To benefit from the immense potential of China’s fast-growing pharmaceutical market, drugmakers need to increase the number of patents which they file there, improve the quality of their Chinese patents and use the courts to protect them, say industry experts.
Most of the world’s pharmaceutical majors are now present in China and more than 600 joint ventures involving western drugmakers are currently active there. However, too many companies are still choosing not to patent their products in the country, largely because of continuing misconceptions about the protection available for their products, according to Ian Harvey, chairman of the Intellectual Property Institute (IPI).
Nevertheless, within as little as 10 years, China will become a world-class protector and user of intellectual property rights (IPR) – and, for its leading firms, the process will be even quicker, a conference in London organized by the IPI has heard.
Kevin Rivette, vice president of IP strategy at IBM, told the meeting that China is following the same path of IP development has Japan and Korea have already done, but it is progressing more speedily than either of them. The Boston Consulting Group has identified the five phases of IP development within nations as: 1) export-led growth; 2) moving up the value ladder; 3) paying the price (of success - with law suits); 4) getting serious about IP; and 5) profiting from IP. By the early 2000s, China had just entered phase 3, he said.
While Chinese per capita spending on medicines is currently one of the lowest globally, and the country accounts for just 1.5% of total world pharmaceuticals sales, the market has been growing over 10% annually in recent years and is forecast to become the world’s largest by 2050. The attractions of the country for multinational drugmakers are enormous, and they include:
- a 1.4 billion population, with the numbers of middle-income and elderly consumers set to grow substantially over the next 20 years;
- much lower costs to industry of production, salaries, clinical trials, etc, which means the cost in China of bringing a new drug to market is estimated to be approximately $6.5 million, compared to around $800 million in the west; and
- government policies of support for R&D and life sciences companies.
Since December 2001, when China acceded to the World Trade Organization, it has been overhauling its IP laws to bring them into line with WTO requirements. Developments have included: new legal training for judges, with the Supreme People’s Court of China setting up IP tribunals within the courts to hear patent cases; the passage in 2004 of a new Trade Secret Law; IPR training for major innovative companies; and the development of patent pools for industry groups. However, said Mr Rivette, the system is not yet perfect.
Among the problems which still need to be addressed are: the continuing backlog of patent applications; inconsistencies in the courts’ dealings with patent cases and, in some instances, with the quality of examinations; and a continued lack of respect by some Chinese companies and regional governments for patents and IPR, he said.
Moreover, China remains one of the world’s leading sources of counterfeit drugs, a trade which the World Health Organization estimates to be worth around $35 billion a year. However, since 2001, the Chinese authorities have strengthened their efforts to fight the trade, with more investigations leading to factory closures and stiffer penalties, and earlier this year the government announced new regulations to curb Internet sales of counterfeit drugs.
China’s current need for IPR to do business overseas will provide excellent opportunities for new business relationships, including joint ventures and collaborative R&D, Mr Rivette told the IPI meeting. The country’s exports are becoming much more high-tech and are combining technologies, he added.
These developments are reflected in the fact that China is now the world’s most litigious country in terms of IPR. The Supreme People’s Court has reported that 13,424 such cases were filed in the country last year, compared with 10,905 in the USA. Moreover, in 2003 the number of pharmaceutical patents filed by local firms reached 2003, up from 283 in 1999, says a recent report by PricewaterhouseCoopers, which also notes that more than 150 Chinese drugs are currently in preclinical stages or clinical trials.
Also speaking at the IPI conference was Todd Dickinson, vice president and chief IP counsel at the General Electric Co, and a former Commissioner of the US Patent and Trademark Office. He agreed that things are changing in China, albeit not as fast as multinational companies would like, but he added that, for the first time, there is now commitment at state level, with Chinese Premier Wen Jiabao having declared: “the competition of the future world is a competition for IPR.”
The system will get better as Chinese multinationals start to need patents, said Mr Dickinson. For western firms companies looking to trade in China, his advice is: “take advantage of the system – register your trademarks, and properly. File for and obtain patent protection, and bring some actions.” He also urged them to take part in IP industry groups, which “are really listened to in China,” he said - companies should use them to comment on proposals for legislative changes. Such groups include the Quality Brand Protection Committee, whose members include a number of pharmaceutical majors, while the Research-based Pharmaceutical Association Committee is affiliated with the Chinese Academy of Enterprises with Foreign Investment. Join such organizations and “your voice will be heard,” he told the meeting.
Chief Justice Jiang Zhipei, chief judge and director of the IP Tribunal of the Supreme People’s Court of China, has repeatedly urged multinational companies to bring patent cases to Chinese courts. Speaking at the meeting, he again urged delegates to register their rights, including patents, in China. “Take advantage of the competition laws, make use of all the procedures – and come to law early,” he said, but also reminded foreign firms that, under the court system in China, the burden of proof is on the plaintiff to prove a patent infringement. “So make sure evidence is clear, well-documented and organised - you can’t just complain,” he said.
Listing the challenges that still remain for foreign firms seeking to protect their products in China, Luke Minford, head of China at IP legal specialists Rouse & Co International, said that the problem of counterfeits remains, the rule of law is still a long way from reality and rights owners must engage the court process while understanding the realities of bringing cases to trial in China. “You will get burned, you will have successes, but be patient - this is the only way things will change,” he said.