Russia expands grounds for issuing compulsory licences in healthcare

Two federal laws have recently come into force in Russia that provide new circumstances for the granting of compulsory licences in the fields of pharma and healthcare.

The adopted amendments allow the Russian government to issue compulsory licences when:

• there is extreme necessity to protect the life and health of citizens; or
• generics are being produced and exported to underdeveloped countries due to emergency or extreme necessity in these countries.

The adopted laws are expected to increase access to medicines for residents of the Russian Federation or underdeveloped countries, allowing them to obtain medicines cheaper and in a shorter timeframe. However, in the long term (especially if the state abuses these mechanisms), these laws could lead to a reduction in the investment attractiveness of the Russian Federation for foreign pharmaceutical and biotechnology companies.

Life and health protection

On 11 May 2021, a law* came into force to grant the Russian government the right to allow the use of an invention, utility model or industrial design without the consent of the right holder in cases of extreme necessity related to the protection of the life and health of citizens. Previously, such a right had been granted to the government only in the interests of national defence and security.

Thus, the following conditions must now be met when issuing a compulsory licence:

• this action is based on an extreme necessity related to the protection of the life and health of citizens;
• the right holder must be paid commensurate compensation; and
• the right holder must be notified of the compulsory licence as soon as possible.

The adopted law is aimed at increasing the availability of medicines, including innovative drugs, medical devices and other similar products, to the public. However, the adopted amendments are less concerned with the interests of right holders.

The interpretation of the concept of “extreme necessity” remains a key issue. In the absence of a clear definition or established criteria in judicial practice, compulsory licences risk being issued without justification.

As a result, such legal uncertainty will have a negative impact on the investment appeal of the Russian market, since bringing new patented drugs to market will be associated with the risk of restricting a company’s rights with a compulsory licence, which could in principle lead to refusal to register drugs in Russia.

With the entry into force of the law, it is expected that the process of determining proportionate compensation will become more transparent since there will be a specific methodology for its calculation. However, to date, this issue is still under discussion. It also remains unclear whether the methodology will take into account the financial losses of right holders and if the remuneration calculated by the methodology will be fair and market-based.

Despite the lack of special grounds applicable to medicinal products in the previous version of the law, a precedent has already been set. In the interests of national security, a compulsory licence was issued for inventions related to the production of remdesivir, a medicine intended to treat COVID-19.

In this case*, the right holders tried to challenge the compulsory licence ordinance in court. Specifically, they argued that the adopted act contradicted international treaties of the Russian Federation and that the ordinance was unfounded due to the fact that there were no threats to state security when the decision was adopted. However, the Supreme Court of the Russian Federation refused the applicants’ claim.

Production and export of generics

The second law*, which entered into force on 22 June 2021, allows the Russian government, pursuant to the provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”), to issue a compulsory licence for an invention in the following situations:

• for the purpose of producing and exporting generics;
• subject to notification to the right holder and payment of a commensurate compensation; and
• under an international treaty.

Thus, under TRIPS, a compulsory licence is allowed for production and export to underdeveloped countries in cases of emergency or extreme necessity, or for public non-commercial use. In addition, TRIPS establishes some additional conditions, some of which are already implemented into law and some of which are to be subsequently regulated by the Russian government.

For example, it is already stipulated that the government’s decision must state the production amount of the exported medicine determined by the needs of the foreign state, and the packaging of the medicinal product must have a special marking.

The Russian government will approve the grounds and procedure for making the respective decision on compulsory licensing, the period of its validity and termination, the procedure for notifying the patentee, as well as the method of determining the amount of compensation and the procedure for its payment later, taking into account TRIPS’s provisions.

Thus, for the time being, there is no certainty regarding the grounds for issuing an “export” compulsory licence. But we can expect that, similar to the grounds provided for the domestic market, the rules for issuing a compulsory licence will be broadly formulated, which will create additional risks for pharmaceutical companies.

If you have any questions on this eAlert, do not hesitate to contact CMS Russia experts Anton Bankovskiy, Vsevolod Tyupa, Alexey Shadrin, Darya Dzhafarova or your regular contact at CMS Russia.

* In Russian