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1. Reference and Legislative Purpose
The ultimate purpose of compulsory licenses is to promote exploitation of patent rights, prevent monopoly of technologies, restrict abuse of intellectual property rights, and achieve a balance of interest of intellectual properties. With respect to the addition, amendment and deletion of the provisions on compulsory license of patent rights, the Third Amendment mainly referred to the TRIPs and its derivative documents, the Paris Convention and other international conventions, so as not to conflict with these compulsory international IP rules. In this premise, the Amendment aims to positively formulate reasonable regulations for compulsory license of patent rights and to balance the interest between the patent owner and the patent user.
2. Major Amendments and their Influence
In the Third Amendment, the original Article 48 is deleted; the original Articles 49, 50, 52, 53 and 55 are retained without any change but are renumbered respectively as 49, 51, 55, 56, 57 and 58; the original Articles 51 and 54 are amended and renumbered as 54 and 57; new articles are added and numbered as 48, 50, 52 and 53.
Detailed amendments and the influences thereof are listed as follows:
a. Conditions for obtaining a commercial compulsory license are specified as: “(1) Where, within 3 years of the date on which the patent right is granted and within 4 years of the date of patent application, the patent owner has not exploited the patent, or has not exploited the patent adequately without any reasonable reason; or (2) Where the patent owner's act of exploiting the patent is held in accordance with the law to be monopolistic and it is necessary to grant the compulsory license to remove or reduce any adverse effect of such act on competition” (see Article 48). The limit of “within 3 years of the date on which the patent right is granted” originates in Article 72 of the Detailed Rules for the Implementation of the Patent Law (before amendment), while the limit of “within 4 years of the date of patent application” originates from Article 5.1.2 of the Paris Convention.
In the meantime, the Amendment defines that apart from compulsory licenses granted for reasons of monopoly (Article 48.2 as above) and public health (Article 50 as below), compulsory licenses shall be granted mainly for supply in the domestic market (Article 53).
The two conditions listed above for obtaining commercial compulsory licenses will to some extent restrict the rights of patentees who are unwilling to exploit their patents (i.e., who have not exploited or have inadequately exploited the patent without any reasonable cause), in that such patentees are likely to face compulsory license of the patents. However, by further defining that such compulsory licenses shall generally be restricted to supply the domestic market, unduly strong impact on the patentees in the global market is avoided.
b. The Amendment also specifies that the administration department for patents under the State Council may grant a compulsory license for the manufacture and export of patented medicines. Specifically, “for purpose of public health, the administrative department for patents under the State Council may grant a compulsory license for manufacturing patented medicines and exporting them to countries or regions which comply with the provisions of relevant international treaties acceded to by the People's Republic of China.” (Article 50) This amendment is in line with the TRIMs and the Declaration of Public Health, for the needs of encountering public health crises. Presently foreign medicine companies are quite concerned about this issue, while the domestic industry is less concerned; this is because the conflict between need and supply of medicines in China has not become too serious.
c. The Amendment specifies in Article 52 that where an invention-creation involved in a compulsory license is semi-conductor technology, a compulsory license shall not be granted for the reason specified in Article 48.1 (not exploited or inadequately exploited within the specified period); instead, such compulsory license shall be only for public and non-commercial exploitation of the patent, or be limited to remedies for anti-competition granted in judicial or administrative proceedings (see Article 48.2). Such amendment originates from Article 72 of the Detailed Rules for the Implementation of the Patent Law (before amendment).
d. Based on the original Article 51, the Amendment further defines in Article 54 the scope of applicants who are required to submit evidence as those who apply for a compulsory license because the patent is “not exploited or inadequately exploited (Article 48.1)” or those who apply for a compulsory license for exploiting dependent patents (Article 51). Applicants for compulsory license for reasons of anti-monopoly or public health concerns will not be required to submit relevant evidence.
e. With respect to payment of royalties, based on the original Article 54, the Amendment adds a new provision that royalties must be dealt with “in accordance with the provisions of relevant international treaties acceded to by the People's Republic of China” (see Article 57). Through this amendment, for license issues concerning the import and export of patented medicines, so long as either the exporter or importer pays royalties to the patentee, such a deal will be in compliance with the Patent Law. In this way, double payment of royalties by both the exporter and importer can be avoided.
3. Ten Reasons for Compulsory License after the Amendment
In the conclusion of Chapter 6, “Compulsory License”, the Third Amendment actually provides the following eight reasons for granting a compulsory license of patent rights:
a. non-exploitation of the patent (Article 48.1-1)
b. inadequate exploitation of the patent (Article 48.1-2)
c. monopoly (Article 48.2)
d. national emergency (Article 49)
e. extraordinary state of affairs (Article 49)
f. public interest (Article 49)
g. manufacture and export of patented medicines for public health reason (Article 50)
h. exploitation of a dependent patent (Article 51)
In addition, the Amendment also introduces the provision on the compulsory license of semi-conductor technology under the Detailed Rules for the Implementation of the Patent Law as Article 52 of the new Patent Law, which specifically provides that an invention-creation involving semi-conductor technology shall be subject to compulsory license only for reason 3 and reason 6 as listed above.
4. Interim Measures
Chapter 6 of the amended Patent Law shall be applied with respect to applications for compulsory license that are filed after October 1, 2009.
5. Possible Disputes in Practice
There has not been any real case since the implementation of the amended Patent Law; it can be said that in the three Amendments to the Patent Law, amendments and adjustments regarding “compulsory license” are made mainly at a theoretical level, while in fact few problems may inevitably exist.
One can take Article 48.1 as an example. Article 48.1 provides the reason for commercial compulsory license that the patent is “not exploited or inadequately exploited”. In practice, since it is rare that a patentee would never exploit his patent, the reason of “inadequate exploitation” is more likely to be adopted by the applicant for compulsory license. With respect to the definition of “inadequate exploitation”, Article 73 of the amended Detailed Rules for the Implementation of the Patent Law provides that “The term ‘inadequate exploitation of the patent’ as used in Article 48.1 of the Patent Law refers to a situation in which the methods the patentee and its licensee employ to exploit the patent and the scale on which it is exploited fail to meet domestic demand for the patented product or method”; however, it is still unclear under which circumstance the exploitation would “fail to meet domestic demand”. As a result, “fail to meet domestic demand” may be a disputed issue between the patentee and the applicant for compulsory license.
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