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June 2013

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The availability of compulsory licences in respect of patents, especially in relation to pharmaceutical patents, has been the subject of considerable attention lately. This is mainly as a result of the Indian courts showing their willingness to grant compulsory licences in respect of pharmaceutical patents. In particular, the Indian courts recently granted a compulsory licence to an Indian generic pharmaceutical company under Bayer’s patent for its cancer drug Nexavar, determining that in essence Bayer’s price for Nexavar was too high. Together with Bayer’s failed challenge that India’s patent legislation under which the compulsory licence was granted was not compliant with the TRIPS agreement (the TRIPS agreement puts restrictions on the ability of WTO members (of which India is one) to restrict the exclusive rights of patentees through – among other things - compulsory licences), this has lead to significant media interest in the power under national patent legislation to grant compulsory patent licences.

Compulsory Licensing under TRIPS

Article 31 of the TRIPS agreement states that where WTO member states provide in their patent legislation for compulsory licences the following provisions must be made:

• each case must be decided on its own merits;
• the applicant for the compulsory licence must have made efforts to take a licence from the patentee on reasonable commercial terms;
• the scope and duration of the compulsory licence must be limited to the purpose for which it was granted, such that it may be terminated or amended if the circumstances which led to the grant of the compulsory licence change or cease to exist; in the business unit that enjoys the compulsory licence);
• the patentee must be paid adequate remuneration for use under the compulsory licence;
• the decision to grant a compulsory licence and the determination of what is adequate remuneration shall be subject to judicial review;
• where a compulsory licence is granted in order to enable a second patent to be exploited, the invention claimed in the second patent must involve an important technical advance of considerable economic significance in relation to the invention claimed in the first patent and the patentee of the first patent must be entitled (on reasonable terms) to a cross-licence in respect of the second patent.

UK

The UK Patents Act 1977 also provides for the grant of compulsory licences under patents in circumstances where it can be established that there has been an abuse of the monopoly rights in relation to such patents. In practice though, compulsory licences are rarely applied for in the UK. This is because more effective provisions for controlling abuse of a monopoly can be found in competition law. However, since the UK is a WTO member, its compulsory licensing regime is intended to comply with the TRIPS agreement as is the legislation in most other economically significant countries that have a compulsory licensing regime.

Applying for a compulsory licence in the UK

An application for a compulsory licence can be made by any person to the Comptroller of Patents at any time after the expiration of three years from the date of grant of the patent. The applicant must establish one of the relevant grounds for relief (see below).  The Comptroller then has discretion as to whether and on what terms to grant a compulsory licence.

There are two regimes for compulsory licences: one for patentees who are “WTO proprietors” and one for non-WTO proprietors.

A WTO proprietor is a national of, or domiciled in, a WTO member country or has a real and effective industrial or commercial establishment in such a country.  Most patentees encountered in practice will be WTO proprietors.

For WTO proprietors, such as a patentee who is a UK national (the “Patentee”), there are three grounds for relief:

• where demand for a patented product is not being met on reasonable terms;
• by reason of the refusal of the Patentee to grant a licence or licences on reasonable terms:
• the exploitation in the UK of another patented invention that represents an important technical advance of considerable economic significance in relation to the invention claimed in the Patentee’s patent is prevented or hindered provided that the patentee in respect of the second patent is able and willing to grant a licence of its patent to the Patentee (and its licensees); or
• the establishment or development of commercial or industrial activities in the UK is unfairly prejudiced; and
• where, by reasons of conditions imposed by the Patentee, unpatented activities are unfairly prejudiced.

In addition, to obtain a compulsory licence from a WTO proprietor:

• the applicant must previously, without success and within a reasonable period, have made efforts to obtain a licence from the Patentee on reasonable terms and conditions; and
• the patent must not be in the field of semi-conductor technology unless a licence to such technology is required to remedy a practice that has been judicially or administratively determined to be anti-competitive.

Once the grounds for granting a compulsory licence have been satisfied, the Comptroller has discretion whether or not to grant a compulsory licence and must take account of the following:

• the nature of the invention, the time which has elapsed since grant of the patent, and the action of the proprietor or licensee in developing full use of the invention;
• the ability of the applicant to work the invention to the public advantage; and
• the risks to be undertaken by the applicant in providing capital and working the invention.

What will the terms of the compulsory licence in the UK be?

The terms of a compulsory licence will be decided by the Comptroller on a case-by-case basis and will depend on the particular facts of the case, but will be subject to the following conditions for WTO proprietors:

• the licence shall not be exclusive;
• the licence can only be assigned along with the part of the applicant’s business that enjoys the use of the patented invention;
• the licence must be predominantly for the supply of the market in the UK;
• the compulsory licence is to include conditions entitling the Patentee to adequate remuneration in the circumstances of the case; and
• the licence must be limited in scope and duration to the purpose for which the licence was granted, which means that the licence is forever at risk of termination or modification if circumstances change since the Patentee may seek a review of the terms of the licence at any time by application to the Comptroller.

What remedies are available in the UK?

If one of the grounds for compulsory licensing is established, the Comptroller may order the grant of a licence on such terms as the Comptroller decides or endorse the patent “licences of right”.

What is a "licence of right"?

Where a patent is endorsed “licences of right”, any person is entitled to a licence under the patent. Terms of such licence will be agreed with the patentee or, if no agreement is possible, determined by the Comptroller.

Can an applicant apply for a compulsory licence in the UK if the applicant already holds a licence under the UK patent?

Yes. The Comptroller may grant a compulsory licence and order the existing licence to be cancelled. Alternatively, the Comptroller may amend the terms of the existing licence.

Austria

Austria is a member of the WTO, so compulsory licensing follows the requirements of Art 31 of the TRIPS agreement; it is regulated nationally by sections 36 and 37 of the Austrian Patent Act.

Materially, the Austrian regime for compulsory licenses is largely identical to that of the UK, with the following differences: The period that must have expired when applying for a compulsory license is three years after the publication of the granted patent or four years after a patent was applied for, whichever period expired first. The same rules apply to all proprietors irrespective of whether their domicile is inside or outside of the WTO.

As regards proceedings, at the moment compulsory licences are decided upon by a senate of the Austrian Patent Office consisting of five members, three of which are technical experts. Although the office is an administrative body, not a court, it must hear the proprietor and take account of any objections he raises, and an appeal against its decisions may be lodged at a higher body comprised of judges and technical experts. In the near future this system will see changes due to a major reform of the Austrian administrative court system under way currently and is expected to leave the planning phase by the end of 2013.

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