June 1, 2012 (Vol. 32, No. 11)
Ningling Wang Finnegan
Mukta Jhalani Finnegan
Intellectual Property Issues to Contemplate Before Making the Move
With low labor costs, deep talent pools, and large populations, China and India have become attractive emerging markets for many western companies in the life science industry. In recent years, we have seen a trend for western biotech and pharmaceutical companies to establish their R&D centers or set up operations in China and India. Some western biotech and pharmaceutical companies have also formed joint ventures or research collaborations with domestic companies in China and India.
In the life science industry, in addition to business and scientific considerations, IP protection and enforcement can be critical to success.
Strong patent protection worldwide gives a patent owner leverage in negotiating deals. Patent protection in China should be obtained, although many people are still skeptical about enforcement of patent rights in China. Without patent protection, inventors in the life sciences lose the option of enforcing their proprietary rights. At the same time, publication of such inventions elsewhere makes them prior art. And a prior art defense has become an effective way for infringers to avoid infringement liability in China.
With strong patent protection, a patentee can enforce its rights against potential infringers to exclude them from the market. In such enforcement proceedings, more and more potential infringers consider and challenge the validity of the patents as a counter defense to infringement.
In China, the Patent Reexamination Board (PRB) of the SIPO is the sole jurisdiction for challenging the validity of a patent. If one of the parties does not agree with the PRB’s decision, that party can appeal only to the Beijing No. 1 Intermediate People’s Court. The decision by Beijing No. 1 Intermediate People’s Court can be appealed only to the Beijing High People’s Court. Any further appeal is not a matter of right since the People Supreme Court in China has discretion in taking cases from High People’s Courts.
The invalidity proceeding can be long and the potential infringer can allege invalidity challenges on different grounds. The common grounds for invalidity in life science include a lack of sufficient support in the specification for the patented claim scope and a lack of inventive step. Accordingly, when preparing and prosecuting a patent application, it is important to envision potential invalidation grounds and make the issued patent as strong as possible in defense of invalidity challenges.
Lack of Patent Linkage
In comparison with the U.S., China is not an ideal place for patent litigation, especially for biotech and pharmaceutical companies. One important reason is that, different from the U.S., there is no patent linkage in China. Specifically, in the U.S., the Hatch-Waxman Act requires a branded drug manufacturer to list its patent numbers and expiration dates in the Orange Book with the FDA.
The FDA cannot approve a generic drug if that generic drug would infringe a brand manufacturer’s patent listed in the Orange Book. However, there is no Orange Book listing with the State Food and Drug Administration in China (SFDA), and SFDA does not probe into whether a generic drug would infringe a branded manufacturer’s patent as a condition precedent for SFDA approval of the generic drug.
It is up to the branded drug manufacturer to sue the generic drug company for patent infringement once the generic drug gets into the market. China is currently considering setting up patent linkage between the SIPO and SFDA.
In addition, China does not offer data exclusivity to branded drug manufacturers. This is another risk innovative companies need to consider before moving to China.
Additional IP issues that have been troublesome in China include ownership and trade secret protection. These issues occur often in deals such as licensing and joint research collaborations. Due diligence by the suitor should be conducted to ascertain the real owner of the IP prior to any deals in China.
Individual inventors normally do not have patent rights if they are employed by an entity in China because such rights by default belong to employers under the employment contract. Even for professors who claim to be “independent” from the university, it is important to review their employment contract to ascertain ownership of any inventions made by the professor.
In addition, talent in the life science area often moves from one company to another, especially in big cities. Therefore, it is advisable to carefully review all relevant employment contracts to ascertain who truly owns the patent rights of the invention(s) under consideration.
We have also seen companies’ valuable trade secrets disclosed in a form of, for example, a patent application by a key scientist in the company who later left to join another company. The publication of the patent application makes the trade secret lose its value. Therefore, we suggest carefully drafting the employment contract and internal policies to implement strict procedures to prevent disclosure of trade secrets.
Only recently has India provided patent production for pharmaceuticals. It is important to understand the boundaries of patentable subject matter, however, as defined by the 2005 amendments to the Indian Patent Act. Under section 3(d) of the Act, “mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance” is not considered a patentable invention. Application of this section requires an understanding of the term “efficacy.”
A much-publicized dispute involving the interpretation of section 3(d) involves Novartis and its anticancer drug imatinib mesylate. Novartis attempted to patent a new version of its previously known imatinib mesylate, but the Indian Patent Office rejected the patent application under section 3(d). The Indian Patent Office initially rejected Novartis’ patent application on the basis that the drug did not meet the novelty and efficacy requirements of the Patent Act.
After failed attempts at appealing the rejection of its patent application, Novartis ultimately appealed to the Indian Supreme Court, and it remains to be seen how the Supreme Court interprets “efficacy” as used in section 3(d).
Another important aspect of the Indian Patent Act, which up until recently did not get as much attention, relates to a compulsory licensing provision. The Act allows for grant of a compulsory license three years after the grant of a patent where (1) reasonable requirements of the public have not been met, (2) the invention is not publicly available at a reasonably affordable price, and (3) the invention was not worked on in India.
A few months ago, the Indian Patent Office granted a compulsory license to an Indian pharmaceutical company for Bayer’s anticancer drug Nexavar on the grounds that the drug was not meeting the reasonable requirements of the public, was not reasonably affordable, and was not locally manufactured.
The fate of Nexavar in India raises several concerns for innovative pharmaceutical companies regarding the availability, pricing, and manufacturing of patented drugs in India. It is particularly crucial to have a strategy on “working” the invention in India, for instance, by manufacturing in India, collaborating with an Indian company, or taking advantage of India’s investment treaties, as applicable.
Any pharmaceutical company considering operations in India should consider that India does not offer data exclusivity for pharmaceuticals. In other words, a generic manufacturer can rely on the technical data generated by an innovative company because, in India, that data does not enjoy a period of exclusivity. Typically, a generic manufacturer relies on the innovator’s data with a showing of bio-equivalency between the generic and the innovative drug.
In the presence of data exclusivity, an innovator can prevent others from relying on its clinical data. As a result, a period of data exclusivity can provide patent-like protection to prevent generic manufacturers from relying on the clinical data generated by the innovator. But India does not offer such data exclusivity protection. Thus, a pharmaceutical company setting up operations in India would need to consider the possibility of not having exclusivity for data that it generates in India.