Squatters’ rights: the problem with third party SPCs

Late in December 2015 the European Commission issued an invitation to tender inviting proposals for a study on the supplementary protection certificate (SPC) regulations, by which de facto patent term extension of up to five years can be secured in the EU for medicinal products and plant protection products once these receive a marketing authorisation (MA). The tender closed in February 2016 but it has been reported that the tender will be relaunched as none of the bids that were received met its requirements.

Assuming more success after the relaunch of the tender this will be the first formal review that the Commission has undertaken of either the medicinal products SPC regulation, which entered into force in 1993, or the plant protection products SPC regulation, which entered into force in 1997. Despite their age, neither regulation has ever been amended in any material respect except to take account of EU enlargement, and on only one occasion substantively, by the somewhat curious legislative technique of stating in a recital to the latter regulation that some of its provisions had the effect of amending certain aspects of the earlier one.

This legislative vacuum has left it to the Court of Justice of the European Union (CJEU) to interpret, in numerous references to it from national courts, the many obscurities found in the two regulations, and its judgments have in turn raised many more questions of their own.

One commonly encountered issue that the court has influenced and commented on but never had directly to address, and on which the Commission’s invitation to tender is also silent, is that of third party SPCs (otherwise known as “SPC squatting” or “SPC piggybacking”). This is the situation of a patentee securing de facto extension of its patent through an SPC obtained on the basis of an MA granted to an unconnected entity, without the consent of such entity, thereby giving such a patentee what might be seen as the windfall of a much longer term in which to assert its de facto extended patent against the product subject to the MA.

This situation has the consequence for a prospective MA owner whose product might fall within the scope of a third party patent of either (i) risking that the patentee use such an MA, once granted, to secure an SPC which it can then assert against the product subject to the MA; or (ii) requiring that it seek to ‘clear the path’ of such a patent, by challenging its validity or seeking a declaration of non-infringement of it before it secures a MA, so that there is no patent on which an SPC can be based; or (iii) encouraging it to wait to secure an MA until the expiry of such a patent, so that by the time an SPC could have been secured, the patent has already expired. This last course can be the safest and most secure option if the patent of concern has only a relatively short period still to run, but is a rather unexpected consequence of a measure that was intended to incentivise research into medicines.

This situation can arise because the SPC regulations do not require the express consent of the MA owner to the use of its MA by a patentee to secure an SPC, it having not apparently been envisaged when the regulations were first drafted that the interests of the MA owner and the patentee, where these were not one and the same, might differ.

This was recognised by Advocate-General Fennelly in his opinion in case C-181/95, Biogen v SmithKline Beecham Biologicals: “43. The regulation is silent on the relationship between the holder of a basic patent and the holder of a related marketing authorisation for the member state in question, due again, I imagine, to the implicit assumption on the part of the draughtsman that they would be concentrated in the hands of a single undertaking. It is, in effect, the legislative failure to advert to the possible divergent ownership of patents and marketing authorisations that creates the problem in the present case.”

Despite this ‘legislative failure’, the medicinal products SPC regulation as it was originally drafted and applied did in practice provide the MA owner with some element of control over the ability of a patentee to seek an SPC on the basis of such MA, since article 8 of the regulation, setting out the information which a patentee must file with a national patent office in order to secure an SPC, requires, at articles 8(1)(b) and (c), that it submit:

The effect of Biogen

Any such effect of article 8(1)(b) of the SPC regulation was however undermined by the CJEU in the Biogencase, which held that where the basic patent and MA were in different hands and the owner of the basic patent was unable to provide a copy of the MA as required by article 8(1)(b), the SPC could not be refused on that ground alone, and that it was open to the authority granting the SPC to obtain a copy of the MA from the authority which issued it.

Consistent with this, the effect of article 8(1)(c) of the medicinal products SPC regulation was shortly afterwards relaxed by article 8(1)(c) of the plant protection products SPC regulation, which relieved the applicant from the need to also provide the first MA in the EEA if it could provide the necessary details of it, and which, by recital 17, provided that this interpretation apply also to the medicinal products SPC regulation.

The wider potential consequences of the decision of the CJEU in the Biogen case were not immediately recognised, perhaps because it concerned two parties that were not wholly unconnected but a licensor and a licensee, and perhaps because its main significance for practitioners lay in its holding that a product could be protected by more than one SPC.

In fact it took more than ten years for the courts to start to address such consequences. In the Netherlands, in Stallergenes v Octrooicentrum in 2009, the court rejected for other reasons an application for an SPC by a patentee based on an MA granted to a competitor, but observed that as the patentee was not the owner of such an MA it could not be argued that it had been delayed in getting a return on its investment through the time taken to secure the MA. As this was the rationale for the SPC regulation, the grant of an SPC to it would not conform with the goal of the regulation.

Similar sentiments were subsequently expressed in England by Mr Justice Arnold in Novartis v Medimmune in 2012, albeit under the heading “A point not taken”:

“[61] As noted above, in the present case the SPC is based upon a product obtained by means of an allegedly infringing process and upon a marketing authorisation obtained by an alleged infringer of the patent. It might be thought that it was not the purpose of the regulation to enable a patent owner to obtain an SPC in such circumstances, since the owner has not been delayed in getting the product to market by the need to get a marketing authorisation, and therefore no extension to the term of the patent is needed to compensate him for that delay. Counsel for MedImmune accepted that it was not clear from the judgment of the Court of Justice in case C-181/95 Biogen v SmithKline Biologicals [1997] ECR I-386 that this was permissible. Nevertheless, counsel for Novartis made it clear that Novartis was not taking this point.”

“The wider potential consequences of the decision of the CJEU in the Biogen case were not immediately recognised, perhaps because it concerned two parties that were not wholly unconnected.”

Soon afterwards much the same issue arose in the English courts in Eli Lilly v Human Genome Sciences in the same year, although on this occasion the point was indeed taken so the judge, here Mr Justice Warren, had to address it. Having considered the CJEU decision in the Biogen case in some detail and the difficulty of applying the sort of test floated in Novartis,he concluded that the holder of a basic patent was entitled to make an application for an SPC in reliance on an MA granted to a third party having no connection of any sort with that patentee. He thought there was little real doubt about this and so refused to make a reference on it to the CJEU, although he subsequently made one, for another reason, which reached the court as case C-493/12, Eli Lilly v Human Genome Sciences, in 2013.

The reason for this reference, and the issue which the CJEU answered, to a degree, was one which had arisen as the result of some of its other judgments, namely whether, in order to constitute a valid basic patent for an SPC, the claims must identify the product by a structural formula, which it went on to hold was not necessary where the product was covered by a functional formula in the claims which “implicitly but necessarily and specifically” related to the product in question.

No longer an issue

Warren, as the English judge who had made the reference, and so had to apply this Delphic “guidance”, held that the product in issue would indeed be protected by the third party patent and so refused to grant a declaration that it would not be; the fact that this would be a third party SPC was no longer, in the light of his earlier decision, at issue by this stage.

However, although it had not been asked about this particular issue in the reference to it in the Eli Lilly case, the CJEU did in passing echo the reservations expressed by national courts in Stallergenes and Eli Lilly about third party SPCs:

“[42] As stated in recital 4 in the preamble to [the medicinal products SPC regulation], the purpose of that additional period of exclusivity is to encourage research and, to that end, it is designed to ensure that the investments put into such research are covered.

[43] In the light of the objective of [the medicinal products SPC regulation], the refusal of an SPC application for an active ingredient which is not specifically referred to by a patent issued by the European Patent Office relied on in support of such an application may be justified—in circumstances such as those in the main proceedings and as observed by Eli Lilly—where the holder of the patent in question has failed to take any steps to carry out more in-depth research and identify his invention specifically, making it possible to ascertain clearly the active ingredient which may be commercially exploited in a medicinal product corresponding to the needs of certain patients.

In such a situation, if an SPC were granted to the patent holder, even though—since he was not the holder of the MA granted for the medicinal product developed from the specifications of the source patent—that patent holder had not made any investment in research relating to that aspect of his original invention, that would undermine the objective of [the medicinal products SPC regulation], as referred to in recital 4 in the preamble thereto.”

Although the third party SPC issue was no longer live by then, the English court that had made the reference to the CJEU and was faced with the task of applying its “guidance” on the degree to which a patent must identify the product in issue in order to be said to protect it as required by the SPC regulations, had observations of its own to make (at [45] to [52]) on this passage, pointing out, that:

“[47] … [an] approach which discriminated between different stages of the research leading to an MA would be almost impossible of practical implementation. It would require a detailed enquiry about the extent to which work done at an early stage had value in the research done at a later stage which cannot have been the intention of the drafters of the SPC regulation.”

The English court then at [48] reiterated its view that “an approach  … which produces different results depending on who carries out the later research—the original patentee or a third party—cannot be right on principle.”

So we are left with the situation in which a Dutch and an English national court, along with the CJEU, have all expressed strong reservations on policy grounds about third party SPCs, but the only national court that has had to specifically address the issue—another English court (with a different judge)—has decided that they are permitted under the SPC regulations.

Further judicial intervention to the contrary would have to address the problem identified in this English decision of how practically to implement the policy based objection, which is likely to require that the CJEU revisit its decision in the Biogen case. If it were to do so, it would certainly not be the first occasion in its unhappy history of interpreting the SPC regulations that the CJEU has had occasion to have second thoughts.

Trevor Cooke is a partner at  WilmerHale. He can be contacted at: trevor.cook@wilmerhale.com