Info Service on WTO and Trade Issues (Mar14/03)
18 March 2014
Third World Network
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
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
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
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
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
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
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
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
"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,"
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
(The full KEI written statement including the appendix can be found