Sunday, 03 June 2007
IGWG Briefing Paper on Patent Pools
Collective Management of Intellectual Property — The use of Patent Pools to expand access to essential medical technologies
KEI Research Note 2007:3 (1)
The collective management of intellectual property rights are systems of aggregating and managing intellectual property rights, such as copyrights or patents. By pooling together assets, the collective management systems can overcome market inefficiencies offering lower transaction costs, and ensuring a more effective access to multiple rights. These systems facilitate the legitimate use of works and features to their users, by granting licences and authorisations. Such arrangements can be done voluntarily or non-voluntarily, and involve a variety of different policy objectives, as well as legal and management regimes.
Patent pools are one example of the collective management of intellectual property rights (2).
Patent pools are proposed as a mechanism to promote entry and generic competition for essential medicines.
What is a patent pool?
A patent pool is:
An agreement between two or more patent owners to aggregate (pool) their patents and to license them to one another or to third parties.
Pools usually offer standard licensing terms to licensees and allocate a portion of the licensing fees (royalties) to patent owners according to a pre-set formula or procedure (3).
Pools are created for a diversity of reasons by governments or the private sector and can take many forms. The pool may involve simple cross-licensing among two or more competitors, in order to share a handful of patents necessary for the manufacture and sale of a particular product (4), or it may involve a large industry-wide pool open to anyone, encompassing hundreds of manufacturers and thousands of patents, as well as other intellectual property, such as rights to use data, know-how or trademarks.
Patent Pools are not a new idea, and were widely used in the late 19th century for industries such as the sewing machine. In recent years, patent pools have solved both R&D (upstream) and access (downstream) problems within the manufacturing, metallurgical, paper, electrical, and chemical industries.
Today patent pools are frequently utilized in technology fields that require common standards, such as radio, DVD-video (5) , DVD-ROM and MPEG_2 compression technology (6). Patent owners license patents to the pool, with an agreement that royalties for devices that use the patents in the pool be divided among patent owners on a pre-determined basis. These patent pools have been instrumental in promoting investment in and utilization of new innovations.
Recently there was a proposal to create an “upstream” pool to address R&D for a Severe Acute Respiratory Syndrome (SARS) vaccine. Following the outbreak of SARS many research institutes and private firms rushed to sequence the SARS genome and apply for patents. The WHO SARS Consultation Group and key SARS intellectual property owners created the “SARS IP Working Group” which found that R&D will be delayed and constricted by the multiplicity of patents and that this may adversely affect the development of a vaccine. The group suggested that a patent pool should be developed to promote the development of a treatment or vaccine (7).
There are also precedents for Government intervention to create a Pool. In the U.S. for example, the Manufacturers Aircraft Association (MAA) pool was formed in 1917 against the backdrop of legislation threatening to compulsory licence the patents, in order to overcome barriers for the scaling up of aircraft manufacturing, as the US prepared to enter World War I (8). The US government also insisted that rights to license patents for radio technologies be consolidated, in order to promote the development of the modern radio industry.
Patent Pool Advantages
As the 1995 U.S. Department of Justice and the U.S. Federal Trade Commission Guidelines for licensing of intellectual property (9) recognized, Patent Pools have several benefits including: a) clearing of blocking patents (patents that would be infringed when practicing another patents); b) reduction of licensing transaction costs through “one stop” licensing rather than multiple agreements; c) management of multiple owners and stacking of royalties, d) facilitate professional management of the negotiation and administration of licensing arrangements; e) reduction of infringement litigation costs; f) the potential to encompass non patent technology and know-how; e) the potential to facilitate technology transfer and a sustainable scaling up of capacity and access in the developing world (10).
Proposal: Patent Pool for Essential Medical Technologies
The WHO’s 2006 Report of the Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH) goes into detail about the potential patent barriers to access affordable essential medicines (11). Unless there is more clarity about how to overcome these patent barriers, prices will remain high, and it is unlikely that multiple generic medicine producers will enter the markets so access targets will not be met.
A patent pool could help establish such clarity and offer very practical ways to overcome the current patent barriers to access to essential medicines, enable a sustainable scale up of the production of essential medicines, expansion of access and creation of needed technologies developed for country specific conditions.
The rationale for creating a patent pool for essential medicines is as follows:
Lower prices. The high cost of patented medical and vaccines products, when marketed by a monopoly, is a barrier to providing access to medicines for all. Savings from using generic products can range from 50 to more than 95 percent (12).
Innovation. Patents on essential medical inventions may restrict innovation and adaptation of medicines and devices to fit the needs of patients such as different formulations, combinations, dosages and medicine forms. Innovation and adaptation is necessary to cope with the differing viral strains, changing immunities, related infectious diseases, local health system conditions and local patient customs, and to enhance patient compliance with treatment regimes.
Enhanced capacity to manage legal issues. The multitude of patents, potential claims of infringement, variance of national laws, complexity of international treaties and national patent laws, and complicated rules for the export of essential medical technologies under compulsory licenses present barriers for expanded use of generic medicines. The patent pool would have the expertise and capacity to manage these issues, on behalf of governments, donors, public health agencies, patent owners and generic manufacturers.
Economies of scale. A patent pool that licenses patents in several countries can ensure that generic manufacturers operate at efficient economies of scale.
Global Norm setting. Collective management will help to the establishment of global “best practices” norms for licensing on such issues as quality control, remuneration, open competition, etc.
Leadership. By focusing attention on the pool, individual countries or government agencies would face less external pressures on issues relating to licensing of patents to generic manufacturers.
The fundamental idea behind a patent pool for essential medical technologies is to facilitate competition by providing much more efficient and effective mechanisms for the voluntary or compulsory licensing of patents to generic suppliers.
There are a number of potential models for establishing a patent pool for access to essential medical technologies. One of the most developed is the proposal for a pool for essential medicines presented to WHO, UNAIDS and the Global Fund by Essential Inventions on 17th January, 2005 (13). Another one is a patent pool for HIV-AIDS medicines that is currently being discussed by the UNITAID Board. Another is the broader proposal for an Essential Medical Inventions Licensing Agency (EMILA)(14). All these proposals draw from the US experience in creating the Manufacturers Aircraft Association patent pool, which was created, in response to a crisis — the US decision to enter World War I. The proposal for the creation of a patent pool for access to essential medical technologies is motivated by the crisis in access to essential treatments in developing countries.
This is how it could work:
- The patent pool would be created. IGWG could explore whether existing organisations such as the WHO would be willing to host the Patent Pool or whether one or more new independent non-profit entities should be established.
- Some strategic decisions will need to be taken. The pool could be global or regional, for all essential medicines or for specific drug or vaccine. However, the area covered would have to be sufficiently large to ensure generic manufacturers could benefit from economies of scale.
- Professional staff skilled in the administration of patent pools would need to be hired, modelled on the many successful private sector patent pool administrators
- The Pool would identify the essential patents necessary to achieve the objectives of the Pool.
- The Pool would simultaneously negotiate agreements with patent holders and national governments.
- The pool would execute Memoranda of Understanding (MOU) with governments, purchasing agencies and donors in order to generate support for the patent pool model as well as to facilitate cooperation between the numerous interested parties.
- Patent owners would be asked to voluntarily license patents to the Pool, for use in countries not designed as high income by the World Bank.
- In cases where the Pool failed to obtain voluntary licenses, it would ask Governments under the terms of the MOU to seek compulsory licenses.
- Reasonable and standardized patent license terms should be drafted and signed with brand-name and generic pharmaceutical companies. Licenses would follow “best practice” models, including:
- Consistency with national patent laws and trade agreements on patents,
- Non-discriminatory “open” licenses to any qualified party,
- Rights to manufacture, export, import and sell,
- Appropriate polices on a number of substantive issues, including remuneration, cross-licensing of improvements, conditions to ensure adequate product quality, distinctive packaging and labelling.
The Patent Pool would collect royalties from generic manufacturers and pay royalties to patent owners on a pre-determined transparent and predictable formula basis that takes into account the actual use of each patent in the manufacture of products by patent pool licensees.
There are a number of royalty bases that could be used that balance the need for reasonable payment to rights holders with the necessity of increasing access by ensuring affordability (15). For example, the “Tiered Royalty Method” (TRM) is a system of determining equitable remuneration for products based upon their relative therapeutic benefits, and on the affordability of royalties in countries based upon average incomes and rates of infection.
The benefits of the Patent Pool to various parties can be summarized as follows:
Patients.The Patent Pool would promote competition, lower prices, and enhanced access to follow-on innovations, such as new Fixed Dose Combinations or delivery mechanisms. Licenses would be tied to appropriate standards for product quality.
National governments. The Patent Pool would provide technical assistance, and a creditable and politically acceptable approach to the granting of compulsory licenses.
Patent owners. The Patent Pool would provide a predictable and fair system for remuneration, respecting national patent laws and trade agreements on patent rights, and provide for cross-licensing of new patents that involve improvements in licensed products.
Donors. The Patent Pool would ensure that the “solution” to the patent problem was focused on (a) the rule of law, (b) open competition, and (c) efficiency.
The Patent Pool will ensure the lowest possible medicine costs, provide access to essential patents to facilitate production scale up, provided needed access to medicines at affordable costs and promote innovation.
FOR MORE INFORMATION
Knowledge Ecology International
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(1) This briefing paper was prepared by Judit Rius, Michelle Childs, Spring Gombe, and James Love with contributions from Manon Ress, Terry Gardiner and Jon Merz.
(2) Other examples include regimes of automatic compulsory licenses (statutory licenses), the voluntary or non-voluntary management of copyrights by collection societies, or alternative remuneration systems such as the proposed medical innovation prize fund (HR 417 in the 109th Congress of the US).
(3) Merges RP. Institutions for intellectual property exchange: the case of patent pools. In: Dreyfuss R, ed. Intellectual Products: Novel Claims to Protection and Their Boundaries. New York: Oxford Univ. Press, 2001. And Joel I. Klein, An Address to the American Intellectual Property Law Association, on the Subject of Cross-Licensing and Antitrust Law (May 2, 1997), (noting that United States v. Line Materials , 333 U.S. 287, 313 n.24 (1948) states that the term “patent pool” is not a term of art.)
(4) Toulmin HA. Patent pools and cross licenses. Virginia Law Rev. 1935; 22(2):119-152.
(7) James H.M. Simon et al. Managing severe acute respiratory syndrome (SARS) intellectual property rights: the possible role of patent pooling. WHO Bulletin, Volume 83, Number 9, September 2005, 641-720. Available at: http://www.who.int/bulletin/volumes/83/9/707.pdf. And more information here: http://www.who.int/entity/intellectualproperty/events/en/JamesSimon.pdf
(8) For more information, visit CPTech website on the Manufacturers Aircraft Association: http://www.cptech.org/cm/maa.html. And Harry T. Dykman, Patent Licensing within the Manufacturer’s Aircraft Association (MAA), 46 J. PAT. OFF. SOC’Y 646, 648 (1964).
(9) U.S. Department of Justice and Federal Trade Commission. Antitrust Guidelines for the Licensing of Intellectual Property. Washington D.C., April 6, 1995. Available online at: http://www.usdoj.gov/atr/public/guidelines/0558.htm
(10) Similar benefits were recognized by U.S. PTO, Patent Pools: A Solution to the Problem of Access in Biotechnology Patents? USPTO, December 5, 2000, pp. 8-10.
(11) Report of the Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH). Public Health: Innovation and Intellectual Property Rights, Geneva: WHO, April 2006. Available online at: http://www.who.int/intellectualproperty/en/
(12) The prices for d4T (for a year supply) range from more than USD 4,000 for patented versions to less than USD 30 for generic versions. The price of fluconazole dropped from 200 Baht to less than 7 Baht in nine months, when generic competition was introduced in Thailand.
(13) See: http://www.essentialinventions.org/docs/eppa/, and Proposal for Patent Pool for Essential Medicines (PPEM), Addis Ababa – 3rd March 2005
(14) EMILA working plan, available at: http://www.keionline.org/index.php?option=com_content&task=view&id=64&Itemid=44
(15) Love, James: Remuneration guidelines for non-voluntary use of a patent on medical technologies. Health Economics and Drugs TCM Series No. 18, WHO and UNDP, Geneva, 2005. Available at: http://www.who.int/medicines/areas/technical_cooperation/WHOTCM2005.1_OMS.pdf