Global compulsory licensing - part 2: United States

The United States’ history with compulsory licensing is particularly entangled with
the development of the TRIPs Agreement and the Doha Declaration. As a developed
country with a significant amount of medical research and development, it is no
surprise that the U.S. has opposed the practice of compulsory licensing in
developing countries. In fact, prior to the Doha Declaration, the U.S. long
maintained that compulsory licenses were a violation of the TRIPs Agreement. For
example, when South Africa introduced legislation to allow for compulsory licensing
of pharmaceuticals, the U.S. declared the legislation a violation of TRIPs and
threatened South Africa with trade sanctions. This position became far less tenable
when, during the anthrax scare, the U.S. itself called for compulsory licensing of
drugs to guard against a potential outbreak. While the U.S.’s original position
against compulsory licensing has softened somewhat since the anthrax scare and
the Doha Declaration, as a matter of national law, per se compulsory licensing does
not exist in the U.S.
Several mechanisms exist, however, that allow for unauthorized usage of patented
subject matter. For instance, pursuant to 28 U.S.C. § 1498, the federal government
is allowed to practice patented subject matter without the authorization of the
patentee. The government could authorize production of a patented pharmaceutical
compound with monetary compensation as the patentee’s only remedy. Although
not a compulsory license in name, this law allows the U.S. government to achieve
for itself effectively the same result.
The government’s authority under Section 1498 has been highly publicized in certain
instances. For example, in 2001, the U.S. government threatened to use its powers
under 28 U.S.C. § 1498 to authorize importation of generic ciprofloxacin to guard
against a possible anthrax outbreak.1 A similar situation occurred in 2005, when
“patent owners of Tamiflu were effectively required to invest in U.S. manufacturing
facilities . . . so that the U.S. government would have access to Tamiflu if confronted
1 Love, supra note 23, at 2 (citing Ciprofloxacin: the Dispute Over Compulsory Licenses, CPTECH, available at
http://www.cptech.org/ip/health/cl/cipro/) .
RxAnalysis is the Pharmaceutical and Healthcare Newsletter of Baker & McKenzie’s North American Intellectual Property Practice Group
The Pharmaceutical and Healthcare Newsletter of Baker & McKenzie’s North American Intellectual Property Practice Group
with an avian flu pandemic.”2 However, in both situations, Section 1498 powers
were not exercised except arguably as leverage to reach private agreements with
the patent holders of the relevant drugs.
The scope of Section 1498 powers has also been judicially challenged in a few
scattered lines of case law. Some patentees have sued for infringement, alleging
that they were entitled to lost profits from the unauthorized use of their patented
subject matter.3 The case law makes it clear however, that under Section 1498
patentees are only entitled to “reasonable royalties” and not “lost profits.”4 The
frequently cited principle is that “because recovery is based on eminent domain,
the proper measure is ‘what the owner has lost, not what the taker has gained.’”5
Another legal mechanism under U.S. law that achieves similar results as a
compulsory license is the “march-in” rights pursuant to the Bayh-Dole Act.6 The
Bayh-Dole Act, originally enacted in 1980 and later amended in 1984, was
“designed to facilitate the patenting of U.S. government funded inventions by
universities, other non-profit entities and businesses.”7 The statute allowed the
government to retain a nonexclusive royalty-free license and “march-in” rights to
patents derived from government funded research.8 The “march-in” rights allow
the government to step in and practice the patented subject matter without the
patentee’s permission when the patentee fails to practice the invention, when
there is a public health or safety concern, when the public use requirements are
not met, or when U.S. manufacturing preference rules are violated.9 While these
“march-in” rights may seem broad, “in more than three decades since its
enactment, the [National Institute of Health “NIH”] has only received march-in
petitions four times . . . and not once has the NIH exercised its march-in rights.”10
Indeed, the NIH has denied petitions for licenses of patents for ritonavir/Norvir for
AIDS/HIV,11 vaccines for avian flu,12 and Fabrazyme for Fabry disease.13
Yet another legal mechanism that mimics compulsory licensing stems from the
emerging case law on injunctions for patent infringement. In the U.S., there
existed the longstanding presumption that the remedy to patent infringement was
monetary damages and a permanent injunction. This presumption was rejected
by the Supreme Court in eBay Inc. v. MercExchange L.L.C..14 In eBay, the technology
of the relevant patents was that of online auction methods such as the “Buy it
Now” function used on eBay’s website. eBay was sued by MercExchange for
infringement of these patents and found liable for infringement during the jury
2 Love, supra note 23, at 2; Amanda Mitchell, Tamiflu, the Takings Clause, and Compulsory Licenses:
An Exploration of the Government’s Options for Accessing Medical Patents, 95 CAL. L. REV. 535, 540-545 (2007).
3 Hughes Aircraft Company v. The United States, 94-5149,95-5001. (86 F.3d 1566); Gargoyles, Inc. and
Pro-Tec, Inc. v. the United States, 96-5089,-5094 (113 F.3d 1572); Brunswick Corp. v. the United States,
97-5017, 97-5021.
4 Id.
5 Hughes Aircraft, 86 F.3d at 1569 (citing Leesona Corporation v. the United States., 599 F.2d 958
(Fed. Cir. 1979)).
6 35 U.S.C. §§ 200-212 (1994) (Patent and Trademark Amendments of 1980 – also known as the
Bayh‑Dole Act) [hereinafter Bayh-Dole Act].
7 The Bayh-Dole Act of 1980, KNOWLEDGE ECOLOGY INT’L, available at http://keionline.org/bayh-dole.
8 Id.
9 Bayh-Dole Act, supra note 42.
10 John Conley, Government Refuses to March-In Under Bayh-Dole—Again, GENOMICS L. REP. (Jan. 18, 2011).
11 Love, supra note 23, at 4.
12 Love, supra note 23, at 4.
13 Conley, supra note 46.
14 eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006).
Guy Birkenmeier, PhD is a lawyer
in Baker & McKenzie’s Dallas office.
Guy focuses his practice on intellectual
property, concentrating on patent
matters, especially those pertaining
to biochemistry, biotechnology,
pharmaceuticals, chemistry and
plant sciences.
Brian McCormack is a partner in
Baker & McKenzie’s Dallas office.
Brian mainly handles intellectual
property counseling, transactions
and litigation.
Yahn-Lin (Franklin) Chu is an
associate in the Firm’s Dallas
office, where he advises on various
intellectual property matters. He has
experience with a variety of technical
fields including medical devices
and pharmaceutical compounds.
The Pharmaceutical and Healthcare Newsletter of Baker & McKenzie’s North American Intellectual Property Practice Group
trial. However, the District Court refused to issue an injunction.15 On appeal, the
Federal Circuit applied the “general rule that courts will issue permanent
injunctions against patent infringements absent exceptional circumstances.”16
Accordingly, a permanent injunction was issued.
In rejecting the longstanding presumption that permanent injunctions should be
automatically given, the Court reiterated the four-part test for an injunction which
requires that a plaintiff prove (1) that it has suffered an irreparable injury; (2) that
the law does not provide other adequate ways to compensate it; (3) that
considering the balance of hardships between the plaintiff and defendant, an
injunction is warranted; and (4) that the public interest would not be harmed by a
permanent injunction.17 The Court found that both the Federal Circuit and the
District Court’s erred by basing their decisions on categorical presumptions of
when an injunction should issue. Instead, the issuance of an injunction must be
based on a fact-intensive analysis of the four-part test.18 After the eBay ruling,
one could potentially practice a patented invention without the patentee’s
authorization and not be subject to a permanent injunction. The fact that the
patentee’s remedy would be limited to monetary compensation is in effect a
compulsory license.
Case law since eBay has been divisive on determining when a permanent
injunction should issue.19 Generally speaking, permanent injunctions are still
issued more often than not.20 The factors that courts now seem to place the most
emphasis on are whether there is competition between the parties, whether there
is some form of a licensing program, and whether the patentee has failed to
practice the invention.21 While the exact standard for when a permanent
injunction issues may seem hazy, some clarity is emerging. Recently in Robert
Bosch LLC v. Pylon Mfg. Corp. (Fed. Cir. 2011),22 the Federal Circuit “[confirmed]
that eBay jettisoned the presumption of irreparable harm as it applies to
determining the appropriateness of injunctive relief.” 23
The growing jurisprudence on permanent injunctions and the possibility for
infringers to effectively obtain compulsory licenses is arguably reshaping how U.S.
patent law defines the “exclusivity” of a patentee’s rights.24 For now, however, the
uncertainty about how a court would rule on the question of an injunction, the
likelihood that some damages would be payable following a decision, along with
the high cost of litigation are likely to deter parties seeking to practice patented
technology from relying on this case law in the same way that they could under
a true compulsory license.
15 eBay Inc. v. MercExchange, L.L.C., 275 F. Supp. 2d 695, 712 (E.D. Va. 2003). The District Court ruled
that a plaintiff’s willingness to license its patents and its lack of commercial activity in practicing the
patents was sufficient to find that the patentee would not suffer irreparable harm if an injunction did
not issue.
16 eBay Inc. v. MercExchange, L.L.C., 401 F.3d 1323, 1338 (Fed. Cir. 2005).
17 eBay, 547 U.S. at 391.
18 Id. at 393.
19 Benjamin Petersen, Injunctive Relief in the Post-eBay World, 23 BERKLEY TECH. L.J. 193 (2008).
20 Id. at 198. (Explaining that in the two years after the eBay decision, there have been 33 district court
decisions involving permanent injunctions, and 24 have granted those permanent injunctions).
21 Id. at 194.
22 Robert Bosch, LLC v. Pylon Manufacturing Corp., 659 F.3d 1142 (2011 Fed. Cir.).
23 Id. at 1149.
24 David Healey, Compulsory Licensing of U.S. Utility Patents: “Exclusivity” Redefined, PATENTMATH
(Oct. 18, 2011) available at http://patentmath.com/compulsory-licensing-of-u-s-utility-patents/.