China patent law and implications for international pharmaceutical companies

Keywords::

• biotechnology
• China
• patent law
• patent law amendment
• patent rights
• pharmaceutical

The pharmaceutical industry is different from many other industries in that most of the expenses of doing business is not in the manufacturing of goods, but rather, the process of researching and developing a safe, effective and marketable drug product. This process is not only very costly and time-consuming, but also highly risky due to the uncertainty of a particular drug candidate’s performance for a particular disease indication, and the considerable hurdle of obtaining regulatory approval. Imitators unfairly compete by copying the marketed products while avoiding the substantial expenses associated with the above process. Owing to this unique nature, the success of the pharmaceutical industry relies heavily on protection of its intellectual property, especially in the form of patents, for innovations made during R&D.

Like many other industries, the pharmaceutical sector is becoming increasingly globalized. China, with its skillful workforce, cost-effective resources and unmatched potential domestic market size, presents particularly attractive business opportunities to many international pharmaceutical companies. Inevitably, the state of China’s intellectual property right protection has been, and will continue to be, a focus of attention and concern for the pharmaceutical industry.

Over the years, China has devoted considerable effort and achieved noticeable results to bring its patent practice in line with accepted international standards. The Chinese Patent Law was initially enacted in 1984, amended for the first time in 1992, again in 2000, and for the third time in December 2008 (the ‘Patent Law’). The third amendment went into effect on October 1, 2009. Formulated in accordance with the Patent Law, the Implementing Regulations of the Patent Law (the ‘Regulations’) were first promulgated in 2001, amended in 2002, and very recently amended for the second time in January 2010. The second amendment became effective as of February 1, 2010. The Patent Law, coupled with the Regulations, set forth the framework of the Chinese patent system.

Insufficient intellectual property rights (IPR) protection in China is a major concern for the international business community, including many pharmaceutical companies. The most recent revisions in both the Patent Law and the Regulations make it easier for international companies to obtain patent protection in a more timely and predictable manner. However, there are still considerable differences between the Chinese patent practice and those adopted in the USA and Europe. Understanding the current Chinese patent framework and its major differences applicable to the pharmaceutical industry will help international pharmaceutical companies to more effectively procure and enforce their patent rights and reduce their risks in doing business in China.

Below are certain provisions in the current Patent Law and Regulations that are particularly noteworthy to the international pharmaceutical community.

Genetic resources

Aimed at protecting China’s rich genetic resources, the Patent Law currently imposes strict limitations on ‘inventions based on genetic resources’. First, no patent can be granted or a patent may be invalidated if the access to, or use of, the genetic resources violates any law or regulation [1]. Second, applicants of such inventions are required to disclose the ‘direct source’ and ‘original source’ of the genetic resources and provide explanation if unable to disclose the original source [2]. Failure to comply with the above disclosure requirement could result in denial of a patent. Rule 26 of the Regulations defines the term ‘genetic resources’ as including human, animal, plant or microorganism-derived material containing genetic functional units. An invention based on genetic resources is one accomplished by using the genetic function of the genetic resource.

Based on the above, an invention involving the use of a biological material should not be subject to this disclosure requirement if first the biological material does not contain a genetic functional unit, or second, the invention does not use the genetic function of the biological material involved.

While the Regulations provide some clarifications regarding the scope of the genetic resources disclosure requirement, neither the Patent Law nor Regulations limit genetic resources to those obtained in China. Because both direct and original sources must be disclosed, this requirement could constitute a substantial burden to international pharmaceutical companies and, consequently, result in the delay or denial of otherwise valuable patent rights. In practice, China’s desire to protect its genetic resources will need to be balanced so that it does not hinder pharmaceutical research and development by creating uncertainty for patent procurement when genetic resources are involved.

Security review

Previously, the Patent Law required that a Chinese applicant for an invention made in China must first file the application in China before filing abroad. The current Patent Law now permits a foreign or international filing for such an invention before the application is filed in China [3]. However, for purposes of protecting State secrets, a security review by the State Intellectual Property Office (SIPO) must be requested prior to the foreign or international filing. The security review requirement applies to all patent applicants, both Chinese and foreign, as long as the invention is one made in China. It also applies even when the foreign or international filing is made after an application is already filed in China. Failure to request prior to foreign or international filing could lead to the denial of a Chinese patent on the invention.

An invention ‘made in China’ is defined in the Regulations as one “with a technical solution, the substantive contents of which are accomplished within the Chinese territory” [4]. It is not clear what will be considered ‘substantive contents’. In view of the severe consequences, however, international pharmaceutical companies should act conservatively in determining what constitutes an invention made in China until further clarifications are available.

The request for security review needs to provide in detail the technical basis of the invention. If SIPO finds that an invention may relate to national security or vital interests and thus may need to be kept secret, a first notification of security examination will be issued to the applicant [5]. If no such notification is received within 4 months from the date on which the request is submitted, the applicant may either file the application in a foreign country or file an international application. If the first notification is issued, the SIPO will then make a decision whether or not to require the invention to be kept secret and notify the applicant a second time. If no such notification is received within 6 months from the date on which the request is submitted, the applicant may file a foreign or international application for the invention.

Timely filing of a patent application is critical in many cases to avoid potential prior-art that could destroy patentability. Even if in practice SIPO may take less time to issue a notification, when no such notification is received, the applicant will have to wait for the specified time period to pass before filing a foreign or international application to preserve its right in China. Therefore, the security review provisions raise legitimate concerns because it may delay or even abolish an applicant’s ability to seek patent protection for valuable inventions.

One practical filing strategy for international pharmaceutical companies to consider, with respect to inventions made in China, is to file Patent Corporation Treaty (PCT) applications with the SIPO. The Regulations recognize a PCT application filed with the SIPO as a simultaneous request for security review and thus no separate request is needed [4]. However, international applications filed through receiving offices other than the SIPO remain subject to the security review requirement and a request must be made separately.

Reward & remuneration for service inventions

The Patent Law remains unchanged on its provision concerning inventor reward and remuneration for service inventions [6]. The entity to which a patent is granted is required to give reasonable reward and reasonable remuneration to the inventor of a service invention after the patent is granted and upon its exploitation. The Regulations set forth the manner and amount of such reward and remuneration, but allows the parties to freely contract on their own terms. So if there is an agreement governing the reward and remuneration to the inventor of a service invention, the statutorily stipulated manner and amount do not apply.

The Regulations, before the latest amendment, limited this provision to Chinese state-owned entities only. The current Regulations broaden its applicability to all entities, thus including those established by international companies [7]. Whether setting up an R&D center, collaborating with a partner, or using a contract research organization in China, an international pharmaceutical company should act prudently to have provisions in its relevant agreements to cover inventor reward and remuneration terms.

Compulsory license

The Patent Law contains provisions governing the grant of compulsory licenses under certain circumstances. Some are generally applicable to all industries. For example, a compulsory license may be granted if a patentee fails to exploit or to fully exploit the patent within 3 years from grant or 4 years from filing without a justified reason, or if the patentee’s exploitation of its patent right constitutes an act of antitrust [8]. The Regulations define insufficient exploitation as the manner or scale in which the patentee and the licensee exploit the patent fails to meet the domestic demand for the patented product or the patented process [9].

In addition, specifically relevant to the pharmaceutical industry, a compulsory license may also be granted for a ‘patented medicine’ based on public health-related reasons [10]. The term ‘patented medicine’ means any patented product in the field of medicine for solving problems involved in public health, or any product that is directly obtained from a patented process, including active ingredient(s) for manufacturing the product and diagnostic article(s) for applying the product, to which the patent right has been granted [9].

Although no compulsory license has ever been granted in China, this policy, coupled with the likelihood of potential government intervention, has always created controversy and sensitivity among the international business community. Furthermore, the scope and duration of compulsory licenses are not specified in the Patent Law or the Regulations, thus adding to the uncertainty regarding this policy. Perhaps to reduce the arbitrary and unpredictable nature of compulsory licenses, the Regulations further provide that when SIPO makes a decision for a compulsory license on a patented medicine pursuant to the Patent Law, the decision should also comply with pertinent provisions in relevant international treaties China has concluded or participated in, except for those on which China has expressed reservations [11]. It remains to be seen under what circumstances China will expressly invoke a compulsory license provision of the patent law, and whether it may take the more subtle form by courts starting to deny injunction orders against certain patent infringers.

Bolar exemption

Although the Bolar exemption already exists in practice in China, it is now for the first time codified in the Patent Law. It does not constitute patent infringement if the activities regarding a patented medicine or medical apparatus are for the purpose of providing the information required for administrative examination and approval [12].

Unlike the USA and Europe, China does not currently compensate for lost patent terms caused by delays during regulatory review, thus stopping short from providing the maximum term of protection for pharmaceutical inventions. China also does not have an adequate and effective system linking relevant medical patents with marketing approval, although some form of patent linkage is provided. For example, under the Pharmaceutical Registration Regulation, an innovative drug company can list patents covering its approved drug with the State Food and Drug Administration (SFDA), and the SFDA maintains a database of such listed patents. The SFDA also asks a drug registration applicant to provide patent information on the drug applying for registration and make a noninfringement statement if a third party patent is involved [13]. However, a drug company is not required to prove noninfringement of the specific patents linked before applying for approval by SFDA. The practice therefore, is currently of limited value, if any. It remains to be seen how the patent linkage practice may evolve in the future so that drug approvals are better coupled with patent infringement and invalidation procedures.

Jointly made invention

Many international pharmaceutical companies enter collaborations with local Chinese academic institutions and business partners. It is therefore important to understand Chinese law and regulations governing ownership and other rights regarding jointly made patent inventions. First, a jointly made invention includes an invention made through the joint work of two or more entities or individuals, or one made by an entity or individual upon the authorization of another entity or individual [14].

The right to apply for a patent shall, unless it is otherwise agreed upon, remain with the entities or individuals that jointly made the invention. Each joint owner of the patent may individually exploit or license the patent, but must share royalties with other joint owners [15]. All joint owners must give consent for the filing of a patent application on the invention and for other forms of exploitation of the patent, such as assignment.

International pharmaceutical companies should be mindful of the jointly made patent practice in China and draft collaboration agreements to ensure that their freedom to commercially exploit patent rights on jointly owned inventions is not unreasonably interfered with by other co-owners.

Conclusion

China has come to recognize the importance of intellectual property protection to its ability to attract foreign investment and job creation, as well as promoting advanced R&D technologies. In addition, China has set up internal priorities and put in enormous efforts and resources to develop its own pharmaceutical industry. Although still relatively new in China, an innovation-based pharmaceutical industry has emerged and will continue to grow and flourish. A bright outlook is foreseeable for pharmaceutical companies doing business in China.

For international pharmaceutical companies, patent protection in China is improving and has become more manageable over time. Companies need to be conscious about the current Chinese patent framework and how it is different from the systems in their own countries. With substantial improvements on the patent framework made over the past few years, the key now is how to make enforcement more effective and deterrent. In addition, patent right enforcement also relies on other relevant law and regulations. For example, patent enforcement should be more effectively linked with the drug registration regulations. Enforcement can also be strengthened by various bilateral/multilateral agreements with China. Informed and acting prudently, international pharmaceutical companies will be able to enjoy the unique resources and business opportunities and at the same time reasonably protect their valuable patent rights in China.

Financial & competing interests disclosure

Michelle M Deng is a patent counsel at Genzyme Corporation (MA, USA). The content of this article is not to be attributed to the author’s current, past or future clients or employers, nor should it be viewed or regarded as legal advice to anyone. The author has no other relevant affiliations or financial involvement with any organization or entity with a financial interest in or financial conflict with the subject matter or materials discussed in the manuscript apart from those disclosed.

No writing assistance was utilized in the production of this manuscript.