Patent pools: A solution to problems of access to medicines and other essential inventions?

Por: Luisa Herrera - LLM, Docente Investigadora

Albert Einstein once said: We can't solve problems by using the same kind of thinking we used when we created them. All dilemmas and problems were created when society believed more in exclusions and differences. Collective innovation and other collaborative mechanisms of contract law and intellectual property are offered as solutions to the deficiencies of technological markets and the possible effects derived from patent thickets.

Albert Einstein once said: We can’t solve problems by using the same kind of thinking we used when we created them. All dilemmas and problems were created when society believed more in exclusions and differences; however, what if we start, even in our businesses and professions to change to an inclusive and unifying thought that recognizes that we are one; and that regardless of race, region, gender, economic status, we all get sick, we all feel and we all need.

Collective innovation and other collaborative mechanisms of contract law and intellectual property are offered as solutions to the deficiencies of technological markets and the possible effects derived from patent thickets. In fact, licenses have increasingly become the basis on which companies are built. WIPO, in its article “The evolution of technology markets: Separating fact from fiction,”^[1]presents the example of Qualcomm an American company, which is dedicated to the business of developing innovative technologies to grant licenses to external sources, “For Qualcomm, the ability to grant licenses worldwide for its technology to more than 190 suppliers of wireless devices, equipment and related software and obtain a reasonable profit from the licensing of its patents is critical.”, says Donald J. Rosenberg, Qualcomm General Counsel.

Specialized companies, which develop their competitive advantage in a specific area and take advantage of it by licensing their technologies, form the base of and foster the practice of collaborative innovation. Mr. Rosenberg points out that “Qualcomm’s business model – granting numerous licenses to our technology and reinvesting in R&D – is enabling the success of many other companies in the wireless value chain.” He adds that “the wide diffusion of Qualcomm’s inventions has generated competition among service providers and device providers, which has increased consumer choice and unleashing new economic opportunities to companies in other related areas.”

In developing countries, reciprocal licensing and patent pools are used to encourage competition and prevent barriers to innovation. For this reason, their application seems to offer alternative solutions to developing countries when applying Articles 8.2 and 40 of the TRIPS Agreement.

Thus, pharmaceutical companies could mutually grant licenses to each other instead of blocking innovation, generally without imposing royalties on the counterparty. However, when the parties grant exclusive licenses, issues arise since the technologies are under sole control by one of the parties, thus affecting competition.

Patent pools consist of licensing contracts between two or more parties when two or more entities control a group of patents on elements that are necessary to produce a drug^[2]. These patent pools could be interpreted as being for or against competition, depending on the terms agreed to between the companies involved and who is in charge of administrating the consortium.

The truth is that this type of contract may be an effective mechanism to reduce costs for both patent holders and consumers. In fact, pharmaceutical companies could create a consortium of the patents required by each of the companies to create a new drug, or they can grant a license to a generic drug company without the payment of royalties.

With this in mind, it is possible to identify two types of patent pools: 1) the first type is intra pool or a set of related inter-member licensing contracts in which licenses are granted through several contracts entered into between the companies that are part of the consortium or through a multilateral contract. The second type or extra pool is made up of licenses that the consortium grants to third parties ^[3].

Yet, it is necessary to point out that even though the concept of patent pools integrates cross-licensing, most of the time these are structured in an independent and differentiated manner. Hence, it is essential to identify the differentiating criterion of both types. Indeed, the existence of a different management structure is the most important characteristic of patent pools, which will be represented and managed by a different entity; its structure and operation is very similar to that of an autonomous patrimony. On the other hand, cross-licenses are are a network of contracts that are related to each other by the dependent technologies that are licensed

The purpose of cross-licensing is reciprocal access to intellectual property rights held by the contracting parties, while patent pools are oriented to generating a contractual licensing scheme for third parties that are outside the consortium’s network.

Monica Armillota, in her book “Technology Pooling Licensing Agreements: Promoting Patent Access Through Collaborative IP Mechanisms”, states that patent pools are the ideal infrastructure to guarantee not only the inclusion of all market players but also a decrease in costs that could be incurred in a scheme that requires multiple negotiations. Without question, alternatives such as cross-licensing involve individual negotiations, which in turn generate the payment of royalties that each of the rights holders charges^[4].

Patent pools also seek to avoid anticommons, a phenomenon that occurs when the exploitation of an economic resource is obstructed by a variety of individual exclusionary rights that apply to it and that therefore, prevent the creation of a final product which requires the antecedent patents held by various holders. Thus, through patent consortia, negotiation and management of said economic resource among the various patent holders is facilitated, allowing all members of the consortium to access inventions required for the development of their own inventions.

The foregoing also provides a solution to the Holdup and complements problem, which together constitute obstacles to innovation and factors that generate drug price increases. Holduprefers to the bargaining power held by a patent holder when it has been recognized as an essential standard in a given consortium. The adoption of a standard leads to users being tied to the selected technology when joining the consortium and therefore, the owner will have the prerogative to grant licenses at high prices. The complements problemrefers to situations which require several patents held by different owners making it necessary to carry out multiple legal agreements, increasing transaction costs and therefore the price of the final products (Rodilla Martí Carmen, Consorcios de estandarización, patentes esenciales y cláusulas FRAND, Tirant lo Blanche, Valencia, 2016.)

 

However, both cross-licensing and patent pools could have anticompetitive effects when the negotiated licenses are exclusive, preventing others from using the technology involved. Pools can also serve as mechanisms to set prices and conditions for the sale of substitute technologies between them, thus preventing new technologies from competing with those inventions belonging to the consortium.

Furthermore, pools may imply an obstruction to innovation in two specific situations: 1) when the agreement establishes the obligation of one of the members of the consortium to grant the pool licenses to their present and future patents and 2) in those cases in which the pool includes invalid patents, a situation that could be avoided if a transparent and rigorous selection process is developed for inventions to be included^[5].

In such a case in which said agreements turn out to be restrictive trade practices, obligatory licenses once again arise as a potential solution, but their application must comply with all the requirements stipulated in Article 31 of the TRIPS Agreement, unless it is has been legally or administratively determined that there is anticompetitive behavior, thus, section (k) of the same Article would apply.

In order to establish the effects that patent pools have on the right of competition, it will be necessary to establish the nature of the patents involved. To this end, the doctrine has classified patent pools in the following types: complementary, essential (and non-essential) or substitute. For this purpose, it is understood that complementary patents, but not substitute ones, are those that are necessary to produce the good or carry out the process to which they are associated. A patent shall be essential when there is no substitute and it is required to fulfill a specific purpose. It is important, then, to bear in mind that essential technologies will always be complementary as they will be required by other ones to reach a specific purpose.

In accordance with the interpretation guidelines of the European Technology Transfer Regulation^[10], restrictive competition agreements are those aimed at forming consortiums of substitute technologies, as these are only intended to benefit the pool’s members with technologies which would be difficult to access outside the consortium; additionally, it also prevents licensees from obtaining the benefits of competition between the technologies in question. This coupled to the fact that more often than not, the inclusion of substitute patents but not essential or complementary can also result in tying agreements, which are imposed on the licensee who will not have the option in these cases to separately access the patents that it requires, having to acquire both inventions, those necessary for its activity and those that it will not use. In such cases, the generated royalties will be higher than those derived from the pools composed of essential technologies, since the licensee will be compelled to pay for additional patents that are either substitutes for those it already has through the license or are unnecessary for the established economic purpose. Although, there may be cases in which patent pools are considered anti-competitive agreements, they should not be identified per se as adverse to competition law since their objective is to promote collaboration between several companies for the joint manufacturing and marketing of medicines that can then be purchased at a lower price by consumers. In this regard, the Competition Commission of India (CCI) has considered that collaborative or joint ventureagreements are not per se contrary to the norms and that, on the contrary, their objective may be oriented towards praiseworthy and general interest purposes. Yet, the authority also points out that if the anti-competitive effects of the agreement are proven, the authority would be compelled to intervene the contract and declare its prohibition. The literal wording of the CCI pronouncement states, “collective bargaining may not be per se bad in law and may be resorted to for legitimate purposes in accordance with law. However, when the trade associations enter into agreements, as in the present case, in the garb of collective bargaining which are anti-competitive in nature, then no competition watchdog can countenance such act/agreement. Resultantly, the plea of collective bargaining, in the facts of the present case, is without any merit and the same is directed to be dismissed.”^[6]

Consequently patent pools, when constituting types of collaborative contracts, seem to be the ideal scenario for consumers to benefit from the reduction of transaction costs that patent holders and licensees must assume, but without affecting exclusive right. As previously stated, given the possible anti-competitive effects of these agreements, it will also be necessary to structure these dealings such that they do not become oligopolies or opportunities for members of a consortium to impose technologies that are not necessary for licensees or to impose excessive prices to the patents being licensed.

 

[1]Intan Hamdan-Livramento, La evolución de los mercados tecnológicos: Separar la realidad de la ficción”, OMPI, disponible en: http://www.wipo.int/wipo_magazine/es/2012/02/article_0005.html

[2]Carl Shapiro, Cross Licenses, Patent Pools, and Standard-Setting, (University of California at Berkeley, 2001) Disponible en http://papers.ssrn.com/sol3/papers.cfm?abstract_id=273550Visto el 24 de enero de 2013

[3]Rodilla Martí Carmen, Consorcios de estandarización, patentes esenciales y cláusulas FRAND, Tirant lo Blanche, Valencia, 2016.

[4]Armillota Monica, Technology Pooling Licensing Agreements: Promoting Patent Access through collaborative IP Mechanisms, Munich Intellectual Property Law Center Studies, 2010, Munich.

[5]Ibídem, página 52

[6]New Horizons Ltd v Union of India, 1995 SCC (1) 478, Citado en artículo de Satarawala Chopra Naval & Verma Yaman, Deference is better than cure, en el libro de Pitruzella & Muscolo Gabriella, Competition and Patent Law in the Pharmaceutical Sector, an International Perspective, Wolters Kluwer,

[7]Ver http://www.medicinespatentpool.org/

[8]UNCTAD – ICTSD, Resource Book on TRIPS and Development, (Cambridge University Press, 2005) 160

[9]Intellectual Property Watch, Kelly Burke, Medicines Patent Pool, Roche Strike HIV-Related Medicine Pricing Agreement http://www.ip-watch.org/2013/08/05/medicines-patent-pool-roche-strike-hiv-related-medicine-pricing-agreement/?utm_source=daily&utm_medium=email&utm_campaign=alertsVisto el 5 de agosto de 2013

[10]Comunicación de la Comisión, Directrices relativas a la aplicación del artículo 101 del Tratado de Funcionamiento de la Unión Europea a los acuerdos de transferencia de tecnología (2014/C 89/03), apartado 250. Análisis extraído de Rodilla Martí Carmen, Consorcios de estandarización, patentes esenciales y cláusulas FRAND, Tirant lo Blanche, Valencia, 2016.