Patents give incentives to improve the technical development by providing exclusive rights to the inventor. But what if the inventor denies access to necessary technology when it is urgently needed? This question has been in public discussion, especially during the COVID-19 pandemic. The patent system provides for an answer: compulsory licenses.
For 2025, the Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI) has chosen compulsory licensing as the subject of its study question Q293. Each year, AIPPI invites its national groups to examine a specific area of intellectual property law with the aim of fostering international harmonization. The groups summarize their national laws, identify potential areas for improvement, and discuss possible approaches to harmonization. Their findings are compiled in a summary report, which forms the basis for a resolution adopted at the annual AIPPI World Congress, this year held in Yokohama, Japan.
The following shall provide a brief summary of the topic at hand and an overview of selected results of the German study group.
Now, what are compulsory licenses?
Usually, the patent proprietor authorizes the usage of his inventions through licenses. The patent allows for this form of commercialization; but it also permits the refusal of licenses, thereby excluding market participation. The law only provides measures to intervene in this system in exceptional cases, as otherwise it would disincentivize the patent application. The cases in which the patent proprietor owns a standard essential patent (SEP) are well-known. The patentee must give access to the technical standard by granting licenses on fair, reasonable and non-discriminatory (FRAND) standards – if he does not, a compulsory license may follow.
The compulsory license based on public interest under § 24 (1) German Patent Act (PatG) – which was the topic of Q293 – is uncommon; in total, there are six cases ruled by the Federal Court of Justice (BGH) and only two of them are recent: one in 2017, one in 2019. In those six cases, only one license was upheld in Raltegravir (BGH, GRUR 2017, 1017).
If granted, the licensee may use or continue to use the invention. It does not heal past infringements, though. Public interest must justify its application against the patentee’s will, and the license seeker must make prior efforts to obtain authorization for usage.
Requirements
Public interest is not defined for a specific case or sector. It can refer to concerns of public health, economic welfare, issues in infrastructure or public safety, and so on. This has to be determined on a case-by-case basis. However, not every public demand allows for a compulsory license: It needs an element of urgency that outweighs the interests of the patentee.
The law foresees special cases in § 24 PatG, if the patent, for example, is not used sufficiently in Germany or for a dependent patent – a younger patent, which relies on the technology of an older one – that provides an important technological advance of substantial economic significance.
Before the Federal Patent Court grants a compulsory license, the license seeker must engage in negotiation for permission to use the invention – meaning a license – from the patentee on reasonable commercial terms and within a reasonable period of time unsuccessfully. While each factor highly depends on the circumstances of the case, it can generally be said that serious attempts have to be made. It does not suffice to merely ask for the sake of receiving a compulsory license later. Wording and overall impression are considered as well. For example: In Alirocumab (GRUR 2019, 1038), the license seeker asked the patentee three months prior to requesting a compulsory license with the Federal Patent Court. The offer was written in a harsh tone and referred to the proposed fee of 2% net revenue as already being too high, leaving the overall impression of not wanting to negotiate seriously. This goes both ways: if the patentee denies any attempt to negotiate, the requirement can be seen as fulfilled.
An example: the Raltegravir case
In Raltegravir the license seeker sold Isentress; a medication containing Raltegravir as active ingredient that was used to treat HIV patients. They owned a patent that was later found to be in conflict with an older patent on HIV medication. After the license seeker was notified by the proprietor of the older patent, they engaged in negotiation. The license seeker offered a one-time payment, as they found the older patent to be void, a position later confirmed by the court. When the negotiations failed, they requested a compulsory license through preliminary injunction.
The Federal Patent Court, approved by the BGH, found this to be a serious effort in light of the yet to be determined nullity of the patent. While the license seeker may not have anticipated the fee that was appropriate in the eyes of the court, the efforts were still reasonable. The offer also does not have to meet FRAND standards.
Similarly, the court saw a public interest. Alternative products often exclude the urgency, as patients can choose to use different medication. In this case, though, while alternatives were available, Isentress could not be substituted for specific groups – infants, children under twelve, pregnant women, and those who were already undergoing treatment with Isentress – who relied on its continued availability. The court found that public interest does not depend on the size of the vulnerable group, if these groups would face significant detriments without the medication. As a result, the court ruled in favor of granting a compulsory license.
Remuneration
In exchange for the compulsory license, the licensee must pay a remuneration. The amount is based on a fee of a reasonable license contract, while the surrounding circumstances are also considered: a compulsory license does not prohibit the licensee from filing for nullity, for example, leaving them with more options, thus increasing the fee. On the other hand, if the licensee uses their own intellectual property, the fee has to be reduced accordingly. Overall, a fee between 2% and 15% of net revenue can be found in different decisions of the Reichsgericht; in the case of Isentress, the Federal Patent Court ruled that a fee of 4% was appropriate.
Scope
The compulsory license allows the licensee to use the invention non-exclusively, meaning they cannot prevent others from applying the invention – this is still up to the patentee. The license is not limited to specific activities (manufacturing, selling, using, …) or volumes and can only be transferred along with the business involved in exploiting the invention. It does have to serve the public interest, though; usage beyond that would still constitute a patent infringement. The court may also decide on further limitations accordingly. What the court cannot change is the territorial limitation of the license: it may only grant within its jurisdiction, exporting products is therefore not available. This has not been changed by the Agreement on a Unified Patent Court (UPCA) that came into force in 2023. It allows for a patent with unitary effect in the participating member states, yet leaves compulsory licenses governed by national law.
Wherefore art thou harmonization?
As compulsory licenses aim to limit deficient market behavior, which hinders development and economic growth or puts substantial social needs at risk, they need to face the challenges of an ever-expanding market. The EU already sustains a singular market containing 27 different jurisdictions, and many companies operate at a global level.
The Agreement on Trade-Related Aspects of Intellectual Property Right (TRIPS) foresees a base-harmonization in arts. 31 and 31bis. Still, the need for consistent standards that reduce cost and enhance procedural efficiency is growing.
Similarly, as two compulsory licenses in different jurisdictions are currently necessary in order to export goods, harmonization would allow for those procedures to be based on the same standards. This may be necessary in times of crisis, where time is of the essence.
The German national group recommends a flexible system similar to the German framework. It was argued that access to trade secrets and know-how should not be available under a harmonized system and the territorial scope should be kept. Everyone may apply for a compulsory license, as long as the license seeker can serve the public interest. Public interest can arise in different sectors and circumstances, leaving the need for a system to not be limited to certain grounds. This should not, on the other hand, lower the procedural and material standards. The interests of the patentee should always be evaluated to ensure that the incentives to patent are held high.
Current developments
The EU is currently working on a regulation for compulsory licenses (COM/2023/224 final). While it would provide for an EU-wide solution, it is limited to times of crisis. It also shifts the power to the European Commission; compulsory licenses by courts are still left up to the member states. It is clear that this draft had the COVID-19 pandemic in mind and focusses on providing tools for centralized solutions. To unify the unitary patent, changes in the national laws would be desirable. Moreover, a European solution does not address markets outside the EU. In this context, the AIPPI resolution that is to be discussed during the World Congress might be one step towards further international harmonization.
Author
Hendrik Meier, LL.B. (IT-/IP-Law)
hendrik.meier@iri.uni-hannover.de
www.jura.uni-hannover.de/en/dornis