China Strives for First-In-Class Drug Innovation with New Patent Law

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In a comprehensive new piece, European Patent Attorney André Bourgouin and Adjunct Professor at CEIBS Eric Bouteiller examine the potential impact of China’s revision to its patent law on the country’s domestic biopharma innovation landscape and the ability of breakthrough drugs from MNCs to make it onto the Chinese market. 

 

July 2021 was a busy month for CEOs and boardrooms of pharmaceutical companies operating in China. The fourth amendment of the Chinese Patent law finally came to life. In a seamless way, its detailed rules have also been published within the first week of implementation which shows a high level of coordination within the State apparatus. One week later, China’s National Medical Products Administration (NMPA) published the “Clinical Value-Oriented Guidelines for Clinical Development of Antineoplastic Drugs”. Although the said guidelines may look “technical” and are only a draft for comments, they in fact clearly define the requirements for future clinical trials by stating that the benchmark has to be the best therapeutic solution available. This de facto prevents the development of me-too projects.

Chinese President Xi Jinping recently underlined once more that China will “fully support” those who strive to be innovative and contribute to the country’s development, regardless of their background. President Xi, during the 14th Five-Year period (2021-2025) of China’s development called for vigorous innovation, instead of following others’ mainstream trends. A robust patent system is a basic requirement for the innovative drug industry to flourish. China is now entering a new era equipped with a legal body that is modeled after the US system in term of structure and more advanced than that of the EU in some respects.

In reality, day to day life is different as roughly half of MNC patents are invalidated in court but the new rules of the game should gradually improve the situation. The China National Intellectual Property Administration (CNIPA) will have to pursue the adjustment to international standards with a view to having the strength of Chinese patents becoming better acknowledged internationally. This will be of great help to Chinese innovators in exporting to highly developed countries.


Evolution of Chinese patent law until 2021

The first Patent Law in China was enacted in 1984 and it has since been amended four times.

In the first amendment passed in 1992 pharmaceutical compositions were added to the list of patentable subject matters. This amendment allowed China to become a member of the Patent Cooperation Treaty (PCT).

The second amendment enacted in 2000 was intended to bring the Chinese Patent Law into compliance with the Trade-Related Aspects of Intellectual Property Rights Agreement (“TRIPS”), an international agreement between all members of the World Trade Organization (WTO). This amendment of the patent law paved the way for China’s participation in the WTO of which China has been a member since 11 December 2001.

The third amendment to the Patent Law was passed on December 27, 2008.

Several significant changes to the Patent Law were introduced by this amendment such as the adoption of Absolute Novelty. Under the previous law, public use outside China did not destroy novelty. The Amendment introduced an absolute novelty requirement by defining “prior art” as publicly known art anywhere in the world before the filing date.

It is interesting to note that the same move occurred in the US in 2011 when the “first to file” system was adopted and public use outside of the US started to have the same impact on patentability as public use within the US

In the past, the national patent laws of certain European countries (notably Germany) also provided for “relative novelty”. However, the concept of absolute novelty has now long been entrenched in Europe.

The 2008 Amendment also introduced the exemption for activities related to regulatory review (the so-called ” Bolar exemption”) by stating that “it is not an act of infringement if a patented drug or medical apparatus is manufactured, used, or imported solely for the purposes of obtaining and providing information for administrative approval”.

The name “Bolar exemption” and the concept originate from the US where a disposition of that sort was introduced in 1984 through the “Hatch-Waxman Act”.

In the EU, after conflicting decisions had been rendered by national courts, Directive 2001/83/EC introduced a Bolar-type exemption in the EU member states.

The 2008 amendment provided for both domestic and international exhaustion of patent rights. Under the Amendment, it is not an infringement to import a patented product which has been sold by the patentee or with their consent.

Consequently, parallel importation of patented products is not considered to be a patent infringement in China.

Another change introduced by the 2008 amendment concerns the infringement damages for which the upper limit was increased. However, this provision did not have much effect on the decisions of the Chinese courts which continued to allow very low infringement damages.

It is important to note that the 2008 amendment to the Chinese patent law did not introduce any provision for Patent term extension to compensate for the delays in obtaining a marketing authorization for a drug, nor did it provide for patent linkage.

 

Chinese patent law as of 2021

12 years after the third amendment of China’s patent law, the fourth amendment was approved on October 17, 2020, and came into effect on June 1, 2021.

From our perspective, the most important changes brought by the fourth amendment concern drug patents. This is in particular the case with the introduction of a Patent term extension (PTE) and a Patent linkage system in the Chinese patent law.

Other important provisions concerning technical fields such as the Patent term adjustment, the Statute of limitation and the Grace period will also be discussed.

In all cases, comparisons with the corresponding dispositions of the European and US legal frameworks will be established.

As indicated above, the Chinese patent law in the previous form resulting from the third amendment of 2008, already provided for a “Bolar exemption” but an extension of the patent term was not available. Nor did the Chinese patent law have a Patent linkage in place before 2021.

 

Patent Term Extension (PTE)

Importantly, the fourth amendment provides that in order to compensate the patentee for the patent term that is lost by having to go through the clinical trials and approval process for a new drug, the term of the patent related to a new drug which has received a Marketing Authorisation (MA) in China can be extended by the China National Intellectual Property Administration (CNIPA).

The extension period shall not exceed five years, and the total effective period of patent protection starting from the date of the marketing authorization shall not exceed fourteen years.

It is interesting to compare the Chinese provisions with the way this key question was tackled in the US and in Europe.

In the US, the first country to introduce a patent term restoration of that sort, the above mentioned “Hatch-Waxman Act” of 1984 provided a system termed Patent Term Extension (PTE) whereby the maximum extension that can be obtained is limited to five years and the total remaining patent term (with PTE) is limited to 14 years from the date of product approval by the FDA. On the top of that, a six-month extension of the patent term (and of the exclusivity period) is available in the US to manufacturers who conduct clinical studies in children.

In Europe, so-called Supplementary Protection Certificates (SPCs) were introduced by a 1992 Regulation to address the need for restoring the term of drug patents. SPCs have a maximum lifetime of five years. This duration can be extended to 5.5 years when data from clinical trials according to an approved Pediatric Investigation Plan (PIP) have been obtained. The total combined duration of protection of a patent and SPC cannot exceed 15 years (15 and a half years respectively).

 

The comparison between the different systems adopted in China, US and Europe may lead one to believe that the European provision is (a bit) more generous to drug patentees.

However, several further considerations must be considered.

First the Court of Justice of the European Union (CJEU) which is respoinsible for interpreting the SPC Regulation has issued a number of decisions that limit the possibility for patentees to get SPCs (see in particular the recent “Santen” decision which has reversed a previous CJEU decision allowing SPCs to be based on so-called “second medical use” patents.)

Second, recent amendments to the SPC Regulation have significantly reduced the protection enjoyed by SPC holders by allowing EU-based generic companies to:

  1. manufacture a product, protected by an SPC, in the EU for the purpose of exporting it to non-EU markets and
  2. manufacture and “stockpile” a product intended for the EU market in the last six months of the SPC term.

 

In this respect it is interesting to note that in March 2000, after a complaint by the then EC, a WTO Panel issued a report to the effect that Canada’s stockpiling exception to patent infringement was inconsistent with the TRIPS Agreement because it did not provide for the full protection of pharmaceutical inventions for the entire duration of the term of protection envisaged by the TRIPS Agreement (20 years). While the introduction of a “stockpiling” exemption in the SPC regulation does not, admittedly, formally contravene the TRIP Agreement, this controversial amendment of the Regulation is telling about the change of attitude of the EC/EU authorities.

 

It remains to be seen how the Chinese authorities and courts will construe the new regulation concerning the patent term restauration of drug patents, but it is concerning to observe that, at a time where the Chinese law provides for a reinforcement of the protection conferred by drug patents by means of a PTE, the EU tends to diminish that protection.

 

Patent linkage

The fourth amendment of the patent law introduces into the Chinese patent law a so‐called “Patent linkage system” which provides an early resolution mechanism aiming to resolve potential drug patent disputes before relevant drugs are marketed. It came into force on July 4, 2021.

The important features of the patent linkage mechanism of China are as follows:

A platform has been established for listing the patents claiming the originator drugs. Eligible Patents include patents for active chemical or biological pharmaceutical compounds, pharmaceutical compositions, or medical uses for said compounds (but not intermediates or metabolites).

The marketing authorization holders must register the patent information of the approved drug within 30 days from approval of the drug.

 

Abbreviated New Drug application (ANDA) holders must submit one of the following 4 types of certifications for each patent listed:

(i)   No patent covering the drug;

(ii)  The patent term has expired or the patent(s) had/have been invalidated;

(iii)  The generic manufacturer will not market the drug until the expiration of the patent(s); and

(iv)  The Patent(s) should be declared invalid or do(es) not cover the generic drug.

 

The patentee has the possibility to take legal action before a court (Civil action route) or request an administrative adjudication with CNIPA (Administrative adjudication route) against the type (iv) certification within 45 days from the date when the ANDA is published.

 

nine-month waiting period is triggered during which the ANDA cannot be approved. In case a judgement or an administrative adjudication decision holds that the generic is covered by a listed patent, the approval step is suspended until the patent is about to expire.

To the contrary, if no infringement is found, the patent is declared invalid or no judgement/decision is available, before the end of the nine-month term, the ANDA can be approved. A slightly different mechanism is provided for biological compounds.

The first successful patent challenger/approved ANDA applicant is granted a market exclusivity of 12 months, and this is of course an encouragement for generic applicants to challenge innovators’ drug patents.

There is nothing akin to a patent linkage in the legal arsenal of the European Union. However, the national laws of certain EU member states have introduced some sort of a patent linkage mechanism. As an example, Portuguese Law 62/2011 provided that an originator had to initiate arbitration proceedings within 30 days of the publication of a MA application by a generic company. This mechanism still exists but since 2019, the arbitration is no more mandatory.

In the US, the very versatile and groundbreaking “Hatch-Waxman Act” of 1984 also provided for a Patent linkage system whose rationale was broadly adopted by China’s patent linkage provisions.

However, it is interesting to underline that the Chinese system differs from its US counterpart in some significant respects:

(a) there is a much shorter stay period for the generic drug approval (nine months instead of 30 months),

(b) the first successful generic applicant enjoys a longer market exclusivity (one year instead of six months) and

(c) infringement issues can be determined either in court or at the Patent Office (CNIPA), but validity issues must be determined at CNIPA.

In sum, lawmakers in the field of pharmaceutical patents are faced with the necessity of reconciling the opposing interests of the innovators on one hand and the generic manufacturers and the public on the other. Like the Hatch-Waxman Act in the US, China’s PTE and patent linkage systems seek to find the right balance in rewarding the research in the pharmaceutical field without unduly delaying the launching of the more affordable generics.

 

Patent term adjustment

The fourth amendment of the patent law also provides for a Patent Term Adjustment. This means that when a patent is granted after four years from the filing date of the patent application and after three years from the date of the substantive examination request, CNIPA shall, at the request of the patentee, provide compensation for the term of the patent with respect to the unreasonable delay in the examination of the patent.

Similarly, in the US, if the USPTO (United States Patent and Trade Office) fails to examine a patent application within the prescribed time, the patent term may be extended. This is the case where the total duration of the examination between the date of filing date of the application and the issue of the patent is more than three years. This also occurs when the USPTO fails to reply within the time period provided. Interferences can also give rise to an adjustment of the term.

No such thing is available in Europe.

 

Patent damages

Revisiting anew the unsolved problem of patent damages, the fourth amendment introduced the notion of wilful infringement in the patent law. In case of wilful infringement of a patent, the amount of damages may be increased to up to five times of the calculated damages.

Interestingly, in the same situation of wilful infringement, the US patent law provides that “the court may increase the damages up to [only] three times the amount found or assessed”.

In sharp contrast to this, there is no concept of punitive damages for patent infringement in the patent law or case-law of European countries like France or the UK.

The amendments also clarified the amount of infringement damages by stating that they should be determined according to the actual damages suffered by the patent holder or the benefits gained by the infringer. In case this proves difficult the damages may be determined according to the royalties the patentee would have received from a licensee legally using the patented invention.

Similarly, the US patent law provides that “the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer”,

 

Statute of limitation

The time limit for taking legal action against patent infringement (statute of limitation) was extended from two years to three years, commencing from the date when the patentee or interested party knows or should have known of the infringing activity of the infringer.

This is comparatively a very short period of time as in the US, patent holders have six years to bring a lawsuit for patent infringement. (35 USC 286).

In European countries the statute of limitation varies according to the country (e.g. five years in France, six years in the UK) from the date on which litigation is brought. This means that damages start to accrue five/six years before the date on which an infringement suit is initiated in these countries.

 

Grace Period Provision

The question of the grace period in patent law is very important and this is where the US and the European countries have adopted a completely different approach.

While the US patent law provides for a broad one-year grace period, the six-month grace period stipulated in the European Patent Convention (Art. 55, EPC) is strictly limited to exceptional circumstances namely if an invention is published with abusive intent by a third party to the detriment of the inventor, or if the applicant published the invention at certain strictly defined international trade fairs.

The fourth amendment of the Chinese patent law includes a new provision that relates to grace period. Specifically, disclosure of an invention for public interest in case of national emergency can enjoy the grace period of six months. This is an area where the Chinese patent law comes close to the European law by not providing for a broad “grace period”.

 

In guise of conclusion, it can be added that China’s new Patent law is now benefiting from detailed rules and judicial interpretations in order to make it fully operational. On July 4, 2021, the NMPA and CNIPA issued their “Measures for the Implementation of the Early Drug Patent Dispute Resolution System (for trial implementation)”. On July 5, 2021, China’s Supreme People’s Court published its final “Rules on Several Issues Concerning Application of Law in the Trial of Patent Civil Cases Involving Examination and Approval of Drug Marketing”. On the same day, CNIPA issued its final “Measures for Administrative Adjudication for the Early Resolution Mechanism for Drug Patent Disputes”. All of these rules/documents took effect immediately upon publication. The publication timing and the seamless coordination, between organizations that do not necessarily easily work together, demonstrate the quality of the preparation of this new law and the fact that the authorities are resolved to building a far-reaching legal framework that can strengthen drug innovation in China.

 

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