I have been asked to elaborate on the relationship between the Medical Innovation Prize Fund (S.2210, 110th Congress) and the WTO TRIPS Agreement.
For centuries, innovation inducement prizes have been suggested as a mechanism to stimulate investments in a wide range of topics. (See, for example, Selected Innovation Prizes and Reward Programs, KEI Research Note 2008:1). During most of this period, the patent system has also existed.
The relationship between patents and prizes is important, complicated, and involves diverse approaches by policy makers. In the 19th century there was a serious debate in the Netherlands, England, the United States and other countries over whether or not prizes should replace patent monopolies as the reward for new inventions. But there was also frequent use of prizes in combination with patent monopolies, or cases where prizes were presented as an alternative reward for activities that would normally not qualify for patents, or would be conditioned upon licenses to use patents.
Today innovation inducement prizes have been implemented or proposed for a plethora of diverse purposes – for example, climate control, development of new medicines and vaccines, mining, software development, nano-technology, or space travel.
In 1995 the WTO TRIPS Agreement came into force. This trade agreement requires WTO members to make 20 year patents “available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.” To some, this agreement has closed the door over the possibility of alternative reward mechanisms. But that view does not reflect a sophisticated understanding of the TRIPS, or the ways that some alternative reward systems have been proposed.
Voluntary regimes
For starters, any system of prizes can condition the receipt of the prize money to a condition, such as the abandonment or licensing of patent rights. In the area of global public health, the World Health Organisation is considering proposals for a voluntary system where drug development prizes would be conditioned on the granting of open licenses to a patent pool that would facilitate generic competition for products. These proposals have attracted support from a variety of sources, including in the context of rewards for mew drugs for tuberculosis, tentative support from several drug companies, including Gilead, Johnson & Johnson, and Novartis.
To the degree that the prize reward is the primary market for the innovation, the requirement to license the patent rights may be an offer that is hard to refuse. Examples that would fit this description are prizes for the development of drugs for diseases that predominately concern low income persons living in developing countries, or prizes for other innovations for which markets do not exist, such as demonstrations of new energy efficient technologies that are not commercially viable (but which offer valuable insights to the wider developer community).
Non-Voluntary Alternatives to Exclusive Rights
More challenging from the point of view of the TRIPS are policy initiatives that either remove the possibility of obtaining a patent altogether, or which coexist with the patent system, but eliminate the exclusive rights associated with patents in favour of a remuneration right or liability rule.
In a “soft” patent regime, the patent would exist, but others would have some freedom to use the patent, subject to payment of money to the patent owner. This is the approach taken in S.2210 (110th Congress), the Medical Innovation Prize Fund. Drug developers and others can obtain patents, but after a product is registered for sale by the US FDA, generic manufacturers would have the freedom to use the inventions.
Non-voluntary alternatives to exclusive right regimes can be implemented in a number of different ways, under different provisions in the TRIPS.
The TRIPS Article 30 Approach
One approach available to WTO members is to implement a non-voluntary prize regime under Article 30 of the TRIPS. This one sentence Article allows the exceptions to the exclusive rights of a patent when the exception does not “unreasonably” conflict with the normal exploitation of a patent, and does not “unreasonably” prejudice the legitimate interests of the patent owner, taking into account the legitimate interests of third parties.
Article 30 – Exceptions to Rights Conferred
Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.
For a non-voluntary prize system to meet the test set out in Article 30, it would have to offer sufficient monetary rewards to patent owners. S.2210 would offer a lot – about $80 billion in fy 2009, which is several multiples of all royalty payments to owners of U.S. pharmaceutical patents, according to the IRS Statistics of Income reports. The rewards would not be exclusively for the patent owners – S.2210 would reward both patented and unpatented drug development — but the amounts are so much larger than current royalty patents, it would easily meet the TRIPS test.
The TRIPS Article 31 Approach
A different approach is possible under Article 31 of the TRIPS. This 642 word provision sets out a set of procedures and rules for non-voluntary uses of patented inventions. Article 31 and 30 cannot be used together – an exception to exclusive rights can rely upon one or the other, but not both.
Without getting into all of the details, a few points can be raised here. First off, Article 31(a) says that “authorization of such use shall be considered on its individual merits.” In practice, this can be satisfied by merely providing that rewards to a patent owner would depend upon the specific facts relevant to that patent – something that S.2210 does by tying rewards to the impact of products on health outcomes.
Some have expressed concerns about the provision in Article 31(b) that “such use may only be permitted if . . . the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time.” To the extent that 31(b) presents a problem, it will depend upon the nature of patent negotiations, and what constitutes “reasonable commercial terms and conditions.” S.2210 does not eliminate patents, and under S.2210, patents are a valuable asset, because they are used to stake claims on billions of dollars of prize rewards. Patent owners will have opportunities to sue and be sued, to negotiate, and in the present version of the bill, to even block a product from being registered for sale by the FDA.
In evaluating Article 31(b) obligations, the WTO is also bound by other provisions of the TRIPS, including Article 1, which states “Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.”
Finally, the obligation for prior negotiation on reasonable terms and conditions is waived “in cases of public non-commercial use.” To the extent that a WTO member can argue that the supply of innovation for new medicines is a state responsibility, it may be able to use this waiver.
The TRIPS Article 44 Approach
A completely different approach for prize rewards may be justified under Article 44 of the TRIPS, or more specifically, under Article 44.2.
Article 44 – Injunctions
1. The judicial authorities shall have the authority to order a party to desist from an infringement, inter alia to prevent the entry into the channels of commerce in their jurisdiction of imported goods that involve the infringement of an intellectual property right, immediately after customs clearance of such goods. Members are not obliged to accord such authority in respect of protected subject matter acquired or ordered by a person prior to knowing or having reasonable grounds to know that dealing in such subject matter would entail the infringement of an intellectual property right.
2. Notwithstanding the other provisions of this Part and provided that the provisions of Part II specifically addressing use by governments, or by third parties authorized by a government, without the authorization of the right holder are complied with, Members may limit the remedies available against such use to payment of remuneration in accordance with subparagraph (h) of Article 31. In other cases, the remedies under this Part shall apply or, where these remedies are inconsistent with a Member’s law, declaratory judgments and adequate compensation shall be available.
Article 44 is in Part III of the TRIPS – “Enforcement of Intellectual Property Rights.” Under this provision, even if a patent exists and the patent is infringed, WTO members do not have enforce the exclusive rights on the patent, if the patent owner receives money. In Article 44, a WTO member can eliminate even the possibility of granting an injunction to enforce a patent right, under two cases. In the first sentence in Article 44.2, in cases of “use by governments, or by third parties authorized by a government,” injunctions can be withheld so long as “adequate remuneration” is paid to patent owners. This is a low standard for remuneration, and one that is far exceeded by S.2210.
In the last sentence of Article 44.2, it says that in any case, injunctions may be eliminated when “adequate compensation” is available. Again, this is a standard easily met by S.2210.
Are there cases where WTO members use Article 44 for non-voluntary use of patents? Yes. The United States compulsory licenses issued under the recent eBay decision rely upon the flexibility in Article 44. More generally, the U.S. Government provisions of 28 USC 1498 are based upon Article 44. There is no possibilities for an injunction for government use or use by third parties authorized by the government, but the government has an obligation to compensate the owners of copyrights, patents or plant breeder rights. Recently the U.S. Copyright office recommended the Article 44 approach be used to liberalize access to orphaned copyrighted works.
In Canada and India, infringement of architectural plans is likewise not subject to an injunction, but compensation is required.
Conclusion
There are three well known mechanisms in the TRIPS that can be use to implement alternative reward systems or soft patent regimes, including but not limited to the Medical Innovation Prize Fund (S.2210, 110th Congress). These include Articles 30, 31 and 44.2.
James Love
Knowledge Ecology International
1 November 2008