Center for Advanced Study & Research on Intellectual Property

 

CASRIP Newsletter - Summer 1996, Volume 3, Issue 2

Recent Federal Supreme Court decisions on Experimental Use and Compulsory Licensing

Michael Kern

Federal Supreme Court (BGH), 11 July, 1995, GRUR 1996, 109 - "Klinische Versuche"
Federal Supreme Court (BGH), 5 December, 1995, GRUR 1996, 190 - "Zwangslizenz"

Note: Throughout the text, I will continue to use "plaintiff" and "defendant" as in the context of the decision on experimental use. In actual fact, of course, the roles were reversed in the proceedings for compulsory licensing.

The German Federal Supreme Court (BGH) recently decided two cases concerning the protein, interferon. At issue were two different measures curtailing the patentee's exclusive exploitation of the patent: the experimental use exemption and compulsory licens ing. These two patent law concepts have been subject to very few decisions in Germany and thus are potentially of great importance for the further doctrinal development of patent law.

Ordinarily, the patent system creates a correlation between the individual's interest in improving his economic welfare and the public interest in encouraging inventions. The patentee, through acting in his own interest, serves as a means for achieving th e ultimate goal of improving public welfare. Yet, in certain cases the private interests of the individual or patentee oppose the public interests in promoting progress, e.g., when a patent is misused to suppress exploitation of an important invention or to prevent experimental use thereof. (Gilat, Experimental Use and Patents, 1995, p. 3) In those circumstances, the experimental use exemption and compulsory licensing are two means to alleviate this conflict of interest.

In cases concerning the experimental use exception or compulsory licensing, the balancing of interests is thus a far more prominent feature than, for instance, during the assessment of obviousness or equivalence. Third parties' invocation of experimental use and compulsory licensing directly interferes with the interests of the patentee. In every case, a weighing of interests is thus necessary and inevitable.

Let me begin with a very brief summary of the facts: Interferon (IFN) was discovered in 1957 and was hailed as an important antiviral agent. Further studies elucidated that IFN was not a single protein but a family of proteins that not only possesses anti viral effects but also significant immunomodulatory effects on many functions and cells in the immune system. The family of interferons is principally divided into three types: IFN 1, IFN 2 and IFN 3. The first two are produced by a wide variety of cells (e.g. leukocytes, fibroblasts) in response to many types of viruses or other inducers, for instance, tumor cells. IFN 3, on the other hand, is produced predominantly by T-lymphocytes responding to specific antigens. It has a greater immunomodulating effe ct than IFN 1 or IFN 2. Amongst various regulatory functions within a cell-mediated immune response, it induces or depresses antibody production or activates macrophages for tumor cell killing.

The plaintiffs (defendants in the proceedings for compulsory licensing) were the exclusive German licensee of G.'s (probably Genentech's) European and German patents for the (recombinantly produced) amino acid sequence of human interferon (IFN 3) and alle les thereof. Since the early 1980's, they have been working constantly to find applications of IFN. Health authorities had approved various applications, but none specifically equivalent to that of the defendants (plaintiffs in the proceedings for compuls ory licensing). The defendants had produced and had begun marketing a drug named "Polyferon" for treating classic rheumatoid arthritis (chronic polyarthritis) in cases where the patient only inadequately responded to nonsteroidal anti-inflammatory drugs. They had developed this drug by experimenting with human interferon which resulted in an approval by the German Federal Department of Health. Furthermore, the Federal Patent Court had granted them a compulsory license (see 24 IIC 397 (1993)), after the pl aintiffs had rejected their request for a license.

Meanwhile the plaintiffs had successfully sued for infringement. Thus, there were two concurrent appeals on questions of law to the Federal Supreme Court: against the grant of a compulsory license to the defendants and against an infringement judgment in favor of the plaintiffs. During that time, the defendants filed for bankruptcy. The receiver continued proceedings.

A. The Experimental Use Exemption

In the main, the experimental use exception is viewed as a preventive measure against "monopoly" rights paralyzing technical progress. Patent law should not only encourage the search for new products, but also for new uses and improvements of patented mat erials. Correspondingly, the experimental use exception effectuates the purpose of a patent system after the grant of a patent. The grant of a patent provides a general ex-ante incentive for inventing new substances and uses. In contrast, the experimental use exc eption upholds a minimal ex-post incentive for third parties to invent and discover further improvements and applications of a product. (See Gilat, Experimental Use, p. 9)

In most jurisdictions, including Germany, experiments performed without commercial or profit interests do not constitute a patent infringement. In general, however, most courts have interpreted "experimental" or "non-commercial" use very restrictively, an d hence have only allowed the defense in exceptional cases. (See, e.g., Roche v. Bolar, 221 USPQ 937 (Fed.Cir. 1984)). Feit, for instance, suggests that in the United States the experimental use exception is limited to non-commercial activities for "the gratification of scientific tastes, or for curiosity, or for amusement." ([1989] JPTOS 819, 840) Bruzzone asserts that "[j]udging from the court decisions over the last century, it is fair to say that a private defendant whose only defense is the re search exemption would do well to attempt to settle the case out of court." (AIPLA 52, 57 (1992)).

When analyzing the experimental use defense, the crucial question is what constitutes a non-commercial, a permissible use. In this regard, German scholarship has traditionally been divided into two camps. Some support the notion that the defense of experi mental use only extends to examining the functioning of the patented invention. Others argue that all experiments undertaken to acquire more knowledge do not infringe a patent, independent of the ultimate aim of such experiments. However, the exemption do es not extend to experimental activities that cease to relate to research, e.g. obtaining approval by a regulatory body and thereby preparing for commercial exploitation.

The relevant provision of the German Patent Act regarding the experimental use exception is Section 11(2), whereby the effects of the patent do not extend to acts done for experimental purposes relating to the subject matter of the patented invention. Thi s provision was introduced in 1981 and is based on Art. 31(b) of the Community Patent Convention (CPC 1975; now Art. 27(b) CPC 1989). The old German law on experimental use was solely founded on cases. They referred to Section 6 German Patent Act of 1968, which stated that an act only amounted to infringement if it used the patented product commercially, i.e. in industry and trade. Only experimental activities performed on the patented invention itself examining, for instance, its nature and composition were permissible.

In this case, the Dhsseldorf Court of Appeals rejected the experimental use defense and issued an injunction against the defendants for using IFN. It held that experiments undertaken neither to establish the characteristics of the substance nor the feasib ility of its production to fall outside the scope of Section 11(2). To exempt experiments focusing on the application or use of a protected substance, does not correspond to the patent law principle of product patents extending to all possible uses of it s subject matter. Such an exclusion would give the defendants the opportunity of obtaining a use patent (method-of-use claim), thereby potentially restraining the original patentees from exploiting his product for that specific use and hence severely diminishing the product patent's economic value.

Besides the principal question, whether the defendant's clinical studies using the patented product, human IFN, were exempt from infringement liability, the Federal Supreme Court thus had to consider the viability of the injunction against the defendants in light of the subsequent party settlement with regard to the compulsory licensing of Polyferon. The plaintiffs wished to uphold the injunction in case the compulsory license terminated.

The Federal Supreme Court overturned the Court of Appeals decision. With regard to the injunction issued against the defendants the Court held that the plaintiffs had neither proven current infringing activities nor the likelihood of future infringing act ivities. Merely raising the possibility of the defendants again infringing the patent upon termination of the compulsory license was held not sufficient.

If one considers that the defendants had infringed the patent for two years prior to the issuing of the compulsory license, it does strike one as odd that the court dismissed the plaintiffs' claim. Ordinarily under German law, likelihood of repetition is inferred from previous infringing acts. (See Benkard/Rogge, Section 139 Patent Act, p. 1262). Furthermore, the Court did not seize the opportunity to settle once and for all the issue of injunction regarding possible infringement after the termination of the compulsory license. Instead, the plaintiff now would have to commence proceedings anew.

Next, the Court considered the issue of experimental use. It pointed out that the focus of Section 11(2) is not the activity or use itself but the purpose of the activity. The type of purpose the Patent Act refers to, is signified by the term "experiment. " The Court defines "experiment" as any (systematic) action for obtaining knowledge, independent of the purpose for which the new knowledge will ultimately be employed. In order to restrict this otherwise wide interpretation of the term "experiment," the provision requires that the experiments are directed towards the "subject matter of the patented invention." This attests for an element of "finality" between the experimental acts and the invention. The invention itself must be the object of the experime nts undertaken for the purpose of acquiring knowledge.

Yet what is specifically meant by the phrase "subject matter of the patented invention" cannot be discerned from the wording of Section 11(2). Section 11, as a whole, merely indicates that the legislator aimed to find an equitable balance between the inte rests of the public and the patentee by excluding certain non-commercial acts from the effects of the patent.

The Court reasoned that a "natural," i.e. literal interpretation of Section 11(2)'s wording implied that all those experimental uses directed towards gaining knowledge were exempt. This included scientific research focusing on the application or use of a product. Moreover, since Section 11(2) does not limit experimental activities quantitatively or qualitatively, the legitimacy of the use cannot depend on whether the experiments only relate to the analysis of the invention's alleged characteristics or whe ther they focus on uncovering further research results and concern an ulterior purpose, e.g. commercial interests.

The Court went on to say that the restrictive old case law did not apply in these circumstances, Section 11(2) being based on Art. 31(b) CPC and the previous Act not containing a similar provision. Furthermore, the legislator had not suggested that Sectio n 11(2) was a codification of the old law. Therefore, a provision being rooted in European law cannot be interpreted according to former national law principles.

Accordingly, for example, the leading case under the former statute, "Ethofumesate" (22 IIC 541 (1991)) gave no guidance, how to decide a case under the new Act. In that case the court held, whoever during the term of a patent submits an agent containing the patented substance to a plant protection authority for approval of the plant treating agent infringes the patent. In such a case the objective is not gaining knowledge but merely receiving approval for use of a substance. It should be noted that obit er "Ethofumsate" actually permitted experimental activities for technically perfecting or further developing a patented invention. (See also the British decision Monsanto v. Stauffer Chemical [1985] R.P.C. 515; 17 IIC 410 (1986))

The Court found decisions from other European jurisdictions equally inapplicable, despite the fact that many referred to similar provisions enacted pursuant to Art. 31(b) CPC. For interpretive guidance as to the specific meaning of Section 11(2), the court next turned to the legislative materials of the CPC. In relation to Art. 31(b) CPC, the materials stated that a patented invention could be used for experimental purposes, to assess, for example, its possibilities of application and further development. This indicates that the phrase used in Section 11(2), "relating to the subject matter of the patented invention," is not restricted to the functioning of invention, but covers rather more, e.g. the development of specific applications. However, a patented invention may not be used with respect to experiments concerning a different substance, i.e. as a means for attaining results in relation to another product.

Moreover, the court also considered the purpose of patent protection to justify certain experimental uses of a patented invention. If the subject matter of the patent is a product, then the addition to the public stock of knowledge is associated with aff ording the public a producible object, usually described in terms of its structural characteristics. However, in consideration of two basic Constitutional precepts, the freedom to research (Art. 5(3) German Constitution, the so-called Basic Law) and limi tations on property in the interest of public welfare (Art. 14 German Constitution), absolute patent protection is not warranted, if it hinders the development of technology. A patent for a specific substance should not prevent or interrupt technical prog ress in relation to that substance. This would thwart the patent system's very purpose. The effects of a genetically engineered substance can only be discovered by testing it on humans. Thus, the public interest in furthering technology demands that clini cal tests and experiments remain "privileged" pursuant to Section 11(2), even if an accumulation of applications discovered by third parties whilst using the patented substance may severely encumber the patent's exclusive exploitation.

The Court dismissed the plaintiffs' argument that third party experiments using their product in order to patent particular applications will undermine and devalue their patent. Experimental uses in line with Section 11(2) could not be restricted for the mere fact that they may function as a precursor to a use patent application. The intention to obtain a use patent is not an appropriate criterion for determining whether the expe rimental use is permissible or not, despite the fact that third party patents may force the original patentee also to research for new uses. Patent protection for further uses does not flow from the experimental use exemption but is inherent in the patent system.

The fact that in principle a product patent's scope extends to all possible (known and unknown) uses does not demand a narrow interpretation of Section 11(2). Though the defendants may exclude the plaintiffs from the exploitation of their product with re spect to the newly discovered use, the court clarified that, on the other hand, the defendants could only exploit their dependent patent with the plaintiffs' consent. The plaintiffs accordingly, continue having the right to exclude third parties from the exploitation of their product patent, including the defendants' (patented) use. Therefore, the value of the product patent effectively has not diminished.

For the grant of an experimental use exemption it is also irrelevant that the defendants intended to receive the health authority's approval for their product and to exploit it commercially. As Section 11(2) exempts all acts from the effects of a patent t hat are done for experimental purposes relating to the subject matter of the patented invention, the permissibility of such experiments cannot be contingent on what the purposes they are to achieve, be they pure scientific or regulatory in nature.

It may surprise some that the Court took such a liberal view of the experimental use exemption. In part, this appraisal stems from the introduction of a specific provision on experimental use. The legislative history Section 11(2) being based on Art. 31(b ) CPC clearly suggests that the provision was not meant merely to codify the old German law. Moreover, the courts previously had never specifically determined the issue, whether research-oriented experimentation, i.e. improving or developing a patented su bstance constituted a legitimate use thereof. In this instance, the Court may have felt that the ongoing dispute over the excessive breadth of claims granted to genetically engineered products necessitated a reconsideration of means for circumscribing cla ims. Kiley, 257 Science 915 (1992), described the problem as follows: "Those operating at the beginnings of the road are most insistent on their right to nail down leverage that will remain formidable despite marketplace rejection of the uses to wh ich the say their invention may be put. The frank aim of these early stage workers is to control ultimate applications discovered by others. The system is abused if those who would benefit in this way from the later labor can posit patents on the most str ained utilities imaginable." (See generally Straus, GRUR 1993, 308 (in German))

The Court discarded the distinction between research and commercial interests. Often these interests overlap so that distinguishing the two is frequently arbitrary. It simply held that experiments geared to alleviating or treating an illness may be except ed from infringement liability, depending, of course, on the individual facts. It did not find it necessary to furnish a standard for demarcating legitimate from illegitimate use.

Many may not understand or agree with the Court's failure to afford some guidance on how to separate a legitimate experimental use from other uses, particularly as drawing distinctions has always been part of the lawyers' forte.

In certain technical fields, such as genetic engineering, however, line-drawing is very perplexing, particularly between research and commercial use. In genetic engineering, this largely is due to the breakdown of the traditional divide between basic and applied research. Consequently, many basic research inventions are patented nowadays. In other words, inventions are patented at much earlier stage in their development (pioneer stage), which may retard the natural maturation of a whole field of technolog y and science. The fact that patents are granted on basic biotechnological inventions (just consider the possibility of a patent for fragments of human DNA sequences!) calls for a more liberal use of the experimental use exemption - perhaps subject to fin ancial remuneration for the patentee. (See Gilat, Experimental Use, p. 76 et seq.; Moufang, in MPG, European Research Structures, 1994, p. 186) Thus, for example, the 1992 Human Genome Workshop proposed that the experimental use exemption should co ver all acts short of actual commercialization, including clinical trials for approval! (Cited by Straus, in MPG, p. 16 et. seq.)

Whatever the reasons for its decision, the Court seems indeed to have opened the floodgates with respect to clinical experiments. Because of the very scant factual description, particularly as to the kind of experiments involved, ensuing decisions, howeve r, may return to the old view of a very restrictive application of the experimental use defense and expose this decision as an aberration. One should also remember that in civil law countries, such as Germany, Supreme Court decisions are not absolutely bi nding on lower courts. Thus, the current situation is best characterized as highly uncertain. (Schulz-Shchting, GRUR 1996, 116, 120) It should be noted that this decision may influence courts in other European jurisdictions, especially since many have legislated very similar provisions based on Art. 31(b) CPC. It certainly will be interesting to observe, how courts in other jurisdictio ns take on this decision.

B. Compulsory Licensing

In recent years, compulsory licensing has been one of the most controversial patent law concepts in international fora. Accordingly, Art. 31 TRIPS was the most intensely debated provision during the TRIPS discussions. Many of developing countries view com pulsory licensing as an instrument to counteract patent abuses, particularly to enforce the local working of the invention. (See, e.g., Correa, [1994] EIPR 327, 331) Industrialized countries, on the other hand, usually see the grant of compulsory l icenses as a truly exceptional measure, that, if granted at all, should be in the public interest. Previously, a similar dispute between the industrialized and developing world beleaguered the reform of Art. 5A of the Paris Convention. (See generally, for Patents and TRIPS, Straus, GRUR International 1996, 190 (in German))

Of the industrialized countries, the United States does not recognize the institute of compulsory licensing per se. However, courts have in rare incidents denied the grant of an injunction (sometimes coupled with a reasonable royalty award) which e ffectively amounts to a compulsory license. (See, e.g., Foster American Mach. & Foundry Co., 182 U.S.P.Q. 1 (2d.Cir. 1974) In contrast, most European jurisdictions, including Germany, provide for some form of compulsory license scheme, though rarel y exercised. (The statistical data for the German Federal Patents Court, founded in 1961, evidences that until the end of 1991, parties instituted proceedings for the grant of a compulsory license in only twelve cases. See Benkard/Rogge, Section 24 Patent s Act, 1993, p. 726 (in German))

In certain European jurisdictions (e.g. United Kingdom, Sec. 48 Patents Act 1977, France, Art. L 613.15 Industrial Property Code 1992, Netherlands, Section 57 Patent Act 1995) compulsory licenses have found particular favor with respect to dependent pate nts. (See generally, AIPPI, Reports to Q97, 1988/IX; Straus, GRUR 1993, 308 (312 et seq.) In the United Kingdom, for instance, Sec. 48(3)(d)(ii) of the 1977 Patents Act provides that one ground for granting compulsory licenses, three years after t he date of patent grant, is that the working of another patented invention in the U.K. is being prevented or hindered by the refusal to grant licenses on reasonable terms. This is subject to the condition that the compulsory licensee is prepared to cross- license is own dependent patent on reasonable terms (Sec. 48(7) PA 1977). Hitherto the issue of compulsory licenses for dependent or derivative patents has not been litigated in the U.K.

German patent law does not provide for any particular enforcement measures in relation to dependent patents. Therefore, the situation may arise that the respective patentees cannot agree on a licensing scheme and thus (both) will have to forego the workin g of the dependent patent. A court will not grant a compulsory license in order to redress the private interest conflict between the parties. Only if exploitation of the invention is in the public interest, will a court consider granting a compulsory lice nse.

Accordingly, the first sentence of Section 24(1) of the German Patent Act states the following: "If the applicant or patentee refuses to permit the exploitation of the invention by another person offering to pay reasonable compensation and to furnish secu rity therefor, that person shall be given authority to exploit the invention if permission is indispensable in the public interest." The gist of this provision relates to the requirement of "public interest." Therefore, a court will only grant a compuls ory license if a plaintiff can prove that the working of the defendant's patent is in the public interest. Other factors, such as preventing the commercial working of the invention, are not sufficient ground for the court to grant a compulsory license. On ly indirectly may the lack of working suffice. That is, if it is proven, that the working of the invention is in the interest of public and therefore should be subject to a compulsory license.

Clearly, a compulsory license is only necessary if the use by the plaintiff licensee is within the scope of the defendant's original patent. During compulsory licensing proceedings, the court though does not examine the issue whether the activities of the licensee would actually amount to an infringing activity; in fact, the court presumes infringement.

As already stated, the Federal Patents Court, had granted the defendants a compulsory license (24 IIC 397 (1993)). It considered that a product patent thus gives the patentee a "monopoly" which extends particularly far into the (use) inventions of others. The challenge of advancing technological development or enhancing the quality of human life, by seeking out new applications for the patented product, can be dampened from the outset, as far as third parties are concerned, by the fact that the chemical p roduct patent also provides protection for those applications not recognized by the patentee. A third party must be aware that it may not be able to exploit its newly discovered, technologically progressive use of the patented substance. This can stifle a ny innovative effort and must be remedied in the public interest at least in those cases where a third party discovers new applications for a patented chemical product which affect the health care of the population. In addition, direct public interest exi sts in the continued availability to the general public of the marketed drug Polyferon. It thus held that for a drug - approved by the German Federal Department of Health - whose use involves noticeably less side effects than comparable preparations, a co mpulsory license should be temporarily granted in consideration of the public interest in the medical use of the pharmaceutical applications dependent upon a chemical product patent, as long as there is no other drug containing an active ingredient of the chemical product patent with identical or better effects and side effects, which is either approved by the Department of Health, or is readily available.

The Federal Supreme Court reversed the decision. It declared that the term "public interest" is an undefined legal concept that requires clarification by the courts. The Patent Act itself does not provide any specific interpretation guidelines.

"Public interest" cannot be characterized in some generally applicable manner. In other words, its meaning changes over time and depends on the facts of each of case. Therefore, reasons given in previous cases cannot simply be transferred to new situations.

Public interest is not already given by the mere fact that the patentee owns an exclusive right to a product, even if this eventuates in a virtual market monopoly. Only in special circumstances, does public interest demand that the patentee's exclusive po sition and his interests be partly relinquished to the licensee for exploitation. In such cases, it is justified to encroach on the patentee's rights by granting another party a compulsory license. The Court rejected the plaintiff's argument that Art.14 of the German Constitution requires that Section 24 be interpreted in such fashion, that public interest can only be implied in cases of patent abuse. The guarantee of property under Art.14 of the Co nstitution is subject to limitations by other laws (Art. 14(1)) and to limitations in the interest of public welfare (Art. 14(2)). In keeping with these provisions, the grant of a compulsory license does not violate the patentee's basic right under Art. 1 4, if he refuses to permit the licensee to exploit the invention and the permission is indispensable in the public interest.

The Court also refused to follow the plaintiff's argument that according to Art. 5A of the Paris Convention a public interest in terms of Section 24(1) can be inferred only if the patentee abuses his exclusive position. Art. 5A merely regulates the grant of a compulsory license in cases of failure to work or insufficient working of the invention, not, however, compulsory licensing in consideration of public interest. Thus, national legislators are free to prescribe other reasons, especially public inter est considerations, for the grant of a compulsory license.

With reference to patent abuse, the court also dismissed Art. 30 TRIPS, whereby Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not reasonably conflict with a normal exploitation of th e patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interest of third parties. The TRIPS Agreement thus requires intrusions into a patent right to be subject to a balancing of interes ts, but not necessarily to patent abuse. The Court held that Section 24 heeds this obligation by requiring the grant of compulsory license to be in the public interest.

One should note that further indication of what the term "public interest" connotes can be inferred from Art. 8(1) TRIPS which sets out the basic principles underlying the TRIPS Agreement. It authorizes Members, in formulating or amending their national l aws and regulations, not only to adopt measures necessary to protect public health and nutrition, but moreover to promote the public interest in sectors of vital importance to their socioeconomic and technological development. However, the parties seem to have failed to raise this provision in evidence and therefore the court did not consider it.

Special circumstances justifying the assumption of a public interest often take account of technical, economic, sociopolitical and particularly medical issues. Whether a public interest demanding the grant of a compulsory license to the particular license e exists, depends on the facts of each case and must be determined by weighing the patentee's interest in protection against the public interest in exploitation. As the compulsory license effects a significant encroachment on the legally and constitutiona lly guaranteed exclusive right, the balancing of interests must comply with the principle of proportionality. Accordingly, a court cannot grant a compulsory license for a drug, if the illness or ailment can be treated by more or less equivalent means. Contrary to the Federal Patent Court's view, the discovery of a mere new use of a patented substance for the benefit of society's health care does not command public interest per se justifying the grant of a compulsory license. Similarly, regulatory appro val of a drug does not per se warrant the assumption of a public interest in terms of Section 24(1). The approval by the Department of Health is solely founded on the legal principles of drug regulation (Drug Act), which imply that drug approval is gener ally in the interest of the public. Yet, it does not suggest that public interest considerations justify the intrusion into a private patent right by way of compulsory licenses.

The Court reiterated the fundamentals of (chemical and pharmaceutical) product patent protection. A product patent grants protection for the product itself as well as for all possible uses of the substance, independent of the patentee having recognized and specified the substance's various uses. (See 3 IIC 386 (1972) - Imidazolines) Consequently, the patent in dispute gives the patentee the right to restrain by injunction third parties from making or selling drugs containing the patented substance IFN 3, even if the third party has discovered a new and inventive use and owns a dependent patent thereof.

Indisputably, the scope of protection of the product patent in question extends to the defendants' approved drug "Polyferon," which uses the patented substance, recombinantly produced human IFN 3, for treating rheumatoid arthritis. This corresponds to the assumption on which this Court proceeded in the concomitant infringement proceedings (see above). To extend the patentees' product patent to the defendants' use is in conformity with the legislator's aim of a absolute protection of chemical product inven tions ("Stoffschutz").

When reviewing the evidence, the Court concluded that there were no indications that the plaintiffs were not working or not intending to work their invention. In fact, the evidence reveals that as part of their clinical trials three studies concern the tr eatment of rheumatoid arthritis, one of which has been completed. In addition, the Federal Department of Health has approved the application of IFN 3 for treating chronic granulomatosis, which is marketed by the plaintiffs in Germany under the trade name "Imukin."

On principle, the Supreme Court acknowledged that the Federal Patents Court was correct in assuming that treating grave illnesses may infer a public interest in upholding the availability of the drug to respective patients. In an earlier decision, the Fed eral Patents Court pointed out that the importance of every individual's health for society as a whole may infer a public interest, if a drug possesses therapeutic effects that no other available drug contains or if it avoids side effects that hitherto ha d to be accepted when administering other therapeutic agents.

Furthermore, the Court agreed with the lower court's characterization of rheumatoid arthritis as a serious illness. It often leads to disablement and the need for constant nursing care. So far no reliable and effective drug has been found. Treatment usual ly involves the administering of a variety of nonsteroidal anti-inflammatory drugs. However, since the cause of polyarthritis is unknown, many of these drugs probably do not affect the roots but merely the results of the illness. Patients react very diffe rently to the various drugs so that often alternative drugs have to be tried to see which one the respective patient responds to best.

Contrary to the defendants' assertions, Polyferon has not been proven to possess significantly improved therapeutic effects in comparison to known medications. The clinical data does indicate that interferon causes less severe side effects. Yet, according to the court expert, this may result from the lack of therapeutic effect. Consequently, IFN 3 has not acquired great importance in the medical community.

Nonetheless, interferon may be vital for those etiologically distinct groups of patients, that either do not react or suffer from severe side effects when exposed to conventional therapy. Interferon may represent the only therapeutic alternative. Yet, non e of the clinical data results from a study involving an etiologically distinct group. Thus there is no clear indication that Polyferon is indeed the only effective therapy for certain patients.

The licensee has also not submitted any comparative studies, to show the comparable effectiveness of Polyferon for treating polyarthritis. Nor did he provide any comparative data concerning the effects of alternative interferon products. Possibly, Imukin, although only approved for granulomatosis, is equally effective for treating rheumatoid arthritis, despite a slight structural difference in the amino acid sequence.

Clearly, the court has not departed from a strict interpretation of "public interest". However, upon the evidence a more favorable decision was unlikely. It seems that the defendants' bankruptcy restrained them from furnishing the necessary data to show that their product provided potentially significant advantages, to justify the grant of a compulsory license in the public interest.

As a result, we now are confronted with the situation that plaintiffs and defendants may employ their respective patents to block each other from exploiting interferon as a therapeutic agent against rheumatoid arthritis. If the market does not rectify thi s `patent failureA, the public may have to wait twenty years before gaining access to this therapeutic agent. A compulsory license in situations involving dependent patents, as provided for in various countries, is a means to correct patent failure couple d with market failure. One should not forget that patents represent a interventionist instrument, ultimately for the sake of community welfare. Thus intervention to restrict some of the effects of patents may be required, when the community welfare is lon ger served, e.g. when product patent and dependent patent block each other.

Moreover, the mere existence of a compulsory licensing scheme for various situations may generally influence licensing behavior. Standoffs may be more unlikely: the mere prospect of a court granting a compulsory license may motivate parties to agree on a licensing scheme. It should also be noted that the compulsory license granted is usually temporary in character. It only lasts until there an equivalent or better product is available.

A balancing of interests is required and the experimental use exception combined with a compulsory license scheme may provide the framework to allow further research in areas where otherwise only one pioneer company may be researching. Certainly, a too ge nerous application of the experimental use exception and compulsory licenses may retard the incentive that patents provide. But to grant patents with an extremely wide scope and to allow them to control the further development of a drug's use is also not in line with the purpose of the patent system. Considering the nature of certain industrial sectors, such as biotechnology (e.g. pioneer inventions, expensive patent races), is the complete all-or-nothing character of patents still in line with the changing face of industry?

Last updated 4/27/2012