18 January, 2013

 

Legal News & Analysis – Asia Pacific – China – Intellectual Property

 

Recent years have seen a growing trend among developing countries such as Thailand, Malaysia, Indonesia, India, and Brazil of enacting and utilizing statutory powers to grant, or to compel a patentee to grant, patent licenses to third parties in the interests of public health. 

Such powers constitute a potentially major exception to the normal near-monopoly rights and commercial discretion enjoyed by the patentee. Their exercise (or threatened exercise) has proved extremely controversial, particularly in the area of pharmaceuticals, where patentees are often looking to recoup millions of dollars invested in developing and testing the patented products.

In late 2006 and early 2007, Thailand announced public, non-commercialuse compulsory licenses for the import and local production of efavirenz and lopinavir/ritonavir (anti-HIV/AIDS drugs made by Merck and Abbott Laboratories, respectively), and an anti-clotting agent sold by Sanofi-Aventis and Bristol-Myers Squibb. More recently, on March 9, 2012, the India Patent Office issued its first compulsory license, which permitted local manufacturer Natco Pharma Ltd. to sell Bayer’s patented renal oncological drug Nexavar in India. According to news reports, the decision was made based on the fact that Bayer was not importing the drug into India in large quantities, and that the product was priced at a level that effectively rendered it inaccessible to the local population. 

China’s State Intellectual Property Office (“SIPO”) recently promulgated the “Measures for the Compulsory Licensing for Patent Implementation” (the “2012 Measures,” issued in March of this year and effective in May). Coming within the same month as the Indian Nexavardecision, the publication of the 2012 Measures triggered concern in the pharmaceutical community and resulted 

 

Pharmaceutical Licenses and Approvals
ITEMS	NAMES OF LICENSES	STATUTORY TIMELINE FOR  ADMINISTRATIVE REVIEW AND  APPROVAL
Registration	• Registration Certificate of Pharmaceuticals  • Registration Certificate of Imported Pharmaceuticals	340 to 380 days for new pharmaceuticals  following the completion of clinical trial 150 to 190 days following the completion  of clinical trial
Manufacturing	• Pharmaceuticals Manufacturing License  • Good Manufacturing Practices	40 working days 6 months
Distribution	• Pharmaceuticals Operation License  • Good Supply Practices	45 or 60 working days 3 months
Advertising	• Pharmaceuticals Advertising Approval Number	10 working days

 

Medical Device Licenses and Approvals
ITEMS	NAMES OF LICENSES	STATUTORY TIMELINE FOR  ADMINISTRATIVE REVIEW AND  APPROVAL
Registration	• Registration Certificate of Pharmaceuticals  • Registration Certificate of Imported Pharmaceuticals	Category I: 40 working days Category II: 70 working days Category III: 100 working days 90 working days
Manufacturing	• Medical Devices Manufacturing Enterprise License	40 working days
Distribution	• Medical Devices Operation License	40 working days
Advertising	• Medical Devices Advertising Approval Number	20 working days

 

in several eye-catching headlines like Reuters’ “China Changes Patent Law in Fight for Cheaper Drugs.”

 

However, in reality the 2012 Measures hardly constitute a revolution in Chinese intellectual property protection. Indeed, the basic compulsory licensing mechanism has existed in Chinese Patent Law (the “Patent Law”) for well over a decade. Chapter VI of the PRC Patent Law (in its most recent 2008 incarnation) provides that a compulsory license may be awarded by SIPO when an applicant can establish one of the following circumstances:

 

• a patentee has failed to exploit a patent without reasonable justification for more than three years from the date of grant and four years of the date of filing; 
• a patentee’s patent use is determined to be monopolistic and a compulsory license would remove or reduce the anticompetitive effects of such patent use;
• public interest, extraordinary circumstances, or national emergency require a compulsory license;
• public health interests require that a compulsory license on patented medicine is granted to export the medicine to underdeveloped countries when such countries conform to the provisions of relevant international treaties; or
• major technical improvements with significant economic impact are dependent on earlier patents.

 

Note that compulsory licenses in the PRC are available only for invention patents and utility model patents, but not for design patents.  

If the basic mechanisms have been available for some time under the Patent Law, what then has changed under the 2012 Measures? 

In essence, the 2012 Measures do not significantly expand the nature of the compulsory licensing mechanisms themselves, but do clarify how the mechanisms are to be administered in the PRC from a procedural perspective. In this regard, the 2012 Measures merely constitute the next step in the evolution of and supersede the earlier, clarifying “Provisions on Compulsory Licenses,” which were promulgated by SIPO in 2003, and the “Measures for Compulsory License on Patent Implementation Concerning Public Health Problems” promulgated in 2005.

In particular, the 2012 Measures:

 

• clarify the procedural timelines for application and response periods;
• require that the requested term for the compulsory license be specified by the applicant;
• require that the parties carry out royalty discussions and attempt to reach agreement between themselves before requesting SIPO to issue a ruling on the amount of royalty; 
• clarify the circumstances under which a compulsory license may be terminated;
• clarify that a person demanding a compulsory license under the Patent Law based on alleged monopolistic practices has made reasonable requests to the patentee to obtain a license but was not successful in obtaining a license; and
• bring the compulsory licensing of medicines for public health interests into line with TRIPS requirements.

 

Compared to the 2005 Measures, the 2012 Measures include more detailed requirements on the export of compulsory licensed medicine: for example, that the quantity of medicine manufactured should not exceed the quantity required by the importer; that all medicine should be affixed with special labels or carry clear instructions; and that when it is feasible and will not significantly affect the price of the medicine, the medicine should be produced in special colors or shapes, or packaged using specially designed packaging.

 

Notwithstanding these clarifications, the 2012 Measures inherit some of the ambiguities from prior law, perhaps most significant among them a relative lack of clarity as to which factors SIPO would consider in granting a compulsory license, or how SIPO would determine royalty rates.  

If the 2012 Measures do not substantially change the existing law and given that SIPO has not issued a single compulsory license in the decade that the basic underlying mechanisms have existed on the PRC statute books, should pharmaceutical companies be concerned about the publication of the 2012 Measures?  

Arguably, the answer is yes—when seen in content of the wider picture. Healthcare reform forms a major pillar of the Chinese government’s 12th Five-Year Economic Development Plan (2011-2015). High pharmaceutical costs coupled with a vast population are seen as a major hurdle in achieving this goal. Moreover, Chinese officials have been increasingly active high-profile participants in UN-sponsored drug access workshops such as those held last month in Bangkok, at which compulsory licensing was a key topic of discussion. 

Thus, while the 2012 Measures do not substantially change the existing law, their publication may signify an increasing willingness on the part of the PRC government to use the compulsory licensing tools at its disposal either to compel a license, or perhaps as a bargaining chip to extract concessions from pharmaceutical companies and other patent holders in limited, strategically important cases. That said, competing priorities such as the desire to build and protect its own nascent biotech industry will also undoubtedly temper the government’s willingness to exercise these powers and it seems unlikely that the 2012 Measures will herald a flood of compulsory licenses in China.

 

Gordon Milner, Partner, Morrison Foerster