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.