Compulsory Licensing Backgrounder

[James Love <love@cptech.org>]

An html version of this is on the web at
http://www.cptech.org/pharm/cl.html

COMPULSORY LICENSING AND THE RESOLUTION ON THE REVISED DRUG 
STRATEGY (being considered at the 51st World Health Assembly)


	It is an extreme and unwise position to say that the 
world should wait 20 years before taking steps to ensure that 
companies do not abuse patent rights and create unnecessary 
barriers for access to an essential drug.   Indeed, it would 
be contrary to the provisions in the GATT which, according to 
the U.S. trade negotiator, "specifically sets out a 
considerable number of conditions under which compulsory 
licensing may be utilized for use by those countries wishing 
to impose limits on intellectual property."

	This is very important.  Suppose, for example, that a 
company obtained patents that would control access to vaccines 
for AIDS, or for treatments of malaria, a disease which kills 
5 percent of African children.  Suppose, further, that this 
company is guided by the same ethical considerations as 
companies which set prices for alglucerase, a government 
funded invention, at more than $500,000 for a year of 
treatment, or the cancer drug paclitaxel [Taxol] another U.S. 
National Institutes of Health (NIH) funded invention, at more 
than 20 times it production costs.
	
	The use of compulsory licensing will be particularly 
important in areas of biotechnology, where companies are 
staking out very broad patent claims.  Attached is a copy of a 
May 7, 1998 article in The Guardian which describes new patent 
applications by Human Genome Sciences (HGS) on "the whole 
genetic sequence" of bacteria that causes meningitis.  
Apparently these [and similar] patents are so broad they will 
dominate inventions by other researchers to treat meningitis 
[and other diseases].  The Wellcome Trust refers to the 
prospect of HGS having "the power to stop people developing 
vaccines and other preventive medicines for killer diseases" 
as "an appalling result."  An official of The Meningitis 
Research Foundation says the new patents will give HGS the 
right to demand royalties for a vaccine the Meningitis 
Research Foundation is developing, and asks "will these 
companies accept responsibility if people die because we could 
not afford to vaccinate them?"

	See also the attached The Guardian article, "Beware the 
Wheelchairs," which reports on the European Union's new 
"Directive on the Legal Protection of Biotechnology 
Inventions," which will permit far broader patents on human 
genes, body parts and other areas which cover essential 
medical technologies.

	Public health authorities have a duty to speak out and 
participate in shaping public policy regarding access to 
essential medical technologies, including those covered by 
these new broad biotechnology patents.  When you can have a 
monopoly on life itself, there need to be mechanisms to 
protect consumers.


COMPULSORY LICENSING UNDER TRADE AGREEMENTS

	Governments have traditionally had the right to issue 
compulsory licenses to intellectual property.  The United 
States and other countries have long histories of compulsory 
licensing in the copyright field, going back to the days of 
player pianos.  For example, the U.S. government insisted that 
compulsory licenses for legal citations offered by West 
Publishing in 1996.  Compulsory licenses are also used in the 
computer and software area, such as the European Union's broad 
1984 "undertaking" with IBM concerning licensing of 
intellectual property needed to develop interoperable products 
with the IBM mainframe markets and the April 1998 decision by 
a federal judge in the United States that Intel Pentium 
computer chips are an "essential facility" in the computer 
field, and subject to compulsory licensing of proprietary 
information to Intel competitors. 

	Compulsory licensing is considered even more important in 
areas of medicines and biotechnology, where you can have cases 
of blocking patents or overbroad patents, and patents to 
essential medical technologies.  There was a dispute last year 
in the United States regarding a request for a compulsory 
license for patents needed for  a stem cell medical device, 
and consumer groups in the U.S. have asked the Federal Trade 
Commission to see if Amgen patents on erythropoietin are 
blocking the development of an invention that would reduce 
needed doses by half.

	The United States government trade negotiators have as 
recently as 1995 indicated the U.S. government supports 
provisions in trade agreements that provide for both 
compulsory licensing and patent exceptions in the health care 
area.  For example, in a Feb 1, 1995 letter [attached], United 
States Trade Representative Mickey Kantor wrote:

		"We have been balanced in our approach to the 
         protection of pharmaceutical products.  The relevant 
         provisions of the TRIPS Agreement reflects this 
         problem:
		
		-	TRIPS specifically sets out a considerable 
         number of conditions under which compulsory licensing 
         may be utilized for use by those countries wishing to 
         impose limits on intellectual property within its own 
         borders.
		
		-	TRIPs contains no transition period 
         phasing-out the use of these compulsory licensing 
         provisions, they may be relied upon for the indefinite 
         future.
		
		-	There are no TRIPs provisions addressing 
         the use of price controls.
		
		-	TRIPS permits member-countries to exclude 
         entirely from the scope of patentable subject matter a 
         range of inventions, including certain living 
         organisms, surgical and therapeutic methods and 
         inventions to protect animal or plant life or to avoid 
         prejudice to the environment.
		
		The innovator pharmaceutical companies were not 
         enthusiastic supporters of these provisions, but they 
         were accepted nevertheless by this Administration."

	[Feb 1, 1995 letter , USTR Michael Kantor to Alfred 
        B. Engelberg]

Mr. Kantor further stated:

		"As you know, I am a supporter of the careful 
        balance that has been struck in the United States to 
        provide timely marketing opportunities for the U.S. 
        Generic pharmaceutical industry, including the "Bolar" 
        exemption.  This provision . . . permits generic drug 
        companies to engage in non-commercial acts required to 
        prepare for market entry when a patent expires."
		

U.S. FEDERAL TRADE COMMISSION REPORT

	The U.S. Federal Trade Commission's Anticipating the 21st 
Century report also addressed several aspects of U.S. patent 
policy, and explored areas where compulsory licensing would be 
beneficial.  These are a few excerpts:

-------------begin FTC report excerpt--------------------
	According to hearings testimony, the scope[50] of 
patents issued has become increasingly broad, with 
some patent claims apparently designed to cover an 
entire area of research or even basic research, 
particularly in the biotechnology industry.[51] One 
professor cites two patents that cover enormous areas 
of technology -- one for all transgenic mice and one 
for ex vivo gene therapy -- and noted that they are 
not atypical of patents issued today.[52]  Another 
prominent example is a patent issued to Agracetus, a 
biotechnology company, for genetically engineered 
cotton.[53] The patent scope, which essentially 
covered an entire plant species, caused a public 
outcry. In discussing this patent, news articles 
stated that academic and U.S. Department of 
Agriculture researchers, among others, were concerned 
that "broad [biotechnology] patents could hinder the 
development and commercialization of technology and 
hurt competition by requiring licenses and the payment 
of licensing fees or royalties."[54]  The hearings 
testimony stressed that the inventors face increasing 
liability for infringement, which in turn reduces 
incentives for, and the feasibility of, incremental 
and follow-on research. To avoid such liability, 
inventors must negotiate license and royalty 
agreements with the holders of the relevant patents, 
which can be difficult.[55] Second, anticompetitive 
patent pooling may occur.
	
	Participants note that either patent, compulsory 
licensing, or other antitrust remedies could be used 
to increase incentives for follow-on and incremental 
research and to deter anticompetitive cross licensing 
schemes.[56] They preferred an increased use of the 
experimental use exemption for non-patent holders,[57] 
and the utility[58] and enablement[59] doctrines for 
patent applicants. These witnesses also urged the PTO 
to focus more vigorously on fundamental patentability 
questions related to novelty and nonobviousness, and 
to take greater care to limit patent claims actually 
proved.[60]22 Other recommendations were to give 
follow-on inventors the right to obtain a compulsory 
license under an established set of conditions[61] or 
to use antitrust law to preserve incentives for 
follow-on innovation.[62]

	[Anticipating the 21st Century: Competition Policy in 
the New High-Tech, Global Marketplace, a Report by the 
Federal Trade Commission Staff, Vol. 1. May 1996, 
chapter 8, pages 13-15. The Entire report is on the 
Web at: http://www.ftc.gov/opp/global.htm, footnotes 
omitted]

---------------End FTC report excerpts---------------

SOME U.S. COMPULSORY LICENSES FOR PHARMACEUTICALS 

The following are a few examples of compulsory licenses in the 
context of merger reviews.
	
Novartis 

A recent example of a compulsory license for intellectual 
property is the U.S. Federal Trade Commission's (FTC) March 
24, 1997 Decision and Order concerning the merger between 
Ciba-Geigy and Sandoz into Novartis.[1]  Ciba-Geigy Ltd. and 
Sandoz Ltd. are non-U.S. firms, with headquarters in Basel, 
Switzerland. The combined entity would also control Chiron, 
the biotechnology company. The FTC concluded that the merger 
would violate U.S. antitrust laws, because the merged 
companies are current or potential competitors for several 
products. The FTC required divestiture of several products, 
and ordered compulsory licenses of intellectual property 
rights for a number of other healthcare inventions. For 
example, Ciba-Geigy, Sandoz and Chiron were required to 
license a large portfolio of patents, data and know-how 
relating to HSV-tk products, hemophilia gene rights and other 
products to Rhone-Poulenc Rorer. The new merged entity and 
Chiron were also required to grant non-exclusive licenses to 
all requesters for patent and other rights to Cytrokine 
products. 

In the case of the non-exclusive Cytokine licenses (which 
involve gene therapy), and the Anderson gene therapy patent, 
the FTC specified the terms under which the licenses would be 
offered. For the Cytokine licensed products, the royalties can 
be no greater than three percent (3%) of the net sales 
price.[2] The Anderson gene therapy patent is licensed at one 
percent above the royalties paid by the company to the U.S. 
National Institutes of Health (NIH).[3]

Dow 

When the Dow Chemical Company acquired shares of Rugby-Darby 
Group Companies, Inc., the  FTC was concerned the merger would 
lessen competition for dicyclomine products. The agency 
required Dow to license to a potential entrant intangible 
dicyclomine assets, including "all formulations, patents, 
trade secrets, technology, know-how, specifications, designs, 
drawings, processes, quality control data, research materials, 
technical information, management information systems, 
software, the Drug Master File, and all information relating 
to the United States Food and Drug Administration Approvals" 
that are not part of the acquired company's physical 
facilities or other tangible assets. Moreover, during a 
transition period, while the new entrant sought FDA approvals 
of its own, the FTC required Dow to manufacture and deliver 
dicyclomine tablets and capsules to the new entrant at a price 
that did not exceed 48 percent of the average wholesale price 
of the acquired company's dicyclomine tablets as of July 2, 
1993.[4]
 

Upjohn/Pharmacia Aktiebolag 

Similarly, when FTC reviewed the merger between the Upjohn 
Company and Pharmacia Aktiebolag, Upjohn was required to 
divest certain intellectual property (including patents), or 
the FTC would appoint a trustee to issue an exclusive United 
States license and a non-exclusive rest-of-the-world license 
for Pharmacia's research and development assets related to 9- 
AC. These requirements would protect consumers from reduced 
competition and higher prices for topisomerase I inhibitors, 
which are important for the treatment of colorectal cancer.

Footnotes
--------------


1 Docket No. C-3725, on the Internet at 
http://www.ftc.gov/os/9704/c3725d&o.htm (no 
period). For a discussion of the proposed consent order, see 
Federal Trade Commission,  "Analysis to Aid Public Comment," 
Federal Register, January 3, 1997, Vol. 62, No. 2.

2Adjustments to the 3 percent rate are made in certain 
special cases.

3 U.S. Patent No. 5,399,346.

4 See, Federal Trade Commission, "Proposed Consent Agreement 
with Analysis to Aid Public Comment," Federal Register, July 
6, 1994.