Pharmaceutical Extortion

The topic of compulsory licensing occasionally surfaces on the Russian horizon.

The law (Article 1508 of the Civil Code) provides that a trademark protected in Russia based on its state registration or in accordance with an international agreement or used as a trademark, or a designation used as a trademark but not registered as such in Russia may be recognised as a well-known trademark. However, it can only be recognised from the date indicated in the application if that trademark or that designation became widely known among relevant consumers in Russia as a result of its intensive use.

It is Not the Date of the of the Application

All this, even though there are several longstanding provisions in the Civil Code: one allows the use of a patent without the owner’s permission in the interest of defense and security (Article 1360) (Russia has not and hopefully will not come to that situation).

Additionally, Article 1362(1), allows filing a claim to court for a compulsory license if the invention is not used within four years. Again, this provision is not used frequently by interested persons, if at all. There is yet another (Article 1362(2)): if the patent owner cannot use his invention without infringing the rights for another patent, he may ask and in case of refusal sue him in court. This provision echoes Article 1358.1 that explains what a dependent patent is: an invention the use of which is not possible without the use of another, earlier invention, is a dependent invention. It is also provided in Article 1362(2) that a compulsory license can be granted by the court if the dependent invention is an important technical achievement and has significant economic advantages over the first invention. In fact, the fight for a compulsory license always hinges upon these two essential points: the importance of achievement and economic advantage.

The provision in Article 1362(2) became attractive for some Russian pharmaceutical companies that initiated several court actions during the last years. A patent is dependent if a researcher makes his research based on an invention made by another company. That earlier invention has proved its effectiveness in treating a disease and costs dearly for understandable reasons. So, the new researcher takes the patented substance, builds some superstructure upon it, like particulars of use, the inclusion of the patented substance in his composition, etc. In all fairness, some dependent inventions indeed prove to be useful and raise the first invention to a new height. In some other cases, researchers make insignificant improvements. Their effort serves the only purpose in that it should be sufficient to pull through substantive examination and satisfy patentability criteria. The next step (if the owner of the dependent patent is sued) is to prove the technical importance and economic advantage of his dependent invention. For that purpose, technical expertise, in most cases, is ordered by the court.

Patent owners of the first patents were able to rebuff their attempts to piggyback on their findings in several cases. However, sometimes they failed.

Nativa, a notorious Russian researcher in other people’s patents, regularly scans through the inventory of efficient drugs and builds its business on “inventing” known substances. In a recent case, it lost to Bristol-Myers Squibb selling the drug Dasatinib.

Approximately at the same time, it launched another medicine on the market – Sunitinib-Native protected by its dependent patent No 2567535. Nativa obtained that patent in the wake of the Eurasian patent No 005996 owned by Sugen and Pharmacia & Upjohn companies.

Conflict between Patents

Nativa was sued by Sugen and Pharmacia at the Moscow Commercial Court for infringing their patent (case No A40-166505/17-15-1481). Nativa filed a counter-claim asking for a compulsory license from the plaintiffs. The litigation lasted for more than a year. It went through four court instances and ended up with a judgment in Nativa’s victory at the IP court (the plaintiffs were obliged to grant a non-exclusive license to Nativa). The judgment was appealed at the Supreme Court, but its Economic Collegium refused to consider the appeal because it did not find any procedural mistakes of the lower courts. One may question the reasons for the plaintiffs’ defeat and deliberate whether the judgment was handed down correctly; however, it is worth putting a finger on the problem and examining the hints (advice given by the court).

The plaintiffs argued that Nativa’s drug contains the substance according to their Eurasian patent. Nativa claimed that it used its own invention and agreed that it was dependent in relation to the plaintiff ’s patent; it had asked the plaintiffs for a license; however, it was refused. As expected, Nativa claimed that its invention has “undoubtedly important technical achievement and has significant economic advantages,” which was confirmed by the Russian patent office that would not have granted a patent in the absence of these characteristics.

Nativa explained that the economic advantage consists of lower production expenses. Both the plaintiffs and the defendant asked the court to order technical expertise to clear up the issues requiring special knowledge in chemistry, pharmacology, medicine, and patents. Among other questions, there was a question of whether Nativa’s invention is an important technical achievement and whether it has significant economic advantages over the first patent. The experts confirmed both the importance of the technical achievement (no explanation of importance is contained in the judgment) and the economic advantage (understandable) of the dependent patent. The experts, however, diverted in their opinions. One of the experts made the opposite conclusion. Nevertheless, the court accepted the findings of those experts who confirmed the importance and economic advantage of the dependent invention and obliged the plaintiffs to grant a compulsory license.

The Appeal

The plaintiffs appealed the judgment at the court of appeal. They asked the court to order another technical expertise, but the court refused the request. Otherwise, the court confirmed the conclusions contained in the first judgment and upheld the judgment of the 1st instance court.

The Cassation Appeal

The plaintiffs appealed the judgment at the IP Court. In their appeal, the plaintiffs argued that there was no agreement among the experts with regard to the “importance of the technical achievement” of the dependent invention. At the same time, the plaintiffs opined that if there is a technically important dependent invention, it might have various advantages over the first invention from the point of view of pharmacology (better efficiency, safety, fewer side effects, etc.) however those therapeutical advantages of the dependent invention should be confirmed by full-fledged clinical trials which were not carried out. They also argued that Nativa provided no convincing evidence with regard to significant economic advantages.

The IP Court meticulously examined the arguments of both sides and statements of both court instances. At the same time, the court pointed out what the plaintiffs could but not had done. The plaintiffs stated that the circumstances in connection with the use of the invention in the medicinal preparation might be established only by examination of the samples of the medicinal preparation. The court explained that this assertion is not grounded because the required information may be contained in the documents characterising the medicinal preparation, where the stages of the technological process are described. The plaintiffs argued that those documents could not be used because Nativa submitted them; however, the plaintiffs did not claim that those documents could be unauthentic or falsified.

The IP Court reminded that the lower courts had noted the circumstances showing the technical advantages of the dependent invention. The courts concluded, among other things, that the difference in the speed of appearance of the active substance in the blood of rabbits and that the sunitinib may demonstrate polymorphism confirm the importance of the technical achievement of the dependent invention.

The plaintiffs, while stating that no full-scale clinical trials were conducted to confirm therapeutical advantages of the dependent invention did not nevertheless provide evidence refuting the results of the experiments and polymorphism of sunitinib. Therefore, the IP Court did not find it possible to re-evaluate the conclusions of the lower courts with regard to the importance of the technical achievement of the dependent invention.

Nor did the IP Court find sufficient grounds to recognise as ungrounded the conclusions of the lower courts with regard to the economic advantages of the dependent invention. There are no clear cut definitions of “significant economic advantages” of one invention over another. The court of the 1st instance accepted the findings of two experts and accepted their calculations. The experts found that Nativa’s selling price of the drug was 20% less than that of the plaintiffs. The plaintiffs criticised those calculations referring to their own large expenses; however, they did not provide any reasonable calculations saying just they had spent about one billion USD in investments and development of the drug.

The plaintiffs submitted reports of two experts to the cassation instance in which the experts explained the meaning of “important technical achievement” and “significant economic advantage”. However, the cassation instance refused to accept them because, according to the procedural rules, those reports could have been submitted to the courts of 1st and 2nd instances only. Indeed, the cassation instance of the court does not have the competence to establish circumstances and accept and evaluate new evidence. The court noted that every party should prove the circumstances on which it relies and should run the risk of the onset of consequences of observing or nonobserving procedural rules.

The plaintiffs questioned the competence of the experts who examined “significant economic advantages”. Here again, the cassation court responded that this issue should have been raised at the hearings of 1st and 2nd court instances.

The compulsory license included the condition that the license’s cost should be 10% of the revenue. The plaintiffs argued that this condition does not correspond to generally accepted rules under comparable circumstances. However, the plaintiffs did not provide any evidence supporting those statements, nor did they submit any relevant calculations.

The plaintiffs stated that the lower courts should have ordered additional expertise. The cassation court responded that no such motion had been filed by the plaintiffs to the 1st or 2nd instance of court.

The cassation court did not accept other pieces of evidence presented by the plaintiffs because, like in the preceding cases, that evidence should have been presented at the hearing at the courts of 1st and 2nd instances. The plaintiffs appealed the judgment of the IP Court with the Supreme Court though unsuccessfully.

The Cassation Appeal

Attempts to obtain compulsory licenses have been, and most probably will be made. Several governmental authorities and local pharma companies raise their voice in favor of compulsory licenses. These discussions somehow may influence the general public creating an opinion that compulsory licensing (and cheaper drugs) in the pharma sector is good (the fact that reproduced drugs may have inferior quality is not put to the fore). It is true that in some cases, the courts ruled against compulsory licenses though the opposite, as shown in the above case, may also be true.

In such circumstances, when they come to the Russian market, the owners of the original patents should be prepared in advance for the fight with potential compulsory licensees and take into account the lessons of this case. In fact, the IP Court laid bare the points where the plaintiffs could but did not do what was needed. Lessons should be learned.