asserted that Article 27.1 was
absolute in nature, such that "violations" of its provisions
could not be justified under Article 30. This approach, in failing
to give effect to the applicable rules of interpretation, simply
led to the undesirable and absurd results referred to above. It
deprived Members of the ability to create appropriate solutions
for specific problems on a case-by-case (or product group by
product group) basis, and instead obliged them to impose
universally applicable measures which could be entirely inap
propriate in most contexts. It required "limited exceptions" to
be unlimited.
... A reference to the drafting history of Article 27.1 was
instructive. Its structure and wording reflected two separate
negotiating thrusts: (a) a desire to ensure that subject to certain
listed exceptions, patents would be available for inventions in
all fields of technology 13; and (b) a desire to eliminate compul
sory licence provisions respecting food and drug products in
national patent laws. ,4
... There was nothing in the drafting history to suggest that the
prohibition against discrimination on the basis of field of
technology was ever meant to override limited exceptions.
The WTO decision in the case is more than 110,000 words, and explores
a number of key issues in interpreting TRIPS. There are extensive
discussions on TRIPS Article 7, 8, 27, 28, 30 and 31, plus substantive
discussions on the pharmaceutical market. The decision includes lan
guage that declares one of the reasons for Article 27.1 was to prevent
countries from enacting compulsory licensing laws that deal t specifically
with pharmaceuticals. There is also text such as this concerning access to
generic drugs:
22
(b) The Global Need for Access to Essential Medicines
— Although not manufactured in all countries of the world,
generic medicines of course had a role to play in promoting
public health in all countries. According to the World Health
Organization, more than one third of the world's population
lacked regular access to essential drugs. Every year, millions
of children and adults in developing countries around the
world still died from diseases that could be readily treated by
drug therapies, and more economically treated with generic
drugs. 15
— Many countries still lacked the facilities and expertise
needed to review the safety, efficacy and quality of drugs
destined for their national markets, and remained dependent
on reliable foreign authorities to set the necessary standards
and on foreign generic companies to do the necessary testing to
those standards. For example, a 1993 study of 36 African
countries conducted by the World Health Organization had
found that only three had a "limited drug regulatory capacity".
Not one African nation had what the WHO called a "compre
hensive drug regulatory capacity".16
— A refusal to allow testing of generic medicines for the
purposes of foreign regulatory submissions during the term of
patent protection, while permitting it for domestic submis
sions, would needlessly delay the regulatory review process in
many countries. As a result, generic drugs would not be readily
available, and many treatable diseases would remain untreated,
in the period following patent expiry. Moreover, such a refusal
would require that tests be repeated in their entirety in foreign
countries. The World Health Organization opposed multiple
human testing because of its resource implications for develop
ing countries.17
23
— Consequently, if permissible "pre- expiration testing" were
to be confined to activities related to domestic regulatory
review only, the protection of public health would unquestion
ably suffer. An important value expressly recognized in Article
8.1 of the TRIPS Agreement would be impaired.
In the end, the March 17,2000 WTO panel report held that the Canadian
"bolar" provisions were not violations of Article 27.1 of TRIPS. This
decision seemed to be based largely on the fact that the legislation itself
did not specifically limit itself to the pharmaceutical industry, even
though it was clear that this was the primary area where the legislation
was having an effect.
In sum, the Panel found that the evidence in record before it did not raise
a plausible claim of discrimination under Article 27.1 of the TRIPS
Agreement. It was not proved that the legal scope of Section 55.2(1) was
limited to pharmaceutical products, as would normally be required to
raise a claim of de jure discrimination. Likewise, it was not proved that
the adverse effects of Section 55.2(1) were limited to the pharmaceutical
industry, or that the objective indications of purpose demonstrated a
purpose to impose disadvantages on pharmaceutical patents in particu
lar, as is often required to raise a claim of de facto discrimination. Having
found that the record did not raise any of these basic elements of a
discrimination claim, the Panel was able to find that Section 55.2(1) is not
inconsistent with Canada's obligations under Article 27.1 of the TRIPS
Agreement. Because the record did not present issues requiring any
more precise interpretation of the term "discrimination" in Article 27.1,
none was made.18
In general, the issue of permitted discrimination by sectors of the
economy seems to be an important albeit unanswered question, even
after the WTO's decision in WT/DS114/R, and poses perhaps the most
difficult issue for drafting legislation. All of the contractions and tension
so the Canadian bolar case will likely be revisited in the future. For this
24
reason, reports by UN agencies, including the WHO, UNAIDS, UNCTAD
or UNDP would be useful and timely. The issues presented by this
decision border on the absurd, as countries will find it extremely difficult
to write laws to address in specific and limited ways important social
concerns. The United States compulsory licensing laws for clean air and
civilian nuclear energy are faced with the same issues.
The current thinking is for countries to adopt laws that provide for
compulsory licensing in broad areas like "health" and make the argu
ment that health isn't a field of technology. But at a certain level it
becomes ridiculous to argue that countries cannot fashion laws that have
the expressed mission to expand access to medicines.
25
Endnotes
1 Thanks to Robert Weissman forcommentson this first draft, toThirukumaran
Balasubramaniam for research on foreign patent laws, and to participants at
several seminars, including the November 2000 UNDP meeting for HR2001
consultants, the 28 November, 2000 Geneva UNCTAD Workshop on Trade in
Pharmaceuticals and Human Rights, a 6 December, 2000 Bangladesh seminar
organized by MSF for the People's Health Assembly, and a 12 December
meeting of the India Drug Manufacturers Association in Mumbai, India.
2 This is only one of many important areas in patent law. For a discussion on
this and other issues, with models for state action, see Carlos Correa, Integrating
Public Health Concerns Into Patent Legislation In Developing Countries, Geneva,
October 2000, South Centre.
3 In several US cases, compensation has been based upon "what the owner has
lost, not what the taker has gained." (Leesona, 599 F.2d at 969), rejecting the
argument, by patent owners, that they are entitled to lost profits based upon
sales at prevailing commercial market rates.
4
26 AIPLA Quarterly Journal 185 (1998)
5 One example of the problems from under-resourced patent examination
involved ddl, a drug for HIV/AIDS. Bristol-Myers Squibb (BMS) was able to
obtain patents for formulation claims in Thailand that were rejected by the US
Patent and Trademark Office. BMS used this patent to block generic production
of ddl pills in Thailand, even though BMS was not the inventor of ddl, and did
not own a patent on the use of ddl for treating HIV/AIDS.
" Burroughs Wellcome Co. v. Barr Lab., 828 F. Supp. 1208, 1209 (E.D.N.C.
1993).
7
http://www.bu.edu/law/scitech/volume6/Panel2.htm
8 Footnote 17 in the text is: [17] See Josh Lerner, The Importance of Trade Secrecy:
Evidence from Civil Litigation, paper presented to the Conference on the Econom
ics of Intellectual Property Rights, ICARE Institute, University of Venice, Italy
(October, 1994).
26
9 Footnote 18 reads: [18] SeeJEAN O. LANJOUW & MARK SCHANKERMAN,
STYLIZED FACTS OF PATENT LITIGATION: VALUE, SCOPE AND OWN
ERSHIP 3 (National Bureau of Economic Research Working Paper No. 6297,
1997) (noting that crowded fields and new fields of technology generate more
patent litigation); JEAN O. LANJOUW & JOSH LERNER, THE ENFORCE
MENT OF INTELLECTUAL PROPERTY RIGHTS: A SURVEY OF THE EM
PIRICAL LITERATURE 13 (National Bureau of Economic Research Working
Paper No. 6292,1997) (correlating number of times that a patent is cited in future
applications to the value of the patent and noting that innovative technology
patents are cited with increased frequency).
10
TACD, Doc Health 6-00.
11 High Court of South Africa, Case number: 4183/98, the Pharmaceutical
Manufacturers' Association of South Africa, et al. v. the President of the
Republic of South Africa, the Honourable Mr. N.R. Mandela N.O., et al.
12 From the WTO decision:
"The European Communities and their member States argued that, by treating
patent holders in the field of pharmaceutical inventions less favourably than
inventions in all other fields of technology, Canada infringed its obligations
contained in Article 27.1 of the TRIPS Agreement.12 The following points were
advanced in support of this argument:
— The Canadian patent legislation, which under Section 55.2(2) and 55.2(3)
together with the Manufacturing and Storage of Patented Medicines Regula
tions practically speaking provided only for a 19'/-year term of patent protec
tion, applied exclusively to product and process patents for inventions in the
field of pharmaceutical products. During the legislative process, other fields of
technology were not even considered and no draft legislation to extend the
scope of these provisions to other or all fields of technology was, according to
the information available to the European Communities and their Member
States, presently pending in the Canadian legislature. In this context, it was also
noteworthy that Section 55.2(2) of the Canadian Patent Act was, taken in
isolation, an inoperative provision and created only legal effects through the
promulgation of the Manufacturing and Storage of Patented Medicines Regu
lations. This Regulation was expressly limited to "patented medicines" and
could not apply to any other product.
27
—Thus, the Canadian legislation discriminated against pharmaceutical inven
tions by treating them less favourably than inventions in all other fields of
technology and therefore Canada violated its obligations under Article 27.1 of
the TRIPS Agreement
13 Reference was made to the TRIPS 10+10 meeting, 16 December 1991, Speak
ing Note for the Chairman (unpublished).
14
Op. Cit. at p. 8
15 The Worldwide Role of Generic Pharmaceuticals, Presentation to Interna
tional Generic Pharmaceuticals Association by Dr. Jonathon D. Quick, Director
of Essential Drugs and Other Medicines, World Health Organization, June 1999.
The diseases and death rates are: respiratory infections (4 million); diarrhoeal
disease (3 million); tuberculosis (2 million); measles (1 million); malaria (1
million); tetanus ('/2 million); heart attack and strokes (5'/2 million); and cancer
(3’^ million).
16 Status of Drug Regulation and Drug Quality Assurance in WHO African
Region and Selected Countries, World Health Organization, March 1999.
17 Developing International Standards for the Generic Pharmaceutical Indus
try, Presentation to International Generic Pharmaceuticals Association by Dr.
Juhana E. Idanpaan-Heikkila, Special Advisor, Quality Assurance and Safety,
World Health Organization, June 1999.
18 On the record before the Panel, there was no occasion to consider the question
raised by certain third parties — whether measures that are limited to a
particular area of technology — de jure or de facto — are necessarily "discrimi
natory by virtue of that fact alone, or whether under certain circumstances they
may be justified as special measures needed to restore equality of treatment to
the area of technology in question. The Panel's decision regarding Section
55.2(1) did not touch on that issue.
28
Compulsory Licensing: Models for State Practices in Developing Coun
tries, Access to Medicine and Compliance with the WTO TRIPS Accord
In this booklet, James Love addresses the issue of government
authorization under the Trade-Related Aspects of Intellectual Rights
(TRIPS) Agreement to use a patent without the permission of the patent
owner.
He examines models for compulsory licensing and government use of
patents as a tool to increase access to medicines in developing countries,
drawing on examples also from patent laws in developed countries.
A good state practice model, he argues, should have the following features:
(i)
The system must not be overly legalistic or expensive to administer,
or easily manipulated by litigation.
(ii)
The government-use provisions should be strong.
(iii)
The system of setting compensation should be relatively predictable
and easy to administer.
The author also looks at other related areas such as the TRIPS-permitted
use of administrative practices in all Article 31 decisions; the high variance
in national provisions for government or public use of patents; and the
"troublesome area of TRIPS" — the phrase, "field of technology" found in
Article 27.1.
JAMES LOVE has worked for the Center for Study of Responsive Law since
1990, and has been the Director of the Consumer Project on Technology since
1995. He is an advisor on intellectual property policies to a number of national
governments, international and regional intergovernmental organizations, public
health NGOs, and private sector pharmaceutical companies. Love is the US cochair of the Trans Atlantic Consumer Dialogue (TACD) Working Group on
Intellectual Property and a member of the MSF Working Group on Intellectual
Property. He was previously Senior Economist for the Frank Russell Company, a
Lecturer at Rutgers University, and a researcher on international finance at
Princeton University.
TWN INTELLECTUAL PROPERTY RIGHTS SERIES
is a series of papers published by Third World Network to provide
a critical analysis of intellectual property rights protection from a
Third World perspective. A particular focus is given to the WTO
Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) and its implications for developing countries.
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