China’s Supreme Court Calls for Anti-monopoly Review on Reverse Payment Settlement in Drug Patent Infringement

12 Dec 2022 | Newsletter

Xinlei WangCCPIT Patent and Trademark Law Office, China

In the new ruling of Supreme People’s Court (SPC) (2021) S.Ct.IP.Civ.Fin. No. 388, the SPC calls for anti-trust review on reverse payment settlement in drug patent infringement litigation between the brand pharmaceutical manufacturer AstraZeneca and a local generic competitor. This is believed to be a sign of a new normal in drug patent litigation in China.

Reverse payment agreements, also known as “pay-for-delay” deals, under which a patent-holder, usually the brand drug maker, pays one or more generic drug makers to not challenge the validity of the brand drug patent or to delay their launch of a cheap generic substitute.

AstraZeneca Sweden is the successor of a diabetes treatment drug patent and the related brand drug is Shagliptin. In order to avoid challenges against the patent validity, the original patentee of this patent reached a Settlement Agreement with the invalidation petitioner (an associated party of Aosaikang Pharm), stipulating that: if the petitioner withdraws the request for an invalidation declaration of the patent involved, the petitioner and its associated parties can be allowed to utilize the patent involved more than 5 years before the expiration of the patent protection period.

Later, the petitioner withdrew the request for invalidation according to the Settlement Agreement, and the patent involved was utilized by its related party, Aosaikang. AstraZeneca then sued Aosaikang in court, claiming that Aosaikang infringed the patent rights involved.

The court of first instance held that Aosaikang had the right to utilize the patent according to the Settlement Agreement, so it decided to reject all the claims of AstraZeneca. AstraZeneca appealed to the Supreme People’s Court, but then applied to withdraw the appeal on the grounds that both parties had reached a settlement during the trial of the second instance.

In the second instance ruling, SPC instructed that for cases involving reverse payment agreements, the People’s Court should generally review whether such agreements violate the anti-monopoly law to a certain extent, and then decide whether to allow the withdrawal of the appeal.

After review, the SPC ruled that in this case it is difficult to conclude if the Settlement Agreement violated the anti-monopoly law based on evidence available, and that there is no need for further investigation since the patent had lapsed. In this situation, the SPC allowed the appeal to be withdrawn.

This is the first case regarding the antitrust review of the “Drug Patent Reverse Payment Agreement” by the Chinese court at present. Although it is only a preliminary antitrust review of the withdrawal of the appeal application, and in view of the specific circumstances of the case, it is unclear whether the Settlement Agreement in the case violates the anti-monopoly law.

However, considering it is a ruling handed down by the Supreme People’s Court, it has a more general guiding meaning in drug patent litigation in the future.

This ruling emphasized the necessity of a timely and appropriate anti-monopoly review of the agreement on which the parties based their claims in the hearing of non-monopoly cases, and pointed out the limits and basic path of the review of the “drug patent reverse payment agreement”, which is of positive significance for improving the anti-monopoly compliance awareness of enterprises, standardizing the drug market competition order, and guiding the People’s Courts to strengthen anti-monopoly reviews.