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TWN Info Service on Health Issues (Mar14/02)
18 March 2014
Third World Network

US leads the world in use of compulsory licenses, says KEI
Published in SUNS #7759 dated 10 March 2014
 
Geneva, 7 Mar (Kanaga Raja) -- The United States "is leading the world in the use of compulsory licenses," and is hypocritical in voicing indignance when developing countries issue compulsory licenses for essential drugs, a leading international civil society organisation, Knowledge Ecology International (KEI), has said in testimony before the United States International Trade Commission (USITC).
 
KEI's testimony was before a public hearing last month as part of the USITC's investigation titled "Trade, Investment and Industrial Policies in India: Effects on the US Economy."
 
The USITC investigation was initiated at the instance of both the Senate Committee on Finance and the House Committee on Ways and Means, and has been backed by several US industry associations including the Pharmaceutical Research and Manufacturers of America (PhRMA).
 
A number of other civil society groups had also testified before the USITC, rebutting the arguments of PhRMA and the other industry associations, and expressing strong support for India's use of compulsory licensing.
 
The Washington DC-based KEI, which also has an office here in Geneva, had included an appendix to its written statement that provided numerous examples whereby the US government had issued compulsory licenses in several areas of intellectual property such as copyright, energy patents, medicines, and health testing.
 
In its written statement to the USITC hearing, KEI focused its testimony on the manufacture and sale of generic drugs from India, the recent compulsory license issued by India on Bayer's patents for the cancer drug Nexavar, the decision by the Indian Patent Office to reject the patent for Novartis' cancer drug Gleevec, and the consequences of trade pressure in curbing India's role in supplying affordable medicines.
 
KEI noted that from 1970 until 2005, India did not grant patents on pharmaceutical products, and like many other developing countries limited or eliminated patent protection for pharmaceutical drugs.
 
When the World Trade Organisation (WTO) was created, its TRIPS agreement included a requirement that India and other countries grant patents on pharmaceutical products, and it created a new system to regulate the limitations and exceptions for patent rights, including the granting of compulsory licenses.
 
According to KEI, India and other countries were reluctant to accept the TRIPS agreement, but did so after threats of unilateral trade sanctions (highlighted by the creation in 1989 of the Special 301 list), as part of a larger bargain (in the Marrakesh Treaty) that offered greater market access.
 
"Since the WTO was created, the United States has reneged on that earlier bargain, not only with India, but with all developing countries, by pressing for endless demands to change intellectual property laws beyond that required by the WTO TRIPS agreement, and now, by complaining about price controls and other measures designed to control the prices of patented medicines," KEI said in its testimony before the USITC.
 
"If the USITC brings pressure on India to curb the manufacture and sale of generic cancer drugs, the actions will be directly responsible for the death of cancer patients living in developing countries, and this should be on everyone's mind," it added.
 
For all the corporate propaganda about concern for global health, the fact is that nearly all companies manufacturing and selling cancer drugs have been indifferent to the inequalities of access, and only introduce measures to mitigate concerns over access when faced with compulsory licensing of patents or other actions against the patent monopolies, said KEI.
 
[Meanwhile, according to ?The Republica' Italian daily, on Wednesday, Italy's anti-trust authority fined Swiss pharmaceutical giants Novartis AG and Roche Holding AG, Euro 92 million and Euro 90.5 million respectively for colluding to prevent the use of a cancer drug as a treatment for a common eye disease.
 
[The Republica news, also posted online by KEI, noted that untreated, age-related macular degeneration leads to rapid, irreversible loss of vision. It affects one in three of the over 60s and the Italian Society of Ophthalmology estimates that in Italy alone around 100,000 patients have not been given access to the Novartis-produced drug Lucentis because of its high cost.
 
[The two companies are accused of excluding Roche's Avastin from the market and instead channelling demand towards Lucentis. The drugs are identical, but Avastin costs between Euro 15 and Euro 80 per dose and Lucentis costs Euro 900.
 
[The two companies, according to The Republica report, on the fines imposed by the Italian anti-trust authorities, had agreed to carve up the market between them. Since 2011 they created an artificial distinction between the two products, registering Avastin only for the treatment of cancer and discouraging patients from using it by presenting it as "more dangerous" than Lucentis. The two multinationals also did everything they could to discredit independent research that showed that the two drugs were identical, according to the Italian authority.
 
[Roche, which controls Genentech, the company that first developed Avastin, collected massive royalties from Novartis for the commercialisation of Lucentis, a deal that is estimated to have cost Italy's health system more than Euro 45 million in 2012 alone, with possible future costs of more than Euro 600 million a year, according to the regulator. It is estimated that replacing Avastin with Lucentis will cost the Italian health service Euro 678.6 million in 2014, as opposed to Euro 63.5 million if Avastin is adopted. Clearly it is a problem that does not affect only Italy. France has exclusively adopted Lucentis, at a cost to its health service of Euro 700 million.
 
[In his blog for The Republica online, health correspondent Michele Bocci has brought out that while pharmaceutical companies argue on their need to make big profits to justify their spending on R&D, Dr. Marcia Angell, former Editor-in-Chief of the New England Journal of Medicine, has pointed out: "The combined profits for the ten drug companies in the Fortune 500 ($35.9 billion) were more than the profits for all the other 490 businesses put together ($33.7 billion) [in 2002]." - SUNS]
 
In an appendix in its statement before the USITC, KEI provided several examples of compulsory licenses issued recently by the US government.
 
"When United States government officials become indignant over developing countries' issuance of compulsory licenses over cancer drugs, the degree of hypocrisy expressed by some parties is worth noting. The United States is leading the world in the use of compulsory licenses," it said.
 
Noting that the United States and other countries seek to limit and curb anti-competitive actions by businesses, KEI said that one of the remedies available to curb anti-competitive acts are compulsory licenses on patents, copies, data or other types of intellectual property rights.
 
One of the examples cited by KEI is that in 1996, the US Department of Justice, consumer groups and small publishers successfully pressed for a compulsory license to West Publishing's copyright claims on page numbers of court opinions.
 
In 1997, following complaints from consumer groups, the US Department of Justice brought an antitrust suit against Microsoft, dealing in part with the ability of other software developers to provide programs to work with the Windows operating system.
 
The European Union, Japan, several state governments, private firms and others subsequently brought antitrust cases against Microsoft. The resolution to the United State's case included, as a remedy to unlawful conduct, a compulsory license to a number of Window's protocols.
 
In 2000, the US Department of Justice obtained compulsory licenses to Miller Industry patents on tow truck technologies.
 
In 2001, said KEI, ExxonMobil and the National Petrochemical & Refiners Association asked the US Federal Trade Commission (FTC) to force Unocal, another oil company, to grant licenses to patents on reformulated gasoline. The patents were necessary to be in compliance with clean air regulations in California. In 2005, the FTC obtained a zero royalty compulsory license on a portfolio of patents, as a condition of Chevron acquiring Unocal.
 
In announcing the agreement, the FTC statement said: "if Union Oil were permitted to enforce its patent rights, companies producing this low-emission CARB gasoline would be required to pay royalties to Union Oil, the bulk of which would be passed on to California consumers in the form of higher gasoline prices. The Commission estimated that Union Oil's enforcement of these patents could potentially result in over $500 million of additional consumer costs each year."
 
Another example cited by KEI was that in 2008, the FTC obtained an open compulsory license to patents held by Negotiated Data Solutions LLC (Ndata), for use in Ethernet technologies. The FTC said: "The settlement will protect consumers from higher prices and ensure competition by preventing the company from charging higher royalties for the technologies used in the standard."
 
In 2011, the US Department of Justice (USDOJ), in collaboration with Germany's Federal Cartel Office (Das Bundeskartellamt), required Microsoft, Oracle, Apple and EMC to license 882 patents and patent applications acquired from Novell, under "open source" licenses, including the GNU General Public License 2, and the Open Innovation Network (OIN) license.
 
On January 8, 2013, the US Department of Justice (USDOJ) and the US Patent and Trademark Office (PTO) issued a joint statement on "remedies for standards-essential patents subject to voluntary F/RAND commitments."
 
The statement was directed to the United States International Trade Commission (USITC) which administers Section 337 of the Tariff Act of 1930 (19 USC 1337: Unfair practices in import trade) and it has the practical effect of introducing a policy of compulsory licenses for thousands of standards-relevant patents.
 
According to KEI, USDOJ and PTO were responding to growing criticism of the patent system as it relates to mobile computing devices and other technologies where product developers find it difficult if not impossible to obtain voluntary licenses on reasonable terms to the large number of patents covering various aspects of a product.
 
On August 3, 2013, USTR Ambassador Michael Froman wrote to the Chairman of the US International Trade Commission (USITC), to "disapprove the USITC's determination to issue an exclusion order and cease and desist order" for Apple Inc. "smart phones and tablet computers that infringe a US patent owned by Samsung Electronics," in the ITC Investigation No. 337-TA-794.
 
According to press reports, this is the first time since 1987 that the White House has overturned an exclusion order by the ITC. Froman's letter cited the legislative history of USC 1337, which includes a review of the impact on "(1) public health and welfare; (2) competitive conditions in the US economy; (3) production of competitive articles in the United States; (4) US consumers; and (5) US foreign relations, economic and political."
 
"By deciding that Apple would be allowed to import devices into the United States that infringe a patent held by Samsung, the USTR signalled that it would not back the exclusive rights in patents cases where there are abuses or conflicts with the public interest, or other domestic concerns," said KEI.
 
USTR's analysis of the Apple-Samsung patent dispute focused on the harm associated with failures to license on reasonable terms "standards essential patents". Froman's letter said that the decision to permit Apple to infringe Samsung patents was made "after extensive consultations with the agencies of the Trade Policy Staff Committee and the Trade Policy Review Group as well as other interested agencies and persons."
 
According to Froman, the decision was based upon "the effect on competitive conditions in the US economy and the effect on US consumers."
 
In 1980, said KEI, the US Congress passed the Bayh-Dole Act, which sought to provide for more uniform policies as regards federally funded inventions. The Bayh-Dole act included among its safeguards and a royalty-free license "to practice or have practised for or on behalf of the United States any subject invention throughout the world," a requirement of 35 USC 202(c)(4), and a compulsory licensing procedure called "March-In Rights," set out in 35 USC 203, and the definitions in 35 USC 201, and the requirement of 35 USC 204, regarding "Preference for United States industry."
 
According to 35 USC 203(a), a federal agency can grant a compulsory license on a patent for an invention developed with federal funds, if the Federal agency determines that such: (1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use; (2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees; (3) action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or (4) action is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.
 
According to KEI, the term "practical application" of the subject invention is defined in 35 USC 201(f) as "its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms," an obligation quite similar to the requirement in the Indian patent law that patents are "reasonably affordable."
 
In the 33 years since the Bayh-Dole Act created a uniform system for federally owned or funded patents, the NIH (National Institutes of Health) has never exercised March-In Rights for an invention, and the same may be true for all federal agencies. However, while federal agencies have not formally granted March-In petitions, there are several instances where the threat of the compulsory license has been used to obtain concessions from the patent holders.
 
One instance cited by KEI is that in a 2004 case involving patents on ritonavir, a drug used in the treatment of HIV/AIDS, the concession by the patent holder to avoid the March-In was significant -- Abbott Laboratories agreed to reduce the price of ritonavir approximately 80 percent for HIV/AIDS patients on federally supported programs.
 
In 2006, the Centers for Disease Control may have threatened to use March-In rights or the government's royalty-free license, to expand access to patented technologies used to manufacture vaccines for avian flu, said KEI, adding that it has an outstanding FOIA (Freedom of Information Act request) for the details of this case.
 
KEI also highlighted the compulsory licensing of patents under United States Energy Storage Competitiveness Act of 2007. In 2007, it said, the US Congress enacted a new compulsory licensing program for "energy storage markets."
 
In a program involving four energy storage research centers that "translate basic research into applied technologies" and which is designed to "advance the capability of the United States to maintain a globally competitive posture in energy storage systems for electric drive vehicles, stationary applications, and electricity transmission and distribution," the statute creates two obligations as regards patents obtained by participants: (i) the patent holder shall not negotiate any license or royalty agreement with any entity that is not an industrial participant under this subsection; and (ii) the patent holder shall negotiate non-exclusive licenses and royalties in good faith with any interested industrial participant under this subsection.
 
According to KEI, another area where the United States permits uses of patented inventions (and copyrights) without permission of right holders are uses "by and for" the government, under 28 USC 1948 Patent and Copyright Cases. Under this statute, the federal government can authorize third parties as well as its own employees to use any patented invention (also applies to copyrights, plant variety protection and semiconductor designs), and the patent owners sole remedy is limited to compensation for the use.
 
KEI noted that the largest user of 28 USC 1498 is the US Department of Defense, and indeed, the statute was amended in 1918 in order to address concerns by the US Navy regarding patent litigation.
 
Until 1960, 28 USC 1498 was limited to patents. In 1960, the Congress extended the act to cover copyright. Later, the statute was amended to apply to override exclusive rights for plant variety protections [28 USC 1498(d)], mask works under chapter 9 of title 17, and designs under chapter 13 of title 17 [28 USC 1498(e)].
 
Today, said KEI, any federal agency can rely upon 28 USC 1498(a) to limit remedies for the infringement of patents, copyrights, plant variety rights, mask works, and designs to compensation only.
 
"By removing the possibility of an injunction to enforce an exclusive right, the federal government has the equivalent of a compulsory license on all patents, copyrights and other intellectual property rights covered by the statute. Examples where this compulsory license has been used are quite diverse, and include such items as medicines, Blackberry smartphone services, software used by the Federal Reserve Bank to curb fraud, technology used by NASA to explore space and weapons of all types," it noted.
 
In 2001, the US Department of Health and Human Services (DHHS) used the threat of a compulsory license for the patents on Bayer's ciprofloxin, to successfully obtain a 50 percent price reduction in the drug.
 
In 1999, the United States Supreme Court ruled that state governments were not liable for damages for patent infringement, under the doctrine of state sovereign immunity. Later this immunity was extended to infringements of copyrights and trademarks.
 
"The immunity from damages for patent infringement has the practical effect of expanding the ability of state universities to engage in a wide variety of infringing activities, including those relating to medical research," said KEI.
 
In 2010, the Affordable Care Act [PL 111148] created a compulsory license for patents associated with biologic drugs. The compulsory license goes into effect when the manufacturer of a biologic drug does not bring a timely action for infringement, or fails to disclose relevant patents for the drug. The statute limits the remedies for infringement to either a reasonable royalty, or no remedy at all, depending upon the failures of the patent holder to assert or disclose patent rights in a timely manner. The compulsory license is automatic and mandatory.
 
According to KEI, the legal basis in the WTO TRIPS agreement for the elimination of the availability of an injunction and the limit of the remedy to a reasonable royalty is TRIPS Article 44.2.
 
In 2006, the US Supreme Court ruled that notwithstanding the exclusive rights associated with a patent, a patent holder was not automatically entitled to obtain an injunction to prevent future infringements.
 
The decision, eBay Inc. v. MercExchange, L. L. C., 547 US 388 (2006), states that the decision to grant an injunction is a question of equity, and the court must consider a four-part test, and require the plaintiff to demonstrate: (1) that the plaintiff has suffered an irreparable injury; (2) that remedies available at law are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction.
 
"The practical impact of eBay v. MercExchange was to transform many infringement and injunction proceedings into compulsory licensing cases, and to include a public interest test," said KEI.
 
Meanwhile, in its own statement to the USITC investigation on India, the Boeing aircraft company said that a detailed review of its enterprise-wide activities in India, including the export of Boeing products, as well as sourcing activities, "indicates an adequate IPR [Intellectual Property Rights] legal framework" is in place for Boeing's aerospace and defense products in India.
 
Boeing further said that it has had a positive experience with Indian customers, partners, and suppliers on IPR protection.
 
According to Boeing, Indian IPR laws applicable to the range of Boeing's business activities in India are comparable to IPR regulations in other developed countries, as India is a signatory to all major conventions and treaties on this subject.
 
"Additionally, in our experience, there have not been any major patent violations in India pertaining to Boeing's defense/aerospace products," it said.
 
The Boeing statement noted that the Indian Ministry of Defence, like others elsewhere in the world, wants to promote maximum indigenisation in defence production to promote strategic self-defence.
 
"The effect on Boeing's business as a result of the overall level of indigenisation achieved so far has not been significant," it said.
 
In closing, Boeing said: "In Boeing's experience, India has a legal framework that is adequate to protect IP with no known cases of IP violation involving Boeing's activities in the defense and aerospace sector."
 
(The full KEI written statement including the appendix can be found at http://keionline.org/node/1967)

 


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