China to establish its own drug patent linkage

The Opinions on Deepening Reform of the Review and Approval System to Encourage Innovations in Drugs and Medical Devices (the opinions), jointly circulated by the General Office of the CPC Central Committee and the General Office of the State Council on 8 October 2017, shows the Chinese government’s determination to encourage innovations in drugs and medical devices. From the perspective of patent protection, the proposed exploration of a drug patent linkage, as mentioned in the opinions, is especially worthy of attention from drug companies.

Q: What is drug patent linkage? A: Derived from the well-known Hatch-Waxman Act, drug patent linkage associates the drug approval process with drug patent protection. On the one hand, it encourages generic drug producers to challenge the monopoly enjoyed by patented brand name drugs by giving certain incentives to generic drug producers, including setting up explicit “Bolar exemptions” and providing 180 days of market exclusivity to the “first” generic applicant who succeeds in challenging a listed patent.

On the other hand, however, it is also committed to protecting reasonable rights and interests of brand name drug producers particularly by providing for patent term extensions and a 30-month stay of approval that are aimed at ensuring that brand name drug producers will be provided with lawful means to maintain their exclusivity properly. Reflecting balanced interests of brand name drug producers and generic drug producers, drug patent linkage drives creation of new drugs by encouraging research and development of brand name drugs while inspiring launch of generic drugs, thus helping to lower drug prices and serve the public interest to the greatest extent.

Q: Can you explain why China has long been criticized for its existing drug approval process, especially from the perspective of encouraging innovation? A: Despite some early useful efforts in attempting to associate the drug approval process with patent protection, drug approval bodies in China gave up their exploration very soon. They have been avoiding answering questions about drug patent infringement. According to the Measures for the Administration of Drug Registration in effect, only a simple non-infringement statement is required for the granting of drug approval. The applicant can hardly be held liable for the authenticity and accuracy of the statement. Meanwhile, under the existing Patent Law, manufacturing, using and importing patented drugs for the purpose of providing information necessary for going through the drug approval process is not deemed an infringement. As a result, infringement review is not incorporated as part of the drug approval process.

Brand name drug producers whose patents are infringed cannot resort to legal proceedings until the infringing drugs are marketed. Still, they have achieved very little in defending their rights and privileges, given the setbacks in the existing patent protection system in China, including the small amounts of infringement damages awarded, and difficulties in enforcement. In view of the huge investment usually required for the research and development of a drug, such a situation has seriously hurt enthusiasm of brand name drug producers in innovation and virtually restricted growth potential of generic drug producers at the outset.

Q: What changes will the innovation-friendly opinions bring about to the drug approval system? A: Given the diversification of stakeholders involved, there have been many arguments as to whether or not China should adopt an appropriate drug patent linkage following the footsteps of the United States. The introduction of the opinions, which is committed to encouraging innovations in drugs and medical devices, marks the end of these arguments from the top down. The drug patent linkage with Chinese characteristics captures the imagination of many, especially brand name drug producers and generic drug producers, who should find it means both opportunities and challenges. It remains to be seen what contents and features it will provide and how can it be introduced as soon as practicably possible.

On 12 May, the State Food and Drug Administration of China (SFDA) published the Announcement on Soliciting Opinions about the Policies for Encouraging Drug and Medical Device Innovations and Protecting Rights and Interests of Innovators (Exposure Draft) (Announcement No. 55 of the SFDA) that disclosed some of the SFDA’s considerations relating to the establishment of a drug patent linkage in China. A study on the exposure draft would reveal that it is based on substantially all crucial elements of the basic framework under the Hatch-Waxman Act, including the patent registration system, a stay of approval, the applicant’s responsibility to notify the patent holder and a provision that requires patent holders to resort to legal proceedings. Although many details have yet to be improved, the drug approval bodies’ intention to introduce the drug patent linkage is evidently shown. It is an exciting signal.

Q: As far as the Chinese drug patent linkage is concerned, what developments are we expecting from regulators? A: The establishment of a drug patent linkage in China calls for the collaboration between multiple bodies and systems. In addition to the efforts of drug approval bodies, interactions between patent administrations and judicial bodies is also crucial. One problem that needs to be addressed is the lack of patent term extensions under the existing patent system in China, not to mention the “Bolar exemptions” under current Chinese Patent law further squeeze brand name drug producers’ profit margin on market exclusivity. Under such a background, a system that encourages generic drug producers to challenge drug patents will undoubtedly hurt enthusiasm to develop brand name drugs. Therefore, as highlighted in the Opinions, introduction of the drug patent linkage must be accompanied by an appropriate system that allows patent term extensions. We have to wait patiently for regulators to come up with a clear picture of what the system of patent term extensions should look like and how it will be introduced.

Another problem is that the scope of protection available to drug patents has long been significantly restricted in various aspects, allegedly due to the policy concern of supporting domestic industry. However, patent holders will not be interested in defending their rights unless the drug patent linkage reasonably expands the scope of protection for patent holders. Defining the scope of protection for drug patents reasonably requires the joint efforts of patent administrations and judicial bodies.

Anyway, what we can be sure of for now is that China is ready to open a new chapter for drug patent protection.

Author: Wu Li is a senior consultant and Wang Rui is an associate at AnJie Law Firm