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7 July 2016Asia-PacificGareth Morgan

From the EU to Australia: latest SPC developments

In an article in March I highlighted that the supplementary protection certificate (SPC) regime in the EU is currently coming under scrutiny in terms of its industry sector application and the scope of the right that is granted. Recent events have progressed each of these initiatives and it is therefore necessary to update the article. The current legislative activity in the EU is also reviving discussion around similar provisions in other countries around the world.

I previously detailed the progress made on two aspects of SPC legislative development: (i) the tender for a research project that had been issued by the European Commission; and (ii) the moves afoot to dilute the SPC right through the introduction of a waiver in relation to manufacture for export during the SPC term.

On the first of those initiatives, the Commission did not get any suitable responses to its first call for tenders and presumably had to accept that the research project it was proposing could not be completed in the time and/or budget that had been proposed. The Commission then issued a revised proposal with a further call for tenders to take on a modified version of the research project. The new tender has a closing date of July 27, 2016 and the full documentation can be found on the e-tendering website used by European institutions.

Significant changes

The new tender document looks similar to the one issued in December 2015, but significant changes have been made to the text. Further, the original document did not list ‘antibiotics’ as a class of inventions/products that needed to be reviewed in relation to the fitness for purpose of the SPC system. While individuals researching and operating in the field of antibiotics will applaud this inclusion, there is no indication of why the Commission considered it needed to add this group of products to the new study when they were not included in the first one (at least expressly).

A significant section has been inserted concerning second medical use patents and the issues that are being experienced in a number of member states regarding their effective enforcement. Again, these are likely to be welcomed by patentees but there is little detail to suggest that a review of the SPC system could assist in that regard.

Patentees may, on the one hand, be relieved to see the issue of appropriate duration for the SPC right coming out of the description of the project. On the other, however, they may be disappointed that the broad remit to look at innovative products in industry sectors not currently benefiting from SPCs has also been removed (subject to medical devices remaining as a specific class of products that will be included in the project).

The evidence base for the study now also suggests the tender winner should review relevant case law that has developed at EU member state level, ie, where no reference to the Court of Justice of the European Union was made, whereas the previous tender did not include this. On the flip side there does not now appear to be a requirement to generate a comprehensive member state-specific database of, for example, the number of SPCs granted, grant of applications and time taken to grant, among other metrics, identified in the December tender.

The maximum price at which a tender is said to be disqualified has now decreased from €200,000 ($222,700) to €185,000. It has to be questioned whether the changes in specification between the December and May drafts of the tender justify a reduction in the overall price the Commission is willing to accept. This is particularly so in light of a failure to award the tender in the first offer round.

SPC export waiver

With regard to the SPC “export waiver”, the European parliament last year passed a motion in plenary approving the parliament’s committee report on the Commission’s single market strategy paper. Through this plenary vote the parliament called upon the Commission to press on and introduce an export waiver into European SPC legislation. The precise text of the parliamentary report that was approved in plenary reads:

“The European Parliament urges the Commission to introduce and implement before 2019 an SPC manufacturing waiver to boost the competitiveness of the European generics and biosimilar industry in a global environment, as well as to maintain and create additional jobs and growth in the EU, without undermining the market exclusivity granted under the SPC regime in protected markets; and believes that such provisions could have a positive impact on access to high-quality medicines in developing and least developed countries and help to avoid the outsourcing of production.”

“It is important that any Commission impact assessment also considers safeguards or other measures that would be needed to ensure the proposed measures would work as intended.”

By way of recap, the single market strategy paper identified this possible legislative amendment as being a way to encourage EU domestic manufacturing industry. The report described the amendment as a “recalibration” of both patent and SPC rights. Indeed, it would certainly be a significant divergence from the approach of the SPC Regulation, which confers the “same rights” as the underlying patent.

The purpose for this formulation of the SPC was that without such protection, the EU considered that marketing approval delays render “the period of effective protection under the patent insufficient to cover the investment put into the research.” Any consideration of such a significant divergence from the EU’s innovation incentives is likely to undergo intense scrutiny.

The possible amendment to patent law was stated to be directed at an update of the EU patent research exemption, but it is the possible amendment to SPC legislation that has caught the immediate attention. The Commission stated that it considered the creation of this waiver could create thousands of new high-tech jobs in the EU and lead to the formation of many new companies.

As previously stated, the brief case for the introduction of such a waiver is that:

  • The current SPC term prevents EU-based generic and biosimilar manufacturers competing with ex-EU companies for ex-EU market share where no relevant patent rights exist;
  • Introducing such a waiver is going to level the playing field and encourage manufacturers to remain within the EU because they will then be able to compete during the initial period of loss of exclusivity outside the EU; and
  • The European Generic Medicines Association’s (EGA, now Medicines for Europe) letter of November 2015 to the Commission outlined the many billions of euros that the EU economy stood to make while the introduction of such a waiver would not “alter the existing IP rights equilibrium in EU markets”.

The introduction and implementation of such a regime would require a detailed impact assessment and legislative proposal to be put forward. Given that the parliament wishes to see the SPC waiver implemented before 2019, it is possible that the Commission’s research project is going to report after the export waiver legislative initiative is already underway. Such a course of action would result in the Commission’s pressing ahead on this legislative reform on the basis of current information alone.

Assuming the Commission follows a route to producing a legislative proposal that requires the production of an impact assessment, the expectation is that the Commission will also now look for evidence of how the introduction of such a waiver could impact all aspects of the EU pharmaceutical industry (as expected by the EGA’s letter of November 19, 2015 to the Commission).

For example, some commentators have suggested that the opening up of ex-EU markets to EU generics companies during SPC term could impact the market share of EU-based originator companies. This, it is argued, might then drive down profits in one part of the EU pharmaceutical industry while increasing them elsewhere. While such a balancing exercise could well be a difficult one, it is important for the Commission to perform an appropriate assessment where the proposal concerns the dilution of the scope of the SPC right.

As well as reviewing the balance of interests in financial terms across the whole of the EU pharmaceutical industry it may be expected that the Commission will seek evidence on the nature and magnitude of the opportunity that is presented by the introduction of the export waiver. Again, the only figure that appears to be in play at present is that put forward by Medicines for Europe, which suggests that an academic study adopting a conservative approach suggested that the benefits to EU industry could be as great as €5.2 billion.

At present the Commission does not appear to have access to publicly available information that would counter such statements based on this limited dataset. Again, it will be important for the Commission to conduct its impact analysis on the basis of as complete a dataset as possible.

In addition, the Commission may well choose to consider potential practical impacts and feasibility of enforcing such a waiver. Simply assuming the system will work as intended may not be enough given the fact-sensitive nature of the investigations that will be required to determine the “purpose” of specific manufacturing activities.

For example, it is possible ex-EU patent infringement issues could be reviewed and/or decided in the EU through challenges by patentees on whether products produced under the exception could lawfully be exported to non-EU markets where IP rights may still be in force.

In short, it is important that any Commission impact assessment also considers safeguards or other measures that would be needed to ensure the proposed measures would work as intended. It benefits neither side of the pharmaceutical industry for a measure to be introduced that encourages litigation in what is already a highly litigious environment. The Commission will therefore need to be cognisant of these difficulties when assessing the feasibility of drafting this legislative provision.

International legislation

Another development that has possibly stemmed from the debate around the SPC export waiver in the EU over the last few years is the release of a report in Australia from a governmental committee called the Productivity Commission. This body has issued a recommendation that picks up on a decade-old proposal for an export waiver during patent term extension.

In this report, from April, draft recommendation 9.2 has again proposed that patent term extensions should be granted only through a system that permits manufacture for export during the term of the extension. It even cited some of the deliberations by the European parliament in its analysis.

The EU SPC export waiver proposal itself was prompted to some degree by the inclusion of an equivalent measure in the EU-Canada trade agreement. The revival of this similar proposal by an Australian governmental commission underscores the importance of getting this right in Europe. If not, Europe’s reputation as a leader in promoting innovation may well be undermined by setting a precedent that has international consequences.

Gareth Morgan is a partner at  Olswang. He can be contacted at: gareth.morgan@olswang.com


More on this story

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1 March 2016   The European Commission is considering whether ‘export waivers’ should be introduced in order to partly relax the rules on supplementary protection certificates. Gareth Morgan of Olswang explains more.

More on this story

Big Pharma
1 March 2016   The European Commission is considering whether ‘export waivers’ should be introduced in order to partly relax the rules on supplementary protection certificates. Gareth Morgan of Olswang explains more.