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What does the US-China trade deal mean for pharmaceutical patent holders?


23rd Jan 2020

On Wednesday 15th January 2020, US president Donald Trump and Chinese vice-premier Liu He signed an economic and trade agreement which Mr Trump described as “the biggest deal anybody has even seen”. The deal promises to be the first phase of a larger new trade agreement between the US and China, signifying a de-escalation in their trade war – at least for now.

Intellectual property (IP) was one of the main points of contention during the trade talks and thus it is perhaps unsurprising that IP matters are addressed in the first chapter. Of particular interest to those in the pharmaceutical sector will be Sections C and D of Chapter 1, which outline China’s commitment to improving protection and enforcement of pharmaceutical related patent rights. Sceptics will argue that these provisions simply represent a long overdue pledge by China to align its patent system with the US and other Western states, with no guarantee that they will actually implement or enforce the provisions of the agreement. However, in my view the deal appears to represent China’s willingness to do more to protect pharmaceutical patent rights and contains provisions that (if properly implemented and enforced) could significantly increase the value of drug related patents in China.

The patent related provisions of the agreement aim to introduce some mechanisms from US law into the Chinese legal system. The provisions enable filing of supplemental data during patent prosecution; a system to resolve conflicts between generic drug companies and pharmaceutical innovators over drug related patents; patent terms extensions to compensate for delays in obtaining regulatory approval for pharmaceutical products; and patent term adjustments to compensate for patent office delays.

Consideration of Supplemental Data

Article 1.10 of the agreement outlines, in a fairly vague manner, China’s commitment to allowing pharmaceutical patent proprietors to use supplemental data (i.e. post-filed data) to support patentability requirements, such as sufficiency of disclosure and inventive step. This supplemental data can be used both during prosecution of the patent application and in post grant proceedings.

It is already possible to use post-filed data to support patentability in a number of jurisdictions, including the US and at the EPO. Since 2014, China has also (in theory) permitted the use of post-filed data. However, in practice the Chinese patent office is often extremely reluctant to allow post-filed data into proceedings. Thus, Article 1.10 may result in the Chinese patent office softening its strict approach to the admissibility of post-filed data. This should be good news to patentees in the pharmaceutical sector who often need to rely on post-filed data to demonstrate inventive step.

It is interesting to note that the agreement indicates the permitted use of supplemental data is exclusive to “pharmaceutical patent applicants”. It is possible that this is contrary to Article 27 of TRIPS which requires patents to be available to all fields of technology without discrimination, and so it seems likely that this provision will apply to patent applications from all fields of technology.

Effective Mechanism for Early Resolution of Patent Disputes

Article 1.11 of the agreement outlines a system in which a pharmaceutical patent holder is notified when another company seeks marketing approval of a generic version of their drug based on the patent holder’s clinical data. The patent holder will be notified before the generic drug is granted marketing authorisation by the China Food and Drug Administration (CFDA), allowing the patent proprietor adequate time to pursue judicial or administrative proceedings against the generic manufacturer, for example if patent rights have been infringed.

This provision appears to be based on the patent-linkage system in the US, which allows innovators to file a patent infringement suit against planned generic drugs before these are brought to market. However, details on the specifics of how the Chinese system would work in practice are lacking from the agreement. This is not the first mention of a patent linkage system in China; in 2017 the CFDA published draft legislation of a proposed patent linkage procedure for public review but since then no further progress has been made on the matter. It seems likely that as a result of the newly signed trade agreement, the implementation of this patent-linkage procedure into Chinese patent practice will be accelerated. This is good news for pharmaceutical innovators operating in China. The lack of a patent-linkage (or equivalent) system in Chinese patent practice can cause significant problems for pharmaceutical companies, with rival generic drugs being approved and entering the market irrespective of whether these generic products infringe a patent right.

Patent Term Extensions

Article 1.12 outlines provisions to extend the lifetime of a patent to compensate for unreasonable delays that occur during the examination of the patent application or during the marketing approval of the corresponding pharmaceutical product.

Patent term adjustment

China has committed to implementing patent term adjustments to compensate for unreasonable delays to grant caused by the patent office. An unreasonable delay is deemed to be more than 4 years from filing or 3 years from requesting examination. Currently, the duration between requesting examination and grant of a patent at the Chinese patent office is just under 2 years on average; however, this can be significantly longer for some pharmaceutical patent applications.

Patent term extension

China has also committed to extending the term of a patent that covers a new pharmaceutical product when there have been delays in obtaining marketing approval of the pharmaceutical product. The agreement outlines that the patent term can be extended by a maximum of 5 years, but lacks any further detail on how the system would work. In particular, it is unclear whether the extension will be applied retrospectively to pharmaceutical products that have previously experienced delays in marketing approval and are still covered by an in-force patent. This type of patent term extension is already possible in the US via patent term extensions (PTEs) and in the EU via supplementary protection certificates (SPCs). Draft legislation for such patent term extensions in China was published in early 2019.

These provisions, are good news for pharmaceutical innovators. Extensions to the term of a patent covering a marketed drug can be incredibly valuable, with drugs often not generating revenue until toward the end of the patent’s lifetime.

One particularly notable omission from the trade agreement is any substantive commitment in relation to data exclusivity provisions (available in the US and in the EU), which prevent generic drug manufactures from relying on the clinical trial data of pharmaceutical companies for marketing approval for a certain period of time. Such provisions are hugely valuable for innovators and so this is likely to be a topic for discussion in the next round of negotiations.

Another notable omission is any commitment by China to amend its grace period provisions to conform with the 12 month grace period in the US. The US have pushed for this in trade negotiations with other countries and so grace periods may be a topic for discussions in future negotiations.

Entry into force

It remains to be seen how these commitments will be implemented into the Chinese legal system and then enforced in practice. The text of the agreement indicates it will come into force within 30 days of signature. China will then have a further 30 days to produce an Action Plan that will outline how it plans to implement the commitments it has made in the agreement. This Action Plan should provide a much better indication as to how and when these changes will come into effect.

Conclusions

These provisions represent a substantial change to the protection and enforcement of drug related patents in China. This will be welcome news for pharmaceutical innovators, particularly given the huge significance of China as both a large market for their products as well as an increasingly important ecosystem for innovation.

It is important to note that, unlike many of the provisions in the trade agreement (such as those relating to financial services), the commitments made in relation to drug IP rights apply to pharmaceuticals companies around the globe, and not only those working out of the US. The bolstering of IP in China should also benefit China’s own growing domestic pharmaceutical industry.

The deal may also provide a flavour of the sort of commitments the US may require from the UK in any future US-UK trade deal post Brexit.

The changes set out in the trade deal are yet to come into effect, so watch this space for further developments. However, it appears this agreement represents the beginnings of a shift in China’s approach towards intellectual property rights.

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.

Author
Adam Rimmer
Assistant
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