Understanding of Regulations on Compulsory Licensing
Compulsory licensing is that the government allows others to produce a product or to apply a patent process without the consent of the patent owner.
Compulsory licensing is provided in various legal documents, such as the Paris Convention for the Protection of Industrial Property (the “Paris Convention”), the Agreement on Trade-Related Aspects of Intellectual Property Rights (the “TRIPS Agreement”), or the Intellectual Property Law of Vietnam (the “IP Law”).
1. The Paris Convention
First signed in Paris, France on 20 March 1883, the Paris Convention was one of the first intellectual property treaties applying to industrial property in the widest sense, including patents, trademarks, industrial designs, utility models, service marks, trade names, geographical indications and the repression of unfair competition.
Article 5A(4) of the Paris Convention stipulates that each country of the Union (the countries to which this Convention applies constitute a Union for the protection of industrial Property) shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work. However, this Article also stipulates restrictions on compulsory licensing against any abuse of this licensing, namely:
- A compulsory license may not be applied for on the ground of failure to work or insufficient
- working before the expiration of a period of four years from the date of filing of the patent application or three years from the date of the grant of the patent, whichever period expires last.
- A compulsory license shall be refused if the patentee justifies his inaction by legitimate reasons.
- Such a compulsory license shall be non–exclusive and shall not be transferable, even in the form of the grant of a sub–license, except with that part of the enterprise or goodwill which exploits such license.
2. The TRIPS Agreement
As Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization (WTO), signed in Marrakesh, Morocco on 15 April 1994. the TRIPS Agreement is an international legal agreement between all the member nations of WTO.
Article 30 stipulates the exceptions to rights conferred, that is to say, 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.
Article 31 (Other Use Without Authorization of the Right Holder) stipulates that the requirements for Member States must include provisions for granting a compulsory license to prevent abuse or unreasonable damage to the interests of owners and third parties or to conflict with normal exploitation of such inventions. Particularly, where the law of a Member allows for other use of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the government, the following provisions shall be respected:
- such use may only be permitted if, prior to such use, 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;
- the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization;
- some additional conditions must also be met, such as this licensing shall be non-exclusive (i.e., the patent owner still has the right to continue manufacturing the product); such use shall be non-assignable, except with that part of the enterprise or goodwill which enjoys such use; and the licensing may still be reviewed at the patent owner’s request.
The TRIPS Agreement was amended through the Protocol of 6 December 2005 (the “Protocol”) that entered into force on 23 January 2017. The Protocol has added a new Article 31bis after Article 31 of the TRIPS Agreement. It provides the legal basis for WTO members to grant special compulsory licences exclusively for the production and export of affordable generic medicines to other members that cannot domestically produce the needed medicines in sufficient quantities for their patients. This also creates conditions for the poor in the world to have access to medicines, create mechanisms for countries that are unable to manufacture drugs to meet domestic needs and countries with enough production capacity for export can connect with each other.
The Protocol has added Article 31bis after Article 31 of the TRIPS Agreement. Article 31bis allows Member States to make decisions on compulsory licensing of pharmaceutical inventions without complying with the provisions of Article 31 (f) of the TRIPS Agreement. This means that the provision of pharmaceuticals manufactured under a decision to mandate such use is not limited to that Member’s domestic market, but also allows the export of intermediates to create generic drugs.
The Protocol is valid for countries that ratify the Protocol and is valid for all WTO members when it is approved by two thirds of total members. On 23 January 2017, Vietnam ratified the Protocol. The Protocol is considered as an opportunity for developing countries to ensure public health through the use of a compulsory patent licensing mechanism.
3. Vietnamese Regulations
3.1 The IP Law
Article 7(3) the IP Law stipulates “In the circumstances where the achievement of defense, security, people’s livelihood objectives and other interests of the State and society specified in this Law needs to be guaranteed, the State may prohibit or restrict the exercise of intellectual property rights by the holders or compel the licensing by the holders of one or several of their rights to other organizations or individuals under appropriate terms. The limitation on rights to inventions classified as state secrets complies with regulations of the Government.”.
Article 133 the IP Law stipulates “Ministries and ministerial equivalent bodies shall have the right, on behalf of the State, to use or permit other organizations or individuals to use inventions in domains under their respective management for public and non-commercial purposes, national defence and security, disease prevention, and treatment and nutrition of the people, and to meet other urgent social needs without having to obtain permission of invention owners or their licensees under exclusive contracts”.
Under Article 136 the IP Law, “Owners of inventions shall be obliged to manufacture protected products or apply protected processes to satisfy the requirements of national defence and security, disease prevention, and treatment and nutrition of the people or to meet other social urgent needs. When the needs stipulated in this clause arise but an invention owner fails to perform such obligation, the competent State body may license such invention to others without permission from the invention owner”.
Article 145 the IP Law stipulates the grounds for compulsory licensing of inventions, namely:
“1. In the following cases, the right to use an invention may be licensed to another organization or individual pursuant to a decision of the competent State body defined in clause 1 of Article 147 of this Law without permission from the holder of the exclusive right to use such invention:
(a) Where the use of such invention is for public and non-commercial purposes or in service of national defence and security, disease prevention, and treatment and nutrition of people or other urgent needs of society;
(b) Where the holder of the exclusive right to use such invention fails to fulfil the obligations to use such invention stipulated in clause 1 of Article 136 and clause 5 of Article 142 of this Law upon the expiration of four years as from the date of filing the application for registration of the invention, or the expiration of three years as from the date of granting the invention patent;
(c) Where a person who wishes to use the invention fails to reach an agreement with the holder of the exclusive right to use such invention or on entry into an invention licence contract in spite of efforts made within a reasonable time for negotiating a satisfactory commercial price and conditions;
(d) Where the holder of the exclusive right to use such invention is deemed to have performed anti-competitive practices prohibited by the law on competition.
2. The holder of the exclusive right to use an invention may request termination of the use right when the grounds for licensing stipulated in clause 1 of this article no longer exist and are unlikely to recur, provided that such termination shall not be prejudicial to the licensee of the invention”.
Article 146 the IP Law provides for the conditions limiting the right to use inventions compulsorily licensed pursuant to a decision:
“1. The right to use an invention licensed pursuant to a decision of a competent State body must comply with the following conditions:
(a) Such licensed use right is non-exclusive;
(b) Such licensed use right is only limited to a scope and duration sufficient to achieve the licensing objectives, and largely for the domestic market, except for the case stipulated in Clause 1(d) of Article 145 of this Law. For an invention in semi-conducting technology, licensing shall be only for public and non-commercial purposes or for dealing with anti-competitive practices prohibited by the law on competition;
(c) The licensee must neither assign nor sub-license such right to others, except where the assignment is effected together with the transfer of the licensee’s establishment;
(d) The licensee must pay the holder of the exclusive right to use the invention satisfactory compensation depending on the economic value of such use right in each specific case, and compliant with the compensation framework stipulated by the Government.
2. Apart from the conditions stipulated in Clause 1 of this Article, the right to use an invention licensed in any of the cases stipulated in Clause 2 of Article 137 of this Law must also satisfy the following conditions:
(a) The holder of the exclusive right to use the principal invention shall also be licensed to use dependent inventions on reasonable terms;
(b) The licensee of the right to use the principal invention must not assign such right, except where the assignment is effected together with all rights to the dependent inventions”.
Article 147 the IP Law prescribes the authority and procedures for compulsorily licensing of an invention pursuant to a decision:
“1. The Ministry of Science and Technology shall issue decisions on licensing of inventions based on a consideration of requests for licensing in the cases stipulated in sub-clauses (b), (c) and (d) of Article 145.1 of this Law.
Ministries and ministerial equivalent bodies shall, after consulting the opinion of the Ministry of Science and Technology, issue decisions on licensing of inventions in domains under their respective management in the case stipulated in sub-clause (a) of Article 145.1 of this Law.
2. Decisions on licensing of inventions must set out appropriate use scope and conditions according to the provisions of Article 146 of this Law.
3. The State body competent to decide on licensing of an invention must promptly notify its decision to the holder of the exclusive right to use such invention.
4. A decision on licensing of an invention or on refusal to license an invention may be subject to a complaint or lawsuit in accordance with law.
5. The Government shall provide specific regulations on licensing of inventions pursuant to this article”.
Article 22 provides for the use of inventions on behalf of the State:
“1. The use of inventions on behalf of the State for public and non-commercial purposes or in service of national defense, security, disease prevention and treatment, nutrition for the people, or to meet other urgent social needs specified in Clause 1, Article 133 of the Law on Intellectual Property is effected by ministries and ministerial-level agencies or by other organizations and individuals designated by them under their decisions on compulsory licensing of the inventions specified at Point a, Clause 1, Article 145 and the second paragraph, Clause 1, Article 147 of the Law on Intellectual Property.
2. Procedures for issuing decisions on compulsory licensing of inventions in case of use of inventions on behalf of the State comply with the regulations of the branch-managing ministries”.
Under Article 23, the obligation to use inventions is stipulated as follows:
“1. When there arise needs of national defense, security, disease prevention and treatment and nutrition for the people or other urgent social needs but holders of the exclusive right to use inventions fail to perform the obligation to manufacture protected products or apply protected processes to satisfy those needs according to the provisions of Clause 1, Article 136 and Clause 5, Article 142 of the Law on Intellectual Property, the Science and Technology Ministry may license such inventions to other organizations or individuals by issuing decisions on compulsory licensing of inventions according to the provisions of Point b, Clause 1, Article 145 and the first paragraph, Clause 1, Article 147 of the Law on Intellectual Property.
2. When needs of national defense, security, disease prevention and treatment and nutrition for the people or other urgent social needs are satisfied by imported products or products manufactured by licensees of inventions under licensing contracts, holders of the exclusive right to use inventions shall not perform the obligation to manufacture protected products or apply protected processes mentioned in Clause 1 of this Article.”
Article 24 prescribes the compensation levels for the right to use inventions licensed under compulsory decisions:
“1. Compensation level for the right to use an invention licensed under a compulsory decision specified at Point d, Clause 1, Article 146 of the Law on Intellectual Property is determined according to the economic value of the licensed use right and based on the following elements:
a/ Invention licensing price under the contract;
b/ Funds invested in the creation of the invention, with the support fund from the state budget (if any) taken into account;
c/ Profits earned from the use of the invention;
d/ Remaining valid term of the protection title;
e/ Necessity of the invention licensing;
f/ Other elements directly decisive to the economic value of the licensed use right.
2. Compensation level does not exceed 5% of the net selling price of products manufactured under the invention, if the principle specified in Clause 1 of this Article is complied with.
3. Agencies competent to issue decisions on compulsory licensing of inventions may set up valuation councils or solicit expertise opinions to determine compensation levels specified in Clause 1 of this Article”.
Article 25 provides for the dossier and procedure for licensing of inventions under compulsory decisions:
“1. Except for the case specified in Clause 2 of this Article, the Science and Technology Ministry specifies the form and contents of the dossier of request for licensing of inventions specified in Clause 1, Article 147 of the Law on Intellectual Property, and stipulates and organizes the implementation of procedures for receiving and handling requests for licensing of inventions.
2. The Health Ministry and the Agriculture and Rural Development Ministry assumes the prime responsibility for, and coordinates with the Science and Technology Ministry in, guiding and organizing the implementation of procedures for compulsory licensing of inventions and use of inventions on behalf of the State to satisfy needs of health care and nutrition for the people”.
3.3 Circular No. 01/2007/TT-BKHCN guiding the implementation of Decree No. 103/2006/ND-CP amended and supplemented under Circular No. 13/2010/TT-BKHCN and Circular No. 18/2011/TT-BKHCN
Article 50 specifies the dossiers for requesting issuance of decisions on compulsory licensing of patents, including:
- Compulsory license request form;
- Documents proving the justification for compulsory licensing for specific cases;
- Power of Attorney (if the request is filed through a representative);
- Fee receipts.
Clause 1 of Article 51 regulates procedures for handling of compulsory license applications. The dossiers shall be filed according to the following provisions:
a) Dossiers falling into the cases specified at Point b, c and d, Clause 1, Article 145 of the IP Law shall be filed with the NOIP;
b) Dossiers falling into the cases specified at Point a, Clause 1, Article 145 of the IP Law shall be filed with the ministries or ministerial-level agencies in charge of patent management.
In addition, Clauses 2 thru 4 of Article 51 provide for the examination of the dossiers by the competent authority and issuance of the corresponding decisions.
Article 52 provides for requests for termination of patent licensin under compulsory decisions:
1. The termination of patent licensing under compulsory decisions shall be decided by ministers or heads of ministerial-level agencies who have issued decisions on compulsor licensing.
2. A request for termination of paten licensing under a compulsory decision must comprise the following documents:
a) Written request for termination of patent licensing under a compulsory decision;
b) Documents proving that the grounds fo patent licensing under a compulsory decision no longer exist and are unlikely to revive, and at the same time the termination of patent licensing will cause no damage to the patent licensee;
c) Power of Attorney (if the request is filed through a representative);
d) Fee receipts.
3. Procedures for receiving and handling requests for termination of patent licensing under compulsory decisions and issuing termination decisions shall be carried out like procedures for receiving and processing dossiers for requesting patent licensing under compulsory decisions.