The COVID-19 pandemic has led to an increased demand for medical and hygiene supplies such as personal protective equipment (PPE), ventilators and hand sanitiser. The resulting flurry to increase production of these items has led to a number of operators moving into this space. Recent reports include gin distilleries and breweries switching to produce hand sanitiser, Burberry retooling its trench coat factory to make non-surgical gowns and masks for patients, and a hospital in Italy 3D-printing medical valves for its ventilators.
In the normal course of production, the party responsible for manufacturing would also be responsible for obtaining the right to use any third party IP that may exist in a product. This is usually a matter of contacting the relevant rights owner and, if possible, negotiating a licence. However, it can often take time to reach agreement on licence terms – time that we do not have in the current situation.
Given the urgency of need in a crisis, in terms of securing the requisite rights, what can be done to facilitate emergency production of vital supplies? In the UK, there are two key mechanisms by which third party IP can effectively be licensed more swiftly - bypassing the usual process.
In the UK, the Crown use exception to patent infringement (set out in ss55-59 of the Patents Act 1977) gives the Government the power to use (or to authorise a third party to use) a patent without the consent of the patent holder “for the services of the Crown”.
The list of acts permitted in the definition of “the services of the Crown” is not exhaustive. Previous examples have included the use of drugs to treat NHS patients, and earlier this year, Vodafone successfully used the Crown use defence in a telecom patent infringement claim where it had granted priority network access to emergency responders to enable them to assist the public.
If the Government declares a national emergency, these provisions can be widened to cover maintaining and securing a sufficiency of supplies and services essential to the well-being of the community. This gives the Government the ability to authorise the emergency production of patent-protected products, without the need to identify the rights holder and negotiate licence terms, thereby removing the risk of producers potentially infringing such patents.
For those considering manufacturing emergency medical supplies in relation to COVID-19, the Crown use exception may apply. If so, appropriate authorisation should be sought from the Government before proceeding to manufacture. Case law has demonstrated that evidence of authorisation in writing by a government department is required.
Conversely, rights holders may wish to keep track of potentially-infringing products being made by third parties, in order to ensure the appropriate authorisations are in place. Rights holders can then make any appropriate claims for compensation in due course.
The compulsory licensing regime
Compulsory licensing can occur when a government allows someone else to produce a patented product or process without the consent of the patent owner (or wishes to use the patent-protected invention itself). This flexibility in the scope of patent protection is included in the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. A range of compulsory licences were granted in the early 2000s to allow the production of generic versions of HIV anti-retroviral drugs for domestic markets in some African countries.
The TRIPS Agreement lists conditions for issuing compulsory licences in Article 31. In normal circumstances, the party applying for a licence has to have tried, for a reasonable period of time, unsuccessfully to negotiate a voluntary licence with the patent holder on reasonable commercial terms. However, in times of “national emergencies”, “other circumstances of extreme urgency”, or “public non-commercial use”, there is no need to attempt to negotiate a voluntary licence. This step can be circumvented to save time by applying to the UK Patent Comptroller for a compulsory licence. A potential licensee must be able to show that demand for the specific product is not being met on reasonable terms.
Additionally, compulsory licences must meet certain requirements, namely:
- the scope and duration of the licence must be limited to the purpose for which it was granted;
- the licence cannot be granted exclusively to licensees (i.e. the patent owner can also continue to produce); and
- the licence should be subject to legal review.
The patent owner still has the right to receive compensation for use of its IP. The TRIPS Agreement states that payment should be “adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization”, but it does not define either “adequate remuneration” or “economic value”. The royalties paid under the compulsory licences for HIV drugs mentioned above varied from 2-5% of net sales.
In times such as these, where an acute emergency is placing a huge burden on government and health authorities worldwide, providing a system where IP infringement is not a risk for those required to participate in emergency production is vital. This must also be balanced with the right of the patent holder to receive compensation for the use of their IP.
Of course, the use of third party IP rights is only one of the many factors to consider before beginning to manufacture new products. See our article Challenges of switching to new product lines – contractual, legal and technical considerations for further commentary and points to consider on the practical, contractual and regulatory front.