Acting Director of the USPTO Teresa Stanek ReaSpeech to China Pharmaceutical University

“Balancing Innovation and Competition Through Intellectual Property Policies in the

Pharmaceutical Sector”

September, 2013Prepared Remarks

Opening Remarks

Good afternoon, and thank you for your kind introduction. It is a great

pleasure to be with you here at the China Pharmaceutical University.

[SLIDE 1 – Opening Slide]

I particularly want to thank the CPU, the China Pharmaceutical

Industry Research and Development Association (SINO-PhIRDA),

and the JS IPO for their assistance and hospitality and for providing

me with this opportunity to address you today.

It is a particular pleasure for me to be speaking about intellectual

property and innovation in the pharmaceutical sector at the China

Pharmaceutical University, because I am both a pharmacist and an

intellectual property lawyer.

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I am especially pleased that there are not only lawyers and officials

and business people here, but also students from the China

Pharmaceutical University.

The young people of China have exciting challenges and

opportunities ahead of them as they help your country become an

innovative economy, especially in the pharmaceutical sector.

Based on my experience, I believe that the pharmaceutical sector is

one of the most dynamic sectors in the world economy today.

It not only drives economic growth and provides exciting

employment opportunities to some of our best and brightest

researchers, but it also develops products that may save or extend our

lives, improve our quality of living, and reduce health care costs.

China’s commitment to innovation in the life sciences has the

potential to help address difficult public health issues the world faces.

Innovation is critical to China’s efforts to grow from a country where

goods are made to one where goods are researched and designed and

branded.

I should also add that I am especially grateful to visit Nanjing, which

to a degree can claim credit for China’s patent system.

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It was a long time ago - back in 1859 during the Taiping Rebellion -

that Hong Rengan tried to legislate a system of rewards for invention.

That system may have been a precursor to a modern patent system.

Today, of course, China’s need for a modern patent system is even

greater. This is not only because China has advanced economically

and is committed to innovation, but also because technology has

advanced.

China’s leadership has recognized the importance of the

biopharmaceutical industry, and has designated the biotechnology

sector as one of the seven “Strategic Emerging Industries”.

The 12th Five Year Biotechnology Development Plan, promulgated by

the Ministry of Science and Technology in November 2011, sets forth

ambitious goals for the industry.

According to the plan, China will improve its biotechnology-related

R&D output such that it will become third in the world for the

number of scientific citations, biotechnology patent applications, and

biotechnology patent grants.

Under the plan, China would also become first in the world for the

number of biotechnology scientists - - the goal is for there to be

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300,000 such scientists - - and would achieve at least a 15% annual

growth rate for the sector.

As the Five Year Biotechnology Development Plan states, increasing

public awareness of intellectual property rights (IPR) and improving

the legal and procedural rules governing the acquisition, protection,

and enforcement of those rights is critical for creating the incentives

necessary to improve the biotechnology field in China.

China’s growing capabilities in the pharmaceutical sector, illustrated

by the increasing numbers of patent applications to China’s State

Intellectual Property Office, or SIPO, appears to be matched by

increasing applications for new drugs to China’s State Food and Drug

Administration, or SFDA, including from increasingly capable

Chinese innovative biopharmaceutical firms.

According to a study in Nature Reviews, as of 2010 there were 187

investigational drugs in clinical trials in China.

Of these 187 products, 70 had compound patent protection in China,

23 had compound patent protection in the United States, and 16 had

protection in Europe.

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I am sure that many, if not most, of those products were developed by

innovative member companies of our sponsor today, SinoPhIRDA,

and I want to congratulate your members on this pioneering work.

The patenting of biopharmaceutical inventions by innovative Chinese

firms occurs not only in China, but elsewhere as well.

If you look at one revealing snap-shot, you can see that between 2002

and 2013, the relative growth in patent filings from China has vastly

outstripped that of Japan, Europe and even the United States and

Korea. [SLIDE 2 – Pharmaceutical Patents Granted]

Although the total numbers in Europe, Japan, and especially the

United States are much greater, we can see that over that period of

time, the numbers of pharmaceutical patents granted by the USPTO

from the U.S. and Japan were relatively stable, and Europe’s numbers

decreased.

South Korea showed impressive growth of over 160%, but filings

from China grew by nearly 10-fold.

What I like about this slide is that it shows both what China has

accomplished in the last 10 years, but also, how much farther there is

to go.

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This trend is the result of several factors, including increasing

investment in research and development from various sources, such

as the Chinese government, private and state-owned domestic

Chinese companies and foreign firms.

I think it is worth pointing out that foreign investment in the

biopharmaceutical sector in China is an important component of this

trend. I would note that foreign investment in the biopharmaceutical

sector is likewise an important factor in the United States.

According to recent estimates, foreign investment in China’s

biopharmaceutical sector has been rising at more than 13% per year

over the last two years. Investment from the members of the R&D-

based Pharmaceutical Association Committee of the China

Association of Enterprises with Foreign Investment, totaled 20 billion

Renminbi, a third of which has been invested in R&D Centers in

China.

There are now as many as 30 foreign invested R&D facilities in

China, so this is indeed an exciting time for China’s

biopharmaceutical industries, both foreign-owned and domestic.

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While there are differences between our countries, including our stage

of economic development and the human and financial resources we

have at our disposal, the gap is narrowing and the prospects for

cooperation are growing.

The desire to develop an innovative pharmaceutical sector is

particularly acute for Jiangsu, which has committed to become a

leading province in biotechnology and pharmaceuticals.

During the past few years, USPTO officials have been pleased to visit

Taizhou “China’s Medical City” on several occasions, and we have

been pleased to host discussions and to participate in seminars on a

wide range of IP topics, including conferences on biotechnology.

In addition to attending meetings in Nanjing and Taizhou, we have

also met with officials and business leaders throughout your beautiful

province, and we’ve visited other cities in Jiangsu, such Suzhou,

where we visited the satellite patent offices of SIPO.

From our perspective, the challenges that biotechnology innovators in

Jiangsu face are fundamentally no different than the challenges that

innovators confront in other countries.

These challenges arise in a range of areas, from intellectual property,

to human resources, to taxation and regulations. Challenges can

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likewise arise in connection with collaboration that companies may

undertake with one another both within their countries and cross

border.

Let me now turn to the patent system, which is a focus of our

discussions today, functions by providing a right to exclude others

from making, using or selling a patented invention for a 20-year

period for an invention that is new, useful and non-obvious, and

which the inventor or his assignee has agreed to disclose to the public

and make available to the public after the 20-year term has expired.

This basic concept was set forth in the Constitution of the United

States, which provided that our Congress would establish such a

system to “promote the progress of science and the useful arts.”

The same basic concept today applies throughout the world: we need

to encourage innovation by disclosure of inventions to enable the

public to benefit from these discoveries while providing the inventor

with a right to protect his inventions.

From my own experience, having represented both generic companies

and innovative companies, I can say that the costs, risks, and

challenges facing innovative companies developing new products

dwarf those of generic companies making copies of the innovator’s

products.

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We know today that it can cost over $1 billion and take as long as 10

to 15 years to go from a candidate compound to a newly approved

pharmaceutical product. [SLIDE 3: Drug Discovery and

Commercialization Timeline]

These are enormous investments, and they require a sound innovation

ecosystem to support it.

The IP system is an important part of that ecosystem. It balances the

rights of the innovators, the public, the regulators and, other

stakeholders.

These policies support pharmaceutical innovation, and are the

principal subject of my talk today.

Introduction –The Importance of Property Rights in Innovation

Jiangsu is privileged to have a Governor who understands the

importance of innovation. As we all know, Governor Li was formerly

a Vice Minister of the Ministry of Science and Technology.

We have been honored to host him at the USPTO, and to have entered

into a memorandum of understanding with Jiangsu province to

promote IP protection.

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In July of this year, I also had the privilege of participating in our

bilateral Innovation Dialogue with the Minister of Science and

Technology, Wan Gang, and we had an opportunity to talk about IP

and innovation.

Bayh-Dole Act – Commercialization of Government Funded R&D

At that meeting, we talked about several of the critical challenges that

are present in the pharmaceutical sector, including how to

commercialize government-funded R&D.

This is one of the first “balancing” acts that I would like to talk about:

determining who should own the IP that results from government-

funded research and development in the biotechnology sector.

This topic is especially critical to an institution like China

Pharmaceutical University, which may wish to commercialize the

innovations that it develops with government financing.

We know CPU is active in developing intellectual property rights

because the web-site for your technology transfer office lists 507

patents for technology transfer that CPU owns. [SLIDE 4 – CPU

Patent Information ]

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We also know that the CPU has been active in filing for patents

internationally. According to our records, your university has applied

for 11 patents with the USPTO, five of which have already been

granted.

But the topic also has important consequences for the Chinese people,

who can realize the benefits from that investment in research if it is

commercialized.

We know from the U.S. experience that our own biotech companies

have been significant beneficiaries of what we call the “Bayh-Dole

Act”.

This Act gave researchers ownership of their inventions. A result of

this has been that more products have been commercialized, and the

public has benefitted from these products.

China has studied our Bayh-Dole Act and in fact included provisions

in its Science Promotion Law that provide similar rights to inventors

for government funded inventions.

Here’s a picture, in fact, of Senator Bayh, who co-authored the Bayh

Dole Act, celebrating his 80th Birthday at SIPO. We were very glad

to support that visit. [SLIDE 5 – Picture of Senator Birch Bayh]

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Bayh-Dole has been especially important to life sciences research and

development in the United States, because of the heavy involvement

and investment of the government in supporting research that

addresses public health issues. I expect that China’s experience has

been similar.

In China, in 2009 and 2010, over 14,000 patent applications for drugs

were filed. [SLIDE 6 – Medicine Patent Filings in China]

Of those 14,368 patents, 5,623 were for traditional Chinese medicine,

or TCM, and 7,662 were for Chemical and Biological Medicines.

It may be interesting for you to note that over 9% of these

applications came from Jiangsu Province, second only to Tianjin,

with around 16.5%.

It is also interesting to note that, as of 2010, seven of the top 10

assignees of Chinese pharmaceutical patents are Chinese academic

institutions, including the China Pharmaceutical University. This

illustrates the important role for, and benefits to, academic institutions

and universities in pharmaceutical R&D.

Inventor Remuneration

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When I met with Minister Wan Gang earlier this year, we also talked

about the importance of finding appropriate ways to reward

employee-inventors, through their employment contracts.

This will obviously be an important issue to those of you who will be

conducting R&D in the pharmaceutical sector: you will want to

ensure that you are properly rewarded for your inventions and that

companies are willing to take the risks of investing in you and in new

product development.

The U.S. experience has been that the best way of rewarding

inventors is by having clear contracts negotiated in advance that

specify ownership of the rights and the rewards for the inventions.

Our experience has also been that governments should minimize their

interference and supervision of these arrangements.

In fact, the lesson of both Bayh-Dole and employee compensation in

the United States is that clearly defined ownership rights in

intellectual property help stimulate innovation by enabling

entrepreneurs to invest in commercializing their discoveries.

Intellectual Property Protection in Biotechnology: Shared

Experiences of the United States and China

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We have been pleased to see how China has studied many of our

pioneering practices in intellectual property and adopted them to its

needs.

I would like to talk to you now about some other areas where China

and the United States have exchanged views about promoting

innovation in the biotechnology sector through intellectual property.

Hatch-Waxman Regime: Patent Term Restoration, Bolar Exemption,

Data Exclusivity and Patent Linkage

In the United States, we implemented a suite of policies and

legislation during the genetic revolution of the late 1970s and early

1980s that helped make the United States the world leader in

pharmaceutical innovation.

Specifically, I’m referring to the Drug Price Competition and Patent

Term Restoration Act of 1984, also known as the Hatch-Waxman

Act, and related legal and policy developments.

In many ways, this legislation was a reform of our marketing

approval regulatory system for pharmaceutical products, but with

important IPR considerations.

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At the time, there were a number of competing policy imperatives

with which our Congress was grappling.

First, it was extremely difficult for generics to come to market under

the pre-Hatch-Waxman system because generic drug manufacturers

effectively needed to reproduce clinical trial data showing that their

products were safe and effective.

In other words, a completely new drug application might be needed,

regardless of whether the generic firm could demonstrate

“bioequivalence” between its product and a previously approved

drug.

Human trials is one of the most costly and lengthy phases of the drug

commercialization process, and even though the generics would have

had the advantage of a good deal of certainty that the products they

were testing would be approved (certainty that the originator did not

have), the cost was still prohibitive for many firms and did not result

in the reduced prices that consumers were seeking.

On the other hand, innovators were faced with a variety of prospects

that did, or could, reduce the effective life of their IPR, which reduced

the incentive to invest in the costly and risky R&D necessary to

commercialize new products.

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Among the problems that innovators faced was that the delays

incurred in conducting clinical trials and obtaining approvals for a

new drug application often meant that by the time a pharmaceutical

product was approved for distribution by our Food and Drug

Administration, there was relatively little time left on the term of the

patent.

Just to be sure we understand the concepts at work here: a patent must

be granted on the basis that an invention is new, useful and non-

obvious. Once a clinical trial is conducted, the invention may no

longer be “new”, as it will be known to a segment of the public.

Moreover, the function of the patent office is not to assure the public

that an invention is safe and effective; that role belongs to the

regulatory authorities.

Finally, if a pharmaceutical company delays in filing its patent

application until a full dossier of clinical data is available, it may find

that it is no longer granted patent rights because it was not the first to

file.

To add to the complications of this issue, generic companies did not

want to wait to develop their products until the patents had expired.

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They wanted to begin the process of developing lower-cost generic

products by conducting abbreviated testing on the safety and efficacy

of their products by showing they were “bioequivalent” to the

innovator’s products, prior to the expiration of the innovator’s patent

term.

They would then introduce their generic product upon the expiration

of the patent term.

We struck a balance. We compensated patent holders for the effective

erosion of the patent term that they suffered while they were

conducting the time consuming clinical trials that are needed for

marketing approval.

In addition, we also addressed the need that generic manufacturers

have to conduct research necessary for obtaining marketing approval

while the innovators’ patents are still in force.

In particular, our Congress created an abbreviated pathway to

marketing approval for generic products, and limited the liability of a

generic manufacturer from charges of patent infringement for

conduct, such as performing bioequivalence studies, necessary to

prepare the generic products for marketing approval.

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This “Bolar exemption” for patent infringement is critical to avoid

costly delays between the expiration of a patent and the introduction

of generic competition.

China has adopted a Bolar exemption that permits testing for

bioequivalence of generic products seeking SFDA approval.

At the same time--to ensure that the patent and regulatory systems

created the necessary incentives to pursue commercial drug

development--the United States restored, with limits, patent term that

is lost due to the time it takes to complete the regulatory process,

including conducting clinical trials, a process that can take as long as

10-15 years from the identification of a candidate compound.

This is often referred to as patent term restoration or patent term

extension, and it is a recognition that patent applications are often

filed on candidate compounds years before the lengthy, costly, and

risky clinical trials are completed, and before regulatory approval is

granted by the Food and Drug Administration.

The consequence was that generics were able to market their product

earlier in the United States through Bolar provisions, while innovators

were able to extend the life of patents whose terms had been

compromised due to regulatory approvals.

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We have heard in recent years that many Chinese IP officials

recognize that most pharmaceutical innovators cannot enjoy the 20-

year patent term due to delays from regulatory approvals and clinical

trials, and that some think a patent term restoration mechanism would

make sense. We strongly support such an effort.

Also, as part of Hatch-Waxman, a period of exclusivity was granted

to the originator for its proprietary clinical trial and related data. This

prevents generic manufacturers from relying on the innovator’s costly

clinical trial results for a limited period of time.

This is often referred to as data protection or data exclusivity, a form

of IP protection included in the World Trade Organization’s

Agreement on Trade-Related Aspects of Intellectual Property Rights,

or the WTO TRIPS Agreement.

It is important to note that data exclusivity is separate and

independent from whether there are valid patents that also cover the

particular product. The patent protects against infringement of the

invention; data exclusivity protects against unfair use of another

party’s proprietary data.

In the United States, data exclusivity applies regardless of where the

innovator’s product is first launched.

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It is our understanding that China’s data protection regime only

provides protection to products that are first launched in China.

We believe that China should offer the same type of data protection

as do other trading partners, without regard to where the product was

first launched.

Therefore, we were pleased that last year China committed to

establish effective data protection in a manner consistent with

international research and development practices at the U.S.-China

Joint Commission on Commerce and Trade and we look forward to

working with China as it implements this commitment.

Finally, to avoid the unnecessary and costly litigation - - and the harm

to the innovator -- that can result if marketing approval is granted

prematurely to a generic - - the U.S. Congress established a patent

linkage system to prevent the regulator from approving a product that

would infringe a valid patent.

This system in the United States does not impose on our Food and

Drug Administration any obligations to determine the validity of

patents.

Instead, the system works by requiring the originator to list all

relevant patents and their expiration dates, which in the United States

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are compiled in the so-called “Orange Book”, with which many

pharmaceutical companies throughout the world are familiar.

Today the orange book is available on line, for free. This is what it

looks in hard copy. [SLIDE 7 – Image of the USFDA’s Orange Book]

When a generic manufacturer wishes to seek marketing approval

based on the findings of safety and efficacy demonstrated by the

originator’s clinical trial and other data, that manufacturer is obligated

to check the Orange Book and determine whether there are any listed

patents covering the product.

Here is an example of a listing from the Orange Book. You can see

that this one application list some 20 patents, including the expiration

dates of each. In addition, the listing describes when certain periods

of market exclusivity expire [SLIDE 8 – Orange Book Example).

A generic manufacturer that wishes to market its product must certify

to the U.S. FDA that the compound or formula for which it is seeking

marketing approval either does not have any listed patents, that the

generic manufacturer does not intend to market the product until after

the expiration of any listed patents, or that the product will not

infringe the relevant patents or the patents are invalid or

unenforceable.

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This last option, the so-called “paragraph IV” certification, requires

the generic applicant to inform the originator, and the originator can

choose to contest this certification by bringing a civil infringement

suit.

China has experimented with a patent linkage system. In this system,

we understand that there is some level of notification to the innovator

that a generic applicant has filed for marketing approval, which

allows the innovator to seek remedies in court prior to the approval

and marketing of the competing product.

However, it is not clear whether innovators can file infringement suits

prior to the marketing of the generic products, and whether they can

seek an injunction from a court to either prevent the generic

manufacturer from marketing the products, or to prevent SFDA from

granting the marketing approval in the first place.

The lack of clarity in the legal and regulatory system can impair the

effectiveness of such a system, resulting in harm to both innovators--

who are facing generic competition prior to the expiration of their

valid patents--and to generic firms that are facing lengthy and costly

patent infringement litigation.

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Remember what I said about Bayh-Dole and service inventions: In

order for individuals to invest, they need clarity about what they own

and what their risks are.

The patent linkage system in the United States increases the clarity

for all parties concerned. First, the system allows generic

manufacturers to be well aware of any possible patents covering the

products for which they wish to seek marketing approval.

Armed with this information, a generic manufacturer can devote

resources to other products, choose to wait until the relevant patents

have expired, or even challenge the validity of the relevant patents if

they so choose.

In any case, the U.S. system is highly transparent and enables both

innovators and generics to determine how long their rights are

protectable and when they expire, for the benefit of competition in the

U.S. market.

We believe that a robust patent linkage system also helps to protect

the hard work of China’s innovative pharmaceutical industry, because

the same transparency that benefits the generic firms would benefit

the innovators, notifying them of pending applications and allowing

them to take appropriate legal action before there is potential

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infringement from generic competition that can severely undercut the

return on their significant investments.

The current system in the United States provides enormous benefits to

consumers, with generics accounting for 75% of all prescribed drugs,

saving consumers and society more than $1 trillion over the last 10

years.

And because of the effective IPR protections provided by both the

patent system and the regulatory system, U.S. innovators have

continued investing enormous resources into innovative

pharmaceutical products--nearly $150 billion in 2012, and about half

of this investment was outside of the United States.

Article 26.3 – IPR-Related Challenge for an Innovative

Biopharmaceutical Sector in China

Now, I would like to discuss one issue in particular that has come to

my attention.

In the United States, we recognize that standards for demonstrating

the inventiveness, novelty, and utility of a biopharmaceutical

compound are quite different from the standards for demonstrating

the safety and effectiveness, or efficacy, of such products in human

beings.

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In other words, as I mentioned, there are significant differences

between the standards of patentability and the standards of marketing

approval for therapeutic drugs.

Pharmaceutical companies typically file patents on new therapeutic

compounds before they have conducted clinical trials necessary to

obtain marketing approval. In addition, patent offices need to accept

applications for patents when there is sufficient data to demonstrate

that the patent is enabled, even if such data is not sufficient to

demonstrate that the invention is in fact safe and effective for human

use.

It is particularly important to define both the type of data that patent

offices require in order to grant patents, thereby providing a critical

incentive for innovation, and that regulatory agencies require for

granting marketing approval, thereby ensuring that the products are

safe and effective for human use.

With respect to the patent system, the relevant language is found in

China’s patent law, Article 26.3, which has not been amended for

over 20 years. It provides that the written description in a patent

application “shall contain a clear and comprehensive description of

the invention or utility model so that a technician in the field of the

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relevant technology can carry it out”. [Slide 9 – Article 26(3) of

China’s Patent Law]

This is referred to as the “sufficiency of disclosure” or enablement

requirement, and is intended to ensure that, in exchange for the

exclusive rights that come with the grant of a patent, others will be

able to use the disclosed invention, without undue experimentation,

once the patent expires.

In 1993, when China began granting patents for the chemical

compounds of pharmaceutical products, China’s Patent Office (since

renamed as SIPO) adopted Examination Guidelines which were very

similar to the U.S. approach. [SLIDE 10 – Comparisons with

Chinese Practice – Sufficiency of Disclosure]

However, since 2001 these guidelines have been amended.

In 2001, and more severely in 2006, the sufficiency of disclosure

standard was changed from one under which the applicant was

required to “sufficiently” disclose the use and technical effect of the

invention, or compound, to one in which the applicant was required to

“completely” disclose the invention.

In 1993, the disclosure had to be such that “a person skilled in the art

can carry it out”, a standard that is seemingly similar to the U.S.

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practice of requiring that the disclosure “teach those of ordinary skill

how to make and how to use the invention”.[SLIDE 11 –

Comparisons with Chinese Practice – Ordinarily Skilled in the Art]

In 2001, the standard was changed to provide that the disclosure

should include “qualitative or quantitative laboratory test data

(including animal test) or clinical test sufficient to prove that the

technical solution can achieve the forecasted technical solution or

effect”.

I mentioned before that the time between the discovery of a promising

compound product and the completion of human clinical trials can be

quite lengthy. [SLIDE 12 – Drug Discovery and Commercialization

Timeline Again]

This means that it is standard practice in the industry to seek patent

protection for compound inventions prior to, or early in, the clinical

trial process.

The USPTO requires that the compound’s utility be demonstrated

such that one “ordinarily skilled in the art”, or one generally familiar

with the field of technology, would recognize the feasibility of the

compound’s usefulness as a therapy.

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We do not require the clinical trial data that proves that the compound

is safe and effective.

In fact, the way the clinical trial system works, once a compound is

approved as an investigational new drug by the U.S. FDA, the first

human trials are designed primarily to determine whether the

compound is safe for use in humans.

It is not until the third and most costly phase of clinical trials that the

innovator begins rigorously determining whether this promising

compound, for which it has invested so much, is actually going to

work as a therapeutic drug.

The revised Examination Guidelines that SIPO has adopted has led to

a growing number of pharmaceutical patent applications being

rejected because the applicant has not “completely” disclosed the

invention.

Another change in the Examination Guidelines related to the

requirement of Article 26.3 of China patent law is that supplemental

data, or information provided to the Patent Office after the date of

filing the patent application, is no longer allowed. [SLIDE 13 –

Comparisons with Chinese Practice – Supplementation of Data]

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In 1993, supplementing data regarding usefulness or effectiveness of

the invention after the filing date was allowed, but it had to relate to a

use or effect that had been “implied in the original specification so

that a person skilled in the art is able to deduce directly; or it is use

that can be deduced directly from the prior art.”

Again, this is very similar to the U.S. standard that allows post-filing

evidence to address doubts the patent examiner may have about the

utility of the invention, so long as such evidence or data “pertains to

the accuracy of a statement already in the specification”.

In 2001, the language referring to supplementing data was removed

from the Examination Guidelines, and in 2006 a new provision was

added, stating that “embodiment and experimental data submitted

after the filing date shall not be taken into consideration”.

This provision, maintained in the 2010 version of the Guidelines,

effectively prevents the examiner from requesting any additional

information to allay doubts regarding the utility of the invention or

the sufficiency of disclosure of the application.

Going forward, with the heightened standard of what is required for

disclosure in the first place and the prohibition against providing any

supplemental data to the examiner, many patent applications for

important biopharmaceutical compounds may be rejected.

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This is the way the issue was summarized in the United States in one

of our leading cases on the subject, In Re Wands:

o “…it is well established that enablement requires that the

specification teach those in the art to make and use the invention

without undue experimentation.

o Whether undue experimentation is needed is not a single, simple

factual determination, but rather is a conclusion reached by

weighing many factual considerations.”

So let me take you through a few examples of what may constitute

undue experimentation, and see how you would answer these

questions.

The first and perhaps easiest example is for a patent that does not

actually involve the human body’s reaction to a new chemical

ingredient.

So the question is, how much experimentation is required if the

proposed invention deals with mechanically varying an electrical

current?

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The answer is very little, because general laws of physics or

engineering would apply, and most likely no additional

experimentation would be required.

This has, however, occasionally resulted in the rejection of

applications for inventions related to electrical circuitry because the

disclosure does not provide enough information on how to practice

the invention.

Simple box diagrams that fail to indicate how the components operate

and interoperate would require undue experimentation to replicate.

On the other hand, it is the uniquely unpredictable factors in the

human body which mandate some form of experimentation to support

an application for an invention.

Now, suppose an inventor develops a new heart valve.

The new valve may look like it would work in a human being.

However, the applicant has only submitted data on how this heart

would work in a pig. Should the patent be granted?

If you were challenging the patent, you might argue that human use

of the valve was not enabled because at the time of filing, the

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invention had only been tested in pigs and further design changes and

developmental work were required.

However, in this case our national patent appeals court, the Court of

Appeals for the Federal Circuit, held that human testing is not

necessary to enable use in humans.

Indeed, when experimentation on humans is inappropriate,

enablement may sometimes be met by evidence from animal tests or

in vitro data. In that particular case, our courts determined that pigs

were a standard experimental animal for heart-valve research

intended for human use and that the patent should be granted.

Having enablement requirements that are too demanding could

therefore have adverse implications for an innovative industry

Once again a balance is required – to require the right amount of data

by the patent office, without it becoming like a marketing approval

agency.

Now another question can also arise: if China wants to become an

innovative economy, should China change its standards for data

disclosure? Moreover, how should any new standards be applied?

Should the narrow standards be applied retroactively to already issued

patents?

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We believe that the answer is very clear: standards should be

predictable and transparent.

If China wants to encourage innovation, then these standards should

become clearer over time based on the facts of each case.

If standards become more demanding, or if China’s standards become

more demanding compared to other countries, then inventors will

likely find ways to innovate in those countries where they can receive

protection earlier.

Moreover, if the new Guidelines are applied retroactively, innovators

with patents that were previously granted can be placed in a hopeless

situation.

These innovators supplied the information required under the

previous Guidelines, which may no longer meet the sufficiency of

disclosure requirements, AND they are now no longer allowed to

supplement their original disclosures with the necessary information,

whether or not such information was at hand at the time of filing.

This situation can expose innovative pharmaceutical companies, both

foreign and domestic, not only to invalidation charges by interested

generics firms who wish to market innovative products, but also to a

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form of extortion by entities that simply wish to extract settlements

from patent holders.

None of this is good for innovation in China.

In fact, China’s Law on Legislation, Article 84, generally prohibits

the retroactive imposition of new standards, and we hope that this law

also applies to patent grants.

The USPTO has raised this issue with SIPO on several occasions over

the past few years.

We know that SIPO understands this issue well, and we are confident

that as the expert agency on IPR in China, they understand the harm

that this practice may have on the development of the innovative

biopharmaceutical sector here in China, and that an appropriate

balance can be struck.

I want to emphasize, though, that it is often misguided to consider

IPR as pro-innovator and anti-generic.

The generic industry relies on the innovation of R&D-based

biopharmaceutical firms.

In fact, there is a sophisticated and important balance to be made if a

country wishes to stimulate innovation.

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Patents are limited in time and scope, and they fundamentally

represent a kind of social contract: as I stated earlier, the government

agrees to offer a right to exclude others from practicing an invention

for a limited time in exchange for a disclosure of that invention,

which will enable the public to practice the invention once the patent

expires.

The patent system allows generic firms to enter the market once the

patent protection expires or, even better, serves as an incentive for

generic firms to invest in R&D capabilities to design around and

create new products, elevating them to the ranks of innovative firms.

This balance in social needs has been refined in laws such as our

Hatch-Waxman Act, which attempts to create a balance between

generics and innovators.

Hatch-Waxman both extended the effective term of patents for

innovative products and reduced the effort, cost, and time required to

develop and market generic products, in order to stimulate generic

competition and reward innovators for the risks they undertake.

Social needs are also addressed through our Bayh-Dole regime, which

recognizes that vesting IP rights in the party that conducts

government-funded R&D can contribute to society by stimulating

innovation.

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Still another way that innovation is encouraged is in the rules

regarding sufficiency of data in our patent law.

These rules create a balance between our patent office and our

regulatory agencies, by recognizing that patents should be granted if a

patent is sufficiently disclosed, but that such disclosure need not, and

should not be of the same scope as that required for regulatory

approval.

Instead, the disclosure need only be adequate to enable one skilled in

the art to practice the invention without undue experimentation.

Moreover, rights should be settled and where possible, not

retroactively revoked.

This has been the experience in the U.S., where, as I already

mentioned, despite, or rather because of our IPR system, we not only

have the world’s leading capabilities in biopharmaceutical innovation,

but one of the most attractive and lucrative generics markets as well.

IPR protection is not a zero-sum game, and we strongly believe that a

return to the 1993 Examination Guidelines with respect to Article

26.3 would lead to a win-win scenario in which the developing

innovative industry here in China would be given a boost, while

generic firms will continue to flourish.

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In fact, we find it rather curious that China would make it more

difficult to protect innovative pharmaceutical products at the very

time it is struggling to become an innovative economy.

While of course there are domestic parties who are interested in this

issue -- and I hope I can count on the support of SinoPhIRDA and its

member firms in encouraging a timely and meaningful change to this

policy -- it is also important to note that this is an increasingly urgent

issue for U.S. and other foreign innovative biopharmaceutical firms,

for the USPTO, and for the U.S. government generally.

We hope that our close, strong, and friendly relationship with SIPO

and other agencies such as MoST and MofCOM can help bring about

the necessary resolution of this issue.

Conclusion

In conclusion, I want to step back and emphasize that despite our

urgent concerns regarding Article 26.3 and our continued advocacy

for broader amendments along the lines of our own Hatch-Waxman

policy balance, we remain committed to a cordial but frank

relationship with SIPO and the other Chinese government entities

responsible for IPR and innovation policy here in China.

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These issues are important for both of our countries, and mutual

cooperation remains essential.

My time is almost up, but before I conclude I’d like to show you a

photograph of an interesting man. He was the first Chinese person to

receive a medical degree from a U.S. medical school. His name was

Mei Jinkui.

Not only was he the first to receive a medical degree, he was also the

first Chinese person to apply for a patent in the United States, back in

1907, as a “subject of the Emperor of China”, for an improved

nutcracker for chestnuts. [SLIDE 16 – First Chinese Patent Applicant

in the U.S. - Dr. Jin Fuey Moy]

Technology has changed since then, and we know there is

sophisticated research and development occurring in China. We look

forward to receiving more of your patent applications in the United

States!

As I have noted in the past, the USPTO and SIPO now account for

approximately 50 percent of all patent applications in the world.

From the USPTO’s perspective, as we together carry such a large

share of global patent applications, we need to both be fully

committed to the global IP system.

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We may not always agree on policies and strategies, but having

another partner emerge who is committed to the development of the

global IP system is a welcome development.

As I stated in the beginning of my remarks, this remains an exciting

time for innovation in China, in the biopharmaceutical sector

specifically and more broadly.

It is a great time to be young and studying in the field of the life

sciences.

The policy issues that China is grappling with as it forges ahead to

become an innovation-based economy are complex, the challenges

great, but the opportunities even greater.

By building on the close cooperative relationship between the

USPTO, SIPO local IP offices like the Jiangsu IP Office that

graciously helped organize this event, and important private sector

organizations like SinoPhIRDA and others, there can be increasing

opportunities to exchange information, resolve differences and learn

from one another as our great countries continue to refine our 21st-

century innovation systems.

Thank you for your time and attention today. It has been a pleasure

speaking to you, and I look forward to answering your questions.

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