Beijing IP Court Report on Proposed Patent Linkage Regime

The Beijing IP Court has recently released a Report on patent linkage, which highlights the legal challenges that the courts may face in implementing the proposed linkage regime, entitled  “Research on the China Pharmaceutical Patent Linkage System” (中国药品专利链接制度研究) (the “Report”) (China Trial magazine (中国审判).  The Report references the various developments in patent reform as well as Notice 55 (2017) of CFDA “Policies Relevant to the Protection of the Rights and Interests of Innovators for the Encouragement of Innovation in Drugs and Medical Devices (Draft for Public Comment)” (食品药品监管总局就鼓励药品医疗器械创新保护创新者权益征求意见) (the “Innovation Proposal”), which I discussed here.  The legal challenges identified in the Report include the following:

1.The Report notes that the proposed regime does not currently impose a compulsory litigation system. In the absence of such a legal requirement to litigate, the administrative power cannot interfere with the free will of the parties, i.e., it cannot require the parties to avail themselves of a linkage system. 

My comment: For a generic company to be able to enter the market in advance of patent expiration, it will need to utilize the litigation system.  Otherwise, it should be denied marketing approval.  On the other hand, if an innovator wants to challenge a generic company that has obtained a marketing approval without a finding of non-infringement/invalidity/patent expiration, it should be able to bring a litigation through the linkage regime as plaintiff.  According to recently proposed rules, generic applicants claiming to fall outside of existing patent scope or seeking to invalidate patents, would be subject to suit by the innovators via a court or CNIPA within 45 days of seeking regulatory approval (Art. 7).  In addition, there should be little incentive to sue outside of the newly established linkage process for generic or innovative companies.  If a generic company wishes to use normal civil and administrative procedures to sue an innovator, courts should be required to implement similar expedited procedures to the linkage regime.

2. The second issue identified by the Court is the conflict between “artificial infringement” and the current Patent Law. According to the Report, the patent linkage system adds the new concept of an application for regulatory approval to the scope of infringing patent acts, or a concept of “artificial infringement.” However, the Patent Law does not stipulate the act of applying for regulatory approval as an act prohibited by patent rights and subject to injunctive or other relief. This will bring a series of problems in the judicial process. In addition to the risk of dismissal due to the lack of a legal basis, a court can determine the accused infringement generic drugs fall into the scope of patent protection, but due to the Bolar exemption, the acts of preparing a generic drug for market may not constitute patent infringement.  

My comment: China’s Bolar exemption is being used, once again to advance an extensive safe harbor from commercial scale infringing acts done in anticipation of market entry, which is a potential TRIPS violation (Art. 30). Although I agree with the Report that this issue should be clarified, I disagree with the absolute necessity of clarifying what constitutes an artificial infringement, as the statute should be interpreted in accordance with China’s international obligations (including the TRIPS Agreement, and the Phase 1 Trade Agreement), as well as with prior practice of China.  It is also wrong to assume that linkage is a wholly new concept to China’s legal system, which this analysis might imply.  China had a limited patent linkage regime in the past without a concept of “artificial infringement.”  It was also administered by the courts.  The late Prof. Benjamin Liu discussed this regime in an article in 2012:

“Previously, Chinese courts reached inconsistent decisions as to whether the unauthorized making and using of patented products during the course of preparing for a drug registration constituted patent infringement. For example, in 2000, the Chongqing Intermediate People’s Court imposed damages against generic company for the unauthorized use of patented technology in connection with drug approval in Glaxo v. Southwestern Pharm.  Later, in 2005, the Jilin Intermediate People’s Court ordered a generic defendant to stop its drug registration process after finding that the unauthorized use of patented traditional medicine formulation in the course of registration is intended for infringing production in Chengdu Kanghong Pharm. v. Liyuan Pharm.Other courts were less sympathetic to the patentee….”

3.The third issue that is there is no guarantee that the specific deadlines will be observed. The Report notes that the timelines are tight, and there could be difficulty in communicating and responding.  Moreover, many of the innovators are multinational companies.  Even if there are representative offices of such multinationals in China, the 20-day period is obviously insufficient to inform the decision-making department and respond. 

My comment: I agree with this assessment. The relationship between the periods being established by the linkage regime and China’s Civil Procedure Law  (Art. 250) which permits the suspension of certain litigation time frames for foreign related cases also needs to be clarified.

4. As a fourth issue, the Report notes that the way to challenge others’ patents is incomplete. The Report notes that in the drug patent linkage systems in the United States, Canada, and Taiwan, the patent challenge program has set two challenges — patent invalidity and patent non-infringement.  However, the challenge set by the Innovation Proposal is only the challenge of non-infringement of patent rights, and not patent invalidation. In fact, a patent invalidation challenge approach is more conducive to competition among generic drug companies as a whole, and it is conducive to subsequent imitation by other generic drug companies, which can play a greater role in drug accessibility. 

My comment: I agree that this is a potential problem.  One solution would appear to be in the first instance to permit the Beijing IP Court to hear both validity and infringement combined, much as has the new national appellate IP Court has piloted late last year in Xiamen Power Electronic Technology Co., Ltd. v.  LG Electronics (Tianjin) Appliances Co., Ltd.  Secondly, administrative validity procedures should be expedited, with the Beijing IP court authorized to reach a final administrative decision on validity, rather than requiring remands to CNIPA.

5.As a fifth issue, the Report notes that many operational regulations of the patent linkage system need to be refined. For example, issues such as the determination of the court of jurisdiction, the choice of the cause of the case, the time limit for prosecution, procedures for challenging invalidity and non-infringement, and the connection between judicial and administrative agencies need to be determined.

My comment: I agree with this assessment as well. 

In addition to the above, the Report makes a recommendation regarding which court should have jurisdiction over linkage disputes. The Report notes that “the Beijing Intellectual Property Court specializes in national patent administrative authorization and confirmation cases and Beijing patent infringement cases. The case has a complete range of categories, a large number of cases, a large number of technical judges, a deep legal literacy, and solid practical skills, and can undertake the trial of patent challenge cases.”

My comment: I agree with an assessment that the Beijing IP court should take exclusive jurisdiction over China’s linkage regime for the reasons stated.  However, in order for a linkage system to work well, it is also important that the courts take a less restrictive view regarding pharmaceutical validity cases, particularly involving post-filing supplementation of data which has long been a bilateral bone of contention.

Any discussion regarding patent linkage in China must also return to basics: if the innovator’s patents are not being granted, then there are not patents to “link” to, and the linkage regime would be of little use.

China’s “Naked Bolar” and the Tapering Momentum to Protect Innovative Pharmaceuticals

There have been several important developments in recent weeks involving pharmaceutical IP protection in both mainland China and Taiwan.  Based on these developments, mainland China appears to be slowing its momentum to afford better IP protection to innovative pharmaceutical products (perhaps as a negotiating position in the Trade War), while Taiwan is pursuing a more protective approach.

On August 26, 2019, China’s National People’s Congress adopted the new Drug Administration Law (“DAL”), which will take effect on December 1, 2019. The DAL was passed after almost two years of review and deliberation.  The legislative history is set forth in the  NPC Observer.    The new law addresses some important issues involving counterfeit and substandard medicines.  However, it does little to improve the IP regime for innovative medicines.

As noted in this blog, there had been expectations that certain IP issues such as patent linkage and regulatory data protection might be reflected in the DAL and especially pending IP legislation.  In the latest draft of the Chinese Patent Laws presented to the State Council in December 2018, no detailed improvement mechanisms of the patent examination/granting system were included with respect to pharmaceutical patents were included.   It was hoped that a linkage system would emerge as part of a package of legal reforms to resolve the US-China trade war or to implement as earlier CFDA policy decision.

China has long adopted one small part of a modern IP/regulatory approval mechanism to encourage its generic sector.  China’s “Bolar Exemption” which was incorporated into the 2008 Patent Law amendments (Article 69), exempts from infringement producing, using, or importing patented drugs or patented medical apparatus and instruments, for the purpose of providing the information required for administrative examination and approval.   This type of Bolar Exemption has often been called a “naked Bolar exemption” as it provides for the erosion of the innovator’s patent rights to exempt from infringement research to introduce competing generic drugs.  It is “naked” as it it does not compensate the innovator for the losses of the patent term caused by this exemption nor for the resultant instability to any marketing exclusivity the innovator may face by reason of accelerated challenges to the patents it holds.   One way of compensating the innovator for such erosion of the term is to extend it on the “back end”  before its expiration.  A 2019 draft of the patent law amendments sought to correct this lack of a patent term extension.  Another way of providing for greater stability would be establishing a patent linkage regime which “links” marketing authorization with patents that read on the relevant pharmaceutical product or successful challenges to its exclusivity.

The current naked Bolar regime has several adverse consequences. The most obvious and significant is that it does not provide legal support for approval and marketing of generic drugs that are proven not to infringe an innovator’s patent rights, as a “patent linkage” regime might.   A Bolar exemption only addresses research intended to support regulatory approval and is not an exemption from infringement.  To the extent that Chinese regulatory authorities may be relying on the Bolar exemption to approve the marketing of infringing generics, such an effort is legally misguided.  A naked Bolar is not a substitute for an IP and regulatory regime that balances the needs of generics and innovators.  As Amcham noted in its comments on the original Bolar exception provision: “Effective IP protection for pharmaceutical products requires notice, transparency, and time to resolve legal issues prior to the approval of a generic product.” Such protections are not afforded under the existing regime and could be with an effective linkage regime.

Another adverse consequence is that it erodes the term of the patentee without the kind of bargaining that went into the US Bolar exemption, creating a kind of sui generis exemption from infringement for additional acts of research to facilitate product introduction which is not otherwise permitted under the patent law.  To the extent that the naked Bolar expands research exemptions to production and warehousing of an infringing generic pharmaceutical, and does not adequately limited or compensate the rights holder,  it may violate the terms set forth the in the WTO decision EU v Canada (DS/114) where the WTO noted that the Canadian Bolar exception could only apply to regulatory review where  “no commercial use is made of resulting final products.” (line 7.45).   The Bolar exemption should not be used to bootstrap a broader researcher or pre-marketing exemption.  As former Chief Judge Rader noted of the US patent law in discussing research exemptions: “the Patent Act leaves no room for any de minimis or experimental use excuses for infringement. Because the Patent Act confers the right to preclude ‘use,’ not ‘substantial use,’ no room remains in the law for a de minimis excuse.”  (Embrex v. Service Engineering, 216 F.3d 1343 (Fed. Cir. 2000).

Finally,  the “naked Bolar” sends a wrong signal by suggesting that China is not fully committed to developing an innovative pharmaceutical sector, despite China’s considerable human resources, investments, rhetoric and planning to the contrary.

Judging by recent generic drug approvals in China, there may be decreased momentum on the ground to protect innovative pharmaceuticals through limiting regulatory approval during the pendency of relevant patent protection.  Several generic versions of innovative pharmaceutical products have recently been approved by China for different manufacturers at the time of these recent DAL amendments, including Azilsartan, a product originally developed by Takeda that addresses hypertension, and is now produced by Zhaoke Pharma, a wholly-owned subsidiary of Lees Pharma. Azilsartan and Esketamine (a Janssen product for treatment-resistant depression) are also now being produced by Jiangsu Hengrui Medicine.  Pomalidomide,  a Celgene-developed product for treating multiple myeloma,  is produced by Chiatai Tianqing Pharma.  Bendamustine, a Teva product for  chronic lymphocytic leukemia, is being produced by Nanjing Simcere Pharma.  These products have obtained approval priority from CFDA and are expected to be approved by the time the new DAL comes into effect.  As is evident from this list, some products (Azilsartan) are being produced in generic form by more than one manufacturer.  This phenomenon of multiple competing generic manufacturers who may not have had to pursue patent challenges to the innovator to obtain marketing approval (as in a linkage regime), could also result in competition amongst generic manufacturers without strong incentives for follow-on innovation to the original compound.

By comparisons to this apparent backsliding in Mainland China, the Taiwan Executive Yuan has passed the bill to enact the new Pharmaceutical Affairs Act (“PAA”) on January 31, 2018. Patent linkage was specifically approved in Chapter 4 of the new PAA. Previously, in 2018, the Taiwan Food and Drug Administration had issued two drafts of the Enforcement Rules for Patent Linkage. Further, in May 2019, the Taiwan Ministry of Health and Welfare and the Ministry of Economic Affairs held a public hearing to clarify the intent to extend the patent linkage system in PAA to biosimilars. In July 2019, the Ministry of Health and Welfare officially announced that it is considering adding transitional clauses to exempt biosimilars which have obtained official clinical trial approvals during the implementation phase of patent linkage system in Taiwan.

While there appears to be weakening momentum for patent linkage, the DAL does change the regulatory regime for counterfeit medicines and vaccines.  In an apparent effort to address public health needs, the DAL, as revised, modifies the definition of counterfeit drugs.   Under the prior version of the DAL, unapproved imported drugs are deemed as counterfeit. Although the new DAL still prohibits importing and selling of unapproved drugs in large quantity, the importation of small amounts of drugs which have been legally marketed in other countries for urgent clinical needs is exempted under the new DAL, subject to other relevant laws and regulation.  The DAL also seeks to strengthen regulation over vaccine manufacturing, most likely in response to the vaccine scandal of 2018. Under the DAL, out-sourcing of vaccine manufacture is strictly prohibited. The punishment on manufacture and supply of counterfeit vaccine has increased from 5 times of revenue to 30 times of illegal proceeds.  The vaccine Marketing Authorization Holder (“MAH”) must meet certain standards set out in the new Vaccine Administration Law. The regulators will also establish a national traceable platform for the production, transportation, and storage of vaccines.  Lastly, new mechanisms such as the MAH system, defective drug recall system, filing system of clinical trial institutions will be implemented.  The existing “Good Manufacturing Practice for Pharmaceutical Products” (GMP) certification system for drug manufacturers and the “Good Supply Practice for Pharmaceutical Products (GSP) certification system for drug suppliers will be canceled.

Looking at all of the various legislative and regulatory developments in Mainland China and Taiwan, it is hoped that mainland China will ultimately find the right balance of incentives to encourage the further development of its innovative pharmaceutical sector, much as the US did with its Hatch-Waxman Act, while continuing to develop a secure supply of high quality innovative and generic products.

This article was written by Mark A. Cohen and Angel Liu.

A Potpourri of AIPLA Legislative Comments — And Other Developments

potpourri

The American Intellectual Property Law Association has once again made its comments on proposed changes to Chinese IP legislation (laws, regulations, rules, examination guidelines,  judicial interpretations, etc. ) available to this blog.

Attached are the AIPLA’s response to the request for comments to revision of the trademark law in China (商标法修改公开征集意见) first published by SAIC.  SAIC is now a part of SAMR – the State Administration for Market Regulation. It had published a public solicitation of ideas for revising the trademark law on April 2, 2018, with a due date for comments of July 31, 2018.  AIPLA’s comments primarily focus on providing clarifying and strengthening legislation regarding bad faith trademark applications and registrations.

AIPLA has also commented on the proposed patent validity rules  of the SPC on administrative patent litigation (最高人民法院关于审理专利授权 确权行政案件若干问题的规定(公开征求意见稿)).  This judicial interpretation was previously discussed in this blog, with a translation by the Anjie law firm.  Additionally, here  is the Chinese version of these comments.

Finally, AIPLA has commented on the special approval procedure for innovative medica devices (创新医疗设备特别批准程序(修订稿)) which was first published for public comment on May 7, with a closing date of June 15.   Here is a text of the draft approval procedures in Chinese.

In a related legislative development, the recent dismissal of party secretary Bi Jinquan of the SAMR due the tainted vaccine scandal may also impact reforms that BI had spearheaded, which included pharma-related IP reforms (patent linkage, regulatory data protection, etc).   Commissioner Bi formerly served as the leader of China’s Food and Drug Administration.  An August 20, 2018 notice of the State Council  (no. 83) on deepening reform in China’s medical sector ominously omits any mention of patents or IP reform.  国务院办公厅关于印发深化医药卫生体制改革2018年下半年重点工作任务的通知, (国办发〔2018〕83号.  The next place where we might see the continued life in these reforms is in the proposed revisions to China’s patent law, which the National People’s Congress had tabled for completion by the end of 2018 as noted in its 2018 workplan  (全国人大常委会2018年工作要点).  A first draft of the revised patent law is needed as early as late August/early September 2018 in order to meet the NPC’s deadline.  One much anticipated pharma-related concern in the new draft, which would also support China’s efforts to develop both an innovative and high quality pharma sector, is incorporation of “artificial infringement” by which a request for regulatory approval would be deemed an infringing act in order to support a patent linkage regime.

 

Note: The above photo by Unknown Author is licensed under CC BY-NC-ND