Favourable changes to the IP and tax systems in the UK for drug development

Abstract

The editorial discusses the planned introduction into U.K. patent law of a new exemption from patent infringement for all activities required to secure regulatory approval to market innovative drugs, which brings the UK into line with other major European jurisdictions. It is also planned to exempt studies carried out in relation to reimbursement work. These new exemptions, when set alongside the recent impletion of the Patent Box, offering a reduction in corporation tax on profits earned from patents and Research and Development tax relief, show how the UK Government is trying to make good on its promise to ensure the UK is a leader in Life Sciences Innovation.

Keywords::

• bolar
• infringement
• patents
• pharmaceuticals

The recent announcement by the UK Intellectual Property Office (UKIPO) of an extension of the exemptions to patent infringement for studies to obtain marketing authorisation of innovative medicinal products should be welcomed as a step in further improving the business environment for carrying out drug research and development in the UK, particularly in relation to innovative drugs [1].

This change will take effect hot on the heels of a previously announced initiative, the Patent Box, which came into force on 1 April 2013 [2]. The Patent Box provides tax relief for UK companies engaged in research and development and holding qualifying patents. Along with the existing research and development tax relief system, this aims to provide a conducive business setting for pharmaceutical companies in the UK [3].

Before 2005, the only possible exemption to patent infringement relating to research was that provided by Section 60(5) of the UK Patents Act 1977 – this exempts acts ‘done for experimental purposes relating to the subject matter of the invention' [4]. Whilst on the face of the provision, it may appear that this would cover some pharmaceutical research and development activities, a series of cases in the UK courts made it clear that this exemption had a very narrow scope [5]. It was decided that experiments had to be carried out to find out something new or test a hypothesis, such as making an improvement on the invention or seeing if the patented subject matter worked, but that trials for regulatory purposes were definitely excluded. Thus, carrying out such trials would be considered to be infringement of relevant patents, leading to the possibilities of injunctions prohibiting further work and incurring damages until the relevant patents expired.

The situation had been the same in the US until the introduction of a patent infringement exemption for regulatory tests in 1984 (often termed the ‘Bolar' exemption) stating that it is not an infringement to:

• ‘make, use, offer to sell, or sell within the United States or import into the United States a patented invention solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use or sale of drugs or veterinary biological products' [6].

This exemption was introduced to reverse the position in the US that use of a patented compound to obtain data for a regulatory application in respect of a generic version of that compound was not an experimental use under the previous law and was thus an infringement of the patent [7].

Over 20 years after US law changed, a European Directive attempted to introduce a harmonised provision along similar lines into the laws of the European member states at the time. When the European Directive for the regulation of medicinal products was redrafted in 2004, it included an exemption to patent infringement for the first time [8]. It provides that:

• ‘… conducting the necessary studies and trials with a view to the application [for registration of a generic medicinal product] … and the consequential practical requirements shall not be regarded as contrary to patent rights or to supplementary protection certificates for medicinal products.'

As a European Directive, European member states were required to provide at least this level of exemption in their national laws, but could go beyond this. This freedom to exempt more than the Directive required led to a patchwork of exemptions with different scope across the EU, which, when combined with differing interpretations of the existing experimental use exemptions, led to a confusing and unbalanced position.

The UK implemented the Directive into UK law in October 2005 by using the Directive's wording, an approach taken in other countries, such as The Netherlands, Spain, Sweden, Ireland and Greece [9]. Thus, only studies, trials and related activities for seeking approval for generic products in the EU were exempted in these countries.

However, many other countries such as Germany, Italy, France, Denmark, Portugal, Hungary and Poland followed the US ‘Bolar' provisions more closely, exempting from patent infringement, in general terms, ‘all studies and trials necessary to obtain marketing authorisations of any medicinal product in EU, or elsewhere.' Thus, this exemption covered not only seeking approval for generic products as in the Directive, but also seeking approval for innovative medicinal products, possibly extending to certain associated development work. This disparity in exemption did not result in a level playing field for pharmaceutical companies in the UK compared to other European jurisdictions. It is thought this led to some research and development work, including clinical trials, taking place outside the UK, to the detriment of the UK economy and patients unable to access the trials.

An informal consultation by the UK Government was carried out in relation to the experimental use exemption in 2008, which led to a more focussed informal consultation on the exemptions for clinical trials in 2011 [10,11]. In response to this second consultation, the UK Government accepted that there was evidence of a need to amend UK patent law so that the risk of patent infringement could be avoided for activities relating to clinical or field trials for innovative drugs.

Therefore, a further formal consultation was carried out by the UK Government at the end of 2012, presenting three proposals for changing the patent infringement exemption [12]. The huge majority of responses to the consultation were in favour of the introduction of a new exemption to infringement for all activities required to secure regulatory approval to market innovative drugs in all countries, alongside the existing exemption for generic drugs. The majority of the responses also were in favour of exempting activities relating to Health Technology Assessments, a requirement at the least in the UK for seeking the approval of drugs by NICE – the body charged with advising on whether new drugs will be prescribed to patients, and thus the costs borne, by the National Health Service.

In response to this, the UK Government proposes to introduce changes to the UK patent law to introduce these new exemptions by October 2013 [12]. Although the wording of the proposed changes has not yet been released, assuming these are as expected, these changes should not only bring the UK law into line with other major European countries, but go further by exempting work relating to seeking approval for the reimbursement of drug costs. Such a further exemption was thought desirable given the increasing burden of studies needed to seek such reimbursement. These changes should offer a boost to companies developing innovative drugs – one company responding to the government consultation estimated that the costs saved could be up to £7 million.

The effect of these changes will further enhance the benefits of the Patent Box on innovative drug companies. The introduction of the Patent Box in the UK was said to have been partly triggered by Pfizer's decision to close its research centre at Sandwich in the UK. Although the detailed provisions of the Patent Box are complex, in summary, it will allow companies to reduce their UK corporation tax burden on profits earned from its patents, so is ideally suited to pharmaceutical companies based in the UK, who will inevitably own or have the benefit of one or more patents on any drug products put on the market. The Government describes the Patent Box as ‘… encourag[ing] companies to locate the high value jobs associated with the development, manufacture and exploitation of patents in the UK and maintain UK's position as a world leader in patented technologies' [13]. The legislation even includes Supplementary Protection Certificates in its scope, thus extending the benefit for pharmaceutical companies to match their full period of IP protection.

Given the ability for companies carrying out research and development in the UK to claim tax relief on money spent on qualifying activities, it is clear the UK Government is trying hard to live up to the Prime Minister's aim that in Life Science Innovation, the UK should ‘not only remain a player in the global market, but should remain a leading player' [14].

Declaration of interest

The author is a partner of Mewburn Ellis LLP and President of FICPI-UK. This article reflects his personal opinion, and not that of Mewburn Ellis LLP or FICPI-UK.