IN this 44th instalment, we briefly canvass licences of right and compulsory licencesLicences of right
These are patent licences taken out by third parties after registration of the patent where, upon application by the patentee, the phrase “licence of right” is endorsed against the registration.
By virtue thereof the patentee is effectively inviting all willing third parties to engage them in negotiating for a patent licence on terms and conditions mutually agreed upon by them, the outcome of which is automatically recorded in the patent register. In which event the licencee’s rights to exploit the patented invention are thereby automatically secured and this relieves them from proving justification for the licence grant in future considerations thereto.
In terms of this category of licences, however, where the licencee and patentee fail to reach agreement on certain terms and conditions, the registrar would step in to determine, guided by equivalent precedents obtaining on the domestic market.
Merits over voluntary licences
The merits of licences of right over voluntary licences are too attractive and beneficial to resist, in particular to the sole inventor who otherwise would not possess the financial muscle to do so. In short these include:
(i) the endorsement serving as costless advertisement;
(ii) patent maintenance or renewal fees which are thereby halved; and
(iii) in the event of patent infringement proceedings being instituted, the defendant may avoid the issuance of a prohibitory interdict by undertaking to acquire a licence of right and this ensures the patentee of continued financial inflow in terms of equitable royalties payments.
Determination of reasonable royalties
In determining reasonable royalties under “licence of right”, courts have distilled the following circumstantial alternative guidelines as equitable to both parties, namely:
- That the reasonable royalty is that which would have been arrived at between willing licensor and licencee;
- Royalties payments in comparable cases would provide the appropriate guide to equity as these would represent what the willing licensor and licencee would have agreed upon;
- Where there are no comparable licences that exist, then reliance would be made on such factors as the patentee’s expenditure on research and development (R&D), promotional activities, and projected return on capital employed, and
- As a last resort, to rely on profits available. That is, the profits that accrued as a result of commercial exploitation of the invention.
Thus, it goes without saying that in considering the issuance of licences of right, practical realities dominate, in particular as regards reasonable royalties.
Compulsory licences — the context
Compulsory licensing arises where the patentee is compelled to licence patented invention to third parties on various meritorious grounds.
Originally, emphasis was on preventing abuse of the patent monopoly by the patentee, say, by charging excessive prices for the patented articles, or by sterilising an otherwise extremely beneficial invention to the public by not working it despite enjoying statutory protection bestowed upon it. In the modern context the emphasis has shifted to focus on maximum utilisation of the patented invention for the optimal benefit of society.
Compulsory licences may be granted at the instance of any concerned third parties in any field of human need and endeavour, be it manufacturing, commerce or agriculture, including individuals, legal entities or the state itself.
In this regard, application is made either to the registrar of intellectual property or the court which, after due consideration of the merits of the application, may grant such licences on such grounds as they deem proper and equitable to both the patentee and the licencee.
Grounds for grant
Article 31 of the Trade Related Aspects of Intellectual Property Rights (Trips) Agreement permits member states of the World Trade Organisation (WTO) to provide, in their laws, for certain uses of patented articles by third parties without the authorisation of the patent holder but subject to prescribed conditions.
In this sense it therefore follows that by implication, compulsory licensing is now a legislatively recognised phenomenon in all WTO jurisdictions.
Article 31 is deliberately couched in permissive language so as to accommodate each country’s unique and peculiar circumstances and experiences.
However, the most common grounds meriting the grant of compulsory licences include circumstances where despite patent protection:
- the invention is not being worked at all in the domestic market;
- the invention is not being worked at the fullest reasonably practical capacity;
- local demand for the patented article is not being met on reasonable terms;
- conversely, the export market is not being adequately supplied or not at all;
- the working of other related improvements or dependent patents is being hindered;
- demand for the patented article by importation, but at an excessive price in comparison to the price charged in countries where the article is manufactured,
- commercial, industrial and agricultural activities of the local market are being unfairly prejudiced, and
- by reason of the patent holder’s refusal to grant a licence or licences to third parties on reasonable terms, the commercial, industrial or agricultural activities of certain sectors of establishment of the economy are being unfairly prejudiced, or is leading to unwarranted restrictions on the use of other unpatented materials.
Determinant factors considered
In deciding to grant or refuse the granting of a compulsory licence, all the circumstances of each case are considered, including statutorily prescribed factors.
These include, but are not at all limited to: the time lapse since the patent was granted, efforts taken by the patentee towards full utilisation or optimal commercialisation of the patent since grant to date, ability of the applicant for a compulsory licence to work or practice the invention themselves and the applicant’s capital risk and issues pertaining to reasonable remuneration of the patentee.
These issues are peremptorily considered, regardless of whether the patentee opposes the grant of a compulsory licence or not. Take note that the right to oppose the application does not vest in the patent holder only, but also avails to their successors in title, licencees, creditors and other interested third parties.
In the aftermath, as is the case with licences of right, the ultimate decision is arrived at on the merit of each case based on the practical realities obtaining on the domestic market with regards the grant of compulsory licences.
Conditions for grant
The most common conditions imposed on the licencee against the grant of a compulsory licence include:
- Circumscribing or limiting the scope and duration of use to the specific purpose for which the licence was granted;
- Thst the licence shall be non-exclusive. That is, there are no impediments on third parties also to obtain further licences on the same patent;
- That the licence shall be non-assignable except with the attendant goodwill attached to the licencee’s enterprise;
- That the licence is granted predominantly for the supply of domestic market;
- That the licence shall remain extant to the extent that the patentee is paid adequate remuneration, taking into account the economic value of the licensing;
- That where there is a dependent patent, the patentee shall be entitled to cross-licences, and
- Subject to the adequate protection of the legitimate interest of the licencee, the licence shall terminate at the instance of the patentee if the circumstance that led to its grant ceases to exist, and are unlikely to reccur.
- Pasipanodya is an IP consultant. He writes in his own capacity. Feedback on: mobile +263 775 053 007, or e-mail firstname.lastname@example.org