28 April 2023

Compulsory Licensing of Medicinal Products in Russia

BRACE Law Firm©

April 28, 2023

Results of intellectual activity are objects of civil rights and are subject to patent protection. The patent holder may, at their discretion, permit or prohibit other persons from using them. The protection of pharmaceutical inventions is also of great relevance, as pharmaceutics is one of the most dynamically developing sectors of the economy and is characterized by high innovation.

At the same time, this situation may lead to rights holders abusing their exclusive rights, hindering the development of a competitive environment and equal access of consumers to goods. In such cases, international and national norms provide for mechanisms to prevent market monopolization and restriction of competition. One such mechanism is compulsory licensing in relation to inventions for pharmaceutical products.

In this article, we will examine the international legal and Russian regulation of this institution, as well as the judicial practice of issuing compulsory licenses in the sphere of pharmaceutical production in the Russian jurisdiction.

What Is Compulsory Licensing?

Compulsory licensing is understood as the granting to a third party of permission to use intellectual property, the rights to which belong to a third party, without the consent of the rights holder.

There is much debate in legal literature regarding the legal nature of this institution and the methods of its application. Some specialists distinguish two possible mechanisms for issuing compulsory licenses: via judicial procedure and via administrative procedure (by an act of a state body) [1]; others believe that compulsory licensing effectively represents the compulsion to conclude a license agreement via judicial procedure, while permission for use by an act of a state body constitutes compensated non-contractual use [2].

In turn, the mass media and representatives of the pharmaceutical community have recently been actively discussing the issuance by the Government of Russia to Pharmasyntez LLC of permission to manufacture a generic medicinal product for the treatment of coronavirus, "Remdeform". The rights to the original product with the trade name "Veklury" belong to the American company Gilead Sciences. At the same time, the media exclusively uses the term "compulsory licensing".

Looking ahead, we note that Russian legislation provides only for a judicial procedure for issuing compulsory licenses, and this article will consider only this mechanism for restricting the rights of the rights holder. This position is also held by the Supreme Court of the Russian Federation, expressed in Decision No. AKPI21-303 dated May 27, 2021, in the case regarding the refusal to satisfy the administrative statement of claim challenging Decree of the Government of Russia No. 3718-r dated December 30, 2020 [3]. The Supreme Court of the Russian Federation explicitly stated that unlike compulsory licensing, which represents the conclusion of an agreement on a mandatory basis, the use of an object of patent rights in the interests of national security is carried out on a non-contractual basis; the court does not compel the patent holder to give consent, and permission to use the object is given by the state.

Another common argument is that the occurrence of an emergency or other extraordinary situation is necessary for the issuance of a compulsory license. However, as we will see below, this does not fully correspond to the norms of international and Russian law. As a general rule, it is recognized that states may independently determine the cases and conditions for issuing compulsory licenses through national legislation.

International Legal Regulation of the Institution of Compulsory Licenses

In international law, the institution of compulsory licenses was first enshrined in the Paris Convention for the Protection of Industrial Property (the "Convention") [4], as amended by the Stockholm Act of July 14, 1967. According to Article 5 of the Convention, each country of the Union has 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. The Convention contains a condition that a compulsory license shall be applied for after 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. At the same time, non-use of the invention should not be interpreted as an abuse of right unconditionally, but only in the case of reprehensible or irrational character of the patent holder's actions.

Subsequently, in connection with the creation of the World Trade Organization (the "WTO"), the Agreement on Trade-Related Aspects of Intellectual Property Rights (the "TRIPS") was adopted [5]. Article 31 of TRIPS grants the national legislation of a WTO member state the right to permit the use of the subject matter of a patent without the authorization of the rights holder in the case of a national emergency or other circumstances of extreme urgency. At the same time, TRIPS does not contain definitions of "national emergency" or "extreme urgency". The following are listed as conditions for granting a compulsory license:

authorization of such use shall be considered on its individual merits;
the proposed user has made efforts to obtain authorization from the rights holder on reasonable commercial terms and conditions. This requirement may be waived in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use, as well as actions to remedy anti-competitive practice;
the scope and duration of such use shall be limited to the purpose for which it was authorized;
generally, such use shall be non-assignable;
any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use;
the rights holder shall be paid adequate remuneration in the circumstances of each case;
the legal validity of any decision relating to the authorization of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member;
authorization for such use shall be liable to be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. The competent authority shall have the authority to review the case and assess these circumstances.

The Doha Declaration on the TRIPS Agreement and Public Health, adopted in 2001, determined that WTO member states have the right to determine independently the grounds upon which compulsory licenses are granted, and also that HIV/AIDS, tuberculosis, malaria, and other epidemics can represent national emergencies. Furthermore, it was in this act that the term "compulsory licensing" was directly used.

Thus, international acts do not explicitly restrict states in determining the grounds and mechanism for granting compulsory licenses. Let us consider the practice of granting compulsory licenses in foreign countries.

Rules on granting compulsory licenses are included in the majority of patent laws of developed countries of the world. As researchers of this topic point out [6], norms on compulsory licensing are enshrined in the national legislation of Germany, France, Switzerland, the USA, Canada, China, and others. However, the practice of issuing them is small.

Regarding developing countries, the situation looks somewhat different. Prior to the COVID-19 pandemic, the majority of requests for compulsory licenses concerned drugs for the therapy of HIV infection and viral hepatitis due to the high cost of original drugs. Thus, in 2007, Brazil issued a compulsory license for the medicinal product with INN "Efavirenz" for the treatment of HIV infection; however, its production was established in the domestic market only by 2009. In 2007, Thailand issued a license for the drug "Kaletra"; in response, the patent holder withdrew applications for approval of the sale of seven new medicines in the country. In 2012, India issued a compulsory license for the production of the antitumor drug "Nexavar" due to the high price of the original drug, but as a consequence, the country lost foreign investments. Subsequently, India refused to issue compulsory licenses several times.

The spread of COVID-19 put this issue back on the agenda. In 2020, a number of countries, such as Canada, Chile, and Ecuador, amended national legislation permitting the issuance of compulsory licenses to combat coronavirus infection. However, as the practice of previous years has shown, countries that used the compulsory licensing mechanism to solve problems of rapid and cheap provision of medicines to the population faced opposition from rights holders, loss of investments, and suffered reputational risks.

Compulsory Licensing in Russia

Compulsory licensing in Russia is not a new concept for Russian law. The institution of compulsory licenses is regulated in Part 4 of the Civil Code of the Russian Federation. Thus, according to Article 1239 of the Civil Code of the Russian Federation, the court has the right, at the request of an interested person, to make a decision on granting them the right to use the result of intellectual activity, the exclusive right to which belongs to another person (compulsory license), in cases provided for by the Civil Code of the Russian Federation.

Article 1362 of the Civil Code of the Russian Federation determines the procedure for issuing a compulsory license for inventions, which, in the understanding of the legislation, can include technical solutions in any field, including chemical compounds, pharmaceutical substances, and preparations to which legal protection is granted. Conditions for issuing a compulsory license for an invention:

the invention is not used or is insufficiently used by the patent holder for 4 years from the date of issuance of the patent;
this leads to insufficient supply of the corresponding goods on the market;
the patent holder refused to conclude a license agreement with a person wishing and ready to use such invention on terms corresponding to established practice.

If the aggregate of these conditions exists, an interested person has the right to file a claim in the arbitration court against the patent holder for the granting of a compulsory license for the use of their invention in the territory of the Russian Federation.

In Clause 43 of the Resolution of the Plenum of the Supreme Court of the Russian Federation No. 10 On the Application of Part Four of the Civil Code of the Russian Federation (the "Resolution of the Plenum No. 10"), clarifications were given regarding certain procedural aspects of considering such cases. In particular, the statement of claim must indicate the terms proposed by the plaintiff for granting them such a license, including the scope of use of the invention, the amount, procedure, and terms of payments. Failure to comply with this requirement entails leaving the statement without movement.

The court makes a decision on granting a compulsory license and on the terms of its granting if the patent holder does not prove that the non-use or insufficient use of the invention by them is due to valid reasons. At the same time, the court considers the existing disagreements of the parties regarding individual terms of this license. Based on the court decision, Rospatent carries out the state registration of the grant of the right to use the invention.

In the case of granting a compulsory license, the rights holder is granted guarantees according to Article 1362 of the Civil Code of the Russian Federation:

the compulsory license is non-exclusive, i.e., the rights holder is not deprived of the right to issue voluntary licenses to other persons;
the right to receive appropriate compensation. The total amount of payments under a compulsory license must be established not lower than the price of a license usually determined under comparable circumstances.

We note that the formulated criteria are largely evaluative and indefinite in nature and, when considering a dispute, can create many problems for the parties and the court. In particular, questions arise:

How to assess "insufficiency of use of the invention" or "insufficiency of supply of the good"?
What should be considered a "valid reason for non-use of the invention"?
In what order should an interested person approach the rights holder with a proposal to conclude a license agreement (in what form, how long to wait for a response, how to regard a response agreeing to its conclusion but on different terms, etc.)?

The validity of a compulsory license may be terminated by a claim of the patent holder if the circumstances that led to its granting have ceased to exist and their recurrence is unlikely. As indicated in the Resolution of the Plenum No. 10, the termination of the validity of a compulsory license in such a case is carried out in accordance with the provisions of Article 450 of the Civil Code of the Russian Federation regulating the grounds for amendment and termination of a contract. Unilateral refusal of a compulsory license is inadmissible. In the decision, the court establishes the term and procedure for the termination of the license and the rights that arose in connection with obtaining this license. At the same time, as we see, the definition and the method of proving the fact of the cessation of circumstances that caused the issuance of the license, and especially the unlikelihood of their occurrence, remained outside the interpretation.

Part 2 of Article 1362 of the Civil Code of the Russian Federation establishes the conditions for issuing a compulsory license for a dependent invention (i.e., an invention the use of which is impossible without using a previously patented invention), and they are stricter. To do this, it will be necessary to prove:

the absence of the possibility for the dependent patent holder to use the invention without violating the rights of the holder of the first patent;
the fact that the dependent invention represents an important technical achievement and has significant economic advantages over the invention of the holder of the first patent;
the fact of refusal by the holder of the first patent to conclude a license agreement on terms corresponding to established practice.

And in this case, many questions arise regarding the circumstances to be proven:

What should be considered an "important technical achievement"?
How to measure the "significance of economic advantage"?
What is understood by "terms established in practice"?

And, we believe that this is only a small part of the problematic issues. The active application of these norms in practice will pose many more questions for courts and process participants.

We note that the practice of issuing compulsory licenses via judicial procedure is small to date. Thus, we managed to find two court cases involving a demand for the issuance of compulsory licenses for medicinal products, in which Nativa LLC was a participant (interested person). Both concerned the issuance of compulsory licenses for a dependent invention.

The first case was considered by the Arbitration Court of the City of Moscow in 2018 under a claim by the domestic manufacturer Nativa LLC against the corporation Celgene International Holdings Corporation [7]. The subject of the claim was the recognition of the invention "Crystalline Form B of 3-(4-amino-1-oxo-1,3-dihydro-2H-isoindol-2-yl)-piperidine-2,6-dione, method for its preparation and pharmaceutical composition based thereon", protected by the plaintiff's patent, as dependent on the invention "SUBSTITUTED 2,6-DIOXOPIPERIDINES1, PHARMACEUTICAL COMPOSITION BASED THEREON AND METHODS FOR REDUCING TNF-ALPHA LEVELS", protected by the defendant's patent, and the obligation to grant a compulsory license for the use of the defendant's invention in the territory of the Russian Federation. The claimed scope of use: manufacture, use, and sale for the purpose of further production of a medicinal product with INN "Lenalidomide". The defendant filed a counterclaim for the protection of exclusive rights to the patent.

As established by the court, the defendant's patent protects the molecule "Lenalidomide", which is used by them in the production of the medicinal product with the trade name "Revlimid". The plaintiff, in turn, manufactures using their invention the active pharmaceutical ingredient "Lenalidomide" and, based on it, the medicinal product "Lenalidomide-native".

Based on the results of the case consideration, the court concluded that all conditions provided by law for issuing a compulsory license to Nativa LLC are present:

The fact of the impossibility of using the dependent invention without violating the rights of the holder of the first patent, as well as the refusal to conclude a license agreement by the parties, was recognized in the court hearing.
The importance of the technical solution is confirmed by the conclusion of the expertise, which recognized the better chemical and physical properties of the dependent invention (namely: better uniformity of powder distribution in the capsule, deeper purification of the substance from residual organic solvents, etc.).
Significant economic advantages consist in the lower price for the medicinal product (the difference is more than 30%), which is significant given that these drugs are used to treat oncological diseases.

The claim for the issuance of a compulsory license was satisfied. We note that subsequently, by the resolution of the Intellectual Property Court of the Russian Federation [8], the decision was canceled, and the proceedings in the case were terminated due to the approval of a settlement agreement between the parties, the content of which was not disclosed. However, this decision is significant because for the first time the court attempted to answer the question of how to interpret the concept of an "important technical solution".

In another case involving Nativa LLC, the courts applied a somewhat different approach. In 2019, the companies Sugen LLC and Pharmacia & Upjohn Company LLC appealed to the Arbitration Court of the City of Moscow with a statement of claim against Nativa LLC and the Ministry of Health of Russia with a claim to oblige the cessation of violations of the Eurasian patent, including prohibiting the manufacture, sale, and other introduction into civil circulation of a medicinal product containing the substance "Sunitinib" and to oblige the Ministry of Health of Russia to cancel the state registration of the medicinal product "Sunitinib-native". The company "Nativa" filed a counterclaim to oblige the companies to grant a compulsory simple (non-exclusive) license for the use in the territory of the Russian Federation of the invention protected by the Eurasian patent.

As the foreign companies believed, the dependent invention does not represent an important technical achievement and does not have significant economic advantages over the invention under their patent. In addition, the plaintiffs insisted that the drug "Sunitinib-native" produced by Nativa LLC is effectively a generic of the original drug "Sutent" and its production actually uses their invention, not an independent one.

As in the first case, comprehensive forensic examinations were appointed. The experts differed in opinion: some confirmed the presence of the aggregate of conditions provided for by Article 1369 of the Civil Code of the Russian Federation, however, one of the experts gave a negative answer to the question about the importance of the invention, since the same active substance is claimed in the inventions. Another expert refused to answer the question about the presence of significant advantages due to the lack of an economics education. As confirmation of the significance of economic advantages, the courts pointed to the difference in prices during public procurement of up to 60% and possible annual budget savings of up to 200,000,000 rubles.

By the decision of courts of all instances, the initial claim was denied, and the counterclaims of Nativa LLC were satisfied [9].

At the same time, assessing the conclusions of the courts forming the basis of the decision, it is necessary to note the insufficient argumentation of the presence of mandatory conditions for granting a compulsory license and the emphasis to a greater extent on solving socially significant tasks, such as the treatment of cancer patients with lower costs for the state.

We also note that in 2022, all judicial acts were canceled due to newly discovered circumstances by reason of Rospatent recognizing the patent of Nativa LLC as invalid [10]. Subsequent court decisions prohibited Nativa LLC from manufacturing and introducing into circulation the medicinal product "Sunitinib-native" until the expiration date of the Eurasian patent [11].

Summing up, we conclude that the provisions of Russian legislation regulating this institution generally do not contradict international legal regulation, but at the same time, insufficient attention is paid to compulsory licensing either in civil legislation or in the clarifications of the Supreme Court of the Russian Federation. To form uniform judicial practice, amendments to civil legislation and the adoption by the Supreme Court of the Russian Federation of relevant clarifications regarding the interpretation of Article 1362 of the Civil Code of the Russian Federation are required.

At the same time, understanding the importance of ensuring the protection of intellectual rights, the issuance of compulsory licenses should not become a panacea for supporting the import substitution policy. Such a mechanism should be applied selectively to resolve emergency situations.

As international experience shows, a comprehensive assessment of the consequences of issuing a compulsory license should be carried out both in the short and long term. Since ill-conceived decisions can entail a decrease in investment attractiveness, which can negatively affect the development of the industry.

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References

[1] A.S. Vorozhevich "Limits of exercise and protection of the exclusive right of the patent holder" // "Statut", 2018.

[2] Latyntsev A.V. "Difference in the legal nature of compulsory licensing and compensated non-licensed use of objects of patent protection" // "Journal of Russian Law", 2023, No. 3.

[3] Decision of the Supreme Court of the Russian Federation dated May 27, 2021 No. AKPI21-303 "On refusal to satisfy the administrative statement of claim challenging the decree of the Government of the Russian Federation dated December 31, 2020 No. 3718-r".

[4] Concluded in Paris on March 20, 1883, revised and entered into force by the Stockholm Act of July 14, 1967.

[5] Concluded in Marrakesh on April 15, 1994.

[6] E.I. Pazemova "Features of the implementation of the mechanism of compulsory licensing and other mechanisms for restricting the rights of rights holders in the field of protection of medicinal products" // Actual Problems of Russian Law, 2022, No. 5.

[7] Decision of the Arbitration Court of the City of Moscow dated June 08, 2018, in case No. A40-71471/17-110-675.

[8] Resolution of the Intellectual Property Court dated December 27, 2018 No. S01-1064/2018 in case No. A40-71471/2017.

[9] Determination of the Supreme Court of the Russian Federation dated February 20, 2020 No. 305-ES19-28272 in case No. A40-166505/2017.

[10] Decision of the Arbitration Court of the City of Moscow dated March 15, 2022, in case No. A40-166505/17-15-1481.

[11] Decision of the Arbitration Court of the City of Moscow dated June 17, 2022, in case No. A40-166505/17-15-1481.