The proposed broader "Bolar" Exception… or how to venture into TRIPS' red light district

Looking at the pharmaceutical law reform package prepared by the European Commission it is clear that, quite sadly, incentivizing inventions and innovation in the pharmaceutical industry no longer ranks high on Brussels' agenda. But things could still get worse and this is exactly what has happened with the position adopted by the Council, in particular with regard to the controversial "Bolar" Exception that, believe it or not, was fiercely combatted by the European Community ("EC") and its member states before the World Trade Organization ("WTO") some years ago.

In particular, the Council has proposed an extraordinary broadening of the "Bolar" Exception so that it excludes from the realm of patent infringement the following activities:

"Article 85

Exemption to the protection of intellectual property rights

1. The protection provided by patent rights, or supplementary protection certificates of medicinal products under […] shall not be regarded as infringed when the necessary studies, trials and other activities are conducted for the purposes of:

(a)  obtaining a marketing authorisation of medicinal products, in particular of generic, biosimilar, hybrid or bio-hybrid medicinal products and for subsequent variations;

(aa) conducting health technology assessment as defined in Regulation (EU) 2021/2282;

(ab) obtaining pricing and reimbursement approval;

(ac) complying with subsequent practical requirements associated with activities referred to in points (a)-(ab).

(ad) submitting an application on procurement tenders, in compliance with Union and national law, to the extent that it does not entail the sale or offering for sale or marketing of the medicinal product concerned during the protection period provided by patent rights or supplementary protection certificate.

The activities conducted exclusively for the purposes set out the first subparagraph in point (a), may cover, where relevant, the submission of the application for a marketing authorisation and the offer, manufacture, sale, supply, storage, import, use and purchase of patented medicinal products or processes, including by third party suppliers and service providers.

2. Decisions adopted concerning the activities referred to in paragraph 1 shall not be considered as infringing intellectual property rights, within the meaning of that paragraph.

3. This exception provided for in this Article shall not cover the placing on the market of the medicinal products resulting from such activities."

For the reasons set out below, some aspects of the proposal cross the very clear red line drawn by the WTO Dispute Settlement Body in its decision of 17 March 2000, whereby it partially upheld the complaint filed by the EC and its member states against Canada for having introduced a too broad "Bolar" Exception that was found to be at odds with article 28 and 30 of the TRIPS Agreement. This is exactly what the Council is proposing to do.

For the readers' benefit, it will be useful to remember that, in that case, the complaint was addressed against a reform of the Canadian patent legislation that introduced: (i) a typical "Bolar" exception excluding from patent infringement the activities reasonably necessary to obtain marketing approval (the "regulatory" exception); and (ii) excluding the manufacture and stockpiling of the patented product within six months before patent expiry (the "manufacture and stockpiling" exception).

To sum up, the EC and its member states considered that the two flanks of this exception curtailed the scope of the patent rights granted by article 28 and that they did not fulfil the requirements set out for "exceptions" in article 30. To put this argument in context, it will be useful to transcribe here article 28:

"Rights Conferred

           1. A patent shall confer on its owner the following exclusive rights:

(a)                 where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering for sale, selling, or importing for these purposes that product;

(b)                where the subject matter of a patent is a process, to prevent third parties not having the owner’s consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process.

2. Patent owners shall also have the right to assign, or transfer by succession, the patent and to conclude licensing contracts."

Following GATT/WTO's drafting logic, the "general rule" (in this case, the rights conferred by a patent) may be conditioned by "exceptions", provided that the conditions laid down in article 30 are fulfilled:

"Exceptions to Rights Conferred

Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such 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."

As readers will have noticed, three cumulative conditions are required: (i) the exception must be "limited"; (ii) it cannot unreasonably conflict with a normal exploitation of the patent; (iii) it cannot unreasonably harm the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.

In the case against Canada, the WTO Dispute Settlement Body, after a very detailed analysis, came to the conclusion that, whereas the "regulatory" exception passed the three limbs, the "manufacture and stockpiling" exception did not even pass the first one. For the purpose of this entry, the most interesting aspect is that, as we will see below, the legal reasoning of the decision applies equally to some of the acts that the Council proposes to include within the scope of the new "Bolar" exception, such as the submission of applications for procurement tenders. It equally applies to other aspects already included in the proposal, such as obtaining price, which presupposes having made an offer for sale. The Council has inserted the caveat "to the extent that it does not entail the sale or offering for sale" to try to circumvent the contradiction with articles 28 and 30 of the TRIPS Agreement. Indeed, the caveat comes across as rather naïve, as offering for sale is the quintessence of participation in any tender process, whose aim is precisely to request offers for sale.

Before descending into the detail of the lyrics of the decision, it must be noted that what transpires from the music is that anything that sounds as if it was made for "commercial purposes" may not be accommodated within the realm of a "regulatory" exception. Interestingly, Canada sought to justify the "manufacture and stockpiling" exception on the grounds that any sales would not be made until after the patent had expired. The WTO Dispute Settlement Body rejected this argument, noting that, unlike the activities carried out for the purpose of obtaining marketing approval, manufacturing and stockpiling – even for selling after patent expiry – were stepping into the red-light district of "commercial purposes". The main highlights of the decision may be summarised as follows:

In par. 7.30, the panel made it clear that the use of the word "limited" after "exception" calls for a very narrow construction of any exceptions:

"7.30 The Panel agreed with the EC that, as used in this context, the word "limited" has a narrower connotation than the rather broad definitions cited by Canada. Although the word itself can have both broad and narrow definitions, the narrower being indicated by examples such as "a mail train taking only a limited number of passengers", the narrower definition is the more appropriate when the word "limited" is used as part of the phrase "limited exception". The word "exception" by itself connotes a limited derogation, one that does not undercut the body of rules from which it is made. When a treaty uses the term "limited exception", the word "limited" must be given a meaning separate from the limitation implicit in the word "exception" itself. The term "limited exception" must therefore be read to connote a narrow exception - one which makes only a small diminution of the rights in question."

In par. 7.33-7.35, it rejected Canada's argument that making and stockpiling would be acceptable, provided that no sales are made until the patent has expired:

"7.33 The Panel could not accept Canada's argument that the curtailment of the patent owner's legal rights is "limited" just so long as the exception preserves the exclusive right to sell to the ultimate consumer during the patent term. Implicit in the Canadian argument is a notion that the right to exclude sales to consumers during the patent term is the essential right conveyed by a patent, and that the rights to exclude "making" and "using" the patented product during the term of the patent are in some way secondary. The Panel does not find any support for creating such a hierarchy of patent rights within the TRIPS Agreement. If the right to exclude sales were all that really mattered, there would be no reason to add other rights to exclude "making" and "using". The fact that such rights were included in the TRIPS Agreement, as they are in most national patent laws, is strong evidence that they are considered a meaningful and independent part of the patent owner's rights.

7.34 In the Panel's view, the question of whether the stockpiling exception is a "limited" exception turns on the extent to which the patent owner's rights to exclude "making" and "using" the patented product have been curtailed. The right to exclude "making" and "using" provides protection, additional to that provided by the right to exclude sale, during the entire term of the patent by cutting off the supply of competing goods at the source and by preventing use of such products however obtained. With no limitations at all upon the quantity of production, the stockpiling exception removes that protection entirely during the last six months of the patent term, without regard to what other, subsequent, consequences it might have. By this effect alone, the stockpiling exception can be said to abrogate such rights entirely during the time it is in effect.

7.35 In view of Canada's emphasis on preserving commercial benefits before the expiration of the patent, the Panel also considered whether the market advantage gained by the patent owner in the months after expiration of the patent could also be considered a purpose of the patent owner's rights to exclude "making" and "using" during the term of the patent. In both theory and practice, the Panel concluded that such additional market benefits were within the purpose of these rights. In theory, the rights of the patent owner are generally viewed as a right to prevent competitive commercial activity by others, and manufacturing for commercial sale is a quintessential competitive commercial activity, whose character is not altered by a mere delay in the commercial reward. In practical terms, it must be recognized that enforcement of the right to exclude "making" and "using" during the patent term will necessarily give all patent owners, for all products, a short period of extended market exclusivity after the patent expires. The repeated enactment of such exclusionary rights with knowledge of their universal market effects can only be understood as an affirmation of the purpose to produce those market effects."

Incidentally, these legal grounds, as already alerted in our entry of 21 January 2019, also illustrate that the so-called SPC manufacturing and stockpiling waiver is also at odds with articles 28 and 30 of the TRIPS Agreement. As it happens, the question of whether or not the TRIPS Agreement applies to SPCs is a moot point, as article 5 of the SPC Regulation itself states that SPCs confer the same rights as conferred by the basic patent. In any event, one might add in passing that, as shown by article 27.1 of the TRIPS Agreement, it applies not only to "patents" but also to "patent rights". This is exactly what SPCs confer, according to article 5 of the SPC Regulation.

In conclusion, the EU institutions seek to acquire de facto the right to introduce exceptions that trespass upon the very limited contours of article 30 of the TRIPS Agreement, whereas WTO members, to benefit from more limited exceptions, had to propose the formal amendment of the TRIPS Agreement (i.e., the introduction of article 31 bis, aimed at allowing WTO members to grant compulsory licences for the production and export of pharmaceuticals to address public health crises in countries lacking sufficient manufacturing capacity).

All in all, it would be desirable for the Parliament and the Council to bring the scope of the proposed "Bolar" exception back into the safe contours of articles 28 and 30 of the TRIPS Agreement, which would bring clarity, predictability, and legal certainty and prevent litigation and potential disputes before the WTO.