Hungarian Constitutional Court annuls first public health compulsory license

There is no doubt that COVID-19, the disease caused by the new type of SARS-CoV-2 coronavirus, caused an unprecedented global health crisis. Provisions on public health compulsory licensing were introduced into Hungarian law in 2020 as a response to the pandemic. According to the relevant provisions, the trigger for a potential compulsory license is unmet supply needs in a health emergency situation declared under and as defined in the Public Health Act. To substantiate unmet supply needs, a certificate must be obtained by the applicant from the national pharmaceutical regulatory authority. The relevant authority for granting the compulsory license is the Hungarian Intellectual Property Office (HIPO) and the assessment of the preconditions is made by way of expedited administrative proceedings. The HIPO decision is enforceable regardless of an appeal.

Decision granting the compulsory license

In November 2020, a Hungarian pharmaceutical manufacturer submitted applications for compulsory licenses for three patents concerning remdesivir, an active substance developed by Gilead - a pioneer and leader in antiviral drug development – and marketed under the brand name Veklury®. At that time, this product was the only authorized medical product containing the patent protected active substance remdesivir approved by the European Medicines Agency for the treatment of a certain patient population suffering from COVID-19 and pneumonia requiring complementary oxygen therapy (low or high-flow oxygen or other non-invasive ventilation at start of treatment).

In early December 2020, approximately one week after receiving the requests, the HIPO granted compulsory licenses for all three patents without the patentee being heard. The compulsory license was granted for the manufacture of remdesivir for six months and was only valid for Hungary.

Patentee’s course of action

The patentee filed appeals with the court challenging the HIPO decisions. According to the patentee’s main line of argument, there was no unmet supply need for remdesivir in Hungary, hence there was no basis for the compulsory license. An important aspect of such argumentation was that the patentee and other companies in the Gilead group had been supplying Veklury® in fulfilment of orders placed by the Hungarian government under agreements concluded with Gilead at the European Union level. Hungary, as a Member State of the EU, was part of this scheme.
In the appeals, the patentee emphasized that their intention was not to prevent or restrict access to medicines, nor to enforce monetary claims.

Since the patentee was not heard when the HIPO decided on the compulsory license requests, in the appeals it referred inter alia to breach of its fundamental rights as a patent holder in the HIPO proceedings. In the HIPO decisions, it was clear that the patentee was not considered to have client status in the proceedings. Meaning that the HIPO did not comply with the procedural fairness requirement laid down in the Fundamental Law.

On first instance appeal in April 2021, the Metropolitan Court upheld the HIPO decisions, confirming that the patentee should not be considered as client in the expedited compulsory license proceedings, nor can it challenge the certificate of the national pharmaceutical regulator on the alleged unmet supply needs. The court stated that in the proceedings for granting a public health compulsory licence a so-called fixed evidencing applies, with the court practically ignoring the patentee’s evidence on the fulfilment of orders placed by the Hungarian government for Veklury®. The court refused to consider fundamental law aspects as it believed that the expedited nature of the proceedings was not suitable for such assessment. Neither did it reach out to the Constitutional Court for a preliminary opinion on whether the respective provisions of the Patent Act are compliant with the Fundamental Law. In response to the Metropolitan Court’s decisions, the patentee submitted further appeals. Yet again, at second instance, the Metropolitan Appeal Court agreed with the conclusion of the lower court and upheld the compulsory licenses. In December 2021, the patentee filed extraordinary appeals with the Curia. The Curia, acting as the supreme court of Hungary, agreed, on the one hand, with the patentee that as the patent holder, it was eligible for client status at the HIPO. On the other hand, however, it concluded that the respective provisions of the Patent Act lawfully allowed an ex parte process at the HIPO and confirmed that the lower courts’ decisions were otherwise correct.

The Constitutional Court’s decision

In September 2022, the patentee sought final recourse by filing complaints to the Hungarian Constitutional Court. The patentee argued that it was deprived of its client status, and both before the HIPO and the courts its rights deriving from the equality of arms were violated resulting the lack of guaranteed rights in adversarial procedures. The patentee relied on its fundamental rights to fair proceedings and to legal remedy.

In terms of the fundamental right to legal remedy, the patentee complained that its right to remedy remained a mere formality, as the appeal courts did not admit any evidence and argument on the merits rebutting the preconditions for a compulsory license. Hence the appeal courts failed to remedy the HIPO’s violation of fundamental rights.

Against this background, the Hungarian Constitutional Court held an oral hearing in May 2023. This was a sign that the fundamental rights concerns surrounding the first public health related compulsory license proceedings were valid.

In October 2023, the Constitutional Court published its decision and annulled all the decisions made on the subject matter compulsory licence due to the violation of the Fundamental Law of Hungary. This means that the administrative decisions of the HIPO as well as the rulings of the courts, including that of the supreme court of Hungary are now annulled. The decision was made by the plenary session and contains the following key findings:

• The HIPO deprived the patentee of client status, which is a serious limitation of fundamental rights. In principle, it is possible to limit the right to be heard as well as other client rights, but there must be strong reasons for doing so. Urgency in itself is not a strong enough reason.
• The respective provisions of the Patent Act already limited the rights of the patentee, for example, by applying shorter timelines for decision-making; or immediate enforceability. In light of this, the HIPO should have recognised that any further limitation is against fundamental law principles.
• The patentee should have been provided the opportunity to fully defend its rights and interests at the HIPO, including adding context to the certificate on alleged unmet supply need issued by the pharmaceutical regulator.
• The formal possibility to appeal the HIPO decision cannot justify denying the patentee the possibility of being heard before the HIPO.
• The courts failed to identify the fundamental law aspects of the case and as a result did not remedy such flaws, so the court decisions are violating the fundamental rights to fair proceedings and to legal remedy.
• The lower courts focused on the time factor alone and refused to consider Gilead’s interests. This resulted in the patentee’s right to remedy becoming a mere formality.
• Although the Curia realised that the patentee was eligible for client status at the HIPO, it was only a formal recognition without any adequate remedying of the consequences of not being heard.

The Constitutional Court emphasized that the right to be heard as an essential element of client rights must be ensured in any proceedings. In this regard, the court referred to those recommendations of the Council of Europe which address this principle.

Next steps

The Constitutional Court annulled all decisions in the case. This means that the entire file will be sent back to the Curia, which will instruct the HIPO to re-evaluate whether the preconditions for granting a public health related compulsory licence did in fact exist in 2020.

Conclusion

The three-year saga of the first Hungarian public health related compulsory license sheds light on the underlying conflict of interest dilemma. The trigger for any exception to the exclusive rights conferred by a patent is rarely driven by commercial rationale but rather by public interest. This means that sovereigns face a double challenge: they should be able to provide an adequate response to an emerging health problem while ensuring that the interests of rightholder are carefully considered in fair proceedings.

Although the Hungarian Constitutional Court did not annul the legal provisions on public health related compulsory licenses, it made it clear that such provisions must be interpreted in a manner that is consistent with fundamental law principles. The ruling does not address conflicts of interest at the HIPO level, but it is obvious that the HIPO, acting as a governmental authority, was unable to consider the interests of the patentee under the pressure to react to a supposed public health related demand.

The ruling of the Constitutional Court is a clear indicator for public health compulsory licensing cases that the assessment of preconditions cannot be a mere formality and that ensuring that all the elements of the rightholder’s client rights - most specifically the right to be heard and the right to substantial legal remedy - are upheld is of the utmost importance.

Notes

All opinions expressed in this article are the opinions of the authors.

Bird & Bird has been representing Gilead in the proceedings described above, including the complaint procedure before the Constitutional Court.

The Gilead group of companies remain committed to ensure that patients diagnosed with COVID-19 have access to medicines that can improve their condition. In Europe and in Hungary, this was achieved through the conclusion of various agreements between the EU and Gilead, some of which were applied for the first time. Gilead’s appeals and constitutional complaint were not intended to prevent or restrict access to medicines, nor to pursue monetary claims. Gilead was able to supply Veklury® therefore there was no unmet supply need in Hungary.