Reverse Payment Agreement between patentee and generic company violates Korean Antitrust Law

Recently KFTC announced to watch license agreements between patentees and generic companies under the patent and drug MA linkage system. That is a Korean version of the Hatch-Waxman Act system from March 15, 2015.

Under the new system, the first generic company may obtain 9-month market exclusivity. Such exclusivity may cause motives or incentives for reverse payments between the patent owner and the first generic.

In order to avoid antitrust violation issue, it is recommendable to closely review the first decision of the Supreme Court on the reverse payment case in Korea that was rendered on February 27, 2015 by the Korean Supreme Court. For information, the GSK vs. KFTC case is summarized in the below.

1. Background

GSK owned a Korean patent for Ondansetron, antiemetic drug and sold with a tradename as Zofran. Dong-A Pharmaceutical Co. developed a generic version of ondansetron and received a cease and demand letter from GSK. Both parties started lawsuits but soon signed a settlement agreement and withdrew lawsuits.

2. Settlement of Patent Infringement Litigations

By a Sale & Supply Agreement for Ondansetron between both parties, GSK granted Dong-A to sell the product to large sized hospitals. Instead, Dong-A shall neither make nor sell any competing medications including ondansetron to Zofran. GSK agreed to pay large amount of money to Dong-A by cash every year for 5 years. Further GSK promised to offer additional significant amount as incentive for high sales performance.

3. KFTC investigation and lawsuits

KFTC investigated GSK/Dong-A patent settlement case and decided that the settlement was a reverse payment agreement that violated the Antitrust Act of Korea. In particular, KFTC found them violating Art. 19 of the Monopoly Regulation and Fair Trade Act (MRFTA) and fined GSK about US$2 million and Dong-A US$1.5 million.

4. The Supreme Court Decision

GSK raised an appeal to KFTC's decision to the Seoul High Court but the court confirmed the KFTC decision. And GSK further appealed the case to the Supreme Court.

GSK argued that the settlement was within the scope of his patent right. As they pointed out, Art.59 of MRFTA (Korean version of antitrust law) has provision that “This Act shall not apply to any act which is deemed as a justifiable exercise of the right under the Copyright Act, the Patent Act, the Utility Model Act, the Design Protection Act or the Trademark Act.”

However, the Supreme Court rejected GSK's argument. The court opined that a settlement with reverse payment violates antitrust law if a patentee may maintain his monopoly by the reverse payment and thus affects adverse effect on fair and free competition in the related market. In the decision, the court suggested several factors in finding any violation or liability. Those can include the amounts of reverse payment to the opposing party and anticipated profit of the patent owner, patent litigation cost, time span and period for non-compete, etc.

On the other hand, the Seoul High Court stated in their decision that when the subject patent is obviously invalid or the competing party has not infringed the patent, any settlement with reverse payment shall be regarded as being anticompetitive and shall be violation of antitrust law.

Patent Term Extension (PTE) Disputes on Period and the Scope of Protection in Korea

Many generic drug companies challenged the validity of PTEs on period and the protection scope of extended patent rights.

The first issue for PTE disputes in Korea is whether the extended period is valid or not because certain periods of time included within the PTE should not have been included under the relevant statutes. The second issue is on the scope of the patent right protection for an extended term after the expiry of an original term.

1. Recent Decisions of IPTAB and Patent Court on Period Issue  

In principle, the "time period during which the patented invention could not have been worked" of the Patent Act starts on the date on which the test for safety and efficacy is initiated or the date on which the patent is registered (whichever is later) and ends on the date on which the regulatory approval is reached to the MA applicant. It is not the date of MA issuance.

Under the Patent Act, the "time period of delay attributable to the patentee" must be deducted from the total delay period. The period is periods for which the patentee is responsible for delay in the regulatory approval.

The IPTAB of KIPO and the Patent Court affirmed the above principle. In practice, The IPTAB and The Patent Court appear to recognise and confirm the present status of the granted PTE periods according to KIPO's practice.

Because many cases are still pending, the issue has not been settled yet. The Supreme Court shall decide the issue in not too distant future.

2. Recent Decisions of IPTAB and Patent Court on the Scope of an Extended Patent Right

 The Korean Patent Act Article 95 (Effects of Patent Right with its Term Extended by Permit, etc) “The effects of a patent right, the term of which has been extended pursuant to Article 90 (4), shall not extend to any other acts except the working of the patented invention with respect to such products for which approval, etc. was the basis for registering the extension (or where approval, etc. was obtained for any specific use of the product, with respect to the product adapted for such specific use).”

What is the effective scope of an extended patent right through PTE registration? Article 95 of the Korean Patent Act specifically limits the scope of the extended patent right to be effective within working of the patented invention with respect to the 'approved product.'

Accordingly, there has been disputes over how the terms "product" and "usage" in the above clause should be interpreted. However, there are as yet no definitive criteria or court decisions issued as to the interpretation of this issue.

Before the IPTAB of KIPO and the Patent Court rendered their decisions, the IP Courts of Japan issued their decisions. Because the corresponding provisions on PTE of the Japanese Patent Act are really similar to those of the Korean Patent Act, the interpretations of IP courts of Japan were closely watched by Korean patent practitioners.

For information, Article 68bis (68-2) of the Japanese Patent Law is described as follows: “a patent right the term of which is extended via PTE registration "shall not be effective against any act other than the working of the patented invention for the product which was the subject of the disposition designated by Regulation in Article 67, paragraph 2 of the Patent Law that constituted the reason for the PTE registration (when the specific usage of the product is prescribed in the disposition, the product used specifically for that usage)".

The Tokyo IP High Court stated in their opinion that "in light of the purpose of the PTE registration system and that of a patent infringement action, it is reasonable to understand that in the case of a patented invention relating to an ingredient of a medicine, a patent right whose duration was extended and by 'effectiveness/efficacy'and 'dosage/regimen' as the 'usage'." For example, the scope of an extended patent right based on a specific salt of API shall cover other salts of API.

Unlike the IP court’s decisions of Japan, the IPTAB of KIPO and the Patent Court of Korea held that the scope of an extended patent right based on a specific salt of API shall NOT cover other salts of API. Thus it was totally different interpretation. Namely, the scope of an extended patent right based on a specific salt of API only covers the approved Drug Product itself.

At present, the IPTAB of KIPO and the Patent Court maintain really strict interpretations on the scope of an extended patent right. Again, several cases are pending before the Supreme Court, this issue has not been settled yet. The Supreme Court shall decide the issue relating to the effective scope of a patent right extended via PTE registration in not too distant future, too.

 

Data Exclusivity (DE) Protection in Korea

In pharmaceutical industry, data exclusivity (DE) protection is an important IP right. DE is to protect the value of extensive pre-clinical and clinical data that establish a drug’s safety and efficacy, clinical indications and uses.

KFDA provides such DE through PMS (Post Marketing Surveillance) system. Before the expiry of PMS period, no generic drug is allowed to market. During PMS period, third parties cannot obtain approval for generic versions of the same product unless they can submit data that are (1) different from the data submitted for the first approval; and (2) equivalent to or exceeds the scope of data submitted for the first approval. There is no real case to obtain before expiry of PMS in Korea so far. Therefore, such PMS system has played an effective Data Exclusivity for drug developers.

Two categories of DE exist in Korea as follows:

1. New Drug (NCE) – 6 years from marketing approval
   1. New Chemical Entity (NCE)
   2. Ethical Drugs different from already licensed drugs in terms of active ingredients or mixture ratios
   3. Ethical Drugs different from already licensed ones in the route of administration, while containing the same active ingredients
       
2. Improvement Drug (NCI) – 4 years from marketing approval
   1. Ethical drugs which are identical to already licensed drugs in terms of active ingredients and route of administration but distinctively different in added indications.
   2. Ethical drugs which are modification of the structure, formulation, or indication of existing drugs. It is generally an improved version of the original drug in terms of safety, efficacy or convenience.

Patent Term Extension (PTE) in Korea

1. Background
    
   The patent term extension system was first introduced in Korea on July 1, 1987. Under the 1987 Act, a petition for patent term extension may be filed only during the last three (3) years of the original term of the patent. Under the new 1990 Act, however, a petition for patent term extension may be filed within three (3) months from the date of the approval and six (6) months prior to the expiration date. The current law is basically the same as that of 1990.
    
   Some Changes to the current patent term extension system went into effect on April 3, 2013. The key change to the current system is limiting the number of PTE instances from multiple available chances to only one. Under the current PTE system in Korea, PTE may be available only to the "first" regulatory approval for "a new chemical entity."
    
2. Subject Patent and Procedures for PTE
    
   A patent is eligible for term extension if the patent is related to an approved medicinal or agricultural product, if the patent was unable to be practiced after grant due to pharmaceutical or agricultural regulatory approval requirements. Such a patent should claim a compound, composition indicating use, formulation for (1) an invention relating to a drug which requires a product approval under the Pharmaceutical Affairs Act ("PAA"); or (2) an invention relating to an agrochemical which must be registered under the Agrochemical Management Act ("AMA").
    
   Only registered patentee may apply for patent term extension to KIPO. If the patent right is jointly owned, all the patentees must jointly apply for an extension of the term.
    
   An application for PTE must be submitted within three months from the date of the approval under the PAA or from the date of the registration under the AMA. The application, however, may not be submitted less than six months prior to the expiration of the original patent term. Also, a petition for patent term extension may not be filed after the expiration of the patent term. An application for patent term extension should be supported with evidence to show the reason for the extension.
    
3. Period of Patent Term Extensions
    
   The term of a patent can be extended only once. In case a product approval (or registration) is sought for multiple patents, the term is extended for each patent. However, in case multiple product approvals (or registrations) are sought for a single patent, the term is extended only for the first approval (or registration).
    
   Under the old law, even an approval for a combination product whose components had been previously approved by KFDA could be the basis for PTE. In addition, the approval for a second use of an approved drug could also be the basis for PTE, since the approval was regarded as the "first" approval for the new use. Further, in some cases, even an approval for a new formulation comprising an approved active ingredient could be the basis for PTE, if the new formulation was not simply different in the dose of the active ingredient but was a different administration form compared to the previously approved drug (e.g., injection vs. tablet).
    
   However, under the current law and regulation, PTE may be available only once to the "first" regulatory approval for "a new chemical entity."
    
   The period of PTE shall be the total length of non-working time to obtain authorization or registration under provisions of the PAA or AMA to work a patented invention. For example, for drugs, the period commencing from either the approval of a protocol for clinical testing from the government authority after obtaining a conditional approval to manufacture for clinical testing or the date the patent is registered, whichever is later; to the date that the final approval to market.
    
   The maximum patent term extension obtainable is five (5) years regardless of whether the actual period of non-working caused by the statutory requirements under the relevant Act exceeds five years. 
    
4. Appeal to the IPTAB and the Patent Court
    
   If an examiner of KIPO rejects the petition or application for patent term extension, the applicant or petitioner may appeal to the IPTAB of KIPO. The appeal must be filed within thirty days from the date a certified copy of the rejection is served to the applicant or his agent. On the other hand, a 3rd party may challenge PTE through Invalidation Trial at the IPT of KIPO. If a losing party in the IPT proceedings wants to appeal against the decision of IPT, the party may bring a lawsuit to revoke the IPT decision to the Patent Court within thirty days from the date of receiving the decision.
    

Appeal Procedure to KFTC’s Decision and Order to the Seoul High Court

KFTC’s decision or order does not become effective until the formal written decision and order has been issued. Following receipt of the KFTC’s written order, the respondent party may appeal as followings:

1. Filing an Request for re-hearing & suspension of enforcement

A respondent who is dissatisfied with the decision may file a request for re-hearing to the KFTC within 30 days from the receipt of the written decision.

The KFTC may hold a new hearing and make a decision within 60 days, but it can extend the decision-making period up to 30 days.

2. Filing a lawsuit for appeal to the Seoul High Court

The respondent party may appeal the KFTC’s decision to the Seoul High Court. In addition, the party may file a petition for a stay of the enforcement of order to the Seoul High Court, too.

The party shall file a lawsuit to the Seoul High Court within 30 days from the receipt of a written decision or re-hearing result.

3. Final Appeal to the Supreme Court

A losing party at the Seoul High Court may appeal to the Supreme Court within 14 days from the receipt of the decision.