China Clarifies Patent Laws to Expand Compulsory Licensing

China Takes First Step Towards Compulsory Licensing

The Chinese government has announced amendments to its intellectual property rights (IPR) protection laws to provide clarity on the issue of compulsory licensing, reports China Daily. The announcement has sought to provide clarity on the definition of "patent pharmaceuticals", with the following definition—patented medicine refers to any "patented product or any product directly based on patented methods, in the pharmaceutical industry that is necessary for resolving public health issues, including active ingredients necessary for the manufacture of such products and diagnostic devices necessary for the use of such products".

Also, the government has revealed that any entity can petition the State Intellectual Property Office (SIPO) to grant a compulsory license after three years have elapsed from the time of grant of patent under the following circumstances:

• the entity has made a reasonable request to the patent holder but has failed to arrive at an agreement;
• in the event of a national emergency or when public health requires;
• when the patent holder has not exploited/ sufficiently exploited the patent without justification;
• when it is determined by a judicial process that the patent restricts competition.

(Source: Maier & Maier)

The government has also clarified that no compulsory license will be exclusive, and will not authorise the licensee to further authorise others to exploit the patent. The licensee is also required to pay the patent holder a pre-negotiated fee. If a negotiation is not successful, the SIPO will determine an appropriate fee.

If the patent holder is dissatisfied with the grant of the compulsory license, or the licensee is dissatisfied with the fee to be paid, the parties may engage in legal proceedings within three months of being notified.

Outlook and Implications

As indicated, the aforementioned amendments are significant and represent the Chinese government's efforts to move towards compulsory licensing. The development therefore does not bode well for innovative pharma, and will be cheered by generic firms and the domestic drug industry. The reasons for this are manifold. Firstly, it should be noted that while several of the compulsory licensing clauses already form a part of China and the World Trade Organization's (WTO) regulations around compulsory licensing. However, the nebulous terminology surrounding the conditions necessary for grant of compulsory license in relation to insufficient exploitation of a patent, given above, are likely to be a cause of concern for innovative pharma. Meanwhile, the move also comes at a time when several Big Pharma firms, such as Pfizer (U.S.), are implementing emerging market expansion strategies with special focus on China (see United States - China: 20 January 2010: Pfizer Intensifies Big Asia Focus, Seeks to Strengthen Presence in Emerging Markets). Although China has yet to issue a compulsory license, it has always been a pro-generic market with patent infringement cases often decided in favour of the domestic generic firm—namely, Pfizer over the Chinese trademark for Viagra (sildenafil), and Merck & Co (U.S.) over Proscar/Propecia's (finasteride) patent. Although Eli Lilly (U.S.)'s victory against Chinese generics maker Jiangyin Dongfang over the Cialis (tadalafil) patent had appeared to signal a change in priorities, this now does not seem to be the case.

The indicated development broadens China's scope for compulsory licensing beyond solely contagious diseases, and could see the trend of court-mandated compulsory licenses emerge. It also brings China more inline with its Asian-Pacific neighbours, such as Thailand and the Philippines, in terms of compulsory licensing policy.