China’s New Drug Patent Laws: A Bitter Pill For Big Pharma

In a bold move, China has rewritten parts of its intellectual property laws to allow for Chinese companies to make generic copies of life-saving medication still under patent. These domestically produced drugs will be offered for substantially less than what their North American and European pharmaceutical competitors currently charge. The changes will provide local drug manufacturers with the option to apply for compulsory licenses on patented drugs under specified circumstances three years after a patent has been granted.

Under the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, to which China is a signatory, compulsory licenses can be issued to allow for a company to infringe a patent without authorization from the rights holder. Article 31 of the agreement specifies the parameters in which this license can be granted, taking into account the need to protect the “legitimate interests of the right holder.” Specifically, the government ordinary can only grant compulsory licenses when an attempt to acquire a voluntary license under reasonable circumstances has not been successful within a reasonable time frame. However, this requirement may be foregone in cases of state emergencies, but the infringement without authorization from the patent-holder must still be communicated to the proper owner of the intellectual property right. Article 31 also stipulates that one must also remunerate the rights holder when a compulsory license is issued and any licenses granted can be subject to judicial or independent review of a higher authority.

The Chinese patent laws presently only grant compulsory licenses for patented drugs in instances of national emergencies, extraordinary circumstances, and when the interests of public health are at the fore. Although the wording can be construed as being a bit vague, it is the last circumstance that may have the most resounding influence on the global pharmaceuticals. According to Article 50, not only are eligible drug manufacturers permitted to copy and sell patented drugs in their home countries, but they may also apply for and be granted export rights to send generic drug copies to other countries. This is potentially a game-changer for the pharmaceutical industry as well as the global public health arena, as it is now conceivable for China to export generic medication at a low price to developing countries that do not yet have such legislation in place or the infrastructure to produce the drugs themselves. Moreover, China has been a major producer of the active pharmaceutical ingredients found in such drugs for years, which are then exported to the U.S., combined, and then imported back into China at a premium that most citizens cannot afford. It seems that there are many favorable conditions that played a role in the government’s decision to amend its patent legislation, especially when access to life-saving medication is an important next step following China’s acknowledgement of its growing AIDS problem.

China is not the first Asian nation to instigate such conditions for domestic drug manufacturers in an attempt to curb its national health epidemic. The Chinese reform followed similar legislative amendments in India, where this March the first compulsory license was issued for a domestic producer to make copies of a cancer drug held under patent by Bayer AG at only 3% of the innovator’s price point. In Thailand, the numbers of HIV-positive people who could afford patented medication prior to the country’s issuance of a compulsory license is in sharp contrast to the number of patients currently receiving the drugs following the granting of a compulsory license.

A reading of Chapter VI of China’s current patent laws regarding compulsory licenses shows that the stipulated legislation hues closely to TRIPS agreement terms; however, some critics believe that the laws are still too vague and unworkable in practice. It is interesting to note that Article 53 contains a specific provision saying that compulsory licenses “shall mainly be exercised for the supply to the domestic market” [sic], excluding any efforts to combat anti-competition monopolization actions (Article 48) and efforts to treat public health concerns (Article 50). Now that China has opened its doors to producing generic copies of patented drugs, experts have predicted that big-pharma’s reliance on patent income to drive their operations will have to change. A new business model that takes into account the changes in copying and distributing drugs under patent may be required.

An important concern that does not seem to be as widely discussed in the press and in the pharmaceutical industry is the relative competency of Chinese drug manufacturers to produce a quality copy of patented medicines. One may argue that since the active ingredients in patent-protected drugs are already produced in the country, there is no reason why the assembly of these active pharmaceutical ingredients should be any more challenging to produce. However, with China’s spotty track record in the manufacturing of items for consumption (including the baby milk-powder scandal and the more recent gutter oil scandal), it is not entirely certain how successful the government will be in regulating and monitoring the production standards of its pharmaceutical goods. The Office of the United States Trade Representative recently issued a special report on developments in intellectual property rights and enforcement, singling out China as an area of concern for the production of inferior active pharmaceutical ingredients using hazardous chemicals that are hidden from regulatory oversight. This is alarming when one considers that China’s new legislation seems to suggest it may export its pharmaceutical goods to other countries for humanitarian reasons.

While many of the effects of these changes in China’s patent legislation have yet to be seen, these new developments certainly represent an important period of transition in China’s legal arena.

Fan Hannah Lan is a JD candidate at Osgoode Hall Law School.

  1. Dear Fan Hannah Lan,

    The Patent Law of 2008 already gave China the possibility to grant compulsory license for patents, including in favour of a least developed country, including for export.

    If you read the “Measures for Compulsory Licensing of Patent Implementation 2012”, you will see that these partly redundant partly administrative measures do not change any material law.

    So China did not “rewrite” the law as you put it, nor is there a “game-changer” (game was already changed!) China just explained some procedures.

    IP Dragon translated the Measures into English:

    Have a look.

    Danny Friedmann

  2. Dear Danny,

    Thank you very much for pointing out my oversight, and for clarifying the effects of the new 2012 Measures. You are right, the basic laws allowing compulsory licenses for domestic use and for export were in place well before when Reuters picked up SIPO’s public announcement in early June. As you have mentioned, the new Measures for Compulsory Licensing of Patent Implementation provide specific details on the actual administration procedures of this licensing format based on the Patent Law of the PRC, last amended in 2008.

    From what I understand after some further research (and please do correct me if I am wrong on this Danny), the 2003 Measures for Compulsory Licensing of Patent Implementation and the 2005 Measures for Compulsory Licensing of Patent Implementation Concerning Public Health Problems combined outlined the basics of when compulsory licenses could be issued by the government to deal with public health concerns. The Patent Law of the People’s Republic of China was then amended to take into account these two orders. Since then, there have been various drafts of a revised order which was finalized and came into effect on May 1, 2012. The new 2012 Measures for Compulsory Licensing supersedes both the 2003 and 2005 orders and combines elements of both into one document, with more specifics added in regards to the administrative procedures for obtaining a compulsory license.

    One thing I’d like to point out though is that it seems the policy writers of the 2012 Measures have taken out any wording that singles out the prevention and spread of infectious diseases as being considered a public health concern as was written in the 2005 version. This seems to broaden the scope of what “matters of public health” can qualify as potentially receiving a compulsory license grant.

    Danny, I’ve read through your blog and see that you are fairly well versed in Chinese IP law issues. I’m curious to know what your thoughts are on whether these new Measures will have an effect on whether more Chinese drug manufacturers will actually seek applications for compulsory licensing? Do you feel that the clarifications and additional details in this new version will encourage more domestic companies to take this route?



  3. P.S.

    If any readers are interested, the related Orders can be found via WIPO below (a search on China’s SIPO website for a translation of these orders were unfruitful):

    2003 Measures for Compulsory Licensing of Patent Implementation:

    2005 Measures for Compulsory Licensing of Patent Implementation:

    Please also refer to IP Dragon’s helpful translation of the 2012 Measures:

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