In this edition of Life Sciences Spotlight, members in the DLA Piper Life Sciences team will assist in unravelling the legal aspects of a real-world Life Sciences dilemma. In this issue, DLA Piper’s IP specialist, Ian Jebbitt and patent specialist, Bing Li discuss implementing intellectual property enforcement strategies in China as part of a worldwide strategy to prevent counterfeit pharmaceuticals from entering global markets.

Unravelling the Helix

FarmaPharma (FP) markets a prescription hormone replacement therapy pharmaceutical, ProductX, internationally. After FP’s Australian Customer Care Complaint Centre received calls from patients who claimed to be experiencing unprecedented and alarming side effects after using ProductX, FP investigated and determined that counterfeit ProductX had entered the Australian market. 

With DLA Piper’s assistance (see Unravelling the Helix in Spotlight, Issue 4), FP filed copyright and trade mark Notices of Objection with Australian Customs, who successfully intercepted and seized a number of shipments of ProductX en route to the Australian market and provided FP with details regarding the exporters. 

FP’s subsequent investigations revealed that counterfeit ProductX has been imported into and exported from various ports located in South and East Asia, including China, and that the supplier of the active pharmaceutical ingredient (API) used in the counterfeit ProductX is a manufacturer located in Shenzhen, China. 

FP’s Customer Care Complaint Centres in Asia, Europe and the United States have now begun receiving complaints from customers complaining of side effects identical to those experienced by Australian patients who were using counterfeit ProductX. 

FP holds a granted Chinese patent covering the API in ProductX, and a registered Chinese trade mark covering its distinctive ‘green and gold’ ProductX branding. As part of a worldwide strategy to minimise the amount of counterfeit ProductX entering global markets, FP comes to you for advice about what it can do to minimise any counterfeit ProductX being imported into or exported from China, and stop the counterfeit ProductX API supply at its source in China. 

How to minimise the future importation and exportation of counterfeit products to and from China 

As set out in Spotlight – Issue 4, FP has an obligation to ensure ProductX and all its pharmaceutical products are of the highest quality and to prevent counterfeit medicines entering the market. FP should take the following steps to minimise the future exportation of counterfeit products from China: 

  1. FP owns a registered Chinese trade mark covering its distinctive ProductX branding. If it hasn’t already done so, and as a matter of priority, FP should record this trademark with the General Administration of Customs in China (GACC ). Once recorded, the trade mark information will then be uploaded to the national GACC computer system and shared with local Customs offices throughout mainland China. GACC proactively seizes counterfeit products. As such, the recordation of the Chinese trademark with the GACC will result in the seizure and destruction of any imported or exported counterfeits that bear FP’s distinctive “green and gold” ProductX branding, or anything similar thereto. 
  2. If FP is aware of any particular shipments of counterfeits entering or leaving China, it should file a complaint with the GACC seeking the seizure and destruction of such counterfeits. 
  3. FP should also consider meeting with Chinese Customs to train Customs officers on how to identify counterfeit product. 

How to stop the counterfeiting at the suspected source in China 

As a priority, FP should try to identify the source of the counterfeits. In order to do this, FP should: 

  1. Analyse the packaging of the counterfeit product seized to try to ascertain who is manufacturing the counterfeit product (to the extent it is not the company based in Shenzhen)
  2. Conduct on-the-ground intelligence gathering investigations into the API manufacturer based in Shenzhen and/or any other entity that is referenced on the packaging of the seized products to try to ascertain the size and scale of the counterfeiting operation and where any counterfeits are being seized, and 
  3. Monitor the internet to see if anyone is selling counterfeit ProductX online (in both Chinese and English). 

If a supply factory is identified, FP should seek to further identify: customers, suppliers, any sub-contractors and the ways in which counterfeit product is being imported, exported and/or distributed in China. This should make subsequent investigations and enforcement action easier to execute. 

Once FP has compiled this information, FP should, depending on the scale of the infringement, undertake either or both of administrative enforcement action to seize counterfeits and/ or Court based infringement proceedings. 

It would also be prudent for FP to formulate a strategic anti-counterfeiting plan which involves it being proactive rather than reactive in terms of dealing with the import and export of counterfeits to and from China. This would involve continuing to gather intelligence and taking enforcement action in a systematic and strategic manner against specific predetermined targets, as opposed to undertaking enforcement action on a piecemeal basis. 

Other considerations for FP 

If the production of counterfeit ProductX involves infringement of FP’s patented active pharmaceutical ingredient, this could be another ground on which FP could take action. However, as Chinese customs and enforcement officials are normally unwilling to take action on patent cases without a court decision which found infringement, this will normally involve FP having to first obtain a successful court decision which increases the costs involved and the time it will take for FP to take action. 

What are FP’s enforcement options? 

In terms of patent enforcement in China, FP will have two options: 

  1. Initiating a court action to seek both damages and injunctions, or 
  2. Filing an administrative complaint with the local intellectual property bureau who has the authority to order the infringer (counterfeit company) to cease and desist from the infringement. 

Due to various limitations on the administrative authorities, such as no damages rewards and possibly no forum shopping, filing a civil lawsuit with the court is a more popular patent enforcement mechanism in China, especially in the pharmaceutical area. However, it shall be noted that some administrative authorities may have certain advantages over the courts with respect to evidence collection primarily due to their familiarity with the industry. 

Thus, unless we conclude otherwise after detailed review of the matter, it appears advisable to focus on filing patent infringement lawsuit against the infringer for the remedies of both damages and permanent injunctions (which is almost always available in China), with the possibility of seeking assistance from local (Shenzhen) intellectual property and/or FDA authority primarily for evidence collection purpose. 

Depending on the merits of the case, we will also aim to seek a preliminary injunction which will significantly impact the targeted infringer’s operation with immediate effect. Although it has become rather difficult in securing such a preliminary injunction, it is our experience that chance of success could be enhanced through thorough preparation of the case and good communications with the court. 

Apart from patent enforcement, it should be kept in mind that the local FDA (Shenzhen FDA) authority supervises the local pharmaceutical industry. Should an investigation confirm that there may be quality issues in certain infringement products (counterfeit products), the complaint could be filed with such local FDA authority with a view to, at least, deter the business activities of such infringers. 

Evidence collection 

Given that there is no discovery proceedings in China, a patent holder will need to collect the necessary evidence to build a patent infringement case. It is recognized that difficulties exist in collection of certain evidence. Thus, Chinese Court’s have the discretion to intervene in such an exercise by issuing an 'evidence preservation' order (which essentially asks the targeted infringer or other relevant party to disclose certain information) or conducting certain 'court investigations'. 

If necessary, we would aim to: 

  • Have a discussion with the local FDA (and/or other governmental authorities) in advance with a view to have such governmental bodies collect certain information from the targeted infringer(s); and
  • Aggressively seek an 'evidence preservation' order from the Court in order to collect certain necessary evidence from the targeted infringer and possibly governmental bodies. 

Timing and se quence of legal action 

Our proposed strategy involves a possible combination of both administrative complaints and court actions and therefore requires delicate management of the timing and sequence of actions. We anticipate to run the administrative complaint proceeding (if necessary) in parallel to preparation work of the lawsuit. As such, we expect to initiate the lawsuit within six months upon completion of the review and to receive a court decision in a 12 – 18 month time-frame at the first Instance Court level. 

The timing of initiation of the lawsuit will be dependent upon two major factors: (1) the possible pursuance of a preliminary injunction, which shall require an immediate action to enhance the chance of success, and (2) the statute limitation of two years which essentially allow the patentee to collect damages for the infringement activities occurred during the past two years before the initiation of lawsuit. 

Prosecution history estoppel 

In case the infringer initiates an invalidation against the patent, please note that any statement made during the invalidation proceedings will also form the prosecution history and may therefore stop the patentee from expanding the scope of the patent under the Doctrine of Equivalents. As such, any pending or future invalidation proceedings should be closely managed to avoid potential adverse impact on future enforcement actions.