The Interpretations of Article 31 in the TRIPS Agreement

Article 31 of the TRIPS Agreement stipulates basic conditions that must be observed by governments when granting compulsory licenses.

Article 31 deals with non-authorized uses that do not meet with one of the three conditions established by Article 30. Article 30 establishes three conditions that any derogation from the exclusive rights must observe: (1) exceptions must be limited; (2) they may not unreasonably conflict with the normal exploitation of the patent; (3) they may not unreasonably prejudice the legitimate interests of the patent owner, taking into account of the legitimate interests of third parties. Only when a person who has not obtained and authorization from patent holder needs to use a patented invention in a way that is not in consistence with Article 30, will Article 31 come into play.⁵¹

50 See, e.g., Frederick M. Abbott, Protecting First World Assets in the Third World: Intellectual Property Negotiations in the GATT Multilateral Framework, 22 VAND. J. TRANSNA’L L. 689, 898 (1989).

51 Carvalho, supra note 4, at 315.

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Compulsory license is an authorization granted by governments, which substitute their authority for the consent of patent holders, for a third party in against or regardless of the paten owner’s will. It may be granted to two categories of users: the government (or a government agency) or third parties working for the government (such as public contractors); as well as a third party. However, the language in Article 31 does not distinguish the conditions, such as duration and price, based on the specific nature of the licensee, whether a government or a private firm. Therefore, except for formalities and process required for granting compulsory license, governments and private companies are on the same footing. Article 31 of the TRIPS stipulates:

“Where the law of a Member allows for other use⁵² of the subject matter of a patent without the authorization of the right holder, including use by the government or third parties authorized by the government, the following provisions shall be respected:

(a) authorization of such use shall be considered on its individual merits;

(b) such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time. This requirement may be waived by a Member in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. In situations of national emergency or

52 "Other use" refers to use other than that allowed under Article 30.

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other circumstances of extreme urgency, the right holder shall, nevertheless, be notified as soon as reasonably practicable. In the case of public non-commercial use, where the government or contractor, without making a patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government, the right holder shall be informed promptly;

(c) the scope and duration of such use shall be limited to the purpose for which it was authorized, and in the case of semi-conductor technology shall only be for public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive;

(d) such use shall be non-exclusive;

(e) such use shall be non-assignable, except with that part of the enterprise or goodwill which enjoys such use;

(f) any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use;

(g) authorization for such use shall be liable, subject to adequate protection of the legitimate interests of the persons so authorized, to be terminated if and when the circumstances which led to it cease to exist and are unlikely to recur. The competent authority shall have the authority to review, upon motivated request, the continued existence of these circumstances;

(h) the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization;

(i) the legal validity of any decision relating to the authorization of such

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use shall be subject to judicial review or other independent review by a distinct higher authority in that Member;

(j) any decision relating to the remuneration provided in respect of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member;

(k) Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive. The need to correct anti-competitive practices may be taken into account in determining the amount of remuneration in such cases. Competent authorities shall have the authority to refuse termination of authorization if and when the conditions which led to such authorization are likely to recur;

(l) where such use is authorized to permit the exploitation of a patent ("the second patent") which cannot be exploited without infringing another patent ("the first patent"), the following additional conditions shall apply:

(i) the invention claimed in the second patent shall involve an important technical advance of considerable economic significance in relation to the invention claimed in the first patent;

(ii) the owner of the first patent shall be entitled to a cross-licence on reasonable terms to use the invention claimed in the second patent; and

(iii) the use authorized in respect of the first patent shall be non-assignable except with the assignment of the second

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patent.”

Due to the vagueness of languages in Article 31, there is no explicit proclamation of the permitted grounds of issuing compulsory licenses. As a result, it leaves considerable room for adjudication and scholars to interpret the clause. Some says the grounds of granting compulsory licenses were therefore open to nation’s discretion, and the requirements set out in Article 31 are merely standards of process which should be followed in issuance of such license. The debate of the controversy of compulsory licenses in TRIPS never subsides when it comes to interpretations of the context of Article 31. Most of them were centered on the justification to narrow or broad interpretations of such issue left by the TRIPS Agreements.

1.2.1. Broad interpretations on the grounds of compulsory license For those who see patent protection as privileges competing with other social interests may in favor of a broader interpreting flexibility in order to give nations more discretion in respect of granting compulsory licenses under their own balancing policy. For example, views in such tendency might suggest that, apart from certain provisions, Article 31 does not generally prohibit any grounds for compulsory licensing means that national discretion to compel a license is implicitly wide-ranging, including a various public interests concerned.⁵³

To further support this view, there are several interpretive guidance

53 Mexico – Taxes on Soft Drinks: Mexico – Tax Measures on Soft Drinks and Other Beverages, WT/DS308/AB/R, adopted 24 March 2006 [384].

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consistently indicates that Article31 can take precedence over Article 27.1⁵⁴ and 28.1⁵⁵, which ensure patent owners right on exclusivity. This guidance includes the following reasons: firstly, the titles of the exceptions in Article 30 and 31 make these clauses adopted prior to the patents’ rights in accordance with the well-establish rule of lexspecialis derogate legigenerali, which conveys that specific law prevails over general law. To affirm that Article 31 is generally subject to Article 27 could limit its application in ways that were not intended either by the negotiators or indeed by the text of TRIPS Agreement. For instance, the WTO panel in the Canada- Pharmaceutical Patents case interpreted Article 27.1 flexibly.(The adopted Panel or Appellate Body reports create legitimate expectations among WTO members, and therefore should be taken into account while facing relevant disputes. These reports can provide guidance for the future panel in respect of dispute settlement.⁵⁶)Indeed, the Panel ruled that compulsory licensing should be subject to non-discrimination required in Article 27.1. Nevertheless, it emphasized that it “does not prohibit bona fide exceptions to deal with problems that may exist only in

54 Article 27.1 of the TRIPS Agreement states that “Subject to the provisions of paragraphs 2 and 3, patents shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application.

Subject to paragraph 4 of Article 65, paragraph 8 of Article 70 and paragraph 3 of this Article, patents shall be available and patent rights enjoyable without discrimination as to the place of invention, the field of technology and whether products are imported or locally produced.”

55 Article 28.1 of the TRIPS Agreement stipulates “A patent shall confer on its owner the following exclusive rights:

(a)where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product;

(b)where the subject matter of a patent is a process, to prevent third parties not having the owner’s consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process.”

56 Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996[14]; see also United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998[21.5].

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certain product area."⁵⁷ It can be inferred that Art. 31 is a self standing Article. Therefore, different treatment resulting from compulsory licenses does not necessarily amount to “discrimination” under Article 27 as long as the intent of the measures is in goodwill.

Secondly, the principle in the Vienna Convention on the Law of Treaties (VCLT) seeks conformity to the objectives and principles⁵⁸, which is Article 7 and 8 of the TRIPS Agreement, as a whole. According to Dispute Settlement Body (DSU) Article 3.2⁵⁹, the provisions of the WTO covered Agreement should be clarified in accordance with customary rules of interpretations of public international laws. Based on the US － Gasoline, US – Shrimp, Japan – Alcoholic case, the VCLT has been long recognized as the customary rules of interpretation of public international law.⁶⁰

The Panel of the WTO dispute settlement expressed their opinions in the Canada- Pharmaceutical Patents⁶¹, finding that, “Both the goals and the limitations stated in Articles 7⁶² and 8.1⁶³ must obviously be borne in

57 Canada – Pharmaceutical Patents: Canada – Patent Protection of Pharmaceutical Products, WT/DS114/R, adopted 7 April 2000, DSR 2000:V, 2289.[7.92].

58 Vienna Convention on the Law of Treaties, Art. 31.1. It stipulates: “A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their contex and in the light of its object and purpose.”

59 The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.

60 See United States – Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted 20 may 1996, at [17]; see also United States – Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, at [114]; Japan – Alcohol: Japan – Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, at [10].

61Canada – Pharmaceutical Patents, supra note 57, at [7.26].

62 Article 7 of the TRIPS states: ” The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.”

63 Article 8 of the TRIPS Agreement states:

“1. Members may, in formulating or amending their laws and regulations, adopt measures necessary to

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mind when doing so as well as those of other provisions of the TRIPS Agreement which indicate its object and purposes.”⁶⁴

Article 7 articulates that one of the key goals of the TRIPS Agreement is to strike a balance between the protection of intellectual property rights and other important socio-economic policies pursued by WTO Members.

IPRs should work ‘in a manner conducive to social and economic welfare’.

This means that the recognition and enforcement of intellectual property rights are subject to higher social values (as further developed in Art. 8.1 of the Agreement)⁶⁵.The TRIPS Agreement must be viewed as a means for the realization of public policy objectives via the ‘inducement to innovation’ and the access to the result thereof by those who need them.⁶⁶

Article 8 is an important provision for framing national laws that respond to particular public health and other public interests. It makes clear the measures may be adopted in order to prevent or remedy abuses of intellectual property rights.⁶⁷This suggests that measures adopted by Members to address public health, nutrition and matters of vital socio-economic importance should be presumed to be consistent with TRIPS. Discretion to adopt measures is built into the Agreement. So long as sectors and measures are identified in good faith, the sovereign discretion of the Member adopting such measures should be accepted and

protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.

2. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. “

64 CARLOS M.CORREA,TRADE RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS 284-87(2007).

65 Id., at 99.

66 Id., at 94.

67 Id., at 104.

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respected.⁶⁸

In that sense, it can be inferred that wide-ranging grounds of compulsory licenses pursuant to national laws balancing various public interests are permitted by the TRIPS Agreement in the perspective of

“patents as mere privileges”.⁶⁹

1.2.2. Narrow interpretation on grounds of compulsory license

On the contrary, for the advocates for strong patent protections, who deem patents as uber-right, compulsory licenses can, therefore, only be granted on the following limited grounds:

(1) To remedy a practice determined after judicial or administrative process to be anti-competitive (Article 31(k));

(2) To permit the exploitation of a patent which cannot be exploited without infringing another patent (Article (l) );

(3) To prevent abuses which might result from the exercise of the exclusive rights conferred by the patent (Article 5 (A)(2)(3) of the Paris Convention);

(4) To repress the lack of or insufficient working of the patented invention (Article 5 (A)(2)(3) of the Paris Convention);

(5) Public interest (of which cases of national emergency or other circumstances of extreme urgency or of public non-commercial use (Article 31(b))⁷⁰

In point of this view, the grant of compulsory licenses based on

68 CAMBRIDGE UNIVERSITY PRESS,RESOURCE BOOK ON TRIPS AND DEVELOPMENT 127 (2005).

69 Correa, Supra note 64, at 390.

70 Carvalho, supra note 4, at 318.

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wide-ranging grounds may be violations of Article 28.1. The main problem with compulsory licenses is that they harm both patentees and the countries where they are granted. On the patent owners’ side, the granting of compulsory license basically denies their right protected by the TRIPS Agreement: the right to say “no”. On the side of countries granting the compulsory licenses, they have actually producing the results of discouraging any attempt to establish and independent, research-based industry that may meet the demands of the local markets.⁷¹

These two side effects contribute to the consequence that compulsory licenses will kill any initiative to use creation in the development of new products because technology is easily copied, thus bring greater disadvantage to the society. Before the implementation of the TRIPS, evidence has shown that the countries using compulsory license scheme extensively resulted in the vanishing of local research-based industry within the fields affected by the licenses. For example, during the Uruguay Round, the U.S. research-based pharmaceutical industry made a strong case that without effective patent protection, no pharmaceutical industry based on genuinely inventive activity could survive. In addition, Canada was frequently indicates that, as an illustration of a country whose pharmaceutical industry had been reduced to manufacturing copied products due to the lack of patent protection.⁷²

The fact that Article 31 does not define the grounds on which compulsory licenses may be granted does not mean that governments may grant those license under unrestricted discretion, such as on frivolous or on

71 Id.

72 Id. at 316.

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no grounds. Considering the rule that compulsory licenses are exceptions to patent right on exclusivity, it should be understood in a restricted way. In other words, governments can only grant compulsory licenses in very exceptional circumstances and when there are serious reasons to justify the grant.⁷³

The TRIPS Agreement is not completely silent about the grounds of issuing compulsory license. For one reason, Article 27.1 established that government may not grant compulsory licenses on grounds of lack of local working. National laws may still require the working of the patented invention, but patent owners should be allowed, under Article 27.1 of the TRIPS Agreement and Article III.4 of the GATT 1994, to discharge themselves from the obligation by importing the patented products. For another, compulsory license should not be granted for the mere reason that the patent owner has refused to license the patent to a third party. It must be borne in mind that the essence of patent right is to say “no” to any third party in respect of authorization. Refuse to let the patent owner the possibility of saying “no” is an unacceptable derogation of the patent rights itself, which would be a violation of the core objective of the standards adopted by the TRIPS Agreement. Additionally, in consistence with Article 31 (b) of the TRIPS Agreement, prospective licensee should seek to obtain a voluntary license prior to requesting a compulsory license. In this sense, the patent holders are entitled to deny engaging in licensing agreement.⁷⁴

73 Id.

74 Id., at 317.

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