Government and Taxes: IPR and Medicines 29: Parallel Importation and Patent Linkage

This news report last August 8, 2014, was posted with discussion by Atty. Joey Ochave at the Medicines Transparency Alliance (MeTA) Philippines email loop. Joey is the Vice-Chairman of MeTA Philippines, SVP of Unilab, and a friend way back in UP Diliman undergrad in the 80s.

Here is Joey's discussion. Posting this with his permission. It is a well-written, well-argued piece as always, which many people outside of MeTA would be interested to learn. My short comments and Joey's reply further below. A bit long, about four pages, enjoy.
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Parallel Importation and Patent Linkage

I came across the attached article entitled “Pharmaceutical firms seek full implementation of generics law” in Philippine Star last August 8th. It mentions a forum in Manila where three companies called “for the government to strengthen the [Cheaper Medicines Act’s] implementation to allow drug outlets to carry a variety of medicine brands, including those sourced through parallel importation, and give choices to consumers.” (emphasis supplied) The three companies were raided by the National Bureau of Investigation agents for alleged “violation of infringement on patent rights” (sic) and selling “illegal drugs”. They argue that since their drugs have been registered with the FDA, they are “not illegal”.

As an IP & Health Law practitioner and an advocate of the Cheaper Medicines Act, I feel compelled to comment on this news article. (Disclosure: I have no involvement in this case. My only interest is to make sure that the Cheaper Medicines Law is properly understood.)

1. I asked around and learned that the drug molecule in this case is etoricoxib. This medicine is indicated for “acute and chronic treatment of signs and symptoms of osteoarthritis and rheumatoid arthritis; treatment of ankylosing spondylitis; acute gouty arthritis and primary dysmenorrhea; relief of acute pain; moderate to severe acute pots-op pain associated with dental surgery and abdominal gynaecological surgery.” It comes in two strengths – 30 mg. and 60 mg. (MIMS, 135th Ed., 2013). It is marketed in the Philippines as Arcoxia® by Merck Sharp & Dohme (MSD), who I believe is also the patent owner or at least authorized by the latter.

2. The etoricoxib molecule has a valid and subsisting patent in the Philippines. The patent is on the molecule itself. It is therefore not a frivolous patent, which the Cheaper Medicines Law (CML) prohibits.

3. Sec. 72 of the CML amended the Intellectual Property Code of the Philippines to allow parallel importation. The patent owner does not have the right to prevent third parties from importing a drug or medicine that has been “introduced in the Philippines or anywhere else in the world by the patent owner.” (emphasis supplied) By inserting the phrase “anywhere else in the world”, the Philippines adopted the “international exhaustion” principle, which means that if the patent owner sells the patented product anywhere in the world (not just in the Philippines), his patent rights over the patented product is exhausted. He cannot subsequently prevent the buyer of the patented product from selling or importing it into the Philippines. To illustrate, if patent owner X sells his patented medicine to Company Y in Thailand and the latter sells the product to Company Z in the Philippines, Company X cannot prevent Company Z from importing and selling the patented medicine in the Philippines. Why? Because Company X has exhausted its patent rights over the patented product when it first sold it to Company Y in Thailand. Stated differently, a patent owner loses his patent rights over a specific patented product the first time he sells the latter. It is also called the “doctrine of first sale”. The policy rationale behind this rule is that the patent owner has already recovered whatever economic benefits he is entitled to as a patent owner when he first sells the product. In short, kumita na siya when he made the first sale.

4. The article mentions “parallel importation”. I do not know whether this is because the three companies believe they are engaged in parallel importation. In parallel importation, however, what may be imported is only the product of the patent owner. This means one can only import Arcoxia® or any etoricoxib brand manufactured or authorized by MSD. It is not parallel importation if one imports a generic etoricoxib because it did not come from MSD. Again, under Sec. 72 of the CML only the product placed in the market by the patent owner anywhere in the world can be parallel imported into the Philippines. If one imports the generic equivalent of Arcoxia®, this means it was not MSD who placed it in the market and MSD has not derived economic benefit from it. It therefore patent infringement if you import the generic etoricoxib into the Philippines. Hindi siya parallel importation kapag generic equivalent ang inangkat.

5. The three companies also argue that since they were able to secure Certificates of Product Registration (CPR) from the FDA for their etoricoxib product, they are free to sell the same in the Philippines. No, that is not true. They should still have to make sure that they are not infringing upon the IP rights (trademarks and patents) of others. The FDA has nothing to do with patents. Patents are with the IPO. The role of the FDA is simply to make sure that the medicines you will market in the Philippines are safe, effective and of good quality. (This task is no joke given the proliferation of substandard medicines in the world.) This is why the CPRs issued by the FDA state that the CPR holder holds the FDA free and harmless from any damage resulting from any trademark or patent infringement suit against the CPR holder. This means that there is no linkage between drug registration and patents. This is what public health advocates fought for several years ago, which the then BFAD accepted. (Malaysia and Indonesia Drug Regulatory Authorities followed suit.) Unfortunately, with their argument the three companies are unwittingly arguing for patent linkage. (Offhand, I don’t think they realize the implications of their argument.) In any case, for the nth time, patent linkage is NOT required by the TRIPS Agreement. It is in fact a TRIPS Plus provision, or one that it not required by the World Trade Organization. The WTO Doha Declaration on TRIPS and Public Health itself (aside from WHO) encourages developing countries to exercise the public health flexibilities afforded by the TRIPS Agreement. Removing any linkage between patents and drug registration is one of those flexibilities. Kapag naman ibinalik pa natin ‘yan, tayo na ang may problema. Sinabi na nga ng WTO that developing countries like us should make use of TRIPS flexibilities to protect public health, eh.

6. Parenthetically, just to highlight the importance of patent de-linkage. Several years ago, the officials of then Bureau of Food and Drugs almost suffered from collateral damage when they stopped the processing of drug applications for generic versions of felodipine. They did so on the basis of a letter they received from the patent owner asking them to cease and desist from processing generic drug applications because it had a patent over felodipine. For fear of being sued, BFAD simply stopped processing generic drug applications for the product. The problem was BFAD did not even know what the relevant patent was. It turned out that it was a process patent, not a molecular patent, and the generic applicant was using another process which was in fact non-infringing and even had a US patent of its own (albeit it did not get a patent in the Philippines.) In most cases, there are multiple processes that one can use to manufacture a given pharmaceutical product. The problem with process patents is, unlike product patents, there is no way anyone will know whether the process being used by the other party is infringing or not unless an infringement case is filed in court. One cannot determine process infringement simply by looking at the product. Believe you me, not even the Intellectual Property Office can do this. Fortunately, BFAD saw the problem of linking patents with drug registration, especially since it did not even have enough resources to attend to its core mandate. To insulate itself from being embroiled in vicious patent fights, it incorporated the aforementioned “free and harmless” provision in its CPRs. Since then, BFAD (and its successor FDA) validly argued that it did not have anything to do with patents. After all, its real mandate is to ensure the safety, efficacy and quality of medicines in the country. The FDA (and the DOH) has since also become the protector of the people’s right to access essential medicines vis-à-vis patent rights. If BFAD did not make the delinkage, either the patent owner or the generic applicant would have sued them. The stakes are high so the incentive to sue is huge. Unfortunately, as we all know, any government official who becomes a party to a lawsuit has to get his own legal counsel and spend his own money. Remember those days when the BFAD Director and officials were always made respondents by companies who believe their patents had been infringed? Fortunately, with the “free and harmless” provision, they have now been insulated.

7. In closing, the Cheaper Medicines Law confirms the primacy of the people’s right to health but balanced it with the inventors’ right to obtain economic benefits from their invention. It is not a perfect balance, but it is a good one, especially if one keeps in mind that our Constitution explicitly provides that IPRs are to be protected, “especially when beneficial to the people”. (Art. XIV, Sec. 13, emphasis supplied). This is why I feel strongly if anyone tries to disrupt that balance, regardless of whether they are the originator or a generic company.

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I commented about Joey's explanation of patent exhaustion. He wrote,

...if the patent owner sells the patented product anywhere in the world (not just in the Philippines), his patent rights over the patented product is exhausted…. a patent owner loses his patent rights over a specific patented product the first time he sells the latter.

While this provision is already in the CML or RA 9502, I think this represents a quandary or disincentive for the national branch of an innovator company to apply for a patent. Why apply for one if months, or even days, after approval of the patent, it is "exhausted" already because the sister company abroad has started selling it?

What I found intriguing was his succeeding statement,

...the “doctrine of first sale”. The policy rationale behind this rule is that the patent owner has already recovered whatever economic benefits he is entitled to as a patent owner when he first sells the product. In short, kumita na siya when he made the first sale.

To market and sell a successful molecule takes 10-12 years after hurdling different levels of regulatory approvals and various phases of clinical trials, and cost about $1-1.3 B (what the innovator companies claim). It's a huge amount of money. Then upon selling on day 1, the company. “the patent owner has already recovered whatever economic benefits... kumita na siya when he made the first sale”? How could a sale in 1 day or even 1 year recover the cost of inventing one successful molecule? It is not even counting the cost of developing the unsuccessful molecules, those that passed the first 5 year or first 8 years of R&D, only to fail at the last stage of clinical trials and regulatory approval and was disapproved.

So I think the philosophy behind "doctrine of first sale" is fuzzy if not faulty. If the cost of inventing a new revolutionary drug molecule is not costly, say just $1,000 or less, then a sale of 1 day can allow the innovator to recoup its small investments and still make a profit, and thus the doctrine is correct.

On another note, it is good that being an IP lawyer, he understands the value of medicine innovation and invention, and the huge costs, huge risks, encountered by the innovators. But many activist leaders do not appreciate this and even call for zero patent, zero IPR when it comes to medicines as they think it is not that costly to develop new medicines after all. These guys know more than him and Unilab, as it has not entered the medicine innovation business yet.

Joey replied,

Subsidiaries don't get patents. In fact, subsidiaries of MNCs in developing countries do not do R&D. They are just into marketing. Suwerte ka na nga if they manufacture. So there is absolutely no "quandary". ☺ IPR issues are not handled by subsidiaries but by their HQ or their IP holding company in a tax haven. If the patent owner does not recover its investments after first sale of its products, it should fire its CFO.

I didn't know that and I appreciate Joey's clarification. I thought that each subsidiary by multinational pharma gets a patent for their newly-invented medicine in each country that they operate, and any legal dispute about IPR are decided or settled in that country.