Changes to the Patent Act: COVID-19 Emergency Response Act introduces compulsory licensing

On March 25, 2020, Parliament enacted Bill C-13, An Act respecting certain measures in response to COVID-19 (COVID-19 Emergency Response Act).¹ As part of the government’s response to COVID-19, the Act amends numerous statutes including the Patent Act and the Food and Drugs Act. The amendments to the Patent Act effectively introduce compulsory licensing during the COVID-19 public health emergency.

What you need to know

• Section 19 of the Patent Act (which has been part of the Act for over a century) provides that, on application by the Government of Canada or of a province, the Commissioner of Patents may authorize that government’s use of patented inventions.
• The COVID-19 Emergency Response Act adds a new section 19.4, which creates a broader framework that enables the Minister of Health to apply to the Commissioner for an authorization for the Government or any specified person to make, construct, use and sell a patented invention, to the extent necessary to respond to a public health emergency.
• As part of the application, the Chief Public Health Officer must confirm that they believe there is a public health emergency that is a matter of national concern. The application must also specify a person, if any, that is to be authorized to make, construct, use and sell the patented invention for the purposes of responding to the public health emergency.
• Under the new section 19.4, the Commissioner is required to issue the authorization, provided that the conditions are met (including the certification of a public health emergency that is a matter of national concern).
• The Commissioner may not make any authorization under section 19.4 after September 30, 2020.

Discussion

The government’s ability to use patented inventions under the Patent Act has existed in various forms since 1869. Yet there are less than a dozen reported cases in which the government has exercised this ability, largely in the context of war or national defence.²

The current section 19 of the Patent Act originated in 1993. It provides that, on application by the Government of Canada or of a province, the Commissioner of Patents may authorize that government’s use of patented inventions. The Supreme Court of Canada has affirmed the government’s right to use patented inventions under section 19.³

Amendments to section 19 of the Act

As part of the federal government’s response to the COVID-19 pandemic, the government has amended the Act to add a new section 19.4, which is considerably broader than the existing provisions:

• Under the existing regime, the Commissioner has discretion to grant the authorization. However, the new provision requires the Commissioner to do so, provided that the Minister of Health has completed the application requirements (including a confirmation that there is a public health emergency of national concern).
• Under the existing provision, only a government or its agent may use the patented invention. The new section 19.4 provides a mechanism for third parties to use a patented invention: “any person specified in the application” may be granted an authorization, provided that the application itself is made by the federal Minister of Health.
• Under the current section 19.1, the Commissioner may not authorize use of a patented invention unless the applicant establishes it has made efforts to obtain authority to use the invention from the patentee on reasonable commercial terms and conditions and has not been successful within a reasonable period. There is no such condition under the new section 19.4.
• While the amendment provides that the Commissioner cannot make any authorization under section 19.4 after September 30, 2020, it is unclear whether licenses issued by the Commissioner before that date will have a term that extends beyond September 30, 2020.

Impact on patentees

These provisions may significantly impact patentees. As set out above, the amendments give the Commissioner broad powers to authorize what is effectively a compulsory licence. Although patentees will be notified if an authorization for their patents is granted, the Government is not required to involve the patentee in advance of applying for authorization from the Commissioner.

Limitations on the Commissioner’s grant of authority. Although the Commissioner has broad power under the new section 19.4, there are important limitations. Most importantly, the Minister of Health must include a confirmation that the Chief Public Health Officer believes⁴ that there is a public health emergency that is a matter of national concern. Moreover, the authorization must be limited to “the extent necessary to respond to the public health emergency described in the application.”

Compensation. If an authorization under section 19.4 is granted for a patentee’s invention, the amendment gives broad power to the Commissioner to determine “adequate remuneration in the circumstances.” Although subsection 19.4(5) requires the Commissioner to take into account “the economic value of the authorization” and the extent to which the Government of Canada or other authorized person “makes, constructs, uses and sells the patentee’s patented invention,” the Commissioner has broad discretion in making this determination. It remains to be seen how “adequate remuneration” would compare to current market prices or whether the patentee will be able to provide input into this determination. It is noteworthy that, under the prior compulsory licensing regime (abolished in 1993), compensation was invariably set at 4 percent of the net selling price.⁵ This is consistent with compensation rates set by the Commissioner under section 19.⁶

Appeals. While section 19.2 of the Act specifies that any decision made by the Commissioner under section 19 or 19.1 is subject to appeal to the Federal Court (including a decision regarding compensation), that does not apply to the new section 19.4. Although a patentee may apply to the Federal Court for an order requiring the Government of Canada or any authorized person to cease making, constructing, using or selling the patented invention in a manner that is inconsistent with the authorization, there is no express right of appeal of the authorization itself. That said, presumably any making, construction, use or sale that is not necessary to respond to the identified public health emergency will be considered inconsistent with the authorization.

Time limits. The provision includes built-in time limits for any authorizations granted and for the operation of the provision as a whole. The effect of any authorization granted under section 19.4 expires the earlier of (i) one year after the authorization is granted or (ii) when the Minister of Health advises the Commissioner that the authorization is no longer necessary to respond to the public health emergency. Moreover, no authorizations under section 19.4 may be made after September 30, 2020.

How will the government use the amendments to the Patent Act?

At this point, it remains to be seen how the federal government plans to use the new section 19.4. While media reports suggest that the initial target may be patents covering medical devices, such as ventilators and face masks, the scope of the new provisions does not limit the type of patent that can be subject to the regime, provided that it is used to respond to the public health emergency described in the application.

Certain pharmaceutical companies have voluntarily given up their patent rights to allow other companies to produce their previously patented invention, increasing industry’s ability to respond to the demands of the COVID-19 pandemic. If other companies do not take the same steps, it is possible that the Government could rely on this new section of the Patent Act to obtain sufficient quantities of patented products at reduced prices.

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¹ See Bill C-13 here: https://www.parl.ca/LegisInfo/BillDetails.aspx?Language=E&billId=10710867.

² See, e.g., The King v. Irving Air Chute, [1949] S.C.R. 613; R. v. Canada (Secretary of State) (1953), 13 Fox Pat. C. 123 (S.C.C.); Pathfinder Camping Products Ltd., Re (1982), 65 C.P.R. (2d) 119 (Commissioner of Patents).

³ Formea Chemicals Ltd. v. Polymer Corp. Ltd., [1968] S.C.R. 754 at para. 40.

⁴ Note that a declaration under the federal Emergencies Act is not necessary

⁵ ICN Pharmaceuticals Inc. v. Canada (Patented Medicine Prices Review Board), [1997] 1 F.C. 32 (C.A.) at para. 6; I.C.N. Canada Ltd. v. American Home Products Corp. (1988), 19 C.P.R. (3d) 257 (F.C.A.) at para. 38.

⁶ See, e.g., Hings v. R. (1947), 7 Fox Pat. C. 81 (Commissioner of Patents) at para. 35; Pathfinder Camping Products Ltd., Re (1982), 65 C.P.R. (2d) 119 (Commissioner of Patents) at para. 15.

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