(1998; 97 pages) [French] [Spanish]
Basically, the patent holder is free to exploit the protected invention or to authorize another person to exploit it. However, when reasons of general interest justify it, national public authorities may allow the exploitation of a patent by a third person without the owner’s consent.
While limited possibilities of use without authorization of the right holder are permitted under Article 30, compulsory* licences under Article 31 are another mechanism in which the patented object can be used without the permission of the rightful owner. The terms of compulsory licence are often used to denote licences granted by the judicial or administrative authorities.
French law, for example, provides that “if required in the interest of public health” (Article L.613-16 of the Code on Intellectual Property), patents issued for drugs may be subject to the regime of compulsory licences. The law authorizes this procedure when the patented drugs “are only made available to the public in insufficient quantity or quality or at abnormally high prices”.
The Paris Convention left States free to grant compulsory licences “to prevent possible abuses” connected with monopoly. Thus, in Article 5A.(2) of the Paris Convention, “Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licences to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.”
One of the objectives of the TRIPS Agreement was precisely to limit these cases of “utilization without the authorization of the right holder” and to impose specific conditions on Member States.
Thus, pursuant to Article 31 of the Agreement:
• authorization of such use will be considered on its individual merits;
• authorization will be granted only if the proposed user has made efforts to obtain the licence on reasonable commercial terms;
• the scope and duration of the authorization must be limited;
• authorization is non-exclusive;
• the authorization is non-assignable;
• the predominant objective of the authorization must be supply of the domestic market;
• the authorization will be suspended if the circumstances that led to it cease to exist;
• the patent holder will be given adequate remuneration, taking into account the economic value of the authorization.
These are the main minimum conditions stipulated by the Agreement and Member States must fulfil them when they grant compulsory licences. These conditions must therefore be included before the end of the transition period in the new national legislation on patents. They must be respected whenever a compulsory licence is issued by the public authorities.
Apart from these conditions, Member States are left with a broad scope for action in regard to the grounds and reasons for compulsory licences (as is the case under Exceptions of Article 30). Five kinds of use without authorization of the right holder are expressly envisaged by the Agreement:
- licences for public non-commercial use by the Government;
- licences granted to third parties authorized by the Government for public non-commercial use;
- licences granted in conditions of emergency or extreme urgency;
- licences granted to remedy a practice determined after administrative or judicial process to be anti-competitive;
- licences arising from a dependent* patent.
However, the Agreement does not state that these are the only cases authorized. Thus Member States are not limited in regard to the grounds on which they may decide to grant a licence without the authorization of the patent holder. They are in practice only limited in regard to the procedure and conditions to be followed. The Agreement refers to five types of licences but the list is not exhaustive. Achievement of the objective of accessibility, already mentioned, requires adequate exploitation of such possibilities for use without the permission of the patent holder in order to guarantee satisfactory conditions of supply. Compulsory licences are the easiest and most effective way to increase the supply of products, by acting directly on marketing conditions or by deterring patent holders from taking measures that would arbitrarily reduce supply or artificially or excessively increase prices.
Compulsory licence on the grounds of public health
According to Article 8 of the Agreement, Member States may adopt the necessary measures to protect public health and nutrition (provided these measures are consistent with the provisions of the TRIPS Agreement). There are many instances of regulations that envisage compulsory licences for reasons of public health. In practice, if a new pharmaceutical product introduced to the market were to constitute an important innovation or play an essential role in health policy, such as a vaccine against AIDS or malaria, the national law may provide for the granting of a compulsory licence, under the conditions of Article 31.
First attempt to obtain a voluntary licence
In all cases in which the Agreement authorizes the granting of licences without the permission of the patent holder, the potential user is required, as a precondition for the granting of a compulsory licence, to have attempted unsuccessfully to obtain a voluntary licence contract, from the patent holder, on reasonable commercial conditions and after a certain period of time. The only cases in which such an attempt is not required are cases of national emergency, other circumstances of extreme urgency, public non-commercial use and adjudicated anti-competitive practice. The logic of this procedure is that it makes for a certain balance between all the sectors involved, obviating possible abuse by patent holders while retaining a certain flexibility, which contributes to accessibility.
Utilization by governments
The concept of a licence for utilization by the government or by authorized third parties is very important for accessibility, for in both cases, countries where drugs are supplied directly by the government may then authorize such licences for these products. In case of public non-commercial use, it is not necessary to fulfil the condition that a voluntary licence must first be applied for, although the patentee must be informed.
The Agreement states that licences granted without the authorization of the patentee may not be exclusive. This means that any interested person may apply for such a licence, which will increase the supply of products to the highest level possible under market conditions.
Under a number of conditions, a compulsory licence may be issued where a new invention requires the use of a pre-existing patented invention for working.
Licences granted on the grounds of anti-competitive practice
It is very important to foresee actual cases of anti-competitive practice when bringing national legislation into line with the Agreement, that is, laws on the protection of competition and anti-monopoly laws. It is also extremely important to qualify these situations to ensure that the system functions as well as possible and to avoid excessively long delays, the result of which is to reduce the practical value of such mechanisms (rapid ageing of drugs). To this end, the essential elements that should figure in national regulation of anti-competitive practice must include artificial price increases and price discrimination practices. If such situations are found and proved, and this can be done quickly and objectively, it should be possible to grant a compulsory licence.
Abuse of rights and local working of the invention
The TRIPS Agreement is supposed to coexist with the conventions existing in the domain of intellectual property, and thus does not annul the provisions of the Paris Convention, but rather incorporates them into the TRIPS Agreement by reference. According to the latter, the absence of local working of patented inventions is an abuse of rights by the patent holder, and if this situation persists for more than three years, a compulsory licence may be granted. The TRIPS Agreement retains the notion that possible abuses by patent holders should be prevented. Article 8.2 authorizes Member States to take “appropriate measures... to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.”
It is surely possible to maintain that for developing countries with a certain level of infrastructure, local working of a patented invention does contribute, in the pharmaceutical sector, to the “socio-economic and technological development” of a sector of vital importance. Hence some Member States might establish in their legislation that for “sectors of vital importance”, if the patent holder does not manufacture the product locally and is still only importing it after three years, he or she could be required to grant a compulsory licence for local manufacture with a view to improving supply of the domestic market or price conditions.
For other countries, however, importation of pharmaceuticals may seem more appropriate; “the existence of economies of scale and well-established know-how may result in import prices that are lower than the prices that might be proposed by local industry” (Remiche, 1996).
The question of local working is rather loosely covered in the TRIPS Agreement. Article 2 of the Agreement states that certain provisions of the Paris Convention, including the possibility of compulsory licences for absence of local working, are applicable to all Members. At the same time, Article 27.1 appears to recognize the legality of import monopolies when it states that “patent rights [shall be] enjoyable without discrimination... as to whether products are imported or locally produced”.
The authors of this document have tried to interpret this question, like other “sensitive” provisions, in the light of the principles and objectives of the Agreement and of existing legislation. However, it is not impossible that a Member State may submit a complaint to the WTO Dispute Settlement Body (DSB) because it considers that another State has not transposed the provisions of the Agreement correctly into its domestic legislation, as a result of erroneous interpretation. In that case, the DSB alone would be competent to decide. There are thus a number of uncertainties attaching to the TRIPS Agreement that will be clarified in the years to come.