15 February 2017

Protection of Standard-Related Patents — Analysis of a Dispute Between Sihuan Pharm and Qilu Pharmaceutical

This article was written by Li Zhongsheng(partner) and Song Xinyue(partner) 

In January 2017, Beijing Sihuan Pharmaceutical Co., Ltd. (“Sihuan Pharm”), represented by a King & Wood Mallesons’ IP litigation team, succeeded in a patent infringement trial. The Inner Mongolia Hohhot Intermediate People's Court (the “Court”) found that Qilu Pharmaceutical Co., Ltd. (“Qilu Pharmaceutical”) had infringed two of Sihuan Pharm’s patents, and ordered Qilu Pharmaceutical to cease the infringement. The case involves standard-related patents in the pharmaceutical sector and drew lots of attention in the industry. The Court’s decision is a valuable precedent for the judicial protection of pharmaceutical patents.

Case summary

Cinepazide maleate is a drug used for cardio-cerebral vascular disease. Sihuan Pharm is the manufacturer of bulk cinepazide maleate and its injection liquid, and it has a patent (-Number ZL201110006357.7) entitled  “a pharmaceutical composition with superior safety profiles, its preparation methods, and applications” (“Patent 357”). Sihuan Pharm also owns patent no. ZL200910176994.1 entitled “cinepazide nitrogen oxides, its preparation methods, and usage thereof” protecting the application of cinepazide nitrogen oxides as a reference substance for the determination of the content of related substances (“Patent 994”).

Sihuan Pharm learnt that Qilu Pharmaceutical was producing bulk cinepazide maleate and its injection liquid without its authorization and had submitted tenders for the promotion and sale of such products through the public procurement platform of the Inner Mongolia Autonomous Region. On November 11th, 2015, Sihuan Pharm filed a patent infringement lawsuit against Qilu Pharmaceutical. During the litigation, Qilu Pharmaceutical filed requests with the State’s Patent Re-examination Board (PRB) to invalidate  the two patents in dispute. On August 10th, 2016, the PRB issued re-examination decision No. 29876 upholding the validity of the patent no. ZL201110006357.7. On August 29th, 2016, Qilu Parmaceutical withdrew its invalidation request against the patent no. ZL200910176994.1. Currently, the two disputed patents are valid and protected by law.

In January 2017 the court released a decision recorded as [2015] Hohhot Intermediate People's Court, Civil Intellectual Property Division, First Instance Judgement No.00130. In this judgement, the court held that Qilu Pharmaceutical had committed patent infringement and issued injunctive orders, requiring Qilu Pharmaceutical to immediately stop: manufacturing and using the bulk cinepazide maleate; manufacturing and offering for sale cinepazide maleate; manufacturing cinepazide nitrogen oxides and using cinepazide nitrogen oxides as a reference substance.

Highlights in the judgement

1. Determining that alleged products are covered by the patents in dispute according to national standards applied to the defendant

The pharmaceutical industry is closely related to public health, and is known as an industry with high technical barriers, strict market access control, long R&D period, high risk and large amount of investment. Compared with other sectors,  innovation in the pharmaceutical industry relies heavily on the protection of intellectual property. Pharmaceuticals may not be sold in the market unless they meet the State’s quality standards applicable to their manufacturing, so as to ensure their efficacy and safety. New product developers may have innovative technical results patented and pharmaceutical regulators may select those quality criteria directly related to efficacy and safety and incorporate them into pharmaceutical standards for the purpose of regulating and controlling the quality and curative effect of pharmaceuticals. Therefore, innovative product patents may include quality standards. Other manufacturers, when using such quality standards to copy pharmaceuticals, may be liable for patent infringement. Is judicial expert testimony still necessary if a patented technical resolution is already included in applicable quality standard? This issue is addressed in the Qilu Pharmaceutical  judgement.

The Court pointed out in its judgement that, according to Qilu Pharmaceutical’s standards for bulk cinepazide maleate (YBH01582015) and  cinepazide maleate injection liquid (YBH01592015) approved by the China Food and Drug Administration (CFDA), the amount of cinepazide nitrogen oxides should not exceed 0.05% in bulk cinepazide maleate and 0.15% in cinepazide maleate injection liquid, and the structural formula of the nitrogen oxides is identical to that in the patent claim of Patent 994 and Paten 357. In addition, both of the above standards record the process of making cinepazide nitrogen oxides into reference solutions. Given that pharmaceuticals are special products whose production and sale are all strictly regulated by national standards, by comparing applicable national standards and Qilu Pharmaceutical’s own standards for relevant products, and the patent scopes of Patent 357 and Patent 994, the Court held that Qilu Pharmaceutical’s  bulk cinepazide maleate and its injection liquid fell into the scope of protection of the Patent No. 357, its  cinepazide nitrogen oxides fell within the protection of Patent 994, and the application of its cinepazide nitrogen oxides as a reference substance fell within the scope of  the Patent 994.

2. A patent holder of standard-related pharmaceutical patents has no obligation to grant licenses on a “fair, reasonable and non-discriminatory” basis, and the defendant must stop infringement as long as it is identified as an infringer

The defendant, Qilu Pharmaceutical, alleged that the patents in dispute were standards-essential patents (SEPs), and should be governed by Article 24 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Patent infringement Cases (II) (the “Interpretation II”). In other words an injunctive order was not available for Sihuan Pharm unless it had fulfilled its “disclosure obligation” and“fair, reasonable and non-discriminatory” licensing obligation. Whether the above judicial interpretation is applicable to standard-related pharmaceutical patents became the main point of contention between the parties and was to be decided by the court. 

The court held that Article 24 of the Interpretation II applies to “recommendatory national, industrial or local standards”, while the standard in dispute jointly formulated by Sihuan Pharm is a national standard promulgated by the CFDA and reviewed and approved by the Chinese Pharmacopoeia Commission. The latter national standard is compulsory (not recommendatory) according to Article 7 of the Standardization Law of the People's Republic of China and Article 32 of the Pharmaceutical Administration Law Of The People's Republic Of China. Second, the court held that under Article 18 of the Measures for the Administration of Drug Registration, when a manufacturer files an application with the CFDA for a drug (either a generic or new drug) registration, it must provide a statement specifying that its pharmaceutical product does not infringe any other’s patent. Qilu Pharmaceutical had an obligation to conduct a patent search before applying for registration of bulk cinepazide maleate and its injection liquid, so as to prevent infringement of others’ patents The third finding was that current law and pharmaceutical standard-formulating organizations do not require  patent holders to commit to license their patents on a fair, reasonable and non-discriminatory basis at the time their patents are incorporated in national standards. Therefore, the “SEP defense” raised by Qilu Pharmaceutical was not supported by the Court. 

There is judicial precedent for the courts conclusion, for example an invention patent infringement judgment of the Higher People's Court of the Guangxi Zhuang Autonomous Region in 2007, Henan Tiangong Pharmaceutical Co., Ltd. v. Guangxi Nanning Yongjiang Pharmaceutical industry Co., Ltd ([2007] Guangxi Higher People's Court, Third Civil Division, Second Instance Judgement No. 46). In this case, the plaintiff obtained an invention patent for a “medicinal composite for curing craniocerebral trauma and its syndrome”, and submitted its standard for “compound lysine granules” to the state in order to put the patented product into production. The CFDA later promulgated a quality standard and package insert for compound lysine granules. The defendant argued that it used the plaintiff’s patent for complying with national pharmaceutical standards, which was permitted by law and should not be considered a patent infringement. It argued that the plaintiff’s voluntary provision of its patented formulas to the state and the incorporation of these formulas in public national standards was permission to others to use that patent. The courts of first and second instance held that, pharmaceutical invention patents are different from normal invention patents due to the special nature of pharmaceuticals, i.e. after a pharmaceutical invention patent is granted, the patent holder does not necessarily have the right to implement the patent, but must convert its patented technology into national pharmaceutical standards through prescribed procedures so as to legally produce them. The plaintiff’s patent application and the conversion of its patented technology into national standards did not mean that this patented technology had entered the public domain and was available for use by others without authorization. Although the defendant produced pharmaceuticals in accordance with national standards, the products were patented and not authorized by the patent holder, therefore, a patent infringement was committed. The Court ruled in favor of the plaintiff ordering the defendant to immediately stop infringement. 

Conclusion

The Qilu Pharmaceutical case is typical of when standard-related pharmaceutical patents are infringed. Based on the finding of facts, the collegial panel of the Court made a careful analysis of the relevant legal issues such as the comparison principle for patent infringement and the grounds for issuing an injunctive order. It has provided a valuable precedent for similar cases in the future. Pharmaceutical innovation requires a long R&D period and incurs a high cost. The first instance judgment in this case shows the determination of the Chinese judiciary to encourage innovation and enhance intellectual property protection, and will heighten the confidence of enterprises researching and developing pharmaceuticals.

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