COVID-19: New German legislation to fight pandemic may affect granted German patents

By Dr. Sebastian Fuchs

05-2020

In the wake of the COVID-19 pandemic the German government has recently passed a “corona crisis package”. The so-called Act for protecting the Population in the Event of an Epidemic Situation of National Importance, (Gesetz zum Schutz der Bevölkerung bei einer epidemischen Lage von nationaler Tragweite) the “Epidemic Protection Act”, provides for several amendments to existing laws. One amendment provides for measures to restrict German patents, e.g. covering pharmaceuticals or medical devices

The amendment already entered into force immediately on 27 March 2020, its day of adoption. The below Q&A-style guide is to inform about the potential impact of the Epidemic Protection Act on patents.

This Q&A-guide will be constantly updated. We will continue to monitor the situation closely and will report on any new developments. Our patent team in Germany is prepared to advise on any measures based on the new regulations relating to the COVID-19-pandemic. Should you have any comments, please send us a note to: [email protected].

Date of last update: 7 May 2020

Q: Does the Epidemic Protection Act provide for ways to limit the Exclusive Use of a Patent given the COVID-19 Epidemic?

A: Yes. The Epidemic Protection Act amends the German Act on the Prevention and Control of Infectious Diseases in Humans (Gesetz zur Verhütung und Bekämpfung von Infektionskrankheiten beim Menschen) hereafter “IfSG”, authorizing the Ministry of Health to issue so-called use orders for patents according to Sec. 13 of the German Patent Act, hereafter “GPA”.

However, the amendment to the IfSG ties in with an existing and (often-overlooked) regulation stipulated in Sec. 13 of the GPA providing for “I”. According to the legislative materials (Draft Epidemic Protection Act, BT-Drs. 19/18111) the purpose of the amendment is “to ensure a supply of products in the event of a crisis”. In that case “the effect of a patent can be limited in accordance with Sec. 13 of the GPA, for example, in order to be able to produce vital active ingredients or pharmaceuticals”.

Q: What is a “Use Order” according to the GPA?

A: According to Sec. 13 GPA a “patent shall not have effect insofar (…) the invention be used in the interest of public welfare”. The provision has not yet been applied by the Federal Government.

The use order is de facto an act of expropriation by the government, which is permissible only in exceptional cases and if compensation is paid (Art. 14 of the Constitution, Grundgesetz).

Q: Does the new Legislation change the Prerequisites for “Use Orders”?

A: Yes and No.

Sec. 5(2) no. 5 of the Epidemic Protection Act refers to the existing provision on use orders according to Sec. 13(1) of the GPA: 

§ 5 Epidemic Situation of National Importance, Regulatory Powers

(1) The German Bundestag declares an epidemic situation of national importance. The German Bundestag shall revoke the declaration of the epidemic situation of national importance if the conditions for its declaration no longer exist. The cancellation must be published in the Federal Law Gazette.

(2) The Federal Ministry of Health shall be authorized within the context of an epidemic situation of national importance and without prejudice to the powers of the federal states,

(...) 

4. to take measures by statutory order without the consent of the Federal Council to ensure the supply of medicinal products, including narcotics, the active ingredients, starting materials and auxiliary materials for these products, medical devices, laboratory diagnostics, aids, personal protective equipment and products for disinfection, and in particular

5. to order under Sec. 13(1) of the Patent Act that an invention relating to one of the products mentioned in no. 4 before the enumeration shall be used in the interest of public welfare (“öffentliche Wohlfahrt”) or in the interest of the security of the Federation; the Federal Ministry of Health may instruct a subordinate authority to make such an order;

(…).

The "epidemic situation of national importance" is declared automatically with the entry into force of Sec. 5(2)1 of the IfSG due to the spread of the new coronavirus (SARS-CoV-2).  In this situation, use orders under Sec. 5 (2) no. 5, 4 IfSG in conjunction with Sec. 13 of the GPA may be issued which refer to an "invention relating to one of the products mentioned in no. 4 before the list", including, for example, pharmaceuticals and medical devices.

Sec. 5(2) no. 5 of the IfSG further provides that the order has to be issued “in the interest of public welfare (“öffentliche Wohlfahrt”) or in the interest of the security of the Federation”. These conditions are identical to the wording of Sec. 13(1) of the GPA. Accordingly, it cannot be readily assumed that Sec.  5 (2) no. 5 of the IfSG goes beyond Sec. 13 of the GPA. However, the draft of the Epidemic Control Act provides for specific cases of application, namely that a patent is required "to ensure the supply of products in the event of a crisis" or "to be able to produce vital active substances or drugs" (cf. draft of the Epidemic Control Act, BT-Drs. 19/18111). The new regulation, thus, rather specifies the conditions for issuing use orders. 

However, the major difference in relation to Sec. 13 of the GPA lies in the competence: for issuing use orders: The competence of the Federal Government under Sec.  13 of the GPA is delegated to the Federal Ministry of Health under Sec. 5 (2) no. 5 of the IfSG, which may, if necessary, delegate it to a subordinate authority.

Q: Which Patents could potentially be affected by Use Orders according to Sec. 5 of the IfSG in connection with Sec. 13 of the GPA?

A: Sec. 5(2) no. 5 of the IfSG foresees that a use order may cover “an invention relating to one of the products mentioned in no. 4 before the enumeration shall be used in the interest of public welfare (…)”. Sec. 5 no. 4 of the IfSG lists the following products:

(…)

4. to take measures by ordinance without the consent of the Federal Council to ensure the supply of medicinal products, including narcotics, active ingredients, starting materials and auxiliary materials, medical devices, laboratory diagnostics, aids, personal protective equipment and disinfection products, and in particular (…)

The list of “products” in Sec. 5(2) no. 4 of the IfSG is obviously very extensive and does not only include active ingredients, but also upstream starting and even auxiliary materials. The fact that Sec. 5(2) no. 4 does only mention products and not methods (i.a. for production) may at first sight seem to indicate that method patents would not be covered. However, the wording of Sec. 5(2) no. 5 covering any “invention[s] relating to one of the products (…)” seems to suggest a broader interpretation covering any patents directly (such as product patents) or indirectly (such as method patents) covering such products listed in no. 4.

Q: What would be the Effect of a Use Order according to Sec. 5 of the IfSG in connection with Sec. 13 of the GPA?

A: The patented teaching could be “used”, i.e. the affected patent(s) would not have an exclusionary effect (Sec. 9 et. seq. of the GPA). Still, patent holders and other entitled entities (e.g. simple licencees) retain their right of use.

Q: Who would benefit from a Use Order?

A: Not everyone may use a patent subject to a use order. A right of use shall initially exist exclusively in favour of the ordering authority. However, the right of use may be delegated to a third party. According to the only case on a use order dating back to 1949, the ordered use may be delegated to a third party by way of an order or an instruction (Higher Regional Court of Frankfurt, BlPMZ 1949, 330). In that case, the third party does not act unlawfully, because the patent does not have any effect on him. 

However, according to old case law of the German Reichsgericht a third party may use the invention only for the promotion of public welfare or security interests (possibly similarly to the Federal Government/Authority), i.e. a use for its own commercial purposes shall not be covered by the use order. Such use for own commercial purposes would contradict the purpose of Sec. 13 of the GPA, i.e. to serve only the public interest without an intention to put private enterprises in a better position than they otherwise would be (also cf. Benkard/Scharen, PatG, 11th ed. 2015, § 13, rec. 7).

Q: Is there a remedy to challenge a Use Order?

A: Yes. According to the GPA a use order can be challenged before the Federal Administrative Court (Sec. 13(2) of the GPA). The use order is an administrative act to which the general administrative provisions apply. However, pursuant to Sec. 5 (4) no. 4 IfSG, an action for rescission against a usage order expressly has no suspensive effect Sec. 80(2) no. 3 VwGO [Administrative Court Code). 

Q: Would Patent Holders subject to a Use Order be Compensated?

A: Yes. The patent proprietor would receive an “adequate remuneration” by the State (Sec. 13(3) of the GPA)

There is no established case law on the calculation of the amount of remuneration. The remuneration is not intended to compensate for the damage incurred, but only for appropriate compensation for the state intervention. The calculation of the remuneration is made after weighing the interests of the patent holder concerned and the interests of the general public. Article 14(3) no. 3 of the German Constitution [Grundgesetz]) A suitable method of calculation is the license analogy, which usually leads to reasonable results. However, it should also be possible to use the loss of profit as a calculation factor (see Benkard PatG/Scharen, 11th ed. 2015, PatG, Sec. 13, marginal 15; Schulte/Rinken/Kühnen, PatG, Sec. 13, marginal 12; see also an earlier decision of the Reich Court, RGZ 102, 390, 391, according to which the loss of profit can be taken into account when determining the amount of compensation).

Q: Can the Amount of the Compensation be challenged?

A: Yes. Legal action against the amount may be taken before the ordinary courts (Sec. 13(3) 2 of the GPA).

Q: How is a Use Order enforced in practice?

A: Use orders are not subject to any special procedure. They are usual administrative acts and must comply with the legal provisions. The discretion to which the authority is entitled must be exercised dutifully. An order therefore requires, inter alia, a comprehensive and careful balancing of the interests of the patent holder and the need for effective and efficient administration in the light of the current COVID-19 pandemic.

Q: Can a company take advantage of the new legislation?

A: Basically no. A use order is basically not ordered by request of a third party. In other words, unlike by way of a compulsory licence under Sec. 24 of the GPA, there is no right of third parties to request a decision allowing for the use of a patented invention. However, a third party may, make the Federal Ministry of Health aware of a patent covering a certain necessary product so that the Ministry may decide – (on its own motion) whether to grant a use order. In any case, however, a use order is not to be understood as a means to take an economic advantage Rather, the “favoured” third party may only use the invention for the promotion of public welfare or security interests and not for its own commercial purposes.

However, any company has the right to request a compulsory license in accordance with Sec. 24 of the GPA under observance of the conditions laid down therein.

Q: Must a usage order be communicated to the addressee?

A: Sec. 13(3) 2 of the GPA expressly foresees that a use order “shall be communicated to the person entered in the Register (Sec. 30 (1)) as patent proprietor before the invention is used”  (cf. also Sec.43(1) of the VwVfG [Administrative Procedure Act]. However, prior notification is not required in every case. In urgent cases, the notification can also be made subsequently.

Q: For How long would a Use Order be Valid?

A: Since use orders are an exception to the principle of an exclusionary effect of the patent, they must be limited to the extent strictly necessary. The exceptional character of the measure is also reflected in the amended Sec. 5(2) of the IfSG authorizing the Federal Ministry of Health only “within the context of an epidemic situation of national importance" to issue use orders (in conjunction with Sec. 13 of the GPA).

However, in case of an epidemic such as COVID-19 the duration of an order to have effect cannot be foreseen from the start. It must be assumed that use orders automatically seize to be legitimate as soon as an epidemic situation is not given any more or is later revoked by the German Parliament (Sec. 5(1) no. 2 of the IfSG). Interestingly, the IfSG regulates that statutory directives (Rechtsverordnungen) issued according to Sec.5(2) of the IfSG expire automatically “at the latest by the end of 31 March 2021”,  which raises the question of whether the same expiration may apply to use orders that are also regulated in Sec. 5(2), but likely cannot be considered "statutory directives". 

Q: Can a Use Order have retroactive Effect before the date of issue?

A: The fact that neither the PatG nor the IfSG expressly provide for retroactive effect speaks against the possibility of a use order to have such an effect. in view of the severity of the interference the basis for authorisation would need to have been sufficiently defined.