Medicines Patent Pool agreement with Gilead contains flexibilities including termination provisions and severability of licenses

On 12 July 2011, the Medicines Patent Pool (MPP) and Gilead announced an agreement for Gilead to license patents for tenofovir (TDF), emtricitabine (FTC), elvitegravir (EVG), cobisistat (COBI) and a four drug combination of these drugs. KEI’s initial comments on the agreement are available here. Although there is plenty of room for improvement in the licensing agreement and future agreements should build upon the Gilead licenses, as noted by the Patent Pool staff, KEI, and virtually all NGOs working closely on this issue, some recent criticisms of the MPP seem off the mark in important areas and also fail to recognize or emphasize the important flexibilities that are contained within the agreement. Taken together, this can give an unbalanced and in some cases misleading view of the licensing terms.

This note focuses in particular on the ITPC and I-MAK’s briefing paper, The Implications of the Medicines Patent Pool and Gilead Licenses on Access to Treatment. For brevity, this will be referred to as the I-MAK analysis.

I-MAK says that the MPP/Gilead agreement “has accepted new uses of these known products” and claims that this “effectively validated new use patents for all other companies that might enter the pool.” Let’s break that down.

First, the Gilead/Medicines Patent Pool Agreement covers several products and combinations of those products. However, generic drug manfacturers can choose to terminate the licenses for particular products, while using licenses for others. Thus, this is an a la carte licensing mode, with regard to products. In other words, a company can decide to license COBI and EVG, but not license TDF. In fact, it is a likely outcome for some companies.

Second, the license is a right to use the patents listed in the Appendices to the license in a field of use. The field of use is set out in page 2 of the license in the definitions section. For products using TDF as a sole ingredient, the field of use is HIV and Hepatitis B. For EVG and COBI, the field of use includes “any use that is consistent with” the labels approved by the US FDA or other “applicable foreign regulatory authority.”

This definition is the basis for the I-MAK complaint. However, this language should be seen as a positive, not a negative. The license holder will have a right to use the licensed products for a wide range of uses. Additionally, at any point, the license holder can terminate the licenses to these products, if it feels that the important patents have expired and would prefer to operate outside of the license of any new uses of the products. Nothing in the license stops any party from challenging any patent, or from obtaining compulsory licenses to any patent, or from licensing some products but not others. I-MAK should explain why giving the generic drug companies this flexibility is a negative, rather than a positive.

The MPP/Gilead agreement termination clauses are found in Section 10 of the license, and are designed so that the licenses are not bundled together but, rather, are severable. Sections 10.4 and 10.5 of the agreement, for example, govern the Licensee’s right to terminate the agreement. The Licensee has the right “at its sole discretion, to terminate the licenses . . . with respect to any particular API, at any time” with the termination effective immediately upon receipt of written notice by Gilead and MPP (Article 10.5). The Licensee can terminate its license for a particular product while maintaining its licenses for other products covered by the agreement; nothing in the MPP/Gilead agreement limits the Licensee’s ability to produce and sell any API that it retains a license for (Section 10.5(c)).

The ITPC/I-MAK paper claims that the MPP/Gilead license introduces a “global patent system” because of the agreement provides for royalties on TDF to be paid to Gilead and points out that the royalty rate will increase from 3% to 5% of net sales should the TDF patents eventually be granted in India. I-MAK says:

“the license allows Gilead to receive royalties on a drug until every possible legal avenue is exhausted, and the highest legal authority has rejected the patent. To illustrate, in India, despite the fact that there is no TDF patent, Gilead will receive royalties while the case is heard by the Appeals Board, High Court, and Supreme Court — a process that could take some years.”

Much of the criticism with regard to the MPP/Gilead agreement centers around TDF and its patent status in other countries, particularly India. I-MAK goes on to argue that because of the current TDF patent status in India, Gilead will continue to litigate against the refusal of its TDF patent in India which will result in Licensees having to pay royalties “and by that effect, Gilead will have achieved the objective of extracting a rent from a right it did not have. It also means that Gilead has managed to circumvent the very flexibilities India implemented in its Patent Laws to address patent quality issues.”

We can appreciate that I-MAK wants Gilead to abandon its patent claims for TDF in India, and surely this view is widely held within the public health community. That said, much of this criticism of the licsense seems unwarranted in practice. As noted above, the MPP/Gilead agreement makes the licenses severable, meaning that a Licensee does not have to sign a license for TDF in order to sign licenses for FTC, EVG or COBI. The severability of the licenses is a significant aspect of the agreement, and generic manufacturers, like CIPLA, do not have to agree to sign a license for TDF. Given the severability of the licenses, and based upon discussions with generic drug manufacturers from India, it is seems unlikely that all Licensees will automatically agree to sign a license for TDF and pay royalties on the product.

The MPP/Gilead license for TDF is mostly a license to manufacture, sell and export TDF from India. If the patent protection for TDF is weak or non-existent in India or elsewhere, companies are free to make and sell TDF outside of the license. Gilead is trying to make and exploit a patent claim in India, and has offered a voluntary, severable, license to the Pool for that patent, with a 3 percent to 5 percent royalty, collected in India, that would operate outside of any compulsory licensing of the TDF patents. In a worst case scenario, Gilead collects 3 to 5 percent of the generic price of a product in the licensed area, and whatever royalties are granted via compulsory licenses outside of the licensed area.

Another criticism raised by ITPC/I-MAK concerns the royalty free grant-back license to Gilead for improvements made by licensees. ITPC/I-MAK argues that these provisions, contained in Sections 2.3 and 5.2, raise potential competition problems. What Gilead has obtained in the license is a freedom to operate clause. Gilead did not receive a right to ownerhip of any improvements, other than a right for their own use. Only the originator of the improvement has the right to license or share the improvement with third parties, on terms the originator choses.

The grant-back license for Gilead’s sole use is non-exclusive and is limited to improvements made prior to any termination of the license of the product. The license does not preclude a Licensee from submitting a patent application for the improvements (Section 5.2 governs the reporting requirements of the Licensee and specifically notes that the Licensee’s annual report include “any patent applications claiming Improvements”) and the ability to terminate its license on the product allows a Licensee to end its agreement with Gilead and subsequently use the improvements it has developed to manufacture the product.

The MPP/Gilead agreement can and should work in tandem with other strategies to improve access to medicines. I-MAK acknowledges that the licenses do not contain a “no challenge” provision to patent validity, and they specifically provide that its is not a breach of the license to operate under a compulsory license. The licenses do not block any system of pre- and post-grant opposition; spurious patents can still be challenged, and the MPP/Gilead agreement does not create any legal obstacles on this front.

I-MAK is correct in noting areas where the licenses are problematic, such as the insistence that the products be manufactured in India, and the issues with the TDF patent landscape, which have been discussed for several years, following the earlier Gilead voluntary license. While these criticisms exist, the new licenses with the Patent Pool are in fact much more pro-competitive and pro-compulsory licensing than the older licenses, and that will benefit entities seeking lower cost sources of newer AIDS drugs.

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