Pharmaceutical Enterprises in China: Patent Infringement Risks and Management Strategies

DONG Li, HUANG Tai-kang,, FU Ke-ling

(1.School of Business and Administration, Shenyang Pharmaceutical University, Shenyang 110016, China; 2.China Food and Drug Administration, Beijing 100053, China; 3.English Department, Shenyang Pharmaceutical University, Shenyang 110016, China)

Pharmaceutical Enterprises in China: Patent Infringement Risks and Management Strategies

DONG Li1, HUANG Tai-kang1,2, FU Ke-ling3

(1.School of Business and Administration, Shenyang Pharmaceutical University, Shenyang 110016, China; 2.China Food and Drug Administration, Beijing 100053, China; 3.English Department, Shenyang Pharmaceutical University, Shenyang 110016, China)

Objective To introduce internationally advanced management strategies of patent infringement risks, to help pharmaceutical enterprises in China improve the capability of risk management. Methods Patent infringement risks and management strategies of pharmaceutical enterprises in China were introduced from seven aspects based on analysis of literature review and advanced experiences from other countries. Results and Conclusion The management strategies of patent infringement risks can help the pharmaceutical enterprises in China prevent patent risks effectively.

patent infringement; literature retrieval; willful infringement; invalidity request

With the strengthening of the protection of intellectual property right, more and more pharmaceutical enterprises start to focus on patent protection. But they neglect to avoid infringing patent while developing new products. This kind of one-sided understanding will sometimes bring a great loss to the enterprises. Therefore, enterprises should place same emphasis on avoiding patent infringement and seeking patent protection when developing the new products.

Managing patent infringement risk is a challenging and uncertain task, particularly for products consisting of complex systems, such as method invention, product, progress etc. The common ways to manage this risk are building huge, defensive portfolios for deterrence and cross-licensing purposes, although these ways have been generally accepted by the large organizations, such a strategy takes time and money and it is impractical for many small and medium-sized pharmaceutical enterprises which is ineffective against non-practicing entities. When an enterprise statement for further improving the existing research results, proposes to have an independent research or made an early it is clear that this is deliberately seeking a higher technical patent infringement. But whether this statement or proposition can reduce the risk of patent infringement or draw people’ attention, no one knows. Therefore, it is important to learn how to avoid the risk of patent infringement[1].

We will give several suggestions as follows.

1 Clearance searching is vital to an enterprise

The most direct way to reduce patent infringement risk is to look for patents that might be infringed for a product which is being developed. If possible, enterprises can find a range of related patents and patent protection on the products. So clearance searching is very important. In addition, extensive patent investigations may lead to crosslicensing negotiations for cross-licensing is based on the results provided by patent search which is a complex work with less achievement.

There are some reasons why clearance searching is not frequently applied. The most important reason is about time and money. It is too costly and time consuming to search every feature of a product. Second, enterprise must select one of the features to search and decide how to solve its problem with the searching, Sometimes, there may be tradeoffs for those unsearched features might have infringement risks associated with them. It’s unlikely that any costeffective search will uncover every possibly relevant patent.

The relative enterprises also have to face the problem of what needs to be done to document the review and determine whether a patent is not infringed. That means the enterprises must prove they have not infringed others patents. For many patents, a written explanation is necessary either because a company’s management wants it or it might be desirable to deal with a dispute of willful infringement. The material of non-infringement or invalidity may not be clear, the most prudent way is to carry out the opposite reference from the perspective of the other party. In short, it is a hard work to make a clearance search and write a conclusion for the number of patents and the nature of the patents is unpredictable when any particular search is being done.

If a company conducts a clearance searching, there are three possible results. First, they can make sure their invention can apply for a patent without any possible infringement. Second, they will face the risk that it could be sued and a court comes to the opposite conclusion from the collected materials that should prove the previous patent is invalid. Otherwise, the company will change the design or drop the product. Third, the company can deal with it through other ways which can settle the patent infringement, for instance, they can sell their, product or buy the patent or cooperate with the company that hold the patents.

Indeed, a company will give up the product after a patent search is done and find that the product has no prospect. A high degree of confidence is required to proceed when a patent search comes to a close[2].

Without taking all these factors into consideration, many enterprises think much more about the costs and time, the uncertain outcome and clearance investigations than any benefits from mitigating the risk of infringement, even neglecting the risks associated with willful infringement.

2 Avoiding willful infringement

The reason why targeted searching has not been performed is the law about the willful infringement. It is well established that willful infringement of a patent provides a basis for a court to exercise its discretion which can increase risks and attorney fees. Some companies may be afraid to prosecute the others for infringement. Indeed, if the practical constraints of conducting clearance searches are not enough to discourage such searching, the substantial risk of being accused of willful infringement is to learn the patent, and even the patentee maybe face the risk of being sued as well.

An enterprise should establish a system that everybody who deals with the patent should be careful enough to avoid infringement and any failure to exercise can lead to the enterprise’s willful infringement[3].

A study found that more than 90 percent of infringement cases prosecuted by the patentees were willful infringement, but if the company executed affirmative duty care standard, the researchers found the willful infringement dropped to about 55 percent, even when there was an opinion of counsel given[4]. Sometimes, the counsel opinions can give the judges impact on the case.

Reasonable reliance on a competent opinion on counsel was generally assumed to be sufficient to refute such a charge. Juries and judges have, in fact always expected to weigh a number of factors when deciding whether due care was exercised with a reasoned opinion being just one of them[5].

In fact, making a clearance searching and try to find the infringement or invalidity analysis is a good way to avoid willful infringement. Any enterprises might do this and accept the costly and time consuming search.

3 Patent confidentiality

Confidentiality is very important to an enterprise management strategy, and the enterprise must pay attention to it from the beginning of the research. Enterprises should reduce staff in the project team to a minimum, when developing the new products and require them to assume the obligation of confidentiality. Second, the enterprises must keep the relative information disclosed at any places, even at conference without showing. The aim is to avoid competitors to know the trend and intentions of the enterprise, especially the technology solutions of the new product so that competitors can not apply for a patent in advance. By carrying out this policy, the enterprises reduce the risk of infringement.

4 First application and gain the date of application

To a pharmaceutical enterprise, patent applications must be done as soon as possible, especially in some nations that adapt the principle of first application, first guarantee. Chinese patent law, the ninth regulation clearly states that when two or more applicants apply for the same invention patent, the patent right will be granted to the first person who apply for it. Therefore, when the enterprises plan their patent strategy, they should not only take the preventive measures, but also take the initiative to apply for the patent and occupy the relative area. This will avoidthe same invention being rejected by the Patent Bureau and protect the patent right. Therefore, it will greatly reduce the probability of infringing the patent right.

5 Making public some relative documents

After gaining the patent for a product, the enterprises still need to continue the research on the new product for further improvement. In order to prevent other companies from researching around their patent and using peripheral patent strategy, the enterprise should choose and open the relative documents to the public timely which the enterprises are not ready for the further implementation, It will limit other companies to execute the subsequent patent development once the relative information was disclosed so that the enterprise can avoid the infringement risk.

6 Signing the cross-licensing contract

Nowadays cross-licensing contract is wildly used among the pharmaceutical enterprises, cross-licensing contract is also known as reciprocal or swap license. It refers the parties to value roughly equivalent technical license. If the enterprise has made some improvements on the basis of the other's patent technology, and the improved technology is more advanced than the previous technology[6], and it has been awarded a new patent. But the patent implementation depends on the previous patent technology. In this case, in order to avoid patent disputes, the enterprises should sign a cross-licensing contract with the initiative company.

Therefore, pharmaceutical enterprises should make good use of the patent searching results to have a negotiation timely with the previous relevant patent owners, enterprises or individuals, after that, they can sign the cross-licensing contract to ensure their access to patented technologies can be carried out smoothly.

7 Proposing revocation or invalidity request

In the international community, some enterprises have another choice, that is to propose revocation or have an invalidity request for the patent to the Patent Bureau, In some countries, in order to safeguard the legitimate rights of the public, the court should correct the errors in the work of awarding patent. In the patent law, some countries set up the administrative authorization revocation proceedings and invalidity announcing procedure. If the patent does not comply with the rules for implementation of the patent law, the provisions of article fifty-fifth (1) the awarded patent for invention or utility model is not in conformity with the patent law, the provisions of article twenty-second, i.e. no novelty, creativity or practicality; (2) the patented design is not in conformity with the patent law twenty-third rules, i.e. no novelty, creativity, a revocation or invalidity request can be put forward. The accused infringing party could take this action to reverse their passive situation and change the patent right infringement disputes into an invalid paten dispute. Then it can change themselves from the defendant to the plaintiff. After the review, if the request is reasonable, the patent will be considered invalid and the company can avoid the risk.

For pharmaceutical enterprises, the risk of patent infringement patent infringement may run through the whole process of the drug’s research and sale. Therefore, the way to solving the problem is very important. From the above patent infringement risk management strategies, we can say that clearance searching is the vital one.

Clearance searching can be the most effective way to reducing the infringement risk with certain competitors, and with features that are not applied by the third-party components. Searching on these features before the enterprise is committed to manufacturing a product; there will be more time to change the design. When the costeffectiveness ratio is taken into consideration, conducting a search is meaningful.

Though the others strategies are also necessary to the enterprises, they are just the follow-up methods to settle the infringement problems.

[1] In re Seagate Technology, LLC[EB/OL]. http://www.mofo.com/docs/ pdf/ Seagate Technology -llaneousDocketNo.830 497 F.3d 1360 (Fed. Cir. 2007) 2007-8-20.

[2] Marc Hubbard, Jennifer Brooks. The Effective of Seagate on Patent Infringement Risk Management Strategies [J]. Intellectual Property and Technology Law Journal, 2010, 1, (22): 1-4.

[3] Underwater Devices Inc. v. Morrison-Knudsen Co. [N]. The Federal Circuit Held 717 F.2d1380: 1989-1390.

[4] Kimberly A. Moore, Empirical Statistics on Willful Patent Infringement [J]. PACIFIC RIM, 14 Fed. Cir. B.J (2004): 227-232.

[5] McDermott Will & Emery, See Read Corp. v. Portec Inc. [R]. McDermott Will & Emery’s IP Review, 970 F.2d: 816-822.

[6] Crosslicense. Chinese Intellectual property net [EB/OL]. http://www. cnipr.com/news/dailykeyword, 2011-03-01.

∗fund: Liaoning province drug innovation incubator platform construction project 2013 (project number: 2013226027-14).

Author’s information: HUANG Tai-kang, Professor. Major research area: Social pharmacy. Tel: 025-86228290, E-mail: donghongnian258@ sina.com