The Rule on ‘Involuntary Licensing’ of Patents

I. Introduction

This memorandum provides an exhaustive analysis of the rule on involuntary licensing of patents under Philippine mercantile law, specifically the Intellectual Property Code of the Philippines (Republic Act No. 8293, as amended by Republic Act No. 9502). Involuntary licensing, often termed compulsory licensing, is a statutory exception to the exclusive rights of a patentee. It permits a third party to exploit a patented invention without the patentee’s consent, under specific conditions and subject to judicial or administrative grant. This mechanism seeks to balance the patentee’s monopoly rights with public interest considerations, such as public health, national emergency, and anti-competitive practices.

II. Statutory Foundation

The primary legal basis is found in Sections 93 to 97 of the Intellectual Property Code. Key provisions include:
Section 93: Grounds for compulsory licensing*.
Section 93.5: Special provisions for compulsory licensing of patents related to medicines, in compliance with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and the Doha Declaration on the TRIPS Agreement and Public Health*.
Section 94: Requirement for a prior attempt to obtain a voluntary license* on reasonable terms.
Section 95: Period for filing a petition for compulsory licensing*.
Section 96*: Jurisdiction and procedure for grant.
Section 97: Terms and conditions of the compulsory license*.

III. Grounds for Grant of Involuntary License

Under Section 93, the Director General of the Intellectual Property Office may grant a license to exploit a patented invention upon petition, after verification of the existence of any of the following grounds:
a. National emergency or other circumstances of extreme urgency.
b. Where the public interest, in particular, national security, nutrition, health, or the development of other vital sectors of the national economy so requires.
c. Where a judicial or administrative body has determined that the manner of exploitation by the patentee or his licensee is anti-competitive.
d. To remedy a practice determined after judicial or administrative process to be anti-competitive.
e. In cases of public non-commercial use of the patent by the patentee, without satisfactory reason.
f. If the patented invention is not being worked in the Philippines on a commercial scale, without satisfactory reason, provided that the importation of the patented article constitutes working of the patent.
g. Where the demand for the patented product in the Philippines is not being met to an adequate extent and on reasonable terms.
h. Compulsory licensing to allow the export of pharmaceutical products to countries with public health problems and insufficient manufacturing capacity, per the TRIPS Agreement.

IV. Procedural Requirements

The procedure is quasi-judicial. Key steps include:

V. Terms and Conditions of the License

Under Section 97, the compulsory license shall be non-exclusive and non-assignable, except with the part of the enterprise or goodwill using it. The scope and duration shall be limited to the purpose for which it was authorized. The patentee shall be paid adequate remuneration, taking into account the economic value of the license. The decision may be appealed to the Court of Appeals under Rule 43 of the Rules of Court.

VI. Special Provisions for Pharmaceutical Patents

Section 93.5 implements the TRIPS flexibilities. It allows for:
Compulsory licensing for the manufacture and export of pharmaceutical products* to eligible importing countries facing public health crises.
Streamlined procedures, including waiver of prior negotiation for export-only licenses*.
The grant of compulsory licenses* to supply the Philippine domestic market with more affordable medicines, particularly for diseases like HIV/AIDS, tuberculosis, malaria, and other epidemics.

VII. Comparative Analysis: Voluntary vs. Involuntary Licensing

The following table contrasts the key features of voluntary and involuntary licensing under Philippine law.

VIII. Judicial Interpretation and Landmark Cases

Philippine jurisprudence on involuntary licensing is limited but instructive. The Supreme Court, in Smith Kline & French Laboratories, Ltd. v. Court of Appeals, emphasized that a patent is a statutory monopoly, and its exercise is subject to state regulation for the public good. While not a compulsory licensing case per se, it underscores the principle that private rights must yield to public welfare. The case of Commissioner of Patents v. Smith Kline & French Laboratories further illustrates the state’s authority to regulate drug patents in the interest of public health. The IPO has issued guidelines for the implementation of Section 93.5, providing administrative clarity.

IX. Practical Implications and Strategic Considerations

For a patentee, the threat of involuntary licensing necessitates proactive measures: working the patent locally, offering voluntary licenses on reasonable terms, and avoiding anti-competitive practices. For potential licensees (e.g., generic drug manufacturers), it provides a legal pathway to access critical technologies when negotiations fail and a statutory ground exists. Legal practitioners must meticulously prepare the petition, providing clear evidence of the existence of a ground, the failed prior negotiation (if required), and a detailed plan for exploitation and remuneration.

X. Conclusion

The rule on involuntary licensing is a critical limitation on patent rights designed to serve overarching public interests. Its application is strictly circumscribed by substantive grounds and procedural safeguards to prevent abuse. The framework, particularly its provisions on pharmaceuticals, aligns Philippine law with international commitments under the TRIPS Agreement. While the grant of a compulsory license remains a remedy of last resort, its presence in the legal arsenal ensures that the patent system ultimately serves its fundamental purpose: to promote innovation while safeguarding public welfare.