Vietnam’s proposed compensation for the delay in marketing authorisation: An odd one
*Update: The newly amended IP Law adopted Option 1 as a mechanism to compensate for the delay in marketing authorisation as per Article 131a. The new law (in Vietnamese) can be found here.
Marketing authorisation is the process of reviewing and assessing the evidence to support a medicinal product, such as a drug, about its marketing, finalised by granting of a licence to be sold. Once a lead compound is found at the discovery stage, a pharmaceutical company can apply for a patent that lasts for 20 years. However, it can only sell the medicine once the authority grants the marketing approval. The marketing authorisation stage can last up to 12 years, eroding the effective patent life. Therefore, many jurisdictions have adopted different regimes to compensate for such delays.
R&D in the pharmaceutical industry
In November 2020, Vietnam, a Southeast Asian country, released the third draft amendment of its 2005 Law on Intellectual Property (the IP Law). Although the country’s patent system can be dated as far back as the late 19th century, Vietnam only codified its first patent law in 2005 and then amended it in 2009 and 2019. The 2020 draft amendment aims to make the IP Law compliant with the new generation of Free Trade Agreements that Vietnam has been a signatory of, particularly between the EU and Vietnam (the EVFTA). The EVFTA has come into force on 1 August 2020. This is the most comprehensive agreement to be put in place to date between the European Union and any ASEAN Member State.
Article 12.40.2 of the EVFTA requires Vietnam to “provide for an adequate and effective mechanism to compensate the patent owner for the reduction in the effective patent life resulting from unreasonable delays in granting the first marketing authorisation”. Although this Article does not mandate any specific form of compensation, it suggests “an extension” of the patent term, equal to the time of the delay while not exceeding two years.
To comply with the IP standards in the EVFTA, Vietnam released the draft amendment that makes a specific reference to the EVFTA to justify incorporating a new article – Article 131a to compensate the patent owners for the delay in granting marketing authorisation to pharmaceutical products. The amendment sought public consultation on the following two options for such compensation.
Option 1
The patent holder will be waived the patent maintenance fee associated with the delay in obtaining the marketing authorisation. Suppose the patent owner has paid the delay’s maintenance fee. In that case, the payment will either be deducted from the next maintenance period or refunded.
Option 2
After a patent expires, the right owner can request that anyone using the off-patent invention pays a fee for a period corresponding to the period for which the marketing authorisation application is delayed. The amount to be paid is equivalent to the royalty in government use licensing within the scope and corresponding use period.
Under either circumstance, the compensation shall not exceed two years, as per Article 12.40.2. As of this writing, it is unclear which option Vietnam’s National Assembly favours. Nevertheless, the congress members have raised concerns that Article 131a needs to be consistent with Pharmacy Law to avoid adding more red tape to the marketing approval stage.
From the financial point of view, Option 1 is not attractive as patent maintenance fees in Vietnam are relatively low. The cost increases every two years but is still modest. For example, the annual renewal fee for each independent claim for the first two years is £10, with the subsequent two years costing £15.
Regarding Option 2, Vietnam has never issued any government use licence (my book discussed compulsory licensing in developing countries). However, it threatened to do so in 2005 when the country’s population was endangered by Asian influenza. However, as Roche – the patent holder of Tamiflu – the medicine treating influenza, agreed to transfer technology to Vietnam to manufacture the drug, the government revoked the licence. Since Vietnam has no experience dealing with government use licensing, it needs to learn from other countries’ experiences to establish an adequate remuneration level for the patent owners. Other Southeast Asian countries such as Thailand, Malaysia, and Indonesia paid patent-holding companies as little as 0.5% and 1.5%. However, the royalties are much higher in countries with a prominent pharmaceutical industry. For example, the average figure in the US is 5%. In Germany, the percentage could be as high as 10%.
However, if either option is adopted, it is anticipated that patent-holding companies will not be pleased to receive compensation in the monetary form under whichever option for delays in the marketing approval stage. They would prefer the patent supplementary protection certificate to extend the patent term. It is only a matter of time until this provision is brought to its reckoning.
