Compulsory license

 

Author Definition

 

Definition

Compulsory licensing refers to a situation in which a non-exclusive license of an intellectual property right (‘IPR’) can be granted by a competent authority to a third party to make, use or sell an invention, where remuneration is paid to the right-holder and the right-holder maintains its legal intellectual property rights. Thus, Compulsory Licensing represents an exception to the normal exclusivity enjoyed by a right-holder. The legal basis for compulsory licensing is found in the TRIPS Agreement, the Paris Convention, but also in national systems of intellectual property law. As compulsory licensing represents an intrusive act by the Government into property rights, there are varying views on the economic and legal implications of the concept. In exceptional circumstances it may be that a competition authority may order the licensing of intellectual property (or analogous) rights where a refusal to licence them amounts to an abuse of a dominant position.

 

Commentary

The term compulsory licensing characterizes a situation where regulatory bodies or the government can issue a mandatory license of an IPR (for example patent rights for a specific pharmaceutical product) against the wishes of, and without the consent of, the right holder.

The term compulsory licensing in its modern international codification can be dated back to article 5A(2) of The Paris Convention on Intellectual Property Rights (Paris, 1883), stating: “Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work”.

In a normal case, the legal owner of an intellectual property right (such as patents, copyright, trademark, design right etc.) enjoys freedom with whom to conduct business and to license. However, compulsory licensing is a situation where a competent authority enforces a non-exclusive licence right to the protected property to be used by a third party, although consent of the right-holder is lacking.

This exception from exclusivity of intellectual property rights and freedom to deal is constitutionally codified under different names, nationally and internationally, such as Government Use, Crown Use and Compulsory Licensing. The ratio legis for Compulsory Licensing might be construed either via exceptional situations (see e.g. UK Patent Act of 1977 Section 55(1)(a); German Patent Act of 1980, Section 13) or that the right-holder does not make use of his invention within reasonable time or at affordable pricing (See e.g. Indian Patent Act, Section 84; Belgian Code de droit économique, Art. XI.37; Dutch Patent Act of 1995, Art. 57). In response to a WIPO study on compulsory licensing, the most cited grounds for grant of compulsory licensing included non-working or insufficient working of the patented invention, refusal to grant licenses on reasonable terms, public health, national security, anti-competitive practices and/or unfair competition as well as national emergency and/or extreme urgency (WIPO, 2014).

The United States, in contrast with most other jurisdictions, does not have a general compulsory licensing rule in its Federal legislation, beyond the possibilities available under 28 U.S.C. § 1498. The statute enables right-holders whose intellectual property rights have been used by the federal government or any of its contractors without permission of the right-holder to bring claims for “reasonable and entire compensation” in the U.S. Court of Federal Claims. The Bayh-Dole Act of 1980 in turn offers a "March-in Right" as per 35 U.S. Code § 203 for the federal government with regards to patents if the invention was made possible through some federal funding.

The most important international legal basis for compulsory licensing, related requirements for granting of such a license and the rights of the right-holder during such a process are found in the TRIPS Agreement of 1995 (Trade-Related Aspects of Intellectual Property Rights), a protocol to the founding document of the World Trade Organization. Compulsory licensing according to TRIPS must be notified to the TRIPS council and the parties have right to appeal to the WTO Dispute Settlement body.

The corresponding article and the legal content mimicking Article 5A (2) of the Paris Convention is found in Article 31 TRIPS, defining compulsory licensing as “Other Use Without Authorization of the Right Holder” under specific provisions given in Article 31 (a-l). However, the TRIPS Agreement does not specifically list the reasons that might be used to justify compulsory licensing, nor does it require a "national emergency". More recently anti-competitive abuses of intellectual property rights have been debated as grounds for compulsory licensing.

The enactment of the TRIPS Agreement in 1994 and harmonization global protection of IPRs elevated the debate on compulsory licensing, coinciding with HIV / AIDS crisis and fears indeveloping world of increased pharmaceutical spending resulting from protection of patents.

India, for example, did not protected patents on medicines until 2005, thus creating a vibrant generic industry which reverse-engineered patented medicines and acted as “Pharmacy of the Third World”. This changed with the enactment of the TRIPS Agreement where members could be target of WTO-sanctions if they failed to protect IPRs such as patents. Least Developing countries were nevertheless allowed a period of transition (now extended to 2033) and rules on compulsory licensing on TRIPS and grounds for issuance were updated post the Doha Ministerial Declaration on TRIPS and Public Health in 2001. It was reaffirmed that each member had the right to grant compulsory licences and the freedom to determine the grounds upon which such licenses are granted. (Doha Ministerial Declaration, 2001, Para 5b).

Nevertheless, as Article 31 (f) TRIPS states that compulsory licensing shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use, and since many developing countries lacked the know-how as well as manufacturing capacities required, the Doha Declaration paved the way for export to these countries. The TRIPS agreement was subsequently amended in 2017 to incorporate the new regime.

As the European Union, beyond individual member states, is a member of the TRIPS Agreement, in theory the European Commission should be able to initiate a process of compulsory licensing. Nevertheless, European Commission has regularly held that such an approach is not feasible, due to the national character of IPRs. The legal basis for granting compulsory licenses in the EU beyond TRIPS Agreement is found in the 1998 Biotech Directive regarding plant variety rights and, in view of implementing Art. 31bis TRIPS, the EU Regulation No. 816/2006 with regard to the manufacture of pharmaceutical products for export to countries lacking manufacturing capacities.

As a matter of competition law, it may be that a refusal to grant a license of an IPR could, in exceptional circumstances, amount to an infringement of competition law; for example of Article 102 TFEU which prohibits the abuse of a dominant position. In its Magill decision the European Commission issued an order similar to a compulsory licensing of the copyrighted works at issue. On appeal, the appellant questioned the legal mandate of the Commission, as only national jurisdictions originally granting the copyright would have the power to impose an obligation of compulsory licensing on the appellant. This view was rejected by the CJEU, holding that after finding an abuse of dominant position, the Commission was entitled under Article 3 of Regulation No 17 (now Regulation 1/2003), in order to ensure that its decision was effective, to require the appellants to provide the copyrighted material to the requesting party. In the IMS case the Commission again ordered a license of an IPR, but this was annulled following an appeal to the General Court in Luxembourg. In the Microsoft case Microsoft was required by the Commission to make interoperability information available to producers of software producing software that could interoperate with Microsoft’s.

Although compulsory licensing has been debated mostly in relation to developing countries, the recent decade indicates a growing use and threat of compulsory licensing by developed countries such as Germany, United Kingdom, Israel, Russia and US.

Compulsory licensing has been subject of fierce debate as it represents an invasive public authority infringement on exclusive legal rights alongside rather broad concepts such as "public health", "national emergency" and so on. Where the protagonists forward compulsory licensing as a necessary legal tool to combat certain abuses of intellectual property rights, the antagonists point to the chilling effect such intervention might pose to investments and incentives.

 

Bibliography

Behrang Kianzad, “Excessive Pharmaceutical Prices as an Anticompetitive Practice in TRIPS and European Competition Law,” in New Developments in Competition Law and Economics, ed. Klaus Mathis and Avishalom Tor, Springer, 2019.

Qunaj, L., Kaltenboeck, A. and Bach, P.B., “Compulsory Licensing of Pharmaceuticals in High-Income Countries: A Comparative Analysis”, The Milbank Quarterly, 2022.

Reto M. Hilty and Kung-Chung Liu, eds. “Compulsory Licensing”, Springer, 2015.

Stefan A. Risenfeld, “Compulsory Licenses and United States Industrial and Artistic Property Law”, California Law Review, 1959.

World Intellectual Property Organization, "Exceptions and Limitations to Patent Rights: Compulsory Licenses and/or Government Use (Part I) - Prepared by Secretariat", 2014.

Whish and Bailey, Competition Law (10th edition, 2021, pp 837-842).

Author

Quotation

Behrang Kianzad, Compulsory License, Global Dictionary of Competition Law, Concurrences, Art. N° 86433

Visites 2364

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

A compulsory licence is an authorisation given by a national authority (Minister, National Patent Office etc.) to a person for the use and exploitation of a patented product or process without the consent of the patent holder. Compulsory licensing is an exception to the main principle of patent law, namely that the patent holder enjoys the exclusive right to authorise the use of its patented invention. The emergence of compulsory licences is linked to historical obligations in patent laws to “work” (i.e. manufacture and market) locally a patented invention. Compulsory licences were gradually applied in other cases. Other typical grounds for compulsory licensing relate to circumstances of exceptional nature such as abuse of patent rights, emergency, public interest (e.g. public health), dependent patents, or anti-competitive practices. © European Commission

See Licensing and FRAND

 
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