Compulsory Licensing

Compulsory licensing authorizes patent use without the patent owner's consent: DEFINITION: a government grants a third party the right to use a patented invention without the patent owner's permission; the patent owner receives compensation but cannot block use; WHEN COMPULSORY LICENSES ARE USED: public health emergencies; anti-competitive use of patents; inability to negotiate a voluntary license; national security needs; insufficient domestic supply of essential products; PARIS CONVENTION ARTICLE 5A: the Paris Convention (1883; 179 member states) permits compulsory licenses as a remedy for failure to work a patent; forfeiture of the patent (the most extreme remedy) is only allowed if a compulsory license is insufficient to remedy the abuse; provides the foundational international authorization; TRIPS ARTICLE 31 — THE MODERN FRAMEWORK: TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement (1994; WTO); Article 31 authorizes member countries to grant compulsory licenses subject to conditions; ARTICLE 31 CONDITIONS: prior negotiation requirement: normally, the user must have first attempted to obtain a license from the patent owner on reasonable commercial terms (this can be waived for national emergency or extreme urgency); adequate remuneration: the patent owner must receive adequate compensation considering the economic value of the authorization; predominantly domestic supply: the license must be used primarily to supply the domestic market; non-exclusive license: the license must be non-exclusive; non-assignable; revocability: the license can be terminated if circumstances that led to it cease; judicial or administrative review: decisions are subject to review; DOHA DECLARATION (2001): affirmed that TRIPS does not prevent WTO members from taking measures necessary to protect public health; clarified that flexibilities in TRIPS should be interpreted to support public health.

The pharmaceutical context is where compulsory licensing has been most actively used: TRIPS ARTICLE 31(b) EMERGENCY EXCEPTION: in situations of national emergency, extreme urgency, or public non-commercial use: the prior negotiation requirement can be WAIVED; the government can immediately grant a compulsory license without first attempting to negotiate with the patent owner; the patent owner must still be notified as soon as reasonably practicable; WHAT QUALIFIES AS NATIONAL EMERGENCY: HIV/AIDS, tuberculosis, malaria, and other epidemics; pandemic diseases; extreme urgency situations (time-sensitive); the government determines what constitutes a national emergency — TRIPS does not define this narrowly; PARAGRAPH 6 PROBLEM AND SOLUTION: the TRIPS 'predominantly for domestic supply' requirement created a problem: countries without domestic pharmaceutical manufacturing capacity could not benefit from compulsory licenses; WTO Paragraph 6 solution (2003; later incorporated into TRIPS as Article 31bis): allows a compulsory license for EXPORT to countries with insufficient manufacturing capacity; exporting country issues a compulsory license for export purposes; importing country issues a parallel import compulsory license; DOHA DECLARATION IMPLEMENTATION: all WTO members can use TRIPS flexibilities for public health; least-developed countries (LDCs) have extended transition periods before implementing full TRIPS IP protection; LDCs do not need to grant pharmaceutical patents until 2033; COMPULSORY LICENSE COMPENSATION: must be adequate; typically based on the economic value of the license; pharmaceutical compulsory licenses often use royalties of 0.5-4% of sales (low compared to voluntary license rates of 4-10%); the patent owner can challenge the adequacy of compensation through judicial review.

Several countries have exercised their TRIPS flexibilities through compulsory licensing of pharmaceutical patents: INDIA: India has strong TRIPS flexibility provisions in its Patents Act (Section 84); conditions for compulsory license: (a) reasonable requirements of the public are not satisfied; (b) the patented invention is not available at reasonably affordable price; (c) the patented invention is not worked in India; INDIA FIRST CL (2012): Nexavar (sorafenib, Bayer) — kidney/liver cancer drug; generic Natco authorized to manufacture at 3% royalty rate; Bayer was selling at $5,500/month; Natco's price: $177/month; significant legal battle followed; India Section 3(d) also limits pharmaceutical patentability; BRAZIL: Brazil Decree 6108/2007: efavirenz (HIV/AIDS antiretroviral, Merck); government cited need for universal access to HIV treatment; royalty: 1.5% of generic manufacturer's net sales; Brazil had prior issued CLs for didanosine and nelfinavir; THAILAND: issued compulsory licenses for efavirenz (2006), lopinavir/ritonavir (2007), clopidogrel (heart disease, 2007); cited public health need and government use (non-commercial use); drew criticism from US and EU trading partners; ZIMBABWE, MOZAMBIQUE, RWANDA: sub-Saharan African nations have used Paragraph 6 mechanism to import generic ARVs; CANADA: Royalty Free CL (COVID-19 Exposure Notification App — not pharmaceutical); Canada's Access to Medicines Regime (CAMR) allowed export of generics to LDCs; used once (for Rwanda's AIDS treatment); UNITED STATES: the US has not issued formal pharmaceutical compulsory licenses but uses § 1498 government use frequently; during COVID-19, some advocates proposed using § 1498 for remdesivir and mRNA vaccines; the government chose not to do so.

The US equivalent of compulsory licensing for government use is 28 U.S.C. § 1498: § 1498 TEXT: 'Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation'; WHAT § 1498 MEANS: the US government (and its contractors acting 'for the United States') can use any patented invention; the only remedy available to the patent owner is monetary compensation in the Court of Federal Claims; no injunction; no enhanced damages; no willfulness analysis; FOR GOVERNMENT CONTRACTORS: '...for the United States' means contractors acting with the government's authorization and consent; DoD, NASA, NIH contracts typically include 'Authorization and Consent' clauses; contractors using patented technology with this clause are covered by § 1498; NOTABLE COVID-19 CONTEXT: during COVID-19 (2020-2021), Section 1498 was proposed as a tool to compel supply of remdesivir (Gilead), mRNA vaccine technology, and other treatments; the government chose voluntary licensing and BARDA contracts instead; § 1498 was not invoked; HISTORICAL USE: § 1498 has been used in defense procurement; government has used patented electronics, military equipment, software without formal licensing; patent owners receive compensation (often below market rate) through Court of Federal Claims actions; COMPARISON TO TRIPS: § 1498 does not require prior negotiation; no formal compulsory license procedure; automatic upon government use; broader in scope than TRIPS Article 31 national emergency provisions; but limited to government/contractor use (not commercial manufacturing for public distribution).

Compulsory licensing is politically and legally controversial with significant practical limitations: INNOVATION INCENTIVE CONCERNS: the pharmaceutical industry argues that compulsory licensing deters investment in developing new drugs for diseases prevalent in developing countries; if patents can be overridden, the expected return on R&D investment decreases; EMPIRICAL EVIDENCE IS MIXED: some studies show that compulsory licensing threats lead companies to offer tiered pricing voluntarily; others argue that compulsory licensing reduces R&D investment in neglected diseases; ACCESS-INNOVATION TRADEOFF: even supporters of compulsory licensing acknowledge this tradeoff; the debate is about where to draw the line; POLITICAL CONSEQUENCES: countries that issue compulsory licenses face: trade pressure from the US (through USTR Special 301 process — 'Watch List' and 'Priority Watch List'); bilateral trade negotiations where IP protection is a key demand; US-Thailand trade friction after Thailand's 2007 compulsory licenses; US-India pressure over India's CL and Section 3(d) for pharmaceutical patents; WHO DETERMINES 'ADEQUATE' COMPENSATION: the low royalty rates typically paid (0.5-4%) are often disputed; patent owners argue this is far below market rates; governments argue that affordability for domestic patients requires below-market pricing; MANUFACTURING CAPACITY PROBLEM: many LDCs lack capacity to manufacture even under a compulsory license; Paragraph 6 (Article 31bis) export mechanism is complex and has been used only once (Rwanda); VOLUNTARY LICENSING AS ALTERNATIVE: patent owners sometimes issue voluntary licenses to avoid compulsory licensing; Medicines Patent Pool (MPP): UN-backed organization that negotiates voluntary licenses from pharma companies for generic manufacturers in LDCs; covers HIV, TB, hepatitis C, COVID-19 treatments; sometimes more effective than formal compulsory licensing.