China-based in-house counsel at foreign companies in the pharmaceutical and consumer goods sectors, as well as academics, range from being cautiously optimistic to extremely hopeful about the phase one agreement of the US-China trade deal.
What is clear from our conversations, though, is the uncertainty on how exactly the measures in the agreement will be implemented. Depending on the details of these plans, there could be very different execution and enforcement efforts in future.
Pharma a big winner
On the pharmaceutical front, a number of measures that have been under active discussion are now included, but in-house counsel want to see more details of the plans before they get too excited.
According to the head of IP at a global pharmaceutical company, the ability to use supplementary data in patent applications, as prescribed in the agreement, will give more predictability to business planning.
“A lot of patents have been invalidated for lack of inventiveness in China,” he says. “Being able to establish inventiveness through supplementary data in legal proceedings will have a huge and immediate impact for the pharmaceutical industry.”
The head of IP continues: “The inability to use supplementary data has been harsh and draconian in China. It’s something that’s allowed in the US and Europe.”
In terms of IP strategy, being able to use such data is a dramatic turn. The in-house counsel of another pharmaceutical company says that patents will be less likely to be invalidated. “From a research and development context, it means that the creative research that goes into product development can now be presented on inventiveness grounds,” he says.
An area that has led to some confusion is the use of patent term adjustments versus patent term extensions in the agreement. Patent term adjustments refer to the days that can be recovered as a result of time lost during patent prosecution for delays that are not caused by the patentee. On the other hand, patent term extensions cover the time that can be added back to a patent as a result of the time lost from doing clinical trials.
“The language of patent term adjustments hasn’t been prevalent in China,” says the in-house counsel of the pharmaceutical company. “These need to be differentiated from patent term extensions.”
Additionally, he hopes to see more clarity around what types of patents will be included for patent term extensions and whether patents that existed before the phase one agreement was signed (in January) will be included.
Patent linkage clarity
But the one thing that in-house counsel are anticipating the most is what the patent linkage system outlined in the agreement will look like for China.
The in-house counsel at the pharmaceutical company wants to see more clarity in what the system will be like in practice.
“For instance, in terms of judicial practice, how long will it take to for the drug regulator to make a decision for patentees to make an appeal to the IP court?” he asks. “Mapping the system out with more certainty will enable us to do better business planning, such as knowing when to bring a drug to China and how long we can sell it for.”
It’s unclear whether China will develop a model similar to the patent linkage system in the US, where, for example, the first company to submit an abbreviated new drug application (ANDA) for a generic drug can get the exclusive right to market it for 180 days. A 30-month stay of the US Food and Drug Administration (FDA) approval of an ANDA application may be available if the patentee files a suit within 45 days of receiving a notice letter challenging one or more patents in the FDA’s Orange Book. Whether China’s system will be similar remains to be seen.
An interesting point that academics and IP counsel want more clarity on is what happens when it is necessary for innovator drug companies to litigate before a generic drug is marketed.
“The agreement requires an administrative or judicial process for an innovator to challenge a generic company’s market entry based on the generic’s infringement of a patent held by the innovator,” says Mark Cohen, director and senior fellow at the Berkeley Center for Law and Technology in California.
“But it omits a requirement to amend China’s patent law or civil procedure law to permit a court to act when there is an artificial infringement by reason of approval of an infringing product for regulatory approval, notwithstanding the lack of any infringing manufacturing, use or sale of the product prior to its introduction into commerce in China.”
He adds that the lack of an artificial infringement concept could make it difficult to implement a civil linkage regime in China. This provision probably reflects continuing turf battles between the courts and China’s administrative IP agencies in enforcing IP rights, he says.
Tech transfer trends
A trend to watch relating to the pharmaceutical sector and technology transfer is the amount of sensitive information involved with doing clinical trials in China and what will happen under the technology transfer provisions in the phase one agreement.
“In the past, there have been instances where government officials have disclosed sensitive data to local businesses either inadvertently or out of goodwill,” say the head of IP at the pharmaceutical company.
He continues: “Although it’s not an outright transfer of technology, what we have observed in the past for trials involving human genetic resources at local hospitals is that drug companies would be requested to share patient data in order for partnerships with hospitals to continue.”
He says he is curious about whether the provisions in the phase one agreement will hold up and whether the risk of being required to share data will continue.
Beyond pharma
Topics yet to be discussed are patent-related issues beyond the pharmaceutical industry. According to Cohen, the agreement hasn't addressed a number of important IP concerns of businesses. These include: standard essential patents, low-quality patents, patent trolls, and civil and administrative patent litigation procedures.
From a brand protection perspective, the trademark counsel of a US consumer goods company says that the agreement’s focus on bad-faith marks helps to solidify the progress that has been made in China in the past year, including changes to the trademark law that became effective on November 1 2019.
However, an area that continues to cause headaches for her is the challenge with getting notarised evidence in counterfeiting cases, especially with the rampant rise of e-commerce sites in China.
When it comes to enforcement, she notes the reference to civil and criminal penalties to deter future IP theft or infringements. However, she wants to see more details before being too optimistic.
The counsel adds: “Although the criminal threshold for establishing trade secret cases has been eliminated, there is no similar measure for trademark cases.”
While the phase one agreement is a very positive first step and builds on the tremendous progress that China has made in IP protection, especially in the past year, in-house counsel want to see the action plan – which is expected to come out in February – to address the various measures in the agreement in more detail.
