Request for a Compulsory License

 

Petitioners respectfully ask the Commissioner of the KIPO (Korean Intellectual Property Office) to grant a compulsory license for registered patent No. 261366 in accordance with Article 107(1)(iii) of the Korean Patent Law.

 

1. Registered Patentee and Registered Licensee

The subject patent No. 261366, entitled "Pyrimidine Derivatives, Their Pharmaceutical Compositions and a Process for Production Thereof," was filed on April 3, 1993 under serial application No. 1993-5628 and finally registered on April 18, 2000.  The registered patentee is Novartis AG.  Novartis Korea Inc. is registered as a licensee with a non-exclusive license in Korea from August 10, 2001 to April 4, 2013.  Hereinafter, the registered patentee and licensee shall collectively be called Novartis.

 

2. Legislative History and International Discussions of Compulsory License

A compulsory license for a patented invention is part of the Paris Convention, a widely accepted international convention protecting intellectual property rights, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) that came into effect in Korea as of January 1, 1995 prescribes the conditions for granting a compulsory license. 

             The compulsory license system under the Korean Patent Law existed since 1946 as a legal sanction against the misuse of patent rights or measures for keeping balance between the first and second inventors, or compulsory expropriation or license for national defense or public purposes.

 

2-1 Legislative History of the Compulsory License System in Korean Patent Law

             The regulations for a compulsory license, especially for the public interest, appeared in the Korean first Patent Law of 1946, which became effective on April 13, 1952 as a measure to remedy misuse of patent rights.  Under Article 101, a patent holders' refusal to allow a license may constitute an abuse of patent rights when it causes undue harm to domestic industry and the necessity to allow the license is clear in public interest. In this case, the public prosecutor or an interested party may request a grant of compulsory license or even a cancellation of the patent right (Article 102).  Since then, Article 44 of Law No. 950 (enacted December 31, 1961), Article 44 of Law No. 1293 (enacted March 5, 1963), Article 50 of Law No. 2505 (enacted February 8, 1978) and Article 50 of Law No. 3891 (enacted December 31, 1986) provided that when a patented invention is necessary for national defense or for public purpose, the Government may expropriate the patent right, work the patented invention, or allow a person other than the Government to work the patented invention.  Finally, in 1995, in order to comply with the TRIPS Agreement, Article 107 was amended once again, requiring that a compulsory license may only be used for a 'non-commercial use', and broadened the public interest standard from a "particular necessity" to just a "necessity."

             Thus the legislation pertaining to compulsory licenses for the public interest, when compared to its inception in 1946, has expanded the pool of petitioners from the government and interested parties to anyone who has an intention to work a patented invention.  In addition, the breadth of the public interest threshold was broadened from a "particular necessity" to just a "necessity," a more minimalist standard.

 

2-2 Compulsory Licenses Under the TRIPS Agreement

             Articles 31.b and 31.c of the TRIPS Agreement provide that compulsory licenses may be granted in cases of national emergency and for public, non-commercial use.  While the TRIPS Agreement does not enumerate what may constitute a public, non-commercial use, the wording of the Agreement, particularly in Articles 1.1 and 8.1, seems to suggest that compulsory licenses may be granted to {protect public health and nutrition," or "to promote the public interest in sectors of vital importance to domestic socio-economic and technological development."

             One of the most contested issues among developed and developing countries while drafting TRIPS with respect to compulsory licenses was whether or not the Agreement should enumerate specific requirements for the granting of such licenses.  Developed countries wanted to restrict the use of compulsory licenses to specific grounds as enumerated in the Agreement (grounds approach), whereas developing countries wished to retain reasonable discretion in granting compulsory licenses with conditions attached (conditions approach). The final draft of the TRIPS Agreement eventually adopted the conditions approach in Article 31. That is, the TRIPS Agreement does not restrict the grounds for granting compulsory licenses and contains a detailed set of conditions with leaving open the cases where compulsory licensing may be allowed.

             The divergent interests between developed and developing countries are further exemplified by the adoption of the "non-commercial use" requirement in Article 31.  It reflects concerns that compulsory licenses would be overly issued and used for profit making purposes by the Government.  Thus, the "public non-commercial use" standard was a compromise between suggestions for "governmental use" and "public purpose use".

             For interpretation and application of the compulsory licenses for the public interest, Doha Declaration on the TRIPS Agreement and Public Health on November 14, 2001 provided some clarification. The Declaration consisting of seven (7) paragraphs declared that (1) the Agreement does not and shall not prevent Members from taking measures to protect public health, and (2) the Agreement can and should be interpreted and implemented in a manner supportive of WTO members' right to protect public health and, in particular, to promote access to medicines for all.

 

For measures protecting public health, the Declaration made clear that (a) each Member has the right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted, (b) each Member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those relating to HIV/ADIS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency, and (c) the effect of the provisions in the TRIPS Agreement that are relevant to the exhaustion of intellectual property rights is to leave each Member free to establish its own regime for such exhaustion. Therefore, it can be said that the condition of public non-commercial use is different from the condition of national emergency or other circumstances of extreme urgency.

 

To summarize, for situations that affect public health or public welfare, each nation is free to determine the conditions and effects of the compulsory licensing system and to apply it to actual cases depending on local specific situation and the conditions of industry to which the patented invention belongs. Especially, when it comes to the compulsory licensing for public interest, it is necessary to go beyond the conventional understandings that compulsory licenses may be granted as a remedy to abuses of patent right, for balancing the first and second inventors, or within the limits where the purposes of Patent Law to protect the patent rights can be achieved. In other words, if a patent right is regarded to be abusive with respect to all of the individuals in a given area or in specific conditions rather than to a specific individual having a relationship to the patent right, the compulsory licensing for public interest can be applied.

 

3. Necessity for Working the Subject Patented Invention

 

3-1 The Petitioners

             Article 107(1) of Korean Patent Law prescribes that "a person who intends to work a patented invention . . . may request the Commissioner of the Korean Intellectual Property Office to adjudicate for the grant of non-exclusive license." That is, there is no limitation on a person who is able to request the compulsory license. Further, when comparing with the old Patent Laws stipulating that "for public interest, the Government can work or the Government authorize third party can work a patented invention," any party can request for the adjudication according to Article 107 of the current Law so long as he/she has an intension to work the patented invention at issue. Therefore, the subject Petitioners satisfy the statutory requirement to request for the compulsory license under Article 107 of the Law.

 

3-2 The Respondent

             Article 94 of the Patent Law provides that a patent holder has an exclusive right to work a patented invention both commercially and industrially; and where the patent right is the subject of an exclusive license, this provision shall not apply to the extent that the exclusive licensee has the exclusive right to work the patented invention.  While 'Novartis Korea Inc.' is a licensee, it does not hold an exclusive license.  Accordingly, the patent holder of the subject patent, 'Novartis AG,' is the statutory respondent under Article 107 of the Patent Law.

 

3-3 Public Interest

             The Constitution of the Republic of Korea carefully balances the two ideas of a social welfare nation and a property system through limitations and restrictions on properties while securing a private ownership system.  Specifically, Article 23(1) of the Constitution reads that "Property rights shall be guaranteed for any citizen and contents and limitations thereof shall be determined by Act." Article 23(2) states, "the exercise of property rights shall conform to the public welfare." In addition, taking is permitted in the Constitution in Article 23(3) where it reads, "expropriation, use or restriction of private property for public necessity and compensation therefore shall be governed by statute: provided, that in such a case, just compensation shall be paid."  In other words, the Constitution clarifies that the social limitation or restriction on properties is constitutional bounds beyond a mere moral obligation, and permits encroachment of property on the premise of remuneration if it is vital important for public interest.

             Intellectual properties are constitutionally deemed as private properties and afforded the same protections and limitations albeit with additional conditions such as Article 22, which states, (1) "All citizens shall enjoy the freedom of learning and the arts;" and (2) "The rights of authors, inventors, scientists, engineers and artists shall be protected by Act."

             In line with such constitutional intent, Article 94 of the Patent Law grants patent holders, on the one hand, an exclusive right to prevent any third party from exploiting his/her invention without permission, while on the other hand, limits the exclusive rights of patentees through exceptions; Cancellation of patent right (Article 116), Expropriation (Article 106), Limitations on patent right (Article 96).  Pertaining to the instant petition, Article 107 provides limitations on the abuse of patent rights (Paragraphs 1(i), (ii) and (xi)) and a public interest exception (Paragraph 1(iii)).

             The public interest exception differs in some ways from the limitations imposed because of an abuse of patent rights. They are: 1) public interest may still exist even when a patented invention is utilized on a substantial scale; 2) no consideration is given as to whether the patent holder is the one working the invention; 3) a plea justifying a patent holder's misuse of his/her right is not admitted; 4) an actual refusal to extend a license by the patent holder is not necessary to initiate proceedings for a compulsory license.

             There is no case law from the Commissioner or administrative ruling from the Patent Office that enumerates what conditions must be satisfied to trigger the public interest exception.  According to the "Running Guidelines for Compulsory Licenses" of the Japanese Patent Office with a public interest exception similar to our old Patent Law (where a 'particular' necessity is required), two situations have been deemed appropriate for the rule to apply: 1) where it is particularly necessary in a field directly relating to people's lives such as the construction of public facilities and protection of people's life and property; and 2) where relevant domestic industry cannot properly develop because patent holders refuse to grant a voluntary non-exclusive license, and this has serious harmful impact on people's life.  Furthermore, the Guideline allows the public interest exception ("particular necessity") to take effect 1) when a patented invention relates to a so-called public industry directly serving the public interest such as people's life, public health, protection of property, and construction of public facilities, and 2) there is an immediate need to work the patented invention on a large scale to serve the public interest (for instance, patent holders may be forced to grant a compulsory license to others to manufacture as much patented medicine as possible to curb epidemic diseases).  See Exhibit 4.

             The Japanese Guideline does not seem to provide so specific interpretation applicable to actual cases.  It is pertinent to note, as mentioned above, that the use of a patent right may trigger the public interest exception when a patent right is regarded to be abusive with respect to all of the individuals in a given area or in a specific conditions (rather to a specific individual having a relationship to the patent right).  For instance, patents that cure a serious, spreading disease or patents that can cure a serious environmental problem can be subject to the public interest exception. See Exhibit 5, pp. 118-119.

 

3-4 The Subject Patented Invention Is Necessary For Public Interest

A. Subject Matter of the Patented Invention

The patented invention in question is: N-phenyl-2-pyrimidinamine derivatives of the formula (I) and a pharmaceutically acceptable salt having at least one salt-forming group set forth in claims 1 to 9 of the subject patent, a pharmaceutical composition for the treatment of tumors set forth in claim 10 and the process for preparing for the salt set forth in claim 11 are directed to STI-571 (Imatinib mseylate, trade name: Gleevec or Glivec) (hereinafter Glivec), a medicine known for curing CLM (Chronic Myeloid Leukemia) and production method thereof. There are five (5) patents on Glivec all over the world, the subject patent being a basic patent having forty-three (43) family patents (Exhibit Nos. 6 and 7).

 

For instance, the formula (I) in claim 1,

R1 is pyridyl bonded at a ring carbon atom and unsubstituted at the nitrogen atom by oxygen, R2 and R3 are each independently of the other hydrogen, R7 is a radical of formula II -N(R9)-C(=X)-(Y)n-R10 (II) wherein R9 is hydrogen, X is oxo, n is 0 and R10 is an aromatic-aliphatic, and the remaining radical R4 is lower alkyl that is unsubstituted, the remaining radicals R5, R6, R8 are each independently of the others hydrogen.  More particularly, Glivec is a compound according to claim 3, wherein R10 is phenyl that is substituted by (4-methyl-piperazinyl)-lower alkyl, and a compound according to claim 5, wherein R7 is a radical of formula II -N(R9)-C(=X)-(Y)n-R10 (II) wherein, R9 is hydrogen, X is oxo, n is 0 and R10 is phenyl that is substituted 4-methyl-piperazinylmethyl.  Glivec is also N-{5-[4-(4-Methyl-piperazinomethyl)-benzoylamido]-2-methyl-phenyl}-4-(3-pyridyl)-2-pyrimidine-amine in Claim 9.

 

In the Product Label, which Novartis submitted to the U.S. FDA for approval, Glivec was described as a compound having formula 4-[(4-Methyl-1-piperazinyl)methyl]-N-[4-methyl-3-[[4-(3-pyridinyl)-2-pyrimidinyl]amino]-phenyl]benzamide (Evidence No. 8, 2 page)

 

Therefore, it is obvious that Korean Patent Number No. 261366 relates to Novartis' medicine, Glivec.

 

B. History and Current Situation of Glivec Compulsory License Petition

The following timeline summarizes how situation has been developing to file a petition for a compulsory license of Glivec in Korea, ranging from the introduction of Glivec to Korea, disputes over the price and insurance coverage of Glivec, and the temporary stoppage of supply of Glivec.

 

Dec. 2000          Glivec was known to CML patients through the Internet.  CML patients

began to file civil petitions for the early sales of Glivec.

 

20 Apr. 2001      The Korea Orphan Drug Center took an extended access program for

providing an opportunity for CML patients before Glivec is officially

allowed to be marketed.

 

10 May 2001      Glivec obtained FDA approval in the US, and Novartis announced that Glivec would be sold across the World at prices higher than US$ 2,400.

 

13 Jun. 2001       CML patient groups visited Novartis Korea and asked for the reduction of the price.

 

14 Jun. 2001       Glivec is designated as an orphan drug.

 

20 Jun. 2001       Glivec is allowed for sale on condition that clinical phase III demonstration is to be performed.

 

28 Jun. 2001       Novartis filed with the Ministry of Health and Welfare to register Glivec as medicine eligible for insurance coverage for 25,000 Won per capsule (US$ 20) (which would cost a CML patient 3,000,000 to 6,000,000 Won per month (US$2,500 to US$5,000 per month).

 

01 Jul 2001         CML patient groups signed a campaign in front of the Ministry of Health and Welfare building and in cyberspace for expanding insurance coverage of Glivec.

 

04 Jul 2001         CML patient groups held a press conference to press for the insurance coverage of Glivec.

 

09 Jul. 2001        CML patient groups, Korean Pharmacists For Democratic Society, and Association Of Physicians For Humanism formed Glivec Union to demand the reduction of Glivec price and the insurance coverage of Glivec.

 

13/16 Jul. 2001   Glivec Union held a demonstration demanding the reduction of Glivec price in front of Novartis building and talked to Novartis.

 

18 Jul. 2001        Glivec Union held a demonstration demanding the reduction of Glivec price in front of Health Insurance Review Agency (HIRA) building and talked to HIRA.

 

Expert Committee on Medicine tentatively set Glivec insurance ceiling price for 17,055 Won (US$ 14.2), and Novartis did not respond and in effect refused to accept the insurance price.

 

08 Aug. 2001      Instead of lowing the price, Novartis suggested that it would gave away Glivec free to a limited number of CML patients in poverty.

 

21 Aug. 2001      Glivec Union delivered Expert Committee on Medicine its opinion on the reduction of Glivec price for the second time.

 

Expert Committee on Medicine set the insurance price for 17,862 Won (US$14.9) at its second meeting.

                          

11 Sep. 2001      CML patient groups, Korean Pharmacists For Democratic Society, Association Of Physicians For Humanism, and People's Health Coalition For Equitable Society held a demonstration and made an announcement of objection to the government's proposal to reduce government contribution to the insurance premium.

 

17 Sep. 2001      Korean Federation of Activists Fighting for Health Rights, IPLeft, People's Health Coalition for Equitable Society, and People's Solidarity for Social Progress jointly held a demonstration to demand for review of patent rights that infringe health rights, reduction of Glivec price, and withdrawal of the governmental proposal to reduce government contribution to the insurance premium.

 

15 Oct. 2001     Instead of reducing Glivec price, Novartis offered to assume the patient's portion of the insurance premium.

 

16 Nov. 2001     Korea Food and Drug Administration ('KFDA') held that Glivec is not

effective to, and thus should not be prescribed for CML patients in CML

chronic stage.

 

19 Nov. 2001     The Ministry of Health and Welfare announced official Glivec price and official insurance coverage.

 

Novartis refused to comply with the official Glivec price and insurance coverage and announced that it would petition for reconsideration.

 

27 Nov. 2001     Some CML patients could not obtain Glivec for supply instability.

                          

Korean Pharmacists For Democratic Society, Association Of Physicians For Humanism, People's Health Coalition for Equitable Society made an announcement of protest concerning Glivec supply shortage.

 

02 Dec. 2001     Novartis gave away Glivec free temporarily.

 

11 Dec. 2001     Coalition for the Resolution of Glivec Problem and Securing Fair and

Equitable Access to Pharmaceutical Products was launched.

------------------------------------------------------------------------------------------------------

 

Glivec, imatinib mesylate, is a protein-tyrosine kinase inhibitor that inhibits the Bcr-Abl tyrosine kinase, the constitutive abnormal tyrosine kinase created by the Philadelphia chromosome abnormality in chronic myeloid leukemia (CML).  It inhibits proliferation of cells and induces apoptosis in Bcr-Abl positive cell lines as well as fresh leukemic cells from Philadelphia chromosome positive chronic myeloid leukemia. Since 1998 clinical trials were conducted to over 5,000 patients in more than 490 spots over 30 nations and additional trials were conducted in more than 64 spots in 27 countries. In Korea, an extended access program was allowed for 91 patients since April 20, 2001. According to the clinical phase II studies of Glivec, the following was observed: 88% complete hematologic remission and 49% major cytohistologic remission among CML patients with chronic phase disease; 63% hematologic remission and 21% cytogenetic remission among CML patients in accelerated phase; and 26% hematologic responses in patients with myeloid blast crisis (Exhibit Nos. 9 and 10).

             Glivec, first introduced in Korea to CML patients, was prescribed for certain CML patients under an extended access program without conducting clinical phase III trial, as Glivec was designated as orphan drug, an event with no parallel in Korean history, owing to it's designation as an orphan drug (May 20, 2001) and pressure on the government to approve the drug through the efforts of civil society groups and affirmative press reports (Exhibit Nos. 11 to 16).  Novartis, producer of Glivec, filed a Petition for Approval of Import of Medicines on April 20, 2001, and KFDA approved, on June 20, 2001, Glivec for CML patients in all clinical phases, with an unprecedented reviewing period of two months (Exhibit Nos. 17 to 19 and 64-4).

             However, as it was revealed that the price of Glivec would be fixed to 25,674 Won per 100 mg capsule (amounting to about 3.0 to 4.5 million Won per month or roughly $2400 to $3600 a month), patient groups and civic groups including the Petitioner began to engage in civil movements to lower the price and enlarge the scope of Korea's health insurance coverage to cover Glivec (Exhibit Nos. 20 to 29). The Korean Health Insurance Review Agency, an authority that determines the ceiling price of a drug under Korea's health insurance policy, held a meeting with the Expert Committee on Medicine and decided tentatively to set the ceiling price for Glivec for about 17,000 Won per capsule (roughly $13.50) which amounted to 70% of the price Novartis proposed (Exhibit Nos. 9 and 30 to 31). However, Novartis Korea made clear that they could not accept that price, reasoning that such low pricing policy would hamper negotiations with other countries (Exhibit Nos. 32 and 64-5).  Notwithstanding, on August 21, 2001, the Expert Committee on Medicine officially set the price at the same level they decided upon earlier, and on August 22, 2001, Novartis officially announced that it would not supply Glivec at the price such decided and refused to comply with the decision of the Committee (Exhibit Nos. 10 and 33 to 38).  Debate over the price between Novartis and the Health Insurance Review Agency continues to this date.  However, Novartis, seeking to reach an agreement over the price, offered to provide 30% of the total amount of Glivec needed in Korea free of charge or to refund 30% of their proposed price to patients if the Health Insurance Review Agency would publicly set the price of Glivec at their proposed price.

             On November 16th, 2001, KFDA changed the CML phases for which Glivec is effective from 'Philadelphia chromosome or Bcr-Abl positive accelerated, acute, or chronic phase CML' to 'accelerated, acute phase CML or interferon-alpha refractory chronic phase CML,' and accordingly some of CML patients in chronic phase were not eligible to obtain Glivec prescription.  (Exhibit Nos. 41 to 43).  The Ministry of Health and Welfare published the final announcement of Glivec insurance price as 17,862 won per capsule through Notice 2001-61 of November 19th, 2001 (Exhibit Nos. 44-1, 44-2 and 45).  In response to this announcement, Novartis responded that they would apply uniform price for Glivec (25,000 Won, US$21) across the world with disregard to the price policy of Korea National Health Insurance System and attempted to suspend Glivec supply to Korea.  At the same time, the Edelman Korea, which is responsible for Glivec pricing policy in Korea, threatened that current Glivec price disputes in Korea would invite a strong trade sanction from the United States Trade Representative (Exhibit Nos. 46 to 53).

             In the midst of growing public concern about the unstable supply of Glivec that might occur as a result of Novartis not accepting Glivec insurance price, there broke out an incidence where certain hospitals patients were not able to obtain Glivec prescription (especially patients from St. Mary's Hospital, Ehwa Women's University Mokdong Hospital, and Asan Medical Center) on November 27th 2001.  With Glivec price undecided, doctors decided not to prescribe Glivec because otherwise they should purchase Glivec at Novartis' price (25,000 won) and dispense them at government's price (17,862 won). (Exhibit No. 54 CML patient Mr. Hong 's testimony, Exhibit Nos. 55 and 56).  Then, local progressive health organizations including Petitioners, eleven overseas organizations including Oxfam International, and even the Korean Medical Association criticized heavily on the suspension of Glivec supply by Novartis.  As public opinion turned quickly against Novartis (Exhibit Nos. 57 to 59), Novartis quickly announced that it would supply Glivec free of charge tentatively until Glivec price is determined on 5th December (Exhibit No. 60).

 

C. Necessity of the Compulsory License for Public Interest

When the working of a patent right is related to medicine essential for recuperation or treatment of patents, the patent right may be subject to compulsory license for public use.  Likewise, the manufacture and supply of Glivec is directly related to the subject patent, and Glivec, although it is exclusively protected under patent law, is essential for the recovery of CML patients and accordingly may be subject to compulsory license for the public interest.

             As shown on the material submitted to the 6th meeting of the Special Committee on Pharmaceuticals (Exhibit No. 10), Glivec is potentially effective for CML patients. According to a research paper published in Medical Observer (vol. 35) by Professor Dong-Wook Kim (the Catholic Hematopoietic Stem Cell Transplantation Center), Glivec, in its clinical trials, selectively block tumor-specific proteins at gene or protein level and confirmed its potential as an innovative solution in the field of CML treatment.

             Life expectancy of CML patients vary depending upon which phase of CML the patients are in, and as the disease progresses, life expectancy gets shorter in general.  CML in chronic phases lasts for about 4-6 years as relatively benign or inactive stage. However, as soon as the disease progresses, the benign or inactive period gets considerably shorter, shortening the life expectancy of CML patients.  During accelerated phase CML, relatively indistinguishable from transitional period, Hematological symptoms deteriorate (whereas white blood cells augment), and the incidence of chemotherapy-refractory patients increases during this phase.  This accelerated phase may last up to 1 year, and finally the disease progresses to acute phase. 25-40% of CML patients may bypass this accelerated phase but progress directly from chronic phase to acute phase. Acute phase CML is also called blast crisis because more than 30 % of lymphogenic (1/3) or myelogenic (2/3) immature stem cells are found in blood or bone marrow.  Typically, acute phase lasts for 3 to 6 months, leading patients to death with no exception.

             The best treatment for CML is autologous bone marrow transplantation. The transplantation would be most effective if done during chronic phases.  If done during accelerated or acute phase, the transplantation is significantly less effective and CML is very likely to recur.  If a patient cannot find a donor or the patient is not fit for the transplantation, then administration of interferon-alpha is the next solution.  However, there are patients that do not respond to interferon treatment or cannot be administered interferon of adverse reactions.

             Glivec was administered to CML patients in interferon-refractory chronic, accelerated, and acute phases to show the following result; complete hematological response 88%, major cytological response 49% for chronic phase patients; complete hematological response 28%, no evidence of leukemia 11%, returned to chronic phase 24%, major cytological response 21% for accelerated phase patients; complete hematological response 4%, no evidence of leukemia 3%, returned to chronic phase 19%, major cytological response 13.5% for accelerated phase patients (Exhibit No. 8).

             Glivec is effective to patients in interferon-refractory chronic phase, and Glivec brings patients back to chronic phase from accelerated or acute phase and increase chance of recovery because during accelerated or acute phase, patients have higher likelihood of recovery by means of transplantation.

             Glivec is a completely new type of anti-tumor agent, targeting a specific enzyme which produces and proliferates tumor cells.  In addition, Glivec is easy for patients to take as Glivec is for oral administration.  Before Glivec was developed, CML patients in chronic phase who were not able to capitalize on bone marrow transplantation had to self inject interferon-alpha as an alternative, tolerating tremendous pain.  However, as Glivec is an oral agent, patients only have to stick to the dosing schedules.  In addition, interferon-alpha causes adverse reaction such as flu-like symptoms, dizziness, weakness, weight loss, muscle pain, and joint pain in more than half of the patients, resulting in decrease of dosage.  The most serious adverse reaction interferon-alpha causes is neurological reaction, and 20% of the patients with such neurological reaction suffer severe depression and are not able to engage in ordinary daily activities.  To the contrary, Glivec causes only mild or moderate adverse reaction (Exhibit No. 62), and during the clinical trials, only 1% of the chronic phase patients, 2% of the accelerated phase patients, and 5% of the acute phase patients were reported to discontinue Glivec therapy due to drug-related adverse reaction (Exhibit No. 8).

             Another advantage of Glivec therapy is that it induces hematological response faster than interferon-alpha.  In case of interferon-alpha therapy, hematological response comes in 1 to 2 months, and cytological response commences in 3 to 12 months of the administration of therapy.  It takes 6 months to 4 years for the complete cytological response to take place (Exhibit No. 62).  However, Glivec induces hematological response mostly within 2 weeks of the administration, cytological response comes within 2-10 months, and the optimal cytological response comes on average in 148 days of the administration of Glivec therapy.  In other words, Glivec induces positive reaction from CML patients body faster than interferon-alpha.  (Exhibit No. 63).  Hence, Glivec is indispensable for the recovery of CML patients, and at the same time, is directly related to the subject patent.

             On 9th August, 2001, 'Novartis AG,' the patent holder in this case, expressed its standing via its Korea branch at a discussion with MOHW and HIRA that they would not accept the proposed reduction of Glivec price.  South Korean pharmaceutical pricing system is closely related to National Health Insurance System, since the insurer is the government, and to satisfy claims from medical institutions and pharmacies, the government has to negotiate pharmaceutical product prices with pharmaceutical companies.  The price of an innovative pharmaceutical product such as Glivec is determined through following 3 ways (Exhibit No. 64-2).  According to the article 2-(4) of the "Pricing Criteria for the Upper Limit of the Reimbursement of Drug Cost," ('Pricing Criteria') the price of a new pharmaceutical product or ingredient that is not registered in Korea is determined at a level comparable to that of 5 similar products already marketed in Korea and in seven other countries (Japan, France, Italy, United Kingdom, and the USA) ("Comparative Pricing").

             On the other hand, if Glivec is approved as significantly more cost-effective or superior than conventional products pursuant to the article '2-Ka(1)' of the Pricing Criteria, the price is decided by taking the average of the 7 other counties ex-factory price and then adding value added tax and wholesale profit ('Average of Prices of Seven Other Countries'). Also, the article '3-(Sa)' of the Pricing Criteria provides that, notwithstanding, the maximum price of a drug can be determined independently, when the Minister of Health and Welfare deems it necessary for the management of the health insurance budget, policy or pharmaceutical budget or other reasons ('Separate Pricing for the Upper Limit of Cost') in consultation with Special Committee on Medicine.  The Special Committee on Medicine calculated out a comparative price of 11,370  Won for Glivec based on the prices of 5 comparable products, 3 of which are used for the treatment of CML (Hydroxyurea 500, Hydrea cap. (594 won), Thioguanine 40, Ranbis tab. (1,588 won), Busulfan 2, Mireran tab. (297 won)), and 2 of which are used for the treatment of other leukemia (Chlorambucil 2, Rukeran tab. (328 won), IdarubicinHCl 10, Zabedos cap. (105,930 won)).  On the 19th November 2001, in consideration of the price the Special Committee on Medicine came up with, the Minister of Health and Welfare published the final announcement of Glivec maximum insurance price to be 17,862 won, which is the 150% of the comparative price.  This 150% multiplication is nothing but an inducement the Ministry offered to encourage Novartis to accept the announced price.

             However, Novartis, the patent holder in this case refused to accept the price offered and reiterated that they would apply the single uniform price of 25,005 won across the world regardless.  In the midst of this argument, Novartis all of sudden suspended the supply of Glivec that it had been supplying at 25,005 Won.  Afterwards, Novartis suggested that they would reimburse patients 30% of the insurance cost if the government accepts the price Novartis offered.  As the public opinion turned unfavorable to Novartis, Novartis offered to supply Glivec free of charge temporarily rather than reconsidering their pricing policy.  This shows how Novartis is obsessed with 'single world-wide price policy' at the expense of CML patients' lives.

             Pursuant to the article 36.6 of the Constitution of Korea, the government of Korea has a duty to establish comprehensive and systematic health policy for the benefit of its own people (People's Right to Health).  Novartis has ignored Korean government's public health policy and threatened Koreans' fundamental right to seek a healthy life.

             On the other hand, according to what Novartis presented, attached hereto as Exhibit No. 10, the manufacturing cost for 120 capsules of Glivec is 3,600 Swiss Franc ('SFr'). Applying the exchange rate (1 SFr = 768.3 won) as of January 25th 2002, a 100 mg capsule of Glivec would cost 23,000 Won to manufacture, and Novartis' suggested price of 25,050 Won is understandable. (Exhibit No. 64-3).  As it self explains, Novartis will not be able to supply Glivec at the maximum insurance price of 17,862 Won notified by MOWH in its announcement No. 2001-61.  Further, the article 85 of Health Insurance Law has it that when health care institutions charge insurers, the insured or their dependents medical service fees in any unfair ways, the violating health care institution can be charged with suspension of business for up to 1 year.  For this reason, if hospitals insist on prescribing and providing Glivec to CML patients, they would have to purchase Glivec at 25,000 Won per capsule and then sell it to patients at 17,862 Won.  As follows, health care institution cannot prescribe Glivec unless they pay the difference in price, and this made it practically impossible for CML patients to be supplied with Glivec on a stable and continuous basis.

                  If drug pricing policy is a part of individual sovereign's public health policy, the price of a drug should be determined at a level the patients of the sovereign can afford and access.  As is shown in table 2, patients' economic burden per month calculated based on comparative price (around 11,000 Won), the Ministry of Health and Welfare's announced price (around 17,000 Won), and Novartis' suggested price (around 25,000 Won) could vary from 410,000 up to 6,000,000 Won.  Considering (1) that most of the CML patients are practically unemployed because of the chronic disease, and (2) that the patients would have to incur additional expenses for the treatment of leukemia, these prices, especially Novartis' price, are so out of touch with reality and do not take into account patients' easiness of access to Glivec (Exhibit No. 54, 65 and 66).

 

Table 1. One month cost of Glivec therapy

 

Glivec Price

Chronic phase patients not covered/ reimbursed by the National Health Insurance

If patients pay 30%

If patients pay 20%

25,000 won/cap

25,000 × (48 tablets/day) × 30 days = 3m~6m won

25,000 × (48) × 30 × 0.3 = 0.9m~1.8m won

25,000 × (48) × 30 × 0.2 = 0.6m~1.2m won

17,000 won/cap

17,000 × (48) × 30 = 2.1m~4.2m won

17,000 × (48) × 30 × 0.3 = 0.63m~1.26m won

17,000 × (48) × 30 × 0.2 = 0.42m~0.84m won

11,000 won/cap

11,000 × (48) × 30 = 1.36m~2.72m won

11,000 × (48) × 30 × 0.3 = 0.4m~0.8m won

11,000 × (48) × 30 × 0.2 = 0.27m~0.54m won

 

                  The manufacturing cost for 1 kg of Glivec raw material, calculated based on Novartis' Glivec patent information material (Exhibit No. 8) and a product brochure of Sigma Aldrich (a renowned pharmaceutical manufacturer), is 6,499 USD (Exhibit No. 67).  That means that the cost of raw material to produce 1 capsule of Glivec 100 mg is not more than 65 cents, and this is one-thirtieth of the price Novartis requests.  This computation is based on retail prices of Glivec, and if a company purchases Glivec raw ingredients to manufacture Glivec, the company may be able to purchase Glivec raw ingredients at a much lower wholesale price.  Then the manufacturing cost for Glivec raw material can be reduced to one-third to one-tenth.

 

Table 2. Comparison between Glivec Manufacturing Cost and Novartis' Price

 

When using retail price

When using wholesale price

Max.

Min.

Cost to manufacture

1 capsule of Glivec 100 mg

65 cents

845 won

22 cents

275 won

6.5 cents

28 won

Novartis' price ÷

Calculated manufacturing price

30

91

300

 

             All considered, the public would derive absolutely more benefit by ensuring that Glivec is stably supplied at an affordable price as a result of the grant of a compulsory license with respect to Glivec patent than by protecting the exclusive patent rights of Novartis, and this petition for the grant of a compulsory license for Glivec clearly comports with the spirit of compulsory license for the public interest.  Viewing that the article 107 of the Patent Law incorporated constitutional policy consideration that (1) the exercise of property rights guaranteed under the Patent Law is likely to have the effect of abusing such property rights for creating a chasm and a sense of relative deprivation between those who can afford Glivec and those who cannot and (2) such abusive exercise of property rights is likely to create monopolistic market power as to hinder the realization of social justice and national unity, restricting such exclusive patent rights in return for the payment of due consideration and pricing pharmaceutical products at a more affordable level so that patients can free themselves from the bondage of ailment comport with the spirit of the Constitution that the exercise of property rights may be constitutionally restricted for public necessity.

             Determining what would qualify as the public interest, how many people are at the stake of the public interest is important.  However, it is equally important to consider how critical is the public interest harmed due to the protection of monopolistic patent right.  In other words, in this case, Glivec is designated an orphan drug, and CML patients may not constitute a large population.  Although Glivec is patented and exclusively protected, however, Glivec is essential for the treatment of CML, in other words, saving lives of CML patients, and for that reason, a compulsory license may be granted for the public interest.  The public interest must not be denied simply because the beneficiaries, in this case, CML patients are not a large constituent.  Rather, how serious CML is, how essential Glivec is to CML, how serious consequences would result and how the public interest would fail to be served if the compulsory license for Glivec is not granted, should be equally taken into account in balancing the public interest against the exclusive protection of patent rights of Glivec.

 

3-5. Non-commercial Working of Patented Invention

 

Under the Patent Law, a patentee has an exclusive right to work the patented invention both commercially and industrially.  In this context, it is commonly accepted that "commercially and industrially" means to exclude individual and domestic working of the patented invention.  Therefore, activities engaged in the public businesses, medical practices and legal practice could be viewed as commercial and industrial working although not directly aiming at profit making.  This means that "non-commercial working of a patented invention" Art. 107.1.3 of the Patent Law would exclude "profit-making" activities from the "commercial and industrial" working.  Together with this interpretation, Art. 102.3 describing the conditions under which a non-exclusive license is transferred provides that a non-exclusive license granted under Article 107 may only be transferred together with the underlying business.  Moreover, taking into account the legislative history of Article 31 of the TRIPs Agreement, the requirement of non-commercial working of patented invention should be regarded as a wide and comprehensive concept that excludes the working of the patented invention for highly profit-making activities.

 

4. Conclusions

 

The registered patent No. 261366 at issue in this case is directly related to the manufacture and supply of Glivec is indispensable for the recovery of CML patients in Korea.  The way current circumstances have been developing up to date, surrounding Glivec supply in Korea could be viewed an abuse of patent rights against specific group of people with deadly medical condition of CML. The petitioner believes in good faith that the grant of a compulsory license for the registered patent No. 261366 comports with the spirit of the Constitution of Korea that allows property rights to be restricted to a certain extent if necessary for the public interest in return for the payment of just compensation.  Further, the grant of a compulsory license is in line with the Article 107 of the Patent Law that partially restricts the exercise of patent rights to serve the interest more important than the interest of patent holders, in other words, the public interest.  For the above reasons, petitioner respectfully asks the Commissioner to grant a compulsory license for registered patent No. 261366 in accordance with Article 107(1)(iii) of the Korean Patent Law.

 

Payment of Compensation

 

1. Compensation

The Article 5 of Government Owned Patent Disposal and Management ("Pricing Estimation"), although abolished as of July 1, 1999, can be a good reference to estimate the just compensation to be paid to Novartis.  According to the Article, in the event the total sales revenue is inestimable, royalty is determined at a product unit level as follows: 'Unit sales price x market share x basic rate.'  In this case, the unit sales price would be Novartis' ex-factory price for Glivec, the market share would be 100%, and assuming that the basic royalty rate would be 3%, the compensation to be paid to Novartis as to a 100mg capsule would be (3600 SFr/120 capsule) x 1 x 0.03 = 0.9 SFr.  The 3600 SFr is the ex-factory price Novartis presented to the Expert Committee on Medicine on July 19, 2001, but if the ex-factory price is false or if applying different ex-factory price is more desirable, the royalty would have to accordingly change.

 

2. Payment

The compensation shall be paid in cash in Korean Won or any currency of Novartis' choosing to the bank account designated by Novartis.  The total amount of the compensation shall be the amount per 100mg capsule multiplied by the total volume provided by petitioner, and shall be paid for every fiscal year between the end of the relevant fiscal year and the end of January of the following year.

 

 

Submitted by HeeSeob NAM and SungHo PARK on January 30, 2002 on behalf of People's Health Coalition for Equitable Society, Association of Physicians for Humanism, and Korean Pharmacists for Democratic Society.