USTR 2018 Special 301 Report – Priority Watch List Country – China

In April, the Office of the United States Trade Representative (USTR) released its 2018 Special 301 Report (the Report) identifying trading partners that do not adequately or effectively protect and enforce intellectual property (IP) rights or otherwise deny market access to U.S. innovators and creators that rely on protection of their IP rights.  The Report called on U.S. trading partners to address IP-related challenges with a special focus on the countries identified on the Watch List and Priority Watch List.

Countries identified on the Watch List are:

  • Barbados
  • Bolivia
  • Brazil
  • Costa Rica
  • Dominican Republic
  • Ecuador
  • Egypt
  • Greece
  • Guatemala
  • Jamaica
  • Lebanon
  • Mexico
  • Pakistan
  • Peru
  • Romania
  • Saudi Arabia
  • Switzerland
  • Tajikistan
  • Thailand
  • Turkey
  • Turkmenistan
  • United Arab Emirates
  • Uzbekistan
  • Vietnam

Countries identified on the Priority Watch List are:

Priority Watch List Country – China

In this post, we will examine several of the USTR’s concerns relating to China which has been on the USTR’s Priority Watch list for several years.  At the outset, the Report notes that although some positive developments emerged in China’s complex and fast-changing IP environment during the last year, U.S. right holders continue to identify the protection and enforcement of IP as well as IP-related market access barriers as the leading challenges in an already very difficult business environment.  The Report notes that concerns extend not only to gaps in legal authorities and weak enforcement channels, but also to investment and other regulatory requirements that promote the acquisition of foreign technology by domestic firms at the expense of providing reciprocity, a level playing field, transparency and predictability that the U.S. and other countries insist upon.  In fact, the Report suggests that China lacks an underlying commitment to address longstanding problems and its failure to do so undermines any confidence that might stem from any positive developments and high-level statements made by the country in support of IP and innovation.

Initial Positive Developments

Some positive developments that occurred in China during the last year include:

  1. A positive conclusion to China’s three-year pilot program for its specialized IP courts located in Beijing, Shanghai, and Guangzhou. Last year, China continued with its IP courts and added specialized IP tribunals which enjoyed cross-regional jurisdiction (sometimes including having jurisdiction over criminal, civil, and administrative enforcement as well), which aided in promoting the quality, efficiency, and consistency of IP adjudications.  The Report notes that according observers, the IP courts generally demonstrated competence, expertise and transparency to a greater degree than that seen in other Chinese courts.  Moreover, in August 2017, China opened the country’s first Internet Court in Hangzhou, with 40 judges and assistant judges.  Additionally, China is considering creating a national-level appellate IP court to lend consistency to outcomes.  Nonetheless, despite these developments, intervention by local government officials, powerful local interests, and the Chinese Communist Party remain obstacles to the independence of the courts and rule of law.  As noted by the Report, a truly independent judiciary is critical to promote rule of law in China.    In addition to the lack of true independence of the judiciary, stakeholders continue to report issues with respect to the onerous authentication requirements for evidence and documentation, lack of means to require evidence production and insufficient damage awards, all of which undermine the effectiveness of China’s court system for addressing IP infringement.
  2. Notices issued by China’s Food and Drug Administration. Last year, China’s Food and Drug Administration issued notices for public comment that set out a conceptual framework to protect against the unfair commercial use and unauthorized disclosure of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products and to promote the efficient resolution of patent disputes between right holders and the producers of generic drugs.
  3. Approval of government reorganization by the National People’s Congress on March 17, 2018. According to the State Council Reorganization Plan, the reforms place several IP-related government functions under a new State Administration of Market Supervision and Management.  According to Chinese officials, these reforms will increase the efficiency of IP protection and enforcement.  Time will tell whether these reforms will accomplish these goals and improve market access for persons that rely on IP in the country.

Disappointments and/or Failures

  1. Trade secrets. China’s 2017 amendment to its Anti-Unfair Competition Law (AUCL) represented a major missed opportunity to address a number of critical issues.  Unfortunately, China did not address major flaws in its outdated legislation, including the overly narrow scope of covered actions and actors, obstacles to injunctive relief, the need to allow for evidentiary burden shifting in appropriate circumstances as well as other concerns.  However, most importantly, despite long-term engagement with the U.S. and others, China chose not to establish a stand-alone trade secret law.  Instead, the government decided to continue to seat important trade secret provisions in the AUCL, which is an unfortunate arrangement that contributes to definitional, conceptual and practical shortcomings relating to trade secret protection.
  2. Manufacturing, domestic sale and export of counterfeit goods. In 2017, China failed to take decisive action to curb the widespread manufacture, domestic sale, and export of counterfeit goods.  Unfortunately, during the past year, China, together with Hong Kong (through which Chinese merchandise often transships), accounted for 78 percent of the value (measured by manufacturer’s suggested retail price) and 87 percent of the seizures by the U.S. Customs and Border Patrol.  Interestingly, these figures are similar to those reported by the European Union.  In fact, by one estimate, counterfeits may account for over 12 percent of Chinese merchandise exports.
  3. Failure to promote innovation through sound patent and related policies. Currently, China’s fourth amendment to its patent law remains pending.  With respect to this latest amendment, concerns exist regarding:  (i) the presence of concepts involving competition law that belong elsewhere; (ii) an undue emphasis on administrative enforcement; (iii) a one-size fits-all disclosure obligation in standards setting processes; (iv) a failure to clarify that a patentee’s right to exclude extends to manufacturing for export; and (v) the need to harmonize China’s patent grace period and statute of limitations with those of international practices.  For example, effective April 1, 2017, China’s revised patent examination guidelines came into effect that appeared to address, among other issues, the treatment of supplemental data submitted in support of pharmaceutical patent applications.  However, right holders report that Examiners still have not applied the guidelines to all examination questions to which supplemental data is germane which often leads to the denial of such applications on alternative grounds despite the fact that counterpart applications are granted by other major patent offices.  By way of another example, the U.S. was encouraged by the China Food and Drug Administration’s draft Notices 52-55 issued in May 2017.  This draft notice stated that China’s regulatory authorities would define a “new drug” as one that was new to China, including those first marketed outside of China.  However, in November 2017, China issued its draft Drug Registration Regulations (DRR), which failed to reinforce the notion set forth in the draft Notice 55.  Specifically, the draft DRR defined a “new drug” as only one that was new to the world, meaning that if a drug had been marketed outside of China, but had not yet launched in China, it would not quality as a “new drug”.  Unfortunately, only a “new drug” can receive full regulatory data protection in China.  Clearly, this regulation puts foreign pharmaceutical applicants at a competitive disadvantage with domestic counterparts which may have the indirect effect of forcing companies to file first in China, despite the fact that market demand or health needs reside elsewhere.
  4. China’s acts, policies, and practices related to technology transfer, intellectual property, and innovation. Unfortunately, despite years of negotiation and other engagement, China has repeatedly failed to address a range of measures and practices that force or pressure U.S. right holders to relinquish control of their valuable IP as a condition for accessing the large and growing Chinese market.  Specifically, the USTR has determined that the followings acts, policies, and practices by China are unreasonable or discriminatory and burden or restrict U.S. commerce: (i) China’s use of foreign ownership restrictions, such as joint venture requirements and foreign equity limitations, and various administration review and licensing processes, to require or pressure technology transfer from U.S. companies; (ii) China’s regime of technology regulations that force U.S. companies seeking to license technologies to Chinese entities to do so on non-market-based terms that favor Chinese recipients; (iii) China’s direct and unfair facilitation of systematic investment in, and acquisition of, U.S. companies and assets by Chinese companies in order to obtain cutting-edge technologies and IP and the generation of technology transfer to Chinese companies; and (iv) conducting and supporting unauthorized intrusions into, and theft from, computer networks of U.S. companies to access their sensitive commercial information and trade secrets.

Thus, for these reasons, the Report states that China “remains a hazardous and uncertain environment for U.S. right holders hoping to protect and enforce their IP rights”.  Therefore, absent a significant commitment by China to address these longstanding problems, it appears that China will remain on the priority watch list for the foreseeable future.

This post was written by Lisa Mueller.

USTR 2018 Special 301 Report – Priority Watch List Country – India

In April, the Office of the United States Trade Representative (USTR) released its 2018 Special 301 Report (the Report) identifying trading partners that do not adequately or effectively protect and enforce intellectual property (IP) rights or otherwise deny market access to U.S. innovators and creators that rely on protection of their IP rights.  The Report called on U.S. trading partners to address IP-related challenges with a special focus on the countries identified on the Watch List and Priority Watch List.

Countries identified on the Watch List are:

  • Barbados
  • Bolivia
  • Brazil
  • Costa Rica
  • Dominican Republic
  • Ecuador
  • Egypt
  • Greece
  • Guatemala
  • Jamaica
  • Lebanon
  • Mexico
  • Pakistan
  • Peru
  • Romania
  • Saudi Arabia
  • Switzerland
  • Tajikistan
  • Thailand
  • Turkey
  • Turkmenistan
  • United Arab Emirates
  • Uzbekistan
  • Vietnam

Countries identified on the Priority Watch List are:

  • Algeria
  • Argentina
  • Canada
  • Chile
  • China
  • Colombia
  • India
  • Indonesia
  • Kuwait
  • Russia
  • Ukraine
  • Venezuela

Priority Watch List Country – India

In this post, we will examine several of the USTR’s concerns relating to India which has been on the USTR’s Priority Watch list for decades.  Although the Report acknowledges that despite a number of recent administrative actions taken by the Indian government to try and improve its IP system, the country still has not addressed a number of key, longstanding deficiencies in its IP regime. Not surprisingly, the Report notes that India remains one of the world’s most challenging major economies with respect to the protection and enforcement of IP.

Some longstanding patent issues listed in the Report include:

  1. Narrow patentability standards;
  2. Threats of compulsory licensing and patent revocations;
  3. Overly broad criteria for issuing licenses and revocations under the India Patents Act;
  4. Costly and time-consuming patent opposition hurdles;
  5. Long time lines to receive a patent; and
  6. Excess reporting requirements.

Additionally, the Report further states that in the pharmaceutical and agricultural chemical sectors, India continues to lack an effective system for protecting against the unfair commercial use, as well as the unauthorized disclosure of undisclosed test and other data generated to obtain market approval for such products.  Another contentious area in the pharmaceutical sector involves Section 3(d) of the India Patents Act which provides that the discovery of a “new form” of a “known substance” that does not result in increased efficacy of that substance is not patentable.  This restriction on patent eligible subject matter poses significant obstacles to innovators seeking timely entry into the Indian market for these products.  Moreover, the Report further notes that India continues to lack an effective system for notifying interested parties of marketing approvals for follow-on pharmaceuticals in a sufficient manner that allows for the early resolution of any potential patent disputes.  Moreover, in 2017, the Indian Ministry of Health and Family Welfare created additional uncertainty in the pharmaceutical market when it issued a notification eliminating a requirement from Form 44 which required applicants seeking approval of a drug to declare the patent status of that drug to the regulator.

Other issues involve the pressure faced by innovative industries to localize the development and manufacture of their products due to high custom duties directed to IP-intensive products, such as medical devices, pharmaceuticals, ICT (information, communication, technology) products, solar energy equipment and capital goods.    With respect to agricultural biotechnology, the Report notes that the Ministry of Agriculture and Farmer’s Welfare’s “Licensing and Formats for Genetically-Modified Technology Agreement Guidelines, 2016” contained overly prescriptive terms that, if implemented, would undermine market incentives critical to the agricultural biotechnology and other innovative sectors.

With respect to IP enforcement, the Report notes that India’s overall efforts remain deficient.  Unfortunately, the lack of uniform progress across the country threatens to undercut the positive steps that certain states have taken.  In fact, a 2017 publication produced by the OECD and EU Intellectual Property Office entitled, “Mapping the Real Routes of Trade in Fake Goods,” reported that India was a key producer and exporter of counterfeit foodstuffs, pharmaceuticals, perfumes, cosmetics, textiles, footwear, electronics and electrical equipment, toys, games and sporting equipment. With respect to counterfeit pharmaceuticals, the 2017 publication found that 55 percent of the total value of global counterfeit pharmaceutical seizures originated in India – the largest of any country.  Additionally, the publication also noted that these counterfeit pharmaceuticals are shipped around the world with particular emphasis placed on the African countries, Europe and the U.S.

Not surprisingly, the Report also notes that the overall level of trademark counterfeiting in India also remains high.  Moreover, U.S. brand owners continue to report issues with respect to opposition and cancellation proceedings, as well significant challenges and excessive delays in obtaining trademarks and efficiently utilizing opposition and cancellation proceedings as well as issues with the quality of examination.  Moreover, uncertainty continues to exist for companies due to insufficient legal means to protect trade secrets in the country.

It appears that unless significant changes are made and strongly implemented by the Indian government to specifically address these above issues that the country will remain on the Priority Watch list for the foreseeable future.

This post was written by Lisa Mueller.

Brazilian Mailbox Patents: Big Loss for Alexion

On April 20, 2018, Alexion Pharmaceutical Inc.’s (Alexion) patent (PI9507594-1) covering Soliris® (eculizumab) was the subject of an unfavorable decision by the Superior Court of Justice involving the term of mailbox patents in Brazil.  Soliris® (eculizumab) is a humanized antibody targeting complement 5 and is used to treat paroxysmal nocturnal hemoglobinuria (PNH).

The Third Panel of the Court decided that the patent term for mailbox patents should be 20 years from the filing date and not 10 years from the date of grant.  The Court was persuaded by public health interest arguments made by associations representing various generic companies, specifically those citing the high price of Soliris® in Brazil (around 5,000 USD per unit).

The Soliris® patent is what is known as a “mailbox patent”.  Mailbox patents arose in Brazil following the creation of the World Trade Organization (WTO) on January 1, 1995.  When the WTO was created, one of the agreements that came into effect was the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. At the time, most member countries agreed to apply the TRIPS Agreement immediately upon joining the WTO. However, developing countries were permitted certain transitional periods in order to have sufficient time to enact new laws that were TRIPS compliant. One transitional period allowed developing countries up to ten years (specifically, until January 1, 2005) to introduce patent protection for pharmaceutical and agrochemical products. However, Article 70.8 of the TRIPS Agreement provided that developing countries that utilized this transitional period were required to allow patent applications to be filed on pharmaceutical and agrochemical products beginning on January 1, 1995, even though a decision to grant a patent on such applications could be delayed up until January 1, 2005. This provision of the TRIPS Agreement is often referred to as the “mailbox” provision (meaning that a “mailbox” would be created to receive and store such applications) and patents issuing from applications filed pursuant to this provision are frequently referred to as “mailbox” patents.

When Brazil became a member of the WTO, the grant of patents on pharmaceutical and agrochemical products was not permitted. As a result in 1996, Brazil enacted a Patent Statute that provided patent protection for these inventions.  Pharmaceutical and agrochemical product related patent applications filed in Brazil between January 1, 1995, and May 14, 1997 (date of publication of the Patent Statute) received the same treatment as other patent applications filed after 1997. When the Brazilian Patent Office (Instituto Nacional da Propriedade Industrial (INPI)) started to examine and grant pharmaceutical and agrochemical patents, the concept of transitory and mailbox applications no longer became relevant.

The issue involving the Soliris® patent involved the patent term of mailbox patents. In general, the Brazilian Patent Statute (Article 40) provides that the term of a patent is 20 years from its filing date or 10 years from the date of grant, whichever is longer. Specifically, Article 40 establishes:

Article 40 – The term of a patent for an invention shall be 20 (twenty) years and for a utility model 15 (fifteen) years as from the filing date.

Sole Paragraph – The term shall not be less than ten years for inventions and seven years for utility models, as from the date of grant, except where INPI is prevented from carrying out the substantive examination of the application due to pending litigation or for reasons beyond its control.

However, for patents filed between January 1, 1995 and May 14, 1997, Brazil’s legislators decided to establish a limit on the pendency of examination of such applications by INPI (which was already struggling with backlog at the time) until December 31, 2004.

The legislation reads as follows:

Article 229…Sole Paragraph – The patenting criteria of this Law shall apply on the effective filing date of the application in Brazil, or on the priority date, if any, to applications relating to pharmaceutical products and to chemical products for agriculture filed between January 1, 1995 and May 14, 1997, and protection is assured as from the date of grant of the patent for the remaining term, counted from the date of filing in Brazil, such term being limited to the one prescribed in the heading of Article 40.

Article 229-B – Product patent applications filed between January 1, 1995 and May 14, 1997, which were not granted protection under Article 9 letters “b” and “c” of Law No. 5.772 of [December 21,] 1971, whose applicants failed to exercise the right specified in Articles 230 and 231, shall be decided until December 31, 2004 in conformity with this Law.

For many years, INPI issued mailbox patents well beyond December 31, 2004. These patents have been receiving a term of 10 years from grant. For example, Alexion’s patent covering Soliris® was granted on August 10, 2010 and received a 10-year term having an expiration date of August 10, 2020.

In 2013, INPI filed several lawsuits involving mailbox patents against companies like AbbVie, Alexion, Astellas, Bayer, and Merck seeking to reduce the term of mailbox patents from 10 years from grant to 20 years from filing. For a general overview of the cases see infographic here:  MAILBOXLITGATION.

The decision by the Superior Court of Justice involving Alexion’s patent is limited to the arguments balancing the public and private interests namely, that 20 years from is sufficient time for companies to enjoy patent protection over their inventions.  Unfortunately, this decision ignores the incredible backlog of applications pending at INPI.

What are the next steps for Alexion?  Alexion can appeal the case to the Supreme Court.  Alternatively, Alexion can wait for a favorable decision on a mailbox patent by another Brazilian court.  Specifically, as will be discussed in a subsequent post, the Brazilian courts can may still change their opinion regarding the patent term of mailbox patents.

Please continue to watch BRICS & Beyond for updates on litigation involving mailbox patents in Brazil.

This post was written by Lisa Mueller, Roberto Rodrigues Pinho and Brenno Telles.

 

 

Patent Term Extension is Becoming a Reality in China

On April 12, 2018, the state council of China announced that beginning May 1, 2018, a maximum of 5-year patent term extension will be available for innovative drugs (commonly referred to as branded drugs) seeking market approval within and outside China. This decision by the state council will help move the intellectual property protection system for pharmaceuticals in China closer to that of many countries such as, for example, the U.S., Europe, Japan, Korea and Australia, which have well-established patent term extension systems.  Although the details of the patent term extension system have yet to be specified, it is believed that it will be similar to the U.S. system with respect to the types of products and patents that for which the extension will be applicable as well as how the term for extension will be calculated.

This decision demonstrates that China is serious in implementing more stringent intellectual property protection for pharmaceuticals.  As such, this decision by China to permit for patent term extension is good news to foreign investors, especially foreign pharmaceutical companies.

Please continue to watch BRICS & Beyond for further details on patent term extension in China as it becomes available.

This post was written by Lisa Mueller and Xu Li of Chofn Intellectual Property.