It is an extreme and unwise position to say that the world should wait 20 years before taking steps to ensure that companies do not abuse patent rights and create unnecessary barriers for access to an essential drug. Indeed, it would be contrary to the provisions in the GATT which, according to the U.S. trade negotiator, "specifically sets out a considerable number of conditions under which compulsory licensing may be utilized for use by those countries wishing to impose limits on intellectual property."

This is very important. Suppose, for example, that a company obtained patents that would control access to vaccines for AIDS, or for treatments of malaria, a disease which kills 5 percent of African children. Suppose, further, that this company is guided by the same ethical considerations as companies which set prices for alglucerase, a government funded invention, at more than $500,000 for a year of treatment, or the cancer drug paclitaxel [Taxol] another U.S. National Institutes of Health (NIH) funded invention, at more than 20 times it production costs.

The use of compulsory licensing will be particularly important in areas of biotechnology, where companies are staking out very broad patent claims. Attached is a copy of a May 7, 1998 article in The Guardian which describes new patent applications by Human Genome Sciences (HGS) on "the whole genetic sequence" of bacteria that causes meningitis. Apparently these [and similar] patents are so broad they will dominate inventions by other researchers to treat meningitis [and other diseases]. The Wellcome Trust refers to the prospect of HGS having "the power to stop people developing vaccines and other preventive medicines for killer diseases" as "an appalling result." An official of The Meningitis Research Foundation says the new patents will give HGS the right to demand royalties for a vaccine the Meningitis Research Foundation is developing, and asks "will these companies accept responsibility if people die because we could not afford to vaccinate them?"

See also the attached The Guardian article, "Beware the Wheelchairs," which reports on the European Union Directive on the Legal Protection of Biotechnology Inventions, which will permit far broader patents on human genes, body parts and other areas which cover essential medical technologies.

Public health authorities have a duty to speak out and participate in shaping public policy regarding access to essential medical technologies, including those covered by these new broad biotechnology patents. When you can have a monopoly on life itself, there need to be mechanisms to protect consumers.



Governments have traditionally had the right to issue compulsory licenses to intellectual property. The United States and other countries have long histories of compulsory licensing in the copyright field, going back to the days of player pianos. For example, the U.S. government insisted that compulsory licenses for legal citations offered by West Publishing in 1996. Compulsory licenses are also used in the computer and software area, such as the European Union's broad 1984 "undertaking" with IBM concerning licensing of intellectual property needed to develop interoperable products with the IBM mainframe markets and the April 1998 decision by a federal judge in the United States that Intel Pentium computer chips are an "essential facility" in the computer field, and subject to compulsory licensing of proprietary information to Intel competitors.

Compulsory licensing is considered even more important in areas of medicines and biotechnology, where you can have cases of blocking patents or overbroad patents, and patents to essential medical technologies. There was a dispute last year in theUnited States regarding a request for a compulsory license for patents needed for a stem cell medical device, and consumer groups in the U.S. have asked the Federal Trade Commission to see if Amgen patents on erythropoietin are blocking the development of an invention that would reduce needed doses by half.

The United States government trade negotiators have as recently as 1996 indicated the U.S. government supports provisions in trade agreements that provide for both compulsory licensing and patent exceptions in the health care area. For example, in a Feb 1, 1996 letter [attached], United States Trade Representative Mickey Kantor wrote:

"We have been balanced in our approach to the protection of pharmaceutical products. The relevant provisions of the TRIPS Agreement reflects this problem:

- TRIPS specifically sets out a considerable number of conditions under which compulsory licensing may be utilized for use by those countries wishing to impose limits on intellectual property within its own borders.

- TRIPs contains no transition period phasing-out the use of these compulsory licensing provisions, they may be relied upon for the indefinite future.

- There are no TRIPs provisions addressing the use of price controls.

- TRIPS permits member-countries to exclude entirely from the scope of patentable subject matter a range of inventions, including certain living organisms, surgical and therapeutic methods and inventions to protect animal or plant life or to avoid prejudice to the environment.

The innovator pharmaceutical companies were not enthusiastic supporters of these provisions, but they were accepted nevertheless by this Administration."

[Feb 1, 1996 letter , USTR Michael Kantor to Alfred B. Engelberg]

Mr. Kantor further stated:

"As you know, I am a supporter of the careful balance that has been struck in the United States to provide timely marketing opportunities for the U.S. Generic pharmaceutical industry, including the "Bolar" exemption. This provision . . . permits generic drug companies to engage in non-commercial acts required to prepare for market entry when a patent expires."


The U.S. Federal Trade Commission's Anticipating the 21st Century report also addressed several aspects of U.S. patent policy, and explored areas where compulsory licensing would be beneficial. These are a few excerpts:

According to hearings testimony, the scope[50] of patents issued has become increasingly broad, with some patent claims apparently designed to cover an entire area of research or even basic research, particularly in the biotechnology industry.[51] One professor cites two patents that cover enormous areas of technology -- one for all transgenic mice and one for ex vivo gene therapy -- and noted that they are not atypical of patents issued today.[52] Another prominent example is a patent issued to Agracetus, a biotechnology company, for genetically engineered cotton.[53] The patent scope, which essentially covered an entire plant species, caused a public outcry. In discussing this patent, news articles stated that academic and U.S. Department of Agriculture researchers, among others, were concerned that "broad [biotechnology] patents could hinder the development and commercialization of technology and hurt competition by requiring licenses and the payment of licensing fees or royalties."[54] The hearings testimony stressed that the inventors face increasing liability for infringement, which in turn reduces incentives for, and the feasibility of, incremental and follow-on research. To avoid such liability, inventors must negotiate license and royalty agreements with the holders of the relevant patents, which can be difficult.[55] Second, anticompetitive patent pooling may occur.

Participants note that either patent, compulsory licensing, or other antitrust remedies could be used to increase incentives for follow-on and incremental research and to deter anticompetitive cross licensing schemes.[56] They preferred an increased use of the experimental use exemption for non-patent holders,[57] and the utility[58] and enablement[59] doctrines for patent applicants. These witnesses also urged the PTO to focus more vigorously on fundamental patentability questions related to novelty and nonobviousness, and to take greater care to limit patent claims actually proved.[60]22 Other recommendations were to give follow-on inventors the right to obtain a compulsory license under an established set of conditions[61] or to use antitrust law to preserve incentives for follow-on innovation.[62]

[Anticipating the 21st Century: Competition Policy in the New High-Tech, Global Marketplace, a Report by the Federal Trade Commission Staff, Vol. 1. May 1996, chapter 8, pages 13-15. The Entire report is on the Web at:, footnotes omitted]



The following are a few examples of compulsory licenses in the context of merger reviews.


A recent example of a compulsory license for intellectual property is the U.S. Federal Trade Commission's (FTC) March 24, 1997 Decision and Order concerning the merger between Ciba-Geigy and Sandoz into Novartis.[1] Ciba-Geigy Ltd. and Sandoz Ltd. are non-U.S. firms, with headquarters in Basel, Switzerland. The combined entity would also control Chiron, the biotechnology company. The FTC concluded that the merger would violate U.S. antitrust laws, because the merged companies are current or potential competitors for several products. The FTC required divestiture of several products, and ordered compulsory licenses of intellectual property rights for a number of other healthcare inventions. For example, Ciba-Geigy, Sandoz and Chiron were required to license a large portfolio of patents, data and know-how relating to HSV-tk products, hemophilia gene rights and other products to Rhone-Poulenc Rorer. The new merged entity and Chiron were also required to grant non-exclusive licenses to all requesters for patent and other rights to Cytrokine products.

In the case of the non-exclusive Cytokine licenses (which involve gene therapy), and the Anderson gene therapy patent, the FTC specified the terms under which the licenses would be offered. For the Cytokine licensed products, the royalties can be no greater than three percent (3%) of the net sales price.[2] The Anderson gene therapy patent is licensed at one percent above the royalties paid by the company to the U.S. National Institutes of Health (NIH).[3]


When the Dow Chemical Company acquired shares of Rugby-Darby Group Companies, Inc., the FTC was concerned the merger would lessen competition for dicyclomine products. The agency required Dow to license to a potential entrant intangible dicyclomine assets, including "all formulations, patents, trade secrets, technology, know-how, specifications, designs, drawings, processes, quality control data, research materials, technical information, management information systems, software, the Drug Master File, and all information relating to the United States Food and Drug Administration Approvals" that are not part of the acquired company's physical facilities or other tangible assets. Moreover, during a transition period, while the new entrant sought FDA approvals of its own, the FTC required Dow to manufacture and deliver dicyclomine tablets and capsules to the new entrant at a price that did not exceed 48 percent of the average wholesale price of the acquired company's dicyclomine tablets as of July 2, 1993.[4]

Upjohn/Pharmacia Aktiebolag

Similarly, when FTC reviewed the merger between the Upjohn Company and Pharmacia Aktiebolag, Upjohn was required to divest certain intellectual property (including patents), or the FTC would appoint a trustee to issue an exclusive United States license and a non-exclusive rest-of-the-world license for Pharmacia's research and development assets related to 9- AC. These requirements would protect consumers from reduced competition and higher prices for topisomerase I inhibitors, which are important for the treatment of colorectal cancer.


1 Docket No. C-3725, on the Internet at (no period). For a discussion of the proposed consent order, see Federal Trade Commission, "Analysis to Aid Public Comment," Federal Register, January 3, 1997, Vol. 62, No. 2.

2Adjustments to the 3 percent rate are made in certain special cases.

3 U.S. Patent No. 5,399,346.

4 See, Federal Trade Commission, "Proposed Consent Agreement with Analysis to Aid Public Comment," Federal Register, July 6, 1994.

corrected Jan 11, 1999

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