Pharmaceutical IP and competition law in China: overview

A Q&A guide to pharmaceutical IP and competition law in China.

The Q&A gives a high level overview of key issues including patents, trade marks, competition law, patent licensing, generic entry, abuse of dominance and parallel imports.

For information on pharmaceutical pricing and state funding, manufacturing, marketing, clinical trials, advertising, labelling, and product recall and liability, visit Medicinal product regulation and product liability in China: overview.

To compare answers across multiple jurisdictions, visit the Pharmaceutical IP and competition Country Q&A tool.

The Q&A is part of the multi-jurisdictional guide to life sciences law. For a full list of jurisdictional Q&As visit www.practicallaw.com/lifesciences-mjg.

Contents

Patents

1. What are the legal conditions to obtain a patent and which legislation applies? Which products, substances and processes can be protected by patents and what types cannot be patent protected?

Conditions and legislation

The State Intellectual Property Office (SIPO) is the principal body responsible for patent examination. The Patent Law 2008, Implementing Regulations of the Patent Law 2010, and Guidelines for Patent Examination 2010 are the primary pieces of legislation governing patentability in China.

The major requirements for obtaining an invention/utility model patent include (Article 22, Patent Law):

  • Novelty (does not belong to existing technology).

  • Inventiveness (having distinguishing features or representing an improvement).

  • Usefulness ( having practical applicability).

Scope of protection

Patent protection can be applied to a product, process, form and/or structure of a product, or the design of a product, if those products or processes satisfy the legal requirements (see above, Conditions and legislation). The following subject matter cannot be patented:

  • Scientific discoveries.

  • Rules and methods for mental activities.

  • Methods for the diagnosis or for the treatment of diseases.

  • Animal and plant varieties.

  • Substances obtained by means of nuclear transformation.

  • Designs that are mainly used for marking the pattern, colour or combination of the two of plane printed materials.

  • Invention/creation contrary to the laws of the state or social morality or that is detrimental to the public interest.

  • Invention/creation completed on the basis of genetic resources of which the acquisition or use breaches the stipulations of related laws and regulations.

Animal and plant varieties cannot be patented, but China has non-patent regimes that offer some protection. Processes for producing animals and plant varieties can be patented.

 
2. How is a patent obtained?

Application and guidance

Generally, to obtain a patent, the applicant makes an application and files it with SIPO.

After SIPO examines the application (which may involve a series of office actions being sent to the applicant) and on finding the application satisfies applicable regulations, the SIPO issues a patent to the applicant. Foreign applicants with no habitual residence or business office in China are required to engage a legally established patent agency to act on their behalf.

The English official website of SIPO provides guidance of patent registration (http://english.sipo.gov.cn/application/).

Process and timing

SIPO performs different examination processes, for invention patents and for utility model patents and design patents:

  • The examination process for an invention includes preliminary examination (18 months from the filing date, or an earlier date if requested by the applicant) and substantive examination (started on request of the applicant).

  • A utility model patent and a design patent are granted after passing preliminary examination.

Normally, it takes about three to five years to obtain an invention patent, while utility model patents and design patents are issued in about one year.

 
3. How long does patent protection typically last? Can monopoly rights be extended by other means?

Duration and renewal

Invention patent protection lasts for 20 years from the filling date, and utility model or design patent protection lasts for ten years from the filing date.

Extending protection

Currently, no patent term adjustment or extension system exists in China.

 
4. How can a patent be revoked?

A patent can be revoked by the Patent Review Board (PRB) of SIPO on the application of any entity or individual (including the patentee) on the following grounds:

  • Confidentiality examination requirements are not satisfied prior to filing a patent outside China based on an invention made in China.

  • The patent does not possess novelty, inventiveness or usefulness.

  • The patent does not contain sufficient disclosure.

  • The claims are not supported by the description.

  • Amendments to the patent application documents have gone beyond the initial scope.

  • The independent claim of the granted patent does not state the essential technical feature for the solution of its technical problem.

 
5. How is a patent infringed? How is a claim for patent infringement made and what remedies are available?

Conditions for infringement

A patent is infringed if a person does any of the following acts for production or business purposes without authorisation of the patentee:

  • Making, using, offering to sell, selling or importing the patented product.

  • Using the patented process, or using, offering to sell, selling or importing a product directly obtained by the patented process.

  • Making, offering to sell, selling, or importing the patented design.

Claim and remedies

If a patent is infringed, the patentee or any interested party can:

  • Start legal proceedings in the People's Court and seek an injunction and damages. The patentee or any interested party can also apply for a pre-trial injunction or preservation of evidence if a guarantee is provided.

  • Start administrative proceeding before a local intellectual property office, which cannot grant damages.

Remedies available in court proceedings include:

  • Final injunction and pre-trial injunction.

  • Reasonable fee for pre-grant use.

  • For invention patents, the patentee can require the entity or individual to pay a reasonable fee for exploiting the invention between the publication and grant of the application. The limitation period is two years, starting from when the patentee knows or should know of the act, or two years from the grant of the patent, if the patentee knows the act before the grant of the patent.

  • Damages for post-grant infringement. The Patent Law provides several measures to facilitate the patentee's ability to seek damages, including assessment of:

    • patentee lost profits due to infringement;

    • gains of the infringer from infringement;

    • an appropriate multiple of a reasonable royalty fee; or

    • statutory damages if the preceding methods cannot be used to determine the level of damages (CNY10,000 to CNY1 million).

  • Reasonable costs incurred for stopping the patent infringement.

 
6. Are there non-patent barriers to competition to protect medicinal products?

There is a six-year data exclusivity period for data included in a marketing authorisation application for a drug containing a new chemical entity.

To protect public health, a monitoring period is granted by CFDA for certain new drugs manufactured in China.

 

Trade marks

7. What are the legal conditions to obtain a trade mark and which legislation applies? What cannot be registered as a trade mark and can a medicinal brand be registered as a trade mark?

Conditions and legislation

For a trade mark to be registered under the Trade Mark Law, it must be a symbol capable of distinguishing goods or services from those of another, and the symbol includes words, devices, letters, numbers, three-dimensional marks, combined colours, sounds, or a combination of these factors.

Scope of protection

Medicinal brand names can be registered as trade marks if they meet the general legal requirements (see above, Conditions and legislation). The Trade Mark Office of the State Administration of Industry and Commerce can refuse trade mark registration for a number of reasons, including if the symbol:

  • Is identical with, or similar to national symbols (for example, state name, national flag, national anthem, military flag, and so on).

  • Discriminates against any nationality.

  • Is deceptive or contrary to socialist morals or customs.

  • Lacks distinctive features.

 
8. How is a trade mark registered?

Application and guidance

The Trade Mark Office (CTMO) accepts trade mark applications filed in paper form or electronically. Currently, only a trade mark agency can file electronically. A foreign citizen or enterprise engages a legally established trade mark agency to handle trade mark registration or other trade mark related matters in China. The English official website of CTMO provides guidance on trade mark registration.

Process and timing

The following processes apply:

  • Formality review.

  • Substantive examination (within nine months from the date of receipt of the application).

  • Preliminary approval and publication (if no opposition has been filed within three months from the date of publication, registration will be approved).

Currently, the average registration time is about 2.5 years. The State Administration of Industry and Commerce (SAIC) has stated that it plans to reduce the registration time to within one year by enhancing China's examination capacity. To that purpose, tighter time limits on examination are set out in the Trade Mark Law 2013.

 
9. How long does trade mark protection typically last?

Trade mark protection can last indefinitely. The initial period of trade mark protection lasts for ten years. The applicant can renew the period of protection by filing renewal applications and paying renewal fees.

 
10. How can a trade mark be revoked?

A registered trade mark can be revoked or declared invalid by the Trade mark Review and Adjudication Board (TRAB) if the trade mark violates the grounds for registrability (see Question 7), or on application of any prior right owner or any interested party within five years from the registration date on the following grounds:

  • The trade mark is identical with or similar to the other person's well-known trade mark which has not been registered in China.

  • The trade mark is registered in the agent's own name without authorisation, and the owner of the trade mark has raised an opposition against the same.

  • The trade mark is applied for by a person who knew of the existence of a prior foreign trade mark which was not registered in China.

  • The trade mark bears a geographical indication of the goods when the place indicated is not the origin of the goods.

  • The trade mark is pre-emptively registered by any unfair means.

 
11. How is a trade mark infringed? How is a claim for trade mark infringement made and what remedies are available?

Conditions

A trade mark is infringed when a person does any of the following acts without authorisation:

  • Using a trade mark that is identical with or similar to a registered trade mark.

  • Selling goods that have infringed the trade mark.

  • Counterfeiting, making, or selling representations of a registered trade mark of another person.

  • Replacing a registered trade mark and putting the goods bearing the replaced trade mark on the market.

  • Causing damages to the trade mark right of another person.

  • Helping a person infringe the trade mark of another.

Claim and remedies

If a trade mark is infringed, the trade mark registrant or any interested party can either:

  • Start legal proceedings in the People's Court. The trade mark registrant can apply for pre-trial injunction and evidence of preservation if a guarantee is provided.

  • Seek administrative assistance through a local Administration of Industry and Commerce. Local Administrations of Industry and Commerce can order the infringer to stop infringing, confiscate and destroy infringing goods and tools, and impose a fine, but they are not empowered to grant damages.

Remedies available in court proceeding includes injunctions, compensation damages, and reasonable costs incurred for stopping the infringement. There are several methods of calculating damages and the basic methods available for calculating patent damages apply (see Question 5, Claim and remedies). A few notable differences are:

  • One to three times the amount of damages calculated can be awarded depending on the severity of the infringement.

  • Statutory damages can be awarded (up to CNY500,000 under the Trade Mark Law 2001 and up to CNY3 million under the Trade Mark Law 2013).

The Trade Mark Law 2013 (effective 1 May 2014) also shifts the burden of proof onto the defendant if the trade mark owner fulfils his, her or its obligation to supply evidence.

 
12. Outline the regulatory powers and enforcement action against counterfeiting in the pharmaceutical sector.

Civil and administrative remedies against counterfeiting in the pharmaceutical sector are provided under the:

  • Patent Law (for patent infringement).

  • Trade Mark Law (for trademark infringement).

  • Anti-Unfair Competition Law (for trade dress infringement and other acts of unfair competition).

Civil actions can be filed in the People's Courts. Available civil remedies include:

  • Orders to cease patent infringement.

  • Awards of reasonable fees for use of the patent prior to grant.

  • Damages.

  • Court fees.

Preliminary relief is also available in the form of:

  • Preliminary injunctions to cease patent infringement.

  • Evidence preservation orders.

  • Property preservation orders to ensure that assets are available to compensate the patentee or interested party.

Administrative actions under the Trade Mark Law and Anti-Unfair Competition Law can be filed with the SAIC and its local counterparts. Administrative actions under the Patent Law can be filed with SIPO and its local counterparts. Available administrative remedies include:

  • Fines.

  • Orders to stop the manufacture, import, and sale of counterfeit products.

  • Seizure or destruction of counterfeit product and equipment and materials used to manufacture the counterfeit product.

  • Orders to rectify the damage caused by the infringement, but not damages.

In addition, the Criminal Law provides for criminal liability for the manufacture and sale of pharmaceutical products that are sufficient to seriously harm human health or involve a serious infringement of intellectual property rights. Criminal liability includes fines and imprisonment.

Pharmaceutical rights owners can also record their intellectual property rights with China Customs. Once recorded:

  • China Customs will notify pharmaceutical rights owners of the suspected import or export of counterfeit pharmaceuticals found during normal customs inspection.

  • Pharmaceutical rights owners can notify China Customs to seize specific suspected shipments of counterfeit pharmaceuticals identified by pharmaceutical rights owners.

China Customs can seize or destroy confirmed shipments of counterfeit pharmaceuticals and impose fines.

For information on pharmaceutical pricing and state funding, manufacturing, marketing, clinical trials, advertising, labelling, and product recall and liability, visit Medicinal product regulation and product liability in China: overview ( www.practicallaw.com/4-500-8862) .

 

IP and competition law issues

13. Briefly outline the competition law framework in your jurisdiction and how it impacts on the pharmaceutical sector. In particular, the competition authorities and their regulatory powers, key legislation, whether pharmaceutical investigations are common, key recent activity and case law.

The primary law governing competition in China is the Anti-Monopoly Law (AML), which prohibits monopolistic conduct of three broad types:

  • Anti-competitive monopoly agreements.

  • Abuse of dominance.

  • Mergers that may have the effect of eliminating or limiting competition.

Under the AML:

  • The National Development and Reform Commission (NDRC) regulates price related rules regarding anti-competitive agreements and abuse of dominance.

  • The SAIC regulates non-price related rules regarding anti-competitive agreements and abuse of dominance.

  • The Ministry of Commerce (MOFCOM) is responsible for the merger control regime.

Each of these agencies has corresponding local counterparts to which enforcement authority is delegated. Powers include the ability to conduct investigations and impose fines, which can be up to 10% of the previous year's turnover. In addition, the AML provides for private claims of damages resulting from anti-competitive conduct, and some significant competition cases have been brought by companies through private action in the People's Courts.

In addition to the AML, the Price Law also contains provisions regulating pricing that relate to competition, including prohibitions against:

  • Colluding to manipulate prices.

  • Fabricating or spreading information about price increases.

  • Using false or misleading pricing.

  • Price discrimination.

  • Bidding up prices.

  • Pushing up prices to an excessively high level.

While the Price Law prohibits some acts that are also prohibited under the AML, liability under the Price Law does not require a determination of relevant markets or a demonstration of anti-competitive effects. The NDRC, in particular, has been particularly active in enforcement of the Price Law.

Chinese competition authorities are becoming increasingly more active in conducting investigations of anti-competitive business and pricing practices and imposing fines, and have specifically targeted the pharmaceutical industry. In July 2013, the NDRC announced an investigation against 60 domestic and international pharmaceutical companies, including Merck, GlaxoSmithKline, Astellas, Boehringer Ingelheim, Baxter International, Fresenius, and Sandoz.

In addition to government enforcement, there have been some notable private claims brought in PRC courts, including the August 2013 Rainbow v Johnson & Johnson case. In this case, Johnson & Johnson was ordered by the Shanghai Higher People's Court to compensate Rainbow for losses of CNY530,000, for including retail price maintenance provisions in the distribution agreement between Johnson & Johnson and Rainbow. This case was the first case involving retail price maintenance provisions, and was notable for confirming that the People's Courts will use the "rule of reason" analysis to determine whether the alleged anti-competitive act had anti-competitive effects.

 
14. Briefly outline the competition issues that can arise on the licensing of technology and patents in a pharmaceutical context.

Licensing of technology and patents in the pharmaceutical sector often occurs in the context of strategic alliances, co-promotion agreements, and collaborative research and development agreements. It can be common for parties under these agreements to:

  • Allocate territory and customers.

  • Have exclusivity terms spanning many years.

  • Share confidential information and proprietary technology.

  • Set minimum sales targets.

In China, such agreements do not violate the AML if they generate efficiencies, do not eliminate or restrict competition, and consumers benefit. However, competition issues can arise where these agreements are between head-to-head competitors, if these issues are not carefully considered, or if the agreements are not appropriately structured.

 
15. Are there competition issues associated with the generic entry of pharmaceuticals in your jurisdiction?

Competition enforcement authorities in other jurisdictions have scrutinised anti-competitive agreements between innovator pharmaceutical companies and generic manufacturers that:

  • Delay the entry of generic products into the market.

  • Involve payments by innovator pharmaceutical companies to generic manufacturers to delay the entry of generic products into the market.

  • Result in higher prices and costs for national pharmaceutical reimbursement programmes.

So far, Chinese competition authorities have not focused on this area. However, increased attention can be anticipated in the future, as the Chinese pharmaceutical industry continues to consolidate.

 
16. Have abuse of dominance issues arisen in the pharmaceutical sector in your jurisdiction?

In 2011, the NDRC announced fines of nearly CNY7 million against two pharmaceutical distribution companies, Weifang Shuntong Pharmaceutical Co, Ltd and Weifang Huaxin Pharmaceutical Trading Co, Ltd. These fines were imposed for abuse of dominance resulting from their:

  • Entering into exclusive distribution agreements with the only two producers of promethazine hydrochloride, a key raw material for a widely-used hypotensor, Compound Reserpine Tablets (CRT).

  • Subsequently raising the price of promethazine hydrochloride on CRT manufacturers.

In addition, it was reported in early 2013 that the SAIC was investigating Tetra Pak, the global food packaging company also involved in pharmaceutical packaging, for abuse of dominance.

In addition, the NDRC announced that it was investigating multiple foreign and Chinese drug companies, including Merck, GlaxoSmithKline, Astellas, Boehringer Ingelheim, Baxter International, Fresenius, and Sandoz, over possible price-fixing and transfer pricing practices.

 
17. Have parallel imports of pharmaceuticals raised IP and competition law issues in your jurisdiction?

In China, parallel imports of pharmaceuticals are not a major concern because of the strict regulation of imported pharmaceuticals by the CFDA. Any imported pharmaceuticals that are not registered by the CFDA or imported by importers that are not licensed to import such pharmaceuticals are considered counterfeit pharmaceuticals.

 
18. Does a patent or trade mark licence and payment of royalties under it to a foreign licensor have to be approved or accepted by a government or regulatory body? How is such a licence made enforceable?

Generally, a local party must do all the following before making a royalty payment to a foreign party:

  • Clear the category of technology (for patent licences), where there is an import or export of technology.

  • Register the agreement, with SIPO for patents and CTMO for trade marks.

  • Register the agreement with local branches of the Ministry of Commerce (for patent licences).

There are new changes to foreign exchange regulations effective September 2013 that simplify this process and eliminate the need for certain registration to complete foreign exchange. However, other laws and regulations still call for the above steps and registrations.

Registration of the licence agreement is not a requirement for the licence agreement to be legally effective. However, registration of the licence agreement is required to be able to enforce the licence agreement against bona fide third parties.

For information on pharmaceutical pricing and state funding, manufacturing, marketing, clinical trials, advertising, labelling, and product recall and liability, visit Medicinal product regulation and product liability in China: overview ( www.practicallaw.com/4-500-8862) .

 

Contributor profiles

Katherine Wang, Chief China Life Sciences Adviser

Ropes & Gray LLP, Shanghai

T +86 21 6157 5256
F +86 21 6157 5299
E katherine.wang@ropesgray.com
W www.ropesgray.com

Professional qualifications. New York, 2002

Areas of practice. China life sciences regulatory.

Recent transactions

  • Routinely advises multinational pharmaceutical and medical device companies on issues arising from their clinical studies in China.
  • Advised several multinational pharmaceutical companies on market access issues in China, particularly related to product pricing, reimbursement and tendering.
  • Advised a leading pharmaceutical distributor in relation to online marketing of drugs.
  • Advised several institutional and corporate investors in the conduct of regulatory due diligence on issues ranging from licence transfer/acquisition, GMP and pharmacovigilance of their potential investment targets in China.

Geoffrey Lin, Partner

Ropes & Gray LLP, Shanghai

T +86 21 6157 5289
F +86 21 6157 5209
E geoffrey.lin@ropesgray.com
W www.ropesgray.com

Professional qualifications. New York, 2003; California, 2000; US Patent and Trademark Office, 2000

Areas of practice. Intellectual property transactions.

Non-professional qualifications. BS (Neural Science), New York University, 1997

Recent transactions

  • Represented a US biopharmaceutical company in structuring and developing a joint venture with a Chinese party to develop and commercialise a biologic asset in China, and in drafting and negotiating the definitive agreements, including the out-licence and collaboration agreement.
  • Represented a US pharmaceutical company in out-licensing a late-stage asset to a collaboration partner for development and commercialisation in China.
  • Represented Schneider Electric in settling the largest intellectual property case in China through appeals, negotiations and drafting of the settlement agreement.
  • Represented global pharmaceutical companies in addressing generic and biosimilar competitors in China through use of regulatory protections; assessing the strength of the clients' patent portfolios; developing and executing strategies to prove patent infringement, including developing and using analytical testing methodologies; defending several patents from invalidation actions; monitoring and applying to invalidate competitors' patents; and strengthening their Chinese patent portfolios.

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