German Federal Supreme Court clarifies compulsory patent license

On 11 July 2017, the Federal Supreme court allowed the further distribution of an HIV drug on the basis of a compulsory license in the public interest.

The case concerns the pharmaceutical Isentress which contains raltegravir as active ingredient which is used to treat an infection with the human immunodeficiency virus (HIV). The applicants for the compulsory license are part of the Merck group and market Isentress in Germany. In 2014, the patent holder alleged that Isentress falls within the scope of its European patent 1 422 218. The Merck group has challenged this patent in opposition proceedings before the European Patent Office (EPO) and the patent has been upheld in first instance before the EPO. An appeal against this decision is currently still pending.

In 2014, the parties entered into negotiations regarding a worldwide license with several offers being exchanged but did not conclude a license. In 2015, the patent holder brought a patent infringement action in the Regional Court Düsseldorf. As a defence, the Applicants brought an application for a compulsory license in early 2016 which was decided by the Federal Patent Court in preliminary proceedings in August 2016. The preliminary decision has been confirmed by the Federal Supreme Court.

In short German law requires for a compulsory license that (i) the infringer or potential licensee tried to obtain a license on reasonable terms, and (ii) there is a public interest in the grant of the license.

In relation to the endeavours of the potential licensee to obtain a license the Federal Patent Court stated that the criteria developed under competition law for Fair, Resonable and Non-Discriminatory (FRAND) offers and in particular the Huawei decision of the CJEU (C-170/13) do not apply to compulsory licenses under patent law. The court stated that the legal requirements for granting a compulsory license and FRAND license are different both in terms of substance and procedure. This justifies that the offer of the infringer or potential licensee do not have to meet a strict test as laid down in Huawei. In particular the party applying for a compulsory license can argue that the patent may be not valid and adjust its licensing offer, does not need to offer a security for the license fees and also must not acknowledge damage claims for the past or render accounts. Rather the infringer “only” needs to be willing to take the compulsory license while the decision to grant a compulsory license is made by the court and based on public interest and not the market position of the patent holder.

With regard to the public interest the Federal Supreme court stated in an earlier decision that the pharmaceutical (i) must treat a serious disease that (ii) cannot be treated by another product or (iii) only with considerable side effects. The Federal Patent Court applied these criteria and found HIV-infections were a “serious disease” and alternative treatments on the market were not acceptable given potential life-long side effects and disadvantageous drug interaction due to the exchange. Further the court found that raltegravir showed particular advantages in the post-exposure prophylaxis and in the treatment of certain patient groups. This led the court to find that the public interest outweighed the patent holder’s interest in the exploitation of its patent.

The decision highlights the courts’ approach in different legal areas. Under patent law and its provisions for compulsory licenses, the public interest and particular the possible side effects and treatment alternatives for pharmaceuticals will be the crucial factors. While under competition law, the market position of the parties and their negotiating behaviour will be crucial whether or not a FRAND defence is successful.

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