On December 17 2021, the Intellectual Property Court of the Supreme People's Court (SPC) rendered a decision (2021) Zui Gao Fa Zhi Min Zhong #388 in a patent infringement appeal AstraZeneca AB v Jiangsu Aosaikang Pharmaceutical Co., Ltd. (ASK Pharm). It is China’s first court decision concerning reverse payment pharmaceutical patent settlement, which is subject to the SPC antitrust scrutiny of its own accord. The case is included and published in the “Précis of the Adjudicating Gist of the Intellectual Property Court of the Supreme People's Court in 2021” (Case #47).
On April 23 2019, AstraZeneca lodged a patent infringement lawsuit against ASK Pharm before the Nanjing Intermediate Court, asserting its invention patent ZL01806315.2, which relates to Saxagliptin, a drug for treatment of type II diabetes. The patent at issue was assigned to AstraZeneca on May 23 2014, by Bristol-Myers Squibb Company (BMS).
On August 10 2011, a generic drug manufacturer Jiangsu Vcare Pharmatech Co. Ltd. (Vcare) filed an invalidation petition, challenging the Saxagliptin patent. On December 6 2011, BMS and Vcare signed a Settlement Agreement (the first agreement) and as agreed Vcare withdrew the invalidation petition within 5 days upon the entry-into-force of the agreement.
On January 4 2012, BMS and Vcare entered into a second Settlement Agreement, which superseded the first. To reciprocate Vcare’s withdrawal of invalidation petition, BMS would waive all legal liabilities for possible infringement and infringement of designated intellectual property rights as executed by Vcare and the associated parties thereof within the "prescribed period" (from January 1 2016 to the expiry date of the patent at issue).
In June and August 2012, ASK Pharm and Vcare successively reached a few cooperation agreements. As agreed, Vcare would be remunerated for completing the technical development of Saxagliptin tablets, while ASK Pharm would legitimately manufacture and sell Saxagliptin tablets in China before the expiry of the patent.
On October 30, 2020, the Nanjing Intermediate Court ruled in favour of ASK Pharm, finding that ASK Pharm, in the capacity of Vcare’s associated party as prescribed in the Settlement Agreement, manufactured, sold and offered for sale Saxagliptin tablets within the agreed period, which did not constitute an infringement of the patent at issue. AstraZeneca later filed an appeal before the SPC, which accepted the case on March 10 2021.
However, AstraZeneca filed on April 16 2021, an application for withdrawal of the appeal. In deciding whether to allow the withdrawal, the SPC examined the legitimacy of both parties’ actions and specifically initiated a preliminary antitrust scrutiny of the Settlement Agreement, which the court found appeared in the form of reverse payment pharmaceutical patent settlement.
The SPC expatiates on the definition of reverse payment pharmaceutical patent settlement as an agreement where the pharmaceutical patentee undertakes to directly or indirectly compensate the interests of generic drug manufacturers (including providing disguised compensation like mitigating the loss or the non-profitable state of the generic drug manufacturers) in exchange for the undertaking of not challenging the validity of the pharmaceutical patent or for postponing the entry of generic drugs into the market of the patented drug. Such agreement may constitute monopolistic agreement, provided that the arrangements prescribed are likely to eliminate or restrict competition.
The SPC opines that in principle, insofar as pharmaceutical patent disputes involving pharmaceutical patentees and generic drug manufacturers, the settlement agreement or contract, which appears in the form of reverse payment pharmaceutical patent settlement, shall be a subject of preliminary antitrust scrutiny of the court.
The SPC elaborates on the methodology to be employed in the preliminary antitrust scrutiny of the reverse payment pharmaceutical patent settlement.
Whether the reverse payment pharmaceutical patent settlement, which is designed for not challenging the validity of patent right, allegedly constitutes a monopolistic agreement as prescribed by the Anti-monopoly Law, hinges on whether the said agreement eliminates or restricts competition in the relevant market.
By comparing the actual circumstance where a reverse payment settlement was reached and executed and the hypothetical scenario of the other way around (no settlement & no execution), court should prioritise the assessment on the likelihood of invalidation of the pharmaceutical patent in the context where the generic drug manufacturer has not withdrawn the invalidation petition, ensued by analysis of whether such agreement has undermined competition in the relevant market.
In principle, the fact that the patentee offers, without just cause, generic drug manufacturers handsome compensation in exchange for withdrawal of the invalidation petition, may be perceived as a key parameter in finding that the patent right stands a good chance of being invalidated. In general, courts are also advised to assess and predict the outcome of the invalidation proceeding assuming that the generic drug manufacturer had not withdrawn the invalidation petition.
Parameters to be factored in ascertaining the harm inflicted by the agreement over competition usually include whether such agreement has substantially prolonged the period of market exclusivity of the patentee and has substantially delayed or eliminated the market entry of actual and potential generic drug manufacturers.
Turning to the case, the SPC holds: Although the BMS - Vcare Settlement Agreement features the characteristics of reverse payment pharmaceutical patent settlement, due to the expiration of the patent at issue, ascertaining the merit of monopoly will become moot as the obstacle impeding the entry of the generic drug into the relevant market has ceased to exist. Thus, it would be neither necessary nor urgent to assess whether the Settlement Agreement breached the Anti-Monopoly Law.
Moreover, neither BMS nor Vcare participated in the proceeding and the scarcity of evidence in the invalidation proceeding made it difficult for the court to further ascertain the likelihood of invalidation of the patent at issue and to identify whether there was any just cause to justify BMS’s grant of early entry of the generic drugs manufactured, sold and offered for sale by Vcare and the associated parties thereof. The SPC therefore terminated the antitrust scrutiny and granted the withdrawal request of AstraZeneca. The case is selected as one of the SPC’s Annual 50 Exemplary IP Cases in 2021.
Reverse payment patent settlement (also known as pay-for-delay) is a tactic employed by pharmaceutical patentees to delay the market entry of generic drugs so as to maintain the exclusivity of the patented drugs. The fact that the SPC subjects the case to antitrust scrutiny of its own accord is unprecedented. It remains to be seen if this case will herald the judicial antitrust scrutiny of reverse payment pharmaceutical patent settlement in China in the long run.
Jianhui Li
Associate
Wanhuida Intellectual Property
T: +86 10 6892 1000
Jianhui Li is an associate at Wanhuida Intellectual Property. Her areas of technical expertise are biology, pharmaceuticals, chemicals and biomedical engineering.
Jianhui assists the firm’s senior patent practitioners in patent infringement, patent validity analysis, free-to-operate and other patent legal affairs for a few multinational biological and pharmaceutical corporations both at home and abroad.
Honghui Hu
Partner
Wanhuida Intellectual Property
T: +86 10 6892 1000
Honghui Hu is a partner and a senior patent counsel of Wanhuida Intellectual Property. She is qualified both as a patent attorney and as a lawyer in China.
Honghui has extensive experience in prosecuting and litigating patent and technology-related matters, with her technical expertise primarily focusing on chemistry, biotech, pharmaceutical and food technology. She excels in advising clients on intricate matters like patent validity analysis, freedom-to-operate and infringement risk assessment. She frequently advises multinational corporations in the pharmaceutical, biotech and chemistry industries.
Honghui is one of the lead counsels that helped defend the validity of Bayer’s compound patent of blockbuster anticoagulant drug rivaroxaban, a case selected as one of CNIPA’s Top Ten Patent Reexamination and Invalidation Cases in 2020.
