No Carte blanche for generics?
Andreas von Falck, Hogan Lovells
FRAND licences – based on anti-competitive conduct – have been for years, and still are, one of the bread-and-butter legal issues for many patent practitioners worldwide. In contrast to that, state-issued compulsory licences are as rare as a four-leaf clover. Will new developments also bring this plant’s promised luck to generic drug manufacturers, or to someone else?
When compulsory licensing is discussed, the headlines typically concern the potential right for generics to produce a patented pharmaceutical product in, or for the use of, lesser-developed countries where the original manufacturer does not sell the product. A recent development in German case law has added a new aspect to the topic.
As part of the WTO regime, article 31 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) lays out the requirements under which the laws of the member states may grant compulsory licences. While many countries already had implemented national rules regarding compulsory licensing, and also other international norms – like article 5A of the Paris Convention – exist, it is the TRIPs Agreement that has defined, for the first time, a comprehensive global framework for compulsory licences.
Systematically, article 31 of TRIPs defines minimal requirements for the grant of a compulsory licence. The corresponding German national provision, for example, furthermore requires a public interest in the grant of the compulsory licence – a requirement to be covered in more detail later on.
The special characteristic and practical relevance of the TRIPs Agreement is its dispute settlement mechanism. While many international agreements don’t include enforcement provisions, TRIPs members can hold other members to these rules. Member states of TRIPs can issue a complaint against another member state. A WTO-dispute panel will arbitrate such an inter partes dispute with binding decisions.
To better understand the most recent decision, which will be addressed later on, a quick review of the underlying law is helpful.
As mentioned before, German patent law had provisions for the grant of compulsory licences long before the TRIPs Agreement entered into force in 1995. At the beginning of the 20th century the German Imperial Court – at that time the highest civil court – already decided cases and also granted, or rather upheld, decisions granting compulsory licences. In one of the decisions, which might be a surprise knowing the usual underlying cases for compulsory licences, the patent in suit related to a coal dust engine (docket no. I 79/42, GRUR 1943, 288).
After the forming of the Federal Republic of Germany it took a long time for the courts to have a chance to decide the first case. The Federal Patent Court – the competent institution for issuing compulsory licences – in 1991 and afterwards the Federal Court of Justice in 1995 dealt with such a case.
Section 24 of the German Patent Act – the applicable provision – was tested for the first time. This provision has two distinct requirements. On the one hand, a licence seeker has to have unsuccessfully attempted to obtain a (contractual) licence from the patentee. In addition, there has to be a public interest that calls for the grant of a compulsory licence. In exchange for the use of the patent the courts determine an appropriate remuneration, usually a royalty on net sales that the licensee must then pay to the patentee.
This first case related to Polyferon (docket no. X ZR 26/92, GRUR 1996, 190). It was on the Federal Court of Justice to interpret these requirements.
Polyferon is a drug to treat rheumatoid arthritis. At the relevant point in time it was the only drug with the active ingredient Interferon-gamma.
The Court of Justice acknowledged the seriousness of the disease and stated that an active ingredient with superior therapeutic characteristics would have to be qualified as an advantage and as crucially required – being in the public interest.
The court heard an expert witness to answer the question if this was the case. In the end, the court held that while partially statistically significant effects were shown by clinical studies, only minor differences were shown between Interferon-gamma and placebos. The plaintiff therefore could not show successfully that the requirements for the grant of a licence were fulfilled.
Based on this assessment, the Federal Court of Justice revoked the compulsory licence granted by the Federal Patent Court.
In 2016 and 2017 the Federal Patent Court (docket no. 3 LiQ 1/16, GRUR 2017, 373) and the Federal Court of Justice (X ZB 2/17, GRUR 2017, 1017) had their next try at shedding more light on the interpretation of the requirements of a compulsory licence.
This time a drug for the treatment of HIV/AIDS was at issue. To understand the sequence of events it is important to know that the drug Isentress had already been on the market at the time of the patent grant, and had been prescribed and used for some time before the request for the compulsory licence was filed.
The case added another legal layer to this discussion. Infringement proceedings against the manufacturer of Isentress were already pending and with Germany being a country where injunctions are granted as a matter of law without judicial discretion an injunction was a real possibility. Accordingly, the manufacturer requested the grant of a compulsory licence by way of an interim ruling under Sec. 85 German Patent Act. This provision requires, apart from the requirements of Sec. 24 German Patent Act, that there is an urgent need for an immediate grant of the licence. Such a preliminary licence is valid until the Court decides the main compulsory licence proceedings.
Just as in the Polyferon proceedings, in the first instance decision before the Federal Patent Court the (preliminary) licence was granted. This time the Federal Court of Justice upheld this preliminary decision, all requirements were found to be fulfilled.
While disputed between the parties, the court held that the applicant of the compulsory licence had reasonably tried to obtain a (contractual) licence.
To fulfil the obligation to seek a licence, the plaintiff has to declare its general willingness to pay an appropriate licence fee. It can’t be expected that the licence fee the court will later on determine to be a reasonable fee is anticipated by the applicant.
The prerequisite does not need to be met at the point in time when the compulsory licence complaint is filed but can still be met until the oral hearing. In contrast, a mere statement of one’s willingness to pay a royalty at virtually the “last possible moment” would not suffice.
Over a certain period of time the plaintiff must have tried in an appropriate manner under the circumstances to agree with the patent proprietor on the grant of a licence.
For HIV there is no cure but in case of a successful treatment with state-of-the-art medicine, HIV patients have a close to normal life expectancy. The disease nowadays is treated with a combination of different drugs from different drug families. Each family intervenes at a different phase of the virus’ life cycle. Raltegravir, the active ingredient of Isentress, is an integrase inhibitor. It inhibits the viral enzyme integrase. This enzyme integrates the virus’ DNA into the DNA of the infected cell. Apart from Isentress there are two other drugs in the group of integrase inhibitors.
For every individual patient, a certain combination of drugs is selected. The selection is based on several factors like possible resistances, side effects, age or accompanying illnesses.
There were also specific groups of patients that needed particular attention. Among others these were pregnant women. All relevant drugs may have severe side effects during the treatment of pregnant women but for Isentress, being the first available integrase inhibitor, there were treatment experiences. Another group was children of a certain age and with a certain weight for whom not all integrase inhibitors were available.
The Federal Patent Court and the Federal Court of Justice came to the conclusion that not only for these specific groups there was a public interest for Isentress to remain available for all patients.
What was decisive in the end was not the superiority of Isentress over other drugs but the fact that every integrase inhibitor has its pros and cons and the need of an individualised therapy requires the availability of each of these drugs. Every patient has specific characteristics and needs and requires an individually designed therapy. Ex ante it is practically impossible to predict if a certain patient is best treated with Isentress.
For the assessment of the public interest requirement it also played a role that well-treated HIV patients are much less likely to infect other people. Consequently, the public itself is protected as a result of a better treatment of individual HIV patients.
In the following compulsory licence main proceedings (3 Li 1/16) the Federal Patent Court did not change its opinion and granted a compulsory licence. Even though the patent was meanwhile revoked by the European Patent Office (EPO) with retroactive effect, the court determined that there is still an obligation to pay a specific royalty for the time period between the issuance of the preliminary compulsory licence and the decision to revoke the patent.
Will this case allow generics to take compulsory licences to introduce their drugs during the term of a patent? The simple answer is: no, definitely not.
This case deviates in many ways from the typical originator v generics case. There can only be a public interest for a certain medicine to stay on the market or be made available if it differs from another drug that is already available. The drug does not have to have “superior” properties over the first drug, but must at least have deviating properties, for example, a different side-effect profile or different interactions with other drugs.
A generic, in contrast, has by definition the same characteristics as an original drug. Accordingly, in countries where the original product is on the market, there won’t be compulsory licences for generic drugs. Even where that would not be the case, the public interest requirement would also have to be fulfilled, which can only be the case where the drug has life-saving or substantial condition altering properties. The same is true for biosimilars.
For section 24 of the German Patent Act to be applied there needs to be an independent development of a drug or a patent with a large scope of protection.
The highest likelihood for such a situation to arise again in the future is with biopharmaceuticals, drugs with at least partial biological sources. Because of the nature of biological drug development and the often broad scope of protection of patents in this area, it is not unlikely that more cases are looming.
In both cases, Polyferon and Isentress, the courts based their decisions on the same requirements. Right now, there is no reason to believe these requirements will change. In future cases, the granting of a (preliminary) compulsory licence will remain an exception because of these strict requirements; this was also emphasised in the decisions of the Federal Patent Court as well as the Federal Court of Justice.
Like the four-leaf clover, compulsory licences will remain a rare sight.