German Federal Patent Court Rules That Royalties Under a Compulsory License Must Be Paid Until Patent Revocation

Written by: Fritz Wetzel, Ph.D.

Last year, the German Federal Patent Court concluded that Merck is entitled to a compulsory license from Shinogi to continue the sale of its HIV medicine Isentress®. The written reasoning for that decision is now available. This is the first time that the Federal Patent Court granted a compulsory license in preliminary proceedings in Germany. According to the ruling, Merck has a compulsory license for Shinogi’s European Patent EP 1 422 218 (“the ’218 Patent”) regarding certain dosages of the antiretroviral drug Isentress®. The Court further concluded that Merck must pay a royalty rate of 4% of net sales of Isentress® until the patent expires.

Shinogi owns the now legally revoked ’218 Patent. Shinogi distributes the covered drugs Tivicay® and Triumeq® with the help of partner companies as part of a joint venture. These medicines contain the active substance dolutegravir, which is also an integrase inhibitor (INI). Shinogi alleged that Isentress® infringed the ’218 Patent which led to negotiations for a worldwide license of the ’218 Patent family.

After revocation, Merck argued that the retroactive annulment of the ’218 Patent ended the dispute. According to Merck, there was no basis to compensate Shinogi for the period before revocation. The net effect of this retroactive revocation, according to Merck, was that the ’218 Patent ceased to exist, and with it, any payment obligation.

The Court disagreed. As an initial matter, if in the compulsory licensing procedure, an interim injunction pursuant to Section 85 Patent Law is granted for provisional use and the decision on setting the license fee and accounting is reserved for the main proceedings, the revocation of the patent in the main compulsory license main proceedings will result in non-settlement of the lawsuit with regard to the outstanding decision on the license fee and accounting.

The Court explained that if Merck made use of a compulsory license for a provisional use license granted during the interim injunction proceedings, it must, for the duration of this (interim) license grant, pay the statutory fee even if the patent was ultimately revoked in the compulsory license main proceedings.

The Court further described how the license fee should be calculated.

Because the calculation of the license fee for a compulsory license may be based on the license fee that would be agreed under the circumstances of the individual case in a “fictitious” license agreement (see BGH GRUR 2017, 1017, marginal 28), in addition to the usual license fee framework in the respective product range, circumstances such as the particular threat potential of the patent are considered, as well as other factors including the contribution of the active substance patent to the development of the “licensed” pharmaceutical active substance. These has an increasing or decreasing effect on the royalties.

The assessment of the license fee additionally requires a consideration of what further development, starting from the active pharmaceutical ingredient described in the patent disclosure, must be undertaken to obtain the licensed drug. Prior art, as well as any proprietary developments of the licensee, are not to be considered.

The factors that increase licensing fees may include the continued vulnerability of the patent and the enforced assistance to a competitor, but less the elimination of typical ancillary obligations in contractual licensing agreements or the possibilities provided for in Section 24 (6) of the Patent Law the adaptation or the withdrawal or adjustment of the compulsory license.

The determination of the amount of the license fee for a compulsory license can be made by way of estimation (section 287 (1) and (2) ZPO in conjunction with section 99 (1) of the Patent Law), taking into account the principles developed for the calculation of the license amount and the indications provided by the parties.