Vringo’s Litigation with ZTE: The Continuing Saga…

Vringo’s NDA dispute with ZTE has been previously noted in this blog.  The case in the Southern District of New York involved violation of a Non-Disclosure Agreement by alleging revealing confidential materials without authorization to China’s antitrust enforcers.  Vringo’s general counsel claimed at that time that he could not come to the United States due to an investigation involving ZTE’s violations of US export control laws. ZTE was under threat of sanctions due to violations of the NDA and other conduct.

Since the time of the global settlement between Vringo and ZTE in late 2015, ZTE entered into a settlement with the Department of Justice over violations of US export control laws (March 2017), including claims of obstruction of justice and making of false statement to federal investigators. A fine of 1.19 billion dollars was imposed, making it the largest fine for export controls in US history.  ZTE’s actions included use of shell companies and internal corporate structures designed to destroy or conceal information, including punishment of whistleblowers.  The controlled exports involved Iran and North Korea.

In the latest development, ZTE’s US-based lawyers have now been hit with a law suit by one of its employees, claiming that King & Spaulding fired him because of “wrongful termination of his employment in violation of the implied-in-law obligation of a law firm to refrain from erecting or countenancing disincentives to compliance with the core rules of professional conduct.”  The complaint relies in part on hearing transcripts, including the following where Judge Kaplan stated to Mr. Straus, ZTE’s counsel:

“I see obstruction all over the place, not in a technical obstruction of justice criminal case sense, but obstruction of legitimate discovery, and I am not going to stand for it for much longer.”  ZTE Matter, Hearing Tr. (Doc. No. 143) at 13:2-25.

The plaintiff David Joffe, is represented by Andrew Moskowitz.  The complaint, filed May 8, 2017, is attached.

CFDA’s New Policies to Promote IP and Innovation in the Pharma Sector

As noted previously in this blog, the death of patent linkage which had been heralded by draft Drug Registration Rules appears to be premature.  In fact, the China Food and Drug Administration has stated that it is interested in developing a more robust patent linkage system.  On May 12, 2017, the CFDA published a draft policy announcement soliciting public comment on developing a more  IP environment for innovative drugs, including more robust patent linkage and addressing other areas, such as data exclusivity.

Patent linkage provides a “linkage” between pharmaceutical regulatory approvals and patent infringement, whereby regulatory approval is denied until the relevant patent is expired or determined to be invalid or not infringed.  A linkage system for a country like China would provide greater stability in patent enforcement for both innovators and generics, by insuring that innovators are amply protected by their innovation, and generic companies are afforded opportunities to seek regulatory approval based on proof that a patent that might otherwise prevent their entry into market is invalid or not infringed by the generic companies’ product.  The US experience with Hatch Waxman, which established our patent linkage system is that it has, in the words of former USPTO Deputy Director Teresa Rea helped “ generics account[]for 75 percent of all prescribed drugs, saving consumers and society more than $1 trillion over the last 10 years”.

This draft policy also contemplates additional improvements on data exclusivity, protecting confidential information in its procedures and developing what appears to be an “Orange Book” type system for disclosing relevant patents, as well as the periods for data exclusivity in new pharmaceutical marketing approval applications.

Providing enhanced data exclusivity protection appears to be an effort to implement a 2012 JCCT commitment regarding what constitutes a “new chemical entity” for purposes of regulatory data protection.  Certain foreign countries, such as Chile, provide data exclusivity within a window of overseas product launch, which this draft appears to borrow from to the extent of a commensurate reduction of the period of data exclusivity based on delays in introducing novel pharmaceutical products beyond a one year window into China. The draft thereby forces the hand of innovators to introduce their product expeditiously into the Chinese market.

Additional protection of confidential information in government proceedings appear to be consistent with proposed amendments to China’s Anti Unfair Competition Law and JCCT commitments.   In addition, the enhanced protection for data exclusivity is also consistent with proposed changes in the AUCL that remove the “practical applicability” requirement which by law would deny trade secret protection to experimental failures.

The draft policy does not discuss how the courts might handle data exclusivity or infringement issues, including the role of patent administrative agencies, or other aspects related to determinations of infringement that affect marketing approvals. To fully implement these policies, changes would likely need to be made in a number of laws or regulations, as well as judicial practices.  As an example, China’s patent law made need to require that a request for marketing approval would need to constitute infringement of an innovator’s patents. It is also unclear to me what courts may have jurisdiction over these matters, and if there are administrative and/or civil remedies to be made available for the various obligations that these policies propose.

Attached is a  rough, draft translation of CFDA Bulletin No. 55.  Also attached is a translation by Allen & Overy. Comments on this policy document are due by May 25 although the deadline for consultations is June 10.

All told, the draft shows an increased interest by CFDA in IP issues  in one of the most important markets in the world.  Nonetheless, as David Shen and Yijun Ge of Allen & Overy’s Shanghai office point out in their recent posting, another trend balanced against improved patent protection is generic consistency in pharmaceutical approvals.  This is also part of the drug approval reform which now mandates adherence to bioequivalence with an innovator’s approved drug, rather than previous procedures which required conformity to a national standard.  Thus, according to these authors, while an effective patent linkage system would strengthen overall patent protection, changes in bioequivalence requirements could also result in lowering the price of off-patent drugs through  different means.  As they point out: “most people believe that they [generics] will directly compete with off-patent drugs during the tendering process, without the current protection of “patented” status for the latter”.

In another development, exactly one week before this important CFDA policy document was released, the World Health Organization released its report  “China Policies to Promote Local Production of Pharmaceutical Products and Protect Public Health” (May 5, 2017).  The IP chapter of this apparently unrelated report focuses on technology transfer (Bayh-Dole), genetic resources, compulsory licensing, data exclusivity, and the need to improve domestic patent policy.  The introduction views patents as efforts to “monopoliz[e]” medicine, rather than (in my view) of taking a more pro-competition stance of recognizing that patents provide incentives to innovation and not necessarily monopolies and policies such as patent linkage strike a balance between generics and innovative companies to insure stability and competition in the market place.   In this sense, the report does not appear to anticipate the important new CFDA policy discussed above.  The words “patent linkage” do not appear in the IP section of this report, although the report does reference in an introductory footnote the “Guiding Opinions for Promoting Healthy Development of the Pharmaceutical Industry” (March 11 2016) which has a goal that generics are launched for 90 percent of drugs with expired patents by 2020.  This could be read to infer that generics are not launched when infringement has been determined, such as according to these proposed CFDA linkage policies.   In addition, the report does not consider issues the importance of post filing supplementation of data for China’s innovative industries and the role of China’s innovative companies in promoting reforms that improve IP.

Please provide any comments or suggestions to improve the draft translation or these personal observations.

Updates: afternoon of May 14, 2017 and morning of May 17, 2017.

SPC Puts National Appellate IP Court On Its Agenda

At an IP symposium held this Wednesday, May 10, 2017 in Chengdu, it was revealed by a senior Chinese academic (Prof. Wu Handong)  in response to a question raised by former Chief Judge Randall Rader, than the Supreme People’s Court has decided to recommend to the National People’s Congress that China should establish a national appellate IP court, similar to the US Court of Appeals for the Federal Circuit.  Prof. Wu also noted that this court would be in addition to new intermediate level IP courts being established in Chengdu, Nanjing, Suzhou and Wuhan and would be part of the recommendations regarding continuation and expansion of the existing (and successful, in my opinion) IP court experiments in China (Beijing, Shanghai and Guangzhou).  The new Court’s jurisdiction, if approved by the NPC, would be similar to that of the existing specialized IP courts, and would focus on technology-related IP issues.  Prof. Wu noted that the court would likely be a circuit court that would be based in Beijing.  He also said  that he would present Judge Rader’s views supporting a national appellate IP court to the SPC for inclusion in its recommendations to the NPC.  Prof. Wu’s comments drew applause from the audience.

In  separate developments, Chengdu officials noted that it had received approval from the State Council to conduct a trial experiment in combined local administration of IP issues, where patent, trademark, copyright and other IP-related agencies would be combined.  This effort is intended to extend beyond the long standing “Market Supervision Administration” experiment in Shenzhen, which combines some IP administration enforcement agencies.  Chengdu would thus be conducting two significant experiments in IP protection next year – one on IP administration and another in establishing an intermediate-level IP court.

The discussions occurred at the 2017 Chengdu Global Innovation and Entrepreneurship Fair.