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Pharma & COVID-19: An overview of EU and national case law

While the waiver of certain provisions of the TRIPS agreement for the prevention, containment and treatment of COVID-19 by the General Council of Word Trade Organization is still under discussion, this contribution provides some preliminary food for thought on possible alternatives.

Introduction: Intellectual Property, Competition and Public Health

The interplay between Intellectual Property rights (“IPRs”), competition law, public health and human rights [1], which has been widely discussed in the past, is again being debated due to the Coronavirus outbreak. Indeed, in a pandemic situation, it is crucial to meet both the aim to encourage Research and Development (R&D) of new drugs and treatment by the pharmaceutical companies heavily reliant on IP, and the need to ensure access to safe medicines at an affordable price worldwide according to the fundamental human right to health. This hot topic is also particularly relevant in the wake of recently discovered vaccines — that are still insufficiently supplied — taking into account the peculiarities of the vaccine patents and their market, which is highly concentrated.

A sector enquiry on the human vaccine market conducted by the Italian Competition Authority (ICA) [2] shows the existence of an oligopoly, where the top four players hold more than 80% of the global market, as well as the specific competitive dynamics resulting from the lack of generic versions due to the R&D characteristics of vaccines.

In this respect, the following are considered: i) the biological nature of vaccines which prevents the application of the simplified testing of generic drugs, requiring replication of the entire R&D phase; ii) the particular complexity of patents on vaccines covering not only the active ingredient, but also other components, such as adjuvants and administration procedures; iii) the significant differentiation of vaccine products, which implies that two or more vaccines intended for the same disease cannot be substitutable, resulting in a multiplication of patents.

These features, combined with the required technological advancement and the legal uncertainty of the regulatory framework, increase barriers to market entry [3].

In the Covid-19 outbreak, the significant concerns about how to avoid barriers to affordable vaccines and medicines in a timely manner led India and South Africa to propose a temporary waiver to all Word Trade Organization (WTO) members on the implementation, application and enforcement of certain provisions of the Agreement on Trade-Related Aspects of IPRs (TRIPS Agreement) related to the “prevention, containment or treatment” of COVID-19. The waiver should cover the specific sections of the TRIPS Agreement on copyright and related rights, industrial designs, patents and protection of undisclosed information. At the time of publication of the present contribution, the General Council is discussing the proposal at the formal TRIPS Council meeting. [4]

Given the above preliminary remarks, this article focuses on current IP legislation and examines firstly how different tools may be applied in the present framework of the outbreak, providing an overview on compulsory licensing in different States. Secondly, it evaluates how competition law can effectively address critical issues arising from the pandemic.

1. R&D cooperation models, Patent pool and Patent licensing

In the past, various tools provided by, or compatible with, the current IP system have been used for the purpose of guaranteeing the necessary incentives to develop groundbreaking pharmaceutical products and the incremental innovation that could derive from it, while at same time ensuring a sound competitive environment and access to medicines. Some of those tools have already been implemented or might be effectively applied in the fight against Covid-19.

In certain industrial sectors, an innovative model based on cooperative research and production systems is gaining ground. These are the so-called “open innovation models”, which provide for cooperation in the research and development phase and the sharing of results.

Ultimately, these forms of cooperation have been considered in order to encourage the development of drugs and treatments to combat Covid-19. In particular, the University of Utah, in collaboration with, among others, prominent scientists and lawyers and major technological companies, set up the so called “Open Covid Pledge”, consisting in a commitment aimed at making relevant IP free of charge “for use in ending the Covid-19 pandemic and minimizing the impact of the disease [5]. Currently, a number of pledged patents and designs cover a wide range of digital innovation that could help fight the outbreak. Each pledgor will grant an open license providing the details and terms under which its IPRs are made available. Such a license will take the form of both an “Open Covid Standard License” [6] or a customised one in line with the final aim of the pledge.

On May 2020, the World Health Organization (WHO), in response to an initiative by the Government of Costa Rica, launched the Solidarity Call to Action and the COVID-19 Technology Access Pool initiative [7], in order to grant the global community the share of data and IPRs [8]. Among the five key elements of the initiative are the promotion of open innovation models (e.g. Open Covid Pledge) and the licensing of any potential treatment, vaccine or health technology to the Medicines Patent Pool (MPP). The MPP is “a United Nations-backed public health body that works to increase access to, and facilitate the development of, life-saving medicines for low- and middle-income countries through an innovative approach to voluntary licensing and patent pooling [9].

As is well known, patent pools are agreements whereby at least two patents holders combine their patents rights relating to a specific product and license them in bulk to third parties. As a result, owners of complementary patents require cross-licensing - whereby each acquires the freedom to implement the technology as a whole - and joint licensing programs with third parties [10]. Patent pooling was initially used mainly in the high-tech sector and later in other fields such as pharmaceuticals. It has been advocated as a tool to be used in R&D for neglected diseases [11]. Although in certain cases patent pools may have exclusionary effects or may raise anticompetitive concerns [12], they may be particularly helpful in encouraging innovation by reducing transaction costs. Nevertheless, as pointed out by some authors, patent pooling may only be particularly effective if key patent holders are involved, since without their participation, the patent pool may be held hostage by those outside it [13]. As for the effectiveness of voluntary licenses, the possible disagreement between the parties could be a significant obstacle. Therefore, as recognized by the OECD, especially in cases where licenses are refused or too slow to respond to the urgent situation, the adoption of compulsory licenses should be evaluated [14].

In this respect, the European Commission, after having stated that it supports voluntary pooling and licensing of IPRs related to COVID-19 therapeutics and vaccine, also underlines the need for each Member State to ensure the effectivity of compulsory licenses systems, which should be used as a last resort when all other efforts to make IPRs available have failed. Moreover, according to European Commission, the creation of an emergency coordination mechanism before issuing a compulsory license will be evaluated [15]. In order to overcome the negative effects that a proliferation license may have on the future incentives of pharmaceutical companies to innovate, the Commission recently published a specific report on an innovative, hybrid model: a time-limited license granted by a technology patent owner. This alternative would allow, on the one hand, the patent owner to continue to have control over its rights while, on the other, it would ensure the satisfaction of urgent manufacturing needs of certain components caused by emergency situation [16].

2. Focus on Compulsory license

A compulsory license effect is provided by art. 31 of the TRIPS Agreement, which precisely allows the use of the subject matter of a patent, without authorization of the right holder, including use by the government or third parties authorized by the government. This provision assigns precise boundaries with the exception. These include that the “proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time. This requirement may be waived by a Member in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use”. The Doha Declaration on the TRIPS Agreement grants each Member State the right to determine what constitutes a situation of “national emergency or other circumstances of extreme urgency”, expressly specifying the “public health crises” [17]. Moreover, the Doha Declaration recognized more flexibility for WTO member States to regulate the mechanism of the mandatory system.

The subsequent art. 31 bis, which has been criticized for being too complex [18] and slow [19], introduces a Special Compulsory Licensing System and aims to overcome the restrictive condition in Article 31(f), which requires compulsory licenses to be used predominantly to supply the domestic market. Under a normal compulsory license, indeed, only a non-predominant part can be exported. In contrast, the system under Article 31 bis applies when the local production capacity in the importing Member is insufficient, or non-existent, to produce the necessary medicine, thus requiring imports from a generic supplier.

Within the EU legal order, there is no EU-wide compulsory licensing mechanism, which is mainly governed by national law, except for the specific compulsory licensing regime provided for in Regulation (EC) 816/2006 concerning the manufacture of pharmaceutical products for export to countries with public health problems. It implemented the above-mentioned Article 31 bis, making Member States eligible to produce generic versions of patented pharmaceutical products for export to countries with public health problems. The Regulation (EU) 1257/2012 implementing enhanced cooperation in the area of the creation of unitary patent protection does not include provisions on compulsory licensing for Unitary Patents (UP). According to recital 10, compulsory licenses should be governed by national laws of the Member States. This means that the provisions of the TRIPS Agreement can be applied as well. It has been argued that the unitary effect may be undermined if patents are limited through compulsory licenses in the territory of part of the Member States [20].

Therefore, all Member States have incorporated compulsory licensing into their national legal systems, although the grounds for authorization and the procedural framework leading to it differ [21].

Italy

The Italian Intellectual Property Code currently in effect provides, in Art. 70 et seq., for the granting of compulsory licensing in two different cases: i) the non-implementation or insufficient implementation of the patented invention for more than three years from the date of issue of the patent, or four years from the date of filing the application, whichever is later; ii) the existence of dependent inventions, which occurs when the implementation of the invention presupposes the use of a previous patented invention, provided that the second invention represents an important technical advance of considerable economic importance [22].This provision has so far been of infrequent enforcement [23].

Following the Covid-19 crisis the system provided by Intellectual Property Code has not been modified by special provisions. The issue was addressed by the Italian Chamber of Deputies, which challenged the Government to promote a discussion within the EU regarding compulsory licenses for Covid-19 vaccines [24].

Germany

Pursuant to Section 24(1) of the German Patent Law [25], the Federal Patent Court may grant a non-exclusive authorization to use an invention where: i) an applicant for a license has made, within a reasonable period of time, an unsuccessful attempt to obtain the permission of the patent owner to use on the invention on reasonable commercial terms; ii) the public interest calls for the grant of an ex officio license [26]. With reference to this latter requirement, in 2017 the German Federal Supreme Court in the Raltegravir case [27] affirmed it is satisfied where it is demonstrated that a medicament used to treat serious illnesses displays therapeutic characteristics that commercially available medicines do not possess, or not to the same degree, or when its use avoids undesirable side effects that must be accepted with the administration of the other therapeutic medicines [28].

In order to tackle the Covid-19 outbreak, the German government passed the Epidemic Protection Act on 27 March 2020 [29], which amends the German Act on the Prevention and Control of Infectious Diseases in Humans [30] authorizing the Ministry of Health to issue a patent order for specific products listed within Section 13 of the Act. According to said provision, the patent shall have no effect in a case where the Federal Government orders that the invention is to be used in the interest of public welfare. Further, it does not extend to a use of the invention which is ordered in the interest of the security of the Federal Republic of Germany by the highest competent federal authority or by a subordinate authority acting on its instructions. The Draft Act on the Protection of the Population in the Event of an Epidemic pointed out that, in order to ensure a supply of products in the event of a crisis, the effect of a patent may be restricted under Section 13, for instance for vital active substances or medicines [31].

France

The French Intellectual Property Code provides for a two-tiered compulsory license system [32]. Those granted by the judge in cases where the patent is not exploited (Art. L. 613-11 and L. 613-12) or when patent exploitation is dependent on a prior title (Art. L. 613-15), and those granted by the administration itself upon any of these conditions: i) in the interest of public health at the request of the Ministry of Public Health where the quantity of products is not sufficiently, or too expensively, made available to the public (Art. L. 613-16 IPC) [33]; ii) in the interest of the national economy where the patent owner does not sufficiently exploit the patent (Art. L. 613-18 and R. 613-26 IPC) and iii) in the interest of national defense following the request of the national defense ministry, without providing any explanation (Art. L. 613-19 IPC).

Despite the fact that this system has rarely been used [34], a third party candidate for an ex officio license may apply to the administration for a compulsory license.

On March 23 2020, the Parliament passed Act no. 2020-290 [35] which, among other things, allows for health emergency measures by amending the French Public Health Code [36].

On April 7 2020, the political party La France Insoumise presented a legislative proposal to the National Assembly with the aim of strengthening the compulsory license regime in order to guarantee the accessibility and availability of health products, in accordance with the general interest. In particular, Art. 1 suggests the modification of the ex officio license regime provided by the above-mentioned Articles L. 613-16 and L. 613-17, as well as Article L. 5121-10-1 of the Public Health Code, in order to make it truly operational. In this regard, when the public interest is at stake, the licensing shall be automatic and the conditions for obtaining it are more extensive. Moreover, a derogation from the market protection mechanism, that prohibits the marketing of a generic, is provided when the public interest requires so [37].

Hungary

In Hungary, a Government Decree has been adopted permitting compulsory public health licenses for exploitation within the country, in order to facilitate access to Covid-19 therapies [38]. According to the newly introduced provisions, the Hungarian Intellectual Property Office can issue a public health compulsory license entitling the patent holder to receive an appropriate remuneration for the exploitation of healthcare products or tools under patent protection within the national territory.

Some extra-UE States: UK, US, Israel and Indonesia

The 1997 UK Patent Act states that an implementer cannot apply for a compulsory license [39] until three years after the date of grant of the patent and provided that they made unsuccessful efforts over a reasonable period of time to obtain a license from the patent owner on reasonable terms. Moreover, the government may sell “for the services of the Crown [40] a patented product without the consent of the patent owner (the so-called Crown Use). It thus allows the government to manufacture and supply medicines and medical devices without incurring patent infringement [41]. The patent owner is entitled to receive a compensation for Crown Use [42]. To date, no cases of Crown Use have been made in the context of the Covid-19 pandemic [43].

The US Federal Government may rely on statutes to make use of patented inventions. According to 28 U.S. Code Sec. 1498 “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 the lawful right to use or manufacture the same”, the patent owner has the right to receive a “reasonable and entire” compensation for the use without permission of its inventions. Secondly, the Bayh-Dole Act grants the government “march-in rights” under which the owner or exclusive licensee of a patent developed, even partially, with federal funding is obliged to grant a license to the extent necessary to tackle health or safety needs “upon the terms that are reasonable under the circumstances [44].

The United States has pursued a path of vaccine nationalism in recent months, by financing the research of private pharmaceutical companies and signing pre-purchase agreements in order to secure vaccines [45]. Indeed, the Government has both established private-public partnerships [46] and provided the Biomedical Advanced Research and Development Authority (BARDA) with additional funds in order to develop, manufacture and distribute Covid-19 related treatments and drugs [47]. This strategy should be read in light of the provisions above. When a government agency supports a research fund, it will indeed retain “a nonexclusive, non-transferable, irrevocable, paid-up license [48]. In this regard, it is worth mentioning the agreement signed with Pfizer, which states “all inventions conceived of or first actually reduced to practice” in the performance of the contract “shall be owned by Pfizer”, entailing the pharmaceutical company to determine “whether to hold Subject Inventions as trade secrets” [49]. While this agreement permits the implementation of compulsory licensing under § 1498, it denies the application of the Bayh-Dole Act and, in par. 7.2, in setting out the data related provisions, expressly provides for recognition to Pfizer of all generated data [50].

The HHS stated the government did not fund the development of the vaccine — in other words, “it was not entitled to any rights” to the pharmaceutical company IP rights [51]. Yet, it has been critically argued that providing “$1.95 billion upon the successful invention of a drug is close enough to directly funding the research that the government should receive more of a stake in the IP rights” [52].

On March 2020, Israel’s Minister of Health issued for the first time a Permit to the State to exploit an invention pursuant to Chapter 6, art. 3 of the Patent Law 5727-1967 for the importation of the drug Kaletra for the sole purpose of medical treatment of Covid-19 patients [53]. The said drug showed, during that period, promising results for the treatment of Covid-19, however, Israel was not receiving sufficient quantities from the importer AbbVie Inc. within the requested time frame [54]. It has been noted the decision of Israel of issuing a “license benefitted other countries” given AbbVie Inc. stated “it would not enforce its patent rights on Kaletra”. This stance has been read as the fear of AbbVie that other countries would have followed Israel’s example issuing further ex officio licenses, thus “setting a precedent that could ease the way to more widespread use of compulsory licensing during future health emergencies [55].

The Government of Indonesia issued Presidential Regulation No. 77/2020 regarding Procedures of Patent Implementation in view of the development of a Covid-19 vaccine [56]. According to the new provisions, the Government can exercise compulsory licensing on a patent on two grounds: first, defense and national security and, second, urgent public need, related to pharmaceutical and biotechnology products that are considered expensive or are necessary to overcome a disease that constitutes a global public health emergency.

The Chamber of Deputies of Chile and the National Assembly of Ecuador have approved specific legislation on compulsory license of patents related to COVID-19 treatment [57].

4. Competition law issues

As pointed out by the ICA in the above-mentioned sector enquiry, so-called tiered pricing policies are frequently adopted with regard to the purchase of vaccines. These allow the seller to discriminate between buyers on the basis of their willingness to purchase, placing them in groups that are comparable in terms of economic capacity, without having the information on their bargaining being prejudicial to trading with others. In this way, the same vaccine can be sold at different prices to purchasers (often entire countries) with different budgets [58]. Moreover, increasing levels of price confidentiality risk undermining the balance of bargaining between the parties.

Therefore, the ICA recommended that the highest competent authorities (including the WHO) rebalance the situation, which could be achieved by making a broader information base on costs and prices available on a global basis, in order to define public procurement policies in an appropriate manner, while limiting the use of confidentiality agreements according to rigorous assessments to be carried out on a case-by-case basis [59].

As is well known, a few weeks ago the European Commission published the agreement regarding the purchase of potential COVID-19 vaccines with AstraZeneca AB, which was previously kept fully confidential in order to protect commercial interest [60]. Regardless the purchasing agreement confidentiality regime, a certain degree of transparency has been achieved — not least in view of the public funds invested — on the licensing of IPRs and the clinical trials data related to COVID-19 vaccines. The transparency of IP licensing may be useful in assessing the fairness of royalties, which indirectly influences the price of vaccines, while clinical trial data can support increased vaccine production and supply. [61]

In this respect, according to the abovementioned agreement with Astrazeneca AB (Astrazeneca), access to clinical trial data can only be granted to the Commission, under strict conditions. More specifically, Astrazeneca can allow the Commission, upon notice and reasonable request, access to all clinical trial data and all data relating to the manufacturing of the vaccine, provided that Astrazeneca itself is permitted to share such information [62].

As regards the Pfizer agreement, an Italian consumer association has recently sued the Pfizer company for breach of contractual obligations due to the delay in the delivery of the vaccine, seeking compliance with a request to exhibit the agreement itself, as a precautionary measure. [63] Since the trial is pending before the Company Division of Rome Court, it appears that the consumer association has raised also antitrust issues.

From a general point of view, it is worth mentioning that this kind of data sharing is in line with the main objective of the recently published Digital Governance Act (DGA), namely, to spur the national public administration to release the data collected on a day-to-day basis for the benefit of consumers and businesses in general [64].

Finally, among the actions that might be taken to ensure access to vaccines worldwide at an affordable price, is the monitoring and enforcement activity carried out by European Commission and the National Competition Authorities. Indeed, competition concerns may arise, for instance, in cases of license refusal or of excessive pricing by the pharmaceutical companies.

Also, with regard to antitrust enforcement, the epidemic raises new issues, such as the market power assessment. Considering the enormous bargaining power held by pharmaceutical companies, a rethink of the criteria to evaluate market power should be considered, in the wake of what is currently happening with reference to digital market [65].

Conclusions

The analysis carried out leaves two issues open. First of all, one may ask what mechanisms, in times of a pandemic and economic crisis, would best achieve the optimal balance between sustainable innovation, dynamic competition and public health.

In this respect, the suspension of IPRs remove the return on investment in R&D. Undoubtedly, several States have financed vaccine research, but the fixed and other infrastructure costs are borne by enterprises themselves. This, in the short term, may lead to a shortage of supplies and, in the medium to long term, may eliminate the incentive to invest and consequently may undermine innovation.

As for the implementation of open innovation models, it might be too time-consuming and complex and could not meet the required urgency. Nonetheless, pooling efforts in the research phase may be a very good solution in the medium-term.

With reference to voluntary licensing use, there are possible risks of i) unsuccessful negotiations, in particular due to FRAND determination; ii) asymmetry in the bargaining power of the parties, with a huge impact on Human Rights, since richest Countries can pay more than poorer ones; iii) refusal to license, that may lead to competitive abuses.

Eventually, compulsory licensing, accompanied by careful use of patent pooling and coordination at international level, may be the best solution. However, it also raises some crucial questions that lead us to the second open issue, namely the role of state organs in relation to this process.

It has been argued that public authorities should play a vital part in funding R&D. According to some economists, in the Covid-19 outbreak, public investment should be conceived not as a welfare measure or as a simple remedy for market failures (market-fixer), but as a proactive market driver (market-shaper) aimed at achieving public objectives. As a result, the price of Covid-19 vaccines should reflect both the substantial public contribution to their development and the urgency and scale of the global health crisis [66].

In our opinion, a preferable alternative may lie in the state boosting private sector investment, which is necessary to ensure pharmaceutical companies can afford high costs in order to be equipped with adequate infrastructures to produce the latest generation vaccines as originators and as licensees.  [67] Moreover, public authorities could tackle the Covid-19 crisis by adjusting regulation. In this event, since the pharmaceutical market is already intensively regulated, exceptional rules should be evaluated. Finally, a rapid cooperation between public bodies at international level is essential to reach the common goal of ending the global pandemic, since “No one will ever be truly safe until everyone is safe” [68].

— The authors’ opinions are their own and do not necessarily represent those of the Italian Competition Authority. The authors would like to thank Andrea Aguggia and Lavinia Pizzetti, interns at the Italian Competition Authority, for their help in the extensive research.

Note from the Editors: although the e-Competitions editors are doing their best to build a comprehensive set of the leading EU and national antitrust cases, the completeness of the database cannot be guaranteed. The present foreword seeks to provide readers with a view of the existing trends based primarily on cases reported in e-Competitions. Readers are welcome to bring any other relevant cases to the attention of the editors.

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Gabriella Muscolo, Amalia Luzzati, Pharma & COVID-19: An overview of EU and national case law, 10 March 2021, e-Competitions Pharma & COVID-19, Art. N° 99409

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