TWN Info Service on Intellectual Property Issues (Apr14/11)
20 April 2014
Third World Network

Policy space under TRIPS Agreement clarified in Declaration

New Delhi, 20 April  (K M Gopakumar) – Leading experts have clarified the policy space left under the Trade-related Aspects of Intellectual Property Rights (TRIPS) Agreement for governments to formulate and administer their national patents system.

 The “Declaration on Patent Protection: Regulatory Sovereignty Under TRIPS” released on 15 April 2014 is an initiative of the Max Plank Institute for Innovation and Competition on the occasion of the 20^th anniversary of the TRIPS Agreement. Around 40 academics and researchers in the field of intellectual property and development met in Munich, Germany to review the state of play of the TRIPS Agreement implementation.

(The aims of the Max Planck Institute for Innovation and Competition lie in fundamental research of current, future-oriented questions surrounding the protection of intellectual property, such as inventions or creations as well as the regulation of competition mechanisms and behavior: http://www.ip.mpg.de/en/pub/about_us.cfm)

The Declaration aims “to clarify some of the regulatory options states still retain under international law, in particular the TRIPS Agreement”. It articulates the need for an optimum level of use of flexibilities in the TRIPS Agreement to adopt a patent system that best suits the social, economical, cultural and technological needs of a country.

The document contains a detailed explanatory note and the just over 5-page Declaration itself that contains a preamble; general principles; differentiation; patentability, disclosure; scope of protection; exhaustion; exceptions to the scope of protection; compulsory licence; government use; undisclosed information; enforcement; transit; and criminal measures.

The preamble observes that states have often not taken full advantage of the regulatory discretion available under international law, notably the TRIPS Agreement. It perceives an increasing limitation of national regulatory sovereignty in the field of patent law as a result of obligations from multilateral, regional and bilateral agreements.  It recalls that the patent system should ultimately serve the public good by fostering economic growth and technological progress for the benefit of society as a whole. Accordingly, the preamble stresses the need for legal certainty regarding the obligations that international law imposes on states, and the policy space that it leaves to them, in formulating and administering their domestic patent systems.

The explanatory note to the Declaration clearly states, “Sovereign states should retain the discretion to adopt a patent system that best suits their technological capabilities as well as their social, cultural and economic needs and priorities, with the proviso that the exercise of such discretion must remain within the boundaries of international law”.

It notes four major developments that require accommodating the law to changed circumstances. First, the “historically unprecedented numbers of patents filings and grants” create problems such as backlogs at patent offices, patent thickets, market entry barriers and increased litigation that ultimately generate impediments to research and commercialization. The result is rising costs of monitoring patents and legal uncertainty, limiting the economic freedom of market participants which in turn affects consumer welfare and distorts competition. Thus “the overall social benefits of innovation are reduced while an imbalance emerges between those able to cope with the resulting insecurities and related costs, such as multinational enterprises with their own patent departments, and those who cannot, such as small and medium sized enterprises or individual inventors”.

Second, the new technologies like biotechnology, business methods and computer science as well as standard setting, strategic patenting and non-practising entities all affect the functioning of the patent system as a regulatory insitution.

Third, the role of patents incorporate management has undergone a change from a defensive means to protect research and development outcomes to become strategic assets to influence the conditions of competition. 

Fourth, the industrialized countries have tilted the balance in the patent regime towards right holders by reducing the burden for the patent applicants such as expanded scope of patentability, lower eligibility standards and reduced fees, as well as extending the rights of patent owners such as longer term of patent, harsher sanctions, strengthened ways for private and public enforcement.

The preface to the Declaration also notes that, “the patent system faces increasing friction with ancillary public policy goals, such as protecting the environment, preserving biodiversity or ensuring affordable access to medicines”.

It highlights the progressive erosion of sovereign autonomy to design regulations caused by multilateral, regional and bilateral agreements. These developments lead to a situation wherein “the ability of states to maintain a proper balance between the need for protection of knowledge goods in global markets, the freedom to regulate national or regional innovation markets, and the policy space for pursuing diverse public interest goals risks becoming unduly constrained”.

Accordingly, the Declaration seeks to clarify some of the regulatory options that states still retain under the TRIPS Agreement.

According to general principles of the Declaration, the TRIPS Agreement “preserves the right of states to determine the goals of their own patent systems, and to adopt measures ensuring that

–      competition is not restricted beyond what is necessary and sufficient to prevent market failure, and

–      the pursuit of other equally or more important public policies is not unduly encumbered.”

In particular, states are not prevented from taking measures to “maintain a proper balance between patent protection and principles of competition, including measures against abuses of patent rights or other inappropriate conduct by patent holders and applicants”; as well as to “provide their population with essential public goods, such as environmental protection, biological diversity, health care, nutrition, food security, technological and scientific progress, education and security”.

The explanatory note on general principles rejects the mainstream view that patents are the main instrument to incentivize innovation, attract foreign investment, facilitate technology transfer etc. and instead states that, “patents as such do not create innovation incentives”. It goes further to say that, “Patent protection must not interfere with dynamic competition as a decentralized discovery procedure for innovation opportunities, and as a price-setting mechanism for innovation rewards”.

On the importance of limitations on patent rights the explanatory note on general principles states: “As integral elements of patent governance, limitations are crucial to the overall balance of the system of protection – not merely an option that may be used ad libitum”.

The Declaration makes a clear distinction between non-discrimination with regard to the technology protection obligation under Article 27 and the right to differentiate between technologies.  It states that  “Article 27 of the TRIPS Agreement does not prevent states from reasonably differentiating between fields of technology according to - the characteristics inherent in the technology at issue and - the state’s public policies pertaining to the sector at issue”.

The explanatory note on “differentiation” stresses that it is not the patent but the market that creates innovation opportunities and provides for innovation rewards, patent protection must be neutral in its effects on competition.” Stating that legal protection and the effects of that protection on the operation of competition and the attainment of other public policy goals may differ according to the technology at issue, the experts argue that while Article 27 (1) of the TRIPS Agreement prohibits discrimination as to the field of technology, “it does not prevent states from treating different situations differently.”

In fact, differentiation constitutes “a necessary response to the diversity of technologies and, consequently, a conditio sine qua non for an intrinsically balanced system of protection that remains neutral in its effects on competition”. Further, the explanatory note says that the differentiation can be made between technologies with regard to “requirements of patentability, patent eligibility and disclosure, the exclusion of subject matter from patentability, as well as to the scope of protection”.

The experts reject the WTO’s Dispute Settlement Body panel reasoning in a case (WT/DS114/R of 17 March 2000), arguing instead that the non-discrimination clause in Article 27 does not apply at all to Article 30 (limitations to patent) and Article 31 (compulsory license).

On patentability and disclosure requirements, the Declaration says that every state has the freedom under Article 27 to reject patent protection for subject matter that a state classifies as discoveries rather than as inventions or does not consider to be technical in nature.

The explanatory note provides examples of “discoveries” to include biological material (e.g. genes, native plant traits or certain microorganisms, including their components and derivatives); biological processes; new forms, properties or uses of known inventions.

Furthermore, the Declaration reaffirms that states have the freedom to determine how patentability requirements are interpreted and applied. Thus there is no obligation under Article 27 to provide patents for “new uses of known products or substances; - derivatives of known products or substances; - selection inventions or inventions” that otherwise lack novelty and/or an inventive step.

Again, examples are provided in the explanatory note: biological material, even itit has been isolated and purified; new forms of known products or substances, such as variations in chemical composition (‘derivatives’);new properties or uses of known products or substances, such as second or further medical uses of pharmaceutical substances; selections of elements or segments from a known group or class of patented 
compounds (‘selection inventions’).

The Declaration also reiterates the idea of rejection of patents on the ground of insufficient disclosure: “States are not required to provide patent protection for inventions that have not been sufficiently disclosed and expressly claimed in the patent application”. Similarly, “States are not prevented from making the grant of a patent subject to revealing the origin of claimed biological material and associated traditional knowledge.”

On the scope of protection, the Declaration states: “Articles 27 and 28 of the TRIPS Agreement do not prevent states from limiting the protection conferred by a patent to products or processes in relation only to the specific function(s) of the invention expressly claimed in the patent.”

Clarity is further provided on the exceptions to the scope of protection (or exclusivity). The Declaration says that, “The non-discrimination principle set out in Article 27 of the TRIPS Agreement does not apply to exceptions otherwise permissible under Article 30”.  Article 30 of the TRIPS with its “three steps” is an “indivisible entirety” and it “does not - limit the grounds for introducing exceptions to the exclusive rights conferred by a patent; - prevent legislatures from introducing open-ended general exceptions, as long as the scope of such exceptions is reasonably foreseeable; - prevent courts from applying existing statutory exceptions to similar factual circumstances mutatis mutandis; - require exceptions to be interpreted narrowly; they are to be interpreted according to their objectives and purposes”.

According to the Declaration, Article 30 “does not require states to take into account of patent holders’ interests that exceed the purpose of preventing market failure.” It lists the legitimate interests of third parties to include those of  “follow-on innovation; competitors and other market actors; scientific research; consumers; the public at large”.

Similarly, the Declaration clarifies that non-discrimination under Article 27 also does not apply to Article 31 on compulsory licence. In re-stating that there are no limits to the grounds for compulsory licence, it specifically rejects the argument that Article 27 prevents the grant of compulsory licence for lack of local manufacturing or use. According to the Declaration “Article 27 of the TRIPS Agreement does not prevent states from granting a compulsory licence if the patented product is not manufactured or the process is not used within the territory of protection, subject to the requirements of Article 5A of the Paris Convention”.

Further, “states are not prevented from - determining the scope of a compulsory licence beyond what is specifically required to eliminate the circumstances which led to it; or - ordering the continuance of a compulsory licence even though the circumstances which led to it have ceased to exist and are unlikely to recur”.

In addition, states can grant a compulsory licence “as a remedy against the abuse of patent rights or for practices that unreasonably restrain trade or adversely affect the international transfer of technology, even when - the proposed licensee has not made prior efforts to obtain authorization from the patent holder, and - the use is authorised predominantly for the supply of foreign markets.”

With regard to government use of a patent, the Declaration states that, “Article 31 of the TRIPS Agreement does not require any third party, such as a subcontractor, acting under the authority of the government, to operate on a non-profit basis.”

The explanatory note reiterates that, “the rationale behind government or Crown use lies in the responsibility of the state towards its citizenry and its obligation to step in where the market alone becomes incapable of providing essential public goods. It is the state that grants patent protection in the first place, so it is up to the state to eventually limit that protection if it turns out to conflict with the attainment of other public policy goals.”

On parallel import, whereby the TRIPS Agreement leaves it to states to determine whether patent rights are to be exhausted nationally, regionally or internationally, the Declaration says that, “Article 27 of the TRIPS Agreement does not prevent states from discriminating among fields of technology with regard to the geographical scope of exhaustion.”

According to the explanatory note, Article 27 “does not prevent states from differentiating and even discriminating between industries or fields of technology with regard to the scope of exhaustion. This approach can be of particular relevance with regard to the issue of international exhaustion. Some industries may be more prone to parallel imports than others; and some may depend more on price differentiation than others. States remain free to apply the concept of exhaustion that they expect to be most favourable for the development of the industry in the field of technology concerned.”

An important clarification in the Declaration relates to “undisclosed information” which in recent years has seen the rights of WTO Members eroded through bilateral and plurilateral trade agreements.

According to the explanatory note, “despite the strict disclosure requirements in Article 29 … the information actually contained in a patent alone is often insufficient to enable others to practice the invention. Third parties thus depend on additional know-how that only the patent holder possesses. This is of particular importance when the third party has no contractual relationship with the patent holder that entitles it to a transfer of know-how, as in the case of a compulsory licence. In such cases, authorities may impose an obligation on the patent holder to provide the licensee – where appropriate in exchange for an adequate compensation – with know-how that is needed to exploit the protected invention. Access to such know-how may only be denied if the balance of hardships tips towards the patent holder as a result of overriding confidentiality reasons within the purview of Article 39 …”

(Article 29 contains conditions on patent applicants to disclose information while Article 39 is on protection of undisclosed information.)

The explanatory note goes on to sat that Article 39 “may prohibit the disclosure of clinical test data to third parties, including the generic company, but it does not prevent these parties from relying on that data in order to demonstrate the safety and efficacy of a bioequivalent generic. Consequently, authorities may process market approval applications for generic drugs even before the expiry of the originator’s patents.”

Thus the Declaration states:

“Articles 31 and 39 … do not prevent the authority granting a compulsory licence from requiring the patent holder, in appropriate cases, to provide the compulsory licensee with knowledge that is necessary, in the light of the purpose for which the licence was granted, to effectively work the patent, provided that legitimate confidentiality interests of the patent holder are sufficiently taken into consideration.

“Article 39 … does not prevent states from authorising a third party, including a compulsory licensee, to rely on or use clinical data submitted by originator companies necessary to obtain marketing approval of a product, when needed.

“Articles 28 and 39 … do not prevent states from relying on clinical data submitted by originator companies in order to process market approval applications for generic products prior to the expiry of the relevant patent.”

On enforcement, the Declaration rejects injunctions as the common remedy for the infringement of patents. According to the Declaration “An injunction may be inappropriate when - the legitimate interests of parties may be adversely affected; - it is contrary to the public interest; the legitimate interests of the patent holder can be protected by other means, such as damages or security; in the case of preliminary relief, the patent holder is unlikely to prevail in establishing validity or infringement.” 

The Declaration also rejects the idea of ex-parte injunction, a common method used by patent holders to prevent the use of a disputed patent by the defendant. According to the Declaration, “Article 50 of the TRIPS Agreement does not require the grant of provisional measures without prior hearing of the other party. If granted, an opportunity for review of the decision shall be given pursuant to Article 50(4) of the Agreement”.

Further, it declares that, “States are not prevented from denying injunctive relief to prevent or control abuse or other inappropriate conduct by the patent holder”.

The Declaration also says that states have no obligation to provide criminal enforcement for patent rights. It states: “Article 61 of the TRIPS Agreement does not require states to apply criminal procedures and penalties to cases other than those of wilful trademark counterfeiting and copyright piracy on a commercial scale”.

Some gaps not addressed in the Declaration

Even though the Declaration articulates the optimal policy space available to states under the TRIPS Agreement, it is silent on the following issues.

It does not clearly articulate the constraints faced by various developing countries to make use of the TRIPS Agreement’s flexibilities.  Developing countries are suffering from institutional, legal and policy constraints to make use of the policy space.  Further, developing countries face bilateral pressures from the European Union and the United States of America against the use of flexibilities in the TRIPS Agreement such as compulsory licence.  For instance, the US International Trade Commission (USITC) subjects countries such as India to an investigation for using the TRIPS flexibilities.

Similarly, the Declaration does not ponder the implications of “TRIPS-Plus” provisions in free trade agreements (FTA) on the use of TRIPS Agreement flexibilities. Many developing countries have lost the policy space to use these flexibilities through FTAs and  bilateral investment treaties (BITs). The Declaration simply recognizes this fact but does not articulate the ways and means to overcome this constraint.

Unlike the UNDP Commission on Law and HIV/AIDS, the Declaration also avoids the bold approach to question the very utility of patents in the developing country context.  The UNDP Commission called for a moratorium on the application of the TRIPS Agreement. The Declaration accepts the role of patents in the innovation ecosystem by stating, “Both insufficient and excessive protection prejudice the operation of the market.” However, in the context of the majority of developing countries, the mere presence of patents acts as a major barrier to follow a “technology catching up” strategy.  

Further, the Declaration mainly articulates the use of flexibilities in the context of maintaining competition and public policies, but is silent on the development needs of developing countries which include access to and transfer of technology for industrialization. 

(For the full text of the Declaration please see: http://www.ip.mpg.de/en/pub/news/patentdeclaration.cfm)