Proposed patent linkage system a milestone

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On 17 October 2020, the Standing Committee of the National People’s Congress passed an amendment to the Patent Law, which includes an outline provision on a patent linkage system. The amendment leaves it to the China Intellectual Property Administration (CNIPA) and the National Medical Products Administration (NMPA) to sort out the implementation details.

On 15 September 2020, the CNIPA and NMPA jointly issued the draft Implementing Measures for the Early Resolution Mechanism Drug Patent Disputes (for Trial Implementation) for public comments until 25 October 2020. Earlier, on 19 March 2020, the Supreme People’s Court (SPC) released its 2020 judicial interpretation formulation plan, notably proposing the enactment of rules addressing patent linkage dispute cases by the end of 2020.

In more detail

The above-mentioned developments are China’s latest responses to the Phase One China US Economic and Trade Agreement executed in January 2020, which required an effective mechanism for the early resolution of patent disputes in the pharmaceutical area.

This article reviews the development of the patent linkage proposal over the past few years in China, and discusses some key issues that are addressed in the Patent Law Amendment, SPC interpretation, and proposed implementation rules from the CNIPA and NMPA.

The background

The concept of a patent linkage system was introduced in May 2017, under a draft order circulated by the then China Food and Drug Administration (now the NMPA) as a part of drug reform initiatives. The proposed mechanism includes: (1) the notification by a generic drug applicant to the patentee of its filing for market approval, and declaration to challenge the relevant drug patents; (2) a 20-day period for the patentee to initiate a patent infringement lawsuit against the generic applicant; and (3) a waiting period of up to 24 months before the generic application can be approved.

The exploration of a patent linkage system was later reiterated in two State Council landmark policy documents released in October 2017 and November 2019. These documents state that the system aims to effectively balance the interests of drug innovators, generic manufacturers and the public by protecting innovators’ patents, while encouraging the timely market entry of generic drugs.

Key elements to expect

China Orange Book

The availability of patent information forms a basis for a generic drug applicant to make a declaration. The first version of the Index of Drugs Approved for Marketing in China (China orange book), published on 28 December 2017, includes 131 drugs consisting of branded drugs and the generics that have passed the quality and efficacy equivalence review (this number continues to grow).

The China orange book contains basic drug information and relevant patent information, including patent number, patent type and expiration date. However, the China orange book is still a work in progress. The above-mentioned draft implementing measures provide that the types of patents available for registration in the China orange book include: (1) for chemical drugs – compound patents for active pharmaceutical ingredients, formulation patents and use patents; (2) for biologics – sequence structure patents; and (3) for traditional Chinese medicines – composition patents, patents for herb extracts and use patents.

Other types of patents aside from those mentioned above, and patents not registered in the China orange book, cannot enjoy the benefits of patent linkage. The authors believe that, for biologics, the scope of patents eligible for patent linkage protection should be expanded – formulation patents and use patents should also be listed in the China orange book.

In order for the China orange book to serve as an effective basis for patent declaration, the draft implementing measures confirm that market authorisation holders for innovative drugs are responsible for registering and updating the relevant patent information, and are responsible for its authenticity, accuracy and completeness.

Cause of action for patent infringement

Under the Patent Law, infringement of a product patent involves the act of producing, using, selling, offering for sale or importing the infringing product. On the other hand, the Bolar exemption applies, whereby acts for drug approval submission purposes are not deemed patent infringement, and generic drug applicants currently cite this as a defence for their production and use of generic drugs, as well as for their filing for market approval.

In the Patent Law amendment, a patentee is allowed to file a lawsuit before a court to address whether the generic drug falls within the protection scope of a relevant patent. However, note that the administrative enforcement channel is blocked for the resolution of such disputes, which probably indicates that the legislation aims to begin the experiment in small steps, and in a controlled way.

Timeline for filing a legal action

As proposed under the previous draft amendment to the Patent Law, the patentee has a 30-day period to initiate a civil lawsuit or an administrative enforcement proceeding against the generic drug applicant, calculated from the date on which the NMPA publishes the generic drug application for market approval. This timeline has now been removed from the Patent Law amendment.

The draft implementing measures extended such period to 45 days, however, even 45 days would be very tight for foreign patentees to initiate an action, due to current formality requirements. Notarisation and legalisation are still required by Chinese courts and administrative authorities for foreign companies’ formality documents, including powers of attorney and corporate certificates. Rules allowing a grace period for foreign patentees to supplement legalised documents after the initial case filing should be put in place so that foreign entities are treated fairly.

Generics waiting period v court proceeding

The draft implementing measures propose a nine-months waiting period for generic chemical drugs. However, no waiting period for potentially infringing biologics or traditional Chinese medicines is available under the draft implementing measures, and the NMPA will only delay the market approval of biologics and traditional Chinese medicines if the relevant patent proceedings for finding infringement are concluded before the NMPA completes its review of the drug application.

In this connection, the Patent Law amendment provides that the NMPA can delay the grant of approval of generic drugs based on effective judgments. Under the current system, it is not practically possible for drug innovators, especially foreign companies, to obtain an effective judgment to stop the approval of the generic drug within nine months, as a civil proceeding may take 12 months, or even longer, to complete at its first instance.

A patent linkage system cannot provide meaningful protection if generics are always approved while patent lawsuits are still pending. Guidance from the SPC would be significant to either expedite patent linkage lawsuits or facilitate the utilisation of available interim remedies, e.g., preliminary injunctions and preliminary judgments, in the event timing does not work to the advantage of the patentees.

Civil lawsuit v administrative action

As mentioned above, the Patent Law amendment blocked the administrative action channel for patent linkage. Although the draft implementing measures allow for the option of filing an administrative action as an alternative to a civil lawsuit, this rule will be revised, as the Patent Law amendment is in a higher hierarchy, and shall prevail. Relatively speaking, administrative proceedings (which are technically closed in four months) are more cost-efficient than civil lawsuits, noting that an administrative decision is even effective once issued.

It is a pity that a patentee cannot seek administrative enforcement as a more time-efficient approach. Nevertheless, the outline set in the Patent Law amendment does pose further challenges to patentees, which requires patentees to take actions as early as possible so as to obtain effective judgments before the NMPA issues market approvals.

Competent jurisdiction

In the current judicial system, a patent infringement lawsuit can be filed with any competent court where the defendant is domiciled, or where the infringement occurs. Nevertheless, it is probably advisable to centralise the jurisdiction and designate courts with sophistication to handle patent linkage cases, for the benefit of ruling efficiency and consistency. The Beijing IP Court would be a choice, as the NMPA is located in Beijing, and it also hears all first-instance judicial reviews of patent invalidation decisions, which commonly run in parallel with patent infringement lawsuits. That said, the Beijing IP Court is currently overloaded, which should be addressed to avoid unnecessary delay in the proceedings. Similarly, the CNIPA or the Beijing Patent Office could be a choice for administrative enforcement.

Incentives to first successful generic patent challengers

The draft implementing measures propose granting a 12-month market exclusivity period (subject to the expiry of a patent) to a chemical drug generic applicant who: (1) first successfully challenges the patent; and (2) first receives market approval for the generic drug application. During the market exclusivity period, the NMPA will not approve other generic applications for the same drug, but a technical review in relation to these drugs will continue. The proposed market exclusivity period is expected to provide even more incentives to generic manufacturers, to actively challenge the relevant chemical drug patents.

In the absence of details regarding the system in the newly promulgated Drug Administration Law (effective since 1 December 2019) and the Patent Law amendment, the upcoming SPC’s judicial interpretations, and the CNIPA and NMPA rules, are expected to provide important guidance for the implementation of the system in relation to the above-mentioned issues.

The setup of the patent linkage system brought about by the Patent Law amendments (to be effective soon) is a milestone in the patent regulatory framework in China. The system will impact both branded drugs and generic drugs in the pharmaceutical industry. Pharmaceutical companies should be prepared for lawsuits related to patent linkage, which would in turn shape the further development of the linkage system.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at danian.zhang@bakermckenzie.com