Background

Patent pools as a tool for the collective management of intellectual property rights are not a new concept. The earliest example is in the late 19th century for the sewing machine and the most important was the US Manufacturers' Aircraft Association pool recommended by the US Government in 1917 to ensure that aircraft manufacturers had access to essential patents.

Patent pools have been used successfully in areas such as the electronic and communication industries where it is important that differing manufacturers can operate to set standards. A good example of this is the MPEG_2 patent pool which contains patents from nine different organisations. All the patents in the pool are necessary to enable manufacturers of televisions, DVD's, DVD players and telecommunications equipment to meet MPEG_2 video compression technology.

A critical aspect of the formation of the pool was the inclusion of only patents that are essential to the MPEG_2 standard. Essentiality in this instance is reviewed by an independent expert. The importance of only essential patents being part of the pool is to ensure that market competition is maintained. It is also important to note that membership in the pool is entirely voluntary.

The potential use of patent pools in the pharmaceutical industry has been raised by the World Health Organisation (WHO) as a possible solution to promoting better access to medicines in developing countries. The WHO set up an independent Commission on Intellectual Property Rights, Innovation and Public Health (CIPIH) with its main mandate to "produce an analysis of intellectual property rights, innovation and public health, including the question of appropriate funding and incentive mechanisms for the creation of new medicines and other products against diseases that disproportionately affect developing countries".

The CIPIH published its report in April 2006. One of the recommendations in the report was that the WHO and the World Intellectual Property Office (WIPO) should consider playing a bigger role in promoting patent pools, particularly to address diseases that disproportionately affect developing countries.

The CIPIH established the Intergovernmental Working Group on Public Health, Innovation and Intellectual Property (IGWG). IGWG will submit a Global Strategy and Plan of Action (GSPA) based on the recommendations of the CIPIH to the 61st World Health Assembly in May 2008. The recent meeting of IGWG in November 2007 considered the draft GSPA proposal to promote patent pools of upstream and downstream technologies. The report of this meeting is not yet available.

There are two patent pool proposals for pharmaceuticals in the GSPA, including a model put forward by Knowledge Ecology International and an alternative patent pool proposal from The Innovation Partnership.

Proposed patent pool model by Knowledge Ecology International (KEI) for HIV/AIDS:

The Essential Patent Pool for AIDS (EPPA) proposal to IGWG by KEI is designed to assist in making the campaign to fight the AIDS pandemic sustainable and scalable.

The EPPA would work as follows:

• The patent pool would be created as a standalone non-profit entity;
• The EPPA would identify essential patents for the treatment of AIDS in developing countries;
• The EPPA would simultaneously negotiate agreements with patent holders and national governments;
• Patent owners would be asked to voluntarily licence patents to the EPPA, for use in countries not designated as high income by the World Bank;
• In cases where the EPPA failed to obtain voluntary licences, it would seek compulsory licences; and
• Licensing by the EPPA, under voluntary or non-voluntary arrangements, would follow "best practice" models, including:
  • Consistency with national patent laws and trade agreements on patents;
  • Non-discriminatory "open" licence to any qualified party;
  • Rights to manufacture, export, import and sell;
  • Adequate remuneration using transparent and predictable royalty guidelines; and
  • Requirements that patent owners met appropriate standards of quality.

Although this is a specific and quite detailed example, it follows the tested model of the US Manufacturers' Aircraft Association pool structure. Therefore it does not take into account the specific issues that would face the creation of a pharmaceutical patent pool.

Patent pool proposal from The Innovation Partnership

This proposal is more theoretical. The proposal suggests that a patent pool would specifically foster the development of new combinations or formulations to meet developing world needs and reduce prices. It reviews the creation of patent pools in relation to the TRIPS agreement and concludes that TRIPS does not place any hurdles to the viability of a patent pool. They suggest that patent pools are voluntary as non-voluntary licensing would be complex and could raise national and international legal issues.

However they do note that voluntary participation may be difficult to encourage and recommend that compulsory licensing is considered if voluntary participation cannot be achieved.

• The advantages to voluntary involvement for patent-holders are stated as:
• Opportunities to show how the current patent system is not a barrier to access to medicines by voluntarily participating in a medicines patent pool;
• Opportunities to blunt criticism for the lack of action in making medicines available in developing countries or even to insulate patent-holders from criticism by transferring the pressure to the patent pool;
• Opportunities to garner positive publicity including praise and congratulations from international organizations, government leaders, and NGOs; and
• Opportunities to gain more reliable sources of revenue and develop new markets, especially if a major sources of funding (international organisations, governments, private foundations, or prize funds) commit to buying drugs produced under the pool or to offset research and development costs involved in demonstrating the safety and efficacy of new formulations.

SARS patent pool

The proposed SARS virus patent pool was put forward in response to the outbreak of SARS. The World Health Organization (WHO) set up a network of laboratories to help control the disease, which led to the isolation of the causative virus and the sequencing of its genome. The research led to the filing of numerous patent applications by a multitude of public and private sector entities.

The concern of the WHO was that the numerous patents granted would block research and the development of vaccine for this virus. To address this, the WHO set up a SARS consultation group, which proposed "that a strategy be developed, in consultation with stakeholders, to address potential SARS corona virus related intellectual property issues and, thus, enhance development of intervention approaches."

The potential for creation of the patent pool was initially discussed in 2005 and the relevant parties have been identified. Principal agreement has been gained, officially, by the signing of a letter of intent. To date, the agreement has not yet been completed. This highlights the potentially long timeframes and difficulties in getting agreement to set up patent pools.

Review of Pharmaceutical Industry Patent Pool proposals

There are fundamental differences between the pharmaceutical/biotech sectors and other industries where patent pools have been utilised. The need for inter-operability plays a large part in the success of the patent pools created in the electronics and communications sectors. This factor is not present in the pharmaceutical industry. These industries have high numbers of patents that are essential to operate to the set industry standards. For example, the 3G mobile phone technology patent pool has thousands of patents that have been declared for the relevant standards.

Patent pools are therefore an effective tool to remove the need to obtain individual licences necessary to manufacture or operate. The closest one gets to an equivalent concept is the use of drugs in combination, particularly cancer and HIV/AIDS.

A pre-requisite of all patent pool proposals in the pharmaceutical sector or any sector is the identification of specific patents that are required for the pool. This would in itself be a difficult exercise unless there was only one drug available to treat a particular disease. If that were the case, a pool would actually be unnecessary anyway.

Valuation of the different patents is an area of potential dispute. There is no incentive to join a patent pool for a dominant player in the market. In addition if there are many choices of drug available for a particular disease, any company owning a drug that was not chosen for the pool would have an argument that they should be included and claim royalties.

The determination of a licence fee split is potentially the most difficult area for pharmaceuticals. It is very difficult to compare different drugs unless comparator trials have been performed. Even different comparator studies can produce differing results. In addition, different clinical trials with the same drug can produce different results. Which data would be utilised for the purposes of a patent pool to set efficacy and contribution to the pool and therefore licensing split?

Proposals for patent pools in the pharmaceutical sector have a common theme in that they suggest a voluntary arrangement. If that does not work, a compulsory scheme would be implemented. This is in contrast to existing patent pools in other industries. In addition there already is a compulsory licensing scheme for pharmaceutical products to promote access in developing countries.

On October 4, 2007 the first compulsory licence under the WHO scheme was granted in Canada for the combination AIDS therapy drug TriAvir. It will be made by the Canadian generic manufacturer Apotex and exported to Rwanda. A patent pool that enforces a compulsory licence would be contrary to the TRIPS-plus agreement and Doha declaration which state that compulsory licences are only to be issued on a case by case basis.

The compulsory licence issue also has the potentially devastating effect of reducing innovation within the pharmaceutical industry. For example, in Canada in the 1970's and 80's there was a system of compulsory licensing for the manufacture of generic versions of patented drugs. The removal of this compulsory licensing regime was a contentious issue in Canada. However there was a serious concern over the low investment in research and development (R&D) in the Canadian pharmaceutical sector.

In order to alleviate these concerns and as part of the deal to repeal the regime, the Pharmaceutical Manufacturers Association of Canada publicly stated that its members would boost levels of R&D in Canada to 8% of sales by the end of 1991 and 10% of sales by the end of 1996. An increase to 9.6% spend on R&D of sales was achieved by the end of 1991 and 11.4% by the end of 1996 .

This shows the potentially damaging effect of compulsory licences on pharmaceutical R&D. The use of compulsory licences to force pharmaceutical companies to join a patent pool will be a deterrent to research spending in those therapeutic areas likely to utilise patent pools.

Pharmaceutical patent pools would be likely to involve a small number of IP rights holders and a small number of patents. A report from Innovation Strategy Today from a WHO conference in April 2006 calculated that the set up costs for a patent pool for vaccines would only be economically viable if over 25 intellectual property rights holders were involved. In addition, as the SARS example shows, the time taken to set up a patent pool is often very lengthy. The costs of maintaining a pool, especially in the fast-moving and innovative pharmaceutical industry, are high. Patent litigation, which is a feature of the industry, might also delay the inclusion of a drug into a patent pool.

Finally, patent pools can be potentially anti-competitive. A patent pool created for laser vision correcting eye surgery was challenged due to its potential anti-competitive effects. The US Federal Trade Commission's view was that the patents in this pool were competing and not complementary. The consequence of the pool was to remove competition from the market place for eye surgery. The two companies in the pool had to agree to lift restrictions on licensing their patents outside of the pool and the pool ultimately dissolved. Hence only non-competing technologies can be included in a pool.

Conclusion

There might be an argument for creating patent pools on a voluntary basis for patents covering research tools and other early stage technologies. However, the promotion or enforced implementation of such pools is not likely to have any positive contribution to solving the problem of access to medicines in the developing world. In fact, the creation of such pools could be a deterrent to the innovation needed to address world health issues.

Patent pools are an untested model in the pharmaceutical industry. The existing proposals do not appear to offer a realistic or workable solution to the issue with regard to access to medicines. There are potential benefits. However, the pharmaceutical industry is already making significant strides towards addressing the problem of access to medicines through other more effective means. The industry may not be winning the PR battle on this issue but that is hardly a reason to attempt forced implementation of such an unnecessary and untested solution.

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For further information about this published aticle, contact Kathryn Hobbs on +44 (0)121 213 2397, Alexa Highfield on +44 (0)121 213 2396 or Amie Ryalls on +44 (0)121 213 2360

This published article may contain information of general interest about current legal issues, but does not give legal advice.