Recent decision opens up the possibility of more compulsory licensing in Germany

A decision by Germany’s Federal Court of Justice could mean more compulsory licences being granted in Europe’s economic powerhouse than might previously have been thought possible. This would clearly be a very big deal. In the following piece, Johann Pitz – a partner of Vossius & Partner in Munich – looks at the case in question and explains its potential implications.

For the second time in its history the German Federal Patent Court (FPC) granted a compulsory licence. For the first time ever, it did so via a preliminary injunction. The Federal Court of Justice subsequently affirmed the decsion, so potentially opening up the way for more compulsory licences to be granted in Germany.  

With judgment of 31^st August 2016 in preliminary injunction proceedings, the FPC granted the pharmaceutical company Merck Sharp & Dohme / MSD (US) the right to use the European Patent EP 1 422 218 of Shionogi and allowed sales of the AIDS drug Isentress in Germany (FPC, GRUR 2017, 373 – Isentress).

The pharmaceutical company Shionogi, which competes with Merck in the respective field, had filed an infringement complaint and asserted claims for injunctive relief against Merck. In 2016, the latter filed a request with the FPC for grant of a compulsory licence by way of a preliminary injunction. The FPC affirmed allowability of the request and acknowledged the necessary public interest in the grant of a compulsory licence. This was the first time the FPC had granted permission to use an invention by way of a preliminary injunction. Upon appeal the Federal Court of Justice (FCJ) confirmed the decision and approved the necessary public interest for a compulsory licence with judgment of 11^th July 2017 (GRUR 2017, 1017 – Raltegravir).

Statutory principles

The compulsory licence is a right, granted by court judgment upon petition, to use a patented invention. Irrespective of the antitrust law problems of differently formulated national compulsory licence systems, the instrument of the compulsory licence has found recognition not only in Europe, but worldwide.

According to Article 5 A of the Paris Convention for the Protection of Industrial Property, the countries of the Union are free to adopt statutory measures which provide for the grant of compulsory licences. Furthermore, the Convention on Trade-Related Aspects of Intellectual Property Rights (TRIPs) guarantees the grant of compulsory licences. The legal basis for the grant of compulsory licences in the Federal Republic of Germany is found in § 24 (1) German Patent Act (GPA). This provision reads as follows:

“The non-exclusive authorisation to commercially use an invention shall be granted by the Federal Patent Court in an individual case in accordance with the following provisions (compulsory licence) where

1) a licence seeker has, within a reasonable period of time, unsuccessfully attempted to obtain permission from the proprietor of the patent to use the invention on reasonable commercial terms and conditions, and

2) the public interest calls for the grant of a compulsory licence.”

The regulation of § 24 GPA can also be directly applied to European patents in accordance with the European Patent Convention, where these patents have been granted for the Federal Republic of Germany and so are subject to German law (Artt. 2 (2) 74 EPC). As far as the German territory is concerned, § 24 GPA will also be applicable for the proposed Unified Patent Court since there are no unified rules for the Unitary Patent on compulsory licences in Europe.

The procedure for the grant of a compulsory licence corresponds to the procedure in a nullity action (cf. § 81 GPA). The competent authority is the Nullity Senate of the FPC (§ 66 GPA) as well as, in the second and final instance, the FCJ (§ 110 GPA).

The provisions in the German Patent Act cover the compulsory licence in the public interest (§ 24 (1) GPA) and the compulsory licence in the case of dependent patents (§ 24 (2) GPA). Special provisions for compulsory licences for pharmaceutical products for the promotion of public health are foreseen in the Regulation (EC) No. 816/2006 of the European Parliament and of the Council of 17^th May 2006 on compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems.

The existence of a public interest which is required for the grant of a compulsory licence (§ 24 (1) GPA) depends on the circumstances of the individual case.

In this context it is necessary to consider inter alia technical, commercial, ideological and political issues such as

• Medical aspects
• Development of the industrial technology in a sector which is particularly important to the public
• Significance of the invention
• Promotion of public health
• Substantial cost reduction or improved therapeutic action of pharmaceuticals
• A markedly lower level of side effects than existing pharmaceuticals

Prior to a court action the person seeking a licence has to endeavour to obtain a licence from the patentee under “reasonable conditions”. Pursuant to § 85 GPA compulsory licences may also be granted by way of preliminary injunctions. In practice, applications for compulsory licences are not applied for frequently. However, in many cases, the mere possibility of adopting compulsory measures provides a strong incentive for an agreement between patentee and potential licensees. This is the so-called "fleet in being" effect of the compulsory licence.

Literature and precedents

Numerous publications have looked at the public interest and the pros and cons of compulsory licences in respect of patents. Some authors regard the compulsory licence regulation as an important instrument in commercial policy, while others see the danger of an erosion of the patentee's exclusive right which is viewed as a necessary incentive for innovation.

Since the establishment of the FPC in 1961, according to its own 1991 statistics, very few compulsory licence proceedings have been initiated. They have been granted in only two cases.

The first time the FPC granted a compulsory licence was in its judgment of 7^th June 1991 (GRUR 1994, 98 – Compulsory Licence) with regard to the public interest in the medical use of the patented active substance human immune interferon. Based on the appeal of the patent holder, the Federal Court of Justice denied the necessary public interest and set the decision aside (FSC , GRUR 1996, 190 – Interferon gamma).

In the recent judgment dated 31^st August 31 2016 (GRUR 2017, 373 – Isentress), the FPC granted a compulsory licence for the medical use of the patent protected active ingredient Raltegravir, which is offered and distributed by Merck as antiviral agent for the treatment of HIV infections. In appeal proceedings the FCJ upheld the decision with judgement of 11^th July 2017. In opposition appeal proceedings, the EPO Board of Appeal, however, revoked the patent with the consequence that the parallel main action as well as the possibility of further constitutional appeal were obsolete and the judgment of the FCJ became final.

The judgment of the FCJ dated 11^th July 2017 – “Raltegravir”

The decision of the Federal Supreme Court provides the following criteria for the granting of a compulsory licence:

• The public interest within the meaning of § 24 (1) GPA is a legal expression which cannot be circumscribed in a generally valid fashion and is subject to constant change. A public interest cannot be justified according to the exclusivity position of the patentee, even if the latter has an actual monopoly in the market. Rather, the public interest plays a role only when particular circumstances exist, which favour a less restrictive view of the normally exclusive right and interest of the patentee, because the public need demands the exploitation of the patent by the licence seeker.
• Whether or not the prerequisite public interest exists depends on the circumstances of the individual case and is decided by weighing the protectable interests of the patentee with the public interest. Since the grant of a compulsory licence signifies a considerable intervention in the statutory exclusivity rights (protected by constitutional law) of the patentee, it is necessary to observe the principle of proportionality. Thus, a compulsory licence can principally not be awarded in respect of a pharmaceutical product if the public interest can be satisfied by other, more or less equivalent alternatives.
• Even if alternative therapies with equivalent active ingredients are available it can be in the public interest to avoid the risks of a change in therapy in cases where patients have been successfully treated with a drug which includes the patent protected ingredient (here Raltegravir). The urgent public interest is given where a group of patients with HIV (including women, babies, children and patients treated successfully with Raltegravir for a long time) require Raltegravir further on and cannot switch to another drug without significant health risks.
• The public interest can also be present if only relatively small groups of patients are affected.
• The requirement of § 24 GPA that the applicant for a licence has to make genuine efforts to obtain a licence on reasonable commercial terms has to be considered based on the circumstances of the individual case. It is sufficient to confirm the willingness to pay adequate licence fees whereas it is not required to present a specific fair reasonable and unconditional licence fee offer. The requirements for the FRAND objection based on antitrust law are not applicable for the compulsory licence based on § 24 GPA.
• Pursuant to § 85 (1) GPA a preliminary injunction may be issued if the immediate grant of the licence is urgently required in the public interest. The procedural urgency in the sense of § 935, 940 German Code of Civil Procedure is not required because the public interest is decisive, not the interest of the applicant. The licence seeker´s hesitation to file the preliminary injunction request is less important and cannot speak per se against the required public interest.

Outlook

In this decision, the FCJ specified the prerequisites for the grant of compulsory licences and clarified that a FRAND offer is not necessary for a successful claim. The FCJ confirmed for the first time the grant of a compulsory licence by the FPC and provided clear principles for the determination of the “public interest”. Licence seekers may now refer to reliable precedents and may consider more often the possibility to seek compulsory licences, even in preliminary injunction proceedings. Since there are no unified rules on compulsory licences for the future EU unitary patent, these guidelines will also have to be respected by the Unitary Patent Court as far as the German territory is concerned.