E-DRUG: Compulsory licensing: government use
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[this draft paper on government use in compulsory licensing is out for comments
on the CPTECH website. See:
http://www.cptech.org/ip/health/cl/recommendedstatepractice.html
for the complete text.
The introduction is copied below. Copied as fair use. NN]
Access To Medicine And Use Of Patents Without The Permission Of The Patent Owner: Models For State Practice In Developing Countries.
Version .96
Draft, for comment
Paper for the United Nations Development Programme
January 21, 2001
James Love
Consumer Project on Technology
http://www.cptech.org
1.Introduction.1
2.This note 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 paper are informed by the following facts.
3.Contrary to much of the debate over the World Trade Organization rules for intellectual property, the TRIPS accord is
actually fairly permissive in terms of 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 license (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). The 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, the TRIPS specifically 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. 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 competitive sector. However, what the 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.
4.Many governments have good national laws for public use of patents, which is a similar but more direct and less
restrictive method of authorizing non-voluntary use of a patent than a compulsory license. 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.3 This is not unique, however, and the Australian, Irish, Italian, German, New Zealand and
UK public use provisions also provide very similar powers, as do several other countries, including the Philippines,
Malaysian and Singapore, among others. See below for example of specific national laws on this. The TRIPS rules are
designed to accommodate these practices.
5.Compulsory licenses 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 licenses for tow truck technologies. Canada has the most extensive experience with
the use of compulsory licenses 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 licenses on
pharmaceuticals, with compensation based upon royalties, typically set at 4 percent of the competitor's sales price.
6.Despite a public health crisis of enormous proportions for HIV/AIDS, apparently no African country has issued a
compulsory license for any medicine. Given the permissive global trade framework for compulsory licensing, one has to
wonder why this is so.
7.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.
8.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, 54% were found to be valid, and 46% 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 examinations in
developing countries, if they exist at all, are under staffed, under trained and have less access to research materials on
prior art.5
9.The costs of litigation are not trivial. In (December 27) 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 is much higher. In Polaroid v.
Kodak, each side reportedly spent over $100 million. Consider 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 monitors. 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.
10.Few if any developing countries have a significant capacity to examine patent applications, or to litigate patent claims.
Some developing countries have patent registration systems that don't require patent examination at all. In the US, Japan
or European market, 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.
11.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.
12.Developing countries have not enacted good TRIPS compliant state practice models for authorizing the use of patents on
medicines. Prior to the TRIPS, many countries simply excluded pharmaceutical from the patent 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 expensive medicines from the competitive sector.
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