Last month, Ronald Cass, the former dean of the Boston University School of Law, penned an op-ed in the Wall Street Journal about China's ongoing patent reform efforts. (For a useful summary of all the changes in the Third Amendment to China's patent law, see this report by the attorneys at the Jones Day law firm.) The op-ed focused upon on one particular change, namely the authorization of compulsory licensing for non-use of a patented technology. The idea is that if a patentee does not practice its patented invention, then the state should be able to ensure that someone else will. I thought I'd take the time to provide some background about such provisions (which I will call, interchangeably, "non-use provisions" or "worked requirements") and why China's amendment is potentially dangerous.
This concept that patent rights will be taken away if the patent is
not practiced is anathema in the United States, where there is no
requirement that the patent be "worked." That's been well recognized
for a long time. The Supreme Court so held in a century-old decision, Continental Paper Bag v. Eastern Paper Bag, 210 U.S. 405, 409 (1908),
that explained that no such requirement has existed under U.S. law since 1836.
Concerns about any unfairness from letting a patented technology lay fallow are accommodated
somewhat in the United States by providing the authority for a court to
deny an injunction to a patentee who does not practice its invention. EBay v. MercExchange, 547 U.S. 388 (2006).
Such requirements that a patentee "work" its technology have a more significant pedigree
outside the United States. The Paris Convention of 1887 provided for
compulsory licenses "on the ground of failure to
work or insufficient working before the expiration of a period of four
years from the date of filing of the patent application or three years
from the date of the grant of the patent, whichever period expires
last; it shall be refused if the patentee justifies his inaction by
legitimate reasons." Paris Convention for the Protection of Industrial Property, art. 5(A)(4).
to TRIPS in 1994, many countries, including Australia, Canada, and
France, for instance, provided for the authority of the state to
license non-worked patents with provisions that track the Paris
Convention. See Gianna Julian-Arnold, International Compulsory Licensing: The Rationales and the Reality, 33 IDEA 349, 372 (1993). (Canada no longer appears to have such a provision, although Australia does.)
TRIPS, though, imposes additional limitations on compulsory licensing. Article 30
states that members may craft exceptions to patent rights only to the
extent that those exceptions do not "unreasonably conflict with a
normal exploitation of the patent and do not unreasonably prejudice the
legitimate interests of the patent owner, taking account of the
legitimate interests of third parties. Article 31
imposes a number of very specific limitations on the grant of a
compulsory license including that negotiations generally be held
regarding "reasonable commercial" terms for a license; should such
negotiations fail, the patentee is entitled to be "paid adequate
These limitations from TRIPS act as a check on the
use of compulsory licenses, which brings us to China's amended
provision. An unofficial translation prepared by a Spanish NGO reads in relevant part as follows:
Article 49: "In any of
the following cases, the Patent Administrative Department under
the State Council may, upon the request of the entity or individual which is capable to exploit,
grant a compulsory license to exploit the patent for invention or utility
the patentee, after the third anniversary of the grant of the patent right and
fourth anniversary of the filing date of patent application, has not exploited
the patent or has not sufficiently exploited the patent without any justified
it is determined through the judicial or administrative procedure that the
patentee's exercise of the patent right thereof is an act of eliminating or
restricting competition, thus there's a necessity to grant a compulsory license
to the applicant."
Thus, the law purports to adopt a relatively unfettered application
of the Paris Convention, ignoring China's obligations under TRIPS
including the establishment of appropriate compensation. It is also potentially much farther reaching than compulsory licenses limited to drugs for combating epidemics and
the like. Moreover the language itself is inscrutably vague. As Ronald Cass pointed out, "sufficiently exploited" and "justified reason" are terms that are inherently ambiguous.
Even if China's new law is applied in a manner that comports with
China's treaty obligations, it is still very troubling. Non-use
provisions are protectionist because they
allow a nation to appropriate patent rights -- which in China will
generally be possessed by foreigners -- for the benefit of domestic
industry. China's government has an unusually close relationship, of
course, with its domestic industry. Accordingly, providing for the
power to aid that industry, at the expense of foreigners, is alarming.
There seem to be two reasons why non-use provisions don't cause much
of a stir elsewhere. First, other governments are more detached from
their domestic industries. Second, such governments likely set the bar
quite high before a compulsory license is awarded. By way of example,
see sections 133-140 of Australia's Patents Act of 1990, which impose complicated limitations on the compulsory license for non-use.
I couldn't find much written about these non-use
provisions, at least as they involve developed countries. It could just be that the
provisions are never actually invoked in practice.
It is too soon to tell how China will implement its new compulsory licensing authority. China's amended patent law goes into effect
on October 1, 2009. China is currently drafting its regulations
that implement the new law, but I have not been able to come upon an English translation. One hopes that concerns about the breadth of the law are mooted by limitations imposed by the regulations. If not, the entire premise of patent protection -- exclusive rights -- risks being cast away: Those who invest in technology in order to stay a step ahead of the competition everywhere else in the world will find instead in China that they are a step behind state-authorized copycats who enter the market first.