Wednesday, February 11, 2009

WSJ on compulsory licensing, China-style

WSJ writes:

In other ways, however, the Third Amendment [of Chinese patent law] takes a wrong turn. One of the worst offenses comes in provisions for compulsory licenses. These support expansive authority for the state to issue licenses, without the approval of the patent holder, to anyone who is able to produce the product once given access to the patented technology. The amendment allows compulsory licensing if, after three years from the grant of a patent or four from the filing of a patent application, the patent holder, "without proper justification," is found not to have "exploited" the patent "sufficiently," or if the patent use is found to restrict competition. Some of the problems in this are technical -- like the fact that the timing in the provisions violates the Paris Convention for the Protection of Industrial Products, an international agreement to which China is a party. But the bigger issue is the casual attitude toward protecting investment in innovation that is at the heart of these provisions.

Compulsory licensing threatens the fundamental property right that patents confer -- the right to control the use of an invention for a set period of time, to decide who will use it and on what terms. For that reason, historically it has been restricted to preventing clear abuses of the patent system. The most obvious example is the failure of a patent holder to allow the sale of a patented product. The exclusive right to make a patented product was part of an eminently sensible exchange -- the inventor got patent protection and the public got access to the new product. Exclusivity rights encourage investment in innovation, but the public only receives benefits from the innovation if the patent holder is willing to put the new product into the public domain. International agreements, including the Agreement on Trade Related Aspects of Intellectual Property (TRIPS), long have recognized governments' right to issue compulsory licenses if the patent holder doesn't make the new product publicly available and there is a compelling public need -- think of an epidemic that occurs well after a patent has issued for the cure but with the patent holder refusing to make any sales. Despite efforts to water down TRIPS protections, this remains the basic rule.


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