Explanatory notes - Regulations amending the Patent Regulations (implementation of the Decision of the WTO General Council of 30 August 2003, paragraphs 1(b) and 2(a))

1. Overview

The Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) is part of the WTO Agreement. The TRIPS Agreement sets out minimum requirements for the protection of most areas of intellectual property law. This includes requirements for national provisions concerning compulsory licences, which are licences issued by the public authorities to use a patented invention without the consent of the patent holder.

According to Article 31(f) of the TRIPS Agreement, a compulsory licence is to be issued mainly with a view to supplying the domestic market. A Decision by the WTO General Council of 30 August 2003 on the implementation of paragraph 6 of the Doha Declaration on the TRIPS Agreement and public health (the General Council Decision) makes exceptions to this limitation on exports for pharmaceutical products. The Decision makes it possible for States that lack manufacturing capacity to import pharmaceutical products on the basis of a compulsory licence. The main purpose of the Decision is to give developing countries access to essential medicines.

The present Royal Decree proposes that the Patent Regulations of 20 December 1996 No. 1162 should be amended in such a way as to allow companies in Norway to be granted, on application, compulsory licences to produce patent-protected pharmaceutical products for export in accordance with the General Council Decision.

2. Background

At the WTO Ministerial in Doha in 2001, a declaration was adopted on the TRIPS Agreement and public health (the Doha Declaration). The background for the decision was primarily the AIDS situation in southern Africa and the difficulties faced by the developing countries in obtaining vital patent-protected medicines at reasonable prices. One of the provisions of the Declaration instructed the Council for TRIPS to find a solution by the end of 2002 to the problem of how developing countries that lack manufacturing capacity can take advantage of the provisions of the TRIPS Agreement relating to compulsory licences. The reason for this was that according to Article 31(f) of the TRIPS Agreement compulsory licences are to be granted predominantly for supplying the domestic market. This means that compulsory licences may not be granted in cases where the main purpose is export.

According to Article IX of the WTO Agreement, the Ministerial Council may decide to waive an obligation imposed on a Member under certain conditions. In August 2003 agreement was reached in the WTO on the conditions for making exceptions for certain types of pharmaceutical products from the provisions of Article 31(f), which impose limitations on exports, cf. the General Council Decision. The Decision was based on a recommendation by the TRIPS Council.

Under the General Council Decision, developing countries and other States that are unable to manufacture pharmaceutical products that are needed in order to address certain public health problems may import such products if they have been produced under a compulsory licence. This means that under certain specified conditions it will be possible to export pharmaceutical products manufactured under compulsory licence. The system is to be used to protect public health, and not for industrial or commercial purposes.

Facilitating developing countries’ access to patent-protected pharmaceutical products is an important objective for the Norwegian Government, cf. Proposition No 43 (2002-2003) to the Storting, Chapter 10.3. Norway therefore played an active role during the WTO negotiations on this issue.

3. The General Council Decision

3.1 Provisions of the TRIPS Agreement concerning compulsory licences

The General Council Decision is based on Article 31 of the TRIPS Agreement, which imposes certain requirements on national legislation regarding the granting of compulsory licences or other use of an invention without the consent of the patent holder. These requirements may be briefly summarised as follows.

According to Article 31(a), the authorisation of the use of an invention must be considered on its individual merits. The proposed user must first have tried to obtain a voluntary licence on reasonable commercial terms and conditions, except in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use (31(b)). The scope and duration of a compulsory licence is to be limited to the purpose for which it was granted and the licence may be cancelled if the circumstances which led to its being granted cease to exist and are unlikely to recur (31(c) and (g)). The licence is to be non-exclusive and with certain exceptions non-assignable (31(d and e)). A compulsory licence is to be granted predominantly for the supply of the domestic market (31(f)). The patent holder is to be paid adequate remuneration, taking into account the economic value of the licence (31(h)). The decision to grant a compulsory licence and the conditions for such a licence are subject to review by a distinct higher authority (31(i) and (j)).

Article 31(k) makes exceptions from the conditions set out in subparagraphs (b) and (f) in cases where the patent holder has abused his exclusive right.

Article 31 does not include any provisions concerning how weighty the grounds must be for a compulsory licence to be granted. This is regulated in national law and emphasised in paragraph 5(b) of the Doha Declaration.

3.2 Special rules in the General Council Decision

As mentioned above, the General Council Decision includes a number of special rules in connection with Article 31 of the TRIPS Agreement.

The Decision provides for the right to grant a compulsory licence for the export of pharmaceutical products to another State on certain conditions (General Council Decision, paragraph 2). This means that an exception is made to the limitation on exports set out in Article 31(f) of the TRIPS Agreement.

The Decision also specifies conditions for the determination of the remuneration to the patent holder. According to Article 31(h) of the TRIPS Agreement account is to be taken of the economic value of the authorisation when determining the remuneration. According to paragraph 3 of the Decision account is to be taken of the economic value to the importing State of the use that has been authorised in the exporting State. This means that the ability to pay of the importing State must be taken into account when the fee is determined.

Apart from this the general provisions of the TRIPS Agreement also apply to compulsory licences granted under the special arrangement for pharmaceutical products, cf. General Council Decision, paragraph 9.

3.3 Content of the General Council Decision

The right to import pharmaceutical products produced under compulsory licence in accordance with the General Council Decision applies to States designated as least developed countries by the United Nations and to States that have insufficient or no manufacturing capacity in the pharmaceutical sector for these products (General Council Decision, paragraph 2(a)(iii), cf. Doha Declaration, paragraph 6).

The General Council Decision applies to pharmaceutical products that are needed to address public health problems, especially those resulting from HIV/AIDS, tuberculosis, malaria and other epidemics (General Council Decision, paragraph 1(a), cf. Doha Declaration, paragraph 1). Active ingredients necessary for manufacturing the product and diagnostic kits needed for its use are to be considered pharmaceutical products that are covered by the system.

States that wish to take the opportunity to import pharmaceutical products under this system must make a notification to the TRIPS Council. The State may specify that it only wishes to import such products under certain circumstances, for example in the case of a national emergency.

Certain States have waived the right to make use of the opportunity to import such products, or have stated that they will only make use of it in special situations, for example in the case of a national emergency. These States are mentioned in the statement made by the Chairperson of the General Council in connection with the General Council Decision.

States must notify the Council for TRIPS of the names and expected quantities of the products, cf. paragraph 2(a)(i). If the invention has been patented in such a State, the notification must indicate that the State has granted or intends to grant a compulsory licence in accordance with Article 31 of the TRIPS Agreement and the General Council Decision. A State that is not classified as a least developed country must also establish that it lacks the manufacturing capacity for the products in question. Such a State must establish this by an examination of its manufacturing capacity, cf. the Annex to the General Council Decision.

Paragraph 2(b) of the Decision imposes certain conditions on the compulsory licence issued by the exporting State. The licence only grants the right to produce and export the amount necessary to meet the needs of the eligible importing State as set out in the notification. All products manufactured under the compulsory licence must be exported to the eligible importing State. The products must be clearly identified by means of labelling or marking as being produced under the system set out in the General Council Decision. The producer must also post certain specified information on a website.

Under paragraph 2(c) the exporting State must notify the Council for TRIPS of the grant and scope of the licence.

Eligible importing States must take reasonable measures to prevent re-exportation of the products imported under the system (paragraph 4). Developing countries that have difficulty in implementing this provision are if necessary to be assisted by developed countries under conditions agreed between them. However, according to the General Council Decision, the obligation under Article 31(f) of the TRIPS Agreement may be waived to the extent necessary for pharmaceutical products produced or imported under a compulsory licence to be exchanged between developing countries that are parties to a regional trade agreement (paragraph 6(i)).

All States parties to the TRIPS Agreement must ensure the availability of effective legal means in accordance with the Agreement to prevent the importation into and sale in their territories of products produced under the system in a way that is inconsistent with the provisions of the Decision (paragraph 5).

The Council of TRIPS is to review annually the functioning of the system and report to the WTO General Council (paragraph 8).

Paragraph 7 of the Decision includes provisions concerning co-operation on technology transfers and capacity building in the work to be undertaken pursuant to Article 66.2 of the TRIPS Agreement.

Paragraph 11 of the Decision requires the Council of TRIPS to initiate by the end of 2003 work on the preparation of an amendment to the TRIPS Agreement with a view to its adoption within six months. The amendment is to be based on the Decision where appropriate, but will replace the provisions of the Decision.

4. Relationship to Norwegian Law

The provisions concerning compulsory licences in sections 45 ff. of the Norwegian Act of 15 December 1967 No. 9 relating to patents are consistent with the provisions of Article 31 of the TRIPS Agreement. The General Council Decision allows exceptions to be made from the limitations on exports imposed by the provisions of Article 31(f), and defines more closely the provision concerning remuneration set out in Article 31(h). Implementing the General Council Decision will make it necessary to incorporate these special provisions into the Norwegian legislation on compulsory licences.

It will also be necessary to lay down provisions specifying the scope of application of the General Council Decision, i.e. under what circumstances compulsory licences may be granted under this system.

Section 49 of the Patents Act was amended by the Act of 19 December 2003 No. 127. Section 49, new fifth paragraph, reads as follows:

“A compulsory licence shall be issued mainly with a view to supplying the domestic market. The King may by regulations prescribe rules that deviate from this.”

According to the legislative history, the main purpose of section 49, fifth paragraph, second sentence, is to make it possible to issue regulations that will allow Norwegian companies to manufacture pharmaceutical products under a compulsory licence with a view to exporting them to developing countries. Proposition No. 86 (2002-2003) to the Odelsting, p. 80, second column, states that:

“The authority stipulated in the fifth paragraph, second sentence, to prescribe rules that deviate from this requirement has primarily been laid down in connection with the current negotiations in the Council for TRIPS on the use of compulsory licences to ensure the supply of medicines to developing countries. The requirement that compulsory licences are to be granted mainly with a view to supplying the domestic market means that countries that lack domestic manufacturing capacities may have problems in utilising the right to grant compulsory licences. This applies especially to developing countries. Depending on the outcome of the negotiations in connection with the TRIPS Agreement, it may in the future be possible for Norwegian companies to manufacture pharmaceutical products under a compulsory licence for export to developing countries. The authority to make exceptions from the requirements in section 49, fifth paragraph, first sentence, allows for such a situation.”

The provisions for implementing the General Council Decision may therefore be prescribed by regulations pursuant to section 49, fifth paragraph, of the Patents Act, cf. the general authority to lay down provisions in section 69, first paragraph, of the Act.

5. Public Consultation

5.1 The consultation round

A draft of the provisions implementing the General Council Decision in Norwegian law was circulated for comment by the Ministry of Justice on 16 January 2004. The time limit for submitting comments was 16 April 2004. The Ministry of Justice received substantive comments from the following institutions: the Biotechnology Advisory Board, the Bar Association, the Consumer Council, Helse Bergen, the Ministry of Health, the Competition Authority, the Confederation of Trade Unions, the Association of Pharmaceutical Manufacturers, Intellectual Property Law Association, Norsk Patentingeniørers Forening (association of patent engineers), the Ministry of Trade and Industry, the Patent Office and the Ministry of Foreign Affairs.

The Ministry of Labour and Government Administration, Axis Shield, the Consumer Council, the University of Science and Technology, the Office of the Attorney-General, Rikshospitalet University Hospital and the Ministry of Education and Research stated that they had no comments.

5.2 Comments of the commenting bodies

The following bodies explicitly supported the proposal to implement the General Council Decision in Norwegian law: the Biotechnology Advisory Board, Helse Bergen, the Ministry of Health, the Confederation of Trade Unions, the Association of Pharmaceutical Manufacturers, Norsk Patentingeniørers Forening (association of patent engineers), the Ministry of Trade and Industry, the Patent Office and the Ministry of Foreign Affairs.

The Association of Pharmaceutical Manufacturers commented as follows:

“The pharmaceutical industry in Norway and at the global level supports the General Council Decision. Norway is a small country with a small pharmaceutical sector, and changing the compulsory licence system will not affect this industry to any appreciable extent. However, from an international point of view it is very important that the General Council Decision is implemented as correctly and explicitly as possible, even if certain specified details might seem to be unnecessary from Norway’s point of view.”

For these reasons the Association has proposed more specific wording for some of the implementation provisions.

The Biotechnology Advisory Board’s reply included the following comment:

“The Biotechnology Advisory Board welcomes the Government’s efforts to secure the WTO decision to make amendments that would broaden the conditions for granting a compulsory licence and its efforts to ensure such rapid implementation in Norwegian law. This means that the pharmaceutical industry can produce pharmaceutical products for export to developing countries if this should be necessary or desirable. Even though Norway has a small pharmaceutical sector and the Decision will probably have little significance for the industry, it still opens up opportunities for the biotechnology industry during its development.”

The Ministry of Health commented:

“The Ministry of Health welcomes the amendment to the Patent Regulations pursuant to the General Council Decision. This is a very important step in the efforts to improve developing countries’ access to essential medicines. The risk of an importing country exporting these products to another country is balanced by the positive effect that this measure will have. In this connection it is important that both developing and industrialised countries are aware of the obligations set out in paragraph 4 of the Decision.”

The Ministry of Trade and Industry supported the proposal, but pointed out that an extensive use of the system by the industry might have trade policy consequences in the form of reactions from countries where the right holders are established.

None of the commenting bodies opposed the proposal, but some commented on the method of implementation. The Bar Association commented that:

“A compulsory licence for production and export to an eligible importing State is to be granted with a view to satisfying the importing State’s current needs. However, it is necessary to consider what the consequences would be if the objective is not achieved, for example if the importing State does not verify or if necessary take measures to ensure that the product is actually used to satisfy its current needs. The regulations should stipulate that in such cases the compulsory licence may be cancelled.”

The Intellectual Property Law Association “considers that in principle it is positive that the WTO General Council has succeeded in arriving at a decision that will secure developing countries’ access to essential medicines”. However, the Association considers it “highly necessary that the Norwegian authorities are aware, both when the licence is issued and otherwise, of the risk that the system will be abused, and that they consider taking measures to prevent such abuse”.

6. Evaluation

The public consultation resulted in strong support for the proposal to implement the General Council Decision in Norwegian law. It is therefore proposed that the provisions for implementing the Decision are included in sections 107 to 109 of the Patent Regulations. Reference is also made to the comments on the individual provisions in section 8 below.

7. Economic and Administrative Consequences

The implementation of the General Council Decision in Norwegian law will make it possible for companies in Norway to manufacture pharmaceutical products under a compulsory licence for export to States that are unable to manufacture these products themselves. This will help to give developing countries better access to essential medicines.

The pharmaceutical industry in Norway is relatively small, and there are probably not many companies with the capacity to take on the task of manufacturing pharmaceutical products under compulsory licence for another State. It is therefore not certain what the consequences will be of the implementation of the General Council Decision.

The amendment to the regulations will not have appreciable economic or administrative consequences for the courts or the Competition Authority, which are the bodies authorised to grant compulsory licences in Norway.

8. Comments on the Individual Provisions of the Regulations

Section 107

The first paragraph sets out that under certain specified conditions a pharmaceutical company in Norway is to be granted a compulsory licence to use a patent-protected invention with a view to manufacturing pharmaceutical products for export to another State. Thus producers that apply for a compulsory licence have a legal right to such a licence if the conditions have been fulfilled. This ensures greater predictability than if compulsory licences were to be granted on a discretionary basis, and reduces the risk inherent in starting negotiations on supplying products before a compulsory licence has been granted in Norway. As long as the importing State’s request to import the pharmaceutical product is based on public health considerations and falls within the scope of the General Council Decision and the provisions of the TRIPS Agreement, the requirement of important public interests must be considered to have been met, cf. section 47 of the Patents Act. The Norwegian authorities should thus not evaluate independently whether such important public interests are involved, cf. the comments on section 108, first paragraph, item 3, below.

A compulsory licence may only be granted if the pharmaceutical products in question are to be produced for export to an “eligible importing State”. The State must have requested the producer to supply the pharmaceutical products, but a final agreement is not required.

The provision does not prevent the producer from exporting to more than one State as long as the conditions for a compulsory licence have been met in each case.

For the purpose of the regulations, an eligible importing State is any State that, at the time when the application for a compulsory licence is submitted, is designated by the UN as a least developed country, or that has insufficient manufacturing capacity in accordance with the Annex to the General Council Decision. The State must also have made a notification to the Council for TRIPS in accordance with paragraph 1(b) and paragraph 2(a) of the General Council Decision. The information in the notification is described under section 3.3 above. A customs territory may also be an “eligible importing State”, since separate customs territories have independent rights under the WTO Agreement.

It is also proposed that States that are not Members of the WTO should be given the opportunity to conclude agreements on the import of pharmaceutical products manufactured under compulsory licence in Norway on the same terms as Members of the WTO, cf. section 107, second paragraph, of the draft regulations. In such cases notification concerning the information contained in the General Council Decision must be made to the Ministry of Foreign Affairs.

Section 108

The first paragraph sets out the remaining conditions for granting a compulsory licence for exports to an eligible importing State.

One condition for obtaining a compulsory licence is that the producer has first unsuccessfully tried to obtain a voluntary licence, cf. Article 31(b) of the TRIPS Agreement. This is not necessary in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. The provision set out in section 49, first paragraph, of the Patents Act (amended by Act of 19 December 2003 No. 127) is based on this, cf. Proposition No. 86 (2002-2003) to the Odelsting, p. 80, first column. The General Council Decision does not make an exception from this provision of the TRIPS Agreement.

Pharmaceutical products that are manufactured under this system will probably normally be subject to non-commercial use under the auspices of the public authorities of the importing State. It is possible, however, that commercial health institutions in the importing State will also be given access to the products. It cannot be assumed, therefore, that it will never be necessary to first try to obtain a voluntary licence, and this must be evaluated on a case-to-case basis. Often the most reasonable way to proceed would at any rate be to begin by negotiating with the right holder.

Thus, according to the first paragraph, item 1, of section 108, the producer must first have tried to obtain a licence on reasonable commercial terms and conditions by agreement, insofar as this is required pursuant to section 49, first paragraph, of the Patents Act. In considering what are “reasonable commercial terms and conditions”, account must be taken of the economic value that the use of the invention represents for the importing State, cf. section 108, second paragraph. If the right holder demands a fee that cannot be regarded as reasonable, the condition for a compulsory licence pursuant to the first paragraph, item 1, is fulfilled.

A compulsory licence may only be granted if the pharmaceutical product in question is covered by paragraph 1(a) of the General Council Decision, see first paragraph, item 2.

Another condition is that the product must be produced only for export to the eligible importing State in order to satisfy the State’s current public health needs, as set out in the notification in section 107, see first paragraph, item 3, of the draft of section 108. A compulsory licence must be limited to such cases. The provision is based on paragraph 2(a) and (b) of the General Council Decision.

The fact that it is the importing State’s “current public health needs” that are to be met means that the Norwegian authorities should normally take account of the public health needs specified in the notification as long as it is made clear that these needs are consistent with the situation at the time when the request for a compulsory licence is submitted. The importing State’s own assessment on this point should not be reviewed by the Norwegian authorities unless there are specific indications that the situation has been inaccurately described, for example if the importing State’s real intention is that the product should be used for industrial rather than public health purposes. However, the compulsory licence must be within the limits of the notification to the Council for TRIPS. The notification by the importing State will therefore indicate the the scope of the licence.

Another condition is that the invention must not be protected by a patent in the eligible importing State, or that the said State has granted or has undertaken proceedings to obtain a compulsory licence pursuant to Article 31 of the TRIPS Agreement and the General Council Decision, for example by filing a writ of summons. This condition is specified in section 108, first paragraph, item 4, which is based on paragraph 2(a)(iii) of the General Council Decision.

The draft regulations do not impose specific standards of quality that the product must satisfy, for example whether the product needs to have been approved for marketing in Norway or another EEA country. Thus it is the quality requirements in the importing State that will determine which pharmaceutical products may be manufactured in Norway for export under a compulsory licence. However, the pharmaceutical products must be manufactured in accordance with Norwegian statutory requirements concerning the manufacturing process.

The second paragraph sets out that when assessing what are reasonable commercial terms and conditions pursuant to section 49, first paragraph, of the Patents Act, and when determining the remuneration to the right holder pursuant to section 50, second paragraph, of the Act, account is to be taken of the economic value to the importing State of the use of the invention. The provision is based on paragraph 3 of the General Council Decision, which defines more closely the provision of Article 31(h) of the TRIPS Agreement, which states that the remuneration is to take account of “the economic value of the authorization”.

The fact that market conditions in the importing State are to be taken into consideration often means that the remuneration is fixed at a relatively low level.

If pharmaceutical products are manufactured or sold in Norway under compulsory licence in conflict with the licensing conditions, the patent will in principle have been violated. In such cases the patent holder will be able to invoke the general penal provisions of the Patent Act. It is important that the patent holder is also protected against unauthorised use of the invention in the importing State, for example if it is exported to an unauthorised State. The decision to grant a compulsory licence must include conditions to guard against such unauthorised use, cf. third paragraph. Furthermore, the labelling and container must be distinct from those of products being offered for sale in Norway or in another state by the patent holder himself or with his consent, cf. third paragraph, item 1. The products must also be labelled so as to clearly indicate that the pharmaceutical product has been manufactured under compulsory licence in Norway for export to a specified importing state in accordance with the General Council Decision, cf. third paragraph, item 2. These provisions are based on paragraph 2(b)(ii) of the General Council Decision. A further requirement is that the manufacture and export of the product are to cease if the licence holder learns that the products are being used to an appreciable degree for purposes that are not in accordance with the conditions for granting the licence. This provision is intended to take account of the comments by the Bar Association, the Ministry of Health, the Association of Pharmaceutical Manufacturers and the Intellectual Property Law Association.

The expiry of the compulsory licence is otherwise covered by the general provisions of the Patent Act. Special reference is made to section 50, second paragraph, of the Patent Act, which gives the competent court the right to cancel the licence if circumstances should change considerably.

Section 109

The first paragraph has been included in response to a proposal by the Association of Pharmaceutical Manufacturers. The provision prescribes that the competent court or the Competition Authority is to make a notification to the Council for TRIPS concerning the compulsory licence in accordance with the General Council Decision, paragraph 2(c).

The second paragraph obliges the recipient of a compulsory licence to post certain information on its website. This information consists of the quantities being manufactured, the name of the importing State and distinguishing features of the packaging, see paragraph 2(b)(iii) of the General Council Decision.

9. Submission

A draft of the Royal Decree was submitted to the Ministry of Finance, the Ministry of Health, the Ministry of Trade and Industry, the Ministry of Foreign Affairs and the Patent Office. None of these bodies had any comments to make.