FIRST DIVISION

[G.R. No. 82542. September 29, 1988.]

BARRY JOHN PRICE, JOHN WATSON CLITHERON and JOHN

BRADSHAW, Assignors to ALLEN & HANBURYS, LTD. , petitioners,
vs. UNITED LABORATORIES, respondent.

Castillo, Laman, Tan & Pantaleon Law Offices for petitioners.

Teodoro B. Pison for respondent.

SYLLABUS

1. COMMERCIAL LAW; PATENTS LAW; ISSUANCE OF COMPULSORY

LICENSE; PROPER AFTER A HEARING AND CAREFUL CONSIDERATION OF THE
EVIDENCE OF THE PARTIES AND IN DEFAULT OF AN AGREEMENT BETWEEN
THEM AS TO THE TERMS OF THE LICENSE. — Under Section 36 of Republic
Act No. 105 and under Section 35 of P.D. No. 12 63, the terms and
conditions of the compulsory license may be filed by the Director of Patents
after a hearing and careful consideration of the evidence of the parties and
in default of an agreement between them as to the terms of the license.
2. ID.; ID.; ID.; FACTUAL FINDINGS OF DIRECTOR WHEN SUPPORTED
BY SUBSTANTIAL EVIDENCE, NOT DISTURBED ON APPEAL. — The Director's
finding that UNILAB has the capability to use the patented compound in the
manufacture of an anti-ulcer pharmaceutical preparation is a factual finding
which is supported by substantial evidence, hence, the Court of Appeals did
not commit a reversible error in affirming it (Philippine Nut Industry, Inc. vs.
Standard Brands, Inc., 65 SCRA 575; and other cited).
3. ID.; ID.; CAPABILITY TO USE PATENTED COMPOUND SHOULD
EXIST DURING THE HEARING OF PETITION FOR COMPULSORY LICENSING. —
Of indubitable relevance to this point is the evidence that UNILAB has been
engaged in the business of manufacturing drugs and pharmaceutical
products for the past thirty (30) years, that it is the leading drug
manufacturer in the country, that it has the necessary equipment and
technological expertise for the development of solid dosage forms or for
tablet, capsule, and liquid preparations, and that it maintains standards and
procedures to ensure the quality of its products. Even if it were true, as
alleged by the patentee (although it is denied by UNILAB), that its capability
to use the patented compound was only acquired after the petition for
compulsory licensing had been filed, the important thing is that such
capability was proven to exist during the hearing of the petition.
4. ID.; ID.; GRANT OF A COMPULSORY LICENSE OVER ENTIRE
PATENTED INVENTION, UPHELD; THERE IS NO LAW REQUIRING THAT
LICENSE BE LIMITED TO A SPECIFIC EMBODIMENT OF THE INVENTION, OR TO
A PARTICULAR CLAIM. — The patented invention in this case relates to
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 medicine and is necessary for public health as it can be used as component
in the manufacture of anti-ulcer medicine. The Director of Patents did not err
in granting a compulsory license over the entire patented invention for there
is no law requiring that the license be limited to a specific embodiment of
the invention, or, to a particular claim.
5. CONSTITUTIONAL LAW; BILL OF RIGHTS; JUST COMPENSATION;
NOT VIOLATED WHERE THERE IS PAYMENT OF ROYALTIES ON SALES OF ANY
PRODUCTS THE LICENSEE MAY MANUFACTURE USING ANY OR ALL OF
PATENTED COMPOUNDS. — In any event, since the petitioner will be paid
royalties on the sales of any products the licensee may manufacture using
any or all of the patented compounds, the petitioner cannot complain of a
deprivation of property rights without just compensation.

DECISION

GRIÑO-AQUINO, J : p

The petitioners are the owners-assignees of Philippine Patent No.

13540 which was granted to them on June 26, 1980 for a pharmaceutical
compound known as "aminoalkyl furan derivatives." On October 1, 1982,
respondent United Laboratories, Inc. (or UNILAB) filed in the Philippine Patent
Office a petition (Inter Partes Case No. 1683, "United Laboratories, Inc.
versus Barry John Price, John Watson Clitheron and John Bradshaw, assignors
to Allen & Hanburys Ltd.") for the issuance of a compulsory license to use
the patented compound in its own brands of medicines and pharmaceuticals
and to sell, distribute, or otherwise dispose of such medicines or
pharmaceutical preparations in the country. The petition further alleged that
the patent relates to medicine and that petitioner, which has had long
experience in the business of manufacturing and selling pharmaceutical
products, possesses the capability to use the subject compound in the
manufacture of a useful product or of making dosage formulations
containing the said compound. Cdpr

After the hearing, the Philippine Patent Office rendered a decision on

June 2, 1986, granting UNILAB a compulsory license subject to ten (10) terms
and conditions No. 3 of which provides as follows:
"3. By virtue of this license, petitioner shall pay the
respondent a royalty on all license products containing the patented
substance made and sold by the Petitioner in the amount equivalent to
TWO AND ONE HALF (2.5) PER CENT OF THE NET SALES in Philippine
currency. The terms 'net sales' means the gross billed for the product
pertaining to Letters Patent No. 13540 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;
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 c) Credits or allowances, if any, given or made on
account with reflection or return of the product previously
delivered; and
d) Any tax, excise or government charge included in
such amount, or measured by the production, sale,
transportation, use or delivery of the products.

"In case Petitioner's product containing the patented substance

shall contain one or more active ingredients as admixed product, the
royalty to be paid shall be determined in accordance with the following
formula:
Net Sales on Value of
Admixed Product Patented Substance
Royalty = ________________ x 0.025
x _______
(Value of Patended
Substance ) Value of
Active Ingredients

"4. The royalties shall be computed after the end of each

calendar quarter for all goods containing the patented substance
herein involved, made and sold during the preceding quarter and to be
paid by the Petitioner at its place of business on or before the thirtieth
day of the month following the end of each calendar quarter. Payments
should be made to Respondent's authorized representative in the
Philippines;" (pp. 35-36, Rollo.).

The patentees appealed the decision to the Court of Appeals (CA-G.R.

No. SP-09308) which dismissed the appeal on December 4, 1987. They have
come to his Court praying for a review of the Appellate Court's decision on
the grounds that it erred:
1. in upholding the Director's unilateral determination of the
terms and conditions of the compulsory license, without affording the
parties an opportunity to negotiate the terms and conditions freely and
by themselves;
2. in finding that the respondent possesses the legally
required capability to make use of the petitioner's patented compound
in the manufacture of a useful product;

3. in affirming the Director's award of the entire patent to the

respondent, when only one claim of the patent was controverted; and

4. in considering evidence that UNILAB's capability to use the

compound was acquired after, not before, filing its petition for
compulsory licensing.

The first assignment of error has no merit. The terms and conditions of
the compulsory license were fixed by the Director of Patents after a hearing
and careful consideration of the evidence of the parties and in default of an
agreement between them as to the terms of the license. This he is
authorized to do under Section 36 of Republic Act No. 165 which provides:

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 "Sec. 36. GRANT OF LICENSE . — If the Director finds that a
case for the grant of license under Section 34 hereof has been made
out, he may order the grant of an appropriate license and in default of
agreement among the parties as to the terms and conditions of the
license he shall fix the terms and conditions of the license in the order.
"The order of the Director granting a license under this Chapter
when final, shall operate as a deed granting a license executed by the
patentee and the other parties in interest."

and under Section 35 of P.D. 1263, amending portions of Republic Act No.
165 which reads:
"Sec. 35. GRANT OF LICENSE . — (1) If the Director finds that
a case for the grant of a license under Sec. 34 hereof has been made
out, he shall, within one hundred eighty (180) days from the date the
petition was filed, order the grant of an appropriate license. The order
shall state the terms and conditions of the license which he himself
must fix in default of an agreement on the matter manifested or
submitted by the parties during the hearing."

The Court of Appeals found that the 2.5% royalty fixed by the Director
of Patents "is just and reasonable." We quote its observations hereunder:
"Respondent-appellant contends further that the 2.5% royalty
rate is unfair to respondent-appellant as to amount to an undue
deprivation of its property right. We do not hold this view. The royalty
rate of 2.5% provided for by the Director of Patents is reasonable.
Paragraph 3, Section 35-B, Republic Act No. 165, as amended by
Presidential Decree No. 1263, provides:

'(3) A compulsory license shall only be granted

subject to the payment of adequate royalties commensurate
with the extent to which the invention is worked. However,
royalty payments shall not exceed five per cent (5%) of the
net wholesale price (as defined in Section 33-A) of the
products manufactured under the license. If the product,
substance, or process subject of the compulsory license is
involved in an industrial project approved by the Board of
Investments, the royalty payable to the patentee or patentees
shall not exceed three per cent (3%) of the net wholesale
price (as defined in Section 34-A) of the patented commodity
and or commodity manufactured under the patented process;
the same rule of royalty shall be paid whenever two or more
patents are involved, which royalty shall be distributed to the
patentees in rates proportional to the extent of commercial
use by the licensee giving preferential values to the holder of
the oldest subsisting product patent.'
Thus, said provision grants to the Director of Patents the use
of his sound discretion in fixing the percentage for the royalty rate
and We find that the Director of Patents committed no abuse of
this discretion. Also, there is always a presumption of regularity in
the performance of one's official duties.

"Moreover, what UNILAB has with the compulsory license is the

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 bare right to use the patented chemical compound in the manufacture
of a special product, without any technical assistance from herein
respondent-appellant. Besides, the special product to be manufactured
by UNILAB will only be used, distributed, and disposed locally.
Therefore, the royalty rate of 2.5% is just and reasonable." (pp. 10-11,
CA Decision, pp. 44-45, Rollo).

Furthermore, as pointed out in the respondent's comment on the

petition, identical terms and conditions had been prescribed for the grant of
compulsory license in a good number of patent cases (United Laboratories,
Inc. vs. Boehringer Ingelheim, GMBH, IPC 929, July 27, 1981; United
Laboratories, Inc. vs. Bristol-Myers Company, IPC 1179, Aug. 20, 1981;
United Laboratories, Inc. vs. E.R. Squibb & Sons, Inc., IPC 1349, Sept. 30,
1981; United Laboratories, Inc. vs. Helmut Weber, et al., IPC 949, Dec. 13,
1982; Oceanic Pharmacal, Inc. vs. Gruppo Lepetit S.A., IPC 1549, Dec. 21,
1982; United Laboratories. Inc. vs. Boehringer Ingelheim, IPC 1185, June 8,
1983; United Laboratories, Inc. vs. Pfizer Corp., IPC 1184, June 10, 1983;
Doctors Pharmaceuticals, Inc. vs. Maggi, et al., July 11, 1983; Drugmaker's
Laboratories v. Herningen, et al., IPC 1679, September 22, 1983; Superior
Pharmacraft, Inc. vs. Maggi, et al., IPC 1759, January 10, 1984; United
Laboratories, Inc. vs. Van Gelder, et al., IPC 1627, June 29, 1984;
Drugmaker's Laboratories, Inc. vs. Janssen Pharmaceutical N.V., IPC 1555,
August 27, 1984; United Laboratories Inc. vs. Graham John Durant, et al., IPC
1731, August 14, 1987; United Laboratories, Inc. vs. Albert Anthony Carr, IPC
1906, August 31, 1987). LexLib

The Director's finding that UNILAB has the capability to use the
patented compound in the manufacture of an anti-ulcer pharmaceutical
preparation is a factual finding which is supported by substantial evidence,
hence, the Court of Appeals did not commit a reversible error in affirming it
(Philippine Nut Industry, Inc. vs. Standard Brands, Inc., 65 SCRA 575; Sy
Ching vs. Gaw Liu, 44 SCRA 143; De Gala-Sison vs. Manalo, 8 SCRA 595;
Goduco vs. Court of Appeals, 14 SCRA 282; Ramos vs. Pepsi-Cola Bottling
Company of the P.I. , 19 SCRA 289. Of indubitable relevance to this point is
the evidence that UNILAB has been engaged in the business of
manufacturing drugs and pharmaceutical products for the past thirty (30)
years, that it is the leading drug manufacturer in the country, that it has the
necessary equipment and technological expertise for the development of
solid dosage forms or for tablet, capsule, and liquid preparations, and that it
maintains standards and procedures to ensure the quality of its products.
Even if it were true, as alleged by the patentee (although it is denied by
UNILAB), that its capability to use the patented compound was only acquired
after the petition for compulsory licensing had been filed, the important
thing is that such capability was proven to exist during the hearing of the
petition.
The patented invention in this case relates to medicine and is
necessary for public health as it can be used as component in the
manufacture of anti-ulcer medicine. The Director of Patents did not err in
granting a compulsory license over the entire patented invention for there is
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 no law requiring that the license be limited to a specific embodiment of the
invention, or, to a particular claim. The invention in this case relates to new
aminoalkyl derivatives which have histamine H 2 blocking activity, having the
general formula (I) and physiologically acceptable salts, N-oxides and
hydrates thereof. The compound ranitidine hydrochloride named in Claim 45
is also covered by General Claim I and several other sub-generic claims.
Therefore, a license for Claim 45 alone would not be fully comprehensive. In
any event, since the petitioner will be paid royalties on the sales of any
products the licensee may manufacture using any or all of the patented
compounds, the petitioner cannot complain of a deprivation of property
rights without just compensation. LLphil

WHEREFORE, the petition for review is denied for lack of merit.

SO ORDERED.
Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

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