Abstract
In the past two-plus years, the COVID-19 pandemic has devastated most countries in the world, and the continuous emergence of mutant viruses has put research on therapeutic drugs in jeopardy. Globally, some countries are preparing to implement compulsory licensing of medicine patents in response to risks to their healthcare systems. The system of medicine patent compulsory licensing refers to the use of a patent without the permission of the patentee, in exchange for an exploitation fee, upon application by the applicant. This system is a provision of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) concerning patented medicines which are related to public health. TRIPS has been a global agreement, but there are different opinions on the design and implementation of the compulsory licensing system.
The theme of this research is “COVID-19” as an entry point to examine whether the Chinese government will implement the compulsory licensing of patented medicine in China in response to a pandemic. The goal is to provide suggestions on the difficulties China faces in implementing this system in light of legal provisions and international experience. This study first analyzes the historical evolution of China's Patent Law and its supporting regulations on the patent compulsory licensing system; second, it briefly analyzes the challenges faced by the system in China; and finally, it makes some suggestions on how China can improve the system.
I. Historical Evolution of China's Compulsory Licensing System for Pharmaceuticals
China's current Patent Law was adopted in 1984, but at that time, China was in the early stage of legal reform, and drugs were excluded from the scope of protection. In 1992, the revised Patent Law deleted the provisions of the 1984 Patent Law that drugs and chemical substances were not granted patents and instead granted a 20-year protection period for drugs and chemical substances. At the same time, the application of the patent compulsory licensing system was also specified in the legislation for the first time. The amendment of the Patent Law was, to some extent, a product of the continuous promotion of trade competition between China and the United States, but it also followed the international trend developing at that time and basically satisfied the provisions of the TRIPS Agreement. 1 In the fourth revision of the Patent Law on October 17, 2020, the title of Chapter 6 was amended from “Compulsory Licensing of Patent Implementation” to “Special Licensing of Patent Implementation.” The newly amended Patent Law continues the provisions of the 2008 Patent Law on the compulsory licensing system for patented medicine. So far, China has stipulated five situations for the compulsory licensing of patents: failure to implement or full implementation (Article 53), monopoly behavior (Article 53), emergency or extraordinary circumstances or public interest, public health purposes (Article 54), and implementation dependence (Article 13). If we take COVID-19 as an opportunity to analyze China's attitude towards the adoption of compulsory licensing of drug patents under large public health events, it is roughly as follows.
A.
According to Article 3(3) of the Measures for Compulsory License for Patent Exploitation, the relevant competent department of the State Council may initiate the compulsory licensing mechanism, and after the State Intellectual Property Office accepts the proposal, it may grant a compulsory license to a designated entity satisfying the conditions for patent exploitation. In 2018, the General Office of the State Council issued the Opinions on Reforming and Improving the Policy for Supply Guarantee and Use of Generic Drugs, further clarifying that the competent department for this subject is the National Health Commission of the PRC, The Ministry of Industry and Information Technology of the PRC and State Food and China Food and Drug Administration (now NMPA). Other than the aforesaid competent department, which has the right of recommendation, the rest of the topics and persons or entities covered by these Opinions are the right of application, which connotes any unit or individual meeting the conditions for implementation; units with conditions for implementation, such as the manufacturing and export of specific drugs; and the patentee or previous patentee of a dependent patent. The strict subject matter restrictions in the previous regulations were widely criticized, and scholars believe that any person or legal or unincorporated organization that may have an interest, even if the conditions for implementation do not exist, can file an application. 2 However, the expansion of the scope of the subject will also lead to the abuse of rights and damage the interests of the patentee.
B.
China has not yet recorded the implementation of a compulsory license for a patented medicine since its establishment. Since the establishment of the World Trade Organization (WTO), about 20 countries have privately or publicly issued compulsory licenses for one or more pharmaceuticals. 3 In comparison, the Patent Law of the People's Republic of China currently has only a symbolic meaning, and the patent administration and judiciary accordingly lack experience in determining the state of emergency, public interest, scope of licensing, and amount of compensation.
The review of whether to grant a compulsory license for a patented medicine in China consists of three review steps. The first step is a review and decision on whether to grant a compulsory license for a patented medicine; the second step is the award of royalties for the compulsory license for a patented medicine; and the third step is the review and decision on the termination of the compulsory license request. It has been argued that the Chinese legislative technique is not defective, but that there are fundamental restrictions on compulsory licensing implementation at the Chinese policy level. 4 It has also been argued that the implementation of a compulsory license for a patented medicine may intensify international trade frictions and trigger public opinion, economic, and other pressures; therefore, China is cautious in the implementation of compulsory license for a patented medicine. 5
In 2003, when the SARS epidemic broke out in China, the China National Intellectual Property Administration promulgated the Measures for Compulsory License for Patent Exploitation (2010, expired laws) and the Measures for Compulsory License on Patent Implementation concerning Public Health Problems (expired laws), which refined operational provisions such as the examination criteria and termination circumstances of compulsory licensing. Now that China is ushering in the second revision of its patent enforcement rules, we can expect the Chinese government will take this opportunity to make changes to the compulsory licensing system for patented medicine.
II. Challenges of China's Compulsory Licensing System for Patented Medicine in the Context of COVID-19
The compulsory licensing system for patented medicine has a long history in the international arena. The Paris Convention for the Protection of Industrial Property proposed that some patents could be compulsorily licensed until 1995, when the TRIPS Agreement included the protection of patented medicines and also made special provisions for compulsory licensing of patented medicines. In 2001, WTO's Doha Declaration further strengthened the compulsory licensing system for patented medicine. The TRIPS Agreement and the Doha Declaration on Public Health of 2001 further strengthened the compulsory license of a patented medicine, considering that the protection of patented medicines cannot be an obstacle to the protection of public health in member countries and that the public interest takes precedence over the protection of patent rights.
Since its establishment, this system has not really been implemented in most countries. Internationally, South Africa, Malaysia, Indonesia, Thailand, and several other countries have implemented compulsory licensing of drug patents, mostly for infectious disease drugs, anti-tumor drugs, and anti-cancer drugs. However, the United States, Canada, Brazil and many other countries, although they have recognized compulsory licensing in their legislation to varying degrees, have not really implemented it, whether for anti-AIDS drugs, anthrax drugs, or human immune disruptors. Rather, they have used compulsory licensing as a means of negotiating lower prices for patented drugs. 6 In contrast, the application of the compulsory license system for a patented medicine in China is still in the early stage of development; hence, it still faces many challenges in the context of COVID-19.
A. The application subject is too restricted and narrow in scope
At present, the mainstream practice in the world is not to impose any restrictions on the subject of the application. 7 However, drug firms reacted strongly to this open-ended statute. According to Article 6 of Measures for Compulsory License for Patent Exploitation (2012), when there is a state of emergency or extraordinary circumstances, or for the purpose of public interest, only the relevant competent department of the State Council can be the subject of application. Article 7 stipulates that for the purpose of public health, only units with implementation conditions can apply for compulsory licensing. The result of this system is that the individual cannot become the subject of compulsory licensing applications, and “with the implementation of the conditions” a lack of quantifiable criteria makes it difficult to implement the system.
B. Opaque licensing and litigation procedures
The procedure in China is complicated and the process is time-consuming. According to Patent Law of the People's Republic of China, an eligible applicant shall submit a request to the patent administrative organ under the State Council and shall submit the documents required by the Patent Law along with a description of the applicant's eligibility to enforce the patent. It shall also prove the failure to sign an implementation license contract with the patentee on reasonable terms and conditions with relevant materials. Coincidingly, the lack of time limits for the various aspects of the initiation procedure and the lack of specific and clear explanations in the relevant laws as to what specific conditions the applicant should have for implementation have undoubtedly increased the difficulty of the application.
C. Lack of standards for royalty
The relevant laws on compulsory licensing of a patented medicine do not provide for a clear calculation of the royalty rate for compulsory licensing. Article 62 of the Chinese Patent Law stipulates that the entity or individual that is granted a compulsory license for exploitation shall pay to the patentee a reasonable royalty or deal with the royalty issue under the relevant international treaties to which the People's Republic of China has acceded. If a royalty is to be paid, the amount of the royalty shall be decided by both parties upon negotiation. If the parties fail to reach an agreement, the issue shall be settled by the patent administrative department of the State Council. There is no clear provision on the calculation standard of compulsory royalty for patented medicine, which makes it difficult for the legitimate interests of patentees to be effectively protected.
D. Lack of provisions on the effective time of licensing
The Patent Law of the People's Republic of China does not clearly stipulate the effective time of the compulsory license for a patented medicine, which will cause inconvenience and trouble in the subsequent practice of compulsory licensing of drug patents. In assuming the time limit for the completion of relief by the patentee, it is likely that the time for dealing with the health crisis will be missed. In addition, there is a possibility that this will lead to malicious litigation by the patentee and delay the effective implementation of the compulsory license for a patented medicine.
III. Suggestions or Countermeasures for Improving the Compulsory Licensing System of Chinese Patented Medicine
At present, there is no amendment to the compulsory licensing system published in the Patent Law (2020), but this does not mean that the Detailed Rules for the Implementation of the Patent Law of the People's Republic of China and other supporting provisions will not be changed. Compared with the legal systems of other countries, China's compulsory licensing system for patented medicine has the following areas for improvement.
A. Clear positioning of the system
Other nations have clearer ideas of the purpose of compulsory licensing, or at least the purposes to which they wish to put the system. For example, the main purpose of the Thai government in implementing patent compulsory licensing is to meet the domestic demand for drugs, and the system is intended to achieve access to drugs. The Indian government not only aims to achieve access to drugs, but also exports a large number of generic drugs to obtain economic benefits, so the Indian patent law has an enumerated explanation for “the public's reasonable demand is not satisfied” in regard to the quantity, quality, price and supply of drugs. The Indian Patent Law therefore has an enumerated interpretation of the “failure to meet the reasonable requirements of the public,” which is defined in terms of the quantity, quality, price and the reasonable needs of the public, which makes its regulation more obvious. 8 The United States and Germany tend to adopt the system as a bargaining tool. In the COVID-19 era, some countries have openly considered compulsory licensing as part of their COVID-19 response. On March 24, 2020, for example, Israel issued a compulsory license to import generic versions of AbbVie's Lopinavir/Ritonavir (Kaletra). 9 The legislatures of Canada, 10 Chile, 11 and Ecuador 12 have also taken legislative measures to ensure that their governments can quickly issue compulsory licenses. In a similar vein, China could therefore enact legislative measures to ensure that its government can issue compulsory licenses quickly. China should clearly position the compulsory licensing system so that compulsory licensing of patented medicines should first meet domestic demand rather than be used as a means of export profitability; additionally, the system should be applied with caution in cases where bargaining can solve the problem. Instead of triggering a lawsuit, the proposal of a compulsory license statute might encourage the government and the patent holder to negotiate a prespecified price. A negotiated agreement would benefit both parties. 13 Finally, the legal provisions should be refined, and the legal procedures simplified to facilitate the implementation of the system. The intended benefits of a poorly drafted compulsory license, therefore, may not reach the consumer. The result is little more than a transfer of wealth from the original inventor to the imitator rather than consumers.
B. Clarify the connotation of the system
The provisions on public interest and public health in China's Patent Law are too abstract. Take COVID-19 as an example: it should fall under the situation of “national emergency” as mentioned in Article 54 of the Patent Law, where compulsory licensing can be implemented. The reason is that Article 54 of the Patent Law provides that “where a national emergency or any extraordinary state of affairs occurs, or where the public interest so requires, the patent administrative department of the State Council may grant a compulsory license to exploit the patent for an invention or utility model.” The National Health Commission of the People's Republic of China issued Announcement No. 1 of 2020 on January 20, 2020, to include COVID-19 as a Class B infectious disease managed under the Law of the People's Republic of China on Prevention and Treatment of Infectious Diseases (2013 Amendment), and to take preventive and control measures for Class A infectious diseases. 14 For the definition of “state of emergency”, we can refer to Article 69 of the Emergency Response Law of the People's Republic of China, which allows the implementation of compulsory licensing for patents. Similarly, other major infectious diseases can be determined in accordance with the above two laws.
C. Establishing a negotiation mechanism and improving the relief mechanism
Compulsory enforcement of drug patents can enhance the accessibility of drugs, but blindly starting compulsory licensing of drug patents can cause international trade disputes and friction. In fact, referring to the aforementioned foreign practical experience, the real value of the drug patent compulsory licensing system lies in incentivizing a patentee to sign a patent licensing contract with an enterprise or individual who has offered reasonable terms, so as to avoid losing the opportunity to negotiate freely due to the implementation of compulsory licensing. In the case of patent compulsory licensing, the Chinese government can use the deterrent effect of patent compulsory licensing to compel the relevant companies to license their patents to domestic enterprises at reasonable prices. Once a drug patent right is subject to compulsory licensing by the Chinese government, according to the Rules for the Detailed Rules for the Implementation of the Patent Law of the People's Republic of China (2021 Draft for Public Comments), before implementation, the Chinese patent administrative authorities shall register and announce the applicants who are allowed to implement the compulsory license, and no objection shall be raised before implementation. At this stage, the patent owner of the drug may raise an objection and the administrative organ shall initiate the objection review procedure. After implementation, if there is an objection to the amount of implementation royalty, the patent holder is authorized to file a lawsuit in a Chinese court within three months, according to Article 63 of the Patent Law of China. Such a robust remedy mechanism can both improve China's compulsory licensing system for patented medicine and effectively reduce bilateral trade frictions.
Compulsory licensing of patented medicine is a powerful public health tool—it can help alleviate the lack of supply of essential drugs and reduce the prices of overly expensive drugs. The problem with compulsory licenses is that they provoke unintended reactions from patent holders and cause nations to suffer unintended economic consequences. While patent protection is necessary to support innovation, there are exceptions in the form of compulsory licensing for public health emergencies (such as the current COVID-19 crisis). Governments must take the necessary steps to combat current epidemics. As China is the largest developing country and has a large consumer market for pharmaceuticals, if it must issue a compulsory license, it must do so in a fashion that genuinely conveys a commitment to improving public health. The development and implementation of this system has enormous influence. As a double-edged sword, this system needs to be continually evaluated, developed, and improved in order to play its rightful role in enhancing public health and safety and increasing China's participation in international intellectual property protection discussions on patented medicine.