Distributed at Partners meeting
Cochin, India
June 13, 2001

Comments to: James Love
love@cptech.org, http://www.cptech.org

Sec. 1. Policy Objectives.

`(a) Systems for the protection and enforcement of intellectual property rights should:

`(1) Protect the public health and the human rights of the poor;

`(2) Contribute to the promotion of technological innovation and to the transfer and dissemination of technology,

`(3) Include appropriate measures to prevent the abuse of intellectual property rights by right holders, and

`(4) Remedy practices which unreasonably restrain trade or adversely affect the international transfer of technology.

Sec. 2. Compulsory licensing

`(a) COMPULSORY LICENSING OF PATENTED INVENTIONS- In the case of any invention that concerns health care, in which a patent holder, contractor, exclusive licensee, or assignee has acquired title under this title, the Minister of _____________ shall have the right to establish other use of the subject matter of the patent without authorization of the right holder if the Minister makes the determination described in subsection (b).

`(b) DETERMINATION- The determination of the Minister referred to in subsection (a) is a determination that--

`(1) the patent holder, contractor, licensee, or assignee referred to in subsection (a) has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in a field of use; or

`(2) such use is necessary to alleviate health or safety needs which are not adequately satisfied by the patent holder, contractor, licensee, or assignee. In making this determination, the Minister shall determine if the product is adequately available to patients who should have access to the invention for public health reasons, if price is a barrier for access or an undue burden on the poor, and if greater competition is likely to lead to lower prices and increased access; or

`(3) the patent holder has engaged in anti-competitive behavior. Such determination may include, but is not limited to, a determination that the patented invention is priced excessively relative to the prices for other countries of similar income or by other reasonable standards, or there is not sufficient competition among drugs within a therapeutic class, or that the patented invention is an essential component of a public health product and the licensing terms for the patent are not reasonable and deter innovation or product development, contrary to the public interest; or

`(4) An invention covered by a patent cannot be exploited without infringing upon another patent, insofar as the dependent patent permits an important technical advance; or

`(5) The invention covered by a patent is a component of a tool for health care related research, and is not licensed on reasonable terms and conditions,

`(6) The invention covered by a patent is used by or on behalf of a government agency for public non-commercial purposes, such as for the supply of any medicine or health care product or service.

`(c) FACTORS IN AUTHORIZING OTHER USE- In exercising the right under subsection (a) to authorize other use of a patent, the following shall apply:

`(1) In cases involving commercial use, such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable terms and conditions and such efforts have not been successful within a reasonable period of time, which in general should be no more than 180 days. The requirement for prior negotiation is waived in cases involving national emergency or other circumstances of extreme urgency, for public non-commercial use, or when such use is permitted to remedy anticompetitive practices.

`(2) The right holder shall be paid adequate remuneration for the use of the patent.

`(3) Where such use is authorized to permit the exploitation of a patent which cannot be exploited without infringing another patent, the owner of the 1st patent shall be entitled to a cross-license on reasonable terms to use the invention claimed in the 2nd patent.

`(d) CONSIDERATIONS FOR DETERMINING REMUNERATION FOR USE OF A PATENT- In determining the reasonableness of licensing terms and the remuneration for the use of a patent under (a), the Minister shall consider the risks and costs associated with the invention and the commercial development of products that use the invention, the efficacy and innovative nature of the invention or products using the invention, the need for adequate incentives for the creation and commercialization of new inventions, the average profit margin in competitive industries, and the interests of the public as patients and payers for health care services, the public health benefits of expanded access to the invention and the impact of compensation on access to health care.

`(e) MULTIPLE PATENTS. In cases where there are multiple patents on a product, the company selling a product without the authorization of the patent owner shall pay the total compensation for all patents into an escrow fund, and the patent owners should negotiate among themselves on how to divide the royalty among the various patent owners, and failing to agree, should enter arbitration to determine how the royalty payments are split. The costs of the arbitration should be borne by the patent owners.

`(f) ROYALITY GUIDELINES. In order to provide guidance to patent owners, investors and competitive suppliers of health care inventions, regarding the range of royalties on licenses for patents on medicines that would normally be considered reasonable, and are also consistent with adequate access to medicines, the Minister shall publish royalty guidelines. Such guidelines should include recommendations for compensation as a percent of net sales of products. The initial guidelines, which may be modified by the Minister as needed, are as follows.

`(1) two to three percent for a product that does not represent a significant advance in therapeutic benefits,

`(2) five percent for an innovative product that provides a significant advance in therapeutic benefits;

`(3) for products that are particularly innovative, based upon therapeutic evidence, or for which there was a significantly higher than average investment in R&D, based upon economic evidence, an additional royalty premium or up to three percent.

`(4) one percent or less for patents that represent minor contributions to a product, such as a formulation patent,

`(5) in cases of multiple patents on the same product, the amounts in (1) through (4) are the combined compensation for all patents, allocated fairly among the various patent owners in accordance with the relative significance and benefits of the inventions.

Sec. 3. Administrative Procedures.

`(a) The Minister shall establish simplified and expedited procedures to facilitate the timely licensing of inventions to competitive suppliers of products and users of health care related research tools.

`(b) An initial determination for a compulsory license under Sec. 1 should be available within 45 days, and if the Minister fails to respond to such requests on a timely basis, the applicant may request such a license from a district court.

`(c) Patent owners shall not have the right to enjoin parties from decisions by the Minister to authorize use without the authorization of the patent owner under Sec. 2 or Sec. 4. (As permitted by Article 44.2 of the Trips)

`(d) Initial decisions regarding the compensation to the patent owner are subject to review by an independent committee appointed by the Minister. Modification of the compensation will not be retroactive. Patent owners or persons seeking a compulsory license may ask for a review. In addition to additional information that either party may submit or request in the course of such a review, patent owners who seek review of the initial decisions regard compensation must provide the following information:

`(1) the actual amount invested in R&D for that invention,

`(2) evidence if any regarding the average amount invested in R&D for similar inventions.

`(3) the role of public sector support for research and development,

`(4) the royalty rates the firm receives and pays for out-licensing and in-licensing of health care patents.

`(5) evidence, if any, of the products efficacy and therapeutic value from independent sources.

[NOTE: Section 4 proposes four exceptions to patent rights, under Article 30 of the TRIPS].

Sec. 4. Other Use Without Authorization Of The Patent Owner.

In addition to the provisions of Sections 1 and 2, use without the authorization of the patent owner shall also be permitted in the following cases:

`(a) When a medicine or other health care invention is manufactured for export, where the export addresses an important regional or global public health concern, such as the spread of infectious diseases, and the legitimate rights of the patent owner are protected in the export market.

`(b) When the medicine or other health care invention is manufactured and distributed for compassionate use, and meets the following conditions:

`(1) the use is temporary, and addresses an urgent health care need,

`(2) there is no alternative method of obtaining the product at an affordable price, and

`(3) the product is distributed for free.

`(c) When the use of the invention is for experimental purposes,

`(d) When the use of the invention is solely for purposes reasonably related to the development and submission of information required under any country that regulates the manufacture, construction, use or sale of any product.

CPT Home IP and Healthcare CPT page on Compulsory Licensing