Merck v. Shionogi: a landmark decision
By Dr. Claudia Milbradt and Nicolas Hohn-Hein
Under German law, patents confer two types of an absolute right to their respective owners: (a) a positive right to make use of the technology subject to the patent and (b) a negative right to exclude others from using the patent. In some cases, this principle does not apply if public interest surpasses the owner’s interest in the exclusive commercial exploitation of the patent forcing the patent owner by law to grant a license to a third party or even a competitor. Section 24 of the German Patent Act (GPA) stipulates the granting of such a “compulsory license” if certain pre-requisites set out in the statute are met. However, due to their highly exceptional nature very few compulsory licenses have been granted. Thus, the recent German Federal Patent Court decision (No. 3 LiQ 1/16) (Bundespatentgericht or BPatG) granting a compulsory license on the antiretroviral compound Raltegravir to the US company Merck for the German market is worth to be mentioned/noteworthy and prompts a further discussion the prerequisites of Section 24 of the GPA.
Prerequisites of Section 24 of the GPA
Section 24 of the GPA is one of a few exceptions to the fundamental right to property conferred by Article 14 of the German Constitution. As such, until recently there was only one decision granting a compulsory license (later overturned by the Federal Supreme Court (Bundesgerichtshof or BGH), see BGH GRUR 1996, 190 – Interferon-gamma/Polyferon). To grant a compulsory license, the statute’s high standards set out that four pre-requisites must be met: (a) the license must concern a patent or a utility model and (b) the license seeker must want to commercially use the invention, (c) must have already earnestly tried to enter into a license agreement with the patent owner based on reasonable market terms, and (d) can prove that granting the compulsory license is in the public interest.
Whereas the first three conditions usually do not constitute an obstacle, the factor “public interest” is typically the decisive factor as to whether a compulsory license will be granted (with some statutory exceptions, such as those concerning plant variety rights in Section 24, paragraph 3, of the GPA or semiconductor technology in Section 24, paragraph 4 of the GPA). The question of whether or not public interest exists does not follow any legal definition but rather it is construed in accordance with the facts of the individual case. Over the years, German and European courts have developed three main areas of application where a compulsory license might be justified: (a) general economic aspects, (b) socio-political objectives, and (c) medical reasons regarding the treatment of serious diseases.
Background of Merck v. Shionogi
Shionogi owns the European patent for the compound Raltegravir (EP 1422218), an antiretroviral drug. Merck manufactures and markets the drug Isentress, an approved medication for treatment of HIV-patients encompassing Raltegravir. As the parties’ negotiations regarding the grant of a global license remained unsuccessful – Shionogi considered the USD 10,000,000 offer too low – Shionogi filed a suit for patent infringement before the Regional Court (Landgericht) of Düsseldorf (No. 4c O 48/15)
In defense, Merck initiated compulsory license proceedings before the BPatG requesting such a license in the main issue (No. 3 Li 1/16) as well as filling a preliminary injunction as the pharmaceutical company considers the use of Raltegravir and Isentress as indispensable for the successful treatment of HIV-patients in Germany.
The facts of the present case are quite similar to the situation in the Polyferon case. In that case, the defendant held a patent on the drug Interferon, a highly effective compound for the treatment of rheumatoid arthritis. The claimant, a competing business, sought to license the original drug from the defendant without success and thus the claimant filed a suit in order to acquire a compulsory license pursuant to Section 24 of the GPA. Although the claim was finally dismissed by the BGH, the legal principles developed by the BPatG in the case to determine the public interest in a compulsory license on medications were also applied to the present case (see below).
FRAND-terms of antitrust laws not applicable
Pursuant to Section 24 of the GPA, the license seeker must seriously declare its general willingness to enter a license agreement on reasonable commercial terms. As Merck had made such a reasonable offer to Shionogi, the court considered the requirement to be fulfilled. It was also highlighted that the principles established for granting a compulsory license under antitrust law fair, reasonable and nondiscriminatory (FRAND) licenses were not applicable under Section 24 of the GPA.
Application of Polyferon case law
In Polyferon, the BGH ruled that in order for a medicament to fulfill the requirement of public interest, it (a) must treat a serious disease that (b) cannot be treated by a comparable product or (c) can only so with considerable side effects. As the BPatG relied on Polyferon case law, Merck, carrying the burden of proof, had to establish the above mentioned pre-requisites.
Merck argued that since HIV-infections were considered to be both infectious and lethal, thus a “serious disease”, public interest demanded that treat HIV-patients should be treated as effectively as possible. Accordingly, while there might have indeed been alternative compounds like Dolutegravir on the market the Court appointed experts confirmed that the replacement of Isentress with another drug was not acceptable given potential life-long side effects and disadvantageous drug interaction due to the exchange.
Further, the expert also stated that Raltegravir showed particular advantages in the post-exposure prophylaxis and in the treatment of certain patient groups (e.g. babies, infants, pregnant women and long-term patients). In consequence, as the other pre-requisites of Section 24 of the GPA were fulfilled, the public interest outweighed Shionogi’s interest in the exclusive exploitation of the patent at issue.
Compulsory license by preliminary injunction
The present case is highly unusual not only because of the grant of a compulsory license to patented drug but also in particular because it happened in preliminary proceedings (Section 85 of the GPA). Under German law, a preliminary injunction requires the situation to be urgent, posing serious risks for rights and/or property of the claimant or – in case of Section 85 of the GPA – of the public (i.e. public health). As a quick decision is required, the court will, as a result, perform only a summary review of the facts and the respective legal interests at issue pending a final decision in the main proceedings.
Therefore, given that compulsory licenses are fundamentally rare exceptions to the constitutionally guaranteed right of ownership, the BPatG – without examining the entire matter in every detail – must have considered the public interest regarding HIV-treatment by Raltegravir as extremely strong, concluding that an immediate decision was necessary. However, the Court might decide otherwise in the main proceedings once considering all the facts at hand.
The Court’s final judgment in the main proceedings is still awaited and it is unclear whether the decision will be confirmed here as well as on an appeal before the BGH. In light of Polyferon, the BGH might apply a much stricter regime with regard to Section 24 of the GPA once again and reject the compulsory license granted to Merck.
Time will tell whether the present case remains an isolated case or becomes settled case law with regard to patents in the medical field. Manufacturers in the medical field as well as their competitors should be aware of this landmark decision with regard to market-leading drugs used for the treatment of particularly serious diseases.
In a recent landmark decision, the BPatG granted a compulsory license on Shionogi’s antiretroviral compound Raltegravir to the US company Merck due to the drug’s importance in treating HIV-patients.
- In exceptional cases, Section 24 of the GPA grants a compulsory license to a patent to a third party.
- A market-leading HIV-drug may be subject to a compulsory license if it is in the public interest. The public interest can outweigh the patent owner’s interest to exclusively exploit the patent if, e.g., alternative drugs are not as effective or entail serious side effects.
- In particularly urgent cases, the compulsory license can be granted via a preliminary injunction.
- The principles of antitrust laws developed with regard to FRAND terms do not apply to Section 24 of the GPA.