China's Patent Law and the Pharmaceutical Industry


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This article is aimed at introducing some important provisions of the PRC Patent Law that pharmaceutical companies need to be aware of when making or selling their drugs in China.

China accounts for 20% of the world’s population but only 1.5% of the global drug market. China's changing health-care environment is designed to extend basic health insurance to a larger portion of the population and give individuals greater access to products and services. Following this period of change, the pharmaceutical industry is expected to continue its expansion.

Now, more
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and more pharmaceutical companies understand the importance of Intellectual Property, especially patents. This article is aimed at introducing some important provisions of the PRC Patent Law that pharmaceutical companies need to be aware of.

China's Patent Law

Since its enactment in 1984, China's Patent Law has been amended 3 times, first in 1992, second in 2000, and then in 2008. The first amendment added pharmaceutical compositions to the list of patentable subject matter and inaugurated China's membership in the Patent Cooperation Treaty ("PCT"). The second amendment brought China's Patent Law into compliance with the Trade-Related Aspects of Intellectual Property Rights ("TRIPS") Agreement.

A third amendment to the Patent Law was approved by the People's Congress in December 2008, and it took into effect from January 1, 2009.

Tough Disclosure Rules for Inventions Relying on "Genetic Resources" or "Traditional Knowledge"

China is rich in genetic resources and traditional knowledge, and the Chinese government supports and encourages research to develop intellectual property derived from these assets. For inventions "completely relying" on genetic resources or traditional knowledge, the 3rd amendment for the first time imposes a requirement that the patent applicant disclose in the application the direct and original sources of the genetic resources or the source of the traditional knowledge.

Biotechnology companies need to pay close attention to this disclosure requirement because failure to comply could result in either the denial or invalidation of a Chinese patent. It should be noted that there is no equivalent requirement in the patent laws of Europe, Japan, or the United States.

The 3rd amended Patent law also stipulates that no patent shall be granted to inventions "completely relying" on genetic resources or traditional knowledge if the acquisition or use of the underlying genetic resources or traditional knowledge violated Chinese law or regulation.

Because of the stiff penalty attached to noncompliance with the requirements in 3rd amended Patent law, the international business community has raised concerns with the Chinese government about the potential chilling effect of the new rules on commercial research and development related to "genetic resources" and "traditional knowledge."

Absolute Novelty Requirement for Patentability

Article 22.2 of China's former Patent Law has a blended novelty standard for patentability—in assessing novelty of an invention, Chinese patent examiners consider publication anywhere in the world but not public use outside of China. This blended novelty standard occasionally allows "patent hijacking," i.e., the patenting in China of another party's invention witnessed at a public event (such as a trade show) outside of China. The 3rd amendment replaces this blended novelty standard with an absolute one, and it requires patent examiners to consider public use evidence from both inside and outside China in examining patent applications. Adoption of an absolute novelty standard will have the effect of reducing patent hijacking.

Heavy Penalty for Foreign Filing Without a License

As international pharmaceutical companies set up research and development centers in China, they need to consider where to first file patent applications for inventions made in China. Article 20.1 of the former China's Patent Law requires that a Chinese patent applicant for an invention made in China must first file a patent application in China before any foreign filing. However, the 3rd amended Patent law is silent about what a foreign applicant is required to do in the same situation. So, some foreign-owned research labs in China no longer need to assign the right to apply for patent to an entity outside of China to circumvent the foreign filing requirement of the former Chinese patent law.

The 3rd time amended Patent Law blocks this "loophole" with a foreign filing license regime like the system in the United States. Under the new requirement, for any invention made in China, the applicant must obtain permission from the State Intellectual Property Office prior to filing a patent application in a foreign country.

Because Chinese patent applications must be submitted in Chinese, this new rule will force international pharmaceutical companies to develop resources to draft original patent applications in Chinese to protect inventions made in China.

Strengthening Patent Co-Ownership Rights

As pharmaceutical companies enter into research collaborations with Chinese universities and companies, the 3rd amended Patent Law includes provisions that prevent unilateral use of the patent rights without the consent of co-owners.

Under such rules, pharmaceutical companies should draft collaborative research agreements in ways to ensure that commercial use of the patent rights arising from the joint research efforts will not be blocked by the default veto power of the co-owner.

Compulsory Licenses

No compulsory license has ever been granted in China even though Chapter VI of China's former Patent Law contains compulsory license provisions. However, the 3rd amended Patent Law contains new rules that will make it more feasible and likely for compulsory licenses to be granted in China.

First, the 3rd amended Patent Law provides that the government may grant a compulsory license to a party qualified to exploit the patent if the patent owner, without justification, has not exploited or sufficiently exploited the patent three years after the patent grant, four years after patent application. It also provides that a compulsory license may be granted if it is judicially or administratively determined that the patent owner used the patent right in an anticompetitive fashion.

In addition, the 3rd amended Patent law stipulates that "for purpose of public heath, the patent administration department under the State Council may grant a compulsory license to manufacture a pharmaceutical product has been granted patent right and export it to countries or regions specified in the relevant treaties to which China is party.”

Conclusion

Strong patent protection in China for pharmaceutical inventions is a top priority for the international pharmaceutical industry as China's pharmaceutical market grows by leaps and bounds and China becomes a center of pharmaceutical research and development. China's Patent Law will significantly affect how pharmaceutical companies will compete in this market. Recent examples in China show that the government will take note of comments from the international business community in making and amending laws. Pharmaceutical companies planning to be active in China should make their opinions heard.

ABOUT THE AUTHOR: Han Yuanyuan
Han Yuanyuan is an Associate in the MMLC Group.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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