TRIPS, COVID-19 and the Right to Repair and Produce Needed Medical Products in Emergencies (Part 2 of 2)

By June 11, 2020 July 17th, 2020 COVID-19, Exhaustion, Patents, TRIPS

This is Part 2 of a two-part article.

In response to the COVID-19 pandemic, companies, organizations, and individuals have sought to address supply chain gaps for needed medical equipment, spare parts and products including ventilator tube splitters, nasopharyngeal swabs, and face shields. As discussed in Part 1, given the inevitability of supply shortages in medical emergencies, we need to assure in advance the ability to make repairs and to expand needed medical part and product supplies through unlicensed third-party production and to preempt contractual restrictions that would prohibit making such repairs. The ability to make legitimate repairs to needed products and to produce additional products to address public health emergencies should not have to depend on the voluntary choices of specific IP owners to donate their IP rights for public benefit. Nor should it have to await either binding public commitments by IP owners, as under the Open-COVID Pledge, or government agency declarations and clarifications providing liability protections.

Legislative measures to assure the right to repair are fully consistent with the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). Article 6 of the TRIPS Agreement provides that, so long as national treatment and most-favored- nation treatment status are preserved, “nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights.” Thus, countries remain free to determine the conditions under which patent rights are exhausted, internationally and domestically. As a result, countries may specify that any consumer acquisition of a patented product exhausts the patent rights, regardless of the form in which possession is acquired (i.e., by a license rather than a sale).

Further, under Article 40(2) of the TRIPS Agreement, “Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices ….” Thus, countries may prohibit contracts that seek to extend the market power of the patent holder from the initial sale market to the repair market. Such contractual restrictions may then be held invalid as conflicting with legislative purposes and objectives (and thus, e.g., in the U.S. state contract laws that would enforce such provisions may be held preempted under the Supremacy Clause of the U.S. Constitution), as well as found unconscionable under contract law precisely for undermining legislative exhaustion policies.

In contrast, legislatively assuring third-party production of new products in emergencies would be much more controversial. Countries may adopt limitations on patent rights, so long as they conform to the three-part test conditions established by Article 30 of the TRIPS Agreement. That article provides that “Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.” (The TRIPS Agreement in Article 13 provides a similar three-part exceptions and limitations provision for copyrights, using slightly different wording with slightly different interpretation, based on Article 9(2) of the Berne Convention.)

Under a WTO dispute panel resolution precedent, DS114 Canada – Patent Protection of Pharmaceutical, Products, in paragraph 7.49 the decision noted that economic impact is to be considered only under the last two conditions, not in determining whether the exceptions are “limited.” Presumably, a time-limited emergency authorization would be “limited.” Further, in paragraph 7.55, the decision noted that “[t]he normal practice of exploitation by patent owners, as with owners of any other intellectual property right, is to exclude all forms of competition that could detract significantly from the economic returns anticipated from a patent’s grant of market exclusivity. And in paragraphs 7.61, 7.69, and 7.71 the panel rejected the idea that legitimate interests correspond with the legal interests of the rights holder that a patent potentially grants, requiring normative consideration of the merits of limiting patent protection under the particular circumstances. “The issue was whether patent owners could claim a ‘legitimate interest’ in the economic benefits that could be derived from such an additional period of de facto market exclusivity and, if so, whether the regulatory review exception ‘unreasonably prejudiced’ that interest…. To make sense of the term ‘legitimate interests’ in this context, that term must be defined in the way that it is often used in legal discourse – as a normative claim calling for protection of interests that are ‘justifiable’ in the sense that they are supported by relevant public policies or other social norms…. [T]he reference to the ‘legitimate interests of third parties’ makes sense only if the term ‘legitimate interests’ is construed as a concept broader than legal interests.” Nevertheless, authorizing third-party production in public health emergencies could be held by some future dispute panel to conflict with Article 30.

To the extent that the TRIPS Agreement might be interpreted to prohibit countries from adopting such emergency measures for third-party production, the TRIPS Agreement may be revised. Such a revision has previously been made, precisely when the public health need was identified to revise restrictions that were preventing the grant of compulsory licenses for pharmaceutical exports, so as to provide access to generic medicines to countries that lacked manufacturing capacity. In 2001 the TRIPS Council adopted the Doha Declaration, which included a provision authorizing the grant of compulsory licensing without prior negotiations with rights holders in emergencies and instructing the Council to address limitations in Article 31(f) that prohibited the granting of compulsory licenses for pharmaceuticals intended primarily for export (and thus prevented supplying developing countries that lacked manufacturing capacity with third-party, low-cost pharmaceuticals). Specifically, paragraph 5.c. of the Declaration provided that “Each member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency.” In 2017, the TRIPS Agreement was amended to reflect the Doha Declaration’s interpretation, providing in Article 31bis that the prohibition of compulsory licenses for exports under 31(f) would not apply to pharmaceuticals under specified conditions (including reasonable remuneration to the patent holder). Similar changes could be adopted that would assure rights to produce and supply needed medical products in public health emergencies. In the interim, as with the Doha Declaration, countries could refrain from filing disputes challenging such legislative measures (even without a formal moratorium) or the treaty might be interpreted differently to justify such exceptions, particularly if a similar declaration were adopted prior to adopting an amendment thereby creating a subsequent agreement or reflecting subsequent practice.

Notwithstanding that IP has been donated for free for third-party use during the current COVID-19 epidemic, some form of compensation to the rights holder may be required to be viewed as fair and thus for such legislative measures to be enacted. But to the extent that the current TRIPS Agreement could be interpreted to prohibit such legislative measures, it is time for us to recognize a new normal in regard to “normal exploitation” of IP rights and the “legitimate expectations” of rights holders, as well as to more fully take into account the “legitimate interests” of third parties, such as the unlicensed producers who would provide needed supplies in health emergencies and the public that would benefit therefrom.

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