Do not push: a patent rebellion

In an ideal world, patent rights would lead to the best possible advancements, when we need them, at prices we can afford. Unfortunately, it doesn’t always work like that. Sometimes people need things that they can’t afford, so alternative methods have been developed to make sure that those who need to use a technology can do so legally.

One such method is compulsory licensing. A country’s right to grant compulsory licences for patents is provided in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) to strike a balance between promoting access to existing technologies and securing research and development.

This is aimed at pharmaceutical technology, but climate change has opened up the possibility of using compulsory licensing for clean technologies too.

It was often thought that compulsory licensing could be used only in cases of public emergency, such as an outbreak of a particular virulent disease requiring a country to obtain a large amount of drugs quickly. But the TRIPS provisions for compulsory licensing do not limit things so severely. In 2001, the World Trade Organization (WTO) said countries have the right to grant compulsory licences, and the freedom to decide how.

Pravin Anand, managing partner of Anand and Anand, says that the patent office handles compulsory licensing applications in India. Applications can be made on the grounds that: (i) the reasonable requirements of the public with respect to the patented invention have not been satisfied; (ii) the patented invention is not available to the public at a reasonably affordable price; and (iii) the patented invention is not worked in the specific territory.

The Indian central government can also step in if “in its opinion, it is necessary so to do”, says Anand. The central government would exercise this right in cases of national emergency or extreme urgency, or for public non-commercial use of drugs relating to certain illnesses.

Cost of compulsory licensing

The WTO has had to work to clarify the applicability and scope of compulsory licensing, but consensus on whether the benefits outweigh the threats has not been reached.

“THE WTO HAS HAD TO WORK TO CLARIFY THE APPLICABILITY AND SCOPE OF COMPULSORY LICENSING, BUT CONSENSUS ON WHETHER THE BENEFITS OUTWEIGH THE THREATS HAS NOT BEEN REACHED.”

In a policy statement, pharmaceutical giant GlaxoSmithKline outlines its position on this subject: “Systematic use of [compulsory licences] weakens the intellectual property system. The IP system underpins the ability of the private sector to undertake the R&D that is essential if we are to see advances in treatments and vaccines for diseases of the developed and developing world. The more the IP system is weakened, the less R&D is likely. Widespread use of [compulsory licences] may, therefore, contribute to a reduction in R&D.”

The threat to investment in R&D is a worry, although there are those who argue that this is a hand that is often overplayed. Tahir Amin, director of IP and co-founder of non-profit health advocacy group I-MAK, cites generic pharmaceutical company NATCO’s compulsory licence application for a patent in India as a case that may challenge the pharmaceutical industry’s long-held view that compulsory licensing threatens investment in R&D.

NATCO applied for a compulsory licence for pharmaceutical company Bayer’s patent, which covers the kidney cancer drug Nexavar, on the grounds that it is too expensive and Bayer has not supplied the Indian market with sufficient quantities of the drug. At an initial hearing in January, Bayer said that it could not sell the drug at a lower price in India as it would not be able to recoup its R&D costs.

Amin says the fact that Bayer was ordered to submit cost data, including details of the expenditure on R&D for Nexavar, so it could justify the drug’s high cost, is a step in the right direction. “I think for the first time that really might help us to get some transparency on this standard line we hear from industry about R&D for every drug costing $800-$1 billion or other significant amounts of money.

"The R&D cost for each drug needs to be measured in the face of the profits these companies make on them to really assess whether the costs are significant,” he adds.

Remfry & Sagar partner Ranjna Mehta-Dutt says that the enormous difference between the cost of NATCO’s drug (approximately INR 8800 [$178] for a month’s supply) and Nexavar (approximately INR 290,000 [$6000]), along with NATCO’s claim that Bayer has imported only small quantities of the drug, despite significant demand, may force the hand of PH Kurian, controller general of Patents Designs and Trademarks.

“Kurian may be of the opinion that the patented drug is not available to the public at a reasonably affordable price [and that the quantity of Nexavar that is available in India] is insufficient to meet market demand,” she says. Given NATCO’s pending application, Kurian declined to comment on the case.

Bayer did not respond to requests for comment, but the Biotechnology Industry Organization (BIO) recently raised the issue of NATCO’s compulsory licence application in a submission to the Office of the US Trade Representative. BIO is unsatisfied that Kurian has decided to focus on the price of Nexavar. It said that TRIPS outlines procedures for compulsory licensing that “focuses the inquiry on the use of this mechanism for exceptional circumstances”.

However, Kurian’s focus on the cost of the drug and whether or not someone can make it cheaper, rather than a TRIPS-focused analysis of exceptional circumstances, are “not consistent with the letter or spirit of the TRIPS Agreement”.

Modes of transfer

The NATCO case highlights common arguments for and against compulsory licensing. On one side, patents are used to restrict the access that TRIPS is supposed to promote, as they allow companies to charge high prices for essential technology. “I think today they hinder competition in the truest form and they are designed as a part of business strategies,” says Amin.

On the other side, investment in technology is necessary, and without adequate compensation, inventors will not have the necessary incentives. Anubhav Kapoor, general counsel and company secretary at Tata Technologies, says that compulsory licensing should be allowed “as long as certain procedures are followed and certain terms fulfilled”.

He says: “If the patent holder is adequately compensated for [its] patented technology then I feel that it will keep the inventor motivated in spite of the diminishing value of the patent.”

In Brazil, the Brazilian National Institute of Industrial Property (INPI) has not granted any compulsory licences, although one has been granted by special presidential decree. Jorge Ávila, president of INPI, says it important that “patent applications are appreciated and decided quickly”.

He says: “In normal conditions, if the patent is decided and the extension of the granted rights is clearly defined, market mechanisms should be effective in promoting the adequate dissemination of the relevant technologies. If ... the adequate technologies do not reach the potential users, it may be the case for a compulsory licence, but this should be carefully investigated in a case-by-case approach.”

“CLIMATE CHANGE IS A GLOBAL PROBLEM, WHICH IS LARGER THAN THE INDIVIDUAL NATIONAL JURISDICTION OF A PATENT RIGHT AND THE LIMIT IT PLACES ON A MARKET.”

Broad access to ‘clean’ or ‘green’ technology, which is different from pharmaceutical technology in terms of range, development and application, is considered to be necessary if climate change is going to be effectively tackled. As a result, green tech patents are a possible candidate for compulsory licensing. “If what we are trying to do is mobilise the world to do something about climate change, we could actually be in favour of a lot of compulsory licensing,” says Kapoor.

Climate change is a global problem, which is larger than the individual national jurisdiction of a patent right and the limit it places on a market. “Global propagation of innovations is essential if clean technologies are to have the optimum effect,” says Kapoor. “If the use of a technology is limited to the country in which it was developed, or a few specified others, the environmental benefits of that technology will also be localised.”

A global fund that could acquire green tech patents and then distribute them for free is an alternative to compulsory licensing, says Kapoor. “Another reasonable alternative is the tiered pricing system that allows developing countries to obtain the patented technology at a price that is lower than that offered in developed countries,” he adds.

Mehta-Dutt says that there are methods of transfer that patent owners can employ to ensure that access to technology is as broad and as fair as possible. The rights of the patent owner may be transferred by assignment or licensing.

Assignments may include legal assignments, equitable assignments or mortgages and may be exclusive, non-exclusive or limited. She adds: “The mode of technology transfer will depend on the specific circumstances of the case and nature of the invention.”

In both the pharmaceutical and green tech arenas, Amin believes, there are basic things that patent owners can do to promote broader access to technology without using compulsory licensing. “There’s such a lack of transparency in the patent system that nobody dare move because there are too many deterrents,” says Amin.

“If companies could actually say, voluntarily, or be mandated to disclose, what has expired and can be used, that would be a start. Big pharmaceutical companies in particular aren’t really innovating. They’re basically repackaging—re-inventing what’s already been invented. That is the biggest problem. People talk about compulsory licensing or standards being too high as hurting innovation; I think companies need to go for the higher line, the more daring inventions.”

Kapoor says that patent owners and inventors need more incentives. Otherwise technology, especially green tech, does not reach the right market in time or at all. “There is no doubt that environmentally sound technology transfer requires a careful balancing act that includes fair treatment for innovators and energy policies that stimulate diffusion of environmentally sound technology to address climate change,” he explains.

“This pilot programme for speeding up green patent applications will lead to significant savings in pendency which would in turn lead to green technologies reaching the market sooner. The least governments can do is provide more and more incentives for development of these technologies. We need to ensure that innovations will have the maximum impact, and alternative transfer schemes and incentives need to be devised.”

Compulsory licensing may not be the best course of action for patent owners, but it represents a viable alternative for getting essential technology to market quickly and, once it is there, for making it as affordable as possible. It is important that broader access is made more attractive to patent owners that do the bulk of the inventing, as their efforts produce this technology in the first place.