Draft Intellectual Property Policy of the Republic of South Africa – Phased Implementation – IP and Public Health – Part III

On August 25, 2017, the Draft Intellectual Property (IP) Policy (Draft IP Policy) of the Republic of South Africa was published for public comments by November 17, 2017.  This Draft IP Policy follows from the IP Consultative Framework that was approved by the South African cabinet on July 6, 2016.  In this multi-part series, we address the need for the policy, the goals, the strategies to meet the goals, and the phases of implementation.  In the third part of this series, we focus on the phased implementation of the Draft IP Policy as it relates to IP and Public Health.  In part one, we provided an introduction and the goals of the Draft Intellectual Property Policy.  In part two, we provided information on the strategies and key reforms of the Draft IP Policy.

In order for the South African government to pursue urgent action in certain areas, conduct further in-depth study and consultation in other areas, and respond to a fast-evolving discipline, the Draft IP Policy will be implemented using a dynamic, two-phase approach.  Phase 1 will focus on:  1) IP and Public Health; and 2) International IP Cooperation.

The key components of IP and Public Health are as follows:

  • Local manufacture and export in line with industrial policy;
  • Patent–substantive search and examination;
  • Patent opposition;
  • Patentability criteria;
  • Disclosure requirements;
  • Parallel importation;
  • Exceptions;
  • Voluntary licensing;
  • Compulsory licenses; and
  • IP and competition law.

“International Cooperation” refers to the international treaties that South Africa will consider joining.  Specifically, South Africa will explore legal instruments and international treaties that are critical to advance the objectives of the Draft IP Policy. These will include:

  • Locarno Agreement Establishing an International Classification for Industrial Designs (1968);
  • Strasbourg Agreement Concerning the International Patent Classification (1971);
  • Vienna Agreement Establishing an International Classification of the Figurative Elements of Marks (1973);
  • Nice Agreement Concerning the International Classification of Goods and Services for Marks (1979);
  • Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (1989); and
  • Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired or Otherwise Print Disabled (2013).

Phase 2 will focus on:

  • Intellectual Property Rights (IPRs) and the informal sector;
  • Branding of South African goods and services (collective marks, certification marks and GIs);
  • Safeguarding South Africa emblems and national icons;
  • Commercialization of IP;
  • Enforcement;
  • IP localization and beneficiation;
  • IP awareness and capacity building;
  • IPRs and the environment/climate change/green technologies; and
  • IP in agriculture, IP and biotechnology, genetic resources and genomic sovereignty.

As mentioned previously herein, this post will focus on phase 1, specifically, on IP and Public Health.  A future post will focus on phase 2.

a) Local manufacture and export in line with industrial policy

An overreaching goal of the Draft IP Policy will be to increase the local production of pharmaceuticals to meet domestic needs in South Africa.  In addition, the increase in production will lead to export opportunities throughout Africa and beyond.  This aspect of Phase 1 is in line with the National Development Plan (NDP), as well as the National Industrial Policy Framework (NIPF), and implemented through the Industrial Policy Action Plan (IPAP).  Substantive policy recommendations that follow in the NDP are designed to boost local production and export.  It has been recommended that additional policy measures be implemented, so that domestic industry is encouraged to take full advantage of the opportunities offered in the Draft IP Policy.

The pharmaceutical industry is one of the priority sectors identified by Industrial Policy Action Plan (IPAP).  The pharmaceutical market in South Africa is a two-tier pharmaceutical market, which is divided into a public and a private market.  This market is the largest in Sub-Saharan Africa, and worth a total estimated R40 billion (approximately $3 billion USD) annually.  However, the South African pharmaceuticals sector is still relatively small by international standards.  This sector constitutes a mere 0.4% value and 1% volume of the global market.  The contribution of this industry to South Africa’s GDP has also declined from 1.6% to 1.1% over the past six years.  Despite the decline, the sector provides direct employment to approximately 10,000 people, and the downstream segment provides approximately 25,000 jobs.  Thus, there is tremendous potential for this sector to grow and contribute value-added jobs to the South African economy.  The availability of employment opportunities is critical to whether a student or researcher channels her or his efforts toward a particular scientific area.  Thereupon, growth of the pharmaceutical production sector is important to developing and maintaining the science and technology community in South Africa.

Growth of the South African pharmaceutical industry will also contribute to the sustainability of supply and allow the country to fulfil key health objectives as outlined in the National Drug Policy.  Specifically, the growth of the industry will ensure the availability and accessibility of essential drugs.  Currently, approximately 65% of the demand for pharmaceuticals in South Africa, by value, is met by imports.  It has also been reported that medical products are the fifth largest contributor to South Africa’s trade deficit.  Imported pharmaceuticals have played an important role in improving public health.  However, increasing locally produced pharmaceuticals in South Africa will ensure the availability of medications specific to the country’s unique disease burden.  In order to treat many of the diseases in South Africa, medications are needed that require specific active pharmaceutical ingredients (APIs), of which global supply is limited.  Therefore, formulating an appropriate IP Policy and implementing the corresponding legal framework will contribute to significantly strengthening the local industry and meeting local needs.

b) Patent–substantive search and examination

Currently South Africa employs a deposit system for patent applications.  Therefore, patent applications are not subjected to a substantive search and examination (SSE) procedure.  A discussion on the proposed SSE was discussed in part two of this series.

c) Patent opposition

Currently, there is no opposition procedure in South Africa.  A patent may only be challenged after grant in an application for revocation, which must be brought before the Commissioner of Patents who is a High Court Judge.  Patent oppositions afford an opportunity for public intervention in the patent application process.  The Draft IP Policy recommends that participation in the process be made open in order to maximally benefit the state and South African industry.  Optimally, opposition proceedings will be enacted in the law, both prior to and after, the grant of a patent.  In the interim, owing to capacity constraints, the Draft IP Policy recommends that South African patent law recognize a third-party submission system or “observation” to stand in place of the pre-grant opposition process and that existing provisions in administrative law to be used in lieu of post-grant oppositions.

By their nature, opposition proceedings can achieve a range of policy aims in respect of substantive patent examinations.  Importantly, such proceedings seek to ensure that only those inventions that meet domestic statutory requirements for patentability are granted patent protection. Given the purpose of such proceedings, no legitimate public purpose would be served by limiting the class of persons who may participate.  Put differently, no specific standing requirements should have to be met in order to oppose the grant of a patent.  From the perspective of the South African government, the choice of recognizing any particular opposition proceeding has implications for human and financial resources. Thus, the third-party observation mechanism is the least resource-intensive, as it does not trigger any specific procedure involving the third-party once the relevant information has been submitted.  Pre-grant opposition proceedings are potentially more resource-intensive as they require the South African government to put in place an administrative procedure that makes provision for the active participation of applicants and third-parties.  However, by harnessing available information and expertise relevant to the application for or grant of a patent, the state’s resources may effectively be supplemented.

The IP Policy aims to make a provision for a third-party observation mechanism in terms of which all self-identified parties would be entitled to make written submissions opposing the grant of any particular patent.  A provision will also be made for a post-grant opposition mechanism that would require the development and promulgation of regulations.  This would allow all such oppositions to proceed by way of administrative review, in accordance with the provisions of the Promotion of Administrative Justice Act 3 of 2000 (“PAJA”).  This provision would be available for as long as the contemplated system of post-grant opposition is not yet in force.  In addition, a legislative provision has been suggested  to allow for the introduction of pre-grant opposition proceedings once the Minister of Trade and Industry is satisfied that there is sufficient capacity within the substantive examination system to make appropriate use of such proceedings.

d) Patentability criteria

The Draft IP Policy states that, in line with emerging best practice, patentability criteria will be developed in order to promote genuine innovation through the patent system in South Africa, and the criteria will be implemented through the process of patent examination.  The criteria should form part of the Patents Act and also regulations and guidelines for patent examination.  The Draft IP Policy states that Article 27.1 of the TRIPS agreement allows South Africa the flexibility to interpret and implement patentability requirements in a manner consistent with its constitutional obligations, developmental goals, and public policy requirements.  Amongst other things, this would include the adoption of patentability criteria that address the country’s health and environmental concerns, as well as industrial policy objectives.  The Draft IP Policy mentions Australia, which in 2012 adopted legislation that upwardly adjusted the standards of patentability in Australia.

e) Disclosure requirements

Applicants are required to adequately disclose the nature of the invention therein, in order to gain a full and fair understanding of a patent application.  To assist in the process of examination of such applications, in addition to the existing disclosure requirements in the Patents Act, it is recommended that Applicants be asked to provide information regarding the status of similar and related applications filed in other international jurisdictions.

The Draft IP Policy provides that in terms of Article 29(1) of the TRIPS agreement, an Applicant for a patent disclose the invention in a manner sufficiently clear and complete for the invention to be carried out by a person skilled in the art. The patent law in South Africa already provides that a complete patent specification must sufficiently describe, ascertain and, where necessary, illustrate or exemplify the invention and the manner in which it is to be performed.  The Draft IP Policy recommends that Applicants be asked to provide information regarding the examination of corresponding patent applications in other countries.  This will assist the examiners during the search and examination procedure.

f) Parallel importation

South Africa’s unique developmental needs, particularly in public health, require the exploration of every legal opportunity to support the viability and expansion of the public health system.  In the case of patented products, such as medicines, this includes the ability to purchase said medicines from any external territory that is necessary.  The implementation of parallel importation will be undertaken in a controlled manner pursuant to consultations with respective stakeholders.

The parallel importation of medicines in South Africa is governed by the 1997 amendments to the Medicines and Related Substances Act 101 of 1965 (Medicines Act).  This legislation is administered by the National Department of Health (DOH).  The relevant provision applies notwithstanding any rights conferred in terms of the Patents Act.  A narrow interpretation of section 45(2) of the Patents Act in its current form could potentially give rise to challenges, should parallel importation be pursued.  Thus, there is a need to clarify that parallel importation of medicines in the manner prescribed in the Medicines Act does not constitute an infringement of the Patents Act.  Doing so would allow Ministries responsible for specific sectors to sanction sector-specific parallel importation in a controlled manner.  This importation would be pursuant to consultations with their respective stakeholders.  The result would be striking a balance between access and the interests of nascent industries.

g) Exceptions

The TRIPS Agreement explicitly states that the objective of promoting and enforcing IPRs is to contribute to the promotion of technological innovation and to the transfer and dissemination of technology.   This is to be done to the mutual advantage of producers and users of technological knowledge alike, and in a manner conducive to social and economic welfare, thus achieving a balance of rights and obligations.  As a means of striking a balance between the rights of owners and users of IPRs, Article 30 of the TRIPS Agreement allows members to provide limited exceptions to patent rights.  The Draft IP Policy mentions Bolar exemptions and research exceptions.  The Bolar exemption allows a party to obtain regulatory approval for a product prior to the expiry of a patent covering the product.  Currently, the South African Patents Act does not include a research exemption.  The Draft IP Policy appears to go further than a research exemption, stating, with reference to pharmaceutical products, that it is essential to facilitate research, development and testing of IP products in the commercial and industrial sectors prior to the expiry of the patent term.

 h) Voluntary licensing

A voluntary license occurs when a patent holder offers, on his or her own accord, a license to a third party to produce, market, and distribute the patented product.  In the South African public health context, the third-party has tended to be a domestic generic producer, or the Medicines Patent Pool (MPP), which acts as a public health intermediary to ensure generic producers voluntary licenses with access-friendly terms and conditions.  The Draft IP Policy recognizes that voluntary licensing has contributed to generic competition, lower prices and accessibility, particularly where antiretroviral drugs (ARVs) used in the treatment of HIV/AIDS are concerned.  The document recommends greater transparency in respect of the terms of these licenses, and encouragement to conclude such license agreements.

 i) Compulsory licenses

Draft IP Policy mentions that compulsory licenses are an important mechanism to ensure affordability of essential goods and to restrain anti-competitive practices.  The grant of a compulsory license is subject to an expensive judicial process and infers that there should be a less expensive and less complicated administrative process to apply for a compulsory license.  The Draft IP Policy mentions that, currently Section 4 of the Patents Act entitles a Minister of State to use an invention for public purposes, but requires negotiation on conditions of use, and if agreement cannot be reached then the State may approach the Commissioner of Patents to determine the conditions.  The Draft IP Policy suggests that prior negotiations and determination by the Commissioner of Patents should not be required, and that the law should be amended so that the State can take advantage of flexibilities provided in the TRIPS agreement.  The Draft IP Policy states that the South African Government is fully aware of the limitations of “Paragraph 6”, and will engage stakeholders to find ways of ensuring simpler implementation.  This is a reference to the implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health which relates to compulsory licenses for local manufacture and export.

 j) IP and Competition Law

The Draft IP Policy mentions recent competition law cases involving IP and public interest.  In 2001, instead of using the provisions of the Patents Act, a complaint was lodged with the Competition Commission against pharmaceutical companies which held patents on a number of ARV pharmaceuticals in South Africa.  This led to a settlement and the patentees agreed to license the patents to South African pharmaceutical companies and, as a result, these pharmaceuticals have been made available successfully in SA.  The Draft IP Policy recommends the clarification of the scope of intersection between competition law and IP.  In this regard, the document states that both competition law and patent law can be used to implement competition-related TRIPS flexibilities and advance consumer welfare.

Please continue to watch the BRIC Wall Blog for the remainder of the series on the Draft Intellectual Property Policy of the Republic of South Africa.

This post was written by Lisa Mueller and Kate Merath of Michael Best and David Cochrane of Spoor & Fisher.