Local Working Requirements of Patents
Dec 20, 2020

Local Working Requirements of Patents

The country where grants patents should take into consideration the public interests of the country. The local working requirement would be an essential provision f national patent laws that assert the patent holder to practice that patent in the country it has been granted. This could routines the good and bad uses of patents.

 

Introduction

A patent awards exclusive rights to a patent owner enabling the exploitation of the invention for a fixed period of time (usually 20 years). This means that only the patentee (patent owner), or a person authorized, will be entitled to produce the goods, or provide the services, to which a patented invention relates. Thus, a monopoly limited by time is created, in which the manufacturing, production, sale, importation, and distribution of the patented product are granted to the patentee and no other.

This exclusive right is essential for conferring economic privileges on Individuals to promote technological development; This could provide incentives for innovators to create and invent. On another hand, the public has an interest in innovation—that is how it accesses new and improved technology and products.  However, the patent system seems not to be absolute! The patent system is qualified by limitations for various reasons, including public interests.

What will happen if the patentee gains a monopoly by a patent but does not exploit it? In other words, the patent doesn’t work in its industrial application?

The actual growth of science and technology in a country depends upon the working of the patents rather than on the number of patents granted in such a country. Working a patent will be understood normally to mean working it industrially, namely, by the manufacture of the patented product, or industrial application of a patented process.

With this regard, working requirements exist in different forms all over the world. Generally speaking, the “work” of a patent means practicing the patented invention, at least in the country where the patent has issued.

While patents are seen as a means to create incentives for inventors to share their ideas, working requirements are intended to moderate the exclusivity of patent monopolies by wanting the patent holder to disseminate its invention into the local market.

A patent working requirement (“working requirement”) is a component of many, yet not all, national patent systems. A working requirement is a provision of national patent law that asserts that an owner of a patent must practice the patented invention by manufacturing or importing the invention) within the country that granted the patent.

The working requirement, or better to be said, the national working requirement, would oblige the patent owner to ‘work’ the patent locally, as opposed to merely using the patent ‘as an exclusive right to prevent others from doing so or to control importation[1].

 

What is the meaning of a non-working patent?

The non-working patents could be categorized under this category: The most shocking form of non-workers are those who not only fail to bring the patented invention to the market but also refuse all others who want to license it. All forms of the working requirement, even the weakest one, target this type of non-worker.

The second category of non-workers are those who actually make an effort to bring the patented invention to market, either by themselves or through licensees, but they fail to sell enough to meet the legal standard of sufficiency. Therefore, fail to sufficiently exploiting the patented invention to satisfy the nation's needs. China and France include this as non-workers patent category.

The third category of non-workers are those who do not, by themselves or through licensees, have the invention manufactured within the country where they obtained their patents.

 

“Local Patent Working Requirement”- Historically View

The first working requirements implemented by countries led to some countries to discriminate against foreigners, for example, by denying them the possibility to obtain patents. For instance, there was a period of time in the United States, in which foreigners could not obtain a U.S. patent at all, or only with difficulties.[2] The denying patent to foreigners largely began to disappear in the mid-188s after introducing the principles of national treatment in pairs convention.

 

Paris Convention 1883

Paris convention as the first convention to address intellectual industrial property laid down general principles including working requirement. The 1883 Paris Convention for the Protection of Industrial Property prohibited the automatic punishment of a patent for a failure to work it locally. Article 5(A) of the Paris Convention deals with the working of patent and grant of compulsory licenses in case of not working of the patent.

In the twentieth century, working requirements were perhaps the most contentious issue of international patent law negotiations. Even in the developed countries, the working requirement was a challenging issue and they adopted their law to prevent monopoly of foreign companies in their land. For instance, in Britain working requirements adopted primarily by concerns about the influence of the German chemical industry in the United Kingdom and its monopolization of an entire industrial sector in the United Kingdom[4].

 The 1925 Hague Conference, which amended the Paris Convention, recognized the failure to work a patent as abuse that member states could “take necessary legislative measures to prevent.” In this convention also compulsory licensing of non-worked patents was discussed as a remedy for non-working patents.

 In the 1967 Stockholm amendments to the Paris Convention, for non-working patents, further limitations on compulsory licensing were introduced, notably prohibiting member states from permitting the grant of a compulsory license for failure to work until three years after the issuance of the allegedly non-worked patent.

However, with regard to working requirements and with reference to the convention flexibilities, developing countries continued to adopt strict working requirements and to resist international requirements that favored developed countries. For example, in the late 1970s and early 1980s, developing countries proposed revisions to the Paris Convention that would have provided that mere importation should not be supposed as local working requirements and requested to permit the expansion of sanctions for non-working beyond compulsory licensing.

It is said that the formation of the World Trade Organization (“WTO”) in 1994, was due to the desire of developed countries for stronger international rules relating to intellectual property, under which the Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) Agreement was negotiated. However, the TRIPS Agreement does not explicitly address patent working requirements.

Trips agreement, in one hand, in Article .2.1 incorporated to Article 5A of the Paris Convention (articles related to compulsory licensing and the limitations on granting compulsory licenses and in Article 27.1, in another hand, establishes requirements for the patentable subject matter, prohibits “discrimination as to the place of invention, the field of technology and whether products are imported or locally produced”.

This raises the question as to whether countries with local working requirements must recognize importation as an acceptable manner of satisfying those requirements.

In addition, Article 30 of the TRIPS Agreement permits a member state to allow exceptions to the exclusive rights of a patent holder! Moreover, in the case of national emergency or other conditions of extreme necessity or in cases of public non-commercial use, Article 31 allowed to issue a “compulsory” license under one or more patents without the authorization of the patent holder.

Given these mixed signals, critics are divided on whether, and how, the TRIPS Agreement may affect local working requirements.

 In the international context and In view of the public interest of developing countries, importation should be excluded from the patent working requirements and working requirement can only be satisfied by local production but according to TRIPS; the importing of the patented subject matter would have to be allowed and it seems and most countries recognized that the working requirements could be satisfied through importation[5].

On the other hand, requiring a patent owner to set up a production line in every country in which an invention is to be exploited would result in increased expenditures, thus potentially reducing the yield of profit. A patent owner could grant a local entity license and the right to produce a patented product, or apply a patented process, in local industrial plants or factories however, this may still be less efficient than simply importing the patented product, into the patent granting country[6].

 

What IP Policies have countries taken concerning local working requirements?

different countries based on their interests and with considering international standards have adopted and defined working requirements to benefit the patent system in service of innovation growth. For example in Japan, the patent owner will be punished if his/her “patented invention is not sufficiently and continuously worked for 3 years or longer in Japan.

According to the new law of Indonesia, Since 26 August 2016, all patent holders are obliged to “work” their patented invention in Indonesia, by either manufacturing their patented products or using their patented processes within 36 months from the date the patent is granted (article 20 of Law No 13 2016). 

China has long provided a working requirement in its Patent Law. Under the current Patent Law, compulsory licensing may be granted where an entity is unable to obtain a license on reasonable terms and conditions within a reasonable period of time. The Amendment, however, restricts the scope for compulsory licensing to the standard 1) that the patentee has not exploited or has not sufficiently exploited the patent rights without any reasonable grounds within three years since the date that the patent rights were granted and four years since the date of filing, or 2) if the patentee exploits the patent in a manner determined to be an "act of antitrust."

Therefore, in China, failure to exploiting the patents to satisfy the internal needs of the nation with regards to the patented product or patented process has been defined as a not-working patent.

In Turkey, if the patented invention is not put into use or not be used as required, it will not cause any loss of patent rights but the patent will be vulnerable to a compulsory license. The period for using or working on a patented invention is typically three years from the publication of the patent grant in the Turkish Patent Bulletin or four years from the application date of the patent, whichever is the later. Some legitimate excuses such as marketing authorization, compliance with standards, need for new applications to be made in different fields for the inability to put the patent to use.

in Iran, although there are no explicit provisions concerning nominal working, instead of actual working, it is recommended that a patent will be vulnerable to cancellation if it is not worked during the five-year period following its date of granting

It is worth note that the definition of the non-worker sets forth the outlines of “good” and “bad” uses of patents, which can be understood only in view of what the patent systems are designed to accomplish.

India has its own unique requirement; patent working is necessary and with this purpose, an annual working statement by the patentee and licensees thereof of a granted patent in India has to be filed!

Section 146(2) of the Act requires every patentee and every licensee (whether exclusive or otherwise) to furnish a working statement each year as to the extent to which the patented invention has been worked on a commercial scale in India.

Rule 131(1) of the Indian  Patent Rule prescribes a specific format for submission of the statements which need to be filed with the Indian Patent Office within 3 months from the end of every year before 31st March of every year for the previous calendar year.

 

Non-filing of working statement or filing of "not worked" statement do not affect the legal status of the patent and it is not deemed as abandoned or canceled. However, non-filing of working statement or knowingly furnishing of the incorrect statement may lead to criminal penalties including a fine up to USD 15,000 approximately or imprisonment, respectively.

Although manufacturing of a product in India is not a necessary pre-condition for demonstrating the working of Patent, however, the patentee must reason why it has been impossible to manufacture the patented product in India.

Section 83 (b) of the Indian patent law provides that Inventions are not granted merely to enable patentees to enjoy a monopoly for the importation of the patented article but some evidence of the possibility of manufacturing in India is an important factor to be considered in this situation.

Brazil’s Industrial Property Law has perhaps the most strong definitions of non-worker as it paces so much emphasis on manufacturing:  In case of non-exploitation of the object of the patent within the Brazilian territory for failure to manufacture or incomplete manufacture of the product, or also a failure to make full use of the patented process, except cases where this is not economically feasible when importation shall be permitted and ( . . . ) Which occasion to a compulsory licensing (Article 68 of the Brazilian Industrial Property Law) If the patentee fails to do this within three years, the government may impose a compulsory license.

 

As it is observed, each country has its own unique definition of a non-working patent which naturally flows from its underlying policy.

It is worth note that the definition of the non-worker sets forth the outlines of “good” and “bad” uses of patents, which can be understood only in view of what the patent systems are designed to accomplish.

The Chinese definition of a non-worker reflects a policy to ensure that the domestic market will have enough of the patented products. On another hand, the Indian and Brazilian definition of a non-worker reflects a prioritization of technology transfer into India and Brazil.

 

Conflicts between Local Working Requirement and the Obligation under Article 27(1) Trips Agreement

In below, we introduce an international case that provides a useful way to understand the controversy over local working requirements.

 

The United States v. Brazil

The United States v. Brazil is the leading WTO appellate case concerning local working requirements.

The Brazilian government had long been working on controlling the HIV/AIDS epidemic in Brazil. Each year, it made enormous expenditures on buying antiretroviral medicine from the United States patent-holding pharmaceutical companies. Faced with intolerably high-priced medicine, the Brazilian government wanted to exercise Article 68 of the Brazilian Industrial Property Law which promulgated in 1996. since the patentee failed to satisfy this requirement within three years, the government according to this article may impose a compulsory license.

The reasoning behind this law is that “failure to work a patent as a mode of exercise of the right that may be deemed abusive and, thus, subject to the remedy of compulsory licensing If the government cannot induce the patent holder to produce the medicine in Brazil, it can grant the compulsory license and ask local pharmaceutical manufacturers to produce generic medicine.

This will decrease the expenditures on anti-AIDS medicine and meet the demands of Brazilian AIDS patients. Brazil believed such a domestic provision would help public health because more people could have access to necessary medicine. However, the United States challenged the Brazilian local working requirement and claiming it violated Article 27(1) of TRIPS, which prohibits discrimination as to “whether products are imported or locally produced.” In response, Brazil claimed that Article 5(A)(2) of the Paris Convention explicitly grants a right to make use of local working requirements. Additionally, it claimed the validity of Article 5(A)(2) was reaffirmed by its incorporation into Article 2(2) of TRIPS, which requires that the Paris Convention’s obligation should not be derogated.

As the controversy came to global notice, a debate over a potential conflict between the obligation under Article 27(1) of TRIPS and the right granted by Article 5(A)(2) of the Paris Convention has emerged. The issue of whether the local working requirements are legal under the international trade regime began to be considered.

The U.S./Brazil case was settled in July 2001, before a final decision could be issued. The settlement required that Brazil provides the United States officials with advance notice prior to invoking Article 68 of the Brazilian Industrial Property Law. The question of the legality of local working requirements has remained unanswered.

 

Conclusion

Patents are granted to be an incentive innovation. However, abuse of patent rights can cause huge hardships, especially in developing countries. The patent system must attempt to draw a balance between the rights of the inventor, and others who seek to benefit from the invention. However, making a balance between the individual’s IP rights and the Public interest has always been a challenging issue.

The country where grants patents should take into consideration the public interests of the country. This would include the chances available for the transfer of technology, substructure development, and the generation of employment opportunities in the fields in which patents are granted. These aims could be achieved only if the patents are locally worked for instance where the patented product is manufactured or the patented processes are applied locally.

The mere importation of a finished patented product is of issue of many developing countries if it is not lead to any further processing in the patent granting country. There must be a balance between the patent holder’s interests on the one hand, and the public interests of the patent granting country on the other hand.  Although compulsory licensing permitted under TRIPS Article 31 could implement a local working requirement, however, the controversy with its article 27, which prohibits discrimination as to “whether products are imported or locally produced’ should be addressed. However, concise and clear detention of working requirement to meet the compulsory licensing are the only tools in hands of developing countries to prevent bad uses of the patents.

References: 

[1] GHC Bodenhausen, Guide to the application of the Paris Convention for the Protection of Industrial Property (WIPO Publication 1969)71 (emphasis added).

 [2] Act of Feb. 21, 1793, ch. 11, § 1, 1 Stat. 318, 318, 321 (1793) (repealed 1836). Starting in 1800.
[4] KNOWLEDGE GOVERNANCE: REASSERTING THE PUBLIC INTEREST 232–33 (Leonardo Burlamaqui et al. eds., 2014).
[5] Some national laws continued to show the countries’ preference for local manufacturing. See, e.g., Patents Act 1949, 12, 13 & 14 Geo. 6 c. 87, § 37 (UK) (allowing for a compulsory license, i.e. when the demand for a patented invention was met only through importation); 

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