31 October 2017

Patent dispute reform in the pharmaceuticals sector

This article was written by Shi Bisheng(Partner) and Guan Xiangyu(Associate).

In October 2017, the China Food and Drug Administration (“CFDA”) released a series of documents regarding reform of China’s drug administration system. The aim - more access to cutting-edge pharmaceuticals at a lower cost. This new patent linkage system (“PLS”) is discussed in the following two important documents:

  • Opinions on deepening the reform of the examination and approval system and encouraging the innovation of pharmaceutical and medical devices (“the Opinions”) issued by the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council on 8 October 2017; and
  • A revised draft of Provisions for Drug Registration (“the Provisions”) issued by CFDA on 23 October 2017.

The PLS links the registration procedure of a generic drug for marketing and patent rights. It has been running successfully in the United States under the Hatch-Waxman Act since 1984. The PLS aims to solve patent infringement disputes before a product is marketed. This better protects owner’s rights, decreases the risk of patent infringement for generic product makers, and lowers the overall cost and duration of drug registration. The PLS will no doubt be influenced by the Hatch-Waxman Act, but will need to be adapted to fit the Chinese market.

The Opinions and the Provisions signal an acceleration of the enforcement of the PLS in China, although complete enforcement might still take one or two years. Patent disputes are on the rise, with generic drug makers becoming more likely to challenge existing patents before products are marketed, and owners striking back with patent infringement litigation. Therefore, it is necessary to discuss the present status and future trends of the PLS in China, and provide some practical advice.

Present status of the PLS in China

Under current law and regulations, the PLS is merely a concept. A preliminary regulation regarding the PLS is Article 18 of the Provisions released in 2007. This only provides that a generic applicant must provide a non-infringement statement in case a drug is patented.

Article 18 is silent about the penalty for failing to provide a statement. In practice, as the department responsible for drug registration, CFDA does not actually examine patent infringement issues. On the contrary, CFDA is very likely to approve a drug registration application without knowing whether the generic drug would infringe any patent right under the present regulations. Therefore, the PLS has not yet been actually enforced in China.

Regulations to be enforced and underlying problems

The Opinions and the Provisions provide general instructions regarding the PLS, such as non-infringement statements, patent challenges and lawsuits, pending periods of drug evaluations, experimental data protection, etc. To be more specific, a set of draft regulations issued in May by CFDA, the Announcement on the Policies for Encouraging Innovation in Drugs and Medical Devices and Protecting the Rights and Interests of Innovators (“Order No. 55”), provides more details about enforcement, which are set out below along with our comments:

1. Establishment of the Chinese Orange Book

Regulation in Order No. 55: An official catalogue of marketed drugs (the Chinese Orange Book) will be established to record pharmaceutical and commercial information as well as patent status.

Comments: The Chinese Orange Book will lower the cost for the relevant parties to obtain drug patent information, especially for generic makers to gather key information about marketed drugs. The Book will thus help generic makers develop strategies for patent challenge.

2. Patent challenge by a generic maker

Regulation in Order No. 55: When challenging existing drug patents, the applicant should submit a non-infringing statement on relevant patents and notify the patentee within 20 days.

Comments: The regulation does not define “challenge”. Present practice in China, is that the only way to challenge a patent is to initiate an invalidation procedure before the Patent Reexamination Board. If “challenge” means an invalidation procedure, requirements such as time limits may be specified in the future.

3. Infringement lawsuit by a patentee

Regulation in Order No. 55: In response to a patent challenge, the patentee must initiate patent infringement litigation within 20 days and notify the CFDA.

Comments: The generic makers may find this regulation to be in their favour. Infringement claims that lack the legal basis may not be supported by the court. According to the present Chinese Patent Law, the act of applying for drug registration is not defined as an infringement act. To back up the litigation, the relevant laws and regulations such as Patent Law need further specification in this regard. Moreover, the 20-day deadline for initiating proceedings is too short for a patentee to make necessary preparations and gather evidence. This is especially true for foreign patentees, whereas the generic maker has sufficient time to prepare its case before making an application.

4. Pending period

Regulation in Order No. 55: During litigation, the technical evaluation of the generic application by the CDFA will continue. However, the CFDA can suspend an application for up to 24 months and decide whether to approve it based on the outcome of the litigation. If the lawsuit is still ongoing at the end of the suspension period, the CFDA could still approve the application. A suspension period can also be used when an applicant does not make a non-infringement statement prior to court proceedings.

Comments: This regulation also seems to favour generic makers. As their application will be approved if the lawsuit outlasts the suspension period, generic makers are motivated to prolong proceedings by e.g. appealing and/or raising jurisdiction objections. In addition, in patent invalidation cases, the generic maker will pray for a suspension of proceedings until the end of the invalidation procedure to further prolong the lawsuit. Therefore, the outcome will rely, to some extent, on the length of the court proceedings, rather than the merits of the case.

5. Experimental data protection

Regulation in Order No. 55: Success patent challenges may obtain experimental data protection periods for relevant drugs of eighteen months, during which CFDA would not approve the application of the same generic drug from a second applicant unless the second applicant obtains its own experimental data.

Comments: This regulation rewards the first successful challenger with a period of experimental data protection and, more importantly, conditional exclusivity for marketing, which would in turn encourage generic drug makers to challenge patents.

In conclusion, Order No. 55 still has some underlying issues, and is likely to be updated in the future. More regulations and policies are expected after the 19th National Congress of the Communist Party of China in late October. Our intellectual property team at King & Wood Mallesons will follow this closely.

Practical advice

The Chinese pharmaceutical industry has been growing rapidly in recent years. Domestic drug companies, both originators and generic makers, have become popular targets for massive investments. Apart from R & D expenditure, domestic companies are paying more attention to intellectual property affairs than ever before. Upon the gradual enforcement of the PLS, it is predictable that patent challenges will become common practice in such a competitive market. Patent in-house and professional patent attorneys will play a key role in advising both originators and generic makers.

Patentees should take precautionary measures to ensure they are ready to respond to possible litigation before it happens. They need to keep an eye on competitors’ research and development so they are can react quickly to generic registration and subsequent patent challenge. In addition, the patentees should assess the validity of any patent challenge they face, to predict the likely result of the proceedings. If the situation is not looking hopeful, other steps can be taken instead of infringement proceedings, such as issuing a license.

In order to make patent challenges more difficult, it is important for patentees to develop portfolios of relevant patents, so that generic makers have to challenge multiple patents simultaneously (e.g., patents of compounds, crystal forms and pharmaceutical formulations) before generic registration can be approved. In addition, relative patents such as synthetic intermediates or production methods may also be helpful in hindering research and development of a generic drug.

On the other hand, generic makers need to evaluate the risk of patent infringement before applying for registration. Specifically, the possibility of success in a patent challenges and the non-infringement defense in a lawsuit. Gain and loss need to be weighed before deciding whether to challenge the patent or to take other measures, such as waiting for the expiration of the patent or seeking for a license from the patentee.

Originators and generic makers will need to choose between challenging patents in the traditional manner, i.e. starting an invalidation procedure under the name of a strawman, or in the new manner under the PLS - and each option has its pros and cons. Considering the potential benefits of experimental data protection period,  generic makers are more likely to choose the PLS option and those who do are likely to be well-established. It is essential for patentees to understand the PLS and its implications on the industry. 

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