Pharmaceutical enterprises: learn to fight with “combination style” in IP protection

By Huang Qinghua,[Comprehensive Reports]

— Strategies and methods on IP protection for pharmaceutical enterprises

By Huang Qinghua, Distinguished Research Fellow of China Development Institute (CDI) Professor of “High-level Personnel Team Building Program,” Capital Medical University Part-time Researcher of Medical Law and Ethics Research Center, China University of Political Science and Law

The recent IP litigation battles between domestic biopharmaceutical companies have become much ado and deadlocked, with a lot of “casualties.” Amidst the “heat” of such buffooneries looms a fact that many of the participants do not know how to protect their intangible assets with an IP “combination style.” As it is said, “third-class entrepreneurs focus on business operation, second-class entrepreneurs focus on capital operation, and first class entrepreneurs focus on IP operation.” IP superiority has become the competitive edge of Chinese pharmaceutical enterprises.

Business owners must be aware that the use of IPRs can prevent others from snatching the R&D fruits of high-tech products. When product comes out and finds its position in market, IP can play the role of umbrella: ensuring the market share of patent-protected products and preventing others from intruding into the same market. At the time of business expansion, IP strategy should switch from passive protection to taking on active “offensive”: expanding the business by licensing or transferring patents, trademarks and copyrights, etc. Meanwhile, business owners can make investment with IP by sharing the IP profits with related parties. This is not only a process maximization of IP benefits, but also the ultimate goal of IP strategy. To achieve this goal of IP maximization, pharmaceutical companies might do well to play with IP “combination style,” which includes the following IP protection strategies and methods:

I. Establishing comprehensive IP managing mechanism and system

Many pharmaceutical companies are developing new products but some of the entrepreneurs lack IP awareness. They spend a lot of money and effort to develop a product, which may have been already patented by others, leading to nowhere. In Shanghai Zhangjiang (the “Pharma Valley”), four SMEs that were developing first-class drugs, due to lack of IPR protection awareness or IP strategy, lost their IPRs. 20 to 30 new drugs have been subsequently developed by foreign drug companies from 2006 to 2007. Although they were independently created by Chinese people, these Chinese medicines have to be credited 7-8/2014 China IP 63 to “foreign” names. The value of these drugs is self-evident and the loss of these enterprises is incalculable. This is not the only case, but a microcosm of China’s innovative R&D enterprises.

An IP management department in a foreign enterprise is generally considered to be a supportive unit for technology and operation departments and reports directly to the CEO of the head office. IP management department, technology department and operation department constitute the core of enterprise. Together with the production and financial departments, they form the company’s most senior management organization. IBM, Mitsubishi and Fuji are taking this management structure, which is worth consideration for Chinese enterprises.

After knowing about the role and importance of IP managing mechanism, enterprises should adopt an IP managing system in line with the actual situation and development strategies according to IP laws and regulations, which should contain rules on types of IP, ownership and co-ownership, managing system and methods, ways and measures for protection, liabilities, and so on. Enterprises should manage and protect the technological innovations according to the norms, and integrate IP management into the overall framework of enterprise management. Focuses should be laid on layout planning during IPR R&D, quality review for application, scope of the protection upon authorization, asset integration during management, tort/warranty for procurement and risk control for marketing.

Take bio-information technology product a s an example. The product itself can be patented; its manufacturing process can be protected by trade secret; its software and sales literature can be protected by copyright; its shape and configuration may be protected by industrial design right; while its trade name may be protected as a trademark.

In the recent two years, the enterprise IP managing system has gained new development. To help “going global” enterprises control international IP risks, a new set of international IP risk management program has been introduced. The program will help Chinese enterprises solve problems in overseas mergers and acquisitions, e.g. significant omissions in IP risk identification, serious discrepancies in risk assessment, lack of risk control standards, and barriers in risk communication, which will lead to blindness in target selection and risk control strategies and result in serious setbacks in investment management. From the perspective of risk management process, the program includes four stages, namely, risk identification, risk assessment, risk control and risk communication. The feature of this program is to raise the question on how to combine risk management and security science to protect overseas IP investment, which deserves attention of the pharmaceutical industry.

II. Making good play with patent card by reinforcing patent development, application and management

Patent is particularly important for high-tech biomedical technology companies. Scholars often compare patent as “double-edged sword”: companies can take the initiative in competition with invention patents; they can also make use of the advantages of invention patents when encountered with “attack.”

Under the legal protection, patent right authorizes a technology with monopoly position in a given period. After the “monopoly period,” with the purpose of promoting technological progress and innovation, others will be allowed to use the patent without the permission of the patent owner. During the “monopoly” period, patent owner has the right to prevent others from manufacturing, using, selling, offering for sale or importing products containing the same or similar technology.

It has become important for IP dependent companies to use this monopoly power to achieve success. Many large companies take this approach to apply patent for their “highlighted” technology contained in new product and to build a strong patent fence. To apply for a patent, companies need to hire a patent lawyer and pay the fees, which is very costly of course. However, once this patent fence is built, it will become an invisible gold mine for the company. The owner can sit on it while making huge profits by collecting royalties.

We should keep in mind that patent’s role is often lagging. An invention patent application can last years, and it takes 5 to 10 years for a product to develop from a patent. Therefore, it would be too late to consider patent protection if the company waits until the product begins entering the market, which means: although the role of patents is lagging, entrepreneurs must have foresight in awareness and strategy when “playing” the patent card.

In drug development, attention should be paid to search and analysis of the existing patent literatures. This will not only help companies understand the state of the art in the R&D field and patent application status, but also help avoid detours and “clashes” with others. When the new drugs are developed, companies must apply for and obtain domestic and international patents in a timely manner; otherwise, it will bring endless troubles. The possible consequences brought by unpatented technologies include: others can emulate the technology and manufacture, sell, export the same products or provide the same services, which will make the technology unprofitable for the inventor. What’s worse, others may apply patent for the same technology and get authorization. Then they will be entitled to the patent monopoly in a given period and completely block the inventor from manufacturing, using or selling the products containing such technology. The inventor will be trapped in a very awkward situation, which may lead to corporate bankruptcy.

In business activities, including R&D of new drugs, the pharmaceutical companies should protect their own patents and avoid infringing the existing patents. On basis of search and analysis of existing patent literature, the companies can use Reservation of Key Components and other technical methods to avoid infringement.

Over the past decade, out of the 10,000 or so drug patents granted in China, 80% were owned by foreign research institutions and enterprises, of which more than 90% were invention patents. 95% to 97% of the drugs produced by Chinese companies were imitation drugs. For this reason, pharmaceutical companies should pay full attention to the R&D of innovative drugs and increase investment. They should also make full use of the favorable policies on technology innovation in medical and health science, seek support in talent, subsidies, financing, tax and other aspects, so as to develop their own drugs and to control the risks in domestic and foreign patent applications.

III. Industrial design protection for shape and packaging of pharmaceutical products

Industrial design refers to the product shape, pattern, color or combination of a product, which is rich in aesthetic appeal and fit for industrial application. Industrial design is known as “design” in the Patent Law of China, which mainly protects the product’s pattern, shape, color and their combination. The design for pharmaceutical product and their packaging has special requirements. If the packaging is not standardized or the indication is confusing, patients would misuse the drugs. The most common mistake is to omit the prescribed mark or text. For example, some lotion for external use does not mark “external,” and causes accident when taken wrongly. There was once a joint venture, which missed marking “mg” on the packaging of cardiovascular drugs, while this kind of omission was generally considered to be “g,” a thousand times difference, which can easily cause danger. In most cases, the manufacturers forget to label “single-use,” “Please prevent children from swallowing” or other key words. Therefore, the design of medical products should help users get accurate understanding of the characteristics of drugs, facilitate safe use, and prevent counterfeiting. In ancient China, the wax shell pill was stamped with golden mark, which was good-looking and protective. It can still be regarded as an excellent exterior design.

A good pharmaceutical design should highlight the product features and follow the standardized management rules by China Drug Administration for pharmaceutical packaging: the product name cannot be too large, not exceeding 1/2 in proportion to the generic name; the date of expiration must be specified; the specific dosage (times/day, pieces, bags, etc./time) should be noted rather than the non-intuitive dosage like grams per kilos. The drug packaging should specify brand name, generic name, specification, manufacturer, approval certificate number, batch number, main ingredients, indication, administration, dosage, contraindication, adverse reactions and precautions. Dispensing drugs must be marked with dispensing units and batches; imported drugs must be marked with approval number. The package must be accompanied by instruction.

In addition to the drugs themselves, design for pharmaceutical containers also has special requirements in material, protection, transportation, anti-fake, etc. Foam, cover, bottle, can, box, bag and vacuum tube are used to achieve vacuum, sterile, moisture proof, shockproof, dark protection and storage purposes. For example, acetylcysteine should avoid metal, rubber, oxidants and oxygen, so that its container should use glass or plastic materials. Medicines containing light-decomposable ingredients should choose brown bottle. From the perspective of user-friendliness, different dosage forms such as tablet, capsule, injection, spray, topical cream, pill, soup and powder, should be made full use according to their features. The asthma drug bottle is in compact shape and easy to grab, and the spray is convenient for the elderly. Another example is the snap syringe used for one-time emergency medicine, which is easy to carry and quick for use. Generally, packaging for pediatric drugs should take into account the elimination of children’s fear. Non-pharmaceutical form can be used with a tablespoon appearance. It should be noted that the packaging must be hard for kids to open, and should be labeled with warnings to remind parents to prevent children from misuse.

With this regard, a good design of pharmaceutical product packaging is also an intellectual achievement and should be protected. For the design of pharmaceutical products, some domestic pharmaceutical enterprises apply patents for the shape pattern and product packaging in order to prevent others from counterfeiting and to strengthen efforts to protect pharmaceutical products. For example, a pediatric tablet takes the shape of a small rabbit and its packaging is attractive to children, so that it can apply for design patent and gain protection. The protection period for design patent is 10 years. After the validity period, the owner can also cardiovascular drugs, while this kind of omission was generally considered to be “g,” a thousand times difference, which can easily cause danger. In most cases, the manufacturers forget to label “single-use,” “Please prevent children from swallowing” or other key words. Therefore, the design of medical products should help users get accurate understanding of the characteristics of drugs, facilitate safe use, and prevent counterfeiting. In ancient China, the wax shell pill was stamped with golden mark, which was good-looking and protective. It can still be regarded as an excellent exterior design.

IV. International registration of trademarks to prevent counterfeiting and preemptive registration

To comply with TRIPs requirement, the revised China’s Trademark Law expands the objects of trademark registration, and three-dimensional marks, color marks and other visual marks can now apply for registration. Enterprises should pay attention to the new rules and learn about the benefits. Trademark registration should be wide in range and diversified in category, which will help enterprises benefit from the new IP protection system and prepare for risks in exploring the international market.

Enterprises in developed countries have a deep understand of the important role of the international trademark registration in preventing counterfeiting and cybersquatting. For example, the “Trumpet Seirogan” produced by Japanese Taiko Pharmaceutical Industries, Ltd. (Tiako) has a history of over 90 years. In 1983, Taiko submitted application to China’s Trademark Office to register the words and logo of “Trumpet” and “Seirogan” and got authorized. In July 1994, a domestic pharmaceutical company exported from Japan Izumi Pharmaceutical Co., Ltd. ( Izumi) 47,990 bottles of “Izumi Seirogan.” From July to September 21st, 10,402 bottles were sold for 108,344.22 yuan. The market inspector of Taiko discovered the situation, and raised a complaint to the local industrial and commercial bureau on September 17th. The local bureau believed that the “Izumi Seirogan” gastrointestinal drug produced by Izumi constituted infringement of the trademark “Trumpet Seirogan.” The Chinese pharmaceutical distribution company also violated the registered trademark of Taiko. The bureau decided to seal the remaining 37,588 bottles, confiscate its illegal income, and impose a fine of 139,000 yuan. In this case, Taiko registered the words and logo of “Trumpet” and “Seirogan” in China’s Trademark Office. The international registration act made the company fully prepared for the legal risks in developing Chinese market.

The case shows, in the face of fierce competition in the international market, China’s pharmaceutical enterprises should select a number of export countries and promptly register international trademark. The enterprises should launch global registration when necessary. Fortunately, China’s well-known pharmaceutical enterprises have realized the importance of international trademarks. The Sanjiu Group has registered the trademarks of “999” and “Sanjiu Weitai” in Switzerland, France, Germany, Japan, the U.S. and Spain, which laid a good foundation for the international IP protection when the enterprise “goes global.”

V. Attach importance to well-known pharmaceutical product protection

Well-known trademarks have high-profile and their owners are large scale enterprises in general. Therefore, the protection for well-known trademarks is also wider in range, which is different from ordinary registered trademark. The scope and degree of protection for well-known trademarks depend on the specific circumstances.

In general, the expanded protection for well-known trademarks is mainly reflected in the following aspects: First of all, China is a member of Paris Convention for the Protection of Industrial Property. Well-known trademarks of other member states which have not yet applied for registration in China but recognized as well-known by local Trademark Office, should also be protected. China should reject copycatting and cybersquatting applications and prohibit unauthorized use of well-known trademarks.

Secondly, well-known trademarks with originality will be given crosscommodity protection. For example, if others apply to register the well-known “Tong Ren Tang” trademark on health food, beverages and other goods, the application will be rejected. Industrial and commercial administrations will also stop unauthorized use of the trademark, and may impose fine in serious cases. It should be noted that, although the “Tong Ren Tang” trademark is not registered for health food and beverage products, it can still be protected. This is another meaning for “expanded protection.”

Thirdly, from the date when the Trademark Office determines the well-known trademark, if others apply to register the same or similar corporate name as the well-known trademark or use the same or similar text as part of its corporate name, which may mislead or confuse the public, the industry and commerce administration authorities shall not approve the registration. If the corporate name has already been registered, the owner of well-known trademark can request the industrial and commercial administrative organ to revoke the registration in two yeas from the date when it knows or should know about the circumstance.

With the recognition of well-known trademarks, the cross-commodity protection on well-known trademarks as provided by China’s Trademark Law can be implemented. The scope of protection for registered trademarks in general is limited to “similar goods” and “similar marks,” aiming to avoid public misunderstanding or confusion on the origin of the goods or services. The scope of legal protection for wellknown marks is “cross-commodity protection.”

It should be noted that the “cross-commodity protection” means “protection across similar commodities” rather than “cross-category protection.” The “cross-commodity protection” determines that the standard is no longer to rule out “the possibility of confusion.”

China’s current laws do not clearly define whether the “cross-commodity protection” covers all areas. From the legislative intent, cross-commodity protection should be limited and moderate. The basic line should be whether it causes confusion, mistake or false association to the consumers on the source or providers of goods and services, and it should not cover all areas. Meanwhile, in the adjudication of cases, courts should consider the profile of the well-known trademark, similarity and confusion caused by the infringing mark and other factors and make reasonable judgment case by case. Well-known trademarks should not be protected without principle.

Pharmaceutical enterprises should take the initiative to apply for well-known trademarks. Also, they should inspect the market to find out cybersquatting or imitating marks, and make good use of well-known trademark protection mechanism to maximize their IP benefits.

VI. Lay importance to place of origin and geographical indication protection

In recent years, Chinese medicine products have been exported to approximately 170 countries and regions in the world. Most of the products are low value-added herbal extracts and raw materials. To prevent low-quality medicine ruining the reputation of Chinese medicine, it is necessary to lay emphasis on herbal origin and geographical indication protection.

As the world’s major production base of Chinese herbal medicine, it has become a serious question how to take measures to protect Chinese herbal origin and strengthen R&D of highvalue medicines. Many TCM clinicians said that the efficacy of traditional Chinese medicine is hard to determine and the quality is declining. To some extent, this is caused by illegal collection and processing of herbal medicine and misuse of similar raw materials. As the saying goes, “oranges growing in different regions are different.” Chinese herbal medicines are particular about the place of origin. Herbs from different origins are different in potency and efficacy.

In recent years, driven by commercial interests, some regions started to cultivate prince ginseng, Chuanxiong, red-rooted salvia and other drugs blindly. The different environment may affect the genetic variation of TCM (often said as DNA fingerprinting change), thus affecting the potency and clinical efficacy of herbs.

On the basis of Geographical Origin Protection Regulations and Place of Origin Marking Regulations, the General Administration of Quality Supervision, Inspection and Quarantine released in 2005 the Geographical Indication Protection Regulations to standardized management of GI products, which provided legal basis for protecting the cultivation and production of Chinese medicine with GI.

Geographical origin protection system is in line with international standards of IP protection. It not only protects the national economic and cultural heritage, but also ensures the quality and credibility of national featured products. The system has now been adopted by many countries in the world. The products under protection must have long history, profound culture, or special contribution to mankind.

For example, a company in Sichuan followed the traditional prescription of Miao ethnic group and developed the “Gulin GanSu” drug with local raw material penthorum chinense pursh, which has been recognized and protected as GI product. Penthorum is an authentic herb growing in Gulin County, Sichuan Province. It was first recorded in the book of Jiu Huang Ben Cao and was used by Miao people for generations. Penthorum mainly grows at an altitude of 1,000 meters on Wumeng Mountains, at the junction of Sichuan, Yunnan and Guizhou provinces. The unique geographical location and natural climate provide excellent breeding conditions for penthorum. Local farmers have the tradition to plant this herb. Local people soak penthorum in water and drink the juice, which has the function of detoxification and protecting liver. After painstaking research, pharmacologists developed the “Gulin Gansu” according to Miao prescription. Now this medicine has been listed in the National Essential Drug System and National TCM Protection List. After being identified as GI product, “Gulin Gansu” has also been protected under relevant WTO agreements and enjoyed preferential export tariffs, which promote the exports of the traditional Chinese medicine products. Currently, “Gulin Gansu” has been exported to Japan, Korea, Vietnam and Singapore and many other countries.

The IP Protection for Gulin Gansu may inspire domestic pharmaceutical companies in two ways: enhancing awareness of IPR protection and seeking the proper approach to protect TCM products.

In the era of knowledge-driven economy, China should have gained more IP for China’s “quintessence”- the traditional Chinese medicine. But it is a pity that due to weak protection awareness, the pharmaceutical industry failed to take the weapon of IP protection to protect their interests in international competition, which caused a lot of damages to the industry. In 2002, artemisinin was preemptively registered in foreign country. Japanese developed the “kyushin pills” based on “Liushen pills” and Korean developed the “bezoar antifebrile liquid” based on “bezoar antifebrile pills.” These facts repeatedly remind us that China’s pharmaceutical industry should strengthen the overall IP protection, including the protection of origin.

TRIPs Agreement adds articles on protection of geographical indications, which becomes a new topic on the protection of IP. Geographical indication indicates that the product is originated in a particular area of the member states, and the product has unique quality, reputation or other characteristics associated with the geographic area. The purpose of GI protection is to prevent others from counterfeiting the well-known products from specific areas. GI protection system, like the origin protection system, is of great significance for TCM protection and is of great value that can’t be replaced by other protection approaches.

VII. Use copyright to protect drug instructions and advertising

In the pharmaceutical market, counterfeit of drug instructions and slogans occur from time to time. Thus, it is also necessary to protect them by legal means.

Contents of the drug instructions include: drug name, ingredients, pharmacology, toxic and adverse r e a c t ion , usage and dosage, contraindication, trademark and approval number, etc. It is a statutory instrument approved by the health administrative department and contains important information about the drug. Drug instructions have law-binding character and clinical applicability. They serve as important reference for doctors, pharmacy workers and patients to acquire, store or use the drugs.

To meet the needs of prescription, drug instructions generally include the following parts: (1) international non-proprietary name of the active substance ; ( 2 ) pharmacology data and brief description of the pharmacological properties and mechanism of action; (3) clinical data, including indication, dosage, pharmacokinetic data, contraindications, caution and warning (related to pregnancy, lactation, etc.), adverse reactions, drug interactions, brief description of the symptoms of overdose, non-drug treatment, supportive therapy and specific antidote; and (4) pharmacy information, including dosage form, ingredients, excipients, storage conditions and shelf life, packaging specification, product and packaging introduction, statutory category (narcotic or other controlled drugs, prescription or non-prescription drugs); the name and address of manufacturer and importer.

Drug instructions are protected by copyright law. Without the permission of the copyright holder or the drug manufacturer, acts of copying the package or printing modified or tampered instructions for profits constitute infringement, because the acts violate the copyright of drug instructions.

In order to obtain effective protection of copyright law, drug instructions, in the premise of following the scientific and standardized requirements, should be unique in design, so that they can prevent others from copying and avoid infringement suspect. In addition, the paper color, pattern, layout and other design of drug instructions are also protected by copyright.

Moreover, it is a necessary strategy and method to use copyright to protect the drug advertisement.

VIII. Manage and protect trade secrets of pharmaceutical companies

Trade secrets, also known as undisclosed information, refer to the confidential technical information and management information that are not known to the public but can bring economic benefits to the right holders. The trade secrets of pharmaceutical companies include contents related to product R&D (test data, etc.) and marketing information (including sales channels, customer lists, etc.).

Currently, the trade secret losses in pharmaceutical companies are very serious, which are mainly caused by personnel quitting. Therefore, pharmaceutical companies should strengthen the management of trade secrets by defining the protection scope and clarifying protection methods and responsible persons. Also, companies should respect the legitimate rights and interests of employees, and then make good use of the non-compete and non-disclosure clauses in the labor contracts.

Trade secret management contains two parts: corporate file management and personnel management. First of all, companies should formulate the confidentiality rules, determine the confidential scope and set up regulations on monitoring the internal document, information, data and formulation information. Secondly, companies should prevent the loss caused by human factors and sign confidentiality agreements with employees. By means of contract, the companies can prevent employees from disclosing corporate trade secrets and define the rights and obligations of both parties. Finally, companies should strengthen the management of specific departments and adopt more humanistic and strict measures for key departments and personnel involved in the trade secrets.

In the context of internationalization and health care reform, Chinese pharmaceutical enterprises should lay emphasis on effectively using the IP strategies, methods, standards and technologies in the international arena and incorporating IP management into the business operation and management strategies. Pharmaceutical companies should protect their knowledge wealth, and do not lose the existing intangible assets due to the lack of knowledge on international IP rules. Meanwhile, domestic companies should also consider how to make the best of the national policies for encouraging medical technology innovation, to create new wealth on medicine knowledge and to participate in international competition.

(Translated by Li Yu)


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