Patent Law Series – Compulsory License – a Growing Threat to Patent Holders? 1

Patent Law Series – Compulsory license – a growing threat to patent holders? 1

Newsletter May 2012

Patent Law Series – Compulsory license – a growing threat to patent holders?

A recent decision by the Indian Patent Office has been the subject of a considerable amount of interest in the pharmaceutical sector. In March 2012, the Indian Patent Office granted a compulsory license to a generic drug manufacturer, allowing it to manufacture and sell a patented cancer drug.

Despite this decision, it is unlikely that the number of compulsory licenses granted will increase significantly in the near future.

Introduction royalty on its net sells. Although at the The decision attracted worldwide high end of the United Nations attention. While non-governmental In March 2012, the Indian Patent Development Program ("UNDP") groups have welcomed the decision Office granted its first-ever 2001 royalty guidelines, it must sell and hope that this decision will lead to compulsory license to a generic drug the drug for only a fraction of the price manufacturer, allowing it to that Bayer charges for it in India. The manufacture and sell a patented compound, used for the treatment of cancer drug. kidney and liver cancer, is sold by Key issues The Indian generic drug manufacturer Bayer under the brand name Nexavar.  Natco vs. Bayer case in India The grounds of the decision were, Natco Pharma Ltd. ("Natco") can  Compulsory license inter alia, that Bayer was not making now manufacture and sell a generic prerequisites version of Bayer Corporation's the drug accessible to enough people  Legal situation under German ("Bayer") patented cancer drug and was not making the drug and European law Nexavar (sorafenib) in India. The available at a reasonably affordable compulsory license was granted for price.  Public interest the life of the patent under which  Dependent patent Natco must pay Bayer a 6 percent

2 Patent Law Series – Compulsory license – a growing threat to patent holders?

more standardized policies with existed even prior to TRIPS. Under that (i) a new drug has enhanced regard to the granting of compulsory the German Patent Act 1877, a court therapeutic efficiency, (ii) has less licenses, developments will be could, in matters of public interest, side effects, and (iii) no alternatives watched closely by the withdraw a patent as a means to force with the same qualities are available. pharmaceutical companies which are patent holders to grant licenses. There is no reported case law on concerned that this decision could set Since 1911, it provides for a judicially whether the drug must be for the a precedent for similar rulings. Bayer enforceable compulsory license. treatment/cure of "widespread" does not want to accept the decision diseases. The license may be limited Pursuant to Sec. 24 of the German and recently appealed against the until other alternatives become Patent Act (which came into force in compulsory license order. available. In addition, it is possible to 1998), there are two different reasons obtain the license already in fast-track Notwithstanding the particularities of for granting a compulsory license: (a) proceedings (einstweilige Verfügung) the individual case, the Bayer case public interest commands the granting if paramount public health concerns can be used to provide a comparative of a compulsory license, or (b) the are at issue (Sec. 85 Patent Act). review of the similarities and licensee holds a dependent patent differences for the granting of (abhängiges Patent) which represents Contrary to the reasons given in the compulsory license under German a significant technological Indian decision, the conditions for and European law and under Indian advancement. granting a compulsory license are not law. deemed to be met if one of the main In both cases, (i) the licensee must aspects is that the therapy or have unsuccessfully endeavoured to Compulsory license medication would be too expensive contact the owner of the patented from a subjective point of view. The entry into force of the Agreement invention to request a license, (ii) it on Trade-Related Aspects of must be a patented invention, e.g. a Dependent patent Intellectual Property Rights, 1994 patent application only is not sufficient, ("TRIPS") has required greater (iii) the licensee must be able and In the case of a dependent patent, the harmonization of the different intend to exploit the patented applicant for a compulsory license intellectual property laws and invention for its own benefit; a owns a patent which depends on the regulations in all member countries of compulsory license may not be underlying dominant patent. The the World Trade Organization awarded in favour of third parties, and dependent patent involves an ("WTO"). One area in which this has (iv) the license will only be granted important technical advance of had a significant impact is that against payment of a reasonable considerable commercial significance. pharmaceutical patents must now be royalty. Although there is no reported case protected in all WTO countries. law, according to the prevailing TRIPS incorporates "flexibilities" Public interest opinion in legal literature, the permitting developing and least- standard is slightly lower than that of The term "public interest" is a general developed countries in implementing the "public interest". Not only the term which is open to interpretation. It laws and regulations domestically applicant for a compulsory license thus needs to be assessed by viewing subject to certain conditions. While can request a license; the owner of the relevant case in its entirety and in TRIPS and many national patent laws the dominant patent can also request respect of changes taking place in the contain a rule for granting a a license to the dependent patent social context. In general, the public compulsory license subject to specific against payment of a royalty. interest must be deemed important requirements, compulsory licensing enough to warrant resolving has only ever been used by a few How to claim a conflicting intellectual property rights. countries, namely, Brazil, Thailand, compulsory license This is deemed to be the case if the and now India. following conditions are met: Pursuant to the German Patent Act, a German law According to German case law, the compulsory license must be claimed before the Federal Patent Court Under German law –and under the applicant for a compulsory license must show public interest and prove (Bundespatentgericht); it must be national laws of most developed issued against the patentee as listed countries–, compulsory licensing is a (a) that shortage of the respective medication in Germany exists, or (b) in the Patent Register and not against long-established mechanism which an exclusive licensee. The court

Patent Law Series – Compulsory license – a growing threat to patent holders? 3

ruling specifies the scope of the of pharmaceutical products, when antitrust law, it must be granted on compulsory license which may by such products are intended for export fair, reasonable and non- limited or comprehensive, e.g. in time to eligible importing countries in need discriminatory ("FRAND") terms. or restricted to a particular claim. It is of such products in order to address also possible to include a condition public health problems (Art. 1 of the Conclusion subsequent, for example, in the event Regulation). Although the Natco ruling in India has that the supply situation in the country According to the Regulation, the raised concerns and fears among in dispute improves. In practice, respective competent authorities of patent holders of the possibility of a compulsory licenses have almost the Member States are responsible fresh wave of such compulsory never been granted in Germany. In for ordering a compulsory license licenses, the decision rested on the only one case was a compulsory under the conditions set forth in the unique facts and circumstances of license granted by the Federal Patent Regulation. To prevent the procedure that particular case. It should be Court, back in 1995 (BPatGE 32, 184). from being abused, the Regulation borne in mind that Germany has strict However, the decision was bans the re-importation of the compulsory licensing laws and subsequently declared void by the respective pharmaceuticals products requirements. And even the TRIPS Federal Supreme Court into the EU and calls on customs Agreement is fraught with (Bundesgerichtshof) (BGHZ 131, 247 authorities to take measures against burdensome requirements which – Interferongamma/Polyferon). re-imported products. Furthermore, severely limit the ability of less European law the compulsory licence is strictly developed countries to utilize the limited to the quantities needed by the compulsory licensing mechanism. Within the framework of the importing country or countries Given that only a few compulsory implementation of the TRIPS indicated in the application. licenses have been granted Agreement in respect to the worldwide, it is unlikely that this ruling aforementioned flexibilities regarding Antitrust law will lead to a surge in the number of the compulsory licensing mechanism, Under specific conditions, compulsory compulsory licenses being granted in the European Parliament and the licenses may also result from other the near future. Council of the European Union legal sources, particularly from adopted Regulation 816/2006 on 17 antitrust law. This is the case, for May 2006 which establishes a instance, if an undertaking, in refusing procedure for the grant of compulsory to issue a license, has abused a licences in relation to patents and dominant market position. If the supplementary protection certificates compulsory license results from concerning the manufacture and sale

Authors

Dr. Thorsten Vormann, LL.M. Dr. Claudia Milbradt Dr. Anette Gärtner, LL.M. Partner, Frankfurt Partner, Düsseldorf Counsel, Frankfurt E: thorsten.vormann E: claudia.milbradt E: anette.gaertner @cliffordchance.com @cliffordchance.com @cliffordchance.com

4 Patent Law Series – Compulsory license – a growing threat to patent holders?

Notes

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