Client Alert

Germany, UK, USA: Are Patent Exceptions the Cure to COVID-19?

14 Apr 2020

Introduction

As the COVID-19 pandemic continues to spread globally, the life sciences industry is at the forefront of addressing the urgent need for pharmaceuticals, diagnostics, ventilators, and personal protective equipment capable of helping to contain the surge.

While the laws of many countries provide for certain mechanisms that limit the right of patentees to exclude others from using their inventions for the benefit of public welfare, in the face of the COVID-19 crisis, among others, Germany has recently enacted emergency legislation that gives the government additional powers to circumvent patent law and ensure medical supplies, medication, or vaccines can be made available locally. Many more countries are currently discussing similar regulations. The World Health Organization (WHO) supports such endeavors.

In this article, we will examine public and patent law mechanisms to suspend patent protection of critical drugs and equipment in Germany, the United Kingdom, and the United States to help fight the corona crisis.

Key Facts

  • In Germany
    • Sec. 13 of the German Patent Act (GPA) provides for administrative orders to be issued by the federal government against patentees that enable the government or any designee to use the patent for reasons of public welfare.
    • The recently introduced Protection Against Infection Act empowers the Federal Health Minister to issue such administrative order with regard to, e.g., pharmaceuticals and medical devices, and arguably lowers its requirements. The patentee is to receive an appropriate compensation.
    • In addition, sec. 24 GPA provides the possibility for private entities to request compulsory licenses from the patentee in front of the Federal Patent Court, if good-faith license negotiations have failed.
  • In the UK
    • Sec. 55 of the UK Patents Act 1977 entitles the government to sell, or offer to sell, a patented product like specific drugs, medicines, or medical devices, without the consent of the patentee, in order to deal with emergencies.
    • The UK Patents Act also provides for a compulsory license regime under which the UK Intellectual Property Office can grant a license to a third party without the patentee’s consent if the patentee does not make sufficient use of its patent and prior license negotiations have failed.
  • In the U.S.
    • Legislation on administrative order and compulsory licensing is missing.
    • 28 U.S. Code sec. 1498 (a) enables the government to make or use any invention without the patentee’s permission.
    • The Bayh-Dole Act created “march-in rights” that allow the government to require the owner or exclusive licensee of a patent created with federal funding to grant a third party a license to an invention under certain conditions.

Situation in Germany

The GPA provides two possibilities to restrict the exclusivity right granted by a patent in the interest of the public welfare. First, sec. 13 GPA allows the restriction of the exclusivity right by way of administrative order issued by state authorities. Second, sec. 24 GPA provides for compulsory licenses granted to private companies, including state-owned private companies, by way of a court decision.

Administrative Orders

Sec. 13 (1) GPA enables the federal government to issue orders for the use of an invention to protect public welfare by the government or government-appointed third parties. Since there has only been one case of a similar order being issued in 1949 (i.e., before the GPA was enacted), the provision’s relevance has been virtually non-existent over the course of the past 70 years.

Yet, on March 28, 2020, the legislature passed the so-called Epidemic Protection Act that, inter alia, amended the German Infection Protection Act (IPA), showing the potential that the legislators see in administrative orders as a viable instrument for state action during the COVID-19 pandemic and providing further guidance on its applicability.

The Epidemic Protection Act introduced, among others, sec. 5 IPA, which authorizes the Ministry of Health and its subordinate authorities to order the use of a patent in accordance with sec. 13 GPA when it is related to specific products which shall be used for public welfare, such as pharmaceuticals, medical devices, and laboratory diagnostics, as well as items of personal protective equipment and products for disinfection.

Thus, the legislative changes have not only had an impact on the competence regime under the GPA (i.e., shifting competence from the federal government to the Ministry of Health and downstream authorities). In the legal community, the changes have also universally been perceived as lowering the threshold of using an administrative order.

The second requirement of sec. 5 IPA, an epidemic situation of national importance, has already been declared by resolution of the German Bundestag. Therefore, if the Ministry of Health is under the impression that a risk of shortages with regard to certain vital products is imminent, issuance of such an order may only be a matter of days, rather than weeks.

It should be noted that the patentee’s right to use previously granted licenses remains unaffected by an administrative order. Likewise, according to sec. 13 (2) GPA, affected patentees are entitled to appropriate compensation, which is to be obtained directly from the government, and not from any third parties authorized under the order to produce the patented invention in question. Other than that, however, the patentee has no claim for damages.

The order itself as well as the adequacy of the compensation granted can be challenged. Challenges against the order as such must be brought before the Federal Administrative Courts. However, it is likely that legal protection against the order has no suspensive effect, which would be at odds with the purpose of the order. Challenges of the inadequacy of compensation, on the other hand, must be lodged before ordinary civil courts.

Compulsory Licensing

In contrast to administrative orders, compulsory licenses pursuant to sec. 24 GPA are issued by court order from the German Federal Patent Court (GFPC) to a private entity, including state-owned private entities. Nevertheless, compulsory licenses can also be a “sharp sword” in obtaining access to critical pharmaceuticals or medical devices, given the possibility of obtaining a preliminary compulsory license pursuant to sec. 85 GPA.

While the compulsory license has long been in the background, its relevance is deemed to be increasing due to two decisions in the past years to issue compulsory licenses for a drug used in HIV treatment in the public interest. These decisions may prove to be precedents for competitors seeking the restriction of a patentee’s exclusive rights to relevant pharmaceuticals or medical devices in the context of the current COVID-19 crisis.

For a compulsory license to be issued, there must first and foremost be a public interest in the availability of the product. According to the recent case law, public interest is likely to exist, e.g., where the availability of medicinal products with therapeutic properties for the treatment of serious illnesses is in jeopardy, which may be likely with regard to COVID-19-related drugs and vaccines in the current situation.

Second, the license seeker must also have made unsuccessful efforts to obtain a license from the patentee. This requirement, too, has been addressed exhaustively in recent decisions, with the court finding that such efforts must be based on reasonable commercial terms and conditions and must be made over a reasonable amount of time.

Lastly, the license seeker must be able and willing to produce and commercially use the patented invention, which would need to be demonstrated in its statement of claims.

Similar to a restriction order, a compulsory license restricts the patentee’s exclusivity right, in this case vis-à-vis the party granted a compulsory license. Yet it does not affect the patent itself, so that the patentee’s right to use previously granted licenses remains unaffected. In the case of compulsory licensing, too, the patentee is entitled to compensation for the use of the patent. As a compulsory license or preliminary compulsory license must be applied for in front of the GFPC, the patentee should make extensive use of its opportunity to defend itself against the action. However, contrary to preliminary injunctive relief, which according to sec. 937 (2) of German Civil Procedure Act can be granted without an oral hearing, the decision to grant a preliminary compulsory license pursuant to sec. 85 (3) GPA requires the hearing of both parties, thereby making a protective brief (a common defense instrument in preliminary proceedings in Germany) obsolete.

Situation in the UK

UK law provides two ways in which a patentee’s invention could be used by a third party (whether the government itself or a private entity) without infringing the patent: first, the concept of “Crown Use”; and second, a compulsory licensing regime.

Crown Use

Under sec. 55 of the UK Patents Act 1977, the UK government is entitled to sell, or offer to sell, a patented product without the consent of the proprietor of the patent. This is deemed not to be an infringement of the patent at issue, although the government would have to pay compensation to the owner of that patent. This right also allows the government to carry out acts that would otherwise infringe a patent (such as the production, supply, or use of specific drugs, medicines, or medical devices) without having first identified or negotiated with any relevant patent owners.

Crown Use has been invoked before—although very rarely—and in previous cases it has been recognized that Crown Use is only really intended to deal with emergencies. Given the current COVID-19 crisis, this will likely be an easy threshold to satisfy.

Interestingly, back in January 2020, a UK court upheld a Crown Use defense in a case between two telecoms operators relating to a patent over certain mobile phone standards. The court ruled that there has to be written evidence of authorization by a government department, and the concept of “use for the Crown’s benefit” is a broad concept (relevant in the recent case because a mobile network operator wanted to use it to grant priority network access to emergency responders to help them to serve the public).

Sec. 56 of the Patents Act provides a non-exhaustive list of permitted acts. In the recent telecoms case, the UK government had authorized the network operator to provide priority access to its network in an emergency situation, but the authorization did not say anything about patent rights. That was still deemed to be sufficient. Clearly, in the COVID-19 situation, the government could take an even more direct route and either make use itself, or authorize third parties to make use of, patent-protected products.

If Crown Use is invoked, a patentee is entitled to compensation for lost profits, but the approach is likely to be “act first, ask questions later,” i.e., make use of the patented invention and then deal with the economic compensation issue when the emergency has passed.

Compulsory Licensing

The UK Patents Act also provides for the grant of compulsory patent licenses under certain circumstances. A compulsory license is a license granted without the patent owner’s consent. However, this is likely to be a more restrictive route than the Crown Use exception.

A party must apply for a compulsory license to the UK Intellectual Property Office. The primary use of compulsory licenses is where a patented invention is not being made available in the UK to the fullest extent reasonably practicable—where this is not in the public interest.

An applicant must first have made unsuccessful efforts for a reasonable period of time to obtain a license from the patent owner on reasonable terms (although it’s possible that this requirement could be waived in cases of national emergency or public non-commercial use). The terms of a compulsory license are decided on a case-by-case basis and will depend on the particular facts of the case, but it is likely that a license will be limited in time and scope. Patentees will always be entitled to reasonable compensation.

Situation in the U.S.

Unlike many other countries, United States patent law does not generally provide for compulsory licenses. Some other options are available, however, that would allow the federal government to make use of patented inventions.

Sec. 1498

One such right can be found in 28 U.S. Code sec. 1498 (a). This option does not create a compulsory license. Instead, sec. 1498 gives the government the right to make or use any invention without the patentee’s permission. sec. 1498 provides the government with immunity from infringement, and also covers actions by a contractor, a subcontractor, or any person, firm, or corporation working on behalf of, and with the authorization or consent of, the government. Situations where the government provides authorization after the infringement are also covered by sec. 1498.

If the government exercises rights under sec. 1498, the patent holder may bring an action for reasonable compensation before the United States Court of Federal Claims.

In the past, this approach has been used (or at least was threatened to be used) by the government multiple times. Throughout the 1960s, the U.S. Department of Defense’s Military Supply Agency relied on sec. 1498 to procure about 50 different drugs. One prominent example was the Department of Defense using sec. 1498 to obtain an antibiotic from a generic supplier in Italy at a cost much lower than that of the branded version of the antibiotic in the U.S. More recently, the government threatened the use of sec. 1498 during the 2001 anthrax situation to obtain cheaper versions of the antibiotic ciprofloxacin. In response, the drug manufacturer lowered the price.

March-in Rights

Additional government rights were created in 1980 by the Patent and Trademark Law Amendments Act, known as the Bayh-Dole Act. The law created “march-in rights,” which allow the government to require the owner or exclusive licensee of a patent created with federal funding to grant a license to a third party when “health or safety needs” are not being “reasonably satisfied” by the patent holder, an assignee, or an exclusive licensee. These rights are limited to federally funded inventions, and the resulting license grant must be on reasonable terms.

The recent Coronavirus Preparedness and Response Supplemental Appropriations Act authorized federal funds to prevent, prepare for, and respond to COVID-19. More than $3 billion has been allocated to the development of necessary countermeasures and vaccines and the purchasing of vaccines, therapeutics, and diagnostics, as well as other medical supplies. March-in rights under the Bayh-Dole Act may apply to vaccines and other products developed with the help of these funds.

Although created nearly 40 years ago, the Bayh-Dole Act’s march-in rights have never been exercised. There have been several petitions to the U.S. National Institutes of Health (NIH) for their use, but so far, NIH has denied all of them. However, the government has threatened to apply these rights in the past. For example, in 2001, the U.S. Department of Health and Human Services threatened their use in order to secure an open license on stem cell line patents.

Recent Voluntary IP Sharing

Short of compulsory licenses or legal requirements, many companies are already changing their behavior due to public scrutiny during the current global health crisis. With regard to exclusivity, one company, after facing negative press, already asked the FDA to rescind its so-called orphan drug designation (affording 7 years of exclusivity) for a drug that might be used to treat COVID-19. Another company pledged to offer royalty-free licenses for pandemic-related uses. In addition, an initiative called the Open COVID Pledge has emerged. Its aim is to convince and help companies and institutions to pledge to give free licenses to their patents, copyrights, and other property rights to anyone that is developing technologies for the diagnosis, prevention, or treatment of COVID-19. These licenses would remain in effect until one year after the World Health Organization declares the COVID-19 pandemic to be over.

Outlook

The mere existence of the possibility of sovereign intervention can have a psychological effect which should not be underestimated, as it has been successfully used as leverage for price cuts by state authorities in similar crisis situations. As legislative actions on COVID-19-related exceptions to patent protection are underway globally, patentees from the life sciences industry should follow these developments closely. The existing administrative mechanisms and evolving laws intended to facilitate access to essential inventions should be born in mind when government authorities or competitors request to buy high numbers of potentially COVID-19-relevant products or to license the underlying patents. Patentees should be prepared to deal with this new reality in negotiations with both authorities and competitors. In some cases it may be prudent to rethink the overall manufacturing and licensing strategy, as demonstrating that the necessary supply to serve the population can be secured through its own capacity will be more crucial than ever to a patentee’s case. In any event, being ready to respond quickly to any intervention in its exclusivity rights should be given priority.

Morrison & Foerster Associate Jill Tellioglu and Research Assistant Hazal Koepp contributed to the writing of this alert.

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