On 17 December 2021, the Intellectual Property Court of the Supreme People's Court (SPC) rendered a decision in a patent infringement appeal: AstraZeneca AB v Jiangsu Aosaikang Pharmaceutical Co, Ltd (ASK Pharm).(1) The decision was China's first court decision concerning reverse payment pharmaceutical patent settlement, which is subject to the SPC's antitrust scrutiny. The case was included and published in the "Précis of the Adjudicating Gist of the Intellectual Property Court of the Supreme People's Court in 2021".(2)
On 23 April 2019, AstraZeneca lodged a patent infringement lawsuit against ASK Pharm before the Nanjing Intermediate Court, asserting its invention patent ZL01806315.2, which relates to Saxagliptin, a drug for treatment of type 2 diabetes. The patent at issue was assigned to AstraZeneca on 23 May 2014 by Bristol-Myers Squibb (BMS).
On 10 August 2011, a generic drug manufacturer, Jiangsu Vcare Pharmatech Co Ltd (Vcare), filed an invalidation petition, challenging the Saxagliptin patent. On 6 December 2011, BMS and Vcare signed a settlement agreement and, as agreed, Vcare withdrew the invalidation petition within five days of the entry into force of the agreement.
On 4 January 2012, BMS and Vcare entered into a second settlement agreement, which superseded the first. To reciprocate Vcare's withdrawal of its invalidation petition, BMS would waive all legal liabilities for possible and actual infringement of designated IP rights as executed by Vcare and the associated parties thereof within the "prescribed period" (from 1 January 2016 to the expiry date of the patent at issue).
In June 2012 and August 2012, ASK Pharm and Vcare successively reached a few cooperation agreements. As agreed, Vcare would be remunerated for completing the technical development of Saxagliptin tablets, while ASK Pharm would legitimately manufacture and sell Saxagliptin tablets in China before the expiry of the patent.
On 30 October 2020, the Nanjing Intermediate Court ruled in favour of ASK Pharm, finding that ASK Pharm, in the capacity of Vcare's associated party as prescribed in the settlement agreement, had manufactured, sold and offered for sale Saxagliptin tablets within the agreed period, which did not constitute an infringement of the patent at issue. AstraZeneca later filed an appeal before the SPC, which accepted the case on 10 March 2021.
However, on 16 April 2021, AstraZeneca filed an application to withdraw the appeal. In deciding whether to allow the withdrawal, the SPC examined the legitimacy of both parties' actions and specifically initiated a preliminary antitrust scrutiny of the settlement agreement, which the Court found appeared to be in the form of a reverse payment pharmaceutical patent settlement.
The SPC described the definition of "reverse payment pharmaceutical patent settlement" as an agreement where the pharmaceutical patentee undertakes to directly or indirectly compensate the interests of generic drug manufacturers (including providing disguised compensation, such as mitigating the loss or the non-profitable state of the generic drug manufacturers) in exchange for the undertaking of not challenging the validity of the pharmaceutical patent or for postponing the entry of generic drugs into the market of the patented drug. Such an agreement may constitute a monopolistic agreement, if the arrangements prescribed are likely to eliminate or restrict competition.
The SPC opined that, in principle, as the case resulted from a pharmaceutical patent dispute involving pharmaceutical patentees and generic drug manufacturers, the settlement agreement or contract, which appeared in the form of reverse payment pharmaceutical patent settlement, had to be subject to preliminary antitrust scrutiny.
The SPC elaborated on the methodology to be employed in the preliminary antitrust scrutiny of the reverse payment pharmaceutical patent settlement:
- Whether the reverse payment pharmaceutical patent settlement – which is designed so that the validity of the patent right would not be challenged – allegedly constituted a monopolistic agreement as prescribed by the Anti-monopoly Law hinged on whether the agreement eliminated or restricted competition in the relevant market.
- By comparing the actual circumstance where a reverse payment settlement is reached and executed and the hypothetical scenario of the opposite case (ie, no settlement or execution), the Court should prioritise the assessment on the likelihood of invalidation of the pharmaceutical patent in the context where the generic drug manufacturer has not withdrawn the invalidation petition, ensued by analysis of whether such agreement has undermined competition in the relevant market.
- In principle, the fact that the patentee offers, without just cause, generic drug manufacturers handsome compensation in exchange for the withdrawal of an invalidation petition may be perceived as a key parameter in finding that the patent right stands a good chance of being invalidated. In general, the courts are also advised to assess and predict the outcome of the invalidation proceeding, assuming that the generic drug manufacturer has not withdrawn the invalidation petition.
- The parameters to be considered in ascertaining the harm inflicted by the agreement on competition usually include whether such agreement has:
- substantially prolonged the period of market exclusivity of the patentee; and
- substantially delayed or eliminated the market entry of actual and potential generic drug manufacturers.
Turning to the case, the SPC held that although the BMS – Vcare settlement agreement featured the characteristics of a reverse payment pharmaceutical patent settlement, due to the expiration of the patent at issue, ascertaining the merit of monopoly would become moot as the obstacle impeding the entry of the generic drug into the relevant market had ceased to exist. Thus, it would be neither necessary nor urgent to assess whether the settlement agreement breached the Anti-Monopoly Law.
Moreover, neither BMS nor Vcare had participated in the proceeding and the scarcity of evidence in the invalidation proceeding made it difficult for the Court to:
- ascertain the likelihood of invalidation of the patent at issue; and
- identify whether there was any just cause to justify BMS's grant of early entry of the generic drugs manufactured, sold and offered for sale by Vcare and the associated parties thereof.
The SPC therefore terminated the antitrust scrutiny and granted AstraZeneca' withdrawal request. The case was selected as one of the SPC's annual 50 exemplary IP cases in 2021.
Reverse payment patent settlement (also known as "pay-for-delay") is a tactic employed by pharmaceutical patentees to delay the market entry of generic drugs so as to maintain the exclusivity of the patented drugs. The fact that the SPC subjected this case to antitrust scrutiny of its own accord was unprecedented. It remains to be seen whether this case will herald the judicial antitrust scrutiny of reverse payment pharmaceutical patent settlements in China in the long run.
For further information on this topic please contact Jianhui Li or Hu Honghui at Wanhuida Intellectual Property by telephone (+86 10 6892 1000) or email ([email protected] or [email protected]). The Wanhuida Intellectual Property website can be accessed at www.wanhuida.com.
This article was first published by MIP.
(1) (2021) Zui Gao Fa Zhi Min Zhong No. 388.