Tang Tiejun Yuming Wang Li Jianhui February 6 2023 To what extent does offering a patented drug for sale constitute infringement? SPC provides clarity after decades of contradictory case law Wanhuida Intellectual Property | Intellectual Property - China Tang Tiejun, Yuming Wang, Li Jianhui Intellectual Property IntroductionBackgroundFactsDecisionCommentIntroductionOver the past 20 years, China's judicial practice concerning infringement assessments and damages awards in the context of a third party offering to sell a patented drug has evolved, the balance tilting increasingly in favour of the patentee.In two decisions handed down in 2022,(1) the Supreme People's Court (SPC) clarified several key issues, including whether:the act of offering a patented drug for sale hinges on the availability of the patented drug;a disclaimer from the accused infringer can exempt it from infringement liability; andthe Bolar exemption applies to the act of offering a patented drug for sale.Background"Offering for sale" used to be characterised by the Chinese courts as a preparatory stage of a sale, rather than a standalone act. For over a decade, judicial infringement assessments regarding a third party offering to sell a patented drug relied heavily on the availability of the infringing drugs. If no infringing product was readily available for sale, the courts were prone to find non-infringement.In Eli Lilly and Company v Gan & Lee Pharmaceuticals Co, Ltd,(2) the Beijing High Court held that:The act of offering to sell, which predates actual sale, aims to facilitate sale. In order to serve that purpose, not only shall the alleged infringer manifest an explicit intention to sell the infringing product, but also the said product shall be available for sale when such intention is manifested.The Court therefore concluded that, despite the defendant's promotion of the alleged infringing Prandilin insulin on its website, the evidence did not suffice to prove that the promotion was designed for the purpose of selling the product and, therefore, the act did not constitute offering for sale. Given that the defendant had not been offering the patented drug for sale, there was no infringement.The case set a high bar for the finding of offering for sale. The doctrine seems to have been advocated by the Beijing courts until 2017, as the case was cited in the Interpretation and Application of the Beijing High Court's Patent Infringement Assessment Guideline (2017) as an exemplary case to underline that the availability of the infringing product is a key parameter in the finding of offering for sale. Infringers with legal acumen cunningly circumvented their infringement liability by promoting patented drugs at fairs and exhibitions and only manufacturing such drugs upon receiving orders.Fortunately, there were dissenting opinions. In BASF SE v Hailir Pharmaceutical Group Co, Ltd et al,(3) the Shanghai No. 1 Intermediate Court took a different stance from the Beijing courts, finding that:The act of offering to sell is a standalone patent exploitation act, which does not necessarily hinge on the simultaneous existence of manufacture or sale. In the meantime, the manifestation of intention to sell is not necessarily based on the premise of the physical existence of the accused infringing product.This was a positive step forward in assessing whether the act of offering for sale constitutes infringement.Nevertheless, patentees still faced the hurdle of obtaining monetary damages associated with offering for sale – the courts did not recognise the harm caused by the act of offering to sell a patented drug. If there is no harm, no damages can be awarded. In BASF SE v Shandong Binnong Technology Co, Ltd,(4) despite finding that the defendant had been offering the infringing product for sale, the Shanghai Intellectual Property Court denied the patentee's request for damages and only awarded BASF reasonable expenses incurred for stopping the infringement. The rationale behind this was as follows:As to the amount of damages, given that the defendant's offering to sell act did not result in the decrease of the market share of the plaintiff's patented products and thus caused no actual losses to the plaintiff, the court found the plaintiff's request for damages is without merit.This reasoning was affirmed by the SPC in Beijing HuaJieSheng Electromechanic Equipment Ltd v Shenzhen DingSheng Gate Control Technology Ltd,(5) where the retrial petitioner's request for damages was also overruled.Three years later, the SPC seemed to have a change of mind. In Shenzhen Kean Silicone Product Co, Ltd v Dongguan Yatian Silicone Product Co, Ltd et al,(6) the Court held that:The existence of the act of offering to sell will cause reasonably foreseeable damage to the patentee, like price erosion of the patented product, decrease or delay of business opportunities. Where there is a wrong there is a remedy. Unless otherwise specifically provided by laws, the remedy should include at least two most fundamental forms of tort liability, namely cessation of infringement and indemnification for losses, rather than only one of them. Therefore, in cases of infringement where the defendant has been found to have been offering an infringing product for sale, the patentee may request the indemnification of damages, as well as the cessation of the infringement.FactsBayer Intellectual Property GmbH (Bayer) owned an invention patent relating to the blockbuster anticoagulant drug rivaroxaban. On 29 November 2019, Bayer filed a complaint with the Nanjing IP Office, alleging that Nanjing Hencer Pharmaceutical Co, Ltd and its subsidiary, Nanjing Lifenergy R&D Co, Ltd (collectively, the alleged infringers), had infringed its patent by offering to sell the rivaroxaban products. Bayer contended that the alleged infringers had offered to sell the patented drug by promoting rivaroxaban tablets and rivaroxaban active pharmaceutical ingredients at the 18th Chemical Pharmaceutical Ingredient China Exhibition (CPHI) and on their websites. The alleged infringers, according to Bayer, had displayed the packaging (ie, the bottle and box) of the products along with a clear product specification, registered trademarks and information about the manufacturer. Bayer requested cessation of the infringement.Bayer's allegation met the following rebuttals:The alleged infringers had not manifested a substantive intention to sell. Without acquiring a registration licence for rivaroxaban, the alleged infringers were not allowed to manufacture and/or sell the drugs. Moreover, the alleged infringers had explicitly included a disclaimer in the CPHI promotion material, which read: "Patented products (are) available for research & development use as permitted under CFR35 sec.271(e)(1)." Therefore, the alleged acts did not constitute offering for sale.Even if the acts did constitute offering for sale, the alleged infringers should be exempted from patent infringement liability as the acts fell under the scope of the Bolar exemption as stipulated in article 69.5 of the Patent Law 2008. The alleged infringers argued that the Bolar exemption implicitly includes the acts of "sale" and "offering for sale". The target audience of the alleged infringers were the pharmaceutical companies that were about to apply for the registration of the generic version of rivaroxaban. Therefore, the alleged acts constituted offering for sale "aiming to provide the information required for regulatory examination and approval" for others.On 25 May 2020, the Nanjing IP Office issued administrative decisions in favour of Bayer, finding that the alleged acts constituted offering for sale and ordering cessation. The alleged infringers filed administrative lawsuits, challenging the decisions of the Nanjing IP Office before the Nanjing Intermediate Court, which sided with the Nanjing IP Office. The alleged infringers appealed to the SPC IP Court.DecisionThe SPC dismissed the appeals for the following reasons:Offering to sell is a statutory and independent act of infringement. The assessment over whether the tortfeasor is to bear civil liability associated with the act of offering to sell is not based on the premise of the actual occurrence of sales activity. Where a sale agreement is reached, the act no longer falls under the category of offering for sale – it is indeed sale. The act of offering to sell may postpone the purchase of patented products by unspecified buyers from the patentee and would consequently undermine the legitimate rights and interests of the patentee.In essence, offering to sell is a unilateral manifestation of the seller's intention, which does not hinge on the availability for sale of the infringing product. Offering for sale may be established as long as the intention to sell is clearly manifested. The absence of contractual terms – such as price, supply of goods and product batch number – has no bearing on the determination of offering for sale. Offering to sell may aim at specified or unspecified targets, and it may appear in the form of an offer or an invitation for offer. The alleged infringers had manifested an explicit intention to sell the products, which constituted offering for sale.The alleged infringers had indicated the original drug manufacturer and the original drug and had included a disclaimer for the purpose of facilitating the potential buyer's purchase of the infringing product. Such acts had no bearing on the determination of offering for sale.The Bolar exemption may serve as a non-infringement defence in two scenarios:where an entity is applying for regulatory examination and approval on its own account; orfor the purpose of facilitating the application for regulatory examination and approval of another entity.In the second scenario, the Bolar exemption does not apply unless the alleged infringers are assisting another entity that exists in reality in acquiring the regulatory approval. The alleged infringers in this case had targeted an unspecified audience, rather than a specific entity that was about to apply for the registration of the generic version of rivaroxaban products. The Bolar exemption thus did not apply to the alleged infringers.The Bolar exemption did not exempt the alleged infringers from the infringement liability resulting from offering to sell the patented products. Although the alleged infringers had attempted to justify their act, arguing that promotion enabled them to reach out to potential generic drug makers, the SPC found the argument inconsistent with the express provisions of the law and ruled that the act would unreasonably affect the legitimate interests of the patentee.CommentThe SPC's decisions are expected to help establish a stable jurisprudence in terms of infringement assessments in the context of a third party offering to sell patented drugs.The SPC significantly lowered the threshold for assessing the act of offering for sale, affirming the below principles:The finding of offering for sale is not based on the actual occurrence of sales activity.The unavailability of the products being offered for sale, the absence of contractual terms and the inclusion of a disclaimer has no bearing on the finding of offering for sale.Offering for sale may be established as long as the intention to sell is clearly manifested.Second, the SPC reiterated that the Bolar exemption should be interpreted literally so that it may be invoked only where:"an entity manufactures, uses, or imports a patented medicine or a patented medical apparatus" for the purpose of providing information needed for regulatory examination and approval on its own account; or"another entity that manufactures, imports the patented medicine or the patented medical apparatus specifically for the aforesaid entity".In other words, where an entity is assisting another in the process of seeking regulatory approval for a patented drug or medical apparatus, the latter must be a specific entity, rather than an unspecified audience. The SPC clarified that the Bolar exemption may not be broadly interpreted insofar as to cover an entity that offers for sale and appeals to unspecified targets.For further information on this topic please contact Tang Tiejun, Yuming Wang or Jianhui Li at Wanhuida Intellectual Property by telephone (+86 10 6892 1000) or email ([email protected], [email protected] or [email protected]). The Wanhuida Intellectual Property website can be accessed at www.wanhuida.com.An earlier version of this article was published by MIP.Endnotes(1) Nanjing Hencer Pharmaceutical Co, Ltd v Nanjing IP Office and Nanjing Lifenergy R&D Co, Ltd v Nanjing IP Office, 22 June 2022.(2) 20 December 2007.(3) 22 September 2015.(4) 30 June 2016.(5) 31 December 2018.(6) 10 May 2021.