[Ip-health] The Medical Innovation Prize Fund (S.2210, 110th Congress) and the WTO TRIPS Agreement

[James Love]

http://www.keionline.org/blogs/2008/11/01/the-medical-innovation-prize-fund=
-s2210-110th-congress-and-the-wto-trips-agreement/

The Medical Innovation Prize Fund (S.2210, 110th Congress) and the WTO
TRIPS Agreement

I have been asked to elaborate on the relationship between the Medical
Innovation Prize Fund (S.2210, 110th Congress) and the WTO TRIPS
Agreement.

For centuries, innovation inducement prizes have been suggested as a
mechanism to stimulate investments in a wide range of topics. (See, for
example, Selected Innovation Prizes and Reward Programs, KEI Research
Note 2008:1). During most of this period, the patent system has also
existed.

The relationship between patents and prizes is important, complicated,
and involves diverse approaches by policy makers. In the 19th century
there was a serious debate in the Netherlands, England, the United
States and other countries over whether or not prizes should replace
patent monopolies as the reward for new inventions. But there was also
frequent use of prizes in combination with patent monopolies, or cases
where prizes were presented as an alternative reward for activities that
would normally not qualify for patents, or would be conditioned upon
licenses to use patents.

Today innovation inducement prizes have been implemented or proposed for
a plethora of diverse purposes =E2=80=93 for example, climate control,
development of new medicines and vaccines, mining, software development,
nano-technology, or space travel.

In 1995 the WTO TRIPS Agreement came into force. This trade agreement
requires WTO members to make 20 year patents =E2=80=9Cavailable for any
inventions, whether products or processes, in all fields of technology,
provided that they are new, involve an inventive step and are capable of
industrial application.=E2=80=9D To some, this agreement has closed the doo=
r
over the possibility of alternative reward mechanisms. But that view
does not reflect a sophisticated understanding of the TRIPS, or the ways
that some alternative reward systems have been proposed.

Voluntary regimes

For starters, any system of prizes can condition the receipt of the
prize money to a condition, such as the abandonment or licensing of
patent rights. In the area of global public health, the World Health
Organisation is considering proposals for a voluntary system where drug
development prizes would be conditioned on the granting of open licenses
to a patent pool that would facilitate generic competition for products.
These proposals have attracted support from a variety of sources,
including in the context of rewards for mew drugs for tuberculosis,
tentative support from several drug companies, including Gilead, Johnson
& Johnson, and Novartis.

To the degree that the prize reward is the primary market for the
innovation, the requirement to license the patent rights may be an offer
that is hard to refuse. Examples that would fit this description are
prizes for the development of drugs for diseases that predominately
concern low income persons living in developing countries, or prizes for
other innovations for which markets do not exist, such as demonstrations
of new energy efficient technologies that are not commercially viable
(but which offer valuable insights to the wider developer community).

Non-Voluntary Alternatives to Exclusive Rights
More challenging from the point of view of the TRIPS are policy
initiatives that either remove the possibility of obtaining a patent
altogether, or which coexist with the patent system, but eliminate the
exclusive rights associated with patents in favour of a remuneration
right or liability rule.

In a =E2=80=9Csoft=E2=80=9D patent regime, the patent would exist, but othe=
rs would have
some freedom to use the patent, subject to payment of money to the
patent owner. This is the approach taken in S.2210 (110th Congress), the
Medical Innovation Prize Fund. Drug developers and others can obtain
patents, but after a product is registered for sale by the US FDA,
generic manufacturers would have the freedom to use the inventions.

Non-voluntary alternatives to exclusive right regimes can be implemented
in a number of different ways, under different provisions in the TRIPS.

The TRIPS Article 30 Approach

One approach available to WTO members is to implement a non-voluntary
prize regime under Article 30 of the TRIPS. This one sentence Article
allows the exceptions to the exclusive rights of a patent when the
exception does not =E2=80=9Cunreasonably=E2=80=9D conflict with the normal =
exploitation
of a patent, and does not =E2=80=9Cunreasonably=E2=80=9D prejudice the legi=
timate
interests of the patent owner, taking into account the legitimate
interests of third parties.

    Article 30 - Exceptions to Rights Conferred
    Members may provide limited exceptions to the exclusive rights
conferred by a patent, provided that such exceptions do not unreasonably
conflict with a normal exploitation of the patent and do not
unreasonably prejudice the legitimate interests of the patent owner,
taking account of the legitimate interests of third parties.

For a non-voluntary prize system to meet the test set out in Article 30,
it would have to offer sufficient monetary rewards to patent owners.
S.2210 would offer a lot =E2=80=93 about $80 billion in fy 2009, which is
several multiples of all royalty payments to owners of U.S.
pharmaceutical patents, according to the IRS Statistics of Income
reports. The rewards would not be exclusively for the patent owners =E2=80=
=93
S.2210 would reward both patented and unpatented drug development =E2=80=94=
 but
the amounts are so much larger than current royalty patents, it would
easily meet the TRIPS test.

The TRIPS Article 31 Approach

A different approach is possible under Article 31 of the TRIPS. This 642
word provision sets out a set of procedures and rules for non-voluntary
uses of patented inventions. Article 31 and 30 cannot be used together =E2=
=80=93
an exception to exclusive rights can rely upon one or the other, but not
both.

Without getting into all of the details, a few points can be raised
here. First off, Article 31(a) says that =E2=80=9Cauthorization of such use
shall be considered on its individual merits.=E2=80=9D In practice, this ca=
n be
satisfied by merely providing that rewards to a patent owner would
depend upon the specific facts relevant to that patent =E2=80=93 something =
that
S.2210 does by tying rewards to the impact of products on health
outcomes.

Some have expressed concerns about the provision in Article 31(b) that
=E2=80=9Csuch use may only be permitted if . . . 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.=E2=80=9D To the extent that =
31(b)
presents a problem, it will depend upon the nature of patent
negotiations, and what constitutes =E2=80=9Creasonable commercial terms and
conditions.=E2=80=9D S.2210 does not eliminate patents, and under S.2210,
patents are a valuable asset, because they are used to stake claims on
billions of dollars of prize rewards. Patent owners will have
opportunities to sue and be sued, to negotiate, and in the present
version of the bill, to even block a product from being registered for
sale by the FDA.

In evaluating Article 31(b) obligations, the WTO is also bound by other
provisions of the TRIPS, including Article 1, which states =E2=80=9CMembers
shall be free to determine the appropriate method of implementing the
provisions of this Agreement within their own legal system and
practice.=E2=80=9D

Finally, the obligation for prior negotiation on reasonable terms and
conditions is waived =E2=80=9Cin cases of public non-commercial use.=E2=80=
=9D To the
extent that a WTO member can argue that the supply of innovation for new
medicines is a state responsibility, it may be able to use this waiver.

The TRIPS Article 44 Approach

A completely different approach for prize rewards may be justified under
Article 44 of the TRIPS, or more specifically, under Article 44.2.

    Article 44 - Injunctions

    1. The judicial authorities shall have the authority to order a
party to desist from an infringement, inter alia to prevent the entry
into the channels of commerce in their jurisdiction of imported goods
that involve the infringement of an intellectual property right,
immediately after customs clearance of such goods. Members are not
obliged to accord such authority in respect of protected subject matter
acquired or ordered by a person prior to knowing or having reasonable
grounds to know that dealing in such subject matter would entail the
infringement of an intellectual property right.

    2. Notwithstanding the other provisions of this Part and provided
that the provisions of Part II specifically addressing use by
governments, or by third parties authorized by a government, without the
authorization of the right holder are complied with, Members may limit
the remedies available against such use to payment of remuneration in
accordance with subparagraph (h) of Article 31. In other cases, the
remedies under this Part shall apply or, where these remedies are
inconsistent with a Member=E2=80=99s law, declaratory judgments and adequat=
e
compensation shall be available.

Article 44 is in Part III of the TRIPS - =E2=80=9CEnforcement of Intellectu=
al
Property Rights.=E2=80=9D Under this provision, even if a patent exists and=
 the
patent is infringed, WTO members do not have enforce the exclusive
rights on the patent, if the patent owner receives money. In Article 44,
a WTO member can eliminate even the possibility of granting an
injunction to enforce a patent right, under two cases. In the first
sentence in Article 44.2, in cases of =E2=80=9Cuse by governments, or by th=
ird
parties authorized by a government,=E2=80=9D injunctions can be withheld so=
 long
as =E2=80=9Cadequate remuneration=E2=80=9D is paid to patent owners. This i=
s a low
standard for remuneration, and one that is far exceeded by S.2210.

In the last sentence of Article 44.2, it says that in any case,
injunctions may be eliminated when =E2=80=9Cadequate compensation=E2=80=9D =
is available.
Again, this is a standard easily met by S.2210.

Are there cases where WTO members use Article 44 for non-voluntary use
of patents? Yes. The United States compulsory licenses issued under the
recent eBay decision rely upon the flexibility in Article 44. More
generally, the U.S. Government provisions of 28 USC 1498 are based upon
Article 44. There is no possibilities for an injunction for government
use or use by third parties authorized by the government, but the
government has an obligation to compensate the owners of copyrights,
patents or plant breeder rights. Recently the U.S. Copyright office
recommended the Article 44 approach be used to liberalize access to
orphaned copyrighted works.

In Canada and India, infringement of architectural plans is likewise not
subject to an injunction, but compensation is required.

Conclusion

There are three well known mechanisms in the TRIPS that can be use to
implement alternative reward systems or soft patent regimes, including
but not limited to the Medical Innovation Prize Fund (S.2210, 110th
Congress). These include Articles 30, 31 and 44.2.

James Love
Knowledge Ecology International
1 November 2008


--
James Love, Director, Knowledge Ecology International
http://www.keionline.org | mailto:james.love at keionline.org
Wk: +1.202.332.2671 | US Mobile +1.202.361.3040 | Geneva Mobile +41.76.413.=
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