The result, according to Tony Chen, partner in the Shanghai offices of Jones Day (www.jonesday.com), is that China will soon grant more patents than any other nation, and that most of the top-20 pharmaceutical firms will conduct R&D in China. “Shanghai will have as many biotechs as San Diego,” he predicted. As yet, though, “you don’t see huge deals in China.”
There is a perception that trade secrets are hard to keep in China, Chen noted, adding that the situation is improving. “When local companies have a stake in the game, there’s more effort in enforcement, even in China,” he elaborated.
Hùyà BioScience International has a four-year presence in China, sourcing development-stage compounds, according to Jan Tuttleman, Ph.D., vp of marketing. “We focus on pre-IND through Phase I or II, working with Chinese partners to codevelop the projects and have the right of first refusal from 15 biotech parks.”
Of the Chinese, she opined, “They’re great at drug development and preclinical work but they don’t have the clinical expertise” that is needed for FDA approval. She positioned the collaborations as a win-win situation for both parties, providing new compounds to Hùyà and experience with good lab practice and good clinical practice for the Chinese firms.
FDA feedback has been positive, and although the trials are redone in the U.S. because of good manufacturing process issues, Hùyà still saves 6–12 months per step, Dr. Tuttleman pointed out.
Many companies choose not to file patents in China, feeling that they wouldn’t be successfully defended. There are justifiable fears of patent hijacking, patent invalidation, loss of trade secrets, and no term extensions.
Historically, China has operated, not by rule of law but by the concept of guanxi—personal connections—and the concept of intellectual property is a relatively recent introduction. Laws and courts are still evolving, and guanxi is still a vital ingredient. The darker, corrupt elements, unfortunately, are still functional. Now, even with Chinese patents, enforcement can be an issue because—particularly at Chinese universities—the patents are often poorly written.
Chen said that progress is being made in patent enforcement as evidenced by the burgeoning number of lawsuits. In China, intellectual property litigation has grown from about 6,000 cases in 2001 to about 14,000 cases in 2006 and nearly 18,000 cases in 2007.
“Of those,” Chen said, “4,041 were patent cases. Most are between Chinese parties, but about three percent were between Chinese and foreign companies. Cases are increasing at double-digit rates,” he added. Regarding outcomes, “the Chinese courts and patent office don’t always agree,” he pointed out, and the court has granted some significant damages.
It is a fact that Chinese patent regulations differ significantly from those in Europe or North America. For example, in China the patent is awarded to the first to file and originality isn’t required, Chen emphasized.
There is also a question of who should own the IP. Logically, the Western parent company wants to own the patent, but ownership affects tax rates. So, Chen explained, granting the patent to the local entity—a subsidiary, perhaps—can lower the tax rate on that entity from 25% to 15%. “So, let the Chinese entity have some IP,” Chen advised, “but be diligent about assignment.”