Standard-essential patents are coming to the pharmaceutical industry
Until now the pharmaceutical industry has not had to deal with standard-essential patents (SEPs), but are things changing?
SEPs arise when a technical standard incorporates technology that is protected by a patent. Technical standards are vital for many industries, including the pharmaceutical industry. However, most technical standards applied to the pharma industry to date relate to harmonising rules such as for packaging or labelling of medicines. These standards often have a legal or regulatory origin.
By contrast, innovative standards setting organisations (SSOs) propose road maps for further technical development, setting goals and inviting members from industry and academia to contribute to developing a new standard. By setting ambitious technical goals for the new standard, members propose innovations, which are typically small improvements that cumulatively add up to a large performance improvement for the new standard. The new standard is a collaboration based on multiple improvements made by its members.
In the mobile telecommunications sector 3G, 4G and 5G are all examples of communications protocol standards that significantly improved on the preceding one.
SSOs allow contributors to apply for patents for the inventions they contribute to the standard, and if the technical standard cannot be implemented without infringing a given patent, then that patent is an SEP. This is clearly an excellent position for the holder of an SEP, since no one can implement the standard without infringing its IP. However, as a counterweight in the process, SEP holders are contractually required to offer licences for these patents on FRAND (Fair, Reasonable and Non-Discriminatory) terms.
As a result, a technical standard such as 5G might be covered by hundreds or even thousands of patents owned by many different parties.
To simplify the licensing process, patent pools are often used. Owners pool their patents and licensees deal only with the patent pool rather than each owner separately. Royalties are then distributed among the contributors to the pool.
In language that parallels the pharma industry, there is a divide between innovators, who contribute to the technical standards and can apply for patents based on their contributions, and implementers, who make products according to the technical standard and may need licences to avoid infringement. Of course, parties can be both innovators and implementers.
The business model for innovators in the pharma industry usually relies on exclusivity. Therefore, we are unlikely to see SEPs for medicines. One area where we may see SEPs emerging, however, would be covering tools that support the industry. Particularly where there is a desire for interoperability or sharing/communicating data.
To date we have not seen many (innovative) standards setting organisations in the pharma industry, but they do exist. An example is the MPEG-G technical standard for compressing and processing genomic data. MPEG – the Motion Picture Experts Group – is a standards-setting organisation with a long history of developing technical standards for new audio and video compression technologies. MPEG also has experience of licensing SEPs to users of its technologies. Perhaps seeing some synergy with its previous work on compressing multimedia data, MPEG has moved into genomic data. MPEG has not revealed yet what patents or licensing terms will apply to MPEG-G, but we know that patent applications have been filed for MPEG-G technology, and we can expect SEPs and a patent pool for licensing to arise.
What MPEG represents is the effect that an external body can have on any given sector. As traditional tech companies continue to have an increasingly louder voice in the pharma sector, what is stopping them bringing their approach to patents with them? Furthermore, if standardisation is in the interests of a sufficient number of stakeholders, then industry bodies, or governmental or intergovernmental bodies such as the International Organisation for Standardization (ISO), National Institute of Standards and Technology (NIST) or British Standards Institution (BSI), may take the lead.
An example candidate for standardisation in the pharmaceutical world is 3D-printed personalised medicine. Based on the needs of an individual patient, a medicine – eg a tablet – can be manufactured on a per-patient basis with a personalised dose of the active ingredient. If this technology is adopted, then it will make sense if 3D printers for medicine all work in the same way regardless of who made the 3D printer. There are numerous technical hurdles to solve before this becomes a reality, but an SSO might help by setting an ambitious road map to a standardised approach and by establishing FRAND terms from the start, using patent pools to collect royalties.
Standardisation might also be beneficial for wearable sensor technologies. We have seen rapid development of sensors for detecting health parameters such as heart rate, electrodermal response and blood pressure. Although these sensors are not yet sufficiently accurate or reliable to use in commercial products (eg smart watches) for medical grade applications, this is one aim for this technology. If an SSO were to step in we could see faster development towards a standard suite of sensor technologies that meet the stringent criteria for diagnostic and monitoring use in the healthcare field.
Even without complete standardisation involving SSOs and SEPs, some aspects of this licensing approach may become prevalent in the pharmaceutical industry. Patent pools, for example, may have their place.
Patent pools for medicines have not been universally welcomed in the pharmaceutical industry. The Medicines Patent Pool has been successful but its scope is limited. In 2020 the World Health Organization proposed a COVID-19 Technology Access Pool to share access to patented technology and regulatory test data. The pharma industry did not engage with it. Instead, mRNA vaccine technology has been licensed on a more ad hoc basis with separate licence agreements between companies. Innovators are financially incentivised to rely on exclusivity by patenting their medicines and enforcing these patents directly.
It can be difficult to implement patent pools and to determine the appropriate licence fees for various different types of implementers. This is because they can be ad hoc in nature – a consequence of not being developed from the outset with an end goal in mind in the way that a technical standard would be. There is more potential for a successful patent pool if there is a logjam such that nobody can exploit a technology without infringing patents.
CRISPR technology might be an example where a patent pool is appropriate. There are a few foundational patents relating to the basic technology that are owned by a small number of entities, as well as many more patents relating to variations that are owned by a larger number of entities. If a patent logjam appears in this field then a licensing solution based on a patent pool that allows the technology to be exploited might develop. If this solution doesn’t develop commercially then governments may intervene. For example, the Manufacturers Aircraft Association patent pool in the US was established in response to a patent logjam that was preventing the development of the US aviation industry in the early 20th century. The other stick that governments have is compulsory licensing, a tool that many on the innovator side of the pharmaceutical industry would prefer governments stayed away from.
Technical standards, and associated SEPs, are coming to the pharmaceutical industry one way or another. This is no bad thing if it leads to considered and well thought out standards, and will help avoid problems such as trying to implement and license ad hoc patent pools. We may well see players from the telecoms and digital technologies fields leading the charge with their wealth of experience participating in the standardisation process. Pharmaceutical companies will need to be prepared and embrace the process to ensure that they have an adequate say (and achieve adequate benefit) in the end results.
Robin Ellis and Pete Sadler are partners and Chris Smith a senior associate at Reddie & Grose LLP, specialists in UK and European Intellectual Property Law