Exceptions to Patentee’s Rights in International Law

1. Exceptions to Patentee’s Rights in International Law Lionel Bently

2. Patentee’s Rights: TRIPs Art 28 • A patent shall confer on its owner the following exclusive rights: • (a) where the subject-matter is a product, to prevent third parties not having the owner’s consent from the acts of making, using, selling, offering for sale or importing for these purposes that product; • (b) where the subject matter is a process, to prevent third parties not having the owner’s consent from the act of using the process, and from the acts of: using…etc for these purposes at least the product obtained directly by that process

3. Two Forms of Limitation on Rights (a) Exceptions/Defences • E.g. private and non-commercial use; experimental use • Dealt with by Article 30 TRIPs (b) Compulsory Licences • e.g. for non-working. • Dealt with by Paris Art 5A and TRIPs Art 31

4. History of Exceptions • Relative new-comers to national patent law • 19th century: a few countries had ‘prior use’, ‘government use’, ‘exhaustion’. • Whittemore v Cutter 29 F. Cas. 1120 (D Mass 1813) (No 17,600) Story J: “it could never have been the intention of the legislature to punish a man, who constructed such a machine for purely philosophical experiments, or for the purpose of ascertaining the sufficiency of the machine to produce its described effects.” • National orientation: forfeiture for non-working. • Free trade led to “means of transport” exclusions

5. Exceptions in national law c.1883. • Foreign Vessels: British Guiana, British Honduras; Cape of Good Hope; Germany (Art 5); Great Britain (s. 43); Leeward Islands; Luxembourg (Locomotive engines);Natal; New Zealand; South Australia; Tasmania; Victoria • Prior use: Canada (s.7, foreign patents); Germany (Art 5); Luxembourg (art 5); Mauritius (s. 26); Sweden (art 16); US (?) (s.4899) • Government Use: Germany (Art 5); Luxembourg; South Australia (s.36) • Compulsory Licences for Non-working: GB(s.22) • Exhaustion: Italy (art 8, c.3)

6. Forfeiture for non working c. 1883 • One Year from Grant: Austria; Belgium; Colombia; Denmark; Italy • Two Years from Grant: Argentine Republic: Canada; Finland; France; Italy; Jamaica; Newfoundland; New Zealand; Portugal; Spain; Turkey • Three Years from Grant: Barbados; Brazil; Germany; Liberia; Luxembourg; South Australia; Sweden • Within first quarter of term (variable): Russia • One year interruption: Brazil; Colombia; Finland • Two year interruption: Argentine Republic; Austria; Turkey Canada; France; Italy; Portugal • Refusal to License: Germany; Luxembourg • Failure to supply Govt: New Zealand • Public Good: Portugal.

7. Current State of Exceptions Proliferation Late 20th century: experimental use, non-commercial use, preparation of drugs, regulatory research, farmers privileges, etc Explanations: new subject-matter (medicines, genetics, software, business methods); changing science-technology relationship (esp. genetics) Some standardisation e.g. by CPC Art 27 and WIPO model law

8. Current State of Exceptions • Experimental/Educational Use (86) • Prior Use (85) • Acts on or concerning foreign means of transport which temporarily or accidentally enter national territory (80) • Exhaustion (73) • Acts for non-commercial/non-profit making purposes (71) • Preparation of prescribed drugs, and related acts (54) • Exploitation and/or expropriation by or authorised by the government for national purposes (44) • Bolar Exception (27) • Biological material put on the market by the patent holder, other than for propagation purposes (14) • Use by farmers of reproductive material for own agricultural activity (9) • Exploitation authorised to counter anti-competitive practices (9) • Non-repeated use of biological material to obtain viable new material (6)

9. US Patents Act, Section 271(e)(1) “It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention…solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs…”

10. 3 Rationales for Exceptions • Cost-benefit analysis (esp. reducing ex post costs without affecting ex ante incentives) • Necessary for working of patent system (experimental use) • Countervailing interests (trade, health, competition, education, privacy, customary expectations)

11. Limitations in International Law • Paris Art 5ter • Art 6 (exhaustion) • TRIPs Art 73 “security exceptions” • TRIPs Art 40(2): abuse of intellectual property rights • Art 30 TRIPs (the “three step test”) • Art 27 TRIPs (patent rights enjoyable without discrimination as to the place of invention, the field of technology) • Relationship with permissible exclusions (Art 27(2) and (3)) • Relationship with Art 31 (compulsory licences)

12. Art 5ter of the Paris Convention • In any country of the Union the following shall not be considered as infringements of the rights of a patentee: • (i) the use on board vessels of other countries of the Union of devices forming the subject of his patent in the body of the vessel, in the machinery, tackle, gear and other accessories, when such vessels temporarily or accidentally enter the waters of the said country, provided that such devices are used there exclusively for the needs of the vessel; • (ii) the use of devices forming the subject of the patent in the construction or operation of aircraft or land vehicles of other countries of the Union, or of accessories of such aircraft or land vehicles, when those aircraft or land vehicles temporarily or accidentally enter the said country. • Convention on International Civil Aviation of 7 December 1944 (no action against operator of aircraft on basis that construction, mechanism, parts, accessories or operation of the aircraft” or the storage or use of spare parts infringes patents)

13. Art 30 TRIPs • “Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with the normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking into account the legitimate interests of third parties.”

14. Siblings • “Obviously based on” Berne art 9(2) • TRIPS Art 13 (but differences: “certain special cases”; do not “conflict with normal exploitation”; no reference to third parties). WTO DS/160/R. • TRIPS, Art 17 (2 steps: “limited exceptions”; take account of “legitimate interests” of owner and third parties; example “fair use for descriptive purposes.”) WTO DS/174/R. • TRIPS, Art 26(2) (almost identical to Art 30)

15. Drafting history • First (Anell) draft would have allowed “limited exceptions” with illustrative list – private use, scientific use, prior use etc. • WT/DS114/R para 7.70: “The negotiating records of the TRIPs agreement give no explanation of the reason for this decision.” Stoll et al, 537: US wanted to restrict, the EU favoured catalogue • Straus, 203: compromise “constitutes little more than flexible guidelines”

16. WTO Canada- Pharmaceutical Products, (2000) WT/DS114/R • Regulatory review: “s. 55.2(1). It is not an infringement of a patent for any person to make, construct, use or sell the patented invention solely for uses reasonably related to the development and submission of information required under any law of Canada, a province or county other than Canada that regulates the manufacture, construction, use or sale of any product” • met all three criteria

17. WTO Canada- Pharmaceutical Products, (2000) WT/DS114/R • Stockpiling: “s. 55.2(2). It is not an infringement of a patent for any person who makes, constructs, uses or sells a patented invention in accordance with subsection (1) to make, construct or use the invention, during the applicable period provided for by the regulations, for the manufacture and storage of articles intended for sale after the date on which the term of the patent expires.” • Manufacturing and Storage of Patented Medicines Regulations 1993 set period as 6 months for patented medicines • WTO Panel: not “limited”

18. Canadian Background • No pharmaceutical product patents until 1993 • compulsory licence enabled generics to make drugs during term – a policy since 1923 • became more effective after changes in 1969 • from 1989 subject to a minimum 7 years of exclusivity for patentee) • Exceptions introduced in 1991 by C-91, removed compulsory licences. Aim to protect innovator pharmaceutical firms, but EC claimed losses of Can$ 100 million p.a.. • Admitted that such compulsory licences were incompatible with draft Art 31 (in “Dunkel draft”), Art 1709(10) of NAFTA (1992)

19. WTO Canada- Pharmaceutical Products, WT/DS114/R • Role of Art 7 (promotion of innovation, transfer of technology, in a manner conducive to social and economic welfare, and to a balance of rights and obligations) & Art 8 (may adopt measures to protect public health and nutrition, promote development, prevent abuse of IPRs) • (para 7.26): “obviously be borne in mind” when interpreting

20. WT/DS114/R: “Limited” • Canada – confined/restricted in scope • EC – narrow, small, minor – in terms of impact on rights. Not because “3 out of 5” rights (make, use, import). • Cf. Berne: “certain special cases”

21. WT/DS114/R: “Limited” (2) “Limited” has narrow meaning. Qualifies “exception” which by itself connoted “limited derogation”. Limited exception= narrow exception – “one which makes only a small diminution of the rights in question.” (para 7.30; also para. 7.44) Not concerned with “economic impact” but impact on “rights” (esp. para 7.48). Yet cf. 7.35 (scope of rights includes post-patent market effects for “months” after expiry) Nor a matter of “counting” (para. 7.32) Nor a “hierarchy of rights” (eg sale being most important) (para 7.35)

22. WT/DS114/R: “Limited” (3) “Stockpiling exception” abrogates rights to make and use entirely during the 6 months, so not “limited” (para 7.35) “Regulatory review” exception was limited (para 7.45): “the extent of the acts unauthorized by the right holder that are permitted by it will be small and narrowly bounded.”

23. WT/DS114/R: “Normal exploitation” • “Exploitation”: “commercial activity by which patent owners employ their exclusive patent rights to extract economic value from their patent” (para 7.54) • “Normal”: both “an empirical conclusion about what is common…[and] a normative standard of entitlement.” (para 7.54) • Includes factual exclusivity after expiry (para 7.56), but not exclusivity caused by need to obtain regulatory approval • Overall RR exception did not conflict

24. WT/DS114/R: “Legitimate interest” (1) • EC had claimed meant “legal interests”. WTO rejected this (para 7.68) • Rather “’justifiable’ in the sense that they are supported by relevant public policies or other social norms.’” (para. 7.69) • Were post-term benefits justified eg as compensation for loss of capacity to take advantage of patent?

25. WT/DS114/R: “Legitimate interests” (2) • Para 7.82 “On balance, the Panel concluded that the interest claimed on behalf of patent owners whose effective period of market exclusivity had been reduced by delays in marketing approval was neither so compelling nor so widely recognised that it could be regarded as a ‘legitimate interest’…” • “a matter of unresolved political debate”

26. WTO Canada- Pharmaceutical Products, WT/DS114/R: “interests of third parties” Qualification of third element (implied by para 7.20) But Panel recognises argument that might inform criterion of “unreasonableness” in relation to conflict with normal exploitation (para 7.59). See also Stoll, 539 (“All of the three conditions are to be applied ‘taking account of the legitimate interests of third parties.’)

27. Is the WTO decision still good law? Abbott & Reichman are dubious. Context has changed. Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/DEC/2), 14 November 2001 para 4: “We agree that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health. ..In this connection, we reaffirm the right of WTO members to use, to the full, the provisions in the TRIPS Agreement, which provide flexibility for this purpose.”

28. Some tests... • Would Maureen O’Rourke, proposed “fair use” exception be acceptable? • Gulf Co-operation Council’s: “Acts carried for scientific research purposes” • Egypt’s exception for “Acts not prejudicial to normal exploitation of the patent, or the interests of patent owner and third parties.” • Uzbekistan: “use in cases of natural calamities, disasters, epidemics and other exceptional circumstances”

29. Is Belgian Patent Law, 2005, legitimate? • Belgian Patent Act Art. 28, § 1(b) (enacted 25 April 2005). • The rights of a patent holder do not extend to acts carried out for scientific purposes on or with the subject matter of an invention. • Wolrad Prinz, 304,could hardly be regarded as a “limited exception.”

30. Non-Discrimination: Are regulatory review exceptions (Bolar) legitimate (if technology specific)? German Patent Act, s. 11(2)(b) “studies and trials…necessary to obtain permission…according to the effective pharmaceutical regulations.” US: s. 271(e) (1) “It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention …solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.”

31. FTAs and Bolars • US requires the party to limit the exploitation of products made legitimately under the regulatory review exception

32. Relationship with Exclusions: Is US medical practitioner exception legitimate? US Patent Act s. 287(c):(c) (1) With respect to a medical practitioner’s performance of a medical activity that constitutes an infringement under section 271 (a) or (b) of this title, [no remedy should be available] against the medical practitioner or against a related health care entity with respect to such medical activity. (2) …(A) the term “medical activity” means the performance of a medical or surgical procedure on a body, but shall not include (i) the use of a patented machine, manufacture, or composition of matter in violation of such patent, (ii) the practice of a patented use of a composition of matter in violation of such patent, or (iii) the practice of a process in violation of a biotechnology patent. see Duffy, at 722 (quoting USTR)

33. Compulsory Licensing: History • Reichman & Hazenhal (UNCTAD Issues Paper No 5) • Most countries demanded local exploitation • Non-voluntary licensing a technique substituted for forfeiture (eg for importation of patented articles). Paris (Hague 1925) – only permit forfeiture is compulsory licensing failed • Stimulated adoption of compulsory licences

34. Compulsory Licensing • Paris Art 5.A • (2) Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licences to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work…

35. Compulsory Licensing • Paris 5A(4) • -A compulsory license may not be applied for on the ground of failure to work or insufficient working before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last; it shall be refused if the patentee justifies his inaction by legitimate reasons. • Such a compulsory license shall be non-exclusive and non-transferable, even in the form of the grant of a sub-license, except with that part of the enterprise or goodwill which exploits such license

36. Abuse… • Reichman & Hazenhal, 11-12: Can grant for “abuse” (eg unreasonably high prices) but also for public interest (eg defence, environment) • Straus, 204, suggests “abuse” “constitutes a fundamental requirement for the grant of compulsory licences of any kind i.e. also for those granted in the public interest” • Doha Declaration on the TRIPs Agreement and Public Health 2001: “Each member has the right to grant compulsory licences and the freedom to determine the grounds upon which such licences are granted.” • Implicitly supports Reichman?

37. Compulsory Licensing in TRIPS • “some of the most intensely negotiated provisions” of the TRIPs Agreement • Straus, 203, “an issue of [an]…economic explosive nature” • TRIPs Art 31: does not define grounds but imposes limitations • Gervais “the drafting is abstruse at times”

38. TRIPs Art 31 • (a) Case by case • (b) Efforts. But waive for national emergency/extreme urgency/public non-commercial use • (c) limited scope and duration • (d) non-exclusive [Paris] • (e) non-assignable [Paris] • (f) “predominantly for the supply of the domestic market”

39. TRIPs Art 31 • (g) terminable • (h) adequate remuneration taking into account the economic value of the authorization • (i) grant decision reviewable • (j) remuneration decision reviewable • (k) competition cases– (b) & (f) do not apply if competition issue • (l) cross-licensing – special conditions

40. Relationship with compulsory licences • Multiple conditions under Art 31 • So what if an exception only if user pays remuneration? • Swiss Patent Act, Art 40b • “Whoever intends to use a patented biological invention as an instrument or means in research, is entitled to a non-exclusive licence.” • Wolrad, 303, suggests contrary to Art 27 even if it did have express limit to biological inventions because that would be de facto effect

41. TRIPs Art 73 • : “any action which it considers necessary for the protection of its essential security interests” • Relating to fissionable material • Relating to traffic in arms... • Taken in time of war or other emergency in international relations...

42. German Patent Law, 1980, Art 13 • (1) A patent shall have no effect where the Federal Government orders that the invention be exploited in the interest of public welfare. Nor shall the effect of a patent extend to any exploitation of the invention which is ordered in the interests of the security of the Federal Republic by the appropriate supreme federal authority or, on the latter's instructions, by a subordinate agency…..(3) In the cases mentioned in subsection (1), the patentee shall have a claim against the Federal Republic for reasonable compensation. …

43. WIPO Report: Exclusions or Exceptions? Rationales Compared

44. Some Examples • Exclusion of methods of treatment to give doctors etc freedom. Alternative exception: allow patents but offer an exception permitting certain acts (eg US) • Exclusion of computer programs; exception allowing “fair use”/decompilation defence (eg failed CII Directive) • Exclusion of plant varieties: allow but have farmers privilege • Exclusion of genetic material: allow patents but indicate cannot affect privacy or autonomy • Exclusion of discoveries: remove some of difficulties if offer robust research and experiment exceptions

45. What Is At Stake? The Supposed Benefits of Exclusions The Dangers of Exceptions The Difficulties with Exclusions The Advantages of Exceptions

46. What Is At Stake? I(a)- Reasons to Prefer Exclusions The Benefits of Exclusions • Clarity (eg Royal Society (2003)) “pure knowledge about the physical world should not be patentable under any circumstances. ..Only by having knowledge unencumbered by property rights can the scientific community disseminate information and take science forward.” • Ex ante.

47. What Is At Stake I(b)- Reasons to Prefer Exclusions The Dangers of Exceptions • User placed on back foot: A defendant rarely chooses the time or forum. • Traditions of restrictive interpretation (TRIPs, Art 30) • Broad interpretation of patentability: narrowing of the public domain (Bilski) • The danger of “private-ordering”

48. What Is At Stake? II(a)– Reasons to Think Hard About Exceptions The Problems with Exclusions • Bluntness (dangers of under-incentivising; lose other benefits of patenting e.g. disclosure , ‘co-ordination’) • The Lack of Clarity: The Continuing Problems with Computer-Implemented inventions/business methods • Subject to gaming by patent agents and dependent on patent office vigilance (with resource implications) • International granting (via PCT, or co-operation between offices)

49. What Is At Stake? II(b) – Reasons to Prefer Exceptions The Benefits of Exceptions • Nuance. Exceptions by organisation, by payment, by whether for profit etc. • Flexibility (fair use) • Enforced by courts. • Room for local diversity: not caught up in movement to make international grant more efficient.

50. Conclusions 1: for National Legislatures • In some cases exclusions are the only way to fulfil policy goal (eg immorality/defining invention) • In other cases, there may be benefits with thinking more about exceptions, as alternatives or additionally • And to thinking about exceptions in relation to overlapping IPRs