American Journal of Law & Medicine

Strategic patent licensing for public research organizations: deploying restriction and reservation clauses to promote medical R&D in developing countries.

In May 2006, at the World Health Assembly, the governments of Kenya and Brazil called on fellow nations to promote the development of the public health tools necessary to build the research capacity of developing countries. That call was again made at the G8 Summit in June 2007, (1) when the national science academies of the G8 nations and Brazil, China, India, Mexico and South Africa signed a statement on the promotion and protection of innovation. Highlighting the need to balance the protection of intellectual property with the need to foster access to knowledge and remove barriers to innovation, the statement calls on world leaders to:

   Work with developing countries to build systems of science, 
   technology and innovation for economic and social development, and 
   to promote the education and training of their future leaders 
   particularly in science, engineering, technology, and medicine. (2) 

As to the means of working with developing countries to build innovative capacity, the Network of African Science Academies (NASAC), made the following recommendations to the leaders of the G8 countries:

   That the G8 governments provide financial, scientific and technical 
   support for the efforts of the African scientific community, 
   including NASAC and the Association of African Universities (AAU), 
   to work with the academies of science, engineering and medicine in 
   G8 countries, to promote International cooperation in science and 
   technology for the purposes of advancing the Millennium Development 
   Goals (MDGs) in Africa. (3) 

The prominence of public health within the internationally agreed framework of eight goals and eighteen targets provides an indication of the magnitude of the problem. Public health issues feature in no less than four of the eight millennium development goals. Goals Four, Five and Six speak respectively of reducing child mortality, improving maternal health, and combating epidemic diseases such as HIV/AIDS and malaria. Over and above the goals specifically directed to public health, Goal Eight is especially relevant for the development of an indigenous supply of affordable medicines. The eighth MDG aspires to create a "Global Partnership for Development" that is, in turn, offset by Target Seventeen, entitled "Access to Medicines." This Target exhorts fellow Members of the United Nations, in cooperation with pharmaceutical companies, to provide access to affordable, essential drugs in developing countries. (4)

According to the World Health Organization (WHO), the principal causes of death in the developing world are respiratory infections, HIV/AIDS, infections at birth, diarrhoeal disease (5) and tropical diseases such as malaria. (6) Nevertheless, it is commonly claimed that only 10% of the world's medical research is devoted to conditions that account for 90% of the global disease burden. (7) Irrespective of whether such estimates represent an accurate indication of the imbalance between R&D and the risks to public health, a sustainable supply of affordable medicines will require action to mobilize collaborations between public research organizations (PROs) for drug discovery and partnerships for drug development within the pharmaceutical industry. (8) Thus, there remains a need to develop better drugs and vaccines for diseases that are largely confined to developing countries.

Many drugs for diseases prevalent in the developing world are antiquated or have serious side effects and many organisms that cause these diseases are developing resistance to treatment. (9) Although effective medicines are available for many of the most prevalent diseases, ensuring access in resource-poor countries is of major concern due to problems of cost, delivery, and healthcare support. The factors that are expected to catalyze the need for indigenous R&D in developing countries are epidemics, an aged population and the growing incidence of lifestyle-related diseases giving rise to increased healthcare expenditure, (10) Hence, the developing countries at the G8 Summit called for financial and technical help to make the strengthening of research capacity a central goal of public health policy.

Today, a combination of deep economic integration and the increasing harmonization of patent law means that developing countries that are seeking to build innovative capacity in medical technologies are confronted with an historically distinct set of circumstances. By 2005, developing countries were required to implement in domestic legislation all the substantive and enforcement provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), (11) including patent protection for pharmaceutical products. (12) To this end, TRIPS Article 28, concerning the rights conferred on the patentee, stipulates that during the term of the patent, any person imitating the invention or new manufacturing process, not having the consent of the patent holder, is committing an act of infringement. (13)

The conclusion of the TRIPS Agreement in 1994 thereby changed two common elements of past economic development. (14) First, it required the implementation of mandatory and enforceable standards of intellectual property rights. (15) Second, to the extent that firms in advanced economies now have the means to enforce their intellectual property rights worldwide, developing countries have to generate strategies for access to technologies on reasonable terms and eschew outright imitation. (16) For these reasons, government innovation policy for the pharmaceutical sector must focus not only on manufacture but also on supporting the development of a research infrastructure. (17)

To date, the attention of legal scholars to issues of public health in the developing world has of necessity focused on the rapid procurement of affordable medicines by means of compulsory licensing and parallel importing. While these means are necessary to address the national emergencies of epidemic disease, they are not the means to build a sustainable public health program for the provision of essential and affordable medicines.

This paper seeks to move the legal debate upstream by focusing on the potential of patent licensing contracts between public research organizations (PROs) and the private sector to provide greater access to the kinds of medicines needed by patient populations in developing countries. In affirmation of the need to build research capacity in developing countries, this paper will therefore examine the content and potential scope of reservation and restriction clauses in patent licensing contracts. By this means, it is argued that developing countries can achieve an appropriate balance between the needs of the pharmaceutical industry for patent protection and those of PROs to disseminate knowledge as broadly as possible. In conclusion, it is submitted that the intersection of property and contract law provides an opportunity for developing country PROs as licensors to utilize the patent licensing contract to reclaim the policy space needed in overcoming the obstacles relating to the research and development of medicines.

In the exposition of this argument, the paper is organized as follows: Part I explains how universal standards of intellectual property protection under the TRIPS Agreement have recast the parameters of economic catch-up. Part II describes how, post TRIPS, PROs have a central role to play in advancing pharmaceutical research and development. Part III evaluates the Bayh-Dole model of technology transfer from public to private sector, in relation to the feasibility of patent ownership by PROs in developing countries. Part IV considers the case for developing-country PROs negotiating restriction and reservation clauses. Part V describes how PROs as licensors might utilize a mix of exclusive and non-exclusive licenses to promote R&D. Part VI offers drafting guidelines for restrictive clauses as to field of use and territory. It also considers the potential impact of competition law, as exemplified by the European Commission Technology Transfer Block Exemption (TTBE), (18) on the operation and scope of such clauses. Part VII offers drafting guidelines for reservation clauses for research, publication and experimental use. Finally, with a view to preserving the benefits of the licensing transaction, Part VIII considers the validity of no-challenge clauses after the US Supreme Court decision in Medimmune.



The universal standards of intellectual property protection within the TRIPS Agreement have recast the parameters of economic catch-up. (19) The kind of policy "space" India enjoyed for more three decades is no longer possible. A major contributor to the development of a pharmaceutical industry in India was the speed with which its scientists were able to develop cost-effective manufacturing processes for molecules already invented and patented in other countries--a practice supported by the Indian Patents Act 1970. (20) That Act introduced restrictive changes related to the patenting of inventions, especially in the field of pharmaceuticals. (21) Such restrictive changes included:

* Withdrawing patent grant for inventions claiming substances intended for use as, or capable of being used as, a medicine or drug or substances resulting from chemical processes, permitting patentability only for claims for methods or processes of manufacture; (22)

* Reducing the term of process patents for inventions related to processes in the filing of foods, medicines or drugs to seven years from the date of filing of the complete specification or five years from the date of sealing the patent, whichever is shorter. (23)

The TRIPS Agreement requires developing countries to implement in their national law the universal minimum standards of patent protection. Article 27 of the TRIPS Agreement provides an inclusive definition of patentable subject matter. It stipulates that patents "shall be available for any inventions, whether products or processes, in all fields of technology, provided that they are new, involve an inventive step and are capable of industrial application." (24) Article 28, confers on the patentee the negative right "to prevent third parties not having the owner's consent from acts of making, using, offering for sale, selling, or importing for these purposes that product." As of 2005, it is no longer possible for developing countries that are unable to invest in R&D to exclude pharmaceutical products (as distinct from processes) from patentability so as to allow the possibility for copies of patented drugs to be produced locally or imported from other similarly placed developing countries.

Further, Article 27 makes it clear that the patentee is entitled to the rights conferred therein irrespective of "whether products are imported or locally produced." Prior to TRIPS it was open to developing countries to issue compulsory licenses for lack of exploitation of patents, in accordance with Article 5A(2) of the Paris Convention. (25) This type of obligation was intended to require foreign companies to establish on national territory in order to exploit their patents, with resultant technology transfer. Nevertheless, Article 27 of TRIPS and Article 5A(4) of the Paris Convention as incorporated therein, appear to allow foreign patentees to import their patented products without having to transfer related technology. For example, the definition of "failure to work" in Article 68 of Brazil's Industrial Property Law may be read as failure to manufacture or failure to completely manufacture a patented process in the territory of Brazil. (26) That law appears to allow for import only in the case of failure to work due to economic viability and in that respect it is arguably in breach of TRIPS Article 27. In January 2001, the United States challenged the Brazilian law. (27) There was no definitive interpretation by the WTO Appellate Body, as the request for the establishment of a Panel was withdrawn when the parties came to a settlement. (28) In this respect, TRIPS has rendered the position more uncertain for developing countries that are attempting to effect technology transfer. Whereas the Paris Convention expressly authorizes, on certain conditions, compulsory licensing for the failure to work patents locally, TRIPS does not contain such a clear and express authorization.


The defenses to patent infringement within the TRIPS Agreement are few and narrow in application. Article 8 expressly affirms that "[m]embers may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health." Article 7 speaks of a "a balance of rights and obligations." It affirms that the transfer and dissemination of technology should be to the mutual advantage of both producers and users of technological knowledge, should be made in a manner conducive to social and economic welfare, and should be expressed free of conditions, (29) Article 30 provides additional flexibilities by way of exceptions to the exclusive rights conferred by a patent. However, these are expressly described as "limited exceptions." (30) Finally, Article 31 sets up a regulatory framework for compulsory licensing that allows governments to issue compulsory licenses in order to permit the generic production of essential medicines without the consent of patent holders.

Generally speaking, the TRIPS Agreement introduces a higher standard of national treatment in relation to its substantive provisions for the creation and enforcement of patent protection. (31) To this end, any derogation from the minimum standards of protection stipulated by the Agreement for purposes of public health will be subject to the proviso of non-discrimination against foreign right holders. (32) By such means, TRIPS recasts the parameters within which decisions about innovation can be made. The rules serve as a restraint (33) on the ability of Members to formulate national law and policy in accordance with their level of economic development. In short, TRIPS constrains imitation as a form of competitive conduct. (34)

The so-called flexibilities of the TRIPS Agreement required reaffirmation. In 2001, at the Ministerial Conference in Doha, Qatar, WTO members adopted the "Declaration on the TRIPS agreement and Public Health." It seeks to clarify that Members are entitled to invoke the flexibilities within TRIPS to foster public health goals. The Declaration reads:

   We agree that the TRIPS agreement does not and should not prevent 
   members from taking measures to protect public health. Accordingly, 
   while reiterating our commitment to the TRIPS agreement, we affirm 
   that the agreement can and should be interpreted and implemented in 
   a manner supportive of WTO members' right to protect public health 
   and, in particular, to promote access to medicines for all. (35) 

The declaration does not open up new ways within TRIPS, but reinforced by various instruments of the UN affirming the human right to health, (36) it confirms the legitimacy of measures seeking to invoke the norms already existing in the Agreement. Ostensibly therefore, in relying on these flexibilities, it should be possible for developing countries to procure medicines either by means of compulsory licensing or parallel importation, or by making exceptions to the rules for patents rights in their countries in order to facilitate the manufacture of generic pharmaceuticals.

However, this has not proven to be the case. First, WTO jurisprudence has shown itself resistant to permitting exceptions to the character of property rights in patents or the extent of their exercise. Canada Term of Patent Protection (37) made it clear that developing countries are not entitled to derogation from the stipulated 20 year term of patent protection. Canada--Pharmaceuticals (38) further clarified that derogations for generic manufacture may allow regulatory review, but called a halt to the preparatory manufacture of product prior to the expiration of the patent. The WTO panel's interpretation of Article 30 regarding the limited exceptions in respect of patent rights makes it clear that the scope of derogations is narrow. In Canada-Pharmaceuticals, (39) Canada argued that limited exceptions in its Patent Act, which were designed to enable the manufacture of generic pharmaceuticals, came within the purview of Article 30 of the TRIPS Agreement. While the Panel was prepared to accept that the regulatory review section, (40) a classic Bolar provision, (41) was a limited exception that did not unreasonably prejudice the legitimate interests of the patentee, the section pertaining to the stockpiling of generic pharmaceuticals (42) was considered inconsistent with the normal exploitation of a patent. Relatively little consideration appears to have been given to the question of whether or not the prejudice was unreasonable--a question which turned on whether the "legitimate interests of third parties" outweighed the patentee's interests in the full enjoyment of its legal rights. In this case, the Complainant European Communities argued that the relevant "third parties" were the competing generic drug producers.

Second, the Article 31bis amendment to the compulsory licensing provisions of the TRIPS Agreement, which is designed to facilitate the manufacture and export of medicines to developing countries, has been distinguished only by its lack of acceptance and use. (43) More than four years after WTO members unanimously adopted the Doha Declaration on TRIPS and Public Health, relatively few developing countries have been able or willing to actually implement its provisions. It was not until July 2007 that Rwanda became the first country to notify the WTO that it intended to import generic versions of the HIV/AIDS drug TriAvir, which is manufactured in Canada. (44) Likewise, it was not until 2007 that middle income developing countries found the political will to invoke their compulsory licensing rights under TRIPS. In January 2007, Thailand issued a compulsory license to allow generic manufacture of expensive antiretroviral HIV/AIDS drugs patented by US-based Abbott Laboratories. (45) In May, Brazil followed Thailand's lead, and issued a compulsory license for a lower-cost version of Merck's antiretroviral HIV/AIDS drug. (46) In June 2008, the Philippines introduced the Universally Accessible Cheaper and Quality Medicines Act with the aim of making it easier for the government to issue compulsory licenses and lower costs by allowing parallel imports of pharmaceuticals. (47)

When it comes to taking action based on the TRIPS exceptions to patent rights, developing countries are reluctant: first, because WTO case law indicates that these exceptions have a narrow compass and; second, because the US and the EU, via bilateral trade agreements, use their economic and political power to dissuade developing countries from resorting to compulsory licensing. Mindful of foreign direct investment (FDI) and access to the markets of the EU and the US, when negotiating bilateral free trade agreements (FTAs), developing countries have been reluctant to invoke the flexibilities of the TRIPS Agreement as a means of providing access to affordable medicines.

Moreover, most FTAs the US has concluded with developing countries also contain provisions relating to data exclusivity. (48) Data exclusivity refers to protection of clinical test data required to be submitted to a regulatory agency to prove safety and efficacy of a new drug, and prevention of generic drug manufacturers from relying on this data in their own applications. "Data exclusivity" considers that unjustified reliance on this information by competitors to obtain approval for their own version of the same product constitutes an act of unfair competition. (49) Data exclusivity provisions further reduce the policy space available to developing countries to derogate from patent protection in order to facilitate generic manufacture. Conversely, the pharmaceutical companies are obtaining stronger protection for patents and regulatory data, and the reduction or elimination of price controls. (50) Therefore, while TRIPS flexibilities exist, they are uncertain in application, subject to adverse political pressure from the leading powers and relatively little used by developing countries to procure needed medicines.

Recognizing this uncertainty, the Members of the African Union gave voice to the unsatisfactory nature of the situation in the Cairo Declaration. Issued at the ministerial conference in June 2005, it reads:

   We note that the African Group initiated the discussion on the 
   clarification of flexibilities in TRIPS, particularly in relation 
   to patents and public health as well as biodiversity. We call on 
   African countries to take appropriate measures at the national 
   level to make full use of these flexibilities in line with the 
   outcome of the AU Commission Workshop held in March 2005 in Addis 
   Ababa. We call on the EU not to introduce in the EPA [Economic 
   Partnership Agreement] negotiations any TRIPS plus proposals (which 
   go beyond existing TRIPS obligations) which would compromise these 
   flexibilities. If such proposals are advanced, they should be 
   rejected. (51) 

The reality is that while TRIPS contains the flexibilities required to allow developing countries to procure medicines, the legislative balance between the rights of the patent holder and the right to public health is not capable of being fully realized--at least not without developing countries engaging in legal battle and withstanding considerable economic and political duress. (52) In the longer term, access to medicines by means of compulsory licensing and derogations from the rights of the patent holder, is neither feasible nor sustainable. As amended, TRIPS Article 31bis for the compulsory licensing, manufacture and export of medicines to developing countries took almost five years to accomplish. To date relatively few countries that are capable of manufacture and supply of pharmaceuticals have implemented the amendment in their patent laws. (53) Given the time to negotiate and adopt derogations from patent rights and the reluctance of Members to implement or adopt them, we must question their longer term feasibility. The current system involves constant tension between patent holder and consumer, mediated through a complex body of rules. This will not provide a long-term, sustainable solution. Rather than temporary waivers of patent rights for the supply of medicines by compulsory licensing and other means of short-term compromise, it is submitted that developing countries must be enabled to render operative their national and regional systems of innovation.



In the post-TRIPS dynamic of economic catch-up, research activities at universities and public laboratories will play a central role in promoting the growth of pharmaceutical R&D. Given the policy restrictions imposed by international patent protection, national PROs constitute an important vehicle through which the technologies and organizational forms of the developed countries may be transferred and applied to drug discovery in developing countries. In the area of medical innovations, the existence of indigenous research at national research institutes has long been a particularly important element of catch-up, for which technologies and diagnostics originating from abroad may need to be tailored or revised to suit the national disease profile. (54)

Fortuitously, the restrictions on the policy space available to developing country governments have taken effect at the same time that other trends have pushed of enabled research, industry, and finance to operate on a global plane. Today, a global network of PROs provides an organizing structure for the dissemination and transfer of knowledge by means of information technologies. Moreover, over the last quarter century there has been an increasing transnational exchange of faculty between PROs in developed and developing countries. This transnational flow of scientists has not only been a central mechanism for the training of new faculty for indigenous universities, but also for indigenous firms to acquire access to advanced knowledge and skills.


The transnational flow of personnel favors in turn, the creation of the public-private partnerships (PPPs) needed to boost pharmaceutical innovation in developing countries. PPPs, consisting of international organizations and academic institutions working in conjunction with small to medium size enterprises (SMEs), have become one of the major sources of new drug development for developing countries.55 International alliances and partnerships have been proliferating, and will continue to provide important vehicles for firms in developing countries to access advanced know-how. Thus, while the increasing patent law harmonization triggered by the TRIPS Agreement has dramatically reduced the policy space available to offset the concomitant social costs,56 the transnational networking of skilled personnel has increased the growth of PPPs for pharmaceutical R&D in developing countries.57

These partnerships may take various forms, from a small group of institutional partnerships to more complex consortia between public sector organizations and private companies. PPPs normally also include institutions from outside Africa, where it can be demonstrated that they would add significant value to the partnership. Thus, PRO partners in Africa might include a mix of institutions with well-established research activities, and promising institutions that are developing their research potential.5s For example, the way in which the Kenya Medical Research Institute (KEMRI) evolved is instructive for the development of PROs in other developing countries. It developed from a long-term partnership between KEMRI and the Welcome Trust.59 This partnership is fully integrated into the KEMRI research infrastructure. The KEMRI-Wellcome Trust partnership is embedded within Kilifi District Hospital, and builds its research programs around the local medical infrastructure and contributing to healthcare delivery. …

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