[Ip-health] Medicines Patent Pool agreement with Gilead contains flexibilities including termination provisions and severability of licenses

Baker, Brook b.baker at neu.edu
Tue Jul 26 17:00:54 PDT 2011

Thanks to Krista/KEI and to I-MAK and ITPC for continuing to critically engage in the analysis of the Gilead/MPP license.

I-MAK and ITPC have required us to focus on the efforts of Gilead and other Big Pharma players to seek patents on new uses of existing medicines and more generally on the gaming of the patent system to extend patent monopolies in pharmemerging economies and in countries that pose the threat of robust generic competition, especially India and China and to a lesser extent Brazil, Thailand, and South Africa.  There is no doubt that Gilead will seek new patents whenever and wherever it can on new uses of its existing and pipeline ARVs.  Gilead will exploit those patents, especially to the extent that it is successful in gaining patents in India to extract license restrictions and royalties on sales in countries that lack manufacturing capacity of their own.  This ability to exploit patents whether granted in the country of manufacturer/export and/or in the country of import/use is a peculiar and perverse feature of the global IPR regime.  If a drug were not patented in the U.S. or in Europe, U.S. or European manufacturers could easily satisfy domestic needs - no CLs needed, no royalties.  But for countries without patents that have to import from countries with patents, they face an added barrier that is topsy turvy - the have-nots suffer more restricted and more convoluted access than the haves (they have to convince generic producers to seek CLs in the country of export and pay royalties to boot).

I-MAK and ITPC are also correct that generic incentives to challenge weak patents on new uses (and new formulations/combinations) might be weakened if licensees have an easy out of obtaining restrictive license terms but still gaining access to markets where the bulk of HIV infections occur.  True, the MPP negotiated terms allowing generic licensees to challenge patents without consequences to their Gilead/MPP licenses, but this putative right might evaporate in the face of market-access pragmatism.  This is a conundrum that requires additional analysis - to some extent it is an inevitable feature of voluntary measures that advance the immediate interests of BIg Pharma licensors and generic licensees, but not necessarily the ultimate interests of patients.  However, this weakness in voluntary measures must also be weighed agains the weaknesses of more pro-active measures where developing countries have been painfully and inexplicably slow in adopting TRIPS-complaint flexibilities and in even more so in using them.

However, I also agree with KEI in its reaction to I-MAK and ITPC's critique of the Gilead/MPP license where I-MAK and ITPC argue that the MPP has in effect accepted and even promoted new use patents.  I think this analysis is wrong.  As KEI notes, the hepatitis use for tenofovir and the the potential FDA approved uses of cobicistate and elvitegravir within the Medicines Patent Pool license refers to the "field of use" and actually has little or nothing to do with the patent status of the new use.  Instead of the Gilead/MPP licenses being limited solely to HIV/AIDS, there are licenses to expanded fields of use, which ultimately benefits patients living with other diseases besides just HIV.

By gaining access to expanded fields of use, the MPP is expressing no opinion whatsoever about the desirability of country-based decisions whether or not to patent new uses of existing medicines.  True, if a patent on a new use is granted, that might result in evergreening of the existing API patent, but that's not the fault of the Patent Pool - that is the fault of the unreformed domestic patent regime, which unnecessarily and ill-advisedly grants patents on new uses despite TRIPS compliant flexibilities re exclusions from patentability and patentability standards (Arts. 1 and 27 of the TRIPS Agreement).

The US and EU are pursuing new use patent standard standards (and even more lenient "new form" patentability in the US TPPA proposal) and Big Pharma is undoubtedly the puppet master on those demands.  But the MPP is stuck with the realities of patents granted by manufacturing countries and import/use countries.  By seeking and expanded field of use, the MPP did not endorse new use patents, even though it (and generic licensees - actual and potential) might regrettably be bound by such patents with respect to use, manufacturer, distribution, sale, and import.

I-MAK and ITPC have also criticized the Medicines Patent Pool for a conflict of interest in accepting 5% of royalties paid to Gilead.  They raise the important issue that UNITAID has promised to fund the MPP and that it need not necessarily be dependent on revenues generated by Big Pharma/MPP licenses.  Like all international funding mechanisms, UNITAID is strapped for resources and facing multiple demands for scarce resources.  Since the MPP is providing services to licensors and licensees, it is not completely irrational that it extracts fees for its services, but there is a perverse incentive to increase license revenues even where access to medicines interests are better served by generic companies unbundling particular API licenses rather than accepting them.  If the MPP could truly be assured of its operating budget from UNITAID, then it probably would be preferable to forego a tax on royalties for its operating budget, though it might be desirable in the long run to impose such a tax to incentivize incremental innovations such as new pediatric, fixed-dose combination, and heat-stable formulations.

I agree with I-MAK and ITPC's concern that the grantback rights for licensee innovations that Gilead receives are without royalties.  Since Gilead is extracting royalties on its alleged innovations, it doesn't seem unreasonable that it would pay royalties on follow-on innovations of its licensees.  (It's also frankly somewhat confusing why the MPP has not insisted that incremental improvement be licensed back to the MPP more broadly so that other licensees can use them, again conditioned on payment of a royalty.)

I-MAK and ITPC made other suggestions about CS participation, transparency and oversight that are meritorious and perhaps worth pursing.  I'm not sure those concerns add up to the recommended rejection of the Gilead/MPP licenses and the suspension of other negotiations, but the concerns are real.

In sum, debate about the MPP licenses and about Big Pharma's intentions is healthy. We need to pay special attention to concerns expressed by Southern allies, who have felt the brutal heel of Big Pharma monopolies far more than those of us from the North.  But, we should also continue to assess whether critiques are on point or not.  We should also not let critique of MPP licenses blind us to the paucity of proactive alternatives that have comparable scope to aggregate developing country markets and incentivize robust generic competition.  However, we must also be stedfast in resisting efforts to split middle-income countries off from low-income and sub-Saharan African countries and we have to keep in mind the complementarity of voluntary and compulsory measures to increase access to medicines.


Professor Brook K. Baker
Health GAP (Global Access Project) &
Northeastern U. School of Law, Program on Human Rights and the Global Economy
Honorary Research Fellow, Faculty of Law, Univ. of KwaZulu Natal, SA
400 Huntington Ave.
Boston, MA 02115 USA
(w) 617-373-3217
(c) 617-259-0760
(f) 617-373-5056
b.baker at neu.edu
From: ip-health-bounces at lists.keionline.org [ip-health-bounces at lists.keionline.org] On Behalf Of Krista Cox [krista.cox at keionline.org]
Sent: Tuesday, July 26, 2011 1:43 PM
To: ip-health at lists.keionline.org
Subject: [Ip-health] Medicines Patent Pool agreement with Gilead contains flexibilities including termination provisions and severability of licenses

Medicines Patent Pool agreement with Gilead contains flexibilities including
termination provisions and severability of licenses
By Krista Cox
Created 25 Jul 2011 - 2:38pm

On 12 July 2011, the Medicines Patent Pool (MPP) and Gilead announced an
agreement for Gilead to license patents for tenofovir (TDF), emtricitabine
(FTC), elvitegravir (EVG), cobisistat (COBI) and a four drug combination of
these drugs. KEI's initial comments on the agreement are available here [1].
Although there is plenty of room for improvement in the licensing agreement
and future agreements should build upon the Gilead licenses, as noted by the
Patent Pool staff, KEI, and virtually all NGOs working closely on this
issue, some recent criticisms of the MPP seem off the mark in important
areas and also fail to recognize or emphasize the important flexibilities
that are contained within the agreement. Taken together, this can give an
unbalanced and in some cases misleading light view of the licensing terms.

This note focuses in particular on the ITPC and I-MAK's briefing paper, The
Implications of the Medicines Patent Pool and Gilead Licenses on Access to
Treatment [2]. For brevity, this will be referred to as the I-MAK analysis.

I-MAK says that the MPP/Gilead agreement "has accepted new uses of these
known products" and claims that this "effectively validated new use patents
for all other companies that might enter the pool." Let's break that down.

First, the Gilead/Medicines Patent Pool Agreement covers several products
and combinations of those products. However, generic drug manfacturers can
choose to terminate the licenses for particular products, while using
licenses for others. Thus, this is an a la carte licensing mode, with regard
to products. In other words, a company can decide to license COBI and EVG,
but not license TDF. In fact, it is a likely outcome for some companies.

Second, the license is a right to use the patents listed in the Appendices
to the license in a field of use. The field of use is set out in page 2 of
the license in the definitions section. For products using TDF as a sole
ingredient, the field of use is HIV and Hepatitis B. For EVG and COBI, the
field of use includes "any use that is consistent with" the labels approved
by the US FDA or other "applicable foreign regulatory authority."

This definition is the basis for the I-MAK complaint. However, this language
should be seen as a positive, not a negative. The license holder will have a
right to use the licensed products for a wide range of uses. Additionally,
at any point, the license holder can terminate the licenses to these
products, if it feels that the important patents have expired and would
prefer to operate outside of the license of any new uses of the products.
Nothing in the license stops any party from challenging any patent, or from
obtaining compulsory licenses to any patent, or from licensing some products
but not others. I-MAK should explain why giving the generic drug companies
this flexibility is a negative, rather than a positive.

The MPP/Gilead agreement termination clauses are found in Section 10 of the
license, and are designed so that the licenses are not bundled together but,
rather, are severable. Sections 10.4 and 10.5 of the agreement, for example,
govern the Licensee's right to terminate the agreement. The Licensee has the
right "at its sole discretion, to terminate the licenses . . . with respect
to any particular API, at any time" with the termination effective
immediately upon receipt of written notice by Gilead and MPP (Article 10.5).
The Licensee can terminate its license for a particular product while
maintaining its licenses for other products covered by the agreement;
nothing in the MPP/Gilead agreement limits the Licensee's ability to produce
and sell any API that it retains a license for (Section 10.5(c)).

The ITPC/I-MAK paper claims that the MPP/Gilead license introduces a "global
patent system" because of the agreement provides for royalties on TDF to be
paid to Gilead and points out that the royalty rate will increase from 3% to
5% of net sales should the TDF patents eventually be granted in India. I-MAK

"the license allows Gilead to receive royalties on a drug until every
possible legal avenue is exhausted, and the highest legal authority has
rejected the patent. To illustrate, in India, despite the fact that there is
no TDF patent, Gilead will receive royalties while the case is heard by the
Appeals Board, High Court, and Supreme Court -- a process that could take
some years."

Much of the criticism with regard to the MPP/Gilead agreement centers around
TDF and its patent status in other countries, particularly India. I-MAK goes
on to argue that because of the current TDF patent status in India, Gilead
will continue to litigate against the refusal of its TDF patent in India
which will result in Licensees having to pay royalties "and by that effect,
Gilead will have achieved the objective of extracting a rent from a right it
did not have. It also means that Gilead has managed to circumvent the very
flexibilities India implemented in its Patent Laws to address patent quality

We can appreciate that I-MAK wants Gilead to abandon its patent claims for
TDF in India, and surely this view is widely held within the public health
community. That said, much of this criticism of the licsense seems
unwarranted in practice. As noted above, the MPP/Gilead agreement makes the
licenses severable, meaning that a Licensee does not have to sign a license
for TDF in order to sign licenses for FTC, EVG or COBI. The severability of
the licenses is a significant aspect of the agreement, and generic
manufacturers, like CIPLA, do not have to agree to sign a license for TDF.
Given the severability of the licenses, and based upon discussions with
generic drug manufacturers from India, it is seems unlikely that all
Licensees will automatically agree to sign a license for TDF and pay
royalties on the product.

The MPP/Gilead license for TDF is mostly a license to manufacture, sell and
export TDF from India. If the patent protection for TDF is weak or
non-existent in India or elsewhere, companies are free to make and sell TDF
outside of the license. Gilead is trying to make and exploit a patent claim
in India, and has offered a voluntary, severable, license to the Pool for
that patent, with a 3 percent to 5 percent royalty, collected in India, that
would operate outside of any compulsory licensing of the TDF patents. In a
worst case scenario, Gilead collects 3 to 5 percent of the generic price of
a product in the licensed area, and whatever royalties are granted via
compulsory licenses outside of the licensed area.

Another criticism raised by ITPC/I-MAK concerns the royalty free grant-back
license to Gilead for improvements made by licensees. ITPC/I-MAK argues that
these provisions, contained in Sections 2.3 and 5.2, raise potential
competition problems. What Gilead has obtained in the license is a freedom
to operate clause. Gilead did not receive a right to ownerhip of any
improvements, other than a right for their own use. Only the originator of
the improvement has the right to license or share the improvement with third
parties, on terms the originator choses.

The grant-back license for Gilead's sole use is non-exclusive and is limited
to improvements made prior to any termination of the license of the product.
The license does not preclude a Licensee from submitting a patent
application for the improvements (Section 5.2 governs the reporting
requirements of the Licensee and specifically notes that the Licensee's
annual report include "any patent applications claiming Improvements") and
the ability to terminate its license on the product allows a Licensee to end
its agreement with Gilead and subsequently use the improvements it has
developed to manufacture the product.

The MPP/Gilead agreement can and should work in tandem with other strategies
to improve access to medicines. I-MAK acknowledges that the licenses do not
contain a "no challenge" provision to patent validity, and they specifically
provide that its is not a breach of the license to operate under a
compulsory license. The licenses do not block any system of pre- and
post-grant opposition; spurious patents can still be challenged, and the
MPP/Gilead agreement does not create any legal obstacles on this front.

I-MAK is correct in noting areas where the licenses are problematic, such as
the insistence that the products be manufactured in India, and the issues
with the TDF patent landscape, which have been discussed for several years,
following the earlier Gilead voluntary license. While these criticisms
exist, the new licenses with the Patent Pool are in fact much more
pro-competitive and pro-compulsory licensing than the older licenses, and
that will benefit entities seeking lower cost sources of newer AIDS drugs.

Krista Cox
Staff Attorney
Knowledge Ecology International
(202) 332-2670
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