Compulsory Licensing On Patents in the US, China, Japan, Germany, and India

Presented by: Jon Wood, Bridgestone Americas Raj S. Dav, Morrison Foerster

Introduction
Compulsory License
The government, rather than the patent owner, grants a company a non-exclusive license to make, use or sell the patented technology The government, not the patent owner, sets the terms of the license, including the royalty

Criteria for Compulsory Licensing

Public welfare Non working of invention Exploitation of an improvement invention
Public welfare No Yes Yes Yes Yes Non working No Yes Yes No Yes Improvement exploitation No Yes Yes No No

US China Japan Germany India

Compulsory Licenses
Why They Exist
To correct market failures Generally considered good for society
Tempers the exercise of market power Discourages abuse of a patent

How They Are Obtained

Private party files an application to the government Government reviews the application, and if appropriate, grants the license

Laws For Compulsory Licenses

International
TRIPS Article 31 Non-Voluntary license to domestic producers without authorization of the right holder under national emergency or extreme urgency so long as due process requirements are met Paragraph 6 of the Doha Declaration

National (in many nations except the U.S.)

Failure to work the patent Public Interest Reasons (e.g., pharmaceuticals for a public health emergency)

The United States

General Rule
No compulsory licensing regime, per se

Exceptions
28 U.S.C. 1498
Allows the U.S. to use an invention covered by a U.S. patent without license Patent owners remedy is an action against the U.S. for recovery of reasonable compensation

Federal Trade Commission Guidelines for Licensing of Intellectual Property Anti-trust Merger/Acquisition Certain U.S. laws (e.g., Clean Air Act)

The United States, cont.

Overall
Compulsory licenses have rarely been granted

China
Compulsory licenses are only applicable to invention patents and utility patents not design patents No compulsory license has been granted in China

Three situations where a compulsory license could be granted

In case of unreasonable refusal to license Public Interest
National emergency or an extraordinary state of affairs occurs

Exploitation of an improvement invention requiring license on the dominant patent

China, cont.
If granted, a compulsory license must
Be non-exclusive Pay a reasonable fee to the patentee, decided by both parties through consultation Be predominately for the supply of the domestic market only Shall stipulate the scope and time for exploitation

Permitted judicial review of

Decision to grant or reject a compulsory license Adjudication of the licensing fee Decision to terminate a compulsory license

Japan
Three instances where a compulsory license could be granted
Non-working patentee Exploitation of an improvement invention requiring license on the dominant patent Public interest

No compulsory license has been granted in Japan

U.S. and Japan have an agreement not to issue a compulsory license with regard to improved inventions, except for correction of unfair competition or approval of public or non-commercial utilization

Germany
Compulsory licensing in general
Public welfare
A national government can issue an order allowing everybody to use the invention User pays fee to the government, which then pays a justified compensation to the patentee (not necessarily all of the fees collected) Requirements are very severe to grant compulsory license for the public welfare

Germany, cont.
Conditions for compulsory licensing
A voluntary license must be denied The patent must be granted Public interest must be present
Presumed if the use of the invention by a licensee has a higher value compared with the interest of the patentee

India
India has never granted a compulsory license India has not finalized the rules for the Third Patent Amendments (2005), so interpretation of the rules is a work in progress

The 2005 Amendments specify

A compulsory license may be granted after 3 years of issuance of a patent if
The patent is not worked in India
Is importation working?

India (cont.)

Reasonable requirements of the public are not satisfied

The patented invention is not available to the public at a reasonable price The patented products prejudice or harm existing domestic trade or industry The patented products fail to develop the market for exports

India, cont.
Changes in compulsory licensing by the Patents (Amendment) Act, 2005
Substantive
Applications claiming pharmaceutical inventions submitted between 1999 and 2005 will be subject to an automatic compulsory license to generic companies if the generic companies were producing the said drug prior to 2005 and continue to produce the drug after the issuance of the patent

Procedural
Can only apply for a compulsory license if a voluntary license cannot be obtained within 6 months from the start of negotiations

Summary
Despite detailed legislative guidelines, countries have little experience with compulsory licensing outside of the anti-trust area
Perhaps the availability of compulsory licensing is sufficient to encourage patentees to grant voluntary licenses

A country that grants compulsory licenses is likely to find its efforts to partner with companies in the future adversely affected, as it would create a less stable investment climate Furthermore, it is questionable whether a compulsory license would really be useful in the case of high-technological products
Years of additional research results in trade secrets and undisclosed information that the patent does not cover, which may be necessary to produce a productive patented invention

Acknowledgements
The presenters acknowledge the valuable contributions of the following co-authors:
Ms. Susan Finston, formerly Vice President of Pharmaceutical Association of America, President, Finston Consulting, LLC Ms. Zhongyi Tao, graduate student, Peking University Law School Mr. Zheng Zha, attorney, Freshfields Bruckhaus Deringer, Beijing, China Yukio Mr. Nagasawa, former Judge of Tokyo High Court, and now with Abe, Ikubo & Katayama, Tokyo, Japan, along with Mr. Hirokazu Honda and Mr. Makoto Hattori Mr. Heinz Goddar, partner, Boehmert & Boehmert, Munich, Germany. Mr. Shaun Fox, law student, University of Akron