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NYAG forges new ground in scrutiny of pharmaceutical agreements with first-filer exclusivity no-challenge settlement
25 February 2014
Events since 11 September have caused pharmaceutical companies to question their intellectual property (IP) rights and the power of governments to override those rights in times of national emergency. On 24 October, the US Department of Health & Human Services and the Bayer Corporation announced their agreement for a significant new federal purchase of the Anthrax antibiotic Ciprofloxacin (trademarked 'Cipro') at a much lower price than prior to the terror attacks. Even with the reduction, the agreement is still worth $95m (£65.9m) to Bayer.
On 26 October, Bayer announced on its website that it had received multiple confirmations in the US that its patent Cipro was "valid and enforceable". What could have prompted the second announcement? Perhaps pressure was put on Bayer to agree a deal, given the suggestions that certain US politicians were calling for the government to organise its own production of the antibiotic, notwithstanding Bayer's patent.
Like the UK, the US is a signatory to the World Trade Organisation's (WTO) agreement on trade-related aspects of IP rights (Trips). In the context of pharmaceutical patents, the WTO acknowledges that Trips must strike a balance between the short-term interests in increasing access to medicines and the longer-term interests in encouraging creativity and innovation. However, recent events have highlighted the balancing act, not in terms of weighing up the short and long-term interests, but by creating circumstances that justify the use of a patent by a state without the authorisation of the patent owner.
These are cases described as situations of national emergency or circumstances of extreme urgency; the device envisaged by the WTO and Trips for dealing with such cases, though not expressly stated, is the compulsory licence. Trips, together with other legal texts, forms an integral part of the final agreement of establishing the WTO, which was signed in April 1994.
However, developed member states such as the US and the UK and EU member states have in place well-developed national patent laws giving maximum protection to their governments, usually for national security. These laws are often more far-reaching than the provisions contained within Trips, which tend to be used by developing member states. The position under UK domestic law is governed by the Patents Act 1977, which allows for Crown use. As with other developed states, the UK Government has exemption from the exclusive rights of patent owners and need not apply for a compulsory licence. Accordingly, the UK has not adopted those parts of Trips dealing with unauthorised use by a member state during times of national emergency or extreme urgency and the need to override a patent by way of a compulsory licence.
So was pressure put on Bayer to agree a deal with the US government? The answer seems to be yes. Whether this was expressed to Bayer or whether Bayer simply felt that its patent was at risk if a deal was not done, the decision to compromise with the government is one that will ensure Bayer keeps control of Cipro; it will have Cipro confirmed as valid and enforceable, as well as securing a multimillion-dollar contract, which it would not otherwise have had if the threat of Anthrax had not materialised. The deal was good for Bayer on many levels. In view of the risks facing pharmaceutical companies in these situations, especially in developed member states where sanctions may be more severe than those envisaged by Trips, negotiations such as those concluded successfully between Bayer and the US government will invariably prove the most commercially sensible option open to a pharmaceutical company that is concerned with retaining control of a valuable patent.