China’s new linkage scheme will transform pharmaceutical patenting

The China Food and Drug Administration (CFDA) is planning to introduce a patent linkage scheme that will require a generic applicant to make a non-infringement declaration against an innovator’s patent portfolio. By creating this linkage, innovators can rest assured that their innovations are protected while generic drug companies are motivated to get regulatory approval for entry into market by proving that a patent is invalid or not infringed. However, observers warn of potential challenges in implementation.

China is the second largest pharmaceutical market in the world. The market is forecasted to grow to $167 billion by 2020. Generics account for 64% of total sales while patented drugs make up 22%. At present, Chinese law stipulates that products must be sold on the market before an infringement action can be launched.

Stephen Zou

“Under the current regulatory system, there is no linkage between patent protection and the regulatory process, and it is unfavourable to the patentee/originator and pro-generic,” says Stephen Zou, partner at Liu Shen & Associates.

Features of the scheme

Under the proposed scheme, which is similar to the US’ Hatch-Waxman Act, a generic applicant will need to notify the innovator within 20 days of a generic drug application. Before this, the application should submit a declaration on the relevant rights involved. The innovator has 20 days to file a patent infringement suit and notify the drug review board to be eligible for a stay of the generic approval for up to 24 months. During this period, technical reviews of drugs that are already under way will not stop. If litigants settle the dispute during this period or if a judge gives a decision, the drug review institution will base its  marketing approval decision on this verdict. If the judiciary does not provide a judgment finding infringement the period ends, drug marketing may be approved. The first generic to successfully challenge the innovator’s patent will be eligible for 18 months exclusivity. A drug data protection system is also proposed such that the review institution will not approve marketing applications of the same type of drug by other applicants during the data protection period, which spans from one and a half years to 10 years, depending on the type of drug.

Challenges ahead

It is unclear whether new legislation, which will take a long time to implement, is required or whether administrative rule making, which should be quicker, will be enough. Observers point to a number of challenges that may arise from the proposed system, including contradictions with the existing law and short notification periods.

David Shen

“I think the biggest challenge may be the current patent law,” says David Shen, head of China IP at Allen & Overy. Article 69(5) states that “any person who produces, uses, or imports patented drugs or patented medical apparatus and instruments, for the purpose of providing information required for administrative examination and approval, or any other person who imports patented drugs or patented medical apparatus and instruments especially for that person shall not be deemed to be a patent right infringement”. “There needs to be some judicial or administrative pronouncement on whether filing an abbreviated new drug application is deemed to be an infringement,” Shen explains. “Otherwise, the innovator or originator may not have a cause of action in the Chinese courts.”

“Although the patent linkage system is proposed, there is no legal basis in or even contrary to the current system, like the Bolar exemption in the patent law, which does not consider research for regulatory approval to be patent infringement,” says Zou.

“The 20-day notification and 20-day institution of a lawsuit are almost impossible in practice, because the period is too short,” adds Zou. “Other implementation challenges are how to coordinate the civil litigation, invalidation proceedings and regulatory procedure if an invalidation is initiated by a generic company. Another issue the range of discretion of the CFDA on the approval waiting period.”

The CFDA’s proposal for a patent linkage system is a bold step that will bring China up to international standards on pharmaceutical patent protection, but details still need to be worked out to make sure that existing laws are changed to align with the system. The system will change the landscape of the pharmaceutical industry and make more litigation likely.