(a) The impact of patent use on access to and delivery of healthcare

A patent is an intellectual property right that allows the rightsholder to exclude others from using the patented technology without the rightsholder's permission (license) for the duration of the patent (generally 20 years). All World Trade Organisation (WTO) members (164 states worldwide, including all EU Member States and the UKFootnote ¹³) must make patents available for all fields of technology (including health technologies) under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).Footnote ¹⁴ Accordingly, WTO members cannot refuse patents on health technologies,Footnote ¹⁵ or introduce a blanket restriction on the application of intellectual property rights in emergency contexts (including Covid-19).Footnote ¹⁶

This exclusionary nature of a patent gives rightsholders a private governance role over the patented health-technologyFootnote ¹⁷ as it allows the rightsholder to control who can gain access to the technology and on what terms. For example, a rightsholder of a patented medicine can control who supplies, manufactures and sells that medicine – if they refuse others the permission to manufacture and/or supply the medicine, they can become the sole provider for the duration of the patent. This could limit supplies of a medicine (depending on the rightsholder's manufacturing capacity) and could potentially result in high prices being set.Footnote ¹⁸ Ultimately, therefore, patents give rightsholders the potential to dictate who gets access to health technologies first. Where demand is not met by supply (as has been the case for Covid-19 vaccines),Footnote ¹⁹ this can be highly problematic and is a key factor that has contributed to the inequitable global distribution of essential health technologies. Patents can also have a knock-on effect on other technologies that require access to a patented technology to operate, thereby affecting the downstream development and uses of dependent technologies.

(b) Patents over health technologies and access to health

The impact of pharmaceutical companies’ use of patents over health technologies for access to healthcare was starkly demonstrated by the HIV/AIDS crisis in the 1990s.Footnote ²⁰ During that time, HIV/AIDS caused millions of deaths globally.Footnote ²¹ Whilst treatments were available and could be used to save lives, for many (particularly in sub-Saharan Africa) such treatments were inaccessible. A key factor in this lack of access was the actions of pharmaceutical companies who, in their capacity as rightsholders, refused to license or sell patented HIV/AIDS treatments at prices low enough for developing countries to afford. Some companies also sought to block efforts by governments to amend patent laws to facilitate wider access to medicines – for example, in 1998 a group of 39 pharmaceutical companies started legal proceedings against the South African government after it sought to amend patent laws to make it easier to produce generic versions of HIV/AIDS medicines.Footnote ²²

Amidst international backlash and civil society interventions, this legal action was dropped in April 2001Footnote ²³ and ultimately greater access to such patented treatments was achieved. However, millions of lives were lost due to lack of access to affordable medicines. In November 2001, following sustained activism, the Doha Declaration was signed. This declaration confirmed that the existing TRIPS AgreementFootnote ²⁴ had in-built flexibilities that could limit the application of intellectual property rights in specific circumstances where public health requires it. Following the Doha Declaration, TRIPS flexibilities including compulsory licensing (whereby if a rightsholder refuses to license their patented technology on reasonable terms, a state can issue a license to a third party over the patented technology) were used to deliver access to medicines in lower-income countries.Footnote ²⁵ In 2010, the Medicines Patent Pool was set up to facilitate voluntary mechanisms for the sharing of rights related to medicines for HIV/AIDS.Footnote ²⁶ Yet the legacy of this time demonstrates the power that companies as rightsholders have within the healthcare context. It also serves to highlight the priority placed by rightsholders on enforcing and maintaining intellectual property rights over broader public interests, even during a public health emergency.

This potential for patents to be used by companies in a manner that can impede access to healthcare continues to this day, including recent controversies about uses of patents on Solvadi/Sofusivr for Hepatitis C,Footnote ²⁷ and access to vaccines for the human papillomavirus (HPV) against cervical cancersFootnote ²⁸ and the pneumococcal conjugate vaccine (PCV) used against childhood pneumonia.Footnote ²⁹

(c) Patents over health technologies: Covid-19

The Covid-19 pandemic has brought issues with respect to intellectual property rights and access to healthcare into the spotlight. For instance, during the first phase of the pandemic a legal challenge was taken in the US by Labrador Diagnostics LLC (Labrador) against BioFire Diagnostics LLC (BioFire) alleging patent infringement by BioFire in its development of Covid-19 testing kits.Footnote ³⁰ This challenge was later dropped amidst media backlash, with Labrador stating that it would allow uses of its patent on a royalty-free basis to develop tests for Covid-19.Footnote ³¹ However, decisions like this to take legal action reflect a prioritisation of intellectual property rights, even when the enforcement of such rights could potentially contradict the broader health interests at stake. We have also seen rightsholders agree to preferential supply deals with higher-income countries for priority access to Covid-19 vaccines.Footnote ³² A vast global inequity of access to Covid-19 vaccines has emerged between higher and low/middle income countries, and, under predicted supply deals, 9 in 10 people in 67 low- to middle-income countries are not expected to gain access to Covid-19 vaccines in 2021.Footnote ³³

This inequality in global access to health technologies is self-defeating for all countries who wish to control the pandemic – until all countries in the world have sufficient access to vaccines, there will be a risk of outbreaks re-emerging and of mutations of the virus developing that may be resistant to existing vaccines.Footnote ³⁴ Rightsholders could alleviate access issues by joining voluntary programmes to share intellectual property rights and data over Covid-19 health technologiesFootnote ³⁵ (such as WHO's Covid-19 Technology Access Pool (CTAP),Footnote ³⁶ a global mechanism to facilitate the sharing of intellectual property rights, data and know-how on health technologies). Yet, at the time of writing, no rightsholder of patents related to vaccines has contributed to CTAP.Footnote ³⁷

The rationale supporting the sharing of intellectual property in the Covid-19 context is also strengthened by the vast amounts of public funding that have been used to support Covid-19 health innovation, particularly in the vaccine context, de-risking much of the potential losses and costs of failures for pharmaceutical companies.Footnote ³⁸ Based on the foregoing, it is evident that even during one of the most significant global health crises of our time, there is still a continued promotion of a status quo approach by many companies in how they use and license patent rights over health technologies. There remains a prioritisation of commercial value over public interests. From a legal perspective, a question that arises is how this prioritisation is sustained by companies in the face of significant health implications, and the role that existing legal and voluntary frameworks play in facilitating this.

(a) Prioritising shareholders: financial value

The question of in whose interests a company should be run has been the subject of debate for many years.Footnote ³⁹ The dominant view within company law theory (at least within the common law world) has been that of shareholder primacy.Footnote ⁴⁰ This approach provides that companies, as separate legal entities run by their directors, are first and foremost accountable to their shareholders – within the limits of the law they must act in those shareholders’ interests above the interests of other parties.Footnote ⁴¹ This legal duty to shareholders has commonly been framed as one that prioritises shareholders’ financial interests.Footnote ⁴² As a result, the idea of shareholder primacy provides that companies should be run in a way that maximises shareholder financial returns by optimising the company's market value.Footnote ⁴³ To achieve this, the powers exercisable by or on behalf of companies ‘… are necessarily and at all times exercisable only for the … benefit of all the shareholders as their interest appears’.Footnote ⁴⁴ Under this model, the interests of others who may be impacted by a company's actions and decisions must not be accounted for if to do so would undermine the company's primary responsibility to maximise its shareholders’ returns.Footnote ⁴⁵ This in turn means that company directors, in making decisions related to the company's property and interests (including the protection of its intellectual property rights), must have in mind their duty to maximise financial returns for shareholders. Arguably, under this narrow construction of shareholder ‘value’, directors of companies holding patents are both legally required and institutionally predisposed to make decisions about the enforcement and licensing of patents in a manner that maximises financial returns for shareholders.

An alternative approach to company duties has also been proposed, namely, ‘stakeholder theory’. According to this theory, companies should be run in a way that addresses the interests of a much wider range of stakeholders beyond just the company's shareholders.Footnote ⁴⁶ The concept of ‘stakeholder’ in this context is composed of interested parties ‘who can affect or [be] affected by the achievement of the organization's objective’.Footnote ⁴⁷ While this might include those interacting directly with a company, such as its employees, customers and creditors, it could also be interpreted more broadly to include the environment, the community of participants in the sector(s) in which the company operates, and society generally.Footnote ⁴⁸ In the context of a company involved in the healthcare sector, notions of ‘community’ and ‘society’ are broad. They could conceivably include the need to account for the effect of corporate decision-making on the delivery of, and access to, healthcare and on the development of health research, each of which affects the community and society more generally. More specifically, patents in such contexts can have an impact on the interests of patients and individuals seeking access to healthcare, healthcare professionals delivering healthcare, and the scientific and health research community seeking to develop new health technologies.Footnote ⁴⁹

The stakeholder theory suggests that companies should focus on a range of goals beyond demonstrable shareholder financial profit. With respect to companies holding patents over health technologies, stakeholder theory could ground arguments in favour of such companies being required to incorporate broader social considerations in decision-making on the use and licensing of their patents. Yet despite this, the shareholder primacy model remains the prevailing approach in the corporate law framework of many countries, including the UK, the US, and Ireland.Footnote ⁵⁰ Legislation and business practice, therefore, continue to uphold the rule that companies should strive to maximise shareholder value, within the limits of the law.Footnote ⁵¹

(b) Companies’ human rights obligations: lacking teeth

In the absence of effective standards mandating socially responsible licensing practices by corporate rightsholders, some commentators have proposed reliance on companies’ human rights obligations to call for greater consideration to be given to stakeholders impacted by rightsholders’ decisions. On this basis, the human right to healthFootnote ⁵² has been cited to petition against uses of patents that have an impact on access to health technologies. For instance, in 2005 the World Intellectual Property Organization (WIPO) stated that ‘under no circumstances can human rights … be subordinated to intellectual property protection’.Footnote ⁵³ In 2004, the UN Special Rapporteur on the right to the highest attainable standard of health recommended that states promote ‘intellectual property legislation consistent with human rights obligations’Footnote ⁵⁴ and that ‘[p]atent-holding pharmaceutical companies have a responsibility to ensure that their policies and practices do not negatively impact access to life-saving medicines’.Footnote ⁵⁵ More recently, in March 2021, the International Committee on Economic Social and Cultural Rights stated that:Footnote ⁵⁶

However, relying on human rights to encourage corporate entities to alter behaviour has had limited effect to date and, in practice, human rights have acted as a limited counterbalance to the prioritisation of financial considerations by corporate entities acting as rightsholders in this context.Footnote ⁵⁹ This has happened for two main reasons.

First, companies who hold intellectual property rights can exercise those rights as part of a broader right to property.Footnote ⁶⁰ As Brown has argued, such a right to property would allow companies to enjoy this right without sharing it.Footnote ⁶¹ Thus, claims that a right to health is being encroached upon or affected by how patents are used result in a conflict between two rights – the right to health, and the right to property. Whilst any conflict of rights would require a balancing of rights approach,Footnote ⁶² interference with the right to property is arguably often easier to prove and thus to protect in this context. This is because the scope of what is protected by a right to health can be nebulous in nature, and the way in which it is stated in international treaties gives ‘great latitude amongst states in giving enforceable shape and form to this human right’.Footnote ⁶³ Moreover, even where access to health technologies is restricted, it may be difficult to demonstrate that this restriction is caused specifically by the use of a patent. As the patent right is time limited, it is sometimes argued that potential restrictions on access to health technologies attributable to patents are proportionate as they last for a limited period of time and they play a role in incentivising innovation.Footnote ⁶⁴ As a result, it can be easier to prove that there could be a potential interference with the right to property (if one was seeking to modify how rightsholders use patents over health technologies) than with the right to health in some contexts.

Secondly, there are issues with the enforcement of human rights obligations against companies.Footnote ⁶⁵ Ultimately, the primary obligation to protect and further human rights rests on states.Footnote ⁶⁶ Companies are generally not legally bound by international human rights treaties, nor are they accountable for a failure to uphold these standards.Footnote ⁶⁷ This gap between aspiration and enforcement of human rights is reflected in a number of international initiatives that have sought to draw human rights considerations into corporate activities. However, the codes and guidelines formulated by these initiatives are, ultimately, voluntary.Footnote ⁶⁸ The Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises (the OECD Guidelines), for example, are recommendations from governments to multinational enterprises operating in or from those countries that have adopted the OECD Guidelines.Footnote ⁶⁹ They set out ‘principles and standards for responsible business conduct in a global context consistent with applicable laws and internationally recognised standards’.Footnote ⁷⁰ These principles and standards include urging enterprises to engage with relevant stakeholders so as to allow their views to be taken into account in corporate decision-makingFootnote ⁷¹ and to grant licences for the use of intellectual property rights and technology on reasonable terms.Footnote ⁷² While these OECD Guidelines aim to promote the positive contribution that multinational enterprises can make to economic, environmental and social progress worldwide, they are non-binding. Similarly, the UN Guiding Principles for Business and Human Rights (the UN Guiding Principles) seek to provide a global standard for addressing and preventing adverse human rights impacts linked to corporate activity. The UN Guiding Principles note the need for companies to not just comply with applicable laws, but also to respect human rights.Footnote ⁷³ Yet these UN Guiding Principles place the duty of investigation, punishing and redressing business-related human rights abuses on individual states on the basis of domestic legislative and regulatory frameworks.Footnote ⁷⁴ Centralised enforcement of these UN Guiding Principles against companies is, therefore, lacking within the current framework.

Seeking to use human rights challenges to rectify access to health issues where such access issues are at least in part attributable to the use of intellectual property rights by companies, therefore, lacks teeth. Indeed, some have argued that attempts to use human rights to address issues around access to healthcare in the intellectual property context can be counterproductive.Footnote ⁷⁵

(c) Compulsory licensing – exceptionalised in practice

Given that human rights frameworks offer limited scope to encourage a change of corporate rightsholders’ patent licensing behaviour, the main current avenue to interfere with rightsholders’ uses of patents over health technologies is via internal flexibilities within patent law – a key one being compulsory licensing.Footnote ⁷⁶ Compulsory licenses are mechanisms through which a state can issue a licence without the rightsholder's consent, provided specific criteria apply. If a compulsory licence is granted it is subject to the payment of adequate remuneration to the rightsholders (thus, the patent right is not extinguished). As patents are national rights, the compulsory licence is granted at a national level by the relevant government and each licence is only applicable in the state within which it has been granted. As a result, compulsory licences in multiple states over a single patent would be needed when seeking to use the patented technology in more than one state.

Compulsory licences can be provided for in all WTO member states under the TRIPS Agreement as confirmed under Article 31 of that Agreement. However, as noted above, such licences are granted at the national level, and hence national laws must offer effective mechanisms to obtain such licences, and states must show willingness to utilise them. Traditionally, the use of compulsory licences has been limited, and uncertainty arose around the extent to which these licences could be used in public health contexts. As a result, the Doha Declaration clarified that the TRIPS Agreement did not prohibit states taking measures to promote public health and using TRIPS flexibilitiesFootnote ⁷⁷ – including compulsory licences – for public health purposes. Since the Doha Declaration, some low- and middle-income countries have used compulsory licences to address access to medicines issues.Footnote ⁷⁸ However, the use of such licences remains relatively uncommon in higher-income countries.Footnote ⁷⁹

The compulsory licensing system has several shortcomings that limit its effectiveness as a tool to guide patent licensing behaviour.Footnote ⁸⁰ A major shortcoming is a lack of state willingness to use such measures. In many cases this is due to a fear of backlash from other states, including the imposition of trade sanctions and/or a fear of industry backlash if a compulsory licence is issued.Footnote ⁸¹ These pressures can be particularly acute with respect to patents over health technologies as industry lobbies tend to be strong within some states. Other shortcomings include a failure of many national legal frameworks to offer effective avenues for the use of compulsory licensing, a lack of clarity around the amount of remuneration payable to rightsholders for the use of such licences and additional regulatory protections in place for health technologies (such as marketing and data exclusivity protections in the EU) that make the approval and manufacture of generic pharmaceuticals difficult even where a compulsory license is considered or issued. Together, these shortcomings pose significant practical obstacles to the use of compulsory licences and the use of such licensing is often viewed as an exceptional last resort measure.Footnote ⁸² As a result, the current practice around compulsory licensing does not offer a sufficient check on rightsholders’ licensing behaviour.Footnote ⁸³

Accordingly, when it comes to imposing checks on rightsholders’ behaviour, the dominant shareholder theory model has traditionally focused on financially-motivated drivers; there has been limited teeth in arguments based on human rights related to shifting corporate behaviour around patent use and licensing, and an exceptionalised role for compulsory licensing. These factors culminate to foster a system that generally favours financial profits within corporate approaches to the licensing and use of patents, with limited counterbalances to shift corporate behaviour towards broader public health interests.

(a) Enlightened shareholder model

Pursuant to an enlightened shareholder model of corporate governance, the directors of a company must act in the best interests of the company's shareholders and in a way that maximises shareholder value. However, in achieving this goal, the directors may also consider the interests of other stakeholders.Footnote ⁸⁴ This is not a positive duty imposed on directors. Instead, it is an acknowledgement that when working in the shareholders’ best interests, a variety of factors need to be considered. While the primary corporate relationship is still between the company and its shareholders, this relationship sits within a much wider ‘sphere of social intercourse’Footnote ⁸⁵ that must be considered. Rather than being presented as concerned only with the short-term profit margin of a company, therefore, shareholders are treated as increasingly ‘enlightened’ and long-term in their focus, and increasingly comfortable with the fact that social responsibility and financial returns are not mutually exclusive pursuits. Of course, this contemporary shareholder primacy model assumes that shareholders as a class are now concerned with factors beyond just short-term profits (something it is acknowledged will not be the case for all shareholdersFootnote ⁸⁶). Nevertheless, it offers a more nuanced and flexible approach to corporate decision-making where directors can take a holistic approach to achieving long-term corporate value and meeting shareholder interests.Footnote ⁸⁷

This enlightened shareholder model is not new. Indeed, UK company law has reflected this more nuanced view of shareholder value for some time. Section 172(1) of the Companies Act 2006 (UK) acknowledges the ultimate duty of a company's directors to its shareholders when it imposes on directors a fiduciary duty to promote ‘the success of the company for the benefit of its members as a whole [in a company that issues shares, its members will be its shareholders]’. However, in pursuit of this success, directors may ‘have regard’ to a number of external factors, including the ‘likely consequences of any decision in the long term’,Footnote ⁸⁸ ‘the need to foster the company's business relationships with suppliers, customers and others’Footnote ⁸⁹ and ‘the desirability of the company maintaining a reputation for high standards of business conduct’.Footnote ⁹⁰ In striving to promote the company's success for the benefit of its shareholders, therefore, directors may take into account such broader external drivers.Footnote ⁹¹ The UK Corporate Governance Code (which applies to publicly-owned companies with a ‘premium listing’Footnote ⁹² in the UK, whether incorporated in the UK or not) similarly acknowledges that ‘[a] successful company is led by an effective and entrepreneurial board, whose role is to promote the long-term sustainable success of the company, generating value for shareholders and contributing to wider society’.Footnote ⁹³ The OECD in its Principles of Corporate Governance has noted that while directors are accountable to, and must always act in the best interests of, a company and its shareholders, they are also expected to ‘take due regard of, and deal fairly with’ other stakeholders, and to observe environmental and social standards.Footnote ⁹⁴ These provisions restate the shareholder primacy model of corporate decision-making but, in doing so, they provide context on how company success and shareholder value can be achieved.

Section 172(1) of the Companies Act 2006, the UK Corporate Governance Code and the OECD's Principles of Corporate Governance do not oblige directors of companies within their remit to consider all stakeholder interests, nor do they permit directors to prioritise the particular interests of individual shareholders beyond those of the shareholders generally. Nevertheless, they reflect a growing recognition that a company's and its shareholders’ long-term success are closely linked to a broader range of shareholder interests beyond merely financial issues. This reflects a wider trend in corporate practice. In the Davos Manifesto 2020, for example, the World Economic Forum called on companies to ‘responsibly manage[] near-term, medium-term and long-term value creation in pursuit of sustainable shareholder returns that do not sacrifice the future for the present’Footnote ⁹⁵ and advocated for a ‘better kind of capitalism’.Footnote ⁹⁶ This echoes a pledge given by some of the world's largest companies at the 2019 G7 Leaders’ Summit, which confirmed that ‘inclusive growth drives long-term value creation, creating broad benefits for shareholders and other stakeholders alike’.Footnote ⁹⁷ Such statements are, of course, statements of purpose rather than binding undertakings.Footnote ⁹⁸ But they nevertheless represent a publicly articulated, business-focused recognition that company success and stakeholder engagement do not have to be mutually exclusive – a company's long-term success and achievement of value for its shareholders can involve a broad range of considerations.

(b) Emergence of the engaged shareholders: actively petitioning for change

The enlightened shareholder approach to corporate decision-making and calls for greater corporate responsibility would, therefore, appear to present a clear pathway for companies to adopt more socially responsible practices while still being able to pursue financial returns for shareholders. Yet this added flexibility within the shareholder primacy model has not led to widespread overhaul of corporate decision-making to date. As discussed above, for example, companies have adopted a mixed approach to how they protect their intellectual property rights and the extent to which that protection reflects broader public health needs at stake.

A disconnect between aspirational guidance and corporate practice has in part come from a lack of incentive for directors to consider wider stakeholder interests. Bebchuk and Tallarita refer to the ‘unrealistic expectations and hopes that corporate leaders will, on their own, deliver substantial protections to stakeholders’.Footnote ⁹⁹ We acknowledge that we cannot necessarily expect directors to expand their sphere of concern beyond shareholder financial returns of their own accord without that expansion being a consequence of internal or external pressures driving such change. Recently, however, there have been signs that this pressure could successfully come from within companies themselves. This is reflected in examples of shareholders actively petitioning companies to act in a more socially responsible manner. In such instances, shareholders are telling company directors what a company's priorities should include and in doing so they are framing their notion of value – such moves contribute to and reflect the potential for incremental development of a longer-term and more sustainable conception of shareholder value that incorporates broader considerations of the impact of corporate decisions for society more generally. The Covid-19 pandemic could, in our view, be the catalyst that propels this trend and encourages a more concerted move towards taking greater account of public health interests at stake in the patent licensing of health technologies.

In this context, engaged shareholders represent an embodiment of the ‘enlightened shareholder’, and place upward pressure on companies to engage with broader societal interest considerations. Such activism has most clearly been seen in public companies whose shares are listed on stock exchanges and whose ownership can rest with a diverse range of shareholders. For instance, in January 2021, a resolutionFootnote ¹⁰⁰ by a group of 15 pension and investment funds and backed by 117 individual shareholders within the London headquartered HSBC Bank plc called for the bank to increase its climate commitments, including by reducing loans and underwriting services to clients relying heavily on the use of fossil fuels.Footnote ¹⁰¹ This special resolution, which needed 75% of shareholders voting at the bank's annual general meeting to vote in favour, was approved in May 2021 by 99.71% of shareholders present and voting.Footnote ¹⁰² The resolution was co-ordinated by ShareAction, a charity group focused on building a responsible finance system, whose aims include a demand for ‘a legal framework that gives citizens’ rights to information about where and how their assets are invested [and] is designed to achieve a virtuous circle in which people can see what happens to their money and become more engaged with the workings of the investment system’.Footnote ¹⁰³ In other words, seeking to increase the powers of shareholders in influencing how their investment in the company is being managed and encouraging shareholders to have a say in how corporate decisions affect issues of social importance. This resolution follows a similar resolution coordinated by ShareAction on behalf of shareholders in January 2020 taken by a shareholder group of 11 investment funds and pension funds, and signed by over 100 individual shareholders, calling for Barclays Bank UK plc (Barclays) to place clear targets on its lending and service provision to entities that rely heavily on fossil fuels.Footnote ¹⁰⁴ It also called on Barclays to phase out lending to companies in the energy sector whose activities are not aligned with the Paris Agreement climate accord.Footnote ¹⁰⁵ In that context, Daniel Wiseman, lawyer for Client Earth noted that:

This conceptualisation of shareholders as ‘stewards’ and the attempt to use shareholder power to foster responsible corporate decision-making is a change from a conception of a shareholder concerned solely with short-term financial returns. Such moves, if they continue and strengthen over time, could help to influence a change in corporate behaviour. For instance, in the case of Barclays, the January 2020 resolution was voted on in May 2020 by shareholders and supported by 24% of those shareholders. While this was not sufficient for it to pass, Barclays was still required to respond to the resolution as over 20% of the shareholders had voted in favour of it. Subsequently, Barclays developed a new climate policy, and as part of this policy the bank has sought to bring its lending in line with the Paris Agreement and has committed to net zero by 2050.Footnote ¹⁰⁷ This move demonstrates the leverage shareholders can have to seek changes in company policies to account for broader stakeholder interests.Footnote ¹⁰⁸ As shareholders increasingly lend their voices to encouraging corporate decision-making to align with broader societal concerns, this could support the re-conceptualisation of what falls within shareholder ‘value’ under the shareholder primacy model.Footnote ¹⁰⁹ These shareholders are not simply assuming that company directors will voluntarily engage with social issues – they are explicitly calling on them to do so.

The environment, climate change and green issues have been a focus of shareholder engagement to date. However, broader social issues, including health-related ones, are increasingly being placed on corporate agendas by shareholders. In February 2021, for example, institutional and retail investors of Tesco plc (Tesco) (the UK-based supermarket chain) filed a shareholder resolution calling on Tesco to set targets to increase the proportion of healthy products in its sales.Footnote ¹¹⁰ There are also examples of shareholders in the healthcare sector specifically aligning with an actively engaged shareholder trend and calling on companies to consider social responsibilities with respect to distribution of, and access to, health technologies. For example, in April 2020 over 40 shareholders with collective global assets of over €1.9 billion called on pharmaceutical companies – including Gilead, Johnson & Johnson and Roche – to work to combat the Covid-19 pandemic. This call was led by the Achmea Investment Management. The group developed an Investor Statement that included a focus on ensuring global access to health technologies for Covid-19.Footnote ¹¹¹ The group called for short-term financial considerations to take ‘second place’ and instead for there to be a concerted focus on ending the pandemic. Achmea's press release stated that:

This is a clear statement by shareholders calling for public health needs to drive corporate decision-making. Moreover, the group explicitly called for a change in how patents were used in this context, stating that:

These shareholders are reframing their interests as encompassing more than short-term financial returns. They are then seeking to use their influence to exert upward pressure on companies to help bring the pandemic under control. In this vein, Bianca Tetteroo, who was then the vice-chair of Achmea's Executive Board, stated that:

The group of shareholders has also suggested that it would be closely monitoring the pharmaceutical companies in which its members are invested and was ‘calling for maximum transparency’. In particular, the group has noted that ‘additional attention will be paid to this during shareholders’ meetings and as part of normal engagement processes’.Footnote ¹¹⁵

Shareholder activity in the healthcare context has not been confined to this one case. Other examples are becoming evident. In the US, in December 2020, the Interfaith Center on Corporate Responsibility (ICCR) announced that shareholders had filed resolutions with six pharmaceutical companies (Eli Lilly, Gilead, Johnson & Johnson, Merck, Pfizer and Regeneron) requesting reports on ‘whether and how [the company's] receipt of public financial support for development and manufacture of preventives and/or therapeutics for Covid-19 is being, or will be, taken into account when making decisions that affect access to such products, such as setting prices’.Footnote ¹¹⁶ Such resolutions were designed as part of a longer-term strategy by these shareholders to promote accessibility and affordability of Covid-19 health technologies,Footnote ¹¹⁷ and followed on from letters sent by the group to pharmaceutical companies in August 2020 requesting similar information.Footnote ¹¹⁸ Again, the role of patents in this context was directly acknowledged by statements of the group.Footnote ¹¹⁹ In particular, Meg Jones-Monteiro, ICCR's Program Director for Health Equity, noted:

Requests by shareholders for information on drug pricing have also, in some cases, sought to challenge high pricing on the basis that it could lead to reputational harm for companies, and ‘credibility risks’ related to public concern over the price of health technologies.Footnote ¹²¹ For example, Oxfam America called for Johnson & Johnson to ensure that its Compensation and Benefits Committee would ‘report annually to shareholders on the extent to which risks related to public concern over drug pricing strategies are integrated into JNJ's incentive compensation policies, plans and programs … for senior executives’.Footnote ¹²²

Shareholders are, therefore, increasingly petitioning for changes in rightsholders’ behaviour, in a manner that considers broader public interests in ending the pandemic and facilitating access to healthcare.Footnote ¹²³ This direct shareholder activism with respect to corporate governance and decision-making of companies in the healthcare sector reflects an acknowledgment that protecting shareholder interests and honouring shareholder primacy can include meeting a company's broader stakeholder responsibilities.Footnote ¹²⁴ Some companies in the healthcare sector have pushed back on attempts by shareholders to advocate for social justice considerations.Footnote ¹²⁵ For instance, in February 2021, it was reported that Johnson & Johnson and Pfizer were urging the Securities and Exchange Commission in the US to delay the shareholder resolutions discussed above requiring them to disclose pricing policies for Covid-19 vaccines,Footnote ¹²⁶ and at the time of writing,Footnote ¹²⁷ it remains to be seen how this will evolve. However, it is questionable how long companies will be able to push back if this engaged shareholder trend continues and more shareholders ask for such considerations to be accounted for.

In the UK, at AstraZeneca's annual general meeting in May 2021, investor activity focused on executive pay rather than on vaccine access issues. However, AstraZeneca can be contrasted with some US-based pharmaceutical companies as the company has initially pledged not to make a profit from the Covid-19 vaccine during the pandemic.Footnote ¹²⁸ Nevertheless this focus on executive pay by investors, together with other examples of shareholder activity discussed above, suggest that engaged shareholders are also an increasingly visible force in the UK corporate decision-making context. Going forward, this could be used to increase upward pressure within companies from shareholders calling for a reconceptionalisation of corporate decision-making to encapsulate a broader range of interests. As the Covid-19 pandemic continues, concerns with respect to equitable access to, and delivery of, health technologies may increase and intensify calls by shareholders across jurisdictions for companies to consider their responsibilities to a broader stakeholder base.Footnote ¹²⁹

(a) Public awareness: an incentivising strategy to leverage reputational factors

First, it is important to increase public awareness of access to health issues, the role of patent rights in such contexts, the power that companies have in using patents, and how this can affect access to, and delivery of, healthcare. To achieve this awareness, educational campaigns informing the public of the role of patents and how patents are used, as well as information for shareholders on the role that they can play in influencing this use, are a vital tool.

In this context, external reputational factors provide a strong, shareholder-oriented financial value justification for more socially responsible licensing practices that encourage patent-holding companies to go beyond the minimum that is legally required of them in terms of using and licensing patents. With companies subject to growing public scrutiny,Footnote ¹³² corporate inaction in the face of a societal issue or crisis, or corporate action that is viewed by the public as contrary to societal wellbeing, could result in public backlash and lasting reputational damage.Footnote ¹³³ In the context of a health crisis affecting entire regions or even countries, the impact of negative publicity for companies could be particularly acute.Footnote ¹³⁴ As demonstrated in Part 2 above, during the Covid-19 pandemic the legal challenge by Labrador against a patent infringement by BioFire was withdrawn following public criticism after it emerged that BioFire was developing Covid-19 testing kits.Footnote ¹³⁵

A company's reputation and goodwill are valuable assets that must be protected if the company is to succeed in the long term.Footnote ¹³⁶ Growing public awareness of access to health issues and the relevance of patents and other intellectual property rights could result in companies suffering reputational damage if they are seen as licensing, using or enforcing such rights in a manner that conflicts with public health needs. Such reputational damage could result in negative publicity, a loss of stakeholder trust (including with regulators), distancing by customers and suppliers, a closure of potential new markets, and ultimately, adverse financial consequences for the company and a negative impact on shareholder financial value.Footnote ¹³⁷ Even if there is a perceived risk to short-term profits by licensing patented health technologies in a more socially responsible manner, therefore, there would be a commercial incentive (alongside a moral one) in doing so. Thus, mobilising and focusing public awareness can act as a strong driver to incentivise socially responsible patent licensing and enforcement behaviours. Moreover, by pursuing corporate activities that actively address societal issues and consider the interests of a broad sphere of stakeholders, company directors can seek to reduce the extent to which corporate (in)action could damage the company's reputation. In this way, companies in the healthcare sector can be encouraged to pursue socially responsible licensing practices by using reputational risk as a key driver for corporate behaviour.Footnote ¹³⁸

Public pressure could also directly focus and support the actions of engaged shareholders and, in doing so, embed the expectation that shareholders will demand more socially responsible licensing practices from the health-care companies in which they invest. If the public is more aware of how companies use and license patents over health technologies, and if public backlash arises where such patents are used in a manner that conflicts with broader public health interests, this could act as a catalyst for more shareholders to petition for action. Shareholders could, therefore, be motivated by similar public interest aims, or, particularly in the corporate shareholder context, by a fear that they themselves could also come under public scrutiny for the company's behaviour.

(b) Market expectations: an incentivising strategy to leverage ethical investment

An increasingly prominent factor driving corporate decisions is the growth in ethical investment practices whereby investors choose to invest in companies that meet benchmarks of sustainability and social responsibility. Pursuing a more socially responsible approach to licensing and use of patents over health technologies could, therefore, be used to attract new investment into companies from investors who specifically target socially responsible investment opportunities.Footnote ¹³⁹ These investors could then themselves become shareholders within a company. For existing company shareholders who are petitioning for a company to acknowledge broader stakeholder considerations in its decision-making, an increase in the number of engaged shareholders pursuing similar social agendas could empower activism and strengthen the engaged shareholder voice within the company.

Increasingly, investors are taking a more holistic approach to determining a company's suitability for investment and are looking beyond short-term profits to how long-term value and sustainability are built into directors’ decision-making. This environmental, social and governance (ESG) investing (sometimes referred to as socially responsible investing) targets companies displaying positive ESG behaviour. It is a market that grew to over US$30 trillion in 2018, with further growth in 2019 and 2020.Footnote ¹⁴⁰ Investors deliberately taking ESG factors into account when considering making an investment have, therefore, become a visible category of investor in the global financial markets.Footnote ¹⁴¹ Current growth of ESG investing has also been influenced by international industry networks, most notably the United Nations’ Principles for Responsible Investment, under which investors commit to incorporating ESG issues into their investment activities.Footnote ¹⁴²

The concept of ESG is porous and influenced by the subjective ambitions of the investor. Nevertheless, certain themes have emerged. Global concerns over climate change have, up until recently, resulted in an emphasis on the ‘environmental’ aspects of a company's activities when determining the company's suitability for ESG investors.Footnote ¹⁴³ However, with the growth in multi-jurisdictional health and other social crises and concern for the wider social impact of company decisions, social concerns have come to prominence as an investment consideration.Footnote ¹⁴⁴ Companies involved in the healthcare sector whose activities focus on facilitating reasonable access to healthcare could, therefore, leverage these activities to encourage investment into the company. In this way, companies could be incentivised to pursue socially responsible use of patents over health technologies in order to encourage and maintain investment from socially aware investors.

Such trends could also be used to increase transparency in corporate activities and, in doing so, provide the engaged shareholder with information that can guide, inform and support their actions. In this context, disclosure of a company's socially responsible activities has traditionally been on a voluntary basis with industry disclosure frameworks seeking to encourage transparency and consistency amongst companies. The Global Reporting Initiative Sustainability Reporting Standards, for example, seek to establish a ‘common language for organizations and stakeholders, with which the economic, environmental, and social impacts of organizations can be communicated and understood’.Footnote ¹⁴⁵ These standards call on companies to disclose non-financial information, such as how a company has responded to its stakeholders’ reasonable expectations and interests, and how the company has performed in the wider context of sustainability.Footnote ¹⁴⁶ The OECD's Principles of Corporate Governance similarly encourage companies to disclose non-financial performance including (where relevant to the company) relating to ‘social issues, human rights and other public policy commitments’.Footnote ¹⁴⁷ However, in addition to voluntary disclosure frameworks, legislative and regulatory authorities are increasingly seeking to encourage ESG-related disclosure by integrating this disclosure into reporting requirements. This has resulted in a growing number of non-financial disclosure requirements being placed on companies, particularly on larger companies. In the UK, while company directors are not obliged to take into account the broader stakeholder considerations built into section 172 of the Companies Act 2006, large companiesFootnote ¹⁴⁸ (that do not qualify as smallFootnote ¹⁴⁹ or medium companies)Footnote ¹⁵⁰ must nevertheless prepare a strategic report that includes a statement describing how the company's directors have ‘had regard to the matters set out in section 172(1)(a) to (f) when performing their duty under section 172’.Footnote ¹⁵¹ As part of the strategic report, companies with shares listed on a stock exchange must also include information about social, community and human rights issues that are relevant to the performance and position of the company, as well as information about any relevant company policies and their effectiveness.

Some commentators have suggested that prioritising stakeholder needs could result in directors becoming less accountable to shareholders and more insulated from oversight.Footnote ¹⁵² However, we argue that recent moves to require greater disclosure about corporate activities is a development that could help to address this oversight issue and, as such, should continue and expand in scope. Now is the time for governments, regulators, and investors to actively require greater transparency amongst companies through ‘clearly designed’Footnote ¹⁵³ reporting frameworks that require disclosure of their socially responsible actions. Through this push for transparency, patent-holding companies in the healthcare sector may also be encouraged to pursue more socially responsible licensing and use of patents due to the need to disclose this information publicly and the potential for scrutiny if they act in a manner that is adverse to public health. This would in turn work to support the activities of shareholders calling for greater social engagement by companies in which they have invested.

With the influence of public opinion and the expectation from investors that companies will be transparent in disclosing their activities, there would appear to be a number of factors that, if strengthened and strategically leveraged, could support engaged shareholders calling for companies to consider the broader public interests impacted by their decision-making. These strategies help to place socially responsible licensing as a legitimate expectation of the public, investors and shareholders. In the healthcare context, the impact of Covid-19 could further strengthen these factors and bring them together with an overlapping objective of facilitating greater access to patented health technologies.

(c) Compulsory licensing: a strategy to leverage change and mandate licensing aligning with public health needs

In addition to encouraging more socially responsible use of patents over health technologies, ‘hard’ or legally enforceable strategies that push a company towards adopting such practices should be strengthened.

In this vein, state interventions with licensing behaviour can be achieved by using compulsory licensing as discussed above. However, much greater normalisation of the use of compulsory licensing by WTO states is needed for this to act as an effective leverage over corporate decision-making.Footnote ¹⁵⁴ The system of compulsory licensing must be made more effective and normalised in practice such that where licensing is contrary to broader public health aims, compulsory licences will be issued to temper such issues in a more routine rather than exceptional manner. In practice, such a change would likely mean that where voluntary licensing negotiation strategies are not sufficient, compulsory licences could be a more effective (and more regularly employed) threat to encourage or (where needed) force rightsholders to license health technologies on more reasonable terms. Such compulsory licences allow a third party to use a patented technology without the rightsholder's permission under specific circumstances. Seeking to avoid a real threat of compulsory licensing and a loss of control could form a strong incentive for companies to adopt socially responsible licensing strategies as part of a companies’ decision-making.Footnote ¹⁵⁵ Companies may, therefore, be more inclined to make decisions that align with ensuring reasonable access to patented health technologies. Such decisions would also be justified on an enlightened shareholder value basis as it would allow the company to retain a level of control over its intellectual property rights provided such rights are used in a manner that aligns with delivering access to health technologies in a socially responsible manner. Such an approach would support a more holistic and longer-term conception of value for shareholders where shareholders also focus on the broader public interests at stake.

Moreover, if the use of compulsory licences by states became a more normalised practice and the threat of loss of control in such instances became more credible, companies holding patents over health technologies may be more effectively encouraged to pre-emptively implement socially responsible licensing practices to avoid the threat of a compulsory licence being issued. Indeed, we already see evidence of companies changing patent licensing practices within the Covid-19 context.Footnote ¹⁵⁶ Since the Covid-19 pandemic outbreak a small number of patent-holding companies have agreed to voluntary licences for health technologies or have agreed not to enforce relevant patents in such contexts (often under specified conditions).Footnote ¹⁵⁷ For example, to address the shortage and need for increased access to ventilators during Covid-19, Medtronic plc (Medtronic) released a ‘permissive license’ setting out the design, manufacturing and related information, as well as the software needed, to manufacture ventilators. This provided a non-exclusive, royalty-free, world-wide licence ‘to use, make, have made, manufacture, have manufactured, sell and have sold a ventilator’ in response to Covid-19.Footnote ¹⁵⁸ However, unlike compulsory licensing, voluntary licences allow the patent-holding company to determine the conditions of such licences. This allows the company to retain control over its inventions and the use of its intellectual property while still seeking to address access to healthcare concerns.Footnote ¹⁵⁹ In its permissive licence, for example, Medtronic set out clear parameters within which the licence could be used. These included a time limit, a limitation on Medtronic's liability for any damage that occurs from ventilators manufactured under the permissive licence and a confirmation that Medtronic continues to own the material disclosed.Footnote ¹⁶⁰ Thus, even though such initiatives may result in some short-term financial detriment to companies by allowing others to manufacture a patented health-technology, they allow those companies to retain control over the terms of usage of their patent and facilitate use of intellectual property in a manner than aligns with broader health interests in a health emergency context. If compulsory licensing provisions were more frequently used, more companies may prefer to issue similar licences on a voluntary basis on terms they can control, rather than have a compulsory licence issued against them. Accordingly, if compulsory licences were more frequently used, this or the threat of one being issued could act as strong leverage to encourage companies to license health technologies in a more socially responsible manner.

Nonetheless, to achieve this, states must ensure that they evaluate and reform national laws, where needed, to make them as effective as possible in facilitating the use of compulsory licensing. During Covid-19 some countries, including Germany, France and Canada, modified national laws to make the use of compulsory licensing more feasible in certain contexts.Footnote ¹⁶¹ The pandemic could be the catalyst that encourages such changes to domestic laws on a wider scale. However, states need to affirm their willingness to use such compulsory measures, and obstacles that currently prevent the practical use of compulsory licences in many contexts (such as data exclusivity issues and issues around transferring knowledge and know-howFootnote ¹⁶²) need to be urgently addressed. Only then will compulsory licensing be a more viable and effective oversight mechanism over rightsholders’ behaviour.Footnote ¹⁶³

(d) Contractual clauses: a strategy to mandate socially responsible licensing practices for intellectual property derived from funded research

Finally, contractual clauses could be inserted by funders of research in the health context to mandate that any intellectual property rights (including patent rights over health technologies) developed using such funds are offered on an accessible basis downstream. Alternatively, for example, such contractual clauses could require that the companies that obtained such funds would license the relevant health technologies to voluntary intellectual property pools for public health purposes. During Covid-19, civil society groups have argued that the extensive public funding of Covid-19 health research should have been accompanied by clauses mandating the sharing of intellectual property rights arising from such research for the duration of the pandemic. This sharing could be through a global voluntary licensing mechanism such as CTAP, or by non-enforcement of intellectual property rights.Footnote ¹⁶⁴ Through CTAP, the WHO sought to encourage governments and other funders to:

However, there has been limited adoption of such contractual clauses within funding agreements for Covid-19 to date. Where they have been used, such clauses often leave considerable discretion to rightsholders by encouraging rather than mandating socially responsible licensing. In particular, such clauses within funding agreements were not routinely used for Covid-19 related publicly-funded research in the UK or other countries. This has prompted calls for such clauses to be used more routinely in the future.Footnote ¹⁶⁶ Greater consideration should, therefore, be given to imposing such contractual clauses with respect to publicly funded health research to retain control over how the benefits from such research are accessed downstream and to ensure this becomes a routine practice for publicly funded research. The more emphasis that is placed on this globally, the greater the reputational fall-out that could result if research partners (including rightsholders) refuse to comply or engage with such conditionality within publicly funded research. Such clauses will be a matter of contractual negotiation, but an increased market practice for including them in funding agreements where possible, alongside greater transparency around funding agreements to ensure these are subject to public scrutiny,Footnote ¹⁶⁷ and a greater expectation amongst funders and those in receipt of funding that such contractual clauses will be used, could encourage greater focus on uses of patents over health technologies in a manner that aligns with broader health interests.