IP in times of war
As the war in Ukraine continues, intellectual property (IP) is probably the last thing that comes to mind. Russia does not sit idly by when facing a series of embargos imposed by Western countries. They have started to retaliate. The article does not discuss the political aspect of the war but uses it to provide another perspective through the lens of IP.
On 6 March 2022, Russia adopted Decree No. 299, “On Amendments to Clause 2 of the Methodology for Determining the Amount of Compensation Paid to a Patent Owner When Deciding to Use an Invention, Utility Model or Industrial Design without His Consent, and the Procedure for Its Payment“.
The Russian government decided to pay zero compensation to the patent owner if a patent is used without his permission. Such drastic behaviour will be applied to patent holders from “unfriendly countries”, including all the 27 members of the EU. Using patents without the holder’s consent is also known as compulsory licensing.
After Covid-19, compulsory licensing has now re-emerged as a hot topic. Compulsory licensing is an umbrella term for many types of non-voluntary authorization by the State to exercise a patentee’s rights without the latter’s authorisation. It has different names, such as ex officio licences, government use, crown (or government) use, licences to remedy anti-competitive practices, mandatory licences, and statutory licences (WIPO SCP/15/3 Annex V, page 10).
Under the TRIPS Agreement, compulsory licensing is regulated by Article 31, which sets out a set of conditions that a WTO member must follow if it wishes to issue a compulsory licence. These conditions in brief are:
- The application for compulsory licensing must be assessed individually.
- The compulsory licence applicant must negotiate with the patent owner for a voluntary licence on reasonable terms and conditions within a reasonable period before applying for a compulsory licence. However, prior negotiation is skipped in cased of ‘national emergency, ‘other circumstances of extreme urgency’ or ‘public non-commercial uses’.
- The scope and duration of the compulsory licence shall be limited to the purpose for which it was authorised.
- A compulsory licence must be non-exclusive, and non-assignable.
- The patented article that is manufactured under the compulsory licence must be predominantly supplied within the domestic market.
- The compulsory licence must be terminated if the events that led to it ‘cease to exist and are unlikely to recur’.
- The patent owner shall be entitled to an ‘adequate remuneration’ that takes into account the ‘economic value of the authorisation’.
- The decisions in relation to a compulsory licence grant and the remuneration thereof must be subject either to judicial review or to any independent review by a higher authority.
Mapping Article 31 onto Decree No.299, it can be argued that the economic sanctions in Russia can be viewed as either under “national emergency” or “extreme urgency”. The Government is therefore allowed to skip the prior negotiation step.
However, the fact that Russia has decided not to pay any royalty to the patent holders violates Article 31h of TRIPS. Remuneration varies from one country to another.
By way of comparison, the previous practice in Canada set up royalty rates of 4% of the sales price of the medicines under the licence. In comparison, India limited the payments to a maximum of 4% of net sales.[1] The 1998 Japan Patent Office Guidelines (for government-owned drug patents) specify royalties that amount to 2%–4% of the generic product price; this amount can vary by as much as 2%, in a range of 0%–6%. Zambia fixed a maximum royalties rate at 2.5% of the turnover of the product, and Thailand and Indonesia paid only 0.5%. In prominent pharmaceuticals countries, however, the royalties are much higher. For example, the average range for pharmaceuticals in the US is 5%. In Germany, this amount could be as high as 10%.
The legal basis for compulsory licensing in Russia flows from Articles 1360 and 1362 of the Civil Code of the Russian Federation (Civil Code). Article 1360 of the Civil Code allows the Russian Government to grant permission to use a patented invention in the interest of defence and national security. Such permission requires notifying the patentholder and paying him adequate compensation. Prior to Decree No. 299, Russia’s standard compulsory licensing rate was 0.5% of the income derived from the use of a patented invention. So far, only two compulsory licenses have been issued in the pharmaceutical industry.
The closest example of Russian compulsory licensing is the Thai practice which happened after the coup d’etat against Thaksin Shinawatra in 2006. In a very short time frame between 2006 and early 2008, the post-coup government issued seven compulsory licences: two relating to HIV/AIDS, one relating to cardiovascular conditions, and four relating to cancers. Eventually, as one patent holder – Novartis, agreed to provide Glivec free to Thai patients with certain requirements, the compulsory licence for this medicine was revoked. A royalty fee of 0.5% was paid to Merck and Abbott. The royalties ranged from 3% to 5% paid to other right holders.
The post-coup government was condemned for paying no regard to IP rights and was accused of using populist rhetoric and policies to curry favour with the Thai people.[1] The royalty of 0.5% paid to the pharmaceutical companies was considered too low.
[1] James Hookway and Nicholas Zamiska, ‘Thai Showdown Spotlights Threat to Drug Patents’ The Wall Street Journal (Bangkok, 24 April 2007) <http://www.wsj.com/articles/SB117735181629579246 accessed 21 April 2015.
[1] Tsai-Yu Lin, ‘Compulsory Licenses for Access to Medicines, Expropriation and Investor-state Arbitration under Bilateral Investment Agreements – Are There Issues beyond the TRIPS Agreement?’ (2009) 40 IIC 123, 128.
