Patents. Compulsory Licensing

Vitalii Savchuk, Senior associate with Legal Alliance Company

Since late 2013 the Cabinet of Ministers of Ukraine has been acted under the new procedure of granting permission for usage of patented inventions (utility model) relating to drug products.

Patenting is a preferable way for all inventors and investors to obtain development monopoly. To be the only person who has the right to use research results for a long time is a serious motivation to keep investing and expending time in this activity. Not least of all, this can be applied to a pharmaceutical industry where advanced developments cost is extremely high. According to the general rule patent holders have exclusive right personally to permit or prohibit usage of own invention or utility model by others. This right is guaranteed both by the Civil Code of Ukraine (hereinafter referred to as “CC of Ukraine”) and the Law of Ukraine “On Protection of Rights to Inventions and Utility Models” (hereinafter referred to as “Law”) in Articles 464 and 28 respectively. But general rule is not an absolute one which was reminded by the Cabinet of Ministers of Ukraine (hereinafter referred to as “CM of Ukraine”) to the market simultaneously with adoption of Resolution No. 877 dated December 4, 2013 “On Approval of Procedure of Granting Permission by the Cabinet of Ministers of Ukraine to Use Patented Inventions (Utility Model) Relating to Drug Products” (hereinafter referred to as “Procedure”). You may wish to find out whether there are any risks for innovative market entities, patent holders, associated with the new Procedure.

“Medical case history”. For sure the possibility itself of the so called compulsory licensing of a patented invention (utility model) is not new in the Ukrainian jurisprudence. According to the Law (Part 3 Article 30) the CM of Ukraine for a long time already has had the right under certain conditions to permit usage of a patented technology to the person defined by it without patent holder’s consent provided such permission is granted including for the purpose of population health support. Similar power of the CM of Ukraine is also provided by Part 11 Article 9 of the Law of Ukraine “On Drug Products” and on sub-legislative level by Resolution of the CM of Ukraine “On Approval of Procedure of Granting Permission by the Cabinet of Ministers of Ukraine to Use Patented Inventions (Utility Model) or Integral Microcircuit Registered Topography” (does not concern drug products any longer). There have never been any problems in terms of legal principles and theory because according to Article 3 of the Constitution of Ukraine namely health of a human being is recognized as one of the highest social values but not his right to the result of intellectual property.
However compulsory licensing issue is not one of the most crucial and problematic issues in Ukraine not only in terms of logics – “human right to health shall supersede (intellectual) property right”. Significantly that during the whole period of operation of laws which provided compulsory licensing possibility there was no any need to apply such laws. Is there such need today? Will compulsory licensing mechanism be applied? It is worth mentioning that on December 4, 2013 the Government of Ukraine significantly specified own powers regarding compulsory licensing of the items relating to drug products therefore a quotation from Chekhov – “If there is a gun hanging on the wall in the beginning of the play then it will shoot (by the play end)” - can be regarded as the possible answer.

Pandora’s box. Article 30 of the Law, according to which the Procedure was approved, provides a set of conditions which make compulsory licensing possible if they are observed. Mostly these conditions are so relative that they could hardly restrain corrupt practices. Please find below some examples:

• permission for such usage is granted under particular circumstances. These circumstances have been unknown for some years
• such usage amount and duration [without the patent holder’s permission] are defined by the target of a permission granted
• usage is mainly permitted in order to meet domestic market demands. Such wording would actually allow any markets to be provided.

It is considered that the Procedure shall significantly specify (and consequently restrict) conditions according to which patent relating to a drug product can be used without holder’s permission but according to the permission of the CM of Ukraine. Also the Procedure shall clarify a lot of questions particularly about the procedure of permissions granting by the Government to use patented invention (utility model). It should be recognized that the working group developing the Procedure provided answers to many of the said questions.

The fact that the CM of Ukraine has the right to permit patent usage only if the particular circumstances are supported by documents should be regarded as one of the positive improvements. Such circumstances include:

• patent holder fails to meet demand for a corresponding drug product using capacities and facilities commonly used for such drug product manufacture;
• patent holder unreasonably refused the applicant to grant invention (utility model) usage license.

Thus a person willing compulsory to obtain patent usage permit will have to evidence the fact of licensing negotiations under the normal procedure at least and also lack of patent holder’s possibilities to secure demand (which, as it seems right now, is quite difficult to evidence appropriately).

Another Procedure achievement is that it particularly specifies that patented invention usage (utility model) is permitted to meet the demands of drug products domestic market solely. However suspected collision with the corresponding provision of Law shall be solved by amending the latter.

According to the Procedure entity seeking to obtain corresponding permission shall provide documents supporting possibility, conditions and usage procedure of a patented unit. In fact this means that supposed “license grantee” shall have the possibility to provide the market with drug products “on the spot” i.e. not only to be able to reproduce corresponding workflow process but also to meet all requirements imposed by the legislation upon producers entering the market with drug products. For example it is not clearly defined yet whether “license grantee” shall only “refer to” (according to the Procedure) a master file of the drug product, which usage is secured by permission granting or he shall gain access to this master file. If all requirements are not met approximately at the same time with granting permission for patent usage there is no sense in such licensing because its target is more efficient (which means quicker) improvement of population health. It is also quite topical because according to the Procedure only one person can be a “licensee grantee”.

As far as supposed “license grantee” shall confirm namely unjustified refusal to grant license by patent holder a potential problem can be seen. The importance of any given grounds for refusal will remain a value judgment at least till the first explanations of appropriate authorities or (in the worst case scenario) – till court judgment.
Among the problems covered over the Procedure we can see unequal position of a patent holder parallel to other participants of the process. Thus сору of a permission granting request can be sent to a patent holder in ten days after its receipt by the Ministry of Health. There are no objective reasons for such delay therefore this term shall be reduced. Another serious restriction of rights of a patent holder is the fact that patent holder is not in a position of a rightful participant of the process – he is not entitled to provide information, to file protest, requests etc. at any stage of compulsory licensing petition consideration. Since this procedure directly concerns patent holder’s rights and obligations it is more reasonable to grant it the right of its participant.

Along with approval of the formula according to which patent usage compensation is calculated (which is a progress itself) lack of mechanism to define its minimum amount is a drawback because compensation shall be fair.

Is the Procedure more clear than the previous norms regulating the given field? Yes, it is. Does it make possible for unfair “license grantees” to obtain patents usage permission? Formally – no, it does not. But the main answer which should be given to the question of a compulsory licensing is the following: “Is compulsory licensing a Pandora box”? Potential risk is in the fact that it can be much easier to open it, establishing precedent, then to close it, protecting the rights of patent holders against unfair “license grantees” Relatively frequent usage of compulsory licensing mechanism in Ukraine can lead to a mass nihilism regarding patent rights – nihilism which can be seen already in the field of copyright and industrial designs due to different reasons. So we hope that the Procedure, if it is used, will give more answers then raise questions.