Compulsory licensing of patents – a need or not?
Compulsory licensing happens when a competent authority allows someone else to produce the patented product or exploit a patented process without the permission of the patent holder. A compulsory license can be construed as an involuntary contract between a willing licensee and an unwilling licensor imposed and enforced by the competent authority.
Why do governments need to grant involuntary licenses to use certain patent rights?
The Paris Convention, one of the first international intellectual property treaties for the Protection of Industrial Property, states that each country-member shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent abuses, which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work. In other words, it serves as an essential and effective government instrument to intervene in the market and limit patent rights in order to correct market failures. However, 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. Compulsory licensing 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.
On the same vein, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) also sets out specific provisions that shall be followed if a compulsory license is issued, and the requirements of such licenses. According to the TRIPS Agreement, (i) the person or company applying for a licence usually has to have tried to negotiate a compulsory licence with the patent holder on reasonable commercial terms. A compulsory licence can be issued only if they failed to negotiate, and (ii) even when a compulsory license has been issued, the patent holder has to receive certain remuneration. That is to say, the principal requirement for the issue of a compulsory license is that attempts to obtain a license under reasonable commercial terms must have failed over a reasonable period of time.
It can be seen from the above that governments issue compulsory licenses to broaden access to technologies and information in order to meet a number of public and national demands. For example, a compulsory license may be granted in situations in which there is a failure to work patented invention over an extended period in the territory of the patent, failure or inability of a patentee to meet a demand for a patented product and where the refusal to grant a license leads to the inability to exploit an important technological advance, or to exploit a dependent patent. Many countries have provisions in laws for compulsory licensing if the patent holder refuses to make the invention available to the public for various public interest reasons, such as, for example, to correct cases where pharmaceuticals are available to the public in insufficient quantity or at abnormally high prices.
Compulsory licensing in Vietnam
The Intellectual Property Law (“IP Law”) of Vietnam has elaborate provisions for compulsory licensing (Articles 145, 146 and 147). Apart from three general categories, under which compulsory licenses shall be invoked, namely (i) for dependent inventions (Article 146.2), (ii) for reasons of public interests (Article 145.1(a)), and (iii) for the failure to work the invention (Article 145.1(b)), the Law also provide another ground for such grant in case the third party fails to negotiate a license on reasonable terms and conditions (Article 145. 1(c)). Few uncertainties are exemplified below.
The Paris Convention has been known to place non-working restrictions on the patentees of member countries. However, as a matter of practical experience, only about ten percent of granted patents are ever actually worked. The majority has been allowed to lapse, but even those patents that have been maintained and not worked have rarely been subject to compulsory license. The reasons are pretty clear since if an invention is not worth for the patentee to exploit, it is not likely to be so for others. Also, if a commercially good invention is being maintained unworked for defensive reasons, it would be undesirable for a competitive party to negotiate an involuntary license agreement with a hostile owner. The negotiation itself may cost more time and money than the invention would worth. Therefore, in most developed countries, working requirements for invention are either non-existent or a dead letter.
In Vietnam, though the failure to work constitutes a ground for compulsory license, it is silent on what shall constitute actual non-working that will invoke the grant. Neither does it specifically address the question whether nominal working is attributable to legitimate working acts. Article 124.1 of the IP Law addresses different acts defined as “using the invention” including the importation, advertisement and marketing of the patented product or products of the patented process. It is unclear whether the working shall be regarded as “use of the patented technology domestically”. Shall the patentee’s importation of a patented product into Vietnam be treated as working in order to keep his/her patent from being provoked for a compulsory license for non-working? Also, shall the nominal working that consists in advertising that licenses are available under the patent be recognized as satisfactory proof?
Efforts to negotiation and Article 31(b) of the TRIPS Agreement
There are two questions in need of further clarification. First, the IP Law of Vietnam reflects no essence of Article 31(b) of the TRIPS Agreement in the sense that it fails, in case of the patentee’s failure to work his/her invention, to require the proposed user to negotiate with the patentee on reasonable commercial terms and conditions within reasonable period of time. It is fair to ask a person seeking the compulsory license to substantiate that unsuccessful attempts to obtain a voluntary license from the patentee were made before filing any petition for a compulsory license.
Second, Article 145.1(c) of the IP Law shall be construed as that the third party may initiate the negotiation to obtain a license from a patentee at any time during its term and unsuccessful negotiations on reasonable terms within a reasonable period of time may provoke the grant of an involuntary license. It has no attempt to discuss the necessary breathing space in which the patentee can make preparations to work his/her invention. It is not fair and unthinkable for a person, who has somehow well-known about a commercially worthwhile invention, jumps into negotiation for a license right after the patent is granted, giving the patentee no time at all for actually putting his/her own invention into practice. Such potential unfair provisions must be revised in order to make the Vietnam IP Law fully comply with the Paris Convention and TRIPS Agreement.
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