Smith Kline & French Laboratories v. Court Of Appeals

JR., J.:

This is an appeal under Rule 45 of the Rules of Court from the decision1 4 November 1994 of the Court of Appeals in CA-G.R. SP No. 33520, which affirmed the 14 February 1994 decision2 of the Director of the Bureau of Patents, Trademarks and Technology Transfer (BPTTT) granting a compulsory non-exclusive and non-transferable license to private respondent to manufacture, use and sell in the Philippines its own brands of pharmaceutical products containing petitioner's patented pharmaceutical product known as Cimetidine. Petitioner is a foreign corporation with principal office at Welwyn Garden City, England. It owns Philippine Letters Patent No. 12207 issued by the BPTTT for the patent of the drug Cimetidine.

Private respondent is a domestic corporation engaged in the business of manufacturing and distributing pharmaceutical products. On 30 March 1987, it filed a petition for compulsory licensing3 with the BPTTT for authorization to manufacture its own brand of medicine from the drug Cimetidine and to market the resulting product in the Philippines. The petition was filed pursuant to the provisions of Section 34 of Republic Act No. 165 (An Act Creating a Patent Office Prescribing Its Powers and Duties, Regulating the Issuance of Patents, and Appropriating Funds Therefor), which provides for the compulsory licensing of a particular patent after the expiration of two years from the grant of the latter if the patented invention relates to, inter alia, medicine or that which is necessary for public health or public safety.

Private respondent alleged that the grant of Philippine Letters Patent No. 12207 was issued on 29 November 1978; that the petition was filed beyond the two-year protective period provided in Section 34 of R.A. No. 165; and that it had the capability to work the patented product or make use of it in its manufacture of medicine. Petitioner opposed, arguing that private respondent had no cause of action and lacked the capability to work the patented product; the petition failed to specifically divulge how private respondent would use or improve the patented product; and that private respondent was motivated by the pecuniary gain attendant to the grant of a compulsory license. Petitioner also maintained that it was capable of satisfying the demand of the local market in the manufacture and marketing of the medicines covered by the patented product.

Finally, petitioner challenged the constitutionality of Sections 34 and 35 of R.A. No. 165 for violating the due process and equal protection clauses of the Constitution. After appropriate proceedings, the BPTTT handed down its decision on 14 February 1994, with the dispositive portion thereof providing: NOW, THEREFORE, by virtue of the powers vested in this Office by Republic Act No. 165, as amended by Presidential Decree No. 1263, there is hereby issued a license in favor of the herein [private respondent], United Laboratories, Inc., [sic] under Letters Patent No. 12207 issued on November 29, 1978, subject to the following terms and conditions: 1. That [private respondent] be hereby granted a non-exclusive and non-transferable license to manufacture, use and sell in the Philippines its own brands of pharmaceutical products containing [petitioner's] patented invention which is disclosed and claimed in Letters Patent No. 12207; 2.

That the license granted herein shall be for the remaining life of said Letters Patent No. 12207 unless this license is terminated in the manner hereinafter provided and that no right or license is hereby granted to [private respondent] under any patent to [petitioner] or [sic] other than recited herein; 5.

By virtue of this license, [private respondent] shall pay [petitioner] a royalty on all license products containing the patented substance made and sold by [private respondent] in the amount equivalent to TWO AND ONE HALF PERCENT (2.5%) of the net sales in Philippine currency. The term "net scale" [sic] means the gross amount billed for the product pertaining to Letters Patent No. 12207, less - (a) Transportation charges or allowances, if any, included in such amount; (b) Trade, quantity or cash discounts and broker's or agent's or distributor's commissions, if any, allowed or paid; (c) Credits or allowances, if any, given or made on account of rejection or return of the patented product previously delivered; and (d) Any tax, excise or government charge included in such amount, or measured by the production sale, transportation, use of delivery of the products.

In case [private respondent's] product containing the patented substance shall contain one or more active ingredients admixed therewith, said product hereinafter identified as admixed product, the royalty to be paid shall be determined in accordance with the following formula: ROYALTY = Net Sales on Admixed Product