Influenza Antiviral Drugs and Patent Law Issues

Influenza Antiviral Drugs and Patent Law Issues
Updated August 16, 2007
Brian T. Yeh
Legislative Attorney
American Law Division



Influenza Antiviral Drugs and Patent Law Issues
Summary
The potential for a worldwide influenza pandemic caused by bird flu has
generated public interest in the availability and affordability of influenza antiviral
medications such as the prescription drug Tamiflu. The possibility of a pandemic flu
outbreak has contributed to a surge in orders for Tamiflu, as countries attempt to
stockpile sufficient countermeasures. In 2005, there was considerable concern that
the owner of the exclusive right to manufacture the patented drug, the Swiss
pharmaceutical company Roche, Inc., lacked the production capacity to meet the
needs of these governments worldwide. In response to the heightened demand for
the drug, as well as faced with threatened abrogation of its patent rights by U.S.
politicians and government officials in other countries, Roche significantly boosted
Tamiflu production in 2006 and 2007 by voluntarily signing licensing agreements
with 19 external contractors in 9 different countries to manufacture the drug. This
expansion in manufacturing capacity has increased production of the drug to over 400
million treatments annually — an amount that, according to the company, is
sufficient to fulfill its existing orders (as of April 2007) for Tamiflu from
governments and corporations. In addition, Roche has donated “rapid response”
supplies of Tamiflu (more than 5 million treatment courses) to the World Health
Organization for establishing regional stockpiles to help contain or slow the spread
of a pandemic. Finally, Roche has agreed to arrange for special pricing for
government orders and to reduce the price of Tamiflu for low income countries.
This report examines the role that intellectual property rights play in affecting
the availability of a patented drug such as Tamiflu during public health crises. The
report also explains one legal mechanism for increasing a patented drug’s production
without the patent holder’s consent: governments may abrogate a pharmaceutical
company’s patent rights by issuing compulsory licenses to other drug companies to
manufacture generic versions of the drug. Such option is available to countries under
the Trade-Related Aspects of Intellectual Property (TRIPS) Agreement, a component
of the treaties that created the World Trade Organization (WTO) in 1995. The U.S.
government’s authority to declare compulsory licenses is Section 1498(a) of Title 28
of the U.S. Code. Other legal avenues to increase the supply of, and lower the price
for, a patented drug include voluntary licensing agreements between the drug’s patent
holder and other companies for manufacturing or distributing the drug. In the case
of Tamiflu and the avian influenza antiviral drug supply, Roche’s willingness to
sublicense its patent rights to several manufacturing partners has helped to lessen the
concern over intellectual property rights hindering efforts to prepare for and respond
to an influenza pandemic.



Contents
Background ..................................................1
Tamiflu ..................................................3
Counterfeit Tamiflu........................................4
Intellectual Property Issues......................................6
Patent Policy.............................................6
Patent Holder Rights.......................................7
Tamiflu’s Patent Dispute....................................8
Patent Law and Public Health Crises...........................9
Legal Options ...............................................11
28 U.S.C. § 1498(a).......................................11
TRIPS and Compulsory Licenses............................12
Licensing Agreements.....................................15
Conclusion ..................................................17



Influenza Antiviral Drugs and Patent
Law Issues
Background
Avian influenza, or “bird flu,” is a contagious virus that normally infects only
birds but occasionally crosses the species barrier to infect humans.1 In 1997, a
particular strain of avian influenza, the H5N1 virus, infected 18 people in Hong
Kong, killing 6 of them.2 Since mid-2003, more than 258 human H5N1 cases have3
been diagnosed worldwide, causing more than 154 deaths. According to the World
Health Organization, of the few avian influenza viruses that have crossed the species
barrier to infect humans, the H5N1 virus has caused the largest number of cases of
severe disease and death in humans.4
The H5N1 virus is alarming because, if it mutates into a form that easily infects5
many humans, it has the potential to cause a deadly “pandemic,” or a global disease
outbreak in humans. In the 20th century, there were three pandemics, in 1918, 19576
and 1968, that killed millions of people worldwide. On November 1, 2005, the Bush
Administration issued a report entitled the “National Strategy for Pandemic
Influenza,” which described the federal government’s plan to address the potential
outbreak of avian influenza. The report explained:
It is impossible to know whether the currently circulating H5N1 virus will cause
a human pandemic. The widespread nature of H5N1 in birds and the likelihood
of mutations over time raise our concerns that the virus will become
transmissible between humans, with potentially catastrophic consequences. If


1 For more detailed information concerning avian influenza, see CRS Report RL33795,
Avian Influenza in Poultry and Wild Birds, by Jim Monke and M. Lynne Corn.
2 U.S. Dep’t of Health and Human Services, Avian Influenza (Bird Flu), at
[http://www.pandemi cflu.gov/general/avi an.html ].
3 World Health Organization, Cumulative Number of Confirmed Human Cases of Avian
Influenza A/(H5N1) Reported to WHO, November 29, 2006, at [http://www.who.int/csr/
disease/avian_influenza/country/cases_table_2006_11_29/en/index.html ].
4 World Health Organization, Avian Influenza Frequently Asked Questions, at
[ ht t p: / / www.who.i nt / c sr / di s ease/ avi a n_i nf l uenza / a vi an_f aqs/ en/ i ndex.ht ml #pr esent ] .
5 An influenza pandemic “occurs when a new influenza virus emerges for which people have
little or no immunity, and for which there is no vaccine. The disease spreads easily
person-to-person, causes serious illness, and can sweep across the country and around the
world in very short time.” U.S. Dep’t of Health and Human Services, General Information
About Pandemic Flu, at [http://www.pandemicflu.gov/general/index.html].
6 Gardiner Harris, Bush Offers Strategy to Prepare for a Vast Flu Epidemic, N.Y. TIMES,
Nov. 2, 2005, at A20.

this does not happen with the current H5N1 strain, history suggests that a7
different influenza virus will emerge and result in the next pandemic.
This fear of a global flu pandemic has compelled many countries to prepare for
the threat by stockpiling antiviral drugs8 and attempting to develop vaccines against9
the disease. According to the Bush Administration, these countermeasures are “the
foundation of our [influenza virus] infection control strategy.”10 The President’s plan
proposes to spend $1 billion to build a national reserve of antiviral medications such
as Tamiflu and Relenza to help contain or suppress a pandemic outbreak.11 As of
June 2007, the nation’s “Strategic National Stockpile” (SNS) contained 36 million
courses of antiviral medications, with a goal of having 50 million courses anticipated12
to be warehoused in the federal stockpile by the end of 2008. The U.S. Department
of Health and Human Services (HHS) has worked with state governments to facilitate
the purchase of more than 12 million treatment courses by the states as of June 2007,
with a goal of obtaining 31 million courses for their respective stockpiles by13
December 2008. HHS Secretary Michael Leavitt has explained that the “ultimate
goal is to stockpile sufficient quantities of antiviral drugs to treat 25% of the U.S.14
population.” In addition to stockpiling existing antiviral drugs, the U.S.
government is promoting the development of new antiviral drugs to combat


7 HOMELAND SECURITY COUNCIL, NATIONAL STRATEGY FOR PANDEMIC INFLUENZA (Nov.
1, 2005), at 1-2, available at
[http://www.whitehouse.gov/homeland/nspi.pdf] (hereinafter National Strategy).
8 Antiviral drugs may be used to reduce flu symptoms in persons infected with the virus, but
these drugs do not provide a cure. These drugs have the potential of reducing transmission
of the influenza virus or even preventing infection, under certain circumstances. DEPT OF
HEALTH AND HUMAN SERVICES, PANDEMIC PLANNING UPDATE III 9 (Nov. 13, 2006), at
[http://www.pandemicflu.gov/plan/pdf/panflureport3.pdf]. However, some have raised
concerns that the mass administration of antiviral drugs to healthy people for prophylactic
purposes could hasten the bird flu virus developing a resistance to the drugs. World Health
Organization, Antivirals Drugs: Their Role During A Pandemic (Nov. 2005), at
[ ht t p: / / www.who.i nt / c sr / di s ease/ avi a n_i nf l uenza / a nt i vi r al s2005_11_3/ en/ i ndex.ht ml ] .
9 A vaccine is administered before humans are exposed to a disease and prevents initial
infection. The U.S. Food and Drug Administration approved the first pre-pandemic H5N1
vaccine for humans in April 2007, of which the U.S. government has stockpiled 12 million
doses (sufficient to treat 6 million people). This vaccine is not yet commercially available.
U.S. DEPT OF HEALTH AND HUMAN SERVICES, PANDEMIC PLANNING UPDATE IV 7 (July 18,

2007), at [http://www.pandemicflu.gov/plan/panflureport4.pdf].


10 National Strategy, supra note 7, at 5. For more information concerning federal and state
government plans to cope with pandemic influenza, see CRS Report RL33145, Pandemic
Influenza: Domestic Preparedness Efforts, by Sarah A. Lister.
11 Harris, supra note 6.
12 U.S. DEPT OF HEALTH AND HUMAN SERVICES, PANDEMIC PLANNING UPDATE IV 9 (July

18, 2007), at [http://www.pandemicflu.gov/plan/panflureport4.pdf].


13 Id.
14 U.S. Dep’t of Health and Human Services, HHS Assists States With Antiviral Drug
Purchases, June 30, 2006, available at [http://www.hhs.gov/news/press/2006pres/

20060630.html].



influenza. For example, the federal government in January 2007 awarded a four-year
contract of over $100 million for the development of a new influenza antiviral drug
that may be quickly administered to treat persons with severe influenza.15
Tamiflu. Oseltamivir phosphate, marketed under the brand name Tamiflu, is
a prescription drug manufactured by the Swiss pharmaceutical company Roche, Inc.
Tamiflu is not a vaccine, but is perhaps the most efficient antiviral treatment for
influenza.16 The drug eases flu symptoms by preventing the influenza virus from
spreading inside the human body. Some research studies have shown that Tamiflu
is effective against the H5N1 avian and human virus strains.17
However, it is unknown how well Tamiflu would work to control a pandemic.18
Also, the drug must be ingested within 48 hours of the onset of flu symptoms for
maximum efficacy.19 This requirement raises concerns about the utility of Tamiflu,
because it is often difficult for patients to realize within such a short amount of time
whether their symptoms are caused by the flu or the common cold.20 In addition,21
because Tamiflu has a shelf life of five years, a pandemic may not strike during that
time period, raising the possibility that stockpiles of the medicine may go unused and
become useless.
Prior to 2006, Roche was the exclusive manufacturer of Tamiflu and
significantly struggled to meet the strong demand for the patented drug.22 According


15 HOMELAND SECURITY COUNCIL, NATIONAL STRATEGY FOR PANDEMIC INFLUENZA
IMPLEMENTATION PLAN: ONE YEAR SUMMARY (JULY 17, 2007), at 17, available at
[ ht t p: / / www.whi t e house.gov/ homel and/ nspi _oneyear .pdf ] .
16 Relenza, made by GlaxoSmithKline, is also an antiviral medicine, but it is more difficult
to administer compared to Tamiflu because it must be inhaled. Tamiflu is given orally in
capsule or liquid form. See Andrew Pollack, Talk of Bird Flu Pandemic Revives Interest in
Passed-Over Drugs, N.Y. TIMES, Oct. 7, 2005, at C1.
17 Roche, Inc., Factsheet Tamiflu, at 3-4, at [http://www.roche.com/med_mbtamiflu05e.pdf]
(hereinafter Factsheet Tamiflu).
18 Some strains of avian influenza virus may have developed a resistance to Tamiflu.
However, scientists speculate that a Tamiflu-resistant virus would not be transmissible from
person to person, and that in any event, resistant strains would not be the ones spreading in
a pandemic. David Brown, Bird Flu Virus That Is Drug-Resistant Is Found in Vietnamese
Girl, WASH. POST, Oct. 15, 2005, at A09. Roche has asserted that scientific studies do not
reveal an increased resistance to Tamiflu, and point out that, to date, there have been only
three documented cases of Tamiflu resistance to avian influenza H5N1. Roche, Inc., Update
on Tamiflu: No Increase in Drug Resistance Observed, Nov. 28, 2006, at
[ h t t p : / / www.r o che.com/ me d-cor -2006-11-28] .
19 Factsheet Tamiflu, supra note 17, at 1.
20 See Elisabeth Rosenthal, Better Planning Is Needed for Flu Drugs, Experts Say, N.Y.
TIMES, Oct. 19, 2005, A8.
21 Roche, Inc., Roche Prepared to Work With Government To Supply Tamiflu, at
[ h t t p : / / www.r o cheusa.com/ n ewsr oom/ c ur r e nt / 2005/ pr 2005110102.ht ml ] .
22 See Andrew Pollack, Governments Pressing Roche For More of Its Flu Medicine, N.Y.
(continued...)

to the company, manufacturing the drug is complicated, involving ten main steps, and
takes a long time, from six to eight months to produce a capsule of Tamiflu once all
the raw materials have been sourced.23 In November 2005, the World Health
Organization estimated that, at Roche’s then-present manufacturing capacity, “it will
take a decade to produce enough oseltamivir [Tamiflu] to treat 20% of the world’s
population.”24
The Tamiflu production shortage in 2005 prompted both international and
domestic pressures on Roche to ease its patent monopoly and permit other companies
to manufacture generic versions of the drug.25 It was believed that such action would
help to increase supplies of the flu treatment to meet the backlog of orders, as well
as make the drug more affordable. However, one of the challenges of producing
large quantities of Tamiflu is obtaining enough supplies of its key active ingredient,
shikimic acid. This acid may be extracted from the pods of a Chinese cooking spice
called star anise.26 Yet there may not be enough star anise in China or elsewhere to
produce Tamiflu on a massive scale.27 To address this shortage, Roche began
experimenting with a fermentation process using genetically altered E. coli bacteria
to make the shikimic acid.28 Roche has since declared that the fermentation process
is more effective in producing the acid than processing star anise, and that the
majority of shikimic acid is now derived from this process.29
Counterfeit Tamiflu. Counterfeit drugs pose public health and safety
concerns because they “may closely resemble legitimate drugs yet may contain only
inactive ingredients, incorrect ingredients, improper dosages, sub-potent or


22 (...continued)
TIMES, Oct. 20, 2005, at C7. Sales of the once-obscure Tamiflu drug have increased from
$76 million in 2001 to approximately $1.1 billion in 2005. Erica Bulman, Tamiflu Patent:
Two-Edged Sword, SAN JOSE MERCURY NEWS, Nov. 12, 2005, at B1.
23 Factsheet Tamiflu, supra note 17, at 4. Companies in India and Taiwan reported
successfully reproducing Tamiflu in small quantities in a laboratory environment, although
Roche argued that it is much more difficult and time-consuming to mass produce the drug.
Nicholas Zamiska, Generics Challenge Roche’s Tamiflu Claims, WALL ST. J., Nov. 3, 2005,
at B1.
24 World Health Organization, Antivirals Drugs: Their Role During a Pandemic (Nov.

2005), at [http://www.who.int/csr/disease/avian_influenza/antivirals2005_11_3/


en/index.html].
25 See Donald G. McNeil, Jr., Indian Company to Make Generic Version of Flu Drug
Tamiflu, N.Y. TIMES, Oct. 14, 2005, at A3.
26 Andrew Pollack, Is Bird Flu Drug Really So Vexing? Debating the Difficulty of Tamiflu,
N.Y. TIMES, Nov. 5, 2005, at C3.
27 Id.
28 Sabin Russell, Manufacturers Crank Out Tamiflu At a Fever Pitch, S.F. CHRON., Nov. 10,

2005, at A4.


29 Factsheet Tamiflu, supra note 17, at 4.

super-potent ingredients, or be contaminated.”30 The U.S. Federal Food and Drug
Administration’s Counterfeit Drug Task Force has stated:
[W]e believe that counterfeiting is quite rare within the U.S. drug distribution
system because of the extensive scheme of federal and state regulatory oversight
and the steps taken by drug manufacturers, distributors, and pharmacies, to
prevent counterfeit drugs from entering the system. However, we are concerned
that the U.S. drug supply is increasingly vulnerable to a variety of increasingly
sophisticated threats. We have witnessed an increase in counterfeiting activities
and a more sophisticated ability to introduce finished dosage form counterfeits31
into legitimate drug distribution channels over the years.
The rise in global demand for Tamiflu has contributed to the production and sale
of illegal, fake Tamiflu. Pills purporting to be Tamiflu, which contain only trace
elements of Tamiflu’s active ingredient shikimic acid, have been shipped from parts
of Asia to the United States after unsuspecting customers had ordered the counterfeit
pills via the Internet; however, the U.S. Customs and Border Protection (CBP)
agency has been successful in intercepting and seizing counterfeit Tamiflu
shipments.32
Trafficking in counterfeit drugs33 is potentially punishable under a variety of
federal laws, including the mail fraud statute,34 the Trademark Counterfeiting Act,35
and the Federal Food, Drug, and Cosmetic Act.36 However, prosecuting the
manufacturers of counterfeit Tamiflu may prove to be challenging if they reside
overseas.37 The cooperation of foreign governments in bringing legal action against
these manufacturers may be necessary to prevent the spread of fake versions of


30 U.S. FOOD AND DRUG ADMIN., COMBATING COUNTERFEIT DRUGS: A REPORT OF THE
FOOD AND DRUG ADMINISTRATION (Feb. 2004), available at
[http://www.fda.go v/ oc /initiatives/counterfeit/report02_04.html ].
31 U.S. FOOD AND DRUG ADMIN., FDA COUNTERFEIT DRUG TASK FORCE REPORT: 2006
UPDATE (June 2006), available at [http://www.fda.gov/oc/initiatives/counterfeit/report6_

06.html].


32 Diana Walsh, Customs Seizes Fake Tamiflu; Nation’s First Haul of Bogus Bird Pills
Traced To China, S.F. CHRON., Dec. 19, 2005, at B1.
33 The Federal Food, Drug and Cosmetic Act defines a “counterfeit drug” to mean a drug
that, or the container or labeling of which, without authorization, bears an identifying mark
of another drug manufacturer that did not manufacture the drug. 21 U.S.C. § 321(g)(2).
34 18 U.S.C. § 1341.
35 18 U.S.C. § 2320.
36 21 U.S.C. § 331. While counterfeit drugs are violations of intellectual property rights
(potentially both patent and trademark rights), the U.S. Department of Justice prosecutes
most counterfeit drug cases under the Federal Food, Drug, and Cosmetic Act. Nadine
Leavitt Siak, United States Intensifies Fight Against Counterfeit Drugs, USINFO, Dec. 1,

2006, at [http://usinfo.state.gov/xarchives/display.html?p=washfile-english&y=2006&m=


December&x=20061201120711LNkaiS0.2569086].
37 Steve Johnson, Bogus Bird Flu Drugs Flooding the Internet, SAN JOSE MERCURY NEWS,
Jan. 4, 2006, at 1.

Tamiflu within the global medicines market, as well as to impede their entrance into
the United States.38
Roche has issued guidelines to help consumers avoid purchasing counterfeit
Tamiflu over the Internet.39 Among these are the following recommendations:
!Buying Tamiflu from a website exhibiting the Verified Internet
Pharmacy Practice Sites (VIPPS) seal, issued by the National
Association of Boards of Pharmacy after a sites’s legitimacy has
been confirmed.
!Avoiding Internet pharmacies that do not provide a means of
contacting them by telephone
!Being wary of very low or very high prices for the drug; the average
cost for authentic Tamiflu is $80 to $90 for a 10-pill treatment.
!Avoiding websites selling what they claim is “generic Tamiflu”;
there is currently no authorized generic version of Tamiflu.
!Inspecting the Tamiflu package carefully for any suspicious
alterations in the seal, packaging, or label. Genuine Tamiflu is
packaged in a white cardboard box with the wording “TAMIFLU
Capsules 75 mg” written clearly on the front. The box contains a
single blister package containing 10 capsules, which are a yellow
and light grey color. Each blister contains one capsule, which can
be seen through the transparent outer layer. Each blister is printed
on the aluminum foil of the reverse side with the words “TAMIFLU
Capsules 75 mg.”
Intellectual Property Issues
Patent Policy. One of the primary purposes for United States patent law is
to provide individuals and institutions with economic incentives to engage in
research and development that lead to new products or processes. By granting40
inventors with a limited monopoly over the use of their discoveries, patent holders
will be able to receive a return on investment from their creations. Without patent
protection, competitors could “free ride” on the inventor’s research and development


38 Carey Sargent, Fake Drugs Are Creating Real Dangers For Consumers, INTL HERALD
TRIBUNE, Mar. 18, 2006, at 13. See also Geoff Dyer, China Busts Tamiflu Counterfeiting
Ring, FT.com, Aug. 30, 2006.
39 Roche, Inc., Information About Counterfeit Tamiflu, at [http://tamiflu.com/getting/
counterfeit.aspx].
40 This time period is generally twenty years from the date of filing the patent application
for most inventions. 35 U.S.C. § 154.

efforts and easily duplicate or otherwise practice the new inventions without having
incurred the costs to develop them.41
Patent Holder Rights. A patent holder has the right to exclude others from42
making, using, selling, offering to sell, and importing the protected invention.
Whoever performs any one of these five acts during the term of the invention’s
patent, without authorization of the patent holder, is liable for infringement. Note
that while the patent holder has the right to exclude others from performing these
acts, the conferring of a patent does not automatically allow the invention to be used
or marketed in the United States — compliance with other federal laws or regulations43
may be required in order to do so. If a defendant is found guilty of patent
infringement in a civil lawsuit brought by the patent holder,44 the remedies available
to the plaintiff include an injunction to cease and prohibit the offending activity by
the defendant,45 damages to compensate for the infringement,46 and even attorney47
fees.
Because the Patent Act expressly states that “patents shall have the attributes of
personal property,”48 owners may sell their patent rights in a legal transfer called an49
“assignment.” Alternatively, owners may grant others a “license” to exercise one
of the five statutory patent rights A license is not a transfer of ownership of the
patent, but rather is the patent owner’s permission to another entity to use the
invention in a limited way, typically in exchange for periodic royalty payments50
during the term of the patent. In a licensing arrangement, legal title to the patent
remains with the patent holder. If, however, the patent holder licenses to only one
party the right to practice the invention within a specific territory, and the patent
holder also offers that party an express or implied promise not to license the51
invention to any other party, then that licensee is known as an “exclusive licensee.”
A patent holder may grant or convey to a licensee the right to practice the
invention through a contract (typically known as a patent licensing agreement). The


41 ROGER SCHECHTER & JOHN THOMAS, PRINCIPLES OF PATENT LAW 9-13 (2d ed. 2004).
42 35 U.S.C. § 271(a).
43 For example, in the case of a patented pharmaceutical drug or medical device, the Food
and Drug Administration (FDA), pursuant to the Federal Food, Drug, and Cosmetic Act
(FFDCA), 21 U.S.C. §§ 301 et seq., is required to review and approve such products before
they may be sold to consumers.
44 35 U.S.C. § 281.
45 35 U.S.C. § 283.
46 35 U.S.C. § 284.
47 35 U.S.C. § 285.
48 35 U.S.C. § 261.
49 SCHECHTER & THOMAS, supra note 41, at 362.
50 Id. at 363-64 (citations omitted).
51 Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1552 (Fed. Cir. 1995).

terms of the licensing agreement, however, may include limitations and conditions
upon the grant of rights — for example, restricting the licensee from making the
invention but allowing that party to sell it.52 A patent holder may also limit the
licensee to practicing the invention for a particular purpose (for example, selling a
drug only to treat a particular disease) or geographic territory (for example, selling
a drug only within a particular state). Generally, such restrictions are permissible,
legally enforceable, and commonly found in patent licensing agreements used in
many industries including the pharmaceutical industry.53 As the U.S. Court of
Appeals for the Federal Circuit54 has previously stated:
[P]rivate parties may contract as they choose, provided that no law is violated
thereby: The rule is, with few exceptions, that any conditions which are not in
their very nature illegal with regard to this kind of property, imposed by the
patentee and agreed to by the licensee for the right to manufacture or use or sell55
the [patented] article, will be upheld by the courts.
A licensee that performs an act that exceeds the scope of the license (through a
violation of the limitations and conditions of the grant of rights) is potentially liable
to the patent holder for breach of contract as well as for patent infringement.56
Tamiflu’s Patent Dispute. Scientists working for a California biotech
company, Gilead Sciences, Inc., invented Tamiflu in 1996. To help develop the drug57
for U.S. Food and Drug Administration approval and its subsequent marketing and
production, Gilead licensed all its commercial and manufacturing rights to Roche in58
exchange for a $50 million license fee and royalty payments during the life of the
drug’s patent.59 Tamiflu is patent-protected until 2016.60
In June 2005, Gilead notified Roche that it was terminating the 1996 license
agreement pursuant to a clause that provides for contract cancellation due to a
“material breach” of its terms. This termination would result in a reversion of


52 United States v. General Electric Co., 272 U.S. 476, 490 (1926).
53 SCHECHTER & THOMAS, supra note 41, § 11-1.
54 This court is a specialized tribunal that has exclusive jurisdiction to hear appeals from all
district court judgments in civil actions arising under federal patent law. 28 U.S.C. §1295.
55 Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 703 (Fed. Cir. 1992) (citing E. Bement
& Sons v. National Harrow Co., 186 U.S. 70, 91 (1902)).
56 JOHN R. THOMAS, PHARMACEUTICAL PATENT LAW 427 (BNA Books 2005).
57 For more information concerning the FDA drug approval process, see CRS Report
RL30989, The U.S. Drug Approval Process: A Primer, by Blanchard Randall IV.
58 Sabin Russell, Biotech Firm Wants To Regain Control of Avian Flu Drug; Gilead Says
Deal with Roche Inc. Threatens Tamiflu’s Production, S.F. CHRON., Jun. 24, 2005, at A9.
59 Nelson D. Schwartz, The Tamiflu Tug of War, FORTUNE, Nov. 14, 2005, at 33.
60 Factsheet Tamiflu, supra note 17, at 2.

Tamiflu’s manufacturing and commercial rights back to Gilead.61 Gilead claimed
that Roche for many years has failed to use “best efforts” to manufacture and
promote the drug, and is $18 million behind in royalty payments.62 The agreement
mandates an arbitration process to resolve the dispute. On November 16, 2005, the
companies announced that they had reached an amicable settlement, which amends
the earlier agreement.63 Under the terms of the settlement, Roche will reimburse
Gilead $62.5 million in retroactive cost of goods adjustments, and Gilead will retain
the $18.2 million that Roche had paid under protest concerning royalties owed from
2001 to 2003. However, Gilead’s share of the royalties on net sales of Tamiflu will
remain unchanged, ranging from 14 to 22 percent depending on the volume of sales
per year. Roche and Gilead will also establish joint committees to oversee the
coordination of global manufacturing and commercialization, issuing third-party
licenses to generic drug makers, and pandemic planning.64
Patent Law and Public Health Crises. Prior to the influenza pandemic
threat, two other public health crises raised patent law issues: concerns over the
supply of Cipro, a drug patented by the German firm Bayer, during the anthrax
bioterrorism scare in late 2001;65 and access to affordable medication for developing66
countries in the 1990s to fight the HIV/AIDS epidemic in their populations. Some
commentators had argued for “overriding” the patent rights of the drug manufacturers67
in those cases, in order to allow for generic suppliers to enter the market.
Those same arguments were made in the case of Tamiflu. In early October
2005, Roche repeatedly refused to license a generic version of Tamiflu.68 The
company cited the complex, time-consuming, and potentially explosive drug
manufacturing process, as the reason for retaining its exclusive rights to produce


61 Gilead Sciences, Inc., Press Release: Gilead Delivers Termination Notice to Roche for
Tamiflu Development and Licensing Agreement, June 23, 2005, at [http://www.gilead.com/
wt/sec/pr_723430].
62 Id.
63 Roche, Inc., Press Release: Roche and Gilead End Dispute on Influenza Drug Tamiflu,
Nov. 16, 2005, at [http://www.roche.com/med-cor-2005-11-16].
64 Id.
65 In October 2001, anthrax was sent through the U.S. mail to some members of Congress
and members of the media. For more information concerning the Cipro incident and the
intersection of homeland security and intellectual property law, see CRS Report RL32051,
Innovation and Intellectual Property Issues in Homeland Security, by John R. Thomas.
66 For more information regarding the issue of access to affordable medicines for developing
countries, see CRS Report RS21609, The WTO, Intellectual Property Rights, and the Access
to Medicines Controversy, by Ian F. Fergusson, and CRS Report RL31066, HIV/AIDS
Drugs, Patents and the TRIPS Agreement: Issues and Options, by John R. Thomas.
67 See generally, James Love, A Better Way of Stockpiling Emergency Medicines, FINANCIAL
TIMES (London), Oct. 28, 2005, at 17.
68 A Roche spokesperson had stated, “Roche ... fully intends to remain the sole manufacturer
of Tamiflu.” See Sabin Russell, Flu Vaccine Maker Won’t Share Patent; Roche Rejects
Calls To Allow Production of Generic Versions, S.F. CHRON., Oct. 13, 2005, at A1.

Tamiflu: “No one can do it faster. Our assumption is that it would take a generic
company about three years to gear up. Therefore, it does not make sense to
out-license manufacturing.”69
This corporate position prompted criticism from domestic and international
government leaders. Then-United Nations Secretary-General Kofi Annan argued that
intellectual property laws should not prevent developing countries from obtaining
supplies of Tamiflu and similar antiviral influenza medication in emergency health
situations.70 Senator Charles Schumer also had suggested that Congress might
consider a “temporary suspension” of the Tamiflu patent if Roche did not agree to
license the drug’s production to other companies.71 Other Members of the 109th
Congress had expressed similar desire to abrogate Roche’s patent rights in the
interest of public health.72
Under such pressure from world leaders and politicians, Roche softened its
stance and agreed to discuss sublicensing arrangements with countries and companies
interested in producing generic versions of Tamiflu.73 However, Roche has cautioned
that sublicenses will only be issued to third parties that “can realistically produce
substantial amounts of the medicine for emergency pandemic use, in accordance with
appropriate quality specifications, safety and regulatory guidelines.”74 In 2006 and
2007, Roche expanded its capacity to manufacture Tamiflu by contracting with 19
external production partners.75 Due to its efforts to sublicense its patent rights to
manufacture Tamiflu to these other drug companies, Roche has increased production
of the drug to over 400 million treatments annually (as of April 2007) — an amount
that exceeds the existing orders for Tamiflu from governments and corporations.76


69 Keith Bradsher, Pressure Rises on Producer of a Flu Drug, N.Y. TIMES, Oct. 11, 2005,
at C1.
70 Id.
71 See Press Release from U.S. Senator Charles E. Schumer, “As Avian Flu Closes In On
U.S., Schumer Calls for Immediate Action: Demands Suspension of Tamiflu Patent So
Vaccine Can Be Mass-Produced, Dramatically Increasing Supply,” available at
[http://schumer.senate.gov/SchumerWebsite/pressroom/press_releas es/2005/PR41891.N
YC%20Avi an%20Flu.10.16.05.html ]
72 See Letter from U.S. Representative Dennis J. Kucinich, et al., to U.S. Dep’t of Health and
Human Services Secretary Michael Leavitt (Oct. 26, 2005), available at
[http://kucinich.house.gov/ Uploa dedFiles/Kucinich%20an ti%20viral%20comp%20licens
e%20request.pdf].
73 Mark Kaufman, Swiss Firm May Cede Bird Flu Drug Rights, WASH. POST., Oct. 19, 2005,
at A13.
74 Roche, Inc., Further Expansion of Tamiflu Manufacturing Capacity, Oct. 18, 2005, at
[ h t t p : / / www.r o che.com/ me d-cor -2005-10-18] .
75 These production partners include Ampac Fine Chemicals LLC, API Corporation,
Clariant, DSM, FIS, Martek, Novasep/Dynamit Nobel, PHT International, PPG Industries,
Sanofi-Aventis, Shaanxi Jiahe Phytochem Co and Siegfried Ltd. Factsheet Tamiflu, supra
note 17, at 5.
76 Roche, Inc., Roche Update on Tamiflu for Pandemic Influenza Preparedness, Apr. 26,
(continued...)

Legal Options
The threat of compulsory licensing (or imposing other legal limitations on
Roche’s patent rights) may have played a role in persuading Roche to enter into the
sublicensing agreements with third parties to produce Tamiflu in greater quantities.
While the concern over the then-limited supply of Tamiflu has largely been addressed
by Roche’s substantial manufacturing expansion, the issue of intellectual property
rights potentially conflicting with public health needs may again arise in the future.
Therefore, this report will now examine the ways in which a patented drug’s
production may be increased, either without a patent holder’s consent or with the
patent holder’s cooperation.
The primary legal mechanisms to accomplish permissible encroachment upon
a patent right include (1) compulsory licenses under a government’s statutory
authority to issue them; (2) compulsory licenses pursuant to an international treaty
that grants this right; and (3) voluntary licensing agreements negotiated between the
patent owner (or patent licensee) and third parties. This report addresses each of
these options in turn.
28 U.S.C. § 1498(a). In the United States, the Takings Clause of the Fifth
Amendment to the U.S. Constitution authorizes the federal government to take77
private property for public use. Such eminent domain power over intellectual
property is explicitly provided by statute, codified at 28 U.S.C. § 1498(a). This law
empowers the federal government to take the intellectual property of a private entity,
subject to reasonable compensation being paid to the patent holder. Section 1498(a)
provides in part:
Whenever an invention described in and covered by a patent of the United States
is used or manufactured by or for the United States without license of the owner
thereof or lawful right to use or manufacture the same, the owner’s remedy shall
be by action against the United States in the United States Court of Federal
Claims for the recovery of his reasonable and entire compensation for such use
and manufacture.
By exercising this statutory authority, the federal government declares a
“compulsory license” that allows third-party use of a patented invention without the
authorization of the patent holder. For example, if a compulsory license was issued
in the case of Tamiflu, the patent holder may not enjoin generic manufacturers from
producing the drug and selling it to the government for its stockpiles. The only legal
remedy available to Roche would be the right to bring suit in the U.S. Court of
Federal Claims to recover “reasonable and entire compensation” from the federal
government. Such compensation in a patent takings case has been limited by the
courts to a “reasonable royalty,” which has been defined as “the amount that a person


76 (...continued)
2007, at [http://www.roche.com/med-cor-2007-04-26]. As of April 2007, Roche has
received orders from governments for approximately 215 million treatments. Id.
77 For more information concerning eminent domain, see CRS Report 97-122, Takings
Decisions of the U.S. Supreme Court: A Chronology, by Robert Meltz.

desiring to manufacture, use, or sell a patented article, as a business proposition,
would be willing to pay as royalty and yet be able to make, use, or sell the patented
article, in the market, at a reasonable profit.”78
The pharmaceutical industry warns that imposing compulsory licenses on avian
flu drugs pursuant to § 1498(a) would “take away incentives for other companies to
undertake the difficult and costly work of searching for new antivirals and vaccines
for this possible health crisis.”79 Because drug products are time-consuming and
expensive to develop but relatively easy to copy, the pharmaceutical industry is
particularly dependent upon the patent system. Opponents of compulsory licensing
argue that patent protection permits drug companies to benefit from their investment
in research and development, and encourages them to continue to engage in such
efforts. Some observers assert that “[b]reaking the patent through a compulsory
license would actively discourage Roche from either producing the drug or lending
its expertise, which would be directly counterproductive.”80
At a congressional hearing on November 4, 2005, U.S. Department of Health
and Human Services Secretary Michael Leavitt stated that he did not intend to issue
a compulsory license for Tamiflu, because he was concerned that “violating” the
patent would remove incentives for future drug research and development.81 In
another congressional hearing several days later, Secretary Leavitt stated that a
compulsory license would probably not be needed in light of Roche’s clear intent
“not to let intellectual property issues to become a barrier” to generic manufacturing
of Tamiflu, and Roche’s demonstrated willingness to work with other companies to
produce the drug.82
TRIPS and Compulsory Licenses. The Agreement on Trade-Related
Aspects of Intellectual Property Rights (“TRIPS Agreement”) is an international
agreement on intellectual property that is one component of the treaties that created
the World Trade Organization (WTO) in 1995. The TRIPS Agreement establishes
minimum standards of protection for patents, copyrights, trademarks, and trade
secrets that each WTO signatory state must give to the intellectual property of fellow83
WTO members. Compliance with TRIPS is a prerequisite for WTO membership.


78 Wang Labs., Inc. v. Toshiba Corp., 993 F.2d 858, 870 (Fed. Cir. 1993) (citations omitted).
79 Keith Bradsher, Pressure Rises on Producer of a Flu Drug, N.Y. TIMES, Oct. 11, 2005,
at C1.
80 Alec Van Gelder, Patent Nonsense on Avian Flu, BOSTON GLOBE, Oct. 31, 2005, at A11.
81 The National Pandemic Influenza Preparedness and Response Plan - Is the U.S. Ready
for Avian Flu?: Hearings Before the House Comm. on Gov’t Reform, 109th Cong., 1st sess.
(Nov. 4, 2005) (testimony of Secretary Leavitt).
82 Assessing the National Pandemic Flu Preparedness Plan: Hearings Before the House
Comm. on Energy and Commerce, 109th Cong., 1st sess. (Nov. 8, 2005) (testimony of
Secretary Leavitt).
83 World Trade Organization, Understanding the WTO - Intellectual Property: Protection
and Enforcement, at [http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm].

Article 31 of the TRIPS Agreement addresses the right of WTO member states
to award compulsory licenses. This article specifies a number of procedural and
substantive conditions for issuing compulsory licenses, including the following:84
!Domestic law must permit compulsory licenses to be granted.
!Manufacturing of a patented invention under a compulsory license
shall be predominantly for the supply of the domestic market of the
WTO member state authorizing such use.
!Authorization for such use must be terminated if and when the
compulsory license’s motivating circumstances cease to exist and
are unlikely to recur.
!The patent owner must be paid adequate remuneration in the
circumstances of each case, taking into account the economic value
of the authorization.
!Under normal circumstances, the proposed user must have tried to
obtain permission from the patent holder on reasonable commercial
terms and conditions. If these efforts fail to obtain a voluntary
license, the government may issue a compulsory license.
Notably, Article 31 does not discuss the circumstances under which compulsory
licenses would be justified.85 However, for “national emergencies” and “other
circumstances of extreme urgency,” Article 31 provides that a compulsory license
may issue without the proposed user having to first make an effort to obtain a
voluntary license from the patent holder.86 This time-saving, “national emergency”
provision in TRIPS was clarified by the WTO in November 2001 and again in
August 2003. The November 14, 2001 “Declaration on the TRIPS Agreement and
Public Health” (Doha Declaration) affirms that the TRIPS Agreement “can and
should be interpreted and implemented in a manner supportive of WTO Members’
right to protect public health and, in particular, to promote access to medicines for
all.”87 In addition, the Doha Declaration explains that each WTO member state “has
the right to determine what constitutes a national emergency or other circumstances
of extreme urgency, it being understood that public health crises, including those


84 Agreement on Trade-Related Aspects of Intellectual Property Rights, Apr. 15, 1994, art.

31, 33 I.L.M. 1197, 1209-10 (1994).


85 See World Trade Organization, Declaration on the TRIPS Agreement and Public Health,
para. 5b, WT/MIN(01)/DEC/2 (adopted Nov. 20, 2001), available at
[http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm] (“Each
member has the right to grant compulsory licences and the freedom to determine the grounds
upon which such licences are granted.”).
86 World Trade Organization, Compulsory Licensing of Pharmaceuticals and TRIPS, at
[ h t t p : / / www.wt o.or g/ engl i s h/ t r at op_e/ t r i p s_e/ publ i c _heal t h_f aq_e.ht m] .
87 Id. at para. 4.

relating to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a
national emergency or other circumstances of extreme urgency.”88
Confronted with these public health emergencies, WTO members with
insufficient or no manufacturing capacities in the pharmaceutical sector may be
unable to make effective use of compulsory licensing under the TRIPS Agreement.89
The WTO’s proposed solution to this problem was announced on August 30, 2003,
when the WTO General Council issued a decision that allows member states,
meeting certain strict conditions, to import generic versions of drugs produced under
compulsory licenses issued by other countries. Specifically, this “Paragraph 6
Agreement” permits a waiver of Article 31(f) of the TRIPS Agreement, which
specifies that compulsory licenses are to be used predominantly for the supply of the
domestic market.90 Thus, countries that produce generic drugs under a compulsory
license may export them to other WTO members that are unable to manufacture the
medicine to meet their urgent needs.
As many nations attempt to stockpile antiviral drugs to prepare for the possible
bird flu pandemic, the TRIPS “national emergency” provision for compulsory
licenses has garnered public interest as a possible way to increase the production and
supply of Tamiflu.91 However, at the time of the Paragraph 6 Agreement, the United
States and 22 other developed countries decided to “opt-out” of using the compulsory
license system as importers, under any and all circumstances.92 Some observers have
speculated that the reason for this decision is to discourage compulsory licensing and
put pressure on developing countries not to use it.93 An official in the Office of the
U.S. Trade Representative has explained, however:
In the negotiations leading up to this solution, developed nations as a whole
recognized that it was not appropriate for us to import pharmaceuticals under this


88 Id., at para. 5c.
89 Id., at para. 6.
90 World Trade Organization, Implementation of Paragraph 6 of the Doha Declaration on
the TRIPS Agreement and Public Health, WT/L/540 (Aug. 30, 2003), available at
[http://www.wto.org/english/tratop_e/trips_e/implem_para6_e.htm]. On December 6, 2005,
the WTO General Council agreed to make the August 2003 “waiver” a permanent
amendment to the TRIPS Agreement. At least two-thirds of the membership of the WTO
must ratify the amendment by December 1, 2007, for the amendment to go into effect for
those WTO Members that adopt it. The United States formally adopted the amendment on
December 17, 2005. World Health Organization, Members OK Amendment to Make Health
Flexibility Permanent, Dec. 6, 2005, at [http://www.wto.org/english/news_e/pres05_e/pr426
_e.htm].
91 Uta Harnischfeger, Groups Want WTO Rules Eased Over Bird Flu, Associated Press
Financial Wire, Oct. 25, 2005, available at [http://www.iatp.org/tradeobservatory/
headlines.cfm?refID=77225].
92 Statement of General Council Chairperson, WT/GC/M/82 (Nov. 13, 2003), (excerpt from
the minutes of the General Council meeting of Aug. 30, 2003), available at
[ h t t p : / / www.wt o.or g/ engl i s h/ t r at op_e/ t r i p s_e/ gc _st a t _30aug03_e.ht m] .
93 James Love, What Bush Did Not Explain About Bird Flu, Nov. 1, 2005, available at
[http://www.huffingtonpost.com/ j a me s-love /what-bush-did-not-e xplain_b_9968.html ].

system devised to assist poor countries and agreed not to divert attention and
resources away from countries the system was intended to benefit. It was also
apparent that the United States was not a country that lacked manufacturing
capacity, given our robust pharmaceutical manufacturing base and the prevalence94
of thriving U.S. innovative and generic pharmaceutical industries.
Yet this opt-out may effectively prevent developed countries from importing
generic versions of Tamiflu made by companies in countries that exercise Article 31
compulsory license authority or in which Tamiflu is not patent-protected.95 In late
2005, with Roche’s production capacity limitations affecting the ability of countries
to procure enough Tamiflu to treat their populations, the United States’ decision to
opt-out had become the focus of criticism and appeal for change.96 A bill was
introduced in the 109th Congress that would have directed the U.S. Trade
Representative to notify the WTO General Council that the U.S. declares itself an
“eligible importing member” for Paragraph 6 purposes, and that it withdraws its
name from the opt-out list of countries.97 However, in a congressional hearing on
November 8, 2005, U.S. Department of Health and Human Services Secretary
Michael Leavitt downplayed the consequences of the opt-out decision, arguing that
in a global pandemic situation, each country will likely only have access to what it
produces domestically, as countries will want to keep domestically-produced flu
drugs inside their own borders.98
Licensing Agreements. If Tamiflu was subject to a compulsory license,
Roche would still be entitled to receive three to five percent royalties. However,
Roche would have no ability to control the sale price of the drug, and a cheaper
generic version would mean smaller royalty payments.99 Roche thus would prefer an


94 Letter from Victoria Espinel, Victoria Espinel, Acting Assistant United States Trade
Representative for Intellectual Property, to James Love, available at
[ h t t p : / / www.cpt ech.or g/ i p / h eal t h / t a mi f l u/ ust r 02092006.pdf ] .
95 See Letter from James Love to U.S. Trade Representative Rob Portman (Oct. 14, 2005),
available at [http://www.cptech.org/ip/birdflu/ustr-birdflu.html]. Tamiflu is not patent-
protected in several countries, including Thailand, the Philippines, and Indonesia. Factsheet
Tamiflu, supra note 17, at 6.
96 Letter from James Love to U.S. Trade Representative Rob Portman (Oct. 14, 2005),
available at [http://www.cptech.org/ip/birdflu/ustr-birdflu.html]; see also Statement of
Consumers International to TRIPS Council (Oct. 25, 2005), available at
[ h t t p : / / www.cpt ech.or g/ i p / h eal t h / t a mi f l u/ ci 10252005.ht ml ] .
97 H.R. 4392, 109th Cong., 1st sess. (2005), was introduced by Representative Thomas H.
Allen on November 18, 2005, and referred the same day to the House Committee on Ways
and Means. No further action was taken on the bill before the adjournment of the 109th
Congress.
98 Assessing the National Pandemic Flu Preparedness Plan: Hearings Before the House
Comm. on Energy and Commerce, 109th Cong., 1st sess. (Nov. 8, 2005) (testimony of
Secretary Leavitt).
99 Erica Bulman, Tamiflu Patent: Two-Edged Sword, SAN JOSE MERCURY NEWS, Nov. 12,

2005, at B1.



alternative to the use of compulsory licensing, which are licensing agreements
voluntarily negotiated by the company with third-parties of its choosing.100
Licensing agreements are contracts between the patent owner (or patent
licensee) and third parties that may be used to permit third parties to exercise one of
the rights of the patent owner or patent licensee (in the case of a patent licensee, the
contract is known as a sublicensing agreement). For example, Roche (a licensee of
the patent owner Gilead) may permit other companies to manufacture and market
Tamiflu in exchange for the companies paying licensing fees to Roche and agreeing
to certain conditions. Such conditions in the sublicensing agreement may restrict the
sale of Tamiflu to emergency government stockpiles, prevent re-exports of the drug,
and time-limit the sublicense.101 An advantage of a sublicensing scheme is that the
other pharmaceutical companies can seek and obtain Roche’s manufacturing
expertise to ensure quality production.102 In addition, sublicensing allows for
coordination of obtaining the active ingredient in the antiviral drug, shikimic acid.103
However, some critics have asserted that these voluntary sublicensing agreements
might only help rich countries to stockpile Tamiflu, and do little to improve the
treatment’s availability for poorer countries.104 They maintain that under such
agreements, Roche would likely still retain the right to control pricing and could reap
large profits on generic Tamiflu.
As of April 2007, Roche has signed sublicensing agreements with 19 contractors
to manufacture Tamiflu in nine different countries around the world.105 In addition,
Roche has donated “rapid response” supplies of Tamiflu (more than 5 million
treatment courses) to the World Health Organization for establishing regional
stockpiles to help contain or slow the spread of a pandemic. Finally, Roche has
agreed to arrange for special pricing for government orders and to reduce the price
of Tamiflu for low income countries.106


100 Roche, Inc., Roche Announces Further Progress in Tamiflu Production Expansion, Nov.
7, 2005 (stating that Roche is willing to “negotiate with any partner about granting a license
[for Tamiflu] at equitable conditions.... Selection criteria are quality, technical ability,
capacity and the speed of bringing that capacity on stream.”), at
[ h t t p : / / www.r o che.com/ me d-cor -2005-11-07] .
101 James Kanter, Roche Offers To Negotiate on Flu Drug, N.Y. TIMES, Oct. 19, 2005, at C1.
102 A Patent Solution: Bird Flu Revives the Trickiest Questions in Intellectual Property,
FINANCIAL TIMES (London), Oct. 21, 2005, at 18.
103 See discussion of shikimic acid, supra page 4.
104 Brook K. Baker, Roche’s Secret, Sub-Licenses for Tamiflu Will Not Bring Poor People
in From the Cold, available at [http://www.health-now.org/site/article.php?menuId=12
&articleId=504].
105 Roche, Inc., Roche Update on Tamiflu for Pandemic Influenza Preparedness, Apr. 26,

2007, at [http://www.roche.com/med-cor-2007-04-26].


106 Id.

Conclusion
Should the H5N1 virus, or some other avian influenza strain, cause a human
pandemic, antiviral drugs will likely play a critical role to help prevent infection and
to relieve the flu symptoms of those infected. The Tamiflu supply shortage in 2005
had sparked public debate concerning the practicality and morality of protecting
intellectual property rights during a possible health crisis, which can directly affect
the availability and affordability of medicine for populations in dire need of it.
However, because Roche has since reached sublicensing agreements with several
manufacturing partners that have significantly increased production of Tamiflu to
satisfy global demand for the drug, the concern about intellectual property rights
hindering preparations for pandemic influenza has largely subsided.