Why Pharma IP Rights May be Eroded in Europe
This article was originally published in SRA
Executive Summary
An unusual legal relationship between the European Union and countries in the European Economic Area provides the backdrop for a case before the European Court of Justice that could adversely affect the patent protection of pharmaceuticals in Europe. Olivier Lemaire explains the history and implications of this important case.
At the 2000 Lisbon Summit, leaders of the European Union (EU) member states set the ambitious target of transforming the common market into the world's most competitive knowledge-based economy by the year 2010. The EU heads of government and state understood that the pharmaceutical industry, with its intense R&D activity, is critical in achieving this goal.
Recognition of the need to provide meaningful incentives to encourage R&D in the pharmaceutical sector is not new. In 1987, the EU saw the need to protect for six to ten years innovators’ preclinical and clinical data from use by the regulatory authorities to approve generic products and consequently introduced the concept of regulatory data protection (similar to the concept of data exclusivity in the US). This measure alone, however, was not sufficient. Due to the long period of time needed to bring new medicinal products to the market in the EU (12 years on average between the discovery of a new compound and effective marketing) and ever-increasing R&D costs, it became necessary to restore corresponding patent protection. Taking into account the fact that most patents have a life of 20 years, a development period of 12 years meant that companies had effective market exclusivity for only eight years.
For this reason, the European Commission proposed in 1990 a new measure that would extend the protection of a basic patent covering the active ingredient of a new medicinal product. This was called the supplementary protection certificate (SPC). In the commission's original proposal, the maximum period of validity of an SPC was ten years1. But this was eventually reduced to five years following intense lobbying from generic manufacturers and certain member states anxious to reduce the period of exclusivity afforded pharmaceutical products, in order to keep healthcare budgets in check. Under the SPC regulation, the period of validity of an SPC is equal to the time that has elapsed between the date on which the application for a basic patent was first filed and that of the first community marketing authorisation, reduced by five years, with a maximum of five years of protection2.
Thus, a balance was finally reached by the Council of Ministers and the European Parliament between various competing interests, ie the desire to provide sufficient incentives to the innovative industry and the need to keep healthcare budgets under control. Another objective of the new legislation was to avoid the creation of disparities between the various EU member states and ensure the implementation of a uniform solution, which is to say, that an SPC should expire at the same time in all member states, so as not to impede the free movement of medicinal products throughout the community.
This balance is likely to be substantially affected by a soon-to-be-issued decision of the European Court of Justice (ECJ), the final arbiter in matters of community law, in two important cases involving products from Novartis, basiliximab and the combination product artemether/lumefantrin, and from Millennium, eptifibatide3. In both cases, the products in question were first approved in Switzerland prior to issuance of the first marketing authorisation in the community (six, ten and 29 months respectively). The Novartis and Millennium products are not the only ones in this situation. According to the UK Patent Office, as many as 44 products were first authorised in Switzerland before a corresponding community marketing authorisation was issued and could see their level of supplementary protection reduced in the event of a negative decision by the court.
The issue at stake is whether a marketing authorisation issued in Switzerland, which is neither a member of the EU nor of the European Economic Area (EEA), can influence the overall period of supplementary protection in the community. This issue surfaced due to the complex legal relationship between the EU and the EEA and the special link between Liechtenstein, an EEA member, and Switzerland.
The EU/EEA relationship
Most western European countries, with the notable exception of Switzerland, are members of the EU, which now has 25 member states. The EU countries have concluded international trade agreements with a number of other countries. The most important of these agreements is the European Economic Area Agreement with Iceland, Liechtenstein and Norway. The objective of the EEA Agreement is to create an internal market between the contracting states in a number of industrial sectors, including the pharmaceutical sector. For this purpose, the contracting parties agreed that the word ‘community’ would be used in EU legislation and construed to automatically include the three above-mentioned EEA states4.
Switzerland, however, is not a party to the EEA Agreement. Despite this, it has close ties with Liechtenstein, an EEA member state. For decades, a customs agreement has existed between the two countries. Since Liechtenstein is small, with only 32,000 inhabitants, it could not afford to have its own medicines agency. It therefore relies on marketing authorisations issued by its neighbour and customs union partner, Switzerland. A Swiss marketing authorisation is automatically effective in Liechtenstein. The same applies to patents and SPCs; the Swiss patent office is responsible for issuing national patents or SPCs which are also valid in Liechtenstein.
This set-up is responsible for one of the most bizarre situations encountered anywhere by the pharmaceutical industry. According to the commission, a marketing authorisation issued in a non-EU or EEA state may, if issued prior to the first authorisation in the community, nonetheless be deemed the relevant date for calculating the period of validity of an SPC throughout the community.
The commission's interpretation and policy is as follows: due to the special relationship between Liechtenstein (an EEA member state and thus part of the community) and Switzerland, a Swiss marketing authorisation is automatically effective in Liechtenstein and should thus count as the first marketing authorisation issued within the community.
For years, innovative pharmaceutical companies have been urging the commission to rethink its policy, which is considered unfair for at least two reasons. Firstly, a Swiss marketing authorisation only allows the medicinal product concerned to be marketed in Switzerland and Liechtenstein; therefore, using the Swiss marketing authorisation to determine the extent of supplementary protection in all community member states is unfair. Secondly, full implementation of this policy would result in companies refraining from filing their first application for a marketing authorisation in Switzerland. This would affect Swiss patients who would be deprived of earlier access to potentially life-saving new treatments.
The advocate-general's opinion
On 7 September 2004, the ECJ advocate-general issued an opinion in the cases, Novartis and Millennium, supporting the commission's interpretation (see news story on page xxx). Opinions of the advocate-generals, although not binding, are generally followed by the court. This opinion, if adopted by the ECJ, would strike a further blow to the innovative pharmaceutical industry.
The advocate-general argued that ‘the purpose of the [SPC] regulation is not to standardise marketing authorisations but to set up a single system of extended protection and, as regards ensuring that the period of exclusive use lasts for the same time throughout the EEA, the decisive factor is the date on which that use commences, namely the date from which the drug can be lawfully marketed in a part of the EEA, regardless of where and regardless of the enabling document’ Since Liechtenstein is part of the EEA, an effective marketing authorisation in Liechtenstein (even if issued in Switzerland) should, according to the advocate-general, determine the duration of supplementary protection throughout the community.
The overall assessment of the advocate-general seems to have been highly influenced by Recital 8 of the SPC regulation, according to which the holder of a patent and an SPC should be able to enjoy a maximum of 15 years of exclusivity in the community. The advocate-general pointed out that if the Swiss/Liechtenstein marketing authorisations were not taken into account, the overall period of protection would be longer than 15 years. As mentioned below, other objectives, such as the importance of providing adequate incentives to the innovative industry, did not seem relevant to the advocate-general.
The advocate-general's opinion is in fact based on a formal reading of the applicable law and may seem logical from that point of view. He clearly follows a trend in ECJ case law of interpreting exceptions to the principle of the free movement of goods and to the rules for the authorisation of generic products narrowly (for recent examples, see Novartis/Sangstat and Kohlpharma5,6).
However, from a policy standpoint, one may question the appropriateness of adopting such a restrictive interpretation of the SPC regulation. The advocate-general's calculation of the 15-year period of market exclusivity is very formalistic, as it holds that the marketing of a product in a single state of the community should determine SPC duration throughout. While it is true that in Liechtenstein a product can be marketed as from the date of a Swiss marketing authorisation and enjoy approximately 15 years of exclusivity in that country, this does not hold true for the rest of the EU/EEA. Indeed, in these countries, the product in question cannot be marketed (as no marketing authorisation was issued by the European Medicines Agency or the European national authorities). Therefore, in practice, the actual period of exclusivity only starts as of the date on which the product can effectively be marketed in these countries (in the cases at hand, six, ten or 29 months respectively after the Swiss marketing authorisation). As a matter of fact, the period of exclusivity in all EU/EEA countries, with the exception of Liechtenstein, is thus less than 15 years.
Calculating the duration of supplementary protection for the entire community on the basis of a Swiss marketing authorisation (valid only for Liechtenstein's 32,000 inhabitants) is therefore seen by innovator companies as unfair and runs contrary to the primary objective of compensating the innovative industry for time lost in complying with the stringent regulatory requirements applicable in the EU. Using the Swiss marketing authorisation as the starting point for determining SPC duration also penalises companies that have genuinely tried to provide early access to Swiss patients. (It is well known that the Swiss authorisation procedure is more rapid than those in the community).
If the ECJ follows the advocate-general's opinion, it would in fact recreate the discrepancy that existed prior to the introduction of the SPC regulation between the duration of exclusive protection in the pharmaceutical sector as compared to other sectors. This would certainly not help increase the competitiveness of the European pharmaceutical industry.
Olivier Lemaire
NautaDutilh, Brussels, Belgium
References
1. Article 8, Commission proposal for a Council Regulation concerning the creation of a supplementary protection certificate for medicinal products, COM(90) 101 final - SYN 255
2. Council Regulation (EEC) No 1768/92 of 18 June 1992 concerning the creation of a supplementary protection certificate for medicinal products, OJ, 1992, L182, 1-5
3. Cases C-207/03, Novartis AG, the University College of London and the Institute of Microbiology and Epidemiology v. the Comptroller General of Patents, Designs and Trade Marks for the United Kingdom, and C-252/03, The Luxembourg Minister of the Economy v. Millennium Pharmaceuticals Inc.
4 Protocol I to the EEA Agreement
5. Case C-106/01, Novartis Pharmaceutical Ltd. and the Medicines Control Agency v. Sangstat UK Ltd and Imtix-Sangstat UK Ltd [2004] of 29 April 2004
6. Case 112/02, Kohlpharma GmbH v. Bundesrepublik Deutschland [2004] of 1 April 2004