Grounds for “compulsory licensing”* have changed

Law firm Pepeliaev Group advises that Federal Law No. 107-FZ “On amending article 1360 of Section Four of the Civil Code of the Russian Federation” (the “Law”) was adopted on 30 April 2021, which has introduced the following amendments to article 1360 of the Civil Code.

Current versionNew version (came into effect on 11 May 2021)
The Russian Government has a right, in the interests of defence and security, to permit the use of an invention, utility model or industrial design without the patent holder’s consent, with the patent holder being notified in this regard as soon as possible and commensurate compensation being paid to the patent holder.
1. The Russian Government has a right, in a case of extreme necessity connected with ensuring the defence and security of the state and protecting the life and health of citizens, to resolve that an invention, utility model or industrial design be used without the patent holder’s consent, with the patent holder being notified in this regard as soon as possible and commensurate compensation being paid to the patent holder.
2. The methods for assessing the amount of the compensation and determining the procedure for the payment of it should be approved by the Russian Government.

comment.jpgDe jure, the Law expands the application of article 1360 of the Civil Code as compared with the initial version of it, because it entitles the Russian Government to resolve that a patented item be used without the patent holder's permission not only in the interests of defence and security, but also for the purposes of “protecting the life and health of citizens”, provided that this resolution is based on an extreme necessity.

It remains uncertain what criteria will entitle the Russian Government to permit the use of patented items; neither is there any clarity with respect to the procedure for such permission to be granted.

The circumstances of recent months, which accompanied the adoption of the Law, are also of particular interest.

For a long time (since section four of the Civil Code came into effect), article 1360 of the Civil Code has not been used in practice. However, on 30 December 2020, the Russian Government adopted its Directive No. 3718-r “On permitting Joint Stock Company Pharmasyntez to use inventions without right holders’ consent for the purposes of supplying to the public medicines containing the INN Remdesivir”. This Directive is the first and currently the only resolution of the Russian Government regarding the use of a patented item without the patent holder’s permission.
On 17 March 2021, the State Duma of the Federal Assembly of the Russian Federation (the lower house of Russia's parliament) adopted in the first reading draft Federal Law No. 912458-7 “On amending chapter 72 of section four of the Civil Code of the Russian Federation” which proposed to add to section four of the Russian Civil Code article 1360.1 “The use of an invention for the production of a medicine with a view to it being exported under an international treaty of the Russian Federation”.

On 6 April 2021 the Russian Supreme Court accepted for prosecution a claim of GILEAD against the Russian Government to challenge the Directive of the Russian Government described above[1]. According to information provided by the media, GILEAD justifies its claims as follows: (1) the information about the patents specified in the Directive of the Russian Government contained mistakes, (2) the Russian Government has not ascertained the existence in Russia of an unsatisfied need in the medicine, and (3) the approach to assessing the cost of this medicine is not in line with the pricing methods used for vital and essential medicines.
The circumstances described above demonstrate the current lack of clarity regarding the procedure for using the legal rule being analysed. We believe that approaches to establishing the criteria and procedures for adopting such permissions will be developed in any case, either through amendments being introduced to current legislation or in the framework of judicial practice.

What to think about and what to do

The amendments introduced by the Law leave open the opportunity for the Russian Government to promptly adopt resolutions to permit the use[2] of a patent without the patent holder's consent when the Russian Government considers that the criterion of extreme necessity has been met and when such use corresponds to the purposes of protecting life and health.

However, the adopted Law does not answer a range of key questions which will arise when this regulation is used, including:
  1. what will be the indicators of “extreme necessity”[3] and can the pandemic and the “high-alert regime” serve as grounds for resolutions of the Government?

  2. can an insufficient stock of a patented medicine be a ground for a resolution of the Government and, if so, what criteria and procedure will be used to establish that the stock of the product is insufficient to satisfy the needs of the public? (For example, whether the procedure will be used that is established by Directive No. 1771 of the Russian Government dated 31 October 2020);

  3. will an unreasonably high price of a product offered by the patent holder be included in the list of grounds for a resolution of the Government? If so, what specific price will be taken into account (before or after the possible discounts, extra charges by distributors and so on)? What will be the criteria for evaluating whether the patent holder has set an “unreasonably high” price (for example, will it be necessary to make a comparison with prices of the same product in other countries)?

  4. what will be the criteria and the procedure for selecting the party (also, the “user”) who will receive the imperative permission to use the patented invention, utility model or industrial design?

  5. how will the “commensurate compensation” to the patent holder for the use of the patented item be calculated? (For example, will the approach be used unconditionally which is set out in draft Resolution of the Russian Government published by the antitrust regulator, the FAS of Russia, on 19 February 2020 on https://regulation.gov.ru/, draft ID 02/07/02-20/00099694?);

  6. will the Government's permission also mean that the new manufacturer will be granted the right to use the information from the registration dossier of the patented medicine/product? Will the Government’s resolution to grant the permission to use the reference medicine mean that the data exclusivity regime will no longer apply to the medicine in question? How will the problem be resolved with whether and how the new manufacturer will be granted access to the required manufacturing know-how of the patent holder?

Help from your adviser

Taking into account the new developments in legislation and court practice, Pepeliaev Group's lawyers are ready to provide professional assistance in assessing the risks of the amended provisions of article 1360 of the Civil Code being applied to the circulation of any specific medicine, medical product or other products intended for the protection of life and health of human beings, as well as to provide other legal services connected with launching pharmaceutical products on the markets of Russia and the Eurasian Economic Union.

* In practice, the legal mechanism entrenched in article 1360 of the Russian Civil Code (the “Civil Code”) is often called “compulsory licensing”. However, even though it is somewhat similar to the rules set in articles 1239 and 1362 of the Civil Code, this approach appears to be incorrect, because in this case, there is no licensing relationship as such. In particular, the patent holder does not play the role of a licensor, a party which grants permission to use its patented item.
[1] Case No. AKPI21-303, the first court hearing is scheduled for 27 May 2021.
[2] Including the production and sale of any patented medicines or medical products (and, potentially, other products connected with protecting life and health, because the Law does not contain any restrictions in this regard).
[3] Article 31 of the TRIPS Agreement (Marrakesh, 15 April 1994) does not explain what “situations of national emergency or other circumstances of extreme urgency” mean and assumes that a “situation of national emergency” is a type of “circumstances of extreme urgency”.
In Article 1359(3) of the Civil Code “extreme circumstances” are understood only as “natural disasters”, “catastrophes” and “accidents”. In Article 1057 of the Civil Code “circumstances of extreme necessity” means a situation of a “danger threatening the person having caused the damage or other persons, if under these circumstances this danger could not be remedied by any other means”. 

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