Case Digest (G.R. No. L-20563)
Facts:
Smith Kline & French Laboratories, Ltd. owned Philippine Letters Patent No. 12207 for cimetidine, issued on 29 November 1978. Doctors Pharmaceuticals, Inc., a domestic manufacturer, filed on 30 March 1987 a petition for compulsory licensing with the Bureau of Patents, Trademarks and Technology Transfer (BPTTT) under Section 34 of R.A. No. 165, to manufacture and market its own brand of medicines using the patented product, asserting that the drug was needed for public health. Smith Kline & French opposed, among others, for lack of capability, defects in the petition, alleged improper motivation, and for questioning the constitutionality of Sections 34 and 35 of R.A. No. 165; it also challenged the existence of a jurisdictional fact of publication.The BPTTT granted a compulsory non-exclusive and non-transferable license on 14 February 1994 and fixed a royalty of 2.5% of net sales. The Court of Appeals affirmed in toto on 4 November 1994, and the case reached the Supreme Court
Case Digest (G.R. No. L-20563)
Facts:
- Parties and their interests
- SMITH KLINE & FRENCH LABORATORIES, LTD. is a foreign corporation with principal office at Welwyn Garden City, England.
- SMITH KLINE & FRENCH LABORATORIES, LTD. owns Philippine Letters Patent No. 12207 issued by the Bureau of Patents, Trademarks and Technology Transfer (BPTTT) for the drug Cimetidine.
- DOCTORS PHARMACEUTICALS, INC. is a domestic corporation engaged in the business of manufacturing and distributing pharmaceutical products.
- DOCTORS PHARMACEUTICALS, INC. sought authorization to manufacture, use, and sell in the Philippines its own brand of medicine derived from Cimetidine.
- Application for compulsory license before the BPTTT
- On 30 March 1987, DOCTORS PHARMACEUTICALS, INC. filed a petition for compulsory licensing with the BPTTT.
- The petition sought authorization to manufacture its own brand of medicine from Cimetidine and to market the resulting product in the Philippines.
- The petition invoked Section 34 of Republic Act No. 165 (An Act Creating a Patent Office Prescribing Its Powers and Duties, Regulating the Issuance of Patents, and Appropriating Funds Therefor), specifically the system of compulsory licensing after the expiration of two years from the grant of the patent, when the patented invention relates to food or medicine, or is necessary for public health or public safety.
- The petition alleged that:
- Philippine Letters Patent No. 12207 was granted on 29 November 1978.
- The petition was filed beyond the two-year protective period in Section 34.
- DOCTORS PHARMACEUTICALS, INC. had the capability to work the patented product or make use of it in manufacturing medicine.
- Opposition by the patent owner
- SMITH KLINE & FRENCH LABORATORIES, LTD. opposed the petition.
- The patent owner argued that:
- DOCTORS PHARMACEUTICALS, INC. had no cause of action and lacked capability to work the patented product.
- The petition failed to specifically divulge how DOCTORS PHARMACEUTICALS, INC. would use or improve the patented product.
- DOCTORS PHARMACEUTICALS, INC. was motivated by pecuniary gain attendant to the grant of a compulsory license.
- SMITH KLINE & FRENCH LABORATORIES, LTD. was capable of satisfying demand in the local market through manufacture and marketing of medicines covered by the patented product.
- The patent owner further challenged the constitutionality of Sections 34 and 35 of R.A. No. 165, asserting violation of the due process and equal protection clauses of the Constitution.
- BPTTT decision and terms of the compulsory license
- After appropriate proceedings, the BPTTT issued its decision on 14 February 1994.
- The BPTTT granted a compulsory non-exclusive and non-transferable license in favor of DOCTORS PHARMACEUTICALS, INC. under Letters Patent No. 12207 issued on 29 November 1978.
- The BPTTT license was subject to the following material terms and conditions:
- Nature of license: non-exclusive and non-transferable license to manufacture, use, and sell in the Philippines its own brands of pharmaceutical products containing the patented invention disclosed and claimed in Letters Patent No. 12207.
- Term: license for the remaining life of Letters Patent No. 12207, unless terminated in the manner provided.
- Royalty rate: royalty equivalent to two and one half percent (2.5%) of net sales in Philippine currency.
- Definition of net sales: “net scale” meaning gross amount billed less enumerated deductions, including transportation charges/allowances, trade/quantity/cash discounts and broker’s/agent’s/distributor’s commissions, credits/allowances due to rejection/return, and taxes/excise/government charge included or measured by production/sale/transportation/use/delivery.
- Royalty formula for admixed products: royalty determined by a formula involving net sales, 0.025, and proportional value ratios of the patented substance active ingredient versus other active ingredients.
- Computation and payment schedule: computed after each calendar quarter and paid on or before the thirtieth day of the month following the end of each quarter.
- Place and administration of payments: payments to SMITH KLINE & FRENCH LABORATORIES, LTD. authorized representative in the Philippines.
- Records and inspection: keeping sufficient records and permitting examination of books and records during office hours to the extent necessary, at the patent owner’s expense, through a certified public accountant acceptable to the licensee.
- Trademark/labels: use of DOCTORS PHARMACEUTICALS, INC. own trademarks or labels on products containing the patented substance.
- Compliance with drug laws: compliance with laws requiring prior clinical tests and approval by proper government authorities before selling to the public products manufactured under the license.
- Termination rights: licensee’s default in payment of royalty or default in performance of other covenants allowed termination by patent owner upon thirty (30) days written notice; termination did not deny patent owner’s rights and remedies at law or equity nor relieve licensee of prior incurred obligations; notice of termination had to be filed with the BPTTT.
- Dispute resolution: submission for arbitration to the Director of the BPTTT or any ranking official duly delegated, in case of dispute as to enforcement.
- Inurement: license benefited parties and their subsidiaries/assigns and successors/assigns.
- Effectivity: license took effect immediately.
- Proceedings in the Court of Appeals
- SMITH KLINE & FRENCH LABORATORIES, LTD. appealed to the Court of Appeals via petition for review docketed as CA-G.R. SP No. 33520.
- The Court of Appeals promulgated its decision on 4 November 1994 and affirmed the BPTTT decision in toto.
- The Court of Appeals held that:
- At the time of filing on 30 March 1987, Letters Patent No. 12207 (issued on 29 November 1978) had been in effect for more than two years.
- The patented invention related to compounds and compositions inhibiting certain actions of histamine, hence it related to medicine.
- Substantial evidence supported that DOCTORS PHARMACEUTICALS, INC. possessed the capability to manufacture different drugs containing patented active ingredients, supported by competent personnel and machines/equipment.
- The compulsory license’s purpose included preventing the building up of patent monopolies, citing Parke Davis v. Doctors Pharmaceuticals, Inc., 14 SCRA 1053.
- The compulsory license was valid as an exercise of police power.
- The royalty fixation at 2.5% of net wholesale price did not constitute expropriation without just compensation.
- The Court of Appeals relied on Paragraph 3, Section 35-B, R.A. No. 165, as amended by P.D. No. 1263, on adequate royalties commensurate with the ex...(Subscriber-Only)
Issues:
- Compliance with international obligations
- Whether the BPTTT and the Court of Appeals rulings violated Article 5 of the Paris Convention for the Protection of Industrial Property, considering compulsory licensing and the conditions of non-exclusivity and non-transferability.
- Whether the petitioner could invoke the GATT treaty framework associated with the Uruguay Round to defeat the BPTTT decision, despite the timing of Philippine Senate concurrence and presidential ratification.
- Validity of compulsory licensing as an exercise of police power
- Whether the grant of compulsory licensing over Cimetidine was an invalid exercise of police power for lack of evidence of overwhelming public need.
- Constitutional and statutory limits on royalties and due process
- Whether the royalty rate fixed at 2.5% of net wholesale price (as described in the pleadings and Court of Appeals discussion of “net wholesale price” and “net s...(Subscriber-Only)